No. 83-194 INTHE SUPREME COURT OF THE STATE OF MONTANA 1984

KELLY J. BRAULT, Plaintiff and Appellant,

RICHARD DALE SMITH, ALICE SMITH, ENGINE REBUILDERS, INC., a Mont. corp., W.D. HIRST, JAI4ES H. SADLER, & MISSOULA BANK OF MONTANA, Defendants and Respondents.

APPEAL FROM: District Court of the Fourth Judicial District, In and forthe County of Missoula, The Honorable John S. Henson, Judge presiding.

COUNSEL OF RECORD: For Appellant: Raymond W. Brault

### ,Helena, Montana

For Respondents: Datsopoulos, MacDonald & Lind; Ronald B. IilacDonald, Missoula, Montana (Smith & Engine Rebuilders) Patterson, Marsillo, Tornabene & Schuyler; John Dostal, Missoula, Montana (Hirst) Worden, Thane & Ilaines; Patriclc G. Frank, Missoula, Montana (Bank of Montana)

Submitted on Briefs: December 22, 1983 Decided: March 29, 1984

Filed: 

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## 1984- Mr. Chief Justice Frank I. Ha-swelldelivered the Opinion of the Court. Appel-lantKelly Brault filed a complaint on May 9, 1980, in the Missoula County District Court alleging libel, slander, contract losses and abuse of process. The defendants in that action, Richard. and Alice Smith, Engine Rebuilders, Inc., W. D. Hirst, James Sadler and theMissoula Rank of Montana (hereinafter referred. to as respondents) filed motions to dismiss. After oral argument the District Court issued an order of di-smissalfrom which Kelly Brault appeals. The allegations in appellant's complaint concerned a prior suit filed in the Missoula County District Court in April 1974. See Engine Rebuilders v. Seven Seas Import-Export (Mont. 1980), 615 P.2d 871, 37 St.Rep. 1406. Thisprior action arose froma contract entered intoby Seven Seas Import-Export & Mercantile, Inc. (hereinafter Seven Seas), and Engine Rebuilders, Inc. The contract provided that Seven Seas would construct a commercial garage for Engine Rebuilders. When financial problems prevented Seven Seas from timely completing the building, Engine Rebuilders filed suit alleging defendant Seven Seashad misappropriated monies from a trust fund esta.blished for the purpose of construction. Seven Seas at the time of the contract and lawsuitwas

a cl..osely held corporation consisting of Raymond Brault and his family. The plaintiff and appellant in the present action,Kelly Brault, is the son of R.aymondBrault and was a shareholder of Seven Seas in 1974. Kelly Brault at the time Engine Rebuilders was filed.was a minor and upon motion ofi his attorney,father and codefendant,was dismissed from that action. Raymond Brault was adjudicated bankrupt in California inMarch 1977. On January 18, 1978,Raymond Brault and Seven Seas filed an amended answer to the original complaint, countercl-aim,and third-party claim against the same respondents listed in this cause of action. Respondents Alice and Dick Smith were the primary shareholders of Engine Rebuilders, Mr. Sadler and Mr. Hirst, their counsel of record, and the Missoula bank was the lending institution involved in thebuilding construction. The counterclaim brought by Raymond Brault and Seven Seas alleged essentially the samecauseof actions broughtby shareholder Kelly Brault in the present action: libel., slander, contractual interference,conspiracy,negligenceand conversion. On September 14, 1979, the District Court dismissed these counterclaims of Seven Seas on thebasis of the relevant statute of limitations. This Court affirmed. Engine Rebuilders, supra. Having attained the age ofmajority,Kelly Brault filed the present lawsuit as a former shareholder of Seven Seas. Defendants' motion to dismiss was granted by the Missoula County District Court on various grounds including res judicata, collateral estoppel,privilege and failure to state a claim upon which relief canbe granted. Basing our decision primarily on the doctrine of res judicata,

### we affirm the dismissal of appellant's complaint.

I The allegations of Kelly Brault all stem from actions surrounding the filing of the 1974 lawsuit by Engine1L Rebuilders. The appellant was originally named as a defendant in that suit which charged the Braults personally and doing business as Seven Seaswith fraudulently appropriating construction funds for personal use. Specifically in this appeal, Kelly Brault contends that respondents sent a letter to a potential Wyoming customer explaining the pending suit inMontana, thereby causing contractual interference with the customer. Additionall-y,Kelly Brault argues the business reputation of the company was damaged when notice of the lawsuit was published in a local credit bureau's "green sheet." Appellant argues that his damages in the present suit are personal innature and therefore distinguishable from the damages litigated by his father and Seven Seas in the prior suit. However, on closer examination, appellant's claimed injuries,particularly those arising from the alleged damage to the good will of Seven Seas and contractual interference, are indistinguishable from any other shareholder's injury. In his complaint appellantpled mental anguish,mental sufferingand reduced enjoyment of life. However,on appeal, appellant has apparently conceded the District Court's conclusion that such damages are not actionable in that they arose from a judicial complaint clothed with absoluteprivilege. Appellant has confined his argumentbefore this Court to libeland slander damages flowing from the letter allegedly sent to the Wyoming customer of Seven Seas. Nonetheless, we affirm the District Court order of dismissal rul-ingthe original complaintprivileged and finding nopersonal defamation. Section 27-1-804(2), MCA. As todamage claims flowing from any publications collateral to the complaint, the doctrine of res judicataprecludes recovery.The basic proposition embraced by the doctrine of res judicata has always remained the same: aparty shouldnotbe able to relitigate a matter he or she has already had an opportunity to litigate. This policy reflects the notion that a lawsuit should.not onlybring justice to the aggrieved parties but provide a. final resolution of the controversy. Wellman v. Wellman (Mont. 1982), 643 P.2d 573, 39 St.Rep.

This Courthas enunciated theprinciples of res judicata, including collateralestoppel, on numerous occasions. In Gessel Tr. Jones (1967), 149 Mont. 418, 421, 427 P.2d 295, 296,we noted: 

# ".

. .res judicatabars the sameparties from relitiga-ting the same cause of actionwhile collateral.estoppel bars the same parties from relitigating issues which were decided with respect to a different cause of action [citation omitted]. The bar that arises from collateral estoppel extends to all questions essential to the judgment a-nd actively determined by a prior valid iudgment [citationomitted]." Res judicata technically only pertains to situationswhere a
cause of action or claimhas been previously litigated. For this reason, it is referred to in contemporary legalvernacular as claim preclusion. Its counterpart where a specific issue has been litigated is collateral estoppel or issue preclusion. Both concepts are intermixed in this appeal; the doctrine of res judicata will be used in its broader sense,
as a col-lective term, encompassing both issue and claim preclusion. A decade after Gessel in Meagher County Newlan Creek Water Districtv. Walter (1976),169Mont. 358, 361, 547 P.2d 850, 852, we recognized that issue or claim preclusion wasa.pplicableto not only the parties to the prior action but their privies: 'I. 

# .. The doctrine of res judicata states that a final judgment on the merits by a court of competent jurisdiction is conclusiveas to causes of action or issues thereby litigated, as to the parties and.their privies

# ..."

In Fox v. 7L Bar Ranch Co. (Mont. 1982), 645 ~.2d 929, 39 St.Rep. 862,this Court summarized thenecessary criteria for applying the doctrine of res judicata. These criteria are: (1)the parties or privies must be the same; (2)the subject matter of the actionmust be the same; (3)the issuesmust be the same and relate to the same subjectmatter; and (4)the capacitiesof thepersons must be the same in relation to the subject matter and issues between them. Appellant's strongest argument against application of

res judica.t.ain this suit is that the parties are not the

same. Kelly Brault was dismissed from the original suit. This argument must fail,however, because Kelly Brault, as a shareholder,was aprivy to the corporateparty Seven Seas in Engine Rebuilders. A privy isbroadly defined as one who has an interest in an action. Black's LawDictionary,5th Ed. at 1077 (1979). In reference to a judgment it applies to one whose interest has been legally represented at trial. 46 Arn.Jur.2d Judqments, S 532 at 686. Kelly Brault without a doubt had an interest in the previous action. He was a shareholder in a closely-held family corporation involved in a suit over property of the corporation. Seven Seas through its counsel,appell-ant'sfather,represented the interests of its shareholdersincludingKellyBrault. Other jurisdictions have found privity to exist between

a corporation and 

### its shareholders and a decree against thecorporation conclusiveon its shareholders. The only caution expressed by these courts is that the prior action must be adversary in nature--that is,no collusion can exist between the opposing party and the corporation representing the shareholder. Gagnon Co. v. Nevada Desert Inn (1955), 45 Cal.2d 448, 289 P.2d 466; Ballas v. Caldis (1968), 167 Colo. 248, 447 P.2d 224;Meeker v. Walker (1969), 80N.M. 280, 454 P.2d 762. Here, where there was no evidence of collusion between Seven Seas and Engine Rebuilders in theprior litigation, the shareholders are privies of the corporation for purposes of res judicata. The other criteria for application of res judicata set forth in Fox aremet in this case. The subject matter of the 

### - counterclaim 

### in Engine Rebuilders was the filing of the original complaintand collateral publicationsof thependency of the lawsuit. Kelly Brault's present lawsuit flows from the same set of facts and circumstances. Damages claimed in both suits stem from the alleged malignment of Seven Seas' business name. The issues raised in both suits are identical. As this Court noted in Fox, identitv of issues is an 

## - important criteria for purposes of res judicata. Among theprimary issues raised in Engine Rebuil-derswaswhether Seven Seas couldmaintain claims for libel, slanderand contractual interference. These claims are identical to those raisedby appellant. The claims were dismissed in the prior suit because the statute of limitationshad run. Such an involuntary dismissal is an adjudication on the merits by the express language of Rule 41(b), M.R.Civ.P.: 

### "

# . . .adismissal under this subdivision and any dismissal notprovided for in this rule,other than a dismissal for lack of jurisdiction orfailure to join a party under Rule 1-9, operates as an adjudicationon themerits." Finally,under Fox, the capacities of the personsmust be the same in relation to the subject matter and issues between them. As we have noted, appellant claims damages that arise fromhis former capacity as a shareholder of Seven Seas. The corporation litigated identical claims, 

### in an identical capacity,against the same defendants. The criteria for application of res judicata are fully satisfied and appellant is barred from relitigating claims of libel, slander and contract interference. Derivative actions by shareholders are authorized by the Montana Rules of Civil Procedure. However, before a shareholder may maintain such action, the corporation must have failed to enforce the right. Rule 23.1, M.R.Civ.P. Here there was an attempt by Seven Seas to bring action on the alleged defamation and contractual interference. Consequently,any subsequent derivative a-ctionby a shareholder is precluded.

311 As a final matter we address appellant's contention that the District Court erroneously dismissed his claim of abuse of process. Essential to proof of abuse of process is

(1) an ulterior purpose and (2)a willful act in the use of theprocess notproper in the regular conduct of the proceeding. Prosser, Law of Torts, 4th Ed., 857 (1971). While we 

### -- have not previously had an opportunity to recognize these elements, numerous jurisdictions have so held. See for example, Barquis v. Merchants Collection Association of Oakland (1972),101Ca1,Rptr. 745, 496 P.2d 817.Appellant failed in his original complaj-ntto clearly set forth an ulterior motive on the part of respondents. More importantly, no a.llegationswere made that the process

was used for an improper purpose. Engine Rebuilders in the original suitattempted to recover sums lost on the construction project. Pressins valid legal claims to their regular conclusion,even with an ulteriormotive, does not by itself constitute abuse of process. Farmers Gin Company v. Ward (1964),73N.M. 405, 407, 389 P.2d 9,11. For a defendant to claim abuse of process, there must be an attempt by the plaintiff to use process to coerce the d.efendantto do some collateral thing which he could not be legally and regularly compelled to do. Crease v. Pleasant Grove City (1974), 30 Utah 2d 451, 519 P.2d 888; Batten v. Abrams (1981),28 Wash.App. 737, 626 P.2d 984. For example, in Hopper v. Drysdale (D. Mont. 1981), 524 F.Supp. 1039, defendant attorneys noticed and took pl.aintifflsdeposition with the ulterior motive of having him present in Gallatin County so he could be served and arrested on an outstanding contempt order issued in an unrelated proceeding. The fed.era1 court held that these facts, if proven,would constitute the tort of abuse of process as the process was put to ause perverted beyond its intendedpurpose. Here there was no such perversion. Collection of damages resulting from a partially performed construction contract is a proper purpose and use of process. The mere fact that the suithad some collateral effect on the conduct of the parties does not constitute abuse of process. Crease, supra.Appel.lantlsreliance on Hayes v. Union Mercantile Co. (1902), 27 Mont. 264, 70 P. 975, is misplaced. There thisCourt held that one can recover for wrongful and malicious attachment when carried out without probable cause. Such circumstances are not present in the case at bar. Appellant is directed, however, to dictum in Hayes in which the court did addressan analogous factual situation:

'I. 

# .. If one rightfully and lawfully cause an attachmentto be levied upon the property of a person in business, one naturally expects the fact of such attachment to be published to the business world, and that the credit of theperson attached, ifhe have any,may be injured; but such aperson isnot liable indamages, for he has the right to levy the attachment to secure an honest debt.



# ... " 27 Mont. at 275, 70 P. at 979. For the foregoing reasons, appellanthas fa.iledto establish

a cause of action for abuse of process. The DistrictCourt's dismissalof appellant's complaint is affirmed. 

# s/&J $,

# Wm

# ,do Chief Jugtice '

We concur: