Kay v. Bottomly

Opinion

No. 80-302 IN THE SUPREME COURT OF THE STATE OF MONTANA 1981

LENORA E. KAY, Plaintiff and Appellant,

Defendant and Respondent.

Appeal from: District Court of the Eighth Judicial District, In and for the County of Cascade. Honorable Fohn McCarvel, Judge presiding. Counsel of Record: For Appellant: Leaphart Law Firm, Helena, Montana C. W.Leaphart, Jr. argued, Helena, Montana For Respondent: Lawrence A. Anderson argued, Great Falls, Montana R. V. Bottomly, Great Falls, Montana

Submitted: February 20, 1981 Decided: APR 2 2 1981 Filed: I B R 2 1 ';Pfjl Mr. J u s t i c e Gene B. D a l y d e l i v e r e d t h e O p i n i o n o f t h e C o u r t .

Appellant, Lenora E. Kay, appeals an order and

judgment entered by the District Court of the Eighth J u d i c i a l D i s t r i c t , C o u n t y o f C a s c a d e , t h e H o n o r a b l e J o h n M.

McCarvel p r e s i d i n g , w h e r e i n t h e c o u r t d i r e c t e d t h e c l e r k o f c o u r t t o e n t e r a n a r b i t r a t i o n award i n t h e judgment b o o k s i n f a v o r o f r e s p o n d e n t , R. V. B o t t o m l y . Lenora E. Kay owned certain properties i n Cascade

C o u n t y which s h e s o l d u n d e r a c o n t r a c t f o r d e e d t o h e r two

s o n s on O c t o b e r 1 5 , 1 9 7 5 , f o r $ 4 0 , 0 0 0 . The s o n s , R o b e r t and

Clarence Swartz, t h e n a s s i g n e d t h e c o n t r a c t f o r d e e d t o a. corporation named Swartz Brothers Excavating, Inc. This a s s i g n m e n t was made on o r a b o u t J a n u a r y 1, 1 9 7 6 , and w i t h o u t t h e c o n s e n t o f Kay. Subsequent to the assignment, Swartz Brothers

Excavating, Inc., became delinquent on the contract.

Shortly afterwards, Kay c l o s e d t h e e s c r o w and p u r p o r t e d l y revested herself with a l l the r i g h t , t i t l e and i n t e r e s t i n

t h e p r o p e r t y on A u g u s t 22, 1 9 7 7 . Swartz B r o t h e r s Excavating, Inc., filed a petition for bankruptcy on October 27, 1977. The trustee in

b a n k r u p t c y t h e n f i l e d a n a c t i o n a g a i n s t Kay, alleging that

t h e August 22, 1977, r e v e s t m e n t was a voidable transfer. The t r u s t e e requested t h e bankruptcy c o u r t t o (1) d e c l a r e

t h e t e r m i n a t i o n o f t h e c o n t r a c t f o r d e e d n u l l and v o i d ; (2) r e i n s t a t e t h e c o n t r a c t f o r deed; ( 3 ) reinstate the trustee

i n bankruptcy with a l l of the bankrupt's right, t i t l e and interest in the property; and (4) compel Kay's specific performance. L e n o r a Kay r e t a i n e d t h e s e r v i c e s o f t h e l a w f i r m o f B o t t o m l y and G a b r i e l t o r e p r e s e n t h e r i n t h e a c t i o n b r o u g h t

by t h e t r u s t e e . On March 2 8 , 1 9 7 8 , t h e p a r t i e s e n t e r e d i n t o

a contingent fee agreement whereby they agreed to the

following:

" I T I S MUTUALLY AGREED b e t w e e n t h e p a r t i e s t h a t Second P a r t y [ t h e f i r m o f R. V. B o t t o m l y and R o b e r t W. G a b r i e l ] w i l l u s e i t s b e s t s e r v i c e s t o o b t a i n s e t t l e m e n t o r j u d g m e n t on b e h a l f o f F i r s t P a r t y [ L e n o r a Kay] and F i r s t P a r t y d o e s h e r e b y a g r e e t o r e i m b u r s e Second P a r t y f o r a n y and a l l c o s t s and e x p e n s e s t h a t i t may i n c u r i n t h e r e p r e s e n t a t i o n o f F i r s t P a r t y , l i m i t e d t o t h e amount o f $ 2 , 0 0 0 . 0 0 t o g e t h e r w i t h 50% o f a l l m o n i e s o r p r o p e r t y o r e q u i t i e s o b t a i n e d f o r F i r s t P a r t y by way o f s e t t l e m e n t and/or judgment a s compensation f o r i t s s e r v i c e s , no p a r t o f w h i c h s h a l l b e c h a r g e d a g a i n s t t h e amount d u e F i r s t P a r t y on t h e c o n t r a c t f o r s a l e of Swartz B r o t h e r s d a t e d t h e 1 5 t h d a y o f O c t o b e r , 1975.

" I T I S AGREED t h a t F i r s t P a r t y s h a l l t a k e c a r e o f a l l t a x e s and i n s u r a n c e d u e on t h e p r o p e r t y u n t i l t h e m a t t e r is f i n a l l y s e t t l e d and s u c h items and c o s t s w i l l b e d e f r a y e d o u t o f r e n t s and p r o f i t s t a k e n f r o m t h e p r e m i s e s a s obtained. I t is a g r e e d t h a t from t h e determination of t h e i s s u e s i n favor of p l a i n t i f f , p a r t i e s [Kay and B o t t o m l y ] w i l l have one year from t h e d a t e t h e r e o f t o d i s p o s e o f t h e p r o p e r t y by s a l e i n o r d e r t o s a t i s f y a t t o r n e y ' s f e e s and c o s t s . The c o s t o f s a l e s h a l l be e q u a l l y d i v i d e d between F i r s t and Second P a r t i e s . "

I n a t t e m p t i n g t o r e s o l v e t h e l i t i g a t i o n , B o t t o m l y and

the bankruptcy trustee worked out a settlement agreement

w h e r e i n Kay would p a y t o t h e t r u s t e e $25,000 i n e x c h a n g e f o r

t h e t r u s t e e ' s d i s m i s s a l o f h i s a c t i o n and t h e r e l e a s e o f a n y

i n t e r e s t i n the property. The p r o p e r t y was t h e n a p p a r e n t l y

appraised a t $88,OOOI although appellant maintains the

a p p r a i s a l was f o r $ 8 2 , 0 0 0 .

To f a c i l i t a t e payment o f t h e $ 2 5 , 0 0 0 , the settlement

a g r e e m e n t p r o v i d e d t h a t Kay was t o p a y $ 5 , 0 0 0 down w i t h t h e

remaining balance of $20,000 to be paid on or before

December 3 1 , 1 9 7 8 , t o g e t h e r w i t h i n t e r e s t a t a r a t e o f 7-1/2 p e r c e n t p e r annum from J u l y 1, 1 9 7 8 . The r e m a i n i n g b a l a n c e

was t o be s e c u r e d by a t r u s t i n d e n t u r e o f Kay a g a i n s t t h e

property with the t r u s t e e a s beneficiary.

Kay p a i d t h e $5,000 down, but a dispute then arose

over Bottomly's fee. Kay, i n o b t a i n i n g a l o a n t o pay t h e

r e m a i n i n g b a l a n c e o f $ 2 0 , 0 0 0 w a n t e d t o d e d u c t 50 p e r c e n t o f

t h e i n t e r e s t t h e r e o n from a n y f e e owed. Bottomly a p p a r e n t l y

was unwilling to do so, and Kay discharged him as her

attorney, refusing t o finalize the settlement.

A f t e r d i s c h a r g i n g B o t t o m l y , Kay r e t a i n e d new c o u n s e l .

Kay then entered into a settlement agreement with the

b a n k r u p t c y t r u s t e e upon t h e e x a c t same t e r m s and c o n d i t i o n s

which B o t t o m l y had p r e v i o u s l y n e g o t i a t e d on h e r b e h a l f .

On March 9, 1979, Kay requested the S t a t e Bar of

Montana to arbitrate her fee dispute with Bottomly,

alleging:

"Mr. B o t t o m l y ' s s e r v i c e s were o b t a i n e d t o p r o t e c t my p r o p e r t y f r o m s e i z u r e w h i c h he d i d n o t do. I n s t e a d , he a g r e e d t o a s e t t l e m e n t which I d i d n ' t a g r e e t o .

"Now h e h a s f i l e d a l i e n on p r o p e r t y , a n d n o t h i n g h a s b e e n s e t t l e d t h e r e f o r e I would be w i l l i n g t o p a y him $ 2 , 0 0 0 . 0 0 w h i c h i s t o o much f o r what h e h a s d o n e and t h e h e l l h e h a s p u t me t h r o u g h . ' '

Bottomly agreed to the binding arbitration, and a

p a n e l h e a r d t h e t e s t i m o n y and e v i d e n c e from t h e p a r t i e s on

May 1, 1 9 7 9 . On May 1 5 , 1 9 7 9 , t h e p a n e l c o n c l u d e d t h a t t h e

contingent fee agreement was valid and binding on the

parties; t h a t Kay had agreed to the settlement; and that

B o t t o m l y was e n t i t l e d t o a f e e o f $ 1 4 , 4 8 1 . 5 0 .

The panel, in setting Bottomly's fee, used the

following formula:

"The value of said real property was a p p r a i s e d a t $88,800.00. From t h i s was t o b e d e d u c t e d what r e m a i n e d d u e o n a C o n t r a c t f o r S a l e t o Swartz Brothers ($31,530.35), t a x e s ( $ 8 0 9 . 1 4 ) , i n t e r e s t ( $ 2 , 4 9 7 . 5 1 ) and t h e sum required to settle with the Trustee ($25,000). These deductions total $59,837.00. S u b t r a c t i n g t h e d e d u c t i o n s from t h e a p p r a i s e d v a l u e ($88,800.00 - 59,837.00) t h e r e is a r e m a i n i n g b a l a n c e o f $ 2 8 , 9 6 3 . 0 0 . I t was a g r e e d t h a t t h e r e s p o n d e n t was t o h a v e 5 0 % o f t h e v a l u e o f t h i s sum. T h a t means t h e respondent is entitled to a fee of $14,481.50."

Under t h e terms o f t h e f e e agreement, Kay was g i v e n

one y e a r w i t h i n which t o l i q u i d a t e t h e p r o p e r t y t o pay t h e

attorney fees. When s h e f a i l e d t o d o s o , B o t t o m l y , on May

1 6 , 1 9 8 0 , had t h e a r b i t r a t i o n d e c i s i o n f i l e d i n t h e D i s t r i c t

C o u r t p u r s u a n t t o s e c t i o n 27-5-103, MCA. I n response, Kay

had s e r v e d on B o t t o m l y a m o t i o n t o v a c a t e t h e a w a r d . The

motion was filed on June 9, 1980, but was not set for

hearing . On June 12, 1980, Bottomly filed a praecipe and

a f f i d a v i t with t h e clerk of the court, pursuant t o section

27-5-303, MCA, requesting that the arbitration panel's

d e c i s i o n be e n t e r e d i n t h e judgment records. Ten m i n u t e s

l a t e r Kay f i l e d a n o r d e r s t a y i n g t h e e n t r y o f judgment and

noted for hearing her motion to vacate. The hearing

s c h e d u l e d f o r J u n e 1 7 , 1 9 8 0 , h o w e v e r , was c a n c e l e d , and t h e

D i s t r i c t C o u r t e n t e r e d a n o r d e r on J u n e 2 3 , 1 9 8 0 , d i r e c t i n g

t h e c l e r k o f t h e c o u r t t o e n t e r t h e a r b i t r a t i o n award i n t h e

judgment book. T h i s o r d e r was b a s e d on a f i n d i n g t h a t t h e

c l e r k was r e q u i r e d t o e n t e r t h e j u d g m e n t p u r s u a n t t o s e c t i o n

27-5-303, MCA, in that Bottomly's affidavit and praecipe

w e r e f i l e d p r i o r t o t h e o r d e r s t a y i n g e n t r y o f judgment.

The f o l l o w i n g i s s u e s a r e p r e s e n t e d f o r o u r r e v i e w :

1. Did t h e D i s t r i c t C o u r t e r r i n d i r e c t i n g t h e c l e r k o f t h e c o u r t t o e n t e r t h e a r b i t r a t i o n award i n t h e judgment books? 2. Did the a r b i t r a t i o n panel err in granting the award i n f a v o r o f r e s p o n d e n t ?

Section 27-5-202, MCA, specifically grants an a r b i t r a t i o n p a n e l t h e power t o make a n award a f t e r h e a r i n g the allegations and evidence of the parties. The arbitrators' award is then to be given the effect of a

j udgment when : " A f t e r t h e e x p i r a t i o n of 5 d a y s from t h e f i l i n g o f t h e a w a r d , upon t h e a p p l i c a t i o n o f a p a r t y who a l s o f i l e s a n a f f i d a v i t showing t h a t n o t i c e o f f i l i n g t h e award h a s b e e n s e r v e d on t h e a d v e r s e p a r t y o r h i s a t t o r n e y a t l e a s t 4 d a y s p r i o r t o s u c h a p p l i c a t i o n and t h a t no o r d e r s t a y i n g t h e e n t r y o f judgment h a s been s e r v e d , t h e c l e r k must e n t e r t h e award i n t h e judgment book and t h e r e u p o n i t h a s t h e e f f e c t o f a judgment." Section 27-5-303, MCA. Here, respondent has properly followed the above-

mandated procedure, and the District Court committed no error in directing the clerk to enter the award in the judgment book. The second i s s u e on appeal concerns appellant's

a s s e r t i o n t h a t had t h e D i s t r i c t Court heard her motion t o

v a c a t e , t h e c o u r t would h a v e f o u n d t h a t t h e award g r a n t e d by the a r b i t r a t i o n panel was improper. W m u s t d i s a g r e e by e c o n c l u d i n g t h a t a p p e l l a n t h a s f a i l e d t o a s s e r t a. l e g i t i m a t e b a s i s upon which t h e D i s t r i c t C o u r t c o u l d g r a n t h e r m o t i o n . As a consequence, there i s now n o t h i n g for this Court t o c o n s i d e r , and t h e j u d g m e n t m u s t b e a f f i r m e d . In t h i s regard, s e c t i o n 27-5-301, MCA, is p e r t i n e n t

and p r o v i d e s : "When c o u r t may v a c a t e a w a r d . The c o u r t o r j u d g e , on m o t i o n , may v a c a t e t h e award upon a n y o f t h e f o l l o w i n g g r o u n d s and may o r d e r a new h e a r i n g b e f o r e t h e same a r b i t r a t o r s o r n o t , i n its o r h i s d i s c r e t i o n : " ( 1 )I t was p r o c u r e d by c o r r u p t i o n o r f r a u d .

" ( 2 ) The arbitrators were guilty of misconduct o r committed g r o s s e r r o r i n r e f u s i n g , on c a u s e shown, t o p o s t p o n e t h e hearing or i n refusing t o hear p e r t i n e n t evidence or otherwise acted improperly i n a manner by which t h e r i g h t s o f t h e p a r t y w e r e p r e j ud i c e d .

" ( 3 ) The a r b i t r a t o r s e x c e e d e d t h e i r p o w e r s i n making t h e award, or they refused or i m p r o p e r l y o m i t t e d t o c o n s i d e r a p a r t of t h e m a t t e r s s u b m i t t e d t o them.

" ( 4 ) The award is indefinite or cannot be performed. " Here a p p e l l a n t h a s a s s e r t e d i n her motion t h a t the

award o f attorney f e e s under the parties' contingent fee a g r e e m e n t was w i t h o u t m e r i t . The s t a t e d grounds f o r the contention are twofold: (1) t h e appraisal value of the property should not be used in determining respondent's compensation because a p p e l l a n t could n o t s e l l t h e p r o p e r t y

for that amount; and (2) a t the time of the settlement, a p p e l l a n t was a l r e a d y t h e l e g a l and e q u i t a b l e owner o f t h e property, and, t h u s , respondent never o b t a i n e d any monies, p r o p e r t i e s o r e q u i t i e s on h e r b e h a l f . These grounds do n o t

constitute a proper basis upon which to vacate the

a r b i t r a t i o n p a n e l ' s award. Appellant, i n her motion, h a s n o t a l l e g e d , nor can w e

f i n d a n y t h i n g t o i n d i c a t e , t h a t t h e award was g r a n t e d a s t h e result of fraud; that the arbitrators were guilty of misconduct; t h a t they refused t o postpone t h e hearing; t h a t they refused t o consider evidence or other matters submitted t o the panel; t h a t t h e y e x c e e d e d t h e i r power i n making t h e

award; or that the award is indefinite and cannot be performed. The p r o p e r g r o u n d s upon w h i c h a m o t i o n t o v a c a t e

can be heard have, t h u s , n o t been e s t a b l i s h e d . S i n c e a p p e l l a n t f a i l e d t o p r o p e r l y p e r f e c t her motion t o v a c a t e a t t h e D i s t r i c t Court l e v e l and, further, failed

t o s u p p l y a p r o p e r b a s i s upon w h i c h t o h e a r t h a t m o t i o n , t h e

judgment o f t h e D i s t r i c t C o u r t , a s e n t e r p d ; i s a f f i r m e d .

W concur: e

Chief ju'scice Mr. Justice John C. Sheehy dissenting: Lenora E. Kay has not had her day in court. She contended before the arbitration board, before the District Court, and now before this Court, that the contingent fee agreement, drawn up by the attorneys, fails to state a basis for which he owes an attorney fee. She has never had a legal determination of that legal issue. The majority here sidestepped the legal issue by (1) reading the statutes against her to determine that she has no right of appeal here, and (2) by deciding as a matter of law, without a record, that her grounds for review before the District Court are inadequate as a matter of law. At the time of the contingent fee contract was made with the attorneys, Lenora E. Kay was the legal and equitable owner of her property, subject only to a claim by a trustee in bankruptcy that her title was subject to a voidable preference in favor of herself. Yet, the attorneys, who drafted the contingent fee contract, provided compensation would include costs, and "50 percent of all monies or property or equities obtained for [Lenora] by way of settlement and/or judgment as compensation for [the attorneys'] services." Lenora's contention that the attorneys are entitled to nothing beyond a quantum meruit payment of this case has merit, if all we regard is the face of the contingent fee contract, which is all that is before this Court. If more is owed under that contract, is could arise only by virtue of some par01 evidence that would require some kind of hearing before some trier of fact vested with authority to hear the same. Lenora's contention before the arbitration board was that "Mr. Bottomly's services were obtained to protect my property from seizure, which he did not do . . ." That quotation is at least as logical from the face of the contingent fee contract as the attorney's contention that he is entitled to one-half of the value of her property, after the mortgage has been deducted. The majority gives short shrift to her contention. She is at least entitled to the benefits of the Montana Rules of Civil Procedure, to the spirit of which my colleagues are on occasion want to swear eternal allegiance, and particularly to Rule 8(f), which provides that "all pleadings shall be so construed as to do substantial justice." The second problem with the majority opinion relates to the majority's lack of interpretation of the arbitration award statutes. In setting up the "procedure following award", the legislature, in enacting sections 27-5-301 through -304, MCA, established a very confusing set of procedures for action by the District Court, the clerk of the District Court, and this Court, with respect to such awards. Section 27-5-301, provides that a District Court "may vacate - award the . . . - may order - - hearing" and - a new when certain grounds appear. Section 27-5-302, on the other hand, provides that a District Court "may, on motion, modify or correct the award" when certain matters appear. The grounds upon which the court may vacate the award and order a new hearing under section 27-5-301, are different from the grounds upon which the court may modify of correct the award under section 27-5-302. It appears to me, in con- sidering these two sections, that it was the purpose of the legislature to allow the court, under section 27-5-302, to modify or correct the award when it appeared from the face of the record (the arbitration award) that a mistake -7-

had been made which could be corrected without a further hearing before arbitrators. Section 27-5-301, on the other hand, is so designed to provide for the vacation of the award and a new hearing where the hearing established that the arbitrators acted improperly, corruptly, fraudulently, or in excess of their powers. Therefore, when Lenora E. Kay contends, as she did before the arbitration board when she was unrepresented by counsel, that the arbitration board did not consider her legal objection to the contingency contract, she set forth the grounds that the arbitration board "otherwise acted improperly in a matter by which the rights of the party were prejudiced." This is a proper ground for vacation of the award and a new hearing under section 27-5-302(2), MCA. She has been denied that right to have the issue determined by the majority opinion. The right to obtain a vacation of the award and a new hearing when the arbitrators "otherwise acted improperly" is a broad umbrella which covers the contentions of Lenora Kay. It is not a ground mentioned by the majority. Indeed, the majority opinion fails to discuss the provisions of the statute in holding that she has not established grounds for such a vacation of award. What is the basis of that holding? The majority has further confused the appellate rights of a person involved in an arbitration procedure, when it determines that there is no appeal available from a judgment entered while there is a timely, pending motion before the District Court to vacate the award. The pertinent statutes are these: "27-5-302. When court may modify or correct award. The court or judge may, on motion, modify or correct the award where it appears that: "(1) there was a miscalculation in figures upon which it was made or that there is a mistake in the description of some persons or property therein; " (2) a part of the award is upon matters not submitted, which part can be separated from other parts and does not affect the decision on the matters submitted; " (3) the award, though imperfect in form, could have been amended if it had been a verdict, or the imperfection disregarded." "27-5-303. When award has effect of a judgment. After the expiration of 5 days from the filing of the award, upon the application of a party who also files an affidavit showing that notice of filing the award has been served on the adverse party or his attorney at least 4 days prior to such application and that no order staying the entry of judgment has been served, the clerk must enter the award in the judgment book and thereupon it has the effect of a judgment." An examination of the foregoing two statutes reveals that they do not cover the situation that occurred here. Lenora E. Kay timely filed a motion to vacate the award before the clerk entered judgment in this case. That motion was pending at the time that the clerk entered the judgment. That motion is still pending before the District Court. Under section 27-5-304, MCA, the right of appeal is not from the judgment but rather from the "decision upon the motion" to vacate the award. Under section 27-5-304, an appeal is granted to a party from a motion whether or not a judgment has been entered before the notion has been decided. The District Court did not pass upon the motion to vacate the award on the grounds stated. Instead, the District Court, because judgment had been entered by the clerk of the court, decided that the District Court was precluded from doing anything further with respect to the motion to vacate the arbitration award. Thus, we have a case before us where a right of appeal is granted to Lenora E. Kay on the motion to vacate the arbitration award, but the District Court has not yet acted on the grounds set out in that motion. Therefore, we have before us a situation where the question as to the legality of the attorney's fees under the language of the attorney's fees contract has not been decided upon an adversarial proceedings either in the District Court or in this Court, all because of the peculiar nature of the statutes providing for this appeal. I would therefore reverse the case and remand it to the ~istrictCourt for a consideration of the issues raised by the motion to vacate the award. Otherwise, we have denied to Lenora E. Kay her right to appeal from a decision on her motion, a decision which the District Court has yet to make.

I join in the dissent of