Choice Feed, Inc. v. Montierth

• Decision Date: 09 February 2021
• Docket Number: Docket No. 46544
• Citation: Choice Feed, Inc. v. Montierth, 481 P.3d 78 (Idaho 2021)
• Parties: CHOICE FEED, INC., an Idaho Corporation, Plaintiff-Respondent-Cross Appellant, v. Edward R. MONTIERTH, aka Ray Montierth, Defendant-Appellant-Cross Respondent, and Susan L. Montierth, Gary Johnston, Trustee of the Peckham Road Trust, Defendants.
• Court: Idaho Supreme Court

481 P.3d 78

CHOICE FEED, INC., an Idaho Corporation, Plaintiff-Respondent-Cross Appellant,

v. Edward R. MONTIERTH, aka Ray Montierth, Defendant-Appellant-Cross Respondent,andSusan L. Montierth, Gary Johnston, Trustee of the Peckham Road Trust, Defendants.

Docket No. 46544

Supreme Court of Idaho, Boise, November 2020 Term.

Opinion filed: February 9, 2021

Eismann Law Offices, Nampa, for Appellant. Ryan Martinat argued.

Fisher and Hudson, Boise, for Respondent. Vaughn Fisher argued.

MOELLER, Justice

This case concerns a sadly familiar story: an oral real estate transaction gone terribly wrong. Choice Feed, Inc., sued Ray Montierth and Susan Montierth, alleging that Ray breached an oral agreement to sell his feedlot property to Choice Feed once he arranged a 1031 tax deferred agreement. Although Ray collected money from Choice Feed that was to go toward the purchase of the feedlot property, he never arranged a 1031 exchange. Instead, without notice to Choice Feed, Ray sold the feedlot property to someone else while continuing to accept monthly payments from Choice Feed. At the conclusion of the trial, the jury found in favor of Choice Feed on one count of fraud against Ray, awarded compensatory damages, and assessed $250,000 in punitive damages. Ray filed a motion for judgment notwithstanding the verdict, which the district court granted in part, thereby reducing the jury's awards of both the compensatory and punitive damages. Ray appeals the jury's verdict, including the compensatory and punitive damages that were reduced by the district court. Choice Feed cross-appeals the district court's decision granting Ray's motion for judgment notwithstanding the verdict and the resulting reduction in damages. We affirm in part and reverse in part.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. Factual Background

In early 2006, Ray¹ and Susan purchased a feedlot in Wilder, Idaho, from the Mikelson Family Limited Partnership. The feedlot consists of 127 acres in Canyon County. After Ray purchased the feedlot, the Mikelson family continued to operate their cattle business from the feedlot. From 2009 to 2012, Ray rented the feedlot to Tom Floyd. The lease with Floyd required him to maintain and repair the feedlot as necessary to carry out its operation. Any improvements to the feedlot were to be approved in advance by Ray. The lease ended in 2012.

In December of 2012, Paul Mikelson, intending to continue in the cattle feeding industry, formed a corporation, Choice Feed, Inc., for that purpose. Trent Anderson later purchased an interest in Choice Feed and now both Paul and Trent own it. In late 2012, Choice Feed assumed the prior lease between Ray and Floyd, took over operation of the feedlot, and began making payments to Ray on a month to month oral lease. The assumed lease required Choice Feed to maintain and repair the feedlot as needed to continue operations and to obtain approval from Ray in advance for any improvements to the feedlot.

At the end of July 2014, Trent met with Ray to discuss the sale and purchase of the feedlot. Ray maintains that he did not know whether he was discussing a sale with Choice Feed or with Trent and Paul as individuals. Ray stated that he would not take less than $1,250,000. Ray also wanted a cash deal to utilize a 1031 tax deferred exchange (hereinafter "1031 exchange").² In an email following their meeting, Trent memorialized the terms of Choice Feed's offer to purchase the feedlot as follows: a seller-financed loan of $1,250,000 for 15 years at 5% interest with a balloon payment for the remaining balance at the end of the seventh year. Trent noted Choice Feed's concern about the condition of the feedlot and the repairs and improvements it required. Ray maintains that there was no deal at the end of this meeting and he was not interested in Trent's suggestion about installment payments.

On September 2, 2014, Trent and Ray met again to discuss the purchase and sale of the feedlot. This time they were joined by Doug Mikelson. Doug is Paul's brother and works for Choice Feed. Doug, Paul, and Trent had previously discussed moving their business from the feedlot because of its poor condition. The feedlot needed extensive repairs and improvements that they were unwilling to make unless they owned the property. Doug told Ray that if Choice Feed could not purchase the feedlot, they would move their business elsewhere as soon as possible. Ray said, "[w]ell, okay." Doug and Trent then modified their previous offer to Ray as follows: they reduced the payout of the loan to ten years with a balloon payment at 5 years and they increased the interest rate from 5% to 6%. Doug testified that Ray seemed to like the offer but he wanted to talk to his wife and his accountant first before finalizing it. Before leaving, the parties agreed to raise Choice Feed's rent more than $3,000 per month, with the additional funds to be applied toward the purchase of the feedlot until the sale was finalized. Shortly after the meeting, Choice Feed delivered a check to Ray that was back-dated to September 1, 2014, for $13,877.56 with the memo line reading: "First payment feedlot purchase." Ray accepted and cashed the check. Trent believed a deal was made and Choice Feed was responsible for the feedlot at that point. Trent testified that this is why Choice Feed kept its business at the feedlot and began making costly improvements without Ray's consent.

Ray recalls the meeting on September 2, 2014, differently. Ray agrees he met with Trent and Doug and they discussed the purchase and sale of the feedlot. Trent proposed a modified installment schedule with a higher interest rate, but Ray did not intend on entering an agreement to sell the feedlot on installment terms. Ray reiterated his need for a 1031 exchange in order to avoid taxes. Trent suggested making extra payments on top of the rent toward the purchase. Ray stated that the extra payment was not necessary but he ultimately accepted it. Ray asserts that at the end of the meeting he clarified that there was no deal unless he accepted the terms, conferred with his wife, attorney, and tax advisor, and he arranged a 1031 exchange. Trent testified³ that the 1031 exchange was not a "deal breaker," and agreed to allow Ray sufficient time to work out a qualified exchange. Trent stated that if Ray had told Choice Feed that he could not do the deal they proposed, Choice Feed would have terminated the lease and left the feedlot that same day.

On November 6, 2014, Choice Feed sent Ray a draft purchase and sale agreement and other documents (hereinafter "draft agreement") for the sale of the feedlot. The draft agreement reflected the terms of Choice Feed's last offer. The only exception was that "KPT, LLC" was listed as the entity purchasing the feedlot, instead of Choice Feed. At trial, Choice Feed clarified, through the testimony of Doug and Paul that KPT was the entity it was putting together to purchase the feedlot. Nevertheless, Ray did not sign the draft agreement, as he informed Choice Feed that he was still waiting to put together a three-way 1031 exchange.

Ray, on the other hand, claimed he had never heard of KPT before, but he was not concerned about it. He testified that the draft agreement was problematic. For example, the proposal was secured by a deed of trust on the feedlot, something that Ray thought was prohibited by Idaho Code section 45-1502 because the feedlot is over 40 acres. Despite being a licensed attorney (since 1988) and a real estate agent (since 1975) in Idaho with experience in this area, Ray did not vocalize this alleged objection about the draft agreement to Choice Feed.⁴ The parties met again in January of 2015 with other investors while Ray attempted to put together a 1031 exchange. Ray testified that he was having trouble finding a party with whom he could conduct a 1031 exchange.

On January 13, 2015, Ray received a postcard from Gary Johnston inquiring whether Ray would sell the feedlot to him as trustee of the "Peckham Road Trust." Gary and Ray met in person around February 21, 2015. Gary had prepared a written cash offer to Ray of $1,250,000 for the feedlot. Gary and Ray again met on March 3, 2015, and toured the feedlot. Ray and his wife signed a contract with Gary for the sale of the feedlot on March 3, 2015. Closing was set for June 17, 2015. Ray did not tell anyone associated with Choice Feed about this transaction.

Gary asked for an amendment to the contract on April 1, 2015, because the feedlot needed a sprinkler system and other significant repairs and improvements he had not originally noticed. Ray agreed, and lowered the sale price by $75,000. Gary deposited earnest money shortly thereafter. Ray mentioned to Gary during their first phone call that there was a tenant operating the feedlot and there had been an offer made to purchase it. However, when Gary testified, he did not recall Ray telling him about a possible deal with Choice Feed or that it was making extra payments to Ray above the monthly rent.

Ray saw Paul on the feedlot on April 29, 2015. Paul testified that he voiced concerns to Ray about finalizing a deal. Even though Ray had already agreed to sell the feedlot to Gary just a few weeks earlier, Ray told Paul that they could still get a deal done, but they needed an appraisal, financial records, tax returns, or a broker's price opinion to get an investor. Ray said he would get in contact with a realtor. Again, Ray said nothing to Paul indicating that he had already signed a contract to sell the feedlot to Gary.

On June 11, 2015, Ray sent an email to Choice Feed advising that he had sold the feedlot to a third party. Ray also advised that they could offset any monetary credits from the additional lease payments by applying them to Choice Feed's outstanding balance for hay owed to Ray. Ray testified that Choice Feed originally owed Ray $69,424.80 for hay. It had since been credited with $35,000 toward the debt, leaving a remaining balance of...