author: JUSTICE NELSON JUSTICE GRAY

text:
    VESTER A. WILSON, II, and SUE E. WILSON, Plaintiffs and Respondents, v. DEPARTMENT OF PUBLIC SERVICE REGULATION; and PUBLIC SERVICE COMMISSION OF THE STATE OF MONTANA, Defendants and Appellants.
    No. 92-610.
    Submitted on Briefs April 30, 1993.
    Rehearing Denied Sept. 16, 1993.
    Decided August 26, 1993.
    50 St.Rep. 985.
    260 Mont. 167.
    858 P.2d 368.

      For Defendants and Appellants: Timothy N. Sweeney, Montana Public Service Commission, Helena.
    For Plaintiffs and Respondents: Neil E. Ugrin, Gary M. Zadick, Ugrin, Alexander, Zadick & Slovak, Great Falls.
   JUSTICE NELSON

delivered the Opinion of the Court.

This is an appeal from a Memorandum and Order of the First Judicial District granting, inter alia, Vester A. Wilson, II and Sue Wilson (Wilsons) immediate judicial review of action taken against them in a matter presently pending before the Public Service Commission (PSC). We affirm.

We restate the issue on appeal as whether, under Section 2-4-701, MCA, the District Court properly granted immediate review of the agency’s action in this case.

The following facts are taken from the District Court’s Memorandum and Order dated October 20, 1992, and, for purposes of this opinion, will be deemed controlling.

The Wilsons, d/b/a Bitter Root Disposal hold a Class D Motor Carrier Certificate of Public Convenience and Necessity issued by the PSC (the certificate). Under the certificate, Wilsons are authorized to transport garbage and other materials defined in § 69-12-301(5), MCA, in the area of Hamilton, Montana.

On April 17,1992, the PSC issued a notice of complaint and order to show cause (the notice) to the Wilsons pursuant to § 69-12-327, MCA, on the basis of three complaints of alleged intimidation and harassment of customers and competitors by the Wilsons in the operation of their business. The notice stated:

A certificate of authority is granted by order of the Commission and is contingent upon carrier fitness to provide for hire motor carrier service to the public. “Carrier fitness” refers to a carrier’s character, financial strength, and equipment base. Conduct of the type described in the complaints is inconsistent with a finding of carrier fitness and therefore in violation of the order granting the certificate of authority.

On April 29,1992, the Wilsons filed their answer to the notice and requested a hearing with fall opportunity for discovery and contested case procedures. In their answer, the Wilsons asserted that the notice was beyond the scope of the PSC’s authority and that the complaints did not relate to service or fitness under the provisions of Title 69.

The PSC, by subsequent notice, scheduled the matter for public hearing in July 1992 and provided dates certain in June for requesting and responding to discovery. Wilsons moved to dismiss, timely requested discovery from the PSC and also moved for the appointment of an independent hearing examiner.

Prior to the date set for responding to discovery, a staff attorney for the PSC advised the Wilsons by letter that, at a work session, the PSC denied their motion to dismiss, denied their request for an independent hearing examiner and denied their request for discovery, and, further, advised that the actions of the PSC would not become final until it issued an order or notice of Commission action.

Shortly thereafter, Wilsons filed with the District Court their application for alternate writs including a writ of review of the PSC’s jurisdiction in the case, a writ of mandamus to appoint an independent hearing examiner and a writ to compel discovery by the PSC. That same day the District Court issued an order staying the proceedings pending a hearing on the application. Subsequently, the Wilsons moved to amend their application to include a request for immediate review under § 2-4-701, MCA.

Later in June, at a hearing before the District Court to determine whether the court’s order staying the proceedings should remain in effect, Wilsons and their counsel first learned from the PSC attorney that the proposed PSC witness list had been expanded by approximately 200 people who had been invited to offer testimony and to present evidence at the PSC hearing.

After a hearing in August 1992, the District Court issued its Memorandum and Order granting the Wilsons’ motion to amend their application to request immediate judicial review, denying their application for the appointment of an independent hearing examiner and remanding the matter to the PSC with directions that the agency either dismiss the proceeding or give the Wilsons notice of the alleged bases for revocation under § 69-12-327, MCA, of their certificate, that the PSC follow procedures which insure that the Wilsons receive due process and that the PSC respond to the discovery requests served by the Wilsons. This appeal followed.

Section 2-4-701, MCA, provides:

Immediate review of agency action. A preliminary, procedural, or intermediate agency action or ruling is immediately reviewable if review of the final agency decision would not provide an adequate remedy.

While that provision is not included in the Model Administrative Procedures Act, the Compiler’s Comments indicate that this section was reinserted into the Montana Administrative Procedures Act in 1971.

The PSC argues that the District Court improperly granted immediate review in this case because the Wilsons failed to show that review of the final agency decision would not provide an adequate remedy. We disagree.

The PSC’s April 17, 1992 notice was issued pursuant to § 69-12-327, MCA, which provides, in pertinent part:

Revocation of certificate — right of review. (1) If it appears that a certificate holder is violating or refusing to observe any of the commission’s orders or rules or any provision of Title 69, as amended, the commission may issue an order to the certificate holder to show cause why the certificate should not be revoked.... (Emphasis added).

While it is clear that the PSC has the authority to revoke a certificate of public convenience and necessity, it is equally clear that the revocation must be based upon the certificate holder’s violation of or refusal to observe any of the “commission’s orders or rules or any provision of Title 69, as amended”.

Whether some order, rule or provision of Title 69 includes the concept of “carrier fitness,” as argued by the PSC, and whether violation of that concept constitutes a “violation] of or refus[al] to observe ... any provision of Title 69, as amended,” was not finally decided by the District Court and is not the issue on this appeal.

It is a well established principle of administrative law that before a reviewing court considers the question of an agency’s jurisdiction, that sound judicial policy dictates that there be an exhaustion of administrative remedies, part and parcel of which requires that the agency be accorded an opportunity to determine initially whether it has jurisdiction. Marshall v. Burlington Northern, Inc. (9th Cir. 1979), 595 F.2d 511, 513; Marshall v. Able Contractors, Inc. (9th Cir. 1978), 573 F.2d 1055, 1057.

The District Court followed that rule when it observed that there was a question of jurisdiction that would ultimately have to be decided by the court and that the Wilsons had challenged the authority of the PSC to proceed on the basis of the cited statute. The District Court’s primary concern went to the failure of the PSC to articulate to the Wilsons exactly how their alleged misconduct related to the statutory basis for revocation. As the District Court stated in its Memorandum and Order, “[bjecause the Commission has failed to point to any alleged violation of a statute or a Commission order or rule, the Court concludes that the notice fails to comply with the requirements of Section 69-12-327, MCA.”

Additionally, the District Court was concerned that the Wilsons requested in discovery and in various hearings that the PSC specify the Commission’s orders or rules or provisions of Title 69 which were alleged to have been violated, that the PSC had failed to respond to the Wilson’s discovery requests, and that the agency had greatly expanded the service fist well beyond that contained in the original notice to include an additional 200 people who were invited to testify. The latter was accomplished without notice to the Wilsons, who, a week before the scheduled hearing, did not know the witnesses against them or what such witnesses might say.

In Billings Assoc. Plumbing, Etc. v. State Bd. (1979), 184 Mont. 249, 253, 602 P.2d 597, 600, we stated that, “[t]he right to carry on a lawful business is a property right; due process requires that it not be unreasonably or unnecessarily restricted,” citing the U.S. Constitution, Amendment XIV, Section 1 and the 1972 Constitution of Montana, Article II, Section 17.

Inasmuch as the Wilsons may not carry on their business except under the authority of a certificate of public convenience and necessity issued by the PSC, it follows that if that agency intends to take action which might result in the Wilsons’ loss of their certificate, and hence their right to do business, fundamental fairness and due process require that they at a minimum be given notice of the alleged bases for the possible revocation. Under the governing statute, notice by the PSC necessarily requires specification of the “commission’s orders or rules or... provision^] of Title 69, as amended...,” that they are alleged to have violated or that they are alleged to have refused to observe.

Furthermore, the Wilsons are entitled to procedural due process which includes, among other things, the ability to discover information relevant to the case against them along with the identity of the witnesses who are expected to testify and the substance of the expected testimony.

We hold that, under the facts and circumstances of this case, judicial review of the final agency decision is not an “adequate remedy” where the record on which the final decision is to be based contains no specification of the orders, rules or statutes which the Wilsons are alleged to have violated; where the Wilsons have been denied discovery; where the Wilsons, who are in jeopardy of losing a valuable property right, have not been afforded adequate, timely notice of the persons who will testify and of the nature of the evidence that will be presented in support of the possible agency action; and where, cumulatively, it appears that the agency has failed to afford the Wilsons fundamental fairness and due process.

In so holding, we do not in any way diminish the statutory mandate of § 2-4-702, MCA, which requires exhaustion of administrative remedies and states the rule that judicial review will generally only be available to a person aggrieved by a final agency decision. Persons seeking immediate review of interlocutory administrative agency action or rulings under § 2-4-701, MCA, continue to bear a heavy burden to demonstrate that judicial review of the final agency decision would not provide an adequate remedy.

In this case, the District Court did not rule on the ultimate jurisdictional issue or on the merits of the PSC’s notice to the Wilsons. Instead, the District Court remanded to the PSC under a narrowly drafted order requiring simply that in further proceedings on this matter before the PSC the Wilsons be afforded notice of the alleged bases for revocation of their certificate under the statute authorizing such revocation; that they have the opportunity for adequate discovery; and that the agency follow procedures that will insure due process.

While not involving review of an interlocutory agency decision, in Small v. Al’s Sales, Inc. (1990), 245 Mont. 18, 21, 797 P.2d 235, 237, we, nevertheless, required the District Court to remand the case to the agency for farther proceedings rather than permitting the Court to exercise judicial review on the basis of an inadequate record and, thereby, substitute its judgment for that of the agency in violation of § 2-4-704, MCA.

In the instant case, by remanding and requiring that the final agency decision be based upon an underlying proceeding grounded in due process, the District Court simply insured, to the extent possible, that any ultimate judicial review of the final agency decision will, in fact, be an “adequate remedy” instead of the meaningless exercise of reviewing an inadequate record formulated on the basis of unfair procedures.

We affirm.

CHIEF JUSTICE TURNAGE, JUSTICES TRIEWEILER, HUNT and WEBER concur.

JUSTICE GRAY

dissenting.

I respectfully dissent. My objection is a procedural, rather than a substantive, one. It relates, however, to the critical importance of maintaining our system of administrative law and the manner in which that system interrelates with the judicial system.

My concern with the Court’s decision here is that § 2-4-701, MCA, permits immediate judicial review of an interlocutory agency action or ruling only under the specified condition that review of the final agency decision would not provide an adequate remedy. The importance of this statute in our system of administrative law cannot be overstated; thus, in my view, district courts must address applications for immediate judicial review with extraordinary care. To me, this means that the district courts must perform a particularized analysis of a party’s entitlement to immediate judicial review under the facts of the case before it. In turn, such an analysis would provide this Court with a sufficient basis to review whether the district court’s action in granting immediate judicial review pursuant to § 2-4-701, MCA, was appropriate in a given case.

The District Court’s bare conclusion here that “[i]t is appropriate” to review the agency’s action is insufficient. It provides the appealing party with nothing to argue from and, at the same time, provides this Court with an inadequate means of review.

In affirming the District Court without requiring an analysis on this critical question, this Court undertakes to provide the initial analysis of whether immediate judicial review was available. Thus, we not only gut any requirement that the party seeking immediate review affirmatively establish entitlement to such review under § 2-4-701, MCA, we also permit the district courts to take entirely too cavalier an approach to this important issue.

I do not suggest that the District Court here did not have in mind the basis for its conclusion that immediate judicial review was appropriate; I suggest only that it is not possible either to know what that basis is or to properly perform this Court’s review function. I would require in this important area, as we require in almost every conceivable situation, that the district courts both perform and provide an analysis in support of the conclusion that immediate judicial review is appropriate. I would remand this case to the District Court and direct it to do so.

JUSTICE HARRISON joins in the foregoing dissent of JUSTICE GRAY.


source: Caselaw Access Project

author: JUSTICE WEBER

license: Public Domain

text:
    MCI TELECOMMUNICATIONS CORP., Petitioner and Appellant, v. MONTANA DEPARTMENT OF PUBLIC SERVICE REGULATION, PUBLIC SERVICE COMMISSION, DANNY OBERG, JOHN DRISCOLL, ROBERT ANDERSON, WALLACE MERCER and TED MACY, Defendants and Respondents.
    No. 93-053.
    Submitted on Briefs May 27, 1993.
    Decided August 26, 1993.
    50 St.Rep. 989.
    260 Mont. 175.
    858 P.2d 364.

      For Petitioner and Appellant: Leo Berry, Browning, Kaleczyc, Berry & Hoven, Helena; Sue Weiske, MCI Telecommunications Corp., Denver, Colorado.
    For Defendants and Respondents: Ivan C. Evilsizer, Montana Public Service Commission, Helena; John Alke, Hughes, Kellner, Sullivan & Alke, Helena; T. Larry Barnes, AT&T Communications, Denver, Colorado; Robert A Nelson, Montana Consumer Counsel, Helena; Mary Piper, Kansas City, Missouri; Dennis R. Lopach, U.S. West Communications, Helena; Mike Manion, Butte.
   JUSTICE WEBER

delivered the Opinion of the Court.

This is appeal by MCI Telecommunications Corp. (MCI) from the order of the District Court of the First Judicial District, Lewis and Clark County, which granted defendants’ Motion to Dismiss appellant’s Petition for Judicial Review. The District Court denied judicial review of the Public Service Commission’s order on the grounds that the District Court lacked jurisdiction over the petition. We reverse.

The sole issue for our review is whether Rule 6(e), M.R.Civ.P., applies to petitions in district courts for judicial review of administrative decisions.

After several proceedings in this administrative action, the Montana Public Service Commission (Commission) issued its Order No. 5548c on May 18, 1992, which denied MCI’s motion for reconsideration of a Commission ruling. The Commission mailed a copy of the order to MCI on May 19, 1992. MCI did not receive the copy of the order until May 21,1992. On June 19,1992, MCI filed its Petition for Judicial Review.

The Commission moved to dismiss MCI’s petition on the grounds that the District Court lacked jurisdiction over the petition, claiming that the petition was filed 31 days after service. The District Court granted the Commission’s motion to dismiss and MCI now appeals this dismissal.

Did the District Court err in dismissing appellant’s petition for judicial review because it was not timely filed?

Section 2-4-702, MCA, provides that a person may institute proceedings for judicial review of an administrative decision after all administrative remedies have been exhausted. This section, part of the Montana Administrative Procedure Act (MAPA), further provides in pertinent part:

(2)(a) Proceedings for review shall be instituted by filing a petition in district court within 30 days after service of the final decision of the agency...

Section 2-4-702(2)(a), MCA (emphasis supplied). Noting that this indeed produced a harsh result and that the court would rather see every dispute decided after both sides are “fully and fairly allowed to present their evidence and arguments to a court,” the District Court nevertheless determined that service was complete when the Commission mailed a copy of the order to MCI on May 19, 1992 and that MCI’s petition for judicial review was filed one day too late.

An appeal filed after the time prescribed by statute is ineffective for any purpose and thus fails to confer jurisdiction upon the district court to review an administrative agency’s decision. State ex rel. Albrecht v. District Court (1952), 126 Mont. 178, 182, 246 P.2d 1035, 1037. The timely filing of a notice of appeal is mandatory and jurisdictional. Albrecht, 126 Mont, at 180, 246 P.2d at 1036.

MCI contends that Rule 6(e), M.R.Civ.R, applies to this administrative proceeding and that by applying Rule 6(e), its petition for judicial review was filed on the 28th day after service and was timely filed. Rule 6(e), M.R.Civ.P, provides:

Rule 6(e). Additional time after service by mail. Whenever a party has the right or is required to do some act or take some proceedings within a prescribed period after the service of a notice or other paper upon the party and the notice or paper is served upon the party by mail, 3 days shall be added to the prescribed period. (Emphasis supplied.)

The Commission argues that Rule 6(e) does not apply because its effect is to extend the jurisdiction of the district court beyond thirty days, which is not allowed by Rule 82, M.R.Civ.P. Rule 82, M.R.Civ.P., provides:

Rule 82. Jurisdiction and venue unaffected. Except as provided in Rule 4 these rules shall not be construed to extend or limit the jurisdiction of the district courts of Montana or the venue of actions therein.

The Commission argues that service of notice was complete on the day it mailed a copy of the order to MCI.

The Commission relies on numerous cases from federal courts and other states to support its argument that Rule 6(e) does not apply in an appeal from an administrative agency decision to the district court. We have reviewed these cases and found them unpersuasive because they address the applicability of Rule 6(e) in cases where statutes define service as either the date of mailing or the date of receipt of notice. See, e.g., Ramsdell v. Ohio Civil Rights Comm’n (Ohio 1990), 563 N.E.2d 285.

The district court’s jurisdiction is controlled by the period of time prescribed by the legislature and is limited to the time provided by the applicable statute. The right to an appeal of an administrative agency’s ruling is created by statute and is limited by the provisions of the statute as to the time within which the right must be asserted. Zeller v. Folsom (N.D.N.Y. 1956), 150 F. Supp. 615, 617. Where the time for filing an appeal is dictated by the statute which confers the right to appeal, Rule 6(e) cannot be applied to extend the time for filing as this would be an extension of the court’s jurisdiction. In this case, the time to appeal is not dictated by any statute which prescribes that service is complete when placed in the mail as the Commission contends.

The 3-day extension applies only where the time period for doing an act runs from the time of service of notice. This 3-day period is computed separately and determines the date when the 30-day time for appeal begins to run. The Wyoming Supreme Court quoted the rationale for the 3-day extension in Rule 6(e) as follows:

[TJhe rule clearly is intended to protect parties who are served notice by mail from suffering a systematic diminution of their time to respond through the application of Rule 5(b), which provides that service is complete upon mailing, not receipt; the additional three days provided by Rule 6(e) to the party being served represent a reasonable transmission time, and a fair compromise between the harshness of measuring strictly from the date of mailing and the indefiniteness of attempting to measure from the date of receipt, which in many cases would be unverifiable.

Sellers v. Employment Sec. Comm’n of Wyo. (Wyo. 1988), 760 P.2d 394, 397 (quoting 4AC. Wright & A. Miller, Federal Practice and Procedure: Civil 2d § 1171 at 514-15 (1987)). As in Sellers, the appeal period in this case is triggered by sending notice in the mail.

Neither MAPA nor the Commission rules define “service.” Section 2-4-106, MCA, provides:

Service. Except where a statute expressly provides to the contrary, service in all agency proceedings subject to the provisions of this chapter and in proceedings for judicial review thereof shall be as prescribed for civil actions in the district courts.

The Commission argues that § 2-4-106, MCA, merely provides for the manner of service to be the same as civil actions in the district courts.

We have previously stated that “service” under MAPA is governed by the Montana Rules of Civil Procedure unless a statute expressly provides otherwise. Rierson v. State (1980), 188 Mont. 522, 527, 614 P.2d 1020, 1023 (citing § 2-4-106, MCA). This is consistent with the Ramsdell case cited above.

Our treatment of workers’ compensation appeals to this Court provides further persuasion for treating administrative agency appeals to district courts in a manner similar to other proceedings. In a workers’ compensation case which challenged the timeliness of an appeal to the district court, this Court noted that proceedings in the Workers’ Compensation Court are governed by MAPA and, therefore, § 2-4-623, MCA, applies to require service by mail or personally. Dumont v. Wickens Bros. Constr. Co. (1979), 183 Mont. 190, 200, 598 P.2d 1099, 1105. We further stated:

[A] person who appeals from a final decision of the Workers’ Compensation Court should in all fundamental fairness be given the same benefit of that provision of Rule 5, M.R.App.Civ.P., which states that:
“... except that in cases where service of notice of entry of judgement is required by Rule 77(d) of the Montana Rules of Civil Procedure the time shall be 30 days from the service of notice of entry of judgment.”
This would mean, as is already the case where Rule 77(d), M.R.Civ.P., is applicable, that when service of the notice of the final decision of the Workers’ Compensation Court is made as mandated by section 2-4-623 MCA and that service was made by mail, the provisions of Rule 21(c) M.R.App.Civ.P., are automatically put into play adding three days to the prescribed 30-day time limit for filing the notice of appeal.
... Rule 21(c) comes into play adding three days to the prescribed period and the 33rd and final day for filing the notice of appeal was November 2, 1978. Thus, claimant’s appeal was timely — not one day late as respondent claims.
Dumont v. Wickens Bros. Constr. Co. (1979), 183 Mont. 190, 200, 598 P.2d 1099, 1105.

The appeal in Dumont was from the Workers’ Compensation Court directly to the Montana Supreme Court and thus was governed by the Rules of Appellate Procedure. Rule 21(c), M.R.App.R, is the equivalent of Rule 6(e), M.R.Civ.P. The provision in § 2-4-623, MCA, requiring notice either personally or by mail is identical to Rule 77(d), M.R.Civ.P., insofar as requiring notice of decisions in workers’ compensation cases. In Dumont, this Court interpreted § 2-4-623, MCA, as requiring that 3 days be added to the prescribed 30-day time limit for filing a notice of appeal in the Supreme Court for an appeal from the Workers’ Compensation Court.

We conclude that there is a need for uniformity and fairness in the application of rules relating to the time when an appeal begins to run. The 30-day appeal period cannot begin to run until the effective date of service. Section 2-4-106, MCA, of MAPA does not define “service” but it provides that service in agency proceedings be as prescribed for civil actions in the district courts. Because MAPA uses the term “service” but does not define when service is effective, § 2-4-106, MCA, requires that Rule 6(e) be applied to define when service by mail is complete for administrative decisions. We conclude that service was not effective upon MCI until May 22, 1992, three days after mailing notice of the Commission’s order. We further conclude that the 30-day period allowed for filing a petition for judicial review began to run on May 23,1992, the day following service by mail, that the petition was filed within thirty days and that the District Court had jurisdiction to hear this appeal.

We hold the District Court erred in dismissing appellant’s petition for judicial review for lack of jurisdiction.

Reversed and remanded.

CHIEF JUSTICE TURNAGE, JUSTICES GRAY, HUNT and NELSON concur.


author: JUSTICE GRAY JUSTICE TRIEWEILER

text:
    STATE OF MONTANA, Plaintiff and Respondent, v. BRUCE A. FLACK, Defendant and Appellant.
    No. 92-361.
    Submitted on Briefs January 21, 1993.
    Decided August 27, 1993.
    50 St.Rep. 997.
    260 Mont. 181.
    860 P.2d 89.

      For Defendant and Appellant: Bruce E. Becker, Livingston.
    For Plaintiff and Respondent: Marc Racicot, Attorney General, Barbara C. Harris, Assistant Attorney General, Helena; Wm. Neis Swandal, Park County Attorney, Livingston.
   JUSTICE GRAY

delivered the Opinion of the Court.

Bruce Flack appeals from‘an order of the Sixth Judicial District Court, Park County, denying his motion to suppress statements made on January 5 and January 8,1992. We affirm in part and reverse in part.

On January 5, 1992, Bruce Flack (Flack) and Alan Gustafson (Gustafson) were taken to the Park County Sheriff’s office as suspects in a robbery. The two were suspected of breaking into the Bill Eyman residence near Livingston, Montana, and stealing approximately $265 in cash, credit cards, blank checks, and several firearms.

Flack was detained at the sheriff’s office while Gustafson was interrogated. After waiting approximately four hours, Flack was taken into an interrogation room, where Charles Johnson (Johnson), Park County Sheriff, and Lynn Gillett (Gillett), Captain of the Livingston City Police, were present. Before the interrogation, Flack was advised of, and waived, his Miranda rights. During the taped interrogation, Flack denied any knowledge of the robbery. After fifty-five minutes of questioning, Johnson arrested Flack for the robbery pursuant to a valid arrest warrant. At that time, Flack stated, “I guess I’m going to have to get me a lawyer. You guys are going to have to prove it.”

With that remark, the interrogation formally concluded and the tape recorder was turned off. Johnson left the room. Gillett continued to talk with Flack for five to ten minutes, detailing the information already obtained by the prosecution relating to the robbery. In response, Flack indicated that he had been at the Eyman residence at the time of the robbery but stated that he had remained on the road. Flack refused to have the statement recorded.

On January 6, Flack was brought before a justice of the peace for his initial appearance. The justice of the peace informed Flack of the charge and advised him of his rights, including the right to be represented by an attorney. Bail was set. Flack was given, and completed, a form requesting court-appointed counsel. Public Defender Dan Yardley spoke with Flack on January 7, but determined that his representation of the youth might create a conflict in representing Flack. Different counsel was appointed to represent Flack on January 15.

Flack remained in jail because he was unable to make bail. During the morning of January 8, Flack was again questioned by Gillett. The parties dispute who initiated the interrogation. Gillett did not read-vise Flack of his Miranda rights at the beginning of the interrogation. Instead, Gillett asked if Flack remembered the Miranda warning previously read to him; Flack responded affirmatively. Gillett then asked if Flack was willing to waive his rights and answer questions; again Flack responded “Yes.” During the twenty-five minute interrogation, Flack confessed his involvement in the robbery.

On February 19, Flack moved to suppress the January 5 and January 8 statements. Flack asserted that his constitutional rights were violated on January 5 when the State resumed the interrogation after he requested legal representation, and on January 8 when he was interrogated again without legal counsel. Furthermore, Flack asserts that he was not properly advised of his Miranda rights at the January 8 interrogation and, on that basis, that he did not knowingly, intelligently and voluntarily waive his right against self-incrimination. After a suppression hearing, the District Court entered its findings of fact, conclusions of law and order denying the motion to suppress the statements.

The Park County Attorney and Flack filed a “Stipulation of Facts” on March 25. The stipulation listed the facts that the prosecution could establish if a trial was held. The stipulation indicated the Flack would neither resist the State’s case nor plead guilty to the robbery charge. Flack expressly reserved his right to appeal the order denying his motion to suppress.

Based on the agreed statement of facts, the District Court found Flack guilty of robbery. The court sentenced Flack to a term of eight years at the Montana State Prison, with five years suspended. Flack appeals the denial of his motion to suppress the January 5 and January 8 statements.

Did the District Court err in denying the motion to suppress Flack’s January 5 statement?

At the suppression hearing, the State maintained that the January 5 statement was not a result of continued interrogation by Gillett. Gillett testified as follows:

Q. Now, what happened after the interview was over?
A. Sheriff Johnson left the room, to get the work started because he had placed Mr. Flack under arrest, and I was just generally talking with Mr. Flack and advised him that we knew what went on.
Q. Did you ask him any questions after the interview?
A. No, I just advised him.
Q. And do you recall what you told him at that time?
A. No, I don’t.
Q. What, if anything, did the Defendant say?
A. He voluntarily said that he was there, but he only stood on the road.
Q. Did you ask him a question to elicit that response?
A. No.

Flack testified that he believed he made the statement while under further interrogation:

Q. What happened after they turned off the tape recorder?
A. Gillett proceeded to talk to me.
Q. Was Charlie Johnson there?
A. No, he left the room at that point.
Q. What did he talk to you about?
A. Saying that I might as well just go ahead and hang it up because they got me, and that I couldn’t get out of it, or whatever.
Q. Did you feel like you were being interrogated further?
A. Yes, I did.
Q. And this all happened after you said, I guess I should get an attorney?
A. Yes.

On the basis of the testimony presented at the suppression hearing, the District Court concluded that “any incriminating statement or admission made by Bruce Flack on January 5,1992, was made spontaneously by him, and was not elicited by questions from law enforcement personnel.” On that basis, the District Court denied the motion to suppress the statement.

Our standard for reviewing a district comb’s conclusion of law is whether the court’s interpretation of the law is correct. Steer, Inc. v. Dept. of Revenue (1990), 245 Mont. 470, 474-75, 803 P.2d 601, 603. To determine whether the District Court correctly concluded that the January 5 statement was not elicited by Gillett and, therefore, was not obtained in violation of Flack’s constitutional rights, we examine whether the comments made by Gillett after Flack invoked the right to counsel constituted an interrogation.

The United States Supreme Court addressed the meaning of interrogation in the context of an accused’s right to counsel in Rhode Island v. Innis (1980), 446 U.S. 291, 100 S.Ct. 1682, 64 L.Ed.2d 297. There, the defendant asked to speak with an attorney after he was arrested for the homicide of a taxi driver and advised of his Miranda rights. While transporting the defendant to .the police station, an officer expressed concern to another officer that handicapped children, who frequented the area where the arrest occurred, might find the missing murder weapon. The defendant overheard the conversation and requested that they return to the scene of the arrest where he would locate the weapon.

The United States Supreme Court addressed whether the officers’ conversation relating to handicapped children was tantamount to interrogation in the context of Miranda v. Arizona (1966), 384 U.S. 436, 86 S.Ct. 1602, 16 L.Ed.2d 694. The Court indicated that language in Miranda suggested that the Miranda rules applied only to interrogation that involved express questioning of a defendant held in custody. The police practices that invoked the concerns addressed in Miranda, however, included techniques of persuasion in addition to express questioning. On that basis, the Court concluded that the Miranda safeguards were not limited to situations in which a defendant in custody was subjected to express questioning. Innis, 446 U.S. at 300-301, 100 S.Ct at 1689-1690.

The Court determined in Innis that interrogation under Miranda includes “any words or actions on the part of the police (other than those normally attendant to arrest and custody) that the police should know are reasonably likely to elicit an incriminating response from the suspect.” Innis, 446 U.S. at 300-301, 100 S.Ct. at 1689-1690. Furthermore, the Court stated that in order to determine whether an incriminating response was reasonably likely to be elicited from the suspect, the primary focus should be on the perceptions of the suspect rather than on the intent of the police. Innis, 446 U.S. at 301, 100 S.Ct. at 1690.

Applying these principles to the facts before it in Innis, the Court concluded that the officers could not reasonably foresee that their conversation, which the Court characterized as a few offhand remarks, was likely to elicit an incriminating response from the defendant. On that basis, the Court determined that the defendant had not been subjected to further interrogation after he invoked his right to counsel. Innis, 446 U.S. at 303, 100 S.Ct. at 1690.

In the case before us, the District Court concluded that the J anuary 5 statement was made spontaneously by Flack and was not elicited by questions from law enforcement personnel. Based on Innis, it is clear that the District Court erred in limiting its inquiry to whether the January 5 statement was elicited by direct interrogation.

We determine that Gillett’s comments constituted a practice that law enforcement should know is reasonably likely to evoke an incriminating response from a suspect; therefore, those comments constitute interrogation. Unlike the officer’s statement in Innis, Gillett’s comments cannot be characterized as a few overheard, off-hand remarks. According to Gillett’s own testimony, his comments lasted five to ten minutes and were directed at Flack. Furthermore, Gillett testified that his comments informed Flack of the information in the prosecution’s possession relating to the robbery. Under these facts, Gillett should have reasonably foreseen that his comments would evoke a response from Flack.

Our determination that Gillett’s comments constituted interrogation is further supported by considering them from Flack’s perspective. Gillett’s comments immediately followed a fifty-five minute interrogation and were made while Flack remained in the interrogation room. As a result, there was no break between the preceding direct questions and Gillett’s comments that would have dissipated the air of interrogation. Indeed, Flack testified that he felt he was subjected to further interrogation following his request to speak to an attorney. Furthermore, Flack’s testimony indicates his perception that Gillett’s comments presumed his guilt and suggested that he concede an inevitable conviction:

Q. What did he talk to you about?
A. Saying that I might as well just go ahead and hang it up because they got me, and that I couldn’t get out of it whatsoever.

Under these circumstances, Flack’s January 5 statement can properly be considered a response to interrogation.

We conclude that the District Court erred in concluding that the January 5 statement was not elicited by Gillett. Furthermore, based on our determination that the statement was a product of interrogation after Flack asserted his right to counsel, we conclude that the District Court’s denial of Flack’s motion to suppress violated Flack’s constitutional right to the assistance of counsel under Miranda, 384 U.S. at 474, 86 S.Ct. at 1627. We hold that the District Court erred in denying Flack’s motion to suppress the January 5 statement.

Did the District Court err in denying the motion to suppress Flack’s January 8 statement?

At the suppression hearing, the State maintained that Flack had initiated the January 8 interview with Gillett, that he waived his Miranda rights and that Flack’s statement was given freely and voluntarily. Gillett testified that he was notified by a jailer that Flack wanted to talk to him. Detention officer Dennis McBride testified that on the morning of January 8, Flack asked to talk to Gillett, that he passed the request along to Gillett and that he subsequently took Flack upstairs for the meeting with Gillett. According to the transcript, the January 8 interview began as follows:

Q: Bruce I will advise you that I have a recorder running here, is that alright with you?
A: Yes.
Q: You remember the other day you were read your miranda [sic] rights, do you remember those?
A: Yes I do.
Q: And at this time are you still able, willing to waive your rights and answer questions?
A: Yes.

Flack, on the other hand, testified that on the morning of January 8, the jailer came to his cell and told him that he had a visitor; he was taken to a room where Gillett was waiting with a tape recorder. Flack denied having asked to see Gillett and testified that he did not intend to give up his constitutional rights.

The District Court found the testimony of the law enforcement witnesses more credible than Flack’s with regard to who had initiated the January 8 interview. It also found, on the basis of the officers’ testimony and the interview transcript, that Flack was aware of his rights, knowingly and intelligently waived those rights, and voluntarily confessed to the robbery. As a result, the court concluded that the State had established by clear and convincing evidence that Flack’s confession was made voluntarily.

Our standard in reviewing a district court’s findings of fact is whether the findings are clearly erroneous. Rule 52(a), M.R.Civ.P; Steer, Inc. v. Dep’t of Revenue (1990), 245 Mont. 470, 474, 803 P.2d 601, 603. The first prong of the clearly erroneous standard is whether the finding is supported by substantial evidence. Interstate Prod. Credit Ass’n v. DeSaye (1991), 250 Mont. 320, 323, 820 P.2d 1285, 1287.

Here, there is no question that the court’s findings are supported by substantial evidence consisting, of the officers’ testimony and the January 8 interview transcript. Flack asserts — as though it were a matter of fact — that law enforcement initiated the January 8 meeting; the District Court found otherwise, however, based on substantial evidence of record. It is elementary that the direct evidence of one witness who is entitled to full credit is sufficient proof of any fact. Smith v. Fladstol (1991), 248 Mont. 18, 20, 807 P.2d 1361, 1363; § 26-1-301, MCA. Here, the court relied on testimony from two law enforcement officers. Similarly, Flack asserts that the record of the January 8 interview is devoid of any determination as to his waiver of rights; again, the court found otherwise based on the record evidence set forth above.

The crux of the District Court’s findings is its determination that the testimony of the law enforcement officers was more credible than Flack’s. A trial court acting as a finder of fact is in the best position to observe the witnesses, including their demeanor and credibility. Nave v. State Comp. Mut. Ins. Fund (1992), 254 Mont. 54, 58, 835 P.2d 706, 709. The weight of the evidence and the credibility of the witnesses are exclusively the province of the trier of fact and, in the event of conflicting evidence, it is within the province of the trier of fact to determine which will prevail. State v. Palmer (1991), 247 Mont. 210, 214, 805 P.2d 580, 582. Here, the District Court determined the credibility of the witnesses before it and entered findings based on substantial evidence. We conclude that the findings are not clearly erroneous.

Nor is the court’s conclusion that Flack waived his rights and made his confession voluntarily erroneous. The conclusion is based on the court’s determinations that Flack initiated the January 8 interview and that he waived his rights at the beginning of that interview. As such, Flack’s legal argument in this regard, relying on Edwards v. Arizona (1981), 451 U.S. 477, 101 S.Ct. 1880, 68 L.Ed.2d 378, is misplaced.

In Edwards, the United States Supreme Court specifically stated that an accused, having expressed a desire for counsel, is not subject to further interrogation until counsel has been made available to him, “unless the accused himself initiates further communication, exchanges or conversations with the police.” Edwards, 451 U.S. at 484-85, 101 S.Ct. at 1884-1885 (emphasis added). As discussed above in addressing the first issue in this case, Flack expressed a desire for counsel on January 5 and further interrogation at that time violated his constitutional rights. The District Court determined that, subsequent to that time, Flack initiated a further interview with law enforcement. This is precisely the situation contemplated by the Edwards exception to the “no further interrogation” rule.

The District Court’s findings are not clearly erroneous. Its related conclusions are not erroneous as a matter of law. As a result, we hold that the District Court did not err in denying the motion to suppress Flack’s January 8 statement.

Affirmed in part and reversed in part.

CHIEF JUSTICE TURNAGE, JUSTICES McDONOUGH, HUNT, HARRISON and WEBER concur.

JUSTICE TRIEWEILER

specially concurring.

I concur with the majoritys conclusion that the statement made by Bruce Flack on January 5 should be suppressed. I also agree with the reasons given for that conclusion.

I concur with the majoritys conclusion that there was substantial evidence to support the District Court’s finding that Flack waived his Fifth Amendment rights prior to the statement given to authorities on January 8, 1992.

By concurring in the majority opinion, I do not mean to conclude that the defendant’s situation does not present serious concerns about his Sixth Amendment right to counsel. Flack was arrested on January 5. He made his initial appearance and requested court-appointed counsel on January 6. However, he received no effective advice until January 15, ten days after his arrest. By the time he waived his right to remain silent, he was beginning his fourth day in jail without any meaningful advice from counsel.

I concur in the result of the majority opinion because the delay in appointment of counsel is not the basis of Flack’s appeal. That issue has not been briefed and is not before the Court.


author: JUSTICE GRAY

text:
    IN RE THE CUSTODY OF R.R.K., R.D.K., and L.M.K., Minor Children. IN RE THE MARRIAGE OF JEFF KOLPIN, Petitioner, and JEANNETTE KOLPIN, Respondent, v. NORMOND and BEVERLY KOLPIN, Third-Party Petitioners and Appellants.
    Nos. 92-424 and 92-495.
    Submitted on Briefs April 20, 1993.
    Decided August 27, 1993.
    50 St.Rep. 1002.
    260 Mont. 191.
    859 P.2d 998.

      For Appellant: Rodd A. Hamman, Calton, Hamman & Wolff, Billings.
    For Respondent: Richard A. Simonton, Simonton, Howe & Schneider, Glendive; Richard L. Burns, Glendive (for the children).
   JUSTICE GRAY

delivered the Opinion of the Court.

Normond and Beverly Kolpin (the Kolpins) appeal from orders of the Seventh Judicial District Court, Dawson County, and the Seventh Judicial District Court, McCone County, denying and dismissing their efforts to seek custody of their grandchildren, imposing sanctions and awarding certain attorney’s fees. The appeals from the Dawson County dissolution proceeding and McCone County custody action were consolidated by this Court. We affirm in part, reverse in part and remand.

We phrase the issues on appeal as follows:

1) Are non-parents entitled to seek custody of a child under the Uniform Marriage and Divorce Act, through either an independent custody proceeding or intervention in a dissolution proceeding?

2) Did the District Court err in imposing Rule 11 sanctions on the Kolpins in the custody action?

3) Did the District Court err in ordering the Kolpins to pay Jeff Kolpin’s share of the children’s attorney’s fees in the dissolution action?

4) Did the District Court err in awarding Jeannette Kolpin attorney’s fees incurred in opposing the Kolpins’ motion for a stay of execution in the dissolution action?

Jeff and Jeannette Kolpin were married in March of 1982. Due to inadequate health services where the couple resided, Jeannette soon moved to Billings to live with Jeff’s parents, the Kolpins, pending the birth of her and Jeff’s first child. Russell Kolpin was bom on May 21, 1982, and Jeannette and Russell remained with the Kolpins for approximately one month following his birth. In October, 1983, Jeannette and Russell moved back in with the Kolpins to facilitate Jeannette’s psychological treatment at a nearby clinic. During this stay, Jeff and Jeannette’s second son, Raymond, was bom on December 16,1983. Jeannette and the two children lived with the Kolpins until February, 1984. Jeannette and the children also lived with the Kolpins for approximately two months following the birth of a third child, Leanne, on June 26,1985.

In April, 1987, Jeff and Jeannette brought all three children to five with the Kolpins while they attempted to work out their marital difficulties. On April 9,1987, Jeff Kolpin executed an affidavit directing the Kolpins to care for the three children; the document stated that the children were placed in the Kolpins’ care due to Jeannette’s hospitalization and out-patient treatment for mental disorders. In 1988, Jeff and Jeannette separated. Jeff moved to Glendive, Montana, and Jeannette moved to her parents’ ranch in Circle, Montana.

All three children continued to live with the Kolpins until August 5, 1988. On that date, Jeannette and her parents, Joe and Elaine Wittkopp, arrived in Billings and told the Kolpins that they were taking the two younger children on a picnic. Raymond and Leanne were not returned to the Kolpins at the end of the day; instead, the Wittkopps took the two children back to Circle.

Russell was visiting his father on the day Raymond and Leanne were taken to Circle. Russell continued to live in Billings with the Kolpins until he moved in with Jeff in Glendive in September, 1988. The Kolpins had frequent contact with Russell during the time he lived with his father. When Jeff began working night shifts, Beverly Kolpin moved to Glendive and rented the apartment above Jeff’s to care for Russell. After the 1988-89 school year, Russell and Beverly returned to live in Billings. Russell continued to live with the Kolpins.

Jeff Kolpin filed a petition for dissolution in February of 1989. As a result of the parents’ dispute over child custody, the District Court appointed an attorney to represent the interests of the children; the court ordered Jeff to pay for the children’s attorney’s fees.

The Kolpins filed a petition for grandparents’ visitation rights as a separate cause of action from the dissolution proceeding in June, 1989. In October of 1989, they filed a motion to intervene in the dissolution action, seeking custody of the three children and joinder of their visitation action "with the dissolution action. After a hearing on the Kolpins’ motion for intervention and joinder, Dawson County District Court Judge Dale Cox granted the Kolpins’ motion for joinder of the visitation claim with the dissolution action, but denied their motion to intervene regarding custody. The court did not issue findings, conclusions or a supporting memorandum with this order.

In November of 1990, in conjunction with a contempt citation for failure to pay costs assessed against him, the court struck Jeff’s request for custody and issued an order precluding Jeff from presenting evidence against an award of custody to Jeannette. Jeff moved for relief from the order, which was denied after a hearing. Soon after the hearing, Jeff disappeared. Because Jeff’s counsel could not locate him, the court granted counsel’s motion to with-draw from the proceedings. District Court Judge Richard Phillips assumed jurisdiction of the dissolution proceeding in March, 1991.

In March of 1992, the Kolpins filed an independent petition for custody of the three children in McCone County, where Raymond and Leanne resided. Jeannette moved to dismiss the petition and requested sanctions against the Kolpins under Rule 11, M.R.Civ.P. The District Court, Judge Phillips presiding, dismissed the Kolpins’independent petition for custody and awarded Jeannette attorney’s fees under Rule 11, M.R.Civ.P.

Judge Phillips also presided over the hearing in the Dawson County dissolution action on June 8, 1992. Because Jeannette had agreed that the Kolpins were entitled to visitation and the court had denied their motion to intervene regarding custody, the District Court allowed the Kolpins to present evidence only regarding the amount of visitation they believed was appropriate.

The District Court issued'findings of fact, conclusions of law and decree of dissolution on July 1, 1992. The court determined that it was in the best interests of the children to award custody to Jeannette, with reasonable visitation rights to Jeff and the Kolpins. The court expressed concerns about Jeannette’s ability to care for the three children but concluded that, with the help of her parents and sister-in-law, Jeannette could adequately care for the children in Circle. The District Court also ordered the Kolpins to pay half of the children’s attorney’s fees, because Jeff had “no intention of doing so.”

The Kolpins subsequently filed a motion for a stay of execution regarding Russell’s custody. The District Court denied the stay motion. Although the court concluded the motion was made in good faith, it ordered the Kolpins to pay Jeannette’s attorney's fees incurred in opposing the motion. This appeal follows.

Are non-parents entitled to seek custody of a child under the Uniform Marriage and Divorce Act, through either an independent custody proceeding or intervention in a dissolution proceeding?

The Kolpins contend that § 40-4-211, MCA, expressly entitles them to petition for custody of the three children and, consequently, entitles them to intervene in the dissolution action. They assert that the District Courts erred as a matter of law in dismissing their independent petition for custody in McCone County (DR 92-07) and denying their motion to intervene in Dawson County (DR 89-011). Our review of a court’s legal conclusion is plenary. Steer, Inc. v. Dep’t of Revenue (1990), 245 Mont. 470, 475, 803 P.2d 601, 603.

Section 40-4-211, MCA, sets forth the procedural and jurisdictional standards for a child custody proceeding under the Uniform Marriage and Divorce Act (the Act). Subsection (4) of § 40-4-211, MCA, reads:

(4) A child custody proceeding is commenced in the district court:

(a) by a parent, by filing a petition:
(i) for dissolution or legal separation; or
(ii) for custody of the child in the county in which he is permanently resident or found; or
(b) by a person other than a parent, by filing a petition for custody of the child in the county in which he is permanently resident or found, but only if he is not in the physical custody of one of his parents.

The statute provides three distinct methods of instituting a child custody proceeding: 1) a parent may file a petition for dissolution or legal separation; 2) a parent may file a petition for custody; or 3) a non-parent may file a petition for custody. This Court must give effect to each provision of the statute; it is not our function to omit what the legislature has included. Section 1-2-101, MCA.

The plain language of § 40-4-2 ll(4)(b), MCA, authorizes a non-parent to commence a custody proceeding by filing a petition. However, it is equally clear that the non-parent must satisfy the “standing” requirement by demonstrating that the child is not in the physical custody of one of his parents. Henderson v. Henderson (1977), 174 Mont. 1, 5, 568 P.2d 177, 179.

In Henderson, the mother and father each were awarded custody of one of their children following dissolution of their marriage; the couple then agreed that the father should retain temporary custody of both children pending further proceedings. When the father died unexpectedly, an aunt filed a petition for custody of both children under § 48-331(4)(b), RCM (1947), the predecessor to § 40-4-211(4)(b), MCA.

We concluded that “[t]he aunt did not have standing to begin a custody proceeding...” under the statute. Henderson, 568 P.2d at 179. Finding no merit in the aunt’s argument that she met the standing requirement because the children were being cared for by a babysitter at the time of the father’s death, we stated:

“Physical custody” is not limited to having actual, immediate control of the physical presence of the child. Rather, this phrase relates to the custodial rights involved in the care and control of the child. [Citations omitted.] To interpret this phrase otherwise would allow a non-parent to file a petition for custody anytime the child is out of the physical presence of the parent or parents, even if for a few minutes or under the watchful eyes of an authorized babysitter.

Henderson, 568 P.2d at 179. We emphasized that, upon the father’s death, the mother assumed the legal right to custody of her children pursuant to statute. The mother had not relinquished that custody. Henderson, 568 P.2d at 179. We went on to explain that, where one of the parents has physical custody of the child, a non-parent may seek custody only under the stricter standards of the abuse, neglect and dependency statutes. Henderson, 568 P.2d at 181.

Thus, pursuant to Henderson, the standing requirement for a non-parent seeking custody does not depend on who has actual, physical possession of the child at the moment the petition is filed. Rather, the court should focus on whether the parent actually relinquished physical custody of the child and how long the parent and child were separated.

While Henderson is the only case in which this Court has focused on the standing requirement contained in § 40-4-211(4)(b), MCA, the courts of Illinois have developed a comprehensive body of case law interpreting Illinois’ statutory counterpart. In accordance with the mandate of § 40-4-102, MCA, to apply and construe the provisions of the Uniform Marriage and Divorce Act uniformly with those states that have enacted it, we properly look to the Illinois cases for guidance in further developing Montana law on this issue.

The Illinois courts have focused on two factors in determining whether a child is in the physical custody of the parent for purposes of non-parental standing to commence custody proceedings. These factors are: 1) whether the parent voluntarily relinquished physical custody of the child; and 2) the duration of the separation of the parent and child. See In re Custody of Peterson (Ill. 1986), 491 N.E.2d 1150, 1152; In re Custody of Barokas (Ill. App. 1982), 440 N.E.2d 1036, 1042; In re Custody of Menconi (Ill. App. 1983), 453 N.E.2d 835, 838-9. When these factors are weighed, the court can then determine whether the child is in the physical custody of his or her parent for purposes of non-parental standing to commence a custody proceeding. An examination of two factually distinct Illinois cases illustrates the interplay between these factors.

In Menconi, the father asked his parents to care for his child shortly after her mother died; the child continued to live with her grandparents for six and a half years. Menconi, 453 N.E.2d at 838. The father then appeared and removed the child from the grandparents’ home by force. WTien he refused to return the child, the grandparents filed a petition for custody under the Act. The father argued that the grandparents could not meet the standing requirement because he had physical custody of his child. Menconi, 453 N.E.2d at 837.

The Illinois Court of Appeals disagreed, stating that the father could neither gain physical custody nor deprive the grandparents of physical custody by abducting the child. Menconi, 453 N.E.2d at 838. The court refused to allow the father to gain an advantage through his wrongful conduct by forcing the grandparents to proceed under the stricter standards of the juvenile court act. The court concluded that, because the father had voluntarily relinquished custody of his child and she had lived with her grandparents for six and a half years, the grandparents had standing to seek custody under the Act. Menconi, 453 N.E.2d at 839.

In Hanson v. McGowan (Ill. App. 1990), 555 N.E.2d 80, 83, amother and child lived with the child’s paternal grandparents following the disappearance of the father. The mother left to find better housing and returned for her child about three days later. The grandparents refused to relinquish the child and filed a petition for custody. Hanson, 555 N.E.2d at 81. The Illinois Court of Appeals concluded that the grandparents did not have standing to file a petition, as the mother had not relinquished physical custody of her child. Hanson, 555 N.E.2d at 83. In contrast to Menconi, the mother voluntarily left her child at the grandparents, but the three-day duration of the separation was not sufficient to divest the mother of physical custody.

The Illinois courts also have clarified a procedural aspect regarding this issue. Once the standing requirement is met and the custody proceeding goes forward under the Act, the court determines custody based on the best interests of the child; a finding of unfitness is not required. Montgomery v. Roudez (Ill. App. 1987), 509 N.E.2d 499, 501-2.

We adopt the approach of the Illinois courts and conclude that § 40-4-211(4)(b), MCA, entitles a non-parent to commence a child custody proceeding by filing a petition, provided the non-parent can establish standing by demonstrating that the child is not in the physical custody of his or her parent or parents. To determine whether the parent has physical custody of the child, the court must consider whether the parent’s initial relinquishment of physical custody was voluntary and examine the duration of the separation of parent and child. If the non-parent successfully establishes standing, the custody determination will be based on the best interests of the child pursuant to § 40-4-212, MCA.

Jeannette argues that our decision in In re Marriage of Miller (1992), 251 Mont. 300, 825 P.2d 189, mandates rejection of any entitlement in non-parents to seek custody under the Act. Indeed, in the McCone County proceeding, the District Court relied on Miller in dismissing the Kolpins’ petition. According to the District Court, Miller holds that non-parents may not bring an independent action for custody and that custody can be taken from a natural parent only through the procedures set forth in the child abuse, neglect and dependency statutes. Notwithstanding the District Court’s good faith effort in applying Miller here, Miller is distinguishable.

In Miller, the mother initially was awarded custody of the couple’s two children and her son Christopher from a prior relationship. The Department of Family Services subsequently transferred physical custody of the children from their mother to Mr. Miller. Three months later, Mr. Miller filed a petition to modify custody of all three children, arguing that he met the standing requirement of § 40-4-211(4)(b), MCA, when he filed the petition because he had physical custody of all three children. We concluded that Mr. Miller had met the modification requirements of § 40-4-219, MCA, as to the two children who were issue of the marriage. His petition to modify his stepson’s custody resulted in the language relied on by the District Court here.

Miller did not involve an original custody proceeding. Rather, Mr. Miller sought to modify custody. As such, the provisions of § 40-4-211(4), MCA, which address the commencement of a child custody proceeding, were not applicable there. We held that a change of custody as to Christopher required the procedures contained in the child abuse, neglect and dependency statutes. Miller, 825 P.2d at 193.

In addition, it is clear that Mr. Miller could not have prevailed on his § 40-4-211(4)(b), MCA, argument in an original custody proceeding under the standards enunciated herein. There, the Department of Family Services removed the children from their mother pursuant to § 41-3-301, MCA; Mrs. Miller did not voluntarily relinquish physical custody of Christopher. Because Mr. Miller could not have met the standing requirement for a non-parent to seek custody under the Act, the abuse, neglect and dependency statutes provided the appropriate avenue regarding custody of Christopher. See Henderson, 568 P.2d at 181. To apply Miller to the facts now before us would effectively delete § 40-4-211(4)(b), MCA, from the Act.

Returning to the Kolpins’ independent custody proceeding in McCone County Cause No. DR 92-07, we express no opinion as to whether the Kolpins can establish standing sufficient to maintain an independent custody action under § 40-4-211(4)(b), MCA. Neither the District Court in McCone County nor Jeannette has had an opportunity to address the Kolpins’ petition under the parameters set forth herein. We conclude, however, that the District Court erred in summarily dismissing the Kolpins’ independent petition for custody.

The Kolpins also appeal the denial of their motion to intervene in the Dawson County dissolution proceeding, Cause No. DR 89-011. They assert that their right to commence an independent proceeding for custody gives them a corresponding right to intervene regarding custody in the dissolution proceeding. This Court recently clarified the standards regarding motions to intervene. In In re Marriage of Aniballi (1992), 255 Mont. 384, 387, 842 P.2d 342, 344, we held that a prima facie showing must be made to support a claim for intervention under Rule 24(a), M.R.Civ.R Thus, a non-parent seeking custody must make a prima facie showing that the child is not in the physical custody of his or her parents to intervene in a dissolution proceeding.

We emphasize that the right of intervention premised on an entitlement to file an independent petition for custody under § 40-4-211(4)(b), MCA, does not infringe on the district court’s discretion regarding all other intervenors, as set forth in § 40-4-211(5), MCA:

Notice of a child custody proceeding shall be given to the child’s parent, guardian, custodian, those persons having physical custody of the child, and all other contestants, who may appear, be heard and file a responsive pleading. The court, upon a showing of good cause, may permit intervention of other interested parties.

Rather, the intervention discussed in subsection (5) parallels the permissive intervention of Rule 24(b), M.R.Civ.P. For example, once a child custody proceeding has commenced under § 40-4-211(4), MCA, the district court may, in its discretion, allow intervention by interested parties who may not be seeking custody but wish to appear and be heard. We repeat, however, that if a non-parent moves to intervene regarding custody in an ongoing dissolution proceeding and presents a prima facie case demonstrating that the child is not in the physical custody of his or her parents, a district court must grant the motion.

Here, the Dawson County District Court issued no findings, conclusions or memoranda with its order denying the Kolpins’ motion to intervene in the dissolution proceeding. Therefore, we cannot review the legal basis for the court’s denial of the motion to intervene. For reasons similar to those discussed above, we conclude that the District Court erred in summarily denying the Kolpins’ motion to intervene in the Dawson County dissolution proceeding, Cause No. DR 89-011.

We note here Jeannette’s argument that denial of the Kolpins’ motion to intervene is not properly before us. She contends that the denial of the Kolpins’ motion to intervene is not a separately appeal-able order under Rule 1, M.R.App.P., and, therefore, it is not appeal-able at any time. She argues that the Kolpins were obligated to seek a writ of supervisory control within thirty days of the District Court’s denial of their motion to intervene. These arguments verge on the frivolous.

It is true that an order denying a motion to intervene is not an appealable order under Rule 1, M.R.App.P. However, the proper appeal from such an interlocutory order lies after entry of final judgment. Rule 2(a), M.R.App.P.; Continental Ins. Co. v. Bottomly (1988), 233 Mont. 277, 280, 760 P.2d 73, 75-6; Estate of Schwenke v. Becktold (1992), 252 Mont. 127, 130-1, 827 P.2d 808, 810. This is the avenue taken by the Kolpins here.

Furthermore, although an application for a writ of supervisory control is sometimes used to seek immediate review of an interlocutory order, such applications are justified only where there is no remedy by appeal or other remedial procedure to provide relief and where extraordinary circumstances are present. State v. Tollefson (1989), 239 Mont. 305, 306, 780 P.2d 621, 621. The Kolpins’failure to seek a writ of supervisory control following the denial of their motion to intervene does not affect their right of appeal. We conclude that the Kolpins properly appealed the denial of their motion to intervene after the District Court entered its findings of fact, conclusions of law and decree of dissolution.

Did the District Court err in imposing Rule 11 sanctions on the Kolpins in the custody action?

In imposing sanctions against the Kolpins in their independent custody proceeding, the District Court determined that the Miller decision was so clear and unambiguous that the Kolpins’ petition for custody could not be said to be warranted by existing law or by a good faith argument to change the law. We have stated that to avoid sanctions under Rule 11, M.R.Civ.P., it is not necessary that a party be correct in his or her interpretation of the law, but only that the party make a good faith argument within his or her view of the law. In re Adoption of R.D.T. (1989), 239 Mont. 33, 36, 778 P.2d 416, 418.

The Kolpins based their custody petition on the plain language of § 40-4-211, MCA, and we have concluded that § 40-4-211, MCA, entitles a non-parent to commence a custody proceeding if the standing requirement is demonstrated. We conclude, therefore, that Rule 11 sanctions were not warranted in this situation. See Sundheim v. Reef Oil Corp. (1991), 247 Mont. 244, 258, 806 P.2d 503, 512.

Did the District Court err in ordering the Kolpins to pay Jeff Kolpin’s share of the children’s attorney’s fees in the dissolution action?

Soon after the dissolution proceeding was commenced, the District Court appointed an attorney to represent the interests of the children and ordered Jeff to pay the children’s attorney's fees. In its findings of fact and conclusions of law, however, the District Court ordered the Kolpins to pay one-half of those fees; the reason given was that Jeff had “no intention of doing so.” The Kolpins assert that this rationale did not constitute a legal basis for ordering them to pay Jeff’s obligation. We agree. The Kolpins have no responsibility to assume the debts of their adult son and the court cited no authority permitting it to shift this obligation to the Kolpins.

Jeannette contends that § 40-4-110, MCA, authorizes the District Court to require the Kolpins to pay Jeff’s share of the children’s attorney’s fees. Section 40-4-110, MCA, reads:

The court from time to time, after considering the financial resources of both parties, may order a party to pay a reasonable amount for the cost to the other party of maintaining or defending any proceeding under chapters 1 and 4 of this title and for attorney’s fees ....

Section 40-4-110, MCA, is not applicable here. This provision relates to awarded costs and attorney’s fees of the other party under certain circumstances. Jeff’s share of the children’s attorney’s fees was not incurred by Jeannette as contemplated by the statute. Therefore, § 40-4-110, MCA, simply is not available as a basis for requiring the Kolpins to pay Jeff’s obligation.

We note that the District Court did not rely on the language of § 40-4-205, MCA, in its findings and conclusions, nor do the parties argue that § 40-4-205, MCA, is applicable. Accordingly, we do not address whether the District Court could have required the Kolpins to pay for half of the children’s attorney’s fees pursuant to § 40-4-205, MCA. We conclude, however, that the District Court erred in ordering the Kolpins to pay one-half of the children’s attorney’s fees in the dissolution action on the basis given.

Did the District Court err in awarding Jeannette Kolpin attorney’s fees incurred in opposing the Kolpins’ motion for a stay of execution in the dissolution action?

Following entry of the dissolution decree in Dawson County, the Kolpins applied for a stay of execution concerning the custody of Russell and filed their notice of appeal of the findings of fact, conclusions of law and decree of dissolution. In opposing the stay motion, Jeannette requested attorney’s fees under § 40-4-110, MCA, or Rule 11 sanctions. The District Court denied the stay motion, concluding that the reunification of the children was of primary importance. Because Russell had resided with the Kolpins for several years, the District Court reasoned that the Kolpins’ request for continuation of the arrangement pending appeal was not taken in bad faith. However, the court concluded that due to Jeannette Kolpin’s limited financial resources, it was appropriate to award her attorney's fees incurred in responding to the motion for stay of execution.

The Kolpins argue that because the notice of appeal was filed, the District Court had jurisdiction to consider the stay but did not have jurisdiction to award attorney’s fees. They also contend that, because the Wittkopps are paying Jeannette’s attorney’s fees and the purpose of attorney’s fees under § 40-4-110, MCA, is to equalize the positions of the parties, an award of attorney’s fees to Jeannette was not warranted.

While the filing of a notice of appeal normally vests jurisdiction in this Court for all but ancillary matters, the district court is not completely powerless. Churchhill v. Holly Sugar Corp. (1981), 192 Mont. 533, 536, 629 P.2d 758, 760; State ex rel. Kaasa v. District Court (1978), 177 Mont. 547, 549, 582 P.2d 772, 774. In Kaasa, a wife applied for temporary maintenance pending an appeal of the decree of dissolution. The district court declined to rule on the basis that the filing of the notice of appeal divested it of jurisdiction to act in the divorce. Kaasa, 582 P.2d. at 774. We concluded that the district court had jurisdiction to act on a petition for temporary maintenance filed after the notice of appeal, relying in part on that portion of the attorney’s fees provision of the UMDA, which read:

The court from time to time after considering the financial resources of both parties may order a party to pay a reasonable amount for the cost to the other party of maintaining or defending any proceeding under this act and for attorney’s fees, including sums for legal services rendered and costs incurred prior to the commencement of the proceeding or after entry of judgment.... [Emphasis added.]

Section 48-327, RCM (1977 Cum. Supp.); Kaasa, 582 P.2d at 774. Kaasa illustrates the unique character of the district court’s ongoing jurisdiction in dissolution proceedings. Section 40-4-110, MCA, specifically allows for attorney’s fees incurred after entry of judgment. We conclude that the District Court had jurisdiction to award attorney’s fees pursuant to § 40-4-110, MCA, in this situation.

Having cleared the jurisdictional hurdle, the question remains whether the award of attorney’s fees was appropriate. A district court’s award of attorney’s fees under § 40-4-110, MCA, will not be disturbed absent an abuse of discretion. In re Marriage of Becker (1990), 244 Mont. 469, 477, 798 P.2d 124, 129. Here, the District Court considered the financial resources of both parties and concluded that the Kolpins should pay for the attorney’s fees Jeannette incurred in opposing the motion for a stay. Although Elaine Wittkopp testified that the Wittkopps were paying Jeannette’s attorney’s fees, she also testified that Jeannette had paid some of the fees. Further, we find no evidence of record that Jeannette is not required to reimburse the Wittkopps for the fees. See In re Marriage of Thompson (1981), 193 Mont. 127, 129-30, 630 P.2d 243, 244. We conclude that the District Court did not abuse its discretion in awarding Jeannette attorney’s fees incurred in opposing the Kolpins’ motion for a stay of execution in the dissolution action.

To recap the effect of this opinion on the two dockets below, we conclude that the District Court erred in dissolution proceeding Cause No. DR 89-011 in summarily denying the Kolpins’ motion to intervene and in ordering the Kolpins to pay half of the children’s attorney’s fees because Jeff did not intend to do so; the District Court did not err in awarding Jeannette attorney’s fees in opposing the Kolpins’ motion to stay execution. We remand Cause No. DR 89-011 for further proceedings consistent with this opinion, emphasizing that the findings of fact, conclusions of law and decree of dissolution, to the extent not discussed herein, are unaffected by this opinion.

In custody action Cause No. DR 92-07, we conclude that the District Court erred in summarily dismissing the Kolpins’ petition for custody and in imposing Rule 11 sanctions against the Kolpins. We remand that action only for such further proceedings regarding the sanctions as may be necessary, noting that the matter of custody will be determined on remand in Cause No. DR 89-011. Finally, we note that it appears that neither party has any further contacts with Dawson County; in this regard, the parties may wish to stipulate to hold any further hearings which may be necessary in McCone County.

Affirmed in part, reversed in part, and remanded.

CHIEF JUSTICE TURNAGE, JUSTICES HARRISON, TRIEWEILER, HUNT, WEBER and JUDGE McCARTER sitting for RETIRED JUSTICE McDONOUGH concur.


author: JUSTICE WEBER JUSTICE NELSON

text:
    LEROY E. MUESKE, Plaintiff and Respondent, v. PIPER, JAFFRAY & HOPWOOD, INCORPORATED, JOHN LAWRENCE SCHULTZ, TERRAN FINANCIAL GROUP, INC., TERRAN SECURITIES, INC., TERRAN PARTNERS 1, DANIEL E. HALLIGAN, RONALD G. HEPPNER AND MAURICE F. BOLGEN, Defendants and Appellants.
    No. 92-539.
    Submitted on Briefs March 18, 1993.
    Decided August 27, 1993.
    50 St.Rep. 1009.
    260 Mont. 207.
    859 P.2d 444.

      For Defendants and Appellants: John G. Crist and James L. Jones, Dorsey & Whitney, Billings.
    For Plaintiff and Respondent: Daniel R. Sweeney, Butte; A. Clifford Edwards and Kevin M. Funyak, Edwards Law Firm, Billings.
   JUSTICE WEBER

delivered the Opinion of the Court.

Defendant, Piper, Jafiray & Hopwood, Incorporated (Piper, Jafiray & Hopwood), appeals the Order of the District Court of the Second Judicial District, Silver Bow County, which denied its Motion to Compel Arbitration in an action brought by plaintiff alleging negligence and violations of the Montana Securities Act in relation to investments purchased through Piper, Jaffray & Hopwood. We affirm.

Piper, Jaffray & Hopwood has raised several questions on appeal including the correctness of the District Court’s findings of constructive fraud, admissions against interest of Piper, Jafiray & Hopwood’s employees and the plaintiff’s intent to be bound by a Margin Agreement. However, the District Court stated that these factual findings made by the court are not the law of the case. The sole issue before the District Court in the evidentiary hearing was the validity of the arbitration clause Piper, Jaffray & Hopwood sought to enforce. The sole issue for our review is:

Does Piper, Jaffray & Hopwood’s failure to comply with the rules of the New York Stock Exchange and the National Association of Securities Dealers render the predispute arbitration clause within Piper, Jaffray & Hopwood’s Margin Agreement invalid?

The following findings of fact of the District Court and testimony presented provide the foundation for our review: Leroy E. Mueske (Mueske) operated a dental practice in Butte, Montana. He contacted defendant John Lawrence Schultz (Schultz) who was a broker employed by Piper, Jaffray & Hopwood. On September 13, 1989, Mueske purchased one unit of Terran Partners I limited partnership through Schultz.

On November 8, 1989, Schultz obtained Mueske’s signature on a “Margin Agreement” with Piper, Jaffray & Hopwood. The Margin Agreement contained the following extensive provision with regard to arbitration on the last page of the Margin Agreement just above the signature line on which Mueske signed:

11. Customer Agrees to Arbitrate.
* Arbitration is final and binding on the parties.
* The parties are waiving their right to seek remedies in court, including the right to jury trial.
* Pre-arbitration discovery is generally more limited than and different from court proceedings.
* The arbitrators’ award is not required to include factual findings or legal reasoning and any party’s right to appeal or to seek modification of rulings by the arbitrators is strictly limited.
* The panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities industry.
I agree to arbitrate any disputes between PJH and me. I specifically agree and recognize that all controversies which may arise between PJH its agents, representatives or employees and me concerning any transaction, account or the construction, performance or breach of this or any other agreement between us, whether entered into prior, on, or subsequent to the date hereof, shall be determined by arbitration to the full extent provided by law. Such arbitration shall be in accordance with the rules then in effect, of the Arbitration Committee of the New York Stock Exchange, Inc. or the National Association of Securities Dealers, Inc. as I may elect. I authorize PJH, if I do not make such election by registered mail addressed to PJH at its main office within 15 days after receipt of notification from PJH requesting such election, to make such election on my behalf. (Emphasis supplied.)

On December 26,1989, again through Schultz, Mueske purchased additional units of the Terran investments for $50,000. On August 23, 1990, the Securities Department of the State Auditor’s office sought a cease and desist order of all the named defendants in this action, except Piper, Jaffray & Hopwood, based on fraud and misrepresentation to the Terran investors.

Mueske contends that he lost his entire $75,000 investment in the Terran investments. Mueske brought this action against Piper, Jaffray & Hopwood concerning the Terran transactions. Piper, Jaffray & Hopwood filed a Motion to Compel Arbitration based on the above-outlined arbitration clause in the Margin Agreement.

After a hearing on Piper, Jaffray & Hopwood’s motion, the District Court concluded that the arbitration clause was severable from the Margin Agreement as a whole based on incorporated choice of law provisions relating solely to arbitration requirements and procedures. In adjudicating the validity of the arbitration clause, the court relied on the “doctrine of incorporation of extrinsic documents” where reference is made within the contract to such documents. The arbitration clause contains specific language, which provides that arbitration shall be in accordance with the rules then in effect of the New York Stock Exchange, Inc. (NYSE) and the National Association of Securities Dealers, Inc. (NASD). The rules of the NYSE and NASD were thus incorporated into the contract.

The stipulation by Piper, Jafiray & Hopwood that it did not fully comply with NASD Rules of Fair Practice, Art. Ill, Sec. 21, and NYSE Rule 637 is crucial to the District Court’s conclusion that the arbitration clause was invalid. The specific section of NASD Section 21 with which Piper, Jafiray & Hopwood did not comply provides:

Requirements When Using Predispute Arbitration Agreements With Customers
(f)... (3) A copy of the agreement containing any such clause shall be given to the customer who shall acknowledge receipt thereof on the agreement or on a separate document. (Emphasis supplied.)

NASD Manual — Rules of Fair Practice (CCH) ¶ 2171, Art. Ill, Sec. 21(f)(3) (1991). The District Court concluded that compliance with the above rule was a condition precedent to a valid arbitration clause, stating:

... [Piper, Jafiray & Hopwood] ... has clear, mandated obligations of disclosure regarding the use of pre-dispute arbitration clauses. Failure to comply with such rales is a failure to abide by the explicitly incorporated terms of the agreement.
This Court finds that the May 10, 1989 changes in the rales incorporated within the arbitration clause were deliberate and purposeful actions of the Securities Exchange Commission which require proper recognition from the Court....
[Piper, Jafiray & Hopwood’s] failure to adequately correct its procedures and amend its account forms to reflect the new disclosure requirements is a failure to provide the Plaintiff with due and proper notice/disclosure as determined by the Securities and Exchange Commission as evidenced by the May 10,1989 adoption of rale changes.

The District Court further noted that the burden of showing satisfaction of the notice/disclosure requirements was on Piper, Jafiray & Hopwood and that Piper, Jafiray & Hopwood had failed to show that Mueske had received a copy of the agreement or that he had acknowledged receipt of a copy of the agreement. The court then stated that the requirements are not unduly burdensome, but that even if they were, Piper, Jaffray & Hopwood nevertheless designated the applicable rules and was bound by them.

Piper, Jaffray & Hopwood contends that the District Court incorrectly concluded that the terms of the arbitration clause clearly establish a choice of law election to be bound by the rules of the NYSE or the NASD. They contend this was wrong for three reasons: (1) Piper, Jaffray & Hopwood’s minor variance from the industry self-regulating rule did not prejudice Mueske, (2) the arbitration clause is not a choice of law provision for the purposes of determining what law governs the provision’s enforceability, and (3) nothing in the NASD rules mandates that the clause is void if the rules are not followed.

First, we agree with the District Court that Piper, Jaffray & Hopwood’s noncompliance with the rules relating to disclosure and notice is not a “minor” triviality. The District Court noted that the changes in the NYSE and NASD rules, which were incorporated in the Piper, Jaffray & Hopwood arbitration clause, resulted from deliberate and purposeful actions of the Securities and Exchange Commission (SEC) which require proper recognition from the court. The key question is whether the arbitration clause is a choice of law provision for the purposes of determining what law governs the validity of the arbitration clause. We will uphold the District Court’s conclusions of law if they are correct. Steer, Inc. v. Department of Revenue (1990), 245 Mont. 470, 474, 803 P.2d 601, 603.

Piper, Jaffray & Hopwood claims that the NASD rules control only the arbitration process, not the validity of the clause itself. As noted by Piper, Jaffray & Hopwood, the last paragraph of the arbitration clause as reprinted above provides in the first two sentences that the parties are to arbitrate all disputes to the “full extent provided by law.” As further noted by Piper, Jaffray & Hopwood, no reference is made in the first two sentences to NYSE or NASD rules — it is only further along in the clause (in the third sentence) that it provides that any arbitration shall be in accordance with the rules of the NASD or NYSE. Piper, Jaffray & Hopwood admits that it did not strictly comply with all the requirements of NASD Section 21. Mueske contends that it is inconsistent for Piper, Jaffray & Hopwood to argue that the arbitration clause should be found valid and strictly enforced while at the same time argue that substantial compliance — not strict compliance — with the requirements of NASD Section 21 is sufficient.

The parties agree that the Federal Arbitration Act (FAA) controls here. The FAA provides that an agreement to arbitrate is valid except where grounds exist at law or in equity to revoke the contract. 9 U.S.C. § 2 (1988). A district court properly adjudicates the validity of an arbitration agreement when a party contests the validity of an arbitration clause within a contract, but does not contest the validity of the contract as a whole. Larsen v. Opie (1989), 237 Mont. 108, 111-12, 771 P.2d 977, 979-80 (citing Prima Paint Corp. v. Flood & Conklin Mfg. Co. (1967), 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270). Federal policy behind the FAA is designed to ensure enforceability of private agreements to arbitrate. Volt Information Sciences, Inc. v. Board of Trustees (1989), 489 U.S. 468, 109 S.Ct. 1248, 103 L.Ed.2d 488. Allowing enforcement of private agreements to arbitrate gives effect to the contractual rights and expectations of the parties, without ravaging the policies behind the FAA. Volt, 489 U.S. at 479, 109 S.Ct. at 1255-56, 103 L.Ed.2d at 500.

In Audit Services v. Frontier-West, Inc. (1992), 252 Mont. 142, 148, 827 P.2d 1242, 1246, we said that “[a] state court may rely on state contract law as long as it effectuates the policy underlying federal labor legislation” and applies federal substantive law. The same holds true for determining the validity of an arbitration clause coming under the guidelines and requirements of federal arbitration legislation.

Based on the language in Volt, a district court’s goal, therefore, should be to give effect to the contractual rights and expectations of the parties without running contrary to the policies behind the FAA. Although the policy behind the FAA is to encourage and enforce arbitration agreements, that extends only to valid arbitration agreements. The court could find the agreement invalid according to the law the parties have chosen to apply, so long as the chosen law is not contrary to the FAA and the legitimate rights and expectations of the parties. Here the District Court determined that Piper, Jaffray & Hopwood’s arbitration clause was invalid by enforcing the provision of the arbitration clause that provided for application of NASD and NYSE rules as a choice of law provision.

The self-regulating securities industry, through the Securities Industry Conference on Arbitration (SICA), developed rules relating to arbitration and arbitrability for its own use, pursuant to § 19(b)(1) of the Securities Exchange Act of 1934. Order Approving Proposed Rule Changes by NYSE, NASD and AMEX Relating to the Arbitration Process and the Use of Predispute Arbitration Clauses, Exchange Act Release No. 34-26805 (1989), 54 Fed. Reg. 21144. SICA was formed in 1977 by the securities industry in response to the SEC’s request for a review of then-existing arbitration procedures as an alternative to the implementation of the SEC’s own proposals to establish a system for dispute resolution between broker/dealers and their customers. Id,., 54 Fed. Reg. at 21145. This resulted in a Uniform Code of Arbitration. In September of 1987, after reviewing industry-sponsored arbitration, the SEC advised SICA of its views regarding the need for changes to the Uniform Code of Arbitration. Id., 54 Fed. Reg. at 21145. After that time, SICA and the SEC met regularly to work out proposals in response to SEC concerns. Id., 54 Fed. Reg. at 21145. NYSE Rule 637 and NASD Section 21 were developed by the self-regulating organizations in response to SEC concerns.

NYSE Rule 637 and NASD Section 21 are included in the rules adopted by the SEC. They were specifically designed to improve disclosure to customers in account opening agreements and to restrict the content of the arbitration clauses. Id., 54 Fed. Reg. at 21153. Notice of the proposed changes was given in Securities Exchange Act releases and by publication in the Federal Register. See, e.g., Proposed Rule Changes by NYSE, Exchange Act Release No. 34-26474 (1989), 54 Fed. Reg. 3883. After reviewing the filings and the comments received in response to notice, the SEC determined that the proposed rule changes were consistent with the requirements of the Securities Exchange Act. Exchange Act Release No. 34-26805,54 Fed. Reg. at 21155. One industry member commented that the new rules should enhance investor confidence in the system. Id., 54 Fed. Reg. at 21155. The SEC approved the NYSE and NASD rules discussed above on May 10, 1989, and NYSE Rule 637 and NASD Section 21 became effective September 13,1989. Id., 54 Fed. Reg. at 21155, n.61.

One of the most significant changes in the rules is the level of disclosure and the emphasis on disclosure of arbitration clauses in agreements such as Piper, Jaffray & Hopwood’s Margin Agreement. In its order approving the changes, the SEC stated:

The Commission welcomes the changes in SRO arbitration heralded by these proposals, and the cooperative effort that produced them. These rules represent several years of effort by SICA. They represent the promise of the SROs to maintain fair and efficient forums for the arbitration of disputes between members and investors. The Commission believes that the proposed rules appropriately balance the need to strengthen investor confidence in the arbitration systems at the SROs, both by improving the procedures for administering the arbitrations and by creating clear obligations regarding the use by SRO members of predispute arbitration clauses, with the need to maintain arbitration as a form of dispute resolution that provides for equitable and efficient administration of justice. (Emphasis supplied.)

Exchange Act Release No. 34-26805, 54 Fed. Reg. at 21155.

Congress established a self-regulatory scheme for the securities industry. This scheme of self-regulation involves SEC approval of rules developed by industry members. In approving the new rules, the SEC stated that the rule changes of the NYSE and NASD “dynamically advance the public interest in SRO arbitration ... [and] we conclude that these rules are designed to prevent fraudulent and manipulative practices, promote just and equitable principles of trade and in general, protect investors and the public interest consistent with sections 6(b)(5) and 15A(b)(6) [ofthe SEA].”Id., 54 Fed. Reg. at 21155.

The District Court’s decision to include the NASD and NYSE rules in the contract as a choice of law provision applicable to the entire arbitration clause is reasonable. The SEC would not approve the NYSE and NASD rules without the disclosure provision requiring a signature for the arbitration agreement and requiring that a copy be given to the investor. Exchange Act Release No. 34-26805, 54 Fed. Reg. at 21144. The disclosure requirements of the rules were intended to further the purpose of the FAA in enforcing arbitration agreements, but only when the agreements are fully disclosed to the investor.

As the drafter of the arbitration clause, Piper, Jaffray & Hopwood should have specified therein if it had intended to submit disputes to arbitration under the terms of the NASD and NYSE rules but did not intend to have the determination of validity of the arbitration agreement made by using the same rules. This is particularly important where the NASD and NYSE rules include sections which specify procedures for disclosure of arbitration clauses to investors and where the SEC has stressed the importance of the disclosure procedures and specifically required the industry to include them.

“Arbitration clauses are creatures of contract and, therefore, principles of contract interpretation are applicable. ” Frates v. Edward D. Jones & Co. (1988), 233 Mont. 377, 382, 760 P.2d 748, 752. By not specifically stating in the arbitration clause the law which will govern a determination of validity of the clause, Piper, Jaffray & Hopwood has created an ambiguity. When ambiguities exist, general rules of contract interpretation apply to determine the intent of the parties.

Uncertain terms in a contract are to be construed against the party causing the uncertainty. Section 28-3-206, MCA. See also Rumph v. Dale Edwards, Inc. (1979), 183 Mont. 359, 600 P.2d 163, 169. Any ambiguity in the arbitration clause is thus to be construed strictly against Piper, Jaffray & Hopwood as the drafter of the contract. Frates, 760 P.2d at 752.

Further, the intention of the parties must be determined by reading the instrument in full and not by isolating words and phrases as Piper, Jaffray & Hopwood urges the Court to do here. Rumph, 600 P.2d at 168.

It is a well-established principle of contractual construction that in interpreting a written instrument, the court will not isolate certain phrases of the instrument to garner the intent of the parties, but will grasp the instrument by its four corners and in the light of the entire instrument, ascertain the paramount and guiding intent of the parties. Mere isolated tracts, clauses and words will not be allowed to prevail over the general language utilized in the instrument. ... Particular clauses of the agreement are subordinate to the general intent of the contract. ...

Rumph, 600 P.2d at 168 (citing § 28-3-307, MCA).

Piper, Jaffray & Hopwood’s arbitration clause incorporates the rules of the NYSE and NASD as controlling law. The arbitration clause does not include an exception for allowing other law to govern determinations of validity. Applying the general rules of contract interpretation set forth above, we conclude that those rules, along with the public policy considerations expressed by the SEC, direct that the validity of the arbitration clause be determined according to the incorporated controlling law — the NYSE and NASD rules — unless such rules contravene the substantive law of the FAA.

We hold Piper, Jaffray & Hopwood’s failure to comply with NYSE and NASD rules renders the predispute arbitration clause within Piper, Jaffray & Hopwood’s Margin Agreement invalid.

Affirmed and remanded for further proceedings consistent with this opinion.

CHIEF JUSTICE TURNAGE, JUSTICES HARRISON, TRIEWEILER, HUNT and RETIRED JUSTICE McDONOUGH sitting in place of JUSTICE GRAY concur.

JUSTICE NELSON

respectfully dissents.

The opinion of the Court states that when Piper, Jaffray & Hopwood, Inc. (Piper) drafted the Margin Agreement at issue, which included an arbitration clause, Piper included a choice of law provision. This “choice of law” provision was the National Association of Security Dealers (NASD) rules. The opinion of the Court calls the NASD rules in this case “controlling law”.

Although the Securities and Exchange Commission (SEC) has some power over the NASD, the NASD is a private, independent, self-regulating organization. The SEC did direct the NASD to implement rules regarding arbitration. Essentially, the SEC allowed the NASD to promulgate rules, rather than force rules on the group.

The new promulgated rules provided specific directions (Rule 21) for incorporating arbitration provisions into securities agreements. A violation of Rule 21 could result in sanctions by the NASD against the violating dealer.

Here, the Court held that a failure to comply with controlling law incorporated into an arbitration agreement, such as an NASD rule, renders a pre-dispute arbitration clause invalid. However, if the NASD rule is “controlling law”, as held by the Court here, then all of the NASD rules should control. The NASD rules provide that a violation of Rule 21 can result in sanctions being issued against the violating dealer. There is no provision for invalidating the arbitration agreement in its entirety.

If there is some legal basis for the Court to determine that a violation of a “choice of law” provision can result in a remedy not provided for by that law, this legal basis should be clearly articulated. If there is no legal basis for allowing this remedy, one should not be artificially created.

For the foregoing reasons, I dissent.

      I do not believe that the reference by the District Court or by this Court to the provision at issue as being one of “choice of law” is accurate in the context in which that concept is usually understood.