NO. 93-619 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1994 

WILLIAM G. SHULL, d/b/a GAMO, 

Plaintiff, Appellant, 

and Cross-Respondent, 

FIRST INTERSTATE BANK OF GREAT FALLS, 

a corporation; ZYCOM, INC.; CAPITAL 

DEVELOPMENT COMPANY; NORTH CENTRAL 

GAMING CO., a Montana corporation, 

Defendants and Respondents, 

and 

THOMAS C. HABETS, 

Defendant, Respondent, 

and Cross-Appellant. 

APPEAL FROM: District Court of the Eighth Judicial District, 

In and for the County of Cascade, 

The Honorable Thomas M. McKittrick, Judge presiding. 

COUNSEL OF RECORD: 

For Appellants: 

Joe Bottomly and Anne Biby, Bottomly 

Law Office, Kalispell, Montana 

For Respondents: 

Robert J. Emmons, Emmons & Sullivan, 

Great Falls, Montana (for Zycom, Inc., 

and Capital Development Company) 

Gary S. Deschenes, Deschenes Law Office, 

Great Falls, Montana (for Thomas C. Habets) 

Submitted on Briefs: October 28, 1994 

DE C 1 5 1994 Decided: December 15, 1994 

Filed: 

CLERK OF SUPhZSME COURT 

STATE OF MONTANA 

'Clerk 
Justice Terry N. Trieweiler delivered the opinion of the Court. 

Appellant William G. Shull, d/b/a Gamo, filed a complaint on 

April 19, 1988, in the District Court for the Eighth Judicial 

District in Cascade County against First Interstate Bank of Great 

Falls, Zycom, Inc., Capital Development Company, North Central 

Gaming Company, and Thomas C. Habets. In his complaint, Shull 

alleged breach of contract, bad faith, negligence, tortious 

interference with contract, and breach of fiduciary duty. On 

June 7, 1993, after a trial, the jury found that First Interstate 

Bank breached its lease agreement with Shull. The District Court 

ordered First Interstate Bank to pay Shull contract damages, 

attorney fees, and costs. The jury found that Zycom did not breach 

the contract, and the District Court ordered Shull to pay Zycom's 

attorney fees and costs. Shull appeals that part of the District 

Court's order which awarded attorney fees and costs to Zycom. We 

reverse that part of the District Court's order. 

Cross-appellant Thomas Habets requested that the District 

Court set aside or amend its judgment and impose Rule 11, 

M.R.Civ.P., sanctions against Shull and his attorneys. The 

District Court denied this motion. We affirm the District Court's 

denial of sanctions. 

The following issues are raised on appeal: 

1. Did the District Court err when it awarded attorney fees 

and costs to Zycom? 
2. Did the District Court err when it denied Habets' motion 

for an award of sanctions against Shull and his attorneys pursuant 

to Rule 11, M.R.Civ.P.? 

3. Should sanctions be imposed against Habets for filing a 

frivolous appeal? 

FACTUAL BACKGROUND 

William G. Shull leased space in the Great Falls Westgate 

Shopping Center from First Interstate Bank on September 28, 1984, 

for the operation of a video arcade, known as Gamo. The agreement 

provided for a three year lease with the option to renew for an 

additional three years. The agreement also gave Shull the 

exclusive right to operate a video arcade in Westgate. 

After approximately three years, Shull expressed his intent to 

exercise the option to renew his lease. However, a new lease 

agreement was not provided; as a result, Shull stated in a letter 

to Westgate's manager that he assumed that his old lease would 

remain in force until a new one was signed. 

On December 29, 1987, First Interstate assigned the leases in 

Westgate to Zycom, Inc., a Washington corporation. Zycom then 

leased space to another video arcade. Shull was informed that his 

lease was a month-to-month tenancy, and in March 1988, he was 

notified that his tenancy was terminated. 

On April 19, 1988, Shull filed a complaint against First 

Interstate Bank, Zycom, Inc., Capital Development Company, North 

Central Gaming Company, and Thomas C. Habets. Shull asserted 
claims based on breach of contract, bad faith, negligence, and 

tortious interference with contract against First Interstate. 

Shull asserted claims based on breach of contract, bad faith, and 

tortious interference with contract against Zycom and Capital 

Development Company (Zycom's successor). Shull also asserted 

claims based on bad faith, tortious interference with contract, and 

breach of fiduciary duty against North Central Gaming Company (the 

company that owned and maintained Gamo's video machines), and 

Thomas Habets, North Central Gaming Company's owner. Shull also 

alleged that First Interstate, North Central Gaming Company, and 

Habets conspired to interfere with his contractual rights. He 

requested compensatory damages for loss of past, present, and 

future income and profits from Gamo, lost business opportunities, 

and the lost value of his exclusive right to a video arcade at 

Westgate. Shull also requested punitive damages, attorney fees, 

and costs. 

Shull moved the District Court to conclude by partial summary 

judgment that he had validly exercised his option to renew his 

original lease. The defendants moved the District Court to 

conclude by summary judgment that the option had not been validly 

exercised. On February 21, 1991, the District Court granted 

Shull's motion for partial summary judgment, and held that Shull 

had validly renewed his three year lease agreement with Zycom by 

the time that he was evicted. After trial, First Interstate was 
found by the jury to have breached that agreement. However, the 

jury found that Zycom had not breached the agreement. 

Shull's lease agreement provided that if Shull breached the 

agreement he would have to pay attorney fees and costs caused by 

his breach. Section 21, paragraph C, of Shull's lease provides 

that : 

In the event of any breach hereinunder by Tenant, 

Landlord may immediately or at any time thereafter, 

without notice, cure such breach for the account and at 

the expense of Tenant. If Landlord at any time, by 

reason of such breach, is compelled to pay, or elects to 

pay, any sum of money or do any act which will require 

the payment of any sums of money, or is compelled to 

incur any expense, including reasonable attorney's fees, 

in instituting or prosecuting any action or proceeding to 

enforce Landlord's rights hereunder, the sum or sums so 

paid by Landlord, with interest thereon at the rate of 

twelve percent (12%) per annum from the date of payment 

thereof, shall be deemed to be additional rent hereunder 

and shall be due from Tenant to Landlord on the first day 

of the month following the payment of such respective 

sums or expenses. 

Pursuant to § 28-3-704, MCA, the attorney fees provision is 

reciprocal; consequently, Shull had the same contract rights to 

attorney fees and costs that First Interstate had. 

On September 16, 1993, pursuant to the jury's verdict and 

post-trial motions, the District Court ordered that judgment be 

entered in favor of Shull and against First Interstate in the 

amount of $5818.75; and that Shull be awarded costs in the amount 

of $3144.84, and attorney fees in the amount of $21,044.16; 

however, the amount of attorney fees awarded to Shull was later 

reduced. It was also ordered that judgment be entered in favor of 

Habets and North Central Gaming Company. Shull was ordered to pay 
$40 in costs to both Habets and North Central Gaming Company. 

Finally, it was ordered that judgment be entered in favor of Zycom 

and Capital Development Company and against Shull, and that Shull 

pay costs in the amount of $479.75 and attorney fees in the amount 

of $14,413.50 to Zycom. 

Shull was awarded attorney fees and costs pursuant to the 

reciprocity rule found at 5 28-3-704, MCA. Zycom was awarded 

attorney fees and costs for unspecified reasons, but claims a right 

to that award as the "prevailing party" under the same rule. 

On September 30, 1993, Habets filed a motion to set aside and 

amend the District Court judgment and requested that Rule 11 

sanctions be imposed on Shull and his attorneys. The District 

Court denied Habets' motion. Habets appeals only the denial of his 

motion for the imposition of sanctions. 

Habets' motion for sanctions is based on Shull's bankruptcy 

proceeding. In 1985, Shull was unable to meet his financial 

obligations and was forced to file for Chapter 11 reorganizational 

bankruptcy. During that time, Habets supplied and serviced video 

games in Shull's Westgate Mall video arcade. 

Shull listed his assets with the bankruptcy court, including 

the Gamo video arcade, but did not list Gamo as a partnership. The 

affidavit of Shull's attorney indicates that Shull's bankruptcy 

reorganization was confirmed on April 8, 1987. 

Later, when filing this action, Shull's attorney formed the 

opinion that Shull may have had a de facto partnership with Habets, 
and on that basis, filed his claim for breach of fiduciary duty. 

Habets asserts that sanctions should be imposed against Shull and 

his attorneys for arguing inconsistent positions in two separate 

cases. Shull's attorneys argue that Shull did not even know that 

there was such a thing as a de facto partnership when he filed for 

Chapter 11 reorganization, and that neither they nor Shull acted in 

bad faith. The District Court denied Habets' motion for sanctions. 

ISSUE 1 

Did the District Court err when it awarded attorney fees and 

costs to Zycom? 

The standard of review of a district court's conclusions of 

law is whether the district court's interpretation of the law was 

correct. In re Marriage ofBarnard (1994), 264 Mont. 103, 106, 870 P.2d 

91, 93, (citing In re Marriage ofBurris (l993), 258 Mont. 265, 269, 852 

P.2d 616, 619) . 

We have generally held that attorney fees cannot be recovered 

unless they are provided for by statute or contract. "[Iln the 

absence of a statutory or contractual provision, attorney fees are 

not recoverable. " Wyrnan v. DuBray Land Realty (1988) , 231 Mont . 294, 

297, 752 P.2d 196, 198 (citing Sliters v. Lee (1982), 197 Mont. 182, 

184, 641 P.2d 475, 476). Zycom argues that it is entitled to 

attorney fees and costs as a prevailing party pursuant to 

§ 28-3-704, MCA. However, as the assignee of First Interstate's 

rights under the lease agreement, Zycom's rights are those set 

forth in the agreement. Pursuant to the contract, First Interstate 

7 
could only recover costs and fees in the event of Shullls breach of 

the contract. 

Section 21, Paragraph C, of Shull's lease agreement with First 

Interstate provides in relevant part as follows: 

In the event of any breach hereinunder by Tenant, 

Landlord may immediately . . . cure such breach . . . at 

the expense of Tenant. If Landlord at any time . . . is 

compelled to pay, or elects to pay, any sum of money . . . or is compelled to incur any expense, including 

reasonable attorney's fees, in instituting or prosecuting 

any action or proceeding to enforce Landlord's rights 

hereunder, the sum or sums so paid by Landlord . . . shall be deemed to be additional rent hereunder and shall 

be due from Tenant to Landlord . . . . 

The reciprocal attorney fee statute provides rights only to 

that party whose rights are not provided for in the contract. We 

have previously addressed this same issue in Sliters v. Lee (1982) , 197 

Mont. 182, 641 P.2d 475. In that case, Lee executed a promissory 

note in favor of Ross which provided that Ross was entitled to 

attorney fees, if incurred to enforce collection of the note. Ross 

later assigned his interest in the note to Sliters. Lee refused to 

pay the note when due, and Sliters sued him for collection. Lee 

filed a third-party complaint against Ross alleging fraudulent 

inducement for the note, wrongful assignment of the note, and lack 

of consideration 

Sliters prevailed in its claim to recover for payment of the 

note, and Ross prevailed in his defense against Lee's third-party 

complaint. Ross then successfully contended in the district court 

that he was entitled to an award of attorney fees under the same 
reciprocal attorney fee statute relied upon by Zycom in this case. 

The district court agreed; however, we reversed. We held that: 

Ross's riqht to attornev fees was not derived by 

virtue of anv reciprocal riqht under the statute. Lee 

was the maker of the note and was granted no right to 

attorney fees thereunder. As payee of the note, Ross was 

the only party granted any right to attorney fees, under 

the provisions of the note. 

Thus Ross's riqht to attornev fees must stand or 

fall uwon the provisions of the note. Ross assigned all 

his riaht. -. title and interest in the note to Sliter's. 

leaving him no remaining contractual right to attorney 

fees under the provisions of the note. Moreover, Lee's 

third party complaint against Ross alleged fraudulent 

inducement for the note, wrongful assignment, lack of 

consideration and sought to require Ross to pay Sliter's 

the amount owing on the note together with damages and 

attorney fees. It was not an action for collection of 

the note for which attorney fees were expressly provided. 

Thus Ross was not entitled to an award of attorney fees 

under the provision of the note. 

Sliters, 641 P. 2d at 476 (emphasis added) . 

Likewise, in this case, Shull had no right to attorney fees 

under the lease agreement, and Zycom's right to attorney fees could 

not be a reciprocal right under the statute. It had those rights 

provided for under the contract assigned to it by First Interstate. 

Therefore, Zycom was only entitled to attorney fees and costs if 

Shull breached the lease, and Zycom incurred attorney fees or costs 

to enforce the terms of the lease. Shull did not breach the lease, 

therefore, Zycom is not entitled to attorney fees or costs. We 

will not expand § 28-3-704, MCA, to allow attorney fees and costs 

to Zycom simply for prevailing on a contract claim, when the 

contract, by its plain language, limits the circumstances under 

which its attorney fees and costs are recoverable. For these 
reasons, the judgment of the District Court which awarded Zycom 

attorney fees and costs is reversed. 

ISSUE 2 

Did the District Court err when it denied Habets' motion for 

an award of sanctions against Shull and his attorneys pursuant to 

Rule 11, M.R.Civ.P.? 

We review a district court's conclusions regarding Rule 11, 

M. R. Civ. P. . sanctions for an abuse of discretion. Wise v. Sebena 

(lggl), 248 Mont. 32, 38, 808 P.2d 494, 498 (citing D'Agostino v. 

Swanson (1990), 240 Mont. 435, 446, 784 P.2d 919, 926). 

We have held that the Montana Rules of Civil Procedure allow 

sanctions to be imposed on two grounds: " (1) if a pleading is 

frivolous, i.e., not 'well grounded in fact' or 'warranted by 

existing law . . . ' or (2) if a pleading is 'interposed for any 

improper purpose . . . . 'I' Wise, 808 P.2d at 498. We have also 

held that "[dlistrict courts have 'wide latitude to determine 

whether the factual circumstances of a particular case amount to 

frivolous or abusive litigation tactics . . . . 'I1 Wise, 808 P.2d 

at 498 (quoting DXgostino, 784 P.2d at 926) 

Habets claims that Shull and his attorneys knew, after 

reasonable inquiry, that there was no basis well grounded in fact 

or warranted by existing law to support their position that a 

partnership existed between Shull and Habets. 
Shull and his attorneys respond that their claim that a 

de facto partnership existed was made in good faith and was well 

grounded in fact and existing law since it fit within the statutory 

definition of a partnership. Shull also points out that the 

District Court refused to grant Habets' motion for summary judgment 

on the question of whether a partnership existed. 

We conclude that the District Court did not abuse its 

discretion. The judgment of the District Court which denied 

Habets' motion for sanctions is affirmed. 

ISSUE 3 

Should sanctions be imposed against Habets for filing a 

frivolous appeal? 

We have held that "[wlhere a reasonable ground for appeal 

exists no sanctions under Rule 32 LM.R.App.P.1 will be imposed." 

Searight v. Cimino (l988), 230 Mont. 96, 103-04, 748 P.2d 948, 952 

(citing Erdman v. C & CSdes, Inc. (1978) , 176 Mont. 177, 184, 577 P.2d 

55, 59). 

Shull moved for the imposition of sanctions against Habets for 

frivolously appealing the denial of his motion for sanctions. 

Rule 32, M.R.App.P., states that " [ilf the supreme court is 

satisfied from the record and the presentation of the appeal . . . 

that the [appeal] . . . was taken without substantial or reasonable 

grounds . . . damages may be assessed . . . ." In this case, based 

on the record, we are not satisfied that Habets' appeal was taken 
without substantial or reasonable grounds. We conclude that 

sanctions against Habets are not appropriate. 

The judgment of the District Court is affirmed in part, 

reversed in part, and remanded for further proceedings consistent 

with this opinion. 

We concur: 
Justice Karla M. Gray, concurring in part and dissenting in part. 

I concur in the Court's opinion on issues two and three. I 

respectfully dissent on issue one, whether the District Court erred 

in awarding attorney fees to Zycom. It is my view that the Court 

improperly relies on our decision in Sliters as authority for 

resolution of the issue before us; in doing so, it fails to address 

other language from Sliters which forms the basis for an 

appropriate analysis of the language of 5 28-3-704, MCA, and the 

application of that language to this issue. 

I agree that, in Montana, attorney fees cannot be recovered 

unless so provided by statute or contract. I also agree that, 

initially, Zycom's right to attorney fees is that provided in the 

Shull-First Interstate lease; as assignee of First Interstate, 

Zycom was entitled to attorney fees in the event Shull breached the 

lease. 

I disagree with the Court's determination that Sliters 

addressed the issue of whether the party with the original 

contractual right to attorney fees can receive an "expanded" right 

under 8 28-3-704, MCA, because Sliters is clearly distinguishable 

from the case now before us. There, Ross was the original payee of 

Lee's promissory note and, under the note's provisions, had a right 

to recover attorney fees incurred to enforce collection of the 

note. Ross assigned all of his interest in the note to ~liters. 

When Sliters sued Lee under the note, Lee filed a third-party 

complaint against Ross. Ross prevailed on Lee's third-party claims 

and then sought attorney fees pursuant to § 28-3-704, MCA, for 

13 
successfully defending against Lee's claims. 

We stated that Ross' right to attorney fees "must stand or 

fall upon the provisions of the note." Sliters, 641 P.2d at 476. 

We did so because Ross--having assigned all his interest in the 

note to Sliters--was left with "no remaining contractual right to 

attorney fees under the provisions of the note. " Sliters, 641 P. 2d 

at 476. The case before us now presents an entirely different 

factual scenario. Here, Zycom remained a party to the lease as 

First Interstate's assignee; as such, it clearly retained its 

original right to attorney fees under the lease. 

In addressing Ross' right to fees in Sliters, we also noted 

that Lee's third-party complaint against him was not an action on 

the note itself. Sliters, 641 P.2d at 476. Thus, in Sliters, our 

discussion properly began and ended with the provisions of the 

note; § 28-3-704, MCA, never came into play. Here, Shull's claim 

against Zycom was for a breach of the lease containing the attorney 

fee provision. 

It is clear that, as a result of the factual scenario 

presented in Sliters, we did not reach the issue before us now-- 

whether the party with the original contractual right to fees has, 

via application of 5 28-3-704, MCA, the right to fees when it is 

sued under the contract and prevails. We did state in Sliters, 

however, that the statute "provides mutuality of obligation and 

remedy between the parties to a promissory note expressly providing 

for attorney fees." Sliters, 641 P.2d at 476. We properly did not 

reach a conclusion there about the impacts of the statute because 
of the facts presented, where Ross retained no interest in the note 

and the action against him, on which he prevailed, was not on the 

note. 

It is my view that the case before us--unlike Sliters--does 

require an analysis of the statute and our statement that the 

statute provides mutuality of both obligation and remedy, in order 

to determine whether Zycom has a right to attorney fees here. 

Briefly stated, Zycom's argument for entitlement to those fees is 

that Shull clearly would have been entitled to fees had he 

prevailed in his breach of lease claim against it; as a result, 

according to Zycom, it is entitled to attorney fees as the 

prevailing party on Shull's breach of lease action against it. 

In pertinent part, 5 28-3-704, MCA, provides that, in any 

action on a contract providing an express right to attorney fees to 

one party, "all parties to the contract . . . shall be deemed to 

have the same right to recover attorney fees and the prevailing 

party in any such action . . . shall be entitled to recover his 

reasonable attorney fees from the losing party . . . . " This 

statutory language is the basis for our statement in Sliters that 

the statute provides "mutuality of obligation and remedy" between 

all parties to a contract expressly providing a right to attorney 

fees to one party. 

Applied here, the statute and our "mutuality of remedy" 

language in Sliters require us to affirm the District Court's award 

of attorney fees to Zycom. A contract between Shull and Zycom 

existed, which provided an express right to attorney fees to Zycom. 
Shull brought an action against Zycom under the contract. At that 

point, § 28-3-704, MCA, came into play, all parties had the same 

right to attorney fees, and the prevailing party was entitled to 

recover those fees. Thus, had Shull prevailed on his breach of 

lease claim against Zycom, he would have been entitled to fees from 

Zycom as the prevailing party. Under the same analysis, Zycom is 

entitled to attorney fees here as the prevailing party in Shull's 

action on the lease. 

The Court's inappropriate reliance on Sliters, and its 

consequent failure to analyze the issue before us in this case, 

produce an incorrect result. More importantly, the Court's action 

casts doubt on our "mutuality of obligation and remedy" language 

and leaves our earlier "prevailing party" decisions under the 

statute in a state of confusion. I cannot agree. I would affirm 

the District Court's award of attorney fees to Zycom. 
December 15, 1994 

CERTIFICATE OF SERVICE 

I hereby certify that the following certified order was sent by United States mail, prepaid, to the 

following named: 

Joe Bottomly, Esq.; Anne Biby, Esq. 

Bottomly Law Offices 

P.O. Box 1976 

Kalispell, MT 59903-1976 

Robert J. Emmons, Esq. 

Emmons & Sullivan 

608 Strain Bldg. 

Great Falls, MT 59401 

L.D. Nybo, Esq. 

Conklin, Nybo & LeVeque 

P.O. Box 2048 

Great Falls, MT 59403-2048 

Gary Deschenes 

Attorney at Law 

P.O. Box 3502 

Great Falls, MT 59403-3502 

ED SMITH 

CLERK OF THE SUPREME COURT 

STATE OF MONTANA