Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Merdes & Merdes, P.C. v. Leisnoi, Inc.

Supreme Court of Alaska

November 9, 2017

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.]




         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.


         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.


         "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]


         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 ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.