Stott v. Fox, 90-131

• Decision Date: 30 October 1990
• Docket Number: No. 90-131,90-131
• Citation: 246 Mont. 301,805 P.2d 1305
• Parties: Lee STOTT and Bessie Stott, and All West Equipment, and Rick Stott, Plaintiffs and Appellants, v. Raymond FOX, Defendant and Respondent.
• Court: Montana Supreme Court

Page 1305

805 P.2d 1305

246 Mont. 301

Lee STOTT and Bessie Stott, and All West Equipment, and Rick

Stott, Plaintiffs and Appellants, v. Raymond FOX, Defendant and Respondent.

No. 90-131.

Supreme Court of Montana.

Submitted July 13, 1990.

Decided Oct. 30, 1990.

John C. Doubek, Small, Hatch, Doubek & Pyfer, Helena, for plaintiffs and appellants.

Barry G. O'Connell, Moore, O'Connell, Refling & Manos, Bozeman, for defendant and respondent.

SHEEHY, Justice.

This legal malpractice action was brought by All West Equipment, Lee Stott, Bessie Stott, and Rick Stott. The plaintiffs allege that Raymond Fox failed to represent them properly in an action for a deficiency judgment brought by First Bank Western. Specifically, plaintiffs contend that Fox was negligent in stipulating to the dismissal of the Bank's deficiency judgment action with prejudice, having failed to explain to the plaintiffs the effect of the dismissal upon the plaintiffs' alleged claims against the Bank under various lender liability theories.

After the District Court dismissed the deficiency action, on October 15, 1985, the Stotts and All West Equipment, with different counsel, filed a complaint in the Fourth Judicial District against First Bank alleging fraud, misrepresentation, and breach of the covenant of good faith and fair dealing on the part of First Bank in making the loans to them and in obtaining their signature for the release of collateral. The plaintiffs also alleged that the collateral was sold without commercial reasonableness and that First Bank violated the requirements set out in Sec. 30-9-504, MCA.

First Bank filed a motion to dismiss, which was denied by the District Court. When the District Court denied First Bank's motion to dismiss, it sought a writ of supervisory control from this Court. First Bank v. Fourth Judicial District Court (1987), 226 Mont. 515, 737 P.2d 1132. We granted First Bank's petition for writ of supervisory control, and dismissed the plaintiffs' complaint. In that case, we held the plaintiffs' claims were barred by the stipulated dismissal with prejudice of the Bank's deficiency judgment action. Confronted with the dismissal of their second action, plaintiffs instituted the malpractice suit against their former counsel Fox. The Fifth Judicial District Court, Jefferson County, entered summary judgment in favor of defendant Fox on the plaintiffs' claim of legal malpractice. Now the plaintiffs appeal the District Court's summary judgment in favor of Fox. We affirm.

The parties raise the following issues on appeal:

1. Did the District Court err by finding that Lee and Bessie Stott were not the real parties in interest in the underlying lender liability action?

2. Did the District Court err by finding that an attorney-client relationship did not exist between Rick Stott and Raymond Fox?

3. Did the District Court err by finding that plaintiffs could not have prevailed on their claim for damages allegedly caused by the loss of the Massey-Ferguson dealership?

4. Did the District Court err in finding that Bank did not act in bad faith in its contractual relationship with the plaintiffs?

In order to determine whether Fox was guilty of legal malpractice, we must first examine the facts surrounding Fox's earlier representation of the plaintiffs in First Bank's deficiency judgment action against the plaintiffs.

All West Equipment was incorporated in 1971. Lee and Bessie Stott were officers of All West Equipment and spouses. Rick Stott, the son of the Stotts, was an employee of All West Equipment.

All West engaged in the sale and repair of farm implements. All West was a dealer for Massey-Ferguson. On October 18, 1982, Massey-Ferguson terminated All West's dealership, when Massey-Ferguson received a nonsufficient funds check from All West and further investigation revealed that All West was "out of trust" exceeding $50,000.

All West began its relationship with First Bank in late 1980. Two loans were originally made to All West by First Bank. A number of Security agreements were entered into between First Bank and All West to perfect First Bank's position. The Stotts also executed a guaranty with First Bank. Furthermore, a "Corporate Authorization Resolution" was executed identifying Lee and Bessie Stotts as corporate officers and having the right to borrow funds.

In June of 1982, All West was in arrears on its debt retirement to First Bank. For that reason, the parties reduced All West's indebtedness to two demand notes. Specifically, First Bank loaned to All West and Lee Scott (individually) $68,732.30, due in September, 1982. Also, First Bank loaned $21,566.63 to All West. The second loan was due December 15, 1982.

The Stotts and All West defaulted on both of these notes. The Bank also discovered that All West was dealing out-of-trust with Massey-Ferguson. As the record reflects, the out-of-trust dealings were discovered on October 15, 1982. Later, possession of the collateral was turned over to First Bank, by a written instrument dated October 20, 1982, and signed by Lee and Rick Stott on behalf of All West Equipment.

The assets of All West, pledged as collateral, were sold at a public and private sale through Gardener Auction on November 13, 1982. As a result of the sales, almost $31,000 was applied to All West's indebtedness on the operating note, leaving a balance due on the loan of $42,088. On January 7, 1983, First Bank filed a complaint, in the Fourth Judicial District Court, against All West Equipment and Lee and Bessie Stott, to collect deficiencies owing after the sale of the collateral under the promissory notes and guaranty. Eventually, the deficiency action between First Bank and All West and the Stotts was settled without trial and a stipulation and order of dismissal with prejudice was filed on January 4, 1984.

In reviewing an order for summary judgment, the standard of review for this Court is the same as that used by the District Court under Rule 56(c), M.R.Civ.P. Kronen v. Richter (1984), 211 Mont. 208, 211, 683 P.2d 1315, 1317. Therefore, we may find summary judgment when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Rule 56(c), M.R.Civ.P.; Mayer Bros. v. Daniel Richards Jewelers, Inc. (1986), 223 Mont. 397, 399, 726 P.2d 815, 816. Once the record discloses no genuine issue of material fact, the burden of proof shifts to the party opposing the motion to present facts of a substantial nature that a material fact issue does exist. Mayer, 726 P.2d at 816. The party opposing summary judgment may not rest upon mere allegations in the pleadings or conclusory statements in the briefs but has an affirmative duty to respond by affidavits or sworn testimony with specific facts that show a genuine factual issue exist. Mere conclusory or speculative statements are insufficient to raise a genuine issue of material fact. National Gypsum Co. v. Johnson (1979), 182 Mont. 209, 212, 595 P.2d 1188, 1189. Mayer, 726 P.2d at 816; citing Rule 56(e), M.R.Civ.P. Further, the District Court judge is not required to anticipate possible proof at trial when ruling on a summary judgment motion. Tucker v. Trotter Treadmills, Inc. (1989), 239 Mont. 233, 235, 779 P.2d 524, 525.

In a legal malpractice action, the complaining party, in order to prevail:

[M]ust initially establish the existence of an attorney-client relationship. The plaintiff must then establish that the acts constituting the negligence ... occurred, proximately causing damages to the plaintiff. The final requirement for the plaintiff is the need to establish, "[t]hat 'but for' such negligence ... the client would have been successful in the prosecution or defense of the action."

Lorash v. Epstein (1989), 236 Mont. 21, 24, 767 P.2d 1335, 1337; citing Christy v. Saliterman (1970), 288 Minn. 144, 179 N.W.2d 288, 293-94.

In order for All West and the Stotts to prevail against Fox, they must show that their underlying action against First Bank would have been successful. Some courts, in describing this procedure, have termed it as a "suit within a suit." Liberman v. Employers Insurance of Wausau (1980) 84 N.J. 325, 419 A.2d 417, 426. The District Court found that "the plaintiffs have failed to meet the burden that they could have prevailed in any counterclaim against First Bank. The legal malpractice test of Lorash has not been met." We agree with the District Court's holding that the plaintiffs' claims against the Bank would have not been successful.

I.

Did the District Court err by finding that Lee and Bessie Stott were not the real parties in interest in the underlying action?

The District Court found that Lee and Bessie Stott were not proper parties, in the former liability action, nor could they have personally asserted a claim for damages in the dismissed action. The District Court, relying on our holdings in Moats Trucking Co., Inc. v. Gallatin Dairies, Inc. (1988), 231 Mont. 474, 753 P.2d 883, and Bottrell v. American Bank (1989), 237 Mont. 1, 773 P.2d 694, explained that the alleged damages could only have been claimed by All West Equipment, the Stotts' corporation.

The District Court is correct. This issue is controlled by our holdings in Moats and Bottrell. In Moats, we said:

In Malcom v. Stondall Land Co. (1955), 129 Mont. 142, 145, 284 P.2d 258, 260, this Court stated the general rule regarding a stockholder's personal right to sue in the corporation's cause of action:

... As a general rule stockholders may not sue upon a cause of action belonging to their corporation whether in their own names or in the name of the corporation itself.

In Malcom, this Court addressed for the first time the issue of whether individual shareholders who control all of the stock of the corporation may disregard the corporate entity and sue as...