Good Schools Missoula Inc. v. Mis

July 1 2008

DA 07-0538

IN THE SUPREME COURT OF THE STATE OF MONTANA

2008 MT 231

GOOD SCHOOLS MISSOULA, INC.,

Plaintiff and Appellant.

v.

MISSOULA COUNTY PUBLIC SCHOOL DISTRICT
NO. 1, a political subdivision of the state of Montana,
LOYOLA SACRED HEART HIGH SCHOOL
FOUNDATION, a Non-Profit Corporation,
ROSEMARY HARRISON, JOE TOTH, SCOTT BIXLER,
TONI REHBEIN, and JENDA HEMPHILL,

Defendants and Appellees.

APPEAL FROM: District Court of the Fourth Judicial District,
In and For the County of Missoula, Cause No. DV-2006-306
Honorable Ed McLean, Presiding Judge

COUNSEL OF RECORD:

For Appellant:

Roy H. Andes, Attorney at Law, Helena, Montana

Jim Wheelis, Attorney at Law, Helena, Montana

For Appellees School District No. 1, Rosemary Harrison, Joe Toth, Scott Bixler,
Toni Rehbein and Jenda Hemphill:

Elizabeth A. Kaleva, Attorney at Law, Missoula, Montana

For Appellee Loyola Sacred Hart High School Foundation:

Perry J. Schneider, Milodragovich, Dale, Steinbrenner & Binney, P.C.,
Missoula, Montana
 Submitted on Briefs: May 14, 2008

Decided: July 1, 2008

Filed:

__________________________________________
Clerk

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Justice Patricia O. Cotter delivered the Opinion of the Court.

¶1 Good Schools Missoula, Inc. (GSM) is a Montana non-profit membership

corporation organized for the purpose of improving public schools in Missoula, Montana.

Its members include persons who pay property taxes in Missoula County and have

children who attend schools in Missoula County Public School District No. 1 (District).

GSM appeals the dismissal of its complaint in the District Court of the Fourth Judicial

District, Missoula County, and the award of attorney’s fees in favor of the above-named

appellees. We affirm the dismissal of GSM’s complaint, vacate the award of attorney’s

fees and remand for further proceedings consistent with this Opinion.

FACTUAL AND PROCEDURAL BACKGROUND

¶2 In April of 1998, the Board of Trustees of Missoula County Public School District

No. 1 (Board) adopted a policy for the District which authorized it to dispose of sites,

buildings, or any other real or personal property which are, or are about to become,

abandoned, obsolete, undesirable, or unsuitable for school purposes. The policy required

the Board to pass a resolution, according to state statute, authorizing any sale and stating

the reasons for its decision. If the resolution was adopted and its legality affirmed, the

Board was then authorized to sell or dispose of the property in a reasonable manner

determined to be in the best interests of the District.

¶3 The Roosevelt School (Roosevelt) was a public school located in the District. In

1999, the District voted to close the Roosevelt School and bus the students who attended

Roosevelt to other schools in Missoula. In June 1999, the Board voted to authorize a

five-year lease of Roosevelt to the the Catholic Diocese of Helena (Diocese). The

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Diocese was affiliated with the Loyola Sacred Heart High School Foundation (Loyola),

an organization which operated a private Catholic school in Missoula. Before the

expiration of the lease, the Diocese approached the District about purchasing Roosevelt.

In September 2004, the Board authorized a public referendum on whether to sell

Roosevelt to the Diocese. On November 2, 2004, the majority of those who voted on the

referendum voted in favor of the sale. On April 12, 2005, after the public vote, the Board

authorized the sale of Roosevelt to Loyola and the Diocese, and the sale was completed

on May 6, 2005.1

¶4 GSM claims that the Board and the District took a number of actions which were

favorable to Loyola and the Diocese, and detrimental to its members. GSM maintains

that the District and the Board did not give appropriate public notice of its initial

deliberations and decision to lease Roosevelt to the Diocese, nor did it solicit bids from

other interested parties who might have been interested in leasing Roosevelt. As a result

of the Board’s actions in Loyola’s favor, GSM claims that Loyola was able to obtain the

lease at a rate far below market value. Then, when the Diocese approached the District

about purchasing Roosevelt, GSM asserts that the District and the Board continued to

give Loyola and the Diocese highly favorable treatment. In addition to rushing through

the passage of the resolution and approval of the referendum for the sale, GSM claims the

Board and the District improperly renewed Loyola’s lease, even though its term had

already expired. It further claims that the Board and the District then hurriedly approved

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Appellees Rosemary Harrison, Joe Toth, Scott Bixler, Toni Rehbein, and Jenda Hemphill were
all members of the Board who voted in favor of the sale of Roosevelt.

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the sale of Roosevelt to Loyola without seeking sufficient appraisals or soliciting

competitive bids. GSM claims that other interested parties submitted bids for Roosevelt

which were higher than the one offered by Loyola and the Diocese, but the Board did not

properly consider them.

¶5 After the sale, some members of the Missoula community were unhappy with the

process and result of the transaction. On May 12, 2005, Linda Smith (Smith) and Molly

Moody (Moody), two Missoula residents who live near Roosevelt, filed suit against the

District and the Board, seeking to void the sale. Moody and Smith claimed the District

had violated their right-to-participate and right-to-know under Article II, Sections 8 and 9

of the Montana Constitution in the processes and procedures it used to effectuate the sale.

The District Court of the First Judicial District, Lewis and Clark County, rejected this

argument, as well as others set forth in their complaint, and granted a motion to dismiss

filed by the District and the Board in an order dated October 5, 2005.

¶6 On April 11, 2006, GSM filed their instant action against Loyola, the District, and

the other above-named appellees in the Fourth Judicial District, Missoula County under

the Uniform Declaratory Judgment Act (UDJA), Title 27, chapter 8, MCA. The

complaint was amended on May 16, 2006. In the amended complaint, GSM sought a

declaratory judgment that the sale of Roosevelt was void, as well as other forms of

equitable relief against the District and those members of the Board who voted in favor of

the sale. GSM alleged that the Board and the District were obligated to manage

Roosevelt as trust property and observe both statutory and common law duties as trustees

in its managing of the school, but breached these fiduciary duties to GSM’s members in

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its handling of the sale. GSM alleged that Roosevelt was sold to Loyola at a price

significantly below market value, and at a price below other bids the Board had received

from interested parties. GSM further alleged that the handling of the transaction and the

final terms of its sale, breached the duty of undivided loyalty to GSM’s members “in

providing a sweetheart lease/purchase deal and procedure to Loyola.” Additionally,

GSM alleged that the Board breached the duties of prudence and accountability in regard

to various aspects of its handling of the transaction, as well as Article X, Section 6 of the

Montana Constitution which prohibits grants of benefits to sectarian schools.

¶7 On June 9, 2006, Loyola filed a motion to dismiss pursuant to M. R. Civ. P.

12(b)(6). Loyola asserted that GSM’s claims against all the appellees in this matter were

barred under res judicata and collateral estoppel, on account of the previous suit filed by

Smith and Moody which had been dismissed in the First Judicial District. Loyola also

argued GSM’s claims were barred by the thirty-day statute of limitations for challenging

a decision of a state agency under § 2-3-114, MCA. Additionally, Loyola argued that

GSM lacked standing to file suit against Loyola. GSM opposed Loyola’s motion,

arguing that res judicata and collateral estoppel did not bar its claims, and that it did have

standing to pursue them. Additionally, GSM argued that the matter was not controlled by

the public participation statutes under Title 2, chapter 3, MCA, but was governed instead

by general trust law as contained in Title 72, chapter 33 through 36, MCA. Accordingly,

GSM argued that the proper statute of limitations for its claims was set forth in

§ 72-34-511, MCA, which gives the beneficiary of a trust three years after the discovery

of the breach of a trust to bring an action against a trustee.

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¶8 On February 27, 2007, the District Court granted Loyola’s motion to dismiss

GSM’s complaint as against all the appellees. The District Court concluded that GSM

did have standing to pursue its claims, but that GSM provided no authority showing that

the actions of the Board were covered by the general trust codes. Instead, the District

Court concluded that the statutes pertaining to public participation in governmental

operations under Title 2, chapter 3, MCA, were controlling. The District Court ruled that

because the sale of Roosevelt was closed on May 6, 2005, and GSM’s complaint was not

filed until April 11, 2006, the action against Loyola, the District, and the other named

appellees was barred by the thirty-day statute of limitations set forth in § 2-3-114, MCA.

¶9 On March 6, 2007, Loyola filed a motion seeking attorney’s fees from GSM

pursuant to the District Court’s inherent equitable powers as well as its equitable powers

under § 27-8-313 of the UDJA. Loyola argued that the District Court should award

attorney’s fees in the amount of $11,762.50 and costs in the amount of $70.00, because

GSM’s suit against it was frivolous and presented an unreasonable claim. Loyola

maintained that the suit was without merit and legal authority, especially in light of the

previous order concerning the propriety of the sale of Roosevelt issued in the First

Judicial District. Loyola argued that GSM advanced its argument to apply general trust

law in an attempt to circumvent the limitations under § 2-3-114, MCA, and forced it to

defend itself against a frivolous suit. Additionally, Loyola maintained that it had been

named as a party for the sole purpose of bringing the case within the District Court’s

jurisdiction, as all of GSM’s claims were directed solely at the District and the Board.

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¶10 On March 12, 2007, the District and the other above-named appellees also filed a

motion for attorney’s fees in the amount of $25,863.75, as well as a bill of costs for

$3,395.21. In their motion, these appellees incorporated the arguments and claims

advanced by Loyola. Additionally, the District and other appellees argued that during

discovery none of GSM’s members who claimed damages could in fact substantiate any

of those claims.

¶11 On August 6, 2007, the District Court granted both motions for attorney’s fees and

costs against GSM. The District Court noted that GSM was not even incorporated until

well after the thirty-day statute of limitations under § 2-3-114, MCA, had expired, and

that GSM was simply trying to resurrect its claims against the appellees by arguing for

the applicability of the general trust codes. Additionally, the District Court noted that the

proprietary of the sale of Roosevelt had already been litigated. The District Court further

observed that GSM made no factual allegations of wrongdoing against Loyola, and

agreed that it had been named as a party defendant solely for the purpose of providing the

District Court with jurisdiction. Thus, it held that the suits against Loyola, the District

and the other appellees were frivolous, without merit, and unreasonable, and awarded

attorney’s fees and costs pursuant to its authority under M. R. Civ. P. 11 and Foy v.

Anderson, 176 Mont. 507, 580 P.2d 114 (1978) and its progeny.

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¶12 GSM now appeals the District Court’s orders granting Loyola’s motion to dismiss

the complaint as against all the appellees as well as the award of attorney’s fees to all

appellees.2 GSM presents the following two issues on appeal:

¶13 Issue One: Did the District Court err in granting Loyola’s motion to dismiss?

¶14 Issue Two: Did the District Court abuse its discretion in awarding attorney’s

fees against GSM?

STANDARD OF REVIEW

¶15 We review de novo a district court’s ruling on a motion to dismiss under

M. R. Civ. 12(b)(6). Plouffe v. State, 2003 MT 62, ¶ 8, 314 Mont. 413, ¶ 8, 66 P.3d 316,

¶ 8. We affirm a district court’s decision granting a motion to dismiss “when we

conclude that the plaintiff would not be entitled to relief based on any set of facts that

could be proven to support the claim.” Plouffe, ¶ 8. Whether a complaint states a claim

for which relief can be granted is a question of law which we review for correctness.

Plouffe, ¶ 8.

¶16 In general, we review a district court’s award of reasonable attorney’s fees for an

abuse of discretion. Chase v. Bearpaw Ranch Assn., 2006 MT 67, ¶ 15, 331 Mont. 421,

¶ 15, 133 P.3d 190, ¶ 15. The reasonableness of attorney’s fees should be assessed

relative to the facts of each case, and the district court should consider a number of

factors when deciding to grant an award of attorney’s fees. Chase, ¶ 38 (describing some

of the factors to be considered by a district court when awarding reasonable attorney’s

fees). Moreover, an evidentiary hearing is required before attorney’s fees can be granted.

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In its briefs before this Court, GSM does not independently challenge the award of costs.

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Glaspey v. Workman, 234 Mont. 374, 377-78, 763 P.2d 666, 668 (1988). We review a

district court’s imposition of sanctions under M. R. Civ. P. 11 under the following

standard:

[W]e review de novo the district court’s determination that the pleading,
motion or other paper violates Rule 11. We review the district court’s
findings of fact underlying that conclusion to determine whether such
findings are clearly erroneous. If the court determines that Rule 11 was
violated, then we review the district court’s choice of sanction for abuse of
discretion.

Byrum v. Andren, 2007 MT 107, ¶ 19, 337 Mont. 167, ¶ 19, 159 P.3d 1062, ¶ 19.

DISCUSSION

¶17 Issue One: Did the District Court err in granting Loyola’s motion to dismiss?

¶18 On appeal, GSM argues the District Court erred in granting Loyola’s motion to

dismiss by incorrectly concluding that the thirty-day statute of limitations set forth in

§ 2-3-114, MCA, applied to its claims. GSM argues that its claim falls under the general

trust codes and is within the three year statute of limitations for actions against trustees

set forth in § 72-34-511, MCA.

¶19 Loyola and the District maintain the District Court did not err in dismissing

GSM’s complaint. Loyola asserts that the District Court properly dismissed the

complaint because res judicata and collateral estoppel barred GSM’s claims and because

the statute of limitations under § 2-3-114, MCA, and not the general trust codes, applies.

The District adopts all of these arguments, but adds that the statutes applicable to this

case are actually found in Title 20, chapter 6, part 6, MCA.

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¶20 The District maintains that Title 20 contains specific provisions which govern the

actions of both the Board and the District relative to this case. The District notes that

§ 20-6-603, MCA, specifically authorizes the trustees of a school district to acquire and

dispose of sites and buildings owned by the school district. Additionally, the District

points to § 20-3-324, MCA, and § 20-9-213, MCA, which both specifically relate to the

powers, duties, and administrative responsibilities of the trustees of public school

districts.

¶21 Notably, the District further argues that the statutes in Title 20 and accompanying

administrative regulations provide a thirty-day statute of limitations which specifically

applies to any court actions brought against the Board and the District. In support of this

argument, the District first points to § 20-3-210(1), MCA, which provides in part as

follows:

20-3-210. Controversy appeals and hearings. (1) Except for disputes
arising under the terms of a collective bargaining agreement or as
provided under 20-3-211 or 20-4-208, the county superintendent shall hear
and decide all matters of controversy arising in the county as a result of
decisions of the trustees of a district in the county. . . . Except as provided
in subsection (2), exhaustion of administrative remedies under this chapter
is required prior to filing an action in district court concerning a decision
of the trustees. (Emphasis added.)

The District then points to Admin. R. M. § 10.6.103 (1999), which provides in part as

follows:

(1) A person who has been aggrieved by a final decision of the board of
trustees of a school district in a contested case is entitled to commence an
appeal before the county superintendant.

(2) A school controversy contested case shall be commenced by filing a
notice of appeal with the county superintendent and the parties within 30

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 days after the final decision of the board of trustees of the school district is
made. The date of filing shall be determined to be the date the notice is
delivered to the county superintendent or, if mailed, the date the notice is
deposited in the U.S. mail as evidenced by the postmark date. Notice of
appeal shall be served on the parties by certified mail or personal delivery.
Respondent shall file a written reply to the notice of appeal within 10
business days of receipt.

Admin. R. M. § 10.6.103 (1) and (2) (1999).

¶22 We agree with the District that the provisions of Title 20 apply to this case.

Specifically, once a decision is made by the board of trustees of a school district that

generates a controversy in the county, as occurred here, controversy appeals and hearings

are governed by the provisions of § 20-3-210, MCA, and the accompanying

administrative rules. However, we disagree with the District’s contention that these

statutes impose a thirty-day statute of limitations for the filing of a complaint in district

court. Rather, as is evident from the language of § 20-3-210, MCA, and Admin. R. M.

§ 10.6.103 (1999) quoted above, a person aggrieved by an action of the board of trustees

is obligated to first exhaust her administrative remedies by bringing her controversy

before the county superintendent. It is this action before the county superintendent—and

not an appeal to the district court—which must be commenced within thirty days of the

decision of the board of trustees. A.R.M. § 10.6.103(2) (1999).

¶23 Consistent with § 20-3-210, MCA, we have held that claimants must exhaust their

administrative remedies under this statute before filing a complaint or petition in district

court which challenges the actions of school board trustees. Canyon Creek Educ. Assn. v.

Bd. Of Trustees, Yellowstone Co. Sch. Dist. No. 4, 241 Mont. 73, 75, 785 P.2d 201, 203

(1990). There are limited exceptions to this rule in situations where state agencies have

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been directly granted primary jurisdiction, where the matter is governed by a specific

statute, or where a board of trustees has acted without or in excess of its jurisdiction.

Canyon Creek, 241 Mont. at 75, 785 P.2d at 203 (citing Throssell v. Bd. Of Trustees of

Gallatin Co. Sch. Dist. No. 7, 232 Mont. 497, 499-500, 757 P.2d 348, 349-50 (1988)). It

is undisputed that GSM did not seek review of the controversy before the county

superintendent before bringing this action in District Court. Moreover, GSM has not

demonstrated that any of these three exceptions apply; therefore, it failed to exhaust its

administrative remedy as required by law.

¶24 Accordingly, we affirm the District Court’s dismissal of GSM’s complaint, in

spite of the fact that it erroneously concluded that the complaint was barred by virtue of

the statute of limitations set forth in § 2-3-114, MCA. Wells Fargo Bank v. Talmage,

2007 MT 45, ¶ 23, 336 Mont. 125, ¶ 23, 152 P.3d 1275, ¶ 23 (stating that we will affirm a

district court’s decision even if it reaches the right result for the wrong reason). GSM

failed to state a claim for which relief could be granted because it failed to exhaust its

administrative remedies before pursuing relief in the District Court. Therefore, dismissal

of its complaint under M. R. Civ. P. 12(b)(6) was not in error.

¶25 Issue Two: Did the District Court abuse its discretion in awarding attorney’s
fees against GSM?

¶26 GSM maintains that the District Court’s order granting attorney’s fees was

incorrect because it turned on the conclusion that GSM’s claim that the general trust code

applied to the Board’s action was wholly frivolous and without merit. GSM argues that

its suit was brought as a reasonable attempt to expand existing law, even if this argument

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is ultimately rejected. GSM argues that it raised different issues than those raised in

previous suits concerning the sale of Roosevelt, and that in order to avoid sanctions under

M. R. Civ. P. 11 it need only show that it made a good faith argument within its view of

the law. In support of its claim, GSM points to our decision in Dept. of State Lands v.

Pettibone, 216 Mont. 361, 702 P.2d 948 (1985), where we implied that a state agency

which administers school trust lands is required to adhere to general fiduciary duties.

Pettibone, 216 Mont. at 371, 702 P.2d at 954. Given Pettibone and other cases such as

Montanans for the Responsible Use of the School Trust v. State, 1999 MT 263, 296 Mont.

402, 989 P.2d 800, and Chennault v. Sager, 187 Mont. 455, 610 P.2d 173 (1980), GSM

argues it is not frivolous to argue that if general fiduciary duties apply to state trustees in

other contexts, then the general trust code provisions, and the accompanying statute of

limitations, could apply to the Board in this case as well.

¶27 In this connection, GSM also observes that the District Court did conclude it had

standing to bring the suit, and that we should take this into consideration in determining

whether its conduct was sanctionable under M. R. Civ. P. 11. Finally, GSM claims that,

at a minimum, the sanctions under M. R. Civ. P. 11 must be remanded because the

District Court failed to properly afford it due process and notice, in that no hearing was

held prior to the issuance of the attorney’s fee assessment.

¶28 Loyola and the District both maintain that M. R. Civ. P. 11 sanctions were

warranted in this case. Loyola maintains the District Court properly exercised its

equitable powers to make it whole as a consequence of having to defend itself against a

frivolous and meritless suit. Loyola argues it was brought into this action solely for

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purposes of obtaining jurisdiction, and that GSM’s amended complaint is devoid of any

allegations of wrongdoing against it. Because GSM sought relief under the UDJA,

Loyola further argues the District Court acted within it equitable powers per § 27-8-313,

MCA, which authorizes a district court to grant further relief in a declaratory judgment

action whenever necessary or proper. The District and the other appellees also argue that

the award of attorney’s fees was appropriate and adopt the same arguments advanced by

Loyola, but further point out that they were forced to spend significant resources during

discovery in defense of this suit, in spite of the fact that the propriety of the Roosevelt

sale had already been litigated.

¶29 GSM is correct in noting that a hearing is required before sanctions can be issued

under M. R. Civ. P. 11. Byrum, ¶ 32. Moreover, a hearing is required before an award of

reasonable attorney’s fees is made pursuant to the district court’s equitable powers.

Glaspey, 234 Mont. at 377-78, 763 P.2d at 668. Thus, a remand of the award of

attorney’s fees is required so that a hearing can be held.

¶30 Because the District Court invoked both M. R. Civ. P. 11 and its equitable power

in awarding sanctions, it is difficult to evaluate the propriety of sanctions on appellate

review. In evaluating whether sanctions under M. R. Civ. P. 11 are justified, the district

court is required to make appropriate findings and conclusions and hold a hearing under

Byrum. Additionally, the reasonableness of an award of attorney’s fees in general must

be evaluated under the factors as set forth in Chase. Chase, ¶ 38. We agree with GSM

that the District Court order granting attorney’s fees does not adequately set forth an

analysis under these factors, nor does it set forth the reasons for its award of fees under

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M. R. Civ. P. 11 as required under Byrum. Thus, we must vacate the award of attorney’s

fees and remand for further proceedings.

CONCLUSION

¶31 We affirm the District Court’s grant of Loyola’s motion to dismiss. We conclude

that GSM failed to exhaust its administrative remedies before filing suit, and that its

claim in District Court was barred. Therefore, albeit for an incorrect reason, the District

Court reached the correct result in concluding that GSM failed to state a claim for which

relief could be granted under M. R. Civ. 12(b)(6). We vacate the award of attorney’s

fees, and remand for further proceedings consistent with this Opinion.

/S/ PATRICIA COTTER

We concur:

/S/ JAMES C. NELSON
/S/ JOHN WARNER
/S/ W. WILLIAM LEAPHART
/S/ BRIAN MORRIS

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