No. 88-529 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1989 

HOVEN, VERVICK & AMRINE, P.C., 

petitioner and Appellant, 

-VSMONTANA COMMISSIONER OF LABOR, and 

MONTANA DEPARTMENT OF LABOR AND 

INDUSTRY, 

Respondents and Respondents. 

APPEAL FROM: ~istrict Court of the First ~udicial ~istrict, 

In and for the County of ~ewis & Clark, 

The Honorable Henry Loble, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

J. Daniel Hoven; Browning, Kaleczyc, Berry & Hoven, 

Helena, Montana 

For Respondent : 

Elizabeth ~riffing, Dept. of Labor & Industry, Helena, 

Montana 

~ilodragovich, Dale & Dye; Lon J. Dale, is sou la, 

Montana (Vervick) 

~arlington, Lohn and ~obinson; ~illiam T. Wagner, 

Missoula, Montana (Amrine) 

" -. 

, > L) ..* Submitted on Briefs: March 9, 1989 

Decided: June 15, 1989 
Mr. ~ustice John C. Sheehy delivered the opinion of the 

Court. 

Hoven, Vervick and Amrine, P.C. appeals from a decision 

entered against it in the ~irst Judicial ~istrict Court, 

~ewis and Clark County. The District Court held that the 

July 31, 1987 order of the commissioner of Labor and Industry 

in favor of Larry Vervick and William Amrine be affirmed and 

awarded attorney fees and costs to ~ervick and Amrine. That 

judgment awarded the respondents the following: 

Larry Vervick: $56,919.15 

representing unpaid wages of $26,015.05 and a 

statutory penalty of $26,015.05 pursuant to § 

39-3-206, MCA plus costs and attorney fees of 

$4,889.15. Interest is to accrue on the wage and 

penalty award of $52,030.10 at a rate of 10% per 

annum from August 30, 1987 to the date of the 

district court judgment August 16, 1988. Interest 

is to accrue at 10% per annum on the entire amount, 

$56,919.25, from and after August 16, 1988. 

Bill Amrine: $25,472.27 

representing wages of $11,681.07 and the statutory 

penalty in the same amount, $11,681.07, plus costs 

and attorney fees of $2,110.37 with interest to 

accrue on the $23,362.14 award at 10% per annum 

from August 30, 1987 to August 16, 1988 and to 

continue to accrue on the $25,472.27 at 10% per 

annum from and after that date. 

The court also awarded respondents any future costs and 

attorney fees incurred in satisfying this judgment. We 

affirm. 

The issues before this Court are: 

1. id the District Court err by applying a narrow 

standard of review which prevented it from examining 

undisputed facts and applying those facts to controlling 

statutes? 
2. Can owners/shareholders/directors of closely-held 

corporations, who meet the applicable statutory definition of 

employer, recover wages under the Montana Wage Payment Act? 

3. Was the Department of Labor's finding that Vervick 

was an employee and not a volunteer from October 7, 1985 to 

January 15, 1986 clearly erroneous? 

4. Did the Department of Labor and the District Court 

abuse their discretion when they failed to provide offsets to 

the awards of wages to prevent a windfall? 

5. id the Department of Labor violate its own 

regulations and the Montana ~dministrative Procedure Act by 

designating the hearing examiner's decision as final without 

allowing for the filing of exceptions? 

 his case stems from a dispute which arose in Hoven v. 

Amrine (Mont. 1986), 727 P.2d 533, 43 St.Rep. 1977. That 

dispute culminated in an appeal to this Court in which Hoven 

received an award of attorney fees for his attempt to enforce 

the provisions of an agreement whereby Amrine and vervick 

were to purchase stock from Hoven. Hoven served default 

notices on Amrine and ~ervick who brought an action in 

~istrict Court to have the notices declared void. Hoven 

prevailed in that cause and forthwith dismissed ~mrine and 

~ervick from employment. That dismissal is the subject of 

the present appeal which is based on the following 

circumstances: 

prior to July 1, 1979, Larry vervick and Vern Hoven 

operated a general partnership for the practice of certified 

public accounting in is sou la. On July 1, 1979, Hoven, 

~ervick and ~mrine formed a corporation in which each held 

one-third of the shares. On that same date, vervick and 

Amrine entered into agreements as employees of the 

corporation. Hoven entered into a similar employment 

agreement. 
In 1985, David Green was added to the corporation as a 

shareholder, diminishing the ownership to 25% per 

shareholder. From July 1, 1979 to October 7, 1985, Vervick, 

Amrine and Green served on the board of directors, on the 

executive committee and as officers of the corporation. 

Hoven served in the same capacities from July 1, 1979 through 

August, 1983. He resumed those positions again on October 7, 

1985 as sole shareholder, sole director and president of the 

corporation after litigation in which he demanded the return 

of Vervick's and Amrine's shares to the corporation due to 

their failure to pay for the same among the four principal 

owners. Hoven v. Amrine, supra. 

Part of the initial disagreement emanated from a salary 

increase Vervick and Amrine made to themselves in May, 1985. 

In a special meeting of the board of directors, the board 

approved staff raises including an increase in the owner's 

salaries from $40,000 to $44,000 and declared previous loans 

to the owners to be bonuses. These raises were recommended 

by the executive committee consisting of Vervick, Amrine and 

Green. 

In August, 1985, the corporation was experiencing cash 

flow problems. Because of this circumstance the four 

shareholders worked without salaries. Then problems arose 

between Hoven and the other three shareholders. Hoven 

regained absolute control of the corporation through court 

proceedings. He then terminated Amrine and Vervick as 

employees. He told ~ervick that he was no longer a 

shareholder in the corporation but offered a joint venture to 

him. Hoven, through a director's resolution, rescinded 

Vervick's and Amrine's salary increases retroactively. 

Vervick did not respond in writing to Hoven's new offer, but 

continued to work under the HVA name and completed several 

large contracts that he had entered into as a principal of 
the corporation. ~ervick later took with him some of those 

contracts when he left HVA and formed his new corporation. 

The monies he generated prior to his leaving went into HVA 

and went to pay off debts that totalled $232,000.00 on 

October 7, 1986. ~ervick terminated his employment with the 

corporation on January 15, 1986. On October 3, 1986, he 

filed a wage claim with the Montana Department of Labor and 

Industry (Department). He claimed past wages in the total 

sum of $16,015.05. Amrine filed a wage claim on October 18, 

1985 for $8,544.60. These claims were against HVA. The wage 

claim was based on a salary of $44,000.00 per year. Green 

had issued a corporate check to himself for accumulated 

vacation pay when he was terminated by Hoven. HVA never 

pursued him to recover that payment. 

A hearing examiner appointed by the Department held a 

hearing on June 11, 1987. The hearing examiner issued the 

final order on July 31, 1987 in favor of Vervick and Amrine. 

It ordered HVA to render a cashier's check or money order in 

the amount of $75,392.24 as wages and statutory penalty in 

favor of ~ervick and Amrine, made payable to the Employment 

 elations ~ivision, no later than thirty days after service 

of the order. The amount ordered to be paid to Vervick was 

$52,030.10. HVA filed a petition for judicial review of the 

Department's final order. The ~istrict Court affirmed the 

Department's decision and issued a final judgment on August 

17, 1988. ~otice of entry of judgment was filed on August 

23, 1988. HVA then filed notice of appeal to this Court on 

October 21, 1988. Under Rule 5, M.R.App.P., a 60 day period 

is allowed for appeal when a governmental agency is a party. 

The first issue we must examine is whether the District 

Court erred by applying an incorrect standard of review. 

The standard of review of administrative decisions is 

set forth in § 2-4-704, MCA. 
. . . (2) The court may not substitute its 

judgment for that of the agency as to the weight of 

the evidence on questions of fact. The court may 

affirm the decision of the agency or remand the 

case for further proceedings. The court may 

reverse or modify the decision if substantial 

rights of the appellant have been prejudiced 

because the administrative findings, inferences, 

conclusions, or decisions are: 

(el clearly erroneous in view of the reliable, 

probative, and substantial evidence on the whole 

record; 

(f) arbitrary and capricious or characterized by 

abuse of discretion or clearly unwarranted exercise 

of discretion;. . . 

Traditionally, review of agency decisions is not 

intended to be a de novo consideration of findings of fact 

made by the agency. Because of the standard of review 

prescribed by the foregoing statute, the party appealing from 

an agency decision to the ~istrict Court has the burden of 

showing that his rights were substantially prejudiced by an 

arbitrary or capricious or a clearly erroneous agency 

decision. Carruthers v. Board of Horse acing (1985), 216 

Mont. 184, 700 P.2d 179. A rebuttable presumption exists in 

favor of the agency decision. Thornton v. omm mission of 

Labor and Industry (1980), 190 Mont. 442, 621 ~.2d 1062, 

1065. 

The appellant contends that an issue which raises only a 

question of law determined by the District Court or by an 

agency is not binding on this appellate court, which is free 

to draw its own conclusions from the evidence presented. 

Sharp v. Hoerner Waldorf Corp. (19781, 178 Mont. 419, 423, 

584 P.2d 1298, 1300. 
To settle the issue for purposes of this case, where the 

appellant disputes a finding of fact made by the agency, the 

action of the agency will be sustained unless the finding of 

fact is clearly erroneous in view of the reliable, probative 

and substantial evidence on the whole record; or unless the 

findings are arbitrary or capricious or characterized by an 

abuse of discretion by the agency. Section 2-4-704, MCA. If 

the issue involves a question of law, this Court is not bound 

by the interpretation of law either by the agency or the 

~istrict Court. Sharp, supra. 

The next issue raised by the appellant is indeed an 

issue of law. The appellant contends that since it is a 

professional corporation, it is absurd to construe the 

provisions of the Montana Wage Payment Act, and particularly 

the definitions contained in 5 39-3-201, MCA, so that 

shareholders, owners and directors who hold a proprietary 

interest in the company may also be considered employees for 

the purpose of collection of wages under the Act. Under S 

39-3-201, an "employer" includes any corporation acting 

directly or indirectly in the interest of an employer in 

relation to an employee; and "employee" is defined as any 

person who works for another for hire. 

In ~amrnill v. Young (1975), 168 Mont. 81, 540 P.2d 971, 

this Court held that a professional, if truly an employee, is 

entitled to be covered as an employee under the Wage Payment 

Act. Here the appellant contends that Hammill can be 

distinguished because the professional was not a shareholder 

and held no ownership interest in the corporation. The 

District Court, however, concluded that in construing 5 

39-3-201, both Vervick and ~rnrine were indeed employees of 

the professional corporation and that this entitled them to 

the benefits of the Act. 
We determine that the District Court correctly 

interpreted S 39-3-201 as it applies to this case. The 

professional corporation clearly falls within the definition 

of an employer under the section, which means that the 

corporation itself had a separate and distinct identity from 

its stockholders. Moats Trucking Company, Inc. v. Gallatin 

Dairies, Inc. (Mont. 1988), 753 P.2d 883, 885, 45 St.Rep. 

772, 775. It is further clear that the definition of an 

"employee" within the meaning of the section covers Vervick 

and Arnrine. They had entered into contracts of employment 

with the professional corporation, a separate legal entity. 

The employment contract between the corporation and the 

employees specifically provided that their relationship under 

the contract was that of an employer and an employee. It 

would be idle for the ~istrict Court or for this Court to 

disregard the clear language of the employment contracts or 

the clear language of the statute. Where clarity abounds, it 

is not the business of the courts to carve out exceptions. 

The next issue raised by the appellant corporation is 

whether the appellant Vervick is not entitled to any wages 

from October 7, 1985 to January 15, 1986. Hoven testified 

that he had terminated Vervick. Vervick claims that he was 

never terminated as an employee of HVA. Hoven contended that 

he offered to ~ervick a joint venture relationship to finish 

existing contracts which were required to be fulfilled by 

HVA. The hearing officer found that Vervick remained after 

October 7, 1985 as an employee. Moreover, the hearing 

officer found that there was no joint venture. The findings 

with respect to this issue are clearly supported by 

substantial evidence in the whole record. ~ervick was not a 

volunteer but worked as an employee during the time following 

October 7, 1985, and the corporation was paid for the work 

done by Vervick during that period of time. As a 
corporation, the employer received the benefits of the 

contracts through the efforts of its employee, Vervick. 

The next issue raised by the appellant corporation is 

that if wages are to be awarded in this case, reductions 

should have been made by the Department to avoid an 

inequitable result. 

The contention of the appellant here is a bit involved. 

The Department awarded wages based on a yearly salary of 

$44,000.00 to each of the employees. The $44,000.00 was 

premised on an action taken by the board of directors in May, 

1985, when Vervick and Amrine were both members of the board. 

The corporation contends that the award of these salaries 

placed HVA in violation of loan provisions established by the 

Small Business Administration. Also in May, 1985, the board 

of directors declared loans, which Vervick and Amrine had 

previously received from HVA, as bonuses. 

When Vern Hoven became the sole shareholder in October, 

1985, the board of directors rescinded the corporate actions 

taken in May, 1985. 

The Department and the District Court recognized the 

yearly wage of the employees to be $44,000.00 pursuant to the 

earlier actions of the board of directors and gave no legal 

import to the later action of the board of directors 

rescinding those actions. The corporation contends, on 

appeal here, that the Department and the District Court thus 

sanctioned the actions taken by the board of directors when 

Vervick and Arnrine were members of the board, and disapproved 

of the actions taken by the board when they were not members 

and Hoven was the sole shareholder. The appellant 

corporation contends that it is arbitrary and capricious for 

the Department to recognize one set of actions taken by the 

board of directors and to refuse to acknowledge a second set 

of actions taken by the board. 
The District Court determined that upon of the adoption 

of the resolution increasing the salaries to $44,000.00, the 

resolution then became the obligation of the corporation to 

those employees and a subsequent action by the board of 

directors could not rescind a previous action if the 

rescission would disturb vested rights. We determine that 

once the corporation obligated itself to pay the wages at an 

annual rate of $44,000.00, the same corporation could not 

retroactively, by an action of a different board of 

directors, take back what had become the obligation of the 

corporation. 

A sub-issue on this point is that both Vervick and 

Amrine, as well as Hoven, had made personal guaranties to the 

Small ~usiness ~dministration of loans made by that 

Administration to the professional corporation. The 

appellant corporation contends that since ~ervick and Amrine 

were personal guarantors of those loans, the award of wages 

to them without a reduction for their personal guarantees 

results in a double benefit. Obviously, this contention has 

no merit. The obligations of Vervick and Amrine as personal 

guarantors of loans made to a third party, in this case, the 

Small Business ~dministration, has no affect on the amount of 

wages owed by the corporation to ~ervick and ~mrine. heir 

obligations as personal guarantors are separate and apart 

from their status as employees entitled to payment of wages 

by the corporation under the Montana Wage Payment Act. The 

appellant corporation has shown no legal basis upon which a 

reduction of the wages should have been made by the agency or 

the District Court. 

The last contention made by the appellant corporation is 

that since the order of the hearing examiner before the 

agency became the final order, the designation of the hearing 

examiner's decision as "final" violates S 2-4-621, MCA. 
Section 2-4-611, MCA authorizes a hearing and an 

appointment of a hearing examiner under the Administrative 

Procedure Act. Appellant corporation contends that nothing 

in S 39-3-210, MCA, or any other provision allows the 

Commissioner of Labor to delegate the final decision-making 

authority to an appointed hearing examiner. The appellant 

points to the Department's regulation, S 24.2.101(1) (b), 

A.R.M., which reads: 

If a majority of the officials of an agency who are 

to render the final order were not present at the 

hearing of a contested case or have not read the 

record, a proposed order if adverse to a party to 

the proceeding other than the agency, including 

findings of fact and conclusions of law, shall be 

served upon the parties. An opportunity to file 

exceptions, present briefs and make oral argument 

to the officials who are to render the decision 

shall be granted to all parties adversely affected. 

If no appeal is taken within twenty (20) days, the 

decision of the hearing examiner shall be final. 

The District Court determined that the Commissioner of 

Labor and Industry is charged with the responsibility of 

investigating wage claims and holding hearings in the 

enforcement of the Wage Payment Act under S;S 39-3-209 and 

39-3-210, MCA. Further, under S 2-15-112(2) (b), MCA, the 

Commissioner, as the head of the Department of Labor and 

Industry, may delegate these functions to a subordinate 

employee. Section 24.2.101, A.R.M. allows the decision of an 

appointed hearing examiner to be a final order. Therefore, 

the District Court declared that there is no error in the 

designation of the hearing examiner's order as final. 

The District Court correctly determined the issue. It 

should be further noted that the statutory authority of the 

Commissioner of Labor and Industry refers to a single 

individual and not to a number of officials, who in other 

agencies, may be required to reach a final decision. The 
cited section of ~dministrative Rules of Montana is not 

applicable to wage payment cases and the Department of Labor 

and Industry and its ~omrnissioner have established a workable 

procedure for determining issues in wage payment claims under 

the provisions of the applicable acts. 

We therefore affirm the Di