This opinion is subject to correction before publication in the PACIFIC REPORTER. Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, e-mail email@example.com.
A property owner cancelled a contract to install a wind turbine on his property and sued the contractor to recover his down payment. The contractor filed a counterclaim for breach of contract. The superior court concluded that the contractor was required to be licensed by the State and had misrepresented its licensing status. It also concluded that the contractor could not maintain the counterclaim because the contractor was unregistered. The court ordered the contract rescinded and the contractor to return the down payment less a setoff covering costs incurred in the transaction. The contractor failed to pay and the court amended the judgment to include the contractor's individual owners and a successor company. The contractor's individual owners appeal the licensing determination and the amended judgment. The property owner cross-appeals the setoff calculation. We conclude that the court erred only in its setoff calculation.
II. FACTS AND PROCEEDINGS
This case involves a cancelled contract between Richard Feeney and Alaskan Wind Industries (AWI), a renewable energy contractor, for the sale and installation of a wind turbine on Feeney's property in Homer. AWI was the trade name for Daggett LLC, owned by James and Nadia Daggett. The Daggetts owned several similarly named organizations, as well as Standard Steel, Inc.
Feeney and his wife, Elizabeth Bashaw, began discussing the purchase of a wind turbine with AWI representatives in the summer of 2009. In these discussions AWI was often represented by sales representative Erik Schreier and occasionally by Nadia Daggett. The parties dispute whether Schreier told Feeney and Bashaw that AWI was licensed
The parties ultimately signed a contract in October 2010, with Schreier signing on behalf of AWI. The contract was on AWI letterhead and did not mention Daggett LLC. It required AWI to provide and install a wind turbine, a 49-foot tower, and an inverter. The contract expressly affirmed that AWI was "qualified by law as a licensed steel erector in the state of Alaska" and allocated to Feeney the responsibility for "meet[ing] all builders['] permit requirements, variances, [and] height restriction waivers."
Bashaw paid the 60% down payment of $32,880 immediately after the contract was signed. AWI then ordered the wind turbine from a California-based supplier and had it shipped to Alaska. AWI began digging the turbine's foundation in November 2010. The work was soon stopped by Bashaw because a neighbor was concerned that the 49-foot turbine would violate a subdivision land-use covenant. AWI agreed that Feeney and Bashaw could take a few months to resolve the conflict with their neighbor.
In late November the neighbor formally notified Feeney and Bashaw of a land-use covenant that prohibited structures over 35 feet tall in the subdivision and threatened legal action if the project moved forward. In December Bashaw emailed Nadia Daggett saying, "We need to get this contract cancelled as soon as possible, especially since it is illegal and you were aware that was so when it was signed." Despite discussions during the first half of 2011 to try to reach a mutually agreeable solution regarding contract cancellation and refund, the parties were unable to reach an agreement.
Feeney filed suit in early December 2011, naming AWI, James Daggett, and Nadia Daggett as the defendants. Feeney alleged that AWI and its representatives had "assured" him that they were familiar with the subdivision covenants, that the wind turbine would not violate them, and that AWI would check with Feeney's neighbors to make sure they did not object to the turbine. Feeney asked the court to rescind the contract and order the return of his down payment, "less any offset which the court deems appropriate"; he also requested an accounting to determine the offset amount.
AWI's answer admitted that it had entered into a contract with Feeney and asserted wrongful rejection of the turbine delivery as an affirmative defense. AWI also filed a counterclaim, alleging that Feeney had materially breached the contract by refusing to accept full performance and pay the full price for the turbine. James and Nadia Daggett filed separate answers raising affirmative defenses that they were not party to the contract between Feeney and AWI and were not liable to Feeney under AS 10.50.265, which limits LLC members' liability to third parties.
Feeney replied to AWI's counterclaim and amended his complaint seeking to pierce the corporate veil and reach the Daggetts personally because of some confusion about the Daggetts' various corporate entities.
A two-day bench trial took place in Homer in November 2012. Feeney testified that he had specifically asked Schreier whether AWI was a licensed and bonded contractor and that Schreier had affirmed AWI was licensed and bonded. Feeney explained that this information was important to him in deciding to purchase the wind turbine. Schreier testified that Feeney had never asked about AWI's licensing status.
Nadia Daggett testified that she and James had believed wind energy installers were not required to be licensed as construction contractors at the time of the contract with Feeney. She stated that "[i]t was industry standard" not to carry a license at the time and claimed that none of AWI's competitors had done so. Nadia also testified that she had contacted the State and had been told there was no North American Industry Classification System (NAICS)
The superior court issued a written opinion in favor of Feeney in July 2013. The court decided that Feeney was entitled to rescission on the ground of misrepresentation
The superior court noted that there was "evidence to suggest" that AWI had known it needed to be licensed because it had previously held a specialty contractor license which expired in 2009, before execution of the contract. The court found AWI's representation of its licensing status to be a misrepresentation of a material fact, and it pointed to Feeney's testimony that he would not have entered into the contract without it. The court therefore concluded that Feeney was entitled to rescission of the contract based on AWI's misrepresentation of its non-licensed status because he "`actually and justifiably relied upon' a `false representation of a material fact.'"
But the superior court noted that Feeney's position on the issue of licensing appeared "pretextual." It believed Feeney had "unilaterally cancelled" the contract to avoid the threatened suit from his neighbor and doubted he would have objected to AWI's non-licensed status without that threat. The court suggested it would take this into account as an equitable consideration in determining AWI's recovery amount.
The superior court also addressed AWI's counterclaim for breach of contract. Although it was "inclined to entertain the merits" of AWI's counterclaim because Feeney's termination of the contract was "suspect," the court concluded that the counterclaim was barred by AS 08.18.151, which provides that a contractor "may not bring an action . . . for breach of a contract for which registration is required" unless the contractor can show it "was a registered contractor . . . at the time of contracting." Having already decided AWI was required to be licensed as a steel erection contractor and was not licensed at the time of the contract, the superior court concluded AWI was barred from bringing the counterclaim. The court rejected the Daggetts' argument that AWI was exempt from AS 08.18.151 under the "finished products" exemption expressed in AS 08.18.161(5), because the wind turbine "bec[a]me a permanent, fixed part of a structure" and was not a finished product as contemplated in the exemption.
Nonetheless the superior court explained that even an unlicensed contractor may recover "any sums which may be equitably due [it]" through a setoff against the damages to be paid. It relied on Sumner Development Corp. v. Shivers, in which we held that a setoff against the plaintiff's recovery is appropriate if a contract has been partially performed and the plaintiff would receive a windfall from retaining the benefit of the partially performed work in addition to receiving contract damages.
The superior court determined that AWI was entitled to a setoff for any resale costs, out-of-pocket costs, and incidental costs it had incurred in partially performing the contract. It did not award a setoff for resale costs because it calculated that AWI had not lost money on resale but instead made a small profit. The court awarded out-of-pocket expenses that were incurred following execution of the contract, which included commissions, the cost of shipping the turbine to Alaska, and the materials, equipment, and labor used to begin creating the foundation. The court also awarded certain incidental expenses mainly related to moving the turbine to its new purchaser. The total setoff was $9,609.06.
The superior court expressly withheld judgment on the question whether Feeney could seek recovery of his down payment from anyone other than AWI. But the court concluded that if Feeney was not able to recover his reimbursement from AWI, it would "consider whether Defendants James and Nadia Daggett, or any entity registered to them or otherwise owned by them, should be held liable."
In December 2013 the superior court issued a final judgment awarding Feeney $23,270.94 in damages (the amount of the down payment minus AWI's equitable setoff), plus pre- and post-judgment interest, attorney's fees, and court costs, for a total of $36,010.15. The court authorized Feeney to seek to amend the judgment to permit recovery from the other defendants if AWI failed to satisfy the judgment within 90 days, suspending the ordinary timeline established by Civil Rule 59(f) and allowing Feeney to file within 120 days of the entry of judgment.
When AWI did not satisfy the judgment within 90 days, Feeney filed a motion to amend the final judgment, naming James Daggett, Nadia Daggett, and Standard Steel as additional defendants. The Daggetts objected to both their individual liability and that of Standard Steel. They also opposed the superior court's decision to allow Feeney to move to amend after the Alaska Civil Rule 59(f) time limit had expired.
The superior court issued an amended final judgment in December 2014. The court found that the "primary contractor entity" Feeney had contracted with was Daggett LLC d/b/a AWI, but that Feeney had not had notice that Daggett LLC was the principal because the contract named only AWI and "did not disclose the existence of" Daggett LLC. And the court explained that because the contract only used the AWI trade name, Feeney was not given notice that he was contracting with a limited-liability entity. The court therefore concluded that James and Nadia Daggett were personally liable to Feeney as agents of an undisclosed principal on the contract, with Erik Schreier acting as their subagent.
The superior court also concluded that Standard Steel was liable to Feeney as AWI's successor under the "mere continuation" and "continuity of enterprise" exceptions to the general rule that a corporation is not liable for its predecessor's acts.
James and Nadia Daggett represent themselves in this appeal of the superior court's initial decision issued in July 2013, the final judgment issued in December 2013, and the amended final judgment issued in December 2014. They contest multiple elements of these rulings. Feeney cross-appeals the court's determination of AWI's setoff amount.
III. STANDARD OF REVIEW
"Interpretation of a statute is a question of law to which we apply our independent judgment; we interpret the statute according to reason, practicality, and common sense, considering the meaning of the statute's language, its legislative history, and its purpose."
"We review the grant of an equitable remedy . . . for abuse of discretion, but we review de novo any underlying questions of law and the application of law to facts."
Whether a party has standing to assert a given claim is a question of law that we review de novo.
A. The Superior Court Did Not Err In Concluding That AWI Was Required To Be Registered As A Specialty Contractor.
The Daggetts argue that the superior court was wrong to conclude AWI was required to be registered as a specialty steel erection contractor, asserting that AWI was exempted by an express exception covering contractors who install "finished products." Feeney counters that wind turbine installation does not fall under the finished products exemption. We conclude that the superior court correctly interpreted the statute and regulations.
1. The statute requires registration.
Alaska Statute 08.18.171(4) defines a contractor as "a person who, in the pursuit of an independent business, undertakes or offers to perform . . . or submits a bid for a project to construct, alter, repair, move, or demolish a building . . . or any type of fixed structure, including excavation and site development and erection of scaffolding." It further provides that "`contractor' includes a general contractor, builder, mechanical contractor, specialty contractor, and subcontractor." Alaska Statute 08.18.011 requires all contractors to be registered with the Alaska Department of Commerce, Community, and Economic Development.
The Daggetts do not contest that the wind turbine tower falls within this category or that an installer of steel towers generally is required to register as a steel erection contractor. Instead they argue that AWI was exempt from registration under AS 08.18.161(5), which provides that the chapter governing contractor registration "does not apply to . . . the sale or installation of finished products, materials, or articles of merchandise that are not actually fabricated into and do not become a permanent, fixed part of a structure." The Daggetts argue that the wind turbine kit was a finished product and AWI "would simply have been putting the pieces together and installing [the turbine] on Feeney's property."
We have discussed this exemption only once before, in Industrial Power & Lighting Corp. v. Western Modular Corp.
The Daggetts read Industrial Power to support their contention that AWI's wind turbine installation falls under the finished products exemption. But the Daggetts' focus on this language is misplaced. In Industrial Power we inquired whether the supplier installed the product in order to distinguish between two exemptions with otherwise similar language.
Instead, as Feeney suggests, we must evaluate the provision's full language, which exempts "the sale or installation of finished products . . . that are not actually fabricated into and do not become a permanent, fixed part of a structure."
Alaska Statute 08.18.171(4) defines "contractor" to include someone who constructs or alters "any type of fixed structure, including . . . erection of scaffolding." A wind turbine affixed to a 49-foot tower is clearly a fixed structure in the plain sense of the phrase, and towers have been recognized as "structures" in other statutory contexts such as zoning codes.
The Daggetts point out that the turbine system is "a free[-]standing, finished product that [is] not `fabricated' into another structure," perhaps implying that a fixed structure product like a wind turbine is exempt because it is not made part of another structure.
Our decision in Industrial Power confirms this interpretation of the finished products exemption. There we held that Industrial Power, the contractor that assembled and installed the prefabricated houses on-site, was required to register as a contractor.
For these reasons we agree with the superior court that the finished products exemption does not apply and that AWI was required to register as a steel erection contractor.
2. Assuming it is relevant to our statutory interpretation, the superior court did not clearly err in rejecting the Daggetts' claim that renewable energy contractors were, in practice, exempted by the State.
The Daggetts maintain that a state official told them renewable energy installers did not need to be registered as contractors, impliedly arguing that the State had interpreted the finished products exemption to include renewable energy installation. They argue that the superior court erred in discounting Nadia's testimony on this point and dispute the court's finding that they knew AWI needed to be licensed.
Assuming it is relevant to our interpretation, whether the State interpreted contractor registration requirements to exclude renewable energy contractors at the time of the contract is a question of fact; we therefore review the superior court's findings for clear error.
It was the superior court's task to determine the credibility of these statements and weigh them against other evidence.
The superior court evidently found the written contract and the Daggetts' actions more persuasive than Nadia's testimony about AWI's need to be registered. We have explained that "[t]he superior court's `factual findings enjoy particular deference when they are based "primarily on oral testimony, because the trial court, not this court, performs the function of judging the credibility of witnesses and weighing conflicting evidence."'"
B. AWI's Counterclaim For Breach Is Barred By Statute.
The superior court held that AWI was barred by statute from bringing a counterclaim against Feeney for breach of contract. Under AS 08.18.151 an unregistered contractor who was required to be registered may not bring a breach-of-contract claim:
Because AWI did not fall under the finished products exemption of AS 08.18.161(5), it was required to register as a specialty steel contractor in order to install wind turbines. The plain language of AS 08.18.151 therefore prohibits AWI's counterclaim.
The Daggetts contend that, because it involves the forfeiture of a claim, AS 08.18.151 should be construed narrowly so that it would not apply here. They point to Industrial Power, where we "decline[d] to give the statute an expansive reading" because "AS 08.18.151 causes the forfeiture of an otherwise valid claim."
C. The Superior Court Did Not Err In Declining To Address AWI's Claim For Wrongful Rejection Under The UCC.
The Daggetts argue that the superior court erred by declining to address AWI's potential remedies for wrongful rejection under the Uniform Commercial Code (UCC) when AWI raised wrongful rejection as an affirmative defense.
But Feeney correctly notes that the Daggetts have failed to cite any legal authority for their proposition that AS 08.18.151 does not bar claims for these remedies under the UCC. In fact, AS 08.18.151 bars an unregistered contractor from "bring[ing] an action . . . for the collection of compensation for the performance of work or for breach of a contract." An action for remedies under the UCC qualifies as "an action . . . for the collection of compensation" within the meaning of this statute, and there is no indication that the UCC remedies were intended to displace the barrier to suit created by AS 08.18.151.
D. The Setoff Calculation Is Clearly Erroneous.
After concluding that Feeney was entitled to the return of his down payment, the superior court concluded that AWI was entitled to an equitable setoff compensating it for out-of-pocket and incidental expenses. Although the court did not abuse its discretion by awarding a setoff based on the costs incurred by AWI, the setoff calculation was clearly erroneous.
1. It was not an abuse of discretion to base the setoff on costs incurred by AWI instead of on benefits received by Feeney.
Feeney successfully voided the contract on the ground of misrepresentation. His complaint correctly noted that AWI would be entitled to an equitable setoff. The superior court determined AWI's setoff based on the costs incurred by AWI. As we have explained, actions for compensation by an unregistered contractor are normally barred by AS 08.18.151. But in Sumner Development Corp. v. Shivers, we held that in the interests of equity, an unregistered contractor may "offset as a defense sums which would otherwise be due him [or her] under the illegal contract."
Because "rescission involves restoring the parties to their `pre-contract position[s], at least as far as [it is] possible to do so,'"
Because the award of a setoff is an equitable remedy,
2. The setoff amount was based in part on an erroneous calculation.
The calculated setoff amount did not consider the profit actually made by AWI on resale. After the contract plans fell apart, AWI was able to resell the parts for a total of $37,054.52: the turbine and inverter were sold for $25,100.72 and the tower for $11,953.80. The court only briefly looked at profit to determine whether AWI was entitled to any setoff based on resale at a loss. Because the court calculated that AWI made a slight profit, it concluded that AWI was not entitled to resale damages. Under the superior court's calculation, where AWI supposedly paid $37,000 and received $37,054.52 for the parts, AWI's profit would have been $54.52. But this was incorrect: the supplier's invoice shows that AWI paid the wholesale price of $30,950 for the Wind Turbine Package, not the retail price of $37,000. AWI therefore made a profit of $6,104.52 when it sold the parts. Because the contract is rescinded, AWI is entitled to offset its costs, as the court concluded, but only to the extent that their costs are greater than the profit they gained. We therefore remand this case to the court to recalculate the setoff amount based on AWI's actual profit.
E. The Superior Court Did Not Err In Amending The Final Judgment To Assign Liability To The Daggetts And Standard Steel.
The Daggetts argue that it was procedurally improper to delay judgment on the question of liability and that the amended judgment is substantively incorrect.
1. It was not an abuse of discretion to allow Feeney to move to amend the judgment after the Civil Rule 59(f) deadline.
The superior court's July 2013 opinion reserved judgment on whether Feeney could seek recovery of his down payment from anyone other than AWI, indicating that it would consider the question if AWI did not satisfy the judgment against it. The December 2013 final judgment expressly stated that, "[n]otwithstanding the requirements of Civil Rule 59(f)," Feeney could "seek to amend the judgment to include the remaining defendants" within 120 days if AWI failed to satisfy the judgment within 90 days. The Daggetts argue that Rule 59(f) sets a "strict deadline" for motions to amend a judgment that the court was wrong to ignore.
Feeney counters that the Daggetts waived any objection to the timeline because they did not object to this amendment mechanism when he proposed it. An issue not timely raised below cannot be raised on appeal.
Rule 59(f) requires a motion to amend a judgment to be served "not later than 10 days after the entry of the judgment," far sooner than the 120-day deadline here. But Civil Rule 94 states that the Civil Rules "are designed to facilitate business and advance justice" and allows the court to "relax or dispense with" any of the rules when it is "manifest to the court that a strict adherence to them will work injustice." The court's December 2013 final judgment stated that Rule 59(f) would not apply, and Rule 94 leaves such decisions to the superior court's discretion.
The superior court chose to give AWI an opportunity to satisfy the judgment before considering whether the Daggetts or an entity owned by them could also be held liable for it. The court's decision did not deny the Daggetts due process. The Daggetts were named as defendants in the original judgment; the delay did nothing to change their position in the case. The Daggetts had an opportunity to be heard on the issue of their personal liability, and they took that opportunity. Nor were the Daggetts prejudiced by the delay; if anything, the delay could have benefitted them by allowing AWI to satisfy the judgment before the court issued a judgment against the Daggetts in their personal capacity. Because the delay was reasonable and there was no prejudice to the Daggetts, the court's decision to relax the Rule 59(f) deadline was not an abuse of discretion.
2. It was not error to decide that the Daggetts and Standard Steel were liable to Feeney.
The superior court concluded that the Daggetts were personally liable to Feeney under the contract because they signed it as agents of an undisclosed principal, Daggett LLC. The Daggetts do not contest the court's factual finding that they acted as agents of an undisclosed principal,
Alaska Statute 10.50.265 gives some protection to LLC members by providing:
The Daggetts mistakenly read this statute to provide "complete protection" against personal liability for members of an LLC. Based on the statute's language protecting against liability arising "in contract . . . or another form," the Daggetts argue that AS 10.50.265 protects them against liability both on the contract and in restitution under the rescinded contract. And they contend that the provision protecting against liability "for the acts or omissions of another member, manager, agent, or employee" encompasses all the actions and relationships in this case.
Although AS 10.50.265 does provide some protection for limited liability company members, it is not a blanket ban on all possible liability for members. The plain language of the statute protects members only against liability to which they are subject "solely by reason of being a member."
Turning to Standard Steel's liability as the successor to AWI, we decline to consider the merits of this question because the Daggetts do not have standing to contest it. Alaska Statute 22.20.040(a)(2) mandates that "a corporation, either public or private, shall appear by an attorney in all cases unless an exception to the corporation's appearance by an attorney has been explicitly made by law." In Pister v. State, Department of Revenue we applied this statutory restriction, explaining that when Pister filed a pro se appeal on behalf of himself and two corporations, the corporate entities "were . . . dismissed as appellants [until] an attorney filed an entry of appearance on behalf of all appellants."
For the reasons explained above, we AFFIRM in part, REVERSE in part, and REMAND to the superior court to redetermine the setoff amount.