author:
      MR. JUSTICE WEBER
      MR. JUSTICE MORRISON,

text:
    LARRY W. PASSAGE; Neva M. Passage, individually and as Custodian for Allison Passage and Tod Passage, minors; and Twila Passage, Plaintiffs and Respondents, v. PRUDENTIAL-BACHE SECURITIES, INC., a Delaware corporation; G.T. Murray Company, a Montana corporation; Richard Dobbins; William Crowley; and G.T. Murray, Defendants and Appellants.
    No. 85-459.
    Submitted June 17, 1986.
    Decided Aug. 26, 1986.
    727 P.2d 1298.

      MR. JUSTICE MORRISON dissented and filed opinion.
    Daniel J. Shea argued, Helena, for Prudential-Bache.
    Luxan & Murfitt, Michael J. Mulroney argued, Helena, for G.T. Murray, et al.
    W.W. Leaphart argued, Helena, for plaintiffs and respondents.
   MR. JUSTICE WEBER

delivered the Opinion of the Court.

In this case, all parties appeal portions of an order of the District Court for Lewis & Clark County which held that claims on some of the Passages’ accounts with defendants were subject to valid arbitration clauses. We affirm in part and reverse in part.

The issues are:

1. Did the District Court correctly determine that it had jurisdiction to order arbitration of the Passages’ claims under the Federal Arbitration Act?

2. Are the arbitration agreements in this case adhesion contracts, and if so, are they unenforceable?

3. Did the District Court err in directing that arbitration be conducted under the rules of the American Arbitration Association as elected by the Passages?

4. Which parties are entitled to benefit of the arbitration agreement?

5. Did the District Court properly stay the claims of the children pending arbitration of their parents’ claim?

Prudential-Bache Securities, Inc. (Prudential) is the New York correspondent of G.T. Murray Company. The other three defendants are or were officers or employees of G.T. Murray Company. Beginning in 1983, the Passages opened several accounts at the G.T. Murray office in Helena, Montana. The accounts included two “target accounts” and two regular accounts, with total deposits of $429,403.30. Neva Passage also opened accounts for each of their two children with total deposits valued at $13,440.97. Larry Passage opened an account for Twila Passage, his mother, with total deposits valued at $27,187.51. When they opened their regular and target accounts, Larry and Neva Passage signed customer agreement forms, a copy of which is appended to this opinion. Twila Passage also signed a customer agreement form. The customer agreement forms included arbitration clauses providing as follows:

“Any controversy arising out of or relating to my account, to transactions with or for me or to this Agreement or the breach thereof, . . . shall be settled by arbitration in accordance with the rules then obtaining of either the American Arbitration Association or the Board of Governors of the New York Stock Exchange as I may elect. If I do not make such election by registered mail addressed to you at your main office within five (5) days after demand by you that I make such election, then you may make such election.”

In February 1985, the Passages filed suit in the District Court for Lewis and Clark County, charging defendants with various violations of state securities laws and duties in handling their accounts. The complaint alleged losses in the regular and target accounts of $320,104.82, losses in the children’s accounts of $4,770, and loss in the Twila Passage account of $10,210.15. Defendants filed demands for arbitration. The District Court found that the accounts, except for the children’s accounts, were subject to valid arbitration clauses and granted the motion of defendant Prudential to compel arbitration. It denied the motion of defendants G.T. Murray Company, Richard C. Dobbins, William Crownley, and G.T. Murray (the Murray Defendants) to compel arbitration. It held that there was a question of whether the Murray defendants had standing to demand arbitration, but stated that this was immaterial since Prudential undisputedly had the necessary standing. The court also held that the client agreements containing the arbitration clauses did not apply to the accounts opened in the names of the Passage children, but it stayed judicial proceedings on the children’s claims until arbitration is completed on the other claims. Each of the parties has appealed on portions of the judgment which are unfavorable to it.

I

Did the District Court correctly determine that it had jurisdiction to order arbitration of the Passages’ claims under the Federal Arbitration Act?

This area of the law is undergoing rapid and comprehensive change as a result of recent U.S. Supreme court decisions. That Court’s decision in Southland Corp. v. Keating (1984), 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1, conclusively answers this question. In that case, Southland Corporation, the owner and franchisor of 7-Eleven convenience stores, was charged by 7-Eleven franchisees with fraud, oral misrepresentation, breach of contract, breach of fiduciary duty, and violation of state disclosure requirements in its franchise agreements. Southland Corporation appealed the decision of the California Court of Appeals that arbitration clauses in Southland’s contracts with its franchisees were rendered void by California’s Franchise Investment Law, which required judicial consideration of claims brought under it. The Supreme Court reversed. It held that, as interpreted, the California Franchise Investment Law conflicted with the Federal Arbitration Act and violated the Supremacy Clause. The Court reasoned:

“In enacting Section 2 of the federal Act, Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration . . .
“Congress has thus mandated the enforcement of arbitration agreements.”

Southland, 465 U.S. at 10. 104 S.Ct. at 858. In answer to the argument that claims brought in state court are not subject to the Arbitration Act, the Court stated:

“. . . it is clear beyond question that if this suit had been brought as a diversity action in a federal district court, the arbitration clause would have been enforceable. (Citation omitted.) The interpretation given to the Arbitration Act by the California Supreme Court would therefore encourage and reward forum shopping. We are unwilling to attribute to Congress the intent, in drawing on the comprehensive powers of the Commerce Clause, to create a right to enforce an arbitration contract and yet make the right dependent for its enforcement on the particular forum in which it is asserted. And since the overwhelming proportion of all civil litigation in this country is in the state courts, we cannot believe Congress intended to limit the Arbitration Act to disputes subject only to federal-court jurisdiction. Such an interpretation would frustrate congressional intent to place ‘(a)n arbitration agreement . . . upon the same footing as other contracts, where it belongs.’ H.R. Rep. No. 96, 68th Cong., 1st Sess., 1 (1924).
“In creating a substantive rule applicable in state as well as federal courts, Congress intended to foreclose state legislative attempts to undercut the enforceability of arbitration agreements.”

Southland, 465 U.S. at 15-16, 104 S.Ct. at 860-861. Under South-land, a state court clearly has jurisdiction to order arbitration under the Federal Arbitration Act.

We affirm the District Court as to this issue.

II

Are the arbitration agreements in this case adhesion contracts, and if so, are they unenforceable?

The customer agreement forms signed by the Passages are one-page documents, but they contain a number of complex and technical agreements and promises on the parts of both parties. The arbitration clause, paragraph 14, is printed in the same typeface as the rest of the form. It is one of the longer provisions in the agreement. The Passages invested a significant amount of money with defendants, and there has been no suggestion that they require protection because they are in any way improvident persons.

The Southland opinion does not mandate that all arbitration clauses are enforceable:

“We discern only two limitations on the enforceability of arbitration provisions governed by the Federal Arbitration Act: they must be part of a written maritime contract or a contract ‘evidencing a transaction involving commerce’ and such clauses may be revoked upon ‘grounds as exist at law or in equity for the revocation of any contract.’ ”

Southland, 465 U.S. at 10-11, 104 S.Ct. at 858-859. The agreement between the Passages and Prudential clearly involves interstate commerce, since its object was purchase and sale of securities through a public stock exchange.

The Passages contend that the agreement should be declared unenforceable upon “grounds as exist at law or in equity for the revocation of any contract.” The Passages argue that this clause is revocable because it appears in a contract of adhesion. They have cited post-Southland cases in which state courts have declared void arbitration and clauses in contracts of adhesion. However, the factual and legal situations in those cases are different from the one here. In Victoria v. Superior Court (1985), 40 Cal.3d 734, 222 Cal.Rptr. 1, 710 P.2d 833 (patient was sexually assaulted by an orderly), the holding that the arbitration clause would be set aside was based on the court’s determinations that the scope of the arbitration clause was unclear, its ambiguity should be interpreted against the hospital-drafter, and it was unlikely that the parties intended the arbitration clause to apply in these circumstances. In Obstetrics and Gynecologists v. Pepper (Nev.1985), 693 P.2d 1259 (gynecology clinic patient suffered cerebral incident while on oral contraceptives), the appellate court upheld the district court’s setting aside of an arbitration clause. The appellate court stated the district court had not made findings and conclusions but reasoned that the district court could have found the agreement was an adhesion contract and was not knowingly entered.

The Passages also argue that this Court’s opinion in Anderson v. Baker (1982), 196 Mont. 494, 641 P.2d 1035 (adhesion contracts construed against the drafter), and Transamerica Ins. Co. v. Royle (1983), 202 Mont. 173, 656 P.2d 820 (insurance policy clause examined using consumer approach), should be extended so that the enforceability of this arbitration clause would be examined from a consumer approach. They contend that under the consumer approach the provision for arbitration should be stricken, since it was not clearly established that the Passages were put on notice of the arbitration clauses.

In contrast, the federal courts have held arbitration clauses in brokerage agreements enforceable:

“Contracts of adhesion arise when a standardized form of agreement, usually drafted by the party having superior bargaining power, is presented to a party, whose choice is either to accept or reject the contract without the opportunity to negotiate its terms. (Citation omitted.) Here, the investor is faced with an industry wide practice of including Arbitration Clauses in standardized brokerage contracts. As the investor faces the possibility of being excluded from the securities market unless he accepts a contract with such an agreement to arbitrate, such clauses come within the adhesion doctrine. However, mere inequality in bargaining power does not render a contract unenforcible [sic], (Citation omitted.) nor are all standardized contracts unenforcible [sic]. (Citations omitted.) As a consequence of current commercial realities, form forum clauses will control, absent a strong showing it should be set aside. (Citation omitted.) For such a contract or clause to be void, it must fall within judicially imposed limits of enforcement. It will not be enforced against the weaker party when it is: (1) not within the reasonable expectations of said party or (2) within the reasonable expectations of the party, but, when considered in its context, is unduly oppressive, unconscionable or against public policy. (Citations omitted.)
“Such pre-dispute arbitration agreements are not outside the reasonable expectations of the investor. (Citation omitted.) Nor are they contrary to public policy, as indicated by the judicial and legislative presumption favoring the arbitration of such disputes. (Citation omitted.)”

Finkle and Ross v. A.G. Becker Paribas, Inc. (D.C.N.Y. 1985), 622 F.Supp. 1505, 1511-12.

There is nothing in the record to indicate that the arbitration clause in the client agreement form was not within the parties’ reasonable expectations. Nor is there any evidence that the clause is oppressive or unconscionable. The federal caselaw demonstrates that arbitration clauses are common, and may be universal, in brokerage agreements. In Southland, which like the present case involved allegations of fraud and misrepresentation, the public policy of enforcement of arbitration clauses was forcefully stated. We conclude that even if the customer agreement form is an adhesion contract, there is nothing in the record and no compelling law to prevent enforcement of the arbitration clause. We affirm the District Court’s holding that the arbitration clause is enforceable.

III

Did the District Court err in directing that arbitration be conducted under the rules of the American Arbitration Association as elected by the Passages?

The Murray defendants argue that the Passages’ election of arbitration rules should not be honored, since they did not consent to arbitration. The Passages’ April 16, 1985 election of the American Arbitration Association was made within the 5 days allowed from the date of demand for arbitration, as required in paragraph 14 of the customer agreement form. The selection complied in all respects with the requirements of the contract, but was made contingent upon arbitration being compelled by the court. We conclude that the District Court properly honored the Passages’ election of arbitration rules, once it determined that arbitration was proper.

IV

Which parties are entitled to benefit of the arbitration agreement?

The District Court found the Murray defendants were not signatories to the customer agreement forms. It therefore denied the Murray defendants’ motion to compel arbitration. An examination of the customer agreements reveals that Prudential was not a signatory either, although its name or the name of its predecessor in interest was printed at the top of each of the forms. The customer agreement form does not clearly indicate the identity of the party or parties with whom the Passages were contracting; it refers to “you”, with no explanation of who “you” is. The District Court granted Prudential’s motion to compel arbitration.

All of the claims in the Passages’ complaint relate to mishandling or unwise management of the Passages’ accounts opened at the G.T. Murray office. It is our conclusion that since the claims against Prudential and against the Murray defendants arise out of the same facts and the same actions, to separate the claims as to the defendants would be inappropriate. There is support for this conclusion:

“Ross (the investor) argues that her claims should not be arbitrated for several reasons. First, she argues that the claims against Mathis (the broker) should not be arbitrated because he is not a party to the agreement. Although Mathis did not sign the agreement, the causes of action against him may be arbitrated. Every allegation against him arises out of his handling of Ross’ account as a Bear Stearns employee. Her damages are predicated on Mathis’ alleged breach of a myriad of state and federal duties concerning her account at Bear Stearns. Ross’ assertions based upon her trust in Mathis due to their relationship do not change this fact. Any breach of trust dealt with Mathis’ actions regarding Ross’ accounts with Bear Stearns. Thus, her case against Mathis is based solely on her account, which the arbitration agreement covers.”

Ross v. Mathis (N.D.Ga. 1985), 624 F.Supp. 110, 113-14. That court held that the claims against broker Mr. Mathis were arbitrable.

We hold that the Passages’ claims against all of the defendants are arbitrable.

V

Did the District Court properly stay the claims of the children pending arbitration of their parents’ claims?

Both Prudential and the Passages object to the District Court’s order staying the claims on the Passage children’s accounts pending arbitration of the other claims. Prudential argues that the claims on the Passage children’s accounts are subject to arbitration along with the other claims. The Passages argue that the District Court was correct in finding the children’s accounts were not included under the terms of the client agreement forms. They contend, however, that it is unjust to stay court action on the children’s claims.

Neva Passage opened the accounts in the names of the children and deposited all funds into them. The children are teenagers, and the daughter has attained the age of majority during the course of this action. The amounts deposited in the children’s accounts are not large in comparison with the deposits to the other accounts. There is nothing in the record to conclusively establish the nature of these accounts, whether as completed gifts, funds held in trust, or otherwise. The Passages’ complaint states that Larry and Neva Passage are ‘guardians’ of their children but no facts are known as to the technical or legal aspects of the guardian status. We conclude that a factual question remains as to whether Larry and Neva Passage have an interest in the children’s accounts, subjecting the accounts to the arbitration agreement.

Issues which go to the formation of the contract as a whole may properly be decided by an arbitrator. Merrill Lynch, Pierce, Fenner, etc. v. Haydu (5th Cir. 1981), 637 F.2d 391, 398. We have here an issue of whether the children’s accounts are covered by the customer agreement forms. We reverse the order of the District Court on this issue. The District Court shall enter an order submitting this issue to arbitration.

Affirmed in part and reversed in part.

MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES HARRISON, GULBRANDSON, SHEEHY and HUNT concur.

MR. JUSTICE MORRISON,

dissenting:

I dissent.

The majority opinion concludes that it is not necessary to decide whether the contract is one of adhesion since there is “no compelling law and nothing in the record to prevent the clause from being enforced.” I am at a loss to understand what is being said.

First, it is necessary to decide whether the provision is one of adhesion. Under the authority cited in the majority opinion, the language is clearly one of adhesion since the investor does face the possibility of being excluded from the securities market unless he or she accepts a contract with such an agreement to arbitrate.

Since this provision is one of adhesion the authorities universally require that it not be enforced unless there is a showing that: (1) the provision is within the reasonable expectations of the parties and (2) is not unduly oppressive, unconscionable or against public policy. Finkle and Ross v. A. G. Becker Paribas, Inc. (D.C.N.Y. 1985), 622 F. Supp. 1505, 1511-12, cited the majority opinion.

There has been no factual determination by the trial court respecting the reasonable expectations of the parties to this agreement. The adhesion provision provided:

“Any controversy arising out of or relating to my account, to transactions with or for me or to this agreement or the breach thereof . . . shall be settled by arbitration in accordance with the rules then obtaining of either the American Arbitration Association or the Board of Governors of the New York Stock Exchange as I may elect

First, the adhesion provision is not specifically directed to anyone in particular. We do not know whether Passages’ intended for the arbitration agreement to apply to Prudential-Bache, or G.T. Murray, or both. The District Court found that the agreement applied to Prudential-Bache but not to G.T. Murray. The majority finds that the District Court erred in that it would be inappropriate to separate the claims as to the defendants. This action is taken by the majority with no reference to whether application of arbitration to the Murray defendants was within “the reasonable expectations” of the parties. This is a factual determination that was not clearly addressed by the District Court but, if it was addressed, the District Court must have found that Passages did not expect the agreement to apply to Murrays. There is no factual basis for this appellate court to find that the record shows, as a matter of law, that the parties intended the arbitration clause to run to Murrays who are not mentioned in the agreement.

Secondly, there are no facts in the record respecting whether Passages intended the arbitration provision to apply to tort actions. Domke on Commercial Arbitration (Rev.Ed.) states at Section 13:08 that:

“Liability for tort will usually not be an arbitrable issue since parties will hardly have contemplated such occurrence when they made an agreement containing an arbitration clause. Since events of a tortious character are usually not foreseen, such events will not be specifically included in the arbitration agreement so as to later come (sic) arbitrable issues.”

Again, we have no factual determination by the trial court about whether it was within the reasonable expectation of the parties that tort claims would be submitted to arbitration. As indicated by Domke such claims are usually not embraced within arbitration agreements and there would have to be evidence to the contrary showing that the parties did in fact intend to include tort claims within the arbitration provision.

The most amazing aspect of the majority opinion is the position that the issue of whether children’s accounts are included within the arbitration provision is a fact to be determined by arbitration. What a quantum leap in logic!

The children have a right to court access for resolution of their claims unless they have validly relinquished that right through executing an arbitration provision. Whether such contractual consent existed is a factual determination for the District Court. The District Court apparently held the children had not relinquished their rights for court access. The majority begins by denying court access in allowing an arbitrator to decide a factual question that necessarily requires court resolution first. How could the children’s rights be decided by an arbitrator unless they first validly relinquished their right to a judicial determination?

The case should be remanded for factual findings as indicated.


source: Caselaw Access Project

author: MR. JUSTICE HUNT MR. JUSTICE MORRISON,

license: Public Domain

text:
    The STATE OF MONTANA, ex rel., SARA BETH HUFFORD, a minor child, and Jim and Judy Hufford, her parents, Petitioners and Respondents, v. The MONTANA MEDICAL-LEGAL PANEL, G. Brian Zins, Panel Director, et al., Respondents and Appellants.
    No. 85-481.
    Submitted June 3, 1986.
    Decided Aug. 26, 1986.
    724 P.2d 186.

      MR. JUSTICE MORRISON dissented and filed opinion.
    Gerald J. Neely argued, Billings, and Poore, Roth & Robinson, Donald Robinson, Butte, for respondents and appellants.
    Huntley & Eakin, Ira Eakin argued, Baker, for petitioners and respondents.
   MR. JUSTICE HUNT

delivered the Opinion of the Court.

The Montana Medical-Legal Panel and its director appeal the declaratory judgment of the First Judicial District Court holding that the Panel must allow unofficial transcript to be made of its proceedings when requested.

We reverse the declaratory judgment.

Judy and Jim Hufford for themselves and their minor daughter, Sara Beth Hufford, filed a claim in October of 1983 with the Medical-Legal Panel alleging medical malpractice against two doctors who had treated their daughter. At a prehearing conference Huffords requested permission to have a stenographic record of the upcoming hearing made. The doctors opposed Huffords’ request for a transcript. The Panel chairman therefore ruled that no transcript would be made. This ruling complies with Rule 15(c), Panel Rules of Procedure:

“The hearing will be confidential and informal, and the Panel shall not make, pay for or retain any transcript; with the consent of the chairman of the Panel and all parties to the claim, the parties may provide for the making, payment and retention of a transcript.”

Huffords then applied to the District Court for a Writ of Mandamus. By stipulation of counsel and approval of the court, the petition was considered as a complaint seeking declaratory relief. The District Court concluded that denial of the requested transcript violated due process of law guaranteed by the 1972 Montana Constitution, Art. II, Section 17 and the Fourteenth Amendment of the United States Constitution.

The issue before us is whether the District Court erred in ruling that a transcript must be provided. The appellants contend that a transcript is not statutorily or constitutionally mandated. Respondents answer that denial of a transcript denies them the full right to cross-examine witnesses at a trial and is so arbitrary as to deny due process. Respondents further contend that the Panel exceeded its authority in adopting Rule 15(c) which is inconsistent with the Montana Administrative Procedure Act (MAPA).

We cannot agree with those contentions.

We need not reach the issue of whether the Panel is an “agency” within the meaning of MAPA. The enabling legislation for the Panel states: “The hearing will be informal and no official transcript may be made.” Section 27-6-502(3), MCA. This is clear evidence of legislative intent that the MAPA provisions concerning transcripts do not apply. This same enabling legislation gives the Panel authority to make rules necessary for its operations. Section 27-6-204, MCA. Therefore, there is no statutory requirement that any form of transcript be provided and the Panel has full authority to promulgate its operating rules.

Next, we turn to the constitutional argument that Rule 15(c) offends due process and the rights to confront witnesses at trial.

The Montana Medical-Legal Panel is a purely advisory body. Although it has the power to approve binding settlement agreements, it cannot render any binding judgments. Section 27-6-606, MCA. The Panel proceedings are confidential in nature and its records are not subject to subpoena. Section 27-6-703, MCA. No member of the Panel may be compelled to testify concerning the proceedings of the Panel and the decision of the Panel is not admissible as evidence in subsequent court action. Section 27-6-704(1) and (2), MCA.

Clearly, the very nature of the purpose of the Panel is advisory and therefore confidential. Its dual purposes are to prevent court actions against health care providers unless the facts permit at least a reasonable inference of malpractice and to effect a fair and equitable disposition of such claims. Section 27-6-102, MCA.

Given the confidential nature of the Panel, it cannot be said that Rule 15(c) arbitrarily denies parties before it a transcript. A transcript would destroy the confidentiality of the proceedings and therefore should be available only if no participant objects.

Furthermore, denial of a transcript does not destroy the right of a party to fully cross-examine witnesses at trial. In Linder v. Smith (Mont. 1981), 629 P.2d 1187, 38 St.Rep. 912, we held a portion of the Panel’s enabling legislation unconstitutional as a violation of the right to cross-examine witnesses. That portion of the statute precluded using statements made at the hearing for impeachment purposes at trial. We held, however, that that “defect (was) not fatal to the act” and upheld the remaining portions of the act. Linder, 629 P.2d at 1192, 38 St.Rep. at 918.

While a transcript of Panel proceedings would certainly assist a litigant in cross-examination at trial, it is not essential to exercise that right. Therefore we hold that there are no constitutional infirmities in the workings of Rule 15(c).

The judgment of the District Court is reversed.

MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES HARRISON, WEBER, GULBRANDSON and SHEEHY concur.

MR. JUSTICE MORRISON,

dissenting:

I dissent.

In Linder v. Smith (Mont. 1981), 629 P.2d 1187, 38 St.Rep. 912, this Court struck, as unconstitutional, a statutory provision requiring confidentiality in panel proceedings. We said.

“. . . Section 27-6-704(2), MCA, provides that: (n)o statement made by any person during a hearing before the panel may be used as impeaching evidence in court.” In order to uphold the constitutionality of the panel act, we determine that this section must be severed from the act. It is fundamental to our adversarial system that litigants retain the right to impeach the sworn testimony of a witness testifying against them. We are mindful that this provision was enacted to aid the fact finding by the panel and to preserve the confidentiality of the proceedings. But we cannot say that a litigant will receive a full and fair hearing if he is unable to fully cross-examine in court the witnesses that testified in the prior hearing.”

Linder, 629 P.2d at 1192, 38 St.Rep. at 918.

The effect of our decision today is that, although you have a constitutional right to impeach with testimony given during the panel hearing, you do not have a right to have a transcript of that testimony. How can you cross-examine effectively at time of trial without transcript of the panel testimony? If Linder is to be overruled then the majority should say so.

Unfortunately, the majority’s decision is motivated by fear that lack of confidentiality will destroy the effectiveness of the panel proceeding because doctors will not participate. We should not concern ourselves with this issue. This panel proceeding was established for the benefit of doctors. They are given special consideration not given other defendants in the tort system. If they do not wish to participate, that is their problem.

I might add that the majority’s decision should discourage plaintiff’s counsel from participating in the panel proceedings. If plaintiff’s counsel extensively cross-examines doctors who are to be defendants, without the aid of a transcript, the doctors will be educated about the flaws in their case and will be able to subsequently shore up the lines of defense without responsibility for their earlier testimony. Under these circumstances I cannot conceive of plaintiff’s counsel participating in the hearing process.

I am also disturbed by the suggestion that doctors will not participate in the panel process with a court reporter present. I can only assume that those making that suggestion do not want to be held accountable for the testimony given at hearings. If a witness is not to be accountable for what is said what credibility is there and why have a panel hearing at all?

I would affirm Judge Bennett’s declaratory judgment.


author: MR. JUSTICE HARRISON

text:
    In the Matter of the ESTATE OF JIMMIE L. ROGERS, Deceased.
    No. 86-52.
    Submitted on Briefs May 30, 1986.
    Decided Aug. 26, 1986.
    Rehearing Denied Oct. 9, 1986.
    725 P.2d 544.

      Jackson & Rice, James A. Rice, Jr., Helena, for appellant.
    Jardine, McCarthy & Grauman, John H. Jardine, Whitehall, for respondent.
   MR. JUSTICE HARRISON

delivered the Opinion of the Court.

This is an appeal by the decedent’s children from an order and judgment of the District Court of the Fifth Judicial District, Jefferson County, Montana. The court awarded certain estate property to the decedent’s wife. We affirm.

The facts of the case are basically undisputed by the parties.

In October, 1982, Jimmie L. Rogers (decedent) had executed and delivered to his present wife, Patricia A. Rogers (wife) a legal and valid power of attorney which contained a so-called “durable power of attorney clause.” This clause permitted the wife to act as Rogers’ attorney in fact if he became incompetent. This power of attorney was used by the wife on one or more occasions with regard to the handling of Rogers’ business affairs.

Rogers and his wife jointly borrowed money necessary to construct a new home in Jefferson County. Construction began in March, 1983, and was completed in June, 1983, at a total cost of approximately $60,000.

During the course of the construction of the home, Rogers discovered he was afflicted with a terminal illness. After he became aware of his illness, he began to make arrangements to have his interests in certain California notes and deeds of trust assigned to his wife to insure she would be able to keep their new home.

For a variety of reasons (none of which were the fault of Rogers, his wife, or their local counsel), the assignments of the notes and deeds of trust were not prepared until the latter part of June, 1983, after Rogers had been confined to a hospital just prior to his death. Rogers was mentally competent when he was presented with the assignments in the hospital, but, because of his weakened condition, could not physically affix his signature to the documents. The record shows that several witnesses in the hospital were aware of Rogers’ desire to make the assignments to his wife.

Faced with Rogers’ inability to physically execute the assignments, the wife, two days before Rogers’ death, executed the assignments to herself, pursuant to the above-described power of attorney. The assignments assigned all of Rogers’ right, title and interest in the notes and deeds of trust to the wife.

Rogers died in Silver Bow County, Montana, on June 22, 1983. At the time of his death he was a bona fide resident of Jefferson County, Montana, where he had resided since July, 1979.

The decedent left a last will and testament dated February 16, 1983. This will was admitted to probate in the Jefferson County District Court and provided, in pertinent part, as follows:

“. . . I give, devise and bequeath in equal undivided shares to my three children per stirpes, Jimmie L. Rogers, Jr., Pamela K. Rice and Deborah A. Riccabuono all property located in the state of California at the time of my death, real, personal or mixed, of which I may die possessed . . . “

The will further provided, in part, as follows:

“. . . I give, devise and bequeath all of the rest, residue and remainder of my property, real, personal or mixed, to my wife, Patricia A. Rogers . . . “

The children who were mentioned in the will were born of a prior marriage of the decedent. They have no blood relationship to the decedent’s present wife.

After the decedent’s will was admitted to probate in Jefferson County, the children began a separate and non-ancillary probate proceeding in the state of California. They wished to establish that certain contested items of property from the decedent’s estate had its situs in the state of California and therefore would pass to them under the terms of the decedent’s will. The items of contested property consisted of four notes which were secured by deeds of trust on California real property. The appraised aggregate value of these notes was $82,590.82.

Prior to any further action in the Montana probate proceeding, the California Probate Court ruled that the notes and deeds of trust were personal in character and therefore were under the exclusive jurisdiction of the Montana courts. Consequently, the California court refused to decide any issues relating to the distribution of the contested property.

In June, 1985, the District Court held a hearing to determine which parties were entitled to Rogers’ estate property. In September, 1985, the court issued its order and judgment that the assignment of the California notes and deeds of trust by the wife, pursuant to her power of attorney, was a valid transfer of all of Rogers’ right, title and interest in such property. The District Court determined that the assignments were made to carry out Rogers’ purpose and intent and did not constitute a violation of trust on the part of the wife. Further, the court reasoned that even if the assignments were not valid (which they were), the notes and deeds of trust would pass to the wife under the terms of Rogers’ will. They were personal in nature with a situs in the state of Montana, the place of Rogers’ residence at the time of his death. The District Court stated that California law and Montana law agree that contracts, such as the ones in the instant case, are personal property with a situs in the state where the decedent was domiciled at the time of his death.

It is from this order and judgment of the District Court that the children, through Jimmie Rogers, Jr., appeal. The present the following issues for review by this Court:

(1) Whether the District Court committed reversible error when it refused to allow the children to complete discovery;

(2) whether the District Court erred in upholding the assignment of the California notes and deeds of trust made by the wife to herself, pursuant to a power of attorney given to her by the decedent;

(3) whether the District Court erred in ruling that the California notes and deeds of trust were Montana property and, as such, pass to the wife under the will of the decedent.

The children argue that following the June, 1985, hearing to determine which parties were entitled to estate property, their counsel discovered two witnesses not previously deposed. These witnesses had information relating to the matters raised during the hearing. After learning of this evidence, their counsel moved for additional time to complete discovery of these parties so that their testimony could be included in the court record and available for the court’s decision. The District Court Judge then contacted the children’s counsel and asked him to submit a summary of the proposed testimony. Counsel complied with this request. After reviewing the summary, the District Court Judge issued an order denying counsel’s request to complete discovery of these witnesses, ruling that the proposed testimony appeared to be inadmissible (i.e. hearsay). The children now argue that this decision by the District Court was prejudicial to them and was an abuse of the court’s discretion. We disagree.

The children readily admit that all trial courts in Montana have the inherent discretionary power to control discovery. State ex rel. Guarantee Insurance Co. v. District Court (Mont. 1981), 634 P.2d 648, 38 St.Rep. 1682. Therefore, based on this standard, we do not need to address the children’s contention.

It is necessary to note, however, there was no objection raised on this aspect of the case until the present appeal. We agree with the wife that the record contains no reference, directly or indirectly, regarding the children’s claim of error that their discovery rights were prejudiced by the District Court’s denial of their motion to extend discovery. The proposed findings of fact, conclusions of law and memorandum submitted by the children did not mention the District Court’s denial of their motion. Further, no objection was made, nor was the District court asked to amend its findings and conclusions. Now, for the first time, this issue is asserted by the children on appeal. Under these circumstances, this Court has made it clear that we will consider for review only those issues raised in the pleadings or otherwise before the District Court. Rustics of Lindbergh Lake, Inc. v. Lease (Mont. 1984), [213 Mont. 246,] 690 P.2d 440, 41 St.Rep. 2092; and Huggans v. Weer (Mont.1980), 615 P.2d 922. In the instant case, the children failed to follow this general rule and consequently their first issue must be disregarded by this Court.

With regard to the second issue, the children claim that the assignment of the contracts by the wife, made to herself pursuant to a power of attorney, are invalid under Montana law. First, the children point out that the wife, as the attorney in fact for Rogers, was acting as his agent.

“A power of attorney is an instrument in writing by which one person, as principal, appoints another as his agent and confers upon him the authority to perform certain specific acts or kinds of acts on behalf of the principal . . . “

3 Am.Jur.2d, Section 23, Agency.

Next, the children point out that Sections 28-10-401, et seq., MCA, outline the authority of an agent in Montana. Specifically, the children direct this Court’s attention to Section 28-10-407, which provides in pertinent part as follows:

“Statutory exceptions to general authority.

An authority expressed in general terms, however broad, does not authorize an agent to:

(3) do any act which a trustee is forbidden to do by Title 72, Chapter 20, Part 2.”

Thus, the children argue, the restrictions upon the authority of an agent actually are contained in the statutes which outline the obligations of a trustee.

Under this analysis, the children assert Sections 72-20-201, et seq., MCA, contain many provisions which would have prohibited the actions of the wife in assigning the contracts to herself. For example, Section 72-20-201 obligates a trustee (agent) to act in the “highest good faith” toward his beneficiary (principal). Also, Section 72-20-202 states that a trustee’s influence may not be used to his advantage in his dealings with the beneficiary. Further, Section 72-20-203 states that a trustee may not use or deal with trust property for his own benefit. But most important, the children argue, there is a statutory presumption that the assignments made by the wife to herself were done without sufficient consideration and under undue influence. The children direct our attention to Section 72-20-208 which reads as follows:

“All transactions between a trustee and is beneficiary during the existence of the trust or while the influence acquired by the trustee remains by which he obtains any advantage from his beneficiary are presumed to be entered into by the latter without sufficient consideration and under undue influence.”

Under this statute, the children argue it must be presumed that the transfers made by the wife were done without sufficient consideration and under undue influence. Considering the medical condition of Rogers and the expressed intentions found in his will, the children argue the presumption that the wife acted while Rogers was under undue influence is even greater. The children strongly assert that the wife did not show sufficient evidence to overcome this presumption against her, and the District court must declare the assignments of property, made by the wife to herself, to be null and void.

While the children’s argument is legally correct and persuasively written, we find, as did the District Court, that there is sufficient evidence to uphold the transfer of the notes and deeds of trust to the wife.

The children correctly point out that as a general rule under Section 72-20-208, all transactions between an agent and his principal during the existence of an agency relationship are presumed to be null and void. However, there are some exceptions to this general rule. The recognized exception, stated by the Supreme Court of Washington, is as follows:

“And the agent has the burden of proving in every case that his principal not only had knowledge that the agent was to be the buyer or seller, but also the burden of showing that all information in possession of the agent had been communicated to his principal prior to the giving of consent.”

Moon v. Phipps (1966), 67 Wash.2d 948, 411 P.2d 157, 161.

An exception exists when there is an expressed and explicit understanding between the principal and his agent that a transaction between them is valid. This exception has been recognized in Montana. This Court stated:

“This principal is set forth in comment A to Restatement of Law, Agency 2d, Section 390, in the following language:
“. . . Before dealing with the principal on his own account, however, an agent has a duty, not only to make no misstatements of fact, but also to disclose to the principal all relevant facts fully and completely . . .”

First Trust Company of Montana v. McKenna (1980), 188 Mont. 534, 539, 614 P.2d 1027, 1030. Cited with approval in Myer v. Miller (Wyo. 1981), 631 P.2d 441, 444.

In the case at bar, the agent was the principal’s wife. It is undisputed that the husband desired to make assignments of the notes and deeds of trust to his wife in order to insure that she could remain in the home they had recently built and jointly mortgaged. For several months prior to his death, the husband had been trying to do precisely what was ultimately done — assign the notes and deeds of trust to his wife. In eventually performing this task, the wife was merely her husband’s alter ego. We conclude that the wife acted in the highest good faith, without any concealment, and accomplished that which her husband originally had desired to accomplish. For these reasons, we affirm the District court in its approval of the transfer of the notes and deeds of trust to the wife.

In the third issue, the children claim the court erred in ruling that the notes and deeds of trust were Montana property and so passed under the will of the husband. We have affirmed the conclusion of the District Court that the assignment of the notes and deeds of trust to the wife was eifective for all purposes. Consequently, nothing remained to pass under the will, and this issue need not be decided.

The order and judgment of the District Court is affirmed.

MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES MORRISON, WEBER and HUNT concur.


author: MR. JUSTICE WEBER

text:
    In re the MARRIAGE OF GILLIAN E. HELSEL, Petitioner and Appellant, and JEFFREY T. HELSEL, Respondent and Respondent.
    No. 86-57.
    Submitted on Briefs June 20, 1986.
    Decided Aug. 26, 1986.
    723 P.2d 963.
    Bruce B. Barrett, ASUM Legal Services, Missoula, for petitioner and appellant.
    Sol & Wolfe, Michael Sol, Missoula, for respondent and respondent.
   MR. JUSTICE WEBER

delivered the Opinion of the Court.

Gillian Helsel, wife, filed a petition for dissolution of marriage. Jeff Helsel, husband, filed his reponse which sought a declaration of invalidity of the marriage. The District Court for the Fourth Judicial District declared the marriage invalid. We reverse and remand for appropriate proceedings to consider the dissolution of marriage.

The issues are:

1. Did the District Court err when it declared the marriage of the parties invalid under Section 40-1-402, MCA, on the basis of immaturity of the parties?

2. Did the District Court err in concluding that the parties’ marriage was invalid on the basis of fraud?

The parties met on October 20, 1984 and married on January 4, 1985, after obtaining a marriage license in Missoula County. Wife is a Canadian citizen. On June 3, 1985, wife received a temporary visa which enabled her to work in the United States. On August 6, 1985, wife petitioned the District Court for a dissolution of marriage. Husband filed his response which sought a declaration of invalidity of the marriage. The District Court granted the declaration of invalidity. Wife appealed.

I

Did the District Court err when it declared the marriage of the parties invalid under Section 40-1-402, MCA, on the basis of immaturity of the parties?

Section 40-l-402(l)(a), MCA, provides:

“(1) The district court shall enter its decree declaring the invalidity of a marriage entered into under the following circumstances:

(a) a party lacked capacity to consent to the marriage at the time the marriage was entered into, either because of mental incapacity or infirmity or because of the influence of alcohol, drugs, or other incapacitating substances, or a party was induced to enter into a marriage by force or duress or by fraud involving the essentials of marriage;

In the case at hand, the District Court concluded:

6. The Court concludes that the parties were sufficiently immature to not understand the implications of entering into the marital relationship . . .

7. The Court concludes that the parties were unable to sufficiently understand their own relationship with one another, and were incapable of understanding the nature of the marital relationship they entered into. They both expressed what amounts to complete misunderstandings of each other the realization of which seemed to begin on the first day of the marital relationship.

9. The marriage of the parties never contained the essentials of a marital relationship.”

As Section 40-1-402(1)(a), MCA, states, a declaration of invalidity can be entered if a party lacked the capacity to consent to the marriage because of mental incapacity or infirmity. Neither the findings of fact nor the conclusions of law demonstrate a determination that either party lacked the capacity to consent to their marriage. Immaturity of the parties and misunderstandings between the parties in and of themselves do not establish the absence of capacity to consent to the marriage. We approve the statement in the Uniform Marriage and Divorce Act Commissioner’s Notes:

“Courts construing the “lacks capacity to consent” language of Subsection (a)(1) [(l)(a)] will undoubtedly continue to apply existing stringent standards by holding that a declaration of invalidity is appropriate only if the petitioner offers clear and definite evidence that one of the spouses lacked “sufficient mental capacity to understand intelligently the marriage contract . . . and the obligations it imposed upon him.” (citing Ertel v. Ertel (1942), 313 Ill.App.326, 40 N.E.2.d 85).”

Uniform Marriage and Divorce Act Commissioner’s Notes, Section 208.

We hold that the District Court erred when it declared the marriage of the parties invalid under Section 40-1-402, MCA, on the basis of immaturity of the parties.

II

Did the District Court err in concluding that the parties’ marriage was invalid on the basis of fraud?

In the findings of fact, the District Court stated:

“4. Respondent testified that the loving relationship he thought they had disappeared the first day of marriage, and their marriage was punctuated by fights, and representations by the Petitioner that they should each live their own lives, and pursue their own activities.
5. Respondent signed a Petition to get his wife a green card, and stated that as soon as she received it, she threw him out of their apartment.
6. Respondent testified that he does not feel a legitimate marital relationship existed.”

None of the findings of fact demonstrate that fraud induced the marriage or that there was fraud involving the essentials of the marriage as required by Section 40-l-402(l)(a), MCA. The District Court did not reach a legal conclusion regarding fraud. In addition, the record does not show that fraud was present. We conclude there is no basis to declare the marriage invalid for fraud.

We therefore reverse the decision of the District Court and remand for further proceedings consistent with this opinion.

MR. JUSTICES SHEEHY, MORRISON, GULBRANDSON and HUNT concur.


author: MR. JUSTICE SHEEHY

text:
    TEAMSTERS LOCAL NO. 45, affiliated with International Brotherhood of Teamsters, et al., Petitioners and Appellants, v. STATE OF MONTANA, ex rel., BOARD OF PERSONNEL APPEALS and Stuart McCarvel, Respondents and Respondents.
    No. 85-515.
    Submitted on Briefs May 30, 1986.
    Decided Aug. 28, 1986.
    724 P.2d 189.

      Hilley & Loring, Emilie Loring, Great Falls, for petitioners and appellants.
    Daniel J. Stevenson, Dept, of Labor, Helena, Poore, Roth & Robinson, Douglas Buxbaum, Butte, for respondents and respondents.
   MR. JUSTICE SHEEHY

delivered the Opinion of the Court.

The Union appeals from the opinion and order and judgment entered by the District Court of the First Judicial District, Lewis and Clark County, which affirmed the decision of the Board of Personnel Appeals. We affirm.

Stuart McCarvel was a bookmobile driver for Great Falls from 1976 to 1978. He received his first paycheck on March 5, 1976. Although he had worked a 40 hour work week, he was paid at the rate provided in the collective bargaining agreement for bookmobile drivers for only 20 hours. He was paid at the clerical rate which was about $2.00 less per hour for 20 hours. McCarvel went to the Union Hall the same day and sought to file a grievance. Under the terms of the collective bargaining agreement, “a grievance involving wages must be raised within ten (10) calendar days following the event giving rise to such grievance or be forever waived.” The Union refused to file a grievance. McCarvel attempted to file grievances again in May, 1976, December, 1976, and February or March, 1977. He was refused at all times. McCarvel tried numerous times to reach the Union’s business agent who would not return McCarvel’s call. In the course of these proceedings McCarvel learned that ten years earlier the Union and the library worked out an oral side agreement whereby drivers would be paid for 20 hours at the Union driver’s rate and 20 hours at the library’s nonunion clerical rate.

In February, 1977, McCarvel met with the Union business agent who stated that the Union was preparing for negotiations with the city and that filing a grievance would “rock the boat.” The business agent stated that they would try to straighten the matter out during negotiations. Negotiations were unsuccessful and the Union struck the city from July 1 to July 26, 1977. Near the end of the strike the business agent told McCarvel that negotiations would not settle the matter, so the grievance procedure should be used. McCarvel filed an unfair labor practice charge against the Union on August 8, 1977. On the same day, the Union filed McCarvel’s grievance. The Union processed the grievance through the grievance committee which was composed of three city members and three Union members. It deadlocked. The Union could then have taken economic or legal action. It did neither and the grievance was waived.

McCarvel pursued his unfair labor practice claim and on November 30, 1978 the hearing examiner entered findings of fact, conclusions of law and a recommended order. The parties had agreed to bifurcate the liability and remedy issues, so the hearing examiner’s initial order was limited to the liability issue. She found the Union had failed to fairly represent McCarvel by failing to accept and process his grievance.

On February 22, 1979, the Board of Personnel Appeals affirmed the hearing examiner and ordered an additional hearing to determine remedies. Prior to this hearing, however, the Union filed a motion to dismiss the charges before the Board, claiming the Board had no jurisdiction to decide the case. The Board refused to dismiss the charge and the Union appealed that ruling to the District Court. The District Court held the Board lacked jurisdiction and dismissed the case. The Board appealed to this Court and we reversed. Teamsters Local 45 v. State ex rel. Board of Personnel Appeals (1981), 195 Mont. 272, 635 P.2d 1310. The District Court remanded the matter to the Board for a hearing on remedies. After that hearing, the examiner entered proposed findings and conclusions and recommended McCarvel be awarded $8,353.17. The Board issued its decision December 16, 1983, adopting the examiner’s findings and ordering the Union to pay lesser damages of $7,540.00 in accordance with the apportionment scheme approved in Bowen v. U.S. Postal Service (1983), 459 U.S. 212, 103 S.Ct. 558, 74 L.Ed.2d 402. The Union filed for judicial review on January 16, 1984. Because the prior district court action on this matter involved consideration of the issue of jurisdiction only, the District Court reviewed the Board’s unfair labor practice decision as well as the decision on remedies. The District Court affirmed the decision of the Board in its entirety. The Union appeals.

The Union raises five issues for review. First, whether the District Court erred in approving damages for the period of McCarvel’s employment prior to February 8, 1977. Second, whether the District Court erred in affirming damages after August 8, 1977. Third, whether the District Court erred in affirming the Board’s notice requirement. Fourth, whether the District Court erred in affirming the Board’s finding the Local failed to fairly represent McCarvel in handling his claim for overtime pay. Last, whether the District Court erred in affirming the Board’s conclusion the “Union’s conduct was so unreasonable and arbitrary as to constitute a breach of the duty of fair representation.”

We begin with the standard of review governing this appeal. The Board’s order is subject to review by a district court pursuant to 39-31-409, MCA. The order of a district court is subject to review by this Court pursuant to the same section. The standard of review at both levels is set by Section 39-31-105, MCA, which states that the Montana Administration Procedure Act (MAPA) applies. Section 2-4-704, MCA, sets forth the MAPA standards of review. Specifically, factual findings will be upheld if they are not clearly erroneous, that is if they, are supported by substantial evidence on the whole record. In reviewing legal questions, the standard of review is abuse of discretion. City of Billings v. Billings Firefighters (1982), 200 Mont. 421, 651 P.2d 627.

The first issue raised by appellants is whether the District Court erred in approving damages for the period of McCarvel’s employment prior to six months before the claim was filed. Section 39-31-404, MCA, states:

“No notice of hearing shall be issued based upon any unfair labor practice more than 6 months before the filing of the charge with the board unless the person aggrieved thereby was prevented from filing the charge by reason of service in the armed forces, in which event the 6-month period shall be computed from the day of his discharge.”

This statute does not address damages; it is a statute of limitations for charges based on unfair labor practices. In this case we agree with the District Court that the unfair labor practice was a continuing course of conduct which began on March 5, 1976, when Mc-Carvel received his first paycheck and the Union refused to file a grievance, and continued on until well past the time the unfair labor practice charge was filed in August 1977. Thus the charge was filed within the six month statute of limitations. Once the unfair labor practice is established, the issue of damage arises. The District Court affirmed the award of damages beginning on February 17, 1976 and running until June 30, 1978 which constitutes the entire time McCarvel worked for the city. The Union argues the back pay should have been limited to six months prior to August 8,1977 (the date the charge was filed.) The District Court noted the National Labor Relations Board (NLRB) has not taken a consistent position on back pay. At times, it limited back pay to six months prior to the date the charge is filed. Nelson-Hershfield Electronics (1971), 188 NLRB 26, 77 LRRM 1013. In other cases, the court awarded back pay for the entire time the grievant suffered a wage loss due to the Union’s failure to process a grievance. IBEW, Local 2088 (Federal Electric Corp.) (1975), 218 NLRB 396, 89 LRRM 1590; Abilene Sheet Metal, Inc. v. NLRB (5th Cir. 1980), 619 F.2d 332. In allowing damages prior to six months before the charge was filed, the District Court held it would be manifestly unfair to the grievant to limit the damages and would reward the Union for its procrastination. We agree that this is a proper case to allow damages beyond the six month limit.

The second issue raised by appellant is whether the District Court erred in affirming damages after the wage grievance was filed on August 8, 1977. The Union argues it processed McCarvel’s grievance properly once it was filed, thus it should not be liable for the damages incurred after the grievance was filed.

The District Court affirmed the hearing examiner’s findings that the Union by its inaction cut off the only avenue open to them to get a determination of the merits of the grievance. The hearing examiner relied on Clerks and Checkers Local 1593, International Longshoreman Association (1978), 234 NLRB 511, 98 LRRM 1328, and IBEW, Local 2088 (1975), 218 NLRB 396, 89 LRRM 1590, which held that in a duty of fair representation case where the union failed to process a wage grievance, the union’s liability will cease on the day of final disposition of the grievance. The District Court affirmed the Board’s award of damages from the time McCarvel began his employment until he left it. We find no abuse of discretion on the part of the District Court.

The third issue raised by the appellant is whether the District Court erred in affirming the Board’s notice requirement. The Board ordered the Union to mail this notice to “all employees in the bargaining unit of the City of Great Falls:”

“After a hearing at which both sides had an opportunity to present evidence and state their positions, the Board of Personnel Appeals found that we have violated the Collective Bargaining Act for Public Employees and has ordered us to mail this notice to each member of the bargaining unit.
“WE WILL NOT fail or refuse to fairly represent any employees represented by us or arbitrarily fail or refuse to file and process any employee’s grievance on a fair basis or refuse to inform employees of the status of their grievance.
“WE WILL make Stuart Thomas McCarvel whole for the loss of pay he suffered as a result of our unlawful refusal to consider or process his grievance.
“INTERNATIONAL BROTHERHOOD OF TEAMSTERS, CHAUFFEURS, WAREHOUSEMEN AND HELPERS OF AMERICA, LOCAL 45”

The Union argues the order is in excess of the Board’s jurisdiction. Section 39-31-406, MCA, gives the Board discretion to “take such affirmative action ... as will effectuate the policies of this chapter.” Posting of notices is more common but the NLRB has required the mailing of notices to all employees. NLRB v. H.W. Elson Bottling Co. (6th Cir.1967), 379 F.2d 223. The District Court held the egregious behavior of the Union in refusing to file the grievance for 17 months justified the Board’s remedial order. The District Court went on to state:

“The bargaining unit involved here is a broad, multicraft unit represented by the Public Employees Craft Council. The Union’s membership constitutes only a portion of the bargaining unit. Because this unfair labor practice involves only the Teamsters, it is difficult to see how mailing notice of the violation to all members of the bargaining unit will effectuate the policies of the statute. But the choice of the Board will not be disturbed unless it can be shown that the order is a patent attempt to achieve ends other than whose [sic] which can fairly be said to effectuate the policies of the statute. (NLRB v. Electrical Workers, Local 3, 730 F.2d 870, 115 LRRM 3436 (2nd Cir. 1984)). No such showing has been made in this case.”

The District Court did not abuse its discretion in this finding.

The fourth issue raised by appellant is whether the District Court erred in affirming the Board’s finding a failure to fairly represent McCarvel in handling his claim for overtime pay. The Union contends McCarvel failed to provide the business agent with sufficient records of the overtime he worked. However, the record shows McCarvel attempted to supply his time sheet to the Union but the business agent brushed the offer aside saying he believed him. The Union also argues that McCarvel got compensatory time rather than overtime in accordance with library policy. However, the rights of the parties were set forth in the collective bargaining agreement which provided for overtime pay. The library could not unilaterally modify that agreement. The District Court was correct in affirming the Board’s order.

The fifth issue raised by appellant is whether the District Court was correct in affirming the Board’s conclusion that the Union conduct was so unreasonable and arbitrary as to constitute a breach of the duty of fair representation. A union’s duty of fair representation is a judicially created doctrine first recognized in the context of the Railway Labor Act in Steele v. Louisville & Nashville Railroad Co. (1944), 323 U.S. 192, 65 S.Ct. 226, 89 L.Ed. 173. Steele required the Union to represent its individual members “without hostile discrimination, fairly, impartially and in good faith.” Id. at 204, 65 S.Ct. at 232, 89 L.Ed. at 184. The Steele principle was later extended to bargaining representations under the National Labor Relations Act (NLRA). Syres v. Oil Workers International Union, Local 23 (1955), 350 U.S. 892, 76 S.Ct. 152, 100 L.Ed. 785. The NLRB first recognized a breach of the duty of fair representation as an unfair labor practice in Miranda Fuel Co. (1962), 140 NLRB 181, 51 LRRM 1584, reasoning the privilege to act as an exclusive bargaining representative granted in Section 9 of the NLRA necessarily gives rise to a corresponding Section 7 right in union constituents to fair representation by the exclusive representative. Although the duty of fair representation arose in the context of racial discrimination, the doctrine has been expanded to include arbitrary conduct by a union toward bargaining unit members. In Vaca v. Sipes (1967), 386 U.S. 171, 87 S.Ct. 903,17 L.Ed.2d 842, the United States Supreme Court stated the controlling test for breach of the union duty of fair representation: “A breach of the statutory duty of fair representation occurs only when a union’s conduct ... is arbitrary, discriminatory, or in bad faith.” Id. at 190, 87 S.Ct. at 916, 17 L.Ed.2d at 857. Thus it is settled under federal labor law and therefore under Montana labor law that a union may not arbitrarily ignore a meritorious grievance or process it in a perfunctory manner. Id. at 191, 87 S.Ct. at 917, 17 L.Ed. 2d at 858.

In her examination of the Union’s conduct in this case, the hearing examiner found the only excuses offered McCarvel for the Union’s refusal to accept the grievance were: (1) the existence of an oral agreement; (2) the problem would be taken care of at the bargaining table; and, (3) pressing the grievance would upset contract negotiations with the city. These excuses were found “clearly specious” because (1) the oral agreement did not cover overtime and could not be used as an excuse to refuse the grievance, since the right of an employee to the minimum wage provided in the written agreement was an individual right which could not be taken away by an oral agreement between the employer and a union official (Ever-sole v. LaCombe (1951), 125 Mont. 87, 231 P.2d 945); (2) since the contract provided for overtime, failure to award overtime was a contract violation and required no further negotiations; and, (3) negotiations were only part of the Union’s duty to its members. Having so found, the hearing examiner concluded the Union’s action was arbitrary in that the Union advanced no substantial reason for its failure to accept the grievance, to make a good faith investigation, and to submit the grievance for an organized screening process. Contrary to the Union’s assertion, the hearing examiner did not find mere negligence in the Union’s handling of the grievance. Recognizing that the business agent’s inaction in returning telephone calls could be considered passive and therefore negligent conduct, the hearing examiner emphasized, “However, this inaction combined with his subsequent statements to McCarvel indicate an active, intentional avoidance of accepting the grievance.” Even unintentional acts or omission by union officials may be considered arbitrary if they reflect reckless disregard for the rights of individual employees, if they severely prejudice the injured employee and if the policies underlying the duty of fair representation would not be served in shielding the Union from liability in the particular case. Robesky v. Qantas Empire Airlines Limited (9th Cir.1978), 573 F.2d 1082, 1088-90. The more meritorious the grievance the more substantial the reason must be to justify abandoning it. Gregg v. Chauffeurs, Teamsters and Helpers Local 150 (9th Cir. 1983), 699 F.2d 1015, 1016. We can think of few issues more meritorious and important to an employee than the issue of pay. The District Court’s conclusion that the Union’s conduct was so unreasonable and arbitrary as to constitute a breach of the duty of fair representation is firmly supported by the law and the facts.

We affirm the judgment of the District Court.

MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES MORRISON, WEBER, HARRISON, GULBRANDSON and HUNT concur.