DONNA J. TAYLOR, Plaintiff-Appellant-Cross Respondent,
R. JOHN TAYLOR, CONNIE TAYLOR (aka CONNIE TAYLOR HENDERSON), JAMES BECK, MICHAEL W. CASHMAN SR., and AIA SERVICES CORPORATION, an Idaho corporation, Defendants-Respondents-Cross Appellants.
from the District Court of the Second Judicial District,
State of Idaho, Nez Perce County. Hon. Jeff M. Brudie,
court judgment, reversed in part and
Rodrick Bond Law Office, PLLC, Bellevue, WA, argued for
Martelle, Bratton & Associates, Eagle, for respondents.
Martin J. Martelle argued.
BURDICK, CHIEF JUSTICE.
Taylor (Donna) appeals the Nez Perce County district
court's judgment regarding her Series A Preferred Shares
in AIA Services Corporation (AIA). In 1987, Donna received
200, 000 Series A Preferred Shares in AIA as part of a
divorce settlement. Between 1987 and 1996, Donna, AIA, and
other relevant parties entered into various stock redemption
agreements with differing terms and interest rates. One such
agreement was challenged in Taylor v. AIA Servs.
Corp., 151 Idaho 552, 563, 261 P.3d 829, 840 (2011).
While the Taylor case was being litigated, AIA
discontinued paying Donna for the redemption of her shares,
prompting her to file suit. Donna alleged several causes of
action against AIA, with the primary issue being whether
Donna is entitled to have her shares redeemed at the prime
lending rate plus one-quarter percent. AIA contends that any
agreement providing that interest rate is unenforceable, and
instead Donna's redemption is governed by AIA's
amended articles of incorporation, which provide the interest
rate as the prime lending rate minus one-half percent. On
reconsideration, the district court determined Donna's
share redemption was governed by AIA's amended articles
of incorporation, and as such, all but 7, 110 of Donna's
shares had been redeemed. Donna timely appealed, and AIA
along with individual defendants, cross appealed several of
the court's determinations. For reasons discussed below,
we reverse in part and remand.
FACTUAL AND PROCEDURAL BACKGROUND
and her husband Reed Taylor (Reed) created AIA in 1983. Donna
and Reed divorced in 1987, and as part of the divorce
settlement, Donna received 200, 000 Series A Preferred Shares
in AIA, making her the sole owner of all outstanding Series A
Preferred Shares issued by the corporation. AIA's
articles of incorporation were amended in 1987 to reflect
Donna's agreement and provided that her shares would be
redeemed over a fifteen-year amortization schedule at the
prime lending rate less one and one-half percent. In 1993,
Donna provided a written demand to AIA to redeem her Series A
Preferred Shares. In December 1993, Donna began receiving
payments from AIA in the amount of $15, 000 per month,
increasing in 1995 to $24, 000 per month which she received
until February 2001.
January 1995, AIA sought to reorganize and Donna, along with
AIA, entered into an agreement memorialized in four letters
(1995 Letter Agreement) that changed the redemption of
Donna's shares to a ten-year amortization schedule at the
prime lending rate plus one-quarter percent. Later in 1995,
AIA, Donna, and Reed entered into a stock redemption
agreement that incorporated and referenced the 1995 Letter
Agreement. The corporation quickly went into default and in
1996 the parties entered a restructured stock redemption
agreement, the Series A Preferred Shareholder Agreement (1996
PSA). Pursuant to the 1996 PSA, AIA was to continue redeeming
Donna's shares at the higher interest rate and over a
ten-year amortization schedule. The agreement also made
Donna's debt senior to Reed's debt.
brother, John Taylor (John), is the president and majority
shareholder in AIA. In February 2001, John informed Donna
that AIA was developing a new insurance program called
CropUSA and asked that AIA be allowed to defer five months of
payments to Donna. Donna agreed based on the personal
guarantee of the five payments by Reed and John. Thereafter,
approximately $4, 000 per month was paid to Donna from
October 2001 to May 2004. In 2006, AIA was in default of its
1996 PSA with Donna and Reed. In December 2006, Donna and
Reed entered into a written agreement that made the debt owed
to Donna by AIA subordinate to the debt AIA owed to Reed;
however, AIA was not informed of the subordination agreement.
AIA continued to pay Donna $10, 000 a month until June 2008
when AIA stopped payments based on pending litigation by Reed
following the subordination agreement between Reed and Donna.
January 2007, Reed sued AIA, John, and Connie Taylor (Connie)
for numerous actions including breach of contract. In June
2008, while Reed's suit was pending, Donna filed suit
against John, and later amended the suit to add Connie. The
case was stayed pending the outcome of Reed's appeal. As
to Reed's appeal, this Court affirmed the district
court's determination that the 1996 PSA was illegal and
unenforceable. Taylor, 151 Idaho at 563, 261 P.3d at
840. This Court held the agreement illegal because it
violated the earned and capital surplus limitations in Idaho
Code section 30-1-6 which is now repealed but was applicable
at the time of the agreement.
this Court's ruling in Reed's case, John and Connie
filed a motion for partial summary judgment, asking the
district court to determine as a matter of law that Donna was
owed $82, 000 for her unredeemed shares, which Donna
disputed. The district court denied the motion, lifted the
stay, and informed the parties they could re-notice their
2009 motions and file additional briefing.
2013, Donna filed a new complaint against AIA, John, Connie,
James Beck (Beck) and Michael Cashman (Cashman), collectively
"defendants." Donna asserted claims against AIA for
breach of contract. Donna also asserted claims against John,
Connie, Beck and Cashman for breach of fiduciary duty, aiding
and abetting breach of fiduciary duty, and unjust enrichment.
Donna asserted fraud claims against all parties and a cause
of action seeking declaratory relief or specific performance.
The defendants counterclaimed that Donna breached the 1996
PSA when she signed the subordination agreement with Reed.
Donna's 2008 and 2013 lawsuits were consolidated. The
parties re-filed their 2009 motions with the defendants
moving to dismiss and for summary judgment, and Donna moving
for partial summary judgment.
2014 the district court 1) granted defendants' motion to
dismiss finding Donna's claims for fraud, breach of
fiduciary duty, and aiding and abetting breaches of fiduciary
duty were barred by the economic loss rule; 2) determined
Donna failed to make a prima facie case for unjust
enrichment; 3) determined Reed was not an indispensable party
and the guarantee agreement was not void as to John; 4) held
that the parties agreed the 1996 PSA between Donna and AIA
was illegal; 5) determined the 1995 Letter Agreement was
valid and enforceable and the number of shares redeemed must
be in conformance with that agreement; 6) denied Donna's
motion for partial summary judgment on whether the defendants
breached any fiduciary duty to Donna; and 7) held Donna did
not breach the 1996 PSA because one cannot breach an illegal
the district court's July 2014 ruling, both parties moved
for reconsideration and clarification. The defendants
contended the 1995 Letter Agreement was unlawful because it
provided for a higher interest rate than in the applicable
1987 articles of incorporation. The district court again
determined the 1995 Letter Agreement was legal and
enforceable. The court reasoned that while there was
insufficient earned surplus to satisfy the first redemption
option in Idaho Code section 30-1-6, AIA had not presented
evidence the shareholders did not vote to authorize the use
of capital surplus or the higher interest rate. The district
court also reconsidered and determined Donna's claim for
breach of fiduciary duty was not barred by the economic loss
2015, defendants again moved the district court to reconsider
the legality of the 1995 Letter Agreement. The defendants
filed a declaration to demonstrate there had never been a
shareholder vote authorizing the use of capital surplus to
redeem Donna's shares, nor was there any record the
shareholders had ever authorized a higher interest rate than
provided by the articles of incorporation. In light of the
new evidence, the district court held that it was now
uncontroverted that the AIA shareholders never voted to pay a
higher interest rate than in the articles of incorporation
and therefore the 1995 Letter Agreement was illegal. Thus,
the court held, the only equitable remedy was to recalculate
the redemptions of Donna's shares at the only lawful
interest rate-the rate established by the 1987 articles of
incorporation which was the prime lending rate minus one and
one-half percent. The court determined that Donna had
received $2, 696, 797.80 in payments to redeem her shares
since 1993. Using a calculation provided by AIA, the court
held that applying the lawful rate of prime minus one and
one-half percent, all but 7, 110 of Donna's shares had
been redeemed. Thus, the court entered judgment 1) dismissing
Donna's claims for breach of the 1995 Letter Agreement
and 1996 PSA; 2) dismissing Donna's claims for fraud and
aiding and abetting fraud; 3) dismissing Donna's claim
for unjust enrichment; 4) that Donna holds 7, 110 unredeemed
Series A Preferred Shares in AIA; and 5) dismissing AIA's
counterclaim that Donna breached the 1996 PSA.
subsequently moved for reconsideration and to set aside the
judgment, which the district court denied. Donna timely
appealed to this Court.
ISSUES ON APPEAL
Whether the 1996 Series A Shareholder Agreement (1996 PSA) is
illegal as to Donna.
Whether the 1995 Letter Agreement is illegal and
Whether the district court erred when it dismissed
Donna's fraud claims.
Whether the district court erred when it dismissed
Donna's claim for unjust enrichment.
Whether Donna can appeal the denial of her motion ...