KDN MANAGEMENT, INC., a Utah corporation dba KD CONCRETE DESIGN, Plaintiff-Appellant, v. WINCO FOODS, LLC, a Delaware limited liability company dba WINCO FOODS; WINCO HOLDINGS, INC., an Idaho corporation; Defendants-Respondents, and ABC CORPORATIONS I-X, GHI LIMITED LIABILITY COMPANIES I-X, XYZ BUSINESS ENTITIES I-X, JOHN AND JANE DOES I-X, Defendants. WINCO FOODS, LLC, a Delaware limited liability company dba WINCO FOODS, Counterclaimant, v. KDN MANAGEMENT, INC., a Utah corporation dba KD CONCRETE DESIGN, Counterdefendant. WINCO FOODS, LLC, a Delaware limited liability company dba WINCO FOODS, Plaintiff-Respondent, v. KYM D. NELSON, an individual; KD3 FLOORING LLC, a Utah limited liability company; and SEALSOURCE INTERNATIONAL, LLC, a Utah limited liability company, Defendants-Appellants.
Docket No. 45010
IN THE SUPREME COURT OF THE STATE OF IDAHO
July 30, 2018
BRODY, Justice.
Rexburg, May 2018 Term. Karel A. Lehrman, Clerk.
Appeal from the District Court of the Fourth Judicial District of the State of Idaho, Ada County. Hon. Steven Hippler, District Judge.
The judgment of the district court is affirmed.
Bennett Tueller Johnson & Deere, Salt Lake City, Utah, for appellant. Daniel K. Brough argued.
Holland & Hart, LLP, Boise, for respondent. A. Dean Bennett argued.
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This appeal involves the district court‘s denial of a jury trial under
II. FACTUAL AND PROCEDURAL BACKGROUND
WinCo owns 107 grocery stores which are divided into three geographical divisions. In 2008, Nelson and WinCo‘s maintenance supervisor for the Portland Division discussed the possibility of KD3 performing concrete floor maintenance and repair work for the Portland Division stores. By January 2010, WinCo and Nelson (using the name “KD Concrete“) agreed to the following material terms: “removal and cleaning of current joint material; installation of joint sealant, SL75; price per linear foot at $5; and a five-year labor and material warranty.” KD Concrete was to begin work on three test stores in the Portland Division no later than January 2010, and if WinCo was satisfied, KD Concrete would do the work in other stores on the same terms as WinCo needed.
On February 18, 2010, Nelson incorporated KDN to perform the WinCo contract that had been negotiated. Nelson registered “KD Concrete Design” as an assumed business name of KDN more than two years later. By March 26, 2010, work at the first three WinCo stores was complete. In April or May 2010, John Weber, the Portland Division maintenance supervisor, suggested to Jim Douty, WinCo‘s maintenance manager for the Boise Division, that he should contact Nelson about having KD Concrete Design do the floor work in some of the Boise Division stores. Douty had no authority to negotiate a new agreement on behalf of WinCo, but he authorized KD Concrete Design to perform work at certain stores in the Boise Division
On October 25, 2012, KDN filed a complaint against WinCo to recover the outstanding balance on the three invoices. WinCo filed counterclaims for breach of contract, breach of implied-in-fact contract, unjust enrichment, and violation of the Idaho Consumer Protection Act, alleging that KDN overstated the work performed in each store and that WinCo had actually overpaid KDN. Upon discovery that KDN was not a registered contractor in Idaho at the time work was performed, WinCo moved for judgment on the pleadings, which the district court granted. WinCo‘s counterclaims remained.
On February 7, 2014, WinCo filed a motion for summary judgment on its counterclaim for breach of contract. KDN did not oppose the motion, citing that it had no assets or financial resources to defend against WinCo‘s claims. On April 1, 2014, WinCo filed a new complaint against Nelson, KDN‘s sole shareholder, as well as her two other business entities, SealSource and KD3 (collectively, the “Nelson Parties“), alleging fraud, breach of contract, breach of implied-in-fact contract, and violation of the Idaho Consumer Protection Act. The cases were consolidated.
On November 12, 2014, the parties filed a stipulation for scheduling and planning. The stipulation contained a provision stating that the parties estimated the case would take five days to try and that it was to be tried by a 12 person jury. Subsequently, WinCo filed first and second amended complaints which included allegations pertaining to piercing the corporate veil and alter ego theories. The Nelson Parties’ answer to the second amended complaint contained a section titled “RELIANCE UPON JURY TRIAL DEMAND.” It stated: “The Nelson Parties hereby rely upon all prior demands for jury trial submitted by any party to this lawsuit.” No party had ever filed a pleading requesting a jury trial. Thereafter, WinCo filed an objection to a jury trial, citing that there was no proper demand under
While the case was pending, the district court also dealt with serious discovery violations and spoliation issues committed by the Nelson Parties, both in the form of destruction or alteration of evidence and in the form of nonproduction of evidence. As a result of those violations, the district court imposed adverse inferences against the Nelson Parties at trial. After a nine-day bench trial, the district court issued its findings of fact and conclusions of law in favor of WinCo. The Nelson Parties filed a
III. ISSUES ON APPEAL
- Whether the district court abused its discretion by denying the Nelson Parties’ motion for jury trial under
Idaho Rule of Civil Procedure 39(b) . - Whether the district court erred when it imposed personal liability upon Nelson.
- Whether the district court abused its discretion when it found that the Nelson Parties were alter egos of one another.
- Whether WinCo is entitled to attorney fees on appeal.
IV. STANDARD OF REVIEW
This Court reviews a district court‘s refusal to grant a jury trial under
The standard of review of a court‘s findings of fact is set forth in
Findings of fact, whether based on oral or other evidence, must not be set aside unless clearly erroneous, and the reviewing court must give due regard to the trial court‘s opportunity to judge the witnesses’ credibility.
V. ANALYSIS
A. The district court did not abuse its discretion when it denied the Nelson Parties’ motion for jury trial.
The Nelson Parties argue that the district court abused its discretion by denying their motion for jury trial. Generally,
The district court did not abuse its discretion in denying the Nelson Parties’
Here, the explanation the Nelson Parties provided to the district court was that “none
While the Nelson Parties and WinCo executed a stipulation in which both parties agreed to a jury trial, the court was not bound by such a stipulation. See Clow v. Bd. of Cnty. Comm‘rs of Payette Cnty., 105 Idaho 714, 719, 672 P.2d 1044, 1049 (1983) (Bistline, J., dissenting) (“While counsel truly cannot bind a court by counsel‘s stipulation as to procedure, it is entirely up to the court whether or not to accept the stipulation“). Indeed, it appears that the court never confirmed the stipulation with an order. Stipulations of counsel do not bind the court, but scheduling orders do. Thus, it is incumbent upon counsel to insure that a stipulation for scheduling and planning is confirmed by the court signing an order to that effect which is then filed. Such an order confirms the parties’ understanding. See
Ultimately, the district court considered the Nelson Parties’ arguments, and in its discretion, determined that based on: (1) the number and interweaving of complex equitable issues; (2) the discovery and spoliation issues; and (3) the number of motions in limine pertaining to those issues, that it would proceed as a court trial. Without a reasoned explanation as to why a proper demand was not made as required by
B. The district court did not err when it imposed personal liability on Kym Nelson.
The Nelson Parties argue that the district court erred when it found that an indefinite quantities contract existed and held Nelson personally liable for the overbilling based on theories of pre-incorporation liability and undisclosed principal. Specifically, the Nelson Parties argue that three contracts existed, KDN was incorporated prior to the first contract, and Nelson disclosed the existence of KDN prior to the start of any work.
Whether a contract exists between the parties is a question for the trier of fact. Johnson v. Allied Stores Corp., 106 Idaho 363, 369, 679 P.2d 640, 646 (1984). We defer to findings of fact that are supported by substantial evidence:
[T]his Court must defer to findings of fact based upon substantial evidence but will review freely the conclusions of law reached by stating legal rules or principles and applying them to the facts found. Sun Valley Shamrock Resources, Inc. v. Travelers Leasing Corp., 118 Idaho 116, 118, 794 P.2d 1389, 1391 (1990). Accordingly, we exercise free review over the district court‘s conclusions of law. Kawai Farms, Inc. v. Longstreet, 121 Idaho 610, 613, 826 P.2d 1322, 1325 (1992).
Great Plains Equip., Inc. v. Nw. Pipeline Corp., 132 Idaho 754, 760, 979 P.2d 627, 633 (1999).
“Formation of a valid contract requires that there be a meeting of the minds as evidenced by a manifestation of mutual intent to contract. This manifestation takes the form of an offer and acceptance.” P.O. Ventures, Inc. v. Loucks Family Irrevocable Trust, 144 Idaho 233, 238, 159 P.3d 870, 875 (2007) (internal quotation marks omitted). An indefinite quantities contract is formed when a buyer agrees to purchase and the seller agrees to supply whatever quantity of services the buyer chooses to purchase from the seller, so long as the buyer agrees to purchase a minimum quantity. Torncello v. United States, 681 F.2d 756, 761 (Ct. Cl. 1982). There must be an obligatory minimum so that the buyer is not permitted to order nothing, which would render its obligations illusory, and therefore, unenforceable. Id.
The district court found that WinCo and Nelson, acting on behalf of KD Concrete (the assumed business name of KDN), entered into a contract no later than January 2010, when they agreed to the material terms of the contract: “removal and cleaning of current joint material; installation of joint sealant, SL75; price per linear foot at $5; and a five-year labor and material warranty.” Further, because WinCo agreed to pay KDN to do the work at three stores and, if WinCo was satisfied, work could continue on an as-needed basis, an indefinite quantity contract was formed. See Torncello, 681 F.2d at 761 (an indefinite quantities contract is formed when a buyer agrees to purchase and
It is undisputed that Nelson did not incorporate KDN until February 18, 2010. “All persons purporting to act as or on behalf of a corporation, when there was no incorporation under this chapter, are jointly and severally liable for all liabilities created while so acting.”
C. The district court did not abuse its discretion when it found the Nelson Parties to be alter egos of one another.
There is no dispute that Utah law governs the theories of veil-piercing and alter ego liability because KDN is a Utah corporation and KD3 and SealSource are Utah limited liability companies. See Restatement (Second) of Conflicts § 307 (1971) (“The local law of the state of incorporation will be applied to determine the existence and extent of a shareholder‘s liability to the corporation for assessments or contributions and to its creditors for corporate debts.“). Generally, Utah law makes it difficult to pierce the corporate veil because “a corporation is regarded as a legal entity, separate and apart from its stockholders.” Jones & Trevor Mktg., Inc. v. Lowry, 284 P.3d 630, 635 (Utah 2012) (quoting Dockstader v. Walker, 510 P.2d 526, 528 (Utah 1973)). However, under the alter ego doctrine a stockholder may be liable for the obligations of the corporation. Id. “If a party can prove its alter ego theory, then that party may ‘pierce the corporate veil’ and obtain a judgment against the individual shareholders even when the original cause of action arose from a dispute with the corporate entity.” Id. (internal citation omitted).
To pierce the corporate veil, two requirements must be met: (1) there must be such unity of interest and ownership that the separate personalities of the corporation and
The Utah Supreme Court has adopted the following “Colman factors” to consider in piercing the corporate veil:
- undercapitalization of a one-man corporation;
- failure to observe corporate formalities;
- nonpayment of dividends;
- siphoning of corporate funds by the dominant stockholder;
- nonfunctioning of other officers or directors;
- absence of corporate records;
- the use of the corporation as a facade for operations of the dominant stockholder or stockholders; and
- the use of the corporate entity in promoting injustice or fraud.
Jones, 284 P.3d at 636 (citing Colman v. Colman, 743 P.2d 782, 786 (Utah Ct. App. 1987)). These factors are helpful guidelines and not required elements. Id. at 637.
Issues of alter ego and veil-piercing claims are equitable questions. Wandering Trails, LLC v. Big Bite Excavation, Inc., 156 Idaho 586, 591, 329 P.3d 368, 373 (2014). A district court‘s ruling on equitable remedies is reviewed for abuse of discretion. Climax, LLC v. Snake River Oncology of E. Idaho, PLLC, 149 Idaho 791, 794, 241 P.3d 964, 967 (2010).
The Nelson Parties allege that the district court based its alter ego determination on its finding that the assets of KDN were meticulously siphoned off by Nelson and her other two companies, knowing that KDN had potential liability to WinCo. The Nelson Parties argue this was error because: (1) neither KDN nor Nelson knew of any liability to WinCo at the time the assets were depleted; and (2) KDN‘s status as an S-Corporation permitted Nelson to spend the money as if it were her own personal income.
First, the Nelson Parties contend that there was no evidence at trial that demonstrated Nelson knew that KDN, or any other Nelson Party, had any liability to WinCo. The Nelson Parties’ reliance on Nelson‘s lack of knowledge is not persuasive. Instead, the district court‘s findings fit squarely into the Colman factors. See Jones, 284 P.3d at 636 (citing Colman, 743 P.2d 782, 786 (Utah Ct. App. 1987)). Specifically, the district court found that WinCo had presented “overwhelming evidence” that Nelson, KDN, KD3, and SealSource, were so intertwined in their interest and ownership that separate personalities no longer existed:
- KDN was a single-shareholder corporation which was capitalized by Ms. Nelson with only $250 and did not have its own credit cards;
- Ms. Nelson disregarded corporate formalities—most notably with regard to finances—essentially using all three companies interchangeably and in a manner that indicated that she did not view her entities as separate from herself;
- KDN‘s second board member, Tracey Christensen, was non-functioning;
- there was no evidence that KDN maintained corporate records, such as meeting minutes and bylaws;
- Ms. Nelson and KD3‘s accountant, Joel Christenson, intentionally listed KDN as a holding company for KD3 until WinCo alerted Ms. Nelson of potential alter ego claims, at which point Ms. Nelson amended KDN‘s tax returns and deleted entries in KDN and KD3‘s Quickbooks to remove any trace of KDN‘s interest in KD3; and
- KD3 and SealSource shared the same employees and Ms. Nelson consistently referred to KD3 as a division of SealSource.
The Nelson Parties’ argument regarding KDN‘s status as an S-Corporation is equally unpersuasive. An S-Corporation is a pass-through
D. WinCo is awarded attorney fees and costs on appeal.
WinCo requests attorney fees on appeal under
VI. CONCLUSION
We affirm the district court‘s judgment and award WinCo costs and attorney fees on appeal.
Chief Justice BURDICK, Justices HORTON, BEVAN, and Justice Pro Tem DUNN CONCUR.