Macris & Associates, Inc. v. Neways, Inc.

• Decision Date: 05 December 2000
• Docket Number: No. 990859.,990859.
• Citation: 2000 UT 93,16 P.3d 1214
• Parties: MACRIS & ASSOCIATES, INC., Plaintiff and Respondent, v. NEWAYS, INC., Thomas E. Mower, and Leslie D. Mower, Defendants and Petitioners.
• Court: Utah Supreme Court

16 P.3d 1214

2000 UT 93

MACRIS & ASSOCIATES, INC., Plaintiff and Respondent, v. NEWAYS, INC., Thomas E. Mower, and Leslie D. Mower, Defendants and Petitioners.

No. 990859.

Supreme Court of Utah.

December 5, 2000.

D. Frank Wilkins, Chris R. Hogle, Salt Lake City, for plaintiff.

Allen K. Davis, Christopher S. Crump, Wade S. Winegar, Scott T. Temby, Salem, for defendants.

ON CERTIORARI TO THE UTAH COURT OF APPEALS

RUSSON, Associate Chief Justice:

¶ 1 On writ of certiorari, Neways, Inc., Thomas E. Mower, and Leslie D. Mower (collectively, "Neways") seek reversal of the Utah Court of Appeals' determination that Macris & Associates' ("Macris") claims for fraudulent transfer, successor liability, and alter ego are not barred by res judicata. Neways also claims that the court of appeals erred in not considering whether Macris is precluded by the doctrine of res judicata from pursuing additional contract damages in the present action.

BACKGROUND¹

¶ 2 In August 1989, Macris entered into a distributorship agreement (the "Agreement") with Images & Attitude ("Images"). Pursuant to the Agreement, Macris was to use its time and marketing expertise to build a "downline organization"² within Images's multilevel marketing program. The Agreement specified that Macris was "autoqualified," which, the Agreement stated, meant that the usual distributor requirements of the Images marketing plan were waived and Macris was to be paid at the highest level provided for in the operation's marketing plan for product sales made by the distributors in Macris's downline. The term of the Agreement was to continue "throughout the life of Images," as long as Macris was "active in promoting Images and Images's products."

¶ 3 Subsequently, on March 7, 1991, Macris received a letter from Images informing Macris that its autoqualification status was being suspended for lack of activity. Shortly thereafter, in a letter dated March 29, 1991, Images informed Macris that it was terminating the Macris distributorship entirely. The reasons given for termination were Macris's testing of products after warnings not to do so, lack of activity under the Agreement, and damaging activity to Images and its distributor force.

¶ 4 On April 17, 1991, Macris commenced an action against Images for breach of contract ("Macris I"). Macris alleged in that action that Images breached the distributorship agreement by wrongfully suspending Macris's autoqualification status and terminating its distributorship, and that Macris was entitled to damages as a result of that breach. Macris sought to recover as breach of contract damages ("contract damages") the payments it would have received as Images's distributor but for Images's wrongful termination of its distributorship. The matter was set for trial on September 28, 1992.

¶ 5 Approximately one month prior to trial, in August 1992, Neways, Inc. was incorporated, with Thomas Mower as its president. It appears from the record that Thomas Mower was the president of Images up to the date on which Neways was created, whereupon he became the president of Neways.³ Like Images, Neways is a multilevel marketing company engaged in the multilevel sale of various health and beauty products. On September 1, 1992, Images ceased doing business as a multilevel marketing company and transferred most of its assets to Neways. The newly formed Neways then took over the multilevel marketing operations of Images.

¶ 6 The trial scheduled for September 28, 1992, in Macris I, was continued by the trial court and finally went to trial without a jury on February 16, 1995, over three years after Images transferred its assets to Neways.⁴ The trial court held that Images had materially breached its contract with Macris by wrongfully suspending Macris's autoqualification status and terminating its distributorship for lack of activity, and that Macris was entitled to damages for that breach. Images stipulated that it owed Macris $360,681.20 in contract damages for subsequent months, from March 1991 through August 31, 1992, the date on which Images ceased doing business as a multilevel marketing company. The trial court awarded Macris all the contract damages contained in the stipulation.

¶ 7 Just two days prior to the above-mentioned trial in Macris I—February 14, 1995—Macris filed the present action against Neways and its president and vice president, Thomas and Leslie Mower ("Macris II"). It is this case, Macris II, that is presently before us on certiorari. In Macris II, Macris asserted three claims in its complaint. First, Macris asserted a claim for fraudulent transfer, under which Macris alleged that Images's transfer of its assets to Neways was fraudulent pursuant to the Utah Fraudulent Transfer Act, see Utah Code Ann. § 25-6-5 (1998), because it was made with actual intent to limit the damages available to Macris and to hinder Macris from collecting the obligation owed by Images. Second, Macris asserted a successor liability claim, under which Macris claimed that because Neways is the successor corporation of Images, Macris is entitled to have Neways held liable for all amounts due as contract damages from Images to Macris awarded in Macris I. Finally, Macris asserted an alter ego claim, under which Macris claimed that there is no corporate distinction between Images and Neways and that the corporations have used the corporate shield of Neways to avoid liability to Macris.

¶ 8 Through the above-named claims, Macris sought to recover the following damages against Neways: first, Macris sought payment by Neways of the contract damages awarded against Images in Macris I; second, Macris sought additional contract damages not awarded in Macris I, consisting of its share of the profits from its downlines accruing after September 1, 1992—the date on which Images transferred its assets to Neways; and third, Macris sought punitive damages for the alleged fraudulent transfer of Images's assets to Neways.

¶ 9 On October 19, 1995, Neways moved for summary judgment, arguing that Macris's claims for fraudulent transfer, successor liability, and alter ego were barred by res judicata. Specifically, Neways argued that because Macris knew of its claims against Neways years before the trial against Images began, Macris could and should have included its claims against Neways in that action. Neways also argued that the doctrine of res judicata precluded Macris from pursuing additional contract damages in Macris II, because the issue of contract damages arising out of Images's 1991 breach of the distributorship agreement had already been fully litigated and decided in Macris I.

¶ 10 In response, Macris argued that res judicata was inapplicable to its claims to the extent they sought to bind Neways to the judgment rendered against Images in Macris I and to the extent they sought additional contract damages. Macris argued that its claims against Neways arose after Macris filed its complaint in Macris I and that res judicata was therefore inapplicable.

¶ 11 On November 14, 1995, Macris filed its own motion for summary judgment, arguing that because Neways admitted that it was the privy of Images for res judicata purposes in its motion for summary judgment, Macris should be granted a summary judgment on its successor liability claim. In response, Neways argued that although it admitted it was the privy of Images for res judicata purposes, it did not admit that it was the successor to Images's liabilities to Macris and that genuine issues of material fact precluded summary judgment on this issue.

¶ 12 On September 19, 1997, the trial court issued its memorandum decision on both motions for summary judgment.⁵ The court granted Neways summary judgment on its claim that res judicata barred Macris's fraudulent transfer, successor liability, and alter ego claims to the extent they sought "further damages from Neways as a result of the breached contract with Images." The trial court, however, refused to hold that res judicata precluded Macris's claims to the extent they sought to bind Neways to the judgment rendered against Images in Macris I. The court also granted Macris summary judgment on its claim that Neways was Images's successor and was therefore liable for the previous judgment against Images.

¶ 13 Neways appealed,⁶ arguing to the court of appeals that while the trial court correctly held that res judicata precluded Macris from pursuing additional contract damages in Macris II, it erred by failing to apply the doctrine of res judicata to bar Macris's claims to the extent they sought to make Neways liable for the previous judgment against Images. Neways argued that all of Macris's claims, including its successor liability claim, could and should have been included in the previous action against Images. Neways further argued that the trial court erred in granting Macris a summary judgment on its claim that Neways was Images's successor and was therefore responsible to pay the damages awarded Macris in the previous lawsuit against Images.

¶ 14 Macris cross-appealed, arguing that the trial court erred in its determination that res judicata precluded Macris from pursuing further contract damages in Macris II. Macris reasoned that because its claims against Neways arose after it filed its complaint against Images in Macris I, res judicata was inapplicable to its claims to the extent they sought to enforce the judgment entered in Macris I and to the extent they sought additional contract damages.

¶ 15 The court of appeals reversed both summary judgments. See Macris & Assocs. v. Neways, Inc., 1999 UT App. 230, ¶¶ 14, 15, 986 P.2d 748. In reversing the trial court's grant of summary judgment in favor of Neways, the court of appeals held that res judicata did not bar Macris's claims for fraudulent transfer, successor liability, and alter ego. The court reasoned that because the facts giving rise to Macris's claims arose after Macris filed its amended...