Daggett v. Feeney

         Appeal from the Superior Court of the State of Alaska Court No. 3HO-11-00359 CI, Third Judicial District, Homer, Charles T. Huguelet, Judge.

          Appearances: James William Daggett and Nadia Tora Daggett, pro se, Anchorage, Appellants.

          Lindsay Wolter, Homer, for Appellee.

          Before: Stowers, Chief Justice, Winfree, Maassen, Bolger, and Carney, Justices.

          OPINION

          CARNEY, JUSTICE.

         I. INTRODUCTION

         A property owner cancelled a contract to install a wind turbine on his property and sued the contractor to recover his down payment. The contractor filed a counterclaim for breach of contract. The superior court concluded that the contractor was required to be licensed by the State and had misrepresented its licensing status. It also concluded that the contractor could not maintain the counterclaim because the contractor was unregistered. The court ordered the contract rescinded and the contractor to return the down payment less a setoff covering costs incurred in the transaction. The contractor failed to pay and the court amended the judgment to include the contractor's individual owners and a successor company. The contractor's individual owners appeal the licensing determination and the amended judgment. The property owner cross-appeals the setoff calculation. We conclude that the court erred only in its setoff calculation.

         II. FACTS AND PROCEEDINGS

         A. Facts

         This case involves a cancelled contract between Richard Feeney and Alaskan Wind Industries (AWI), a renewable energy contractor, for the sale and installation of a wind turbine on Feeney's property in Homer. AWI was the trade name for Daggett LLC, owned by James and Nadia Daggett. The Daggetts owned several similarly named organizations, as well as Standard Steel, Inc.

         Feeney and his wife, Elizabeth Bashaw, began discussing the purchase of a wind turbine with AWI representatives in the summer of 2009. In these discussions AWI was often represented by sales representative Erik Schreier and occasionally by Nadia Daggett. The parties dispute whether Schreier told Feeney and Bashaw that AWI was licensed^[1] and bonded as a steel erection contractor and whether Schreier promised to make sure neighboring landowners would not oppose the turbine's installation. But the parties agree that they discussed AWI's successful installation of another turbine in the same area without opposition from neighboring landowners.

          The parties ultimately signed a contract in October 2010, with Schreier signing on behalf of AWL The contract was on AWI letterhead and did not mention Daggett LLC. It required AWI to provide and install a wind turbine, a 49-foot tower, and an inverter. The contract expressly affirmed that AWI was "qualified by law as a licensed steel erector in the state of Alaska" and allocated to Feeney the responsibility for "meet[ing] all builders['] permit requirements, variances, [and] height restriction waivers."

         Bashaw paid the 60% down payment of $32, 880 immediately after the contract was signed. AWI then ordered the wind turbine from a California-based supplier and had it shipped to Alaska. AWI began digging the turbine's foundation in November 2010. The work was soon stopped by Bashaw because a neighbor was concerned that the 49-foot turbine would violate a subdivision land-use covenant. AWI agreed that Feeney and Bashaw could take a few months to resolve the conflict with their neighbor.

         In late November the neighbor formally notified Feeney and Bashaw of a land-use covenant that prohibited structures over 35 feet tall in the subdivision and threatened legal action if the project moved forward. In December Bashaw emailed Nadia Daggett saying, "We need to get this contract cancelled as soon as possible, especially since it is illegal and you were aware that was so when it was signed." Despite discussions during the first half of 2011 to try to reach a mutually agreeable solution regarding contract cancellation and refund, the parties were unable to reach an agreement.

         B. Proceedings

         Feeney filed suit in early December 2011, naming AWI, James Daggett, and Nadia Daggett as the defendants. Feeney alleged that AWI and its representatives had "assured" him that they were familiar with the subdivision covenants, that the wind turbine would not violate them, and that AWI would check with Feeney's neighbors to make sure they did not object to the turbine. Feeney asked the court to rescind the contract and order the return of his down payment, "less any offset which the court deems appropriate"; he also requested an accounting to determine the offset amount.

         AWI's answer admitted that it had entered into a contract with Feeney and asserted wrongful rejection of the turbine delivery as an affirmative defense. AWI also filed a counterclaim, alleging that Feeney had materially breached the contract by refusing to accept full performance and pay the full price for the turbine. James and Nadia Daggett filed separate answers raising affirmative defenses that they were not party to the contract between Feeney and AWI and were not liable to Feeney under AS 10.50.265, which limits LLC members' liability to third parties.^[2]

         Feeney replied to AWI's counterclaim and amended his complaint seeking to pierce the corporate veil and reach the Daggetts personally because of some confusion about the Daggetts' various corporate entities.^[3] Feeney expanded his claim for contract rescission, alleging that rescission was justified because "AWI was not registered as a general or specialty contractor with the State of Alaska" when it entered the contract, as required by state law. Having discovered that AWI was no longer a registered business and that the Daggetts had set up a new entity under the name Standard Steel, Inc., Feeney also sought to add Standard Steel as a defendant.

         A two-day bench trial took place in Homer in November 2012. Feeney testified that he had specifically asked Schreier whether AWI was a licensed and bonded contractor and that Schreier had affirmed AWI was licensed and bonded. Feeney explained that this information was important to him in deciding to purchase the wind turbine. Schreier testified that Feeney had never asked about AWI's licensing status.

         Nadia Daggett testified that she and James had believed wind energy installers were not required to be licensed as construction contractors at the time of the contract with Feeney. She stated that "[i]t was industry standard" not to carry a license at the time and claimed that none of AWI's competitors had done so. Nadia also testified that she had contacted the State and had been told there was no North American Industry Classification System (NAICS)^[4] code for renewable energy installers. She further testified that in late 2010a state licensing inspector had told them that renewable energy contractors would be required to be licensed beginning in 2011.

         The superior court issued a written opinion in favor of Feeney in July 2013. The court decided that Feeney was entitled to rescission on the ground of misrepresentation^[5] because AWI had misrepresented its licensing status, noting that "the [c]ontract itself expressly establishe[d] that '[AWI was] qualified by law as a licensed steel erector in the State of Alaska.' " The court concluded that wind energy installers were required to be licensed as steel erection contractors because tower-mounted wind turbines qualify as "steel towers and pylons" under regulations^[6] adopted pursuant to AS 08.18.013^[7] and AS 08.18.024.^[8] And the court found that AWI had been "neither licensed nor bonded as a 'steel erection contractor' " when the contract was executed.

         The superior court noted that there was "evidence to suggest" that AWI had known it needed to be licensed because it had previously held a specialty contractor license which expired in 2009, before execution of the contract. The court found AWI's representation of its licensing status to be a misrepresentation of a material fact, and it pointed to Feeney's testimony that he would not have entered into the contract without it. The court therefore concluded that Feeney was entitled to rescission of the contract based on AWI's misrepresentation of its non-licensed status because he " 'actually and justifiably relied upon' a 'false representation of a material fact.' "^[9] The court accordingly ruled that Feeney was entitled to reimbursement of his down payment.

         But the superior court noted that Feeney's position on the issue of licensing appeared "pretextual." It believed Feeney had "unilaterally cancelled" the contract to avoid the threatened suit from his neighbor and doubted he would have objected to AWI's non-licensed status without that threat. The court suggested it would take this into account as an equitable consideration in determining AWI's recovery amount.

         The superior court also addressed AWI's counterclaim for breach of contract. Although it was "inclined to entertain the merits" of AWI's counterclaim because Feeney's termination of the contract was "suspect, " the court concluded that the counterclaim was barred by AS 08.18.151, which provides that a contractor "may not bring an action... for breach of a contract for which registration is required" unless the contractor can show it "was a registered contractor ... at the time of contracting." Having already decided AWI was required to be licensed as a steel erection contractor and was not licensed at the time of the contract, the superior court concluded AWI was barred from bringing the counterclaim. The court rejected the Daggetts' argument that AWI was exempt from AS 08.18.151 under the "finished products" exemption expressed in AS 08.18.161(5), because the wind turbine "bec[a]me a permanent, fixed part of a structure" and was not a finished product as contemplated in the exemption.

         Nonetheless the superior court explained that even an unlicensed contractor may recover "any sums which may be equitably due [it]" through a setoff against the damages to be paid. It relied on Sumner Development Corp. v. Shivers, in which we held that a setoff against the plaintiff s recovery is appropriate if a contract has been partially performed and the plaintiff would receive a windfall from retaining the benefit of the partially performed work in addition to receiving contract damages.^[10] Here the court allowed a setoff because Feeney was "not without unclean hands" and "AWI suffered substantial financial loss as a result of Feeney's cancelling the contract.

          The superior court determined that AWI was entitled to a setoff for any resale costs, out-of-pocket costs, and incidental costs it had incurred in partially performing the contract. It did not award a setoff for resale costs because it calculated that AWI had not lost money on resale but instead made a small profit. The court awarded out-of-pocket expenses that were incurred following execution of the contract, which included commissions, the cost of shipping the turbine to Alaska, and the materials, equipment, and labor used to begin creating the foundation. The court also awarded certain incidental expenses mainly related to moving the turbine to its new purchaser. The total setoff was $9, 609.06.

         The superior court expressly withheld judgment on the question whether Feeney could seek recovery of his down payment from anyone other than AWI. But the court concluded that if Feeney was not able to recover his reimbursement from AWI, it would "consider whether Defendants James and Nadia Daggett, or any entity registered to them or otherwise owned by them, should be held liable."

         In December 2013 the superior court issued a final judgment awarding Feeney $23, 270.94 in damages (the amount of the down payment minus AWI's equitable setoff), plus pre- and post-judgment interest, attorney's fees, and court costs, for a total of $36, 010.15. The court authorized Feeney to seek to amend the judgment to permit recovery from the other defendants if AWI failed to satisfy the judgment within 90 days, suspending the ordinary timeline established by Civil Rule 59(f) and allowing Feeney to file within 120 days of the entry of judgment.

         When AWI did not satisfy the judgment within 90 days, Feeney filed a motion to amend the final judgment, naming James Daggett, Nadia Daggett, and Standard Steel as additional defendants. The Daggetts objected to both their individual liability and that of Standard Steel. They also opposed the superior court's decision to allow Feeney to move to amend after the Alaska Civil Rule 59(f) time limit had expired.

          The superior court issued an amended final judgment in December 2014. The court found that the "primary contractor entity" Feeney had contracted with was Daggett LLC d/b/a AWI, but that Feeney had not had notice that Daggett LLC was the principal because the contract named only AWI and "did not disclose the existence of Daggett LLC. And the court explained that because the contract only used the AWI trade name, Feeney was not given notice that he was contracting with a limited-liability entity. The court therefore concluded that James and Nadia Daggett were personally liable to Feeney as agents of an undisclosed principal on the contract, with Erik Schreier acting as their subagent.^[11]

         The superior court also concluded that Standard Steel was liable to Feeney as AWI's successor under the "mere continuation" and "continuity of enterprise" exceptions to the general rule that a corporation is not liable for its predecessor's acts.^[12]The court found that Standard Steel was "simply a change in name and corporate form" from Daggett LLC, noting that Standard Steel continued the LLC's renewable energy and wind turbine installation business at the same address and website; that "[t]he Daggetts remained the sole stockholders and officers of the new entity"; and that the new entity did business as "Alaska's Wind Industries, " a "negligible change" from its previous name. The court thus concluded that Standard Steel was liable to Feeney as the successor to AWI.

          James and Nadia Daggett represent themselves in this appeal of the superior court's initial decision issued in July 2013, the final judgment issued in December 2013, and the amended final judgment issued in December 2014. They contest multiple elements of these rulings. Feeney cross-appeals the court's determination of AWI's setoff amount.

         III. STANDARD OF REVIEW

         "Interpretation of a statute is a question of law to which we apply our independent judgment; we interpret the statute according to reason, practicality, and common sense, considering the meaning of the statute's language, its legislative history, and its purpose."^[13] For mixed questions of law and fact, including applications of agency law, ^[14] we review legal questions de novo and review factual findings for clear error.^[15]"A fact finding is not clearly erroneous unless the reviewing court has a definite and firm conviction that a mistake has been made."^[16]

         "We review the grant of an equitable remedy ... for abuse of discretion, but we review de novo any underlying questions of law and the application of law to facts."^[17] Whether a party has standing to assert a given claim is a question of law that we review de novo.^[18]

         IV. DISCUSSION

         A. The Superior Court Did Not Err In Concluding That AWI Was Required To Be Registered As A Specialty Contractor.

         The Daggetts argue that the superior court was wrong to conclude AWI was required to be registered as a specialty steel erection contractor, asserting that AWI was exempted by an express exception covering contractors who install "finished products." Feeney counters that wind turbine installation does not fall under the finished products exemption. We conclude that the superior court correctly interpreted the statute and regulations.^[19]

          1. The statute requires registration.

         Alaska Statute 08.18.171(4) defines a contractor as "a person who, in the pursuit of an independent business, undertakes or offers to perform... or submits a bid for a project to construct, alter, repair, move, or demolish a building ... or any type of fixed structure, including excavation and site development and erection of scaffolding." It further provides that" 'contractor' includes a general contractor, builder, mechanical contractor, specialty contractor, and subcontractor." Alaska Statute 08.18.011 requires all contractors to be registered with the Alaska Department of Commerce, Community, and Economic Development.^[20] Alaska Statutes 08.18.013 and .024 authorize the Department to register and issue licenses to contractors and specialty contractors. The Department has adopted regulations defining 37 categories of specialty contractor.^[21] A contractor who installs steel towers or pylons is considered a steel erection contractor.^[22]The superior court concluded that the 49-foot tower for the wind turbine qualifies as a steel tower or pylon under this statutory framework and that AWI was therefore required to be registered as a steel erection contractor.

         The Daggetts do not contest that the wind turbine tower falls within this category or that an installer of steel towers generally is required to register as a steel erection contractor. Instead they argue that AWI was exempt from registration under AS 08.18.161 (5), which provides that the chapter governing contractor registration "does not apply to . . . the sale or installation of finished products, materials, or articles of merchandise that are not actually fabricated into and do not become a permanent, fixed part of a structure." The Daggetts argue that the wind turbine kit was a finished product and AWI "would simply have been putting the pieces together and installing [the turbine] on Feeney's property."

         We have discussed this exemption only once before, in Industrial Power & Lighting Corp. v. Western Modular Corp^[23] Western Modular supplied pre-fabricated homes that Industrial Power assembled on-site.^[24] We decided that AS 08.18.161 (5) did not apply to Western Modular because the section was "aimed at a supplier who actually installs his [or her] products, " whereas "Western Modular had no installation responsibilities" because the homes were installed by Industrial Power.^[25] Instead we concluded that Western Modular was exempt under a different section of AS 08.18.161 that covered suppliers who "only furnished materials" without installing them.^[26]

         The Daggetts read Industrial Power to support their contention that AWI's wind turbine installation falls under the finished products exemption. But the Daggetts' focus on this language is misplaced. In Industrial Power we inquired whether the supplier installed the product in order to distinguish between two exemptions with otherwise similar language.^[27] We did not suggest that any supplier ...