Daniels v. Thomas, Dean & Hoskins, Inc.

Decision Date21 December 1990
Docket NumberNo. 88-627,88-627
CourtMontana Supreme Court
PartiesDouglas E. DANIELS, Plaintiff and Respondent, v. THOMAS, DEAN & HOSKINS, INC., a corporation, Thomas and Dean Properties, Inc., a corporation, T.H. Thomas, an individual and as President and Director, Defendants and Appellants.

William Conklin, Conklin, Nybo and LeVeque, P.C., Great Falls, for defendants and appellants.

Joe Bottomly, Bottomly Law Offices, Great Falls and Monte Beck, Beck Law Offices, Bozeman, for plaintiff and respondent.

BARZ, Justice.

The District Court of the Eighth Judicial District, Cascade County, Judge Joel G. Roth presiding without a jury, concluded that Daniels, a minority shareholder in T & D Properties, was entitled to $53,128 for his shares in T & D Properties. The District Court based this conclusion on breach of fiduciary duty, oppressive negotiation tactics, constructive fraud, and the presence of a contract between Daniels and Thomas in which Thomas allegedly promised to pay Daniels fair market value for his shares in T & D Properties. The court then granted Daniels his costs in this matter, which included his costs of hiring an appraiser. The court, however, did not find a contractual or statutory right which would allow Daniels to recover his attorney's fees. Defendants appeal. We reverse.

The following issues are raised on appeal:

1. Whether the filing of Daniels' motion for substitution of judge divested Judge Roth of the power to render a judgment on this matter.

2. Whether the District Court erred in ruling that a contract existed which required T & D Properties to purchase Daniels' shares in T & D Properties.

3. Whether the District Court erred in ruling that Daniels was entitled under Montana law to have his shares in T & D Properties appraised and purchased.

4. Whether the pleadings fairly apprised the defendants of the nature of the claims against them.

5. Whether the judgment rendered by the District Court properly lies against all three defendants, TD & H, a corporation, T.H. Thomas, an individual, and T & D Properties, a corporation.

6. Whether the District Court erred in awarding Daniels his appraisal fees.

7. Whether the restrictive covenant in the TD & H buy-sell agreement is void under Sec. 28-2-703, MCA.

On cross-appeal, Daniels raises the following issue:

Whether the District Court erred by not awarding Daniels his attorney's fees.

Thomas, Dean & Hoskins, Inc. (TD & H), a defendant, is an engineering firm founded in 1965. TD & H's principal place of business is in Great Falls with branch offices in Kalispell and Bozeman. Thomas & Dean Properties, Inc. (T & D Properties), also a defendant in this lawsuit, is a separate corporation from TD & H. T & D Properties was formed in 1970 for the purpose of developing real estate and for the purpose of holding real and personal property. This property is then leased to TD & H. T & D Properties has never paid dividends, but instead pays "management fees" to TD & H. These fees are then generally distributed as bonuses to TD & H's employees and shareholders. T.H. Thomas, another defendant, is the president and a director of both TD & H and T & D Properties and also a major shareholder in both of these corporations.

Douglas E. Daniels, the plaintiff, is a civil engineer who began working for TD & H in 1969. In 1976, Daniels began purchasing stock in TD & H. TD & H employees who purchased stock in TD & H were also initially expected to purchase an identical proportion of stocks in T & D Properties, however, the TD & H shareholder agreement that was signed in 1979 abolished this requirement. The shareholder agreement also contained a buy-sell agreement for TD & H stock upon the voluntary or involuntary termination from TD & H. The agreement established a formula price for the purchase of the TD & H stocks, a time period in which they will be paid, and a restrictive covenant. No buy-sell agreement was established for the T & D Properties stock.

In 1985, Daniels was living in Bozeman and managing TD & H's branch office in Bozeman. Upon Dean's retirement from TD & H in 1986, Thomas requested that Daniels move to Great Falls to manage the Great Falls office. Daniels had just built a home in Bozeman and therefore requested that alternatives to his moving to Great Falls be considered. In mid-February 1986, Thomas and Daniels met to discuss possible alternatives. The parties agreed to a three-month trial period beginning February 18, 1986, whereby Daniels lived in Bozeman and commuted to Great Falls.

On April 16, 1986, two months after the three-month trial period began, Thomas and Daniels met again at Thomas' request to review the situation. The meeting did not go well. Daniels then suggested that they discuss a termination agreement and Thomas agreed to prepare a proposed termination agreement.

The termination agreement was drafted by an attorney for TD & H and mailed to Daniels on April 18, 1986. Besides providing for the termination of Daniels' employment with TD & H, the termination agreement also provided for the purchase of Daniels' T & D Properties stock. A disagreement arose over the valuation of Daniels' T & D Properties stock. Daniels therefore did not sign the agreement. On May 13, 1986, Daniels and Thomas met and attempted to negotiate the value of the T & D Properties stock, but without success.

On September 17, 1986, in response to a letter written by Daniels, Thomas offered to settle the dispute through negotiations with Jack Holland, an employee of TD & H. On September 24, 1986, Daniels was advised that Jack Holland had been authorized by each corporation to settle Daniels' claims against the corporations with Daniels separately. Holland met with Daniels for two days in September but the negotiations were unsuccessful.

The relationship between Daniels and Thomas continued to deteriorate and on March 27, 1987, Daniels filed a complaint in the District Court of the Eighth Judicial District, Cascade County, alleging bad faith and wrongful termination against TD & H and fraud, breach of fiduciary duty, undue influence, and negligent misrepresentation against Thomas and both corporations. Along with the complaint, Daniels filed a motion for substitution of judge. The case was never transferred to another judge. Just prior to the trial, on June 10, 1988, Judge Roth brought the parties' attention to the motion. At that time, the parties' attorneys stipulated that Judge Roth may sit as trial judge in the case.

This case was bifurcated into two separate actions over vigorous objection by defendants. The action involving legal claims of wrongful termination and breach of good faith and fair dealing in an employment situation was postponed until a later date for a jury. The action in equity involving whether Daniels was entitled to an appraisal remedy in regard to his T & D Properties stock was then tried without a jury on July 6, 7 and 8, 1988. The trial was recessed until August 15, 1988 when testimony was completed. Earlier, on July 5, 1988, the District Court had granted Daniels' motion for partial summary judgment, ordering that the restrictive covenant found in the 1979 shareholder agreement was an unreasonable burden on the employee and ordered the provision void under Sec. 28-2-703, MCA.

The District Court rendered its judgment on September 14, 1988, concluding that T & D Properties entered into an enforceable contract to pay Daniels, a minority shareholder, for his T & D Properties stock; that Thomas, as president of both TD & H and T & D Properties violated his fiduciary duty by inducing Daniels to leave his employment and by his adversarial negotiation stance; that Daniels, as a minority shareholder, demonstrated an equitable right to have his stocks in T & D Properties appraised and purchased by T & D Properties because of Thomas' oppressive negotiation tactics; and that Thomas' attempts to gain an unfair advantage over Daniels amounted to constructive fraud under Montana law. The court then concluded that the valuation method used by T & D Properties was unfair and therefore adopted the net asset approach as a reasonable method for determining the value of the corporate stock owned by a minority shareholder. The court ordered that under this method Daniels' T & D Properties stocks were worth $53,128. The court also concluded that Daniels was entitled to his costs in this matter, which included his cost of hiring an appraiser. The court, however, also concluded that no contractual or statutory right existed for Daniels to recover his attorney's fees from the defendants. Defendants appeal, and plaintiff cross-appeals, raising the following issues.

The first issue this Court will address on appeal is whether the filing of Daniels' motion for substitution of judge divested Judge Roth of the power to render a judgment on this matter.

Defendants cite Sec. 3-1-804, MCA (1987), to argue that Daniels' filing of the motion for substitution of judge divested Judge Roth of the power to decide the case. This statute states in pertinent part that:

After a timely motion has been filed, the substituted judge shall have no power to act on the merits of the cause and shall call in another judge.

Section 3-1-804(1)(a), MCA (1987). However, Daniels' motion for substitution of judge was filed on March 27, 1987. The law in effect on that date provided in pertinent part that:

A motion for substitution of a judge shall be made by filing a written motion for substitution reading as follows:

"The undersigned hereby moves for substitution of another judge for Judge _______ in this cause." The clerk of court shall immediately give notice thereof to all parties and to the judge named in the motion. Upon filing this notice, the judge named in the motion shall have no further power to act in the cause other than to call in another judge, which he shall do forthwith, and to set the...

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