Profits Plus Capital Management, LLC v. Podesta

Citations: 156 Idaho 873; 332 P.3d 785; 2014 WL 3057303; 2014 Ida. LEXIS 186Docket: No. 39964

Court: Idaho Supreme Court; July 8, 2014; Idaho; State Supreme Court

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A contract dispute arose involving Robert Coleman, Profits Plus Capital Management, LLC (Profits Plus), and Dollars and Sense Growth Fund Limited Partnership (Dollars and Sense) against Jeffrey Podesta and Street Search, LLC. Coleman and the entities sought a declaratory judgment to confirm the absence of a contract with Podesta and Street Search. In response, Podesta and Street Search counterclaimed for breach of contract, fraud, constructive fraud, and breach of fiduciary duties. The jury ultimately ruled in favor of Coleman and his entities on the breach of contract and fiduciary duty claims. Podesta and Street Search appealed several decisions made by the district court, which were upheld on appeal.

Key background details include that Coleman is based in Idaho and is the sole member and manager of Profits Plus, which serves as the general partner of Dollars and Sense, both organized in Delaware and involved in precious metals investment. Podesta, a New Jersey resident, operates Street Search, which raises capital for investment opportunities. The dispute centers on differing claims regarding the existence and terms of an agreement between Coleman and Podesta. Podesta claims that Coleman offered a 50% ownership interest in Dollars and Sense for his services, along with a name change of the fund to "Street Search Dollars and Sense." Coleman contends there was no ownership agreement, only an independent contractor relationship, and that the name change was solely for marketing purposes without altering the limited partnership agreement.

Podesta and Street Search were involved in a business relationship with Coleman regarding the marketing of Street Search Dollars and Sense from 2009 until their dispute in March 2010. The conflict initiated on March 2, 2010, when Coleman expressed dissatisfaction with Podesta's capital-raising efforts and indicated a need for discussion. Podesta accused Coleman of attempting to unlawfully acquire his share of the fees. Following this, Podesta's attorney claimed ownership of Dollars and Sense on March 5, 2010, asserting that their agreement was a contract granting Street Search a 50% ownership interest rather than a consulting agreement.

On July 22, 2010, Coleman, along with Profits Plus and Dollars and Sense, filed a complaint for declaratory judgment. Podesta and Street Search responded with a notice of special appearance on September 27, 2010, and a motion to dismiss based on a lack of personal jurisdiction on October 12, 2010. The district court denied this motion on December 17, 2010. Subsequently, Podesta and Street Search filed an answer and counterclaim alleging breach of contract, fraud, constructive fraud, and breach of fiduciary duties. Coleman filed three summary judgment motions, ultimately dismissing Podesta's individual claims for breach of contract, constructive fraud, and breach of fiduciary duty.

During a seven-day trial, the court instructed the jury on Street Search's claims against Coleman for breach of contract and fiduciary duties, while also addressing Coleman’s equitable estoppel defenses. The jury concluded that no contract existed. Street Search thereafter filed for judgment notwithstanding the verdict and a motion for a new trial, both of which the district court denied. Coleman requested attorney fees, and although some fees were disallowed, the court awarded him the majority as the prevailing party under I.C. 12-120(3). Street Search filed its first notice of appeal on March 17, 2012, which was amended twice. The appeal raised several issues, including personal jurisdiction, denial of a new trial, exclusion of evidence, jury instructions on fraud, and entitlement to attorney fees.

Podesta and Street Search’s motions, including a dismissal for lack of personal jurisdiction and a new trial, were denied, along with their fraud claims and certain evidence exclusions. The court first addresses the personal jurisdiction issue, as it could be decisive. Street Search argues the district court improperly asserted personal jurisdiction since neither party conducted business in Idaho per the state's long-arm statute. Coleman contends jurisdiction is valid and moot because Street Search filed counterclaims, thus acquiescing to jurisdiction. 

The court reviews personal jurisdiction decisions as a matter of law, applying a standard similar to summary judgment reviews, favoring the opposing party's evidence. For Idaho courts to exercise jurisdiction over non-residents, two criteria must be met: the non-resident's actions must align with the long-arm statute, and due process rights must not be violated. 

Street Search filed a Notice of Special Appearance to contest jurisdiction and subsequently motioned to dismiss. After the court's denial, they filed an answer and counterclaims, leading to the question of whether this constituted a waiver of their jurisdictional objection. Street Search asserts that their counterclaims were compulsory and therefore did not imply voluntary appearance, citing *Nelson v. World Wide Lease, Inc.*, which supports that jurisdictional objections are not waived by compulsory counterclaims. This position aligns with broader judicial trends indicating that filing counterclaims does not waive Rule 12(b) defenses. Under Rule 4(i), a party's further participation after a jurisdictional motion denial does not equate to a voluntary appearance.

Filing a compulsory counterclaim falls under the provisions of I.R.C.P. 13(a), which defines such claims as those arising from the same transaction or occurrence as the opposing party's claim, without requiring third-party jurisdiction. Coleman’s complaint sought a declaratory judgment confirming the non-existence of a contract with Podesta and Street Search, asserting that neither had ownership interests in Dollars and Sense or Profits Plus. Street Search’s counterclaims, which aimed to establish a breach of the alleged contract that Coleman challenged, were deemed compulsory. 

The district court ruled that it had personal jurisdiction over Podesta and Street Search under Idaho’s long-arm statute (I.C. 5-514), which allows jurisdiction over claims arising from business transactions within the state. Transacting business is interpreted broadly to include any activities aimed at achieving financial gain. The court found that Podesta’s visit to Idaho to assess facilities for storing precious metals constituted transacting business in the state.

Street Search contended that jurisdiction was improper as none of the parties were Idaho entities and that Coleman failed to link the independent contractor agreement to Idaho. They further argued that actions like maintaining an office or storing metals did not qualify as business transactions in Idaho under I.C. 53-2-903. However, the court clarified that this statute does not negate jurisdictional assessments under other laws, making Street Search's argument unfounded. 

The court denied Street Search’s motion to dismiss, emphasizing the need to evaluate the facts presented in Coleman’s affidavits in opposition to the motion, favoring Coleman in this assessment.

Coleman, an Idaho resident, is the sole member and manager of Profits Plus, a Delaware limited liability company and registered investment advisor in Idaho. Profits Plus serves as the sole general partner for Dollars and Sense, a Delaware limited partnership focused on purchasing, selling, and storing precious metals, which operates exclusively in Idaho. Podesta, a New Jersey resident and manager of Street Search, entered a business relationship with Coleman in May 2008 concerning investor recruitment for Dollars and Sense. The specifics of this relationship are disputed.

Podesta visited Idaho once, claiming to act as President and CEO of Dollars and Sense, where he inspected vault sites, met with potential landlords, and engaged with investors. Podesta and Street Search claim a 50% ownership stake in Dollars and Sense, with Podesta asserting his role as President and CEO in exchange for marketing services. Despite Dollars and Sense being organized in Delaware, its primary operations occur in Idaho.

Street Search argues that Dollars and Sense's Idaho operations are insignificant to jurisdictional matters, referencing the case Houghland Farms, Inc. v. Johnson. However, the current case differs as Street Search claimed ownership in a company with physical operations solely in Idaho. Podesta's actions in Idaho, including property inspections and discussions with Idaho residents, further establish a connection to the state, supporting jurisdictional claims despite differing interpretations of previous legal precedents.

The activities in question constitute the transaction of business in Idaho, as defined by Idaho Code § 5-514(a). The central issue is whether the claims for relief against Podesta and Street Search stem from this business. Street Search argues that the relevant agreement and negotiations did not occur in Idaho. However, the dispute involves an ownership interest in a company based in Idaho, with the consideration for that interest being services performed by Podesta that constitute business transactions in the state. Consequently, Idaho's long arm statute grants the district court jurisdiction.

Street Search further claims that its connections with Idaho are insufficient under the Due Process Clause to support personal jurisdiction. The Fourteenth Amendment allows for jurisdiction over non-resident defendants with minimum contacts, ensuring that litigation does not violate “traditional notions of fair play and substantial justice.” In assessing these contacts, courts examine the relationship between the defendant, the forum, and the litigation. Minimum contacts exist if the defendant purposefully directs activities at residents of the state, and the litigation relates to those activities.

While a contract with a resident does not automatically imply purposeful availment, factors such as prior negotiations, future consequences, contract terms, and actual dealings must be considered. In this case, Street Search engaged in a business relationship with Idaho resident Coleman for over a year, involving an agreement for services in exchange for an ownership interest in Coleman’s partnership, which is based in Idaho. Podesta's provision of services included multiple communications with Idaho residents and a visit to Idaho. Thus, the dispute arises from a contract with a substantial connection to Idaho. The district court noted that if Podesta is indeed a 50% owner of Dollars and Sense, he would necessarily maintain ongoing contact with Idaho.

The court determined that Podesta and Street Search purposefully availed themselves of the privilege to conduct activities in Idaho, where the fund's tangible assets and operations are located. Following the establishment of minimum contacts with Idaho, the court analyzed these contacts against various factors to assess whether asserting personal jurisdiction aligns with traditional notions of fair play and substantial justice. These factors include the burden on the defendant, Idaho's interest in the dispute, the plaintiff's interest in effective relief, the efficiency of resolving controversies, and the shared interests of states in promoting substantive social policies. 

Street Search contends that exercising jurisdiction in Idaho is unreasonable due to financial burdens, a lack of Idaho's interest in a case involving only Delaware and New Jersey entities, and a preference for resolving disputes where the companies are based. However, Street Search's claim of ownership of a business associated with an Idaho resident and Podesta's role as President and CEO indicate that they should reasonably anticipate being brought into court in Idaho. Consequently, the Idaho long-arm statute and the Due Process Clause do not prevent the district court from asserting personal jurisdiction over them.

Moreover, the district court did not err in denying Street Search's motion to dismiss or its subsequent motion for a new trial, as Street Search alleged that Coleman withheld evidence during discovery and lied about it at trial. The specific discovery request in question sought documentation related to the licensing of Coleman or Profits Plus, including revocations and reinstatements.

Coleman produced his Financial Industry Regulatory Authority (FINRA) report in response to a request, prompting Street Search to file a public records request with the Idaho Department of Finance (IDOF) after suspecting that an IDOF witness had reviewed undisclosed documents. Street Search obtained emails from Coleman to IDOF, where he sought his entire file and inquired about access. Coleman later withdrew this request. Street Search argues that this correspondence and information in Coleman's IDOF file were responsive to their discovery request, alleging that Coleman falsely verified he had provided all responsive documents. The district court ruled this was a discovery dispute, noting it would likely have compelled production if Street Search had articulated their need before trial, but criticized the broad nature of the request, indicating it did not warrant sanctions.

The decision to grant or deny relief under Rule 60(b) is reviewed for abuse of discretion, requiring the trial court to correctly identify the issue, act within its discretion, and apply the law reasonably. A motion for a new trial under Rule 60(b)(3) can be granted for fraud or misconduct by an adverse party, with Street Search bearing the burden of proof. They allege Coleman committed fraud by misrepresenting the completeness of his document production, but the court concluded that even if Coleman's statement was false, it did not rise to the level of tampering with justice that would justify relief under the rule.

The district court did not abuse its discretion in denying Street Search’s motion for a new trial under Rule 60(b)(3) and 60(b)(6). Street Search claimed that Coleman’s deliberate withholding of evidence warranted a new trial based on unique and compelling circumstances. They argued that the district court would have granted a motion to compel had it been made before trial, asserting that the denial of the new trial motion conflicted with I.R.C.P. 26(e). However, Rule 60(b)(6) requires a demonstration of unique and compelling circumstances justifying relief, which Street Search failed to provide, simply contending that denying a new trial would condone discovery abuses.

The court noted that relief under Rule 60(b)(6) is rarely granted and typically applies in cases where the district court's actions were inconsistent with the pleadings or evidence or where there was a complete absence of meaningful representation. While Street Search referenced a Montana Supreme Court case, Richardson v. State, which sanctioned default judgment for severe discovery abuses, it did not demonstrate that its situation mirrored such abuses. The district court indicated it likely would have granted a motion to compel, but it also clarified that it would not have imposed sanctions. Thus, the court found no grounds for granting relief under Rule 60(b)(6) based on the claims presented by Street Search.

The district court found the discovery request to be overly broad, suggesting that some withheld documents might not fall within its scope. It determined that the denial of Street Search's motion for a new trial was within its discretionary authority and not an abuse of discretion. Regarding the exclusion of email communications between Podesta and Coleman under I.R.E. 408, the court ruled these emails were part of settlement negotiations. Street Search contended that the emails were attempts to modify an existing contract rather than conclude a relationship. The emails started with Coleman expressing dissatisfaction with Podesta's performance and led to Podesta's response indicating a legal dispute. The court identified that Podesta's initial email was not a settlement negotiation, but subsequent emails suggested attempts to resolve the conflict. Coleman's proposed new contract was deemed a settlement offer, thus inadmissible under I.R.E. 408, which excludes evidence of settlement negotiations to prove liability. The court's discretion in ruling on motions in limine is reviewed for abuse, and an incorrect ruling only warrants a new trial if it significantly impacts a party's rights.

The offer's relevance to liability is questionable, as it may reflect a desire for peace rather than an admission of wrongdoing. The promotion of dispute settlements could be undermined if compromise offers were admissible as evidence. Courts interpret Rule 408 broadly to encourage settlement negotiations. In this case, Street Search contends that Exhibit E was offered to demonstrate an existing contract rather than to prove liability. The critical issue is whether Exhibit E constitutes a settlement offer. Street Search argues that Coleman’s new agreement does not represent a settlement negotiation since their relationship had not concluded; however, the applicable standard focuses on whether a dispute regarding the claim's validity or amount has emerged. Both the timing of the offer and the existence of a disputed claim are essential for determining if an offer aims to compromise a claim, thus subjecting it to exclusion under Rule 408.

Judicial interpretations indicate that a dispute does not need to reach the point of impending litigation for Rule 408 to apply; any actual dispute about liability or claim amount suffices. For example, an offer for severance pay to release potential claims is admissible if made before any dispute arises. The district court noted that Podesta’s email asserting a fifty percent ownership in Dollars and Sense and alleging illegal actions by Coleman marked the start of a dispute over ownership and owed amounts. Podesta's allegations served as a threat of litigation, indicating that Coleman’s response and proposed agreement were attempts to resolve their disagreements. This aligns with the principle that Rule 408 should favor settlement negotiations. Additionally, Street Search argues that Coleman’s proposed contract does not fall under Rule 408 exclusion due to a lack of consideration.

Coleman’s proposed contract nullified any prior agreements and mandated Podesta to renounce any ownership stake in Dollars and Sense. It included a commitment to pay Podesta the remaining management fees owed, along with other valid considerations, such as requiring Profits Plus to obtain written consent for the use of the Street Search name in sales materials. Coleman emphasized in an accompanying email that signing the agreement would facilitate their continued collaboration, which could also serve as valid consideration. The court referenced Weisel v. Beaver Springs Owners Ass’n, Inc., establishing that consideration must hold legal value and that the promisor can determine its worth unless it is unlawful. The combination of conditions regarding the Street Search name and the offer to maintain the business relationship constituted sufficient consideration. Consequently, the district court did not err in deeming Coleman’s proposed contract a settlement offer, which is inadmissible under IRE 408.

Street Search failed to demonstrate an error in the district court's omission of jury instructions on fraud and constructive fraud. The record shows that Street Search never proposed such instructions. Although Coleman had suggested instructions for these claims, Street Search did not object to them nor did it offer any additional instructions. The absence of a transcript from a jury instruction conference, where the court allegedly declined to provide fraud instructions, further complicated matters. After the trial, Street Search did not object to the final jury instructions, and while Coleman objected to the lack of fraud instruction, the district court noted insufficient evidence of fraud on his part. Street Search's counsel expressed satisfaction with the instructions provided, aside from a preference for a promissory estoppel instruction. Street Search acknowledged its failure to propose instructions on fraud, arguing that it would be unreasonable to require this for a claim that had been dismissed.

Street Search argues that a ruling denying a jury instruction due to insufficient evidence equates to a directed verdict, claiming that I.R.C.P. 51(b) is unconstitutional as it permits trial courts to weigh evidence and dismiss claims by not instructing the jury. I.R.C.P. 51(a) mandates that trial courts address requested jury instructions after closing evidence, either verbally or through written endorsement. Section (b) requires parties to object to the absence of requested instructions before the jury deliberates, specifying the instruction and grounds for the objection. Consequently, challenges to jury instructions not objected to at trial cannot be raised on appeal, as established in Lakeland True Value Hardware, LLC v. Hartford Fire Ins. Co.

Street Search contends that the district court breached I.R.C.P. 51(a) by not documenting its refusal to instruct the jury on fraud and constructive fraud claims; however, the appellate record lacks Coleman’s amended proposed jury instructions, leaving uncertainty about whether these instructions were presented to the court. Additionally, Street Search admits it did not propose instructions on these claims, attributing this to the district court's dismissal of the claims during a jury instruction conference, which was not recorded. The absence of a transcript or request for a report from the conference creates ambiguity regarding whether the instruction was requested and ruled upon.

It is the responsibility of litigants to articulate their contentions to the trial judge and ensure those contentions and any rulings are recorded for appellate review. Street Search’s counsel failed to object to the dismissal and did not request the recording of the proceedings. Consequently, the court will not review the alleged error on appeal unless an adverse ruling is documented. Thus, any issues regarding the failure to instruct on fraud or constructive fraud were not preserved for appellate review, and the court deemed it unnecessary to address Street Search's claim that this failure constituted a directed verdict. Furthermore, the district court did not abuse its discretion in declining to instruct the jury on promissory estoppel.

Street Search contended that the district court erred by not providing a jury instruction on promissory estoppel, arguing it was a correct legal statement not adequately addressed by other instructions and was supported by the case facts. Coleman countered that the court acted within its discretion as the primary issue was the existence of a definite agreement rather than consideration. The district court explained that the request for a promissory estoppel instruction was inappropriate, stating it would confuse the jury and that issues were clearly laid out. The court emphasized that a party is entitled to an instruction on their theory if it is supported by any reasonable view of the evidence, but the determination of support for the instruction lies within the court's discretion.

Promissory estoppel is defined as a promise that reasonably induces action or forbearance by the promisee, becoming binding if enforcement is necessary to avoid injustice. Key elements for this claim are: substantial economic detriment due to reliance, foreseeable reliance, and reasonable justification for that reliance. Importantly, promissory estoppel serves as a substitute for consideration, not for an agreement. Since Street Search acknowledged an exchange of mutual promises—specifically, a promise of 50% ownership in exchange for assistance—there was adequate consideration present, making the doctrine of promissory estoppel irrelevant. Consequently, the district court's refusal to instruct the jury on promissory estoppel was deemed appropriate and within its discretion.

The district court correctly denied Street Search's request to present evidence of tort damages, specifically lost profits, related to its breach of fiduciary duty claim. Street Search contended that the court's jury instructions regarding damages warranted the admission of such evidence. However, Coleman countered that Street Search failed to establish a contract, which is essential for proving fiduciary duty and associated damages. The court sustained Coleman's objection to the evidence, emphasizing that contract damages are assessed at the breach's occurrence, which in this case was in 2010, prior to the valuation evidence presented by Street Search from December 31, 2011. Consequently, the district court deemed the evidence irrelevant as Street Search could not establish liability for its claims. Since Street Search did not appeal the jury verdict or the judgment denial, the tort damage claim was rendered irrelevant on appeal. Additionally, Coleman is entitled to attorney fees based on Idaho Code Section 12-120(3), which allows the prevailing party in a civil action concerning commercial transactions to recover fees. As Coleman prevailed on all claims brought by Street Search, he qualifies for these fees. The court affirmed its jurisdiction over both Podesta and Street Search.

The district court did not abuse its discretion in denying Street Search’s motion for a new trial, granting Coleman’s motion in limine, or refusing to provide a jury instruction on promissory estoppel. Coleman was awarded attorney fees and costs on appeal. The court noted that Coleman’s FINRA Snapshot Report, detailing disciplinary actions, is more comprehensive than the FINRA Broker Check Report provided by Podesta in response to a discovery request. Street Search, nearly fifteen months after proposing jury instructions and six months post-judgment, moved to augment the record regarding the dismissal of its fraud and constructive fraud claims, seeking a written order to clarify the jury instruction conference outcome. The district court clarified that there was no dismissal but rather a decision not to instruct on those claims, ultimately denying the motion as untimely under Idaho Appellate Rule 29, a ruling Street Search did not appeal. The court permitted the augmentation to include Street Search’s second supplemental proposed jury instructions, which had been considered but were not filed due to the court’s oversight; however, none of these included a fraud or constructive fraud instruction.