408 P.3d 1272
Idaho2018Background
- In early 2013 David Johnson and David Crossett orally agreed to form a business (DTC): Crossett would manage and get a salary and 46% interest; Johnson would be passive with 44% interest; Tessa Cousins was to be recruited and later receive 10%.
- Crossett filed articles of organization in June 2013 listing himself as member/manager and formed DTC as a single-member LLC; a written operating agreement was prepared and approved by both Johnson and Crossett by July 2013 but was never signed.
- DTC opened in July 2013, faced litigation from a third party (Johnson’s brother-in-law’s company), rapid growth and cash-flow/legal problems; Cousins resigned in October 2014 and was paid what she was owed.
- Johnson refused to sign the written operating agreement because he wanted to keep his association secret and later because of DTC’s legal/financial problems; Crossett continued as sole member, repaid Johnson his ~ $10,000 investment, and later sold DTC’s assets to another LLC (Vurv) in December 2015 when DTC was insolvent.
- Johnson and Cousins sued Crossett alleging they were members from inception and alleging breach of fiduciary duties and improper distributions; the district court found they were never members because they declined to sign the Written Agreement as required by the Oral Agreement, and dismissed their claims.
- The Idaho Supreme Court affirmed: it held the oral agreement contemplated membership only upon signing the written operating agreement, rejected arguments about admissions and statutory construction, and awarded attorney fees to Crossett on appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Appellants were members of DTC | Johnson/Cousins: Oral Agreement and Crossett’s admission show they were members from formation | Crossett: Oral Agreement required signing the Written Agreement to become members; he formed a single-member LLC | Court: Affirmed district court — they were not members because they never signed the Written Agreement |
| Whether the LLA allows an oral operating agreement to establish membership | Appellants: LLA permits oral operating agreements, so unsigned Written Agreement cannot defeat oral agreement | Crossett: Oral agreement’s terms required signing written agreement for formal admission | Court: Oral agreement was valid but its terms required signing; no LLA violation or error in application |
| Whether district court abused discretion by denying new trial | Appellants: Trial court ignored admission and weighed evidence improperly | Crossett: No abuse; trial court findings supported by record | Court: Not reviewed on appeal—issue not preserved because record lacks an adverse ruling on the motion |
| Whether attorney fees below under I.C. § 12-120(3) were improper because claims were statutory | Appellants: Claims arise under the LLA (statutory), so § 12-120(3) fees inapplicable | Crossett: Gravamen was a commercial transaction (the Oral Agreement), so fees appropriate | Court: Affirmed fees — dispute was rooted in a commercial contractual transaction |
| Entitlement to appellate attorney fees under § 12-120(3) | N/A (respondent seeks fees if he prevails) | Crossett: Prevailing party on commercial dispute entitled to fees on appeal | Court: Awarded appellate attorney fees to Crossett |
Key Cases Cited
- Watkins Co., LLC v. Storms, 152 Idaho 531 (2012) (appellate review treats trial court fact findings as binding if supported by substantial evidence)
- Poole v. Davis, 153 Idaho 604 (2012) (appellant bears burden to provide complete record; absent portions presumed to support trial court)
- Prehn v. Hodge, 161 Idaho 321 (2016) (award of § 12-120(3) fees appropriate where dispute involves commercial transaction among LLC members)
- Gumprecht v. Doyle, 128 Idaho 242 (1996) (suit to enforce statutory penalties is not a commercial transaction for § 12-120(3) fee purposes)
- Kelly v. Silverwood Estates, 127 Idaho 624 (1996) (actions to enforce statutory partnership-dissolution scheme are not commercial transactions under § 12-120(3))
- Kugler v. Nelson, 160 Idaho 408 (2016) (§ 12-120(3) grants fees when gravamen of lawsuit is commercial transaction)