Specialty Mills, Inc. v. Citizens State Bank, 19607

• Decision Date: 05 February 1997
• Docket Number: No. 19607,19607
• Citation: 1997 SD 7,558 N.W.2d 617
• Parties: SPECIALTY MILLS, INC., Hesco, Inc., and Bruce C. Hestad, Plaintiffs and Appellants, v. CITIZENS STATE BANK, Defendant and Appellee.
• Court: South Dakota Supreme Court

Page 617

558 N.W.2d 617

1997 SD 7

SPECIALTY MILLS, INC., Hesco, Inc., and Bruce C. Hestad, Plaintiffs and Appellants, v. CITIZENS STATE BANK, Defendant and Appellee.

No. 19607.

Supreme Court of South Dakota.

Argued Dec. 4, 1996.

Decided Feb. 5, 1997.

Bruce M. Ford of Burns & Ford, Sioux Falls and Jonathan K. Van Patten, Vermillion, for plaintiffs and appellants.

Lee A. Magnuson of Lynn, Jackson, Shultz & Lebrun, Sioux Falls, for defendant and appellee.

SABERS, Justice.

¶1 Bank successfully moved bankruptcy court to issue notice that automatic stay was in effect in debtor's pending bankruptcy proceedings. Notice was issued to Specialty Mills, Inc., (SMI), a non-creditor. SMI sought to remove its property from debtor's premises. SMI sued, claiming the Bank's actions amounted to malicious prosecution, abuse of process, intentional interference with contract, and tortious interference with business relationships. Bank counterclaimed for unpaid rents and for cleaning charges. Summary judgment was granted in Bank's favor on all claims. SMI appeals and we affirm.

FACTS

¶2 SMI is a South Dakota corporation created to produce specialty grains, such as those used in racehorse feed and distillation of alcoholic beverages. Its principal shareholder is Bruce Hestad, who also owns and operates another South Dakota corporation, Hesco, Inc. (Hesco). Hesco is a broker for the sale of these specialized grains. Other shareholders were Dakota Oat (DO), which contributed mill machinery and equipment, and Illinois Cereal, Inc., which made a capital investment.

¶3 SMI leased part of a building belonging to DO in Arlington, South Dakota to begin grain production. DO contributed machinery and equipment already on the premises in exchange for SMI stock; additional equipment was installed by SMI. The real property was subject to a first mortgage held by Bank, and a second mortgage by the Small Business Administration (SBA). SMI's financing of this venture, and therefore the execution of the lease, was contingent upon Bank and SBA relinquishing their security interests in the machinery and equipment traded by DO; both Bank and SBA disclaimed their security interests and agreed to treat the items as SMI's personal property rather than as fixtures of the real property. In return, Bank received from DO an assignment of all rents paid by SMI.

¶4 DO filed for bankruptcy in July of 1991, approximately two years after the lease was executed. Pursuant to a sixty-day notice provision, on April 28, 1992, SMI gave notice of its intent to terminate the lease. Toward the end of the sixty-day notice period, Bank moved the bankruptcy court to issue notice of the automatic stay ¹ to SMI. ² In its motion, Bank pointed out the lease provision which permitted SMI to remove its personal property upon termination of the lease, but prevented the removal of items added by SMI which were of a "permanent nature." Bank claimed the property was subject to the protection of the automatic stay, and the court agreed.

¶5 SMI responded with a motion to determine the applicability of the automatic stay to the property. The court concluded the stay applied to the property and the lease. SMI next made a motion for reconsideration and alternatively, a motion for relief from the stay. Following the hearing on those motions, the court issued an "Order Modifying Stay" which allowed SMI to remove its machinery and equipment; however, the court granted Bank a priority lien in the property as security for any necessary repair or clean-up costs incidental to removal, and for any rents still owed under the lease.

¶6 Hestad, SMI, and Hesco sued Bank in state court; the complaint stated five causes of action against Bank with regard to its actions in the bankruptcy proceedings. Bank responded with a counterclaim for $9,000.00 in rents due under the lease assignment, and for $2,140.09 owed by SMI to DO. ³ Bank removed the action to bankruptcy court, and it was transferred to federal district court as the bankruptcy court does not conduct jury trials. Summary judgment was granted to Bank on all claims and counterclaims. SMI appealed to the United States Eighth Circuit Court of Appeals, which reversed the district court for lack of federal jurisdiction and remanded the case to state court. Specialty Mills, Inc. v. Citizens State Bank, 51 F.3d 770 (8th Cir.1995). Summary judgment was again granted to Bank on all claims and counterclaims and SMI appeals.

STANDARD OF REVIEW

¶7 Our standard of review for summary judgment is well-established:

In reviewing a grant or a denial of summary judgment under SDCL 15-6-56(c), we must determine whether the moving party demonstrated the absence of any genuine issue of material fact and showed entitlement to judgment on the merits as a matter of law. The evidence must be viewed most favorably to the nonmoving party and reasonable doubts should be resolved against the moving party. The nonmoving party, however, must present specific facts showing that a genuine, material issue for trial exists. Our task on appeal is to determine only whether a genuine issue of material fact exists and whether the law was correctly applied. If there exists any basis which supports the ruling of the trial court, affirmance of a summary judgment is proper.

Lamp v. First Nat'l Bank of Garretson, 496 N.W.2d 581, 583 (S.D.1993) (citation omitted). "The burden of proof is upon the movant to show clearly that there is no genuine issue of material fact and that he is entitled to judgment as a matter of law[.]" State, Dep't of Revenue v. Thiewes, 448 N.W.2d 1, 2 (S.D.1989) (citation omitted).

¶8 1. MALICIOUS PROSECUTION

¶9 SMI argues that Bank's motion to the bankruptcy court, requesting that notice of the automatic stay in DO's bankruptcy proceedings be issued, amounted to "malicious prosecution." "A malicious prosecution is one that is begun in malice, without probable cause to believe it can succeed, and which finally ends in failure." Kunz v. Johnson, 74 S.D. 577, 582, 57 N.W.2d 116, 119 (1953) (citation omitted). To successfully maintain an action for malicious prosecution, the plaintiff must prove six elements:

1. The commencement or continuance of an original criminal or civil judicial proceeding;

2. its legal causation by the present defendant against plaintiff, who was defendant in the original proceeding;

3. its bona fide termination in favor of the present plaintiff;

4. the absence of probable cause for such proceeding;

5. the presence of malice; and 6. damages conforming to legal standards resulting to plaintiff.

Miessner v. All Dakota Ins. Assocs., Inc., 515 N.W.2d 198, 200 (S.D.1994) (citations omitted).

¶10 Bank argues that its motion to the bankruptcy court, the hearings it prompted, and the issuance of notice of the automatic stay did not constitute a "judicial proceeding." We disagree. "Judicial proceeding" is defined, in part, as:

Any proceeding wherein judicial action is invoked and taken. Any proceeding to obtain such remedy as the law allows.... A general term for proceedings relating to, practiced in, or proceeding from, a court of justice.... A proceeding wherein there are parties, who have opportunity to be heard, and wherein the tribunal proceeds either to a determination of facts upon evidence or of law upon proved or conceded facts.

Black's Law Dictionary 849 (6th ed. 1990) (citation omitted). Compare Gregory's, Inc. v. Haan, 1996 SD 35, 545 N.W.2d 488, where we concluded that the filing of a mechanic's lien is "ancillary" to judicial action, but not a "judicial proceeding" since it is simply a prerequisite to a lien foreclosure. Id. at p 13, 545 N.W.2d at 493-94 (noting also that a lawsuit does not necessarily follow from the filing of a lien).

¶11 The next element requires that the present defendant, Bank, brought about the judicial proceeding against the present plaintiff, SMI, who must have been the defendant in the original proceeding. Bank also disputes SMI's status as defendant, but does so in conclusory terms without supporting argument or authorities. Again, we disagree; "defendant" is defined, in part, as "the party against whom relief or recovery is sought in an action or suit[.]" Black's, supra at 419. SMI points out that the purpose, and the result, of the motion was to have the bankruptcy court issue notice to SMI, and no other party, regarding the automatic stay. "Under proper circumstances, a person may be subjected to liability for malicious prosecution for having instituted earlier unsuccessful bankruptcy ... proceedings against (or involving ) the present plaintiff." Stuart M. Speiser et al., The American Law of Torts § 28:26, at 157 (emphasis added). Cf. Balsiger v. American Steel & Supply Co., 254 Or. 204, 458 P.2d 932, 933 (1969) (extending remedy to bankruptcy proceedings because of the interference with property interest); Hubbard v. Beatty & Hyde, Inc., 343 Mass. 258, 178 N.E.2d 485, 487 (1961) (holding that one against whom bankruptcy proceedings have been improperly instituted may maintain cause of action for malicious prosecution). See also W. Page Keeton et al., Prosser and Keeton on Torts § 120, at 890-91 (5th ed. 1984) (collecting cases and noting the extension of the remedy to proceedings in which there was interference with property or business).

¶12 The third element SMI must prove is "bona fide termination" in its favor. Miessner, 515 N.W.2d at 200. The fact the bankruptcy court issued the notice, as requested by Bank, is not determinative of this issue because it was issued ex parte. See Keeton et al. § 120, at 892:

Ordinarily the plaintiff must prove the termination of the former proceeding in his favor. But there are necessary exceptions where ... the proceeding is an ex parte one and relief is granted without an opportunity for the party against whom it is sought to be heard.... It usually is held, however, ... that if an opportunity has been given to contest the facts, the plaintiff...