Losee v. Idaho Co.

• Decision Date: 20 October 2009
• Docket Number: No. 34887.,34887.
• Citation: 220 P.3d 575
• Parties: Jerry LOSEE and Jocarol Losee, husband and wife, and as members and employees of Sky Enterprises, LLC, an Idaho limited liability company, Plaintiffs-Respondents, v. The IDAHO COMPANY, an Idaho corporation, Sky Enterprises, LLC, an Idaho limited liability company, and William F. Rigby, individually, Defendants-Appellants.
• Court: Idaho Supreme Court

220 P.3d 575

Jerry LOSEE and Jocarol Losee, husband and wife, and as members and employees of Sky Enterprises, LLC, an Idaho limited liability company, Plaintiffs-Respondents, v. The IDAHO COMPANY, an Idaho corporation, Sky Enterprises, LLC, an Idaho limited liability company, and William F. Rigby, individually, Defendants-Appellants.

No. 34887.

Supreme Court of Idaho, St. Anthony, September 2009 Term.

October 20, 2009.

COPYRIGHT MATERIAL OMITTED

E.W. Pike & Associates, P.A., Idaho Falls, for appellants. James C. Herndon argued.

Nick L. Nielson and Craig R. Jorgensen, Pocatello, for respondents. Craig R. Jorgensen argued.

J. JONES, Justice.

This is an appeal from a grant of partial summary judgment in favor of Jerry and JoCarol Losee declaring a promissory note and deed of trust null and void. We vacate and remand.

I.

In September 2003, Jerry and JoCarol Losee entered into an Operating Agreement and Membership Interest Purchase Agreement with the Idaho Company to create Sky Enterprises, LLC. The purpose of Sky Enterprises was to manufacture and market the "Rite-Back" device,¹ a product invented and patented by Jerry Losee. Shortly thereafter, the Idaho Company made $135,000 in purported advances to Sky Enterprises that it claims gave it a 50% membership interest in Sky Enterprises under the Purchase Agreement. With the initial financing, the Losees commenced construction of a facility on their real property to manufacture the Rite-Back device. However, by July of 2004, the initial investment was nearly exhausted and the Losees approached the Idaho Company for additional financing.

By March of 2004, the Idaho Company had become aware of claims that the Losees were mismanaging the funds advanced to Sky Enterprises.² Nonetheless, the Idaho Company agreed to advance an additional $126,000 to Sky Enterprises, bringing the total advances to $261,000, but required that the Losees individually sign a promissory note secured by a deed of trust in favor of the Idaho Company, pledging their real property as security for the loan. Thus, the Losees individually bound themselves to repayment of both the initial $135,000 advance and the subsequent $126,000 advance. The deed of trust was recorded in Bannock County.

Over the next few months, the advances from the Idaho Company to the Losees were exhausted and the business relationship between the Losees and the Idaho Company deteriorated. Following subsequent mediation and various judicial proceedings, the Losees filed a motion for partial summary judgment to quiet title to their real property arguing that the promissory note and deed of trust were invalid. The district court granted the Losees' motion for partial summary judgment and certified the order for immediate appeal. In its order, the district court found both the deed of trust and the promissory note null and void. The district court's explanation of its decision, however, ends there.³

The Idaho Company now appeals to this Court, arguing (1) there were genuine issues of material fact making the grant of summary judgment improper, and (2) the district court erred by failing to issue findings of fact and conclusions of law.

II.

The following issues are presented: (1) whether genuine issues of material fact exist regarding the validity of the promissory note and the deed of trust; (2) whether the district court erred in failing to enter findings of fact and conclusions of law; and (3) whether either party is entitled to attorney fees on appeal.

A.

On appeal from an order granting a party's motion for summary judgment, this Court employs the same standard of review that the trial court uses in ruling on the motion. Banner Life Insurance Co. v. Mark Wallace Dixson Irrevocable Trust, 147 Idaho 117, 123, 206 P.3d 481, 487 (2009). Summary judgment is appropriate when the pleadings, affidavits, and discovery documents before the court indicate that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law. Idaho R. Civ. P. 56(c); Banner Life Insurance Co., 147 Idaho at 123, 206 P.3d at 487. The moving party carries the burden of proving the absence of a genuine issue of material fact. Id.

When an action will be tried before a court without a jury, the court may, in ruling on the motions for summary judgment, draw probable inferences arising from the undisputed evidentiary facts. Id. at 124, 206 P.3d at 488. Drawing probable inferences under such circumstances is permissible because the court, as the trier of fact, would be responsible for resolving conflicting inferences at trial. Id. However, if reasonable persons could reach differing conclusions or draw conflicting inferences from the evidence presented, then summary judgment is improper. Boise Tower Assocs., LLC v. Hogland, 147 Idaho 774, 778, 215 P.3d 494, 498 (2009). Conflicting evidentiary facts, however, must still be viewed in favor of the nonmoving party. Banner Life Insurance Co., 147 Idaho at 124, 206 P.3d at 488.

B.

To remove a cloud on title, the burden of proof is on the plaintiff to prove that it has title to the subject property free from any encumbrance. In this case, to set aside the promissory note and the deed of trust, the Losees have the burden of proving a legal theory that would excuse performance under the note and deed of trust. In the summary judgment context, the Losees would have to show by indisputable evidence that some legal theory has rendered the promissory note and the deed of trust invalid or that some infirmity exists in those documents that would render them null and void.

In this case, the promissory note and deed of trust are complete and regular on their faces. The Losees do not dispute this fact, and admit in their complaint that the promissory note and deed of trust "personally obligate Plaintiffs for the debt." Thus, the only possible means to invalidate the deed of trust or the promissory note is through some cognizable legal theory.

In essence, the Losees' sole arguments in support of partial summary judgment were that the actions of the Idaho Company in asking them to be personally liable by virtue of the deed of trust and the promissory note were (1) misleading and (2) unfair. At oral argument, the Losees asked this Court to construe these arguments as evincing fraud in the inducement and unconscionability. Even putting aside the obvious infirmities in the Losees' pleadings, there are factual disputes that preclude summary judgment on both of these theories.

First, the Losees assert that "Idaho Company's attempt to `boot strap' themselves out of their obligation to capitalize the company by strapping the Losees with personal debt is unconscionable." For a contract or contractual provision to be voided as unconscionable, it must be both procedurally and substantively unconscionable. Walker v. American Cyanamid Co., 130 Idaho 824, 830, 948 P.2d 1123, 1129 (1997). Procedural unconscionability relates to the bargaining process leading to the agreement, while substantive unconscionability focuses upon the terms of the agreement itself. Id. Though the argument is not specifically articulated, the Losees seem to be basing their unconscionability claim on the following arguments: (1) the Losees were looking for the contribution of capital from a company by means of an "at risk" investment; (2) the Losees would not have given up 50% of their business just to garner personal debt; (3) the Idaho Company fully "leveraged" the acquisition of their capital interest; and (4) the effect of the Idaho Company's actions is a "capital squeeze" in which the Losees "had to obligate themselves to performances which they were incapable of completing."

There are genuine issues of material fact in this case as to each of the Losees' arguments. The affidavit submitted by the Idaho Company alleges facts that are directly contrary to the Losees' assertions. The Idaho Company claims that the Losees knew they were obligating themselves to personal debt and sought out the Idaho Company for an increase in the loan from $135,000 to $261,000. The Idaho Company further asserts that it was concerned about advancing additional money due...