Blickenstaff v. Clegg

• Decision Date: 21 July 2004
• Docket Number: No. 29907.,29907.
• Citation: 97 P.3d 439,140 Idaho 572
• Parties: Loren D. BLICKENSTAFF, as Trustee for M & D Trust, Plaintiff-Appellant, v. Mark CLEGG, individually, G. Matthew Thomas, individually, and G. Matthew Thomas, as Trustee for Daniel Thomas Trust, and T. Steve Joyce, Defendants-Respondents, and Calderwood East, LLC., Defendant.
• Court: Idaho Supreme Court

97 P.3d 439

140 Idaho 572

Loren D. BLICKENSTAFF, as Trustee for M & D Trust, Plaintiff-Appellant, v. Mark CLEGG, individually, G. Matthew Thomas, individually, and G. Matthew Thomas, as Trustee for Daniel Thomas Trust, and T. Steve Joyce, Defendants-Respondents, and Calderwood East, LLC., Defendant.

No. 29907.

Supreme Court of Idaho, Boise, May 2004 Term.

July 21, 2004.

Rehearing Denied September 7, 2004.

Penland Munther Goodrum, Chtd., Boise, for Appellant. John Courtade and Jay B. Marcus argued.

Wilson & McColl, Chtd., Boise, for Respondent T. Steve Joyce. Brian F. McColl argued.

Strother Law Office, Boise, for Respondent Mark Clegg. Jeffrey A. Strother argued.

Givens Pursley, LLP, Boise, for Respondent G. Matthew Thomas. Thomas E. Dvorak argued.

TROUT, Chief Justice.

Calderwood East, LLC, (Calderwood), owned by Mark Clegg (Clegg) and G. Mathew Thomas (Thomas), acquired Appellant M & D Trust's (M & D) interest in Calderwood in exchange for a note in the amount of $750,000, secured by a deed of trust on Calderwood's property. When the note was not paid, M & D, through its trustee, Dr. Loren Blickenstaff (Blickenstaff), brought eight causes of action against Calderwood, Clegg, Thomas, and the Daniel Thomas Trust (Thomas Trust), for which Thomas is the trustee, and attorney T. Steve Joyce. (Joyce). The district court granted summary judgment in favor of Thomas and Joyce as to all claims, and M & D appeals that decision.

I. FACTUAL AND PROCEDURAL BACKGROUND

In 1999 Blickenstaff, M & D, Thomas, and Clegg formed Calderwood, a limited liability company engaged in the land development business. The purpose of forming Calderwood was to commercially develop a parcel of real property on Overland Road in Boise. Calderwood was created pursuant to the Idaho Limited Liability Company Act (Idaho Code § 53-601, et seq) and in the beginning Calderwood was owned by Thomas (10% interest), individually and as trustee for the Thomas Trust, Clegg (45% interest), and Blickenstaff, individually (18% interest), and as trustee for M & D (27% interest).

Clegg is a Boise developer who holds a real estate broker's license and had been involved in other business enterprises with Blickenstaff prior to Calderwood. All the parties agree that Clegg dealt separately with Blickenstaff and Thomas, and the investors never met together to discuss Calderwood.

At Clegg's request, attorney T. Steve Joyce (Joyce) drafted the Operating Agreement for Calderwood and acted as Calderwood's attorney. Joyce had previously worked as Clegg's attorney in other business ventures. In the Operating Agreement each party acknowledged that they were advised to seek independent counsel. The Operating Agreement provided that Clegg was appointed the managing member with the sole authority to bind Calderwood in business affairs. Blickenstaff was appointed the treasurer. The Operating Agreement also set forth the liability of each member, addressed potential conflicts of interest and provided for indemnification of members for certain acts by other members, among other terms and provisions.

Initially, Joyce sent the bills for his services rendered for Calderwood to Clegg. Clegg later asked Joyce to send his bills to Blickenstaff, as he was the treasurer. Through 1999, Calderwood paid Joyce's bills and Blickenstaff signed those checks on behalf of Calderwood. Joyce represented Calderwood in 2000 in connection with the sale of a Sonic Drive-In located on a portion of the Calderwood property and also represented Calderwood in connection with a development agreement negotiated with the city of Boise. Joyce submitted his bill to Clegg for these projects, and these bills were not paid.

According to deposition testimony, Blickenstaff asserted that he wanted to act as Calderwood's treasurer because he did not have complete confidence that Clegg would properly handle Calderwood's business and he wanted control of the checkbook. One particular point of concern was a developer's fee to be paid to Clegg, which Clegg and Blickenstaff discussed on several occasions. Clegg claimed he should receive a fee of $800,000, while Blickenstaff was adamant that he thought Clegg would eventually be entitled to a development fee, but only when the project was developed and sufficient funds were available. Thomas did not play any role in management.

Early on in the project, Calderwood took out a $1.2 million loan from U.S. Bank for purposes of refinancing the original property acquisition loan, and gave U.S. Bank a first position deed of trust on the Calderwood property as security. All the members of Calderwood were aware of the loan and deed of trust, and Blickenstaff personally guaranteed this loan, but M & D Trust did not.

In late 1999, Blickenstaff asserts he became more concerned with Clegg's management decisions, and Clegg claims he became frustrated with Blickenstaff's oversight. Clegg began negotiating to buy out Blickenstaff's and M & D's interests. Again, Thomas was not directly involved in the negotiations between Blickenstaff and Clegg.

Joyce was not a party to the negotiations, but in February 2000, Clegg asked Joyce to structure buyout documents and assignment agreements to show that Calderwood would buy out Blickenstaff and M & D. According to the assignment agreements, Clegg agreed Calderwood would pay $500,000 to Blickenstaff for his individual 18% interest in Calderwood. Clegg further agreed Calderwood would deposit $750,000 in cash or in a bank letter of credit for M & D's 27% interest. Clegg, as manager of Calderwood, and Blickenstaff, individually and as trustee for M & D, executed two assignment agreements according to these terms. Joyce claims that he merely performed the ministerial acts of drafting the assignment agreements and that Blickenstaff never asked Joyce for his advice as an attorney or to act in M & D's best interest. However, Blickenstaff contends that he viewed the transaction as a "familiar" one where Joyce would represent all the parties fairly, and that Joyce knew or should have known that Blickenstaff and M & D were not represented by independent counsel.

Blickenstaff believed Clegg would complete the transaction by having Thomas infuse Calderwood with more capital, and then Calderwood would use the capital to buy out Blickenstaff and M & D. It is clear from the assignment agreements that Calderwood was the purchaser of Blickenstaff's and M & D's interests. On March 8, 2000, the parties signed the buyout documents prepared by Joyce. Clegg signed in his capacity as manager of Calderwood and Blickenstaff signed in his capacity as an individual and trustee for M & D. Also on that day, Blickenstaff and Clegg executed the agreement assigning Blickenstaff's individual interest in Calderwood to Calderwood. Blickenstaff was fully paid for his interest on April 6, 2000.

However, during the closing, Clegg informed Blickenstaff that he lacked funds to buy out M & D at that time but would be getting them soon. According to Blickenstaff, Clegg asked for more time and Blickenstaff, as trustee for M & D, signed another agreement assigning M & D's interest to Calderwood upon M & D's receipt of $750,000 or a letter of credit in 60 days. Blickenstaff claims he demanded a deed of trust against the Calderwood property to secure the extended time for payment and assumed it would be subordinate only to the U.S. Bank loan. However, this agreement does not mention a deed of trust.

During this same time period, Clegg, as manager of Calderwood, negotiated with Thomas, individually and as trustee for the Thomas Trust, for a loan to buy out Blickenstaff and M & D's interests and to pay Clegg the developer's fee he wanted. Thomas arranged for a $1.8 million loan from Zions Bank and then loaned $1.7 million of the money to Calderwood secured by a deed of trust on the Calderwood property. The Thomas/Clegg Agreement, dated April 4, 2000, is between Thomas and Clegg in their individual capacities, although it purports to amend the Calderwood Operating Agreement.

Thomas insisted on having the deed of trust recorded against the Calderwood property, and subordinated to the U.S. Bank loan only. Thomas did not have the Calderwood property appraised and trusted Clegg's representation that the value would be sufficient to cover his loan. Thomas claimed he understood that M & D would be paid off from the proceeds of the $1.7 million loan to Calderwood and the remaining proceeds would go to Clegg's developer's fee and to infrastructure. Joyce also prepared the Thomas/Clegg agreement on behalf of Clegg and contends he simply drafted the documents memorializing the agreement. The Thomas/Clegg Agreement specifically states that the $1.7 million loan is secured by a deed of trust. Thomas provided the funds on April 11, 2000, and the deed of trust in favor of Thomas was recorded on April 13, 2000. Blickenstaff did not know of the terms of the Thomas/Clegg Agreement and never saw it.

The Thomas/Clegg Agreement also outlined the resulting ownership of Calderwood: upon completion of buying out M & D, Clegg would receive 20% and Thomas would receive 80% of distributions; when Thomas had received an amount equal to Clegg's developer's fee of $800,000, then Clegg and Thomas would share distributions 50/50. Thomas and Clegg also agreed that if any future loans were necessary, both parties would jointly sign any guarantees.

During late March 2000, Clegg told Blickenstaff the M & D buyout would again be delayed and asked for another extension. Clegg apparently expected "large, permanent, long-term financing to take U.S. Bank out, [Thomas'] 1.7 million interest out, and M & D out." Blickenstaff agreed on behalf of M & D to accept a 6-month promissory note in the amount of $750,000 and a deed of trust against the Calderwood property. On April 11, 2000, Thomas and Clegg each signed the 6-month promissory note and a new M & D Assignment Agreement in their capacities as members of...