Court Opinion

ID: 883226
Source: CourtListenerOpinion
Date Created: 2013-06-05 02:10:45.012688+00
Date Added: 2024-06-11T15:23:09.005112
License: Public Domain

No.     93-480
           IN THE SUPREME COURT OF THE STATE OF MONTANA
                                      1994

ELDON E. KUHNS, a/k/a E. E. KUHNS,
          Plaintiff, Appellant,
             and Cross-Respondent,

JAMES H. KOESSLER,
          Defendant, Respondent,
             and Cross-Appellant.

APPEAL FROM:        District Court of the Thirteenth Judicial District,
                    In and for the County of Yellowstone,
                    The Honorable Russell K. Fillner, Judge presiding.

COUNSEL OF RECORD:
          For Appellant:
                    J. Reuss; Wright, Tolliver       &       Guthals,
                    Billings, Montana

          For Respondent:
                    Sam E. Haddon, Dean A. Stensland;
                    Boone, Karlberg & Haddon, Missoula, Montana

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                     &&i              Submitted on Briefs:          April 7, 1994
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                                                     Decieed:       ~ u g u s t3 0 , 1 9 9 4
Filed:   AuG 3 0 1994                            .
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                                                              ,
Justice John Conway Harrison delivered the Opinion of the Court.

       Eldon E.    Kuhns   (Kuhns) appeals the Thirteenth Judicial
District Court, Yellowstone County, order which granted summary
judgment dismissing Kuhnst claims on three promissory           notes
executed to Kuhns by James H. Koessler (Koessler)  .   Koessler cross-
appeals the District Courtf grant of summary judgment on his RICO-
                           s
based counterclaim.
       We reverse the District Court's dismissal of Kuhnsl promissory
note claims, and remand to the District Court for a determination
of the validity of the notes. We also reverse the District Court's
dismissal of Koesslerfs RICO-based counterclaim and remand to the
District Court.
       In May, 1983, Koessler was hired by Rocky Mountain Capital, a
business partnership.      Kuhns owned eighty-five percent of Rocky
Mountain Capital, and the remaining fifteen percent was owned by
Robert M. Brown. As compensation, Koessler was to receive fifteen
percent of future profits in addition to a salary.
       The partnership was incorporated as Rocky Mountain Capital,
Ltd.    (RMC)   in June 1983.   All of the partnership assets     were

transferred to RMC and stock was issued in exchange.             Kuhns
transferred his eighty-five percent interest in the partnership to
RMC and received 7,000 shares or seventy percent of the stock.
Brown transferred his fifteen percent ownership in the partnership
to the corporation and received 1,500 shares or fifteen percent of
the stock.      Koessler received 1,500 shares or fifteen percent of
                                   2
the stock, but did not transfer assets or otherwise pay the
corporation for the stock.    Kuhns contends that the 1,500 shares
transferred to Koessler were the shares to which he was entitled
and which were issued direct to Koessler.
     The RMC minutes of a special meeting of the board of directors
and stockholders of June 14, 1983, constitute the organizational
minutes of RMC.    The following paragraphs are contained in those
minutes :
          A list of proposed assets was presented to the
     meeting   ....   The respective asset owners, E.E. Kuhns
     and Robert M. Brown, each offered the noted property in
     exchange for common stock of the company.
          It was then observed by Mr. Kuhns that James H.
     Koessler had no asset to contribute to the company, but
     that because of his expertise in the field of finance, he
     was valuable to the company and should be a shareholder.
     After discussion, it was agreed Mr. Koessler would
     execute a promissory note to Mr. Kuhns [original text
     "the companyu crossed out here and initialed and dated
     6/14/83], in the form attached hereto        . . .and in
     exchange therefore receive the same number of shares as
     Mr. Brown.
          After discussion relative to the merits of the
     above, upon motion duly made and seconded, the following
     resolution was unanimously adopted:
            "WHEREAS, Eldon E. Kuhns and Robert M. Brown
            are the owners of assets consisting of those
            items represented by Exhibit A  ... and that
            James H. Koessler would execute a promissory
            note [original text "to the company" crossed
            out here and initialed and dated 6/14/83] in
            the form of Exhibit B. ...
            BE IT RESOLVED, that the Board of Directors
            and Officers of this corporation be, and they
            are hereby authorized and empowered to accept
            the above offer and to consumate [sic] the
            transfer of the assets described on Exhibit A
            ...   the Board of Directors and Officers are
            authorized to issue shares of the capital
            stock of this corporation as follows:
            Eldon E. Kuhns          6,997 shares
            Robert M. Brown               1,500 shares
            James H. Koessler             1,500 shares."

Koessler subsequently executed the promissory note payable to Kuhns
which is referenced in the minutes.         Thereafter, he executed two
additional promissory notes payable to Kuhns.
     Koessler was employed at RMC from June 14, 1983, through July
31, 1986.     However, he transferred his entire 1,500 shares of
stock, fifteen percent of the corporation, back to Kuhns on July
22, 1986.    As of July 29, 1986, after that transfer, Koessler was
no longer an officer or director of the company.
      On September 23, 1986, Kuhns fifed a petition for bankruptcy,
on July   10, 1989, Kuhns filed his complaint against Koessler,

requesting payment on the three promissory notes executed by
Koessler. Koessler counterclaimed for violation of the civil RICO
statute, basing his claim on certain predicate acts allegedly
committed by     Kuhns    during    the   course   of   Kuhnsr bankruptcy
proceedings.     Koessler also counterclaimed for fraud, breach of
contract, breach of fiduciary duty and punitive damages.              The
District Court resewed its ruling on these claims, and pursuant to

Rule 54(b), M.R,Civ.P., the District Court certified these issues:
     1.     Did the District Court err in granting summary judgment
against Kuhns, thereby dismissing Kuhnst claims for collection on
the three promissory notes executed by Koessler?
     2.     Did the ~istrictCourt err in granting summary judgment
against     Koessler,    and   by   dismissing     Koessler's   RZCO-based
counterclaim for lack of standing?
                                  I
                                  :
     Did the District Court err in granting summary judgment
against Kuhns, thereby dismissing Kuhns' claims for collection on
the three promissory notes executed by Koessler?
     In reviewing a grant of summary judgment, our standard of
review is identical to that of the trial court. Minnie v. City of
Roundup (1993), 257 Mont. 429, 431, 849 P.2d 212, 214.    If, after
an examination of the record, we determine that there are no
genuine issues of material fact, we then determine whether the
moving party is entitled to judgment as a matter of law. Minnie,
849 P.2d at 214.   Here, however, we conclude that genuine issues of
material fact exist as to whether there was valid consideration for
the three promissory notes.
     As previously stated, promissory note no. 1 was executed by
Koessler to Kuhns in exchange for 1,500 shares of RMC stock.
Koessler contends that note no. 1 is void as a violation of 5 35-1-
606(2), MCA   (1989), which in substance provides that neither
promissory notes nor future services shall constitute payment or
part payment for shares of a corporation.     The record on summary
judgment does not contain sufficient information to determine
whether or not the issuance of note no. 1 may have violated that
statute. As a result, we are not able to affirm the conclusion of
the District Court that the note was void under that code section.
In addition, as we review the summary judgment record, we conclude
the record is not sufficiently complete to allow a determination as
to whether or not there otherwise was a valid consideration for
note no. 1.
     In a similar manner, with regard to promissory notes nos. 2
and 3, the record demonstrates there are factual issues as to
whether or not there was an adequate consideration for the issuance
of those notes.
     We conclude that the record does not contain sufficient facts
to allow the determination of the invalidity of the notes nos. 1,
2 and 3 on the record.       We therefore reverse the District Court's
dismissal of Kuhnsl claims for collection on the three promissory
notes and remand for further consideration consistent with this
opinion.

                                     II
     Did the District Court err in granting summary judgment
against    Koessler,   and     in   dismissing   Koessler's    RICO-based
counterclaim for lack of standing?
     The United States Supreme Court in Tafflin et al. v. Levitt et
al. (lggO), 493 U.S. 455, 467, 110 S.Ct. 792, 799, 107 L.Ed.2d 887,
895, concluded that state courts have concurrent jurisdiction with
federal courts over civil actions brought under the Racketeer
Influenced and Corrupt Organizations Act (RICO), Pub. L. 91-452,
Title IX, 84 Stat. 941, as amended, 18 U. S. C.        §§   1961-1968.
     Koessler bases his RICO claim on certain "predicate acts"
which are comprised of "instances of conducta1concerning Kuhns'
bankruptcy proceedings. Kuhns claims that since Koessler is not a
stockholder of RMC, he is precluded from establishing the requisite
I1injuryto person or propertyH to constitute standing to sue. The
District Court, in its May 11, 1993 order, dismissed Xoesslerfs
RICO claim on the basis of lack of standing due to Koesslerfs non-
stockholder status.   Koessler himself admitted that he was not a
stockholder as of July 22, 1986, and that he relinquished any
officer or director duties as of July 29, 1986.
     In reviewing conclusions of law, we will examine whether the
trial court correctly interpreted the law. Steer, Inc. v. Dep't   of
Revenue (l99O), 245 Mont.    470, 474, 803 P.2d    601, 603.      The
District Court, in dismissing Koessler's RICO claim for Lack of
standing, failed to cite any authority for its conclusion that
standing is limited to stockholders of a corporation.             The
prerequisites for standing as applied to RICO-based claims are:
whether the plaintiff was injured in his business or property,
whether that injury was directly or indirectly caused by predicate
acts sufficiently related to constitute a pattern, and whether
those acts were acts which RICO was designed to deter.      Sedima,
S.P.R.L. v. Imrex Co., Inc. (l985), 473 U.S. 479, 496-97, 105 S.Ct.
3275, 3285, 87 L.Ed.2d 346, 359.

     Therefore, we hold that the District Court was incorrect in
granting summary judgment and dismissing Koessler's      RICO-based
counterclaim.   Since stockholder status is not a prerequisite for
standing to bring a RICO claim, Koessler cannot be denied standing
based on his non-stockholder status. The factual issue of whether
Koessler's   business or property was injured by Kuhns must be
remanded to the District Court for resolution.
        We remand to the District Court on both issues: whether Kuhns

    is entitled to recover on his claims for the three promissory notes

    executed by Koessler, and for a redetermination of whether Koessler

    has standing to bring his RICO-based claims.

    We concur:

!
                                         August 30, 1994

                                   CERTIFICATE OF SERVICE

I hereby certify that the following certified order w s sent by United States mail, prepaid, to the
                                                     a
following named:

J. Reuss, Esq.
Wright, Tolliver & Guthals, P.C.
P.O. Box 1977
Billings, MT 59103

Sam E. Haddon, Esq., Dean A. Stensland, Esq.
Boone, Karlberg & Haddon
P.O. Box 9199
Missoula, MT 59807-9199

                                                     ED SMITH
                                                     CLERK OF THE SUPREME COURT
                                                     STATE_OF MONTANA