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Bailey v. Peritus I Assets Management, LLC

Supreme Court of Idaho

July 12, 2017

SHAWN W. BAILEY, Plaintiff-Appellant,
v.
PERITUS I ASSETS MANAGEMENT, LLC, Defendant-Respondent, and AMERICAN MEDICAL FILE, INC., a California Corporation; RONALD J. HELLER, an individual; DAVID J. DESMOND, an individual; and WILLIAM R. ESPINOSA, Defendants.

         2017 Opinion No. 89

         Appeal from the District Court of the Fourth Judicial District, State of Idaho, Ada County. Hon. Melissa Moody, District Judge.

         District court judgment dismissing breach of contract claim, vacated and remanded.

          Jeffrey J. Hepworth & Associates, Boise, for appellant. Jeffrey J. Hepworth argued.

          Hawley Troxell Ennis & Hawley, LLP, Boise, for respondent. John Ashby argued.

          BURDICK, CHIEF JUSTICE.

         Shawn W. Bailey brings this appeal from the Ada County district court. In October 2014, Bailey sued several parties, including Peritus 1 Assets Management, LLC (Peritus), for claims allegedly arising out of his employment at American Medical File, Inc. (AMF), doing business as OnFile. Bailey alleged claims for breach of his employment contract and intentional infliction of emotional distress. Peritus moved to dismiss Bailey's claim for intentional infliction of emotional distress, and the district court granted the motion on the basis that Bailey had not alleged conduct that was extreme and outrageous. Peritus thereafter moved for summary judgment on Bailey's breach of contract claim, contending the statute of frauds rendered it unenforceable. In response, Bailey moved to amend his complaint in an effort to bypass the statute of frauds. The district court denied Bailey leave to amend and granted Peritus summary judgment, finding the statute of frauds dispositive. Bailey timely appeals the denial of leave to amend and grant of summary judgment in favor of Peritus. We vacate the district court's judgment dismissing Bailey's breach of contract claim against Peritus and remand.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         AMF was incorporated in California in 2001. AMF was a startup company that provided medical records management software to entities in the healthcare industry. Bailey was hired as AMF's Vice President of Product Development in April 2006 under an oral contract of employment entitling Bailey to an annual salary of $110, 000 plus several fringe benefits. Bailey maintains that Peritus, an investment advisory company involved with AMF, recruited him to work at AMF and agreed it would be responsible for paying his compensation.

         Peritus became involved with AMF in 2004, when some Peritus clients took an interest in investing in AMF. To that end, Peritus formed the Peritus Global Opportunity Fund, LLP (PGO Fund), a hedge fund, as a vehicle for interested clients to invest in AMF. Between September 2004 and November 2006, the PGO Fund invested approximately $6, 450, 000 in AMF. Moreover, the PGO Fund extended a bridge loan to AMF, which was secured by AMF's founders' shares of AMF stock. After AMF defaulted on the bridge loan in 2005, the PGO Fund foreclosed on the AMF shares securing its loan and became the owner of ninety percent of AMF's outstanding stock. The PGO Fund dissolved in 2008, at which time the AMF shares were distributed to the Peritus clients who formerly comprised the PGO Fund. Peritus then began loaning funds to AMF. As a condition of the loans, Peritus required AMF to allow Peritus's Chief Operating Officer, David J. Desmond, and its Founder and Managing Member, Ronald J. Heller, to be on AMF's Board of Directors so as to "monitor the operation of AMF."

         In his pre-employment discussions, Bailey became aware of Peritus's ties to AMF. He became aware also that AMF was underfunded and generating only $2, 500 per month in revenue. When Bailey recalled those discussions, he indicated that Peritus representatives made several promises that Peritus would pay Bailey's compensation because AMF could not. Nevertheless, Bailey did not receive all compensation to which he was entitled under his oral contract of employment. By August 2011, Bailey was allegedly owed $95, 000 in back pay. When he threatened to resign, he was provided with a written contract of employment. The written contract recites that Bailey was entitled to an annual salary of $150, 000 plus several fringe benefits. The written contract says nothing of back pay, but Bailey maintains that Peritus made several promises to pay his back pay in full.

         Even with the written contract, Bailey still did not receive all compensation to which he was entitled. He resigned from AMF in March 2013 and sued in October 2014, alleging claims for breach of employment contract and intentional infliction of emotional distress. As defendants, Bailey named AMF, Peritus, and three individuals associated with AMF and Peritus.[1] All defendants moved to dismiss. In March 2015, the district court dismissed both claims against the defendants who Bailey had named individually and also dismissed the emotional distress claim against all defendants, leaving only the breach of contract claim against AMF and Peritus. In May 2015, AMF filed for bankruptcy, and Bailey's contract claim against AMF was stayed. Peritus moved for summary judgment, contending the statute of frauds barred Bailey's breach of contract claim. Bailey responded by requesting leave to amend his complaint in an effort to bypass the statute of frauds. The district court denied Bailey's motion to amend and granted Peritus's motion for summary judgment. Bailey timely appeals the denial of leave to amend and grant of summary judgment in favor of Peritus.

         II. ISSUES ON APPEAL

         1. Did the district court err by granting summary judgment to Peritus on Bailey's claim for ...


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