December 29 2009
DA 09-0083
IN THE SUPREME COURT OF THE STATE OF MONTANA
2009 MT 447N
DAVID SIEGLE, and SIEGLE, INC.,
Plaintiffs, Appellees, and Cross-Appellants,
v.
SANFORD K. HELMUTH, a/k/a SANDY HELMUTH,
Defendant and Appellant.
APPEAL FROM: District Court of the Seventh Judicial District,
In and For the County of Dawson, Cause No. DV 06-021
Honorable Katherine M. Irigoin, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Albert R. Batterman, Batterman Law Offices, Baker, Montana
For Appellees:
Richard O. Harkins, Attorney at Law, Ekalaka, Montana
Submitted on Briefs: November 12, 2009
Decided: December 29, 2009
Filed:
__________________________________________
Clerk
Justice John Warner delivered the Opinion of the Court.
¶1 Pursuant to Section I, Paragraph 3(c), Montana Supreme Court 1996 Internal
Operating Rules, as amended in 2006, the following decision shall not be cited as precedent.
It shall be filed as a public document with the Clerk of the Supreme Court and shall be
reported by case title, Supreme Court cause number and result to the State Reporter
Publishing Company and to West Group in the quarterly table of noncitable cases issued by
this Court.
¶2 In February 2008, this case was tried to the District Court, Seventh Judicial District,
Dawson County. The District Court entered findings of fact, conclusions of law and an
order, voiding all of the shares of the Montana corporation, Siegle, Inc., that had been issued
to the defendant Sandford Helmuth (Helmuth). The District Court also ordered that a portion
of such shares be transferred back to the Estate of Wilhelm Siegle, determined that Helmuth
and plaintiff David Siegle had monetary obligations to Siegle, Inc., and denied David
Siegle’s prayer for attorney fees. Helmuth appeals and David Siegle cross-appeals. Siegle,
Inc. has not participated in this appeal. We reverse and remand with instructions.
¶3 We restate the issues on appeal as follows:
¶4 Issue 1: Did the District Court err in concluding that an agreement in which 282
shares of Siegle, Inc. stock was purportedly transferred to Helmuth is actually a pledge
agreement to secure a prior loan, and thus Helmuth did not own such stock?
2
¶5 Issue 2: Did the District Court err when it concluded that 225 shares of Siegle, Inc.
stock were issued to Helmuth wrongfully, and therefore order that the issue of such stock is
void?
¶6 Issue 3: Did the District Court err when it found Helmuth committed actual fraud in
his dealings with David Siegle and thus concluded punitive damages are appropriate?
¶7 Issue 4: Did the District Court err when it did not determine the value of the shares of
stock in Siegle, Inc. and instead held that Helmuth was not a shareholder and fixed the
amount of certain debts of the corporation, Helmuth, and David Siegle?
¶8 David Siegle cross-appeals, raising the following issues:
¶9 Issue 5: Did the District Court err when it ordered David Siegle to pay Siegle, Inc.
$117,276?
¶10 Issue 6: Did the District Court err when it denied David Siegle’s prayer for attorney
fees?
¶11 In 1971, Wilhelm Siegle formed Siegle, Inc., a corporation that operated a dairy farm
in Dawson County, Montana. In 1977, his son, David Siegle, was named president of the
corporation. Wilhelm Siegle wished to have David Siegle manage the dairy. So, at the
direction of Wilhelm Siegle, the corporation agreed to buy 232 shares of its own stock from
Wilhelm and then make monthly payments to him in the amount of $600. However, Siegle,
Inc. defaulted on its obligation to make the payments in February 1999. A receiver was
appointed for Siegle, Inc. and discovered that in the mid-1990s, David Siegle had wrongfully
taken a large amount of money from the corporation for his personal use.
3
¶12 In November 1999, the shareholders elected David Siegle’s brother, Phillip Siegle,
president of the corporation. David Siegle continued as an employee of Siegle, Inc.,
conducting its day-to-day dairy business. He held the office of vice president, was not in
control of the corporation’s receipts or disbursements, and did not have authority to incur
debt on behalf of Siegle, Inc. or dispose of corporate property.
¶13 In December 1999, Siegle, Inc. was unable to make a required payment of $13,013 to
the Federal Land Bank. Wilhelm Siegle sought the help of a neighbor, Helmuth, in making
the payment. Helmuth wrote a check to Siegle, Inc. for the Land Bank payment and, in
return, Siegle, Inc. gave him a promissory note for the same amount that Helmuth signed as
president of Siegle, Inc. However, Helmuth had not properly been made president of the
corporation when he executed this promissory note.
¶14 On February 1, 2000, Helmuth, David Siegle, Wilhelm Siegle and Phillip Siegle
signed a written agreement (Agreement). Wilhelm and Phillip Siegle signed as “seller,”
Helmuth signed as “buyer,” and David Siegle signed individually. The Agreement provides,
inter alia: (1) Helmuth will loan the corporation $44,110 and the corporation agrees to
execute two promissory notes in favor of Helmuth, one for the land payment amount and one
to repay Phillip Siegle $30,098; (2) Wilhelm Siegle agrees to transfer his 282 shares of stock
to Helmuth; (3) Siegle, Inc. agrees to pay Phillip Siegle $30,098; (4) additional creditors may
exist of which Wilhelm Siegle is not aware; (5) David Siegle would have the option to buy
49% of the outstanding stock of Siegle, Inc. from Helmuth, unless he wanted to buy 100% of
the shares “for one dollar and other valuable consideration”; and, (6) Siegle, Inc. and
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Helmuth will hold Wilhelm and Phillip Siegle harmless for any debts of the corporation.
The Agreement also states it is “doubtful that these shares have any value, because the debts
of the Corporation may exceed its assets.” It appears from the record that Helmuth made the
payments specified in the Agreement and 282 shares of Siegle, Inc. were ultimately
transferred to him.
¶15 Three months later, in April 2000, Helmuth prepared a balance sheet reflecting the net
worth of Siegle, Inc. as $126,488.1 In June, David Siegle (hereafter Siegle) sought to
exercise his option to buy all of Helmuth’s shares in Siegle, Inc.
¶16 In July 2000, Siegle filed for bankruptcy; at least a portion of his debts were
discharged. No documents from bankruptcy court are included in the record, thus nothing in
the record shows which of Siegle’s debts were listed on the schedules he filed in the
bankruptcy court, whether anyone objected to the discharge of any debts, or which debts
were discharged.
¶17 In October 2000, Helmuth prepared another balance sheet, listing the net worth of
Siegle, Inc. as $488,309, an increase in value of $362,020 between April and October 2000.2
Helmuth advised Siegle’s attorney he would accept $466,239.62 for his shares in Siegle, Inc.
Siegle was not able to exercise his option to buy Helmuth’s stock.
1
This balance sheet also says that the value of Siegle, Inc. in 1997 had been $617,156.
2
Still, between April and October Helmuth successfully negotiated with some of the corporation’s
creditors to reduce Siegle, Inc.’s unsecured debt by $101,000.
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¶18 In November 2000 at a shareholder meeting of Siegle, Inc., the shareholders elected
Helmuth as president and also discussed setting a value for the shares should Siegle again
decide to exercise his option. Siegle and his attorney were present at this meeting.
¶19 In February 2001, Helmuth prepared a balance sheet showing the net worth of Siegle,
Inc. as $455,655. In April 2001, Helmuth prepared yet another balance sheet for Siegle, Inc.
showing the corporation had a net worth of only $249,004.
¶20 In May 2001, Helmuth called a meeting of Siegle, Inc.’s directors. Helmuth, his
attorney, the secretary of the corporation, Siegle and his attorney attended the meeting. At
this meeting, Helmuth proposed to issue an additional 225 shares of Siegle, Inc. to himself in
payment for the debts owed to him by the corporation. Based on the April balance sheet, he
announced that the shares were worth $594.27 each. Siegle’s attorney objected to issuing the
stock at this price and asked for financial documents to support Helmuth’s figures. Siegle’s
attorney said he would “confirm” his objection five days after he received the documents.
Siegle later received the documents, but did not make any further objection.
¶21 About a month later on June 19, 2001, after hearing nothing from Siegle or his
counsel, Helmuth caused Siegle, Inc. to issue to himself 225 shares of additional stock. He
testified at trial that these shares were issued to him in exchange for $78,111 in promissory
notes that had not been paid (the same promissory notes mentioned in the February 2000
Agreement), as well as $55,601 of work, tractor rental, and president’s salary. 3 After this
3
No tax returns reflected any income paid to Helmuth by Siegle, Inc. nor did Siegle, Inc. reflect a
deduction for salary paid to Helmuth.
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new stock was issued, Helmuth owned 507 shares of Siegle, Inc. and Siegle owned 137
shares.
¶22 In August 2001, David Siegle was terminated as an employee of Siegle, Inc. He was
living in a house owned by the corporation, and did not want to leave. Eventually, the
corporation evicted him.
¶23 Siegle filed this action in March 2004. He prayed for a court to order that he be
allowed to inspect the corporate records under § 35-1-1107, MCA, to dissolve the
corporation under § 35-1-938(2)(b), MCA, for a remedy under § 35-1-939, MCA, should
dissolution not be warranted, and for an injunction to preserve corporate assets during the
litigation. Siegle alleged he was an oppressed minority shareholder because Helmuth
manipulated Siegle, Inc. so that it did not pay dividends to him and deprived him of any
voice in management. Siegle alleged that Helmuth breached his fiduciary duty to him and he
also prayed for emotional distress damages.
¶24 After significant delays for discovery, changes in attorney and other factors, the
presiding district judge signed a final pretrial order on February 11, 2008, and trial
commenced before the District Court on February 20, 2008.
¶25 The District Court concluded that the portion of the Agreement in which Wilhelm
transferred his 282 shares of the stock of Siegle, Inc. to Helmuth was not supported by
consideration and was unenforceable. It ordered that these 282 shares be transferred back to
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the Estate of Wilhelm Siegle. 4 Then, because the Agreement transferring Wilhelm’s shares
was not enforceable, the District Court concluded Helmuth did not have sufficient control of
the corporation to issue himself an additional 225 shares on May 16, 2001. The result of
these rulings was that the Estate of Wilhelm Siegle owned 282 shares of Siegle, Inc., Siegle
owned 137 shares, and Helmuth owned no shares of the corporation.
¶26 Citing § 30-9A-102(1)(ttt)(iv), MCA, the District Court determined that the
Agreement was, in reality, a pledge rather than a sale of the stock and therefore Helmuth had
the right to be paid what Siegle, Inc. owed him, but he was not a shareholder.
¶27 The District Court also concluded that Helmuth committed actual fraud by
manipulating and falsifying the balance sheets to inflate the price of shares when Siegle
expressed interest in exercising his option to buy Helmuth’s shares, and deflating the price
when Helmuth wanted to buy shares to repay loans to the corporation. Thus, the District
Court awarded Siegle $746 as punitive damages.
¶28 As for Siegle’s allegation of oppression and request to dissolve the corporation, the
District Court considered § 35-1-938(2)(b), MCA—that provides a court may dissolve a
corporation if the directors or those in control of the corporation have acted in a manner that
is illegal, oppressive or fraudulent—and found that Helmuth’s firing and eviction of Siegle
“showed oppression,” Helmuth defrauded Siegle by providing him with invalid balance
sheets, Helmuth deprived Siegle of his right to participate in management, and Helmuth did
4
Wilhelm Siegle passed away seven days after trial. The District Court considered any interest of
Wilhelm in Siegle, Inc. owned by his estate.
8
not provide Siegle access to the corporation’s books. The District Court thus concluded
Helmuth breached his fiduciary duties owed to Siegle, the minority shareholder, apparently
based on the findings stated above.
¶29 As a remedy, the District Court ordered that Siegle, Inc. pay Helmuth what it owed
him, including the amounts of the promissory notes, other loans and wages. The District
Court ordered that Helmuth was to collect a debt owed to Siegle, Inc. by a Hutterite Colony,
incurred in a transfer of a right to produce milk (milk quota). The court also ordered that
Siegle repay the corporation what it calculated as the amount he had misappropriated.
¶30 The District Court also awarded Siegle his attorney fees, contingent on review and
approval of the amount of such fees. However, after a hearing, the District Court vacated
this order, holding attorney fees are not allowed because there is no contractual or statutory
basis for an award of attorney fees.
¶31 Issue 1: Did the District Court err in concluding that an agreement in which 282
shares of Siegle, Inc. stock was transferred to Helmuth is a pledge agreement to secure a
prior loan and thus Helmuth did not own such stock?
¶32 The District Court ordered that because there was no consideration for the February 1,
2000, Agreement, the ownership of the 282 shares of stock did not transfer from Wilhelm
Siegle to Helmuth. However, in his amended complaint, Siegle alleges that Helmuth is the
majority shareholder and chief operating officer of Siegle, Inc. The final pretrial order,
which supersedes the pleadings and was signed by the District Court and counsel for both
Siegle and Helmuth, states it is an agreed fact that “Sandford Helmuth became majority
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stockholder of Siegle, Inc. on February 1, 2000, by transfer of 282 shares of stock from
Wilhelm Siegle.”
¶33 A pretrial order supersedes the pleadings. Faulconbridge v. State, 2006 MT 198, ¶
69, 333 Mont. 186, 142 P.3d 777. The pretrial order “controls the subsequent course of the
action.” M. R. Civ. P. 16(e). The purpose of pretrial orders is to prevent surprise, simplify
the issues, and permit counsel to prepare their case for trial on the basis of the pretrial order.
Weimar v. Lyons, 2007 MT 182, ¶ 20, 338 Mont. 242, 164 P.3d 922. A legal theory or
factual issue must be at least implicitly included in the pretrial order, albeit the pretrial order
should be liberally construed to permit any issues that are embraced within their language.
Weimar, ¶ 20.
¶34 The record does not show that the District Court concluded the pretrial order must be
modified in order to prevent manifest injustice. Nor is lack of consideration an issue
expressed or implied by the pretrial order. To the contrary, the record clearly shows that
both Siegle and Helmuth came to trial believing Helmuth was the majority shareholder of
Siegle, Inc. and were thus prepared to have the District Court fix the worth of a share of the
corporation. Helmuth desired that the share price be fixed so that he could buy Siegle’s 137
shares. On the first day of trial, to Helmuth’s surprise, it became apparent that Siegle wanted
the District Court to order he was entitled to exercise his option under the Agreement and
buy Helmuth’s 507 shares. Nevertheless, Siegle at no time gave any indication in his
pleadings that he sought to have the District Court void any of the shares of stock held by
Helmuth.
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¶35 The pleadings and the District Court’s pretrial order provide that it is an established
fact in this case that Helmuth is the majority shareholder in Siegle, Inc. and that he holds, at
the least, 282 shares of stock in the corporation. It was a complete surprise to Helmuth that
the District Court ordered that these shares were not properly transferred to him. He had no
opportunity to defend his ownership of such stock. And, while Siegle argues on appeal that
the District Court should be affirmed, there is no indication in the record that he was not also
completely surprised at the District Court’s order. It was error for the District Court to
invalidate the transfer of Wilhelm Siegle’s 282 shares to Helmuth and declare that the
Agreement was a pledge of the stock to secure a loan.
¶36 Issue 2: Did the District Court err when it concluded that 225 shares of Siegle, Inc.
stock were issued to Helmuth wrongfully, and therefore order that the issue of such stock is
void?
¶37 The District Court held, in essence, that because Helmuth was not a shareholder of the
corporation and did not properly have control of Siegle, Inc. when he caused the corporation
to issue 225 shares to himself, these shares were illegally issued and void.
¶38 The record does not contain either the articles of incorporation or the bylaws of the
corporation. So, there is no record before the District Court or this Court that in order to be a
director of Siegle, Inc. a person is required to be a shareholder. Nor is there anything in the
record indicating that the board of directors of Siegle, Inc. may not issue stock in the
corporation.
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¶39 It is agreed, and the record shows, that on June 19, 2001, when these 225 shares were
issued, Siegle, Inc. still owed Helmuth $78,111 as provided in promissory notes. The
corporation also owed him substantial sums for his efforts on its behalf as president’s salary
and equipment rental.
¶40 Siegle did not claim in his amended complaint that these shares were improperly
issued. The pretrial order does not state that Siegle seeks to have this stock declared void.
The record shows that the various debts owed by Siegle, Inc. to Helmuth were cancelled in
exchange for this stock. There is nothing in the record that would show that this stock was
wrongfully issued. The District Court erred in ordering that 225 shares of stock be
cancelled. The record establishes that Helmuth is the owner of 507 shares and Siegle is the
owner of 137 shares of Siegle, Inc.
¶41 Issue 3: Did the District Court err when it found Helmuth committed actual fraud in
his dealings with Siegle and thus concluded that punitive damages are appropriate?
¶42 The District Court found, as a matter of fact, that Helmuth defrauded Siegle by
manipulating the balance sheets and, thus, awarded Siegle $746 as punitive damages. On
appeal, Helmuth claims this is error because Siegle did not plead fraud with particularity, as
is required by M. R. Civ. P. 9(b) and Pipinich v. Battershell, 232 Mont. 507, 759 P.2d 148
(1988). Allegations of fraud must be pled with particularity and supported by facts and not
simply based “upon information and belief.” C. Haydon Ltd. v. Montana Min. Properties,
Inc., 262 Mont. 321, 325-26, 864 P.2d 1253, 1256 (citing M. R. Civ. P. 9(b)).
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¶43 Punitive damages may be awarded when the defendant has been found guilty of
malice or actual fraud. Section 27-1-221(1), MCA. Siegle did not allege in his amended
complaint that Helmuth defrauded him or that he acted maliciously. Punitive damages crept
into this case for the first time in the pretrial order that states it is an issue of fact whether
Siegle is entitled to an award of punitive damages. The pretrial order then lists as an issue of
law whether Helmuth is guilty of malice. The word “malice” does not appear in the District
Court’s findings of fact, conclusions of law and order.
¶44 A claim for punitive damages based on fraud was not properly plead. The pretrial
order, which obliquely refers to punitive damages, can only be interpreted to mean that
Siegle would attempt to prove that Helmuth acted with malice and the District Court did not
find that malice was proven. The District Court’s conclusion that Helmuth is guilty of fraud
to justify punitive damages, even in the minimal amount of $746, must be reversed. Upon
remand, punitive damages are not to be a part of this case.
¶45 Issue 4: Did the District Court err when it did not determine the value of the shares
of stock in Siegle, Inc. and instead held that Helmuth was not a shareholder and fixed the
amount of certain debts of the corporation, Helmuth and David Siegle?
¶46 Siegle’s amended complaint prays for an order under § 35-1-938(2)(b), MCA,
dissolving Siegle, Inc. and, if the corporation is not dissolved, for relief as provided in § 35-
1-939, MCA. In the final pretrial order, the parties agreed Helmuth owned 282 shares of
Siegle, Inc., he loaned the corporation $78,111, and Siegle, Inc. had sold a milk quota of
7088 pounds for $127,584 that has not been paid. These facts are established. The final
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pretrial order states that among the issues of fact to be decided are whether Siegle should be
entitled to exercise the option to purchase Helmuth’s stock in Siegle, Inc. as provided in the
Agreement and whether Siegle, Inc. should be dissolved.
¶47 The record shows that when the trial started, Helmuth desired to have a price per
share of Siegle, Inc. determined and that he be allowed to buy Siegle out. Likewise, Siegle
desired to have a price per share determined and that he be allowed to buy Helmuth out.
Siegle pled for relief under § 35-1-939, MCA, which provides that a court may order that any
shareholder may purchase shares of any other shareholder at a fair value of the shares.
¶48 The order of the District Court was not contemplated in the pleadings, in discovery, or
in the pretrial order. The District Court’s order ignores agreed facts and comes as a complete
surprise to the parties. Helmuth had no opportunity to defend against the remedy provided
by the District Court and is prejudiced thereby.
¶49 The District Court order of June 16, 2008, must be reversed. This case must be
remanded to the District Court for a determination of the fair value of the shares of Siegle,
Inc., considering the facts as agreed upon by the parties. Upon remand, a share value must
be established considering the evidence now in the record and such further evidence that is
necessary.
¶50 After a determination of the value of the shares of the corporation, the District Court
must decide whether Siegle, Inc. shall be dissolved as provided in § 35-1-938, MCA, or
whether other relief provided for in § 35-1-939, MCA, is appropriate.
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¶51 Issue 5: Did the District Court err when it ordered Siegle to pay Siegle, Inc.
$117,276?
¶52 Siegle, in his cross-appeal, claims that the District Court erred in ordering him to pay
Siegle, Inc. $117,276, as this debt has been discharged in bankruptcy.
¶53 In his counterclaim, Helmuth alleged that, in a Chapter 13 bankruptcy proceeding,
Siegle discharged a debt to Siegle, Inc. in the amount of $92,686. In his answer to the
counterclaim, Siegle admits that his debt of $92,686 to Siegle, Inc. was discharged.
¶54 The District Court, after noting that Siegle had discharged a debt to Siegle, Inc. in the
amount of $92,686, found that Siegle had also used corporate funds to make an $8,900 down
payment for a friend and had paid expenses of $15,000 for another friend. The District Court
stated that these amounts were shown on Exhibit U. However, the District Court file
contains a note that Exhibit U was objected to, is “out” and there is no Exhibit U in the
record before this Court. The District Court also found that Siegle paid $690 of corporate
funds to insure a friend’s vehicle. The District Court then ordered Siegle to pay Siegle, Inc.
$117,276, which includes the $92,686 that the parties admit was discharged in bankruptcy,
as well as the additional $24,590.
¶55 A debt that is discharged in bankruptcy may not be collected. 11 U.S.C. § 524(a)(1).
Thus, under the admitted facts of this case, the District Court erred in ordering Siegle to pay
at least $92,686 to Siegle, Inc. The record is insufficient to determine whether the remaining
$24,590 is owed to Siegle, Inc., and if so whether this debt has been discharged in
15
bankruptcy. The $24,590 may have been included in the debts listed in Siegle’s bankruptcy
petition and may or may not have been discharged under a provision of 11 U.S.C. § 1328.
¶56 The District Court erred in ordering Siegle to pay $117,276 to Siegle, Inc. Upon
remand this amount shall be reduced by at least $92,686. Whether $24,590 of this amount is
owed by David Siegle to Siegle, Inc. shall be reconsidered upon remand.
¶57 Issue 6: Did the District Court err when it denied Siegle’s prayer for attorney fees?
¶58 In its initial order, the District Court awarded Siegle his attorney fees pending review
and approval by the court. After a hearing, the District Court reversed this order and declined
to award attorney fees.
¶59 On appeal, Siegle, citing only inapposite cases, presents an incoherent argument that
he is entitled to attorney fees. Montana follows the general American Rule that a party in a
civil action is not entitled to attorney fees absent a specific contractual or statutory
provision. United Nat. Ins. Co. v. St. Paul Fire & Marine Ins. Co., 2009 MT 269, ¶ 37, 352
Mont. 105, 214 P.3d 1260. Siegle does not cite to any contractual provision or any
applicable statutory or case authority showing he is entitled to an award of fees in this
proceeding. The District Court did not err in denying Siegle his attorney fees.
¶60 The District Court’s order of June 16, 2008, is reversed and this case is remanded to
the District Court for further proceedings in conformity with this opinion. The District
Court’s order of January 2, 2009, denying Siegle’s motion for attorney fees, is affirmed.
Neither party shall have their costs on appeal.
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/S/ JOHN WARNER
We Concur:
/S/ MIKE McGRATH
/S/ JAMES C. NELSON
/S/ PATRICIA O. COTTER
/S/ JIM RICE
/S/ W. WILLIAM LEAPHART
/S/ BRIAN MORRIS
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