R. Gordon Schmidt v. Tim Huston

IN THE SUPREME COURT OF THE STATE OF IDAHO
Docket No. 43620-2015
R. GORDON SCHMIDT, )
) Boise, December 2016 Term
Plaintiff-Appellant, )
) 2016 Opinion No. 148
v. )
) Filed: December 21, 2016
TIM HUSTON, )
) Stephen W. Kenyon, Clerk
Defendant-Respondent. )
)
)
Appeal from the District Court of the Fourth Judicial District of the State of
Idaho, in and for Ada County. Hon. Richard D. Greenwood, District Judge and
Hon. D. Duff McKee, Senior District Judge.
The judgment of the district court is affirmed.
Anthony M. Shallat, Angstman Johnson, Boise, argued for appellant.
Michelle R. Points, Points Law, PLLC, Boise, argued for respondent.
EISMANN, Justice.
This is an appeal out of Ada County from a judgment denying a claim for contribution on
equitable principles in an action by one co-guarantor against another co-guarantor. One of two
independent grounds for the district court’s decision was not challenged on appeal, and we
therefore affirm the judgment of the district court without addressing either ground.
I.
Factual Background.
R. Gordon Schmidt and Tim Huston were two of the members of TRG Leasing, LLC.
The company obtained a bank loan in the sum of $26,000, and Mr. Schmidt and Mr. Huston each
executed a guaranty of the loan. Mr. Schmidt ultimately paid the loan and brought this action
against Mr. Huston and Robin Navert, another guarantor, to require them to pay their share. He
settled with Ms. Navert for $5,000, and his claim against Mr. Huston was tried to the district
court. It ruled that under the facts it was inequitable to require Mr. Huston to pay any sum to Mr.
Schmidt, and he timely appealed.
The district court’s findings of fact were as follows:
1. TRG Leasing, LLC was formed in July of 2007, with Schmidt, Robin
Navert and Huston as members; Richard Navert was the non-member manager.
2. In October of 2007, TRG borrowed $26,000 from Bank of the West.
The bank apparently took an all-inclusive financing statement on all tangible
assets of TRG, plus obtained separate personal guaranties from Schmidt, Huston,
Robin Navert and RNR Enterprises.
3. Richard Navert was the non-member manager of TRG. He was also
the CEO of RNR. The Naverts (Richard and Robin) owned approximately 86%
of RNR; Schmidt owned approximately 10%; and Gary Navert, presumably
Richard Navert’s son, owned approximately 4%. There is no record that Huston
was a stockholder in RNR.
4. Huston was an employee of RNR, managing some of its operations out
of a location in Denver, Colorado. Navert ran the company from its headquarters
in Boise, Idaho. Navert and Huston met from time to time in Denver on RNR
business; Navert was often or frequently accompanied on these meetings by
Schmidt.
5. In 2011, Huston was fired by Richard Navert and Gordon Schmidt.
Huston understood this to mean that he had been terminated from any interest in
or with RNR and TRG. Huston left Denver for the Midwest, and had no contact
with Richard Navert, Robin Navert or Gordon Schmidt until after this lawsuit was
started in 2014.
6. Huston understood or was led to believe that the bank loan was being
taken care of as agreed by Navert and Schmidt.
7. From 2011 through 2014, the Naverts and Schmidt had sole control of
RNR and TRG. By this I find that Richard Navert was in operating control and
Schmidt knew or should have known what Navert was doing. The companies
were run in a manner to not make lease payments from RNR to TRG, not make
bank payments from TRG to Bank of the West and eventually to sell the
equipment owned by TRG and not pay the proceeds to Bank of the West.
8. Huston was unaware of any of these operating decisions by Navert and
Schmidt. Huston believed that the bank was being or had been fully paid.
9. Upon circumstantial evidence and the direct evidence noted, Schmidt
was aware that Navert was not making the lease payments from RNR to TRG,
was not making payments to the bank from TRG, and upon sale of the assets of
TRG, was not remitting the proceeds of sale of TRG’s assets to the bank.
10. Schmidt was a member of the LLC and a stockholder of the
corporation, and was in a position to take timely action upon the defaults noted.
11. Schmidt’s failure to act with respect to Navert’s apparent defalcations
to the bank materially prejudiced Huston’s interest in the matter.
12. Huston was never notified that the bank was calling the loan.
13. Richard Navert, individually but as a non-member, was the manager
of the TRG. His failure to account for the remaining assets of the entity,
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including his failure to account for and pay over to the bank the proceeds of sale
of two of the assets, or to account for the whereabouts of the third asset, constitute
causes of action available to the holder of the note in tracing the collateral and/or
to the remaining members of the LLC for misappropriation of company property
– which in both cases would be Schmidt.
14. Schmidt released Richard Navert individually from any liability for all
such causes of action as an incident of his settlement with Robin Navert.
15. The release seriously impairs the rights of any other party to attempt
to pursue Navert. If Navert had been pursued, the value of the unaccounted assets
may well have been sufficient to satisfy the entire bank debt.
16. By Schmidt’s action in prejudicing the interests of the co-surety in
this matter, the co-surety is discharged from any liability to Schmidt on his claim.
The district court ruled in favor of Mr. Huston on two separate grounds. The first ground
was based upon the sale of TRG Leasing’s assets that were security for the bank loan without
remitting the proceeds from such sales to the bank. The court stated as a conclusion of law that
it would be unjust or inequitable to allow Schmidt to recover from Huston when
Schmidt knew of and apparently acquiesced or was a party to the actions of
Navert in operating the companies in a manner to fail to carry out the lease
obligations between RNR and TRG and to fail to carry out the concomitant loan
obligations between TRG and the bank, and in disposing of the assets of TRG
without applying the proceeds to the bank, knowing that Huston was expecting
that these obligations would be fulfilled and knowing that Huston had no
reasonable way of discovering the truth.
The second ground was based upon Mr. Schmidt releasing Richard Navert from any
liability in connection with his settlement with Robin Navert where TRG Leasing LLC may have
had a cause of action against Mr. Navert for breaching his fiduciary duty to the company. The
court stated as a conclusion of law:
Further, the release of Richard Navert individually by Schmidt while
standing in the capacity as the holder of note and collateral security interests
attached, and further while standing in his capacity as the sole remaining member
of TRG Leasing LLC, prejudiced the rights and interests of the co-surety to bring
action against Navert for misappropriation, which liability might have proved to
be fiduciary and non-dischargeable. Since the actions of Navert in failing [to]
manage the companies in a manner to pay the note and in failing to account for
the proceeds of sale of the collateral securing the note may have constituted
breaches of contract and breaches of fiduciary duty, and since the value of the
non-accounted for assets appear on a book value basis to have been sufficient to
retire the entire debt, which value is corroborated the reported sale price from the
sale of one of the assets, the prejudice to the co-sureties by the actions of Schmidt
in failing to pursue Richard Navert individually, but instead in releasing him, is
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material. Under the facts of this case, the co-surety is discharged from the claim
of Schmidt entirely.
II.
Did the District Court Err in Holding that It Would Be Inequitable to Require Mr. Huston
To Pay Any Sum to Mr. Schmidt?
Mr. Schmidt does not challenge any of the district court’s factual findings on appeal.
Rather, he contends that the district court erred in basing its decision on the equitable doctrine of
unclean hands. He lists as an issue on appeal, “Did the Trial Court err in concluding that
Appellant could not recover from Respondent due to ‘unclean hands’?”
This action was one in equity. Mr. Schmidt brought this action seeking contribution from
Robin Navert and Mr. Huston, although he settled with Ms. Navert and only his claim against
Mr. Huston was litigated. Messrs. Schmidt and Huston each signed a separate guaranty, and
there was no contractual provision regarding contribution. Therefore, Mr. Schmidt’s claim for
contribution was equitable.1 “Contribution is a remedy deeply rooted in the principles of equity,
fair play and justice.” Masters v. State, 105 Idaho 197, 200, 668 P.2d 73, 76 (1983).
During opening statements, Mr. Schmidt’s counsel stated that the case was “governed by
the parameters of equity, and the parameters of equity would limit my client to having paid his
fair share.” In her opening statement, Mr. Huston’s counsel stated, “There is a lot of facts that
we are going to be introducing that go to the core issue of equity, and at the end of day, we are
confident that your court will allocate the number of zero to Mr. Huston based on those facts.”
The issue of what evidence was relevant in determining what was equitable arose several times
regarding the admissibility of evidence. Mr. Schmidt’s counsel contended that the attorney fees
incurred by Mr. Schmidt to reach the settlement with Robin Navert should be deducted from the
settlement received from her “in order for a court of equity to determine the amount of
contribution [it] needs to take into account the net amount of the settlement that Mr. Schmidt
recovered.”
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Mr. Schmidt also asserted that his claim was based upon equitable subrogation to the extent that he was recovering
what Mr. Huston in fairness should pay him. Characterizing this as subrogation rather than contribution would not
change the result. “The doctrine of subrogation is not administered as a legal right, but the principle is applied to
subserve the ends of justice and to do equity.” Houghtelin v. Diehl, 47 Idaho 636, 640, 277 P. 699, 700 (1929).
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Later on, a dispute arose regarding the admissibility of bank statements of TRG Leasing,
LLC, offered by Mr. Huston’s counsel. She argued in support of their relevance that “in a case
of equity, the court can take into account who received the benefit from the debt, where the—that
the co-guarantors were on, whether the party being sought to contribute received any
consideration for that loan.” During the colloquy among the district court and both counsel, the
court commented that where Mr. Schmidt’s claim is an equitable one, the equities could “extend
to the manner in which the debt was used, and who benefitted from it, and where did the money
go, and who knew what was going on, and what the participants were [sic].”
At that point, Mr. Schmidt’s counsel argued that Mr. Huston had not pled any affirmative
defenses. In response, Mr. Huston’s counsel stated: “I am just trying to enter evidence for the
court to review with respect to allocating the pie, the equities in the case. That’s it.” The district
court then overruled the objection to the records. During her cross-examination of Mr. Navert,
Mr. Huston’s counsel questioned him regarding the income of the company, the purchase of
equipment with the bank loan, the bank’s security interest in the equipment, the later sale of the
equipment, and his inability to state what happened to the proceeds of the sale, other than that
they were not paid to the bank.
During their closing arguments, both sides argued the equities of the situation, although
they disagreed as to how the equities should be viewed. Mr. Schmidt’s counsel contended that
the only equity is requiring the solvent coguarantors to share the debt equally, while Mr.
Huston’s counsel contended that all of the equities could be considered, which would result in
her client not paying anything. The district court concluded that it would be inequitable for Mr.
Schmidt to recover any sum against Mr. Huston.
On appeal, Mr. Schmidt concedes that “[c]ertain circumstances may warrant a court of
equity to redistribute the shared liability of a debt,” but such circumstances must be pled as an
affirmative defense, and Mr. Huston “never asserted an affirmative defense of unclean hands in
his answer.” The maxim of unclean hands need not be pled in an equitable proceeding. “A party
may invoke the maxim of unclean hands without pleading it. Moreover, in order that the suit
may be dismissed, the defendant need not have invoked the clean-hands maxim; the court may
act sua sponte or of its own motion.” 27A Am. Jur. 2d Equity § 106 (2008). “Equity has always
regarded itself free to apply or refuse to apply the maxim in a particular case, depending upon the
consequences and a due regard for other considerations involved.” Howay v. Howay, 74 Idaho
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492, 497, 264 P.2d 691, 694 (1953). When one party is seeking recovery in equity, “the trial
court is vested with discretion in determining the ‘equities’ between the parties.” Griggs v.
Safeco Ins. Co. of Am., 103 Idaho 790, 792, 654 P.2d 378, 380 (1982). “Under the equitable
doctrine of ‘unclean hands,’ the Court has the discretion to evaluate the relative conduct of both
parties and to determine whether the party seeking equitable relief should in the light of all the
circumstances be precluded from such relief.” Thomas v. Med. Ctr. Physicians, P.A., 138 Idaho
200, 209, 61 P.3d 557, 566 (2002). “A trial court’s decision to afford relief based on the unclean
hands doctrine, or to reject its application, will not be overturned on appeal absent a
demonstration that the lower court abused its discretion.” Sword v. Sweet, 140 Idaho 242, 251,
92 P.3d 492, 501 (2004).
Mr. Schmidt also asserts that the district court “allowed Respondent’s counsel to present
irrelevant testimony on non-disclosed evidence over Appellant counsel’s objections” and that
“[t]his non-disclosure prejudiced Appellant’s substantial rights.” This is not sufficient to raise an
issue on appeal. Mr. Schmidt does not address the basis for the district court’s ruling. We
“review issues of whether to admit or exclude evidence under an abuse of discretion standard.”
Slack v. Kelleher, 140 Idaho 916, 924, 104 P.3d 958, 966 (2004), including when it is asserted
that the evidence was not disclosed timely, Cummings v. Stephens, 157 Idaho 348, 361, 336 P.3d
281, 294 (2014).
To show that the district court incorrectly weighed the equities and erred in admitting
evidence, Mr. Schmidt must show that the court abused its discretion. “To determine whether a
trial court has abused its discretion, this Court considers whether it correctly perceived the issue
as discretionary, whether it acted within the boundaries of its discretion and consistently with
applicable legal standards, and whether it reached its decision by an exercise of reason.” Reed v.
Reed, 137 Idaho 53, 57, 44 P.3d 1108, 1112 (2002). In his opening brief, Mr. Schmidt does not
state the basis for the court’s rulings, does not state the standard of review and, therefore, does
not present any argument and authority showing how the court abused its discretion. Therefore,
he has waived those issues on appeal. Mueller v. Hill, 158 Idaho 208, 215–16, 345 P.3d 998,
1005–06 (2015).
More significantly, as shown above the district court based its ruling on two alternative
grounds. Although Mr. Schmidt argues that we should reweigh the equities as to the first ground
addressed by the district court, he does not even mention the second ground. “Where a lower
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court makes a ruling based on two alternative grounds and only one of those grounds is
challenged on appeal, the appellate court must affirm on the uncontested basis.” State v.
Grazian, 144 Idaho 510, 517–18, 164 P.3d 790, 797–98 (2007). Therefore, we need not address
the merits of either ground on appeal. The judgment of the district court must be affirmed.
III.
Is Either Party Entitled to an Award of Attorney Fees on Appeal?
Mr. Schmidt seeks an award of attorney fees on appeal pursuant to Idaho Code section
12-120(3) on the ground that this was an action to recover in a commercial transaction. A party
who has not prevailed on appeal is not entitled to an award of attorney fees under this statute.
Cummings v. Stephens, 157 Idaho 348, 367, 336 P.3d 281, 300 (2014).
Mr. Huston also seeks an award of attorney fees on appeal pursuant to that statute. His
entire argument for an award of attorney fees is, “Mr. Huston is entitled to an award of attorney
fees and cost on appeal pursuant to Idaho Code § 12-120(3) and Idaho Rule of Civil Procedure
54.” “[A] general assertion to an award of attorney fees under Idaho Code section 12–120(3) is
insufficient to request attorney fees on appeal, where the specific portion of the statute relied
upon is not identified and, if necessary, supported by argument as to why it is applicable.”
Renshaw v. Mortgage Elec. Registration Sys., Inc., 155 Idaho 656, 659, 315 P.3d 844, 847
(2013). Therefore, Mr. Huston is not entitled to an award of attorney fees on appeal.
IV.
Conclusion.
We affirm the judgment of the district court, and we award Respondent costs, but not
attorney fees, on appeal.
Chief Justice J. JONES and Justices BURDICK, W. JONES and HORTON CONCUR.
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