MERDES & MERDES, P.C., MERDES LAW OFFICE, P.C., and WARD MERDES, Appellants,
v.
LEISNOI, INC., Appellee.
Appeal
from the Superior Court No. 3AN-13-07180 CI of the State of
Alaska, Third Judicial District, Anchorage, Eric A. Aarseth,
Judge.
Brad
S. Kane, Kane Law Office, Los Angeles, California, for
Appellants.
Katherine Demarest, Dorsey & Whitney LLP, Anchorage, for
Appellee.
Before: Stowers, Chief Justice, Maassen, Bolger, and Carney,
Justices. [Winfree, Justice, not participating.]
OPINION
MAASSEN, JUSTICE.
I.
INTRODUCTION
An
attorney represented a Native corporation in litigation
nearly three decades ago. The corporation disputed the
attorney's claim for fees, and in 1995, after the
attorney's death, the superior court entered judgment on
an arbitration award of nearly $800, 000 to the
attorney's law firm, then represented by the
attorney's son. The corporation paid eight installments
on the judgment but eventually stopped paying, citing
financial difficulties. The law firm sought a writ of
execution for the unpaid balance, and the writ was granted.
The corporation appealed but under threat of the writ paid
$643, 760 while the appeal was pending. In a 2013 opinion we
held the writ invalid and required the firm to repay the
$643, 760.
The
corporation was never repaid. The original law firm moved its
assets to a new firm and sought a stay of execution, averring
that the original firm now lacked the funds necessary for
repayment. The corporation sued the original firm, the
successor firm, and the son for breach of contract,
fraudulent conveyance, conspiracy to fraudulently convey
assets, violations of the Unfair Trade Practices Act (UTPA),
unjust enrichment, and punitive damages. The firm
counterclaimed, seeking recovery in quantum meruit for
attorney's fees it claimed were still owing for its
original representation of the corporation.
The
superior court granted summary judgment for the corporation
on the law firm's quantum meruit claim and, following
trial, found that the son and both law firms fraudulently
conveyed assets and were liable for treble damages under the
UTPA.
The son
and the law firms appeal. They argue that the superior court
erred in these ways: (1) holding that the quantum meruit
claim was barred by res judicata; (2) holding the defendants
liable for fraudulent conveyance; (3) awarding damages under
the UTPA; and (4) making mistakes in the form of judgment and
award of costs. But seeing no error or abuse of discretion in
the superior court's decision of most of these issues, we
affirm its judgment, with one exception. We remand for
reconsideration of whether all three defendants are liable
for prejudgment interest from the same date.
II.
FACTS AND PROCEEDINGS
The
current dispute arose between Leisnoi, Inc., an Alaska Native
corporation, and a law firm, Merdes & Merdes. The history
of this case is outlined in our 2013 opinion;[1] we summarize it
again here.
A.
Before 2013
Beginning
in 1988 Ed Merdes and Merdes & Merdes, his law firm,
represented Leisnoi in litigation against Omar Stratman over
Leisnoi's title to certain lands on Kodiak
Island.[2] Ed Merdes's representation was based
on a contingency fee agreement entitling him to "an
undivided thirty percent. . . interest in all lands and/or
settlement" that Leisnoi obtained or retained as a
result of the Stratman litigation.[3]
Ed
Merdes died in 1991, but Merdes & Merdes continued its
representation of Leisnoi through 1992, when litigation in
the superior court ended in Leisnoi's favor (though
appeals continued until 2008).[4] Following the favorable judgment,
Merdes & Merdes-represented by Ed's son Ward Merdes,
also an attorney-sought to enforce the fee agreement, and
Leisnoi requested arbitration through the Alaska Bar
Association.[5] An arbitration panel awarded Merdes &
Merdes a monetary sum roughly equal to 30% of the value of
the land - "$721, 000 in attorney's fees, plus
interest, payable in $ 100, 000 yearly installments" -
as well as the $55, 000 in attorney's fees the superior
court had earlier awarded Leisnoi as the prevailing
party.[6] The superior court affirmed the
arbitration award and entered judgment on it in 1995, and it
was not appealed.[7]
Leisnoi
made six annual $ 100, 000 payments to Merdes & Merdes
and two $50, 000 payments.[8] But it failed to make its September
2002 payment, citing the cost of the ongoing Stratman
litigation.[9]
Over
the next few years Merdes & Merdes and Leisnoi attempted
to negotiate a settlement of the unpaid
balance.[10] Leisnoi "generally did not dispute
the validity of the judgment awarded to [Merdes & Merdes]
and actively proposed settlement
arrangements."[11] Ward Merdes later explained that he
delayed executing on the 1995 judgment because of the
negotiations and Leisnoi's tenuous financial
position.[12] But after the last appeal in the
Stratman litigation was resolved favorably to Leisnoi, Merdes
& Merdes sought a writ of execution in January 2009, and
the superior court granted it a year later.[13] Leisnoi
appealed from the grant of the writ but paid the amount still
owing - $643, 760 - while the appeal was
pending.[14]
B.
Our 2013 Opinion
In 2013
we reversed the superior court's grant of the writ of
execution. We held that "Leisnoi's contingency fee
agreement with Merdes violated [the Alaska Native Claims
Settlement Act's] prohibition against contingency fee
agreements, as did the Arbitration Panel's fee award, the
superior court's 1995 entry of judgment, and the 2010
writ of execution."[15] Leisnoi was therefore "entitled
to recover the balance that it paid after the writ of
execution was unlawfully issued."[16] Leisnoi was
not, however, entitled to relief from the 1995 judgment under
Alaska Civil Rule 60(b), because the judgment was voidable
rather than void and Leisnoi waited too long to seek relief
from it.[17] Thus, although Leisnoi could recover the
$643, 760 it paid as a result of the timely-appealed writ of
execution, it could not recover the $800, 000 it paid before
2010 based on the 1995 final judgment.[18]
Though
holding the contingency fee agreement invalid, we left the
door open for Merdes & Merdes to seek "any fees it
believes are owed under a theory of quantum
meruit."[19] In an order on rehearing we
"expressed] no opinion whether Merdes is entitled to the
remedy of quantum meruit" or about the merits of
Leisnoi's potential defenses to such a remedy because
"[t]hese and related issues are matters for the superior
court to address."[20]
C.
Following Our 2013 Decision
What
happened next, according to Leisnoi, is that "Ward
Merdes transferred [Merdes & Merdes's] assets to
himself and to the newly formed Merdes Law Office, P.C."
in order to avoid returning the $643, 760 Leisnoi had paid
under threat of the invalid writ of execution. In March 2013
Merdes & Merdes sought a stay of execution on our 2013
opinion until its "competing claim" for quantum
meruit could be resolved; Ward Merdes attested by affidavit
that Merdes & Merdes "does not have anywhere near
enough money to return $643, 760 to Leisnoi pursuant to
Supreme Court Order 6747. It doesn't have l/5th of that
amount."
In May
2013 Leisnoi sued Merdes & Merdes, Merdes Law Office, and
Ward Merdes for breach of contract, fraudulent conveyance,
conspiracy to fraudulently convey assets, violations of the
UTPA, and unjust enrichment. Merdes[21] denied Leisnoi's
allegations, and Merdes & Merdes filed a counterclaim for
its attorney's fees framed as a claim for quantum meruit.
The superior court granted Leisnoi's motion for summary
judgment on the counterclaim, concluding that recovery in
quantum meruit was barred by res judicata and the statute of
limitations. The court also granted summary judgment for
Leisnoi on its first cause of action for breach of contract,
ordering Merdes & Merdes to repay Leisnoi $643, 760 plus
interest to comply with the mandate of our 2013 opinion.
The
court held a five-day bench trial on the remaining claims. It
granted a directed verdict against Leisnoi on the conspiracy
claim, citing case law that requires "[g]eneral
creditors" to "reduce their claims to judgment
before asserting this cause of action."[22] But it found
that Merdes & Merdes fraudulently conveyed assets to
Merdes Law Office and Ward Merdes. Merdes had defended
against that claim by contending that Merdes Law Office was
created not to avoid paying Leisnoi but rather because of
Ward Merdes's agreement with his nephew that they would
create a new law firm together upon the nephew's
graduation from law school. But as the superior court saw it,
the real issue was not the creation of Merdes Law Office but
the use of Merdes & Merdes's assets to capitalize it.
According to the superior court, "[T]he only reason
Leisnoi was the only creditor of [Merdes & Merdes] left
unpaid [after the transfers from Merdes & Merdes to
Merdes Law Office] was because that was the explicit goal of
Ward Merdes." Because Merdes Law Office "could have
happily existed waiting for [the nephew] to pass the Alaska
Bar Exam and did not require capitalization" at the
time, the court found that Merdes Law Office "was
capitalized not so it could conduct business, but to attempt
to remove the assets with which [Merdes & Merdes] would
pay its debt to Leisnoi."
This
transfer of assets, the court concluded, was "simply not
defensible." The court considered eight "badges of
fraud" and found that seven of them "weigh[ed]
strongly in favor of finding that the capitalization of
[Merdes Law Office] with the assets of [Merdes & Merdes]
was done with the intent to defraud Leisnoi and prevent the
payment of the debt owed to Leisnoi." The court found
that the fraudulent conveyance was also by definition a
deceptive and unfair act for purposes of the UTPA, and that
all three defendants - Merdes & Merdes, Merdes Law
Office, and Ward Merdes - violated the UTPA by participating
in the asset transfer. The court therefore voided the
transfers to Merdes Law Office and Ward Merdes and found
Merdes & Merdes, Merdes Law Office, and Ward Merdes
jointly and severally liable for Leisnoi's compensatory
damages. Pursuant to the UTPA the court trebled this amount
to $1, 931, 280.[23]
Merdes
filed this appeal.
III.
STANDARDS OF REVIEW
"We
review the superior court's grant of summary judgment de
novo and draw 'all factual inferences in favor of and
view 'the facts in the light most favorable to the
non-prevailing party.' "[24] We will "affirm a
grant of summary judgment 'when there are no genuine
issues of material fact, and the prevailing party .. . [is]
entitled to judgment as a matter of law.'
"[25]
"Application
of the doctrine of res judicata presents questions of law
which we review de novo."[26] "Interpretation of the
UTPA presents a question of law, "[27] as does
"[t]he time when prejudgment interest begins to
accrue."[28] "Whether an entire type of damages
is allowed"[29] and "whether the trial court's
award of damages is based on an erroneous application of
law" are also questions of law.[30] "We review such
questions of law de novo, 'adopting] the rule of law that
is most persuasive in light of precedent, reason, and
policy.' "[31]
IV.
DISCUSSION
Merdes
focuses its appeal on essentially four areas of alleged
error: (1) summary judgment against Merdes & Merdes on
its quantum meruit claim; (2) the finding of liability and
award of damages for fraudulent conveyance; (3) the award of
damages for violation of the UTPA; and (4) the award of
prejudgment interest.
A.
The Superior Court Did Not Err By Granting Summary Judgment
On Merdes & Merdes's Quantum Meruit Claim.
Merdes
first argues that the superior court erred when it granted
summary judgment on the quantum meruit claim on res judicata
and statute of limitations grounds. We address res judicata
first and find it dispositive.
"The
doctrine of res judicata as adopted in Alaska provides that a
final judgment in a prior action bars a subsequent action if
the prior judgment was (1) a final judgment on the merits,
(2) from a court of competent jurisdiction, (3) in a dispute
between the same parties (or their privies) about the same
cause of action."[32] "[R]es judicata bars not only
relitigation of the same cause of action, but also new claims
arising from the same transactions as those in the first
suit."[33] In this case the superior court held
that because Merdes & Merdes litigated its right to
attorney's fees to a valid final judgment in 1995, it was
not entitled to bring another suit later seeking the same
relief under a different theory. Merdes argues that res
judicata does not apply to this case, and if it does we
should apply one of several possible exceptions to the
doctrine.
1.
A voidable judgment has res judicata effect.
Merdes
first contends that the "final judgment on the
merits" element of the res judicata doctrine is not met;
it argues that our 2013 decision made the 1995 judgment
unenforceable and thus invalid for purposes of any preclusive
effect on its later quantum meruit claim. We agree that res
judicata would not apply if the 1995 judgment were
void.[34] But we held in our 2013 decision that
the judgment, though erroneous, "was voidable rather
than void."[35] A voidable judgment is "legally
effective until set aside."[36]It can be appealed
directly but is not subject to collateral
attack.[37]
Merdes
argues, however, that a judgment is only "valid"
for res judicata purposes if it is enforceable and "the
rights of the parties [are] ascertainable from [its]
face." It is true that the 1995 judgment is no longer
enforceable following our 2013 decision. But the purpose of
the res judicata doctrine requires us to focus on the
finality of the judgment at the time it was entered and went
unappealed. Res judicata is intended to protect the finality
of judgments; its aim is "to prevent parties from again
and again attempting to reopen a matter that has been
resolved by a court of competent
jurisdiction."[38] What matters here is that there was a
"final judgment on the merits" in a case in which
Merdes had the opportunity to bring a quantum meruit claim
but failed to do so.[39]
Merdes
agrees that "a quantum meruit theory [was] originally
addressed in the 1994 Arbitration" - though raised by
Leisnoi, not Merdes & Merdes. As Merdes describes the
proceedings, Leisnoi "sought to reduce [Merdes &
Merdes's] fee to an hourly quantum meruit recovery . . .
while [Merdes & Merdes] sought to enforce the contingent
fee contract, " and the arbitration award enforced the
contract over the quantum meruit alternative. Merdes &
Merdes presumably chose not to pursue quantum meruit in the
original action only because it believed the contract claim
to be the more advantageous option.
Because
the 1995 judgment in a case that encompassed quantum meruit
relief was voidable, not void, it operated to bar Merdes
& Merdes's later resurrection of a quantum meruit
claim. The superior court correctly applied the doctrine of
res judicata.
2.
The superior court did not refuse to follow Estate of
Katchatag.
Merdes
argues that the superior court "[r]erused to
[f]ollow" our holding in Estate of Katchatag v.
Donohue[40] by failing "to recognize: (i)
the distinction between contingent fee agreements and other
contracts; and (ii) an attorney's right to seek quantum
meruit after notice the contract is unenforceable." In
Estate of Katchatag an attorney sought to recover
fees in probate court based on an alleged fee-sharing
agreement with another attorney in a wrongful death
case.[41] The probate court found there was no
written agreement but gave the attorney 20 days in which to
file and support a quantum meruit claim, which the attorney
failed to do.[42] The probate court then approved the
award of attorney's fees out of the estate; it was only
afterwards, on a motion for reconsideration, that the
attorney filed an affidavit describing the terms of an
alleged oral fee-sharing agreement.[43] The probate court ruled
that the attorney had waived his right to make such a
claim.[44] Affirming the judgment, we observed in a
footnote that the attorney "was not necessarily
foreclosed from claiming damages he may have incurred in
reliance on the [fee-sharing] contract he claims to have
made, " but because he "waived an opportunity to
seek a quantum meruit recovery in the probate court, "
res judicata "consequently would bar any later attempt
to recover the value of services performed in that
case."[45]
The
superior court's decision in this case is not contrary to
Estate of Katchatag. Our footnoted dicta left open
the possibility of a quantum meruit claim without
guaranteeing its success, just as we did in our 2013
Leisnoi opinion.[46] In neither case was the
superior court foreclosed from considering relevant defenses.
And our comments in Estate of Katchatag precluded a
quantum meruit claim for any fees the probate court had
already addressed-including those the attorney waived by not
timely asserting the claim when invited to do
so.[47] Like the attorney in Estate of
Katchatag, Merdes & Merdes declined to seek quantum
meruit in the original litigation, even though it was
available as an alternative theory.[48] Like the attorney in
Estate of Katchatag, Merdes & Merdes was barred
from asserting the theory in a later case in order to recover
fees that were at issue in the earlier one.[49]
3.
Merdes & Merdes does not qualify for an
exception to res judicata.
Merdes
asks us to apply an exception to res judicata if we would
otherwise hold that the doctrine applies. Merdes argues for
the application of exceptions regarding (1) limitations on
theories of the case, (2) inconsistency, (3) promoting a
coherent disposition, and (4) public policy. We conclude that
none of these exceptions apply.
First,
according to the Restatement (Second) of Judgments, res
judicata should not bar a claim that relies on a theory the
plaintiff was unable to pursue in the earlier action
"because of the limitations on the subject matter
jurisdiction of the courts [in that earlier action] or
restrictions on their authority to entertain multiple
theories or demands for multiple remedies or forms of relief
in a single action."[50] But in this case there were no
formal barriers to the arbitration panel's or the
superior court's exercise of jurisdiction over a quantum
meruit claim, as contemplated by this
exception;[51] the arbitration panel did, in fact,
consider and reject the claim. This jurisdictional exception
to the res judicata doctrine therefore does not apply.
Second,
Merdes relies on an exception that applies when "[t]he
judgment in the first action was plainly inconsistent with
the fair and equitable implementation of a statutory or
constitutional scheme."[52] Merdes points to Alaska Bar
Rules 34 through 42 as creating a scheme that "appl[ies]
with the force of law" and that allows a lawyer to seek
quantum meruit recovery if a fee agreement is unenforceable.
But here "[t]he judgment in the first action" - the
1995 judgment on the fee contract - was not "plainly
inconsistent" with these rules. And there is nothing in
the Bar Rules that prevents a court from applying the usual
principles of claim and issue preclusion to attorneys'
actions to recover on fee agreements.
Third,
Merdes relies on an exception where "[i]t is clearly and
convincingly shown that the policies favoring preclusion of a
second action are overcome for an extraordinary reason, such
as . . . the failure of the prior litigation to yield a
coherent disposition of the controversy."[53] Merdes argues
that now that it must return the $643, 760, "[t]he only
way to make a coherent disposition is to allow [Merdes &
Merdes] to seek the balance owed under quantum meruit."
But we disagree. As Leisnoi points out, the comment to
Restatement (Second) of Judgments § 26(1)(f) limits this
exception's applicability to "a small category of
cases in which the policies supporting merger or bar may be
overcome" and clarifies that the exception "is not
lightly to be found."[54] The Restatement's examples
of cases in which the exception might apply include those
concerning the "validity of a continuing restraint or
condition having a vital relation to personal liberty, "
"civil commitment of the mentally ill, " "the
custody of a child, " and divorce.[55] In these
circumstances there is "need for greater flexibility and
... for special legislative treatment."[56] An
attorney's fee dispute does not present such a case.
Finally,
Merdes argues that as a matter of public policy, "simple
justice requires that the doctrine of res judicata be
tempered to allow [Merdes & Merdes] an opportunity to
prove its quantum meruit claim and vindicate Ward
Merdes's belief in that claim." Given the
circumstances of this case - in which both parties are
burdened in different ways by the voidable 1995 judgment-we
do not see that public policy favors a particular result.
Leisnoi paid approximately $800, 000 to Merdes & Merdes
despite the invalidity of the fee agreement and was
time-barred from later recovering that amount under Civil
Rule 60(b); on the other hand, Merdes & Merdes recovered
approximately $800, 000 but could recover no
more.[57] Merdes now values the quantum meruit
claim as between $875, 000 and $1.7 million. Its recovery of
approximately $800, 000 on this claim satisfies us that there
is no serious unfairness in this case resulting from
application of the res judicata doctrine.
Because
none of the exceptions apply, we affirm the superior
court's decision on summary judgment that the quantum
meruit claim was barred by res judicata. We need not address
the statute of limitations, the alternative basis for the
court's decision.
B.
The Superior Court Did Not Err In Its Rulings On
Leisnoi's Fraudulent Conveyance Claim.
The
superior court found after trial that Merdes was liable on
Leisnoi's claim for fraudulent conveyance, a finding
Merdes attacks on several grounds. First, Merdes argues that
a claim for fraudulent conveyance presupposes that the
plaintiff has a judgment covering the thing fraudulently
conveyed, and Leisnoi lacked a judgment requiring Merdes to
repay the $643, 760. Second, Merdes argues that damages for
fraudulent conveyance depend on proof that simply voiding the
conveyance is not an adequate remedy, and that the superior
court therefore erred by awarding damages for fraudulent
conveyance.
Alaska
Statute 34.40.010 declares void any conveyance made with an
"intent to hinder, delay, or defraud creditors"
from recovering a debt.[58] "The intent to defraud through a
conveyance is a question of fact usually to be proved by
circumstantial evidence."[59] Although "[m]any
circumstantial factors can indicate the existence of fraud,
" we have held that "[b]adges of fraud must be
viewed within the context of each particular
case."[60] Badges of fraud may include the
following: "(1) inadequate consideration, (2) transfer
in anticipation of a pending suit, (3) insolvency of the
transferor, (4) failure to record, (5) transfer encompasses
substantially all the transferor's property, (6)
transferor retains possession of the transferred premises,
(7) transfer completely depletes transferor's assets, and
(8) relationship of the parties."[61] In this case
the superior court found that seven of these badges of fraud
"weigh[ed] strongly in favor of finding that the
capitalization of [Merdes Law Office] with the assets of
[Merdes & Merdes] was done with the intent to defraud
Leisnoi and prevent the payment of the debt owed to
Leisnoi." Merdes does not attack any of the superior
court's findings of fact on this appeal.
1.
Leisnoi was entitled to bring a fraudulent conveyance
claim.
Merdes
argues that it was error to allow Leisnoi to assert a
fraudulent conveyance claim without a "right to [the]
property [that was allegedly fraudulently conveyed] created
by a judgment, " and it highlights a supposed disconnect
between Leisnoi's conspiracy to fraudulently convey claim
- which the superior court rejected on a motion for directed
verdict - and Leisnoi's fraudulent conveyance claim - on
which the superior court found for Leisnoi following trial.
Merdes argues that the superior court should have rejected
both claims.
Granting
a directed verdict on the conspiracy claim, the superior
court relied on Summers v. Hagen[62] to conclude that
Leisnoi's failure to reduce our 2013 opinion to a money
judgment was fatal. In Summers we recognized "a
novel theory of liability in Alaska": a creditor's
cause of action for damages against the grantee of property
for a "fraudulent conveyance scheme."[63] In reaching
this decision we rejected the grantee's argument
"that creditors' rights should be strictly limited
to the remedy provided for by the Fraudulent Conveyances Act,
AS 34.40.010."[64] But we required general creditors to
"reduce their claims to judgment before asserting this
cause of action" for damages, because "[p]rior to
judgment, general creditors have no legal right to the
property fraudulently conveyed."[65]
Unlike
the law of conspiracy developed judicially in this context,
the fraudulent conveyance statute does not require a money
judgment as the basis of a viable claim to void a conveyance.
Alaska Statute 34.40.010 broadly protects against transfers
"made with the intent to hinder, delay, or defraud
creditors or other persons of their lawful suits, damages,
forfeitures, debts, or demands, or a bond or other evidence
of debt given, action commenced, decree or judgment suffered,
with the like intent." The question here is whether our
2013 opinion provides the basis for an action on the statute.
Although the Alaska Rules of Civil Procedure have special
requirements for the form of "judgments for the payment
of money"[66] that our 2013 opinion did not satisfy,
Alaska Appellate Rule 507(a) states that "[t]he opinion
of the appellate court, or its order under Rule 214, shall
constitute its judgment." Indeed, Merdes acknowledged
Leisnoi's legal entitlement when it sought a "stay
of execution" from paying "$643, 760 to Leisnoi
pursuant to Supreme Court Order 6747."[67] And
regardless of whether Leisnoi had a money judgment, there is
no doubt that our opinion established that Leisnoi had a
"lawful suit[], .. debt[], or demand[]" that fell
within the broad protection of the statute.
We
conclude, therefore, that the superior court's decisions
of the fraudulent conveyance claim and the conspiracy to
fraudulently convey claim were not inconsistent but in each
instance followed the governing law.
2.
The superior court did not erroneously award fraudulent
conveyance damages.
Merdes
argues that the superior court erred in awarding Lesnoi $643,
760 on its fraudulent conveyance claim when there was no
showing that simply voiding the transfers was not an adequate
remedy.[68] We held in Summers - when
discussing damages for a conspiracy claim - that "[i]f
the fraudulent conveyance remedy, i.e., voiding the transfer
as to the creditor, is adequate, the plaintiff is not
entitled to damages."[69] But if voiding the transfer is
not adequate, then "the plaintiff is entitled to damages
equalling the lesser of the value of the property
fraudulently transferred or the amount of the
debt."[70]
It is
well established that the usual remedy for fraudulent
conveyance is voiding the transfers.[71] Alaska's statutory
provision prohibiting fraudulent transfers does not provide
any additional remedy.[72] Although Leisnoi will not be made
whole until it is paid the full amount of the judgment, the
purpose of the fraudulent conveyance action is only to ensure
that transferred assets are once again available when Leisnoi
seeks to collect from Merdes. If voiding the transaction will
return sufficient funds to pay ...