from the District Court of Williams County, Northwest
Judicial District, the Honorable Kirsten M. Sjue, Judge.
REVERSED AND REMANDED.
L. Rogneby (argued) and Briana L. Hildebrand (appeared),
Bismarck, ND, for plaintiffs and appellants.
J. Malm (argued) and David J. Smith (on brief), Bismarck, ND,
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.
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
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
8] The Kulczyks argue the district court erred in granting
Tioga Ready Mix's motion for summary judgment, concluding
res judicata barred ...