Court Opinion

ID: 880427
Source: CourtListenerOpinion
Date Created: 2013-06-05 00:08:03.974074+00
Date Added: 2024-06-11T15:26:02.540816
License: Public Domain

No. 88-529
                          IN THE SUPREME COURT OF THE STATE OF MONTANA
                                                 1989

HOVEN, VERVICK               &   AMRINE, P.C.,
                           petitioner and Appellant,
          -VS-

MONTANA COMMISSIONER OF LABOR, and
MONTANA DEPARTMENT OF LABOR AND
INDUSTRY,
              Respondents and Respondents.

APPEAL FROM:               ~istrictCourt of the First ~udicial~istrict,
                           In and for the County of ~ e w i s Clark,
                                                             &
                           The Honorable Henry Loble, Judge presiding.
COUNSEL OF RECORD:
          For Appellant:
                           J. Daniel Hoven; Browning, Kaleczyc, Berry      &   Hoven,
                           Helena, Montana
          For Respondent :
                           Elizabeth ~riffing,Dept. of Labor & Industry, Helena,
                           Montana
                           ~ilodragovich,Dale & Dye; Lon J. Dale, is sou la,
                           Montana (Vervick)
                           ~arlington,Lohn and ~obinson; i l l i a mT. Wagner,
                                                         ~
                           Missoula, Montana (Amrine)

                 "   -.
     L)    ..*
                 ,>                              Submitted on Briefs:   March 9, 1989
                                                  Decided:     June 15, 1989
Mr. ~ustice John C. Sheehy delivered the opinion of the
Court.

       Hoven, Vervick and Amrine, P.C. appeals from a decision
entered against it in the ~ i r s t Judicial ~istrict Court,
~ e w i sand Clark County.   The District Court held that the
July 31, 1987 order of the commissioner of Labor and Industry
in favor of Larry Vervick and William Amrine be affirmed and
awarded attorney fees and costs to ~ervickand Amrine. That
judgment awarded the respondents the following:
     Larry Vervick:                     $56,919.15
     representing unpaid wages of $26,015.05 and a
     statutory penalty of $26,015.05 pursuant to §
     39-3-206, MCA plus costs and attorney fees of
     $4,889.15.   Interest is to accrue on the wage and
     penalty award of $52,030.10 at a rate of 10% per
     annum from August 30, 1987 to the date of the
     district court judgment August 16, 1988. Interest
     is to accrue at 10% per annum on the entire amount,
     $56,919.25, from and after August 16, 1988.
     Bill Amrine:                      $25,472.27
     representing wages of $11,681.07 and the statutory
     penalty in the same amount, $11,681.07, plus costs
     and attorney fees of $2,110.37 with interest to
     accrue on the $23,362.14 award at 10% per annum
     from August 30, 1987 to August 16, 1988 and to
     continue to accrue on the $25,472.27 at 10% per
     annum from and after that date.
     The court also awarded respondents any future costs and
attorney fees incurred in satisfying this judgment.   We
affirm.
     The issues before this Court are:
     1.   id the District Court err by applying a narrow
standard of review which prevented it from examining
undisputed facts and applying those facts to controlling
statutes?
     2.  Can owners/shareholders/directors of closely-held
corporations, who meet the applicable statutory definition of
employer, recover wages under the Montana Wage Payment Act?
     3. Was the Department of Labor's finding that Vervick
was an employee and not a volunteer from October 7, 1985 to
January 15, 1986 clearly erroneous?
     4. Did the Department of Labor and the District Court
abuse their discretion when they failed to provide offsets to
the awards of wages to prevent a windfall?
     5.   id the Department of Labor violate its own
regulations and the Montana ~dministrative Procedure Act by
designating the hearing examiner's decision as final without
allowing for the filing of exceptions?
          his case stems from a dispute which arose in Hoven v.
Amrine (Mont. 1986), 727 P.2d 533, 43 St.Rep. 1977.            That
dispute culminated in an appeal to this Court in which Hoven
received an award of attorney fees for his attempt to enforce
the provisions of an agreement whereby Amrine and vervick
were to purchase stock from Hoven.            Hoven served default
notices on Amrine and ~ervick who brought an action in
~istrict Court to have the notices declared void.             Hoven
prevailed in that cause and forthwith dismissed ~ m r i n e and
~ e r v i c k from employment.    That dismissal is the subject of
the present appeal which is based on the following
circumstances:
        prior to July 1, 1979, Larry vervick and Vern Hoven
operated a general partnership for the practice of certified
public accounting in          is sou la.  On July 1, 1979, Hoven,
~ervick and ~ m r i n e formed a corporation in which each held
one-third of the shares.            On that same date, vervick and
Amrine        entered   into agreements as employees of the
corporation.          Hoven entered into a similar employment
agreement.
     In 1985, David Green was added to the corporation as a
shareholder,   diminishing  the   ownership  to   25%   per
shareholder. From July 1, 1979 to October 7, 1985, Vervick,
Amrine and Green served on the board of directors, on the
executive committee and as officers of the corporation.
Hoven served in the same capacities from July 1, 1979 through
August, 1983. He resumed those positions again on October 7,
1985 as sole shareholder, sole director and president of the
corporation after litigation in which he demanded the return
of Vervick's and Amrine's shares to the corporation due to
their failure to pay for the same among the four principal
owners. Hoven v. Amrine, supra.
     Part of the initial disagreement emanated from a salary
increase Vervick and Amrine made to themselves in May, 1985.
In a special meeting of the board of directors, the board
approved staff raises including an increase in the owner's
salaries from $40,000 to $44,000 and declared previous loans
to the owners to be bonuses. These raises were recommended
by the executive committee consisting of Vervick, Amrine and
Green.
     In August, 1985, the corporation was experiencing cash
flow problems.     Because of this circumstance the four
shareholders worked without salaries.    Then problems arose
between Hoven and the other three shareholders.         Hoven
regained absolute control of the corporation through court
proceedings.    He then terminated Amrine and Vervick as
employees.    He told ~ervick that he was no longer a
shareholder in the corporation but offered a joint venture to
him.    Hoven, through a director's resolution, rescinded
Vervick's and Amrine's salary increases retroactively.
Vervick did not respond in writing to Hoven's new offer, but
continued to work under the HVA name and completed several
large contracts that he had entered into as a principal of
the corporation. ~ervick later took with him some of those
contracts when he left HVA and formed his new corporation.
The monies he generated prior to his leaving went into HVA
and went to pay off debts that totalled $232,000.00 on
October 7, 1986. ~ervickterminated his employment with the
corporation on January 15, 1986.      On October 3, 1986, he
filed a wage claim with the Montana Department of Labor and
Industry (Department). He claimed past wages in the total
sum of $16,015.05. Amrine filed a wage claim on October 18,
1985 for $8,544.60. These claims were against HVA. The wage
claim was based on a salary of $44,000.00 per year. Green
had issued a corporate check to himself for accumulated
vacation pay when he was terminated by Hoven.       HVA never
pursued him to recover that payment.
     A hearing examiner appointed by the Department held a
hearing on June 11, 1987.     The hearing examiner issued the
final order on July 31, 1987 in favor of Vervick and Amrine.
It ordered HVA to render a cashier's check or money order in
the amount of $75,392.24 as wages and statutory penalty in
favor of ~ervick and Amrine, made payable to the Employment
 elations ~ivision,no later than thirty days after service
of the order. The amount ordered to be paid to Vervick was
$52,030.10. HVA filed a petition for judicial review of the
Department's final order.     The ~istrictCourt affirmed the
Department's decision and issued a final judgment on August
17, 1988. ~ o t i c eof entry of judgment was filed on August
23, 1988. HVA then filed notice of appeal to this Court on
October 21, 1988. Under Rule 5, M.R.App.P., a 60 day period
is allowed for appeal when a governmental agency is a party.
     The first issue we must examine is whether the District
Court erred by applying an incorrect standard of review.
     The standard of review of administrative decisions is
set forth in § 2-4-704, MCA.
     ...   (2) The    court may    not substitute its
     judgment for that of the agency as to the weight of
     the evidence on questions of fact. The court may
     affirm the decision of the agency or remand the
     case for further proceedings.       The court may
     reverse or modify the decision if substantial
     rights of the appellant have been prejudiced
     because the administrative findings, inferences,
     conclusions, or decisions are:

     (el clearly erroneous in view of the reliable,
     probative, and substantial evidence on the whole
     record;
     (f) arbitrary and capricious or characterized by
     abuse of discretion or clearly unwarranted exercise
     of discretion;.   .
                       .
     Traditionally, review of agency decisions is not
intended to be a de novo consideration of findings of fact
made by the agency.      Because of the standard of review
prescribed by the foregoing statute, the party appealing from
an agency decision to the ~istrict Court has the burden of
showing that his rights were substantially prejudiced by an
arbitrary or capricious or a clearly erroneous agency
decision. Carruthers v. Board of Horse acing (1985), 216
Mont. 184, 700 P.2d 179. A rebuttable presumption exists in
favor of the agency decision.     Thornton v. omm mission of
Labor and Industry (1980), 190 Mont. 442, 621 ~ . 2 d1062,
1065.
     The appellant contends that an issue which raises only a
question of law determined by the District Court or by an
agency is not binding on this appellate court, which is free
to draw its own conclusions from the evidence presented.
Sharp v. Hoerner Waldorf Corp. (19781, 178 Mont. 419, 423,
584 P.2d 1298, 1300.
     To settle the issue for purposes of this case, where the
appellant disputes a finding of fact made by the agency, the
action of the agency will be sustained unless the finding of
fact is clearly erroneous in view of the reliable, probative
and substantial evidence on the whole record; or unless the
findings are arbitrary or capricious or characterized by an
abuse of discretion by the agency. Section 2-4-704, MCA. If
the issue involves a question of law, this Court is not bound
by the interpretation of law either by the agency or the
~istrictCourt. Sharp, supra.
     The next issue raised by the appellant is indeed an
issue of law.    The appellant contends that since it is a
professional corporation, it is absurd to construe the
provisions of the Montana Wage Payment Act, and particularly
the definitions contained in 5 39-3-201, MCA, so that
shareholders, owners and directors who hold a proprietary
interest in the company may also be considered employees for
the purpose of collection of wages under the Act.     Under S
39-3-201, an "employer" includes any corporation acting
directly or indirectly in the interest of an employer in
relation to an employee; and "employee" is defined as any
person who works for another for hire.
     In ~amrnillv. Young (1975), 168 Mont. 81, 540 P.2d 971,
this Court held that a professional, if truly an employee, is
entitled to be covered as an employee under the Wage Payment
Act.    Here the appellant contends that Hammill can be
distinguished because the professional was not a shareholder
and held no ownership interest in the corporation.       The
District Court, however, concluded that in construing 5
39-3-201, both Vervick and ~rnrine were indeed employees of
the professional corporation and that this entitled them to
the benefits of the Act.
     We   determine that    the District Court correctly
interpreted S 39-3-201 as it applies to this case.        The
professional corporation clearly falls within the definition
of an employer under the section, which means that the
corporation itself had a separate and distinct identity from
its stockholders. Moats Trucking Company, Inc. v. Gallatin
Dairies, Inc. (Mont. 1988), 753 P.2d 883, 885, 45 St.Rep.
772, 775.    It is further clear that the definition of an
"employee" within the meaning of the section covers Vervick
and Arnrine.  They had entered into contracts of employment
with the professional corporation, a separate legal entity.
The employment contract between the corporation and the
employees specifically provided that their relationship under
the contract was that of an employer and an employee.      It
would be idle for the ~istrict Court or for this Court to
disregard the clear language of the employment contracts or
the clear language of the statute. Where clarity abounds, it
is not the business of the courts to carve out exceptions.
     The next issue raised by the appellant corporation is
whether the appellant Vervick is not entitled to any wages
from October 7, 1985 to January 15, 1986. Hoven testified
that he had terminated Vervick. Vervick claims that he was
never terminated as an employee of HVA. Hoven contended that
he offered to ~ervicka joint venture relationship to finish
existing contracts which were required to be fulfilled by
HVA. The hearing officer found that Vervick remained after
October 7, 1985 as an employee.       Moreover, the hearing
officer found that there was no joint venture. The findings
with respect to this issue are clearly supported by
substantial evidence in the whole record. ~ervickwas not a
volunteer but worked as an employee during the time following
October 7, 1985, and the corporation was paid for the work
done by Vervick during that period of time.             As a
corporation, the employer received the benefits of the
contracts through the efforts of its employee, Vervick.
     The next issue raised by the appellant corporation is
that if wages are to be awarded in this case, reductions
should have been made by the Department to avoid an
inequitable result.
     The contention of the appellant here is a bit involved.
The Department awarded wages based on a yearly salary of
$44,000.00 to each of the employees.      The $44,000.00 was
premised on an action taken by the board of directors in May,
1985, when Vervick and Amrine were both members of the board.
The corporation contends that the award of these salaries
placed HVA in violation of loan provisions established by the
Small Business Administration. Also in May, 1985, the board
of directors declared loans, which Vervick and Amrine had
previously received from HVA, as bonuses.
     When Vern Hoven became the sole shareholder in October,
1985, the board of directors rescinded the corporate actions
taken in May, 1985.
     The Department and the District Court recognized the
yearly wage of the employees to be $44,000.00 pursuant to the
earlier actions of the board of directors and gave no legal
import to the later action of the board of directors
rescinding those actions.       The corporation contends, on
appeal here, that the Department and the District Court thus
sanctioned the actions taken by the board of directors when
Vervick and Arnrine were members of the board, and disapproved
of the actions taken by the board when they were not members
and Hoven was the sole shareholder.             The appellant
corporation contends that it is arbitrary and capricious for
the Department to recognize one set of actions taken by the
board of directors and to refuse to acknowledge a second set
of actions taken by the board.
     The District Court determined that upon of the adoption
of the resolution increasing the salaries to $44,000.00, the
resolution then became the obligation of the corporation to
those employees and a subsequent action by the board of
directors could not rescind a previous action if the
rescission would disturb vested rights. We determine that
once the corporation obligated itself to pay the wages at an
annual rate of $44,000.00, the same corporation could not
retroactively, by an action of a different board of
directors, take back what had become the obligation of the
corporation.
     A sub-issue on this point is that both Vervick and
Amrine, as well as Hoven, had made personal guaranties to the
Small ~usiness ~dministration of loans made by that
Administration to the professional corporation.           The
appellant corporation contends that since ~ervickand Amrine
were personal guarantors of those loans, the award of wages
to them without a reduction for their personal guarantees
results in a double benefit. Obviously, this contention has
no merit. The obligations of Vervick and Amrine as personal
guarantors of loans made to a third party, in this case, the
Small Business ~dministration,has no affect on the amount of
wages owed by the corporation to ~ervickand ~mrine. heir
obligations as personal guarantors are separate and apart
from their status as employees entitled to payment of wages
by the corporation under the Montana Wage Payment Act. The
appellant corporation has shown no legal basis upon which a
reduction of the wages should have been made by the agency or
the District Court.
     The last contention made by the appellant corporation is
that since the order of the hearing examiner before the
agency became the final order, the designation of the hearing
examiner's decision as "final" violates S 2-4-621, MCA.
      Section 2-4-611, MCA authorizes a hearing and an
appointment of a hearing examiner under the Administrative
Procedure Act.    Appellant corporation contends that nothing
in S 39-3-210, MCA, or any other provision allows the
Commissioner of Labor to delegate the final decision-making
authority to an appointed hearing examiner.      The appellant
points to the Department's regulation, S 24.2.101(1) (b),
A.R.M., which reads:
      If a majority of the officials of an agency who are
      to render the final order were not present at the
      hearing of a contested case or have not read the
      record, a proposed order if adverse to a party to
      the proceeding other than the agency, including
      findings of fact and conclusions of law, shall be
      served upon the parties.    An opportunity to file
      exceptions, present briefs and make oral argument
      to the officials who are to render the decision
      shall be granted to all parties adversely affected.
      If no appeal is taken within twenty (20) days, the
      decision of the hearing examiner shall be final.
     The District Court determined that the Commissioner of
Labor and Industry is charged with the responsibility of
investigating wage claims and holding hearings in the
enforcement of the Wage Payment Act under S;S 39-3-209 and
39-3-210, MCA.   Further, under S 2-15-112(2) (b), MCA, the
Commissioner, as the head of the Department of Labor and
Industry, may delegate these functions to a subordinate
employee. Section 24.2.101, A.R.M. allows the decision of an
appointed hearing examiner to be a final order. Therefore,
the District Court declared that there is no error in the
designation of the hearing examiner's order as final.
     The District Court correctly determined the issue. It
should be further noted that the statutory authority of the
Commissioner of Labor and Industry refers to a single
individual and not to a number of officials, who in other
agencies, may be required to reach a final decision.      The
cited   section   of   ~ d m i n i s t r a t i v e Rules   of   Montana   is   not
applicable to wage payment cases and the Department of Labor
and Industry and its ~omrnissionerhave established a workable
procedure for determining issues in wage payment claims under
the provisions of the applicable acts.
     We therefore affirm the Di