                                                                                             July 15 2008


                                          DA 07-0503

                      IN THE SUPREME COURT OF THE STATE OF MONTANA

                                          2008 MT 248



LEN WALLACE,

              Plaintiff and Appellant,

         v.

NORMAN HAYES, MAGTRAC BOLUS PARTNERSHIP,
GERALD HILL, LUCILLE HILL, JACK HEYNEMAN,
JOHN HEYNEMAN, RODNEY J. HAYES,

              Defendants and Appellees.



APPEAL FROM:            District Court of the Thirteenth Judicial District,
                        In and For the County of Yellowstone, Cause No. DV 2001-0882
                        Honorable Gregory R. Todd, Presiding Judge


COUNSEL OF RECORD:

                For Appellant:

                        Bruce F. Fain, Murphy, Kirkpatrick & Fain, PLLP, Billings, Montana

                For Appellee:

                        Tom Singer, Axilon Law Group, PLLC, Billings, Montana



                                                    Submitted on Briefs: May 28, 2008

                                                               Decided: July 15, 2008


Filed:

                        __________________________________________
                                          Clerk
Justice Patricia O. Cotter delivered the Opinion of the Court.

¶1     Len Wallace (Wallace) appeals a post-judgment order of the Thirteenth Judicial

District, Yellowstone County dated July 31, 2007. In this post-judgment order, the

District Court adopted the report of a court-appointed receiver (Receiver’s Report) which

contained recommendations concerning the dissolution of MagTrac Bolus, LLC,

(MagTrac) pursuant to an Amended Judgment issued by the District Court on August 3,

2004. We affirm.

                 FACTUAL AND PROCEDURAL BACKGROUND

¶2     The instant appeal constitutes the third appearance of these parties before this

Court. The facts giving rise to the current appeal date back to November of 1998, when

MagTrac was initially formed by Norman Hayes (Norman) as a limited liability company

in the state of Wyoming for the purpose of owning, developing and marketing intellectual

properties and associated U.S. patents and products for radio frequency identification and

temperature monitoring of livestock. At the time MagTrac was formed, Norman gifted

his son Rodney J. Hayes (Rodney) 25% of the losses and profits generated by MagTrac.

Wallace invested money in MagTrac in exchange for an ownership interest.

¶3     For reasons not relevant to the current appeal, things went south among Wallace,

Rodney, Norman, and the other investors and owners of MagTrac. A dispute arose and

was submitted to arbitration, leading to an arbitrator’s award (Award) which was made

final on December 23, 2003. The District Court then made the Award final and binding

on the parties in an Amended Judgment on August 3, 2004. Although the Amended




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Judgment addressed a number of issues not currently before us, it ordered in pertinent

part that:

        MagTrac Bolus, LLC, shall have judgment against Plaintiff Len Wallace
        for nominal and exemplary damages in the combined amount of
        $2,500,000, plus interest on said judgment at the statutory rate of ten
        percent (10%) per annum, that amount to be applied first to all current
        debts and liabilities of MagTrac Bolus, LLC, including those that might
        reasonably be determined by the voting members to be obligations of the
        LLC to Wallace, and then distributed to the remaining members in
        proportion to their ownership and profit-sharing interest.

¶4     On July 19, 2006, the District Court appointed Jeffrey Mrachek (Mrachek) to act

as a receiver to carry the Amended Judgment into effect. Mrachek was ordered to take

all actions necessary to satisfy the Amended Judgment and use whatever means he

deemed necessary in his professional judgment to do so. Mrachek issued his Receiver’s

Report on October 28, 2006, and the parties were given an opportunity to respond to its

recommendations and findings. One of the issues which arose was whether Wallace

would be considered a “remaining member” of MagTrac pursuant to the language quoted

above from the Amended Judgment, and thus entitled to share in the award of $2.5

million dollars. Because Wallace had an ownership interest of roughly 72%, he would

stand to receive a significant amount of the judgment award, even though it was he who

was ordered to pay damages.      Wallace argued that he was entitled to share in the

distribution of the award pursuant to the recommendation in the Receiver’s Report.

¶5     Another issue raised was whether the District Court could order the dissolution of

MagTrac while there was the possibility of a patent infringement lawsuit being filed

against MagTrac by a Mrs. Irene Linseth (Linseth) in South Dakota. Wallace asserted



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that Linseth’s claims necessitated that the District Court not dissolve MagTrac until either

the claims were resolved, or until the statute of limitations for Linseth’s claims had

expired.

¶6     The 2007 post-judgment order took into account the objections and arguments of

both parties and the contents of the Receiver’s Report. The District Court addressed a

number of issues which are not the subject of the current appeal. That portion of the

post-judgment order relevant to the current appeal reads as follows:

              The next issue the Court must address is whether the Court should
       delay distribution of the judgment proceeds until Mrs. Linseth’s potential
       claims have been resolved. The Court will not do so. No claim that the
       Court knows of has been asserted against the LLC by Linseth and there
       exists no reason to delay the distribution of the judgment.

              The final issue the Court must address is whether Wallace should be
       considered a “remaining member” in terms of the distribution of the
       judgment proceeds. This Court finds Wallace will be considered a
       “remaining member” who will benefit in the distribution of the LLC after
       it has been dissolved. However, Wallace will not share in the distribution
       of the $2.5 million punitive damage award. To allow Wallace to be a
       “remaining member” benefiting in the $2.5 million punitive damage award
       would allow him to profit from his own wrong.

¶7     Wallace now appeals the post-judgment order raising four issues on appeal. One

of those issues concerns whether the District Court committed reversible error by

allowing Mrachek to recover costs and attorney’s fees in his effort to collect on the

judgment against Wallace. Another issue concerns whether the District Court committed

reversible error by ordering the dissolution of MagTrac while legal proceedings were

pending in other jurisdictions. However, Norman and Rodney correctly point out that

neither of these issues were raised before the District Court. We decline to address these



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issues for the first time on appeal. Stanton v. Wells Fargo Bank Mont., N.A., 2007 MT

22, ¶ 35, 335 Mont. 384, ¶ 35, 152 P.3d 115, ¶ 35. Thus, we restate the remaining issues

as follows:

¶8    Issue One: Did the District Court err in concluding that Wallace would not be

allowed to share in the distribution of the $2.5 million judgment issued against him?

¶9    Issue Two: Did the District Court err in ordering the dissolution of MagTrac

while Linseth’s patent infringement claims are outstanding?

                              STANDARD OF REVIEW

¶10   A district court decision must be supported by appropriate findings of fact and

conclusions of law. Findings of fact are reviewed under the clearly erroneous standard

and conclusions of law are reviewed for correctness. In re Charles M. Bair Family Trust,

2008 MT 144, ¶ 28, 343 Mont. 138, ¶ 28, 183 P.3d 61, ¶ 28.

                                     DISCUSSION

¶11   Issue One: Did the District Court err in concluding that Wallace would not be
      allowed to share in the distribution of the $2.5 million judgment issued against
      him?

¶12   The post-judgment order concluded that Wallace was entitled to benefit in the

distribution of the LLC after it has been dissolved, but would not be allowed to share in

the $2.5 million judgment awarded against him. Wallace points out that the operating

agreement forming MagTrac provided that distributions occur in the following order: (1)

payment for all company liabilities to creditors other than members, as well as for

liquidating expenses and obligations; (2) debts owing to members other than for capital

and profits; (3) debts owing to members with respect to capital; and (4) debts owing to


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members with respect to profits. Wallace notes that this distribution scheme is consistent

with Wyoming law. Wyo. Stat. Ann. § 17-15-126. Wallace also observes that Wyoming

law specifically provides that “[d]istributions of cash or other assets of a limited liability

company shall be allocated among the members and among classes of members in the

manner provided in the operating agreement.”              Wyo. Stat. Ann. § 17-15-119.

Accordingly, Wallace argues that, because he has an ownership interest in MagTrac, he is

entitled to share in the distribution of the $2.5 million judgment against him in proportion

to his share of MagTrac, and that the District Court erred in concluding otherwise.

¶13    We disagree. The portion of the Amended Judgment cited above at ¶ 3, and the

post-judgment order are controlling. As the Amended Judgment made clear, during the

dissolution of MagTrac Wallace will be paid for any debts or liabilities owed to him by

MagTrac. If a portion of the $2.5 million judgment must be used to satisfy those

obligations, then the Amended Judgment and the post-judgment order allow this.

However, after MagTrac’s obligations have been satisfied—including those owed to

Wallace—and its profits are to be distributed, Wallace may not receive any portion of the

amounts remaining from the $2.5 million dollar judgment which was awarded against

him. This was first established in the Amended Judgment in 2004 and Wallace failed to

appeal the Amended Judgment in this regard in a timely manner when it was issued.

Thus, we affirm the District Court.

¶14    Issue Two: Did the District Court err in ordering the dissolution of MagTrac
       while Linseth’s patent infringement claims are outstanding?




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¶15    Wallace argues the District Court erred in ordering the dissolution of MagTrac

because Linseth had outstanding patent infringement claims against it which had not been

resolved. However, Wallace has failed to present any evidence of pending litigation

against MagTrac to the notice of either the District Court, or this Court on appeal. While

Wallace raises the specter of litigation against MagTrac based on patent infringement

claims from Linseth, he has failed to make any actual litigation a part of the record in this

case as required under M. R. App. 8. We will not depart from the record before us.

Thus, Wallace has failed to mount a credible challenge to the District Court’s decision to

dissolve MagTrac. Therefore, we affirm its decision.

                                     CONCLUSION

¶16    For these reasons, we affirm the District Court.



                                                  /S/ PATRICIA COTTER



We concur:

/S/ KARLA M. GRAY
/S/ JAMES C. NELSON
/S/ JOHN WARNER
/S/ BRIAN MORRIS




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