## Facts

- Billings Generation, Inc. (BGI) was a closely held Montana corporation with five equal (20%) shareholders and directors: James Sletteland, R. Lee Roberts, Owen Orndorff, Jeffrey Smith, and Ron Blendu.
- Roberts, Orndorff, and Smith used their combined majority interest to remove Sletteland and Blendu from officer positions; Roberts, Orndorff, and Smith remained officers during the dispute.
- The shareholders’ business dealings involved multiple related entities connected to energy projects, including Yellowstone Energy Limited Partnership (YELP), for which BGI served as general partner.
- Roberts and Orndorff were attorneys who performed legal work for YELP and related entities on project transactions and billed those entities for their services.
- Sletteland (also an attorney and investment banker) filed suit individually and derivatively on behalf of BGI and, through BGI as general partner, on behalf of YELP. He alleged Roberts and Orndorff engaged in self-dealing and breached fiduciary duties by charging excessive legal fees at a rate not agreed to, and he sought return of fees and removal of Roberts and Orndorff as directors.
- Roberts and Orndorff counterclaimed that Sletteland’s filing and pursuit of the lawsuit itself breached his fiduciary duties to BGI and the other shareholders because it interfered with ongoing efforts to refinance YELP project debt at a lower interest rate.
- The planned refinancing had a deadline tied to tax requirements and was expected to benefit YELP and BGI; BGI also stood to receive payment as a creditor if the debt was restructured.
- Evidence showed YELP’s bond counsel stated financing was unlikely to proceed while Sletteland’s lawsuit remained pending, due to uncertainty created by the litigation; the refinancing ultimately fell through.
- The district court ruled for Sletteland on the fee claim (finding the rates unapproved and excessive) and ruled for Roberts and Orndorff (and Smith) on the counterclaim, finding Sletteland breached fiduciary duties by bringing the action when he did and caused damages.
- Sletteland appealed the counterclaim judgment; Roberts and Orndorff cross-appealed the fee ruling.

## Issues

1. Whether the district court erred in finding that Roberts and Orndorff charged legal fees at a rate that had not been agreed upon and was excessive.
2. Whether the district court erred in finding that Sletteland breached fiduciary duties to BGI and the other shareholders (and related interests) by filing and pursuing the lawsuit in a manner that caused the loss of the refinancing opportunity and resulting damages.

## Decision

- The Montana Supreme Court affirmed in part and reversed in part.
- It reversed the judgment against Roberts and Orndorff on the excessive-fee claim, concluding the billing rate had been approved in advance and was known to the relevant owners/decisionmakers.
- It affirmed the judgment for Roberts and Orndorff (and Smith) on the counterclaim, upholding the finding that Sletteland’s timing and manner of pursuing the lawsuit breached fiduciary duties and foreseeably contributed to the refinancing failure and damages.

## Legal Principles

- In a closely held corporation, directors and shareholder-owners owe fiduciary duties (including loyalty, care, and good faith) to the corporation and, in appropriate circumstances, to fellow shareholders in connection with corporate affairs.
- Appellate review generally treats factual findings as binding unless clearly erroneous; legal conclusions are reviewed for correctness.
- A claim that insider professionals breached fiduciary duties through “excessive” fees requires proof that the rate or arrangement lacked informed approval or was otherwise improper; advance approval and shared knowledge of the rate defeats a claim that the rate was unagreed or unauthorized.
- Derivative litigation is not automatically wrongful, but a director-shareholder may breach fiduciary duties by initiating or pursuing litigation in bad faith or negligently at a time and in a way that reasonably should be expected to impair a significant pending transaction and harm the entity and co-owners.
- Causation and damages may be shown where evidence supports that the challenged conduct predictably discouraged financing (including where advisors indicate funding will not proceed while litigation is pending) and the opportunity is lost within a defined deadline.

## Conclusion

Sletteland v. Roberts held that Roberts and Orndorff were not liable for allegedly excessive legal fees where the billing rate had been approved and was known, but it also held that Sletteland could be liable for breaching fiduciary duties when the timing and manner of his derivative lawsuit foreseeably interfered with a pending refinancing and caused financial harm to BGI and the other shareholders.


Sletteland v. Roberts, 16 P.3d 1062 (2000)