JAMES WILLIAM DAGGETT and NADIA TORA DAGGETT, Appellants and Cross-Appellees,
v.
RICHARD L. FEENEY, Appellee and Cross-Appellant.
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contract rescinded and the contractor to return the down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 ...