                                                                                          December 16 2008


                                           DA 06-0719

                     IN THE SUPREME COURT OF THE STATE OF MONTANA

                                           2008 MT 428



FIRST CITIZENS BANK,

              Plaintiff and Appellant,

         v.

PATRICK J. SULLIVAN and GREG J. EIDE,

               Defendants and Appellees.



APPEAL FROM:           District Court of the Second Judicial District,
                       In and For the County of Silver Bow, Cause No. DV 2003-236
                       Honorable John W. Whelan, Presiding Judge


COUNSEL OF RECORD:

               For Appellant:

                       Patrick T. Fleming, Fleming & O’Leary, PLLP, Butte, Montana

               For Appellee:

                       Gregory C. Black, Sean E. Johnson, Corette Pohlman & Kebe,
                       Butte, Montana



                                                   Submitted on Briefs: January 4, 2008

                                                              Decided: December 16, 2008


Filed:

                       __________________________________________
                                         Clerk
Justice James C. Nelson delivered the Opinion of the Court.

¶1     First Citizens Bank (the Bank) brought this action to recover a deficiency due on a

loan to Glacier Apparel Company, Ltd. (Glacier Apparel), which Patrick J. Sullivan and

Greg J. Eide had guaranteed. Sullivan and Eide denied liability and filed counterclaims,

including claims that Eide’s guaranty had been exonerated and he had suffered damages

as a result of the Bank’s refusal to release a second mortgage on his home, and that

Sullivan suffered damages as a result of the Bank’s failure to liquidate collateral in a

commercially reasonable manner. A jury in the Second Judicial District Court, Silver

Bow County, found the Bank had not liquidated Glacier Apparel’s collateral in a

commercially reasonable manner, Eide’s guaranty had been exonerated and he had been

damaged by the Bank’s refusal to release his guaranty, and Sullivan had established that a

surplus would have been generated if the Bank would have liquidated the collateral in a

commercially reasonable manner. The District Court then entered judgment awarding

Sullivan and Eide their costs, expenses and attorney fees, resulting in a total judgment

against the Bank of $260,111.25. The Bank appeals. We affirm.

¶2     The issues are:

¶3     1.   Did the District Court abuse its discretion in prohibiting the Bank from

disclosing to the jury that Sullivan had pled guilty to a felony in an unrelated matter and

had invoked his Fifth Amendment rights during a deposition in a Minnesota civil case?

¶4     2.   Did the District Court abuse its discretion in refusing to allow attorney

J. Richard Orizotti to offer expert opinions?



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¶5     3. Was sufficient evidence presented to support the jury’s verdict that Eide was

exonerated from his personal guaranty to the Bank?

¶6     4. Did the District Court abuse its discretion in awarding Sullivan and Eide

$9,600 in legal fees for trial time of attorney Sean Johnson?

¶7     5. Did the District Court err in awarding expert witness fees and costs to Sullivan

and Eide?

                                    BACKGROUND

¶8     In September 1997, the Bank agreed to provide a $15,000 revolving line of credit

to Glacier Apparel for operation of a retail store in Whitefish, Montana. The line of

credit was secured by the business’s inventory, accounts, equipment and general

intangibles. In addition, Sullivan provided a personal guaranty as the business’s sole

shareholder.

¶9     In January 2000, Sullivan sold a portion of the stock in Glacier Apparel to Eide.

The two men decided to expand the company by opening additional stores in both

Montana and Minnesota. For purposes of the expansion, the Bank agreed to increase

Glacier Apparel’s revolving line of credit to $75,000, and Eide and Sullivan each signed

personal guaranties for that amount. As additional collateral, the Bank took a second

mortgage on Eide’s Fargo, North Dakota, home.

¶10    In April 2001, Sullivan re-purchased Eide’s stock in Glacier Apparel, and Eide’s

association with the business ended. Then, on June 19, 2001, Sullivan and the Bank

signed a Change of Terms Agreement under which Glacier Apparel’s revolving line of

credit was converted to a term loan repayable at $590.08 per month for five years, at

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which time a balloon payment of $72,356.32 would become due. Sullivan signed the

Change of Terms Agreement as both a guarantor of the loan and an officer of Glacier

Apparel. The Bank did not seek Eide’s signature or his consent to the Change of Terms

Agreement. After June 2001, the Bank refused to provide Glacier Apparel an operating

line of credit.

¶11    By letter dated July 6, 2001, Eide asked the Bank to cancel his guaranty and

release the mortgage on his North Dakota home. The Bank refused to do so. Eide’s

attorney revoked his guaranty in a letter dated August 24, 2001, but the Bank refused to

recognize that revocation.

¶12    In early 2002, Sullivan proposed to the Bank that he undertake a liquidation of

some or all of the inventory collateral of the Glacier Apparel stores, for which purpose he

requested an additional $20,000 loan to pay delinquent store rents. The Bank refused to

complete the loan transaction without a personal guaranty of all of Glacier Apparel’s

obligations from Sullivan’s son, which Sullivan was not willing to obtain. Sullivan then

submitted a liquidation plan, to which the Bank did not agree. In April 2002, Glacier

Apparel surrendered possession of the inventory collateral of its two Whitefish, Montana,

stores and its two Missoula, Montana, stores to the Bank by having its attorney deliver to

the Bank the keys to those stores.

¶13    Bank representatives took possession of the inventory and fixtures in the four

Whitefish and Missoula stores, boxed that collateral and transported it to Butte, Montana,

for storage at Christie’s Warehouse. The Bank then solicited bids for the repossessed



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collateral by advertising a bulk sale in the legal sections of the Sunday classified ads in

newspapers in Missoula, Great Falls, Helena, Butte, Bozeman and Billings.

¶14    The advertised sale of Glacier Apparel’s collateral received only two bids: one

from a retail clothing vendor in Butte for $7,000 and another from two Bank customers

for $13,750. The Bank rejected both bids as insufficient. Sullivan again offered to

liquidate the collateral, but the Bank refused his offer.       Sullivan then hired RGIS

Inventory Specialists to conduct an inventory of the collateral in the Bank’s possession.

RGIS identified over 7,000 items of collateral with a cost basis of $239,290.34.

Subsequently, the Bank rejected yet another offer by Sullivan to liquidate the collateral.

¶15    In late January 2003, the Bank gave Eide and Sullivan notice that it intended to

sell the collateral in a private sale, which it did, for $15,000. After applying the sale

proceeds against Glacier Apparel’s debt, and adding to that debt repossession and

liquidation expenses of over $26,000, the Bank determined Sullivan and Eide owed it

over $11,000 more than Glacier Apparel had owed when it surrendered the collateral.

¶16    The Bank then filed this action against Sullivan and Eide to recover the balance

due on Glacier Apparel’s indebtedness. Sullivan counterclaimed that the Bank had failed

to liquidate the collateral in a commercially reasonable manner.          Eide joined that

counterclaim, and also alleged the Bank improperly had refused to release the second

mortgage on his home and that he was exonerated from his personal guaranty because the

Bank had made a material change in the terms of the guaranteed obligation without his

consent or knowledge.



                                             5
¶17    The case was tried to a jury in a week-long trial. In a three-page verdict form, the

jury found the Bank had neither liquidated Glacier Apparel’s collateral in a commercially

reasonable manner nor established the amount of proceeds that would have been realized

if it had liquidated the collateral in a commercially reasonable manner. The jury further

found a surplus would have been generated had Glacier Apparel’s collateral been

liquidated in a commercially reasonable manner, and Sullivan had established the amount

of that surplus as $154,014. The jury found Eide’s guaranty to the Bank was exonerated,

the Bank’s refusal to release Eide’s guaranty and second mortgage caused him damage

and the amount of damage to be awarded Eide was $7,000.

¶18    Following a post-trial hearing, the District Court awarded Sullivan and Eide their

statutory costs of $2,900.73. The court further ordered that Sullivan and Eide were

entitled to additional costs of $9,287.30 under the terms of the guaranties. The court also

awarded Sullivan $2,586.02 and Eide $263.20 for their actual expenses incurred in

attending depositions and trial.   Finally, the court awarded Sullivan and Eide their

attorney fees of $84,060. The Bank appeals.

                              STANDARDS OF REVIEW

¶19    We review a district court’s evidentiary rulings for abuse of discretion.

McDermott v. Carie, LLC, 2005 MT 293, ¶ 10, 329 Mont. 295, ¶ 10, 124 P.3d 168, ¶ 10.

We review a jury's verdict only to determine whether substantial credible evidence in the

record supports the verdict. Upky v. Marshall Mountain, LLC, 2008 MT 90, ¶ 22, 342

Mont. 273, ¶ 22, 180 P.3d 651, ¶ 22. We review an award of attorney fees and costs for



                                            6
abuse of discretion. See e.g., Lewistown Propane Co. v. Moncur, 2002 MT 349, ¶ 19,

313 Mont. 368, ¶ 19, 61 P.3d 780, ¶ 19.

                                          ISSUE 1

¶20   Did the District Court abuse its discretion in prohibiting the Bank from disclosing
      to the jury that Sullivan had pled guilty to a felony in an unrelated matter and had
      invoked his Fifth Amendment rights during a deposition in a Minnesota civil case?

¶21   Sullivan moved in limine to prohibit any testimony or evidence that he had

exercised his Fifth Amendment right during a deposition in a separate civil lawsuit in

Minnesota, or that he had pled guilty to charges of falsifying records to obtain a Small

Business Administration loan in another case. The District Court granted his motion in

writing, stating such testimony or evidence would be irrelevant and unduly prejudicial to

Sullivan’s defense and counterclaim. Just before trial began, the court orally clarified

that this ruling would apply “unless the door is opened by the defendant.”

¶22   On appeal, the Bank contends Sullivan’s trial strategy was to portray himself to

the jury as a feeble, grandfatherly figure who would never lie or fabricate. The Bank

claims it had no way of effectively impeaching Sullivan because it was prohibited from

mentioning his conviction and his reliance on his Fifth Amendment right.

¶23   The sole authority cited by the Bank in support of its position is Cooper v.

Rosston, 232 Mont. 186, 756 P.2d 1125 (1988). Cooper was an action for damages from

an automobile accident.      In that case, the trial court had excluded evidence of

misrepresentations and omissions by the defendant in statements he made to the police

immediately after the accident. We held the court had erred in so doing. Cooper, 232

Mont. at 193, 756 P.2d at 1129.

                                             7
¶24    The lack of connection in the present case between the evidence sought to be

disclosed and the facts of the case distinguishes this case from Cooper. In addition, the

District Court’s ruling is supported by rules of evidence not applicable in Cooper.

M. R. Evid. 609 provides, “[f]or the purpose of attacking the credibility of a witness,

evidence that the witness has been convicted of a crime is not admissible.” M. R. Evid.

404(b) provides that evidence of other crimes, wrongs, or acts is not admissible to prove

the character of a person in order to show action in conformity therewith. Those rules

prohibit evidence of Sullivan’s prior criminal conviction. Moreover, and despite the

District Court’s “unless the defendant opens the door” clarification, the Bank has pointed

to no instance during trial in which it asked the court to allow questioning about

Sullivan’s prior guilty plea or invocation of his Fifth Amendment right in response to or

as follow-up to any specific testimony by him.

¶25    We hold the Bank has not established that the District Court abused its discretion

in prohibiting evidence of these matters.

                                            ISSUE 2

¶26    Did the District Court abuse its discretion in refusing to allow attorney J. Richard
       Orizotti to offer expert opinions?

¶27    Shortly before trial, Sullivan and Eide moved to prohibit a witness for the Bank,

attorney J. Richard Orizotti, from offering any expert opinions, based on the Bank’s

failure to timely disclose Orizotti as an expert witness. Sullivan and Eide stated they had

served discovery requests on the Bank in August of 2004, including a request for

identification of the Bank’s expert witnesses, and the Bank had responded that it had


                                               8
retained no expert witnesses but that Orizotti would be called as a witness to render

opinions as to the reasonableness of steps he took in liquidating the collateral. Then, in

its September 2005 scheduling order, the District Court established October 21, 2005, as

the deadline for naming expert witnesses, but the Bank did not name Orizotti as an expert

witness by that deadline. Finally, the Bank did not identify Orizotti as an expert witness

in the final pretrial order, although it identified several other expert witnesses. The

District Court granted the motion in limine.

¶28    The Bank argues exclusion of expert testimony by Orizotti was “inexplicable”

because it had “fully disclosed” that Orizotti would be a witness and the testimony he

would present. The Bank further argues that, because of repeated objections during

Orizotti’s testimony, his testimony was “greatly limited” and “lacked flow.” The Bank

asserts Orizotti should have been allowed to give his opinion under either M. R. Evid.

701, which allows a lay witness to give opinions which are rationally based on his own

perceptions and are helpful to a clear understanding of the witness’s testimony or for

determination of a fact at issue, or under M. R. Evid. 702, which provides for testimony

by experts.

¶29    Failure to disclose an expert witness will usually prejudice the opposing party.

Superior Enterprises, LLC v. Montana Power Co., 2002 MT 139, ¶ 18, 310 Mont. 198,

¶ 18, 49 P.3d 565, ¶ 18. We have, on a number of occasions, affirmed the authority of a

district court to exclude expert testimony as a result of failure to properly disclose the

expert witness. Nelson v. Nelson, 2005 MT 263, ¶ 32, 329 Mont. 85, ¶ 32, 122 P.3d



                                               9
1196, ¶ 32. Here, the Bank did not disclose Orizotti as an expert witness despite three

requests to do so.

¶30    The Bank discusses three occasions during trial in which it feels Orizotti should

have been allowed to give opinion testimony. On two of those occasions, Orizotti’s

opinions would clearly have constituted expert opinion. In the first, the Bank’s counsel

asked Orizotti what he did with the invitation for bids for the collateral.           Orizotti

responded, “I prepared it and advised the Bank that it is commercially reasonable to . . . .”

At that point, counsel for Sullivan and Eide objected that this was opinion testimony, and

the court advised Orizotti that he could tell what advice he gave, but could not give an

opinion. The next objection referenced by the Bank came while Orizotti was testifying

about the bids received for the collateral. Orizotti testified the fact that the defendants did

not submit a bid “signified to me that that was the market value of this property.” The

court ordered that remark stricken from the record on grounds that it was opinion

testimony.

¶31    Finally, the Bank points to an objection made when Orizotti testified about

something Sullivan told him. Because that objection was sustained on hearsay grounds,

not on expert testimony grounds, it is not pertinent to this issue on appeal.

¶32    We hold the District Court did not abuse its discretion in refusing to allow Orizotti

to testify as an expert witness.

                                          ISSUE 3

¶33    Was sufficient legal and factual basis established to support the jury’s verdict that
       Eide was exonerated from his personal guaranty to the Bank?


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¶34      The Bank argues there was no evidence to support Eide’s claim that his underlying

obligation to the Bank was exonerated. It points out that, in the guaranty Eide signed in

February 2000, he expressly authorized the Bank to “alter, compromise, renew, extend,

accelerate, or otherwise change one or more times the time for payment or other terms of

the indebtedness or any part of the indebtedness, including increases and decreases of the

rate of Interest on the indebtedness,” without notice to the guarantors.              The Bank

contends the only changes made in the June 19, 2001 Change of Terms Agreement—

which Eide did not sign—were to convert the revolving line of credit to 59 monthly

installments with a balloon payment due on June 19, 2006, and to change the interest rate

from 12% to 8.75%. The Bank says these changes were within the terms to which Eide

had agreed in his guaranty.

¶35      At the close of the Bank’s case-in-chief, Eide argued to the District Court that the

terms of the guaranty were contrary to § 28-11-211, MCA, and moved for directed

verdict (properly denominated a motion for dismissal due to insufficiency of the

evidence1) on that basis. The District Court denied Eide’s motion. As a result, the matter

of exoneration was a question presented to the jury.

¶36      The Bank presented evidence at trial regarding the terms of the guaranty Eide had

signed. During closing argument, the Bank presented to the jury its argument that it did

not materially alter the terms of the guaranty, that Eide did not need to be notified of any

changes and that the guaranty had not been exonerated.



1
    State v. McWilliams, 2008 MT 59, ¶ 36, 341 Mont. 517, ¶ 36, 178 P.3d 121, ¶ 36.

                                                11
¶37    Eide testified at trial that he was not aware of the Change of Terms Agreement

until the Bank filed this action. He testified the alteration of the underlying obligation

which he guaranteed from a line of credit to a term loan changed and extended his

exposure as a guarantor. Other witnesses, including banker and expert witness John

Koslosky and banker Casey Reilly, agreed that the Change of Terms Agreement was a

change in the underlying obligation. Eide also presented evidence that the Bank chose

not to enforce its security interest in collateral in Glacier Apparel’s Minnesota store,

which adversely affected him because it increased his exposure on his personal guaranty.

¶38    Based on § 28-11-211, MCA, the District Court instructed the jury that

       Greg Eide is exonerated from his personal guaranty if by any act of First
       Citizens Bank without the consent of Greg Eide the original obligation
       which he guaranteed was altered to his detriment by First Citizens Bank in
       any respect or the remedies or rights of First Citizens Bank against Glacier
       Apparel Company in respect to the original obligation are in any way
       impaired or suspended. Exoneration means that Greg Eide is not liable to
       First Citizens Bank on his personal guaranty.

The jury found that Eide was exonerated.

¶39    Having reviewed the record, we have determined that Eide presented substantial

credible evidence which supports the jury’s verdict. We hold the evidence was sufficient

to support the verdict.

                                        ISSUE 4

¶40    Did the District Court abuse its discretion in awarding Sullivan and Eide $9,600
       in legal fees for trial time of attorney Sean Johnson?

¶41    Attorney Sean Johnson attended every day of the five-day trial, seated at Sullivan

and Eide’s counsel table. The Bank points out that Johnson handled only one foundation


                                           12
witness at trial and his participation consisted of asking fewer than 40 questions. Relying

on Plath v. Schronrock, 2003 MT 21, 314 Mont. 101, 64 P.3d 984, the Bank argues the

$9,600 in attorney fees awarded for trial time of attorney Johnson represents an abuse of

discretion.

¶42    We begin by reiterating that determination of attorney fees is a discretionary

function of the trial court. Lewistown Propane, ¶ 19. In Plath, ¶ 36, we stated the

reasonableness of attorney fees must be ascertained under the facts of the case, with the

following factors as guidelines: (1) the amount and character of the services rendered;

(2) the labor, time and trouble involved; (3) the character and importance of the litigation

in which the services were rendered; (4) the amount of money or the value of the property

to be affected; (5) the professional skill and experience called for; (6) the attorneys’

character and standing in their profession; and (7) the results secured by the services of

the attorneys.

¶43    Sullivan and Eide filed an affidavit prepared by Gregory C. Black, their lead trial

attorney, who documented the expenses and billing records of his law firm in this case,

including billing records for Sean Johnson. In his affidavit, Black stated that, in his

opinion based on 27 years of experience, this was a very difficult case with complicated

legal and factual issues. Black’s affidavit indicates that, in addition to conducting a

witness examination, Johnson assisted during trial with jury instructions, legal research

concerning trial issues, preparation of witnesses and general trial logistics. At the hearing

on attorney fees, Sullivan and Eide presented expert witness William Joyce, who testified

he had reviewed Black’s affidavit and that, in his opinion, the work reflected in that

                                             13
affidavit was reasonable and necessary for the case and the hourly rates reflected in

Black’s affidavit were reasonable.

¶44    We hold the District Court did not abuse its discretion in its award of attorney fees

for trial time of attorney Sean Johnson.

                                           ISSUE 5

¶45    Did the District Court err in awarding expert witness fees and costs to Sullivan
       and Eide?

¶46    The District Court awarded expert witness fees and other litigation costs claimed

by Sullivan and Eide. The Bank points out that some of the expert witness fees and costs

awarded by the District Court are not costs allowed under § 25-10-201, MCA.

¶47    However, Sullivan and Eide did not seek to recover these witness fees and costs

under § 25-10-201, MCA, but under the terms of their guaranties.            The guaranties

provided “Guarantor agrees to pay upon demand all of Lender’s costs and expenses,

including attorneys’ fees and Lender’s legal expenses, incurred in connection with the

enforcement of this Guaranty.”       Contractual attorney fee and cost provisions are

reciprocal. Section 28-3-704, MCA; Nicholson v. United Pacific, 219 Mont. 32, 46, 710

P.2d 1342, 1351 (1985), overruled in part on other grounds, Story v. City of Bozeman,

242 Mont. 436, 791 P.2d 767 (1990).

¶48    We hold the District Court did not err in awarding witness fees and costs to

Sullivan and Eide.




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¶49    Affirmed, and remanded to the District Court for determination of additional

attorney fees incurred by Sullivan and Eide in post-trial matters not previously claimed

and during this appeal.



                                                      /S/ JAMES C. NELSON



We Concur:

/S/ JOHN WARNER
/S/ PATRICIA COTTER
/S/ W. WILLIAM LEAPHART
/S/ BRIAN MORRIS




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