Blue Dane Simmental v. American Sim

No
No. 97-415
IN THE SUPREME COURT OF THE STATE OF MONTANA
1998 MT 260N
BLUE DANE SIMMENTAL, INC., et al.,
Plaintiffs, Counterdefendants,
Appellants, and Cross-Respondents,
v.
AMERICAN SIMMENTAL ASSOCIATION,
Defendant, Counterplaintiff,
Respondent, and Cross-Appellant.
APPEAL FROM: District Court of the Eighteenth Judicial District,
In and for the County of Gallatin,
The Honorable Thomas A. Olson, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
David H. Hahn, Hahn Law Office; Lincoln, Nebraska
Karl Knuchel, Attorney at Law; Livingston, Montana
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For Respondent:
James H. Goetz and Robert K. Baldwin; Goetz, Madden & Dunn, P.C.;
Bozeman, Montana
V. Gene Summerlin and Krista Kester; Ogborn & Summerlin, P.C.;
Lincoln, Nebraska
Submitted on Briefs: July 16, 1998
Decided: November 5, 1998
Filed:
__________________________________________
Clerk
Justice Jim Regnier delivered the opinion of the Court.
¶1. 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.
¶2. Appellants ("the Members") brought a dissolution action
against the respondent corporation, the American Simmental
Association ("ASA"), in the Eighteenth Judicial District,
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Gallatin County, pursuant to the Montana Nonprofit
Corporation Act. They alleged that the ASA fraudulently
registered certain cattle as full-blood Simmentals, and
requested that the ASA corporation be dissolved or be
subject to any reasonable alternative under § 35-2-728, MCA.
The District Court found in favor of the ASA, and the
Members appeal. Upon our review, we uphold the District
Court's decision, but remand the ASA's argument for attorney
fees for the District Court's consideration.
¶3. This Court finds the following issues dispositive on
appeal:
¶4. 1. Did the District Court properly find that the ASA was
not involved in illegal, oppressive, or fraudulent conduct
under § 35-2-728(1)(b)(ii), MCA?
¶5. 2. Did the District Court provide the Members a fair
trial?
¶6. 3. Should either party be awarded costs and attorney
fees?
FACTUAL BACKGROUND
¶7. The American Simmental Association is a nonprofit
corporation with its principal place of business in Bozeman,
Montana. The primary purpose of the ASA, according to its
bylaws, is to "maintain the standards for eligibility of
simmental . . . cattle prior to entering them into the . . .
herdbook registry." Pursuant to its purpose, the ASA
maintains a formal registry and registration procedures.
¶8. The ASA registry provides for a special classification
of "full-blood" Simmental cattle, bred wholly from European
Simmental stock. In 1988, the ASA's registration procedure
required that an applicant show proof of a full-blood
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animal's ancestry back to Simmental herdbooks in France,
Germany, Austria, or Switzerland. In response to the
membership's concerns that this did not guarantee an
animal's genetic integrity because cattle registered in
Simmental herdbooks may have been bred from other cattle to
upgrade certain marketing traits, the ASA Board stated a
policy that only animals whose genetic background completely
traced back to Simmental cattle could receive the special
full-blood classification. Animals with other cattle breeds
in their ancestry could not be classified as full bloods.
However, the ASA did not modify its registration procedure
until 1994 to guarantee this. In 1992, the ASA implemented a
policy to require that an applicant provide a copy of a
registration certificate from a recognized Simmental
registry that indicated that an animal's ancestry originated
from one of the four specified countries. Ultimately, in
1994, the ASA required that an applicant provide a
certificate of registration going back five generations into
the animal's ancestry, plus satisfactory evidence that the
registered animal had no known ancestry of another cattle
breed. The 1994 rule contained a grandfather clause which
stated that "[a]ll existing Herdbook entries in the ASA
Registry that currently are designated as Fullblood shall
retain that status."
¶9. The ASA also required that registered animals used in
embryo transfer programs be bloodtyped. This is a scientific
process used to verify an animal's parental lineage which,
thereby, allows breeders and cattle buyers to investigate
the performance data of the animal's ancestry. In some
cases, a registered animal and its parents were bloodtyped.
However, when bloodtyping information on the animal's
parents could not be obtained, the ASA staff routinely
registered animals with bloodtyping information only on the
animal itself. The staff used computer codes to identify
what bloodtyping information was available for each animal.
They used code Z-8 to denote when neither parent was
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bloodtyped, just the registered animal.
¶10. Mr. Risinger, a Simmental cattle breeder, was an ASA
member who, in 1991, served on the ASA's board and executive
committee and in 1994, served as the ASA's president. In
1991 and 1992, Mr. Risinger registered a total of nineteen
cattle ("the Risinger animals") as full-blood Simmentals.
Even though he did not own the cattle or even have
possession of them, he held exclusive rights to their semen
and embryos. The cattle were otherwise owned by Mr. Raby,
who imported the cattle from Germany to England and kept the
cattle in England. Hence, when Mr. Risinger registered the
cattle with the ASA, he produced copies of registration
certificates from German herdbooks.
¶11. Two of the bulls that Mr. Risinger registered had the
unique trait of being homozygous polled--that is, they had a
favored market quality of being genetically hornless. The
parties stipulate that a grandsire of these bulls had three
percent Angus genetics, leaving the registered bulls with
approximately 0.75 percent Angus genetics. The bulls were
registered as full-blood Simmentals with the ASA,
nonetheless.
¶12. Twelve of the Risinger animals did not have parental
bloodtyping before they were registered. Instead, the ASA
staff obtained bloodtyping information only on the animals
themselves and coded them Z-8.
¶13. The Members expressed concerns over the registration of
these animals to the ASA. In response, the ASA scheduled a
hearing to investigate the registration; however, the
Members boycotted the hearing, so it was not held. The
Members, thereafter, commenced litigation in the Eighteenth
Judicial District, Gallatin County, in April 1994 and filed
a formal compliant with the ASA Board. The ASA Board
appointed two former trustees to investigate the complaint
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and make recommendations to an executive committee. On
April 24, 1995, the executive committee held a hearing
involving all concerned parties, and decided that no action
was warranted in the best interests of the ASA. The District
Court issued its findings on January 3, 1997, concluding
that the ASA made its decision in good faith and that it did
not act illegally, oppressively, or fraudulently.
STANDARD OF REVIEW
¶14. The standard of review of a district court s findings
of fact is whether they are clearly erroneous. See Daines v.
Knight (1995), 269 Mont. 320, 324, 888 P.2d 904, 906 (citing
Columbia Grain Int'l v. Cereck (1993), 258 Mont. 414, 417,
852 P.2d 676, 678). To determine whether the findings are
clearly erroneous, we apply a three-part test: (1) the Court
will determine whether the findings are supported by
substantial evidence; (2) if the findings are supported by
substantial evidence, the Court will determine if the trial
court has misapprehended the evidence; and (3) if the
findings are supported by substantial evidence and that
evidence has not been misapprehended, this Court may still
conclude that "[a] finding is clearly erroneous when,
although there is evidence to support it, a review of the
record leaves the court with the definite and firm
conviction that a mistake has been committed." Interstate
Prod. Credit Ass'n v. DeSaye (1991), 250 Mont. 320, 323, 820
P.2d 1285, 1287 (citing United States v. United States
Gypsum Co. (1948), 333 U.S. 364, 68 S. Ct. 525, 92 L. Ed.
746); see also Daines, 269 Mont. at 325, 888 P.2d at 906.
¶15. The standard of review of a district court s
conclusions of law is whether the court s interpretation of
the law is correct. See Carbon County v. Union Reserve Coal
Co., Inc. (1995), 271 Mont. 459, 469, 898 P.2d 680, 686
(citing Steer, Inc. v. Department of Revenue (1990), 245
Mont. 470, 474-75, 803 P.2d 601, 603-04). See also Kreger v.
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Francis (1995), 271 Mont. 444, 447, 898 P.2d 672, 674. In
this case, however, the Members do not raise the District
Court's interpretation of the law as an issue.
ISSUE 1
¶16. Did the District Court properly find that the ASA was
not involved in illegal, oppressive, or fraudulent conduct
under § 35-2-728(1)(b)(ii), MCA?
¶17. Pursuant to the Montana Nonprofit Corporation Act, § 35-
2-728, MCA, the Members ask us to dissolve the ASA
corporation or, in the alternative, strictly enforce the
ASA's written registration procedure and cause the Risinger
animals to be removed from the ASA registry. However, we
recognize the inherent limitations a court has in corporate
matters. Under § 35-2-728(1)(b)(ii), MCA, a court can
dissolve a corporation only if "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."
Section 35-2-728(2)(a), MCA, allows other judicial action,
such as removing the Risinger animals from the ASA registry,
as a reasonable alternative to a corporate dissolution.
¶18. The District Court correctly stated that it will not
intervene in the internal affairs of the corporation and
second-guess the judgment of corporate officials. Other
state courts that have reviewed breed associations' registry
decisions also have refrained from intervening in such
decisions. See, e.g., Jackson v. American Yorkshire Club (N.
D. Iowa 1971), 340 F. Supp. 628 (holding such decisions rest
with the board of directors so long as the decision is
vested with the necessary legalities); McCreery Angus Farms
v. American Angus Ass'n (S.D. Ill. 1974), 379 F. Supp. 1008,
aff'd without op., (7th Cir. 1974), 506 F.2d 1404 (limiting
its review to the association's procedure). We agree that
the role of the courts is not to hold a breed association
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strictly to its registration procedure, but only to assure
that the association applies its procedure without illegal,
oppressive, or fraudulent motives. If, for example, the
association follows a common practice that is not consistent
with its written procedure, we will conclude that its
motives are, nonetheless, in accordance with the law.
¶19. To determine the ASA's common practice and written
procedure at the time it registered the Risinger animals,
the District Court correctly looked to the 1988 procedure in
regard to the animals registered in 1991, and the 1992
procedure in regard to the remaining animals registered in
1992. Also, the District Court correctly rejected the
Members' contention that the grandfather clause in the more
stringent 1994 procedure represented the ASA Board's
intention that all animals previously registered as full
bloods should have already met the genetic integrity
requirement. To the contrary, the record establishes that
the ASA used the 1994 grandfather clause to avoid the costs
of investigating the genetic background of all previously
registered animals and the complications of expunging
animals from the full-blood registry. The ASA was well aware
that its 1988 and 1992 procedures did not guarantee genetic
integrity.
¶20. For this reason, we do not agree with the Members'
argument that the two Risinger bulls should not have been
registered as full bloods because they had Angus genetics.
In our review, the Angus genetics are not controlling.
¶21. By the terms of the 1988 and 1992 procedures, the ASA
should have required Mr. Risinger to show proof of his
animals' ancestry back to Simmental herdbooks in France,
Germany, Austria, or Switzerland and, for the animals registered in 1992, copies of
registration certificates from a recognized Simmental registry indicating that the
animals' ancestors originated from one of the four specified countries. The Members
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contend that the German herdbook used for the Risinger animals was not a qualified
herdbook and that the registration certificates were not adequate. The Members
further argue that the District Court abused its discretion when, at trial, it refused to
receive expert testimony from Richard Tetherow, a former ASA trustee and past
president, who could identify a qualified herdbook. The District Court allowed the
Members to make an offer of proof, then determined that the information sought
from Mr. Tetherow was highly specialized and required intimate knowledge with the
various German herdbooks, which he did not have. We have held that the
determination of the qualification of an expert witness is a matter of discretion for
the trial court, and that, absent a showing of abuse of discretion, we will not disturb
the district court's decision. See In re Marriage of Lee (1997), 282 Mont. 410, 422,
938 P.2d 650, 658. By the facts of the record, we conclude that the German herdbook
and the registration certificates that the ASA used to register the Risinger animals
were not inconsistent with the ASA's common practice in registering full-blood
animals. Therefore, the ASA did not act illegally, oppressively, or fraudulently.
¶22. The Members draw our attention to an additional fact
that Mr. Risinger signed the registration papers for the
animals even though he was not their owner. There is ample
evidence, however, that the ASA had a long-standing, common
practice of allowing owners of semen or embryo rights of
animals to register the animals.
¶23. Next, the Members focus on the issue of bloodtyping.
The relevant ASA bloodtyping provision states:
All sires used in an embryo transfer program or whose semen is frozen for the first time
for A.I. use and any donor dams placed in embryo transfer for the first time, along with
their parents, must be bloodtyped at the owner's expense to confirm both sire and dam
parentage. The results must be filed with the Association prior to the distribution of semen
or the performing of any embryo transplant procedures. (ASA reserves the right to grant
exceptions if the dam or sire is dead or is located in a foreign country).
The Members allege that the ASA fraudulently failed to enforce bloodtyping requirements
on the Risinger animals and their parents when the animals were registered. The record
does not support this allegation, however. The facts of the record strongly suggest that the
ASA routinely registered animals with bloodtyping information only on the animals
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themselves.
¶24. The Members also contend that the ASA staff did not
have authority to waive the bloodtyping requirements when it
registered the Risinger animals. The Members interpret the
bloodtyping provision to mean that only the ASA's executive
committee had such authority. We conclude that the record
adequately shows that waivers were routinely granted by the
staff, despite conflicting testimony. Where there is
conflicting evidence, it is within the province of the trier
of fact to weigh the evidence and determine the credibility
of witnesses; we will not substitute our judgment for that
of the trier of fact on such matters. See Garrison v.
Averill (1997), 282 Mont. 508, 518-19, 938 P.2d 702, 708.
¶25. Finally, the Members advance a theory that Mr. Risinger
was treated with preference because he was a corporate
insider. They allege that only insiders, like Mr. Risinger,
knew about the opportunity to receive bloodtyping waivers.
They also allege that the ASA protected the Risinger
animals' registration by offering misleading information
about the animals to ASA members in exchange for Mr.
Risinger's support of the 1994 grandfather clause and a
salary increase for staff. This theory is unsubstantiated by
the facts of the record.
¶26. In conclusion, we hold that the ASA acted in accordance
with its common practices when it registered the Risinger
animals. There is substantial evidence to support the
District Court's findings that the ASA was not involved in
illegal, oppressive, or fraudulent conduct. Furthermore, the
District Court did not misapprehend the evidence or make a
mistake.
ISSUE 2
¶27. Did the District Court provide the Members a fair
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trial?
¶28. The Members argue that the District Court violated
their constitutional rights because it did not afford them a
fair trial. They make three allegations in this regard.
First, they allege that the District Court prevented them
from consulting with their attorneys. Second, they allege
that the District Court inappropriately based a significant
portion of its ruling on the findings of the ASA's executive
committee. Third, they contend that the District Court judge
was biased against them. We consider each of these
allegations independently.
¶29. The Members argue that the District Court prevented
them from consulting with their attorneys because the
District Court excluded them temporarily from the courtroom
when certain evidentiary documents were discussed and,
thereafter, prevented them from reviewing the documents by
putting the documents under seal. Finally, the District
Court forbade the Members from discussing the documents with
their attorneys by putting the contents of the documents
under protective order. The documents at issue include
certain meeting minutes from the ASA's executive committee
that involve requests for Z-8 bloodtyping waivers, and a
computer printout showing the names of approximately 2200
animals that received such waivers. The District Court
determined that these documents should be kept confidential
to prevent potential harm to cattle owners who obtained Z-8
waivers and who otherwise would have no chance to defend
themselves or their business interests in the proceedings.
Accordingly, when the documents were used in the courtroom,
nonattorneys were instructed to leave the courtroom. Only in
some instances were witnesses who were being questioned and
ASA representatives allowed to remain.
¶30. We have recognized that when the public's right to know
collides with the right to protect certain private
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information, a balancing of rights is necessary and a
protective order may be fashioned to achieve this. See
Montana Human Rights Div. v. City of Billings (1982), 199
Mont. 434, 448-49, 649 P.2d 1283, 1291. We hold that the
District Court appropriately achieved a balance of these
interests by keeping confidential the names of cattle owners
who obtained Z-8 waivers.
¶31. The Members further allege that the District Court
violated its own protective order by specifically naming
some of the animals registered with the Z-8 waiver in its
findings of fact and conclusions of law. We do not agree.
The record shows that the animals named by the District
Court were already publicly known to have Z-8 waivers.
¶32. In their second allegation, the Members argue that the
District Court inappropriately based a significant portion
of its ruling on the findings of the ASA's executive
committee. However, we hold that the Members fail to
substantiate their claim. The District Court did not use the
committee's findings or determinations when it made its own
conclusions. The District Court judge stated that he was
"not going to be bound by the Special Litigation Committee's
finding" and that he would "make [his] own findings." We
conclude that he did just that.
¶33. In regard to the Members' third argument, that the
District Court Judge was biased against them, we look to § 3-
1-805, MCA, for the procedure under which we can remove a
district court judge for personal bias or prejudice. Section
3-1-805, MCA, requires that counsel file an affidavit
alleging facts showing the judge's personal bias or
prejudice thirty days in advance of trial. See In re
Marriage of Eklund (1989), 236 Mont. 77, 78, 768 P.2d 340,
341; State v. Langford (1994), 267 Mont. 95, 104, 882 P.2d
490, 495, cert. denied, (1995), 513 U.S. 1163, 115 S. Ct.
1128, 130 L. Ed. 2d 1090. In the case before us, the Members
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did not file an affidavit thirty days in advance. Instead,
they suggest that they were not aware of the judge's
possible bias until nearly four months after the District
Court issued its findings of fact and conclusions of law. At
that time, they filed the necessary motion and supporting
affidavit. Regardless of the thirty-day requirement, we hold
that the Members' motion falls short of alleging facts to
support their argument that the judge was biased.
¶34. In the alternative, the Members suggest that we should
apply the cumulative error doctrine, under which the
cumulative effect of several errors could result in an
unfair trial. However, we have previously stated that this
Court applies the doctrine of cumulative error exclusively
in criminal cases. See Baxter v. Archie Cochrane Motors,
Inc. (1995), 271 Mont. 286, 289, 895 P.2d 631, 633. We
conclude that the Members received a fair trial.
ISSUE 3
¶35. Should either party be awarded costs and attorney fees?
¶36. We do not agree with the Members' contention that they
should be awarded attorney fees under § 35-2-1306(1), MCA.
This statute requires a corporation to pay the complainants'
attorney fees, even if the complainants are not wholly
successful in their claims, if the proceedings result in a
substantial benefit to the corporation. Not only does it
appear that the Members failed to plead this before the
District Court, we hold that the Members' actions have not
resulted in a substantial benefit to the ASA. The parties
recognize two benefits: one, the ASA obtained more thorough
bloodtyping information on the Risinger animals; and two,
the ASA executive committee, instead of the ASA staff, now
decides all Z-8 waiver requests. These benefits are not
substantial.
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¶37. The District Court awarded the ASA costs as the
prevailing party pursuant to § 25-10-103, MCA. However, it
denied the ASA its attorney fees pursuant to § 35-1-547,
MCA, holding that this action was not commenced for an
improper purpose. More properly, the District Court should
not have awarded the ASA attorney fees pursuant to § 35-2-
1306(2), MCA, which is the applicable provision pertaining
to nonprofit corporations.
¶38. The ASA also urged the District Court to award it
attorney fees under the terms of its own bylaws. The ASA's
bylaws state:
Although the right or privilege of a member or non-member to seek judicial review of
previous Association decisions or actions is recognized, that member . . . does thereby
agree, if unsuccessful in the attempt to overturn Association decisions, actions, rules or By
Laws, to reimburse the Association for its reasonable attorney fees, court costs and other
expenses in defense of such suit.
Under the American Rule, a party in a civil action is generally not entitled to fees absent a
specific contractual or statutory provision. See Montana Health Care Ass'n v. Board of
Directors of State Comp. Mut. Ins. Fund (1993), 256 Mont. 146, 157, 845 P.2d 113, 120.
This Court has recognized that a corporate bylaw serves as a contractual provision. See
Appeal of Two Crow Ranch, Inc. (1972), 159 Mont. 16, 23, 494 P.2d 915, 919.
¶39. On several occasions, including the pretrial order, the
ASA suggested that any arguments regarding costs and fees
should be addressed separately after the dissolution
proceedings. Although the District Court adequately
addressed other arguments of costs and fees in its findings
of fact and conclusions of law in the dissolution
proceedings, it did not address the ASA's argument for
attorney fees under the terms of its own bylaws. For that
reason, we remand to the District Court for consideration of
the ASA's argument for attorney fees under the bylaw
provision. Should the District Court determine that the ASA
is entitled to attorney fees under its bylaws, then a
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hearing should be conducted to determine the amount.
/S/ JIM REGNIER
We Concur:
/S/ J. A. TURNAGE
/S/ KARLA M. GRAY
/S/ WILLIAM E. HUNT, SR.
/S/ W. WILLIAM LEAPHART
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