Detienne ex rel. Vibeke Detienne Trust v. Bryan Sandrock, GG&me, LLC

• Decision Date: 13 November 2018
• Docket Number: DA 17-0726
• Citation: 2018 MT 269,393 Mont. 249,431 P.3d 12
• Parties: Kevin DETIENNE, individually and on behalf of the Vibeke DeTienne Trust, as Trustee, The Train Station, LLC, a Montana Limited Liability Company, and The Money Train, LLC, a Montana Limited Liability Company, Plaintiffs, Appellees and Cross-Appellants, v. Bryan SANDROCK, GG&ME, LLC a Montana Limited Liability Company, and Draes, Inc., a Montana Close Corporation, Defendants and Appellants.
• Court: Montana Supreme Court

393 Mont. 249

431 P.3d 12

2018 MT 269

Kevin DETIENNE, individually and on behalf of the Vibeke DeTienne Trust, as Trustee, The Train Station, LLC, a Montana Limited Liability Company, and The Money Train, LLC, a Montana Limited Liability Company, Plaintiffs, Appellees and Cross-Appellants,

v.Bryan SANDROCK, GG&ME, LLC a Montana Limited Liability Company, and Draes, Inc., a Montana Close Corporation, Defendants and Appellants.

DA 17-0726

Supreme Court of Montana.

Submitted on Briefs: September 19, 2018

Decided: November 13, 2018

Rehearing Denied: December 19, 2018

For Appellants: John C. Doubek, Keif Storrar, Doubek, Pyfer & Fox LLP, Helena, Montana, Perry J. Schneider, Milodragovich, Dale & Steinbrenner, P.C., Missoula, Montana

For Appellees: Stefan T. Wall, Wall, McLean & Gallagher, PLLC, Helena, Montana

Justice Beth Baker delivered the Opinion of the Court.

¶ 1 Bryan Sandrock appeals and Kevin DeTienne cross-appeals a judgment and order of the First Judicial District Court, Lewis and Clark County, that awarded DeTienne $1,291,635 in lost profits; prejudgment interest accruing from September 11, 2015; $150,000 in punitive damages; and $42,009.05 in attorney fees and costs. We address the combined restated issues on appeal and cross-appeal:

1. Did the District Court abuse its discretion in awarding DeTienne compensatory damages or clearly err in awarding DeTienne punitive damages?

2. Did the District Court properly award prejudgment interest on the damages award?

3. Did the District Court properly award attorney fees to DeTienne when it did not include costs and fees for the proceedings on remand, and is DeTienne entitled to attorney fees on appeal?

¶ 2 We affirm in part and remand with instructions to address whether the mortgage should offset the awarded compensatory damages; to calculate incrementally the prejudgment interest for Train Station’s damages back to December 1, 2009; and to calculate and award attorney fees for the proceedings on remand and for this current appeal. We reverse the award of prejudgment interest on Money Train’s lost profits.

PROCEDURAL AND FACTUAL BACKGROUND

¶ 3 This case is before the Court for the third time. See DeTienne v. Sandrock , 2017 MT 181, 388 Mont. 179, 400 P.3d 682 [hereinafter DeTienne II ]; Sandrock v. DeTienne , 2010 MT 237, 358 Mont. 175, 243 P.3d 1123. We discussed the facts in detail in DeTienne II and here review only those facts necessary to address the relevant issues.

¶ 4 In 2007, DeTienne’s mother established The Train Station, LLC, to purchase real property located on Custer Avenue in Helena (the "Custer Property"), on which to establish a casino that DeTienne would run through his company, The Money Train, LLC. Because of a delay in financing, DeTienne entered an oral agreement for a short-term gap loan with Sandrock, a local businessman and acquaintance of DeTienne. In exchange for the loan, Sandrock was granted a fifty-percent membership in Train Station. DeTienne’s mother’s trust, of which DeTienne is now successor Trustee, held the other fifty-percent interest.

¶ 5 In June 2008, Train Station entered into a fifteen-year lease agreement with Money Train to lease the Custer Property. Money Train operated a casino on the property. Train Station used Money Train’s monthly lease payments to pay the monthly mortgage payments on the Custer Property. In November 2009, after a dispute led DeTienne to deposit lease payments into the Trust’s bank account instead of the Train Station’s bank account, Sandrock filed an action to evict DeTienne and Money Train from the Custer Property. In February 2010, representing that he was the sole member and only interest holder in the assets of Train Station, Sandrock transferred the real property by deed to GG&ME, LLC, a Montana limited liability company, of which he is the managing member. Sandrock secured a new loan on behalf of GG&ME in the amount of $790,000. At the time of closing, the balance of Train Station’s mortgage on the property was $629,075, which was paid by GG&ME through the new loan. GG&ME then leased the property to Draes, Inc., a corporation formed that month whose sole shareholders are Sandrock and his wife. Draes operated a casino on the property and paid monthly rent to GG&ME.

¶ 6 In March 2010, DeTienne filed suit against Sandrock, seeking a declaratory judgment that Sandrock’s transfer of the property was unlawful because it was done without consent of all Train Station members. Over Sandrock’s objection, the District Court allowed DeTienne to file a second amended complaint in February 2015 and instructed Sandrock to respond to DeTienne’s complaint within thirty days. Sandrock failed to answer the second amended complaint within that time, and his default was entered in September 2015.

¶ 7 A year later, the District Court issued its Judgment and Judicial Decree, ordering that: (1) Sandrock was dissociated and expelled from membership in Train Station; (2) the previous transfer of the property to GG&ME by Sandrock was "void and of no force and effect"; and (3) the leasehold to Draes was void, and the lessees had thirty days to vacate the premises. The court awarded compensatory damages to DeTienne in the amount of $2,083,171, plus specified interest, punitive damages of $150,000, and costs and attorney fees. Sandrock moved the District Court to set aside the default judgment. The motion was deemed denied after sixty days.

¶ 8 Sandrock appealed the District Court’s denial of his motion to set aside default judgment and its calculation of damages. We held that the District Court did not slightly abuse its discretion in denying Sandrock’s motion for relief and reconsideration of the judgment and judicial decree. DeTienne II , ¶ 42. But because we were unable to discern how the court used various amounts to establish the damages awarded, we remanded the case to the District Court for an order setting forth its recalculation and determination of damages and identification of evidence supporting the recalculation. DeTienne II , ¶ 48.

¶ 9 On remand, the District Court held an evidentiary hearing on compensatory damages. Defense expert Lenore Romney testified and provided an analysis of the lost profits report previously prepared by WIPFLi CPAs and consultants. Plaintiffs’ expert Natalya Abdrasilova provided testimony regarding Romney’s analysis and provided revisions to the original WIPFLi report. Relying on the revised WIPFLi report and Abdrasilova’s testimony, the District Court found that Train Station lost profits in the amount of $922,602, and Money Train lost profits in the amount of $489,033. The District Court reduced the total lost profits by the $120,000 that Sandrock initially contributed and awarded compensatory damages for economic loss in the amount of $1,291,635. The court ordered that prejudgment interest for the total award would accrue from September 11, 2015—the date Sandrock’s default was entered. Analyzing DeTienne’s claim for punitive damages, the court reaffirmed its previous $150,000 punitive damages award, despite discrepancy in the record regarding Sandrock’s net worth. The District Court again awarded attorney fees and costs in the amount of $42,009.05.

STANDARDS OF REVIEW

¶ 10 We review a district court’s award of damages for abuse of discretion. Czajkowski v. Meyers , 2007 MT 292, ¶ 13, 339 Mont. 503, 172 P.3d 94. "Proof of damages must consist of a reasonable basis for computation and the best evidence obtainable under the circumstances which will enable a judge to arrive at a reasonably close estimate of the loss." In re Marriage of Mease , 2004 MT 59, ¶ 42, 320 Mont. 229, 92 P.3d 1148. We discuss other applicable standards in addressing each issue.

DISCUSSION

¶ 11 1. Did the District Court abuse its discretion in awarding DeTienne compensatory damages or clearly err in awarding DeTienne punitive damages?

¶ 12 The issues on appeal and cross-appeal divide into four categories: challenges to the effect of the Train Station mortgage on the compensatory damages calculation, the treatment of Money Train’s lost profits, the award and calculation of punitive damages, and challenges to other specific items of claimed damages. We discuss each in turn.

Mortgage

¶ 13 Sandrock argues that the District Court erred when it failed to offset Train Station’s compensatory damages by the payoff of the existing mortgage on the Custer Property. Sandrock maintains that he paid down the mortgage on the property from $629,075 to $378,777 before the property was returned to DeTienne and that, if he is required to pay the remaining balance with no offset, DeTienne will recover a windfall.

¶ 14 The measure of compensatory damages for a tort is the amount for all the detriment proximately caused by the defendant’s conduct, whether it could have been anticipated or not. Section 27-1-317, MCA. This Court requires that a party seeking lost profits establish them with some certainty and prove the source. Sage v. Rogers , 257 Mont. 229, 241, 848 P.2d 1034, 1041 (1993). Damages must be supported by substantial evidence, not mere guess or speculation, but mathematical precision is not required. In re Marriage of Mease , ¶ 42.

¶ 15 The District Court recognized Sandrock’s reduction of the debt on the Custer Property to a balance of $378,777, as of the September 28, 2016 judgment. The court’s findings on the effect of this mortgage reduction are not entirely clear. DeTienne’s expert, Abdrasilova, testified that the original mortgage of the Train Station would have been reduced to $378,777, as of September 30, 2016, when Sandrock was dissociated from Train Station. Abdrasilova lists the mortgage balance as a "Possible Offset[ ] to Economic Loss" on Schedule A to her response to Romney’s expert report. The District Court found Abdrasilova’s calculations to be consistent with the court’s prior rulings, "including the conclusion that loan payments made by GG&ME for its mortgage are not a proper offset to the losses incurred by Train...