from the District Court of the First Judicial District of the
State of Idaho, Kootenai County. Hon. John T. Mitchell,
district court's judgment is affirmed. Attorney fees and
costs on appeal are awarded to respondent.
Merrill & Merrill, Chartered, Pocatello, and Hague Law
Offices, Coeur d'Alene, attorneys for appellants. Mary
Witherspoon Kelley, Spokane, Washington, attorneys for
respondent. Christopher Varallo argued.
an action for breach of an employment contract in which
Thomas Lunneborg (Lunneborg) claimed he was entitled to $60,
000 severance because he was terminated without cause.
Lunneborg was hired to be Chief Operating Officer (COO) of My
Fun Life Corporation (MFL) on April 16, 2014. Lunneborg was
terminated on July 29, 2014, ostensibly for cause. Lunneborg
brought this action seeking his severance pay pursuant to the
employment contract. The district court, sitting as trier of
fact, found MFL did not have cause to terminate Lunneborg.
Therefore, Lunneborg was awarded $60, 000 in damages, which
was trebled to $180, 000 under the Idaho Wage Claims Act.
Lunneborg was also awarded attorney fees. The court also
pierced MFL's corporate veil and found that
Lunneborg's judgment may be collected against MFL's
sole shareholder, Dan Edwards (Edwards), and against
Edwards' wife, Carrie Edwards (Carrie), personally.
Edwards, and Carrie appeal, contending that the trial court
erred in three particulars, by: 1) failing to uphold
Edwards' determination that Lunneborg was fired for
cause; 2) piercing the corporate veil; and 3) abusing its
discretion in the amount of attorney fees it awarded to
Lunneborg. We affirm the judgment of the district court.
FACTUAL AND PROCEDURAL BACKGROUND
a court trial, the following salient facts were established.
MFL was a multi-level marketing company that sold memberships
for access to discount travel accommodations. Edwards was the
sole shareholder and director of MFL. Edwards' wife
Carrie was not a shareholder of MFL, but she had previously
served as COO of the corporation, and thereafter as its
Executive Vice President. In early 2014, Edwards wanted to hire
someone to take over the day-to-day operations at MFL.
Edwards also wanted to hire someone who could develop
nutritional products, which MFL members could purchase in
addition to travel accommodations.
Corp. (OxyFresh) was a multi-level marketing company that
sold nutritional products, among other goods. Edwards knew
both the owner of OxyFresh, Richard Brooke (Brooke), and its
head naturopath, Dr. Todd Schlapfer (Schlapfer), who helped
create nutritional products at OxyFresh. Lunneborg worked at
OxyFresh in sales and product development for over twenty
years and was Vice President of Logistics and Product
Development in April 2014. While working for OxyFresh,
Lunneborg, together with Schlapfer, brought several
nutritional products to market. One of these products was a
vitamin drink called "Life Shotz," in which
Lunneborg held an ownership interest.
knew Edwards was looking for an executive level employee to
run MFL, and he also knew Lunneborg had concerns about
continuing his employment at OxyFresh. Unlike Schlapfer,
Lunneborg had no background in science and, therefore, he
could not develop nutritional products on his own. However,
Lunneborg had experience marketing, distributing, and
bringing nutritional products to market.
was introduced to Lunneborg through Schlapfer. After several
meetings with Lunneborg, Edwards offered him a position at
MFL as its COO via a letter dated April 8, 2014. Lunneborg
accepted Edwards' offer of employment, and an employment
contract between MFL and Lunneborg was created when Lunneborg
signed the letter on April 16, 2014. In pertinent part, the
employment contract stated: "Your employment with the
Company will be at will; meaning that either you or the
Company will be entitled to terminate your employment at any
time and for any reason, with or without cause." The
employment contract stated further: "In the event of
termination of this employment agreement, without cause,
except resignation, six months of salary will be paid on
current payroll schedule." Lunneborg's first day as
MFL's COO was May 21, 2014.
of the negotiations for Lunneborg to work at MFL, the parties
agreed that Lunneborg could simultaneously serve as a
consultant for OxyFresh for six months to make up for the
difference between what Lunneborg was earning at OxyFresh in
April 2014 and what he was initially being paid at MFL.
Lunneborg also wanted to act as a consultant to help ease the
impact of his transition from OxyFresh to MFL. Edwards was
aware of Lunneborg's intention to consult for OxyFresh
and did not object to this arrangement. Despite
Lunneborg's intentions, Lunneborg and Brooke were unable
to finalize a written agreement regarding the scope of
Lunneborg's consulting services. Nevertheless, Lunneborg
continued to work as a consultant for OxyFresh and received a
monthly salary of $5, 000 from May to July 2014.
Lunneborg and Brooke were negotiating the terms of the
consulting contract, Brooke contacted Edwards. Edwards
contends that Brooke informed him that Lunneborg had a
contractual obligation with OxyFresh that prohibited
Lunneborg from developing any nutritional products at MFL.
The trial court found that Edwards never verified through
Lunneborg that he was under contract with OxyFresh. Instead,
Edwards relied on what the court characterized as a
"false rumor" and approached Lunneborg, telling him
that he needed to resign from MFL. Edwards said once
Lunneborg resigned he would form a new retail corporation and
hire Lunneborg to run it. Edwards stated that if Lunneborg
failed to agree, then he would be terminated. When Lunneborg
asked why he had to resign before the new corporation was
formed, Edwards responded that "he had a fiduciary duty
to his shareholders and members." When Lunneborg asked
what he would be terminated for, Edwards reiterated this same
response. Lunneborg refused to resign from MFL.
29, 2014, Edwards physically delivered a termination letter
to Lunneborg. The termination letter cited two separate
reasons for Lunneborg's termination:
1. The central purpose of your employment here was to bring
health and nutritional products to market. You are unable to
make any significant progress to that end, and whenever I
have encouraged you to work on that goal, you have refused to
take action, citing roadblocks that you claim prevent the
development of new products.
2. I have also learned that you have been negotiating a
consulting agreement with your former employer that would
expressly prohibit you from bringing other new products to
market. This is in direct competition with your duties at
MyFunLife and a serious breach of your obligation to us. We
cannot continue to pay an employee who not only fails to
perform the central functions of his position, but is
motivated to continue in that failure by an outside
consulting arrangement that requires continued inaction.
relied upon these grounds to terminate Lunneborg. Because
Edwards felt he terminated Lunneborg for cause, Edwards
refused to pay him the $60, 000 in severance which Lunneborg
sought pursuant to the employment contract.
December 8, 2014, Lunneborg filed a complaint against MFL.
The complaint alleged, among other things, that: (1) MFL
breached its employment contract with Lunneborg by
terminating him without cause and not paying him the $60, 000
in severance; and (2) MFL violated the Idaho Wage Claims Act
(Idaho Code section 45-601 et. seq.,
which entitled Lunneborg to treble damages in the amount of
$180, 000. On January 5, 2015, MFL filed an answer and
counterclaim. The answer denied Lunneborg's claims and
asserted the affirmative defenses of failure of consideration
and fraudulent inducement. The counterclaim alleged that
Lunneborg breached his duty of good faith and fair dealing
and that Lunneborg was unjustly enriched. On January 27,
2015, Lunneborg filed an answer to the counterclaim, which
asserted various defenses to MFL's counterclaim.
September 8, 2015, Lunneborg sought leave of the district
court to amend his original complaint to add Edwards and
Carrie as defendants. Lunneborg asserted that he could pierce
MFL's corporate veil and reach the personal assets of
both Edwards and Carrie to satisfy any potential judgment
against MFL. Leave was granted without objection, and
Lunneborg's first amended complaint was filed on December
21, 2015. On February 16, 2016, the appellants answered but
did not plead any affirmative defenses or counterclaims to
this amended complaint.
22, 2016, MFL filed a notice of bankruptcy, informing the
district court that MFL filed for Chapter 7 protection under
the United States Bankruptcy Code. As a result, Lunneborg
filed a motion to reset the trial date, and the district
court rescheduled the trial to begin on March 13, 2017.
March 13, 2017, a three-day bench trial commenced. On April
17, 2017, the district court issued its memorandum decision.
The court determined that Lunneborg was terminated without
cause. As the finder of fact, the court did not believe the
two reasons Edwards gave for Lunneborg's termination, and
alternatively found that if Edwards believed in these
reasons, such beliefs were unreasonable. The court further
found that the reasons given by Edwards were a pretext, and
that Lunneborg may have been terminated because he refused to
replicate OxyFresh's product, Life Shotz, for MFL. When
making these findings, the district court did not believe
Edwards or Carrie were credible witnesses; thus, the court
gave more weight to the testimony of Lunneborg and other
witnesses than it gave to Edwards or Carrie. Because the
court determined Lunneborg was terminated without cause, it
found he was entitled to $60, 000 severance pay pursuant to
his employment agreement. This amount was trebled to $180,
000 pursuant to the Idaho Wage Claims Act. The district court
also pierced MFL's corporate veil and found Edwards and
Carrie were jointly and severally liable to Lunneborg. On
April 25, 2017, the court issued its final judgment.
3, 2017, the appellants filed a motion to alter or amend the
district court's judgment. The appellants argued that the
court erred when it found Carrie's separate property (as
a non-shareholder in MFL) could be subject to Lunneborg's
judgment. On June 6, 2017, the court issued a decision
denying the appellants' motion to alter or amend and the
appellants filed their notice of appeal on the same day. On
June 20, 2017, the court issued its amended final judgment,
granting Lunneborg costs in the amount of $6, 852.69,
discretionary costs in the amount of $176.00, and attorney
fees in the amount of $160, 000.00. On July 11, 2017, the
appellants filed an amended notice of appeal based on this
amended final judgment.
ISSUES ON APPEAL
the district court err when it found Lunneborg was terminated
from MFL without cause?
the district court err when it pierced MFL's corporate
the district court err when it pierced MFL's corporate
veil to reach the personal assets of Carrie Edwards?
the district court abuse its discretion in awarding Lunneborg
attorney fees in the amount of $160, 000.00?
Lunneborg entitled to attorney fees on appeal?
STANDARD OF REVIEW
"The review of a trial court's decision after a
court trial is limited to ascertaining 'whether the
evidence supports the findings of fact, and whether the
findings of fact support the conclusions of law.'"
Griffith v. Clear Lakes Trout Co., 143 Idaho 733,
737, 152 P.3d 604, 608 (2007) (quoting Idaho Forest
Indus., Inc. v. Hayden Lake Watershed Improvement Dist.,
135 Idaho 316, 319, 17 P.3d 260, 263 (2000)). This Court will
affirm a trial court's findings of fact unless those
findings are clearly erroneous. Id.; I.R.C.P.
52(a)(7). Findings of fact that are supported by substantial
and competent evidence are not clearly erroneous-even in the
face of conflicting evidence in the record. Kelly v.
Wagner, 161 Idaho 906, 910, 393 P.3d 566, 570 (2017).
"Substantial and competent evidence is relevant evidence
which a reasonable mind might accept to support a
conclusion." Id. (quoting Lamar Corp. v.
City of Twin Falls, 133 Idaho 36, 42-43, 981 P.2d 1146,
1152-53 (1999).) Finally, because of the trial court's
special role to weigh conflicting evidence and judge the
credibility of witnesses, "[t]his Court will
'liberally construe the trial court's findings of
fact in favor of the judgment entered. . . .'"
Id. (quoting Oregon Mut. Ins. Co. v. Farm Bureau
Mut. Ins. Co. of Idaho, 148 Idaho 47, 50, 218 P.3d 391,
Hull v. Giesler, 163 Idaho 247, ___, 409 P.3d 827,
recently held "that issues of alter ego and
veil-piercing claims are equitable questions."
Wandering Trails, LLC v. Big Bite Excavation, Inc.,
156 Idaho 586, 591, 329 P.3d 368, 373 (2014). "In these
cases, the trial court is responsible for determining factual
issues that exist with respect to this equitable remedy and
for fashioning the equitable remedy." Id.
Accordingly, the trial court's determination that
MFL's corporate veil should be pierced is subject to an
abuse of discretion standard of review. See Climax, LLC
v. Snake River Oncology of E. Idaho, PLLC, 149 Idaho
791, 794, 241 P.3d 964, 967 (2010) (a trial court's
decision to grant or withhold equitable remedies is reviewed
for abuse of discretion). When this Court reviews an alleged
abuse of discretion by a trial court the sequence of inquiry
requires consideration of four essentials. Whether
the trial court: (1) correctly perceived the issue as one of
discretion; (2) acted within the outer boundaries of its
discretion; (3) acted consistently with the legal standards
applicable to the specific choices available to it; and (4)
reached its decision by the exercise of reason. See
Hull, 163 Idaho at ___, 409 P.3d at 830.
discretionary standard has frequently been cited as a
"multi-tiered inquiry," e.g., State v.
Hedger, 115 Idaho 598, 600, 768 P.2d 1331, 1333 (1989)
or even as a "three prong" standard, see
Blackmore v. Re/Max Tri-Cities, LLC, 149 Idaho 558, 563,
237 P.3d 655, 660 (2010), which judges and lawyers alike can
likely recite by heart. It appears to have originated in
Assocs. Nw., Inc. v. Beets, 112 Idaho 603, 605, 733
P.2d 824, 826 (Ct. App. 1987), based upon language taken from
the Idaho Appellate Handbook, Standards of Appellate
Review in State and Federal Courts, § 3.4, (Idaho
Law Foundation, Inc., 1985). We take this occasion to clarify
that even though this test has been enumerated in three
subparts for over thirty years, it is actually a
four-part standard, requiring trial courts to do the
four things set forth above in exercising their
discretion. By making this correction we are not altering the
substance of the test; we simply take this opportunity to
clarify what has previously been a compound second sentence
-- which actually requires two separate things, that a trial
judge act both 1) within the boundaries of her or his
discretion; and 2) consistently with the legal standards
applicable to the specific choices available to the judge.