Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Taylor v. Hawley Troxell Ennis & Hawley LLP

United States District Court, D. Idaho

May 31, 2018

DALE L. MIESEN, an individual who is a shareholder and who is also bringing this action on behalf of and/or in the right of AIA Services Corporation and its wholly owned subsidiary AIA Insurance, Inc., Plaintiff,
v.
HAWLEY TROXELL ENNIS & HAWLEY LLP, an Idaho limited liability partnership; GARY D. BABBITT, an individual; D. JOHN ASHBY, an individual; RICHARD A. RILEY, an individual; AIA SERVICES CORPORATION, an Idaho corporation; AIA INSURANCE, INC., an Idaho corporation; CROP USA INSURANCE SERVICES, LLC, an Idaho limited liability company; CROP USA INSURANCE AGENCY, INC., an Idaho corporation; CONNIE TAYLOR HENDERSON, an individual; JOLEE K. DUCLOS, an individual; MICHAEL W. CASHMAN SR., an individual; JAMES BECK, an individual; R. JOHN TAYLOR, an individual; and GEMCAP LENDING I, LLC, a Delaware limited liability company, Defendants, and CROP USA INSURANCE SERVICES, LLC, an Idaho limited liability company; CROP USA INSURANCE AGENCY, INC., an Idaho corporation; CONNIE TAYLOR HENDERSON, an individual; JOLEE K. DUCLOS, an individual; R. JOHN TAYLOR, an individual; MICHAEL CASHMAN SR., an individual; and JAMES BECK, an individual, Defendants/Third-Party Plaintiffs,
v.
REED TAYLOR, an individual, Third-Party Defendant, and GEMCAP LENDING I, LLC, a Delaware limited liability company, Defendant/Third-Party Plaintiff,
v.
QUARLES & BRADY, LLP, a Wisconsin limited legal partnership; and CRUMB & MUNDING, P.S., a Washington professional service corporation, Third-Party Defendants.

          MEMORANDUM DECISION AND ORDER

          DAVID C. NYE U.S. DISTRICT COURT JUDGE

         I. OVERVIEW

         This matter comes before the Court on two Motions to Dismiss GemCap Lending I LLC's (“GemCap”) Third-Party Complaint (Dkts. 303, 322) and one Motion for Sanctions (Dkt. 362). As explained below the Court finds good cause to GRANT the two Motions to Dismiss and DENY the Motion for Sanctions.

         II. FACTUAL BACKGROUND

         A. The Original Parties and Dispute This is a shareholder's derivative action, the Court's jurisdiction over which is based upon diversity of citizenship. Plaintiff Dale Miesen is a minority shareholder of Defendant AIA Services Corporation (“AIA”), the alleged wronged corporation.[1]

         There were originally two groups of defendants in this action. The first group consists of AIA Services Corporation, AIA Insurance, Inc. (collectively “AIA Entities”), CropUSA Insurance Agency, CropUSA Insurance Services (collectively “CropUSA”), and several controlling shareholders and officers of those entities, namely: R. John Taylor, James Beck, Michael Cashman, Connie Taylor Henderson, and JoLee Duclos[2](individuals, collectively, “AIA Controlling Defendants”). The second group consists of the law firm Hawley Troxell Ennis & Hawley, LLP, and several of its attorneys who represented the AIA Entities and CropUSA during the events that gave rise to this action, namely: Gary Babbitt, Richard Riles, and John Ashby (collectively “Hawley Troxell Defendants”). GemCap intervened in this action as a defendant in July of 2016. Later, Miesen asserted claims against GemCap in the Third Amended Complaint.

         Miesen and Donna Taylor originally filed this case on August 11, 2010. However, the operative complaint is the Third Amended Complaint, which Miesen filed on April 24, 2017. Dkt. 211. In it, Miesen alleges, among other things, that the AIA Controlling Defendants engaged in fraud and breached their fiduciary duties to the AIA minority shareholders. AIA was formed in 1983. It sold insurance products to members of farmers' and growers' associations and worked with farmers and growers to form trusts and/or related cooperatives. In the late 1990s, the AIA Board of Directors, controlled by the AIA Controlling Defendants, decided to begin selling crop insurance through a wholly-owned subsidiary called CropUSA. Miesen alleges that the AIA Controlling Defendants unlawfully transferred CropUSA from AIA to their own possession. The AIA Controlling Defendants then proceeded to unlawfully fund, subsidize, and operate CropUSA using AIA's assets. Through their operation of CropUSA, the AIA Controlling Defendants defrauded AIA of millions of dollars. Miesen also alleges that the AIA Controlling Defendants committed a “laundry list” of other unlawful acts including, self-dealing, malfeasance, and intentional torts. Miesen has highlighted specific acts Defendant John Taylor allegedly committed. John Taylor was President of both AIA Entities and CropUSA during all of these events. Miesen alleges that John Taylor unlawfully transferred real property to AIA, required AIA to pay the liabilities on the property, unlawfully amended AIA's Bylaws, and issued himself Series A Preferred Shares in AIA. Miesen claims that all of the above-described acts hurt AIA's minority shareholders.

         Hawley Troxell represented both the AIA Entities and CropUSA during the relevant timeframe. Accordingly, Miesen claims the Hawley Troxell Defendants aided and abetted the fraud the AIA Controlling Defendants perpetuated against AIA and its minority shareholders and committed legal malpractice.

         B. Allegations Against GemCap

         In 2011, after Miesen filed this lawsuit, the AIA Controlling Defendants sought additional funding for CropUSA. They went to GemCap for this funding. On November 23, 2011, the AIA Controlling Defendants obtained a $5 million line of credit from GemCap for CropUSA. The parties subsequently increased this line of credit to $10 million. Initially, the AIA Entities guaranteed only $1, 113, 930 of the loan. Later, in October 2012, the AIA Controlling Defendants had the AIA Entities guarantee the entire $10 million loan (collectively, “the Guarantees”). John Taylor, as the President of the AIA Entities signed the Guarantees. On December 20, 2012, GemCap filed a UCC financing statement with the Idaho Secretary of State regarding the Guarantees.

         In his Third Amended Complaint, Miesen asserts that when GemCap executed the loan documents, it knew, or should have known: (1) that this lawsuit was pending; (2) that the Guarantees violated AIA Services' amended articles of incorporation and bylaws, and numerous Idaho Code sections; and (3) that AIA and its officers were not authorized to execute the Guarantees.

         CropUSA defaulted on the $10 million loan. On July 16, 2013, GemCap provided CropUSA with a notice of default. Then, on July 29, 2013, GemCap provided a notice of default and demand for payment to the AIA Entities for the $8, 676, 288.39 CropUSA owed GemCap. Finally, on July 30, 2013, GemCap filed suit against CropUSA, the AIA Entities, and the AIA Controlling Defendants in the U.S. District Court for the Central District of California. GEMCAP Lending I, LLC vs. Crop USA, et al., No. 13-cv-55040-SLO (C.D. Cal.).

         In January 2015, GemCap entered into a Settlement Agreement with the AIA Entities. John Taylor signed the Settlement Agreement on behalf of the AIA Entities. Under the terms of the Settlement Agreement, the AIA Entities were required to transfer certain real property to GemCap. Pursuant to the Settlement Agreement, the Court also entered judgments against the AIA Entities in the amount of $12, 126, 584.61, which included $3, 986, 368.78 in interest, penalties, and costs. In addition, the Settlement Agreement provided that the AIA Entities would not file for bankruptcy protection and that John Taylor and/or certain other AIA Controlling Defendants would continue to operate the AIA Entities in the manner that they had been operated in the past. Judge S. James Otero of the Central District of California entered a Stipulated Judgment in the case on April 12, 2015. Dkt. 288-2.

         Miesen asserts that the Settlement Agreement was illegal because it (1) violated AIA Services' amended articles of incorporation and bylaws; (2) violated numerous Idaho Code sections; and (3) was the product of intentional breaches of John Taylor's fiduciary duties, which he owed to the AIA Entities. Miesen also maintains that the AIA Controlling Defendants did not disclose the CropUSA loans, the Guarantees, or the Settlement Agreement to AIA's minority shareholders, as required, until 2015.

         In his Third Amended Complaint, Miesen asserts that GemCap substantially assisted and acquiesced in the AIA Controlling Defendants' “breaches of their fiduciary duties, fraud, and other malfeasance” by requiring the AIA Controlling Defendants to improperly and unlawfully operate AIA, and by allowing John Taylor to “unlawfully enter into the Settlement Agreements” and Guarantees. Accordingly, Miesen asserts claims against GemCap for aiding and abetting breach of fiduciary duty, fraud, aiding and abetting fraud, and for statutory liability under Idaho Code § 30-29-304 (ultra vires).[3]Miesen bases his claims against GemCap, at least in part, on the allegation that the Guarantees and Settlement Agreement were made in violation of AIA Services' Amended Articles of Incorporation. Specifically, the Articles barred the AIA Entities from entering into these types of transactions without the approval of the Series A Shareholders of AIA Services. At the time the AIA Entities entered into the Guarantees and Settlement Agreement, Donna Taylor was the Series A Shareholder. Miesen alleges that Donna Taylor did not know about these contracts and did not consent to the AIA Entities entering into any of these contracts. GemCap asserts that it relied on, among other things, John Taylor's assurances that he had the authority to enter into these contracts on behalf of the AIA Entities.

         C. GemCap's Third Party Complaint

         GemCap filed its Third Party Complaint against the law firm of Crumb & Munding and the law firm of Quarles & Brady on November 21, 2017, based on their involvement with the loan, the Guarantees, and the Settlement Agreement.

         According to the Third Party Complaint, GemCap required CropUSA, as a condition precedent to the loan agreement, to provide a written legal opinion regarding the legality of the loan and Guarantees. CropUSA's attorneys, Quarles & Brady, provided a legal opinion letter that stated the “execution, delivery and performance by . . . each Guarantor . . . will not . . . violate any laws, statutes or regulations to which any Loan Party is subject . . . or (c) to our best knowledge, violate, conflict with, or result in a breach of or default under, any agreement or instrument to which any Loan Party [including Guarantors] is a party or by which it is, or any of its properties or assets are, or may be bound . . . .” Dkt. 288, at 5. GemCap relied on this opinion letter in executing the loan documents and Guarantees. If GemCap is found liable to the minority shareholders, it asserts Quarles & Brady should also be found liable as it advised GemCap that the Guarantees were duly authorized, and/or failed to disclose to GemCap that the Guarantees were not duly authorized.

         GemCap also asserts Crumb & Munding should be held liable under such circumstances. Crumb & Munding represented John Taylor when he signed the Settlement Agreement on behalf of the AIA Entities. If it is determined that John Taylor lacked authority to sign the Settlement Agreement, GemCap asserts Crumb & Munding should be held liable because it failed to advise John Taylor that he lacked this authority and it did not ensure that the Settlement Agreement was executed by someone with the authority to bind the AIA Entities. Accordingly, GemCap asserts claims for contribution/implied indemnity against Quarles & Brady and Crumb & Munding.

         D. Pending Motions On December 21, 2017, Crumb & Munding filed its Motion to Dismiss. Dkt. 303. On January 29, 2018, Quarles & Brady filed its Motion to Dismiss. Dkt. 322. On April 4, 2018, Crumb & Munding also filed a Motion for Rule 11 Sanctions. Dkt. 362. After the parties fully briefed the Motions, the Court held oral argument on May 4, 2018, and took the Motions under advisement.

         III. CRUMB & MUNDING'S MOTION TO DISMISS

         Crumb & Munding argues that the claims GemCap asserts against it should be dismissed for three reasons: (1) the Court lacks subject matter jurisdiction over the claims; (2) the Court lacks personal jurisdiction over it; and (3) GemCap has failed to state a claim upon which relief can be granted. The Court focuses on what it sees as the heart of this Motion: whether GemCap has stated a claim upon which relief can be granted.

         A. Legal Standard

         Federal Rule of Civil Procedure 12(b)(6) permits a court to dismiss a claim if the plaintiff has “fail[ed] to state a claim upon which relief can be granted.” “A Rule 12(b)(6) dismissal may be based on either a ‘lack of a cognizable legal theory' or ‘the absence of sufficient facts alleged under a cognizable legal theory.'” Johnson v. Riverside Healthcare Sys., LP, 534 F.3d 1116, 1121 (9th Cir. 2008) (citation omitted). Federal Rule of Civil Procedure 8(a)(2) requires a complaint to contain “a short and plain statement of the claim showing that the pleader is entitled to relief, ” in order to “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.” See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 554 (2007). “This is not an onerous burden.” Johnson, 534 F.3d at 1121. A complaint “does not need detailed factual allegations, ” but it must set forth “more than labels and conclusions, and a formulaic recitation of the elements.” Twombly, 550 U.S. at 555. The complaint must also contain sufficient factual matter to “state a claim to relief that is plausible on its face.” Id. at 570. In considering a Rule 12(b)(6) motion, the Court must view the “complaint in the light most favorable to” the claimant and “accept[] all well-pleaded factual allegations as true, as well as any reasonable inference drawn from them.” Johnson, 534 F.3d at 1122.

         B. Analysis

         GemCap's only claim against Crumb & Munding is for contribution/implied indemnity. GemCap first argues such a claim is actionable under Idaho Code ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.