No. 12927 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

DOUBLE X RANCH, INC. , a Delaware 

Corporation, and STUART Me KAPLAN 

as Trustee in Bankruptcy for Great 

Western Ranches, Inc., 

Plaintiffs and Respondents, 

SAVAGE BROTHERS, et al., 

Defendants and Appellants. 

Appeal from: District Court of the Thirteenth Judicial District, 

Honorable Charles Luedke, Judge presiding. 

Counsel of Record: 

For Appellants : 

Arthur P. Acher argued, Helena, Montana 

For Respondents: 

Hauf, Forsythe and Richard A. Kramer, Billings, 

Montana 

John A. Forsythe appeared, Billings, Montana 

Richard A. Kramer argued, San Francisco, California 

Submitted: May 7, 1975 

Decided : JUN 1 8 1975 

Filed: 18 3975 
Mr. Justice Frank I. Haswell delivered the Opinion of the Court. 

Plaintiffs filed an action in the district court, 

Yellowstone County, to collect on four promissory notes executed 

by defendants pursuant to a corporate reorganization plan, under 

of the 

Chapter X /federal Bankruptcy Act. Defendants admitted executing the notes but alleged failure of consideration, fraud, and 

duress as defenses and counterclaimed for damages based on alleged 

negligence and wrongful acts of the trustee in bankruptcy. The 

district court granted summary judgment to plaintiffs on all 

issues. Defendants appeal. 

Plaintiffs are Double X Ranch, Inc., the payee on three 

of the notes, and Stuart M. Kaplan, the trustee in bankruptcy 

and payee on the fourth note. Defendants are Savage Bros., a 

partnership, and ten persons surnamed Savage who were sued individually and doing business as Savage Land and Livestock Company, Inc.; Savage Land and Livestock; and Savage Bros., Inc., a 

corporation. Defendants are the makers or guarantors of the 

notes and will be referred to collectively as Savage Bra. 

In 1969 a Nevada corporation, Great Western Ranches, Inc., 

was formed. The objective was to have various investors convey 

their ranch properties to Great Western in exchange for shares 

of stock. Defendants, among others, transferred three tracts 

of land, personal property, and 150 thoroughbred and quarter 

horses with their registration certificates to Great Western, 

receiving shares of stock in exchange. Plaintiff Double X contributed $1,000,000 cash to Great Western and received shares 

of stock for its contribution. 

Great Western hoped to attract an additional $4,000,000 

from European investors but was unable to do so. On July 1, 1970, 

Great Western filed a petition for corporate reorganization under 

Chapter X of the federal Bankruptcy Act with the United States 
District Court in San Francisco. 11 U.S.C.A. 55501-676. This 

reorganization court appointed plaintiff Kaplan as trustee, and 

eventually approved a corporate reorganization plan for Great 

Western. 

The overall purpose of the corporate reorganization 

plan was to provide for an orderly unwinding of the transactions 

involved in the formation of Great Western and for the protection 

of its creditors. Among other things, investors in Great Western 

were permitted to reclaim their property upon these specific 

conditions: 

(1) payment of 106 per share for the costs of administering the reorganization; 

(2) payment of an additional 3g! or 49! per share (depending on the time of payment) to Double X as reimbursement for its 

$1,000,000 cash investment; 

(3) payment to the trustee or Double X, respectively, 

the amounts their property had been benefited, either while held 

by Great Western or by the cash contribution of Double X. Additionally, the corporate reorganization plan provided that consenting reclaimants irrevocably waived "any right to sue, litigate, 

or obtain or execute upon a judgment against [Great Western] or 

the trustee * * * irrespective of whether such rights are known 

or suspected to exist by the consenting reclaimant at the time 

the plan becomes effective." The plan also provided that the reorganization court retained jurisdiction over "all questions 

arising in the course of consummation of the plan and not specifically provided for." 

Defendants accepted and complied with the corporate reorganization plan by satisfying the conditions precedent to reclaiming their property. They paid the cash assessments required 

and executed the four promissory notes sued upon for the balance. 
The trustee executed and delivered to defendants transfer documents on their reclaimed property pursuant to the plan. 

Defendants defaulted on payment of the four promissory 

notes. Plaintiffs, as payees, filed suit in state district 

court in Billings, Montana, to collect the balances owing on 

the notes, with interest and attorney's fees. Defendants responded with a pleading they characterized as an "answer, counterclaim and cross-complaint" in which they admit execution of the 

and 

notes but claim failure of consideration, fraud,/duress as 

affirmative defenses, and counterclaim for damages based on alleged negligence and wrongful acts of the trustee. 

The facts underlying the three affirmative defenses and 

the counterclaim are intermingled and overlapping. For clarity 

of analysis, the basic factual contentions of defendants can be 

summarized as follows: 

(1) The trustee represented and warranted that defendants' 150 thoroughbred and quarter horses, with registration 

certificates, would be returned to them upon payment of the cash 

assessments and execution of the four promissory notes, which 

the trustee failed to do. 

(2) The trustee represented and warranted to defendants: (a) that the assessments for restitution to Double X were 

traceable to the $1,000,000 cash contribution of Double X to 

Great Western and benefited the property which defendants were 

reclaiming and (b) that the amounts payable by the reclaiming 

stockholders were correct; that notwithstanding these representations and warranties by the trustee, defendants were charged with 

items not properly chargeable against them under the plan. 

(3) Plaintiffs exerted economic coercion on defendants 

in that defendants were compelled to execute the promissory notes 

because otherwise their property would be lost. Defendants had 
contracted to sell the reclaimed property to third parties and 

were faced with other obligations against the property which could 

be foreclosed and thus could not get it back unless they executed 

the promissory notes. 

(4) Damages sustained by defendants by reason of the 

foregoing facts more than offset the amounts due on the promissory notes. 

Plaintiffs filed an "Answer to First Affirmative Defense, 

Counterclaim and Cross-Complaint" placing in issue all of defendants' contentions. Additionally, waiver by the defendants 

was alleged. 

Pretrial discovery consisting of admissions, interrogatories 

and answers was had by both plaintiffs and defendants. Plaintiffs 

then moved for summary judgment. Thereafter defendants moved for 

additional pretrial discovery, requiring plaintiffs to (1) answer 

six interrogatories more fully; (2) require the trustee and an 

officer of Double X to appear in Billings for depositions; and 

(3) require plaintiffs to produce for inspection unspecified 

"relevant records" in their possession. 

The district court denied defendants' motion for such 

further pretrial discovery and granted summary judgment to plaintiffs. Thereafter defendants moved to vacate or amend the judgment, or alternatively for a new trial. Following denial of 

these motions, defendants appealed. 

The controlling issues on appeal can be summarized in 

this manner: 

(1) Are the issues raised by defendants res judicata? 

(2) Did the state district court have jurisdiction? 

(3) Are there genuine issues of material fact precluding 

summary judgment for plaintiffs? 

(4) Should the district court have permitted additional pretrial discovery? 
Initially, defendants contend that the issues they 

have raised in this action, viz. failure of consideration, 

fraud, duress, and negligent or wrongful acts of the trustee 

in carrying out the corporate reorganization plan have not 

been adjudicated by the federal reorganization court, could 

not have been raised previously, and are not res judicata. 

Plaintiffs, on the other hand, contend that the issues 

raised by defendants are res judicata under Section 224(1) of 

the federal Bankruptcy Act. The gist of their contention is 

that once a corporate reorganization plan is confirmed by the 

federal reorganization court, all issues resolved by the plan 

and all questions that could have been raised relating to the 

plan are res judicata and cannot later be litigated in any 

court. 

Section 224(1) of the Bankruptcy Act, 11 U.S.C.A. S624, 

provides : 

"Upon confirmation of a plan-- 

(1) the plan and its provisions shall be 

binding upon the debtor, upon every other 

corporation issuing securities or acquiring 

property under the plan, and upon all creditors 

and stockholders, whether or not such creditors 

and stockholders are affected by the plan or 

have accepted it or have filed proofs of their 

claims or interests and whether or not their 

claims or interests have been scheduled or 

allowed or are allowable * * *". 

6A Collier on Bankruptcy, para. 11.13[2], explains this provision 

in this language: 

"Thus 5 224(1) 'makes a plan binding upon all 

parties once it is confirmed', and all questions 

which could have been raised appertaining thereto 

become res judicata." 

See: In re Union League Club of Chicago, 203 F.2d 381 (7th 

Cir. 1953); Ely v. Donoho, 45 F.Supp. 27 (S.D.N.Y. 1942). 

The United States Supreme Court has held the reorganization plan, when confirmed, res judicata even where error in the 

plan is alleged. Stoll v. Gottlieb, 305 U.S. 165, 59 S.Ct. 134, 
83 L.ed. 104. 

The issues raised by defendants in the instant case, 

with one exception, could not have been raised in the bankruptcy court at the time of confirmation of the reorganization 

plan. They are bottomed on events that arose thereafter. The 

facts giving rise to defendants1 claims and defenses have never 

been litigated in any court. Res Judicata cannot be used as a 

tool to deny defendants their day in court. 

The exception is the claim by defendants that the 

trustee charged them with items not properly chargeable against 

them under the provisions of the reorganization plan. Essentially, 

defendants contend that certain items incurred in the operation 

of the View Point Ranch in Oregon should not have been charged 

against them, and that Double X was not entitled to any reimbursement because their cash contribution was in reality a loan made 

to secure lucrative contracts from Great Western. 

However, the federal reorganization court approved the 

assessment schedule. To the extent that the trustee's charges 

reflect the plan's assessment schedule, defendants' claim is res 

judicata. 

The second issue for determination is whether the state 

district court has jurisdiction over the counterclaim and remaining defenses of defendants. Plaintiffs argue that consideration of these issues by state courts is precluded by the continuing, exclusive jurisdiction of the bankruptcy court over 

the debtor's property, citing Section 111 of the Bankruptcy Act, 

11 U.S.C.A. S 511. 

That argument ignores the fact that this suit for collection on the notes was a plenary proceeding brought by the trustee 

in state court, The applicable rule of law has been aptly stated 

in 6 Collier on Bankruptcy, para. 3.21, p. 560: 
"If the trustee, receiver or debtor in possession institutes a plenary action in a state 

court, that court has jurisdiction of all the 

incidents of the litigation within its scope." 

Were it otherwise, a monstrous injustice would result. The 

trustee, having chosen the state court as his forum, could 

eliminate any defenses or counterclaims to his action without 

regard to their merits by the simple expedient of claiming exclusive jurisdiction in the reorganization court. We hold that, 

while the state court must clearly enforce the terms of the reorganization plan, it cannot refuse to entertain defenses or 

related counterclaims which allege events occurring after confirmation of the plan merely on the ground of exclusive jurisdiction in the reorganization court. For further authority, 

see: Brown v. Gerdes, 321 U.S. 178, 64 S.Ct. 487, 88 L ed 659; 

Ohio Oil Co. v. Thompson, 120 F.2d 831 (8th Cir. 1941); Dawson 

v. National Life Ins. Co., 156 Tenn. 306, 300 S.W. 567. 

We next determine whether or not there exist genuine 

issues of material fact precluding summary judgment on the remaining issues. The factual contentions of the defendants have 

already been summarized, and all relate to the affirmative defenses and counterclaim. To sustain the summary judgment, 

plaintiffs must have established the absence of any issue of 

material fact as to each of the defenses and the counterclaim. 

Roope v. The Anaconda Co., 159 Mont. 28, 494 P.2d 922; State 

ex rel. City of Helena v. District Court, Mont . -- I 

The defense of economic duress is clearly susceptible to 

summary judgment in favor of plaintiffs. There is simply no 

allegation here of an unlawful detention of property, as required 

by the statutory definition of duress contained in section 13-305(2), 

R.C.M. 1947. Defendants1 allegations amount to nothing more than 

a statement of their economic distress at the time they executed 
the notes. That is clearly not enough to validate the defense. 

Pederson v. Thoeny, 88 Mont, 569, 295 P. 250; McNussen v. Graybeal, 146 Mont. 173, 405 P.2d 447. 

The affirmative defense of failure of consideration was 

also a proper subject for summary judgment in favor of plaintiffs. The consideration for defendants1 promissory notes was 

bills of sale from the trustee covering their reclaimed ranch 

and personal property situated thereon. In accord with the 

terms of the plan, the trustee conveyed only his interest in 

.the properties. The import of that form of conveyance is evident 

in a letter written to the trustee by defendants1 attorney. In 

that letter, he wrote: 

" * * * Said Bills of Sale will not be construed 

by the said shareholders [defendants here] to 

include any warranty by the Trustee that those 

items of personal property listed on the Exhibits 

to the Bills of Sale are actually physically 

located on the said farms which are subject to 

the Order of Rescission made a part of the Bills 

of Sale, or that any or all of such items of 

personal property ever existed, and said shareholders hereby waive any claim they may have or 

that may arise against Great Western Ranches, 

Inc., against Stuart M. Kaplan, as Trustee of 

Great Western Ranches, Inc., and each of them, 

relating to title to said personal property, or 

any of it." [Bracketed material added.] 

(Emphasis added. ) 

Defendants received what they bargained for--the conveyance of 

the trustee's interest in certain personal property, including 

the thoroughbred and quarter horses, devoid of any assurance 

that the property actually existed or that the trustee had any 

title to convey. That was the effect of the Bill of Sale, and 

was expressly recognized by the defendants. They cannot now be 

heard to claim failure of consideration. 

Defendants1 last affirmative defense is the allegation 

that execution of the notes was induced by fraud. The elements 

of that fraud are alleged to be false representations that the 

amounts assessed against defendants' stock were correct; that 
assessments in favor of Double X were traceable to its cash 

contribution; and that 150 thoroughbred and quarter horses, 

with their registration papers, would be among the reclaimed 

property conveyed to the defendants. As already discussed, 

the confirmation of the reorganization plan by the reorganization court made issues relating to the assessments res judicata, and therefore they cannot be relitigated in Montana 

courts. The only element of this defense which remains to be 

considered here is that which alleges false representations by 

the trustee concerning the horses and their registration papers. 

We note that these allegations have been denied by plaintiffs. 

The letter from defendants' attorney, alluded to heretofore, belies this allegation. It evidences the defendants' 

understanding that the existence of and title to the horses was 

not being warranted by the trustee in his conveyance. Under 

the rules governing summary judgments, the letter established a 

sufficient absence of genuine factual issue on this point to 

shift the burden of demonstrating such issue to defendants. The 

record here is devoid of such evidence, the only allusion thereto 

was the bareallegation in the pleadings. Accordingly, the district court was correct ia awarding summary judgment to plaintiffs on this issue. 

On the basis of the "wrongful acts" or negligence alleged 

in the affirmative defenses, defendants have also counterclaimed 

for damages. Since the defenses have proved faulty, as a matter 

of law, the counterclaim necessarily suffers the same deficiency. 

There are no genuine issues of material fact. The facts contained in the record demonstrate that plaintiffs are entitled 

to summary judgment on all issues, as a matter of law. 

The final issue raised by defendants concerns the district 

court's denial of their motion for further discovery to "seek 
evidence to support the allegations of the affirmative defense and Cross-Complaint." The district court, without 

objection, had ordered that all discovery be completed by June 

15, 1974. Defendants1 motion for further discovery was made 

on June 19, 1974, offering no excuse for delay. The district 

court's refusal to grant that motion was not an abuse of discretion, for two reasons: 

(1) all parties had ample opportunity to conduct discovery, with knowledge of the date by which it must be completed, 

and 

(2) the affirmative defenses and counterclaim are defective, as a matter of law, and could not be salvaged by additional facts, even if it were assumed that further discovery 

would produce additional, material facts. Responsibility for 

failure to discover facts supporting defendants' defenses and 

counterclaim must be assessed against the defendants, who failed 

to complete their discovery within the alloted time. 

The judgment of the district court is affirmed. 

We concur: J 

C/ Justices 
Mr. Justice Wesley Castles specially concurring: 

I concur in the result reached, but would not enter into 

the discussion on so-called issues which are not raised as issues 

at all. The only issue raised by appellants is whether there are 

genuine issues of material facts to support a summary judgment. 

With that part of the opinion, I agree. 

'. *-, r' " I L 

---.,---#...4"2d"C j----*--16-r:-s--A-- 

Justice.