Appeal from the District Court of the Seventh Judicial District, State of Idaho, Fremont County. Hon. Brent J. Moss, District Judge.
The opinion of the court was delivered by: Burdick, Justice
District court order denying j.n.o.v., reversed. Case remanded.
This case arises out of a business relationship between Cary Sargent (Sargent) and Doyle Beck (Beck) involving a concrete business known as High Valley Concrete, LLC (High Valley), which was organized in 1997. In 2002, Sargent left High Valley. Shortly thereafter, High Valley filed a lawsuit against Sargent seeking declaratory relief in regard to control of a bank account and post office box, as well as seeking to recover cell phones allegedly belonging to the company. After a three-year delay due to an involuntary bankruptcy, in 2006 High Valley expanded its claim against Sargent to include conversion, breach of fiduciary duty, fraud, and breach of contract. A second lawsuit was filed by Sargent against Beck in February 2006, alleging breach of fiduciary duty. The cases were consolidated.
Following trial, the jury returned a verdict for High Valley in its lawsuit against Sargent, finding Sargent liable on claims for conversion, breach of fiduciary duty, unjust enrichment, and fraud, and awarding $48,981.16 in damages. The jury then also found that Beck breached his fiduciary duty to Sargent and awarded Sargent $28,896.88 in damages. Appellants High Valley and Beck (collectively Appellants) raise issues on appeal involving: (1) whether substantial and competent evidence exists to support the district court‟s decision denying Beck‟s motion for a judgment notwithstanding the verdict, and (2) whether the district court committed reversible error in denying High Valley‟s motion contesting Sargent‟s counsel‟s third-party claim of exemption. We reverse and remand.
I. FACTUAL AND PROCEDURAL BACKGROUND
High Valley filed its articles of organization with the Secretary of State on March 24, 1997. On April 3, 1997, Beck received 100 units in High Valley, making him an owner of 100 percent of the interest in the company. Sargent testified that when he and Beck initially discussed the creation of High Valley, they determined that Beck would have a 51 percent interest in the company, and Sargent would have a 49 percent interest. Ownership certificates showing such ownership were drawn up and signed by Beck and Sargent on April 3. However, Sargent also testified that after they signed those certificates, Beck requested that Sargent transfer all the units "on paper that you have to me so that I can take the tax benefit." Sargent stated that Beck emphasized that the transfer was only for the tax benefits and that "the agreement stands between us... [i]t‟s still the same.... As soon as High Valley reverses it‟s [sic] role on the bookkeeping from a loss to a profit... then we‟ll clear up-we‟ll change the paperwork back." Finally, Sargent testified that he did not understand the arrangement to mean that Beck was holding his 49 percent interest for him:
Q: Did you understand that Beck was going to hold your 49 percent for you?
A: No. I understood that I-that the ownership would remain the same, that he was just doing it for his personal tax purposes or his business‟ tax purposes.
Schedule A to High Valley‟s Operating Agreement thereafter stated that Beck owned 100 percent membership interest in High Valley. Section 2.10 of the Operating Agreement provides that "Members shall mean the persons set forth on Schedule A attached hereto." In addition, section 2.09 stated that "Manager shall mean Cary Sargent...."
At a company meeting on February 22, 2002, Sargent was removed as manager of High Valley. Shortly thereafter, High Valley filed its Complaint, seeking declaratory relief concerning the right of High Valley to access, manage, control, and withdraw the money in its Key Bank account. The Complaint also alleged that Sargent changed High Valley‟s post office box to his personal post office box and refused to give mail belonging to High Valley to the company, and that Sargent converted three cellular phones and their phone numbers belonging to High Valley to his personal use. Subsequently, on December 17, 2003, the district court entered an order placing the case on inactive status pending results from High Valley‟s involuntary bankruptcy.
On February 22, 2006, Sargent filed suit against Beck. Sargent‟s Complaint alleged that Beck assumed a fiduciary duty toward Sargent for Sargent‟s contributions to and interest in High Valley, and due to Beck‟s breach of that duty Sargent was damaged by the loss of his contributions to High Valley.
High Valley amended its Complaint and filed it on August 23, 2006, stating claims against Sargent for conversion; breach of fiduciary duty; fraudulent concealment; unjust enrichment; violation of I.C. § 48-601, et seq.; breach of contract; and violation of I.C. § 48-101, et seq. The cases were consolidated on February 2, 2007.
On February 1, 2008, the jury returned verdicts for both High Valley and Sargent. In High Valley‟s claims against Sargent, the jury found that Sargent committed conversion, breached his fiduciary duty, committed fraud, and was unjustly enriched. Conversely, the jury found that Sargent did not breach a contract with High Valley. Damages were assessed against Sargent in the amount of $48,981.16, with no punitive damages. In Sargent‟s case against Beck, the jury found that Beck breached his fiduciary duty to Sargent and assessed damages against Beck in the amount of $28,896.88.
On February 20, 2008, Beck filed his Motion for Judgment Notwithstanding the Verdict and his brief in support thereof. On March 27, 2008, the district court issued its Memorandum Decision and Order regarding the post-judgment motions made by both parties. The court denied Beck‟s motion for j.n.o.v. The court then issued amended judgments on April 1, 2008, which took into account attorney fees and post-judgment interest.
On April 1, 2008, the district court issued a Writ of Execution to High Valley, which subsequently sent instructions to the sheriff to execute on the "Amended Judgment in Fremont County Case No. CV-07-0118 filed in chambers in Madison County on March 31, 2008, in the face amount of $82,220.13." On April 10, 2008, counsel for Sargent, William Faler then of Holden, Kidwell, Hahn & Crapo, P.L.L.C. (HKHC), filed a third-party claim of exemption. The claim stated that HKHC "has a prior "in time‟ security interest on all property of Cary Sargent including the judgment he obtained against Doyle Beck in Fremont County Case No. CV-07-0118 which is the subject of the Notice of Attachment." The claim further stated that the Security Agreement was secured by: "(1) A Mortgage for the real property located in Fremont County; (2) A UCC1 Statement filed with the Secretary of State‟s office, specifically including any judgment obtained by Cary Sargent against Doyle Beck; and (3) Liens on vehicles owned by Cary Sargent." In addition, the claim stated:
This Security Agreement was made to secure payment for legal fees and costs incurred as a result of legal representation provided by [HKHC] to Cary Sargent.
The amount of the legal services provided is $190,874.58 as submitted in Sargent‟s Motion, Memorandum, and Affidavit ...