Ignаzio Ugenti, the sole director, shareholder and employee of Quality First Marketing (QFM), and QFM appeal from a district court order denying Ugenti’s “motion for directed verdict” based on the doctrine of res judicata in an action to pierce QFM’s cоrporate veil.
In May 1991, Ignazio Ugenti contacted David Durrant, and requested that Durrant sell pinto beans to QFM. Durrant subsequently sold one truck load of beans to QFM and was paid for that load. He then sold four more truck loads of beans to QFM, worth approximаtely $30,000, for which he was never paid.
In November 1991, Durrant sued QFM to collect the money owed for the beans, and obtained a default judgment based on QFM’s failure to answer the complaint. QFM moved to set aside the default judgment. The motion was denied, and Durrant thеn converted the Idaho judgment against QFM to a judgment in the state of California. QFM filed a motion with the California court to vacate the judgment and, following a hearing, the motion was denied.
Durrant subsequently filed a second action in Idaho against both QFM and Ugenti, аttempting to pierce the corporate veil to hold Ugenti, as the sole director, shareholder and employee of QFM, individually liable. The amended complaint also alleged three claims sounding in fraud. The case proceedеd to a court trial on June 29,1994, and at the end of Durrant’s case-in-chief Ugenti moved for a “directed verdict,” claiming that the doctrine of res judicata barred Durrant from seeking to pierce the corporate veil. Ugenti also moved for a directed verdict on Durrant’s claims of fraud.
On July 11,1994, the district court entered its order regarding Ugenti’s motions for directed verdict, denying Ugenti’s motion based on res judicata and granting Ugenti’s motion with respect to Durrant’s fraud claims. The court also granted Durrant’s request to pierce the corporate veil, and entered judgment against Ugenti for the amount of the prior judgment rendered against QFM. Ugenti appeals, contending that the court erred in denying his motion for directed verdict based on the theory of res judicata because Durrant should have brought his claims against Ugenti in his first action against QFM.
I. ANALYSIS
A. Standard of Review
Ugenti argues that the district court erred in denying his motion for directed verdict because the doctrine of res judicata barred Durrant’s action against him. At the outset, we note that becausе this was a court trial rather than a trial by jury, the proper motion was one for involuntary dismissal, I.R.C.P. 41(b), not a motion for a directed verdict under I.R.C.P. 50(a). Cf. Blackburn v. Boise School Bus Co.,
We also note that Ugenti did nоt provide us with those portions of the trial transcript which would indicate whether he presented evidence on the res judicata defense during his case-in-chief.
Upon a final judgment, the denial of a motion for involuntary dismissal is appealable. Miller Constr. Co. v. Stresstek, A Div. of L.R. Yegge,
B. Res Judicata
Res judicata prevents the litigation of causes of action which were finally decided in a previous suit. Gubler v. Brydon,
In support of his assertion that Dur-rant’s action to pierce the corporate veil is barred by res judicata, Ugenti relies on Magic Valley Radiology, P.A. v. Kolouch,
Magic Valley is distinguishable from the instant case on two grounds. First, in Magic Valley, the defendants in the second suit were also named defendants in the prior suit, whereas in the present action, Ugenti was not named as a party in Durrant’s prior suit agаinst QFM. Because the two actions were not between the same parties or their privies, Gubler,
Magic Valley is also distinguishable because, unlike Magic Valley, in this case there was substantial evidence indicating that Durrant was not on notice of a basis to pierce the corporate veil at the time he brоught his initial action against QFM. At the court trial, Durrant testified that before contracting
We also note that had Durrant been provided the opportunity for discovery in the first case against QFM, he might have discovered that QFM was a sham corporation. However, Durrant never had the opportunity to conduct discovery because QFM failed to appear in the action or to answer the cоmplaint, and Durrant took default judgment.
The transcript reveals that it was not until several months after default judgment was entered against QFM, while Durrant was attempting to enforce the judgment against QFM in California, that he had the opportunity to learn about the ownеrship and true capitalization of QFM. Ugenti, Durrant and their respective attorneys met at least twice in the courthouse hallway during the hearings in California on QFM’s motion to vacate the judgment against it. During the second meeting, Durrant’s attorney asked several questions of Ugenti regarding the capitalization, assets and management of QFM. It was based on the information gleaned during this conversation that Durrant was first put on notice of a basis to pierce the corporate veil.
Ugenti and Durrant disagree аs to what constitutes “due diligence” and the degree of knowledge regarding a potential claim necessary to trigger a party’s duty to discover that claim and raise it in the first action. Ugenti supports his argument that Durrant was “on notice” that QFM was a sham corporation with the following facts presented at trial. First, Durrant testified that at the time he conducted business with QFM, he had “suspicions” that QFM was a “one-man show.” Second, at that time, Durrant believed that corporate officers were responsible for the debts incurred by their corporation. Third, Durrant testified that all of his dealings with QFM were conducted through Ugenti, and that Ugenti “personally agreed to the terms that were stipulated in the confirmation” of sale. Fourth, Durrant testified that he “felt [he] was dealing with [Ugenti] because he’s the only one [Durrant] ever talked to.” Ug-enti argues that based on the foregoing, Dur-rant “knew Ugenti might be the alter ego of QFM, prior to the time his initial complaint was filed” (emphasis added). However, it is not enough that a party knows it might have a basis to sue to pierce the corporate veil at the time it brings an action against a corporation. Any time a party conducts business with a closely held corporation, that party is aware that the corporate principal with whom the party deals might be thе alter ego of that corporation. Such knowledge is insufficient, however, for res judicata to bar that party from bringing a subsequent action to pierce the corporate veil.
Indeed, had Durrant brought suit to pierce the corporatе veil in the first action, he might well have been in violation of the requirement in I.R.C.P. 11 that a pleading be well-grounded in fact and warranted in law. Under the standards set forth in Rule 11, mere “suspicion,” “without factual foundation” is not a sufficient basis to sue an individual. Durrant v. Christensen,
Interpreting the evidence in a light most favorable to Durrant, we conclude that Durrant did not have notice of a claim to pierce the corporate veil at the time he brought his initial action against QFM. Therefore, the district court properly rejectеd Ugenti’s argument that, as a matter of law, res judicata barred Durrant’s action to pierce the corporate
II. CONCLUSION
We conclude that there was substantial evidence indicating that Durrant was not on notice of a claim to pierce the corporate veil at the time he sued QFM. Accordingly, we affirm the district court’s order denying Ug-enti’s motion at the conclusion of the plaintiffs ease-in-chief.
Costs and attorney fees on appeal are awarded to respondent, David Durrant, pursuant to I.A.R. 40 and I.C. § 12-120(3).
Notes
. The briefs submitted by the appellants list both Ugenti and QFM as appellants. In light of our decision in this case, we refer to the appellants in the singular as Ugenti.
. The plea of res judicata is an affirmative defense and the burden rests on the party asserting it to establish all of the essential elements thereof by a preponderance of the evidence. Foster v. City of St. Anthony,
[ATTORNEY FOR DURRANT]: Your Honor, just having won on our offer of proof, this may seem a little odd. But the plaintiff would be willing to not go into that particular conversation in exchange for a simple stipulation.
Our purpose in entering into this is not necessarily to рrove the assets of the corporation. We can do that from the documentation we have here today.
Our purpose in doing that is to avoid a potential problem from a case that is called, I think, Magic Valley Radiology, which basiсally said if you sued to pierce the corporate veil, or if you failed to sue to pierce the corporate veil at the time you sued the corporation, and you had a reasonable basis to do so, you are es-topped from doing so later.
We are simply trying to establish that we had no idea we were estopped [sic] until long after we sued the corporation. And if we can receive a stipulation from the other side to that effect to avoid the Magic Valley ruling, we’ll pass on.
THE COURT: Care to so stipulate?
[UGENTI’S ATTORNEY]: Your Honor, I’m not familiar—it’s an Idaho case, and I’m not familiar with its ruling. I can't give you a stipulation at this point. (emphasis added). At the close of Durrant’s case, counsel for Ugenti then moved for directed verdict, not only on Durrant’s fraud claims, but also on the basis that res judicata barred Durrant’s claim to pierce the corporate veil. Ugenti’s attorney prefaced his argument for directed verdict on this latter claim as follows: "I was made aware of a case, and it was not just here in court; it was previous. It was Magic Valley Radiology, P.A., versus Kolouch [123 Idaho 434 ,849 P.2d 107 (1993)].”