NO. 91-500 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1992 

STEVEN G. BOYD and JERRI BOYD, husband 

and wife, and MONTANA MEDICAL OXYGEN AND 

SUPPLY, INC., a Montana corporation, 

Plaintiffs and Appellants, 

FIRST INTERSTATE BANK OF KALISPELL, 

N.A., a National Banking Association, 

Defendant, Third-Party Plaintiff 

and Respondent, 

STATE MEDICAL OXYGEN AND SUPPLY, INC., LARRY R. 

WILLIAMS, MARK C. HUNGERFORD, BRIAN R. CLOUTIER, 

STEPHEN KASPRISIN, and ROGER BOYD, 

Third-Party Defendants 

and Respondents. 

APPEAL FROM: District Court of the Eleventh Judicial District, 

In and for the County of Flathead, 

The Honorable Leif B. Erickson, Judge presiding. 

COUNSEL OF RECORD: 

For Appellants: 

Jon R. Binney and Lon J. Dale, Milodragovich, 

Dale & Dye, Missoula, Montana 

For Respondents: 

Debra D. Parker, Murphy, Robinson, Heckathorn & 

Phillips, Kalispell, Montana; Dexter L. Delaney 

and Palmer Mars Scott, Mulroney, Delaney & Scott, 

Missoula, Montana 

i D Submitted on Briefs: March 26, 1992 -- 

MAY 2 8 1992 Decided: May 28, 1992 

CLERK OF SUPREWE COURT 

STATE OF MONTANA 

Clerk 
Justice William E. Hunt, Sr., delivered the opinion of the Court. 

Plaintiffs/appellants Boyds brought suit against defendant/ 

respondent bank based on the deposit of certain negotiable 

instruments between November 1983 and February 1985. Respondent 

then brought State Medical into the action by way of a third-party 

complaint, alleging entitlement to indemnification for any damages 

which might be awarded in the action. Specifically, the appellants 

brought suit for statutory conversion under the Uniform Commercial 

Code pursuant to g 30-3-419, MCA (1989). The present action was 

stayed by the District Court pending resolution of related 

litigation arising out of the same events which were the basis for 

the present action. Following a jury verdict, this Court affirmed 

the decision in the related litigation. The District Court then 

lifted the stay in this case and granted summary judgment for the 

respondent bank on the grounds that the jury verdict in the related 

action collaterally estopped appellants' action against the 

respondent. Appellants brought this appeal arguing that collateral 

estoppel does not apply in this situation and that summary judgment 

was incorrectly granted to the respondent. We affirm. 

The only issue before this Court is whether the District Court 

erred in granting summary judgment to the respondent bank based on 

the determination that the resolution of the related litigation 

collaterally estopped the appellants from bringing this action. 
Much of the factual background concerning this dispute was set 

out by this Court in the related case of Boyd v. State Medical 

Oxygen and Supply, Inc. (1990), 246 Mont. 247, 249, 805 p.2d 1282, 

1283-84. The following facts, as set out in m, are relevant to 

the present appeal: 

Steven and Jerri Boyd, husband and wife, owned and 

operated a corporation known as Montana Medical Oxygen 

Supply, Inc. (Montana Medical). In 1983, the Federal 

Medicare Division initiated Medicare fraud charges 

against Montana Medical and Steven Boyd in federal court. 

These criminal charges resulted in a five year prison 

sentence for Steven Boyd and a $190,000 fine for Montana 

Medical. The federal judge agreed to review the prison 

sentence and fine under Rule 35 of the Criminal Rules of 

Civil Procedure if Steven Boyd would divest himself of 

all ownership in Montana Medical within 120 days. In 

response, Boyd executed an agreement with defendants 

Williams, Hungerford and Cloutier, for the sale and 

purchase of the assets and assumption of certain 

liabilities of Montana Medical. At about the same time, 

the Boyds executed documents granting powers of attorney 

to Williams, Hungerford and Cloutier and providing them 

with the right to manage Montana Medical. Upon execution 

of these documents, the federal judge reduced Steven 

Boyd's prison term to sixty days and Montana Medical's 

fine to $19.00. 

At about the same time as the pleas to the federal 

medicare fraud indictments were entered, Montana Medical 

and Steven Boyd were suspended from receiving Medicare 

reimbursements. As a result of the suspension and the 

criminal fines against Montana Medical, Williams, 

Hungerford, and Cloutier formed a new corporation, State 

Medical Oxygen and Supply, Inc. (State Medical), to 

purchase the assets of Montana Medical rather than 

purchasing the corporation outright. 

An agreement for the purchase of the assets of Montana Medical 

was signed by both parties. The agreement provided that the 

buyers, State Medical, were authorized to collect and retain all of 

Montana Medical's outstanding accounts receivable. State Medical 
opened a commercial deposit account for its new business with First 

Interstate Bank in Kalispell. Some of the checks deposited into 

this account by ~irst Interstate were made payable to Montana 

Medical. First Interstate deposited these checks into State 

Medical's account based on the language in the agreement to 

purchase which provided that State Medical was entitled to all of 

Montana Medical's accounts receivable. 

Shortly after the federal sentences against Boyd and Montana 

Medical were reduced, a dispute arose between the parties 

concerning the purchase of the assets. Eventually the sale fell 

through and each party sought damages from the other, alleging that 

the other had caused the breach. The present litigation, 

instigated by the Boyds/Montana Medical against First Interstate on 

a claim of statutory conversion, was stayed by the District Court 

on August 3, 1987, pending the outcome of the suit between 

Boyds/Montana Medical and State Medical. The District Court 

indicated in the order staying the present action that If[t]he 

resolution of that suit could be of great significance to this case 

and others involving these parties and may well resolve many issues 

raised herein." In the related litigation, the jury found against 

both parties and neither Boyds/Montana Medical nor State Medical 

recovered anything. One of the issues the jury considered was the 

question of whether State Medical, or Williams, Hungerford, or 

Cloutier individually, had converted any property of Montana 

Medical. The jury determined that no conversion had occurred. 
c his Court affirmed the verdict of the jury and the judgment of the 

District Court. w, 805 P.2d at 1282. 

The District Court in the present litigation between 

Boyd/Montana Medical and respondent bank lifted the stay following 

this Court's decision of the related appeal. On August 7, 1991, 

the District Court denied both parties' motions for summary 

judgment. Following the denial of both parties' motions for 

summary judgment, the District Court, on August 13, 1991, issued an 

amended order granting summary judgment for the respondent bank. 

The District Court determined that the previous litigation 

"collaterally estops the present action by Plaintiffs against First 

Interstate Bank." 

Did the District Court err in granting summary judgment to the 

respondent bank based on the determination that the resolution of 

the related litigation collaterally estopped the appellants from 

bringing this action? 

Appellants argue that the doctrine of collateral estoppel does 

not apply to the present litigation. Appellants contend that if 

collateral estoppel does not apply, then there are genuine issues 

of material fact in this case which make the District Court's grant 

of summary judgment erroneous. 

The doctrine of collateral estoppel, which is at times 

referred to as issue preclusion, has been previously explained by 

this Court as follows: 
"Collateral estoppel" . . . may be considered as a branch 

of the doctrine of res judicata but is distinguishable 

from the bar to litigation normally called res judicata. 

The distinction is that res judicata bars the same 

parties from relitigating the same cause of action while 

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 and actually 

determined by a prior valid judgment. [Citations 

omitted. ] 

Gessell v. Jones (1967), 149 Mont. 418, 421, 427 P.2d 295, 296. 

Collateral estoppel provides that "the judgment in the prior suit 

precludes relitigation of issues actually litigated and necessary 

to the outcome.'* Nat'l Coal Ass'n. v. Hodel (D.Mont. l987), 675 

F.Supp. 1231, 1237. Collateral estoppel prevents "relitigation of 

a particular issue or determinative fact which was actually or 

necessarily decided in a prior action . . . . " Fetherston v. 

Asarco Inc. (D.Mont. 1986), 635 F.Supp. 1443, 1445. This Court 

has adopted a three-prong test to determine if the doctrine of 

collateral estoppel should be applied. Marriage of Stout (1985), 

216 Mont. 342, 349, 701 P.2d 729, 733. Collateral estoppel will 

act as a bar to litigation when: 

1. The identical issue raised has been previously decided in 

a prior adjudication; 

2. A final judgment on the merits was issued in the prior 

adjudication; and 
3. The party against whom the plea is now asserted was a 

party or in privity with a party to the prior adjudication. Stout, 

701 P.2d at 733-34. 

In this case, the appellants contend that the first prong of 

the test is not satisfied in that the issue raised in the present 

suit has not been previously adjudicated. Appellants argue that 

the issue in the prior litigation was whether the buyers, State 

Medical, were liable under a theory of common law conversion. In 

the present action, appellants are seeking damages from the 

respondent for statutory conversion pursuant to § 30-3-419, MCA 

(1989). Appellants rely on that portion of 5 30-3-419, MCA (l989), 

which provides that: "(1) An instrument is converted when . + . 

(c) it is paid on a forged endorsement. " Appellants7 contention is 

that the District Court erred in determining that the prior action 

for conversion collaterally estops the appellants from bringing the 

present action for statutory conversion. 

In the amended order of the District Court granting summary 

judgment to respondent, the court stated that: 

In previously denying the motion of the Defendant 

for summary judgment this Court was proceeding on the 

basis that there still remained questions of fact on a 

number of issues, including the authority of Third-Party 

Defendants herein to authorize Defendant First Interstate 

Bank to accept for deposit to Account No, 01-8550-7 

checks made payable to Montana Medical. (It being clear 

that absent appropriate authority the Defendant First 

Interstate Bank would have been in error to deposit 

checks payable to Montana Medical in that account, it 

being an account for State Medical Services, Inc., a 

separate entity.) 
Upon further review the Court is satisfied that this 

question of fact and others have been rendered moot by 

the verdict of the jury and subsequent judgment rendered 

in Flathead County Cause No. DV-84-146. 

The District Court further explained that: 

There can be no question that at issue as part of the 

claim for conversion in DV-84-146 were the very funds at 

issue here. That jury having determined that no 

conversion occurred relative to these funds as between 

Plaintiffs here and Third-Party Defendants here, it 

follows that any claim against the bank, which was, after 

all, acting only as conduit to the funds, can[not] 

withstand a challenge of either res judicata or 

collateral estoppel. 

Thus it is the finding of this Court that the jury 

verdict in Cause No. DV-84-146 finding in favor of the 

Defendants as to Plaintiffs collaterally estops the 

present action by Plaintiffs against First Interstate 

Bank. 

Appellants' contention that a previous action for common law 

conversion does not collaterally estop subsequent litigation on a 

theory of statutory conversion is based on this Court's decision in 

Stapleton v. First Security Bank (1983), 207 Mont. 248, 675 P.2d 

83. However, Stapleton is readily distinguishable from the present 

case. In Stapleton, the husband deposited two joint-payee checks 

into an account that his wife had previously closed. The checks 

were both made payable to husband and wife. The bank accepted both 

checks without the endorsement of either payee and without the 

knowledge or consent of the wife. Shortly after depositing the 

checks, the husband withdrew the funds from the account without the 

knowledge or consent of the wife. The husband left Montana and 
initiated divorce proceedings in Nevada. The Nevada court 

determined that the funds had been converted by the husband. 

Wife then brought suit in Montana against the depository bank 

and both drawee banks under a claim for statutory conversion. One 

of the issues in Stapleton was whether the wife was collaterally 

estopped from pursuing this action in light of the previous 

judicial determination regarding the underlying conversion by the 

husband. This Court held that the question of the banks' liability 

for statutory conversion had not been decided in the prior 

litigation. The judicial determination in the prior litigation 

that the husband converted the funds did not in any way settle the 

question as to the banks. 

In the present case, it has already been judicially determined 

that no conversion took place between Montana Medical and State 

Medical as to the very checks in question here. The prior 

adjudication determined that the appellants had no interest in or 

right to the checks deposited by the respondent into the account of 

State Medical. As the District Court in this case correctly 

pointed out, the decision in the related litigation also resolved 

the issue the appellants are now attempting to relitigate. The 

appellants' claim of statutory conversion involves questions of the 

bank's authority to deposit the disputed checks into the account. 

The determination of the jury indicates the bank correctly 

deposited the checks into the account in question. The present 

suit would not be barred by collateral estoppel if the jury had 
determined that a conversion of the checks had occurred. A 

subsequent suit would have then been necessary to determine if the 

bank was liable, and if so, the measure of damages. However, in 

this situation we hold that the District Court correctly granted 

summary judgment to the respondent based on the doctrine of 

collateral estoppel. 

Affirmed. 

Justice 

We concur: