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Diamond v. Platinum Jaxx, Inc.

Supreme Court of Alaska

August 9, 2019

JOHN DIAMOND III, Appellant,
v.
PLATINUM JAXX, INC., Appellee.

          Appeal from the Superior Court of the State of Alaska, No. 3 AN-15-07879 CI, Third Judicial District, Anchorage, Frank A. Pfiffner, Judge.

          Whitney A. Power, Power & Power Law, LLC, Anchorage, for Appellant.

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

          OPINION

          STOWERS, JUSTICE.

         I. INTRODUCTION

         John Diamond III was assaulted and sustained severe injuries while a patron at Platinum Jaxx, a restaurant and bar. He filed suit against Platinum Jaxx, Inc., its landlord, and his assailant, Noel Bungay. A default was entered against Bungay, and the landlord was later granted summary judgment on the claims against it. Diamond proceeded to trial on his remaining claims against Platinum Jaxx. After an eight-day trial, the jury returned a special verdict finding Platinum Jaxx criminally negligent. The jury awarded Diamond $1.85 million in damages and apportioned fault between Platinum Jaxx and Bungay. Platinum Jaxx was found to be 20% at fault for the injuries Diamond received, and Bungay was found 80% at fault. Diamond appeals the superior court's pre-trial order that precluded him from proceeding on a piercing the corporate veil theory. He asks us to reverse the order and remand to allow the superior court to make findings of fact and conclusions of law on the veil piercing issue. He also appeals other pre-trial orders excluding evidence, as well as the superior court's post-judgment cost award allocation.

         Because Diamond did not plead the veil piercing issue, we affirm the superior court's order. The superior court also did not abuse its discretion by excluding the challenged evidence and by allocating costs according to the percentage of fault of each defendant. We therefore affirm the court's pre-trial orders and post-judgment cost award.

         II. FACTS AND PROCEEDINGS

         In October 2013 John Diamond, III and his girlfriend were patrons at Platinum Jaxx, a restaurant and bar in downtown Anchorage. While the two were sitting at the bar, another patron, Noel Bungay, hit Diamond in the head with a pint glass, causing severe disfigurement. In June 2015 Diamond and his girlfriend filed suit against Platinum Jaxx, Inc., its landlord, La Mexicana, Inc., and Bungay. Diamond alleged that (1) Platinum Jaxx violated the dram shop statute by serving alcohol to a "drunken person, "[1] (2) Platinum Jaxx was negligent in the operation of its premises and failed to exercise reasonable care to protect its patrons, (3) La Mexicana was negligent in its duties as landlord and owner of the property, (4) Bungay assaulted Diamond causing serious physical injury, and (5) all parties negligently caused the girlfriend to suffer severe emotional distress and loss of consortium. By the time suit was filed, the bar had been closed for one year, and Platinum Jaxx, Inc. was subsequently involuntarily dissolved in September 2015.

         In May 2016 the superior court entered a default against Bungay. In June 2017 the court granted summary judgment against the girlfriend's claims for emotional distress and loss of consortium. In July the court granted La Mexicana's motion for summary judgment on the landlord liability claim, and the remaining parties-Diamond and Platinum Jaxx - proceeded to a jury trial.

         Prior to trial, in February 2017, Diamond's attorney sent a letter to Platinum Jaxx's attorney, stating: "Plaintiffs did not plead piercing the corporate veil as a count in the Complaint.[2] Nevertheless, for notice purposes, please be advised that Plaintiffs intend to argue at trial that [the] corporate veil should be pierced." But Diamond did not seek to amend his complaint to plead a veil piercing theory or to join the individual owners of Platinum Jaxx as defendants. Diamond later sought to introduce evidence of Platinum Jaxx's lack of liability insurance to show that Platinum Jaxx was undercapitalized and therefore its corporate veil should be pierced. Platinum Jaxx moved to preclude the evidence and argued that Diamond did not plead a veil piercing theory. In two pre-trial orders the superior court precluded Diamond from mentioning liability insurance at trial and stated that it would "not allow [Diamond] to proceed on a piercing the corporate veil [theory] to pursue claims against the individual, non-named officers or shareholders of Platinum Jaxx, Inc." The court reiterated at trial that Diamond was precluded from proceeding on a veil piercing theory because "it wasn't pled" and "would be grossly prejudicial. . . this late in time."

         The jury returned a special verdict in favor of Diamond, finding that (1) Platinum Jaxx, with criminal negligence, violated the dram shop statute; (2) Platinum Jaxx was negligent as a possessor of land; (3) Platinum Jaxx's negligence was a legal cause of harm to Diamond; (4) Diamond suffered severe disfigurement and damages of $1.85 million; and (5) Platinum Jaxx was 20% at fault and Bungay was 80% at fault. Final judgment was entered against Bungay and Platinum Jaxx in September 2017, with costs awarded in October. The judgment against Platinum Jaxx was for $331, 332.93 in damages (20% of Diamond's total damage award)[3] and $2, 619.34 in costs (20% of Diamond's total allowable costs).

         Diamond appeals pre-trial orders by the superior court that (1) precluded him from proceeding on a piercing the corporate veil theory, (2) excluded evidence related to the veil piercing theory, and (3) excluded evidence related to Platinum Jaxx's reputation that Diamond argues might have increased the jury's percent allocation of fault to Platinum Jaxx. Diamond also appeals the superior court's award of costs based on a percentage-of-fault formula. Diamond requests that we reverse the aforementioned orders and remand for specific findings relating to his veil piercing theory. Platinum Jaxx did not participate in this appeal.

         III. STANDARDS OF REVIEW

         The superior court precluded Diamond from proceeding on a piercing the corporate veil theory because it was not pleaded. Whether a party provided adequate notice to argue a claim is a question of law we review de novo, [4] and "we will adopt the rule of law that is most persuasive in light of precedent, reason, and policy."[5]

         The superior court excluded evidence related to Diamond's veil piercing theory and to Platinum Jaxx's reputation. We review trial court "decisions to admit or exclude evidence under the abuse of discretion standard."[6] We will find that a trial court abused its discretion if "the reasons for the exercise of discretion are clearly untenable or unreasonable."[7]

         The superior court denied Diamond's requested reallocation of costs. "We review a trial court's cost award for abuse of discretion."[8] "When a review of an award of . . . costs requires an interpretation of the Alaska Civil Rules, we apply our independent judgment."[9]

         IV. DISCUSSION

         A. The Superior Court Did Not Err By Precluding Diamond From Proceeding On A Piercing The Corporate Veil Theory.

         In its July 2017 pre-trial order the superior court stated that it would "not allow [Diamond] to proceed on a piercing the corporate veil [theory] to pursue claims against the individual, non-named officers or shareholders of Platinum Jaxx, Inc." Diamond argues that "[i]n ordering that [he] was precluded from proceeding on a veil piercing theory, the trial court did not analyze the veil piercing factors on the record," and that the court "failed to make any findings of fact or conclusions of law related to its corporate veil piercing order." He requests that we "reverse the trial court's order related to corporate veil piercing ... [and] remand this case to the trial court for the purpose of making detailed and explicit findings."

         Diamond is correct that the superior court did not make findings of fact or conclusions of law in its order-but it did not need to. The court's explanations at trial - that the theory "wasn't pled" and that allowing the theory in "would be grossly prejudicial... this late in time" - are adequate to give us "a clear understanding of the basis of the trial court's decision."[10] The question before us instead is whether Diamond adequately raised the veil piercing issue.

         Diamond did not plead a piercing the corporate veil theory in his complaint, and he did not seek to file an amended complaint asserting this claim at any point in the proceedings. Diamond argues that his February 2017 letter to Platinum Jaxx provided sufficient notice to overcome his failure to plead, and he relies on L.D. G., Inc. v. Brown for the proposition that "if a party has notice of the conduct for which the opposing party is seeking relief, the opposing party may recover under any theory supported by the evidence."[11]

         In L.D. G we considered whether failure to plead the veil piercing theory was "sufficient to keep the question from going to the jury."[12] The plaintiff in L.D.G. indicated "six months before the start of trial[] that he was prepared to argue that L.D.G.'s corporate veil should be pierced," and he "submitted supplemental proposed jury instructions . . . pertaining to piercing the corporate veil, accompanied by a notice indicating that... he would also argue that the corporate veil should be pierced."[13] We held that the parties "were on sufficient notice of [the plaintiffs] piercing the corporate veil theory."[14] But L.D.G. is distinguishable because the plaintiff originally filed suit against both L.D.G. and the sole shareholder of the company personally.[15] The sole shareholder was thus on notice that the plaintiff sought to hold him personally liable. Diamond's complaint did not name any of the individual owners of Platinum Jaxx, and he never sought to join the owners as parties to the suit. They therefore were not required - nor did they have the opportunity - to defend themselves individually.

         We also evaluated failure to plead in Alakayak v. British Columbia Packers, Ltd., reviewing a superior court ruling "that the plaintiffs did not properly plead corporate 'alter ego' claims" and were therefore precluded from conducting discovery on those claims.[16] While we acknowledged that the complaint "did not specifically request piercing of the corporate veil," we also observed that "it did name the [parent corporations] as defendants, and it stated that it would seek recovery from those defendants for the actions of the subsidiaries."[17] We concluded that because the parent corporations had "notice of the conduct for which the opposing party [was] seeking relief," the plaintiffs' "alter ego" theory was therefore adequately pleaded.[18] Alakayak is thus also distinguishable because the parent corporations "were independently sued . . . and the complaint expressly alleged that they were 'responsible for the liabilities' of their wholly owned subsidiaries."[19] Diamond's complaint contains no such language that would put the individual owners of Platinum Jaxx on notice that they might be held personally liable.

         In both Z.D. G. and Alakayak we relied on McCormick v. City of Dillingham for the proposition that notice can be sufficient to overcome the failure to plead.[20] In McCormick we considered whether a party who originally brought suit on a de facto partnership theory could later proceed on a piercing the corporate veil theory.[21] We concluded that because the initial complaint named McCormick as the sole defendant, he was on notice that he might be held personally liable.[22] Accordingly, L.D.G, Alakayak, and McCormick all involved some form of actual notice - in the pleadings, to a party to the case - that the plaintiff sought to hold the party liable.

         Here, Diamond's complaint provides no notice to the individual owners of Platinum Jaxx that they might be held personally liable. And because the individual owners were not parties to Diamond's suit against Platinum Jaxx, Diamond's February 2017 letter to Platinum Jaxx's counsel did not provide the owners notice of Diamond's intent to pierce the corporate veil. Being actually named as a party is important. A named party has the right to assert affirmative defenses, counterclaims, and cross-claims and to conduct discovery, file motions, and make its own defense at trial. And a named party may be held personally liable for its share of damages. It is difficult to understand how Diamond ...


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