                                   AMENDED
                                   No. 90-201
                IN TIIE SUPREME COURT OF THE STATE OF MONTANA




IN TIIE MATrI'ER OF TIIE WAGE CLAIMS AND
UNEMPLOYME!Jrl? INSURANCE CLAIMS OF
DAVID L. SNAIL and TERRY BRAVE,
                        Rrspondents and Appellants,                               i-
       ant3
                                                                  OCT 5      - 1990
                OF IABOR AND INDUSTRY
TIIE D13F'ARrl'!4ENT'
I30ARD OF LABOR API'EALS
                        Respondent and Respondent,
                                                                           "
                                                                        4 4 ' 1 2.hz
                                                                                L t i
                                                           CLERK OF S U P R E M E
                                                                =ATE
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                                                                       OF I ' , I o s ~ ~ - A ~ ~


A L t S SAI,ES, INC. dba OAK AND BRASS and
DALE P. IIART,
                        Petitioner and Respondent.



APPEAL FROM:            District Court of the Fourth Judicial District,
                        In and for the County of Missoula,
                        The IIonorable John S. Henson, Judge presiding.


COUNSEL OF RECORII:
                For Appellant:
                        John W. Larson, Missoula, Montana
                For Respondent:
                        Terry Wallace, Missoula, Montana
                For Amicus:
                        Melanie A . Symons; Department of Labor, Appeals
                        Bureau; Helena, Montana

                                      Submitted on Briefs:       August 9, 1990

                                            C/
                                                     Decided:    . SE[) 2 0 i!lgLl
Filed:



                                       Clerk
           IN THE SUPREME COURT OF THE STATE OF MONTANA




IN THE MATTER OF THE WAGE CLAIMS AND
UNEMPLOYMENT INSURANCE CLAIMS OF
DAVID L. SMAIL and TERRY BRAVE,
                Respondents and Appellants,
     and
THE DEPARTMENT OF LABOR AND INDUSTRY
BOARD OF LABOR APPEALS,
                Respondent and Respondent,
     -v-
AL'S SALES, INC. dba OAK AND BRASS and
DALE P. HART,
                Petitioner and Respondent.



APPEAL FROM:    District Court of the Fourth Judicial District,
                In and for the County of Missoula,
                The Honorable John S. Henson, Judge presiding.


COUNSEL OF RECORD:
           For Appellant:
                John W. Larson, Missoula, Montana
           For Respondent:
               Terry Wallace, Missoula, Montana
               Melanie A. Symons; Department of Labor, Appeals
               Bureau; Helena, Montana


                                     Submitted on Briefs:    August 9, 1990
                                                 Decided :
Filed:


                            -   .,   ,

                                         Clerk
Justice R. C. McDonough delivered the Opinion of the Court.

     This is an appeal from an order of the District Court of the
Fourth Judicial District setting aside a default judgment entered
against respondent, Dale Hart by the Department of Labor and
Industry. The default judgment awarded appellants, David Smail and
Terry Brave $41,844.44 in back wages and penalties. We reverse and
remand for further proceedings.
     The sole issue on appeal is:
     Whether the District Court of the Fourth Judicial District
erred when it set aside the default judgment entered against Dale
Hart by the Department of Labor and Industry.
     Dale Hart (Hart) was the owner and operator of Al's Sales
Inc., d/b/a     Oak and Brass in Missoula, Montana.    David Smail
(Smail) and Terry Brave (Brave) were employees of Al's Sales.   For
reasons not     relevant to this appeal, Brave and      Smail were
terminated on May 13, 1988.
     Following their termination, Smail and Brave submitted claims
to the Department of Labor and Industry (Department) for overtime
pay and unemployment compensation, which they alleged were owed to
them by Hart.    The claims for unemployment compensation have been
determined and are not part of this appeal.
     However, during the time that the unemployment compensation
proceeding was pending, the Department sent Hart a letter informing
him of the overtime wage claims. The letter further requested that
Hart send all of his records relevant to Smail Is and Brave's claims
for overtime compensation.
        According to Hart, his lawyer contacted the Department and
informed them that all of the requested records were tied up in the
unemployment     compensation proceeding      and    therefore were     not
available at that time.          He further requested that he be given
permission for further time to respond to the wage claim petition.
Hart maintains that the Department gave him permission to file his
response ten      days   after    the decision was      rendered   in   the
Unemployment Compensation Hearing.
        Apparently, the two claims were handled by different divisions
within the Department.     The Department states in its amicus brief
that these two divisions rarely have any contact with one another.
Consequently, neither division would necessarily have any knowledge
of proceedings taking place in the other.           This is why the state
personnel handling the overtime claim               were unaware of the
proceedings surrounding the unemployment compensation claim.
        At any rate, the hearing on the unemployment compensation
claim took place on August 26, 1988, and the decision was rendered
on August 29, 1988.       Unfortunately, notice of the decision was
mailed to the wrong address, and consequently neither Hart nor his
attorney knew about the decision.
        Sometime in late September or early October, the Department
sent a Notice of Opportunity of Hearing to Hart.             This notice
formally informed Hart of the overtime claims and further stated
that:
             IF YOU [Hart] DESIRE TO CONTEST THE WAGE CLAIMS YOU
        MUST NOTIFY THE INVESTIGATIONS BUREAU OF THE EMPLOYMENT
        RELATIONS DIVISION, P.0 BOX 1728, HELENA, MONTANA 59624,
                               .
        IN WRITING WITHIN TEN (10) DAYS AFTER SERVICE OF THIS
     NOTICE ON YOU. CONTACT BY TELEPHONE TO THIS OFFICE DOES
     NOT WAIVE THIS REQUIREMENT.

     According to Hart, he didn't answer the notice because he
relied upon the Department's oral agreement that he would have ten
days following the final decision on    the unemployment claim to
respond.   since he didn't know that that claim had been resolved,
he did not contact the Department. After awaiting his response for
twenty days, the Department entered a default judgment against Hart
for $41,844.44.
     Hart then appealed to the District Court.   In its opinion and
order, the District Court found that Hart failed to comply with the
requirements of the ~dministrativeProcedure Act when he failed to
answer the notice.   It further found, however, that Hart offered
plausible excuses for his failure, including being misled by the
state. The court also expressed its lack of knowledge concerning
the circumstances surrounding Hart's default.    The court's doubts
are expressed in its order which states:
          A review of the record has raised questions which
     are not answered by the record. This is an action where
     the State may have acted hastily and failed to fulfill
     agreements, or the Petitioner may be lying. But the
     record provides no clear-cut guidance to the Court as to
     such matters.   In any event, the least that happened
     herein was a failure to communicate.       Such failure
     apparently involved inadequate communication between (1)
     the various divisions of the Department of Labor and
     Industry, (2) the Department and Petitioner, and (3) the
     Petitioner and Petitioner's counsel.
     Based upon these doubts, the lower court set aside the default
judgment and remanded the case back to the Department for further
proceedings in accordance with the Administrative Procedures Act.
This appeal followed.
     Section 2-4-704, MCA, provides the standard of review which
must be utilized whenever a      court reviews an agency decision.
This statute provides that a reviewing court may not substitute its
judgment for that of     the agency on questions of fact.   Findings
of fact can only be    reversed if the substantial rights of a party
have been prejudiced because they are clearly erroneous.    Section
2-4-704(2), MCA.   If further evidence is required in order for the
lower court to make a decision, the court may remand the case back
to the agency for further fact finding.    Section 2-4-703, MCA.
     In the case now before us, it is clear that the lower court
was not adequately informed of the circumstances surrounding the
default.   There was no record submitted by the Department which
revealed the   reasons for Hart's      failure to respond    to the
Department's notice.    As a result, the lower court was forced to
hypothesize as to the reasons for such failure.         The court's
confusion on this issue is evident by its statement that:
      This is an action where the state may have acted hastily
     and failed to fulfill agreements, or the Petitioner
     (Hart) may be lying.
     The lower court erred in reversing the default judgment when
it was not adequately apprised of the reasons for Hart's failure
to respond.    It should have remanded the case back to the
Department for further fact finding and decision relative to the
default in accordance with 5 2-4-703, MCA.     We therefore reverse
the order setting aside the default judgment and remand the case
to the District Court for it to remand the case back to the
Department    for determination of the propriety   of the default
judgment.    If the default judgment is vacated, the agency shall
determine this controversy upon its merits.                         1




We Concur:   /
