Lunneborg v. My Fun Life, Corp.

• Decision Date: 28 June 2018
• Docket Number: Docket No. 45200
• Court: Idaho Supreme Court
• Parties: Thomas LUNNEBORG, Plaintiff-Respondent, v. MY FUN LIFE, a Delaware corporation, Edwards E. Edwards and Carrie L. Edwards, husband and wife, Defendants-Appellants.

163 Idaho 856
421 P.3d 187

Thomas LUNNEBORG, Plaintiff-Respondent,
v.
MY FUN LIFE, a Delaware corporation, Edwards E. Edwards and Carrie L. Edwards, husband and wife, Defendants-Appellants.

Docket No. 45200

Supreme Court of Idaho, Lewiston, April 2018 Term.

Filed: June 28, 2018

Merrill & Merrill, Chartered, Pocatello, and Hague Law Offices, Coeur d'Alene, attorneys for appellants. Mary Shea argued.

Witherspoon Kelley, Spokane, Washington, attorneys for respondent. Christopher Varallo argued.

BEVAN, Justice.

163 Idaho 860

This is an action for breach of an employment contract in which Thomas Lunneborg (Lunneborg) claimed he was entitled to $60,000 severance because he was terminated without cause. Lunneborg was hired to be Chief Operating Officer (COO) of My Fun Life Corporation (MFL) on April 16, 2014. Lunneborg was terminated on July 29, 2014, ostensibly for cause. Lunneborg brought this action seeking his severance pay pursuant to the employment contract. The district court, sitting as trier of fact, found MFL did not have cause to terminate Lunneborg. Therefore, Lunneborg was awarded $60,000 in damages, which was trebled to $180,000 under the Idaho Wage Claims Act. Lunneborg was also awarded attorney fees. The court also pierced MFL's corporate veil and found that Lunneborg's judgment may be collected against MFL's sole shareholder, Dan Edwards (Edwards), and against Edwards’ wife, Carrie Edwards (Carrie), personally.

MFL, Edwards, and Carrie appeal, contending that the trial court erred in three particulars, by: 1) failing to uphold Edwards’ determination that Lunneborg was fired for cause; 2) piercing the corporate veil; and 3) abusing its discretion in the amount of attorney fees it awarded to Lunneborg. We affirm the judgment of the district court.

I. FACTUAL AND PROCEDURAL BACKGROUND

During a court trial, the following salient facts were established. MFL was a multi-level marketing company that sold memberships for access to discount travel accommodations. Edwards was the sole shareholder and director of MFL. Edwards’ wife Carrie was not a shareholder of MFL, but she had previously served as COO of the corporation, and thereafter as its Executive Vice President.¹ In early 2014, Edwards wanted to hire someone to take over the day-to-day operations at MFL. Edwards also wanted to hire someone who could develop nutritional products, which MFL members could purchase in addition to travel accommodations.

OxyFresh Corp. (OxyFresh) was a multi-level marketing company that sold nutritional products, among other goods. Edwards knew both the owner of OxyFresh, Richard Brooke (Brooke), and its head naturopath, Dr. Todd Schlapfer (Schlapfer), who helped create nutritional products at OxyFresh. Lunneborg worked at OxyFresh in sales and product development for over twenty years and was Vice President of Logistics and Product Development in April 2014. While working for OxyFresh, Lunneborg, together with Schlapfer, brought several nutritional products to market. One of these products was a vitamin drink called "Life Shotz," in which Lunneborg held an ownership interest.

421 P.3d 192

163 Idaho 861

Schlapfer knew Edwards was looking for an executive level employee to run MFL, and he also knew Lunneborg had concerns about continuing his employment at OxyFresh. Unlike Schlapfer, Lunneborg had no background in science and, therefore, he could not develop nutritional products on his own. However, Lunneborg had experience marketing, distributing, and bringing nutritional products to market.

Edwards was introduced to Lunneborg through Schlapfer. After several meetings with Lunneborg, Edwards offered him a position at MFL as its COO via a letter dated April 8, 2014. Lunneborg accepted Edwards’ offer of employment, and an employment contract between MFL and Lunneborg was created when Lunneborg signed the letter on April 16, 2014. In pertinent part, the employment contract stated: "Your employment with the Company will be at will; meaning that either you or the Company will be entitled to terminate your employment at any time and for any reason, with or without cause." The employment contract stated further: "In the event of termination of this employment agreement, without cause, except resignation, six months of salary will be paid on current payroll schedule." Lunneborg's first day as MFL's COO was May 21, 2014.

As part of the negotiations for Lunneborg to work at MFL, the parties agreed that Lunneborg could simultaneously serve as a consultant for OxyFresh for six months to make up for the difference between what Lunneborg was earning at OxyFresh in April 2014 and what he was initially being paid at MFL. Lunneborg also wanted to act as a consultant to help ease the impact of his transition from OxyFresh to MFL. Edwards was aware of Lunneborg's intention to consult for OxyFresh and did not object to this arrangement. Despite Lunneborg's intentions, Lunneborg and Brooke were unable to finalize a written agreement regarding the scope of Lunneborg's consulting services. Nevertheless, Lunneborg continued to work as a consultant for OxyFresh and received a monthly salary of $5,000 from May to July 2014.

While Lunneborg and Brooke were negotiating the terms of the consulting contract, Brooke contacted Edwards. Edwards contends that Brooke informed him that Lunneborg had a contractual obligation with OxyFresh that prohibited Lunneborg from developing any nutritional products at MFL. The trial court found that Edwards never verified through Lunneborg that he was under contract with OxyFresh. Instead, Edwards relied on what the court characterized as a "false rumor" and approached Lunneborg, telling him that he needed to resign from MFL. Edwards said once Lunneborg resigned he would form a new retail corporation and hire Lunneborg to run it. Edwards stated that if Lunneborg failed to agree, then he would be terminated. When Lunneborg asked why he had to resign before the new corporation was formed, Edwards responded that "he had a fiduciary duty to his shareholders and members." When Lunneborg asked what he would be terminated for, Edwards reiterated this same response. Lunneborg refused to resign from MFL.

On July 29, 2014, Edwards physically delivered a termination letter to Lunneborg. The termination letter cited two separate reasons for Lunneborg's termination:

1. The central purpose of your employment here was to bring health and nutritional products to market. You are unable to make any significant progress to that end, and whenever I have encouraged you to work on that goal, you have refused to take action, citing roadblocks that you claim prevent the development of new products.

2. I have also learned that you have been negotiating a consulting agreement with your former employer that would expressly prohibit you from bringing other new products to market. This is in direct competition with your duties at MyFunLife and a serious breach of your obligation to us. We cannot continue to pay an employee who not only fails to perform the central functions of his position, but is motivated to continue in that failure by an outside consulting

421 P.3d 193

163 Idaho 862

arrangement that requires continued inaction.

Edwards relied upon these grounds to terminate Lunneborg. Because Edwards felt he terminated Lunneborg for cause, Edwards refused to pay him the $60,000 in severance which Lunneborg sought pursuant to the employment contract.

On December 8, 2014, Lunneborg filed a complaint against MFL. The complaint alleged, among other things, that: (1) MFL breached its employment contract with Lunneborg by terminating him without cause and not paying him the $60,000 in severance; and (2) MFL violated the Idaho Wage Claims Act ( Idaho Code section 45-601 et . seq .,² ) which entitled Lunneborg to treble damages in the amount of $180,000. On January 5, 2015, MFL filed an answer and counterclaim. The answer denied Lunneborg's claims and asserted the affirmative defenses of failure of consideration and fraudulent inducement. The counterclaim alleged that Lunneborg breached his duty of good faith and fair dealing and that Lunneborg was unjustly enriched. On January 27, 2015, Lunneborg filed an answer to the counterclaim, which asserted various defenses to MFL's counterclaim.

On September 8, 2015, Lunneborg sought leave of the district court to amend his original complaint to add Edwards and Carrie as defendants. Lunneborg asserted that he could pierce MFL's corporate veil and reach the personal assets of both Edwards and Carrie to satisfy any potential judgment against MFL. Leave was granted without objection, and Lunneborg's first amended complaint was filed on December 21, 2015. On February 16, 2016, the appellants answered but did not plead any affirmative defenses or counterclaims to this amended complaint.

On June 22, 2016, MFL filed a notice of bankruptcy, informing the district court that MFL filed for Chapter 7 protection under the United States Bankruptcy Code. As a result, Lunneborg filed a motion to reset the trial date, and the district court rescheduled the trial to begin on March 13, 2017.

On March...