No. 89-320 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1989 

THE FEDERAL LAND BANK OF SPOKANE, 

Plaintiff and Respondent, 

-vsDON and MARY LOU REILLY, 

Defendants and Appellants. 

APPEAL FROM: District Court of the Fourth ~udicial ~istrict, 

In and for the County of ~avalli, 

The Honorable Douglas ark in, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Don Reilly and Mary Lou ~eilly, pro se, ~amilton, 

Montana 

For Respondent: 

W. Arthur Graham; Graham & Reep, is sou la, Montana 

Submitted on Briefs: Sept. 27, 1989 

Decided: December 1, 1989 
Justice John C. Sheehy delivered the opinion of the Court. 

Federal Land Bank of Spokane (FLB) filed suit against 

Don Reilly and Mary Lou Reilly in District Court of the 

Fourth Judicial District, Ravalli County, for unlawful 

detainer and for possession of real property purchased by FLB 

at a nonjudicial foreclosure sale. The court adjudged Don 

and Mary Lou ~eilly guilty of unlawful detainer, dismissed 

their counterclaims, and ordered them to surrender possession 

of the premises. Reillys appeal from that judgment. We 

dismiss the appeal because the issues stated by the Reillys 

on appeal relate to matters handled and decided by the 

Federal bankruptcy court. The state district court had no 

part in deciding those issues. 

The issues raised by Reillys are: 

1. Whether Federal bankruptcy law prohibited sale of 

the real property. 

2. Whether Federal bankruptcy law removed the trustee 

of the deed of trust, thus rendering him powerless to proceed 

with the sale. 

3. Whether the trial court erred in ruling the sale 

could proceed. 

On February 18, 1977, Reillys executed a promissory 

note, secured by deed of trust, to Federal Land Bank of 

Spokane for the purchase of a ten acre parcel in ~avalli 

County, Montana. The loan was in the amount of $48,000, with 

annual installments of $4,466.04 due on February 1 of each 

year until the year 2007. 

Reillys defaulted on their obligation by failing to make 

the February 1, 1985 and the February 1, 1986 annual 
installments. In addition, Reillys were also in default for 

failing to pay taxes on the property amounting to $1,938.40. 

On January 2, 1986, Reillys filed a Chapter 11 

bankruptcy petition with the United States Bankruptcy Court 

for the District of Montana. On ~pril 2, 1986, FLB filed a 

motion for relief from the automatic stay of bankruptcy. The 

court granted relief on August 8, 1986, thereby allowing FLB 

to foreclose on the deed of trust. On March 13, 1987, Farm 

Credit Bank of Spokane (successor by merger to the FLB), 

purchased the property at a nonjudicial trustee's sale. 

Reillys filed an action and sought a preliminary 

injunction in the Bankruptcy Court in February of 1987, 

alleging that the deed of trust on the property was void, due 

to an error in the legal description. The Bankruptcy Court 

dismissed the complaint on October 13, 1987, ruling that the 

parties intended to transfer a valid security interest in the 

property, and that the error was not fatal to its validity. 

Reillys appealed to the U.S. Bankruptcy Appellate Panel. 

The appeal was referred to the U. S. District Court of 

Montana, Judge atf field presiding. The appeal was dismissed 

with prejudice on ~pril 27, 1988, and the stay pending appeal 

lifted. 

On May 4, 1989, Reillys were served with a notice of 

termination of tenancy at will and notice to quit. Reillys 

continued in their occupation of the premises. 

On June 9, 1988, on the motion of creditors, the Chapter 

11 case was converted to a Chapter 7 case, despite objection 

by Reillys. 

On June 10, 1988, Reillys were served by FLB with a 

notice of unlawful detainer and notice to quit. ~eillys 

continued to maintain possession of the premises. 

Accordingly, FLB filed a complaint with the District 

Court of Ravalli County on July 8, 1988, alleging wrongful 
detainer and seeking possession of the property. FLB moved 

for summary judgment. Reillys moved for dismissal and filed 

a counterclaim, alleging fraud, bad faith, breach of 

fiduciary duty, tortious interference with contract, and 

material misrepresentation. 

The District Court, Judge Harkin presiding, stated in 

its memorandum and order of March 3, 1989, that Reillys' 

assertions that the foreclosure sale was improper was not 

substantiated by facts. As to the counterclaim, the court 

determined that it had no jurisdiction to determine the 

merits of the counterclaim, as the Reillys no longer had 

standing as Chapter 7 debtors. The ~eillys appealed to this 

Court. 

The ~eillys raise issues which are based solely on 

bankruptcy law. The issues raised were previously decided by 

the united States ~istrict Court or are ones which should be 

decided by the federal courts. Under 28 U.S.C. 5 1334, the 

united States District Court (including the U.S. Bankruptcy 

Court) has original and exclusive jurisdiction of matters 

arising under ~itle 11 of the united States Code. 

In addition, Reillys are collaterally estopped from 

raising the issues on appeal, as the parties, subject matter, 

issues, and capacities of the parties are the same throughout 

the bankruptcy and the ~istrict Court proceedings in this 

matter. Stapleton v. ~irst security Bank (1983), 207 Mont. 

248, 258, 675 P.2d 83, 88. Questions regarding the automatic 

stay and FLB's right to foreclosure have been decided by the 

Bankruptcy Court and on appeal to the united States Appellate 

Courts for the Ninth Circuit. Collateral estoppel was 

designed to prevent just this type of prolonged and 

repetitive litigation. 

~ccordingly, the appeal is dismissed. The Bank has 

asked for damages under Rule 32, M.R.App.P. We determine no 
useful purpose would now be served in awarding damages in 

view of this dismissal. Costs to the ank. 

t 7 L rb~, 

Justice I 

We Concur: i