DA 07-0268

IN THE SUPREME COURT OF THE STATE OF MONTANA

2008 MT 155

BRUCE A. JOHNSON,

 Plaintiff and Appellee,

 v.

HENRY BOOTH,

 Defendant and Appellant.

APPEAL FROM: District Court of the Eighth Judicial District,

In and For the County of Cascade, Cause No. BDV-05-769

Honorable Julie Macek, Presiding Judge

COUNSEL OF RECORD:

For Appellant:

Steven T. Potts, Thompson, Potts & Donovan, P.C., Great Falls, Montana

For Appellee:

Sara R. Sexe, Marra, Sexe, Evenson & Bell, P.C., Great Falls, Montana

Submitted on Briefs: March 5, 2008

 Decided: April 29, 2008

Filed:

__________________________________________

Clerk

April 29 2008
2

Justice W. William Leaphart delivered the Opinion of the Court.

¶1 This case concerns a dispute between the co-owners of two business entities—

Hank’s Fire Service, Inc. (hereinafter “Hank’s”) and Arcane Worldwide Racing, LLC. 

(hereinafter “Arcane”). Henry Booth appeals from an order of the District Court for the 

Eighth Judicial District, Cascade County, redesignating a custodian as a receiver with 

orders to wind up and liquidate Hank’s and Arcane. Booth also appeals from a separate 

District Court order imposing discovery sanctions for Booth’s failure to comply with an 

order compelling responses to discovery requests. We dismiss with respect to both 

claims.

¶2 We restate the issues on appeal as follows:

1. Did the District Court abuse its discretion when it redesignated the custodian as 

a receiver, pursuant to § 35-1-941(4), MCA?

2. Did the District Court err when it failed to hold a hearing prior to redesignating 

the custodian as a receiver?

3. Did the District Court err by imposing sanctions for failure to comply with an 

order compelling Booth to respond to discovery requests?

FACTUAL AND PROCEDURAL BACKGROUND

¶3 Johnson and Booth are equal owners of both Hank’s and Arcane. Hank’s provided

fire extinguishers, fire alarms, and fire sprinkler systems to various businesses. Johnson 

and Booth filed articles of incorporation for Hank’s on April 22, 1993. The articles 

provided that Booth and Johnson would serve as the two directors and that Booth would 

be the registered agent. Arcane’s primary business focus was on motorcycles. Johnson 
3

and Booth filed the articles of organization for Arcane on September 28, 2004. Booth’s 

residence served as the principal place of business for both entities; however, after this 

action commenced, Hank’s relocated to another place of business. 

¶4 On July 1, 2005, Johnson filed a complaint in which he made numerous 

allegations, including that Booth was attempting to “dominate and control the business 

and affairs of [Hank’s] at the exclusion and to the detriment of Bruce Johnson,” that 

Booth unilaterally precluded Johnson from Hank’s place of operation by means of police 

intervention, that Booth diverted a substantial amount of funds from Hank’s for Arcane 

or Booth’s personal use without Johnson’s consent, and that Booth “had usurped 

complete control of corporate holdings” depriving Johnson from investment income and 

participation in the management of Hank’s. Johnson’s requested relief included: (1) that 

Booth be removed as both president and treasurer of Hank’s and as managing member of 

Arcane; (2) an accounting of all business records of both businesses; (3) that the District 

Court appoint a custodian and/or receiver to manage the business and affairs of Hank’s; 

(4) damages and statutory interest; and (5) either a distribution of, and/or purchase of the 

shareholders’ interest in Hank’s and the members’ capital investment and interest in 

Arcane or that both businesses be dissolved with the proceeds to be distributed according 

to the parties’ respective interests. 

¶5 Concurrent with the filing of his complaint, Johnson filed a Motion for Temporary 

Restraining Order and Preliminary Injunction, Request for Receiver or Custodian, Brief 

in Support and Request for Hearing. Johnson requested that the District Court enjoin 

Booth from interfering with the operation of Hank’s and Arcane or from transacting 
4

business without an independent receiver’s oversight. Johnson also requested that the 

court prevent Booth from transferring or disposing of any property of either company

without Johnson’s consent or a court order. The District Court issued the temporary 

restraining order that same day.

¶6 The parties entered into a stipulation on July 12, 2005, in which they agreed to 

several of the provisions found in the temporary restraining order, including that neither 

party would: (1) interfere with the reasonable and proper exercise of the other’s activities 

in relation to Hank’s or Arcane, (2) transfer property without the other’s consent or a 

court order, (3) cause either business to spend more than $500 without providing written 

notice to the other party, or (4) disparage the other or imply that the other is without 

business authority. Johnson and Booth also agreed that both parties would have full 

access to all business, organizational, and financial records of Hank’s and Arcane, and 

that until further court order, it would not be necessary for either entity to appear or 

otherwise defend itself. Upon reviewing the stipulation, the District Court ordered that 

the parties be bound by its terms until the Hank’s and Arcane entities and/or the 

ownership interests separated. 

¶7 Only a little over three months after Johnson and Booth signed the stipulation, 

Johnson filed a Motion for Order to Show Cause and Renewed Motion for Temporary 

Restraining Order and Request for Receiver or Custodian. Johnson alleged that in the 

time since the parties signed the stipulation, Booth violated numerous provisions of the 

stipulated order, including continuing to operate the businesses as if they were Booth’s 

sole proprietorships and unilaterally deciding to cease Arcane’s operations (the parties 
5

later agreed to sell Arcane’s motorcycles and other equipment in order to pay the 

company’s debts). After reviewing Johnson’s motion, the District Court issued an order 

to show cause and set the matter for a hearing. 

¶8 The District Court held three hearings on Johnson’s renewed motion. Both 

Johnson and Booth then filed proposed findings of fact and conclusions of law, as 

requested by the court. In its subsequent order, the District Court refused to find Booth in 

contempt of court due to lack of personal service of the order to show cause. Similarly, 

the court also found that it could not appoint a receiver or a conservator due to lack of 

personal jurisdiction over Hank’s or Arcane because Johnson had not served either entity 

through its registered agent. However, the court did find that Booth had violated a 

number of the terms of the stipulation and ordered the parties to again abide by its terms.

The court also concluded “[a]lthough it is abundantly clear that the parties can no longer 

successfully manage the corporation together, and that it would be in the best interest of 

the corporation to consider dissolving the corporation and/or appointing a 

receiver/custodian, for the reasons set forth herein, this Court does not have jurisdiction 

over the businesses to issue such an order.” 

¶9 In response to the District Court’s order, Johnson notified the court that he served 

Booth as the registered agent for Hank’s and Arcane. Johnson later provided an affidavit 

of service to the court demonstrating that service was accomplished on May 4, 2006. On 

subsequent motion by Johnson, the court entered the defaults of Hank’s and Arcane after 
6

both entities failed to appear.1 Johnson then filed a Renewed Request for Custodian. The 

District Court held a hearing on Johnson’s renewed request and heard arguments from 

both parties. In its subsequent order, the District Court determined that Hank’s and 

Arcane needed an independent custodian. Notwithstanding Booth’s arguments that a 

custodian was unnecessary as Hank’s already had a manager in place, the court 

concluded that a custodian was necessary as “that manager is subject to the directives of 

each party and often receives completely conflicting instructions from Booth and 

Johnson.” 

¶10 On January 29, 2007, Johnson filed a Motion for Appointment of New Custodian 

and for Definitive Instructions to Custodian. In addition to addressing the issue of the 

appointment of a second custodian (the first custodian appointed by the District Court 

resigned earlier that month), Johnson also voiced his concerns about the role of the 

custodian. Johnson stated:

[Hank’s] and [Arcane] have not answered the Complaint, and have been 

defaulted. The Complaint included a request for dissolution of both 

[Hank’s] and [Arcane] to which neither entity has provided a defense. 

Therefore, these entities should be dissolved and the assets and liabilities of 

the businesses should be wound up and dealt with by the custodian in this 

matter. 

Johnson requested that the court appoint a new custodian with instructions to orderly 

dissolve both entities and wind up the business. In response to this motion, Booth filed a 

memorandum in opposition, in which he stated that under § 35-1-941, MCA, a custodian 

does not have the power to dissolve a business entity. Booth requested that the court 

 

1

 Booth has filed a motion to set aside the defaults of Hank’s and Arcane; however, the 

District Court has not yet ruled on this motion.
7

defer its decision to grant dissolution of Hank’s and Arcane as a remedy until trial. Prior 

to the District Court ruling on Booth’s motion, Johnson and Booth agreed on a new 

custodian and the court appointed the parties’ selection.

¶11 After considering both parties’ arguments, the District Court issued its order 

regarding Johnson’s Motion for Definitive Instructions to Custodian. Pursuant to § 35-1-

941(4), MCA, the District Court redesignated the recently appointed custodian as a 

receiver with instructions to wind up and liquidate the business and affairs of Hank’s and 

Arcane. The court determined that the redesignation was necessary “in the best interests” 

of both entities, as well as the companies’ shareholders and creditors. This appeal 

followed. 

STANDARD OF REVIEW

¶12 We review a district court’s decision to appoint a receiver under the abuse of 

discretion standard. Crowley v. Valley West Water Co., 267 Mont. 144, 150, 882 P.2d 

1022, 1025 (1994). A district court abuses its discretion when it acts arbitrarily, without 

employment of conscientious judgment, or in excess of the bounds of reason resulting in 

substantial injustice. Kuhr v. City of Billings, 2007 MT 201, ¶ 14, 338 Mont. 402, ¶ 14,

168 P.3d 615, ¶ 14. 

¶13 Our standard of review for discovery sanctions imposed under M. R. Civ. P. 37, is 

whether the district court abused its discretion. Murphy Homes, Inc. v. Muller, 2007 MT 

140, ¶ 66, 337 Mont. 411, ¶ 66, 162 P.3d 106, ¶ 66. “In doing so, we generally defer to 

the district court because it is in the best position to determine both whether the party in 

question has disregarded the opponent’s rights, and which sanctions are most 
8

appropriate.” Rothing v. Kallestad, 2007 MT 109, ¶ 49, 337 Mont. 193, ¶ 49, 159 P.3d 

222, ¶ 49 (internal quotation marks omitted). 

DISCUSSION

¶14 Issue One. Did the District Court abuse it discretion when it redesignated the 

custodian as a receiver, pursuant to § 35-1-941(4), MCA?

¶15 Booth argues that the District Court abused its discretion when it redesignated the 

custodian as a receiver. Booth claims that the appointment of a receiver is “one of the 

harshest remedies available” and as such, due process requires that the court hold a 

hearing, absent emergency or extreme necessity. Booth claims that the defaults entered 

against Hank’s and Arcane that led to the redesignation were improperly entered because 

the parties’ stipulation stated that the two entities would not have to appear until further 

order of the court. Booth also argues that the defaults make no difference because neither 

Hank’s nor Arcane had been dissolved and it would be premature to wind up and 

liquidate either entity. 

¶16 Johnson asserts that while the District Court did not abuse its discretion or err in 

redesignating the custodian as a receiver, Booth does not have standing to seek relief on 

behalf of the entities Hank’s and Arcane.2 As such, Johnson claims that a challenge to 

the appointment or redesignation of the custodian as a receiver can only be raised by 

 

2

 Booth contends that Johnson cannot raise the argument that Booth lacks standing to 

challenge the appointment of the receiver, as “this Court will not address an issue raised 

for the first time on appeal.” See Jones v. Montana University System, 2007 MT 82, ¶ 23, 

337 Mont. 1, ¶ 23, 155 P.3d 1247, ¶ 23. While this is generally true, standing is a 

threshold, jurisdictional requirement of every case and the general rule does not pertain to 

jurisdictional issues. Bryan v. District, 2002 MT 264, ¶ 19, 312 Mont. 257, ¶ 19, 60 P.3d 

381, ¶ 19. Accordingly, we will consider Johnson’s arguments regarding standing.
9

Hank’s and Arcane (neither of which has appeared) and as such, Booth does not have 

standing to assert a claim on their behalf. We agree with Johnson.

¶17 A corporation has a separate and distinct identity from its stockholders. First Sec. 

Bank of Glendive v. Gary, 245 Mont. 394, 402, 798 P.2d 523, 528 (1990). In Richland 

Nat. Bank & Trust v. Swenson, 249 Mont. 410, 816 P.2d 1045 (1991), we examined 

whether the defendants had standing to present claims for wrongs to themselves when 

those claims were essentially those of a corporation of which the defendants were the sole 

proprietors. Swenson, 249 Mont. at 423, 816 P.2d at 1054. We agreed with the District 

Court that the claims being asserted were essentially those of the corporation and that the 

defendants as individual shareholders could not prosecute the claims of the corporation. 

Swenson, 249 Mont. at 424, 816 P.2d at 1054. In reaching this conclusion, we stated, 

“Montana law is clear that the stockholders and guarantors of a corporation do not have 

the right to pursue an action on their own behalf when the cause of action accrues to the 

corporation.” Swenson, 249 Mont. at 424, 816 P.2d at 1054; see also Gullett v. Van Dyke 

Const. Co., 2005 MT 105, ¶ 14, 327 Mont. 30, ¶ 14, 111 P.3d 220, ¶ 14. 

¶18 Furthermore, the stockholders generally may not defend for a corporation an 

action brought against the corporation as a defendant. Malcom v. Stondall Land & Inv. 

Co., 129 Mont. 142, 146, 284 P.2d 258, 260 (1955). “The corporation itself must in such 

circumstances appear and plead; or there may be neither suit nor defense for it.” 

Malcom, 129 Mont. at 146, 284 P.2d at 260. The reasoning of Malcom and Swenson, 

which both involved corporations wholly owned by the defendants in question, is no less 

compelling where the defendant, like Booth, owns 50% of the corporation and limited 
10

liability company and is the registered agent for both entities. There is no need for 

Hank’s or Arcane to resort to having a stockholder or member defend an action to protect 

the entities’ respective interests. 

¶19 Likewise, Booth does not have standing to pursue an appeal on behalf of Hank’s 

or Arcane. “In order to have standing on appeal, a party must be able to show an interest 

in the subject matter of litigation which has been injuriously affected by the judgment or 

order.” Daniels-Sheridan v. Bellanger, 2001 MT 235, ¶ 22, 307 Mont. 22, ¶ 22, 36 P.3d 

397, ¶ 22. Booth appeals from the District Court’s order redesignating the custodian as a 

receiver for Hank’s and Arcane. Any injury or adverse effect resulting from this order 

would impact and concern these two entities, not Booth. Accordingly, this claim belongs 

to Hank’s and Arcane, and Booth cannot defend any claim properly belonging to the two 

entities or appeal on their behalf.

¶20 Booth claims that he has standing to challenge the appointment of the receiver

based on the stipulation that the parties signed. Paragraph 7 of the stipulation states, 

“Until further order of the Court, it shall not be necessary for [Hank’s] and/or [Arcane] to 

appear or otherwise defend themselves in this action.” Regardless of whether the 

stipulation initially controlled which parties needed to appear in this action, the 

subsequent orders of the District Court clearly demonstrated the need for Hank’s and 

Arcane to appear and be parties to the suit. After Johnson filed a motion requesting that 

the District Court appoint a receiver or custodian, Booth, in his Memorandum in 

Opposition to Request for Summary Ruling stated: 
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it is undisputed that [Hank’s] and [Arcane], were never served with orders 

to show cause and have not appeared. There is no basis whatsoever to 

grant injunctive relief or a receiver or custodian against either of those 

entities without service upon them of the order to show cause. Simply 

stated, without such service there can be no personal jurisdiction over those 

entities. 

The District Court agreed and concluded it could not appoint a custodian or receiver for 

Hank’s or Arcane, as the court lacked jurisdiction over the entities which had not been 

served. The District Court also noted that Booth’s attorney maintained that he only 

represented Booth in the matter and not Hank’s or Arcane.3

¶21 Whatever the parties may have agreed to in the stipulation, the District Court 

deemed it necessary that Hank’s and Arcane be served with process before a custodian or 

receiver could be appointed. Booth cannot simply rely on the assertion that the 

stipulation relieved the entities from any need to appear or defend themselves, especially 

in light of the language in the stipulation stating that Hank’s or Arcane need not appear or 

otherwise defend themselves “until further order of the Court” (emphasis added) and the 

ensuing District Court order that both entities needed to be served in the action. 

¶22 The claim that the District Court abused its discretion in redesignating the 

custodian as a receiver concerns and belongs to the corporate entities, not Booth

 

3

 We note that in regard to Booth’s representation on behalf of Hank’s and Arcane, 

Booth’s arguments have been highly inconsistent. On one hand, Booth maintains that his 

counsel only represents him personally and not Hank’s or Arcane. Booth stated this in 

his December 23, 2005 proposed findings of fact and conclusions of law. After service 

upon Booth as registered agent of Hank’s and Arcane, neither entity appeared and 

Johnson obtained entries of default against them. While Booth continued to maintain that 

his counsel does not represent Hank’s or Arcane, he nonetheless filed a motion to set 

aside the defaults entered against Hank’s and Arcane. The District Court has yet to rule 

on this motion.
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individually. Booth does not have standing to defend any claims properly belonging to 

Hank’s or Arcane, nor does he have standing to pursue an appeal on behalf of Hank’s or 

Arcane for claims belonging to the two entities. We hold that Booth does not have 

standing to challenge the redesignation on behalf of Hank’s and Arcane and dismiss 

Booth’s claims for lack of jurisdiction. 

¶23 Issue Two. Did the District Court err when it failed to hold a hearing prior to 

redesignating the custodian as a receiver?

¶24 For the same reasons that led to our conclusion in Issue One that Booth did not 

have standing to challenge the redesignation of the custodian as a receiver, we need not 

address this issue and dismiss it accordingly for lack of jurisdiction. 

¶25 Issue Three. Did the District Court err by imposing sanctions for failure to 

comply with an order compelling Booth to respond to discovery requests?

¶26 Booth contends that the District Court erred when it imposed discovery sanctions

against him. Prior to analyzing Booth’s contentions, an overview of the factual 

background on the parties’ discovery dispute is necessary.

¶27 On June 28, 2006, Johnson filed a Motion to Compel Answers to Interrogatories 

and Reponses to Request for Production. Johnson alleged that Booth had failed to fully 

and adequately answer Johnson’s first set of discovery requests in Booth’s November 18, 

2005 discovery responses. Booth then filed a memorandum in opposition to Johnson’s 

motion to compel. The District Court held a hearing on September 12, 2006, at which 

Johnson withdrew several but not all of his discovery requests. The District Court 

subsequently issued an order granting Johnson’s motion to compel as to the remaining 

discovery requests. The court concluded that Booth had failed to fully comply with 
13

M. R. Civ. P. 33(c) and 34(b) in his responses to several of Johnson’s discovery requests. 

The court ordered Booth to fully and completely respond to the interrogatories and 

requests for production at issue.

¶28 Less than two months later, Johnson filed a Motion for Default Judgment. In his 

motion, Johnson requested that a default judgment be entered against Booth as a sanction

for Booth’s failure to produce the documents that the District Court had previously 

ordered Booth to produce. While the court declined to enter a default judgment, it did 

impose sanctions by attributing amounts owed on several credit cards that were a subject 

of the discovery requests to Booth himself and the court ordered Booth to pay Johnson’s 

attorney’s fees and costs associated with the motion for sanctions.

¶29 While Booth argues that he fully responded to Johnson’s discovery requests and 

that the District Court erred in concluding that Booth’s responses were evasive and that 

he had possession, custody, or control of the requested documents, we need not address 

Booth’s arguments as the Montana Rules of Appellate Procedure do not authorize this 

issue to be reviewed by this Court at this stage in the proceedings.

¶30 M. R. App. P. 6(1) provides that “[a] party may appeal from a final judgment in an 

action or special proceeding and from those final orders specified in sections (2), (3), and 

(4) of this rule.” A final judgment is one which “conclusively determines the rights of 

the parties and settles all claims in controversy in an action or proceeding, including any 

necessary determination of the amount of costs and attorney fees awarded or sanction 

imposed.” M. R. App. P. 4(1)a.; see also Matter of Litigation Relating to Riot, 283 Mont. 

277, 280, 939 P.2d 1013, 1015-16 (1997) (“A final judgment is one wherein a final 
14

determination of the rights of the parties has been made; any decree which leaves matters 

undetermined is interlocutory in nature and not a final judgment for purposes of 

appeal.”). It is clear that the District Court’s order granting sanctions against Booth is not 

a final judgment as the primary issues of the case remained unresolved. 

¶31 In addition, subsections (2), (3), or (4) of M. R. App. P. 6, which permit appeal of 

certain interlocutory orders, do not permit an interlocutory appeal of discovery 

sanctions.4 Moreover, M. R. App. P. 6(5) makes clear that certain orders and judgments 

of the lower court are not appealable. Subsection (5)e. specifically states that “orders 

granting or denying sanctions” are not appealable, and subsection (5)f. states that 

interlocutory judgments are not appealable. M. R. App. P. 4(1)b. defines an interlocutory 

judgment as “an order or decree that determines a preliminary or subordinate question or 

issue and which enables the court to render a final judgment but does not finally decide 

the cause.” “Typically, orders pertaining to discovery are interlocutory in nature . . . .” 

Hegwood v. Mont. Fourth Jud. Dist. Court, 2003 MT 200, ¶ 6, 317 Mont. 30, ¶ 6, 75 P.3d 

308, ¶ 6. Under the Montana Rules of Appellate Procedure, the imposition of sanctions 

for discovery abuse is precisely the type of order that is not subject to appellate review

until the judgment is final. 

¶32 Accordingly, we dismiss as premature Booth’s appeal of the discovery sanctions 

without prejudice and remand to the district court for further proceedings.

 

4

 In contrast, M. R. App. P. 6(3)g. specifically authorizes an appeal from “an order 

appointing or refusing to appoint a receiver, or giving directions with respect to a 

receivership, or refusing to vacate an order appointing or affecting a receiver” provided 

that the order is the lower court’s final decision on the referenced matter. Thus, Booth’s 

claims under Issues I and II are properly before the Court.
15

CONCLUSION

¶33 Booth does not have standing on behalf of the corporate entities to challenge the 

redesignation of the custodian as a receiver and we dismiss his claims for lack of 

jurisdiction. Booth’s appeal regarding the imposition of discovery sanctions is

interlocutory in nature and cannot be reviewed at this stage of the proceedings.

¶34 Dismissed.

/S/ W. WILLIAM LEAPHART

We concur: 

/S/ JOHN WARNER

/S/ JAMES C. NELSON

/S/ PATRICIA COTTER

/S/ JIM RICE