422 P.3d 1116
Idaho2018Background
- Donna Taylor received 200,000 Series A Preferred Shares in AIA as part of a 1987 divorce; the 1987 articles authorized redemption on a 15-year schedule at prime minus 1.5%.
- In 1995 the parties entered a four-letter agreement (the 1995 Letter Agreement) changing redemption to a ten-year schedule at prime plus 0.25%; that letter was later referenced in a 1996 Series A Preferred Shareholder Agreement (1996 PSA).
- This Court previously held the 1996 PSA illegal under Idaho Code § 30-1-6 because AIA had no earned surplus and lacked authorization to use capital surplus.
- AIA ceased payments to Donna; subsequent litigation consolidated multiple suits (Donna’s claims and Reed’s). The district court after reconsideration held the 1995 Letter Agreement illegal (no shareholder vote authorizing higher rate) and recalculated redemptions using prime minus 1.5%, finding Donna had 7,110 unredeemed shares.
- On appeal Donna challenged the rulings on enforceability of the 1995 Letter Agreement and the 1996 PSA, dismissal of fraud and unjust enrichment claims, and sought fees; AIA cross-appealed some rulings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Legality/enforceability of 1996 PSA | Taylor: sever or enforce as to her; exceptions to illegality may apply | AIA: 1996 PSA illegal under § 30-1-6 and unenforceable | Court: 1996 PSA is illegal and unenforceable; severance/arguments raised only on appeal not considered |
| Legality/enforceability of 1995 Letter Agreement | Taylor: January 11, 1995 letter was formed when 1989 articles (which authorized use of capital surplus) were effective, so agreement is lawful and enforceable | AIA: no shareholder vote authorized higher rate; letter conflicts with articles and is unlawful | Court: 1995 Letter Agreement is an ultra vires corporate act but not an illegal transaction; because AIA did not plead ultra vires and received benefit, the letter agreement is enforceable; district court erred to hold it illegal |
| Dismissal of fraud claims | Taylor: alleges intentional fraud (not negligence); economic loss rule inapplicable | AIA: economic loss rule bars tort recovery for economic harms | Held: Economic loss rule applies to negligence, not intentional fraud; dismissal on that ground was error and fraud claims must proceed |
| Unjust enrichment against individual defendants | Taylor: there was evidence to survive summary judgment (argued generally) | AIA/individuals: Donna’s deferment benefited AIA, not individuals; no record evidence individuals received benefit | Held: Affirmed dismissal—record did not show benefit to individuals; appellate court cannot consider evidence outside record |
Key Cases Cited
- Taylor v. AIA Servs. Corp., 151 Idaho 552, 261 P.3d 829 (2011) (held 1996 PSA illegal under earned and capital surplus limitations)
- Farrell v. Whiteman, 146 Idaho 604, 200 P.3d 1153 (contract severability and illegality principles)
- Trees v. Kersey, 138 Idaho 3, 56 P.3d 765 (statutory violation renders a contract illegal; public policy grounds)
- Power County v. Evans Bros. Land & Live Stock Co., 43 Idaho 158, 252 P.182 (doctrine of ultra vires should not defeat justice where parties acted in good faith and received benefit)
- Meholin v. Carlson, 17 Idaho 742, 107 P.755 (ultra vires defense must be specially pleaded)
- Brian & Christie, Inc. v. Leishman Elec., Inc., 150 Idaho 22, 244 P.3d 166 (economic loss rule scope and application)
- Hegg v. I.R.S., 136 Idaho 61, 28 P.3d 1004 (fraud characterized as an intentional tort)