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Baker v. Duffus

Supreme Court of Alaska

May 17, 2019

LEE E. BAKER JR., Appellant,
v.
KENNETH M. DUFFUS, Appellee.

          Appeal from the Superior Court of the State of Alaska No. 3AN-07-08461 CI, Third Judicial District, Anchorage, William F. Morse, Judge.

          Steven Jones, Jones Law Group, LLC, Anchorage, for Appellant.

          Adam W. Cook, Birch Horton Bittner & Cherot, Anchorage, for Appellee.

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

          OPINION

          CARNEY, JUSTICE.

         I. INTRODUCTION

         After a limited liability company and its individual members failed to make payments on a real estate loan, the lender sued. One member, Kenneth Duffus, cross-claimed against a second member, Lee Baker, Jr., alleging breach of contract and tort claims related to the management of the business. Baker counterclaimed against Duffus, also alleging breach of contract and tort claims. After several years of litigation, only the claims by and between Duffus and Baker remained; the superior court granted partial summary judgment to Duffus, finding that the statutes of limitation barred Baker's counterclaims. A trial jury found against Baker on Duffus's breach of contract and tort claims, and awarded damages to Duffus. Baker appeals the grant of summary judgment and a number of procedural issues from the trial. Because it was error to conclude that Baker's claims were not compulsory counterclaims, thus changing the statutes of limitation analysis, we reverse the superior court's grant of summary judgment, vacate the judgment, and remand for a new trial on both Duffus's cross-claims and Baker's counterclaims.

         II. FACTS AND PROCEEDINGS

         A. Facts

         Lee Baker, Jr., Lynn Lythgoe, and Kenneth Duffus are former business associates. They met in 2004, discussed developing residential property in Anchorage, and established Harvest Properties, LLC to purchase and develop a property. The LLC members were experienced in fields related to real estate development: Baker owned a construction company and was in charge of financing; and Duffus either had incorporated or was president of two engineering firms and was in charge of engineering.

         The LLC members intended to purchase property referred to as Prominence Pointe, subdivide it into smaller residential lots, and sell the lots. Harvest obtained a $4.5 million loan from First National Bank Alaska (FNBA) to purchase the property, and the LLC members personally guaranteed the loan. But the Prominence Pointe project was never completed and Harvest was unable to make its required payments to FNBA.

         B. Proceedings

         On July 10, 2007, FNBA sued Harvest and the three LLC members in superior court after Harvest failed to make payments. Duffus answered FNBA's complaint on September 28; Baker answered on October 8. Later that month Duffus filed an amended answer and cross-complaint against Baker and Lythgoe. In his cross- complaint Duffus alleged that Baker and Lythgoe had failed to make required capital contributions to Harvest and that FNBA should therefore obtain recovery only from Harvest, Lythgoe, and Baker. Duffus also sought judgment against Baker and Lythgoe individually, seeking equitable contributions from them in the event that he paid more than his pro rata share of the FNBA debt.

         Baker answered the cross-complaint a year later, in November 2008. He asserted that Duffus's cross-complaint failed to state a claim for relief and that individual members of Harvest could not sue to enforce capital contribution obligations. Baker amended his answer two months later to add claims against FNBA.

         In late 2010 FNBA entered into settlements with Baker and Duffus, with the parties stipulating to dismissals of claims and FNBA's withdrawal from the litigation. Lythgoe was dismissed from the proceedings following his Chapter 11 bankruptcy. Harvest was later dismissed as a party during the trial between Duffus and Baker.

         In April 2012 the parties stipulated to stay the case pending the resolution of unrelated criminal charges against Baker. At a status hearing in April 2013, the superior court scheduled trial for April 2014.

         In October 2013 Duffus moved to amend his cross-complaint, adding additional cross-claims for breach of contract, breach of the duty of good faith, breach of the fiduciary duty of care, breach of the duty of loyalty, conversion, and unfair trade practices. Baker opposed the motion, arguing the new cross-claims made "an entirely new lawsuit based on entirely different theories than the original cross-claims." In December the superior court granted Duffus's motion. Baker answered the amended cross-complaint and added new counterclaims in February 2015, over a year after Duffus filed his amended cross-complaint. Baker alleged breach of fiduciary duty, breach of the duty of good faith, fraudulent misrepresentation, and unfair trade practices against Duffus.

         In March 2015 Duffus moved to dismiss Baker's counterclaims pursuant to Alaska Civil Rule 12(b)(6), arguing that all of Baker's claims were barred by the relevant statutes of limitation. The court denied the motion in January 2016.

         In February 2016 Duffus moved for summary judgment based upon the statutes of limitation. Baker opposed summary judgment, arguing that his counterclaims related back to the filing of FNBA's original complaint in 2007 or "at the minimum" to Duffus's 2007 cross-complaint. The superior court granted Duffus's motion in May, ruling that the counterclaims did not relate back to either the original FNBA complaint or Duffus's 2007 cross-complaint because they did not satisfy the compulsory counterclaims test and that the statutes of limitation on all four of Baker's counterclaims had run.

         At the conclusion of a six-day trial, the jury returned a special verdict finding Baker liable for breach of contract, breach of the covenant of good faith and fair dealing, breach of the fiduciary duty of care, conversion, and unfair or deceptive acts or practices. The jury awarded damages of $170, 917 for Baker's breach of contract; $174, 466.67 for breach of the covenant of good faith; and $300, 000 for breach of the fiduciary duty of care. The superior court entered a final judgment for $1, 228, 170.64, which included the jury's award, treble damages under the Unfair Trade Practices and Consumer Protection Act (UTPA), [1] prejudgment interest, attorney's fees, and costs.

         Baker appeals the grant of summary judgment and the court's decisions on ...


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