text:
    FIRST BANK, (N.A.) WESTERN MONTANA, MISSOULA, a National Banking Assoc., and Dan Simpkins, Relators, v. DISTRICT COURT FOR THE FOURTH JUDICIAL DISTRICT of the State of Montana, in and for the County of Missoula and the Hon. Douglas Harkin, Presiding Judge, Respondents.
    No. 86-431.
    Submitted March 18, 1987.
    Decided May 11, 1987.
    737 P.2d 1132.

      Garlington, Lohn & Robinson, George Goodrich, Missoula, argued, for relators.
    Small, Hatch, Doubek & Pyfer, John Doubek, Helena, argued, for respondents.
   MR. JUSTICE SHEEHY

delivered the Opinion of the Court.

This is an original proceeding. Applicants seek a writ of supervisory control vacating the Fourth Judicial District’s denial of First Bank’s motion to dismiss an action filed by Bessie, Lee and Rick Stott and All West Equipment, plaintiffs in the court below. The Stotts filed their action alleging fraud, misrepresentation and breach of the duty of good faith and fair dealing against First Bank. First Bank filed a motion to dismiss on the grounds that the Stotts’ action was barred by the doctrine of res judicata, the compulsory counterclaim rule, and the statute of limitations. The District Court denied First Bank’s motion to dismiss. We grant applicant’s request for supervisory control, vacate the order denying the motion to dismiss and hereby enter an order granting the motion to dismiss.

In June, 1982, First Bank Western Montana, Missoula, loaned to plaintiffs All West Equipment and Lee Stott (individually) $68,732.30, due in September, 1982. On the same day, First Bank loaned $21,566.63 to All West Equipment. The second loan was due December 15, 1982. The Stotts defaulted on both of these notes. Bessie and Lee Stott were guarantors of the debts of All West Equipment. In their complaint, the Stotts claim that Rick Stott was also an owner of All West Equipment. Possession of the collateral was turned over to First Bank, by a written instrument dated October 20, 1982 and signed by Rick Stott on behalf of All West Equipment. The collateral was eventually sold by First Bank.

On January 7, 1983, First Bank filed a complaint, in the Fourth Judicial District Court, against All West Equipment and Lee and Bessie Stott, to collect deficiencies owing after sale of the collateral under the promissory notes and guaranty. The Stotts and All West, through another attorney than their present counsel, filed an answer which included the two following affirmative defenses:

“First Affirmative Defense
“As and for a separate and affirmative defense to Count One of Plaintiff’s complaint, said defendants allege that plaintiff sold or liquidated certain property of defendants as collateral, not in accordance with the requirements of Sections 30-9-504(1) and 30-9-504(3) MCA and in this respect allege that plaintiff conducted the sale not in a commercially reasonably manner considering the time and place of sale, the type of equipment being sold, the lack of preparation of the equipment before the sale, the sale of the equipment at amounts substantially below market value. That the plaintiff’s agent led defendants to believe that by not opposing the sale the defendants would not be liable for any deficiency and defendants relying on that promise did not at that time oppose the manner of the sale.
“Second Affirmative Defense
“As and for a second and affirmative defense to Count Two of Plaintiff’s complaint defendant alleges that plaintiff sold the collateral not in a commercially reasonable manner considering lack of notice of sale, time and place of sale, sale to Plaintiff at less than market value, and the promise by Plaintiff’s agent that defendant would be ‘protected’ from any deficiency.”

The matters between First Bank and All West and the Stotts were settled without trial and a stipulation and order of dismissal with prejudice was filed on January 4, 1985.

Ten months later, on October 1985, the Stotts and All West Equipment, with different counsel, filed a complaint in the Fourth Judicial District against First Bank alleging fraud, misrepresentation, and breach of the duty of good faith and fair dealing on the part of First Bank in making the loans to them and in obtaining their signature for the release of collateral.

The Stotts also alleged that the collateral was sold without commercially reasonable preparation and that the bank violated the requirements set out in Section 30-9-504, MCA (concerning the secured party’s right to dispose of collateral after default.)

First Bank responded by filing a motion to dismiss on the grounds that the Stotts’ action was barred by the doctrine of res judicata, the compulsory counterclaim rule and the statute of limitations. By order dated March 19, 1986, the District Court denied First Bank’s Motion.

In doing so, the District Court hinted that it saw a possible additional unresolved issue, suggesting that the order of dismissal with prejudice might have been an intended consent judgment. The court explained:

“Because of the limited scope of the court’s discretion when ruling on a motion to dismiss, construing the complaint in the light most favorable to Plaintiffs would require that there was an express or implied understanding that an action such as the present action was exempt from the judgment in the prior lawsuit.”

First Bank disputes this holding, raising four issues:

1. Whether res judicata bars the Stotts’ claims.

2. Whether the claims the Stotts’ have against First Bank were compulsory counterclaims in a prior action and are barred.

3. Whether the District Court erred in concluding that the prior action was resolved by a consent judgment.

4. Whether the statute of limitations bars the Stotts’ claims.

Notably absent from discussion in the parties’ briefs is the issue of this Court’s jurisdiction for granting supervisory control on an interlocutory order. No Rule 54 certification has been obtained. There is simply a denial of a motion to dismiss. As such, it is not an appealable final order within the terms of Rule 1 of the Montana Rules of Appellate Procedure. This Court will nonetheless accept jurisdiction to protect First Bank from participating in needless litigation, a purpose for which a writ of supervisory control is intended: “. . .it is in the nature of a summary appeal — a shortcut — to control the course of litigation in the trial court . . . and may be employed to prevent extended and needless litigation.” State ex rel. Buttrey Foods, Inc. v. District Court (1966), 148 Mont. 350, 354, 420 P.2d 845, 847. State ex rel. Regis v. District Court (1936), 102 Mont. 74, 77, 55 P.2d 1295, 1297.

The bank’s central argument in this application is that the Stotts are barred from bringing any action against it regarding the promissory notes and guaranty because the Stotts’ claim is res judicata. The bank explains that all the issues raised by the Stotts in their action against the bank were raised in the Stotts’ affirmative defenses in the original default action brought by the bank. The bank claims that the Stotts explicitly raised the following issues by their affirmative defenses:

1. That the sale and liquidation of collateral violated Section 30-9-504, MCA, concerning the secured party’s right to dispose of collateral after default.

2. That the sale and liquidation of collateral was not conducted in a commercially reasonable manner.

3. That the bank and its agent, Dan Simpkins, misrepresented facts when the Stotts gave their consent for the sale of the collateral.

4. That the Stotts relied on the alleged misrepresentations in consenting to the sale of the collateral.

5. That the bank and its agents promised the Stotts that they would be protected from any deficiency.

6. That the collateral was sold for less than market value.

The bank maintains that these are the same allegations which the Stotts’ are pleading in their present action, with the exception that in the second action, the Stotts’ allege that the bank persuaded them to place their business with it.

The doctrine of res judicata is firmly established to stand for the proposition that a party should not be able to relitigate a matter that that party has already had the opportunity to litigate, and the public policy that there must be some end to litigation. Wellman v. Wellman (1982), 198 Mont. 42, 643 P.2d 573.

“Once there has been full opportunity to present an issue for judicial decision in a given proceeding . . . the determination of the court in that proceeding must be accorded finality as to all issues raised or which fairly could have been raised, else judgments might be attacked piecemeal and without end. (Citation omitted.)”

Wellman, 198 Mont. at 45-46, 643 P.2d at 575. See Brault v. Smith (Mont. 1984), [209 Mont. 21,] 679 P.2d 236, 41 St.Rep. 527

The Stotts were given the opportunity to litigate the issues raised in their complaint, but agreed to stipulate for a dismissal with prejudice. The effect of a stipulation is the same as a judgment on the merits. Accordingly, a dismissal with prejudice is res judicata as to every issue raised in the pleadings. City of Havre v. District Court (1980), 187 Mont. 181, 609 P.2d 275; cert. denied Boucher v. City of Havre (1980), 449 U.S. 875, 101 S.Ct. 219, 66 L.Ed.2d 97; Schillinger v. Brewer (Mont. 1985), [215 Mont. 333,] 697 P.2d 919, 42 St.Rep. 408.

This Court has summarized the necessary criteria for applying the doctrine of res judicata as follows:

“. . . four criteria exist in Montana law which must be met before a plea of res judicata can be sustained. These criteria are: (1) the parties or their privies must be the same; (2) the subject matter of the action must be the same; (3) the issues must be the same, and must relate to the same subject matter; and (4) the capacities of the persons must be the same in reference to the subject matter and to the issues between them.”

Smith v. County of Musselshell (1970), 155 Mont. 376, 378, 472 P.2d 878, 880. See also S.W. Company v. John Wight, Inc. (1978), 179 Mont. 392, 587 P.2d 348 and Fox v. 7L Bar Ranch Co. (1982), 198 Mont. 201, 645 P.2d 929.

Each of the four criteria is met in this case. The Stotts, of course, assert that the opposite is true, but present no argument to support the assertion other than to contend that the parties in the two actions are not the same. Neither their son Rick nor Dan Simpkins, the bank officer, were named in the first action, they assert. The bank responds, and we agree, that while Rick Stott was not named in the first action, he was in privity with the parties, as he had signed the agreement for voluntary possession of the collateral for All West Equipment. Further, Dan Simpkins was also in privity for purposes of the original action, as he was an officer and agent of the bank. As used here, privity implies a connection, mutuality of will or an interaction of the parties. State ex rel. Buttrey Foods, Inc. v. District Court (1966), 148 Mont. at 353, 420 P.2d at 847. Clearly, this is established for the purposes of meeting the first criterion.

We see no difficulty in reaching the same conclusion about the remaining three criteria. The subject matter of the answer and affirmative defenses are the same as those raised in the present action, i.e., First Bank’s conduct in obtaining the release and sale of the collateral. The issues raised by the Stotts in their answer to the bank’s collection suit are the same as the issues raised in the present action, although the Stotts’ complaint sets forth the factual allegations in more detail. Finally, the capacities of the people and parties involved have not changed in the way they relate to the subject matter and issues between them. The criteria for application of res judicata are fully satisfied.

The next issue raised is whether the Stotts’ second action is also barred by Rule 13(a) of M.R.Civ.P. concerning compulsory counterclaims. Rule 13(a) provides:

“A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction . . . .”

The purpose of this statute is to avoid multiplicity of suits by requiring the parties to adjust in one action their various differences growing out of any given transaction. Fredrichsen v. Cobb (1929), 84 Mont. 238, 275 P. 267. This insures that only one judicial proceeding is required to settle all matters determinable by the facts or law and to bring all logically related claims into a single litigation. Julian v. Mattson (Mont. 1985), [219 Mont. 145,] 710 P.2d 707, 42 St.Rep. 1908.

Since a claim which “arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim” must be pleaded or is barred, it is important to understand what the quoted phrase means. The United States Supreme Court defined “transaction” as follows:

“ ‘Transaction’ is a word of flexible meaning. It may comprehend a series of many occurrence, depending not so much upon the immediateness of their connection as upon their logical relationship ... It is the one circumstance without which neither party would have found it necessary to seek relief. Essential facts alleged by appellant enter into and constitute in part the cause of action set forth in the counterclaim. That they are not precisely identical, or that the counterclaim embraces additional allegations . . . does not matter. To hold otherwise would be to rob this branch of the rule of all serviceable meaning, since the facts relied upon by the plaintiff rarely, if ever, are, in all particulars, the same as those constituting the defendant’s counterclaim.”

Moore v. New York Cotton Exchange (1926), 270 U.S. 593, 610, 46 S.Ct. 367, 371, 70 L.Ed. 750, 757; Julian v. Mattson, supra.

Rule 13(a) was adopted in this state in 1961 on the same basis as the federal Rules of Civil Procedure (Section 13, Ch. 13, Laws of Montana (1961)). Long before, however, under statutes, we recognized that a defendant who failed to raise a counterclaim to a complaint could not thereafter maintain a second action against the plaintiff. Frederichsen v. Cobb (1929), 84 Mont. 238, 275 P. 267.

In response to the bank’s initial action, the Stotts’ affirmative defenses alleged violation of Section 30-9-504, MCA, misrepresentation on the part of the bank’s agent that induced the Stotts to give their consent for the sale of collateral, “promise by plaintiff’s [bank’s] agent that defendant [Stotts] would be ‘protected’ from any deficiency,” and sale of the collateral as a result of these wrong doings for less than its market value. In their second action, the Stotts allege that the acts of First Bank were fraudulent, deceitful, wrongful, careless, reckless, wanton and malicious. They allege fraud and misrepresentation on the part of the bank in making the loans and in obtaining their signature to release the collateral for sale. They also allege violation of Section 30-9-504, MCA. It is clear to this Court that the Stotts’ answer and affirmative defenses cover the same ground as that addressed in their complaint. Their answer and affirmative defenses indicate that they had knowledge of all the facts necessary to raise the issues now in their complaint as compulsory counterclaims in the bank’s initial action.

While it is true that the Stotts’ complaint offers greater detail in allegations, the factual history of the complaint is the same as the history alluded to in the affirmative defenses. The issues raised are the same. They both arise out of the same transaction. There is a logical relationship between the bank’s foreclosure complaint and the Stotts’ answer, affirmative defense and complaint alleging fraud, misrepresentation, bad faith and violations of Section 30-9-504, MCA. “That they are not precisely identical or that the counterclaim embraces additional allegation . . . does not matter,” the U.S. Supreme Court held in Moore.

We can only conclude that the Stotts’ complaint is barred because it arose from the same transaction alleged in the bank’s complaint. The claims of creditor misconduct were compulsory counterclaims in the first action. Hence, the effect is the same as our finding that the Stotts’ complaint is res judicata.

The District Court did not decide whether the Stotts’ claims were compulsory counterclaims in the collection suit. Rather, the District Court concluded that the parties had resolved the dispute by a consent judgment (even though another judge called it an Order of Dismissal With Prejudice). Hence the District Court ruled that the Stotts’ right to bring an action on the counterclaim was not barred because the parties reached a judgment by consent.

A consent judgment is “a judgment, the provision and terms of which are settled and agreed to by the parties to the action.” Black’s Law Dictionary (5th ed.) at 436. A judgment by consent or stipulation of the parties is construed as a contract between them embodying the terms of the judgment. It operates to end all controversy between the parties, within the scope of the judgment.

The Stotts cite 2 A.L.R.2d 514 for their position that the general rules of res judicata do not apply

While we agree that this is true, we must point out that nothing in the record or in the order of dismissal with prejudice indicates that a consent judgment was intended. As we noted, a judgment by consent is contractual in nature and therefore it should be construed as a written contract. In other words, the meaning of the consent judgment is to be gathered from the terms of the contract and the judgment should not be extended beyond the clear import of the terms.

The order of dismissal with prejudice, submitted by First Bank stated:

“ORDER
“PURSUANT TO WRITTEN STIPULATION by and between Plaintiff, FIRST BANK (N.A.) WESTERN MONTANA MISSOULA, and Defendants ALL WEST EQUIPMENT, LEE STOTT and BESSIE STOTT, through their respective counsel, that the above entitled action has been fully and finally compromised and settled upon the merits.
“IT IS HEREBY ORDERED, that the above entitled action be, and the same is, hereby dismissed, with prejudice, each party to bear its own costs.
“DATED this 4th day of January, 1985.
s/James B. Wheelis”

(Emphasis added.)

The Stotts assert that it was the bank’s duty to specify in its stipulation the issues it believed were finally resolved, and state the specific extent it believed future relitigation was precluded. They argue that if the bank had specifically limited relitigation in the stipulation, they would not have agreed to the stipulation. Hence they charge that the bank, in order to gain the advantage, fraudulently concealed its intentions to preclude future litigation by writing the stipulation in such a way as to prevent the Stotts from recognizing they were signing away their rights to further legal action.

The Stotts cite no evidence or authority supporting their assertion. Further, the difference between an order of dismissal with prejudice, the equivalent of a final judgment on the merits, and a consent judgment is clear. It is not reasonable to assume that the District Court confused them.

Since we determine that the Stotts’ cause of action is barred, there is no need to discuss the issue of the statute of limitations. As for the Stotts’ argument that their allegations included negligence, bad faith, and “other torts,” our ruling that these were compulsory counterclaims precludes applying the statute of limitations to them.

Accordingly, we grant a writ of supervisory control, which this Opinion shall be and constitute. The cause is remanded to the District Court with directions to dismiss the complaint.

MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES HARRISON, GULBRANDSON, WEBER and HUNT and HON. ROBERT M. HOLTER, District Judge, sitting for former JUSTICE MORRISON.


source: Caselaw Access Project

author: MR. JUSTICE WEBER

license: Public Domain

text:
    In re the ADOPTION OF J.M.G., J.J.G. and C.C.G.
    No. 86-433.
    Submitted on Briefs March 26, 1987.
    Decided May 13, 1987.
    736 P.2d 967.

      Measure, Ogle & Ellingson, Darrell S. Worm, Kalispell, for appellant.
    William A. Douglas, Libby, for respondent.
   MR. JUSTICE WEBER

delivered the Opinion of the Court.

The natural father of J.M.G., J.J.G., and C.C.G., appeals the June 10, 1986, judgment of the Nineteenth Judicial District Court, County of Lincoln, terminating the parental rights of the natural father and granting adoption to the stepfather. We affirm.

The natural father and natural mother were married in 1975. Three children were born of the marriage. The parties’ marriage was dissolved on March 4, 1983, and the natural mother awarded custody of the children. The natural father moved to Oregon while the natural mother and children remained in Libby, Montana.

On April 7, 1983, the natural father was charged with custodial interference, a felony, and subsequently was incarcerated on the charge from July 18, 1983, to September 7, 1983. The natural father spent three days of this period at St. John’s Hospital in Libby for treatment of anxiety and psychosis. On October 11, 1983, the natural father entered a guilty plea to the charge of custodial interference and received a two year deferred imposition of sentence.

The natural mother was remarried to S.A. May 5, 1984. On September 11, 1984, S.A. filed a petition to adopt J.M.G., J.J.G., and C.C.G. In the petition, S.A. alleged that pursuant to Section 40-8-lll(l)(a)(v), MCA, the natural father’s consent was not required due to his failure to provide child support during the year preceding the filing of the petition. Following the natural father’s failure to appear the District Court granted the adoption on October 24, 1984. This decree was subsequently set aside and the District Court ordered that the matter be set for trial following discovery.

The matter came on for hearing March 26, 1986. Testimony was heard from the natural father and his mother, the natural mother, and a former attorney for the natural father. The parties did not dispute the fact that the natural father did not provide any support to his children during the period in question, September 11, 1983, through September 11, 1984. The natural father testified that he was physically and mentally incapable of working at that time. He had injured his knee in 1981 while working as a logger and was still unable to perform heavy labor. A workers’ compensation settlement of $9500 was received by the natural father in July, 1983, which he gave to his mother and $2400 was applied to child support.

The natural father and his mother testified that his major problems during that period were psychological. He was taking thorazine, an antidepressant, and expressed suicidal ideas, had trouble sleeping, and his mother felt he was not competent to be left alone. The natural father assisted his mother in her sign business but his only compensation was room and board. The natural father did not perform any remunerative work until 1985. Up to that time his mother felt he was incapable of performing simple tasks.

David Harmon, the natural father’s attorney during 1983 and early 1984, testified that conversing with the natural father during his incarceration was useless due to his anxiety and paranoia. However, the natural father’s mental condition improved greatly following his release from jail. Harmon represented the natural father at hearings during October and November of 1983, and found him to be capable of discussing his legal problems. Harmon did not consider the natural father to be mentally impaired at that time, but found him to be obsessed with the possibility that his children might he taken away from him.

The natural mother testified that the natural father visited with the children in November, 1983, and exhibited no signs of mental problems. The natural mother further testified that following the natural father’s knee injury he had performed some photography work, raised chickens which involved carrying heavy bags of feed and 5 gallon buckets, plus he jogged on a daily basis.

The District Court entered its findings of fact, conclusions of law and judgment June 10, 1986. The court found the natural father’s consent to adoption to be unnecessary for failure to provide child support from July 11, 1983, through July 3, 1985, and granted the adoption. The natural father appeals and raises the following issues:

1 ) Whether there is substantial credible evidence supporting the termination of the natural father’s parental rights?

2) Whether the District Court committed reversible errors of law in admitting certain evidence and in entering a decree of adoption?

The natural father contends several of the District Court’s findings of fact are not supported by substantial evidence. Specifically, the natural father takes issue with the findings of the court that his emotional problems were best characterized as self-induced, that a portion of his lump sum settlement should have been applied toward child support, that he was able to maintain employment but did not by choice, and that he has voluntarily chosen a lifestyle to avoid gainful employment while allowing others to support him. We find substantial credible evidence in the record to support these findings.

The natural father was released from jail pending trial on the custodial interference charge. The release was due to his medical condition. The hospital record shows a final diagnosis of acute psychosis and anxiety but also contains a notation by one of the examining physicians that the natural father’s condition might have been an act. The testimony of his former lawyer and the natural mother indicate that following release from incarceration the natural father was experiencing some anxiety but was not impaired in any manner.

The natural father asserts that his testimony as well as his mother’s compel a finding that he was not mentally able to hold a job from September 11, 1983, to September 11, 1984. However, the natural father has offered no medical evidence of his condition during that period and admits that he did not visit any physicians or psychologists in regard to his alleged condition. Evidence concerning the natural father’s mental condition during the year in question consisted solely of non-medical testimony. In a non-jury trial witness credibility and the weight of the testimony are matters to be determined by the District Court and we will not substitute our judgment for that of the District Court. Kuhlman v. Rivera (Mont. 1985), [216 Mont. 353,] 701 P.2d 982, 986, 42 St.Rep. 863, 868.

In this instance, the District Court relied on testimony that the natural father was not mentally impaired in determining that the natural father did not work by choice. We will not substitute our judgment for that of the district judge. Substantial evidence supports his conclusion.

Section 40-8-lll(l)(a)(v), MCA, provides that the consent of the natural father is not required for adoption, “if it is proven to the satisfaction of the court that the father . . ., if able, has not contributed to the support of the child during a period of 1 year before the filing of a petition for adoption.” This Court has previously held that the question of ability to pay child support also encompasses the ability to earn income and the desire to earn it. Matter of Adoption of B.L.P. (Mont. 1986), [224 Mont. 182,] 728 P.2d 803, 43 St.Rep. 2116.

In the present case, the District Court found that the natural father should have applied his lump sum settlement to child support. The record reflects he paid $2400 out of the $9500 settlement to clear up child support arrearage, but the remainder was given to his mother who spent it. We find no abuse of discretion in the court’s determination that this money should have been applied to child support.

The District Court found that the natural father voluntarily chose a lifestyle to avoid gainful employment while allowing others to support him. The court further found that the natural father did not have any income from September, 1983, to December, 1984, and that he did not pay child support for a period of two years. Each of these findings is supported by the record. The natural father testified he wasn’t capable of doing anything the first four or five months after his release from jail in September, 1983, yet he failed to make any serious efforts at obtaining employment and did not find remunerative employment until December of 1984. We agree with the District Court that the natural father was capable of maintaining regular employment but did not.

The second issue is whether the District Court committed reversible errors of law in admitting certain evidence and in entering a decree of adoption. The natural father contends the court erred in receiving evidence of events before and after the one year period preceding the filing of the adoption petition and permitting questions concerning the natural father’s homosexuality. We find no reversible error in the court’s admission of evidence.

The primary question before the District Court was the natural father’s ability to work during the year in question. Evidence concerning events outside of that one year period were relevant as to the natural father’s mental and physical condition during the subject year. The natural father’s knee injury in 1981 and his activities thereafter including jogging, raising chickens, and performing photography, all related to the question of his physical condition.

The natural father’s relationships with others were relevant as to his emotional and mental condition. The natural father claims he was mentally incapable of regular employment from September, 1983, through September, 1984. The District Court permitted testimony that following that year the natural father did find employment yet he still relied on others to support him. There is no indication that evidence of the natural father’s homosexuality prejudiced him in any manner. The record supports the court’s finding that the natural father has voluntarily chosen a lifestyle which permits him to avoid gainful employment while allowing others to support him.

The natural father contends that there should have been a two-step hearing process. First, a hearing as to terminating the natural father’s parental rights, second, a hearing concerning fitness of the adoptive father and the best interests of the children. The record indicates the second step did occur but there is no transcript in the record.

The District Court granted the petition for adoption based upon its findings that the adoptive father is a fit and proper person to be allowed care and custody and that the adoption is in the best interests of the children. The natural father contends the decree of adoption was entered prematurely and is not supported by substantial evidence.

The record shows a hearing was held October 22, 1984, concerning the petition to adopt. The District Court granted the adoption finding it to be in the best interests of the children and the stepfather to be a fit and proper parent. The decree of adoption was subsequently set aside to allow the natural father to appear in the proceedings to determine whether the natural father had abandoned the children. There is no indication the stepfather’s fitness to be an adoptive parent and the best interests of the children was relitigated.

Rule 9(b), Mont.App.R.Civ.P. provides in pertinent part:

“In all cases where the appellant intends to urge insufficiency of the evidence to support the verdict, order or judgment in the district court, it shall be the duty of the appellant to order the entire transcript of the evidence. Wherever the sufficiency of the evidence to support a special verdict or answer by a jury to an interrogatory, or to support a specific finding of fact by the trial court, is to be raised on the appeal by the appellant, he shall be under a duty to include in the transcript all evidence relevant to such verdict, answer or finding.”

The appellant natural father has not provided the entire transcript of the proceedings of the October 22, 1984, hearing concerning the original petition to adopt. Therefore we will not address whether substantial evidence supports the finding that adoption by the stepfather is in the best interests of the children.

The District Court judgment is affirmed.

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


author: MR. CHIEF JUSTICE TURNAGE

text:
    STATE OF MONTANA, Plaintiff and Respondent, v. DAN LOUIS MATSON, Defendant and Appellant.
    No. 86-471.
    Submitted on Briefs Dec. 31, 1986.
    Decided May 13, 1987.
    Rehearing Denied June 4, 1987.
    736 P.2d 971.

      Cannon & Sheehy; Edmund F. Sheehy, Jr., Helena, for defendant and appellant.
    Mike Greely, Atty. Gen., Helena, John Paulson, Asst. Atty. Gen., Helena, Robert Deschamps, III, Co. Atty., Missoula, Robert Slomski, Deputy Co. Atty., for plaintiff and respondent.
   MR. CHIEF JUSTICE TURNAGE

delivered the Opinion of the Court.

Defendant Matson appeals a bench conviction for aggravated assault in the Fourth Judicial District, Missoula County. On August 21, 1986, Matson was sentenced to ten years in prison, with all ten years suspended, and placed on probation. We affirm the conviction.

Matson raises five issues for our review:

1. Does substantial evidence support Matson’s conviction?

2. Did the District Court abuse its discretion when it denied Mat-son’s motion to dismiss at the close of the State’s case?

3. Did the District Court abuse its discretion when it allowed the State to amend its information after trial began but before the verdict?

4. Did the District Court abuse its discretion when it admitted evidence of prior acts by Matson?

5. Did Matson receive effective assistance of counsel?

Matson is thirty-seven years old and resides with his parents on a six and one-half acre homesite in Seeley Lake, Montana. On June 15, 1985, two chickens belonging to Matson’s neighbor flew onto Matson’s property. Matson came out of his house with a pistol in his hand. For the next few minutes, Matson chased the chickens around his property until they flew back to his neighbor’s land. As he stood at his fence, Matson waved the pistol and shouted at two neighbor children, ages ten and eleven, to keep their chickens off his property or “something will have to be done.”

Issue 1

Does substantial evidence support Matson’s conviction?

The court found Matson guilty of aggravated assault against one of the children, as defined in Section 45-5-202(1)(c), MCA (1983): “A person commits the offense of aggravated assault if he purposely or knowingly causes . . . reasonable apprehension of serious bodily injury in another by use of a weapon . . .”

Matson contends that the evidence produced at trial was insufficient to support his conviction, because the State failed to prove that the children suffered reasonable apprehension of serious bodily injury.

Our standard of review on issues of substantial evidence is that a conviction cannot be overturned if the evidence, when viewed in a light most favorable to the prosecution, would allow any rational trier of fact to find the essential elements of the crime beyond a reasonable doubt. State v. Kutnyak (Mont. 1984), [211 Mont. 155,] 685 P.2d 901, 910, 41 St.Rep. 1277, 1289. If events are capable of different interpretations, the trier of fact shall determine which is the most reasonable. State v. Atlas (Mont. 1986), [224 Mont. 92,] 728 P.2d 421, 423, 43 St.Rep. 2042, 2044.

A careful review of the trial transcript convinces us that the evidence fully supports Matson’s conviction for aggravated assault. The key elements of the crime are reasonable apprehension, serious bodily harm and use of a weapon. In their testimony, the neighbor children repeatedly stated that Matson had a pistol in his hand, that Matson pointed the pistol at them and that they were afraid they would be shot. The victim of the aggravated assault, Jason, testified to his fear:

“Q. Was there anything special about what he was doing with the gun that you remember?
“A. He cocked it.
“Q. What were you thinking when that gun was pointed at you?
“A. I thought he was going to shoot me.
“Q. How did that make you feel?
“A. Real scared.”

The other child who witnessed Matson’s aggravated assault was Jason’s sister, Jennifer. She testified about her fear and resultant nightmares, in which “I dreamed that he shot me.” Furthermore, Matson admitted that he shouted at the children with a pistol in his hand:

“Q. When you were standing at the raised pistol position, did you yell at the children at that time, or did you yell at them when the pistol was in the holster?
“A. I already had intentions of putting it in the holster. So as I yelled to them I was already going to put it in the holster. Its [sic] kind of a spontaneous action. I thought it would do' some good, maybe, to tell them to keep the chickens out or something will have to be done.”

However, Matson contends that the pistol in his hand was only a pellet pistol and not actually a “weapon.” We note that Section 45-2-101(71), MCA, defines “weapon” as “any instrument, article, or substance which ... is readily capable of being used to produce . . . serious bodily injury.” Serious bodily injury is defined as causing “protracted loss or impairment of.the function or process of any bodily member or organ.” Section 45-2-101(59), MCA. A pellet pistol does not escape the purview of “weapon,” because a high-velocity pellet in the eye is certainly capable of inflicting “serious bodily injury.”

Furthermore, Matson’s contention is directly rebutted by the testimony of both Jason and Jason’s father. When Jason was shown Matson’s pellet pistol, he was asked:

“Q. What’s the difference about this gun compared to the one that was pointed at you?
“A. The other gun was silver, it had a brown handle, and it had a shorter barrel.”

Jason’s father also testified that he saw Matson holding a large caliber pistol, not a pellet pistol:

“Q. How do you know it was a large caliber pistol?
“A. Well, I’m fairly familiar with firearms enough to realize that the length of barrel, the configuration of the frame and so forth led me to believe at that time that that was a large caliber pistol.”

In summary, the testimony of Matson himself, corroborated by three other witnesses, placed Matson in the immediate vicinity of the children, with an unholstered pistol in Matson’s hand. By his own admission, and corroborated by two witnesses, Matson spoke menacing words to the children while holding the pistol. This evidence, when combined with the children’s testimony that they feared they would be shot, was sufficient to establish the elements of reasonable apprehension of serious bodily injury by use of a weapon. State v. Van Haele (1983), [207 Mont. 162,] 675 P.2d 79, 82, 40 St.Rep. 1964, 1967. We hold that the evidence fully supports the court’s conclusion that Matson committed aggravated assault.

Issue 2

Did the District Court abuse its discretion when it denied Matson’s motion to dismiss at the close of the State’s case?

Matson contends that the State failed to prove Matson used a “weapon” and, therefore, the court should have granted his motion.

We review this issue under the provisions of Section 46-16-403, MCA, which states:

“When, at the close of the state’s evidence or at the close of all the evidence, the evidence is insufficient to support a finding or verdict of guilty, the court may, on its own motion or on the motion of the defendant, dismiss the action and discharge the defendant. [Emphasis added.]”

In construing the statute, we note that the motion for dismissal is conditioned upon “insufficient evidence” to support a finding of guilty. A motion to dismiss under Section 46-16-403, MCA, should be granted only where there is no evidence upon which a trier of fact could base a verdict. State v. White Water (Mont. 1981), 634 P.2d 636, 638, 38 St.Rep. 1664, 1666. Based upon the State’s presentation of direct evidence on the use of a weapon, we hold that the trial court exercised sound discretion and properly allowed the trial to proceed.

Issue 3

Did the District Court abuse its discretion when it allowed the State to amend its information after trial began but before the verdict?

On July 19, 1985, the State filed an information against Matson, stating:

“Defendant committed the offense of AGGRAVATED ASSAULT, a Felony, as specified in Section 45-5-202, MCA . . . On or about June 15, 1985, the above-named Defendant purposely or knowingly caused reasonable apprehension of bodily injury in Jason Nentwig, by use of a handgun, a large pistol, by pointing it at the victim.” However, Section 45-5-202, MCA (1983), requires that the victim be under reasonable apprehension of serious bodily injury. Therefore, the information was amended, after the trial began but before the verdict, by inserting the word “serious” before “bodily.”

The District Court concluded that the amendment was one of form and not of substance, that no additional or different offense was charged by the amendment, and that the amendment did not prejudice any substantial right of the defendant. Matson contends that the amendment was substantive and should not have been allowed.

In reviewing this issue, we are guided by Section 46-11-403, MCA, which states:

“(2) The court may permit an information to be amended as to form at any time before verdict or finding if no additional or different offense is charged and if substantial rights of the defendant are not prejudiced.
“(3) No charge may be dismissed because of a formal defect which does not tend to prejudice a substantial right of the defendant. [Emphasis added.]”

Before analyzing the propriety of the amendment, we must first analyze the adequacy of the original information. An information is a written accusation prepared by a prosecutor in the name of the state against a person for the commission of a crime. The information must reasonably appraise the accused of the charges against him, so that he may have the opportunity to prepare and present his defense. State v. Coleman (1978), 177 Mont. 1, 22, 579 P.2d 732, 745. This requirement is satisfied if the charges sufficiently express the language of the statute which defines the offense. State v. Hankins (Mont. 1984), [209 Mont. 365,] 680 P.2d 958, 962, 41 St.Rep. 762, 766; Section 46-11-401(l)(c), MCA.

The original information fulfilled its primary purpose of notifying the defendant of the charges by capitalizing the words “aggravated assault” and specifically citing Section 45-5-202, MCA. The original information simply paraphrased the statute. Standing alone, the original information was sufficient under Hankins.

The subsequent one-word amendment merely brought the paraphrase into tighter conformation with the wording of the cited statute. The amendment did not change the nature of the offense, the elements of the crime, or the burden of proof. The amendment was one of form rather than substance. Coleman, 177 Mont. at 23, 579 P.2d at 745.

Matson suffered no prejudice as a result of the amendment, especially because the State bore the heavier burden of proving “serious bodily injury” throughout the trial, and because the trial judge was fully aware of the elements of aggravated assault. The court’s decision to allow the amendment did not infringe on Matson’s basic right to prepare his defense. We hold that the District Court properly allowed the State to amend the information.

Issue 4

Did the District Court abuse its discretion when it admitted evidence of prior acts by Matson?

At an omnibus hearing on August 15, 1985, the State gave notice of its intent to introduce evidence of “other acts.” On August 28, 1985, the State filed a written notice, pursuant to the requirements of State v. Just (1979), 184 Mont. 262, 602 P.2d 957, which read:

“[T]he State of Montana will seek to introduce at the trial of this cause in its case in chief evidence of other acts that are inseparably related to the crime charged, for the purpose of proving intent, absence of mistake or accident, or any other permissible factor such as consciousness of guilt. [Emphasis added.]”

Three days before trial, the District Court filed an order which stated: “The Court will allow all other evidence concerning the prior acts and observations of the neighbors contained in the State’s Notice.” In its case-in-chief, the State introduced these prior acts through testimony from Matson’s neighbor that he had repeatedly seen Matson walk around his property with a large-caliber pistol on his hip; and through testimony from another neighbor that Matson shot at a woman on a horse who had crossed onto Matson’s property. Matson contends that the court erred by allowing this evidence.

Our analysis of this issue is governed by Rule 404(b), M.R.Evid., which states:

“Evidence of other crimes, wrongs, or acts is not admissible to prove the character of a person in order to show that he acted in conformity therewith. It may, however, be admissible for other purposes, such as proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident. [Emphasis added.]”

A trial judge is vested with broad discretion on the admissibility of evidence. However, the evidentiary value of a prior act must outweigh the risk of prejudice flowing from its use. Rule 403, M.R.Evid.

The Just notice gave Matson ample opportunity to prepare his defense. The prior acts mentioned in the Just notice were relevant because they indicated both an on-going dispute and a motive for Matson’s actions. This dispute was noted by Matson’s counsel in his opening remarks:

“Your Honor, in this case it would be very difficult for the Court to make a determination of what actually went on that day without some sort of background on the relationship that has transpired between the Matsons and their neighbors . . .the purpose of the evidence would be to show the attitude that the neighbors all took to the Matsons at the time they moved here . . . the evidence could show the state of mind that the Matsons had . . . [Emphasis added.]”

During trial, Matson also introduced evidence of neighbor disputes in which Matson was the injured party. However, he wished to exclude evidence of neighbor disputes in which Matson was the aggressor. Matson opened the door on these prior acts. We cannot allow him to pick and choose only those prior acts which favor his case.

Evidence of prior acts is admissible if these acts are relevant to some issue other than defendant’s character or disposition to commit the crime charged. The prior acts were relevant to the hostility that existed between the Matsons and their neighbors. The prior acts were part of a chain of events leading to the aggravated assault. The prior acts were also probative of Matson’s mental state at the time of the assault. State v. Bashor (1980), 188 Mont. 397, 420, 614 P.2d 470, 483.

In summary, the admission of prior acts lies within the discretion of the trial judge, provided that the probative value outweighs the prejudicial. We find no abuse of that discretion. We hold that Matson’s prior acts were admissible under Rule 404(b), M.R.Evid.

The State’s Just notice also mentioned its intention to introduce evidence of Matson’s arrest on April 9, 1982, for two counts of aggravated assault with a handgun. The notice stated: “During that incident the Defendant pointed a .38 cal derringer at two men. The Defendant was charged with aggravated assault. On April 22, 1982, the Defendant plead guilty to a reduced charge of misdemeanor assault.”

The District Court responded to the notice in its order on October 18,1985, where it stated: “The Court reserves ruling on the evidence surrounding the Defendant’s arrest at Liquid Lonie’s [sic] Tavern in Condon, Montana on April 9, 1982.”

However, in its Findings of Fact, the Court stated: “The Defendant was arrested, charged, and convicted of aggravated assault in the summer of 1982 for pointing a handgun at two patrons of Liquid Louie’s Tavern in Condon Montana.”

At the outset, we note that the finding was incorrect. As the Just notice stated, Matson pled guilty to misdemeanor assault in a plea bargain, not aggravated assault as noted in the finding. In our analysis, we will first determine if the court properly allowed the evidence of the arrest and charges of aggravated assault. We will then determine the degree of harm caused by the error in the finding.

We defined the guidelines for the admission of other crimes under Rule 404(b) in Just, 184 Mont. at 269, 602 P.2d at 961. The four substantive requirements are: (1) similarity of crimes, (2) remoteness in time, (3) common system and (4) probative value.

In the instant case, both the prior crime and the charged crime involved assault with a handgun. Unless the remoteness is so great that the evidence has no value, the remoteness of a prior crime “is directed to the discretion of the District Court and is a matter that goes to the credibility of the evidence rather than its admissibility.” State v. Doll (1985), [214 Mont. 390,] 692 P.2d 473, 476, 42 St.Rep. 40, 43-44. Even if the prior crime was not sufficiently “common” or “related,” when the evidence “tends toward the conclusion that the defendant is guilty of the crime charged with moral certainty and beyond a reasonable doubt, it is certainly admissible.” State v. Sigler (Mont. 1984), [210 Mont. 248,] 688 P.2d 749, 752, 41 St.Rep. 1039, 1042. The probative value of the prior crime shows Matson’s knowledge, as well as the absence of mistake or accident in the commission of the present crime. Furthermore, in a bench trial such as Matson’s, there is less cause for concern that the prejudicial effect may outweigh the probative.

The procedural safeguards of Just prevent the defendant from being surprised by evidence of collateral, unrelated issues. In the instant case, the prosecution did not offer the evidence of prior crimes to show character, but only to show a specific element of knowledge. We find that the evidence of prior crimes does not violate the Just requirements. In its discretion, the District Court properly admitted Matson’s prior arrest and charges of aggravated assault into evidence.

However, the court erred in its finding, which should have read that Matson was convicted of misdemeanor assault, not aggravated assault.

In determining the degree of harm caused by this error, we note that Matson’s conviction can be solidly based on the testimony of the victim and the admissions of Matson himself. The evidence of prior acts, including the disposition of the prior crime, was superfluous. Furthermore, the District Court had a copy of the Just notice, which properly stated that Matson pled guilty to misdemeanor assault.

We find that the error was harmless to the defendant. To correct the record, we direct the District Court to amend its Finding IX(c) to read “convicted of misdemeanor assault.”

Issue 5

Did Matson receive effective assistance of counsel?

Following his conviction and sentencing, Matson retained new counsel to pursue the present appeal. Matson contends that he received ineffective assistance of counsel from his original attorneys because they failed to object to Matson’s arrest without a warrant. However, we note that the propriety of Matson’s arrest was irrelevant to his conviction. An illegal arrest, without more, has no impact on subsequent prosecution and has never been viewed as a defense to a valid conviction. State v. Ellinger (Mont. 1986), [223 Mont. 349,] 725 P.2d 1201, 1205, 43 St.Rep. 1778, 1784.

Matson also argues that his counsel was ineffective at trial because they failed to object to most of the “other acts” evidence; failed to object to the original information until closing argument; and failed to object to opinion testimony regarding the credibility of Jason and Jennifer.

We review this issue under the test articulated in Strickland v. Washington (1984), 466 U.S. 668, 687, 104 S.Ct. 2052, 2064, 80 L.Ed.2d 674, 693:

“First, the defendant must show that counsel’s performance was deficient. This requires showing that counsel made errors so serious that counsel was not functioning as the “counsel” guaranteed the defendant by the Sixth Amendment. Second, the defendant must show that the deficient performance prejudiced the defense. This requires showing that counsel’s errors were so serious as to deprive the defendant of a fair trial, a trial whose result is reliable.”

State v. Johnson (Mont. 1986), [221 Mont. 384,] 719 P.2d 771, 773, 43 St.Rep. 913, 916.

Under the first prong of the Strickland test, Matson generally alleges tactical trial errors by his original counsel, but fails to specifically show how these alleged errors constituted deficient performance. The decisions on the timing and number of objections lie within counsel’s tactical discretion. We will not allow unsupported allegations to brand counsel’s performance as deficient. Matson has failed to meet his burden of proof.

Matson stands convicted, not on the basis of unmade objections, but on the basis of substantial evidence, in which the great weight of testimony conclusively established that Matson committed aggravated assault.

Affirmed.

MR. JUSTICES HARRISON, WEBER, SHEEHY, GULBRANDSON and HUNT concur.


text:
    MICHAEL J. O’DONNELL, Claimant and Appellant, v. RYANS, INC., Employer, and State Compensation Insurance Fund, Defendant and Respondent.
    No. 86-595.
    Submitted on Briefs March 12, 1987.
    Decided May 13, 1987.
    736 P.2d 965.
    Overfelt Law Firm, Gary Overfelt, Billings, for appellant.
    Crowley Law Firm, Terry G. Spear, Billings, for respondent.
   MR. JUSTICE WEBER

delivered the Opinion of the Court.

Claimant, Michael J. O’Donnell appeals the order of a hearings examiner for the Workers’ Compensation Court denying claimant’s motion for a penalty on the medical expenses paid in behalf of claimant. We remand this cause to the Workers’ Compensation Court for determination by the Workers’ Compensation judge.

The only issue this Court will now decide is whether we have jurisdiction to consider an appeal of an order issued by a hearings examiner for the Workers’ Compensation Court. Since we hold that we do not, we are barred from considering the issues raised by the parties.

While employed at a warehouse in January 1980, claimant slipped and fell 12 — 15 feet to a concrete floor, resulting in serious injury to his shoulder. The injury developed into thoracic outlet syndrome. The extended treatment of claimant since the accident date has involved approximately 20 doctors and has included more than a dozen surgeries. A number of surgeries were performed to alleviate pain generated by prior surgeries. The State Compensation Insurance Fund (State Fund), with varying degrees of willingness, paid for these procedures.

Thereafter, in the summer of 1986, the State Fund denied claimant’s request that it fund treatment at a specialized pain clinic. Review of that decision was expedited pursuant to agreement of the parties. A hearing was held before a hearings officer on September 11, 1986, on the issues of whether the pain treatment should be allowed and whether a penalty should be assessed against defendant. The hearings officer issued an order September 26, 1986, requiring the State Fund to pay for the requested treatment. Then, on December 8, 1986, the hearings officer issued an order denying claimant’s motion for penalty. It is from this order that appeal lies.

The question whether the State Fund’s refusal to pay warranted imposition of a penalty was never presented to the Workers’ Compensation judge, as required by Section 39-71-2907, MCA. Rather, claimant appealed directly to this Court. The State Fund does not object to claimant’s procedure. However, we will consider the jurisdiction issue sua sponte.

“The issue of subject matter jurisdiction cannot be waived nor conferred by consent of a party, and may be raised at any stage of a judicial proceeding by a party or sua sponte by the court.”

State v. Davis (Mont. 1984), [210 Mont. 28,] 681 P.2d 42, 43, 41 St.Rep. 898, 899.

Section 39-71-2904, MCA, provides that “an appeal from a final decision of the workers’ compensation judge shall be filed directly with the supreme court of Montana . . (Emphasis supplied.) As mentioned earlier, Section 39-71-2907, MCA, requires that the question of unreasonable delay or refusal be determined by the Workers’ Compensation judge.

“Section 39-71-2907. Increase in award for unreasonable delay or refusal to pay. When payment of compensation has been unreasonably delayed or refused by an insurer, . . . the full amount of the compensation benefits due a claimant, between the time compensation benefits were delayed or refused and the date of the order granting a claimant compensation benefits, may be increased by the workers’ compensation judge by 20%. The question of unreasonable delay or refusal shall be determined by the workers’ compensation judge . . . (Emphasis supplied.)”

From these statutes, it is unequivocally clear that we only have jurisdiction to consider an appeal from an order of the Workers’ Compensation judge. We can not and will not entertain an appeal from an order of the Workers’ Compensation Court hearings examiner.

This cause is remanded to the Workers’ Compensation Court for determination and entry of an appropriate order by the Workers’ Compensation judge. In the event of another appeal to this Court, we will consider a request by either party to determine the issues from the briefs presently before us.

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


author: MR. JUSTICE HARRISON

text:
    ROBERT G. GRAY, a/k/a Pat Gray, Petitioner and Appellant, v. HARRIS LAND AND CATTLE CO. and its Board of Directors and Members thereof, Marjorie Gray, Doran Lynch and Valerie Solander, Respondents and Respondents.
    No. 86-405.
    Submitted on Briefs Dec. 31, 1986.
    Decided May 15, 1987.
    737 P.2d 475.

      Emmons & Coder, H. William Coder, Great Falls, for petitioner and appellant.
    Scully, Lilly & Andriolo, John P. Scully, Bozeman, for respondents and respondents.
   MR. JUSTICE HARRISON

delivered the Opinion of the Court.

This appeal arises from a dismissal of a petition for writ of mandamus entered by the District Court of the Eighth Judicial District in and for Cascade County. Appellant, a shareholder in a closely held corporation, sought to sell his shares to a party outside the corporation, but was prevented by the remaining shareholders. Appellant filed a petition for writ of mandamus seeking an order to compel this sale, but the District Court dismissed the petition. We affirm.

The parties presented this case upon stipulation of the facts. Harris Land and Cattle Company is a small, closely held farming and ranching corporation consisting of five family shareholders. In 1978, the corporation executed a Buy-Sell Agreement designed in part to allow the shareholders an opportunity to keep the corporation within the closely held group.

Paragraph (1) of this Agreement requires that so long as all the shareholders are alive, any shareholder who wishes to dispose of his stock must first obtain the written consent of the remaining shareholders and of the corporation. This paragraph provides in full:

“1. So long as all of the STOCKHOLDERS are alive, they each shall not encumber or dispose of the stock of the CORPORATION which he or she now owns or may hereafter acquire without the written consent of the remaining STOCKHOLDERS and that of the CORPORATION.”

Paragraph (5) of the Agreement provides that any shareholder who wishes to dispose of his stock must first offer to the corporation the stock for sale. If the corporation declines to purchase the stock, the selling shareholder must then offer the stock to the other shareholders. This Agreement was signed by each of the shareholders.

In August 1985, one of the shareholders, Robert Gray, notified the corporation, through its other shareholders, of his desire to sell his stock in the corporation. In accordance with a separate provision in the Buy-Sell Agreement, Gray requested that the corporation appoint an independent appraiser to evaluate the underlying assets of the corporation for the purpose of valuing the stock. The remaining shareholders, however, in October 1985, invoked the provisions of paragraph (1) of the Buy-Sell Agreement and refused their consent to Gray’s sale. They unanimously voted not to appoint an independent appraiser.

Gray responded by filing with the District Court a petition for writ of mandamus, seeking an order to compel the corporation to appoint an appraiser as a prerequisite to the sale of this stock. The District Court, however, dismissed Gray’s petition. Gray now appeals.

The central issue on appeal concerns the validity of the share transfer restrictions contained within the Buy-Sell Agreement. The common law has never formulated a precise definition of a close corporation, but the term is commonly used to distinguish a family corporation or a corporation with only a few shareholders from the public-issue or publicly held corporation. See generally, 1 O’Neal, Close Corporations, Section 1.02 (1971).

This Court has previously described a close corporation as:

“one in which management and ownership are ‘substantially identical to the extent that it is unrealistic to believe that the judgment of the directors will be independent of that of the stockholders.’ ” Thisted v. Tower Management Corporation (1966), 147 Mont. 1, 14, 409 P.2d 813, 820 (quoting The Close Corporation, 52 Nw.U.L.Rev. 345 (1957)).

Due to their very nature, close corporations often utilize share transfer restrictions. Because ownership and management are so intimately related in such entities, shareholders in a closely held enterprise usually desire to retain the power to choose future associates. 2 O’Neal, supra, Section 7.02. This practice has long received judicial recognition. See e.g., Barrett v. King (1902), 181 Mass. 476, 63 N.E. 934, 935. This interest, however, must be balanced against the traditional right of free alienability of one’s personal property.

Consideration of these competing interests has led courts to sustain share transfer restrictions which are deemed reasonable in light of all the relevant circumstances, but to invalidate absolute restrictions forbidding the alienation of corporate stock. See e.g., Hill v. Warner, Berman & Spitz, P.A. (1984), 197 N.J.Super. 152, 484 A.2d 344, 350-51; Renberg v. Zarrow (Okla. 1983), 667 P.2d 465, 469; Fayard v. Fayard (Miss. 1974), 293 So.2d 421, 423; 2 O’Neal, supra, Section 7.06.

Against this backdrop, appellant now challenges the restrictions imposed by the Buy-Sell Agreement. He concedes the reasonableness of the provisions contained within paragraph (5) of the Agreement, restricting the sale or transfer of corporate stock without first giving the corporation and then the remaining shareholders an opportunity to purchase the stock. Appellant, however, contests the consent restriction found in paragraph (1), requiring prior approval from the corporation and the other shareholders before a shareholder may attempt to dispose of his or her stock. Such a restriction, appellant contends, constitutes in effect an absolute restriction upon his right of alienability.

In upholding the consent restriction, the District Court stated in its findings of fact, from which no appeal has been taken, the following:

“The corporation is a small, closely held corporation consisting of family members. To further the purpose of keeping the shares of stock in a closely held group, the parties agreed as follows in paragraph 1 of the Buy-Sell Agreement:
“ T. So long as all of the STOCKHOLDERS are alive, they each shall not encumber or dispose of the stock of the CORPORATION which he or she now owns or may hereafter acquire without the written consent of the remaining STOCKHOLDERS and that of the CORPORATION.’ ”

The court made further reference to the provisions of the Agreement which specified the manner in which stock would be offered and purchased. The District Court further found:

“2. The operations of the corporation consist predominantly of farming and ranching. The shareholders and board of directors are the major contributors to the operations and the operations are consistent with the corporation’s Articles of Incorporation and ByLaws. The intent of the parties at the time of entering into the Buy-Sell Agreement was to prohibit the entrance of third parties into the closely held corporation frame work.”

Based upon its findings, the court concluded that Section 35-1-617(3), MCA, provided for the restrictions on transfer and that the restrictions in paragraph 1 of the Agreement met the statutory requirements. Section 35-1-617, MCA, in pertinent part provides:

“(1) A written restriction on the transfer or registration of transfer of shares of a corporation, if permitted by this section and noted conspicuously on the certificate representing such shares, may be enforced against the holder of the restricted shares or any successor or transferee of the holder . . .
“(3) A restriction on the transfer of shares of a corporation is permitted by this section if it:
“(a) obligates the holder of the restricted shares to offer to the corporation, to any other holders of shares of the corporation, to any other person, or to any combination of the foregoing a prior opportunity, to be exercised within a reasonable time, to acquire the restricted shares;
“(b) obligates the corporation, any holder of shares of the corporation, any other person, or any combination of the foregoing to purchase the shares which are the subject of an agreement respecting the purchase and sale of the restricted shares;
“(c) requires the corporation or the holder of any class of shares of the corporation to consent to any proposed transfer of the restricted shares or to approve the proposed transferee of the restricted shares[.]”

Appellant argues that the effect of the District Court opinion is to permanently prohibit the sale of stock. That is not consistent with the wording of the Agreement itself. In paragraph (1) the Agreement stated that so long as all of the stockholders are alive, they each shall not encumber or dispose of the stock of the corporation without the written consent of the remaining stockholders and that of the corporation. The term of this provision is so long as the initial five stockholders are alive. That of course does not constitute a perpetual limit on the right of sale and on its face is not unreasonable.

The argument is made that because Section 35-1-617, MCA, was not enacted until 1981, which was three years after the execution of the Buy-Sell Agreement, the statute cannot be retroactively applied. The theory of retroactivity is not appropriate in the present instance as we are not attempting to apply a statute to a contractual action which took place prior to the enactment of the statute and which is somehow adversely affected by the statute itself. In the present case, all five of the stockholders freely executed the Buy-Sell Agreement. By that action they established restrictions on their individual rights of transfer of the shares. Subsequently, the legislature enacted Section 35-1-617, MCA, which specifically provided for the enforcement of various types of restrictions on the transfer of shares of corporations. We conclude that the statutory provisions merely demonstrate legislative approval of the action previously taken by the stockholders. As a result, we conclude that the statutory provisions of Section 35-1-617, MCA, can properly be applied to the Buy-Sell Agreement without a question of improper retroactivity.

We agree with the conclusion of the District Court that the Buy-Sell Agreement provision was proper under the provisions of Section 35-l-617(3)(c), MCA. The appellant has failed to submit any theory which demonstrates a reason for finding the Buy-Sell Agreement improper or unconstitutional. We note that other jurisdictions have tested the validity of share transfer restrictions by determining whether or not the restrictions were reasonable in the light of all relevant circumstances. 2 O’Neal, supra, Section 7.06. At 12 W. Fletcher, Cyclopedia of the Law of Private Corporations, Section 5461.3, (rev. perm. ed., 1985), the author points out that the underlying test for determining reasonableness is whether the restraint is sufficiently needed by the particular enterprise to justify overriding the general policy against restraints on alienation. We conclude that the findings of fact clearly demonstrate facts warranting the stock restriction and further conclude that the stock restriction is a reasonable method of meeting the requirements of the statute. We hold that the consent restraint contained in the Buy-Sell Agreement was valid and enforceable.

In sum, we find that the share transfer restrictions contained within the Buy-Sell Agreement are valid and enforceable. Accordingly, the corporation had no obligation to appoint an independent appraiser and appellant’s petition should have been dismissed. The result reached below is therefore affirmed.

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


text:
    AUDIT SERVICES, INC., Plaintiff and Respondent, v. GARY HOUSEMAN and Gary Ingram, d/b/a G & G Housing, Defendants and Appellants.
    No. 86-509.
    Submitted on Briefs Feb. 13, 1987.
    Decided May 15, 1987.
    737 P.2d 71.
    Cok & Wheat, Michael E. Wheat, Bozeman, for defendants and appellants.

      Cure, Borer & Davis, Dennis Tighe, Great Falls, for plaintiff and respondent.
   MR. CHIEF JUSTICE TURNAGE

delivered the Opinion of the Court.

Defendants appeal the August 15, 1986, order entered by the Fifth Judicial District Court, County of Jefferson, granting summary judgment in favor of plaintiff. We affirm.

Defendants Gary Houseman and Gary Ingram are partners in G & G Housing, a small general contracting business located in Whitehall, Montana. Plaintiff Audit Services, Inc. is the assignee of claims allegedly owed to Montana Carpenters Trust and Montana Laborers A.G.C. Trust by G & G Housing.

In early 1982, plans were underway for the construction of the Golden Sunlight Mine project near Whitehall. Commonwealth Construction Company was hired as general contractor for the project. Commonwealth entered into an agreement with the Southwest Montana Building Trades Council which required union benefits to he paid for all subcontractors’ employees working on the project. In April, 1982, Houseman attended a preconstruction meeting and discussed the various labor agreements with local union representatives.

G & G Housing was hired as a subcontractor on the project. On April 19, 1982, G & G Housing sent a letter of assent to Commonwealth agreeing to be bound by the terms of the project agreement. Houseman believed G & G Housing would be obligated to pay union benefits only for those G & G employees working on the Sunlight project. On behalf of G & G Housing, Ingram signed a compliance agreement with Carpenters Local Union No. 153 on April 27, 1982, and with Laborers Local Union No. 1334 on May 1, 1982. The compliance agreements provided that the employer agreed to be bound by the current and successive labor agreements including the union trust fund agreements. The carpenters’ union compliance agreement provided in bold print: “THIS IS NOT A ONE JOB AGREEMENT/’

G & G Housing worked on the Sunlight project from April, 1982, until February, 1983. G & G Housing paid union benefits for all of its employees working on the Sunlight project for the duration of the job. Following completion of the project, an audit of G & G Housing’s payroll records was conducted. Based on the audit results, the carpenters’ and laborers’ union trust fund auditor asserted a claim of $8,029 against G & G Housing for delinquent trust fund contributions.

G & G Housing’s trust fund contributions were based upon its understanding that such contributions were necessary only for hours worked by its employees on the Sunlight project. However, the compliance agreements and the applicable union collective bargaining and trust fund agreements required contributions by the employer for all employee hours worked statewide. G & G Housing and the two unions were unable to resolve their differences. The unions assigned their claim to Audit Services, Inc. which filed suit concerning the matter.

G & G Housing attempted to introduce parol evidence to show that it intended to be bound by the compliance agreements only for work done at the Sunlight Mine. Audit Services filed a motion for summary judgment contending case law and 29 U.S.C. Section 186(c)(5)(B) prohibited oral modification of written compliance agreements. Following briefing and oral argument, the District Court granted summary judgment in favor of Audit Services. G & G Housing appeals and raises the following issue:

1) Whether parol evidence is admissible to determine an employer’s intent in entering a union compliance agreement?

Audit Services filed this action pursuant to the Labor Management Relations Act, 29 U.S.C. Section 185, et seq. In a case between an employer and a labor organization filed under the Labor Management Relations Act state courts have concurrent jurisdiction with federal courts but must apply federal substantive law. Audit Services, Inc. v. Clark Brothers Contractors (Mont. 1982), 198 Mont. 274, 645 P.2d 953, 39 St.Rep. 928.

The District Court in its memorandum supporting summary judgment found federal and Montana case law to be clearly in opposition to G & G Housing’s contention that parol evidence is admissible in this case. We agree.

The compliance agreements signed by G & G Housing incorporated the current collective bargaining and union trust fund agreements which require union trust fund contributions from an employer, for all employee hours worked statewide. G & G Housing seeks to introduce evidence that it intended to be bound by the compliance agreements only in relation to the Sunlight project.

The applicable federal law is 29 U.S.C. Section 186(c)(5)(B), which requires the detailed basis on which payments are to be made to a trust to be specified in a written agreement with the employer. The leading case in the Ninth Circuit interpreting this provision is Waggoner v. Dallaire (9th Cir. 1981), 649 F.2d 1362.

In Waggoner, the defendant signed a short form collective bargaining agreement with the local union which incorporated by reference the terms of the master labor agreement including four employee benefit trusts. Defendant asserted he entered the collective bargaining agreement only upon the oral understanding that its trust benefit terms would not be enforced. The Ninth Circuit interpreted 29 U.S.C. Section 186(c) (5)(B), to prohibit oral modification of written trust fund contribution obligations.

The Waggoner court outlined the policy considerations underlying its decision:

“Section 302 of the LMRA, 29 U.S.C. Section 186 (1976), was enacted in response to serious Congressional concern over union corruption and alleged ‘shake-down’ and ‘kickback’ schemes involving union welfare funds .... a rule permitting oral modification of written trust arrangements would defeat the elaborate protection section 302 provides trust beneficiaries. Employees, basing their futures on the promise of an old-age pension provided in a union contract, may discover in later years to their surprise that an oral side-agreement had eroded the worth of their pension rights.” 649 F.2d 1366.

This Court relied on Waggoner in Audit Services, Inc. v. Harvey Bros. Construction (Mont. 1983), 204 Mont. 484, 665 P.2d 792, 40 St.Rep. 1019. In Harvey Bros., we addressed the same issue that is presently before the Court. Defendant Harvey Bros. Construction signed compliance agreements with local carpenter and labor unions which incorporated collective bargaining agreements requiring trust fund contributions. Defendant attempted to argue that the agreements were orally limited in scope to two construction projects. This Court held the parties to the terms of the agreements and stated: “To allow such oral modifications to stand would defeat the protections provided the trust beneficiaries by 29 U.S.C. Section 186(c)(5).” 665 P.2d 796, 40 St.Rep. 1024.

The case law cited by G & G Housing as favoring introduction of parol evidence is not persuasive. In Cappa v. Wiseman (N.D. Cal. 1979), 469 F.Supp. 437, the court permitted parol evidence to aid in interpretation of an ambiguous collective bargaining agreement. However, the court also noted that national labor policy requires some form of writing in some circumstances; “Moreover, agreements which provide for pension fund contributions by an employer must be committed to writing. 29 U.S.C. Section 186(c)(5)(B).” 469 F.Supp. 442, n.8.

In Operating Engineers Pension Trust v. Gilliam (9th Cir. 1984), 737 F.2d 1501, the Ninth Circuit permitted oral evidence concerning whether the employer intended to enter a collective bargaining agreement. However, the court distinguished Gilliam from cases such as Waggoner where the employer recognized he had entered into a collective bargaining agreement but later argued oral modification of the agreement. 737 F.2d 1505.

The cases decided by the Ninth Circuit under 29 U.S.C. Section 186(c)(5)(B), clearly hold that parol evidence is not admissible to modify benefit trust provisions in collective bargaining agreements. See also Operating Engineers Pension Trust v. Beck Engineering and Surveying (9th Cir. 1984), 746 F.2d 557; Maxwell v. Lucky Construction Company, Inc. (9th Cir. 1983), 710 F.2d 1395. In the present case, plaintiff Audit Services, Inc. is entitled to judgment as a matter of law.

The District Court is affirmed.

MR. JUSTICES HARRISON, WEBER, SHEEHY, GULBRANDSON and HUNT concur.