### No. 13196 INTHE SUPREME COURT OF THE STATE OF MONTANA 1976

THE STATE OF MONTANA on theRelation of David G. 

### Drum and Dorothy G, 

### Drum, Petitioner,

THE DISTRICT COURT OF 

### THE THIRTEENTH JUDICIAL DISTRICT OF THE STATE OF MONTANA, INAND 

### FOR THE COUNTY 

### OF YET,T,OWSTONE, and ROBERT H. 

### WILSON, Presiding Judge Thereof, and FIRST NATIONAT, BANK 

### AND 

### TRUST COMPANY, 

### of Billings, Montana,,

ORIGINAL PROCEEDING

### : Counsel of Record: For Petitioner: Hutton, Sheehy and Cromley, Billings, Montana John C. 

### Sheehy argued, Billings, Montana For Respondents: Hibbs, Sweeney and Colberg, Billings, Montana William T. Wagner argued and Hugh Sweeney appeared,

Billings, Montana

Submitted: February 

### 5, 1976 Decided:

## APR 1g 

## 1976 ;;p~

## 12

# 1976 Filed:

### Mr. Justice Frank I. Haswell delivered the Opinion of the Court.

The original opinion inthis cause 

### was rendered on December 30, 1975 and appeared in 32 St.Rep. 1297. We granted rehearing on January 15, 1976, and rehearing was held on February 5, 1976. The original opinion 

### is now withdrawn and this opinion substituted. This case involved an applicationby relators for 

### a 

### writ of supervisory control tocompel dismissal of a civil action against them unless Chase Manhattan Bank of New York City

### was joined 

### as a party plaintiff, The FirstNational Bank and Trust Company, Billings, Montana, sued relators David G. Drum and Dorothy G. Drum, his wife, tocollect 

### a balance in excess of $1,000,000 allegedly owed on ten promissory notes. Relators moved todismiss the action on the ground 

### it 

### was not prosecuted in the name of the real party in interest and for failure tojoin an indispensable party plaintiff. The foundation of thismotion was relators' claim that FirstNational's entire interest in six of the claims sued upon had been transferred toChase Manhattan Bank prior to the commencement of the action, and part of FirstNational's interest inthe four remaining 

### claims had been so transferred. The district court, Yellowstone County, Hon. Robert H. Wilson, districtjudge, denied relators' motion todismiss by order dated September 23, 1975. The salient facts forming the basis of this litigation

can be gleaned from the pleadings, attached exhibits, the deposition of Lee W. Johnson, and the affidavits of relator David G. Drum, and relators' attorney. These reveal extensive transactions relating generally to financing cattle operations and involving relators, three corporations controlled by relator David G. Drum, First National, and Chase.InMay 1972, Chase notified relator David G. Drum by letter that it would extend to him personally "through the vehicle of a loan participation with The FirstNational Bank of Billings a $2,000,000 share ina line of credit totaling $2,225,000. Among other conditions, relator Dorothy G. Drum



### was required to execute a loan guarantee, which she did. Personnel from Chase went to Billings and finalized 

### a written loan agreement between relator David G. Drum and First National. Atthe 

### time the loan agreement 

### was executed, themaximum lending capacity of FirstNational to a singleborrower 

### was approximately $750,000. Pursuant to the loan agreement, relator David G. Drum borrowed money under the line of credit extended. As he borrowed various 

### sums from time to 

### time, he would execute promissory notes payable toFirstNational inthe amount advanced. First National, inturn, would execute 

### a participation agreement or certificate wherein 

### it sold toChase 

### a participating interest in each loan

somade, adhering 

### as closely 

### as possible tothe agreed 90%share of Chase inalloutstanding loans. The participation agreement provided, among other things, that Chase could direct First National to enforce the obligations of Drum under the notes. The loan participation device was allegedly utilized by Chase inpreference to a direct loan toDrum because of more favorable interest charges available under the laws of Montana (10%)than was permitted under the laws of New York (8-1/2%). On May 2, 1975, atthe request of Chase, FirstNational filed an action against relators tocollect the balance of principal owing, interest, attorney fees, and costs on ten promissory notes representing loans under the foregoing arrangement. The total principal indebtedness and participation alleged

on each note was:First Note 1 2 3 4 5 6 7 8 9 10 Totals Chase $ zoo.00

806,704.20 1,000.00 72,450.00 500.00 2,795.20 12,460.31

1,000.00 162,000.00 6,966.01 National $ 28,520.72 Total $ 28,720.52 820,918.91 6,205.47 72,450.00 500.00 2,795.20 12,460.31

3,000.00 162,000.00 6,966.01

This suitwas filed 

### as Cause No. 66792, inthedistrict court of Yellowstone County. FirstNational was the 

### sole plaintiff. Defendants were David G. Drum and Dorothy G. Drum. Chase

was not 

### a party inthisaction. Relators 

### also alleged inthe

### records before thisCourt thatChase extended 

### a $15,000,000 line

### of 

### credit 

### to three 

### corporationscontrolledby

### relator David G. Drum under 

### a similar

### participation operation. The loan agreement was between FirstNational

on theonehand, and thethree corporationson the othex: Montana Beef Industries, Inc. inwhich Drum owns 92%

### of theoutstanding capital stock; T-Bone Feeders, Inc., inwhich Montana Beef Indus

### tries, owns 

### allthe outstanding capital stock; and Feeder Supply Corporation inwhich Drum owns 

### alltheoutstanding capital stock. As FirstNational made the loans from time 

### to time, 

### it secured promissory notes from theborrowers and transferred participating interests 

### to Chase. The 

### three corporations filed suitagainstFirst

### National and Chase under Cause No. 67125 inthe

### district court 

### of Yellowstone County. This 

### action was based onthe alleged collection of usurious interestbymeans of a scheme allegedly initiatedby Chase 

### to book "phony loans" 

### tocover the

### excess of interest charges. Chase subsequently secured its dismissal from this suiton the ground that 

### it can be sued onlyin

### a New York court under theprovisions 

### of theNational Banking Act, 12U.S.C. 

### B 94.Following dismissal of Chase inCause No. 67125, 

### relators filed three counterclaims against FirstNational in 

### its action against them on the ten promissory notes (Cause No. 66792). The firstcounterclaim seeks attorney fees for relators indefending themselves to the extent of Chase's interest in the ten promissory notes based upon the principle of mutuality. The second counterclaim by relator David G. Drum seeks the sum of $346,842.35 representing surplus funds from the sale of a building toCoors Brewery which Drum alleges was wrongfully exacted from him and applied toan alleged usurious loan indebtedness of Feeder Supply Corporation. According tohim this corporation 

### iswholly owned by him and 

### was formed toprovide storage facilities for grain; he put $200,000 of his personal funds into this corporation toprovide the required equity for a loan of $680,000 from Chase and FirstNational to construct the building. Chase made 

### a direct loan toFeeder Supply Corporation of $618,000 and FirstNational made a direct loan to this corporation of $61,200 each taking separate security instruments. About two years 

### later Drum negotiated a 

### sale of the building toCoors Brewery for $875,000 and offered topay the totalmortgage indebtedness in exchange for 

### a release. FirstNational and Chase declined, according toDrum, and when the salewas consummated they applied the surplus, over Drum's protest and objection, to alleged usurious loan indebtedness of Feeder Supply Corporation under the $15,000,000 line of credit extended to the three corporations, described heretofore. The third counterclaim by relator David G. Drum seeks $279,500 in feed bills expended by Feeder Supply Corporation when FirstNational refused topay them as agreed under the terms of the loan agreement between FirstNational and the three corporations extending the $15,000,000 line of credit.

### In themeantime, relators' motion for dismissal of Cause No. 66792 was

### pending. The motion for dismissal 

### was in two parts: (1)A 

### motion for outright dismissal of sixof the claims 

### evidenced by promissory notes on the ground that allinterest of First

### National therein had been transferred toChase prior to commencement of the action. (2) A 

### motion for dismissal of the remaining four claims evidenced by promissory notes unless Chase was made a party plaintiff

### on the ground that part of First National's interest therein had been transferred toChase prior tocommencement of the action. Following denial of theirmotion for dismissal, relators applied to this Court for a 

### writof supervisory control seeking

a judgment of dismissal unless Chase was joined as a party plaintiff

# . The essence of relators' contentions is 

### that Chase is 

### an indispensable party under Rule 19(b),M.R.Civ.P. and inequity and good conscience the action should not proceed in its absence among the parties now before the Court. Relators claim that as

a practicalmatter Chase is

### using FirstNational asa "front" to collect debts of which Chase is

### more than 95%

### owner; that in so doing Chase is 

### insulating itself inthe courts of Montana from relators' just and valid defenses and counterclaims against Chase. Relators point out that Chase 

### ishiding behind 12

### U.S.C. S 

### 94 in resisting claims against it 

### inthe courts of Montana. They contend that Chase's goal is 

### to securejudgment against relators and execute on their property before relators can secure judgment against Chase in the courts of New 

### York. Respondents, on the other hand, contend that Chase is 

### not

an indispensable party tothis suitby First

### National against the Drums tocollect the ten promissory notes because of the natureof the relationship between the Drums, First National and Chase in the loan transactions evidenced by the ten promissory notes. They point out that Chase 

### is neither the owner, holder,

or payee of any of the notes or the security, and accordingly complete relief can be accomplished between FirstNational and the Drumswithout prejudice to the rights or liabilitiesof those against either. Respondents argue that neither Rule 19, M.R.Civ.P., nor recent decisions of thisCourt require that Chase be made 

### a party, and in any event Chase cannot be sued in the courts of Montana under 12 U.S.C. 

### B 94 of the National Banking Act. On thisbasis respondents conclude that Chase cannot be made a party to this action and that the action should proceed between FirstNational and the Drums without dismissal. We conclude that the nature of the loan transactions that underlie the ten promissory notes does not give 

### rise toreciprocal rights and liabilitiestherein between the Drums and Chase. The loan agreement establishes the rights and liabilitiesbetween the parties to 

### it, viz. FirstNational and the Drums. The participation agreement or certificate establishes the rights and liabilities between the parties to 

### it, viz. FirstNational and Chase. Neither establishes any contractual relationship, rights or liabilities between the Drums and Chase. The nature of the relationship is simply a borrower--lead-- participant arrangement between Drum, First National and Chase respectively, which 

### isdescribed indetail inthe article "The Developing Law of Participation Agreements", The Business Lawyer, April 1968, pp. 689-696. In the instant case Chase isneither a party to the loan agreement nor an owner, holder or payee of any of the notes. The entire loan transaction is between Drum and First National. FirstNational 

### is the owner, holder and payee of the notes and the sole secured party in the collateral.

### Chase's only involvement is 

### in the participation agreement. Such agreement is 

### simply a shared loan where the "lead", FirstNational, sold a share of the loan tothe "participant", Chase. The relationship between the two is 

### governed by the 

### terms of the participation agreement or certificate. Here 

### FirstNationalis 

### the sole owner, holder and payee of the notes and has full dominion over the 

### security. Drum owes FirstNational the full amount of the loan asevidenced by the notes, and FirstNational, inturn, owes the participant its 

### share as evidenced by the participation certificate. Drum cannot challenge the amount of FirstNational's claim on the ground that some portion of it is 

### ultimately payable toChase under the 

### terms of the participation agreement. It 

### is 

### no concern of Drum what First

### National does with the proceeds of the repaid loan. This relationship is 

### not changed by the circumstances of the instant case where Chase may have been the primary mover, arranger or instigator of the loan; drafted and approved the loan documents; held a major share of the "action"; and "called the tune". The nature of the transaction and relationship of the parties is

### governed by the loan documents, principally the loan agreement between Drum 

### and First

### National and the participation agreement between First National and Chase. Relators' contention that Chase is

### an indispensable party under Rule 19(b),M.R.Civ.P., and that the action should not proceed in its 

### absence is 

### not tenable. Rule 19(b),provides: "(b) DETERMINATION BY COURT 

### OF WHENEVER JOINDER NOT 

### FEASIBLE. If 

### a person as 

### described in subdivision (a)

### (1) 

## -(2) 

### hereof cannot be made a 

### party, the court shall determine whether inequity and good conscience the action should proceed among the parties before it, 

### or should be dismissed, the absent person being thus regarded as indispensable. The factors tobe considered by the court include: first, towhat extent a judgment rendered in theperson's absence might be prejudicial tohim or those already parties; second,

### the extent towhich, by protective provisions inthe judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; third, whether a judgment rendered inthe person's absence 

### willbe adequate; fourth, whether the plaintiff will

### have an adequate remedy if the action isdismissed for nonjoinder." In the firstplace, inour view, Rule 19(b)is 

### not applicable tothis case. It 

### applies only to "a 

### person as described in subdivision (a)(1) 

## -(2) 

### hereof.

### " The pertinent part of Rule 19(a)describing such person provides: "(a)PERSONS TO BE JOINED 

### IF FEASIBLE. A 

### person who is 

### subject to service of process shall be joined as a party inthe action if (1)

### in his absence complete relief cannot be accorded among those already parties, or (2) he claims an interest relating tothe subject of the action and is 

### so situated that the disposition of the action inhis absence may (i) 

### as a 

### practical matter impair or impede his ability toprotect that interest or (ii) 

### leave any of thepersons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest. 

## * * 

# *" Here complete relief can be accorded FirstNational and the Drums without Chase being made a party. FirstNational can adjudicate its 

### claims for collection of the notes. Chase is

### not

a real party in interest because the holder of the notes is 

### entitled to sue in its own name, section 87A-3-301, R.C.M. 

### 1947, and additionally FirstNational 

### is the owner and solepayee on the notes. The Drums can adjudicate any defenses or claims involving the notes against FirstNational. Any interest of Chase relating tothenotes 

### willnot inChase's absence impair or 

### impede its 

### abilitytoprotect that interest, because it 

### can look to First

### National for relief under the terms of its 

### participation agreement. Judgment inthe present case would not subject the Drums to the risk of multiple or otherwise inconsistent obligations

as 

### the rights and liabilities of the Drums under the notes would be finally concluded. Accordingly, Chase is 

### not "a person as described in subdivision (a)(1)-(2)" 

### of Rule 19(a) so Rule 19(b) is 

### inapplicable. -9-

### Assuming, arguendo, that Rule 19(b)did apply, we would alsoreach a result denying joinder of Chase. Essentially the Drums seek toexpand the scope of this action beyond the ten promissory notes sued upon, so they can press claims inthe Montana courts against Chase directly arisingout of unrelated loan transactions with corporations that David G. 

### Drum controls. At

### the outset it is 

### clear that Chase cannot be sued in the courts of Montana under the provisions of the National BankingAct. The relevant statute, 12 U.S.C. § 

### 94, provides: "Actions and proceedings against any association under this chapter may be had inany districtor Territorial court of the United Statesheld within the district inwhich such association may be established, or inany State, county, ormunicipal court inthe county or city inwhich said association is 

### located having jurisdiction in similar cases." This statute 

### ismandatory and not permissive. Kader v. First National Bank of Fort Myers (1975), 387 F.Supp. 535; Northside Iron & 

### Metal Co., Inc. v. Dobson & 

### Johnson, Inc. (1973), 480 F.2d 798. It 

### even prevents joinder inthe same action of national banks located indifferent states 

### or districtswho 

### were sued for damages based on a civil conspiracy todefraud. Mercantile National Bank atDallas v. Langdeau (1963), 371 U.S. 

### 555, 83 S.Ct. 520, 9 L 

### ed 2d 523. Chase simply cannot be sued inthe courts of Montana, absent consent orwaiver. While we arenot in sympathy with this legislation, we arecompelled tofollow it. 

### Finding themselves inthis position, the Drums seek to compel joinder of Chase on pain of dismissal of this action. Where do the equities lie? Admittedly, it 

### would be 

### advantageous toDrums to getChase before theMontana court in this action and press their alleged counterclaims against Chase directly. But where will

### that leave First

### National if the action is

### dismissed for nonjoinder? It 

### willbe leftwith no remedy in the courts of its 

### own statetocollect the money it 

### loaned tothe Drums.Drums, on the other hand, can 

### assert any valid defense or counterclaim they may have on the notes 

### as readily against First National

as they can against Chase in the instant action. In our view the balance of equities 

### lieswith FirstNational and the Drums' contention thatunder Rule 19(b),M.R.Civ.P., Chase should be made a party or the action dismissed, cannot be sustained. Nor do this Court's recent decisions in State ex 

### rel. Slovak v. District Court, 166 Mont. 485, 534 P.2d 850, 32 St. Rep. 420, and State ex rel. Nawd's 

### TV and Appliance Inc. v. District Court, Mont

# . , 543 P.2d 1336, 32 St.Rep. 1222, require joinder of Chase. These cases involve subrogated insurerswho stand inthe shoes of their insureds and can sue the defendant directly. Here Chase does not stand in FirstNational's shoes with the right to sue Drums directly, but must look to FirstNational for relief under the 

### terms of the participation agreement. For the foregoing reasons, 

### we hold the district court's order of September 23, 1975, 

### was correct. This application for supervisory control 

### is dismissed. 

# ad

# g-. ----------- ---r----- Justice