Wallace v. Hayes

2005 MT 253, 124 P.3d 110, 329 Mont. 23, 2005 Mont. LEXIS 427
CourtMontana Supreme Court
DecidedOctober 18, 2005
Docket04-755
StatusPublished
Cited by10 cases

This text of 2005 MT 253 (Wallace v. Hayes) is published on Counsel Stack Legal Research, covering Montana Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Wallace v. Hayes, 2005 MT 253, 124 P.3d 110, 329 Mont. 23, 2005 Mont. LEXIS 427 (Mo. 2005).

Opinions

JUSTICE MORRIS

delivered the Opinion of the Court.

¶1 Len Wallace (Wallace) appeals from an order of the Thirteenth Judicial District, Yellowstone County, denying his motion to vacate an [25]*25arbitration award and affirming defendants Rodney and Norman Hayes’ (collectively “Hayes”) motion to confirm the award. We affirm.

¶2 Wallace raises the following issues on appeal:

¶3 1. Whether the District Court abused its discretion by refusing to vacate the arbitration award due to the arbitrator’s alleged violation of Wallace’s due process rights.

¶4 2. Whether the District Court abused its discretion by refusing to vacate the arbitration award due to the arbitrator’s alleged excess of power in awarding punitive damages.

¶5 3. Whether the District Court abused its discretion in determining that Wallace was liable for $2.5 million in nominal and exemplary damages.

¶6 In addition, Hayes raises the following two counterclaims:

¶7 4. Whether the District Court erred in determining that Wallace timely filed his motion to vacate the arbitration award.

¶8 5. Whether the District Court erred in entering an alleged internally inconsistent and unenforceable judgment.

PROCEDURAL AND FACTUAL BACKGROUND

¶9 Wallace commenced this action on October 29, 2001, against MagTrac Bolus, a Wyoming limited liability company (hereafter “LLC”) in which he was a member, and against six other LLC members: Norman Hayes (Norman), Rodney Hayes, Jack and John Heyneman, and Gerald and Lucille Hill (hereafter collectively “LLC Defendants”). The LLC’s primary purpose was to own, develop and market products for radio frequency identification and temperature monitoring of livestock. Wallace’s complaint alleged fraud, negligent misrepresentation, and breach of partnership obligations.

¶10 The District Court ordered the parties to arbitrate the dispute on June 18, 2002, pursuant to the LLC’s Operating Agreement. The Operating Agreement provided, in part, that “[a]ny controversy, claim or dispute arising out of or relating to this Operating Agreement, or to the interpretation, breach or enforcement thereof, other than a dispute as to the value or method of valuation of the assets of the Company, shall be referred to a single arbitrator ....”

¶11 The parties stipulated that Wyoming law would govern the arbitration proceedings. The arbitrator requested that each party submit a position statement no later than seven days before the commencement of proceedings. Wallace submitted his statement on November 12,2002, outlining seven issues regarding the operations of the LLC. The LLC Defendants submitted their position statements on January 21,2003. Defendants Hayes’ and Hills’ statement alleged that [26]*26‘Wallace appropriated the assets of [the] LLC for himself or affiliate, and has prevented the corporation and any of its unit holders from using the assets or doing any business on its behalf.” Arbitration proceedings began on January 30, 2003.

¶12 The arbitrator considered the LLC Defendants’ claims over Wallace’s objection that consideration of the counterclaims violated his due process right to receive adequate notice. The arbitrator held hearings on January 30, February 21, and March 18 of 2003. The arbitrator issued his Decision and Award on July 31, 2003 (“July Award”). The parties received the July Award on August 4, 2003. We summarize relevant portions below:

¶13 Paragraph One: The arbitrator earlier found that Wallace personally had entered into contracts with Phase IV Engineering, Inc. (Phase IV), a Boulder, Colorado corporation, for the sale and other disposition of LLC assets without the consent of Norman Hayes and against the interests of the LLC. The arbitrator ordered Wallace to provide copies of all former and current contracts between Wallace or his affiliates and Phase IV for the design, manufacturing, production, marketing, and/or distribution of radio frequency identification products of any kind or description. The arbitrator ordered Wallace to comply within ten days of receipt of the July Award.

¶14 Paragraph Two: The arbitrator ordered Wallace to account to the LLC and its members for all income and all contributions, loans or expenses received or disbursed by Wallace or his affiliates that derived in any way from written or oral agreements between Wallace and Phase IV that pertain to the intellectual concepts and properties identified in the LLC’s patents. The arbitrator ordered Wallace to comply within 30 days from the date of the July Award.

¶15 Paragraph Three: The arbitrator ordered Wallace to assign all contractual rights and interests referenced in paragraph two to the LLC within 30 days from the date of the July Award.

¶16 Paragraph Four: The arbitrator provided that in the event Wallace breached his obligations under paragraphs one, two or three, he would be required to pay nominal and exemplary damages in the amount of $2.5 million for his intentional misappropriation and conversion of property rights belonging to the LLC. The arbitrator ordered that the money first go to any debts and liabilities of the LLC and then be distributed to the remaining LLC members in proportion to their ownership interest.

¶17 Paragraph Eleven: The arbitrator ordered Norman to pay Wallace $100,000, together with all costs and fees incurred by Wallace, including reasonable attorney’s fees, within thirty days of the July [27]*27Award. The arbitrator further ordered that if Norman breached this obligation, he would be required to transfer 2,500 non-voting units in the LLC to Wallace.

¶18 Wallace applied for a modification of the July Award on August 13, 2003. The arbitrator issued an Order Granting Stay of Further Proceedings on August 18,2003 (“August Stay”), in which he stayed all of the above obligations from the July Award. The arbitrator issued an Order Modifying Stay Order on September 30, 2003 (“September Order”), in which he lifted the stay on Wallace’s obligations under paragraphs one, two and three of the July Award. The arbitrator also ordered Wallace to comply with those paragraphs within twenty days of the September Order, and added the requirement that Wallace provide a verified written accounting of all dealings with Phase IV. In response, Wallace produced one contract on October 17, 2003, but asserted that “there are no agreements to assign, or income and expenses to account for.”

¶19 Norman attempted to comply with paragraph eleven of the July Award, despite the arbitrator’s stay of that obligation in the August Stay. Norman transferred three demand notes to Wallace on October 30, 2003, with a total value of $150,000 to cover the $100,000 obligation from paragraph eleven of the July Award as well as Wallace’s attorney’s fees.

¶20 The LLC Defendants moved the District Court to confirm the July Award. Meanwhile, the arbitrator issued his Final Report and Order on December 23, 2003 (“Final Order”). Wallace received the Final Order on December 29, 2003. In the Final Order, the arbitrator determined that Norman’s transfer of three demand notes to Wallace did not comply with paragraph eleven of the July Award because the demand notes did not qualify as “cash or its equivalent.” Norman thus had defaulted on his obligation and the arbitrator therefore ordered him to transfer 2,500 non-voting units to Wallace.

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Bluebook (online)
2005 MT 253, 124 P.3d 110, 329 Mont. 23, 2005 Mont. LEXIS 427, Counsel Stack Legal Research, https://law.counselstack.com/opinion/wallace-v-hayes-mont-2005.