Carter v. Gateway Parks LLC

IN THE SUPREME COURT OF THE STATE OF IDAHO
Docket No. 47246
SCOTT R. CARTER and AMELIA J. CARTER, )
husband and wife; and SCOTT CARTER, INC., )
dba CARTER DENTAL, ) Boise, September 2020 Term
)
Plaintiffs-Appellants,
) Opinion filed: November 2, 2020
v.
)
) Melanie Gagnepain, Clerk
GATEWAY PARKS, LLC, )
)
Defendant-Respondent. )
Appeal from the District Court of the Fourth Judicial District of the State of Idaho,
Ada County. Michael J. Reardon, District Judge.
The judgment of the district court is affirmed.
Evans Keane, LLP, Boise for Appellants. Jed Manwaring argued.
Borton-Lakey Law Offices, Meridian, for Respondent. Joseph Borton argued.
_______________________________________________
MOELLER, Justice
Scott Carter, Amelia Carter, and Scott Carter, Inc., dba Carter Dental (collectively
“Carter”) appeal from the Ada County district court’s grant of summary judgment in favor of
Gateway Parks, LLC (hereinafter “Gateway”). This case concerns Carter’s second attempt to
litigate the propriety of the use of his investment funds in a proposed snowpark in Eagle, Idaho.
Carter sued Gateway for common law fraud in the inducement and under the “general fraud”
provisions of the Uniform Securities Act of 2004 (Idaho Code section 30-14-501, et seq). Carter
alleged that Gateway had misrepresented and failed to disclose its use of Carter’s investment funds
in Gateway with an intent to defraud him. The district court granted summary judgment in favor
of Gateway, finding Carter’s claims were (1) barred by the statute of limitations and res judicata,
and (2) because Carter could not establish the essential elements of a fraud claim. The district court
also awarded attorney fees and costs to Gateway. For the reasons set forth below, we affirm the
district court’s rulings.
1
I. FACTUAL AND PROCEDURAL BACKGROUND
Scott Carter and Ryan Neptune were boyhood friends, having known each other since
junior high school. Neptune is a snowboarder and in the business of operating snowboard/ski
terrain parks (“snowparks”). Carter is a dentist practicing in Boise. Neptune is the owner of
Neptune Industries, Inc. Neptune operated two snowparks in Michigan. Neptune began to discuss
with investors in the snowboard/ski industry the concept of operating snowparks within
metropolitan areas in order to bring recreational facilities closer to consumers.
In March 2013, Neptune first discussed his business idea with Carter. Neptune envisioned
opening snowparks in multiple locations over the next several years, including Eagle, Idaho, but
he needed capital from outside sources. Carter later approached Neptune about investing in his
venture. Neptune explained his plan to Carter: each snowpark would operate under its own limited
liability company (“LLC”), which would operate under a parent company called “Gateway.”
Neptune had yet to form Gateway, which is why Neptune needed investments from non-bank
sources. In late March 2013, Neptune formed the first two LLCs. At that time, Carter reasserted
his interest in investing to Neptune.
In April 2013, Neptune shared a “DropBox” folder with Carter. DropBox is a “cloud”
storage site, which enabled Neptune to store files online for access via the internet. Neptune gave
Carter access to the DropBox folder in April of 2013. Neptune showed Carter how to access
DropBox from both a computer and a phone. Neptune’s DropBox folder contained information
about the soon-to-be formed Gateway and the other LLCs operating snowparks. Also included in
DropBox were files containing Neptune’s personal finances, tax returns, expenditures, company
data, insurance information, receipts, checking account registers, investor agreements, and
operating agreements. Neptune utilized DropBox as a central filing database because it could be
accessed by his investors from any location. Neptune regularly updated it, and Carter would
receive a notification of the new updates any time that he logged on to DropBox.
Carter accompanied Neptune to the City of Eagle to investigate a potential snowpark
location there. Both met with the city’s Parks and Recreation director. Carter also attended
Neptune’s presentation to the City of Eagle about the formation of a snowpark.
On June 6, 2013, Neptune sent a text to Carter inquiring about whether he was still
interested in investing. Neptune specified that he needed funds for due diligence, travel, and legal
expenses for Gateway. Carter and Neptune worked out an agreement. The initial agreement
2
contained an option for Gateway to either pay Carter back as a loan with interest, or to give Carter
shares in Gateway as an equity investment. On June 10, and June 12, 2013, Carter issued checks
to Neptune in the amounts of $30,000 and $70,000 respectively.1 Neptune used the funds for legal
fees and other associated expenses for Gateway. Soon after, the parties agreed that Carter’s funds
would be considered an equity investment in Gateway, not a loan. Neptune emailed Carter a draft
agreement for investor returns as Neptune sought out more investors. Neptune kept Carter and the
other investors abreast of Gateway’s business and financial status through emails and the DropBox
account.
On July 23, 2013, Neptune contacted Carter to determine whether he would be interested
in investing more money in Gateway for trademarks, insurance, and company-related travel. Carter
agreed and on August 3, and August 6, 2013, Carter issued checks to Neptune for $10,000 and
$15,000, respectively.
On August 21, 2013, Neptune formed Gateway as an LLC. Neptune Industries was
identified as the managing member. On November 24, 2013, Carter called for an investor meeting
to review the operating agreement, investor agreement, and to give a status report on Gateway.
Carter was out of town, but he gave Neptune permission to go forward with the meeting without
him. The meeting was held on December 3, 2013. Carter and Neptune later met privately and
Neptune brought Carter up to speed on everything.
In January 2014, Carter agreed to loan Gateway $35,000 to purchase a piece of property in
Eagle, Idaho for a snowpark. However, at the end of January 2014, Carter and Neptune agreed to
convert the $35,000 into an additional capital contribution in Gateway. On January 30, 2014,
Carter issued another check for $40,000 so Gateway could purchase a snow groomer. In February
2014, Neptune uploaded all bank account transactions and all bank account statements from all of
his business entities, including Neptune Industries and Gateway, to DropBox.
Throughout the spring of 2014, Carter continued to be involved in the operations of
Gateway, including meeting with a bank to discuss loan options for Gateway, being appointed as
a board member, requesting that he and his wife be listed as part owners of Gateway, and voting
as a board member during a meeting held on July 30, 2014. By this time, Carter’s capital
contributions in Gateway had reached $200,000. However, in April 2014, Carter became
increasingly concerned with his own financial situation. In August 2014, Carter asked Neptune to
1
Neptune deposited the money into Neptune Industries’ bank account because Gateway had not yet been formed.
3
be paid back principal and interest. This is the first time he had made such a request. In September
2014, Carter asked Neptune for an agreement to “collateralize the debt.” Carter took the position
that his $200,000 was not an investment, but a loan in which Gateway would pay him back with
10% interest and Carter would also receive capital shares in Gateway. Neptune disagreed and
advised Carter that his best option would be to find someone to buy his shares in Gateway.
On March 2, 2015, Carter filed suit against Neptune and Neptune Industries (hereinafter
“the first lawsuit”) for breach of contract, or in the alternative, unjust enrichment, seeking
repayment of the investment funds plus interest.2 Just prior to trial in the first lawsuit, Carter claims
Neptune produced bank statements from Neptune and Neptune Industries via discovery that
showed the fraudulent use of his investment funds for Neptune’s personal gain. Carter further
alleges that this was the first time he saw the statements, although they had been previously
uploaded to the DropBox account. At trial, to further Carter’s unjust enrichment claim on this
issue, he cross-examined Neptune extensively about Neptune Industries’ expenditures of his
investment funds. Specifically, Carter asked about Neptune Industries’ expenditures made at
restaurants, on business credit cards, to Neptune personally, for legal fees, to CPAs, to other
snowpark LLCs, to Neptune’s home mortgage, and to employees.
After a five-day bench trial in July and August of 2016, the district court ruled in favor of
Neptune.3 The district court held that the funds Carter advanced to Neptune were capital
contributions, not loans to be repaid with interest. The district court entered findings of fact and
conclusions of law and specifically found that Neptune and Neptune Industries’ expenditures were
for valid business purposes and that Carter had access to the DropBox account that contained all
of the pertinent transactions, including those involving Gateway:
[Neptune] shared a Dropbox folder with Carter through which he provided a
substantial amount of information about the soon-to-be-formed Gateway and the
individual entities operating snowparks. Neptune included his personal financials,
tax returns, company data, insurance information, receipts, checking account
registers, investor agreements, operating agreements and other documents. He
utilized Dropbox as a central filing base that could be accessed from any location.
Neptune regularly updated documents on Dropbox. Any time Carter logged onto
2
Steven A. Hippler, district judge, presided over the first trial.
3
Many of the aforementioned background facts were taken from the district court’s findings of fact from the first
lawsuit, which is part of the clerk’s record on appeal.
4
Dropbox, which he regularly did, he would have received notification of updates
that had been made.4
....
Neptune constantly kept Carter and the other investors updated on the status of
Gateway through emails regarding its business and financials and through
Dropbox. He regularly downloaded the transactions from all the business accounts,
including Gateway, Eagle Superparks, Rockford Superparks, Planet Snowtools,
and Neptune Industries, and made them available on Dropbox.
....
This Court does not find Carter credible. In April of 2013, Neptune specifically
instructed Carter how to access tabs on spreadsheets using Google Docs and how
to use Google Docs on his phone. Indeed, such instructions would be readily
available through an internet search had Carter truly been unable to figure out how
to use the program. More importantly, the documentary evidence – namely Carter’s
own communications – reveals that Carter regularly reviewed the documents that
Neptune provided.
....
There is no evidence that Defendants received any personal benefit from the funds
advanced. All of the funds were properly accounted for as capital contributions to
Gateway in exchange for ownership interest in the company. They were used to
purchase capital assets and real property and were also used for operating expenses
such as legal fees associated with company formation, insurance, and due diligence.
(Emphasis added). After considering a post-trial motion to alter or amend the judgment by Carter,
the district court further clarified:
Finally, Plaintiffs seeks [sic] judgment in their favor for $165,000 on their unjust
enrichment claim, arguing that the evidence was uncontroverted that these
advances were made payable to Ryan Neptune personally, deposited in Neptune
Industries’ bank account and used for Defendants’ own expenses rather than for
Gateway. While the advances were made payable to Mr. Neptune and deposited in
Neptune Industries’ bank account, this Court found no evidence that Defendants
received any personal benefit from the funds advanced. All of the funds were
properly accounted for as capital contributions to Gateway in exchange for an
ownership interest in the company. Neptune credibly testified that the funds were
used to purchase capital assets, real property, and used for operating expenses such
as legal fees associated with the company formation, insurance, and due diligence
– all legitimate Gateway expenses. . . . For example, the mortgage payment on the
Neptunes’ property was a business expense because it was made pursuant to a lease
agreement between the Neptunes and Neptune Industries for Gateway’s use of a
shop on the Neptunes’ property for equipment storage. Likewise, the various
charges for food were per-diem expenses for traveling Gateway employees.
4
Decker Rolph, another investor in Gateway, testified at trial during the first lawsuit that he had access to the Dropbox
account, which included the expenditures and bank statements of Gateway.
5
(Emphasis added). Carter did not appeal from the district court’s final judgment on any of his
claims in the first lawsuit, or assert any error as to the findings and conclusions.
On May 14, 2018, Carter filed a second complaint, this time against Gateway only, for
fraud in the inducement and violations of the Idaho Uniform Securities Act of 2004 (hereinafter
“the Securities Act”).5 He alleged that Gateway had misrepresented and omitted to disclose the
misuse of Carter’s investment funds.
On March 21, 2019, Gateway filed a motion for summary judgment seeking to dismiss
Carter’s new complaint on three theories. First, Gateway asserted that Carter’s complaint was
barred by the statute of limitations because Carter had the ability to access Gateway’s financial
documents and discover where the investment money was going more than three years before he
filed his second complaint. Second, in the alternative, Carter could not show a genuine issue of
material fact as to all the elements of fraud, specifically the elements of a false statement, justifiable
reliance, and injury. Third, Gateway argued that res judicata barred relitigation because the parties
were the same in this lawsuit as in the first lawsuit, the matter of whether the investment money
had been appropriately used was fully litigated in the first lawsuit, and the first lawsuit ended in a
final judgment on the merits.
Carter opposed Gateway’s motion for summary judgment, arguing he did not know of the
misuse of funds until Gateway disclosed the bank statements on May 17, 2016, which is within
the statute of limitations for both fraud in the inducement (two years) and general fraud under the
Securities Act (three years). Furthermore, Carter argued that viewing the facts in the light most
favorable to him, he established the elements of fraud. Finally, he asserted res judicata does not
bar this suit because Gateway was not a party to the first lawsuit and the issue of the misuse and
nondisclosure of Carter’s investments had not been previously litigated.
The district court issued a memorandum decision and order granting Gateway’s motion for
summary judgment on the basis that (1) Carter’s claims were barred under the applicable the statute
of limitations, (2) Carter could not show a genuine issue of material fact as to the elements of
fraud, and (3) Carter’s claims were barred by res judicata. The district court entered a judgment
dismissing Carter’s claims after which he timely appealed to this Court.
Gateway later filed a motion for costs and attorney fees. Gateway requested $19,939.39 in
costs, and $58,250 in attorney fees pursuant to Idaho Code sections 12-120(3) and 12-121. Carter
5
Matthew J. Reardon, district judge, presided over Carter’s second lawsuit, which is the subject of this appeal.
6
opposed Gateway’s request. The district court held that the case arose from a commercial
transaction under Idaho Code section 12-120(3) and granted Gateway’s attorney fees request on
that basis. However, the court denied Gateway’s request for costs, specifically their fraud expert
costs, because none of the experts ever testified and the court did not consider their expert opinion
during summary judgment proceedings. Carter timely amended his appeal to include the district
court’s attorney fee award.
II. STANDARD OF REVIEW
“This Court exercises de novo review of a grant of summary judgment and the ‘standard
of review is the same as the standard used by the trial court in ruling on the motion for summary
judgment.’ ” AED, Inc. v. KDC Invest, LLC, 155 Idaho 159, 163, 307 P.3d 176, 180 (2013)
(quoting Stonebrook Const., LLC v. Chase Home Fin., LLC, 152 Idaho 927, 929, 277 P.3d 374,
376 (2012)). Summary judgment is appropriate “if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” I.R.C.P.
56(a). “This Court liberally construes the record in favor of the party opposing the motion for
summary judgment and draws any reasonable inferences and conclusions in that party’s favor.”
Robinson v. Bateman-Hall, Inc., 139 Idaho 207, 209, 76 P.3d 951, 953, (2003).
III. ANALYSIS
A. The District Court did not err in granting summary judgment to Gateway because
res judicata bars Carter’s claims against Gateway.
Carter contends the district court erred when it determined res judicata barred his claims
because (1) Gateway was not a party to the first lawsuit and (2) the issue of fraud was not
previously litigated. We will address both arguments.
Res judicata generally bars relitigation between the same parties or their privies in the same
cause of action when there has been a judgment on the merits in a prior proceeding. D.A.R., Inc.
v. Sheffer, 134 Idaho 141, 144, 997 P.2d 602, 605 (2000).
“Res judicata serves three fundamental purposes: (1) it preserves the acceptability
of judicial dispute resolution against the corrosive disrespect that would follow if
the same matter were twice litigated to inconsistent results; (2) it serves the public
interest in protecting the courts against the burdens of repetitious litigation; and (3)
it advances the private interest in repose from the harassment of repetitive claims.”
Ticor Title Co. v. Stanion, 144 Idaho 119, 123, 157 P.3d 613, 617 (2007). Res judicata
encompasses claim preclusion (true res judicata) and issue preclusion, which is also known as
7
collateral estoppel. Id. Although res judicata includes claim preclusion and issue preclusion, this
Court has previously explained that each requires its own, separate test:
Claim preclusion bars a subsequent action between the same parties upon the same
claim or upon claims ‘relating to the same cause of action . . . which might have
been made.’ Issue preclusion protects litigants from litigating an identical issue
with the same party or its privy. Separate tests are used to determine whether claim
preclusion or issue preclusion applies.
Id. (emphasis added) (internal citations omitted). Because this Court exercises free review when
determining whether res judicata bars relitigation of an issue, and because res judicata
encompasses both claim and issue preclusion, this Court can address both.
1. Claim preclusion bars Carter’s claims.
In order for claim preclusion to bar subsequent litigation, a litigant must show that the
current case and the previous case involve the same parties, the same claim, and the first case
ended in a final judgment. Ticor, 144 Idaho at 125, 157 P.3d at 618.
(a) The first lawsuit and this lawsuit involve parties in privity with
each other.
As noted, for claim preclusion to apply, both proceedings must involve the same parties or
their privies. Id. at 124, 157 P.3d at 617. Carter initially contends that claim preclusion does not
bar this lawsuit because Gateway was not a party to the first lawsuit. In response to that argument,
Gateway asserts “the requirement of same party or its privy applies to the party against whom the
doctrine of [res] judicata is applied.” (citing Union Pacific Land Resources Corp. v. Shoshone
Cnty. Assessor, 140 Idaho 528, 534, 96 P.3d 629, 635 (2004)) (emphasis in original). Therefore,
Gateway maintains the doctrine only applies against Carter and it is met because Carter was a party
to both lawsuits; it does not matter that Gateway was not explicitly a party to the first lawsuit.
Gateway’s assertion conflates the doctrines of claim preclusion and issue preclusion. Issue
preclusion requires a party to show, “the party against whom the issue is asserted was a party or in
privity with a party to the prior litigation,” along with four other factors as detailed further below.
Union Pacific Land Resources Corp., 140 Idaho at 534, 96 P.3d at 635. In contrast, the first
element of claim preclusion requires a showing that both proceedings involved the same parties or
their privies – the doctrine is not applied unilaterally – meaning the asserter must show prior and
current proceedings involved both parties. Ticor, 144 Idaho at 124. Because Gateway was not a
party to the first suit, we examine whether Gateway was in privity with Neptune or Neptune
Industries to satisfy the first element of claim preclusion.
8
“To be privies, a person not a party to the former action must ‘derive[] his interest from
one who was a party to it, that is, . . . he [must be] in privity with a party to that judgment.’ ” Id.(quoting Foster v. Cty. of St. Anthony, 122 Idaho 883, 888, 841 P.2d 413, 418 (1992)). Generally,
“ ‘one is not bound by a judgment in personam in a litigation in which he is not designated as a
party or to which he has not been a made a party by service of process.’ ” Richards v. Jefferson
Cnty., Alabama, 517 U.S. 793, 798 (1996) (quoting Hansberry v. Lee, 311 U.S. 32, 40 (1940)). A
“ ‘judgment or decree among parties to a lawsuit resolves issues as among them, but it does not
conclude the rights of strangers to those proceedings.’ ” Id. (quoting Martin v. Wilks, 490 U.S.
755, 762 (1989)). However, an exception exists when there is privity between a party in the second
case and a party who is bound by an earlier judgment. Id. The United States Supreme Court has
recognized an important exception to this general rule “ ‘when, in certain limited circumstances, a
person, although not a party, has his interests adequately represented by someone with the same
interests who is a party.’ ” Wilks, 490 U.S. at 762, n. 2 (citing Hansberry, 311 U.S. at 41-42). Idaho
has also recognized the exception that a party may be bound by a prior judgment even when that
party was not a party in the suit when their interests were adequately represented. Kite v. Eckley,
48 Idaho 454, 459, 282 P. 868, 869 (1929); Foster v. Cty. of St. Anthony, 122 Idaho 883, 888, 841
P.2d 413, 418.
The United States Supreme Court set forth six categories of non-party relationships which
are sufficient to justify a finding of preclusion: (1) the nonparty “agrees to be bound by the
determination of issues in an action between others”; (2) “pre-existing ‘substantive legal
relationship[s]’ [exist] between the person to be bound and a party to the judgment”; (3) the
“nonparty may be bound by a judgment because she was ‘adequately represented by someone with
the same interests who [wa]s a party’ to the suit”; (4) the nonparty “ ‘assumed control’ over the
litigation in which that judgment was rendered”; (5) the nonparty is the “proxy” or “agent” of a
party to the prior litigation; and, (6) “a special statutory scheme may ‘expressly foreclos[e]
successive litigation by nonlitigants . . . if the scheme is otherwise consistent with due process.’ ”
Taylor v. Sturgell, 553 U.S. 880, 893-895 (2008) (internal citations omitted). The second and third
categories of the Taylor framework apply to parent and subsidiary defendants. Additionally,
although no Idaho cases specifically address privity between subsidiary and parent companies, the
Ninth Circuit has held that privity applies to parent and subsidiary defendants. See Lake at Las
Vegas Investors Grp., Inc. v. Pacific Malibu Dev. Corp., 933 F.2d 724, 728 (9th Cir. 1991) (holding
9
that “wholly-owned subsidiary and partnership in which that subsidiary is the general partner may
invoke the two dismissals of the subsidiary’s parent and claim res judicata.”), cert. denied, 503
U.S. 920 (1992); In re Gottheiner, 703 F.2d 1136, 1139-40 (9th Cir. 1983) (holding collateral
estoppel barred second suit where defendant in prior suit was wholly owned by defendant in
subsequent suit).
Here, Gateway was not a named party to the first lawsuit; yet, it derives its interest from
Neptune Industries and Ryan Neptune. Gateway shared the same interests as its parent company
Neptune Industries and its owner Ryan Neptune who were both parties to the first lawsuit.
Therefore, Gateway is in privity with those parties because Ryan Neptune owns Neptune
Industries, which is the managing member and majority owner of Gateway. Accordingly, the
preclusive effect of the judgment in favor of Neptune and Neptune Industries in the first trial
equally applies to Gateway in this case.
Finally, Carter’s attorney suggested at oral argument that he was somehow barred from
adding Gateway as a party by the judge in the first case. However, nothing in the record supports
the assertion that he was either procedurally barred or somehow prevented by the district court
from adding Gateway as a party in the first case. In the first lawsuit, Carter initially brought suit
against only Neptune. Neptune moved to dismiss the complaint for failure to join Neptune
Industries and Gateway as indispensable parties. Carter simultaneously moved to amend his
complaint to add Neptune Industries, but not Gateway. Neptune objected to Carter’s proposed
amendment – only because it did not include Gateway. The district court denied Neptune’s motion
to dismiss for failure to join Gateway, finding it was not a necessary party and it granted Carter’s
motion to amend his complaint to add only Neptune Industries. Thus, Carter is judicially estopped
from now pivoting 180° and arguing that the district court in the first case somehow wrongfully
prevented him from adding Gateway as a party.
(b) Carter’s claims in this lawsuit are repackaged arguments from the
first lawsuit.
Claim preclusion not only applies to the same claims previously brought, but “also as to
‘every matter which might and should have been litigated in the first suit.’ ” Ticor, 144 Idaho at
126 (quoting Magic Valley Radiology, P.A. v. Kolouch, 123 Idaho 434, 437, 849 P.2d 107, 110
(1993)). It “ ‘extinguishes all claims arising out of the same transaction or series of transactions
out of which the cause of action arose.’ ” Id. (quoting Diamond v. Farmers Grp., Inc., 119 Idaho
146, 150, 804 P.2d 319, 323 (1990)). This Court has held this concept is broad and that it “ ‘may
10
apply even where there is not a substantial overlap between the theories advanced in support of a
claim, or in the evidence relating to those theories.’ ” Id. “ ‘A cause of action can be barred by a
prior adjudication even though the theory of liability and supporting evidence differ from the cause
of action actually litigated in the prior suit.’ ” Taylor v. Riley, 157 Idaho 323, 332, 336 P.3d 256,
265 (2014) (quoting Andrus v. Nicholson, 145 Idaho, 774, 777, 186 P.3d 630, 633 (2008)).
Carter asserts that the claims are not the same because fraud was not a cause of action
specifically alleged in the first lawsuit. If we were to accept Carter’s assertion as correct, it leads
to the reasonable question of why Carter did not attempt to include Neptune and Neptune Industries
as parties in the second case since the fraud claims were somehow different. Indeed, according to
Carter, Neptune and Neptune Industries fraudulently spent the investment funds before Gateway
was even formed.
However, we reject Carter’s assertion that these are different claims because we do not
read the same claim requirement to be so narrow. Instead, we focus on the transaction or series of
transactions out of which the cause of action arose, rather than the label placed on a specific cause
of action by a party. The evidence underlying Carter’s fraud claim in the current case is
substantially the same evidence underlying his unjust enrichment claim in the former. Here, if
Carter wished to pursue a separate fraud claim, Carter could and should have brought it in the first
suit. The evidence underlying the new fraud claim concerns not only Gateway, but also Neptune
and Neptune Industries’ use of Carter’s investments. Neptune, who was both the president of
Neptune Industries and the manager of Gateway, was extensively cross-examined about such
matters in the first trial.
Likewise, Carter’s claim under the “general fraud” provision of the Securities Act should
have been brought in the first lawsuit. The general fraud statute of the Securities Act provides:
It is unlawful for a person, in connection with the offer, sale, or purchase of a
security, directly or indirectly:
(1) To employ a device, scheme, or artifice to defraud;
(2) To make an untrue statement of a material fact or to omit to state a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading;
(3) To engage in an act, practice, or course of business that operates or would
operate as a fraud or deceit upon another person; or
(4) To divert investor money to the personal use of the issuer, offeror or seller, or
to pay prior investors without specifically disclosing that use before receiving
the investor’s money.
11
I.C. § 30-14-501. These four subsections essentially mirror the allegations Carter raised in the first
lawsuit in support of his unjust enrichment claim. Carter now attempts to apply each section of the
Securities Act to argue that Gateway’s use of his investment funds was a violation of the Act. The
evidence and legal theory Carter relies on for the alleged Securities Act violations in the current
case are substantially the same as the evidence and legal theory underlying his unjust enrichment
claim in the former. Additionally, the evidence concerns the same parties: Neptune, Neptune
Industries, and its subsidiary, Gateway.
Carter’s new fraud and Security Act violation claims are essentially just a rebranded
version of his unjust enrichment claim from the first case. The district court properly found Carter’s
claims in the first lawsuit and his claims here to be the same because they arise out of the same
series of transactions and they should have been litigated in the first lawsuit.
(c) The first lawsuit ended in a final judgment on the merits of a similar
claim that “might and should have been litigated” in the first lawsuit.
The third element of claim preclusion does not require resolution on the precise point or
question in the present suit that was resolved in the first one. Ticor, 144 Idaho at 126. Rather, it
requires:
[I]n an action between the same parties upon the same claim or demand, the former
adjudication concludes parties and privies not only as to every matter offered and
received to sustain or defeat the claim but also as to every matter which might and
should have been litigated in the first suit.
Farmers Nat’l Bank v. Shirey, 126 Idaho 63, 70, 878 P.2d 762, 769 (1994) (quoting Joyce v.
Murphy Land & Irrigation Co., 35 Idaho 549, 553, 208 P. 241, 242-43 (1922)) (emphasis added).
The gravamen of Carter’s second lawsuit boils down to whether Gateway fraudulently used
Carter’s investments for its own purposes. However, this very issue was determined in the first
lawsuit. Carter contends that it was not determined because he sued Neptune and Neptune
Industries for breach of oral contract and unjust enrichment, not fraud. While this is true, Carter’s
unjust enrichment claim alleged that Neptune and Neptune Industries “have been unjustly enriched
by using [Carter’s] funds for their beneficial business interests. . . .” (Emphasis added). Moreover,
Carter’s attorney cross-examined Neptune during the first lawsuit on the expenditures of Carter’s
funds – the same expenditures he alleges constitute fraud in the second lawsuit. The district court
in the first lawsuit found that all of Carter’s funds were properly accounted for, and used to
appropriately purchase capital assets, real property, and for operating expenses of Gateway. Even
12
if the precise question of fraud was not resolved in the first lawsuit, it could have been—and should
have been—resolved had Carter properly raised the issue. Farmers Nat’l Bank, 126 Idaho at 70,
878 P.2d at 769.
It is clear from the record that the first trial ended in a final judgment on the merits on the
propriety of Gateway’s use of Carter’s investment funds. Therefore, because all three elements of
claim preclusion have been met, res judicata bars Carter’s second lawsuit against Gateway.
Accordingly, we conclude that the district court did not err in granting Gateway’s motion because
it was entitled to summary judgment as a matter of law.
2. Issue preclusion also bars Carter’s claims.
As previously noted, issue preclusion concerns different elements than claim preclusion.
To successfully assert issue preclusion as a bar to relitigation of a claim, one must show:
(1) the party against whom the earlier decision was asserted had a full and fair
opportunity to litigate the issue decided in the earlier case; (2) the issue decided in
the prior litigation was identical to the issue presented in the present action; (3) the
issue sought to be precluded was actually decided in the prior litigation; (4) there
was a final judgment on the merits in the prior litigation; and (5) the party against
whom the issue is asserted was a party or in privity with a party to the litigation.
Ticor, 144 Idaho at 124, 157 P.3d at 618.
Here, similar to claim preclusion, issue preclusion also bars Carter’s second lawsuit. First,
Carter had a full and fair opportunity to litigate the use of his investment funds and, in fact, did
previously litigate that issue. After a five-day trial in the first case, the district court found that
Neptune Industries and Neptune were not unjustly enriched by Carter’s investments and all the
funds were properly spent. Second, although Carter attempts to repackage the issue differently in
this lawsuit, it is practically identical to the issue presented in the first lawsuit. Indeed, a second
trial would involve the same witnesses and the same evidence. Third, the district court actually
decided the issue in the first lawsuit and entered relevant findings of fact and conclusions of law,
concluding: “All of the funds were properly accounted for as capital contributions to Gateway in
exchange for ownership interest in the company. They were used to purchase capital assets and
real property and were also used for operating expenses such as legal fees associated with company
formation, insurance, and due diligence.” Fourth, the district court’s ruling in the first lawsuit
constitutes a final judgment on the merits because the precise issue Cater raises here was resolved
through findings of fact, conclusions of law, and a judgment. Finally, Carter was not only a party
to the prior lawsuit, but actually brought both cases.
13
Inasmuch as Gateway has met the five elements of issue preclusion, the district court
properly barred Carter’s attempt to relitigate the expenditures of his investment money by granting
summary judgment to Gateway. Therefore, because we affirm the district court’s decision on res
judicata grounds, we need not address the other bases upon which the court granted summary
judgment in this case, i.e., the statute of limitations and failure to establish the elements of fraud.
B. The district court’s award of attorney fees below was warranted and reasonable.
Carter contends on appeal that the district court erred in awarding attorney fees and costs
to Gateway under Idaho Code section 12-120(3) because the basis of the lawsuit did not involve a
contract or a commercial transaction. He further claims that even if the district court correctly
determined the lawsuit involved a commercial transaction, it erred in determining that the fees
were reasonable.
The question of whether a district court correctly determined that a case is based on a
commercial transaction for attorney fees purposes under Idaho Code section 12-120(3) is a
question of law over which this Court exercises free review. Garner v. Povey, 151 Idaho 462, 469,
259 P.3d 608, 615 (2011). Under section 12-120(3), a court is required to award attorney fees to
the prevailing party in a civil action to recover “in any commercial transaction.” I.C. § 12-120(3).
A “commercial transaction” is defined as: “all transactions except transactions for personal or
household purposes.” Id. A commercial transaction can be characterized as one in which the
purpose for entering into the transaction was to generate income. Stevens v. Eyer, 161 Idaho 407,
412, 387 P.3d 75, 80 (2016).
Here, we agree with the district court’s analysis that this was clearly a commercial
transaction. It was intended to generate income for Carter, regardless of whether he characterized
it as a loan or an investment. Moreover, Carter explicitly asserted in his complaint that he was
entitled to attorney fees and costs under Idaho Code section 12-120(3), which only applies to a
commercial transaction. We have previously held that “[a]llegations in the complaint that the
parties entered into a commercial transaction and that the complaining party is entitled to recover
based upon that transaction, are sufficient to trigger the application of I.C. § 12-120(3).” Garner,
151 Idaho at 470, 259 P.3d at 616. Accordingly, Carter is now estopped from asserting otherwise.
Next, we turn to Carter’s assertion that the district court erred in awarding the full amount
of attorney fees requested by Gateway. This Court reviews the amount of attorney fees awarded
under an abuse of discretion standard, with the party appealing the award of statutory attorney fees
14
bearing the burden of demonstrating the district court’s clear abuse of that discretion. Berkshire
Invest., LLC v. Taylor, 153 Idaho 73, 80, 278 P.3d 943, 950 (2012). To determine whether the
district court abused its discretion, this Court applies a four-prong test: whether the trial court “(1)
correctly perceived the issue as one of discretion; (2) acted within the outer boundaries of its
discretion; (3) acted consistently with the legal standards applicable to the specific choices
available to it; and (4) reached its decision by the exercise of reason.” Lunneborg v. My Fun Life,
163 Idaho 856, 867, 421 P.3d 187, 198 (2018).
In its analysis, the district court correctly perceived that the granting of fees was a
discretionary matter. The court then applied the correct legal standard, and examined Idaho Rule
of Civil Procedure 54(e)(3) to calculate the amount of fees. The court then considered each of the
factors in Idaho Rule of Civil Procedure 54(e)(3). In doing so, it determined that Gateway’s request
of $58,250 in attorney fees was reasonable because of “the nature of the litigation, the amount
involved in the controversy, and the length of time utilized in preparation for the various
proceedings in this case. . . .”
Given its careful analysis, we conclude that the district court correctly perceived the award
of attorney fees as a matter of discretion, it acted within the boundaries of its discretion, it applied
the correct legal standards, and it reached its decision by the exercise of reason. Therefore, the
district court did not abuse its discretion by awarding $58,250 in attorney fees to Gateway.
C. Gateway is entitled to attorney fees and costs on appeal.
As the prevailing party in this appeal, Gateway requests attorney fees and costs on appeal
under Idaho Code section 12-120(3). As we held above, the district court did not err in finding this
was a commercial transaction. Additionally, Carter cannot now assert that this case does not
involve a commercial transaction because he requested attorney fees under section 12-120(3) in
his underlying complaint. Accordingly, Gateway is entitled to recover its attorney fees on appeal
under section 12-120(3). Costs on appeal are also awarded to Gateway as a matter of course
pursuant to Idaho Appellate Rule 40.
III. CONCLUSION
For the foregoing reasons, this Court affirms the district court’s decision granting
Gateway’s motion for summary judgment and entering final judgment in its favor. We also affirm
its award of attorney fees to Gateway. Costs and attorney fees on appeal are awarded to Gateway.
Chief Justice BURDICK, and Justices BRODY, BEVAN and STEGNER CONCUR.
15