423 P.3d 422
Idaho2018Background
- KDN Management, Inc. (dba KD Concrete Design), led by sole shareholder Kym Nelson, performed concrete joint/sealant work for WinCo under negotiated terms (price $5/linear foot, five-year warranty) beginning in early 2010. Nelson incorporated KDN on February 18, 2010.
- WinCo alleged KDN overstated work and overcharged; WinCo refused payment on some invoices and counterclaimed for breach, unjust enrichment, and consumer-protection violations. Discovery revealed KDN was not a registered Idaho contractor when work was performed.
- KDN sued for unpaid invoices; WinCo counterclaimed and later sued Nelson, KD3 Flooring LLC, and SealSource International, LLC (the “Nelson Parties”), alleging fraud, breach, and seeking to pierce the corporate veil.
- The Nelson Parties failed to timely demand a jury; they moved for a jury under I.R.C.P. 39(b), which the district court denied, concluding equitable issues predominated and citing discovery/spoliation problems. A nine-day bench trial followed.
- The district court found KDN overbilled WinCo, entered judgment for WinCo for $2,929,383.31 (jointly and severally against the Nelson Parties), applied alter-ego/veil-piercing, and awarded attorney fees under Idaho Code §12-120(3). The Nelson Parties appealed.
Issues
| Issue | Plaintiff's Argument (WinCo) | Defendant's Argument (Nelson Parties) | Held |
|---|---|---|---|
| 1. Denial of jury trial under I.R.C.P. 39(b) | Denial proper because equitable issues predominate and Rule 38 demand was not timely made | 39(b) motion should have been granted; parties all assumed a jury trial would occur | Affirmed: district court did not abuse discretion; no adequate reason for untimely demand and equitable issues predominated |
| 2. Personal liability of Nelson (pre-incorporation/undisclosed principal) | Nelson acted for KDN pre-incorporation; thus personally liable for liabilities created before incorporation | Nelson argues KDN existed before contracts, and she disclosed KDN; denies pre-incorporation liability | Affirmed: contract formed before incorporation; I.C. §30-29-204 makes pre-incorporation actors jointly liable |
| 3. Alter ego / veil piercing of KD3 and SealSource | Entities were so intertwined with Nelson and KDN that separate personalities ceased; corporate form used to defeat WinCo’s claims | Parties contend no fraudulent intent, lawful S-corp distributions, and lack of knowledge of liability when funds were moved | Affirmed: district court reasonably applied Utah alter-ego (Colman) factors (undercapitalization, formalities ignored, commingling, altered records) and did not abuse discretion |
| 4. Attorney fees on appeal | WinCo seeks fees under Idaho Code §12-120(3) after prevailing below and on appeal | Nelson Parties oppose fees | Granted: WinCo entitled to appellate fees under §12-120(3) as prevailing party |
Key Cases Cited
- City of Pocatello v. Anderton, 106 Idaho 370 (1984) (standard for appellate review of denial of jury trial under Rule 39(b))
- Torncello v. United States, 681 F.2d 756 (Ct. Cl. 1982) (definition and formation of indefinite-quantity contract)
- Jones & Trevor Mktg., Inc. v. Lowry, 284 P.3d 630 (Utah 2012) (application of alter-ego/veil-piercing under Utah law and Colman factors)
- Colman v. Colman, 743 P.2d 782 (Utah Ct. App. 1987) (factors guiding veil piercing analysis)
- Wandering Trails, LLC v. Big Bite Excavation, Inc., 156 Idaho 586 (2014) (veil-piercing and alter-ego issues are equitable; reviewed for abuse of discretion)