Transaction Network, Inc. v. WELLINGTON TECH., INC.

• Decision Date: 15 August 2000
• Docket Number: No. 99-430.,99-430.
• Citation: 7 P.3d 409,301 Mont. 212,2000 MT 223
• Parties: TRANSACTION NETWORK, INC., Plaintiff and Appellant, v. WELLINGTON TECHNOLOGIES, INC., and Jerry Magnuson, Defendants and Respondents.
• Court: Montana Supreme Court

7 P.3d 409

2000 MT 223

301 Mont. 212

TRANSACTION NETWORK, INC., Plaintiff and Appellant, v. WELLINGTON TECHNOLOGIES, INC., and Jerry Magnuson, Defendants and Respondents.

No. 99-430.

Supreme Court of Montana.

Submitted on Briefs October 21, 1999.

Decided August 15, 2000.

Patricia D. Peterman, Billings, Montana; W. Scott Green, West, Patten, Bekkedahl & Green, Billings, Montana, For Appellant.

Russell D. Yerger, Billings, Montana, Ronald D. Allie, Allie Law Firm, Billings, Montana, For Respondent.

Justice JAMES C. NELSON delivered the Opinion of the Court.

¶ 1 TransAction Network, Inc. (TANI), appeals a May 12, 1999 Order and Memorandum issued by the Thirteenth Judicial District Court, Yellowstone County, which denied its motion to amend the Findings of Fact and Conclusions of Law issued by the court on April 8, 1999. TANI's motion sought attorney's fees pursuant to a release agreement between the parties, as well as under Montana's reciprocal fees statute, after judgment was entered in its favor for $3,673.53

¶ 2 We reverse and remand for an evidentiary hearing for the determination of attorney's fees.

¶ 3 TANI raises the following issue:

Did the District Court err in dismissing TANI's motion to amend the Findings of Fact and Conclusions of Law that would have allowed recovery of attorney's fees?

FACTUAL AND PROCEDURAL BACKGROUND

¶ 4 This appeal focuses exclusively on whether one party may recover its attorney's fees from the opposing party based on an indemnification provision found within an underlying contract. Thus, the factual background of this fairly complex matter is accordingly reduced to the essential facts necessary for this Court's review, and is largely adopted from the undisputed findings of the District Court. ¶ 5 Four persons, H. James Marlow, Dave Hughes, Keith Kerbaugh, and Jerry Magnuson, conceived of a business plan in November of 1996 to purchase, place, own, and operate automated teller machines (ATMs). Various business entities were created pursuant to this plan. A partnership known as DKW was formed. The partnership consisted of Data Capture Systems, Inc., a corporation owned by Marlow; Kadoka Investments, Inc., a corporation owned by Kerbaugh and Hughes; and Wellington Technologies, Inc., a corporation owned by Magnuson. The latter (hereinafter Wellington), is the Defendant and Respondent here.

¶ 6 The foregoing partnership created the corporate entity TransAction Network, Inc. (hereinafter TANI), to implement the business concept of purchasing, owning, placing, and operating ATMs nationwide. TANI is the Plaintiff and Appellant here, seeking more than $40,000 in attorney's fees from Wellington.

¶ 7 Needless to say, within less than a year the entire deal went sour. At a July 1997 board of directors meeting, it was decided that Marlow would manage TANI. The other three persons, Kerbaugh, Hughes, and Magnuson, determined that they wanted out of the business based upon considerable difficulties that prevented the four men from "getting along and running an efficient business," according to the District Court's findings. The four, on behalf of themselves and their respective business entities, all signed a "GENERAL RELEASE AND AGREEMENT FOR RELINQUISHMENT OF STOCK" agreement on July 30, 1997. The release, essentially, allowed the departing three parties to exchange their respective shares of TANI stock for cash from TANI.

¶ 8 The release provided that TANI would hold "HKM" (Hughes, Kerbaugh, and Magnuson) "harmless from all causes of action relating to the incorporation of TANI," and that upon payment of consideration called for under the agreement, the parties would "mutually release each other from all other claims, demands and causes of action that they had, have or may have against each other ... based upon stock issued in Transaction Network, Inc., and any contractual relationships between HKM, Releasees and TANI."

¶ 9 Of particular relevance here, the release also contained the following provision:

11. Indemnification. Each party hereto shall indemnify and hold the other parties harmless from and against all liability, claim, loss, damage or expense, including reasonable attorneys' fees, incurred or required to be paid by such other parties by reason of any breach or failure of observance or performance of any representation, warranty or covenant or other provision of this agreement by such party.

¶ 10 Notwithstanding the foregoing, in May of 1998, TANI brought suit against Wellington and its president and owner, Magnuson, under a number of tort theories, including breach of fiduciary duty, conversion, actual and constructive fraud, and negligent misrepresentation. TANI sought general damages of approximately $110,000, and also punitive damages.

¶ 11 In response, Wellington contended that pursuant to the general release such claims were barred, and filed a counterclaim that the legal action commenced by TANI breached the release agreement. In addition to the breach of contract claim, Wellington alternatively claimed that due to either mistake or fraud, the release agreement should be rescinded. Wellington further contended that under either theory, it was entitled to recover its attorney's fees pursuant to the indemnification provision. Its amended answer and counterclaim alleging the foregoing was filed on November 6, 1998. Both parties moved for summary judgment in early 1999.

¶ 12 In a March 4, 1999 Order and Memorandum, the court denied Wellington's motion for summary judgment, and concluded that the release did not bar TANI's tort claims due to apparent ambiguities in the release agreement. Thus, the court determined that TANI could not be "subject to a counter-claim for a breach of the Release when the Court has concluded, as a matter of law, the Release does not bar the filing of this tort action." The court also concluded that neither fraud nor mistake had been appropriately pled, and therefore were dismissed.

¶ 13 Following a non-jury trial on March 17, 1999, the court issued its Findings of Fact and Conclusions of Law. On all of TANI's various tort claims, the court awarded only $3,673.53 for constructive fraud. The court further concluded that it had "ruled that all claims based upon the parties' `contractual relationship' with each other are barred." The court also concluded that without the causes of action for fraud or mistake, Wellington had no basis to rescind, and was not entitled to any of the requested relief under that particular equitable remedy.

¶ 14 In April of 1999 an exchange of briefing ensued, as both parties moved to amend the court's findings and conclusions. Each party requested attorney's fees as a "prevailing party," pursuant to the indemnification clause found in the release agreement. Both motions were grounded in the assertion that Wellington's counterclaim for breach in the midst of TANI's tort claims activated the indemnification clause. TANI submitted its claim for attorney's fees that it had incurred from October 13, 1998 (the date Wellington filed its counterclaim for breach) through April of 1999, for a total sum of $42,990. This claim did not provide any break down as to hours spent on any particular portion of the litigation. Similarly, Wellington sought more than $20,000 in attorney's fees.

¶ 15 The District Court, in a May 12, 1999 Order and Memorandum, denied the parties' motions, concluding that there was "no prevailing party because both parties have gained a victory but also suffered a loss." The court reasoned that the "entire case disposition must be considered ..." The court stated that:

Since the majority of plaintiff counsel's time (and the majority of trial time) was spent on the tort claim, it is neither fair nor equitable to award the amount of attorney fees. Likewise, counsel has not presented any evidence (verified or otherwise) as to the percentage of the $45,000 spent [attorney's fees plus costs] defending the counterclaim. Thus, the Court is unable to make any calculation in that regard.

¶ 16 TANI appeals this final order of the District Court, claiming it is entitled to attorney's fees as the prevailing party. TANI further requests that it be awarded reasonable attorney's fees and costs generated on appeal.

STANDARD OF REVIEW

¶ 17 Normally, this Court reviews the findings of a trial court sitting without a jury to determine if the court's findings are clearly erroneous. Rule 52(a), M.R.Civ.P. However, the issue here on appeal—whether the court erred by not allowing TANI to recover its attorney's fees—is strictly a question of law. We review a district court's conclusions of law pertaining to the recovery of attorney's fees to determine whether those conclusions are correct. See Doig v. Cascaddan (1997), 282 Mont. 105, 112, 935 P.2d 268, 272

.

DISCUSSION

Did the District Court err in dismissing TANI's motion to amend the Findings of Fact and Conclusions of Law that would have allowed recovery of attorney's fees?

¶ 18 The District Court, in its May 12, 1999 Order and Memorandum, denied both parties' motions to amend the court's April 8, 1999 findings and conclusions. It is apparent from the court's order that on the whole the litigation was a great waste of time and money in that each party sought recovery in excess of six figures in damages, and in the end TANI was award approximately $3,700. It is not surprising, therefore, that the court, in determining that the "entire case disposition must be considered," concluded that neither party, ultimately, prevailed.

¶ 19 In general, we agree with the court's assessment, but the legal question posed here requires further scrutiny. This Court has often stated that if an agreement between parties provides for attorney's fees, a district court is bound by its terms. See Doig v. Cascaddan (1997), 282 Mont. 105, 112, 935 P.2d 268, 272

.

¶ 20 The District Court, in denying both parties' requests for attorney's fees, concluded that each party "gained a...