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Taylor v. Riley

Supreme Court of Idaho

September 20, 2017

REED J. TAYLOR, Plaintiff-Appellant,
v.
RICHARD A. RILEY and HAWLEY TROXELL ENNIS & HAWLEY, LLP, an Idaho limited liability partnership, Defendants-Respondents, and SHARON CUMMINGS, Personal Representative of the Estate of Robert M. Turnbow, and EBERLE BERLIN KADING TURNBOW & MCKLVEEN, CHTD., an Idaho Corporation.

         2017 Opinion No. 100

         Appeal from the District Court of the Fourth Judicial District of the State of Idaho, in and for Ada County. Hon. Richard D. Greenwood, District Judge.

         The judgment of the district court is affirmed.

          Roderick C. Bond, Roderick Bond Law Office PLLC, Bellevue, Washington, argued for appellant.

          Jeffrey A. Thomson, Elam & Burke PA, Boise, argued for respondents.

          EISMANN, Justice.

         This is an appeal from a judgment dismissing claims against an attorney and a law firm that he later joined based upon an opinion letter issued by the attorney in his capacity as corporate counsel regarding the legality of a stock redemption agreement. The Appellant challenges the grant of summary judgment to the Respondents and the amount of attorney fees awarded to them. We affirm the judgment dismissing the claims and the awards of attorney fees, and we award attorney fees on appeal.

         I.

         Factual Background.

         This case arises out of an opinion letter issued in August 1995 to Reed J. Taylor by Messrs. Robert A. Riley and Robert M. Turnbow, as counsel for AIA Services Corporation ("AIA Services"). Mr. Taylor held sixty-three percent of the corporation's common stock and served as the Chairman of the Board of Directors and the corporation's Chief Executive Officer. In July 1995, Mr. Taylor and AIA Services entered into a stock redemption agreement, in which the corporation agreed to redeem Mr. Taylor's stock for $7.5 million and other consideration. Messrs. Riley and Turnbow represented the corporation in negotiating that agreement, and Mr. Taylor was represented by his own counsel. The stock redemption agreement required an opinion letter from the corporation's legal counsel, and Messrs. Riley and Turnbow participated in drafting and issuing that letter.

         The letter was dated August 15, 1995, and signed "Eberle Berlin Kading Turbow & McKlveen, Chtd." ("Eberle Berlin"), which was the law firm of which Mr. Turnbow was a partner and Mr. Riley was an employee. In the letter, they stated that AIA Services and its subsidiaries "have full corporate power and authority to enter into, execute and deliver" the stock redemption agreement and related documents; that the stock redemption agreement and related documents "constitute the valid and binding obligation of Company and its Subsidiaries enforceable against them in accordance with their respective terms"; and that neither the stock redemption agreement nor the consummation of the transaction, "to the best of our knowledge, violate any law." The opinion letter was addressed to Mr. Taylor, and it concluded with the statement, "This opinion is furnished by us solely for your benefit for use in connection with the Transaction Documents and the transactions contemplated thereby; and it may not be furnished or quoted to, or relied upon, by any other person."

         The stock redemption transaction closed in August 1995. Pursuant to agreement, AIA Services gave Mr. Taylor a promissory note in the sum of $1.5 million payable within ninety days and a promissory note in the sum of $6 million payable in ten years, with monthly interest-only payments until the note was paid in full. The corporation failed to make the required payments, and Mr. Taylor and the corporation executed a restructured stock redemption agreement dated July 1, 1996. When the corporation failed to make the payments due under that agreement, Mr. Taylor filed a lawsuit on January 29, 2007, against the corporation, its subsidiaries, Mr. Taylor's brother, other officers and directors of AIA Services, and their spouses (Taylor v. AIA Services Corp.). Before the lawsuit was resolved, Mr. Taylor filed two more lawsuits against the attorneys who were representing or had represented defendants in the Taylor v. AIA Services Corp. lawsuit.

         In April 2008, defendants in Taylor v. AIA Services Corp. filed motions for a partial summary judgment alleging that the stock redemption agreement was unenforceable because it was an illegal contract. The hearing on those motions was held on April 23, 2008. In August 2008, Mr. Taylor filed a lawsuit against Michael E. McNichols and his firm, Clements, Brown and McNichols, P.A. (Taylor v. McNichols), who initially represented Mr. Taylor's brother, AIA Services, and its subsidiary. In April 2007, Mr. McNichols had withdrawn from representing AIA Services and its subsidiary, and Gary Babbitt and John Ashby, of the law firm Hawley Troxell Ennis & Hawley, LLP ("Hawley Troxell"), appeared as counsel for those defendants. In August 2008, Mr. Taylor also filed a lawsuit against Messrs. Babbitt and Ashby, Hawley Troxell, and two other attorneys from that firm, Patrick Collins and Richard Riley, (Taylor v. Babbitt). On March 1, 1999, Mr. Riley had left Eberle Berlin and had joined Hawley Troxell.

         Mr. Taylor asserted claims against the attorneys for (1) aiding and abetting or assisting others in the commission of tortious acts in Taylor v. AIA Services Corp.; (2) conversion and misappropriation of the corporate assets of AIA Services and its subsidiary; (3) violations of Idaho's Consumer Protection Act, and (4) professional negligence and/or breach of fiduciary duties for their conduct in representing AIA Services, including their failure to defend the accuracy of the opinion letter. The defendants in these two cases filed motions to dismiss, and the court entered orders granting those motions. The district judge presiding over these two cases was also the district judge presiding over Taylor v. AIA Services Corp., and he took judicial notice of that case in toto when deciding the motions. Mr. Taylor filed notices of appeal, but no judgments had yet been entered in the cases. They were remanded for the entry of judgments, which were then provided to this Court on March 24, 2010. The two cases were consolidated for the appeal, and this Court upheld the judgments in favor of the defendants. Taylor v. McNichols, 149 Idaho 826, 243 P.3d 642 (2010).

          On June 17, 2009, the court in Taylor v. AIA Services Corp. held that the stock redemption agreement was void because a statute in effect in 1995 prohibited a corporation from redeeming its own shares unless either (a) the corporation had sufficient unreserved and unrestricted earned surplus to do so or (b) it had sufficient unreserved and unrestricted capital surplus to do so and the use of capital surplus for the redemption was authorized either by the articles of incorporation or by the vote of the holders of a majority of all its shares. The court found, based upon the evidence presented in connection with the motions for summary judgment, that AIA Services had negative earned surplus in 1995 and that the use of capital surplus had not been authorized by a vote of the shareholders. Mr. Taylor did not contend that the use of capital surplus was authorized by the articles of incorporation.

         On September 4, 2009, the court in Taylor v. AIA Services Corp. entered a partial judgment dismissing as to all defendants Mr. Taylor's claims alleging breach of contract, misrepresentation, fraud, conversion, constructive trust, specific performance, and breach of the implied covenants of good faith and fair dealing. That partial judgment was certified as final pursuant to Rule 54(b) of the Idaho Rules of Civil Procedure. This Court affirmed the partial judgment on appeal. Taylor v. AIA Servs. Corp., 151 Idaho 552, 261 P.3d 829 (2011).

         On October 1, 2009, Mr. Taylor filed this lawsuit against Mr. Riley, Hawley Troxell, Mr. Turnbow, and Eberle Berlin. In Mr. Taylor's complaint, he sought to recover damages caused by his reliance on the opinion letter issued by Messrs. Riley and Turnbow based upon the theories of negligent misrepresentation, malpractice, consumer protection act violations, breach of fiduciary duties, and fraud or constructive fraud. Mr. Turnbow passed away while the lawsuit was pending, and the personal representative of his estate was substituted as a party in his place. Mr. Taylor and the personal representative ultimately reached a settlement, and Mr. Taylor's claims against the estate were dismissed with prejudice.

         Mr. Riley and Hawley Troxell filed motions for summary judgment seeking dismissal with prejudice of all claims alleged against them in the complaint, and Mr. Taylor filed a motion for partial summary judgment seeking an order that they were liable on all of his claims. After briefing and argument, the district court entered orders denying Mr. Taylor's motion, granting Mr. Riley's motion with respect to the claims of negligent misrepresentation and violation of the Consumer Protection Act, and granting Hawley Troxell's motion dismissing all claims against it.

          On September 7, 2011, this Court issued its opinion in Taylor v. AIA Services Corp. upholding the judgment that the stock redemption agreement was illegal and therefore void. In that case, Mr. Taylor argued that if the stock redemption agreement was illegal, it should still be enforced because he was fraudulently induced to enter into the agreement by the opinion letter. He also argued that the opinion letter included false assertions of fact. In rejecting those arguments, this Court in Taylor v. AIA Services Corp. stated as follows:

Third, Reed Taylor argues that even if the Stock Redemption Agreement is illegal, it should be enforced because he was fraudulently induced to enter into the agreement by an opinion letter (the Opinion Letter), which offered the opinion that the Stock Redemption Agreement was legal. The Opinion Letter was written by a law firm, acting as general counsel for AIA Services in connection with the agreement, and was addressed to Reed Taylor. Reed Taylor argues that the district court erred in: (1) refusing to enforce the Stock Redemption Agreement based upon fraud; (2) finding that the Opinion Letter did not provide factual representations or mixed representations of fact and opinion; and (3) making these decisions on fraud without ever permitting Reed Taylor to depose or conduct discovery with the attorneys who rendered the opinions and factual representations to him. Reed Taylor makes no argument and provides no explanation on these claims; he merely states that the district court made these errors. Furthermore, Reed Taylor cites nothing in the record except for the district court's Opinion and Order granting partial summary judgment and its Opinion and Order on the motion for reconsideration.

Taylor v. AIA Servs. Corp., 151 Idaho at 566, 261 P.3d at 843 (emphasis added).

         After quoting the district court's conclusion that the opinion letter was not a statement of fact, but merely a statement of opinion that cannot form the basis of a fraud claim, we held:

We affirm the district court in dismissing Reed Taylor's fraud argument. On appeal, Reed Taylor merely states the general proposition that an opinion can form the basis for fraud when there is intent to mislead, but he does not actually argue that anyone intended to mislead him in this case and points to nothing in the record suggesting that anyone had such intent. As to Reed Taylor's claim that the district court erred in finding an absence of fraud without giving him the opportunity to depose or conduct discovery with the lawyers who authored the Opinion Letter, Reed Taylor again makes no argument in this section of his brief concerning this issue.

Id. (emphasis added).

         Based upon our opinion in Taylor v. AIA Services Corp., on December 15, 2011, Mr. Riley moved for a partial summary judgment dismissing the claims against him for fraud and constructive fraud. The motion was briefed by Mr. Riley and Mr. Taylor, and it was argued on January 30, 2012. Based upon the briefing and oral argument, the district court entered a decision holding that the fraud and constructive fraud claims were barred by res judicata because Messrs. Riley and Turnbow were in privity with AIA Services, based upon the fact that they issued the opinion letter in the course of representing the corporation and, alternatively, that the fraud and constructive fraud claims were barred by the doctrine of collateral estoppel. On April 30, 2012, the court entered an order dismissing the fraud and constructive fraud claims.

         Mr. Riley again moved for summary judgment on several grounds, including that the claim for malpractice was barred by res judicata based upon the judgment entered in Taylor v. Babbitt. The district court denied the motion, and Mr. Riley sought a permissive appeal to this Court on that issue, which this Court granted. On appeal, this Court held that Mr. Taylor's malpractice claim against Mr. Riley was barred by the doctrine of res judicata. Taylor v. Riley, 157 Idaho 323, 335, 336 P.3d 256, 268 (2014) (Taylor v. Riley I).

         On remand, the district court entered judgments on July 8, 2015, dismissing with prejudice all claims against Hawley Troxell and all claims against Mr. Riley. The court also awarded Mr. Riley and Hawley Troxell court costs and attorney fees. Mr. Taylor and Sharon Cummings, the personal representative of Mr. Turnbow's estate, reached an agreement to settle the claims against the estate, and on September 18, 2015, the court entered a judgment dismissing all claims against the estate.

         On October 23, 2015, Mr. Taylor filed a motion asking the district court to reconsider various orders and decisions it had entered during the litigation and the judgments entered in favor of Riley and Hawley Troxell. Mr. Taylor filed a notice of appeal on October 29, 2015, and on January 5, 2016, the court entered an order denying his motion for reconsideration.

         II.

         Did the District Court Err in Dismissing Mr. Taylor's Claim for Negligent Misrepresentation?

         As the first claim for relief in his complaint, Mr. Taylor alleged that Mr. Riley was liable for alleged false representations made in the opinion letter based upon the tort of negligent misrepresentation. Mr. Riley moved for summary judgment dismissing that claim, which the district court granted based upon this Court's opinions in Duffin v. Idaho Crop Improvement Ass'n, 126 Idaho 1002, 895 P.2d 1195 (1995), and Mannos v. Moss, 143 Idaho 927, 155 P.3d 1166 (2007). In Duffin, we held that, "except in the narrow confines of a professional relationship involving an accountant, the tort of negligent misrepresentation is not recognized in Idaho." 126 Idaho at 1010, 895 P.2d at 1203. In Mannos, we reaffirmed that holding. 143 Idaho at 935, 155 P.3d at 1174. On appeal, Mr. Taylor asks us to expand the tort of negligent misrepresentation to include attorneys. We need not address the arguments he makes in asking us to do so, because any claim for negligent misrepresentation would be barred by res judicata, based upon our opinion in Taylor v. Riley I. In that appeal, we held that Mr. Taylor's claim, which he alleged in his complaint as being for "professional negligence, malpractice, negligence and/or negligent issuance of an opinion letter" was barred by the doctrine of res judicata. 157 Idaho at 335, 336 P.3d at 268. A claim for negligent misrepresentation based upon the content of the opinion letter is the same cause of action under a different theory, and so it too would be barred by the doctrine of res judicata. Therefore, we will not address this issue.

         III. Did the District Court Err in Dismissing Mr. Taylor's Claim for Malpractice?

         As the second claim for relief in his complaint, Mr. Taylor alleged that Mr. Riley committed malpractice in drafting and issuing the opinion letter. Mr. Taylor contends on appeal that the district court erred in holding that his malpractice claim was barred by the doctrine of res judicata.

         Mr. Riley moved for summary judgment seeking dismissal of the malpractice claim on the ground that it was barred by the doctrine of res judicata based upon the judgment in Taylor v. Babbitt, and the district court denied that motion. This Court granted Mr. Riley's request for a permissive appeal to decide that issue. On appeal, we held that Mr. Taylor's malpractice claim against Mr. Riley was barred by res judicata, and we remanded the case to the district court. Taylor v. Riley I, 157 Idaho at 335, 340, 336 P.3d at 268, 273. Based upon the doctrine of "law of the case, " the district court did not err in holding that Mr. Taylor's malpractice claim was barred by res judicata.

The doctrine of "law of the case" is well established in Idaho and provides that "upon an appeal, the Supreme Court, in deciding a case presented states in its opinion a principle or rule of law necessary to the decision, such pronouncement becomes the law of the case, and must be adhered to throughout its subsequent progress, both in the trial court and upon subsequent appeal . . . ."

Swanson v. Swanson, 134 Idaho 512, 515, 5 P.3d 973, 976 (2000). Therefore, we will not revisit our prior holding that Mr. Taylor's malpractice claim is barred by res judicata.

         IV. Did the District Court Err in Dismissing Mr. Taylor's Claims ...


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