No. 89-404 

JOY SMITH, 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

Plaintiff and Appellant, 

-VSIONA BARRETT, KENT LEMBKE, and EUGENE 

ATHERTON, 

Defendants and Respondents. 

APPEAL FROM: District Court of the Eleventh Judicial District, 

In and for the County of Flathead, 

The Honorable Michael Keedy, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Michael Donahoe, Helena, Montana 

For Respondent: 

E. Eugene Atherton, Kalispell, Montana 

Filed: 

Submitted on Briefs: Jan. 25, 1990 

Decided: March 8, 1990 

* 
Justice R.C. McDonough delivered the Opinion of the Court. 

This is an appeal from an order of the District Court of the 

Eleventh Judicial District, Flathead County, granting summary 

judgment in favor of the defendants/respondents in an action for 

declaratory judgment and tortious interferance with a business 

relationship, and awarding sanctions against the appellant and her 

attorney. We affirm the order of summary judgment and reverse the 

award of sanctions. 

The issues on appeal are: 

1. Whether the District Court properly granted summary 

judgment . 

2. Whether the imposition of sanctions by the District Court 

was proper. 

In late 1987, the appellant, Joy Smith (Smith) contacted Kent 

Lembke (Lembke) , a real estate agent, concerning her desire to 

purchase a local general store. In response to this request, 

Lembke showed her the Elmo Store, in Elmo, Montana. The store was 

listed at $145,000.00. This price included both the store and all 

of the inventory on hand at time of sale. 

After some negotiations between Smith, Lembke and the owner 

Iona Barrett (Barrett), Smith offered to buy the Elmo Store and its 

inventory for $99,500.00. Barrett rejected this offer because the 

price was too low and the inventory was to be paid for separately. 

Smith then made a new written offer and offered to buy the store 
for $99,500.00 and to buy the store's inventory for $2,500.00. 

Barrett accepted this offer, and Smith gave Lembke a down payment 

in the form of a personal check in the amount of $30,000.00. 

Lembke as agent deposited the check in his trust account on 

December 11, 1987, the day after the sales contract was signed. 

His bank immediately forwarded it through banking channels for 

collection. Subsequently Smith's bank in Oklahoma honored the 

check, debited her account and forwarded a standard bank cashier's 

check to Lembke's bank in Kalispell. 

Later that day, Smith went to the Elmo Store with the 

intention of doing an inventory of all of the store's merchandise. 

A disagreement arose between Smith and Barrett concerning the 

contractual provisions surrounding the sale of the inventory. 

Apparently, Smith believed that she was entitled to the entire 

inventory. Barrett, on the other hand, believed that Smith was 

only entitled to $2,500.00 worth of inventory. As a result of this 

disagreement, Smith expressed her desire to repudiate the contract. 

Lembke attempted to hold the agreement together. However, 

Smith adamantly expressed her desire to back out of the contract. 

She was also very concerned over the whereabouts of the $30,000.00 

payment she had given Lembke. She therefore stopped payment on the 

check. Her bank then notified Lembke's bank that it would not 

honor the cashier's check and payment was stopped at the federal 

reserve level. 

Lembke then conferred with Barrett and suggested she retain 

3 
an attorney. As a result of this suggestion, Lembke contacted E. 

Eugene Atherton (Atherton), an attorney from Kalispell, Montana. 

After consultation with both Lembke and Barrett, Atherton authored 

three letters, one to Barrett, one to Smith and one to Smith's bank 

in Oklahoma. 

The letter to Barrett confirmed that Atherton was engaged to 

induce Smith to complete the contract or to forfeit the $30,000.00. 

The letter to Smith contained a demand that Smith either complete 

the contract or forfeit the $30,000.00. And the letter to the bank 

in Oklahoma demanded that the $30,000.00 check be honored. The 

letter also suggested that the bank was exposing itself to 

liability and that to be safe, the bank should at least hold the 

money itself until the dispute was settled. 

On receiving her letter, Smith contacted Michael Donahoe, an 

attorney, (Donahoe) for advice. Donahoe wrote Atherton and 

expressed his belief that no contract was ever formed due to a lack 

of meeting of the minds on the inventory term. Furthermore, 

Donahoe argued that the contract, if any, was not enforceable under 

the Statute of Frauds. Donahoe demanded that the $30,000.00 be 

released. 

Following this exchange of letters, Atherton further conferred 

with his client. Barrett informed him that although she felt she 

was entitled to some money, she did not desire to litigate. 

Atherton then began to attempt to reach a settlement of the 

controversy. Eventually, when it became apparent that no 

4 
settlement would be forthcoming, the matter was dropped. 

However, Smith was not satisfied by simply dropping the 

matter. She maintained that the actions of Atherton and Lembke 

deprived her of the use of her $30,000.00 for seven months, and as 

a result she incurred severe financial hardship, which led to 

destruction of her credit rating and loss of her health insurance. 

As a result of these damages, she sued Atherton, Lembke and Barrett 

alleging that they tortiously interfered with Smith's business 

relations by compelling the bank to hold the funds. 

Barrett was dismissed from the action. The remaining 

defendants moved for summary judgment and also moved the court to 

assess sanctions. The lower court granted their motion for summary 

judgment and, in response to its opinion that plaintiff's cause of 

action was frivolous, assessed sanctions in the amount of 

$2,568.10. This appeal followed. 

I 

Smith maintains that the lower court erred in granting summary 

judgment. We disagree. 

Summary judgment is proper under Rule 56 (c) , M. R. Civ. P. , when 

the movant shows there is no genuine issue as to any fact deemed 

material, in light of the substantive legal principals entitling 

the movant to judgment as a matter of law. All reasonable 

inferences must be drawn in favor of the party opposing the motion. 

Cerek v. Albertsons's Inc. (1981), 195 Mont. 409, 637 P.2d 509. 

In making its determination on whether to grant a motion for 

5 
summary judgment , the court must consider the entire record. Hager 

v. Tandy (1965), 146 Mont. 531, 410 P.2d 447. We must now apply 

these principles to the formal issues presented by this case. 

In her amended complaint, Smith alleges in paragraph 7 that: 

Since filing this . . . action Plaintiff has become aware 

that defendant Iona Barrett never had any intention to 

engage in litigation against the Plaintiff concerning the 

purchase and sale agreement that was executed on December 

10, 1987. Moreover Plaintiff has become aware that Mr. 

Lembke and Mr. Atherton brought significant pressure to 

bear upon Mrs. Barrett to engage in a controversy against 

the Plaintiff. Thus even though Mrs. Barrett had no 

desire to litigate Mr. Lembke and Mr. Atherton 

nonetheless made every effort to seize Plaintiff's Thirty 

Thousand Dollars ($30,000.00) earnest money. 

Smith further alleges that as a result of these actions, her credit 

rating was ruined and she lost her health insurance. She 

therefore, prayed the court to award all damages found to be 

proximately caused by the defendant's alleged wrongful acts. 

In her briefs on appeal, Smith maintains that the above 

allegations make out a prima facie case for the torts of 

interference with business relations and malicious defense. The 

tort of malicious defense, which is an outgrowth of malicious 

prosecution, has never been recognized in Montana. Although the 

tort is largely unrecognized throughout most jurisdictions, it has 

been the subject of indepth, scholarly discussion. See Comment, 

47 Mont.L.Rev.101 (1986), Van Patten and Willard, 35 Hastings L.J. 

891 (1984). The proponents of its recognition maintain that it is 

needed to counteract unfounded and malicious defense tactics. 
In the case now before us, we do not decide whether this new 

tort should be recognized in Montana. However, for the sake of 

argument we will take note of its elements and apply them to 

Smith's case-in-chief. 

The elements of malicious defense are: 

1. The initiation, continuation or procurement of 

proceedings; 

2. By or at the insistence of the Defendant; 

3. Favorable termination of the underlying proceeding 

in which the frivolous or malicious defense was asserted 

4. Lack of probable cause; 

5. Malice; and 

6. Injury or damages sustained as a result of the 

previous proceeding. 

The evidence, viewed in a light most favorable to Smith, fails 

to satisfy these elements. In particular, we note that there is 

no evidence that either Atherton or Lembke acted with malice toward 

Smith. Barrett testified that although she did not desire to 

engage in litigation with Smith, she did feel she had entered into 

a valid contract for the sale of her store and that Smith breached 

that contract. As a result of that breach, Barrett felt she was 

entitled to retain the earnest money as liquidated damages. 

Lembke and Atherton, working on her behalf, attempted to 

obtain this money, which they felt she had a legal right to retain. 

In their endeavor to complete this task, Atherton wrote Smith's 

bank and informed it of his belief, that under the law of 
commercial paper it had no right to stop payment on the $30,000.00 

check, once the check had been delivered. He further stated his 

belief that by issuing the cashier's check, the bank accepted 

Smith's promise to pay the $30,000.00 and converted that promise 

to its own obligation. If it stopped payment on the check, this 

obligation would be breached and the bank would consequently expose 

itself to liability. 

Atherton then engaged in negotiations with Smith and her 

attorney to work out some settlement in regard to the dispute over 

the earnest money. Admittedly, these negotiations included a 

series of statements and threats of litigation promulgated by 

Atherton. However, such comments usually do not rise to the level 

of malice required, before one can successfully assert a cause of 

action against an opposing attorney. 

We also note that Smith's allegation, that Lembke and Atherton 

I1brought significant pressure to bear upon Mrs. Barrett to engage 

in a controversy against the Plaintiff ,I1 was denied by Barrett. 

Her deposition contains the following exchange with Mr. Atherton: 

Q: . . . Mrs. Barrett, at any time did I ever, ever 

bring any pressure at all against you to litigate or to 

engage in some sort of controversy against the Plaintiff? 

A: No, you never did. 

This exchange further supports our conclusion that neither 

Atherton nor Lembke acted with any malice or improper purpose 

towards Mrs. Smith. There is no other evidence except allegations 
and therefore Mrs. Smith has failed to come forward with facts to 

meet her burden of proof and we hold that summary judgment was 

proper on the issue of whether the defendants committed the tort 

of malicious defense. 

Smith's second theory of recovery, alleging that Lembke and 

Atherton wrongfully and intentionally interfered with her business 

relations fails for the same reasons. In order to establish a 

prima facie case of such interference, one must show that the acts 

were : 

(1) intentional and wilful 

(2) calculated to cause damage to the Plaintiff in her 

business 

(3) were done with the unlawful purpose of causing 

damage or loss, without right or justifiable cause on the 

part of the actor, and 

(4) that actual damages and loss resulted. 

Peterson v. J.R. Simplot Co., (1989), 46 St.Rep. 1463, 1469, 778 

P.2d 879, 884. 

As we stated above, the evidence, taken as a whole, indicates 

that Atherton and Lembke were merely attempting to obtain the 

earnest money as liquidated damages on behalf of their client. 

These damages were provided for under the contract and therefore, 

their belief in their client's entitlement to the funds had a legal 

basis. There is no evidence that their actions were done with an 

Igunlawful purposeg1 or were 'gcalculated to cause damaget1 to Smith. 

Accordingly, this allegation also fails and we hold that summary 

9 
judgment on this issue was proper. 

The lower court found that the claims asserted by Mrs. Smith 

and her attorney, Mr. Donahoe, were frivolous. Acting on this 

belief, the district judge assessed sanctions against them in the 

amount of $2,658.10. Smith and her attorney argue these sanctions 

were improperly imposed. We agree. 

Sanctions are properly awarded if an attorney fails to abide 

by the mandate of Rule 11, M.R.Civ.P., which states in pertinent 

part : 

If. . . The signature of an attorney or party constitutes 

a certificate by him that he has read the pleading . . . that to the best of his knowledge, information and 

belief formed after reasonable inquiry, it is well 

grounded in fact and is warranted by existing law or a 

good faith argument for the extension, modification or 

reversal of existing law, and that it is not interposed 

for any improper purpose, such as to harass or to cause 

unnecessary delay or needless increase in the cost of 

litigation . . . . If a pleading . . . is signed in 

violation of this rule, the Court, upon motion or upon 

its own initiative, shall impose upon the person who 

signed it, a represented party, or both, an appropriate 

sanction, which may include an order to pay the other 

party or parties the amount of the reasonable expenses 

incurred because of the filing of the pleading, motion 

or paper, including a reasonable attorney's fee." 

The cause of action asserted in this case, although 

unsuccessful, was not totally frivolous, nor is there any evidence 

that it was interposed for any improper purpose. Mrs. Smith and 

Mr. Donahoe brought this case upon the belief that Mr. Atherton and 

Mr. Lembke improperly tied up Barrett's $30,000.00 down payment. 
The complaint stated that this action resulted in severe financial 

hardship upon his client. Mr. Donohoe therefore felt that the 

cause of action was well grounded in fact and supported by the law 

or supported by a good faith argument in support of extending the 

law. 

We have stated our disagreement with plaintiff's and Donahoe's 

position. However, we do find the actions undertaken by Atherton 

and Lembke had the effect of protraction. In light of these 

conclusions, we hold that the sanctions were improperly awarded and 

we reverse and vacate this portion of the judgment. 

Affirmed in part and reversed in part.