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Wadsworth Reese, PLLC v. Siddoway & Company, PC

Supreme Court of Idaho

July 25, 2019

WADSWORTH REESE, PLLC, an Idaho professional corporation; CLARK A. REESE CPA P.C., an Idaho professional corporation; and WADSWORTH ACCOUNTING CPA, an Idaho professional corporation, Plaintiffs-Counterdefendants-Respondents,
v.
SIDDOWAY & COMPANY, PC, an Idaho professional corporation; RANDY SIDDOWAY, an individual, Defendants-Counterclaimants-Appellants. SIDDOWAY & COMPANY, PC, an Idaho professional corporation; RANDY SIDDOWAY, an individual, Counterclaimants-Appellants,
v.
FREDERICK WADSWORTH, an individual; and CLARK A. REESE, an individual, Counterdefendants-Respondents.

          Appeal from the District Court of the Fourth Judicial District of the State of Idaho, Ada County. Jason D. Scott, District Judge.

         The district court's judgment is affirmed.

          Hastings Law Group, LLC, Salt Lake City, for appellants. Brett W. Hastings argued.

          Fisher & Hudson, Boise, for respondents. Vaughn Fisher argued.

          BRODY, JUSTICE

         This appeal arises from the division of a three-member accounting firm, Siddoway, Wadsworth & Reese, PLLC. The three members of the firm were the personal professional corporations solely owned by each accountant. In early 2015, Reese PC signed a purchase agreement to buy a one-half interest in the client base of Siddoway PC for $200, 000. This purchase agreement included an arbitration clause.

         In August of 2015, Siddoway left the accounting firm, taking several employees and the clients' information with him. Following Siddoway's departure, the firm (now named Wadsworth Reese, PLLC), along with its remaining members, filed a complaint in the district court against Siddoway and his personal professional corporation and two of the employees who followed him. Siddoway counterclaimed. The parties brought a range of claims.

         Reese PC and Siddoway PC also went to arbitration for claims related to their purchase agreement, but the arbitrator determined the purchase agreement was void for failure of a condition subsequent.

         The remaining claims between the parties were tried by the district court. The district court entered findings of fact and conclusions of law, ultimately deciding to "leave the parties where it found them." This included the following final determinations pertinent to this appeal: the district court ordered dissociation of Siddoway's personal professional corporation as a firm member; Siddoway and Siddoway PC were not entitled to attorney fees for compelling arbitration; Siddoway PC failed to show unjust enrichment from the void purchase agreement; and the firm could fund Reese's personal professional corporation's litigation and arbitration costs because resolving the purchase-agreement dispute served a legitimate business purpose. Siddoway and Siddoway PC timely appealed.

         We affirm the district court's judgment. Siddoway and Siddoway PC were not entitled to attorney fees for compelling arbitration, nor did they show unjust enrichment or breach of membership duties.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         Clark Reese, Frederick Wadsworth, and Randy Siddoway are each certified public accountants with their own professional corporation (respectively, Reese PC, Wadsworth PC, and Siddoway PC). In 2012, Reese became an employee of Siddoway PC. Following the death of Steve Harding, one of Siddoway's former accounting partners, Siddoway and Reese began discussing becoming partners on terms that Reese would purchase a one-half interest in Siddoway's practice. This term was to balance out the client base each accountant would bring to the new firm-Siddoway brought about 450 clients while Reese brought less than ten clients from his previous positions.

         On December 20, 2013, Reese and Siddoway formed CRS Services, PLLC. A month later, they changed the accounting firm's name to Siddoway, Wadsworth & Reese to reflect the addition of a third accountant, Frederick Wadsworth. About that same time, Siddoway, Wadsworth & Reese (hereinafter Wadsworth Reese PLLC to reflect its current title) obtained the Harding client base. That purchase agreement between Wadsworth Reese PLLC (then named CRS) and Harding & Co., P.A., contained a five-year non-competition provision.

         Siddoway PC, Reese PC, and Wadsworth PC signed the Siddoway Wadsworth Reese operating agreement on January 6, 2014, which gave each member a one-third membership interest in the firm. The operating agreement did not include a non-competition clause. However, the operating agreement appears to have been intended as a temporary document because the three members had yet to decide all the terms under which they would do business together.

         A year later, on January 28, 2015, Siddoway PC and Reese PC signed "the Reese Agreement" in which Reese PC promised to pay Siddoway PC $200, 000 for a one-half interest in Siddoway's client base. Reese PC signed an associated promissory note for $200, 000, while Reese signed guaranties to both the Reese Agreement and promissory note. Reese PC agreed to pay the $200, 000 in monthly payments over the next four years. The Reese Agreement contained a non-competition clause, an agreement to arbitrate, and a provision that awarded "the prevailing party" attorney fees following legal action.

         Right on the heels of Siddoway PC and Reese PC signing the Reese Agreement, the three individual accountants all signed a modification of the Reese Agreement that required the three members of Wadsworth Reese PLLC to agree to amend the operating agreement to finally settle the terms under which they would do business together by February 15, 2015, or else the Reese Agreement would be void. Despite the three members' failure to reach an agreement by the February 15 deadline, Reese PC continued to make payments to Siddoway PC under the Reese Agreement. Ultimately, Reese PC paid approximately $28, 000 to Siddoway PC. Siddoway PC had transferred numerous clients to Wadsworth Reese PLLC, and Reese became the accountant for hundreds of those clients, based both on his capacity to take on the work as well as Siddoway's referrals to Reese.

         In 2015, Siddoway's relationship with both Reese and Wadsworth broke down, causing the parties to discuss buyout options and begin negotiations on how Siddoway PC would exit Wadsworth Reese PLLC. The parties never agreed upon terms. On August 21, 2015, Siddoway announced he was leaving the firm. As Siddoway left Wadsworth Reese PLLC he took several employees with him, including his nephew Dustin Siddoway and administrative employee Jeanine Barkan. On the day he announced his departure, Siddoway also downloaded Wadsworth Reese PLLC's UltraTax files, which contained the firm's clients' names, addresses, tax information, and any work in progress. Siddoway then sent a list of Wadsworth Reese PLLC's clients to Dustin Siddoway.

         Immediately after leaving Wadsworth Reese PLLC, Dustin Siddoway formed the accounting firm AnchorPoint, PLLC, while Barkan formed an LLC now called PoleStar Entrepreneurial Group. Their goal was to create complementary businesses with an overlapping clientele. Siddoway's departure ultimately resulted in a "mass migration" of over 200 clients to AnchorPoint. About 60 percent of the Harding client base remained at Wadsworth Reese PLLC. During this time, Dustin Siddoway also met twice with Reese and Wadsworth "to resolve difficulties arising from the company's breakup" and to obtain tax data for certain clients. Siddoway PC and AnchorPoint seem to have remained separated due to concerns over a noncompetition provision in the agreement Wadsworth Reese PLLC used to purchase the Harding client base. AnchorPoint and Siddoway PC remain separate entities.

         On December 14, 2015, Wadsworth Reese PLLC, Reese PC, and Wadsworth PC, collectively sued Siddoway and Siddoway PC, alleging trade secrets violations, breach of the operating agreement, breach of fiduciary duties, and interference with prospective business advantage, amongst other claims. In addition, the plaintiffs requested a judicial order to dissociate Siddoway from Wadsworth Reese PLLC. Reese PC also sought $28, 000 in damages, plus interest, for the amount paid to Siddoway PC under the Reese Agreement. Siddoway and Siddoway PC counterclaimed, alleging breach of the operating agreement, violations of Idaho Code section 30-6-404 for failing to ...


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