No. 80-302
IN THE SUPREME COURT OF THE STATE OF MONTANA
1981
LENORA E. KAY,
Plaintiff and Appellant,
Defendant and Respondent.
Appeal from: District Court of the Eighth Judicial District,
In and for the County of Cascade.
Honorable Fohn McCarvel, Judge presiding.
Counsel of Record:
For Appellant:
Leaphart Law Firm, Helena, Montana
C. W.Leaphart, Jr. argued, Helena, Montana
For Respondent:
Lawrence A. Anderson argued, Great Falls, Montana
R. V. Bottomly, Great Falls, Montana
Submitted: February 20, 1981
Decided: APR 2 2 1981
Filed: I B R 2 1 ';Pfjl
Mr. J u s t i c e Gene B. D a l y d e l i v e r e d t h e O p i n i o n o f t h e C o u r t .
Appellant, Lenora E. Kay, appeals an order and
judgment entered by the District Court of the Eighth
J u d i c i a l D i s t r i c t , C o u n t y o f C a s c a d e , t h e H o n o r a b l e J o h n M.
McCarvel p r e s i d i n g , w h e r e i n t h e c o u r t d i r e c t e d t h e c l e r k o f
c o u r t t o e n t e r a n a r b i t r a t i o n award i n t h e judgment b o o k s i n
f a v o r o f r e s p o n d e n t , R. V. B o t t o m l y .
Lenora E. Kay owned certain properties i n Cascade
C o u n t y which s h e s o l d u n d e r a c o n t r a c t f o r d e e d t o h e r two
s o n s on O c t o b e r 1 5 , 1 9 7 5 , f o r $ 4 0 , 0 0 0 . The s o n s , R o b e r t and
Clarence Swartz, t h e n a s s i g n e d t h e c o n t r a c t f o r d e e d t o a.
corporation named Swartz Brothers Excavating, Inc. This
a s s i g n m e n t was made on o r a b o u t J a n u a r y 1, 1 9 7 6 , and w i t h o u t
t h e c o n s e n t o f Kay.
Subsequent to the assignment, Swartz Brothers
Excavating, Inc., became delinquent on the contract.
Shortly afterwards, Kay c l o s e d t h e e s c r o w and p u r p o r t e d l y
revested herself with a l l the r i g h t , t i t l e and i n t e r e s t i n
t h e p r o p e r t y on A u g u s t 22, 1 9 7 7 .
Swartz B r o t h e r s Excavating, Inc., filed a petition
for bankruptcy on October 27, 1977. The trustee in
b a n k r u p t c y t h e n f i l e d a n a c t i o n a g a i n s t Kay, alleging that
t h e August 22, 1977, r e v e s t m e n t was a voidable transfer.
The t r u s t e e requested t h e bankruptcy c o u r t t o (1) d e c l a r e
t h e t e r m i n a t i o n o f t h e c o n t r a c t f o r d e e d n u l l and v o i d ; (2)
r e i n s t a t e t h e c o n t r a c t f o r deed; ( 3 ) reinstate the trustee
i n bankruptcy with a l l of the bankrupt's right, t i t l e and
interest in the property; and (4) compel Kay's specific
performance.
L e n o r a Kay r e t a i n e d t h e s e r v i c e s o f t h e l a w f i r m o f
B o t t o m l y and G a b r i e l t o r e p r e s e n t h e r i n t h e a c t i o n b r o u g h t
by t h e t r u s t e e . On March 2 8 , 1 9 7 8 , t h e p a r t i e s e n t e r e d i n t o
a contingent fee agreement whereby they agreed to the
following:
" I T I S MUTUALLY AGREED b e t w e e n t h e p a r t i e s
t h a t Second P a r t y [ t h e f i r m o f R. V. B o t t o m l y
and R o b e r t W. G a b r i e l ] w i l l u s e i t s b e s t
s e r v i c e s t o o b t a i n s e t t l e m e n t o r j u d g m e n t on
b e h a l f o f F i r s t P a r t y [ L e n o r a Kay] and F i r s t
P a r t y d o e s h e r e b y a g r e e t o r e i m b u r s e Second
P a r t y f o r a n y and a l l c o s t s and e x p e n s e s t h a t
i t may i n c u r i n t h e r e p r e s e n t a t i o n o f F i r s t
P a r t y , l i m i t e d t o t h e amount o f $ 2 , 0 0 0 . 0 0
t o g e t h e r w i t h 50% o f a l l m o n i e s o r p r o p e r t y
o r e q u i t i e s o b t a i n e d f o r F i r s t P a r t y by way
o f s e t t l e m e n t and/or judgment a s compensation
f o r i t s s e r v i c e s , no p a r t o f w h i c h s h a l l b e
c h a r g e d a g a i n s t t h e amount d u e F i r s t P a r t y on
t h e c o n t r a c t f o r s a l e of Swartz B r o t h e r s
d a t e d t h e 1 5 t h d a y o f O c t o b e r , 1975.
" I T I S AGREED t h a t F i r s t P a r t y s h a l l t a k e
c a r e o f a l l t a x e s and i n s u r a n c e d u e on t h e
p r o p e r t y u n t i l t h e m a t t e r is f i n a l l y s e t t l e d
and s u c h items and c o s t s w i l l b e d e f r a y e d o u t
o f r e n t s and p r o f i t s t a k e n f r o m t h e p r e m i s e s
a s obtained. I t is a g r e e d t h a t from t h e
determination of t h e i s s u e s i n favor of
p l a i n t i f f , p a r t i e s [Kay and B o t t o m l y ] w i l l
have one year from t h e d a t e t h e r e o f t o
d i s p o s e o f t h e p r o p e r t y by s a l e i n o r d e r t o
s a t i s f y a t t o r n e y ' s f e e s and c o s t s . The c o s t
o f s a l e s h a l l be e q u a l l y d i v i d e d between
F i r s t and Second P a r t i e s . "
I n a t t e m p t i n g t o r e s o l v e t h e l i t i g a t i o n , B o t t o m l y and
the bankruptcy trustee worked out a settlement agreement
w h e r e i n Kay would p a y t o t h e t r u s t e e $25,000 i n e x c h a n g e f o r
t h e t r u s t e e ' s d i s m i s s a l o f h i s a c t i o n and t h e r e l e a s e o f a n y
i n t e r e s t i n the property. The p r o p e r t y was t h e n a p p a r e n t l y
appraised a t $88,OOOI although appellant maintains the
a p p r a i s a l was f o r $ 8 2 , 0 0 0 .
To f a c i l i t a t e payment o f t h e $ 2 5 , 0 0 0 , the settlement
a g r e e m e n t p r o v i d e d t h a t Kay was t o p a y $ 5 , 0 0 0 down w i t h t h e
remaining balance of $20,000 to be paid on or before
December 3 1 , 1 9 7 8 , t o g e t h e r w i t h i n t e r e s t a t a r a t e o f 7-1/2
p e r c e n t p e r annum from J u l y 1, 1 9 7 8 . The r e m a i n i n g b a l a n c e
was t o be s e c u r e d by a t r u s t i n d e n t u r e o f Kay a g a i n s t t h e
property with the t r u s t e e a s beneficiary.
Kay p a i d t h e $5,000 down, but a dispute then arose
over Bottomly's fee. Kay, i n o b t a i n i n g a l o a n t o pay t h e
r e m a i n i n g b a l a n c e o f $ 2 0 , 0 0 0 w a n t e d t o d e d u c t 50 p e r c e n t o f
t h e i n t e r e s t t h e r e o n from a n y f e e owed. Bottomly a p p a r e n t l y
was unwilling to do so, and Kay discharged him as her
attorney, refusing t o finalize the settlement.
A f t e r d i s c h a r g i n g B o t t o m l y , Kay r e t a i n e d new c o u n s e l .
Kay then entered into a settlement agreement with the
b a n k r u p t c y t r u s t e e upon t h e e x a c t same t e r m s and c o n d i t i o n s
which B o t t o m l y had p r e v i o u s l y n e g o t i a t e d on h e r b e h a l f .
On March 9, 1979, Kay requested the S t a t e Bar of
Montana to arbitrate her fee dispute with Bottomly,
alleging:
"Mr. B o t t o m l y ' s s e r v i c e s were o b t a i n e d t o
p r o t e c t my p r o p e r t y f r o m s e i z u r e w h i c h he d i d
n o t do. I n s t e a d , he a g r e e d t o a s e t t l e m e n t
which I d i d n ' t a g r e e t o .
"Now h e h a s f i l e d a l i e n on p r o p e r t y , a n d
n o t h i n g h a s b e e n s e t t l e d t h e r e f o r e I would be
w i l l i n g t o p a y him $ 2 , 0 0 0 . 0 0 w h i c h i s t o o
much f o r what h e h a s d o n e and t h e h e l l h e h a s
p u t me t h r o u g h . ' '
Bottomly agreed to the binding arbitration, and a
p a n e l h e a r d t h e t e s t i m o n y and e v i d e n c e from t h e p a r t i e s on
May 1, 1 9 7 9 . On May 1 5 , 1 9 7 9 , t h e p a n e l c o n c l u d e d t h a t t h e
contingent fee agreement was valid and binding on the
parties; t h a t Kay had agreed to the settlement; and that
B o t t o m l y was e n t i t l e d t o a f e e o f $ 1 4 , 4 8 1 . 5 0 .
The panel, in setting Bottomly's fee, used the
following formula:
"The value of said real property was
a p p r a i s e d a t $88,800.00. From t h i s was t o b e
d e d u c t e d what r e m a i n e d d u e o n a C o n t r a c t f o r
S a l e t o Swartz Brothers ($31,530.35), t a x e s
( $ 8 0 9 . 1 4 ) , i n t e r e s t ( $ 2 , 4 9 7 . 5 1 ) and t h e sum
required to settle with the Trustee
($25,000). These deductions total
$59,837.00. S u b t r a c t i n g t h e d e d u c t i o n s from
t h e a p p r a i s e d v a l u e ($88,800.00 - 59,837.00)
t h e r e is a r e m a i n i n g b a l a n c e o f $ 2 8 , 9 6 3 . 0 0 .
I t was a g r e e d t h a t t h e r e s p o n d e n t was t o h a v e
5 0 % o f t h e v a l u e o f t h i s sum. T h a t means t h e
respondent is entitled to a fee of
$14,481.50."
Under t h e terms o f t h e f e e agreement, Kay was g i v e n
one y e a r w i t h i n which t o l i q u i d a t e t h e p r o p e r t y t o pay t h e
attorney fees. When s h e f a i l e d t o d o s o , B o t t o m l y , on May
1 6 , 1 9 8 0 , had t h e a r b i t r a t i o n d e c i s i o n f i l e d i n t h e D i s t r i c t
C o u r t p u r s u a n t t o s e c t i o n 27-5-103, MCA. I n response, Kay
had s e r v e d on B o t t o m l y a m o t i o n t o v a c a t e t h e a w a r d . The
motion was filed on June 9, 1980, but was not set for
hearing .
On June 12, 1980, Bottomly filed a praecipe and
a f f i d a v i t with t h e clerk of the court, pursuant t o section
27-5-303, MCA, requesting that the arbitration panel's
d e c i s i o n be e n t e r e d i n t h e judgment records. Ten m i n u t e s
l a t e r Kay f i l e d a n o r d e r s t a y i n g t h e e n t r y o f judgment and
noted for hearing her motion to vacate. The hearing
s c h e d u l e d f o r J u n e 1 7 , 1 9 8 0 , h o w e v e r , was c a n c e l e d , and t h e
D i s t r i c t C o u r t e n t e r e d a n o r d e r on J u n e 2 3 , 1 9 8 0 , d i r e c t i n g
t h e c l e r k o f t h e c o u r t t o e n t e r t h e a r b i t r a t i o n award i n t h e
judgment book. T h i s o r d e r was b a s e d on a f i n d i n g t h a t t h e
c l e r k was r e q u i r e d t o e n t e r t h e j u d g m e n t p u r s u a n t t o s e c t i o n
27-5-303, MCA, in that Bottomly's affidavit and praecipe
w e r e f i l e d p r i o r t o t h e o r d e r s t a y i n g e n t r y o f judgment.
The f o l l o w i n g i s s u e s a r e p r e s e n t e d f o r o u r r e v i e w :
1. Did t h e D i s t r i c t C o u r t e r r i n d i r e c t i n g t h e c l e r k
o f t h e c o u r t t o e n t e r t h e a r b i t r a t i o n award i n t h e judgment
books?
2. Did the a r b i t r a t i o n panel err in granting the
award i n f a v o r o f r e s p o n d e n t ?
Section 27-5-202, MCA, specifically grants an
a r b i t r a t i o n p a n e l t h e power t o make a n award a f t e r h e a r i n g
the allegations and evidence of the parties. The
arbitrators' award is then to be given the effect of a
j udgment when :
" A f t e r t h e e x p i r a t i o n of 5 d a y s from t h e
f i l i n g o f t h e a w a r d , upon t h e a p p l i c a t i o n o f
a p a r t y who a l s o f i l e s a n a f f i d a v i t showing
t h a t n o t i c e o f f i l i n g t h e award h a s b e e n
s e r v e d on t h e a d v e r s e p a r t y o r h i s a t t o r n e y
a t l e a s t 4 d a y s p r i o r t o s u c h a p p l i c a t i o n and
t h a t no o r d e r s t a y i n g t h e e n t r y o f judgment
h a s been s e r v e d , t h e c l e r k must e n t e r t h e
award i n t h e judgment book and t h e r e u p o n i t
h a s t h e e f f e c t o f a judgment." Section
27-5-303, MCA.
Here, respondent has properly followed the above-
mandated procedure, and the District Court committed no
error in directing the clerk to enter the award in the
judgment book.
The second i s s u e on appeal concerns appellant's
a s s e r t i o n t h a t had t h e D i s t r i c t Court heard her motion t o
v a c a t e , t h e c o u r t would h a v e f o u n d t h a t t h e award g r a n t e d by
the a r b i t r a t i o n panel was improper. W m u s t d i s a g r e e by
e
c o n c l u d i n g t h a t a p p e l l a n t h a s f a i l e d t o a s s e r t a. l e g i t i m a t e
b a s i s upon which t h e D i s t r i c t C o u r t c o u l d g r a n t h e r m o t i o n .
As a consequence, there i s now n o t h i n g for this Court t o
c o n s i d e r , and t h e j u d g m e n t m u s t b e a f f i r m e d .
In t h i s regard, s e c t i o n 27-5-301, MCA, is p e r t i n e n t
and p r o v i d e s :
"When c o u r t may v a c a t e a w a r d . The c o u r t o r
j u d g e , on m o t i o n , may v a c a t e t h e award upon
a n y o f t h e f o l l o w i n g g r o u n d s and may o r d e r a
new h e a r i n g b e f o r e t h e same a r b i t r a t o r s o r
n o t , i n its o r h i s d i s c r e t i o n :
" ( 1 )I t was p r o c u r e d by c o r r u p t i o n o r f r a u d .
" ( 2 ) The arbitrators were guilty of
misconduct o r committed g r o s s e r r o r i n
r e f u s i n g , on c a u s e shown, t o p o s t p o n e t h e
hearing or i n refusing t o hear p e r t i n e n t
evidence or otherwise acted improperly i n a
manner by which t h e r i g h t s o f t h e p a r t y w e r e
p r e j ud i c e d .
" ( 3 ) The a r b i t r a t o r s e x c e e d e d t h e i r p o w e r s i n
making t h e award, or they refused or
i m p r o p e r l y o m i t t e d t o c o n s i d e r a p a r t of t h e
m a t t e r s s u b m i t t e d t o them.
" ( 4 ) The award is indefinite or cannot be
performed. "
Here a p p e l l a n t h a s a s s e r t e d i n her motion t h a t the
award o f attorney f e e s under the parties' contingent fee
a g r e e m e n t was w i t h o u t m e r i t . The s t a t e d grounds f o r the
contention are twofold: (1) t h e appraisal value of the
property should not be used in determining respondent's
compensation because a p p e l l a n t could n o t s e l l t h e p r o p e r t y
for that amount; and (2) a t the time of the settlement,
a p p e l l a n t was a l r e a d y t h e l e g a l and e q u i t a b l e owner o f t h e
property, and, t h u s , respondent never o b t a i n e d any monies,
p r o p e r t i e s o r e q u i t i e s on h e r b e h a l f . These grounds do n o t
constitute a proper basis upon which to vacate the
a r b i t r a t i o n p a n e l ' s award.
Appellant, i n her motion, h a s n o t a l l e g e d , nor can w e
f i n d a n y t h i n g t o i n d i c a t e , t h a t t h e award was g r a n t e d a s t h e
result of fraud; that the arbitrators were guilty of
misconduct; t h a t they refused t o postpone t h e hearing; t h a t
they refused t o consider evidence or other matters submitted
t o the panel; t h a t t h e y e x c e e d e d t h e i r power i n making t h e
award; or that the award is indefinite and cannot be
performed. The p r o p e r g r o u n d s upon w h i c h a m o t i o n t o v a c a t e
can be heard have, t h u s , n o t been e s t a b l i s h e d .
S i n c e a p p e l l a n t f a i l e d t o p r o p e r l y p e r f e c t her motion
t o v a c a t e a t t h e D i s t r i c t Court l e v e l and, further, failed
t o s u p p l y a p r o p e r b a s i s upon w h i c h t o h e a r t h a t m o t i o n , t h e
judgment o f t h e D i s t r i c t C o u r t , a s e n t e r p d ; i s a f f i r m e d .
W concur:
e
Chief ju'scice
Mr. Justice John C. Sheehy dissenting:
Lenora E. Kay has not had her day in court. She
contended before the arbitration board, before the District
Court, and now before this Court, that the contingent fee
agreement, drawn up by the attorneys, fails to state a basis
for which he owes an attorney fee. She has never had a
legal determination of that legal issue. The majority here
sidestepped the legal issue by (1) reading the statutes
against her to determine that she has no right of appeal here,
and (2) by deciding as a matter of law, without a record,
that her grounds for review before the District Court are
inadequate as a matter of law.
At the time of the contingent fee contract was made with
the attorneys, Lenora E. Kay was the legal and equitable owner
of her property, subject only to a claim by a trustee in
bankruptcy that her title was subject to a voidable preference
in favor of herself. Yet, the attorneys, who drafted the
contingent fee contract, provided compensation would include
costs, and "50 percent of all monies or property or equities
obtained for [Lenora] by way of settlement and/or judgment
as compensation for [the attorneys'] services." Lenora's
contention that the attorneys are entitled to nothing beyond
a quantum meruit payment of this case has merit, if all we
regard is the face of the contingent fee contract, which is
all that is before this Court. If more is owed under that
contract, is could arise only by virtue of some par01 evidence
that would require some kind of hearing before some trier
of fact vested with authority to hear the same.
Lenora's contention before the arbitration board was
that "Mr. Bottomly's services were obtained to protect my
property from seizure, which he did not do . . ." That
quotation is at least as logical from the face of the
contingent fee contract as the attorney's contention that
he is entitled to one-half of the value of her property,
after the mortgage has been deducted. The majority gives
short shrift to her contention. She is at least entitled to
the benefits of the Montana Rules of Civil Procedure, to
the spirit of which my colleagues are on occasion want to
swear eternal allegiance, and particularly to Rule 8(f),
which provides that "all pleadings shall be so construed as
to do substantial justice."
The second problem with the majority opinion relates to
the majority's lack of interpretation of the arbitration
award statutes. In setting up the "procedure following
award", the legislature, in enacting sections 27-5-301
through -304, MCA, established a very confusing set of
procedures for action by the District Court, the clerk of
the District Court, and this Court, with respect to such
awards. Section 27-5-301, provides that a District Court
"may vacate - award
the . . . - may order - - hearing"
and - a new
when certain grounds appear. Section 27-5-302, on the other
hand, provides that a District Court "may, on motion, modify
or correct the award" when certain matters appear.
The grounds upon which the court may vacate the award
and order a new hearing under section 27-5-301, are different
from the grounds upon which the court may modify of correct
the award under section 27-5-302. It appears to me, in con-
sidering these two sections, that it was the purpose of the
legislature to allow the court, under section 27-5-302,
to modify or correct the award when it appeared from the
face of the record (the arbitration award) that a mistake
-7-
had been made which could be corrected without a further
hearing before arbitrators. Section 27-5-301, on the
other hand, is so designed to provide for the vacation of
the award and a new hearing where the hearing established
that the arbitrators acted improperly, corruptly, fraudulently,
or in excess of their powers. Therefore, when Lenora E.
Kay contends, as she did before the arbitration board when
she was unrepresented by counsel, that the arbitration board
did not consider her legal objection to the contingency
contract, she set forth the grounds that the arbitration
board "otherwise acted improperly in a matter by which the
rights of the party were prejudiced." This is a proper
ground for vacation of the award and a new hearing under
section 27-5-302(2), MCA. She has been denied that right to
have the issue determined by the majority opinion.
The right to obtain a vacation of the award and a new
hearing when the arbitrators "otherwise acted improperly"
is a broad umbrella which covers the contentions of Lenora
Kay. It is not a ground mentioned by the majority. Indeed,
the majority opinion fails to discuss the provisions of the
statute in holding that she has not established grounds for
such a vacation of award. What is the basis of that holding?
The majority has further confused the appellate rights
of a person involved in an arbitration procedure, when it
determines that there is no appeal available from a judgment
entered while there is a timely, pending motion before the
District Court to vacate the award.
The pertinent statutes are these:
"27-5-302. When court may modify or correct
award. The court or judge may, on motion,
modify or correct the award where it appears
that:
"(1) there was a miscalculation in figures
upon which it was made or that there is a
mistake in the description of some persons
or property therein;
" (2) a part of the award is upon matters not
submitted, which part can be separated from
other parts and does not affect the decision
on the matters submitted;
" (3) the award, though imperfect in form,
could have been amended if it had been a verdict,
or the imperfection disregarded."
"27-5-303. When award has effect of a judgment.
After the expiration of 5 days from the filing
of the award, upon the application of a party
who also files an affidavit showing that notice
of filing the award has been served on the
adverse party or his attorney at least 4 days
prior to such application and that no order staying
the entry of judgment has been served, the clerk
must enter the award in the judgment book and
thereupon it has the effect of a judgment."
An examination of the foregoing two statutes reveals
that they do not cover the situation that occurred here.
Lenora E. Kay timely filed a motion to vacate the award
before the clerk entered judgment in this case. That
motion was pending at the time that the clerk entered the
judgment. That motion is still pending before the District
Court. Under section 27-5-304, MCA, the right of appeal
is not from the judgment but rather from the "decision upon
the motion" to vacate the award. Under section 27-5-304,
an appeal is granted to a party from a motion whether or
not a judgment has been entered before the notion has been
decided.
The District Court did not pass upon the motion to
vacate the award on the grounds stated. Instead, the
District Court, because judgment had been entered by the
clerk of the court, decided that the District Court was
precluded from doing anything further with respect to the
motion to vacate the arbitration award. Thus, we have a
case before us where a right of appeal is granted to
Lenora E. Kay on the motion to vacate the arbitration
award, but the District Court has not yet acted on the
grounds set out in that motion.
Therefore, we have before us a situation where the
question as to the legality of the attorney's fees under the
language of the attorney's fees contract has not been decided
upon an adversarial proceedings either in the District
Court or in this Court, all because of the peculiar nature
of the statutes providing for this appeal.
I would therefore reverse the case and remand it to
the ~istrictCourt for a consideration of the issues raised
by the motion to vacate the award. Otherwise, we have
denied to Lenora E. Kay her right to appeal from a decision
on her motion, a decision which the District Court has yet
to make.
I join in the dissent of