Springs v. FIRST NAT. BANK OF CUT BANK, CV-86-141-GF.

• Decision Date: 14 November 1986
• Docket Number: No. CV-86-141-GF.,CV-86-141-GF.
• Citation: 647 F. Supp. 1394
• Parties: Robert C. SPRINGS, Plaintiff, v. FIRST NATIONAL BANK OF CUT BANK, a national banking association, Defendant.
• Court: U.S. District Court — District of Montana

647 F. Supp. 1394

Robert C. SPRINGS, Plaintiff, v. FIRST NATIONAL BANK OF CUT BANK, a national banking association, Defendant.

No. CV-86-141-GF.

United States District Court, D. Montana, Great Falls Division.

November 14, 1986.

Ross W. Cannon, Edmund F. Sheehy, Jr., Cannon & Sheehy, Helena, Mont., for plaintiff.

Richard A. Shors, Peterson, Peterson, Burns & Shors, Cut Bank, Mont., for defendant.

MEMORANDUM AND ORDER

HATFIELD, District Judge.

Plaintiff Robert Springs instituted the present action to recover damages emanating from the defendant First National Bank of Cut Bank's ("the Bank") alleged breach of the covenant of "good faith and fair dealing" purportedly attendant certain loan agreements extant between Springs and the Bank. The matter is presently before the court on the Bank's motion requesting the court to dismiss the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The Bank contends plaintiff's claims are barred because they were compulsory counterclaims which should have been plead in a prior action. The parties agree that defendant's motion should be treated as a motion for summary judgment under Rule 56, Fed.R.Civ.P. The court has jurisdiction of this matter pursuant to 28 U.S.C. § 1332.

FACTS

The present dispute began in 1981, when the plaintiff purchased a home in Cut Bank, Montana. To finance that purchase, plaintiff received loans from the Bank and Charles and Gladys Billman ("the Billmans"), who were the owners of the home. In return for the loans, plaintiff gave the Bank a trust indenture and executed a mortgage note to the Billmans. The Bank's trust indenture was given first priority.

The Billmans' mortgage was drafted to expire after three years, at which time the Bank agreed to pay the Billmans in full on plaintiff's behalf. The Bank would then refinance the home and the money the Bank paid to the Billmans would be added to plaintiff's loan.

In 1982, the Internal Revenue Service ("IRS") attached a tax lien to plaintiff's home. The tax lien had a lower priority than the Bank's trust indenture and the Billmans' mortgage note.

In 1983, plaintiff went bankrupt and his personal liability to the Bank, the Billmans, and the IRS was discharged. However, each party retained their security interest in the Cut Bank home.

In 1984, the Billmans' mortgage note came due. The Bank was contractually obligated to pay the Billmans and refinance the home. Therefore, the Bank had plaintiff execute a new trust indenture which revived plaintiff's personal liability to the Bank and had a lower priority on the home than the IRS tax lien. When the refinancing occurred, the Bank was unaware of the IRS tax lien.

In 1985, plaintiff stopped making payments on the home and the Bank filed a foreclosure action in Montana state district court. The Bank took a default judgment when plaintiff failed to appear or plead. However, the IRS appeared in the action and asserted its tax lien. The Bank and the IRS stipulated that the Bank's first trust indenture had top priority, followed by the tax lien and then the Bank's second trust indenture.

Thereafter, the Bank purchased the property at a sheriff's sale for the outstanding balance on the first trust indenture plus post-judgment interest and the costs of the sale. The Bank took a deficiency judgment and has pursued collection efforts against the plaintiff, who now resides in Colorado.

On July 2, 1986, plaintiff instituted the present action. Plaintiff alleges the Bank was negligent in allowing the tax lien to take priority over the second trust indenture and, furthermore, that the Bank acted in bad faith by requiring him to refinance his debt with the Billmans.

The Bank asserts plaintiff's claims are barred because they should have been brought as compulsory counterclaims in the Bank's prior foreclosure action. Therefore, the Bank has moved to dismiss plaintiff's complaint pursuant to Rule 12(b)(6), Fed.R.Civ.P.

DISCUSSION

The issue before the court is whether the plaintiff's claims were compulsory counterclaims. In that regard, the United States Supreme Court has held that state law governs whether a state court judgment bars a subsequent federal diversity action. Angel v. Bullington, 330 U.S. 183, 192, 67 S.Ct. 657, 662, 91 L.Ed. 832 (1947). Therefore, in the instant case, this court must apply Montana law to determine whether plaintiff's claims are barred because they were compulsory counterclaims which should have been brought in the earlier state court action.

Rule 13(a) of Montana's Rules of Civil Procedure states in part:

(a) Compulsory Counterclaims. A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim.... (emphasis added).

The purpose of the compulsory counterclaim rule is to insure that only one judicial proceeding be required to settle all those matters determinable by the facts or law, thereby avoiding a multiplicity of suits. Julian v. Mattson, ___ Mont. ___, 710 P.2d 707, 709, 42 St.Rptr. 1908, 1910-11 (1985); citing 20 Am.Jur.2d Counterclaim, Recoupment, Etc., § 15.

Rule 13(a) bars a party who failed to assert a compulsory counterclaim in one action from instituting a second action in which that counterclaim is the basis of the complaint. Seattle Totems Hockey Club, Inc. v. National Hockey League, 652 F.2d 852, 854 (9th Cir.1981); citing Southern Construction Co. v. Pickard, 371 U.S. 57, 60, 83 S.Ct. 108, 110, 9 L.Ed.2d 31 (1962); Wright & Miller, Federal Practice & Procedure, Civil §§ 1417-1418 (1971). "It is well-settled that in order to enforce this bar, a federal court may enjoin a party from bringing its compulsory counterclaim in a subsequent federal court action." Id.

In Julian v. Mattson, ___ Mont. ___, 710 P.2d 707, 42 St.Rptr. 1908 (1985), the Montana Supreme Court applied Rule 13(a) to a dispute involving the construction of a home. In that case, a builder successfully sued a homeowner to collect the balance due for construction of the home. The homeowner then sued the builder in a separate action, claiming defects in construction. The district court dismissed the homeowner's claim, on the grounds it was an omitted compulsory counterclaim. In upholding the district court's decision, the Montana...