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Taylor v. McNichols

September 3, 2010

REED J. TAYLOR, AN INDIVIDUAL, PLAINTIFF-APPELLANT,
v.
MICHAEL E. MCNICHOLS, AN INDIVIDUAL; CLEMENTS, BROWN & MC NICHOLS, P.A., AN IDAHO PROFESSIONAL CORPORATION; JANE DOES I-V, UNKNOWN INDIVIDUALS, DEFENDANTS-RESPONDENTS.
REED J. TAYLOR, PLAINTIFF-APPELLANT,
v.
GARY D. BABBITT, AN INDIVIDUAL, D. JOHN ASHBY, AN INDIVIDUAL; PATRICK V. COLLINS, AN INDIVIDUAL; RICHARD A. RILEY, AN INDIVIDUAL; HAWLEY, TROXELL, ENNIS & HAWLEY, LLP, AN IDAHO LIMITED LIABILITY PARTNERSHIP; JANE DOES I-X, UNKNOWN INDIVIDUALS. DEFENDANTS-RESPONDENTS.



Appeal from the District Court of the Second Judicial District, State of Idaho, Nez Perce County. Hon. Jeff M. Brudie, District Judge.

The opinion of the court was delivered by: Burdick, Justice

2010 Opinion No. 95

District court decision, affirmed.

This case comes before this Court on appeal from the grant of two Idaho Rule of Civil Procedure 12(b)(6) motions to dismiss for failure to state a claim upon which relief may be granted. Appellant, Reed Taylor alleges that the district court erred in denying his motions to amend his complaints, and erred in failing to properly apply the applicable standards in granting the motions to dismiss under I.R.C.P. 12(b)(6). We affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

This case arises as a result of the separate case of Taylor v. AIA, et al., Nez Perce County Case No. CV07-00208 (Underlying Case), now awaiting hearing before this Court on appeal. In order to properly understand the claims being asserted here, certain aspects of the Underlying Case must be examined. The case at hand has been consolidated on appeal from two separate before the district court, case number CV-08-01763 and case number CV08-01765.

A. Underlying Case

On January 29, 2007, Reed Taylor (Reed) filed suit against AIA Services Corporation (AIAS), AIA Insurance, Inc. (AIAI)*fn1 , John Taylor, Connie Taylor, Bryan Freeman, and JoLee Duclos. AIAI is a business entity existing under the umbrella of AIAS. When the Underlying Case began John Taylor was the managing director of both corporations and his then wife, Connie Taylor, held a community property interest in the corporations. John Taylor, Freeman, and Duclos were board members of both corporations. After Reed filed suit in the Underlying Case, Michael McNichols, of the law firm Clements, Brown & McNichols, P.A. (CBM), was retained to represent AIAS, AIAI, and John Taylor.

While the lawsuit was still pending, Reed attempted to exercise management authority over the AIA Entities, and the court in the Underlying Case granted a temporary restraining order against Reed on February 27, 2007. On March 8, 2007, the court in the Underlying Case entered a preliminary injunction which prohibited Reed from attempting to act as a manager or board member of AIAI, or from harassing or interfering with the management of AIAI and AIAS.

On March 28, 2007, McNichols filed a motion to withdraw as counsel for AIAI and AIAS, which was granted on April 12, 2007. On May 7, 2007, a notice of appearance on behalf of the AIA Entities was filed by Gary Babbitt and John Ashby, of the law firm Hawley Troxell Ennis & Hawley, LLP (HTEH).

B. Current Case

On August 18, 2008, after the Underlying Case had been through 21 months of motions and hearings -- while numerous other motions were pending, and the trial date had been set, but after the district court had granted a Motion for Partial Summary Judgment in favor of Reed as to the AIA Entities being in default on a $6,000,000 promissory note issued to Reed -- Reed filed the present actions against McNichols and CBM, who were continuing to serve as counsel for John Taylor (case no. CV08-01765 below), and against Babbit, Ashby, Patrick Collins, Richard Riley,*fn2 HTEH, and other unspecified attorneys who worked for HTEH on its representation of the AIA Entities (case no. CV08-01763 below).*fn3 Reed asserted claims against Respondents for:

(1) aiding and abetting or assisting others in the commission of tortious acts in the Underlying Case; (2) conversion and misappropriation of the AIA Entities' corporate assets; (3) violations of Idaho's Consumer Protection Act, I.C. § 48-601 et seq.; and (4) professional negligence and/or breach of fiduciary duties.

Respondents filed motions to dismiss pursuant to I.R.C.P. 12(b)(6), and oral argument was heard on these motions on October 16, 2008. On the same day Reed filed his motions for leave to amend his complaints, attaching his proposed amended complaints, and a hearing was held on these motions on December 4, 2008.

On December 23, 2008, the district court issued two opinions titled ―Opinion and Order on Defendant's Motion for Preliminary Injunction‖ (Opinions) granting Respondents' motions to dismiss and denying Reed's motions to amend his complaints. In reaching his decision the district court judge, who was also the judge in the Underlying Case, found that the arguments made by both Reed and Respondents incorporated events and actions that occurred in the Underlying Case and, therefore, took judicial notice of the Underlying Case in toto. The district court subsequently granted Respondents' requests for attorney fees.

Reed filed a notice of appeal with this Court on January 30, 2009, and the two cases were consolidated for appeal on February 18, 2009. In light of Spokane Structures, 148 Idaho 616, 226 P.3d 1263 (2010), it was recognized that no final judgment had been issued by the district court and the case was remanded for entry of a final judgment on March 16, 2010. This Court received Judgments from the district court for both of the pre-consolidation cases on March 24, 2010.

II. ISSUES ON APPEAL

1. Whether the district court applied I.R.C.P. 12(b)(6) correctly in ruling on Respondents' motions to dismiss.

a. Whether the litigation privilege should be adopted in Idaho and whether Reed's claims should have be dismissed accordingly.

b. Whether, in the alternative, Reed's complaints alleged sufficient facts to withstand a motion to dismiss.

2. Whether the district court abused its discretion in denying Reed's motions for leave to amend his complaints.

a. Whether Reed had standing to bring derivative claims against Respondents.

b. Whether Reed pled additional facts in his amended complaints that would have altered the analysis as it applied to his original complaints.

3. Whether the district court abused its discretion in awarding Respondents attorney fees pursuant to I.C. §§ 12-121, 30-1-746, 48-608.

4. Whether Respondents are entitled to attorney fees on appeal.

III. STANDARD OF REVIEW

Our standard of review for a grant of dismissal under Idaho Rule of Civil Procedure 12(b)(6) was concisely summarized by this Court in Losser v. Bradstreet:

When this Court reviews an order dismissing an action pursuant to I.R.C.P. 12(b)(6), we apply the same standard of review we apply to a motion for summary judgment. After viewing all facts and inferences from the record in favor of the non-moving party, the Court will ask whether a claim for relief has been stated. The issue is not whether the plaintiff will ultimately prevail, but whether the party is entitled to offer evidence to support the claims. 145 Idaho 670, 672-73, 183 P.3d 758, 760-61 (2008) (internal citations and quotations omitted). In addition, ―[t]his Court reviews an appeal from an order of summary judgment de novo, and this Court's standard of review is the same as the standard used by the trial court in ruling on a motion for summary judgment.‖ Curlee v. Kootenai Cnty. Fire & Rescue, 148 Idaho 391, __, 224 P.3d 458, 461 (2008). Ergo, a district court's dismissal of a complaint under I.R.C.P. 12(b)(6) shall be reviewed de novo.

This Court employs an abuse of discretion standard when reviewing a district court's denial of a motion to amend a complaint to add additional causes of action. Spur Prod. Corp. v. Stoel Rives LLP, 142 Idaho 41, 43, 122 P.3d 300, 302 (2005). When reviewing an exercise of discretion on the part of a district court, this Court considers:

―(1) whether the court correctly perceived that the issue was one of discretion; (2) whether the court acted within the outer boundaries of its discretion and consistently with the legal standards applicable to the specific choices available to it; and (3) whether it reached its decision by an exercise of reason.‖

Id. (quoting Estate of Becker v. Callahan, 140 Idaho 522, 527, 96 P.3d 623, 628 (2004)).

IV. ANALYSIS

A. The District Court Erred In Taking Judicial Notice Of The Underlying Case When Considering The 12(B)(6) Motions

Reed alleges that the district court did not apply the correct legal standard when considering Respondents' 12(b)(6) motions to dismiss. Specifically, Reed alleges that the district court erred in taking judicial notice of the Underlying Case, when it should have limited its review to the pleadings.

Idaho Rule of Civil Procedure 12(b) states, inter alia:

If, on a motion asserting the defense numbered (6) to dismiss for failure of the pleading to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56. (Emphasis added).

Respondents make two arguments why they believe the district court's 12(b)(6) ruling should stand. First, the district court was acting within its permitted discretion in taking judicial notice of the Underlying Case. Second, having requested that the district court take judicial notice of the Underlying Case, Reed is barred under the invited error doctrine from raising this as an error on appeal. These arguments shall be considered in turn.

1. The district court could not properly take judicial notice of the Underlying Case when ruling on 12(b)(6) motions to dismiss. ―A 12(b)(6) motion looks only at the pleadings to determine whether a claim for relief has been stated.‖ Young v. City of Ketchum, 137 Idaho 102, 104, 44 P.3d 1157, 1159 (2002). In Hellickson v. Jenkins, the Idaho Court of Appeals discussed judicial notice in the context of a 12(b)(6) motion to dismiss, stating that:

[t]he only facts which a court may properly consider on a motion to dismiss for failure to state a claim are those appearing in the complaint, supplemented by such facts as the court may properly judicially notice. Cohen v. United States, 129 F.2d 733 (8th Cir. 1942). However, a trial court, in considering a Rule 12(b)(6) motion to dismiss, has no right to hear evidence; and since judicial notice is merely a substitute for the conventional method of taking evidence to establish facts, the court has no right to take judicial notice of anything, with the possible exception of facts of common knowledge which controvert averments of the complaint. See Grand Opera Co. v. Twentieth Century-Fox Film Corp., 235 F.2d 303 (7th Cir. 1956); Sears, Roebuck & Co. v. [Metro] Engravers, Ltd., 245 F.2d 67 (9th Cir. 1956); Schwartz v. Commonwealth Land Title [Ins.] Co., 374 F.Supp. 564 (E.D.Pa. 1974), supp. op. (E.D.Pa.) 384 F.Supp. 302. 118 Idaho 273, 276, 796 P.2d 150, 153 (Ct. App. 1990) (emphasis in the original). See also Fleming v. Lind-Waldock & Co., 922 F.2d 20, 23 (1st Cir. 1990) (comparing a 12(b)(6) motion to a Rule 56 motion the Court and finding, ―[o]ne fundamental difference between the two motions lies in the scope of the court's consideration. The grounds for a Rule 12(b)(6) dismissal comprise only the pleadings and no more‖) (emphasis added).

In Hellickson, a magistrate judge took judicial notice of the proceedings in two other cases. 118 Idaho at 275, 796 P.2d at 152. The Court of Appeals found this to be in error, and remanded with instructions to either decide the 12(b)(6) Motion on the allegations contained in the complaint alone, or to convert the 12(b)(6) motion to a Rule 56 summary judgment proceeding and afford the parties reasonable opportunity to present materials pertinent to a motion for summary judgment. Id. at 278, 796 P.2d at 155.

CBM ignores the direct Idaho precedent in Hellickson entirely, instead citing to the U.S. Supreme Court case of Tellabs, Inc. v. Makor Issues & Rights, Ltd., which states: ―[C]courts must consider the complaint in its entirety, as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice. See 5B Wright & Miller § 1357 (3d ed.2004 and Supp.2007).‖ 551 U.S. 308, 322 (2007). Nothing in Tellabs is inconsistent with what is written in Hellickson. HTEH cites to Hellickson for the proposition that courts may take judicial notice when considering a 12(b)(6) motion, but does not address Hellickson as it specifically applies to the issue of taking judicial notice of the proceedings in other cases. The rule stated in Hellickson clearly applies here.

2. The doctrine of invited error does not preclude Reed from appealing the district court's erroneous decision to take judicial notice of the Underlying Case in toto. ―It has long been the law in Idaho that one may not successfully complain of errors one has acquiesced in or invited. Errors consented to, acquiesced in, or invited are not reversible.‖

State v. Owsley, 105 Idaho 836, 838, 673 P.2d 436, 438 (1983) (internal citation omitted). ―Invited error‖ is ―[a]n error that a party cannot complain of on appeal because the party, through conduct, encouraged or prompted the trial court to make the erroneous ruling.‖ Black's Law Dictionary 249 (3rd pocket ed. 2006).

At the hearing on Respondents' 12(b)(6) motions, on October 10, 2008, Reed's attorney, Bissell, had the following exchange with the district court judge:

MR. BISSELL: Also, your Honor, I would - - I would ask the Court because we obviously - - we have talked about a lot of information in the past in this case and in the other cases and, you know, a lot of the information in the other cases kind of has an impact on this case. So I would ask the Court to take judicial notice of everything that's been followed, argued in those previous cases - - or in the other matter, the underlying matter we might call it . . .

THE COURT: Well, that was actually my intention, Mr. Bissell, that's part of what I came to conclude is I really can't discuss this and rule on the pending Motion to Dismiss without the consideration of the underlying case, so that was actually my intention.

MR. BISSELL: Okay, thank you, your Honor.

Respondents aver that, under the doctrine of invited error as it is applied in cases such as State v. Owsley, 105 Idaho 836, 838, 673 P.2d 436, 438 (1983), and Woodburn v. Manco, 137 Idaho 502, 505, 50 P.3d 997, 1000 (2002), Reed, having clearly requested that the district court take judicial notice of the Underlying Case, may not argue on appeal that this was in error. ―The purpose of the invited error doctrine is to prevent a party who caused or played an important role in prompting a trial court to [take a certain action] from later challenging that [action] on appeal.‖ Woodburn,137 Idaho at 505, 50 P.3d at 1000. Reed offers five reasons why he does not believe the doctrine of invited error should apply here, and these shall be addressed in turn.

First, Reed argues that ―it is irrelevant who requested judicial notice‖, as the district court erred in failing to convert the motions to dismiss into motions for summary judgment when considering evidence beyond the pleadings, in accordance with Hellikson, 118 Idaho at 276, 796 P.2d at 153. Reed offers no citation for this proposition, and it conflicts with the policy underlying the invited error doctrine. The invited error doctrine presumes that the trial court acted in error, otherwise there would be no reversible error in any event. The invited error doctrine provides that where the error in question was encouraged or requested by a party then that party is precluded from challenging on the basis of that error on appeal. Contrary to Reed's contention, the issue of which party requested the court to take that action - such action constituting error - is of great importance.

Second, Reed contends that the invited error doctrine does not apply because the district court had already intended to take judicial notice, based upon the district judge's response to Reed's counsel's request that the judge take judicial notice, that ―that was actually my intention.‖ Again, Reed offers no citation to any legal authority in support of this argument. This Court in Owsley wrote, ―Errors consented to, acquiesced in, or invited are not reversible.‖ 105 Idaho at 838, 673 P.2d at 438. It is clear here that Reed consented to the district court's taking judicial notice, as well as acquiescing to it and inviting it. This argument is without merit.

Third, Reed contends that the invited error doctrine does not apply because Reed's counsel was not tactically or strategically requesting judicial notice. Reed cites to no Idaho law in support of this contention, instead citing to People v. Guerrero, 66 Cal. Rptr. 3d 701 (Cal. Ct. App. 2007), and Keller v. Columbus, 797 N.E.2d 964, (Ohio 2003).

The only relevance to this issue presented in Guerrero is a footnote citing to People v. Coffman, 96 P.3d 30 (Cal. 2004). 66 Cal. Rptr. 3d at 703 n.3. In ...


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