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,
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,
FREDERICK WADSWORTH, an individual; and CLARK A. REESE, an individual, Counterdefendants-Respondents.
from the District Court of the Fourth Judicial District of
the State of Idaho, Ada County. Jason D. Scott, District
district court's judgment is affirmed.
Hastings Law Group, LLC, Salt Lake City, for appellants.
Brett W. Hastings argued.
& Hudson, Boise, for respondents. Vaughn Fisher argued.
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.
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.
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
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.
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
FACTUAL AND PROCEDURAL BACKGROUND
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
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.
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
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.
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.
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.
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
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 ...