Stockman Bank of Montana v. Potts

• Citation: 52 P.3d 920,311 Mont. 12,2002 MT 178
• Decision Date: 09 August 2002
• Docket Number: No. 01-380.,01-380.
• Parties: STOCKMAN BANK OF MONTANA, a Montana Banking Corporation, Plaintiff/Respondent, v. Rick POTTS, Defendant/Appellant.
• Court: United States State Supreme Court of Montana

52 P.3d 920

2002 MT 178

311 Mont. 12

STOCKMAN BANK OF MONTANA, a Montana Banking Corporation, Plaintiff/Respondent, v. Rick POTTS, Defendant/Appellant.

No. 01-380.

Supreme Court of Montana.

Submitted on Briefs November 29, 2001.

Decided August 9, 2002.

W. Scott Green, West, Patten, Bekkedahl & Green, P.L.L.C., Billings, Montana, For Appellant.

Gerald B. Murphy, Doug James, Moulton, Bellingham, Longo & Mather, P.C., Billings, Montana, For Respondent.

Justice TERRY N. TRIEWEILER delivered the Opinion of the Court.

¶ 1 The Plaintiff, Stockman Bank, filed a complaint in the District Court for the Thirteenth Judicial District in Yellowstone County on February 2, 1999. In the complaint, the Bank alleged that the Defendant, Rick Potts, was in default on a loan made by the Bank and sought to foreclose on its security interest. Potts filed an answer and counterclaim in which he alleged breach of contract and breach of the covenant of good faith and fair dealing. Potts eventually paid the amount owed to the Bank and the Bank released its liens, however, Potts did not release his counterclaim. The Bank then moved for summary judgment and enforcement of what it contended was the parties' settlement agreement. The District Court granted the Bank's motion for summary judgment. Potts now appeals from the District Court's order. We reverse the judgment of the District Court and remand for further proceedings consistent with this opinion.

¶ 2 The sole issue presented on appeal is whether the District Court erred when it granted the Bank's motion for summary judgment.

STANDARD OF REVIEW

¶ 3 Our standard of review of appeals from summary judgment is de novo. Motarie v. Northern Montana Joint Refuse Disposal Dist. (1995), 274 Mont. 239, 242, 907 P.2d 154, 156. We apply the same criteria which is applied by the district court pursuant to Rule 56(c), M.R.Civ.P. Spinler v. Allen, 1999 MT 160, ¶ 14, 295 Mont. 139, ¶ 14, 983 P.2d 348, ¶ 14. The moving party must establish both the absence of genuine issues of material fact and entitlement to judgment as a matter of law. Hadford v. Credit Bureau of Havre, Inc., 1998 MT 179, ¶ 14, 289 Mont. 529, ¶ 14, 962 P.2d 1198, ¶ 14. Once the moving party has met its burden, the opposing party must present material and substantial evidence, rather than mere conclusory or speculative statements, to raise a genuine issue of material fact. Hadford, ¶ 14.

FACTUAL BACKGROUND

¶ 4 On February 1, 1999, Stockman Bank brought an action in the District Court for the Thirteenth Judicial District in Yellowstone County to foreclose its security interest in certain livestock, machinery, and equipment owned by Rick Potts. The Bank did not allege that Potts had failed to make the payments owed pursuant to his promissory note. Rather, the Bank alleged that Potts' liabilities exceeded the value of the collateral, which resulted in default pursuant to the terms of the note.

¶ 5 On April 20, 1999, Potts filed an answer and counterclaim. Potts contended that the Bank's failure to release funds to him was commercially unreasonable, breached his contract with the Bank, and breached the covenant of good faith and fair dealing.

¶ 6 The parties began settlement negotiations in October of 1999 and continued to negotiate through the end of January, 2000. The question decided by the District Court was precisely what the parties agreed to during these negotiations.

¶ 7 The first attempt at reaching a settlement was an October 5, 1999, letter from Potts' attorney, James Patten, which proposed full settlement if Potts paid $260,000 of the $320,000 amount owed. The offer was contingent on the immediate release of $30,000 to Potts for payment of a feed bill. The Bank did not accept the initial settlement offer and informed Potts that the Bank would not agree to settlement until the Farm Service Administration agreed to cover 90% of any loss the Bank suffered from Potts' loan.

¶ 8 On January 7, 2000, Patten indicated that Potts was willing to negotiate and that it appeared that Potts would be able to obtain the necessary FSA guaranteed loan from the Washington County Bank in Dickinson, North Dakota. The Bank, which was entitled to attorney fees pursuant to the terms of the loan agreement, offered to waive all attorney fees which it incurred before January 3, 2000, so long as Potts paid all principal, interest, and attorney fees incurred after January 3, 2000.

¶ 9 In a letter dated January 24, 2000, Potts offered to pay the Bank $310,000 on or before February 15, 2000, if the Bank agreed to immediately release $90,000 for a feed bill and lease payment.

¶ 10 On January 26, 2000, the Bank's attorney, Pat Kelly, faxed a new counteroffer to Patten. The counteroffer proposed full payment of principal and interest in addition to attorney fees incurred after January 3, 2000. The counteroffer stated that the Bank was willing to forego previously incurred attorney fees in order to settle the case. The proposal included an agreement that the parties release all claims against each other and stipulate to dismiss the matter with prejudice following which the Bank would release the operating funds requested by Potts.

¶ 11 The Bank's proposal was apparently accepted by Potts on January 28, 2000. The question is whether the acceptance was conditioned on Potts' ability to obtain other financing. Kelly drafted a letter on that day to memorialize the agreement. The District Court looked to the letter to establish the terms of the settlement agreement. The letter stated:

I want to summarize our conversations and agreements of this morning.

First, the checks now being held by your office which are made out to Stockman Bank and Rick Potts will be endorsed by Stockman Bank. These checks, which represent the proceeds of sales of mortgaged property, will be deposited into a controlled account at Washington County Bank in Dickinson, North Dakota. That account will require the authority of both Rick Potts and Stockman Bank for release of funds.

Second, Rick Potts is applying for a new guaranteed loan with Washington County Bank. He intends to pay-off the principal and interest on the note at Stockman together with attorney fees accruing from January 3, 2000.

Third, the pay off arrangements cited above involve a reduction in liability on the part of Stockman Bank. This arrangement is available with the understanding that upon the pay-off, Rick Potts and Stockman Bank will execute mutual releases of all claims and a stipulation for dismissal of the current litigation, with prejudice.

If I have incorrectly stated our understanding, please advise.

¶ 12 Although employees of the Washington County Bank told Stockman Bank's loan officer, Stanley Markuson, on February 2, 2000, that the FSA guaranteed loan application would be completed shortly, Potts subsequently had difficulty obtaining financing because of income tax liability which, according to the Potts, resulted from refusal of the Bank to release proceeds from the sale of livestock so that he could pay associated expenses in the same calendar year.

¶ 13 Because Potts believed that this tax liability was a loss for which he was entitled to compensation, he contends that he decided to liquidate his livestock and pay the Bank in full, including attorney fees. However, the Bank apparently believed that Potts was ready to pay in accordance with the settlement agreement, and did not learn of the difficulty with the FSA guaranteed loan until after it had released its liens.

¶ 14 Potts' payoff to the Bank was in the amount of $318,649.42 which included all principle and interest due plus an amount for attorney's fees which was less than the total amount claimed.

¶ 15 While the parties agree on the amount paid, they disagree whether Potts paid all that was due. In his affidavit one of Potts' attorneys, W. Scott Green, states that funds were transferred to pay the Bank in full. Markuson, on the other hand, states in his affidavit that $12,857.00 in attorney fees and costs were still owed.

¶ 16 Following payment, on March 23, 2000, Green faxed a letter to the Bank requesting releases of liens on vehicles held by Potts. Markuson executed a release. According to Markuson, Patten then informed him that Potts would not release his counterclaim and stipulate to dismissal.

¶ 17 Although trial had been scheduled for April 17, 2000, the District Court Judge Maurice R. Colberg entered an order vacating the trial on April 1, 2000, and noted that the District Court had been informed at the final pretrial conference that Potts had paid the debt to the Bank which resolved much of the case, but that Potts intended to pursue his counterclaim. However, on February 6, 2001, the Bank filed a Motion to Enforce Settlement and for Summary Judgment. Following a hearing, the District Court granted Stockman's motion and dismissed the remainder of the case. Potts appeals from the order of the District Court. We reverse the District Court and remand for further proceedings consistent with this opinion.

DISCUSSION

¶ 18 Did the District Court err when it granted summary judgment to the Bank?

¶ 19 The District Court granted summary judgment based on its conclusion that the letter of January 28, 2000, constituted a settlement agreement and that the Bank was therefore entitled to a release from Potts' counterclaim because the Bank agreed to settle the case for an amount that did not include all the attorney fees to which it was entitled. Further, the District Court found that there was no contingency to the settlement. In support of this finding, the District Court cited Hetherington v. Ford Motor Co. (1993), 257 Mont. 395, 399, 849 P.2d 1039, 1042, for the principle that when a written agreement does not identify a contingency, the parties cannot rely on a contingency to avoid the effect of the settlement agreement.

¶ 20 Potts contends that he did not intend to settle this case and that issues of fact should have...