No. 05-724
IN THE SUPREME COURT OF THE STATE OF MONTANA
2007 MT 226

____________________________________ EDWARD H. LYNES, a/k/a EDWARD J. LYNES, PATRICIA LYNES, and HIGH COUNTRY ROCKIN ROUNDUP, L.L.C., a Mont ana Limited Liability Company, Plaintiffs and Appellants,

v. MATT HELM, MYRNA MINTYALA, CHRISTINE DEBUFF, and DARRELL TUSS, Defendants and Respondents.

____________________________________

APPEAL FROM: District Court of the Tenth Judicial District, In and for the County of Fergus, Cause No. DV 03-105, The Honorable E. Wayne Phillips, Presiding Judge.
COUNSEL OF RECORD: For Appellants Helge Naber, Attorney at Law, Great Falls, Montana For Respondents Torger Oaas, Oaas Law Office, Lewistown, Montana

____________________________________ Submitted on Briefs: October 3, 2006 Decided: September 11, 2007 Filed:

_____________________________________________ ClerkJustice John Warner delivered the Opinion of the Court. ¶1 Appellants, Edward Lynes and Patricia Lynes (Lynes), along with High Country Rockin Roundup, L.L. C., (HCRR) brought suit by way of a third-party complaint against four HCRR members, Matt Helm, Myrna Mint yala, Christine DeBuff, and Darrell Tuss, (referred to collectively as Respondents). L ynes and HCRR allege that the Respondents acted unlawfully in advancing HCRR money an d in later causing HCRR to repay this money to them. Lynes claim that repayment to Respondents rendered HCRR unable to pay a loan it had received from Western Se curity Bank (Bank). Lynes had pledged personal assets to the Bank to secure HCRR’s loan and were therefore forced to pay the loan themselves. Thus, Lyne s claim they were personally damaged. Both Lynes and HCRR sought reimbursement from the Respondent s for the amount Lynes paid the Bank. The District Court for the Tenth Judicial Di strict, Fergus County, granted Respondents’ motion for summary judgment and Lynes appeal. We affirm.
ISSUES ¶2 We restate and address the following issues on appeal: ¶3 1. Did the District Court err in gr anting Respondents’ motion for summary judgment based on the record before it? ¶4 2. Did the District Court err in not gr anting Lynes’ motion to compel discovery? ¶5 3. Did the District Court err in not gr anting Lynes’ motion for additional time to file further affidavits and documents in opposition to the Respondents’ motion for summary judgment?

2BACKGROUND ¶6 Lynes, along with the Respondents and several others, organized HCRR, a limited liability company established pursuant to The Montana Li mited Liability Company Act, Title 35, Chapter 8, MCA. Edward Lynes initially acted as the manager of HCRR. HCRR sold twenty shares to its members for $2,000 each. In addition, the Bank loaned $40,000 to HCRR. Lynes signed a security agreement pledging personal assets to secure the Bank loan. ¶7 HCRR made arrangements to put on a large rock concert near Lewistown. However, ticket sales for the rock concert were poor. The day of the concert several of the bands scheduled to play demanded paym ent before they woul d perform. HCRR did not have enough money in its account to pay the bands. ¶8 Approximately nineteen members of HCRR me t at the concert site. Lynes and the Respondents were present. At this me eting the members discussed whether HCRR should cancel the concert a nd refund purchased tickets or, should some Members advance additional money to HCRR so that it could pay the bands to perform. Edward Lynes stated he would not put any more money into HCRR. The members present decided to collect additional money from the Re spondents so that the concert would take place. The members planned to make enou gh money from additional ticket sales and concession sales to cover the costs of the conc ert. None of HCRR’s members that were present, including Lynes, objected to this pl an. The Respondents then paid $57,200 to
the bands. It is unclear whether the new money was paid into the HCRR account and then paid out to the bands, or paid directly to the ba nds. There is, however, no contest

3that the money from Respondents was paid to the bands so that the concert sponsored by HCRR could take place. The show went on. ¶9 The day after the concert, some but no t all of the members of HCRR held a meeting and elected a new board of directors. Tuss was elected president, Helm, vice president, Mintyala, co-secretary/treasurer, and DeBuff, co-secreta ry/treasurer. Edward Lynes seconded the motion to elect Helm president. ¶10 The income from the c oncert was not enough to pay th e costs of putting it on. The new board of directors calcula ted HCRR’s concert expenses to be $232,744.32 offset by income of $81,957.85, leaving HCRR $150,28 6.47 in debt. The members present at the meeting the day after the concert proposed to pay HCRR’s debts by first reimbursing the Respondents the money they adva nced at the eleventh hour to pay the bands. Next, local creditors would be paid. Finally, the Bank loan would be paid. Lynes were present at this meeting and did not object to the plan. ¶11 Later, Tuss, as president of HCRR, sent all of its members a letter requesting an additional investment of $7,5 00 from each of them. Afte r receiving some additional investments, HCRR was able to pay its debts, except for $18,000 of the Bank loan. ¶12 HCRR’s note to the Bank went into defau lt. The Bank threatened to foreclose on the assets Lynes had pledged to secure the loan. So, Lynes, who had by then re-taken charge of HCRR’s affairs, executed a new promissory note to the Bank in the approximate amount of $26,000, with HCRR as the debtor. The record does not reflect why the amount was increased from $18,000 to $26,000. Lynes also secured payment of this new note with a pledge of their personal assets.

4¶13 Lynes sent a letter to all of HCRR’s me mbers stating that the outstanding Bank loan needed to be paid by April 10, 2003. HCRR did not receive additional money from its members and the loan ag ain went into default. ¶14 The Bank brought suit against HCRR and Lynes to recover the $26,000 it loaned to HCRR, and to foreclose on Lynes’ propert y that secured the loan. Lynes and HCRR then filed a third-party comp laint against Respondents, alle ging that during the time that they were the managers of HCRR, they wron gfully caused it to pa y to themselves the amount they had advanced just before the c oncert and that both HCRR and Lynes were damaged in that amount. U ltimately, Lynes personally paid the loan and the Bank dismissed its complaint. Lynes’ and HCRR’s third-party complaint against Respondents continued in litigation, and it is the dismissal of that third-party co mplaint that is the subject of this appeal. ¶15 Respondents moved for summary judgment, av erring that as a matter of law they were not obligated to re-pay the amounts HCRR reimbursed th em, and that they were not personally liable for HCRR’s debt to the Bank. The District Court granted Respondents’ motion.
STANDARDS OF REVIEW ¶16 We review de novo a district court’s grant of summary judgment using the standard established by M. R. Civ. P. 56. The moving party must establish the absence of a genuine issue of material fact and entitle ment to judgment as a matter of law. Gliko v.
Permann , 2006 MT 30, ¶ 12, 331 Mont. 112, ¶ 12, 130 P.3d 155, ¶ 12. Once a moving party has met its burden, the opposing party must present substantial ev idence essential to

5one or more elements of its case in order to raise a genuine issue of material fact. Gliko , ¶ 12. We review a district court’s conclu sions of law to determine whether they are

correct. Gliko , ¶ 13. ¶17 We review a district court’s order gran ting or denying motions to compel for abuse of discretion. Citizen Advocates v. City Council , 2006 MT 47, ¶ 37, 331 Mont. 269, ¶ 37, 130 P.3d 1259, ¶ 37. ¶18 We will not disturb a district court’s deci sion to grant or deny an extension of time absent a manifest abuse of discretion. Easton v. Cowie , 247 Mont. 181, 183, 805 P.2d 573, 574 (1991).
ISSUE ONE ¶19 Did the District Court err in granting Respondents’ motion for summary judgment based on the record before it? ¶20 Lynes first assert that the District Cour t erred in granting Respondents’ motion for summary judgment because the Respondents, as member s and managers of HCRR, caused it to re-pay to themselv es the money they advanced on the day of the concert. Lynes and HCRR claim that such re-payment constituted an unla wful distribution of capital contributions to members, which depleted HCRR’s assets to th e point that it could not pay its debts. Thus, th ey argue Respondents are pers onally liable to HCRR for the amounts they caused it to pay to themselves. ¶21 Section 35-8-604(1)(a), MCA, provides that an LLC may not make distributions to its members if such distributions render the LLC unable to pay its debts. A distribution is defined in § 35-8-102(8), MCA, as a transfer of money, prop erty, or other benefit to a

6member in that member’s capacity as a memb er of the company. The official comments to the Uniform Limited Liability Act, upon which Montana’s act is based, explain that distributions include payments made to me mbers which constitute a repayment of the capital contributions a member made to the company. Official Comments, Uniform Limited Liability Act, Section 1202. It is not disputed that HCRR could not pay its debt to the Bank after re-paying Re spondents. Thus, if the m oney Respondents paid to HCRR constituted capital contributions, the repaymen ts to Respondents which rendered HCRR insolvent may be considered prohibited di stributions. Section 35-8-605(1), MCA, provides that a member or manager of an LL C who votes for or assents to a distribution in violation of § 35-8-604 is personally liable to the comp any for the amount of the distribution. Therefore, Lynes argue, the law requires Respondents to refund the amounts they received to HCRR. This refund would have the effect of infusing enough capital into HCRR to reimburse Lyne s for the amount they personally paid to discharge HCRR’s Bank loan. ¶22 To the contrary, Respondents assert th at the repayment of the amounts they advanced HCRR to salv age the concert were loans they each persona lly made to HCRR, and the repayment of such loans was not cont rary to law. We ag ree with Respondents. ¶23 Section 35-8-504(1), MCA, provides: Member's and manager's rights to payments and reimbursement. (1) A limited liability company shall reim burse a member or manager for payments made and indemnify a memb er or manager for liabilities incurred by the member or manager in the ordi nary course of the business of the company or for the preservation of the company's business or property. (2) A limited liability company sha ll reimburse a member for an advance to the company beyond the amount of contri bution that the

7member agreed to make. (3) A payment or advance made by a member that gives rise to an obligation of a limited liability co mpany under subsection (1) or (2) constitutes a loan to the company upon which intere st accrues from the date of the payment or advance. (4) A member is not entitled to re muneration for services performed for a limited liability co mpany except for reas onable compensation for services rendered in winding up the business of the company. ¶24 The uncontested facts on the record clearly show that the Respondents advanced money to HCRR on the morning of the concert in the ordina ry course of the company’s business. These payments were indisputably for the benefit of HCRR. There is also no dispute that Respondents advanced the mone y so that HCRR’s concert business could be preserved. The advances ma de by Respondents also had th e effect of enabling HCRR to earn additional income from ticket and concessi on sales. Incidentally, these advances also had the effect of protecting Edward Lynes from personal liability on at least one contract with a band that he had personally guaranteed. Thus , based on the record before the District Court, these advances were loans to HCRR. Section 35-8-504, MCA. ¶25 It is true that Respondents were acti ng in managerial roles at the time they authorized HCRR to make the payments in question. Sec tion 35-8-310, MCA. However, even in a managerial position, a member “m ay lend money to and tr ansact other business with the company.” Secti on 35-8-310(6), MCA. Section 35-8-504(1), MCA, provides that an LLC must reimburse members for mone y loaned to the LLC. HCRR had both the obligation and the right to pa y the Respondents. ¶26 Lynes and HCRR also claim that the reco rd establishes a mate rial issue of fact concerning whether Respondents breached thei r duty of loyalty to HCRR and acted as

8persons who had an interest adverse to the co mpany when they repaid themselves before paying HCRR’s loan to the Bank. Section 35 -8-310, MCA, provides in pertinent part: (1) The only fiduciary duties that a memberowes to a membermanaged company and the other member s are the duty of loyalty imposed by subsection (2) and the duty of care imposed by subsection (3). (2) A member's duty of loyalty to a member-managed company and its other members is li mited to the following:

. . . . (b) to refrain from dealing with the company in the conduct or winding up of the company's business on behalf of a party or as a person having an interest adverse to the company[.] ¶27 The uncontested facts show th at HCRR had more legitimate debt than it could pay. As Lynes acknowledge in their brief, Respon dents’ decision on which debts should be paid first was simply a business decision. A debtor may pay one cred itor in preference to another. Section 31-2-104, MCA. Under the present circumstances, Respondents did not breach their duty of loyalty to HCRR by paying themselves first.
ISSUE TWO ¶28 Did the District Court err in not gran ting Lynes’ motion to compel discovery? ¶29 Lynes argue the District Court abused its discretion by failing to rule on their motion to compel discovery. They claim th at if they had received the discovery requested, they would have had enough inform ation to raise a material issue of fact precluding summary judgment. ¶30 The record indicates that on Febr uary 24, 2005, Lynes, proceeding pro se , served discovery requests on Respondents. On Apri l 21, 2005, Lynes file d a motion to compel discovery stating that the re sponses to their discovery re quests were incomplete, and

9asked to postpone the trial. Lynes attached to their motion to co mpel a copy of the discovery requests. Respondents’ counsel file d a notice that he had served responses to Lynes’ discovery on April 21, 2005. On April 28, 2005, Lyne s moved to vacate the trial that was then scheduled for June 29, 2005, again stating that Respondents’ discovery responses were incomplete. On May 2, 2005, Respondents su pplemented their discovery
responses. ¶31 The District Court minutes show that a hearing on all pendin g motions was held on May 6, 2005. At this he aring, Lynes continued to co mplain that their discovery requests had not been adequately answered . Counsel for Resp ondents advised the District Court that he did not know how his clients’ discovery responses were deficient. There is no indication in the record just what information or documents Lynes had requested that Respondents had not provided. On May 9, 2005, the District Court entered a written order stating that Lynes must, by Ma y 25, 2005, list the di scovery questions and answers they were not satisfied with so that Respondents would know what it was that they desired. Lynes did not comply with the District Cour t’s order. We note that the discovery requests Lynes had served did not ask for the HCRR tax information described in ¶ 34 below, which they now claim w ould raise an issue of material fact. ¶32 As Lynes did not comply with the District Court’s order to state how Respondents’ discovery answers were deficient, and because the District Court actually considered and entered an appropriate orde r on Lynes’ motion to compel discovery, we conclude that the District Court did not abuse its discretion by not granting Lynes’ motion to compel. See Citizen Advocates , ¶ 37 (concluding that a district court did not

10abuse its discretion in determining that a motion to compel was too vague and lacked specificity needed to rule upon it.)
ISSUE THREE ¶33 Did the District Court err in not granting Lynes’ motion for additional time to file further affidavits and documents in oppos ition to the Respondents’ motion for summary judgment? ¶34 Finally, Lynes and HCRR argue that the Di strict Court erred in not giving them more time to respond to Respondents’ summary judgment motion. They claim that the 2002 United States partnership tax return filed by HCRR, which was rejected by the District Court as untimely, shows that the advances Respondents made to salvage the concert were treated by HCRR as capital cont ributions, not loans. Lynes and HCRR thus claim that these records establish that the reimbursement payments to Respondents were distributions. They argue that this informati on is sufficient to raise a material issue of fact and the District Court erred when it re fused to consider it because it was not timely filed. ¶35 Lynes and HCRR filed their third-party co mplaint with the assistance of counsel on November 13, 2003. Respondents answered . At a scheduling conference on February 4, 2004, the District Court set a deadline fo r the close of discovery on May 25, 2004, and a trial date of August 25, 2004. Approxima tely eight months late r, and a month before the trial date, on July 21, 2004, counsel fo r Lynes, with their consent, moved to withdraw. Counsel requested that the District Court vacate the scheduling order so that

11Lynes could obtain new counsel. Two days later the District Court granted the motion and vacated the discovery d eadline, the scheduling confer ence and the trial. ¶36 As required by Uniform District Court Rule 10, Lynes were given notice that they were required to retain new counsel or proceed in the litigation pro se , on September 13,
2004

. On October 8, 2004, Lynes requested that they have an additional 30 days to retain counsel. They said they had contacted an attorney who was cons idering appearing on their behalf. The District Court granted Lynes’ request and re-set the scheduling conference for November 16, 2004. This sc heduling conference was vacated when Lynes came without counsel. The District Court set another scheduling conference for December 9, 2004. Lynes agai n appeared at the scheduling conference without counsel. The District Court, realizing that this litig ation had to proceed whether or not Lynes obtained counsel, set a trial to begin over six months later, on June 29, 2005. ¶37 On April 25, 2005, Respondents moved for summary judgment, and filed a brief in support. ¶38 On April 28, 2005, Lynes moved to vacate the trial scheduled for June 29, 2005, stating that Respondents’ discovery responses were incomplete and that they were still trying to retain counsel. ¶39 As noted above, the District Court held a hearing on all pending motions on May 6, 2005. Lynes, still appearing pro se , again stated that they were seeking counsel and had contacted another lawyer in Great Fall s. The presiding j udge set the hearing on Respondents’ motion for summary judgment for June 2, 2005, advised Lynes that their response to Respondents’ motion for summary judgment was due on May 12, told them

12to advise the attorney who they were dealing with of such fa ct, and that if they did not have an attorney th at they must respond themselves. ¶40 The District Court’s written order of Ma y 9, 2005, confirme d the date by which Lynes’ response to the summa ry judgment motion was due, as well as the date of the hearing on the motion. ¶41 On May 12, still proceeding pro se , Lynes filed their response to the Respondents’ motion for summary judgment. The response and exhibits in support thereof did not contain the tax records of HC RR that they now claim woul d create a material issue of fact. Lynes appeared at the June 2, 2005 , hearing on Responden ts’ summary judgment motion pro se . Respondents’ counsel argued in favo r of the motion. Lynes stated that they had found an attorney who could not be at the hearing and requested that it be postponed. The District Court denied the motion to continue stating that Lynes had since the previous fall to retain an attorney and Respondents ha d a right to have the case resolved. Lynes then presented their argument against the motion. At the conclusion of the hearing the District Court, sua sponte , granted Lynes ten more days to submit additional documents through th e attorney they said they had retained. Lynes made no objection to the time limitation. That same day, again acting sua sponte , the District Court extended the time for filing additio nal documents by ente ring a written order giving the parties until June 20, 2005, to file additional argumen ts detailing specific, disputable facts which would pr eclude summary judgment. ¶42 On June 16, 2005, Lynes appeared thro ugh their present counsel by way of a petition for additional time to supplement their response to Respondents’ summary

13judgment motion, to vacate th e trial date, and to move fo r summary judgment. Lynes’ counsel also filed a memorandum opposing the summary judgment motion. HCRR’s 2002 tax return was not mentioned in these filings. ¶43 Respondents objected to any additional dela y, arguing that the record before the court clearly showed that there were no materi al facts in dispute and that they would be even more prejudiced by fu rther delay. Respondents also replied to the written arguments made by Lynes in opposition to their motion for su mmary judgment. ¶44 On June 27, 2005, after the District Court’s deadline for filing additional opposition to the motion fo r summary judgment had passed, Lynes and HCRR filed another brief in opposition to Respondents’ motion for summary judgment, and a motion for summary judgment in their favor. In these motions, for the first time, Lynes and HCRR attempted to bring to th e District Court’s attention the tax records of HCRR which they claim show that the co mpany’s payments to Respondents, reimbursing them the money they had paid to salvage the concert, were unlawful distributions that rendered HCRR insolvent. ¶45 By order of July 27, 2005, the District Court denied Lynes’ and HCRR’s motion for additional time and stated it would co nsider all documents and information concerning Respondents’ motio n for summary judgment file d by June 20, 2005, but would not consider later filings concerning the motion. In denying the motion for additional time, the District Court recounted the history of dela y by the Lynes, the admonishments they were given to proceed as ordered, and the prejudi ce to Respondents.

14Subsequently, on August 18, 2005, the District Court entered its order granting Respondents’ motion fo r summary judgment. ¶46 On appeal, Lynes offer no explanation of why the tax record s they claim the District Court erred by not cons idering were not pres ented in a timely fashion. They only say that they discovered them, and that th ey did not come from Respondents. They do not represent that these records of HCRR we re not continuously in their possession from the time they filed their third-party complain t in November of 20 03 until revealed on June 27, 2005. We also note that the copies of the tax records of HCRR that were rejected by the District Court as untimely in dicate only that HCRR filed a partnership return signed by an accounta nt, which listed Lynes, not Re spondents, as the designated tax matters partner. We affirm the District Court’s order denying consideration of these documents as untimely. Nevert heless, it is far from certain th at they would be sufficient to raise a material issue of fact precluding summary judgment. ¶47 In this instance, the litig ation on Lynes’ third-party complaint took almost two years during which Lynes could have presented the tax reco rds of HCRR they now claim would create an issue of material fact. We c onclude that the District Court was correct in not letting the case languish. It set reasonable times for co mpletion of discovery, heard motions as necessary, and fairly scheduled pre-trial proceedings. The District Court admonished Lynes that they must comply with court orde rs, and gave them latitude because they we re proceeding pro se . In particular, the Distri ct Court advised Lynes that the Respondents’ motion for summary judgmen t needed to be answered in a timely fashion, and then granted them more time after the hearing to further respond. The

15District Court then extended the response time even further. Still, Lynes did not comply. Under these circumstances, we w ill not hold that the District Court manifestly abused its discretion by not considering documents and arguments submitted after the time allowed.
Easton , 247 Mont. at 183, 805 P.2d at 574.
CONCLUSION ¶48 The order of the District Court gran ting Respondents’ motion for summary judgment is affirmed.

/S/ JOHN WARNER

We Concur: /S/ KARLA M. GRAY /S/ W. WILLIAM LEAPHART /S/ BRIAN MORRIS /S/ JIM RICE

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