United States District Court, D. Idaho
ROBERT CAYNE, RONNIE RIVERA, SEAN RIVERA, KEN McELROY, and the same on behalf of themselves and on behalf of all others similarly situated, Plaintiffs,
WASHINGTON TRUST BANK, a Washington corporation; and WEST SPRAGUE AVENUE HOLDINGS, LLC, a Washington limited liability company, Defendants.
MEMORANDUM DECISION AND ORDER ON PLAINTIFFS' RULE
50 AND RULE 59 MOTIONS
Honorable Ronald E. Bush Chief U.S. Magistrate Judge.
decision and order addresses the issues raised in
Plaintiffs' Renewed Motion for Judgment as a Matter of
Law (Fed. R. Civ. P. 50(b)), or in the alternative, Motion
for New Trial (Fed. R. Civ. P. 59) (Dkt. 415). The first
motion renews Plaintiffs' Rule 50(a) motion for judgment
as a matter of law, which was made at the close of evidence.
The second motion seeks alternative relief, in the form of a
several years of litigation, this case culminated in a
multi-week jury trial. On March 21, 2016, the jury returned a
unanimous verdict in favor of Defendants Washington Trust
Bank (“the Bank”) and West Sprague Avenue
Holdings, LLC (“West Sprague”). Subsequently,
Plaintiffs filed the referenced motions, supported by a brief
in support of their combined Rule 50(b) renewed motion for
judgment as a matter of law and Rule 59 motion for new trial.
See Dkt. 416. Defendants filed a response, which was
followed by a reply brief from Plaintiffs. See Dkts.
448, 452. The record underlying the motions contains over
1600 pages of attachments to the briefing (including trial
and other exhibits) and approximately 2300 pages of trial
transcript. See Dkts. 418-446.
the Court will address the renewed Rule 50 motion for
judgment as a matter of law, and then the motion for a new
trial. The particular issues, evidence details, witnesses,
and related particulars are already well-known to the parties
and largely have been discussed at length in prior orders of
the Court. Therefore, the Court will not attempt an
exhaustive background here.
AS A MATTER OF LAW / Fed.R.Civ.P. 50(a) and (b)
Civ. P. 50(a)(1) provides:
If a party has been fully heard on an issue during a jury
trial and the court finds that a reasonable jury would not
have a legally sufficient evidentiary basis to find for the
party on that issue, the court may: (A) resolve the issue
against the party; and (B) grant a motion for judgment as a
matter of law against the party on a claim or defense that,
under the controlling law, can be maintained or defeated only
with a favorable finding on that issue.
here, Rule 50(b) permits renewed motions for judgment as a
matter of law made under Rule 50(a) and provides that the
court may: “(1) allow judgment on the verdict, if the
jury returned a verdict; (2) order a new trial; or (3) direct
the entry of judgment as a matter of law.” Fed.R.Civ.P.
50(b). A Rule 50(b) motion for judgment as a matter of law is
not treated as a separate motion; instead, it is a renewed
50(a) motion. EEOC v. Go Daddy Software, Inc., 581
F.3d 951, 961 (9th Cir. 2009). A Rule 50(a) motion is made
before the case is submitted to the jury. If the court defers
or denies the motion, and if the jury then returns a verdict
against the movant, the movant may renew the motion under
Rule 50(b). Id. However, because the 50(b)
motion is a renewed motion, the grounds for the motion are
limited to the same as those asserted in the prior Rule 50(a)
motion. “A party cannot properly raise arguments in its
post-trial motion for judgment as a matter of law under Rule
50(b) that it did not raise in its preverdict Rule 50(a)
motion.” Id. (internal quotation marks
omitted). Accordingly, this decision addresses and resolves
both the Rule 50(a) and Rule 50(b) motions as one Rule 50
considering a Rule 50 motion, the court must view the
evidence in the light most favorable to the prevailing party
and must draw all reasonable inferences in favor of the
non-moving party. First Nat. Mortgage Co. v. Federal
Realty Inv. Trust, 631 F.3d 1058, 1067 (9th Cir. 2011);
Lakeside-Scott v. Multonomah County, 556 F.3d 797,
802 (9th Cir. 2009); Josephs v. Pac. Bell, 443 F.3d
1050, 1062 (9th Cir. 2006). Further, the court shall
“give significant deference to the jury's verdict
and to the nonmoving part[y] . . . .” A.D. v. Cal.
Highway Patrol, 712 F.3d 446, 453 (9th Cir. 2013).
such constraints, a jury verdict can be set aside and
judgment granted as a matter of law in favor of the moving
party “only if, under governing law, there can be but
one reasonable conclusion as to the verdict and only if there
is no legally sufficient basis for a reasonable jury to find
for [the non-moving] party on that issue.” Jules
Jordan Video, Inc. v. 144942 Canada Inc., 617 F.3d 1146,
1155 (9th Cir. 2010) (internal quotation and citations
omitted); see also A.D., 712 F.3d at 453
(“judgment is proper if the evidence construed in the
light most favorable to the nonmoving party, permits only one
reasonable conclusion [...] contrary to the jury's
verdict.” (quoting Pavao v. Pagay, 307 F.3d
915, 918 (9th Cir. 2002))); First Nat. Mortgage, 631
F.3d at 1067-68 (verdict upheld if supported by substantial
evidence, “even if it is also possible to draw a
contrary conclusion[, ]” and court “must
disregard evidence favorable to the moving party that the
jury is not required to believe, and may not substitute its
view of the evidence for that of the jury[ ]” (internal
citation and quotation omitted)). Further, a jury's
factual findings must be upheld if there is substantial
evidence in support of the jury's verdict. Microsoft
Corp. v. Motorola, Inc., 795 F.3d 1024, 1045 (9th Cir.
argue that the proof at trial permits only one reasonable
conclusion - in their favor. Therefore, Plaintiffs contend
the Court should have granted judgment in their favor at the
close of evidence, and that the jury verdict in favor of the
Defendants is untenable. More specifically, Plaintiffs seek
judgment as a matter of law because: (1) in the period after
the Deed in Lieu Agreement, the Club's staff became the
Bank's employees or agents and the jury should have been
instructed as such as a matter of law; (2) West Sprague was
the alter ego of the Bank; and (3) the Court erroneously
instructed the jury on the law of assumption of a contract
liability by implication. The Court will consider such
arguments in turn.
The Court Properly Did Not Instruct the Jury that the Club
Staff Were Employees/Agents of the Bank
contend that after execution of the Deed in Lieu agreement
(“DIL”), the Club's staff became the
employees or agents of Washington Trust Bank (“the
Bank”). Plaintiffs argue that every asset was stripped
out of the Club at Black Rock, LLC and became the Bank's
assets, including the Club's checking
account. Plaintiffs contend the Club's staff
were paid by checks drawn on the Club's checking account
and the Bank had the right to control the employees'
work, and therefore, it is indisputable that the staff
members became the Bank's employees or agents. Pls.'
Mem., Dkt. 416, p. 20.
Bank, on other hand, says that Plaintiffs failed to prove
that the Bank or West Sprague exercised any control over the
Club's management team or employees during the relevant
post-DIL time frame and therefore, there was not a sufficient
basis for an instruction as a matter of law that the
Club's staff were the employees and/or agents of the Bank
or West Sprague. Defs.' Mem., Dkt. 448, p. 22.
law describes an agency relationship as one that arises from
“the manifestation of consent by one to another that
the other shall act on his behalf and subject to his control
and consent by the other so to act.” Thornton v.
Budge, 257 P.2d 238, 240 (Idaho 1953). The party
alleging the existence of an agency relationship carries the
burden of proof and where the existence of an agency
relationship is disputed, it is a question for the trier of
fact to resolve from the evidence. Gissel v. State of
Idaho, 727 P.2d 1153, 1157 (Idaho 1986).
trial evidence showed that after the DIL, the Club's
existing general manager (Andy Gorton) continued to make
hiring and work schedule decisions, the employees continued
to have state and federal income taxes withheld, and the
employees received all the same benefits as they had before
the execution of the DIL. As part of the DIL, assets were
transferred to the Bank (and later to West Sprague),
including accounts such as the bank accounts. Plaintiffs
contend that the LLC was a “barren corporate
shell” with nothing that it could operate, including
the Club, and that it was the Bank's money paying the
employees and such that they were inescapably
employees/agents of the Bank.
evidence is significant, and supports Plaintiffs' theory.
However, there was other evidence that did not. Mr. Gorton
testified that the Bank and West Sprague did not exercise
any control over the Club's employees. Among
other things, Gorton said that even after the DIL, if the
Bank or West Sprague said one thing to him and Marshall
Chesrown told him to do something else, he would do what Mr.
Chesrown instructed. See, e.g., Gorton Testimony,
Dkt. 418-3, 69:6-11. There was repeated, and consistent,
testimony from the staff members of the Club and from Bank
employees that after the execution of the DIL, the Club was
to be and would be operated exactly as it had been operated
previously (and therefore, by inference, in the same hands
that had been running the show prior to the DIL) for various
reasons, including the fact that the Bank “wasn't
in the business of running a golf course” and
didn't know how to run a golf course.
of all of the evidence could be argued to support either side
of the dispute. Further, there was conflicting evidence as to
what role, if any, Chesrown may have played in the operation
of the Club after the DIL, i.e., was he involved in
some manner - whether directly or as a figurehead - or was he
not? Further, even if he was involved, what was his
motivation for any continuing involvement with the Club? Was
he involved to keep the Club running as is, with an intact
membership base, so as to help the Bank peddle the Club to
some other entity as a going-concern (and make a windfall as
a result, as Plaintiffs theorized)? Was he involved because
of his purported loyalty to the Club members, wanting to keep
the Club operating for their benefit? Or was he entirely
self-serving, acting only to sweeten what Plaintiffs
contended was an already sweet deal when it came to removing
him from personal liability for any of the enormous unpaid
liability owed to the Bank prior to the DIL?
was evidence put forward on this issue from which Plaintiffs
could, and did, strongly argue that such agency existed.
However, that conclusion was not the only reasonable
conclusion that could be drawn. Against that standard,
Plaintiffs' contention that the jury should have been
instructed as a matter of law that the Club's staff were
employees or agents of the Bank and/or West Sprague cannot
prevail. The Court concluded that the evidence presented
could result in more than one reasonable conclusion and
instructed the jury in that manner, leaving the issue to be
resolved by the jury. The Court is not persuaded of a
different result on the renewed motion and denies
Plaintiffs' Rule 50 motion on this issue.
The Court Properly Did Not Instruct that West Sprague was the
Alter Ego of the Bank
contend that, as a matter of law, West Sprague was the alter
ego of Washington Trust Bank. Plaintiffs emphasize several
pieces of evidence - the Bank owned all of West Sprague; that
there were officers of West Sprague who were common to the
officers of the Bank; that West Sprague's only assets
were those conveyed to it by the Bank; that the Bank owned
the building where West Sprague's business was conducted;
that all decision-making for West Sprague was made by the
Bank's officers; that the Bank paid all of the Club's
operating expenses and funded the Club's checking
account, and that the Bank paid expenses and salaries (if
any) related to West Sprague. See Pls.' Mem.,
Dkt. 416, pp. 22-23.
disagree that such evidence establishes alter ego status as a
matter of law, contending that such facts simply describe
West Sprague's “mere subsidiary status.” Such
“mere control and even total ownership, ”
according to Defendants, do not warrant the disregard of a
separate corporate entity, must less a determination as a
matter of law that West Sprague was the alter ego of the
Bank. See Defs.' Mem., Dkt. 448, p. 23.
Idaho law, two elements must combine to justify disregarding
the legal status of distinct business entity existence.
First, there must be such a “unity of interest”
between the two entities that there are not separate
personalities between the two. Second, it must appear from
the facts that the observance of the fiction or separate
existence of two separate entities would, under the
circumstances, sanction a fraud or promote injustice.
Bailey v. Price Manufacturing Co., LLC, 2015 WL
12681370, *6 (D. Idaho Jan. 23, 2015); Hayhurst v.
Boyd, 300 P. 895, 898-99 (Idaho 1931); see also
Tolman v. American Red Cross, 874 F.Supp.2d 928, 936 (D.
Idaho 2012) (discussing that proof of alter ego status is
required to pierce corporate veil of even parent and
subsidiary companies); Hutchison v. Anderson, 950
P.2d 1275, 1279 (Idaho Ct. App. 1997) (party asserting alter
ego must put forward “sufficient evidence such that
there is no distinction” between the two entities).
factors guide the assessment of whether an alter ego
relationship exists, including the level of control that the
shareholder exercises over the corporation, whether separate
business formalities are observed, whether the entities are
operated separately and keep separate books, and the
decision-making process of the entities. E.g., Wandering
Trails, LLC v. Big Bite Excavation, Inc., 329 P.3d 368,
376 (Idaho 2014). In Wandering Trails, a land
development limited liability company and its managing member
brought breach of contract and related claims against a
paving company known as Piper Ranch, LLC (“Piper
Ranch”), and its only members, husband and wife Tim and
Julie Schelhorn (“the Schelhorns”). The claims arose
in part from an assignment agreement between the plaintiff
developer and Piper Ranch. Id. at 371. The plaintiff
sought to impose liability against the Schelhorns on the
theory that Piper Ranch was their alter ego, arguing that
Piper Ranch was undercapitalized, was controlled exclusively
by the Schelhorns, and acted only as a financial conduit for
the Schelhorns. Id. at 375-76.
Idaho Supreme Court ruled that such facts were insufficient
to establish “a unity of interest” to support a
finding of an alter ego status. Id. Instead, the
court held that such evidence demonstrated “a
distinction between the personalities of the Schelhorns
and Piper Ranch [LLC].” Id. at 377. (Emphasis
supplied.) Among other things, the Piper Ranch bank account
had checks in only Piper Ranch's name, there was
no evidence that the Schelhorns deposited their own money
into that account other than to meet capital obligations, and
there was no evidence that either of the Schelhorns used
Piper Ranch money to pay their own obligations. Id.
Further, the Schelhorns had insisted that the assignment
agreement run between the developer and Piper Ranch - not
between the developer and the Schelhorns individually.
the instant case, Plaintiffs rely on facts very similar to
those which fell short in Wandering Trails. Here,
Plaintiffs rely upon the fact that the Bank was the only
member of West Sprague, LLC, and they contend that the Bank
exercised full control over West Sprague. But, under Idaho
law, the fact that a separate entity is the only member of an
LLC entity and exercises full control of the LLC is
“not a relevant inquiry” for determining alter
ego. Id. at 377. Indeed, the court went on to say the
plaintiffs' “argument, if accepted, would
effectively eviscerate the legislative intent that
member-managed and individual LLCs are separate legal
entities.” Id. Significantly, in the trial of
this case, Defendants put on evidence that West Sprague had
separate financial statements, separate income statements,
its own general ledger accounts, and a separate federal tax
ID number. See Oberst Testimony, Dkt. 420,
81:1-82:4. Such factual indicia of economic separateness are
identical in all relevant manner to the facts relied upon by
the court in Wandering Trails. Id. at 375.
in order to establish an alter ego there must be an
inequitable result that would follow if the entities were not
treated as the same. In general terms, this means that
observing the separate entities would “sanction a fraud
or promote injustice.” See Maroun v. Wyreless Sys.,
Inc., 114 P.3d 974, 986-87 (Idaho 2005). The fact a
creditor may be unsatisfied is not proof alone of an
injustice warranting piercing the corporate veil. United
States v. Standard Beauty Supply Stores, Inc., 561 F.2d
774, 777 (9th Cir. 1977). Relatedly, “[i]t is a general
principle of corporate law deeply ingrained in our economic
and legal systems that a parent corporation (so-called
because of control through ownership of another
corporation's stock) is not liable for the acts of its
subsidiaries.” United States v. Bestfoods, 524
U.S. 51, 61 (1998) (internal quotation and citation omitted).
Only in exceptional cases do such bright lines give way, such
as if fraud or injustice would result if the corporate form
was not disregarded. Seymour v. Hull & Moreland
Engineering, 605 F.2d 1105, 1111 (9th Cir. 1979).
“To warrant casting aside the legal fiction of distinct
corporate existence . . . it must [ ] be shown that there is
such a unity of interest and ownership that the individuality
of such corporation and such person had ceased; and it must
further appear from the facts that the observance of the
fiction of separate existence would, under the circumstances,
sanction a fraud or promote injustice.” Hayhurst v.
Boyd, 300 P. 895, 897 (Idaho 1931).
in keeping with these general principles measured against the
facts presented in this case, and construing the facts most
favorable to the non-moving party under Rule 50,
Plaintiffs' motion for judgment as a matter of law on the
issue of alter ego is denied.
Jury Instruction No. 37 Is a Correct Statement of Applicable
Law on Assumption by Implication of a Contract
contend that Jury Instruction No. 37 erroneously instructed
on the law applicable to Plaintiffs' claim of assumption
by implication. In particular, Plaintiffs complain of the
language which reads “assumption by implication occurs
when the assignee's conduct manifests an intent to be
bound to such duty or obligation.” Jury Instruction No.
37, Dkt. 382, p. 18. Plaintiffs argue the language should be:
“the assignee of an executory contract is not liable on
the contract in the absence of an express assumption of the
obligations of the contract.” Pls.' Mem.,
Dkt. 416, p. 13 (emphasis in original).
argue that without the words “of the contract, ”
the instruction was ambiguous because the jury would have
been required to decide whether “Defendants intended to
assume the membership deposit refund liability, rather than
requiring the jury to determine if the Defendants'
conduct showed an intent to assume the assigned Membership
Agreement.” Id. at 13-14.
draw upon Hardinger v. Fullerton, 5 P.2d 987, 989
(Wash. 1931), which held that “the assignee of an
executory contract is not liable on the contract in the
absence of an express assumption of the obligations of the
contract . . .” Pls.' Mem., Dkt. 416, p. 13;
see also Summary Judgment Decision, Dkt. 177, p. 28.
Hardinger draws upon a treatise for the proposition
that a “purchaser is not liable for the payment of an
encumbrance unless he has expressly or impliedly agreed to
pay the same, and a mere recital that the property is sold
subject to an encumbrance is not sufficient to create a
personal liability.” Hardinger, 5 P.2d at 990
(internal quotation omitted). The focus of
Hardinger, however, was upon a particular liability
(as would sensibly be so), and the Washington Supreme Court
specifically affirmed the trial court's ruling that the
evidence of an “assumption of the
indebtedness” was not sufficiently strong and
convincing and that there was no implied ...