NO. 96-639 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1998 MT 10N 

ZOLLIE KELMAN, 

Plaintiff and Respondent, 

vs. 

CHARLES HENRY, allda CHUCK 

HENRY, and ALLAN J. KOSMERL, 

d/b/a B.J.B., INC. and H & K CASINO 

Defendants and Appellants, 

APPEAL FROM: District Court of the Eighth Judicial District, 

In and for the County of Cascade, 

The Honorable John W. Whelan, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Robert J. Emmons, Emmons & Sullivan, Great Falls, Montana 

For Respondent: 

Steven T. Potts, Jardine, Stephenson, Blewett & Weaver, Great Falls, 

Montana; Curtis G. Thompson, Thompson & Jacobsen, Great Falls, Montana 

Filed: 

Submitted on Briefs: April 10,1997 

Decided: January 22, 1998 
Justice James C. Nelson delivered the Opinion of the Court. 

71 Pursuant to Section I, Paragraph 3(c), Montana Supreme Court 1996 Internal 

Operating Rules, the following decision shall not be cited as precedent but shall be filed as 

a public document with the Clerk of the Supreme Court and shall be reported by case title, 

Supreme Court cause number and result to the State Reporter Publishing Company and to 

West Group in the quarterly table of noncitable cases issued by this Court. 

72 This is an appeal from the Eighth Judicial District Court, Cascade County. On July 

18, 1996, the District Court entered findings of fact, conclusions of law and a final judgment 

in favor of Plaintiff Kelman. From this judgment, Defendants Henry and Kosmerl appeal. 

We affirm. 

73 We restate the following issues raised on appeal: 

74 1. Did the District Court abuse its discretion by ordering Defendants Hen~y and 

Kosmerl to specifically perform the settlement agreements because such agreements were 

illegal due to Evelyn's illegal ownership interest? 

75 2. Did the District Court err in finding that Defendants Henry and Kosmerl 

breached the settlement agreements by failing to pay Evelyn her portion of the salaries and 

gaming machine rent? 

76 3. Did the District Court err in concluding that Evelyn was entitled to one-third 

of the rent paid from real estate she purchased from Defendant Kosmerl? 

77 4. Did the District Court err in assessing Defendants Henry and Kosmerl with 

their share of attorney fees incurred to obtain gambling and liquor license approval? 

78 5. Did the District Court abuse its discretion by awarding Evelyn attorney fees? 

79 6. Did the District Court abuse its discretion by denying Defendant Kosmerl's 
motion to amend the judgment? 

710 7. Did the District Court abusc its discrction by dcnying Defendants Henry's and 

Kosmerl's Rule 6O(b), M.R.Civ.P., motion? 

11 1 8. Should Defendants Henry and Kosmerl pay Kelman's attorney fees on appeal? 

FACTUAL AND PROCEDURAL BACKGROUND 

712 In 1989, Plaintiff Zollie Kelman (Zollic) filcd a complaint in thc Eighth Judicial 

District Court, Cascade County, against Defendants Charles Henry (Henry) and Allan 

Kosmerl (Kosmerl), alleging, among other things, a 50% ownership interest in B.J.B., Inc., 

d/b/a Nevada Sam's Casino. In 1991, a jury found that Zollie held a 50% ownership interest 

in Nevada Sam's Casino. On November 25,1992, the lawsuit was settled and Zollie assigned 

his interest in the lawsuit and settlement to his wife Evelyn Kelman (Evelyn). In settling the 

lawsuit, the parties signed a Settlement Agreement, Shareholder Agreement, Partnership 

Agreement and Contract for Deed (collectively, the settlement agreements). Pursuant to the 

settlement agreements, the litigation was to be terminated and Evelyn was to acquire a onethird ownership interest in both Nevada Sam's Casino and H & K Casino, in certain assets 

used in connection with the casinos and in the real estate upon which the casinos were 

located. 

113 Pursuant to a stipulation signed by the parties, the District Court dismissed Zollie's 

complaint. However, the District Court subsequently modified its order of dismissal to retain 

jurisdiction until the appropriate licenses were issued to the parties. On June 8, 1995, the 

Gambling Control Division of the Montana Department of Justice informed the parties that 

3 
their gambling license applications had been approved. On June 21, 1995, Zollie petitioned 

the District Court for specific performance of the settlement agreements. Thereafter, on 

December 8, 1995, pursuant to Zollie's Rule 6O(b)(6) motion, the District Court vacated its 

previous order of dismissal. 

114 On January 31, 1996, the District Court entered findings of fact, conclusions of law, 

and an order in which it ordered Henry and Kosmerl to specifically perform the settlement 

agreements. On July 18, 1996, the District Court entered additional findings of fact, 

conclusions of law and a final judgment in which it ordered Henry and Kosmerl to pay 

Evelyn specified amounts of damages for their breach of the settlement agreements. 

Subsequently, the District Court denied both Kosmerl's Rule 52(b), M.R.Civ.P., motion and 

Henry's and Kosmerl's Rule 6O(b), M.R.Civ.P., motion. From the District Court's final 

judgment as well as the court's denial of the two post-judgment motions, Henry and Kosmerl 

appeal. 

DISCUSSION 

715 1. Did the District Court abuse its discretion by ordering Defendants Henry 

and Kosmerl to specifically perform the settlement agreements because such 

agreements were illegal due to Evelyn's illegal ownership interest? 

116 Henry and Kosmerl argue that the District Court erred in ordering them to specifically 

perform the settlement agreements at issue because the agreements were illegal. Specifically, 

they assert that Zollie's ownership interest in Nevada Sam's Casino, which is currently 

Evelyn's ownership interest, was illegal because it was derived from Bernard J. Black, who 
during his ownership, deliberately violated liquor and gaming statutes. Because of this 

illcgality, Henry and Kosmcrl arguc that the subsequent settlement agreements are 

unenforceable. 

717 We agree with Zollie that Henry and Kosmerl are barred from raising this claim of 

invalidity concerning the settlement agreements. While Henry and Kosmerl did assert 

numerous affirmative defenses to Zollie's lawsuit, including the illegality of Zollie's 

ownership interest, they later signed a Settlement Agreement which rendered their 

affirmative defense of illegality moot. We note that within the Settlement Agreement Henry 

and Kosmerl agreed to a compromise in the entire matter by permitting Evclyn to bccome 

an owner of the casinos and property and by generally agreeing to end the litigation and 

specifically waiving any claims of invalidity concerning the settlement agreements. In fact, 

the Settlement Agreement expressly provides in part: 

8. Waiver of Claims of Invalidity 

The parties specifically waive any claims that this agreement and any 

documents executed pursuant to this agreement, are invalid on the basis of any 

assertions, opinions or rulings by any licensing agency or Court of the State of 

Montana, including but not limited to, any claims that Zollie lacks capacity 

to enter into this agreement due to any agreements Zollie made with the State 

of Montana as a result of his misdemeanor charges. [Emphasis added.] 

718 Because Henry and Kosmerl were parties to the Settlement Agreement, their 

affirmative defenses merged into the settlement, and, consequently, they are barred from 

raising a claim of invalidity. See 15A C.J.S. Compromise & Settlement 9 25 (1967). 

Consequently, because Henry and Kosmerl's claims of invalidity are barred, we will not 
address this issue further. Accordingly, we hold that the District Court did not abuse its 

discretion when it ordered Henry and Kosmerl to specifically perform the settlement 

agreements at issue. 

119 2. Did the District Court err in finding that Defendants Henry and Kosmerl 

breached the settlement agreements by failing to pay Evelyn her portion of the salaries 

and gaming machine rent? 

120 On November 25,1992, the parties signed four settlement agreements which included 

a Shareholder Agreement and a Partnership Agreement, both setting forth that no owner was 

entitled to receive any payment or distribution unless all three owners were included. 

Specifically, the Shareholder Agreement provides: 

PART SIX 

Unless otherwise agreed in writing by all of the shareholders, no 

shareholder or director shall be entitled to any benefit, salary, wage, or other 

payment or distribution in excess of any amount paid or distributed by, on 

behalf of, or from B.J.B., Inc. to all of the other shareholders. 

Similarly, the Partnership Agreement provides: 

PART TEN 

Unless otherwise agreed in writing by all of the partners, no partner 

shall be entitled to any benefit, salary, wage, or other payment or distribution 

in excess of any amount paid or distributed by, on behalf of, or from the 

partnership to both of the other partners. 

721 The District Court concluded that the parties' settlement agreements were effective 

on November 25, 1992, the date the parties executed the agreements. Consequently, the 

District Court found that Henry and Kosmerl had breached these agreements by failing to pay 
Evelyn her portion of the wages and gaming machine rent in 1993 and 1994 as well as by 

failing to obtain Evelyn's consent for their receipt of wages and rent in 1993 and 1994. 

Therefore, the District Court ordered Henry and Kosmerl to pay Evelyn her share of the 

salaries and gaming machine rent. 

722 Henry and Kosmerl argue that the District Court erred in awarding Evelyn damages 

for unpaid wages and rent based on its findings that the settlement agreements had a 

"retroactive" effective date ofNovember 25,1992, and that Henry and Kosmerl had breached 

the settlement agreements. Relying on certain 1991 statutes and administrative rules which 

control gambling liccnsc applications, Hcnry and Kosmcrl asscrt that although the settlement 

agreements expressly provided that they were effective immediately upon execution 

Wovember 25, 1992), these contracts were not effective until approved by the Department 

of Justice on July 1, 1995. See Title 23, Part 5, MCA, and 23.16.1 15-1 19, ARM. Therefore, 

Henry and Kosmerl argue that because under these statutes and administrative rules Evelyn 

did not have a legal ownership interest in either casino until July 1, 1995, no breach of 

contract could occur and no damages could accrue based on their decision to pay themselves 

salaries and gaming machine rent without Evelyn's consent prior to July 1, 1995. 

123 This argument is without merit. While the statutes and administrative rules cited by 

Henry and Kosmerl do govern gambling license applications and set forth that the operation 

of a gambling establishment without a license constitutes a misdemeanor, they do not govern 

the legality of contracts. Therefore, in this case, the fact that the casinos were not issued 
permanent gambling licenses until July 1, 1995, did not change the fact that Evelyn, Henry 

and Kosmerl all became owners of the casinos on November 25,1992, when they signed and 

executed the settlement agreements. See Taurman v. Town of Cascade (1981), 192 Mont. 

529,532, 629 P.2d 226,228 (holding that a public contractor licensing statute did not make 

an unlicensed public contractor's contract with a city unenforceable or void, but rather made 

it unlawful for him to "act in the capacity of a public contractor"). 

724 Furthermore, while Evelyn was prohibited from receiving any money until the 

gambling license was approved, Henry and Kosmerl could have placed any salaries or rents 

owcd to hcr in cscrow pending compliance with the gambling licensc application provisions. 

See e.g. 23.16.1 18, ARM. Yet, while Henry and Kosmerl continued to pay themselves over 

$200,000 during this period of time, they made no attempt to reserve Evelyn's portion of the 

salaries and gaming machine rent in an escrow account or in any other way prior to receiving 

approval on their gambling license applications, despite having signed the settlement 

agreements at issue. 

725 We conclude that the District Court's findings that the settlement agreements were 

effective November 25, 1992, and that Henry and Kosmerl breached the settlement 

agreements by paying themselves over $200,000 in salaries and gaming machine rent and 

failing to pay Evelyn her share is supported by substantial evidence and is not clearly 

erroneous. Rule 52(a), M.R.Civ.P. Accordingly, we hold that the District Court properly 

awarded Evelyn her portion of the salaries and gaming machine rent in 1993 and 1994. 
726 3. Did the District Court err in concluding that Evelyn was entitled to onethird of the rent paid from real estate she purchased from Defendant Kosmerl? 

127 The District Court found that Kosmerl breached the contract for deed that he had 

entered into with Evelyn concerning the real estate upon which the casinos were located by 

refusing to proceed with closing and performance of the contract for deed. Based on this 

finding, the District Court awarded Evelyn her one-third share of the rent generated from the 

real property since November 25, 1992. Kosmerl argues that the District Court erred in 

awarding Evelyn these damages. 

728 Again, as discussed in Issue 2, Kosmerl asserts that the "proposed" real property sale 

agreement was subject to the approval of the Gambling Control Division pursuant to 5 23-5- 

11 8, MCA, and that because the gambling license application was not approved until July 

1, 1995, Evelyn had no equitable interest in the property prior to approval, and, therefore, 

was not entitled to any rents generated from the real property prior to July 1, 1995. 

Furthermore, Kosmerl contends that the District Court erred by severing the contract for deed 

from the other three settlement agreements to find that Kosmerl had breached the contract 

for deed. 

729 This argument, too, is without merit. As we explained previously, the gambling 

control statutes do not affect the legality of the settlement agreements that the parties signed 

on November 25, 1992, including the contract for deed. Furthermore, as the District Court 

found based on hearing testimony, even if the gambling control statutes did affect the legality 

of the settlement agreements, the Gambling Control Division may consider real estate on 

9 
which a casino is located a separate business activity that is not subject to the Division's 

approval, and, therefore, is severable from thc othcr settlement agreements. We conclude 

that the District Court's finding that Kosmerl breached the contract for deed by rehsing to 

proceed with closing and performance of the contract for deed is supported by substantial 

evidence and is not clearly erroneous. Rule 52(a), M.R.Civ.P. Accordingly, we hold that the 

District Court properly awarded Evelyn her portion of the real estate rent generated since 

November 25, 1992. 

730 4. Did the District Court err in assessing Defendants Henry and Kosmerl 

with their share of attorney fees incurred to obtain gambling and liquor license 

approval? 

713 1 The District Court ordered Henry, Kosmerl and Evelyn to each pay one-third of the 

attorney fees incurred in obtaining gambling and liquor licenses and to perform other legal 

work on behalf of the casinos which totaled over $67,000. First, Henry and Kosmerl argue 

that under the "unclean hands" doctrine that the District Court should not have awarded 

Evelyn these attorney fees because her ownership interest is illegal. Second, Henry and 

Kosmerl alternatively argue that even if these fees are recoverable, the District Court still 

violated their right to due process guaranteed by Article 11, Section 17 of the Montana 

Constitution when it failed to conduct a hearing concerning the reasonableness of these fees 

before awarding them to Evelyn. We disagree. 

132 First, as we discussed in Issue 1, the argument that Evelyn is not entitled to these 

attorney fees because her ownership interest is illegal is without merit. Second, after 
reviewing the record, we conclude that Henry's and Kosmerl's alternative argument that their 

due process rights were violated is raised for the first time on appeal. Furthermore, we 

decline to extend the "substantial rights" exception to the facts before us, and, therefore, we 

will not address this argument. See Day v. Payne (1996), 280 Mont. 273,276-77,929 P.2d 

864, 866. On January 30, 1996, the District Court in conjunction with its order of specific 

performance of the settlement agreements also ordered Henry and Kosmerl to submit an 

accounting of the revenue and expenses of each casino for the years 1992-1995. 

Furthermore, the District Court set a hearing date for argument and testimony concerning the 

propriety of the accounting and concerning thc amounts of any obligations to be set off, 

"including attorney fees and other expenses incurred in obtaining gambling operator licenses 

on behalf of the casinos." However, Henry and Kosmerl failed to comply with this order, 

and, consequently, Evelyn subpoenaed the accountant for the casinos to provide the 

accounting information. 

733 This information, including the amount of attorney fees and costs incurred regarding 

the gambling and liquor license applications was submitted to the District Court both in the 

form of sworn affidavits and testimony given during the June 10, 1996 hearing concerning 

the accounting. Henry and Kosmerl failed to object to the evidence concerning the amount 

of these attorney fees and costs; failed to offer evidence to the contrary; and failed to conduct 

cross examination concerning these fees and costs at the June 10, 1996 hearing. As such, 

they cannot now raise their objections for the first time on appeal. 
734 5. Did the District Court abuse its discretion by awarding Evelyn attorney 

fees? 

735 The District Court also awarded Evelyn $34,116.79 in attorney fees pursuant to $37- 

6 1-42 1, MCA, which provides: 

An attorney or party to any court proceeding who, in the determination of the 

court, multiplies the proceedings in any case unreasonably and vexatiously 

may be required by the court to satisfy personally the excess costs, expenses, 

and attorney fees reasonably incurred because of such conduct. 

In its July 18, 1996 Final Judgment, the District Court, relying upon this statute, stated in 

Conclusion of Law No. 16 that: 

Here, Henry and Kosmcrl havc intentionally multiplied this procecding by 

failing to fulfill their settlement agreements, applying for gambling licenses 

and then opposing the applications, and refusing to file the accounting ordered 

in this case. The only explanation imaginable for Henry and Kosmerl's 

conduct is that they seek to cause delay and expense. Such conduct is 

unreasonable and vexatious. 

136 On appeal, having expressly stipulated that the amount of these attorney fees was 

reasonable, Henry and Kosmerl do not contest the amount of fees awarded. However, they 

do argue that the District Court erred in applying 5 37-61-421, MCA, to award Evelyn 

attorney fees because "[aln award of attorney's fees to enforce an illegal ownership interest 

is never sustainable as a matter of law." Again, as we discussed in Issue 1, Henry and 

Kosmerl are barred from raising any claims concerning the legality of Evelyn's ownership 

interest in the casinos. Therefore, we will not address this issue. Consequently, we hold that 

the District Court did not abuse its discretion when it awarded Evelyn $34,116.79 in attorney 

fees pursuant to 3 37-6 1-42 1, MCA. 

12 
737 6. Did the District Court abuse its discretion by denying Defendant 

Kosmerl's motion to amend the judgment? 

7/38 As discussed previously, Kosmerl never complied with the District Court's January 

31,1996 Order to submit an accounting for each casino for the period 1992-1995. However, 

after the District Court entered judgment in Evelyn's favor, Kosmerl filed a motion to amend 

the judgment pursuant to Rule 52(b), M.R.Civ.P., asserting that thc District Court should 

order Evelyn to reimburse Kosmerl for her share of the real estate taxes and insurance costs 

that he claimed he paid from 1992-1995. On September 18, 1996, the District Court denied 

Kosmerl's Rule 52(b) motion. 

739 On appeal, Kosmerl argues that the District Court erred in denying his motion to 

amend the judgment. This argument is without merit. We have stated before that a Rule 

52(b), M.R.Civ.P., motion must be based upon the record as it existed at the time the district 

court made its findings and conclusions and cannot be based upon new evidence. See Ring 

v. Hoselton (1982), 197 Mont. 414,422,643 P.2d 1165, 1170. Furthermore, it is within the 

district court's discretion to grant or deny post-trial motions. Montana Rail Link v. Byard 

(1993), 260 Mont. 331, 337, 860 P.2d 121, 125. Additionally, 

[tlhe primary purpose of Rule 52(b) is to enable the appellate court to 

obtain a correct understanding of the factual issues determined by the trial 

court as a basis for the conclusions of law and judgment entered thereon. A 

party who failed to prove his strongest case is not entitled to a second 

opportunity by moving to amend a particular finding of fact or a conclusion of 

law. 

9A Charles A. Wright and Arthur R. Miller, Federal Practice and Procedure: Civil 2d § 2582 
(1995). 

1140 To support his motion, Kosmerl filed an affidavit regarding the costs of real estate 

taxes and insurance for 1992-1995 when he filed his Rule 52(b) motion. However, Kosmerl 

had access to his real estate tax and insurance information all throughout the litigation of this 

matter and could have submitted the information prior to entry ofjudgment, but failed to do 

so. Because, Kosmerl bases his Rule 52(b) motion on new evidence not submitted before 

entry of judgment, we conclude that the District Court did not abuse its discretion when it 

denied Kosmerl's motion to amend the judgment. 

141 7. Did the District Court abuse its discretion by denying Defendants Henry's 

and Kosmerl's Rule 60(b), M.R.Civ.P., motion? 

142 On August 16, 1996, Henry and Kosmerl filed a Rule 6O(b), M.R.Civ.P., motion for 

relief from final judgment, asserting that the District Court erred in retroactively applying the 

settlement agreements by changing their effective date from July 1, 1995, to November 25, 

1992, because Evelyn's attorney had represented to a Gambling Control Investigator on June 

2, 1993, that the settlement agreements were not retroactive. On September 18, 1996, the 

District Court denied Henry's and Kosmerl's Rule 6O(b) motion. 

743 Here, like in Issue 2, Henry and Kosmerl again argue that the District Court erred in 

"retroactively" applying the settlement agreements at issue. As discussed previously, this 

argument is without merit. In both their brief to the District Court and now on appeal, Henry 

and Kosmerl rely primarily on Rule 6O(b)(6), M.R.Civ.P., arguing that because Evelyn has 

"unclean hands," she should be equitably barred from having the courts rather than the 
Gambling Division decide whether the settlement agreements are retroactive. Henry and 

Kosmerl contend that if Evclyn's attorney had told the District Court about his admission to 

the Gambling Control Investigator that the settlement agreements were not retroactive, the 

District Court never would have found that Henry and Kosmerl had breached the settlement 

agreements prior to July 1, 1995, and never would have awarded Evelyn $123,134.96. 

744 Just as with Henry's and Kosmerl's previous arguments, they again attempt to ignore 

the effective dates of the settlement agreements to avoid liability for breach of those 

agreements. However, their argument concerning the proper forum for determining the 

"retroactivity" of these agreements is based on the underlying presumption that the statutes 

and administrative rules governing gambling license applications also govern the legality of 

the settlement agreements at issue. As we discussed previously in Issue 2, the statutes and 

administrative rules controlling gambling license applications do not control the legality or 

effective dates of contracts. Consequently, Henry's and Kosmerl's argument that the 

Gambling Division, not the courts, should decide the "retroactivity" issue is without merit. 

Accordingly, we hold that the District Court properly denied Henry's and Kosmerl's Rule 

60(b) motion. 

745 8. Should Defendants Henry and Kosmerl pay Kelman's attorney fees on 

appeal? 

7/46 Pursuant to Rule 32, M.R.App.P., this Court is requested to award Kelman attorney 

fees on appeal. In Federated Mut. Ins. Co. v. Anderson (1996), 277 Mont. 134, 145, 920 

P.2d 97, 104, we awarded the respondent reasonable costs and attorney fees incurred on 

15 
appeal based on the appellant's inconsistent and conflicting positions, its baseless appellate 

claims, and its inaccurate citation in its appellate brief. Similarly herc, Hcnry's and 

Kosmerl's position throughout litigation has been inconsistent with the underlying settlement 

agreements. Both in the District Court and now on appeal, they have repeatedly presented 

arguments of illegality concerning both Zollie's and Evelyn's ownership interest in the 

casinos which they had waived pursuant to the settlement agreements. These actions have 

resulted in their continued non-performance of the settlement agreements which they signed 

and executed over five years ago. 

747 We agree with the District Court that Henry and Kosmerl have multiplied these 

proceedings unreasonably and vexatiously. Furthermore, we conclude that Henry and 

Kosmerl brought this appeal without substantial or reasonable grounds. Accordingly, 

pursuant to Rule 32, M.R.App.P., we hold that Henry and Kosmerl shall pay Kelman's 

reasonable attorney fees incurred in defending this appeal. 

748 For the foregoing reasons, the judgment of the District Court is affirmed. 

Additionally, this case is remanded to the District Court for determination of the amount of 

attorney fees to which Kelman is entitled pursuant to this Opinion. 

749 Affirmed and remanded. 

We Concur: