Joseph PIERCE, Plaintiff-Appellant, v. Steve McMULLEN, Defendant-Respondent, and Highland Financial, LLC, Defendant.
No. 40368-2012.
Supreme Court of Idaho.
June 17, 2014.
328 P.3d 445 | 156 Idaho 465
Steve E. McMullen, Post Falls, argued in his own behalf.
EISMANN, Justice.
This is an appeal out of Kootenai County from a judgment dismissing Mr. Pierce‘s complaint seeking damages he sustained in what he contended was a foreclosure scam. Only Mr. McMullen, a Defendant, appeared in the action, but he did not deny the allegations of wrongdoing in the complaint. When Mr. McMullen failed to appear at the trial, the district court ordered that he was in default, that Mr. Pierce prevailed on his com-plaint, and that he could present evidence of his damages. Mr. Pierce did so, but the district court later dismissed the action on the ground that Mr. Pierce had failed to
I.
Factual Background.
On December 14, 2009, Joseph Pierce filed this action against Steven McMullen and Highland Financial, LLC, seeking damages for various violations of the Idaho Consumer Protection Act and for breach of contract, all based upon an alleged scam in which the Defendants represented that they could protect Mr. Pierce from losing his equity in real property that was facing foreclosure. He alleged that the Defendants obtained title to his real property pursuant to a promise to assume the loans secured by the property, to market and sell the property, and to pay him at least $50,000 or more from the sale proceeds, depending upon the sale price. He claimed that he deeded the property to the Defendants, that they failed to make the payments on the loans, and that the property was sold at a foreclosure sale. The complaint also alleged that Highland Financial was the alter ego of Mr. McMullen.
The Defendants did not appear in this action, and on August 6, 2010, the court entered default against them. On April 25, 2011, Mr. Pierce appeared in court for an evidentiary hearing on the amount of damages. At the hearing, his counsel stated that she wanted to obtain punitive damages, but the district court informed her that she would have to proceed pursuant to
Mr. Pierce filed his amended complaint on May 11, 2011. The complaint simply added allegations to support an award of punitive damages. On June 13, 2011, Mr. McMullen filed a notice of appearance on behalf of himself and on behalf of Highland Financial. On June 28, 2011, Mr. McMullen filed an answer to the amended complaint in his behalf and on the behalf of Highland Financial. Mr. McMullen was not licensed to practice law in Idaho, therefore his appearance on behalf of Highland Financial and the answer he filed on its behalf were nullities. In the answer, Mr. McMullen only denied the allegations regarding punitive damages.
The case was scheduled for trial to commence on June 18, 2012. Plaintiff appeared with counsel, but the Defendants did not appear in person or by counsel. After discussion with Mr. Pierce‘s counsel, the district court stated that Mr. McMullen “is defaulted, his answer is stricken, and the plaintiff prevails on their [sic] claims, so what evidence of damage did the plaintiff want to put on today?” Mr. Pierce‘s counsel responded that she would call Mr. Pierce to testify about damages and another witness to present testimony regarding punitive damages. Mr. Pierce then testified as did another alleged victim of Mr. McMullen. At the conclusion of the testimony, the district court ordered Mr. Pierce‘s attorney to submit findings of fact and a brief as to why Mr. Pierce should be entitled to the relief requested. On June 22, 2012, Mr. Pierce‘s counsel filed proposed findings of fact and conclusions of law and a trial brief.
On July 31, 2012, the district court issued its memorandum decision holding that Mr. Pierce had failed to prove any of his claims and ordering that his amended complaint be dismissed with prejudice. On the same date, the court entered a judgment dismissing this lawsuit with prejudice. Mr. Pierce timely appealed.
II.
Did the District Court Err in Dismissing the Complaint?
The district court dismissed Mr. Pierce‘s complaint on two grounds: the lack of evi-
a. The lack of evidence supporting Mr. Pierce‘s claims. In its memorandum decision entered on July 31, 2012, the district court held that
i. No default was entered in this case. There is a clear distinction between the entry of default and a default judgment.
When the Defendants failed to timely answer or otherwise defend against the initial complaint, Mr. Pierce obtained the entry of their default. However, he did not then obtain a default judgment. Instead, he filed and served upon them an amended complaint adding a request for punitive damages. By doing so, he waived the entry of default and it was no longer of any effect. “[A] substantive amendment to a complaint supersedes the original complaint, and effectively opens the default which permits the defaulting defendant to answer.” 46 Am.Jur.2d Judgments § 277 (2006); Kingsbury v. Brown, 60 Idaho 464, 469, 92 P.2d 1053, 1054-55 (1939) (recognizing the rule). After Mr. Pierce served the amended complaint on the Defendants, Mr. McMullen filed an answer. In his answer, Mr. McMullen purported to answer also on behalf of the limited liability company, but because he was not licensed to practice law in Idaho his attempt to answer on the company‘s behalf was a nullity. However, Mr. Pierce did not again seek entry of default against the company.
Neither of the Defendants appeared at the trial in this case, which resulted in Mr. Pierce‘s attorney and the district court becoming confused as to what to do. The district court asked Mr. Pierce‘s counsel, “Well, in any event, Mr. McMullen‘s not present here in the courtroom, and how do you wish to proceed?” Counsel responded, “Well, we would—we would move to strike the answer and I guess in order to assess damages, we‘re going to have to put on some evidence for the Court, and we would move to do that and just move forward on a damage award.” It is not clear why counsel wanted to strike the answer. In a civil case, a trial can commence and proceed in the absence of a party who fails to appear at the trial. See Dustin v. Beckstrand, 103 Idaho 780, 786, 654 P.2d 368, 374 (1982). “Parties must be given an opportunity to be present, but if that opportunity is given, their absence during the trial does not affect the right to proceed.” 75 Am.Jur.2d Trial § 162 (2007). In fact, the provision in the Idaho Code of Judicial Conduct that prohibits ex parte communications was amended to create an exception for when a party fails to appear at a court proceeding. It provides, “During a scheduled court proceeding, including a conference, hearing, or trial, a judge may initiate, permit, or consider communications dealing with substantive matters or issues on the merits of the case in the absence of a party who had notice of the proceeding and did not appear.” Idaho Code of Judicial Conduct, Canon 3 B(7)(e).
In response to the request by Mr. Pierce‘s counsel to have Mr. McMullen‘s answer stricken, the district court asked the legal basis for the request, which counsel could not provide. The court then took a recess to examine the rules of civil procedure. It concluded that there were three rules that authorized the court to find Mr. McMullen in default. First, because Mr. McMullen had failed to submit proposed findings of fact and conclusions of law and a pretrial brief as required by the court‘s scheduling order, the court concluded that Rule 16 authorized the
The rule states, “For failure of the plaintiff to prosecute or to comply with these rules or any order of court, a defendant may move for dismissal of an action or of any claim against the defendant.”
At the commencement of the trial held on June 18, 2012, the district court stated that Mr. McMullen “is defaulted, his answer is stricken, and the plaintiff prevails on their claims, so what evidence of damage did the plaintiff want to put on today?” (Emphases added.) The court cannot mislead a party by telling him that he prevails on his claims and need only present evidence of damages at the trial and then dismiss the lawsuit because he only presented evidence of damages and failed to present evidence of liability.
Although the court stated that Mr. McMullen was “defaulted,” default was never entered against him. A court‘s oral statement that Mr. McMullen was defaulted was not a recognizable order for entry of default under
ii. No evidence of liability was necessary because the Defendants did not
I. Parties
1. Plaintiff is, and at all times material has been, a resident of Kootenai County, Idaho.
2. Upon information and belief Defendant STEVE MCMULLEN has, at all times material, been a resident of Kootenai County, State of Idaho and has been acting as and on behalf of HIGHLAND FINANCIAL, LLC.
3. Upon information and belief Defendant HIGHLAND FINANCIAL, LLC., is an Idaho Limited Liability Company and is the alter ego of STEVE MCMULLEN.
II. Jurisdiction and Venue
4. Plaintiff incorporates paragraphs 1 and 3 as if fully set forth.
5. This Court has jurisdiction over the parties and the subject matter pursuant to
III. General Allegations
6. Plaintiff incorporates paragraphs 1 through 5 as if fully set forth.
7. On or about December 18, 2007, Plaintiff entered into an agreement with Defendants to purchase an interest in his real property located in Bonner County, State of Idaho, known as the Providence Lake Property.
8. At all times relevant, the Providence Lake Property consisted of two parcels of property comprising 40.4 acres more or less, with each parcel being approximately 20 acres in size.
9. At the time of entering into the agreement, Plaintiff was the fee simple owner of the Providence Lake property, and was in default on the mortgage loans secured by the property.
10. Defendants advertised and held themselves out to be a company that could save property owners from foreclosure.
11. Plaintiff contacted Defendants after seeing their advertisement, to obtain assistance in saving the Providence Lake Property.
12. Defendants or their agents represented to Plaintiff that they could assist him with saving the equity in his property by buying an interest in the property, and stopping the foreclosure on the property. Defendants represented to Plaintiff that Plaintiff would still have an interest in the property. Defendants further represented that they would aggressively market the property as necessary to sell it and obtain a price for the property that would assure Plaintiff received most of his equity, and guaranteed Plaintiff would receive a minimum of $50,000.
14. Defendants prepared and presented to Plaintiff a series of documents, purportedly to effectuate the sale of an interest to Defendants. Those documents included a “contract for purchase and sale.” Attached hereto as Exhibit A is a true and correct copy of the “Contract for Purchase and Sale” between Highland Financial, LLC and Plaintiff.
15. Pursuant to representations made by Defendants or their agents, Plaintiff believed that he would receive a guaranteed minimum of $50,000, or more, depending upon the re-sale price of the property by Defendants.
16. Defendants induced Plaintiff to sign several other documents of which Plaintiff did not understand the significance. Defendant did not explain to Plaintiff the purpose or significance of the documents.
17. Based upon Defendant‘s representations, Plaintiff believed the documents he was signing were necessary to the transaction. Such documents included, but were not limited to, a trust agreement, assignment of interest in trust, limited power of attorney and “deed” all in favor of Highland Financial, LLC. Plaintiff also signed and received a promissory note from Defendants. Copies of the trust, assignment, power of attorney, deed and promissory note are attached hereto as Exhibits B, C, D, E and F.
18. Defendants represented to Plaintiff that they would assume the loans for which Plaintiff was responsible, pay the loan and market the property for sale.
19. On or around March 7, 2008, Steve McMullen entered into a compensation agreement for the sale of the property with Century 21 Real Estate on the Lake. A copy of that Agreement is attached hereto as Exhibit G.
20. Subsequently, Defendants began pressuring Plaintiff to sign a new Warranty Deed to the Providence Lake Property that transferred all ownership by warranty deed from Plaintiff to the “Providence Lake Trust.” Defendants threatened that if Plaintiff did not sign the new deed, that they would stop making payments on the loans that they had represented to Plaintiff that they had assumed.
21. Plaintiff refused to sign the new deed, and Defendants stopped making the payments on the loans. Plaintiff remained the named borrower on the loans at the time that the Defendants ceased making payments.
22. The Providence Lake Property was subsequently foreclosed.
IV. Violations of Title 48, Chapter 6, Idaho Consumer Protection Act
22. Plaintiff incorporates paragraphs 1-21 as if fully set forth.
23. Defendants engaged in an unfair or deceptive act or practice in the conduct of the transaction with Plaintiff in violation of
24. Defendants engaged in an unfair or deceptive act or practice in the conduct of the transaction with Plaintiff in violation of
25. Defendants engaged in an unfair or deceptive act or practice in the conduct of the transaction with Plaintiff in violation of
26. Defendants engaged in an unfair or deceptive act or practice in the conduct of the transaction with Plaintiff in violation of
27. Defendants engaged in an unfair or deceptive act or practice in the conduct of the transaction with Plaintiff in violation of
28. Defendants engaged in an unfair or deceptive act or practice in the conduct of the transaction with Plaintiff in violation of
29. Defendants engaged in an unfair or deceptive act or practice in the conduct of the transaction with Plaintiff in violation of
IV. Breach of Implied-in-Law Contract
30. Plaintiff incorporates paragraphs 1 through 29 as if fully set forth herein.
31. Defendant promised to pay to Plaintiff a minimum of $50,000 for his interest in the Providence Lake Property, and to save the property from foreclosure.
32. Defendant failed to pay Plaintiff a minimum payment of $50,000, and did not save the Plaintiff‘s property from foreclosure.
33. As a result of Defendant‘s breach of his promises to Plaintiff, Plaintiff has been injured in an amount to be proved at trial, but not less than $10,000.
All of the above allegations were admitted by the Defendants as being true because they did not file answers denying them. No evidence was necessary to support them. The district court initially recognized that Mr. Pierce was not required to prove liability on his claims as shown by the court‘s statement at the beginning of the trial that “the plaintiff prevails on their claims.” Mr. Pierce then put on evidence to establish the amount of his damages, and the district court took the matter under advisement. Inexplicably, the district court later issued an opinion holding that Mr. Pierce‘s amended complaint must be dismissed because he had failed to prove liability on any of his claims. Because the allegations were not denied, he was not required to do so. Therefore, the district court erred in holding that Mr. Pierce had failed to prove liability.
b. The lack of law supporting Mr. Pierce‘s claims. Mr. Pierce had one cause of action against the Defendants, but he alleged several theories of liability. One theory was breach of contract, and others were violations of various parts of the Idaho Consumer Protection Act. He need only recover on one theory. In its memorandum opinion, the district court held that Mr. Pierce was unable to recover for breach of contract or for violation of the Idaho Consumer Protection Act. The court erred in both respects.
i. Breach of contract claim. The district court held that Mr. Pierce could not recover for breach of contract. The court stated that Mr. Pierce abandoned his claim titled “Breach of Implied-in-Law Contract” because he did not mention it in his trial brief and he failed to allege a common-law breach of contract claim in his amended complaint. In both respects, the district court erred.
An implied-in-law contract is synonymous with unjust enrichment. Kennedy v. Forest, 129 Idaho 584, 587, 930 P.2d 1026, 1029 (1997). The allegations under the title “Breach of Implied-in-Law Contract” do not support a claim for unjust enrichment. However, that is not controlling. The title was obviously in error.
“The Idaho Rules of Civil Procedure establish a system of notice pleading.” Cook v. Skyline Corp., 135 Idaho 26, 33, 13 P.3d 857, 864 (2000). “A complaint need only contain a concise statement of the facts constituting the cause of action and a demand for relief.” Clark v. Olsen, 110 Idaho 323, 325, 715 P.2d 993, 995 (1986). “Under notice pleading, ‘a party is no longer slavishly bound to stating particular theories in its pleadings.‘” Seiniger Law Office, P.A. v. North Pacific Ins. Co., 145 Idaho 241, 246, 178 P.3d 606, 611 (2008). The fact that Mr. Pierce mislabeled the theory as an implied-in-law contract is not controlling. “[E]ven if a complaint does not specifically state a given cause of action, it can satisfy the pleading
In his amended complaint, Mr. Pierce alleged:
30. Plaintiff incorporates paragraphs 1 through 29 as if fully set forth herein.
31. Defendant promised to pay to Plaintiff a minimum of $50,000 for his interest in the Providence Lake Property, and to save the property from foreclosure.
32. Defendant failed to pay Plaintiff a minimum payment of $50,000, and did not save the Plaintiff‘s property from foreclosure.
33. As a result of Defendant‘s breach of his promises to Plaintiff, Plaintiff has been injured in an amount to be proved at trial, but not less than $10,000.
These allegations allege a breach of contract, and Mr. Pierce argued for recovery based upon breach of contract in his trial brief. Therefore, the district court erred in holding that Mr. Pierce failed to allege a claim for breach of contract in the amended complaint and that he abandoned that claim by failing to discuss it in his trial brief. The Defendants did not deny the allegations for breach of contract, and therefore they were deemed as true. They establish that the Defendants breached their contract with Mr. Pierce, for which he is entitled to recover damages. The only issue was the amount of damages.
ii. Violation of the Idaho Consumer Protection Act. The amended complaint alleged various violations of the Idaho Consumer Protection Act,
“The Idaho Consumer Protection Act indicates a legislative intent to deter deceptive or unfair trade practices and to provide relief for consumers exposed to proscribed practices.” State ex rel. Kidwell v. Master Distrib., Inc., 101 Idaho 447, 455, 615 P.2d 116, 124 (1980). “[T]he Act [must] be liberally construed to effect the legislative intent.” In re Western Acceptance Corp., Inc., 117 Idaho 399, 401, 788 P.2d 214, 216 (1990).
Mr. Pierce alleged violations of subsections (2), (5), (9), (17), and (18) of
10. Defendants advertised and held themselves out to be a company that could save property owners from foreclosure.
11. Plaintiff contacted Defendants after seeing their advertisement, to obtain assistance in saving the Providence Lake Property.
12. Defendants or their agents represented to Plaintiff that they could assist him with saving the equity in his property by buying an interest in the property, and stopping the foreclosure on the property. Defendants represented to Plaintiff that Plaintiff would still have an interest in the property. Defendants further represented that they would aggressively market the property as necessary to sell it and obtain a price for the property that would assure Plaintiff received most of his equity, and
guaranteed Plaintiff would receive a minimum of $50,000. 13. At the time Plaintiff contacted Defendants, Plaintiff had approximately $110,000 in equity in the 2 parcels.
14. Defendants prepared and presented to Plaintiff a series of documents, purportedly to effectuate the sale of an interest to Defendants. Those documents included a “contract for purchase and sale.“....
15. Pursuant to representations made by Defendants or their agents, Plaintiff believed that he would receive a guaranteed minimum of $50,000, or more, depending upon the re-sale price of the property by Defendants.
16. Defendants induced Plaintiff to sign several other documents of which Plaintiff did not understand the significance. Defendant did not explain to Plaintiff the purpose or significance of the documents.
17. Based upon Defendant‘s representations, Plaintiff believed the documents he was signing were necessary to the transaction. Such documents included, but were not limited to, a trust agreement, assignment of interest in trust, limited power of attorney and “deed” all in favor of Highland Financial, LLC. Plaintiff also signed and received a promissory note from Defendants....
18. Defendants represented to Plaintiff that they would assume the loans for which Plaintiff was responsible, pay the loan and market the property for sale.
The above-stated allegations are established facts because they were not denied by the Defendants. The transaction was not the sale of real property to the Defendants. The transfer of Mr. Pierce‘s real property into the trust was simply a means by which the Defendants claimed that they would save Mr. Pierce‘s property from foreclosure and allow him to recover some of the equity in his property. He was paying for their services to do so. Therefore, the district court erred in holding that the transaction did not involve the purchase of services by Mr. Pierce.
III.
Determination of Damages.
Pursuant to the undisputed facts, the Defendants guaranteed that Mr. Pierce would receive a minimum of $50,000 from the transaction. He is entitled to a judgment of at least that amount. Because the district court did not address the issue of damages, this case must be remanded for it to determine whether Mr. Pierce is entitled to receive more than $50,000 in damages. That determination is to be made based upon the evidence presented at the trial that was held on June 18, 2012.
IV.
Is Mr. Pierce Entitled to an Award of Attorney Fees on Appeal?
Mr. Pierce seeks an award of attorney fees on appeal pursuant to
V.
Conclusion.
We reverse the judgment of the district court and remand this case for further proceedings that are consistent with this opin-ion.
Chief Justice BURDICK, Justices J. JONES, W. JONES, and HORTON concur.
EISMANN, Justice