IN THE SUPREME COURT OF THE STATE O F MONTANA
IN THE MATTER OF THE ESTATE OF
RUSSELL MICHAEL, JR. ,
claimant and Respondent,
MARK O'KEEFE, State Auditor and
Commissioner of Insurance of the
State of Montana,
Petitioner and Appellant,
GLACIER GENERAL ASSURANCE COMPANY,
A MONTANA CORPORATION,
District Court of the First Judicial ~istrict,
In and for the County of Lewis and Clark,
The Honorable Jeffrey Sherlock, Judge presiding.
COUNSEL OF RECORD:
Richard Larson, Patrick M. Driscoll; Chronister
Driscoll & Moreen, Helena, Montana
Robert E Maclin, 111; Gess, Mattingly & Atchison,
Submitted on Briefs:
December 2, 1993
March 2 2 , 1 9 9 4
Justice Karla M. Gray delivered the Opinion of the Court.
Commissioner of Insurance Mark OIKeefe,Liquidator for Glacier
General Assurance Company (Glacier General), appeals from the
District Court's grant of summary judgment in favor of the Estate
of Russell Michael, Jr. (the Estate).
The court determined that
the Estate's claim in the amount of $1,749,000, less a two percent
deductible, was valid and assigned the claim Class 3 priority in
the distribution of Glacier General's assets.
The Estate's claim arises from a financial security bond
issued by Glacier General in November of 1984. At that time, Earl
Parks (Parks) contractedto purchase ninety-six thoroughbred horses
from Russell Michael, Jr.
Parks paid $1,000 and
executed a promissory note for the $1,749,000 balance.
the note, Michael retained a security interest in the horses and
required Parks to obtain a financial security bond in the amount of
The bond issued by Glacier General required Michael to
assign his security interest in the horses to Glacier General in
the event that performance on the bond was required.
Parks failed to make the first installment payment to Michael
later in November. Michael sent notice of default and acceleration
He also notified Glacier General of the default,
requested performance under the terms of the bond, and indicated
his expectation that Glacier General take possession of the horses
or reimburse the costs of holding them. Neither Parks nor Glacier
In January of 1985, ~ichaelfiled a lawsuit in the Fayette
Circuit Court for the Commonwealth of Kentucky against Parks and
Parks did not appear and a default judgment was
entered against him.
Glacier General appeared and entered into an
with Michael providing for the public auction of the
horses that had not died or previously been sold privately by
The auction was held on September 8 and 9, 1985.
On September 18, 1985, the Kentucky court filed an llopinionN
determining that Michael was entitled to summary judgment against
A subsequent lfopinionll filed on December 6,
1985, liquidating Michael's damages against Glacier General in the
$2,220,484.86, Of that amount, $1,749,000 represented
Glacier General's liability on the bond; the remainder reflected
Michael's expenses for the maintenance, upkeep and sale of the
horses, less the sale proceeds.
Judgment was entered in Michael's
favor on December 6, 1985.
while Michael's litigation against Parks and Glacier General
I t f i l e d a p e t i t i o n for l i q u i d a t i o n on August 1 2 , 1985,
and the First Judicial District Court, Lewis and Clark County,
subsequently entered an order of liquidation and appointed State
Auditor and Commissioner of Insurance Andrea Bennett as Liquidator.
In January of 1986, Michael submitted a proof of claim to the
Liquidator in the amount of $2,220,484.86.
The Liquidator denied
In April of 1990, by which time Michael had died, the Estate
filed a complaint with the referee appointed by the First Judicial
District Court. It requested the referee to assign its claim Class
3 priority and order the Liquidator to proceed with payment.
April of 1991, the parties stipulated to reserve adjudication of
the Estate's claim in excess of $1,749,000 because Glacier General
had insufficient funds to distribute to claimants with priority
below Class 3.
The Liquidator asserted nine affirmative defenses in its
amended answer filed August 26, 1991.
The defenses included
unconscionable; that the claim should be assigned Class 4 priority
as a general creditor's claim; and that the amount of the claim on
the bond should be offset by the proceeds from the sale of the
In October of 1991, the Estate moved for summary judgment.
The Liquidator opposed the motion. The referee determined that the
Liquidator had not adequately defended against the motion under
5 6 (e)
M.R. Civ. P. , but declined to grant summary judgment.
The referee gave the Liquidator a "second chance1* establish the
existence of a genuine issue of material fact.
Liquidator's filing of additional affidavits, supplemental briefing
and a second hearing on the motion, the referee recommended that
summary judgment be granted in the Estate's favor.
Court adopted the recommendation and granted the Estate's motion
for summary judgment on April 12, 1993.
Mark O'Keefe, successor to Andrea Bennett as Liquidator,
appeals from the grant of summary judgment in favor of the Estate.
He asserts the existence of genuine issues of material fact
affecting Glacier General's obligation to perform under the bond
and challenges the classification and amount of the claim.
Did the District Court err in determining that no genuine
issues of material fact existed regarding the enforceability of the
sales agreement and financial security bond?
Our standard for reviewing a grant of summary judgment is the
same as that used by the district court.
Emery v. Federated Foods
(Mont. l993), 863 P.2d 426, 431, 50 St.Rep 1454, 1456.
judgment is appropriate when the pleadings, affidavits, depositions
and other documents on file demonstrate that no genuine issues of
fact exist and the moving party is entitled to judgment as a matter
Rule 56(c), M.R.Civ.P.
Once the party moving for summary judgment meets its burden of
establishing that no genuine issues of material fact exist, the
burden of proof shifts to the party opposing the motion to present
substantial evidence raising an issue of material fact.
Widner (1989), 236 Mont. 523, 526, 771 P.2d 142, 144. The opposing
party must set forth specific facts, by affidavit or as otherwise
provided by Montana law, showing the existence of genuine issues
for trial; affidavits must be based on personal knowledge and set
forth facts which would be admissible in evidence.
The Liquidator asserts that sworn statements by Ryan Mahan, a
licensed auctioneer in Kentucky, and John Hayden, Glacier General's
president when the bond was issued, established issues of material
fact regarding the enforceability of the sales agreement and bond.
He argues that the court erred by weighing the credibility of Mahan
and Hayden rather than resolving the purported factual disputes at
trial, in contravention of Morrow v. FBS Ins. (1988), 230 M0nt.
conflicting allegations regarding
material fact were contained in the affidavits and depositions of
The trial court conceded as much when it noted that
the case was a question of the plaintiff's word versus the
The court went on to resolve the conflicts in
granting summary judgment.
We reversed the court, stating that
summary judgment is improper where an affiant's credibility may be
crucial to the determination of a material fact. Morrow,
Morrow has no application here because the Mahan and Hayden
materials did not create genuine issues of material fact regarding
the enforceability of the sales agreement and bond.
In his first
affidavit, Mahan stated that the sales transaction was "highly
irregular" because Parks paid only $1,000 as a down payment.
Liquidator relies on this statement as evidence that the underlying
transaction was invalid, in an effort to preclude enforcement of
the transaction via the bond.
In his later deposition, however,
Mahan testified that his characterization of "irregularity" was
incorrect because he had not reviewed the sales agreement or
considered the financial guarantee bond as part ofthe transaction.
Focusing on the content of the affidavit and deposition, the
court determined that the ltirregularity" the sales transaction
had been eliminated as an issue by Mahan's repudiation of his
Thus, the court did not evaluate Mahan's
credibility but determined, pursuant to Rule 56(e), M.R.Civ.P.,
that his statements did not raise a genuine issue of material fact
impugning the enforceability of the sales agreement via the bond.
In a similar vein, the Liquidator argues that enforcement of
the sales agreement via the bond would be unconscionable because of
a disparity between the market value of the horses and the
He relies on statements by Mahan as a basis for
his unconscionability argument and again contends that the District
Court impermissibly weighed Mahan's credibility to determine that
no genuine issue had been raised.
Mahan stated in his first affidavit that the market value of
the horses as of the date the sales agreement was executed was
substantially less than the purchase price. However, the appraisal
attached to his supplemental affidavit reflected only the market
value of the horses in September of 1985; it did not include an
estimate or appraisal of the market value of the horses at the time
Furthermore, Mahan's deposition states that the market value of
horses generally declined significantly in the early part of 1985
from the "pinnacle" of thoroughbred horse prices reached in 1984;
the inference is clear that the market value of the horses at the
time the sales agreement was executed was significantly higher than
Mahan's appraised value as of September, 1985.
We agree with the court that the totality of Mahan's testimony
considered in a light most favorable to the Liquidator fails to
establish the existence of a genuine issue of fact relating to the
value of the horses at the time the sales agreement was executed.
More importantly, we conclude that a disparity between the horses'
market value and the purchase price, even if properly raised as an
issue, would not be material to the "conscionability" of enforcing
the sales agreement.
Oppression and a disparity of bargaining
power are the indicia of unconscionability relating to a sales
contract between two business professionals. All-States Leasing v.
Top Hat Lounge (1982), 198 Mont. 1, 6-7, 649 P.2d 1250, 1253.
Those indicia are totally lacking here.
The Liquidator also contends that Hayden's affidavit raises a
factual dispute concerning Michael's representation of the horsest
in his bond
The thrust of this
contention is that Michael misrepresented the market value in order
to obtain the bond and, therefore, that enforcement of the bond
itself would be unconscionable.
The court determined that none of the application materials
for the bond purported to represent the horses' market value and
that Hayden was not competent to testify as to that market value.
Thus, the court did not assess Hayden's credibility but applied
principles governing summary adjudication and determined that
Hayden's sworn statements did not raise a material issue regarding
the conscionability of enforcing the bond.
The Liquidator also contends that a shift in the referee's
position regarding payment of the bond reflects an impermissible
resolution of a factual issue.
In his first order, the referee
"suspicious" based, in part, on the payment of the premium by a
cashier's check remitted by an escrow company.
directed the Liquidator--in the Liquidator's effort to oppose
summary judgment--to contact the escrow company to determine the
source of the funds used to pay the premium.
In his second order,
the referee unequivocally stated that Parks paid the premium, a
position adopted by the District Court.
The supplemental materials filed by the Liquidator neither
indicate that the escrow company was contacted nor contain any
facts showing that Parks did not pay the premium via the escrow
company. Thus, the referee's change in position does not represent
a factual determination, but again reflects the Liquidator's
failure to advance evidence establishing the existence of a genuine
issue of material fact for trial.
We conclude that the District Court did not resolve genuine
issues of material fact; it properly applied the principles
governing summary judgment set forth in Rule 56(e), M.R.Civ.P.
hold that the District Court did not err in determining that the
Liquidator failed to
financial guarantee bond.
issues of material
sales agreement or the
Did the District Court err in assigning Class 3 priority to
the Estate's claim?
Relying on the doctrine of.merger, the Liquidator contends
that the Estate's claim on the bond was extinguished by the entry
of the Kentucky court's "opinion" on September
this approach, the Estate's claim would be solely on the Kentucky
judgment, entitling it to Class
priority as a general creditor.
While the Liquidator's attempt to escape the effect of the District
declaratory judgment that claims on Glacier General's
bonds are entitled to Class 3 priority is understandable, his
arguments are not persuasive on either the facts or the law before
At the outset, we note that the record establishes that the
bond itself was the basis for the Estate's claim. In its "proof of
claim" submitted to the Liquidator, the Estate supported its claim
on the underlying transaction, attaching copies of the sales
agreement, promissory note and bond.
While the Estate also
attached a copy of the ultimate Kentucky judgment, it relied on the
judgment only as evidence to support its claim on the bond.
Furthermore, the defenses asserted by the Liquidator were to the
claim on the bond itself.
Nor is there merit to the Liquidator's argument that the
Estate's claim is on the Kentucky judgment as a matter of law. The
Liquidator correctly points out that this Court applied the merger
doctrine in Nee1 v. First Fed. Sav.
There, we determined that when a contract claim
is reduced to judgment, the contract is surrendered and cancelled
by merger in the judgment and ceases to exist.
w, 675 P.2d
The Liquidator asserts that the same doctrine is applicable
to the Estate's claim on the bond.
The Kentucky court's September 18, 1985, opinion did not
cancel the claim on the bond.
Weiner v. Barker (Wash. App.
1986), 713 P.2d
1133, relied on by the Liquidator to support
inapplicability of the doctrine here.
It clarifies that the
doctrine is available only where a final judgment has been entered
for the payment of money.
Weiner, 713 P.2d at 1134.
September 1985 opinion was not a judgment, much less a final
judgment; nor did it award damages. Indeed, the opinion expressly
anticipated the filing of a subsequent order.
Thus, it does not
support application of the merger doctrine.
Moreover, S 33-2-1365(4), MCA, precludes merger of the claim
on the bond into the final judgment entered by the Kentucky court
on December 6, 1985.
Section 33-2-1365(4), MCA, provides in
the insurer entered
No judgment or order against
after the date of filing of a successful petition for
need be considered as evidence of
liability or of quantum of damages.
. . .
Here, Glacier General's petition for liquidation was filed on
August 12, 1985, and the order of liquidation entered on November
Because the December 6, 1985 judgment was filed after
the liquidation order, it has no binding effect on either liability
or damages under g 33-2-1365(4), MCA.
We recently addressed this statute's relationship to prior
judgments in Claim of Kowalski (Mont. 1993), 860 P.2d 104, 50 St.
There, the Liquidator attempted to rely on the
iudicata effect of a post-liquidation consent judgment obtained by
claimant Kowalski. We initially determined that the effect of such
judgment was governed primarily
statutes, relying on S 1-1-108, MCA.
Kowalski, 860 P.2d at 108.
Pursuant to those statutes, we held that the prior judgment did not
conclusively establish the amount of damages claimed.
procedure by which claimant could establish that amount following
the Liquidator's denial of her claim was to present proof of the
claim to the referee.
Kowalski, 860 P.2d at 109.
Here, as in Kowalski, the Estate must prove both liability and
damages in order to establish its claim under the liquidation
Because the Kentucky judgment had no conclusive effect,
the only claim upon which the Estate could establish Glacier
General's liability and quantum of damages is the claim on the
The Estate properly established its claim on the bond and,
therefore, is entitled to Class 3 priority pursuant to the court's
1989 declaratory judgment. We hold that the District Court did not
err in assigning Class 3 priority to the Estate's claim.
Did the District Court err in concluding that the proceeds
from the sale of the horse collateral should be applied first to
offset Michael's expenses in maintaining and selling the horses
rather than to reduce the Estate's claim under the bond?
According to the District Court, Glacier General's failure to
perform under the bond caused Michael to suffer losses in two
categories. It determined that the expenses incurred by Michael in
maintaining and selling the horses represented a loss separate
from, and in addition to, the unpaid debt secured by the bond.
court then determined that the sales proceeds would not cover the
maintenance and sales expenses and, as a result, that no proceeds
would remain to apply to the loss under the bond.
the court refused to apply
On that basis,
MCA, to reduce the
amount of the Estate's Class 3 claim on the bond.
The Liquidator advances two arguments challenging the court's
determination that the sales proceeds should be first applied to
maintenance and sales expenses.
First, he argues that the court
33-2-1371(3), MCA, by dividing ~ichael's
losses into two categories.
Section 33-2-1371(3), MCA, provides that any portion of a loss
under a ttpolicytt
which is recovered by the claimant from other
sources cannot be included in a Class 3 claim.
pertains only to Michael's loss under the bond itself, which the
District Court previously has declared to be a
The expenses incurred in maintaining and selling the
horses are, as the court determined, a separate loss.
the portion of the sales proceeds, if any, which exceeds the
maintenance and sales expenses would constitute a recovery of the
Estate's loss under the bond; only that portion would be subject to
While the amount of the expenses incurred and sales proceeds
received has not yet been litigated because Glacier General's
assets are insufficient to distribute to claims with priority lower
than Class 3, the record suggests that the incurred expenses
significantly exceed the sales proceeds.
The Liquidator does not
argue otherwise. Thus, no portion of the sales proceeds represents
a recovery of the Estate's loss under the bond pursuant to g 33-21371(3), MCA.
Next, the Liquidator argues that the District Court improperly
placed the obligation of the horses' care on Glacier General.
Under the terms of the sales agreement, possession of the horses
did not transfer until the first installment was paid.
Parks defaulted on the initial payment, the Liquidator asserts that
Parks acquired neither possession of the horses nor the obligation
for their care.
On that basis, he contends that Glacier General
had no corresponding obligation as surety on the bond.
This argument is without merit.
Glacier General's liability
for the maintenance and sales expenses is derived from its failure
to perform its obligations under the bond, namely, payment of the
assignment of the horse collateral. Had Glacier General performed
when requested by Michael, the expenses would not have been
incurred. The fact that Parks had not yet acquired the obligation
to care for the horses under the sales contract does not effect
Glacier General's liability for those expenses under the terms of
The Liquidator advances one additional argument that we
address here, although it is only tangentially related to the
application of the sales proceeds.
He asserts that Michael failed
to give notice of the private sales of some of the horses which
preceded the public auction.
On that basis, he argues that an
reasonableness of the private sales, precluding summary judgment
under Agricredit Acceptance Corp. v. Michels (1991), 250 Mont. 23,
817 P.2d 704.
Section 30-9-504(3), MCA, entitles a secured creditor to
dispose of collateral so long as every aspect of the disposition is
It specifically requires the secured
party to give the debtor reasonable notice of the time after which
any private sale is to be made unless the collateral is perishable
or threatens to decline speedily in value.
As the party moving for summary judgment, the Estate was
required to show the absence of genuine issues of material fact
regarding the reasonableness of the private sales of the horses.
To that end, it submitted the affidavit of Don S. Sturgill, an
expert in the thoroughbred horse industry.
In his affidavit,
Sturgill testified that the private sale of horses often resulted
in higher prices than sale by public auction, establishing the
commercial reasonableness of that manner of sale.
dramatically in 1985, establishing the inapplicability of the
notice requirement of 5 30-9-504(3), MCA, to private sales where
the value of the collateral is declining speedily.
Estate met its initial summary judgment burden.
The Liquidator's bare assertion that notice was not given does
not raise a genuine issue of material fact as to the necessity of
notice on the record before us.
Unlike the debtor in Aqricredit
Acceptance Corp., the Liquidator failed to advance any evidence
that placed the commercial reasonableness of the private sales at
We conclude that the District Court correctly determined that
the proceeds from the sale of the horses should be applied first to
offset the expenses incurred by Michael in maintaining and selling
The Liquidator has not asserted error in the court's
determination that the sales proceeds would not be sufficient to
cover these expenses.
Thus, we hold that the court properly
declined to apply any portion of the sales proceeds to reduce the
Estate's Class 3 claim on the financial guarantee bond.
March 22, 1994
CERTIPICATE OF SERVICE
I hereby certify that the following certified order was sent by United States mail, prepaid, to the
Patrick M. Driscall
CHRONISTER, DRISCOLL & MOREEN
34 West Sixth Ave., Suite 2E
Helena, MT 59601
Dane C. Schofield
PETERSON & SCHOFIELD
2906 Third Ave. North
Billings, MT 59101
Robert E. Maclin, 111
GESS, MATTINGLY & ATCHISON, PSC
201 West Short Street
Lexington, Kentucky 40507
CLERK OF THE SUPREME COURT