author: JUSTICE WEBER

text:
    DAVID HARMON, Petitioner and Appellant, v. VERN D. HARMON, Employer, and STATE COMPENSATION MUTUAL INSURANCE FUND, Defendant and Respondent.
    No. 91-041.
    Submitted on briefs May 24, 1991.
    Decided July 30, 1991.
    249 Mont. 387.
    816 P.2d 1032.

      See also 220 Mont. 445, 716 P.2d 605.
    Michael G. Eiselein, Lynaugh, Fitzgerald, Eiselein & Eakin, Billings, for petitioner and appellant.
    Chris Mangen, Jr., Crowley, Haughey, Hanson, Toole & Dietrich, Billings, for defendant and respondent.
   JUSTICE WEBER

delivered the Opinion of the Court.

The claimant, Mr. David Harmon (Mr. Harmon), filed a petition in the Workers’ Compensation Court under § 39-71-2905, MCA, to resolve a dispute with the insurer, State Compensation Mutual Insurance Fund (State Fund). Following a hearing before hearing examiner Robert J. Campbell, the Workers’ Compensation Court found that claimant had not proved by a preponderance of the evidence that he was permanently totally disabled as defined in § 39-71-702, MCA, as a result of a September 18, 1979 injury in an industrial accident. Mr. Harmon appeals. We reverse and remand for farther proceedings consistent with this opinion.

The dispositive issues as restated are:

1. Is there substantial credible evidence to support the conclusion that Mr. Harmon’s current condition is not the result of the 1979 accident?

2. Did the Workers’ Compensation Court err when it found that Mr. Harmon had failed to prove that he is permanently totally disabled?

At the time of trial, Mr. Harmon was a 47 year old married man with three children, two of whom still live at home. Mr. Harmon worked as a ranch hand for his father, Vem Harmon, near Lavina, Montana. He also worked a small ranch of his own. On September 18,1979, Mr. Harmon was baling hay on his father’s ranch. The haler was not tying knots properly and when Mr. Harmon attempted to correct the problem the baling twine wrapped around the end of his right index finger. To prevent his arm from being pulled into the baler, Mr. Harmon jerked back and stripped the soft tissue off the end of his index finger. The jerking action also injured his elbow and shoulder. That evening a portion of his right index finger was amputated midway between the first and second joints. Approximately four months after the accident Mr. Harmon went to see Dr. Huard and Dr. Daniels about the continuing pain in his shoulder. Mr. Harmon’s shoulder was diagnosed as a rotater cuff tear. Over the next five months Dr. Huard and Dr. Daniels treated Mr. Harmon with Cortisone shots for his shoulder injury. On April 9, 1982, Mr. Harmon received a “Holton” award of $5,370.00 based on a 14 percent whole man impairment rating. While the shots gave temporary relief, the pain became progressively worse with time.

On December 6, 1984, Mr. Harmon suffered another injury while doctoring a 900 pound bull for his father. The bull charged him, hitting him in the mid-section. The rope was wrapped around his right hand and the bull jerked him violently along for approximately 8 feet. Mr. Harmon’s back and neck were severely injured in this accident which ultimately resulted in the determination that Mr. Harmon was permanently totally disabled as a ranch hand. Mr. Hannon’s shoulder also became more painful for a period of time after the accident. The treating physician, Dr. Lovitt, testified that it was normal to have pain in the shoulders in back injuries such as that experienced by Mr. Harmon and thus his main concern was the back and not the shoulders. He agreed with the diagnosis by Dr. Huard and Dr. Daniels that Mr. Harmon was suffering from a rotator cuff tear and that the back injury caused the pain in the shoulders to be more acute for a period of time following the accident.

Following counseling with Mr. Chet Dever, vocational rehabilitation counselor for Crawford Rehabilitation Services, Mr. Harmon was retrained as a taxidermist in 1987. Mr. Harmon’s shoulder continued to cause discomfort and on May 15, 1988, Dr. Lovitt performed a manipulation procedure under anesthesia to loosen Mr. Harmon’s shoulder joint. Dr. Lovitt testified that this procedure along with physical therapy exercises was expected to relieve Mr. Harmon of some of the pain to the point that he could live with it and continue his work as a taxidermist.

Three days later on May 18, 1988, the Workers’ Compensation Division approved a full and final settlement for a lump sum of $30,000.00 for injuries resulting from the 1984 accident. The settlement acknowledged that Mr. Harmon may require future surgery for the rotator cuff injury and reserved future medical and hospital benefits for the 1984 injuries.

Mr. Harmon suffered two heart attacks in the months following the manipulation procedure and the full and final settlement. The heart attacks postponed further physical therapy exercises for the shoulder injury. Until March 6, 1989, Dr. Lovitt’s medical records continued to reflect the belief that Mr. Harmon’s shoulder condition was caused by a rotator cuff tear. At that time Dr. Lovitt performed a special X-ray examination which revealed for the first time Mr. Harmon was actually suffering from a degenerative condition known as glenohumeral arthritis. At that time Dr. Lovitt stated in his medical records that he suspected that sometime in the future Mr. Harmon would need a total shoulder replacement. Dr. Lovitt testified that glenohumeral arthritis takes years to develop to the stage that Mr. Harmon’s condition was in at the time of trial and that the 1984 accident was too recent to be the cause. Therefore Dr. Lovitt concluded that the glenohumeral arthritis was caused by the 1979 accident.

On April 5, 1989, Dr. Lovitt referred Mr. Harmon to Dr. Thomas Johnson who testified that he agreed with Dr. Lovitt’s diagnosis. When questioned about the cause of the arthritic condition, Dr. Johnson testified that he did not look into the cause and that the cause was not of concern to him. Upon further questioning, Dr. Johnson testified that he did not have enough information about the accidents and therefore he had no way of knowing which accident caused the injury.

In light of the new diagnosis, Mr. Harmon sought benefits through State Fund. Mediation was held on July 11, 1989 in an attempt to resolve the dispute between Mr. Harmon and State Fund. When mediation failed to provide a solution, Mr. Harmon filed this petition pursuant to § 39-71-2905, MCA, to resolve the dispute.

I

Is there substantial credible evidence to support the Workers’ Compensation Court’s conclusion that Mr. Harmon’s current condition is not the result of the 1979 accident?

The standard to be applied is whether substantial credible evidence exists to support the Workers’ Compensation Court’s findings of fact. As stated in Lakey v. Kerrian’s (1987), 228 Mont. 139, 141, 741 P.2d 416, 417, this Court will not substitute its judgment for that of the Workers’ Compensation Court where there is substantial evidence to support that court’s findings of fact. The parties submitted several proposed issues to the hearing examiner for determination. Prior to trial the hearing examiner determined that the following issues would be determined by the Court:

“1. Whether or not claimant’s current condition is a result of his 1979 injury.
“2. Whether the claimant is permanently totally disabled as a result of his 1979 injury.
“3. Whether the claimant is permanently partially disabled under § 39-71-703, MCA, as a result of his 1979 injury.
“(Mr. Harmon’s counsel moved to withdraw the issue of permanent partial disability benefits at this time and State Fund agreed that it could be addressed in a later proceeding.)
“4. Whether claimant is entitled to a 20 percent penalty pursuant to § 39-71-2907, MCA.
“5. Whether claimant is entitled to his costs and attorney fees.”

The Workers’ Compensation Court did not specifically determine whether the current condition of Mr. Harmon’s shoulder was the result of the 1979 accident. Instead, the court stated in its judgment that the claimant had not met the burden of proving his September 18, 1979 right index finger injury resulted in his being permanently totally disabled. This statement is incorrect because it does not address the issue as presented and argued by the parties. The condition at issue is the shoulder injury and not the right index finger injury. Mr. Harmon did not argue or attempt to prove that his current disability is due to the right index finger injury. As presented to the Workers’ Compensation Court, the basic issue was whether the injury to Mr. Harmon’s shoulder was related to the 1979 accident or to the 1984 accident.

In its conclusions of law, the Workers’ Compensation Court made the following factual determination:

“Claimant’s position is that the September 18, 1979 injury to his right index finger also injured his right shoulder which has increased in pain to a point that he is permanently totally injured (sic) as a result of that injury. However, from the testimony of the claimant and the medical evidence, it is clear that his shoulder became substantially more painful after claimant’s December 6,1984 injury in which a bull struck him in the mid-section and pulled him by the right arm for 8-9 feet.
“There is no question that claimant was aware of his shoulder injury when he petitioned for a settlement of his December 6, 1984 claim. The medical testimony concerning the present condition of his right shoulder establishes a long term arthritic condition that was accelerated by his 1984 injury. What ever (sic) symptoms he may have felt prior to that time cannot by medical testimony, be found to be the result of the 1979 injury to his right index finger.”

This factual determination is not supported in the record by substantial credible evidence. The primary care physician, Dr. Lovitt, testified that glenohumeral arthritis is a degenerative condition that takes years to manifest itself to the stage that Mr. Harmon’s shoulder was in at the time of trial. The Workers’ Compensation Court based its conclusion that Mr. Harmon could not relate his current condition back to 1979 on Dr. Johnson’s testimony that he had no way of knowing whether the claimant’s 1979 injury or his 1984 injury caused his shoulder impairment more than the other. However, this statement by Dr. Johnson followed testimony that he did not look into the cause of Mr. Harmon’s condition, that his primary concern was to treat the condition, and that he did not have sufficient facts on the two accidents to make such a determination. In considering all the medical testimony as a whole, the statement by Dr. Johnson that he could not relate the condition to the specific accident does not rise to the level of substantial evidence to support the Workers’ Compensation Court’s conclusion that Mr. Harmon did not meet his burden of proof that the shoulder injury was caused by the 1979 accident. We conclude that the medical evidence establishes Mr. Harmon’s shoulder condition was caused by the 1979 accident. Therefore we hold that the Workers’ Compensation Court’s conclusion that Mr. Harmon’s current condition was not the result of the 1979 accident is not supported by substantial credible evidence.

State Fund argues that it does not matter if the 1979 accident originally caused the shoulder injury because the evidence indicates that the shoulder injury was aggravated by the 1984 accident and therefore the full and final settlement for the 1984 accident fully compensated Mr. Harmon for his shoulder injuries. This argument is not persuasive. As we have already concluded, the medical evidence establishes Mr. Harmon’s shoulder injury was caused by the 1979 accident. At that point the burden shifted to State Fund to prove that Mr. Harmon’s shoulder had reached maximum healing before the 1984 accident. Belton v. Carlson Transport (1983), 202 Mont. 384, 389-90, 658 P.2d 405, 408. The record does not contain any medical evidence to establish that Mr. Harmon’s shoulder had reached maximum healing prior to 1984.

II

Did the Workers’ Compensation Court err when it found that Mr. Harmon had failed to prove he is permanently totally disabled?

Section 39-71-116(13), MCA (1979), defines permanent total disability as:

“ ‘Permanent total disability’ means a condition resulting from injury as defined in this chapter that results in the loss of actual earnings or earning capacity that exists after the injured worker is as far restored as the permanent character of the injuries will permit and which results in the worker having no reasonable prospect of finding regular employment of any kind in the normal labor market.” The hearing examiner determined that Mr. Harmon had failed to meet the second requirement of § 39-71-116(13), MCA, to establish that he has a total loss of actual earnings or earning capacity as a result of his shoulder injury. The court stated:
“There is no question that claimant was aware of his shoulder injury when he petitioned for a settlement of his December 6, 1984 claim. The medical testimony concerning the present condition of his right shoulder establishes a long term arthritic condition that was accelerated by his 1984 injury...”

The record does not support a factual determination that the long term arthritic condition was accelerated by the 1984 injury. It is clear from the record that prior to 1989 neither the doctors, the parties, nor the Workers’ Compensation Court knew that Mr. Harmon’s shoulder condition was caused by degenerative glenohumeral arthritis, and therefore the claimant and the State Fund both were not aware of the nature and extent of Mr. Harmon’s shoulder injury when he was retrained as a taxidermist and when the full and final settlement was signed. The medical testimony established that the long term arthritic condition was not diagnosed for almost a year after the settlement and two years after retraining.

Chet Dever, the vocational rehabilitation counselor who handled Mr. Harmon’s retraining claim, testified that he is of the opinion that Mr. Harmon is capable of earning money as a taxidermist at this time. Mr. Harmon testified that he is optimistic that he will eventually be able to continue as a taxidermist. Mr. Dever testified that his projections indicate that in ten years Mr. Harmon will be grossing in excess of $50,000.00 per year. Mr. Harmon voiced this same expectation.

However, Dr. Lovitt testified that the range of motion of Mr. Harmon’s right arm due to the shoulder’s arthritic condition is limited to 60 degrees of external rotation, 45 degrees of internal rotation, and 90 degrees of abduction, which in layman’s terms is about eight o’clock forward, backwards, and out from the body. This limited motion prevents Mr. Harmon from lifting his arm high enough to pull, stretch, and sew animal skins onto the forms. Dr. Lovitt is personally familiar with the profession of taxidermy and all that the work entails. Mr. Harmon admitted that he had to depend on volunteer help to stretch and sew the animal skins on the forms because he could not lift his right arm high enough to reach around the forms.

Mr. Mark Schwager, rehabilitation counselor employed by National Rehabilitation Consultants, testified that based on his study in his opinion Mr. Harmon is totally unemployable. Mr. Schwager reviewed the depositions and medical records of Dr. Lovitt and Dr. Johnson. He interviewed and observed several taxidermists at work, including the taxidermist who operates the only taxidermy school in Montana and who had trained Mr. Harmon. Mr. Schwager also considered the Vocational Diagnostic Assessment of Residual Employability in light of Mr. Harmon’s vocational history and medical information. Mr. Schwager concluded that Mr. Harmon’s limited shoulder motion prevents Mr. Harmon from pursuing his goal to continue as a taxidermist. Mr. Schwager testified to the stiff competition among Montana taxidermists, and stated that leading Montana taxidermists with national reputations are fortunate to make $20,000.00 per year. Therefore Mr. Schwager concluded Mr. Dever’s and Mr. Harmon’s expectations of an eventual income of $50,000.00 a year were unrealistic. The hearing examiner found that Mr. Schwager’s testimony was not credible because Mr. Schwager had not personally observed Mr. Harmon working in his shop. However, on remand Mr. Schwager’s testimony warrants consideration in light of the medical testimony and the extent of Mr. Schwager’s professional investigation.

Mr. Harmon testified that in 1988 he made a “couple of hundred dollars” and in 1989 he made $826.00. With the help of volunteers doing the heavier work he expected to gross about $6,000.00 in 1990. Mr. Dever testified that these figures are consistent with his projections and that as Mr. Harmon’s reputation increased his income would increase.

Dr. Lovitt provides insight into Mr. Harmon’s optimistic point of view by stating that Mr. Harmon is a

“hard-driving, hard-working type person that really doesn’t consider himself to have the time to give in to lesser aches and pains. And we frequently see ranchers like this working themselves into a rather significant pickle because they don’t have the time for — you know, they consider their job and their ranch and so forth more important and they are supporting their family, more important than these what they would consider lesser aches and pains that may not be lesser [and who] obviously the way he has handled his back is certainly not a pain-prone guy. He is nobody’s sissy or wimp, you know. And these guys can tend to play down things for whatever reason...”

In light of all the testimony, we conclude that there is substantial evidence to establish that Mr. Harmon has become permanently disabled due to the arthritic condition of his shoulder. We conclude that the Workers’ Compensation Court erred when it found that Mr. Harmon had failed to prove that he is permanently disabled. However, because the Workers’ Compensation Court based its determination on the premise that Mr. Harmon could not relate the injury to the 1979 accident and because the court reserved the question of permanent partial disability, we remand this case back to the Workers’ Compensation Court for further proceedings consistent with this opinion to determine whether Mr. Harmon’s permanent disability is partial or total in nature. The Workers’ Compensation Court may properly hold additional hearings or admit additional evidence as needed to determine the issues before the court on remand.

Reversed and remanded.

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


source: Caselaw Access Project

author: JUSTICE TRIEWEILER

license: Public Domain

text:
    RONALD F. HILBIG, Claimant and Respondent, v. CENTRAL GLASS COMPANY, Employer, and STATE COMPENSATION INSURANCE FUND, Defendant and Appellant.
    No. 90-296.
    Submitted on briefs March 28, 1991.
    Decided August 1, 1991.
    249 Mont. 396.
    816 P.2d 1037.

      Marc Racicot, Atty. Gen., R. Scott Currey, James Scheier, Agency Legal Services Bureau, Helena, for defendant and appellant.
    R. V. Bottomly, Great Falls, for claimant and respondent.
   JUSTICE TRIEWEILER

delivered the opinion of the Court.

This is an appeal from the Workers’ Compensation Court’s order awarding attorney fees to the claimant based upon his recovery of benefits for domiciliary care. We affirm in part and remand to the Workers’ Compensation Court for further consideration.

The issues are:

1. Did the Workers’ Compensation Court err in awarding attorney fees to the claimant based upon his recovery of benefits for domiciliary care?

2. If the claimant was entitled to an award of attorney fees, what was the proper rate of payment?

The claimant was injured on November 17,1983, during the course of his employment with Central Glass Company when he fell from the scaffolding on which he was working and sustained severe head injuries. The defendant, State Compensation Insurance Fund, insured Central Glass Company against workers’ compensation claims at the time of claimant’s injury.

After some initial disagreement, the State Fund conceded that the claimant was totally disabled and has paid him permanent total disability benefits. However, a dispute arose over the claimant’s entitlement to a lump sum advance of his benefits, and a petition was filed on the claimant’s behalf on July 18, 1986. During the course of those proceedings, and based upon evaluations of the claimant by a clinical psychologist, a neurologist, and a home health care nurse, the claimant also made a claim for 24-hour-a-day domiciliary care. That claim was denied by the defendant.

The claimant’s case went to trial before the Workers’ Compensation Court on January 26,1987. On June 20,1988, that court entered its judgment denying the claimant’s claim for a lump stun advance of benefits, but awarding the claimant benefits for domiciliary care during the period of time from December 18, 1986, through April 8, 1987. Although the court, at that time, found that the claimant’s condition was “not improving but was likely to decline” and that home health care services “are necessary and an essential component of claimant’s care,” no provision was made for the payment of benefits for home health care beyond April 8, 1987.

That judgment by the Workers’ Compensation Court was appealed by the claimant to this Court. On August 11, 1989, we issued our decision affirming the trial court’s denial of the claimant’s claim for a lump sum advance and remanding this case to the Workers’ Compensation Court for further consideration of the claimant’s entitlement to benefits for domiciliary care after April 8, 1987, and in the future. Hilbig v. Central Glass Co. (1989), 238 Mont. 375, 777 P.2d 1296.

On remand, without the benefit of or need for further evidence, and based upon the record from the prior proceeding, the trial court entered summary judgment for the claimant; ordered the defendant to pay the claimant’s wife $7.50 an horn, 24 horn’s a day, from April 8,1987; and also ordered the defendant to pay for the claimant’s health club membership, which it found to be necessary for the claimant’s further therapy and treatment. The claimant was awarded attorney fees pursuant to § 39-71-612, MCA (1983).

The Workers’ Compensation Court found that the claimant’s award of benefits for domiciliary care subsequent to April 8, 1987, resulted from this Court’s decision, and ordered the defendant to pay the claimant’s attorney fees in an amount equal to 40 percent of the value of benefits for domiciliary care due from the defendant after April 8, 1987.

On appeal, the defendant argues that it has voluntarily paid benefits to the claimant for domiciliary care; the recovery of those benefits did not result from a decision of the Montana Supreme Court, nor the Workers’ Compensation Court; and therefore, the claimant is not entitled to an award of attorney fees. In the alternative, the defendant argues that if the claimant is entitled to an award of attorney fees, then that award should be limited to the 25 percent rate which is provided for in the claimant’s attorney fee agreement in those cases which have not gone to hearing.

In order to address the issues raised by the defendant, it is first necessary to set forth the rules that pertain to the recovery of attorney fees in this case.

The claimant was injured on November 17, 1983, and the statute which was in effect on the date of his injury determines the attorney fees to which he is entitled. Cuellar v. Northland Steel (1987), 226 Mont. 428, 736 P.2d 130. That statute is § 39-71-612, MCA (1983). It provided in relevant part as follows:

“1. If an employer or insurer pays or tenders payment of compensation under chapter 71 or 72 of this title, but controversy relates to the amount of compensation due and the settlement or award is greater than the amount paid or tendered by the employer or insurer, a reasonable attorney’s fee as established by the division or the workers’ compensation judge if the case has gone to a hearing, based solely upon the difference between the amount settled for or awarded and the amount tendered or paid, may be awarded in addition to the amount of compensation.”

In Wight v. Hughes Livestock Company, Inc. (1983), 204 Mont. 98, 664 P.2d 303, we held that the purpose of the aforementioned statute was to provide a “net recovery of compensation benefits” to the claimant and that therefore, there would be a “strong presumption” that fees to successful claimants should be based upon their contracted-for obligation with their attorney. In this case, the claimant’s fee agreement with his attorney provided that he would pay him at the following rates:

“(a) For cases which have not gone to hearing before the Workers’ Compensation Court, TWENTY-FIVE PERCENT (25%) of the amount of benefits the claimant receives due to the efforts of the attorney;
“(b) For cases which go to a hearing before the Workers’ Compensation Judge, THIRTY-THREE PERCENT (33%) of the amount of benefits the Client receives from an order of the Workers’ Compensation Judge;
“(c) For cases which are appealed to the Montana Supreme Court, FORTY PERCENT (40%) of the amount of benefits the Client receives based on the Order of the Supreme Court.”

In this case, the defendant argues that because it offered to pay a portion of the domiciliary benefits that claimant was eventually awarded after the trial but before the trial court’s judgment was actually entered, the claimant is not entitled to an award of attorney fees at all. The defendant’s position requires an analysis of the following sub-issues:

1. Whether the tender or payment of workers’ compensation benefits after trial but before judgment is entered can preclude a claim for attorney fees;

2. Whether a mere “offer” without actual payment serves any purpose under § 39-71-612, MCA (1983); and

3. What, if any, domiciliary benefits had been paid by the defendant to the claimant prior to this Court’s decision on August 11, 1989.

FACTUAL BACKGROUND

This case went to trial on January 26, 1987. It is clear from the pretrial order and the proposed judgments filed by both parties that the claimant’s entitlement to benefits for domiciliary care was an issue at the time of trial and the defendant denied any liability for those benefits.

One of the issues set forth in the pretrial order was as follows:

“6. Whether the State Fund has paid all medical expenses of which payment is required pursuant to Section 39-71-704, MCA.”

In a brief filed two and one-half months after trial, the defendant acknowledged that the issue regarding medical expenses was based on the claimant’s contention that he was entitled to benefits for past and future domiciliary health care pursuant to our decisions in Carlson v. Cain (1985), 216 Mont. 129, 700 P.2d 607, and Larson v. Squire Shops, Inc. (1987), 228 Mont. 377, 742 P.2d 1003. The State Fund also acknowledged that at the time of trial the claimant sought compensation for a health care attendant while his wife was at work, and payment for his wife’s services during the remaining hours of the day while she attended to his needs.

On April 8, 1987, the defendant wrote to the claimant’s attorney and offered to pay for a home health care attendant while the claimant’s wife was at work, and also offered to pay someone to occasionally substitute for the claimant’s wife so that she could take a periodic break from the care that she provided to her husband 16 hours a day during the week and 24 hours a day on weekends. The defendant’s offer was for a temporary trial period and did not include 24-hour-a-day service as had been demanded by the claimant. The claimant responded that the offer was inadequate and that he would not drop his claim based on the offer, but would welcome immediate payment of any amount. (Payment to a third party for eight hours per day of care was commenced on July 1, 1987.)

On the basis of that offer, the defendant asked the Workers’ Compensation Court to conclude that future home health care was no longer an issue. However, the court refused to do so. In that motion, the defendant acknowledged that the pretrial order issue regarding medical services was based on the claimant’s claim that “his wife should be paid for providing domiciliary care services the remaining 16 hours a day every day and during weekends.”

The State Fund then concluded, and still contends, that its offer to pay a professional attendant eight hours a day somehow eliminated the issue of whether claimant’s wife was entitled to payment for her services during the remaining 16 hours of every day and for the 24 hours of service she provided during vacation time, weekends, and holidays. At that time, the only testimony on the subject of home health care had come from Shelly Oksness, a nurse; Dennis W. Dietrich, M.D., a neurologist; and Edward Shubat, Ph.D., a clinical psychologist. All were of the opinion that the claimant needed an attendant to assist him in caring for himself on a 24-hour-a-day basis.

On May 5, 1987, the Workers’ Compensation Court denied the defendant’s motion, and ruled that whether or not the claimant was entitled to future domiciliary care depended on the evidence that had been presented at the time of trial and through subsequent depositions.

On May 18,1987, the defendant filed its Proposed Findings of Fact, Conclusions of Law, and Order. It is clear from those proposals that the defendant was still contending in court that it owed the claimant nothing for domiciliary care. In its proposed order, the defendant asked the court to find that Kathleen Hilbig did not meet the factors set out in Larson, supra, for payment of domiciliary care to a family member, and that the claim for payment for her services should be denied.

In his Proposed Findings, Conclusions, and Order, the claimant proposed that the court find that his wife was providing necessary home health services; that she was qualified by education and training to do so; and that she was entitled to be reimbursed for her past and future services at the rate of $7.50 an hour for 16 hours a day on those days that she worked outside the home, and for 24 hours a day on weekends, holidays, and during vacations.

In its Findings, Conclusions, and Judgment, which were entered on June 20,1988, the trial court found that the claimant’s severe head injury had resulted in an organic brain syndrome which left him permanently totally disabled and unable to care for himself. The court found that the claimant’s condition was not improving, but was likely to decline, and that as a result of his injury he experienced uncontrolled seizures, memory loss, lack of judgment, and an inability to handle daily situations.

Based upon these findings, the trial court found that home health care services were a necessary element of the claimant’s health care, and that someone should be with him 24 hours a day. The court went on to find that Kathleen Hilbig, the claimant’s wife, was qualified by her education and training to provide home health care, and that the claimant should be compensated for domiciliary care at the rate of $7.50 per hour, 24 hours a day, from December 18, 1986, until April 8, 1987.

In spite of the above findings, the Workers’ Compensation Court made no provision for payment for home health care or domiciliary benefits after April 8, 1987.

The claimant petitioned the Workers’ Compensation Court to revise its order by providing payment for domiciliary care so long as it was necessary. However, in a brief filed in the Workers’ Compensation Court on July 8, 1988, the defendant continued to oppose the claimant’s request and suggested that the court require the claimant to file a new petition for any future benefits related to domiciliary care. The claimant’s post-trial petition was denied.

The trial court’s denial of the claimant’s post-trial petition was appealed to this Court. It was pursuant to that appeal that this case was remanded to the Workers’ Compensation Court for further consideration of the claimant’s entitlement to benefits for home health care beyond April 8, 1987. Hilbig, 777 P.2d 1296. In our opinion, we pointed out the Workers’ Compensation Court’s conclusion that:

“The defendant State Fund has acknowledged claimant’s entitlement of domiciliary benefits of $7.50 per horn" for eight hours a day to claimant’s wife, beginning April 8,1987, but not before that date.”

We pointed out that “[n]o other justification appears in the court’s order why home health care benefits were limited to a four month period or the need for future domiciliary care.”

We recognized the claimant’s post-trial petition and its denial, but concluded that “[i]t is not clear from the court’s findings why it placed this cutoff date on benefits payable to Mrs. Hilbig.”

It was for these reasons that we remanded this case to the Workers’ Compensation Court to conduct whatever additional proceedings were necessary to determine the claimant’s entitlement to domiciliary care after April 8, 1987.

Upon remand, and after considering our decision, the Workers’ Compensation Court concluded that no further hearing was necessary. No additional evidence was offered by the parties, and none was requested by the court.

Instead, both parties filed motions for summary judgment.

The defendant’s motion was based upon its contention that on July 1,1987, it began paying a third party to provide day care to the claimant on an eight hour per day basis, and that in March 1989 it authorized payment to Mrs. Hilbig at the rate of $7.50 per hour for the care that she provided. (However, payment of that amount to Mrs. Hilbig was conditioned on a stipulation by the claimant that the issue of home health care was moot and need not be considered as part of the Supreme Court appeal. It is not clear what, if anything, was paid to Mrs. Hilbig for her services prior to this Court’s decision on August 11, 1989.)

Interestingly, in its brief in support of its motion for summary judgment, the defendant pointed out to the trial court that Dr. Dennis Dietrich, who testified on February 27,1987, and Dr. Edward Shubat, who testified on January 20, 1987, were both of the opinion that claimant needed 24-hour-a-day care. However, the defendant then pointed out that on the basis of those opinions it agreed to pay for home health care on an eight-hour-a-day basis.

The claimant also moved for summary judgment. The claimant’s motion was granted and the defendant’s motion was denied.

In its order granting the claimant’s motion for summary judgment, the Workers’ Compensation Court concluded that the claimant had prevailed before the Workers’ Compensation Court and before the Montana Supreme Court, and indicated that its reconsideration of the claimant’s entitlement to benefits for domiciliary care beyond April 8,1987, was a direct result of this Court’s instructions that that issue be reconsidered. The Workers’ Compensation Court ordered that the defendant pay Mrs. Hilbig $7.50 an hour for 24 hours a day from April 8, 1987, so long as domiciliary care was necessary, and furthermore, that the defendant pay for the claimant’s health club membership.

In spite of the defendant’s protestations to the trial court and to this Court that it had voluntarily paid those benefits which were ultimately ordered by the Workers’ Compensation Court, it apparently refused to do so even after the trial court’s order granting the claimant summary judgment.

That order was entered on January 17, 1990. Over eight months later, on September 27, 1990, the claimant filed an application for a writ of execution with the Workers’ Compensation Court. In the affidavit in support of that application, the claimant’s attorney indicated that payment for Kathleen Hilbig’s services was first received on August 8,1990, and that even then the State Fund paid substantially less than it was ordered to pay by the Workers’ Compensation Court. Pursuant to that application, a writ of execution was issued by the Workers’ Compensation Court, and subsequently, the balance owed by the State Fund, pursuant to the Workers’ Compensation Court’s decision and judgment, was apparently paid.

The point of this long recitation of facts is simply this:

1. Even though the need for 24-hour-a-day domiciliary care was documented and demand for payment of those benefits made, payment was neither offered, tendered, nor made prior to the original trial on January 26, 1987.

2. Even after trial and the -undisputed testimony of three health care providers that domiciliary care was necessary for the claimant on a 24-hour-a-day basis, the defendant still only offered to pay on an eight-hour-a-day basis, and then made every effort to have the claimant’s petition for payment of the balance due dismissed.

3. Long after this case was tried, appealed, remanded, and summary judgment on remand was entered, the defendant still refused to pay the full amount that it had been ordered to pay to the claimant for his wife’s services. That amount was only paid after a writ of execution was ordered. That writ of execution could not have been issued had the Workers’ Compensation Court not re-assumed jurisdiction over this matter, based upon the remand of this case by this Court.

4. There is every indication that the defendant would not have voluntarily paid for future domiciliary care provided by Mrs. Hilbig had it not been ordered to do so by the Workers’ Compensation Court after remand from this Court.

I.

The first issue is whether the defendant’s partial offer, tender, or payment of the benefits which were ultimately adjudged due enables it to avoid an obligation for payment of the claimant’s attorney fees, even though those benefits were tendered after trial. We conclude that it does not. This issue was decided in McKinley v. Am. Dental Mfg. Co. (1988), 232 Mont. 92, 754 P.2d 831.

In the McKinley case, we held that an “offer” made the day before a pretrial conference, and less than one week before the scheduled hearing date, could not be used to reduce the amount of the attorney fee recoverable by a successful claimant under § 39-71-612, MCA (1983). We stated:

‘We conclude, however, that use of the eve-of-trial $40,940 figure would not result in a ‘reasonable attorney fee’ under the facts of this case. In this case, we conclude that the ‘reasonable attorney fee’ under § 39-71-612, MCA (1983), is computed using the difference between the amount awarded and the $36,927.80 offer made preceding the filing of the petition.”

McKinley, 232 Mont. at 97, 754 P.2d at 834-35.

If an “eve-of-trial” offer could not be considered because it would not result in a “reasonable attorney fee,” certainly an offer made subsequent to trial cannot be considered to reduce the attorney fee award to the claimant.

In this case, since no domiciliary benefits were tendered, paid, or even offered to the claimant prior to trial, it is clear that he is entitled to an attorney fee award of at least 33 percent of all benefits paid to the claimant for domiciliary care.

II.

The next sub-issue is whether the claimant is entitled to an attorney fee equal to 40 percent of any of the benefits that he recovered because they were “based on the order of the Supreme Court.”

This issue involves consideration of what § 39-71-612, MCA (1983), means when it provides that:

“[If the] award is greater than the amount paid or tendered by the employer or insurer, a reasonable attorney’s fee as established by the ... workers’ compensation judge if the case has gone to hearing, based solely upon the difference between the amount settled for or awarded and the amount tendered or paid, may be awarded in addition to the amount of compensation.”

(Emphasis added.)

The defendant contends that because it paid some portion of those benefits it was ultimately ordered to pay, and because it “offered” to pay other benefits prior to this Court’s decision on August 11, 1989, that those benefits were not “based on the Order of the Supreme Court” and that, therefore, an attorney fee equal to 40 percent of those benefits is not appropriate.

It is not clear what amounts were actually paid by the defendant to the claimant prior to the decision of this Court. However, it is clear that the majority of the amount due for Mrs. Hilbig’s services was not paid and that when an offer was finally made to pay for her services, conditions were attached, such as dismissal of the claimant’s appeal to this Court.

Section 39-71-704, MCA, imposes an obligation upon the State Fund to pay for all medical services reasonably necessary for an injured claimant without limitation. That obligation is ongoing and continuing and cannot be conditioned upon the acceptance by the claimant of conditions attached by an insurer or employer which are not provided for in the Workers’ Compensation Act.

For that reason, § 39-71-612, MCA (1983), provided for an attorney fee based on the difference between that amount actually “tendered or paid.” Significantly, and in spite of language previously used by this Court in McKinley, it did not provide that insurers could avoid payment of attorney fees to a successful claimant by offering benefits which have never actually been tendered or paid.

There is substantial precedent for making a distinction between “tender or payment” of benefits, and a mere offer based on some condition such as a waiver by the claimant of his right to pursue further remedies. As stated in Washington Nat. Ins. Co. v. Sherwood Assoc. (Utah App. 1990), 795 P.2d 665:

“ ‘In order to have a valid tender there must be “a bona fide, unconditional, offer of payment of the amount of money due, coupled with an actual production of the money or its equivalent.” ’ Carr v. Enoch Smith Co., 781 P.2d 1292, 1294 (Utah Ct.App. 1989) (quoting Zion’s Properties, Inc. v. Holt, 538 P.2d 1319, 1322 (Utah 1975)). Informing an obligee that you are ready and willing to perform the contract is insufficient. Century 21 All W. Real Estate & Inv. v. Webb, 645 P.2d 52, 55-56 (Utah 1982); Fischer v. Johnson, 525 P.2d 45, 47 (Utah 1974).”

Washington Nat. Ins. Co., 795 P.2d at 670.

Other jurisdictions make a similar distinction between actual “tender or payment” and a mere offer. Bembridge v. Miller (1963), 235 Or. 396, 385 P.2d 172; Kammert Bros. Enterprises, Inc. v. Tanque Verde Plaza Co. (1967), 4 Ariz.App. 349, 420 P.2d 592; Vilbig v. Trumble Steel Erectors (Tex. Ct. App. 1970), 464 S.W.2d 676; Novik v. Bartell Broadcasters of N.Y., Inc. (1971) 66 Misc.2d 857, 323 N.Y.S.2d 108; Intern. Ind., Inc. v. United Mtg. Co. (1980), 96 Nev. 150, 606 P.2d 163; Federal Land Bank of Spokane v. Parsons (App. 1989), 116 Idaho 545, 777 P.2d 1218.

The difference between an offer and a tender is further explained in Bembridge v. Miller in the following portion of that opinion:

“At common law the term ‘tender’ has definite legal significance imparting not merely the willingness and intent to perform but also the ability at the time of tender to pay in accordance with the offer. The thing tendered, whether money, documents or chattels, must actually be produced and made available for the acceptance and appropriation of the person to whom it is offered. In essence the only distinction between ‘tender’ and payment lies in the fact that a ‘tender’ is not accepted while a payment is. Consequently, if there is an offer to perform but no money is made available, there can be no payment; and likewise, there can be no tender — at best only a naked offer to pay. Equitable Life Assur. Soc. of United States v. Boothe, 160 Or. 679, 86 P.2d 960; Hartman v. Stark, 99 Or. 596, 195 P. 1117.”

Bembridge, 385 P.2d at 175.

In this case, the State Fund had an ongoing obligation to pay medical benefits when due. Included among those benefits, by its own admission, and pursuant to previous decisions of this Court, were benefits for domiciliary care or home health care services. Carlson, 700 P.2d 607; Larson, 742 P.2d 1003. If it disputed the extent of benefits due, then it had an obligation to pay or tender payment of those benefits that it agreed were due. The defendant had no right to withhold payment of benefits which were admittedly due in an effort to resolve the larger claim made by the claimant. It was with the above principle in mind that the legislature authorized the Workers’ Compensation Court in § 39-71-612, MCA (1983), to credit an insurer with the amounts actually “tendered or paid” when arriving at a reasonable attorney fee. However, the legislature did not authorize the Workers’ Compensation Court to credit the defendant with an amount which was merely “offered” until § 39-71-612, MCA (1983), was amended in 1987. Since 1987, § 39-71-612, MCA, has provided as follows:

“(1) If an insurer pays or submits a written offer of payment of compensation under chapter 71 or 72 of this title but controversy relates to the amount of compensation due, the case is brought before the workers’ compensation judge for adjudication of the controversy, and the award granted by the judge is greater than the amount paid or offered by the insurer, a reasonable attorney’s fee and costs as established by the workers’ compensation judge if the case has gone to hearing may be awarded by the judge in addition to the amount of compensation.”

(Emphasis added.)

That amendment was not in effect at the time of the claimant’s injury and, therefore, the defendant’s argument based upon its unfulfilled “offers” are unpersuasive.

In summary, we conclude that the claimant is entitled to an award of attorney fees equal to 40 percent of those domiciliary benefits which were neither tendered nor paid to him prior to this Court’s order dated August 11, 1989. The fact that the defendant acknowledged its obligation for and offered to pay for the claimant’s wife’s services at the rate of $7.50 an hour for 24 hours a day, cannot be used to reduce the defendant’s obligation to pay the claimant’s attorney fee when actual payment of those amounts was neither tendered nor made until long after summary judgment was granted to the claimant on remand, and then only with the assistance of a writ of execution.

III.

The final issue is what percentage applies to which benefits.

It is clear that no benefits for domiciliary or home health care were paid to the claimant prior to his trial on January 26, 1987. Therefore, the claimant is entitled to an award of attorney fees in an amount equal to at least 33 percent of any benefits paid for those services subsequent to that trial.

It is also clear that some money was tendered or paid to the claimant, or to a third party directly, for services provided by that third party on an eight-hour-a-day basis prior to our decision on August 11, 1989. Therefore, the 40 percent factor does not apply to those benefits.

It is not clear from the record how much money was actually paid to the claimant, or to his wife directly, for her services prior to our previous decision. However, the claimant’s attorney fees received for those benefits should also be paid at the rate of 33 percent of the value of those benefits.

For all of those benefits related to the services of Kathleen Hilbig which the defendant had not paid until after this Court’s decision, and which will be due for her services in the future, as well as for the cost of the claimant’s health club membership, the claimant is entitled to an award of attorney fees equal to 40 percent of the value of the benefits.

Since we are unable to determine the dollar amounts which fall into each of the categories set forth above, this case is remanded to the Workers’ Compensation Court for the limited purpose of making those calculations and for further proceedings consistent with this opinion.

This case is affirmed in part and remanded to the Workers’ Compensation Court for further proceedings.

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


author: JUSTICE McDONOUGH

text:
    RICHLAND NATIONAL BANK & TRUST, a National Banking Corporation, Plaintiff and Respondent, v. ROBERT A. SWENSON and JUDY A. SWENSON, husband and wife, and B & J DRILLING, INC., a Corporation, Defendants and Appellants. RICHLAND NATIONAL BANK & TRUST, a National Banking Corporation, Plaintiff and Respondent, v. B & J DRILLING, a Corporation, also known as B & J Drilling, Inc., Defendant and Appellant.
    No. 91-071.
    Submitted on briefs May 31, 1991.
    Decided August 8, 1991.
    249 Mont. 410.
    816 P.2d 1045.

      L. Randall Bishop, Jarussi & Bishop, Billings, for defendants and appellants.
    Thomas M. Monaghan, Lucas & Monaghan, Miles City, for plaintiff and respondent.
   JUSTICE McDONOUGH

delivered the Opinion of the Court.

The defendants Robert A. Swenson, Judy A. Swenson, and B & J Drilling, Inc., (B & J) appeal the orders of the Montana Seventh Judicial District Court, Richland County, granting summary judgment to the plaintiff Richland National Bank and Trust (the Bank) on the defendants’ counterclaims for breach of fiduciary duty, negligence, fraud, tortious interference with business relations and bad faith against the Bank in its action to collect on certain promissory notes executed by the Swensons to the Bank. We affirm.

The defendants raise several issues on appeal, which we restate as follows:

(1) Did the District Court err in concluding that there was insufficient evidence to raise a genuine issue of material fact regarding the defendants’ counterclaims of breach of fiduciary duty, negligence, fraud, tortious interference with business relations and bad faith?

(2) Are the default and default judgment entered against B & J void for lack of personal jurisdiction?

(3) Did the District Court err in holding that the Swensons did not have standing to present claims for wrongs to themselves because such claims are the claims of B & J, a corporation of which the Swensons are the sole shareholders?

(4) Did the District Court err in concluding that the plaintiff’s counterclaims were compulsory and thus barred by Rule 13(a), M.R.Civ.P.?

(5) Did the District Court err in concluding that the Swensons were not the real party in interest for prosecuting any claim against the Bank because under 11 U.S.C. § 541 (a)(1) the alleged counterclaims became the property of the Swensons bankruptcy estate?

In March of 1975, the Swensons went into the seismic drilling business. They incorporated their business under the name of B & J Drilling in March of 1979 and are the sole stockholders. The Swensons began doing business with the Bank in the fall of 1977 when they purchased a home in Sidney with financing arranged through the Bank. Early in 1978 the Swensons began borrowing money from the Bank for various business purposes. These were short term loans and were regularly paid in full.

On December 29, 1980, Mr. Swenson borrowed $60,000 from the Bank evidenced by a note for one year, to purchase an auger drill and truck. The drill was not transferred to B & J; it remained a personal asset of the Swensons. On December 29, 1981, the note was renewed in the amount of $54,600 for another year. On February 14,1983, the note was renewed in the amount of $64,650.07, with a final maturity date of June 30, 1984. On August 6, 1984 the promissory note was renewed in the amount of $65,545.43, with a final maturity date of September 28, 1987. The Swensons’ last renewal promissory note number 33-4946 provided for monthly payments of $2,338.65 beginning on October 28, 1984, and was signed by both the Swensons. B & J made seventeen monthly payments on this note beginning on November 6, 1984 and continuing through March 10, 1986.

In May of 1985, the Swensons borrowed $7,091.87 to purchase a 1981 Ford truck. They executed to the Bank promissory note number 70-7686 in that amount and gave the Bank a security interest in the truck as collateral. B & J Drilling made nine monthly payments on this note beginning on July 8, 1985 and continuing through March 10, 1986.

On November 15, 1982, B & J began borrowing from the Bank for operating expenses. All of the notes were short term notes.

In November of 1985, B & J borrowed $63,632.49 from the Bank and executed and delivered its promissory note number 33-9670. This note represented the renewal of two prior promissory notes which totaled $43,632.49 and an advance of $20,000. The note was due November 12, 1986, and it was secured under a security agreement of the same date by accounts receivable, equipment, machinery and tools belonging to B & J. The Bank also requested B & J to sign a guaranty for the debts of the Swensons, including note number 33-4946, and to sign a security agreement securing payment of such debts. The security agreement gave the Bank a security interest in various types of collateral, including its accounts receivable from Reliable Exploration, Inc. (Reliable). Reliable was B & J’s only customer. B & J had no other source of income.

In November of 1985, B & J received $23,452.50 from Reliable in payment of its August invoice and applied the full amount to promissory note number 33-9670, the operating note. On December 5, 1985, B&J received $21,900 from Reliable for its September invoice. B&J applied only $1,900 to the operating promissory note and deposited the remaining $20,000 in its own checking account. That day the Bank wrote to B & J and informed them that

“In the past we have advanced up to 100% of the current month’s invoices for operating. All future borrowings against accounts receivable will be limited to a maximum of 75% of the current month’s invoices.”

On December 20,1985, B&J requested and received an operating loan of $20,000. This loan raised the principal of note 33-9670 to $58,744.60.

In January of 1986, B&J received $37,145 from Reliable for its October invoice; it applied the full amount to note 33-9670. Later in January, B&J received $19,013.62 from Rehable for its November invoice. B&J applied $12,000 to the note and used the remainder of the check from Reliable for a transmission replacement.

In February of 1986, B&J requested and received an operating loan from the Bank of $25,000. This raised the principal of note 33-9670 to $35,180.71.

On March 7, 1986, B&J received $32,670 from Reliable and applied it to the operating note. It then requested and received an advance of $20,000 and deposited it into its checking account. The principal of note 33-9670 then totaled $23,006.06.

On April 23, 1986, B&J requested a loan of $8,400. The Bank refused the request. Mr. Swenson then contacted Rehable and requested a direct payment of money in order to keep operating. Reliable sent a check for $12,652.50. B&J deposited this check directly into its checking account and never informed the Bank of this payment. Mr. Swenson testified that he “slid this one by them without them knowing about it right away.” B&J made no further loan requests of the Bank.

On August 14,1986, Mrs. Swenson brought a check to the Bank in the amount of $4,404. In her deposition she explained her actions:

“I owed the bank money, which I owed other people money, too; but in my mind I hated to run to the bank and say, ‘I want all of that money. You guys aren’t getting any of this,’ like they did to me.
“So I think I probably was fair enough to say, ‘Garth, would you please just give me half of it. You can have half of it. Because I do know I owe you money. Because I’ve always paid you your money, and I do probably owe you some.’ ”

The Bank followed Mrs. Swenson’s request and applied approximately half of the check to the Swensons’ debt and deposited the remainder in B & J’s checking account. Shortly thereafter, the Swensons moved to California leaving behind the auger drill personally owned by them and all the equipment owned by B & J. Before leaving Sidney, Mr. Swenson removed the conventional drill rig belonging to his corporation from the truck upon which it was mounted and substituted it with an inoperative one. He stored the conventional rig on his brother-in-law’s place near Richland, Montana. When the Bank inquired about the rig, Mr. Swenson would not answer the inquiries. From January until March of 1987 the Bank sold the collateral belonging to the Swensons and B & J.

The Bank filed suit (Civil No. 15,694) on April 3, 1987 to recover the money owed by the Swensons on notes number 33-4946 and 70-7686 and by B & J on note 33-9670. The Swensons filed a bankruptcy petition on May 7, 1987 protecting them from any judgment in that suit. In the bankruptcy, the Swensons did not list any contingent claims against the Bank. On September 18, 1987, the United States Bankruptcy Court entered its discharge of the Swensons.

B & J failed to respond to the summons and complaint and a default judgment was entered against it on June 15,1987. The Bank purchased the account receivable owed B & J by Reliable at a subsequent sheriff’s sale. On December 16, 1988, B & J moved to set aside its default and the judgment entered against it. On December 19,1988, the Swensons filed their separate answer and counterclaim in Civil No. 15,694. On February 2, 1989, the District Court entered its order setting aside the default judgment. On February 10, 1989, B & J filed its separate answer and counterclaim.

On November 2, 1987, the Bank filed a second suit (Civil No. 15,915) against B & J seeking to collect the unpaid principal and interest on promissory note 33-4946 and to foreclose the corresponding security agreement. B & J answered and counterclaimed against the Bank.

On April 17, 1989, the parties stipulated to consolidate the suits. The parties conducted extensive discovery and submitted their respective motions for summary judgment. The court granted summary judgment to the Bank on May 1,1990, concluding that (1) there were no facts to support the counterclaims of B & J and the Swensons against the Bank; (2) the default judgment against B & J was erroneously set aside, thus the counterclaim of B & J was a compulsory counterclaim in the first suit and failure to assert it precluded assertion of it in the second suit; (3) the counterclaims of the Swensons failed to state a claim because B & J’s corporate right of action cannot be asserted by its stockholders; and (4) the counterclaims arose out of events taking place before the filing of bankruptcy and thus became the property of the bankruptcy estate, thereby precluding the Swensons from personally maintaining the counterclaims. On February 2, 1990, the defendants filed a motion to amend their counterclaims. Pursuant to the District Court’s order of May 7,1990, the defendants amended and consolidated their counterclaims and the Bank again moved for summary judgment. The court granted the Bank’s motion, holding that the amended counterclaims only stated one additional count not considered in its first order, tortious interference with business relations and that there were no facts to support such claim. The Swensons and B & J now appeal raising the aforementioned issues.

STANDARD OF REVIEW

In order for summary judgment to issue, the movant must demonstrate that there is no genuine issue as to all facts deemed material in light of the substantive principles entitling the movant to judgment as a matter of law. Rule 56(c), M.R.Civ.P., Frigon v. Morrison-Maierle, Inc. (1988), 233 Mont. 113, 117, 760 P.2d 57, 60; Cereck v. Albertson’s, Inc. (1981), 195 Mont. 409, 411, 637 P.2d 509, 511. If the movant meets this burden, the burden then shifts to the non-moving party to demonstrate a genuine issue of material fact. Frigon, 760 P.2d at 60. “Mere denial or speculation will not suffice, the non-moving party must show facts sufficient to raise a genuine issue.” Frigon, 760 P.2d at 60; Gamble Robinson Co. v. Carousel Properties (1984), 212 Mont. 305, 312, 688 P.2d 283, 287. As will be discussed below, B & J and the Swensons have failed to demonstrate evidence sufficient to raise a genuine issue of material fact in light of the substantive principles of law.

I.

Did the District Court err in concluding that there are no facts supporting the counterclaims of B & J Drilling or the Swensons?

The defendants counterclaimed against the Bank alleging negligence, breach of fiduciary duty, fraud, tortious interference with business relations and bad faith. The District Court concluded that there were no facts to support these claims and granted summary judgment to the Bank. We agree with the District Court’s conclusion.

It is well settled in Montana that “[t]he relationship between a bank and its customer is generally described as that of debtor and creditor... and as such does not give rise to fiduciary responsibilities.” Lachenmaier v. First Bank Systems, Inc. (Mont. 1990), [246 Mont. 26,] 803 P.2d 614, 618, 47 St.Rep. 2244, 2246; Deist v. Wacholz (1984), 208 Mont. 207, 216, 678 P.2d 188, 193; Simmons v. Jenkins (1988), 230 Mont. 429, 433, 750 P.2d 1067, 1070. There is a limited exception to this general rule upon proof of “special circumstances,” as, for example, where a bank is “thrust beyond the role of a simple creditor into the role of an advisor.’’Lachenmaier, 803 P.2d at 618, Deist, 678 P.2d at 193. The security agreements entered into between the Bank and B & J and the Bank and the Swensons were entered into as part of the debtor/creditor relationship. The Bank merely exercised rights it had acquired by security agreement and law when it foreclosed on the collateral. There is no evidence that the Bank asserted any influence in the defendants’ business. Even assuming that the Bank owed a fiduciary duty, there could be no breach of such duty when the Bank acted for legitimate business reasons in accordance with the security agreements. Lachenmaier, 803 P.2d at 619; see also Tresch v. Norwest Bank of Lewistown (1989), 238 Mont. 511, 778 P.2d 874.

The Swensons also argue that the Bank was negligent in structuring the $60,000 loan for purchase of the auger drill in December of 1980. However, the Swensons cite no authority to support the proposition that a negligence action may be based upon a repayment term of a lawful contract bargained between two parties. Absent the existence of a fiduciary duty, the law does not support such a claim.

Mrs. Swenson also contends that a fraud was committed upon her, and as a result upon B & J, when she signed a security agreement in blank with the Bank. She alleges that the Bank’s officer lied to her about what terms would be placed in the security agreement. The Bank admits that the agreement was signed in blank and then completed by the Bank and mailed to B & J. It denies that any fraud or misrepresentation occurred regarding the terms of the agreement. The record indicates that Mrs. Swenson and B & J had the security agreement in their possession in December of 1985, thus she had the means to discover the alleged fraud at that time. The counterclaim of the Swensons was not filed until December 19, 1988. Thus, any action for fraud is barred by the two year statute of limitations. Mobley v. Hall (1983), 202 Mont. 227, 232-3, 657 P.2d 604, 606-7.

The defendants’ amended counterclaim also alleges that the Bank tortiously interfered with the Swensons’ and B & J’s existing and prospective business relationship with Reliable. Defendants contend that this interference occurred when the Bank notified Reliable that it had a specific assignment of accounts receivable from B & J and requested that Reliable issue future payments and drafts with both the Bank and B & J named as payee. The Bank notified Reliable of this prior to notifying B & J that it was exercising this assignment under the security agreement.

The defendants’ contention is without merit. In order to establish a prima facie case of tortious interference with business relations, the pleader must show that the acts (1) were intentional and willful; (2) were calculated to cause damage to the pleader in his or her business; (3) were done with the unlawful purpose of causing damage or loss, without right or justifiable cause on the part of the actor, and (4) that actual damages and loss resulted. Bolz v. Meyers (1982), 200 Mont. 286, 295, 651 P.2d 606, 611. Thus, in order to establish a cause of action, it must be shown that the actor intentionally committed a wrongful act without justification or excuse. Lythgoe v. First Security Bank of Helena (1986), 222 Mont. 163, 165, 720 P.2d 1184, 1185. Here, the Bank was merely exercising its rights to notify account debtors under the security agreement:

“Notwithstanding Secured Party’s rights under Section 4 with respect to any and all... accounts ... Secured Party may at any time (both before and after the occurrence of an Event of Default) notify any account debtor ... that such ... account... has been assigned or transferred to Secured Party for security and shall be paid directly to Secured Party. If Secured Party so requests at any time, Debtor will so notify such account debtors and other obligors in writing and will indicate on all invoices to such account debtors or other obligors that the amount due is payable directly to Secured Party. [Emphasis added.]”

The language of the security agreement did not require the Bank to first notify B & J in advance of any notice to Reliable. The District Court did not err in concluding that there were no facts to support the defendants’ claim of tortious interference with business relations.

The defendants also argue that the trial court improperly denied their motion for leave to amend their counterclaims to state a cause of action in contract for breach of the implied covenant of good faith and fair dealing. The defendants point out that the trial court essentially concluded that the amendment would be futile and denied the motion, in effect converting the motion into one for summary judgment.

This Court recently defined the scope of the implied covenant of good faith and fair dealing in Story v. City of Bozeman (1990), 242 Mont. 436, 791 P.2d 767. We held that the implied covenant exists in every contractual relationship. A breach of the covenant is a breach of the contract. The standard of compliance is “honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.” Section 28-1-211, MCA; Story, 791 P.2d at 775. We farther held that

“[e]ach party to a contract has a justified expectation that the other will act in a reasonable maimer in its performance or efficient breach. When one party uses discretion conferred by the contract to act dishonestly or to act outside of accepted commercial practices to deprive the other party of the benefit of the contract, the contract is breached.”

Story, 791 P.2d at 775. Thus, a breach of the covenant may be found when the “discretion conferred by the contract” has been misused to deprive the other party of the benefit of the bargain. See e.g. Nicholson v. United Pacific Insurance Co. (1985), 219 Mont. 32, 710 P.2d 1342.

According to the Bank, it refused B & J’s April 23, 1986, $8,400 loan request because B & J’s only customer and sole source of income for repayment of the loan, Reliable, was 84 days late in its payments to B & J and appeared incapable of paying its bills. Therefore, the Bank believed that sound business judgment warranted that it not make the loan. Had the loan been granted, it would have been under the terms of an existing line of credit as evidenced by the promissory note from B & J to the Bank dated November 12,1985, that provided:

“All advances including readvances of all sums repaid hereunder, now or hereafter made by Bank Payee shall be evidence [sic] by this note or a similar note. This note does not constitute a commitment by the Bank to make readvances or future advances, but may be done at Bank’s discretion.”

The plain language of the note gave the Bank the discretion to deny future loan requests and there is no evidence that such discretion was misused to deprive the Swensons and B & J of the benefit of their agreement.

In Story we noted that while the damage award in the seminal case of Nicholson was excessive in the typical contract case, its reasoning was still sound. Story, 791 P.2d at 775. In Nicholson, the parties entered a lease agreement which provided that the plaintiff would remodel an office to the defendant’s satisfaction. During the remodeling the defendant decided to forego the new office and attempted to force the plaintiff to breach by repeatedly denying satisfaction with the remodeling rather than efficiently breaching the lease agreement and paying the plaintiff contract damages. While the tort damages awarded in Nicholson are now controlled by Story, the case is a good example of breach of the honesty in fact standard. The distinctions between the case at bar and Nicholson are clear. Here the allegations of breach of the implied covenant of good faith and fair dealing are purely speculative. There is no evidence of another motive for the Bank to deny the loan other than sound business reasons.

The District Court granted summary judgment in favor of the Bank on defendants’ counterclaims on May 7, 1990. The court had granted the defendants leave to amend their counterclaims on May 1, 1990. The defendants moved to amend their counterclaims a second time to state a cause of action pursuant to Story on June 7, 1990, after the court had issued its first order on the original counterclaims. The court issued its second order granting the Bank summary judgment on the amended counterclaims on October 18, 1990, along with an order and supplemental memorandum denying leave to file a second amended counterclaim stating a cause of action under Story.

Rule 15(a), M.R.Civ.R, instructs a district court that leave to amend the pleadings shall be freely given when justice so requires. The rule has been interpreted liberally, allowing amendment of pleadings as the rule and denying leave to amend as the exception. Priest v. Taylor (1987), 227 Mont. 370, 377-8, 740 P.2d 648, 653. One exception to the general rule is when the amendment would be subject to dismissal. Walstad v. Norwest Bank of Great Falls (1989), 240 Mont. 322, 324, 783 P.2d 1325, 1326. Here the defendants, after discovery, failed to raise sufficient facts under Story to withstand a motion for summary judgment. The District Court did not abuse its discretion in denying the defendants leave to amend their counterclaims under Story.

II.

Are the default and default judgments entered against B & J void for lack of personal jurisdiction?

On April 15, 1987, Robert A. Swenson was the registered agent for service of process for B & J. He had moved his domicile to California. On that day he was personally served with process by a deputy sheriff of Sacramento County, California. The sheriffs return shows the Swensons had been served only as individual defendants; it does not indicate that B & J or an agent thereof was served. Nevertheless, the District Court concluded that B & J was properly served with process and it failed to enter the required appearance within the time specified by law. Its default was entered.

B & J alleges that the judgments against it are void because of lack of personal jurisdiction over the corporate entity. It relies on Shields v. Pirkle Refrigerated Freight Lines, Inc. (1979), 181 Mont. 37, 591 P.2d 1120, and Sink v. Squire (1989), 236 Mont. 269, 769 P.2d 706. The facts of these cases are distinguishable from the case at bar. Shields involved failure by a party to properly carry out “substituted service” upon the secretary of state. Sink involved failure to comply with mandatory service requirements applicable to the contents and form of a summons. On the other hand, this case involves an alleged fatal defect in the return executed by a sheriff acting as a process server.

Rule 4D, M.R.Civ.R, governs service of process on defendants. It provides several methods of serving a corporation. The fact that the registered agent cannot be found in Montana does not require use of substituted service. “Where service upon any person cannot, with due diligence, be made personally within this state, service of summons and complaint may be made by service outside this state in the manner provided for service within this state, with the same force and effect as though service had been made within this state.” Rule 4D(3), M.R.Civ.R One such method of effecting service upon a domestic corporation is by delivering a copy of the summons and complaint to the registered agent of the corporation named in the records of the secretary of state or an agent authorized by the corporation to accept service of process. Rule 4D(2)(e), M.R.Civ.R

We conclude that there was no error in service of process in this case. The sheriff or other process server does not determine a defendant’s capacity to receive process. Here, Mr. Swenson’s capacity as the registered agent of the corporation exists as a result of law (see §35-1-305, MCA) and B & J’s designation and his consent to act as its registered agent. Moreover, it is the fact of service rather than the proof of service that is the focus of a determination of personal jurisdiction:

“Indispensable to the timely prosecution of an action is the service of the summons and complaint. Service of the summons is the means by which the district court acquires personal jurisdiction over the defendant. Clinton v. Miller (1951), 124 Mont. 463, 478, 226 P.2d 487, 495; Haggerty v. Sherburne Mercantile Co. (1947), 120 Mont. 386, 392, 186 P.2d 884, 889. Service is also essential to due process as it notifies the defendant of the pendency of an action against him thereby giving him the opportunity to defend himself or his property. Clinton, 124 Mont. at 478, 226 P.2d at 495; Haggerty, 120 Mont. at 396-97, 186 P.2d at 891.
“Filing the return, on the other hand, is simply a ministerial act. The return itself is merely evidence of service of the summons and complaint. Clinton, 124 Mont. at 479, 226 P.2d at 495. It is filed with the court only to document on the record the fact that service has been completed.
“[Ojther rules governing proof of service provide that ‘[fjailure to make proof of service does not affect the validity of the service.’ Rules 4D(8)(e) and 5(f), M.R.Civ.P.”

Livingston v. Treasure County (1989), 239 Mont. 511, 513, 781 P.2d 1129, 1131.

In the case at bar, the District Court adopted the reasoning in the case of Fisher v. Crest Corp. (App. 1987), 112 Idaho 741, 735 P.2d 1052. In Fisher, a default judgment was obtained against a corporation and a subsequent motion to set the default aside was denied. The district court reversed and set the default aside. The Idaho Court of Appeals reversed the district court. It held that service of process was adequate to confer jurisdiction over the defendant corporation even if only one copy of the documents had been served upon the defendant corporate officer as both an individual and defendant corporate officer. Fisher, 735 P.2d at 1055. We find the holding of Fisher persuasive. As in Fisher there are no allegations or record of the corporate officer being misled by the service. We conclude that the District Court had the necessary personal jurisdiction over the defendant B & J to enter its default.

III.

Did the District Court err in holding that the Swensons did not have standing to present claims for wrongs to themselves when those claims are the claims of B & J, a corporation of which the Swensons are the sole shareholders?

The Swensons contend that they are entitled to present claims on behalf of their sole proprietorship. They argue that they were doing business with the Bank in a personal as well as a corporate capacity. The District Court concluded that such claims were essentially those of their corporation and held that the Swensons as individual shareholders could not prosecute the claims of the corporation.

We agree. Montana law is clear that the stockholders and guarantors of a corporation do not have the right to pursue an action on their own behalf when the cause of action accrues to the corporation. Bottrell v. American Bank (1989), 237 Mont. 1, 26-7, 773 P.2d 694, 709-10; Walstad, 783 P.2d at 1328; Moats Trucking Co., Inc. v. Gallatin Dairies, Inc. (1988), 231 Mont. 474, 477, 753 P.2d 883, 885. Here, B & J borrowed operating funds from the Bank; the Swensons as individuals did not borrow operating funds but had borrowed from the Bank to purchase a truck. Nor did the Swensons as individuals request a loan related to the auger rig since it was refinanced in 1984. The corporate entity, B & J Drilling, was requesting an advance for operating funds under its promissory note 33-9670. The Batik properly exercised its contractual right and refused this requested advance. The District Court correctly concluded that the Swensons as individuals are precluded from asserting any cause of action arising from this refusal by the Bank to continue financing B & J.

IV.

Finally, our affirmation of the District Court on the above issues is sufficient to uphold the District Court’s grant of summary judgment to the Bank. Because the Swensons have failed to present evidence sufficient to raise a genuine issue of material fact regarding their counterclaims, we need not determine whether the Swensons are the real party in interest to assert those counterclaims or whether such counterclaims are compulsory and thus barred under Rule 13(a), M.R.Civ.P.

The order of the District Court is

AFFIRMED.

CHIEF JUSTICE TURNAGE and JUSTICES HARRISON, GRAY, and TRIEWEILER concur.


text:
    In the Matter of the APPLICATION FOR CHANGE OF APPROPRIATION WATER RIGHTS NOS. 101960-41S AND 101967-41S by Keith and Alice Royston.
    No. 91-009.
    Submitted June 12, 1991.
    Decided August 12, 1991.
    249 Mont. 425.
    816 P.2d 1054.

      Sarah Arnott Ozment argued, Livingston, for appellant.
    James A. Hubble argued, Christensen & Hubble, Stanford, Donald MacIntyre argued, Helena, for respondent.
   JUSTICE McDONOUGH

delivered the Opinion of the Court.

Keith and Alice Royston appeal from an order of the First Judicial District Court, Lewis and Clark County, upholding the decision of the Department of Natural Resources and Conservation (DNRC) denying the Roystons’ application for a change of place of use of water rights and a change of use from flood irrigation to sprinkler irrigation. We affirm.

The Roystons raise the following issues on appeal:

(1) Did the District Court err in holding that the Roystons, as applicants for a change of appropriative water rights, had the burden of proving lack of adverse effect on other appropriators, adequate means of diversion, and beneficial use of the water?

(2) Did the District Court err in upholding the hearings examiner’s refusal to hear evidence regarding the objectors’water rights?

(3) Did the District Court err in holding that the objectors had standing to obj ect to the application based upon the prima facie content of their claims?

(4) Did the District Court err in determining that there was substantial credible evidence to support the DNRC’s denial of the application for change?

(5) Are the Roystons entitled to attorney’s fees pursuant to the private attorney general theory or another applicable theory?

Petitioners Keith and Alice Royston applied to the DNRC to change the place of use of their water rights and to expand the number of acres irrigated. At the time of application, the Roystons had existing rights in Ross Fork Creek, a tributary of the Judith River located in Judith Basin County, Montana, pursuant to a preliminary decree entered by the Water Court on April 24, 1987. The Roystons’ existing rights are to flood irrigate 32 acres with a flow rate of 750 g.p.m. (gallons per minute) and to irrigate 54 acres with a flow rate of 500 g.p.m. The application requested approval to change the place of use of their rights and increase the acreage irrigated from 86 to 266 acres.

Respondents Turner Ranch, Inc., Basin-Angus Ranch, and O’Brien, Inc. (objectors) filed objections. The objectors are all appropriators of Ross Fork Creek, junior to the Roystons, whose rights are set forth in the temporary preliminary decree. Turner Ranch is located upstream of the Roystons’ point of diversion; the other objectors are located downstream. The objectors complained that the proposed expansion of irrigated acreage and change to sprinkler irrigation would result in greater depletion of Ross Fork Creek than historically has occurred, to the detriment of the junior objectors.

In September of1988, the DNRC conducted a contested case hearing. Both parties introduced expert testimony regarding the effects the change would have on flows in Ross Fork Creek. In order to prevent the adverse effect alleged by the objectors, the applicants proposed a plan of “water banking” to store water in the subsurface soil profile by heavily irrigating the proposed places of use during periods of high water in Ross Fork Creek. During other months the Roystons’ proposal would limit their diversions to the flow and volume historically consumed through flood irrigation of the original places of use.

On November 15, 1989, the DNRC issued its final order denying the Roystons’ application. The Roystons petitioned the District Court for judicial review. The District Court affirmed the DNRC’s decision, holding that the statute relied upon by the hearings examiner places the burden of proof upon an applicant for a change of use of a water right. The Roystons appeal the decision of the District Court affirming the DNRC. The DNRC has joined the objectors as respondents on appeal.

I.

Did the District Court err in holding that the Roystons, as applicants for a change of appropriative water rights, had the burden of proving lack of adverse effect on other appropriators, adequate means of diversion, and beneficial use of the water?

Changes in appropriation rights are governed by § 85-2-402, MCA. The statute provides in pertinent part:

“85-2-402. (Temporary) Changes in appropriation rights .... (2) Except as provided in subsections (3) through (5), the department shall approve a change in appropriation right if the appropriator proves by substantial credible evidence that the following criteria are met:
“(a) The proposed use will not adversely affect the water rights of other persons or other planned uses or developments for which a permit has been issued or for which water has been reserved.
“(b)... the proposed means of diversion, construction, and operation of the appropriation works are adequate.
“(c) The proposed use of water is a beneficial use.

Section 85-2-402(2), MCA (emphasis added). The Roystons argue that because a 1985 amendment deleted language referring to the contested case hearing stage in the application process (see § 85-2-402, MCA (1983)) the applicant’s burden in the now amended statute only applies at the initial application stage and the burden is still on the objector at the hearing stage. Thus, Roystons concede that the DNRC may not summarily grant an application unless the applicant proves by substantial credible evidence that the water rights of other users will not be adversely affected. However, once objections are raised, they argue that the burden then shifts to the objectors.

We disagree. Prior to adoption of the Water Use Act of 1973 and amendment of § 85-2-402, MCA, in 1985, parties objecting to the change had the burden of demonstrating adverse impact to their water rights. See Hutchins, The Montana Law of Water Rights, pp. 75-76 (1958); Holmstrom Land Co. v. Newlan Creek Water District (1979), 185 Mont. 409, 435, 605 P.2d 1060, 1075; Hansen v. Larsen (1911), 44 Mont. 350, 353, 120 P. 229, 231; Lokowich v. City of Helena (1913), 46 Mont. 575, 577, 129 P. 1063, 1063. However, the statutory scheme set forth in the Water Use Act has re-assigned this burden. The placement of the burden on the applicant also conforms to general rules regarding burdens of proof. ‘The initial burden of producing evidence as to a particular fact is on the party who would be defeated if no evidence were given on either side. Thereafter, the burden of producing evidence is on the party who would suffer a finding against him in the absence of further evidence.” Section 26-1-401, MCA. Under the statute here, the applicant would be defeated if neither side produced evidence. Also, except as otherwise provided by law, a party has the burden of persuasion as to each fact the existence or nonexistence of which is essential to the claim for relief or defense he is asserting. Section 26-1-402, MCA. The applicant for a change of appropriation right has the burden as to the nonexistence of adverse impact. The plain language of the statute now clearly places the burden on the applicant.

The Roystons further argue that because their water rights are existing water rights recognized by the 1972 Montana Constitution, construing the statute as changing the burden of proof and placing it on the applicant is an impermissible retroactive application of a statute because it impairs vested rights acquired pursuant to the 1972 Montana Constitution. See § 85-2-102(9); Art. IX, § (3)(1), Mont. Const. This argument fails. A water right recognized by the 1972 Constitution does not include the right to not have to carry a burden of proof. This Court has held that the application of statutory procedures to water rights vested under the 1972 Montana Constitution is not unconstitutional. See Castillo v. Kunneman (1982), 197 Mont. 190, 642 P.2d 1019.

In Castillo, this Court considered whether the Montana Surface and Groundwater Act, §§ 85-2-101 et seq., MCA, applied to water rights perfected before the effective date of the Act. A grantor of land contended that the part of the Act requiring approval from the DNRC before severing part of an appropriation right from the land was unconstitutional and should not apply to water rights perfected before the effective date of the Act. This Court noted that the Act was adopted to provide for the administration and regulation of water rights, and further noted that the particular section in question, § 85-2-403(3), MCA (deleted, § 16, ch. 448, L.1983), did not “contain specific language which precludes its application to water rights perfected prior to July 1, 1973. Other provisions contained in the ... Act do contain such preclusive language.” Castillo, 642 P.2d at 1025. Similarly, the statute governing changes in appropriation rights in this case, § 85-2-402, MCA, also lacks language precluding its application to water rights perfected before July 1, 1973.

“A retroactive law is one that takes away or impairs vested rights acquired under existing laws or creates new obligations or imposes new duties in respect to transactions already past.... Statutes that modify the procedure for exercising a vested right or carrying out a duty do not constitute retroactive legislation.” Castles v. State (1980), 187 Mont. 356, 360, 609 P.2d 1223, 1225. Section 85-2-402, MCA, merely modifies the procedure for exercising a vested right, and as such is not retroactive.

Under our standard of review of questions of law, we review an agency decision simply to determine if the agency’s interpretation of the law is correct. Steer, Inc. v. Department of Revenue (Mont. 1990), [245 Mont. 470,] 803 P.2d 601, 603, 47 St.Rep. 2199, 2200. Here, the burden of proof is controlled by the statute, which clearly places the burden on the applicant. The District Court did not err in upholding the DNRC’s interpretation of the statute.

II.

Did the District Court err in upholding the hearings examiner’s refusal to hear evidence regarding the objectors’ water rights?

The Roystons contend that because they were precluded from showing the nature of the objectors’ rights they were unable to demonstrate that the objectors’ rights would be unaffected by the Roystons’ change in place of use and change from flood to sprinkler irrigation. The Roystons contend that by failing to take evidence on these rights, it was impossible for the DNRC to properly assess adverse impact on those water rights accordingto the statute, and thus the Roystons were denied due process.

This argument fails. The DNRC gave its reasoning for not accepting evidence of the objectors’ water rights:

“Mistaken nonrecognition of an objector’s right, and grant of a change authorization based thereon, could irreparably damage objector; while mistaken recognition of that objector’s right and denial of a change authorization would maintain the status quo with no actual loss to anyone.”

The records of the objectors’ water rights are set forth in the Water Court’s temporary preliminary decree. The hearings examiner correctly concluded that the rights set forth in the decree were prima facie evidence that the objectors have water rights in the appropriated stream. See § 85-2-227, MCA. The legislature provided a separate procedure in the Water Use Act by which the Roystons could make a timely objection to the rights claimed by the obj ectors in Ross Fork Creek, when such rights were adj udicated by the Water Court and set forth in the temporary preliminary decree for that basin. See generally Title 85, Chapter 2, Part 2, Montana Code Annotated. Tb allow the Roystons to present evidence of the objectors’ water rights could essentially lead to the readjudication of water rights claimed in Ross Fork Creek. The District Court did not err in upholding the hearings examiner’s decision to use the temporary preliminary decree as prima facie evidence of the obj ectors’ water rights rather than to allow the Roystons to present evidence of the objectors’ water rights.

III.

Did the District Court err in holding that the objectors had standing to object to the application based upon the prima facie content of their claims?

The Roystons argue that two of the objectors, Turner Ranch and Basin-Angus Ranch, did not have standing to object to the Roystons’ application to change their senior water right. They contend that Turner lacks standing because only downstream appropriators whose rights are hydrologically connected to the applicant’s right have standing to object to a change.

This contention lacks merit. Generally, an appropriator with a water right in a particular source has an obvious interest in any water right granted from that source and thus has standing to challenge any water right granted in that source. Holmstrom Land Co. v. Newlan Creek Water District (1979), 185 Mont. 409, 425, 605 P.2d 1060, 1069. An upstream junior appropriator can be damaged by a change in the amount of water appropriated downstream if a shortage ensues and a senior appropriator causes the junior to forego his water until the senior’s rights are fulfilled. Thus, Turner ranch as an upstream junior appropriator has an obvious interest in any right granted in Ross Fork Creek. See, e.g., Holmstrom, supra. Basin-Angus also has an interest in any water appropriated in Ross Fork Creek as a downstream junior appropriator.

The Roystons also argue that the issue of standing should have been certified to District Court. The Roystons do not argue that objector O’Brien did not have standing to object under the statute. Since the Roystons did not challenge O’Brien, Inc.’s standing to object, any alleged error in allowing Basin-Angus Ranch and Turner Ranch to proceed in the same hearing using the same counsel, or refusing to certify the issue of standing to district court, is rendered harmless. The objection of O’Brien alone was sufficient to cause the matter to go to hearing. A reviewing court is precluded from modifying or reversing an agency’s decision unless substantial rights of the appellant have been prejudiced. Section 2-4-704(2), MCA. The Roystons suffered no prejudice because Basin-Angus and Turner were parties to the hearing.

IV.

Did the District Court err in determining that there was substantial credible evidence to support the DNRC’s denial of the application for change?

The Roystons argue that the record lacks substantial credible evidence to support the hearings examiner’s decision. They contend that without evidence of the objectors’ water rights and their hydrologic relation to the Roystons’ rights, there is no substantial evidence of adverse impact controverting their evidence. The Roystons contend that the record indicates that their new sprinkler system would not divert any more water than what was historically consumed through flood irrigation. They further argue that while the District Court noted that there was no testimony regarding whether the sprinkler system could operate at decreased flows, there is no evidence in the record that the proposed sprinkler system would not work. They contend that the objectors’ expert in fact stated that the system could be operated at lower flows during periods of shortage and, therefore, that the record does not support the conclusion that their appropriation works were inadequate.

The Roystons introduced evidence of their water “banking” plan through the testimony of an expert witness. The objectors’ expert testified that water “banking” may lead to wide-spread wilting of plants in areas previously saturated because there is a dense stand of plants competing for a very small amount of water. The expert also testified that water “banking” may be harmful to the land.

The record indicates that high water periods occur yearly in Ross Fork Creek and are of variable, but generally short, duration. The record does not show the relative percentages of water, historically diverted but unconsumed, that evaporated, returned to Ross Fork Creek, or were lost to the creek through deep percolation or otherwise. The hearings examiner did find that due to the proximity to the creek of the acreage originally irrigated, most of the unconsumed water would have quickly returned to the creek, either on the surface or via subsurface routes under the original system of flood irrigation. The record indicates that because of the increased distance of the new places of use to the creek under the proposed sprinkler irrigation system that there would be significantly less immediate return flow to Ross Fork Creek. The record does not indicate how much immediate or delayed return flow would occur under the proposed system.

Regarding the adequacy of the Roystons’ proposed means of diversion, the hearings examiner found that the record did not indicate how the proposed sprinkler system could be operated at design flow rates during high water and then be modified or “nozzled down” to operate with substantially less flow later in the season. The hearings examiner further noted as a “recognized technical fact” that there is a minimum flow below which water cannot be effectively applied even with such adjustments and that such threshold flows were not of record nor could they be determined from the record.

Judicial review of an agency’s decision is governed by the Montana Administrative Procedure Act (MAPA), § 2-4-704, MCA. Under MAPA our review of an agency decision is narrowly defined:

“The court may not substitute its judgment for that of the agency as to the weight of the evidence on questions of fact. The court may affirm the decision of the agency or remand the case for further proceedings. The court may reverse or modify the decision if substantial rights of the appellant have been prejudiced because:
“(a) the administrative findings, inferences, conclusions, or decisions are: “(i) in violation of constitutional or statutory provisions;
“(ii) in excess of the statutory authority of the agency;
“(iii) made upon unlawful procedure;
“(iv) affected by other error of law;
“(v) clearly erroneous in view of the reliable, probative, and substantial evidence on the whole record;
“(vi) arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion; or
“(b) findings of fact, upon issues essential to the decision, were not made although requested.”

Section 2-4-704(2), MCA. The Roystons are essentially asking this Court to reweigh the evidence. The Roystons had the burden of demonstrating that granting their application would not adversely affect the rights of the objectors. The Roystons failed to meet their burden. The application was properly denied because the evidence in the record does not sustain a conclusion of no adverse affect to others and it cannot be concluded from the record that the means of diversion and operation of the appropriation works are adequate. The DNRC’s decision was not clearly erroneous in view of the reliable, probative, and substantial evidence on the whole record.

V.

Are the Roystons entitled to attorney’s fees pursuant to the private attorney general theory or another applicable theory?

Because we have affirmed the DNRC’s decision in all respects, we need not reach this issue.

The order of the District Court is

Affirmed.

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