Court Opinion

ID: 887610
Source: CourtListenerOpinion
Date Created: 2013-06-05 04:35:33.921926+00
Date Added: 2024-06-11T11:56:50.457941
License: Public Domain

No. 05-429

               IN THE SUPREME COURT OF THE STATE OF MONTANA

                                          2006 MT 164

JUSTIN SARTORI,

              Plaintiff and Respondent,

         v.

S & S TRUCKING, INC., a Montana corporation,
and ANTHONY STACY,

              Defendants and Appellants.

APPEAL FROM:         The District Court of the Nineteenth Judicial District,
                     In and For the County of Lincoln, Cause No. DV 2003-162,
                     Honorable Michael C. Prezeau, Presiding Judge

COUNSEL OF RECORD:

              For Appellants:

                     Amy N. Guth, Attorney at Law, Libby, Montana

              For Respondent:

                     John R. Quatman, Quatman & Quatman, Whitefish, Montana

                                                        Submitted on Briefs: April 19, 2006

                                                                  Decided: July 19, 2006
Filed:

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

¶1     Justin Sartori sued his business partner, Tony Stacy, for breach of corporate

fiduciary duty with regard to their corporation, S & S Trucking, Inc. (“S & S”). Stacy

answered the complaint and asserted a counter-claim.         Although the District Court

concluded that Sartori breached his fiduciary duties to S & S, the court did not grant

damages and/or attorney fees to Stacy, and because the corporation’s loan was under

Sartori’s name, the court ordered S & S dissolved unless Stacy paid off or refinanced the

loan within a set time.

¶2     We restate the appeal issues as follows:

¶3     1. Did the District Court err in ordering corporate dissolution when it did not find

that the corporation had been injured?

¶4     2. Did the District Court err in not awarding damages and/or attorney fees to

S & S, even though it concluded Sartori breached his fiduciary duty to the corporation?

                                    BACKGROUND

¶5     In 2003, Stacy, who worked as a truck driver, approached his friend, Sartori, also a

trucker, about purchasing a hauling business. Sartori expressed interest in the proposal,

and the two men applied for a business loan with First Interstate Bank in Eureka in order

to make the purchase. Because Sartori had a good credit history and Stacy did not, the

bank agreed to loan Sartori the money. The bank finalized the loan listing “JUSTIN M.

SARTORI DBA: S & S TRUCKING” as the borrower. The loan was for a term of years

in the amount of $78,493.68. Although the bank did not list Stacy as a borrower on the

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loan, he nonetheless pledged his logging truck and trailer as collateral. Sartori pledged

twenty acres of real property that he owned with his wife.

¶6     On August 23, 2003, Stacy and Sartori signed the articles of incorporation for

S & S, which the Secretary of State approved.        While stock certificates were never

actually issued, Stacy and Sartori agreed that they would be the only shareholders and

would each own an equal number of shares. The partners designated Stacy as President

and Sartori as Secretary/Treasurer, and hired Tanya Pluid as the office manager.

¶7     Within weeks after forming the corporation in September 2003, Stacy and Sartori

began to realize that they had incompatible working styles. Several incidents occurred in

which Sartori did not show up when or where Stacy expected. Stacy came to believe that

Sartori was not pulling his weight and therefore proposed some changes in the way the

parties initially agreed to pay out earnings from the company’s income. Sartori refused

to approve the changes and the relationship further deteriorated. Both men contacted

attorneys to see about disentangling from the corporation. Eventually, Stacy scheduled a

meeting for November 22, 2003, to iron out the parties’ differences, but Sartori refused to

attend once he decided the notice was for a board of directors meeting and that Stacy

failed to notify him sufficiently in advance per the bylaws.

¶8     Prior to the November 22, 2003, meeting, Sartori engaged in a number of actions

to undermine S & S, including incorporating a new trucking company, Brimstone

Enterprise (“Brimstone”), on October 31, 2003. In addition, Sartori contacted the Eureka

Post Office to have S & S’s mail forwarded to Sartori’s mail box; he transferred S & S’s

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Department of Transportation (“DOT”) number to Brimstone; he cancelled or transferred

S & S’s vehicle licenses; he contacted S & S’s suppliers and cancelled or attempted to

cancel S & S’s accounts; he closed S & S’s bank account; and he attempted to transfer

S & S’s insurance to Brimstone. Sartori also contacted businesses with whom S & S

worked in an effort to transfer their business to Brimstone. For example, when Eureka

Pellet Mill told Sartori that it was obligated to honor its contract with S & S, Sartori

started getting up early in the morning and hauling sawdust to the Eureka Pellet Mill—on

behalf of Brimstone—before Stacy arrived at work. S & S could no longer do interstate

business until it received a new DOT number, as Sartori had transferred S & S’s number

to Brimstone.     Sartori’s actions caused S & S to incur other losses and expenses,

including trailer rent, trailer repairs, trip permit fees, and cell phone fees.

¶9     On December 18, 2003, Sartori sued Stacy for breach of corporate fiduciary duty

and demanded judicial dissolution of S & S. Stacy answered the complaint and filed a

counter-claim alleging that Sartori engaged in deceit, intentional interference with a

business contract, intentional interference with prospective economic advantage,

defamation, and breach of fiduciary duty. The District Court conducted a bench trial and

found that “Sartori did everything in his power to sabotage S & S after he quit the

company on November 17, 2003,” and therefore had breached his fiduciary duty to the

business. Although the District Court stripped Sartori of his interest in the company and

his positions as a director and an officer, the court rejected Stacy’s proposal to keep

S & S in business under its current corporate identity. The court disagreed with Stacy’s

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contention that the loan should stay in place under Sartori’s name until S & S paid it in

full, because, while the court explicitly found that Sartori’s actions were “tortious,” it did

not believe “tying up Sartori’s credit and property for the next five years” was an

appropriate remedy.     Thus, the court ordered Sartori removed as a shareholder and

director of S & S, and awarded him no compensation for his interest in the corporation.

Further, the court held that unless Stacy and/or S & S paid off or refinanced the bank loan

by July 1, 2005, action would be taken to dissolve the corporation.

¶10    The court grounded its decision in § 35-1-938, MCA, which provides that a

corporation is subject to judicial dissolution in a proceeding by a shareholder if a

deadlock exists. The court noted that neither Stacy nor Sartori disputed that the requisites

for judicial dissolution had been met.

                               STANDARD OF REVIEW

¶11    In reviewing a district court’s conclusions of law, our standard of review is

plenary and we must determine whether the court’s interpretation of the law is correct.

Leichtfuss v. Dabney, 2005 MT 271, ¶ 21, 329 Mont. 129, ¶ 21, 122 P.3d 1220, ¶ 21.

¶12    When reviewing an award of damages, the standard of review is whether the trial

court abused its discretion. Sletteland v. Roberts, 2000 MT 382, ¶ 36, 304 Mont. 21,

¶ 36, 16 P.3d 1062, ¶ 36 (citing Edington v. Creek Oil Co. (1984), 213 Mont. 112, 127,

690 P.2d 970, 978).

                                          5
                                      DISCUSSION

¶13    1. Did the District Court err in ordering corporate dissolution when it did

not find that the corporation had been or was threatened with injury?

¶14    The District Court dissolved S & S pursuant to § 35-1-938(2), MCA, which states

that a district court may dissolve a corporation in a proceeding by a shareholder if it is

established that:

               (a) the directors are deadlocked in the management of the corporate
       affairs, the shareholders are unable to break the deadlock, and irreparable
       injury to the corporation is threatened or being suffered or the business
       and affairs of the corporation can no longer be conducted to the advantage
       of the shareholders generally because of the deadlock;
               (b) the directors or those in control of the corporation have acted, are
       acting, or will act in a manner that is illegal, oppressive, or fraudulent;
               (c) the shareholders are deadlocked in voting power and have failed,
       for a period that includes at least two consecutive annual meeting dates, to
       elect successors to directors whose terms have expired; or
               (d) the corporate assets are being misapplied or wasted.

(Emphases added.)      The District Court determined that dissolution of S & S was

appropriate pursuant to subsection (a).

¶15    Stacy maintains on appeal that, rather than dissolving the corporation, the District

Court, using its power under § 35-1-939, MCA, should have simply removed Sartori as a

shareholder and director of the corporation. While Stacy appears to concede that he and

Sartori were unable to break their management deadlock as to corporate affairs, he argues

that the court failed to find any harm to the corporation per the statutory language. Stacy

stresses the fact that S & S is now a twelve-employee company that has thrived in the

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wake of Sartori’s departure. Since there has been no corporate injury, Stacy argues, there

can be no dissolution.

¶16    In making this argument, Stacy ignores relevant statutory language. Section 35-1-

938(2)(a), MCA, provides that the court may order dissolution if “irreparable injury to

the corporation is threatened or being suffered or the business and affairs of the

corporation can no longer be conducted to the advantage of the shareholders generally

because of the deadlock.” (Emphases added.) Stacy and Sartori were S & S’s only

shareholders. Although the corporation may not have suffered irreparable injury, the

District Court found that the management deadlock led Sartori to take numerous steps to

sabotage the corporation. As a result, the business and affairs of S & S could no longer

be conducted to the advantage of the shareholders, Stacy and Sartori. The court properly

exercised it statutory authority when it dissolved S & S.

¶17    In dismissing Stacy’s argument, we note that he cites cases that apply § 35-1-

921(1)(a)(i), MCA, the predecessor to § 35-1-938, MCA, to support his contention that

the District Court only had authority to dissolve the company if it found corporate injury.

The earlier statute provided that a corporation can be dissolved in an action “by a

shareholder” when it is established that:

       the directors are deadlocked in the management of the corporate affairs and
       the shareholders are unable to break the deadlock and that irreparable injury
       to the corporation is being suffered or is threatened by reason thereof.

Section 35-1-921(1)(a)(i), MCA (1985).

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¶18    While the earlier rendering includes similarities to the present statute, the two

differ in key respects. First of all, under the former statute, irreparable injury is a

prerequisite to dissolution. Under the present statute, irreparable injury is listed in the

disjunctive and is thus not necessary. Further, the older version does not provide that a

“court” may dissolve a corporation because “the business and affairs of the corporation

can no longer be conducted to the advantage of the shareholders generally because of the

deadlock.” In light of these differences between the two statutes, Stacy’s references to

cases discussing the predecessor statute are not pertinent to our analysis.

¶19    We hold that the District Court correctly ordered dissolution of S & S pursuant to

§ 35-1-938(2)(a), MCA.

¶20    2. Did the District Court err in not awarding damages and/or attorney fees to

S & S, even though it concluded Sartori breached his fiduciary duty to the

corporation?

¶21    Stacy argues that, at trial, he proved that S & S sustained damages amounting to

$24,585.24 as a consequence of Sartori’s attempts to compete with and eliminate the

company. 1 Although the District Court did not make a specific dollar finding for the

amount Sartori damaged S & S, the court did conclude that Sartori breached his fiduciary

duty to S & S, causing damages to the corporation “in excess” of the $4,625.54 Sartori

       1
         The damages allegedly proved at trial include: $12,000 in lost profit; $4,622.57
in trailer repair; $36 for a new post office box; $30 for a DOT number; $300 for a new
MC number; $120 in GVW fees; $3,285 in trip permit fees; $3,600 for rental trailer; and
$591.67 in cell phone bills.
                                          8
claimed as reimbursement for fuel costs. The court thus held that S & S did not owe

Sartori any financial compensation.

¶22    While Stacy agrees with the court’s finding that S & S does not owe Sartori

reimbursement, he argues that the court erred in not ordering Sartori to pay S & S

damages for the amount Sartori damaged the corporation in excess of $4,625.54. We

agree. Given that the court clearly found Sartori had damaged S & S in an amount “in

excess” of $4,625.54, it was incumbent upon the court to quantify the damages and award

appropriate damages to the corporation. Accordingly, we reverse and remand for a

determination of damages to be paid by Sartori in favor of S & S.

¶23    As for Stacy’s request for attorney fees, we conclude that the District Court did

not abuse its discretion in denying such compensation to S & S, as the agreement terms

contained no specific provision entitling attorney fees to the prevailing party in a civil

action. National Cas. Co. v. American Bankers Ins., 2001 MT 28, ¶ 27, 304 Mont. 163,

¶ 27, 19 P.3d 223, ¶ 27.

¶24    Affirmed in part and reversed in part.

                                                /S/ W. WILLIAM LEAPHART

We concur:

/S/ PATRICIA COTTER
/S/ JOHN WARNER
/S/ JIM RICE

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Chief Justice Karla M. Gray, dissenting.

¶25   I do not disagree with the Court’s analysis. I respectfully dissent from its Opinion,

however, because it is my view that this matter is not properly before us. Accordingly, I

would dismiss the appeal without prejudice.

¶26   The action underlying this appeal was tried to the District Court. That court filed

findings of fact, conclusions of law, and a judgment on May 2, 2005.             The final

substantive part of the judgment provides that Stacy and/or S & S must make

arrangements to pay off or refinance the loan at the Bank by July 1, 2005; if the loan has

not been renegotiated or paid off by that time, the court is to be notified in writing and

“appropriate action will be taken to dissolve the corporation and extinguish the

corporation’s liabilities.” Notice of entry of this judgment was filed on June 7, 2005, and

Stacy and S & S filed a notice of appeal on June 13, 2005.

¶27   The Court interprets this judgment as one ordering corporate dissolution and

premises its discussion of the issues raised on that interpretation. In my opinion, the

judgment is not one ordering a corporate dissolution, but merely one clarifying that an

order or decree of corporate dissolution would be entered in the future absent Stacy

and/or S & S satisfying the conditions set forth in the judgment. Consequently, this

judgment is not a final judgment from which an appeal can be taken.

¶28   Section 35-1-938(2), MCA, does vest discretion in a trial court to dissolve a

corporation under the circumstances discussed by the Court. Section 35-1-942, MCA,

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however, makes it clear that a decree or order of dissolution is necessary to effectuate a

judicial dissolution as of a date certain. After the decree of dissolution is filed, the only

actions remaining are the winding up and liquidation of the corporation’s business and

affairs—under the direction of the trial court—as set forth in other statutes. See § 35-1-

942, MCA.

¶29    In the present case, the District Court’s judgment was neither a decree nor an order

of dissolution. It was, in effect, a warning that such a decree of dissolution would be

forthcoming unless certain events occurred. The notice of appeal divested the District

Court of further jurisdiction in this matter. For that reason, that court could not address

the merits of the motion to dissolve and response to motion to dissolve filed by the parties

thereafter.

¶30    I conclude this appeal is not properly before us because it was not taken from a

final judgment. Consequently, and notwithstanding the related year of unnecessary delay

in the underlying case, I would dismiss this appeal as prematurely taken and return the

case to the District Court for further proceedings. I dissent from the Court’s failure to do

so.

                                                         /S/ KARLA M. GRAY

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