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Taylor v. Taylor

Supreme Court of Idaho

July 27, 2018

DONNA J. TAYLOR, Plaintiff-Appellant-Cross Respondent,
v.
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.

          Appeal from the District Court of the Second Judicial District, State of Idaho, Nez Perce County. Hon. Jeff M. Brudie, District Judge.

         District court judgment, reversed in part and remanded.

          Rodrick Bond Law Office, PLLC, Bellevue, WA, argued for appellant.

          Martelle, Bratton & Associates, Eagle, for respondents. Martin J. Martelle argued.

          BURDICK, CHIEF JUSTICE.

         Donna 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.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         Donna 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.

         In 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.

         Reed's 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.

         In 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.

         Following 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.

         In May 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.

         In July 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 agreement.

         Following 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 rule.

         In June 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.

         Donna subsequently moved for reconsideration and to set aside the judgment, which the district court denied. Donna timely appealed to this Court.

         II. ISSUES ON APPEAL

         1. Whether the 1996 Series A Shareholder Agreement (1996 PSA) is illegal as to Donna.

         2. Whether the 1995 Letter Agreement is illegal and unenforceable.

         3. Whether the district court erred when it dismissed Donna's fraud claims.

         4. Whether the district court erred when it dismissed Donna's claim for unjust enrichment.

         5. Whether Donna can appeal the denial of her motion ...


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