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Kulczyk v. Tioga Ready Mix Co.

Supreme Court of North Dakota

September 1, 2017

William Kulczyk and Rhonda Kulczyk, Plaintiffs and Appellants
v.
Tioga Ready Mix Co., Scott Financial Corporation, Triple Aggregate, LLC, and all persons unknown, claiming any estate or interest in, or lien or encumbrance upon, the real estate described in the complaint, Defendants and Tioga Ready Mix Co., Appellee

         Appeal from the District Court of Williams County, Northwest Judicial District, the Honorable Kirsten M. Sjue, Judge. REVERSED AND REMANDED.

          Monte L. Rogneby (argued) and Briana L. Hildebrand (appeared), Bismarck, ND, for plaintiffs and appellants.

          Tyler J. Malm (argued) and David J. Smith (on brief), Bismarck, ND, for appellee.

          OPINION

          VandeWalle, Chief Justice.

         [¶ 1] William and Rhonda Kulczyk appealed a district court judgment dismissing their complaint seeking to foreclose a mortgage against Tioga Ready Mix Co. The court held res judicata barred the Kulczyks' foreclosure action on the basis of previous litigation between the parties. We reverse and remand, concluding res judicata does not bar the Kulczyks' foreclosure action against Tioga Ready Mix.

         I

         [¶ 2] William and Rhonda Kulczyk sold Tioga Ready Mix, a ready-mix concrete plant, to Bernard Vculek in December 2011. Under the terms of the sale from the Kulczyks to Vculek, Tioga Ready Mix executed a $1.4 million promissory note and granted a mortgage to the Kulczyks on its property in Williams County. Other documents involved in the sale included a stock redemption agreement, bill of sale, letter of understanding agreement, and confidentiality and non-compete agreements. Vculek and his wife, Marlene, also executed a $1.4 million personal guaranty agreement, promising to be personally responsible for Tioga Ready Mix's debt owed to the Kulczyks. Scott Financial Corporation acted as Vculek's financial advisor and assisted in facilitating the transaction between the parties.

         [¶ 3] In May 2012, Triple Aggregate, LLC sued Tioga Ready Mix seeking over $85, 000 for rock aggregate product supplied to Tioga Ready Mix. Tioga Ready Mix counterclaimed and denied it owed Triple Aggregate any payment because Triple Aggregate supplied substandard materials. Tioga Ready Mix also brought a third-party complaint against William Kulczyk, claiming that as Tioga Ready Mix's manager for the majority of 2011, he negligently allowed the use of Triple Aggregate's substandard materials.

         [¶ 4] Before the trial scheduled for February 2014, Triple Aggregate settled its claim against Tioga Ready Mix. Tioga Ready Mix then sought to amend its third-party complaint against William Kulczyk and add additional parties to the action. The district court granted the request and continued the trial until October 2014. Tioga Ready Mix added the Vculeks as additional plaintiffs and Rhonda Kulczyk as a defendant. Tioga Ready Mix and the Vculeks filed an amended complaint against the Kulzcyks, alleging breach of contract, fraud, and negligence relating to the Kulczyks' operation of Tioga Ready Mix before the sale. The Kulczyks counterclaimed against Tioga Ready Mix for breach of contract relating to the letter of understanding agreement and against the Vculeks for breaching the personal guaranty.

         [¶ 5] After trial, the district court ruled Tioga Ready Mix was in default of its obligations under the promissory note and the Vculeks were liable to the Kulczyks under the personal guaranty for $1.4 million. The court dismissed the claims against the Kulczyks, and the Vculeks satisfied the $1.4 million judgment against them.

         [¶ 6] In October 2015, the Kulczyks sued Tioga Ready Mix, Scott Financial Corporation, and Triple Aggregate, seeking to foreclose the mortgage executed by Tioga Ready Mix in the December 2011 sale. The Kulczyks alleged Tioga Ready Mix failed to make annual payments under the promissory note. The Kulczyks asserted that, although the Vculeks paid $1.4 million toward the amount secured by the promissory note and mortgage, Tioga Ready Mix still owed approximately $147, 000 plus interest under the note and mortgage. The Kulczyks also alleged its mortgage was superior to the claims of Scott Financial, as the holder of two additional mortgages against the property, and Triple Aggregate, as the party in possession of the property under an agreement with Tioga Ready Mix.

         [¶ 7] Tioga Ready Mix denied the claims and moved for summary judgment, arguing the Kulczyks' foreclosure action was barred by res judicata and collateral estoppel because they did not raise the issue in the earlier lawsuit between the parties. The district court agreed and ruled res judicata barred the Kulczyks' foreclosure action against Tioga Ready Mix because they did not raise that claim in the earlier lawsuit. The court ruled that because Tioga Ready Mix was a party to the earlier action, and because the parties litigated numerous issues arising from the Kulczyks' sale of Tioga Ready Mix to the Vculeks, the Kulczyks should have raised their foreclosure claim in the earlier lawsuit. The court entered a judgment dismissing the Kulczyks' complaint and releasing the Kulczyks' mortgage against the property.

         II

         [¶ 8] The Kulczyks argue the district court erred in granting Tioga Ready Mix's motion for summary judgment, concluding res judicata barred ...


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