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Lunneborg v. My Fun Life

Supreme Court of Idaho

June 28, 2018

THOMAS LUNNEBORG, Plaintiff-Respondent,
v.
MY FUN LIFE, a Delaware corporation, EDWARDS E. EDWARDS and CARRIE L. EDWARDS, husband and wife, Defendants-Appellants.

          Appeal from the District Court of the First Judicial District of the State of Idaho, Kootenai County. Hon. John T. Mitchell, District Judge.

         The 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 Shea argued.

          Witherspoon Kelley, Spokane, Washington, attorneys for respondent. Christopher Varallo argued.

          BEVAN, JUSTICE.

         This is 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.

         MFL, 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.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         During 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.[1] 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.

         OxyFresh 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.

         Schlapfer 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.

         Edwards 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.

         As part 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.

         While 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.

         On July 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.

         Edwards 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.

         On 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., [2]) 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.

         On 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.

         On June 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.

         On 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.

         On May 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.

         II. ISSUES ON APPEAL

         1. Did the district court err when it found Lunneborg was terminated from MFL without cause?

         2. Did the district court err when it pierced MFL's corporate veil?

         3. Did the district court err when it pierced MFL's corporate veil to reach the personal assets of Carrie Edwards?

         4. Did the district court abuse its discretion in awarding Lunneborg attorney fees in the amount of $160, 000.00?[3]

         5. Is Lunneborg entitled to attorney fees on appeal?

         III. 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, 394 (2009)).

Hull v. Giesler, 163 Idaho 247, ___, 409 P.3d 827, 829-30 (2018).

         We have 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.

         This 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.

         IV. ...


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