Merdes & Merdes, P.C. v. Leisnoi, Inc.

Citation410 P.3d 398
Decision Date09 November 2017
Docket NumberSupreme Court No. S-16048
Parties MERDES & MERDES, P.C., Merdes Law Office, P.C., and Ward Merdes, Appellants, v. LEISNOI, INC., Appellee.
CourtSupreme Court of Alaska (US)

Brad S. Kane, Kane Law Office, Los Angeles, California, for Appellants.

Katherine Demarest, Dorsey & Whitney LLP, Anchorage, for Appellee.

Before: Stowers, Chief Justice, Maassen, Bolger, and Carney, Justices. [Winfree, Justice, not participating.]

OPINION

MAASSEN, Justice.

I. INTRODUCTION

An attorney represented a Native corporation in litigation nearly three decades ago. The corporation disputed the attorney's claim for fees, and in 1995, after the attorney's death, the superior court entered judgment on an arbitration award of nearly $800,000 to the attorney's law firm, then represented by the attorney's son. The corporation paid eight installments on the judgment but eventually stopped paying, citing financial difficulties. The law firm sought a writ of execution for the unpaid balance, and the writ was granted. The corporation appealed but under threat of the writ paid $643,760 while the appeal was pending. In a 2013 opinion we held the writ invalid and required the firm to repay the $643,760.

The corporation was never repaid. The original law firm moved its assets to a new firm and sought a stay of execution, averring that the original firm now lacked the funds necessary for repayment. The corporation sued the original firm, the successor firm, and the son for breach of contract, fraudulent conveyance, conspiracy to fraudulently convey assets, violations of the Unfair Trade Practices Act (UTPA), unjust enrichment, and punitive damages. The firm counterclaimed, seeking recovery in quantum meruit for attorney's fees it claimed were still owing for its original representation of the corporation.

The superior court granted summary judgment for the corporation on the law firm's quantum meruit claim and, following trial, found that the son and both law firms fraudulently conveyed assets and were liable for treble damages under the UTPA.

The son and the law firms appeal. They argue that the superior court erred in these ways: (1) holding that the quantum meruit claim was barred by res judicata; (2) holding the defendants liable for fraudulent conveyance; (3) awarding damages under the UTPA; and (4) making mistakes in the form of judgment and award of costs. But seeing no error or abuse of discretion in the superior court's decision of most of these issues, we affirm its judgment, with one exception. We remand for reconsideration of whether all three defendants are liable for prejudgment interest from the same date.

II. FACTS AND PROCEEDINGS

The current dispute arose between Leisnoi, Inc., an Alaska Native corporation, and a law firm, Merdes & Merdes. The history of this case is outlined in our 2013 opinion;1 we summarize it again here.

A. Before 2013

Beginning in 1988 Ed Merdes and Merdes & Merdes, his law firm, represented Leisnoi in litigation against Omar Stratman over Leisnoi's title to certain lands on Kodiak Island.2 Ed Merdes's representation was based on a contingency fee agreement entitling him to "an undivided thirty percent ... interest in all lands and/or settlement" that Leisnoi obtained or retained as a result of the Stratman litigation.3

Ed Merdes died in 1991, but Merdes & Merdes continued its representation of Leisnoithrough 1992, when litigation in the superior court ended in Leisnoi's favor (though appeals continued until 2008).4 Following the favorable judgment, Merdes & Merdes—represented by Ed's son Ward Merdes, also an attorney—sought to enforce the fee agreement, and Leisnoi requested arbitration through the Alaska Bar Association.5 An arbitration panel awarded Merdes & Merdes a monetary sum roughly equal to 30% of the value of the land—"$721,000 in attorney's fees, plus interest, payable in $100,000 yearly installments"—as well as the $55,000 in attorney's fees the superior court had earlier awarded Leisnoi as the prevailing party.6 The superior court affirmed the arbitration award and entered judgment on it in 1995, and it was not appealed.7

Leisnoi made six annual $100,000 payments to Merdes & Merdes and two $50,000 payments.8 But it failed to make its September 2002 payment, citing the cost of the ongoing Stratman litigation.9

Over the next few years Merdes & Merdes and Leisnoi attempted to negotiate a settlement of the unpaid balance.10 Leisnoi "generally did not dispute the validity of the judgment awarded to [Merdes & Merdes] and actively proposed settlement arrangements."11 Ward Merdes later explained that he delayed executing on the 1995 judgment because of the negotiations and Leisnoi's tenuous financial position.12 But after the last appeal in the Stratman litigation was resolved favorably to Leisnoi, Merdes & Merdes sought a writ of execution in January 2009, and the superior court granted it a year later.13 Leisnoi appealed from the grant of the writ but paid the amount still owing—$643,760—while the appeal was pending.14

B. Our 2013 Opinion

In 2013 we reversed the superior court's grant of the writ of execution. We held that "Leisnoi's contingency fee agreement with Merdes violated [the Alaska Native Claims Settlement Act's] prohibition against contingency fee agreements, as did the Arbitration Panel's fee award, the superior court's 1995 entry of judgment, and the 2010 writ of execution."15 Leisnoi was therefore "entitled to recover the balance that it paid after the writ of execution was unlawfully issued."16 Leisnoi was not, however, entitled to relief from the 1995 judgment under Alaska Civil Rule 60(b), because the judgment was voidable rather than void and Leisnoi waited too long to seek relief from it.17 Thus, although Leisnoi could recover the $643,760 it paid as a result of the timely-appealed writ of execution, it could not recover the $800,000 it paid before 2010 based on the 1995 final judgment.18

Though holding the contingency fee agreement invalid, we left the door open for Merdes & Merdes to seek "any fees it believes are owed under a theory of quantum meruit."19 In an order on rehearing we "express[ed] no opinion whether Merdes is entitled to the remedy of quantum meruit" or about the merits of Leisnoi's potential defenses to such a remedy because "[t]hese and related issues are matters for the superior court to address."20

C. Following Our 2013 Decision

What happened next, according to Leisnoi, is that "Ward Merdes transferred [Merdes & Merdes's] assets to himself and to the newly formed Merdes Law Office, P.C." in order to avoid returning the $643,760 Leisnoi had paid under threat of the invalid writ of execution. In March 2013 Merdes & Merdes sought a stay of execution on our 2013 opinion until its "competing claim" for quantum meruit could be resolved; Ward Merdes attested by affidavit that Merdes & Merdes "does not have anywhere near enough money to return $643,760 to Leisnoi pursuant to Supreme Court Order 6747. It doesn't have 1/5th of that amount."

In May 2013 Leisnoi sued Merdes & Merdes, Merdes Law Office, and Ward Merdes for breach of contract, fraudulent conveyance, conspiracy to fraudulently convey assets, violations of the UTPA, and unjust enrichment. Merdes21 denied Leisnoi's allegations, and Merdes & Merdes filed a counterclaim for its attorney's fees framed as a claim for quantum meruit. The superior court granted Leisnoi's motion for summary judgment on the counterclaim, concluding that recovery in quantum meruit was barred by res judicata and the statute of limitations. The court also granted summary judgment for Leisnoi on its first cause of action for breach of contract, ordering Merdes & Merdes to repay Leisnoi $643,760 plus interest to comply with the mandate of our 2013 opinion.

The court held a five-day bench trial on the remaining claims. It granted a directed verdict against Leisnoi on the conspiracy claim, citing case law that requires "[g]eneral creditors" to "reduce their claims to judgment before asserting this cause of action."22 But it found that Merdes & Merdes fraudulently conveyed assets to Merdes Law Office and Ward Merdes. Merdes had defended against that claim by contending that Merdes Law Office was created not to avoid paying Leisnoi but rather because of Ward Merdes's agreement with his nephew that they would create a new law firm together upon the nephew's graduation from law school. But as the superior court saw it, the real issue was not the creation of Merdes Law Office but the use of Merdes & Merdes's assets to capitalize it. According to the superior court, "[T]he only reason Leisnoi was the only creditor of [Merdes & Merdes] left unpaid [after the transfers from Merdes & Merdes to Merdes Law Office] was because that was the explicit goal of Ward Merdes." Because Merdes Law Office "could have happily existed waiting for [the nephew] to pass the Alaska Bar Exam and did not require capitalization" at the time, the court found that Merdes Law Office "was capitalized not so it could conduct business, but to attempt to remove the assets with which [Merdes & Merdes] would pay its debt to Leisnoi."

This transfer of assets, the court concluded, was "simply not defensible." The court considered eight "badges of fraud" and found that seven of them "weigh [ed] strongly in favor of finding that the capitalization of [Merdes Law Office] with the assets of [Merdes & Merdes] was done with the intent to defraud Leisnoi and prevent the payment of the debt owed to Leisnoi." The court found that the fraudulent conveyance was also by definition a deceptive and unfair act for purposes of the UTPA, and that all three defendants—Merdes & Merdes, Merdes Law Office, and Ward Merdes—violated the UTPA by participating in the asset transfer. The court therefore voided the transfers to Merdes Law Office and Ward Merdes and found Merdes & Merdes, Merdes Law Office, and Ward Merdes jointly and severally liable for Leisnoi's compensatory...

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