Case Title: Kugler v. Nelson

Citation: 

Docket Number: 42690

State: idaho

Court: Idaho Supreme Court (civil)

Date: 2016-06-28T00:00:00Z

Document:
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IN THE SUPREME COURT OF THE STATE OF IDAHO 
 
Docket No. 42690 
 
 
JOHN B. KUGLER, 
 
       Plaintiff-Appellant, 
 
v. 
 
RON NELSON, DAVID J. POWERS,  
STEVEN L. KENISON and POWERS  
CANDY CO., INC., 
 
       Defendants-Respondents. 
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Boise, January 2016 Term 
 
2016 Opinion No. 68 
 
Filed: June 28, 2016 
 
Stephen Kenyon, Clerk 
 
Appeal from the District Court of the Sixth Judicial District of the State of Idaho,   
Bannock County.  Hon. Stephen S. Dunn, District Judge. 
 
The  judgment of the district court is affirmed,    
 
 
John B. Kugler, Tacoma, Washington, pro se appellant. 
 
 
Wright Brothers Law Office, PLLC, Twin Falls, for respondents. Brooke B.  
  
Redmond argued. 
 
                     _______________________________________________ 
 
HORTON, Justice. 
This is an appeal from a grant of summary judgment dismissing John Kugler’s case. 
Kugler sought damages from Ron Nelson, David Powers, Steven Kenison, William Armstrong, 
and Powers Candy Co., Inc. (collectively “the Defendants”), alleging breach of various 
agreements and wrongful actions taken by the Defendants.1 The district court dismissed all of 
Kugler’s claims because it found that the claims were derivative and Kugler failed to comply 
with derivative action requirements. We affirm.  
I. 
FACTUAL AND PROCEDURAL BACKGROUND 
 
Until mid-2010, Kugler, Nelson, Powers, Kenison, and Armstrong were all shareholders 
of H & M Distributing, Inc. (H & M), a wholesale distributor of beverages, cigarettes, and other 
miscellaneous items. At all relevant times, Powers was the president of H & M and the majority 
                                                          
 
1 The record does not reflect that Kenison was ever served, and he is not a party to this appeal.   
 
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shareholder of H & M and Powers Candy. Nelson was the general manager of H & M until mid-
2010. Pursuant to his original employment agreement with H & M, Nelson was awarded twenty-
seven shares of H & M stock. He subsequently acquired another twenty shares of stock. Nelson’s 
employment with H & M ended in acrimony in mid-2010. Thereafter, Powers, Nelson, and H & 
M proposed a Settlement Agreement and Mutual Release (Settlement Agreement) in which: (1) 
H & M agreed to purchase Nelson’s original twenty-seven shares for $96,336.67; (2) Powers 
agreed to purchase the remaining twenty shares from Nelson for $90,000; and (3) the parties 
agreed to a mutual release of claims arising from Nelson’s employment.  
 
Powers called a special meeting of shareholders for July 6, 2010. Powers sent a notice of 
the meeting, signed June 23, 2010, to all of the shareholders and directors in which he outlined 
the purpose of the meeting and attached the proposed Settlement Agreement. Among other 
things, the notice stated the purpose of the meeting was to: establish the members of the board of 
directors, establish H & M’s current directors, approve Powers Candy’s purchase of H & M 
inventory, and approve the Settlement Agreement. The notice also stated, “Kugler is not 
proposed as a director due to distance issues since he lives in Washington state.”  
 
All shareholders were present for the special meeting on July 6, 2010, except for Nelson. 
Kugler appeared by telephone. The shareholders voted on several issues at the meeting. First, a 
majority voted to amend H & M’s Bylaws to establish the number of directors as between one 
and five and to appoint Powers, Kenison, and Armstrong as directors of the corporation. Kugler 
was the only shareholder to vote against this action. Second, the shareholders unanimously voted 
“to approve the purchase by Powers Candy Co., Inc. of the candy and tobacco inventory and the 
transfer of that portion of the business to Powers Candy Co., Inc.” Third, a majority voted to 
approve the Settlement Agreement. Kugler was the sole dissenter. Fourth, the shareholders 
unanimously approved Powers’ purchase of Nelson’s twenty shares of stock. Finally, a majority 
approved H & M’s purchase of the twenty-seven shares of Nelson’s stock. Kugler again was the 
only dissenting shareholder. Pursuant to an earlier Stock Subscription and Cross Purchase 
Agreement (Shareholder Agreement), all shareholders were given the option to purchase a pro-
rata share of Nelson’s stock. No shareholder elected to exercise this option.  
 
The next day, Nelson, Powers, and H & M executed the Settlement Agreement. Powers 
Candy made payments to H & M between August of 2010 and October of 2012 for the transfer 
of the tobacco and candy portion of H & M’s business.  
 
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On April 10, 2013, Kugler filed the present action. He alleged four causes of action: (1) 
that the Defendants improperly redeemed Nelson’s stock; (2) that Nelson breached the duty of 
good faith, breached his employment contract, and committed fraud; (3) that Powers Candy 
purchased vehicles and inventory from H & M without just compensation; and (4) that the 
Defendants improperly removed Kugler from his position as a director of H & M. On December 
2, 2013, Kugler moved to disqualify the Defendants’ attorney. The district court denied this 
motion. 
 
The Defendants moved for summary judgment, and a hearing was set in March of 2014. 
After Kugler requested a continuance to conduct discovery, the hearing was reset for the end of 
May of 2014. A few days before the rescheduled hearing, Kugler responded to the Defendants’ 
motion for summary judgment and filed his own motion for partial summary judgment. The 
district court received argument on the Defendants’ motion for summary judgment and granted 
Kugler additional time to submit additional evidence in support of his motion. On September 24, 
2014, the district court issued its memorandum opinion, in which it granted the Defendants’ 
motion for summary judgment and denied Kugler’s motion for partial summary judgment. The 
district court determined that all of Kugler’s claims were derivative in nature and Kugler had 
failed to comply with the requirements for bringing a derivative action imposed by Idaho Code 
section 30-1-742 and Idaho Rule of Civil Procedure 23(f). Subsequently, in a December 17, 
2014, decision, the district court partially granted the Defendants’ request for attorney fees and 
awarded $15,000. The Defendants sought reconsideration of the attorney fee award, arguing 
Kugler was responsible for delays in the proceedings which increased the costs of defending the 
case. The district court granted the motion to reconsider, increasing the attorney fee award by 
$4,000. Kugler timely appealed. 
II. 
STANDARD OF REVIEW 
“When this Court reviews a district court’s ruling on a motion for summary judgment, it 
employs the same standard properly employed by the district court when originally ruling on the 
motion.” Chandler v. Hayden, 147 Idaho 765, 768, 215 P.3d 485, 488 (2009). “Summary 
judgment is proper when there is no genuine issue of material fact and the only remaining 
questions are questions of law.” Id. “This Court liberally construes all disputed facts in favor of 
the nonmoving party and draws all reasonable inferences and conclusions supported by the 
record in favor of the party opposing the motion.” Id. “[W]e can affirm the district court’s order 
 
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granting summary judgment on alternate grounds.” Commercial Ventures, Inc. v. Rex M. & Lynn 
Lea Family Trust, 145 Idaho 208, 218, 177 P.3d 955, 965 (2008). 
“The award of attorney fees and costs is within the discretion of the district court and 
reviewed for an abuse of that discretion.” Jim & Maryann Plane Family Trust v. Skinner, 157 
Idaho 927, 932, 342 P.3d 639, 644 (2015). “In making a determination of whether a trial court 
abused its discretion, this Court considers: (1) whether the trial court correctly perceived the 
issue as one of discretion; (2) whether the trial court acted within the boundaries of this 
discretion and consistent with the legal standards applicable to the specific choices available to 
it; and (3) whether the trial court reached its decision by an exercise of reason.” Charney v. 
Charney, 159 Idaho 62, 64, 356 P.3d 355, 357 (2015). 
III. ANALYSIS 
 
Our review of Kugler’s appeal has presented a challenge due to significant deficiencies in 
his briefing. Some of Kugler’s assignments of error are merely conclusory statements without 
reasoning or other support. Such briefs do not comply with our rules. See I.A.R. 35(a)(6) (“The 
argument shall contain the contentions of the appellant with respect to the issues presented on 
appeal, the reasons therefor, with citations to the authorities, statutes and parts of the transcript 
and record relied upon.”); Bach v. Bagley, 148 Idaho 784, 790, 229 P.3d 1146, 1152 (2010) (“A 
general attack on the findings and conclusions of the district court, without specific reference to 
evidentiary or legal errors, is insufficient to preserve an issue.”). This opinion will address those 
claims which Kugler has marginally advanced, even though the issues were not presented in full 
compliance with our rules. These issues are whether the district court erred in granting summary 
judgment, denying Kugler’s motion to disqualify opposing counsel, and awarding attorney fees. 
A. The district court properly granted summary judgment because Kugler attempted to 
advance derivative claims without complying with the requirements of Idaho Code 
section 30-1-742 and Idaho Rule of Civil Procedure 23(f).  
The district court found that Kugler’s complaint advanced derivative claims. It further 
found that Kugler’s failure to comply with Idaho Code section 30-1-7422 and Idaho Rule of Civil 
Procedure 23(f) were fatal to his claim and granted summary judgment. On appeal, Kugler 
contends his claims are not derivative. 
                                                          
 
2 Following the district court’s decision, Idaho Code section 30-1-742 was repealed, 2015 Idaho Sess. L. ch. 243, § 
1, p. 758, and recodified as Idaho Code section 30-29-742. 2015 Idaho Sess. L. ch. 243, § 62, p. 925. This opinion 
will cite the version in effect at the time Kugler filed his complaint.  
 
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A derivative action is distinguishable from an individual action. We have described a 
derivative action as follows: 
A stockholder’s derivative action is an action brought by one or more 
stockholders of a corporation to enforce a corporate right or remedy a wrong to 
the corporation in cases where the corporation, because it is controlled by the 
wrongdoers or for other reasons fails and refuses to take appropriate action for its 
own protection. 
McCann v. McCann, 152 Idaho 809, 814, 275 P.3d 824, 829 (2012) [McCann II] (quoting 
McCann v. McCann, 138 Idaho 228, 233, 61 P.3d 585, 590 (2002) [McCann I]). In comparison: 
[I]t is generally held that a stockholder may maintain an action in his own right 
for an injury directly affecting him, although the corporation also may have a 
cause of action growing out of the same wrong, where it appears that the injury to 
the stockholder resulted from the violation of some special duty owed to the 
stockholder by the wrongdoer and having its origin in circumstances independent 
of the plaintiff’s status as a shareholder. 
Id. at 815, 275 P.3d at 830 (alteration original) (quoting McCann I, 138 Idaho at 233, 61 P.3d at 
590). This Court has recognized: 
A well-recognized exception to the rule that a shareholder must bring a derivative 
action for claims alleging injury to the corporation is that in a closely held 
corporation a minority shareholder may bring a direct action, rather than a 
derivative action, if the shareholder alleges harm to himself distinct from that 
suffered by other shareholders of the corporation or breach of a special duty 
owed by the defendant to the shareholder. 
Id. (quoting Schumacher v. Schumacher, 469 N.W.2d 793, 798 (N.D. 1991)). 
Kugler’s first cause of action alleges that that the Defendants improperly redeemed 
Nelson’s stock in violation of the Shareholder Agreement, H & M’s Bylaws, H & M’s Articles 
of Incorporation, and statutes, and that Kugler and H & M were damaged by the redemption. We 
understand Kugler’s claim as presenting an objection to H & M’s purchase of Nelson’s twenty-
seven shares for $96,336.67—not Powers’ personal purchase of twenty shares from Nelson for 
$90,000. This is because redemption of stock refers to the “[r]epurchase by corporation of its 
shares . . . .”3 Black’s Law Dictionary 1278 (6th ed. 1990). Because Kugler challenges H & M’s 
redemption of stock, any damage to Kugler would not be distinct from harm to H & M and other 
shareholders. 
                                                          
 
3 Kugler’s actions at the July 6, 2010, meeting reinforce our understanding of the nature of his objection. There, 
Kugler voted to approve Powers’ purchase of twenty shares of Nelson’s stock while opposing H & M’s purchase of 
twenty-seven shares of Nelson’s stock. 
 
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Kugler argues that the district court failed to consider the Shareholder Agreement, which 
was a contract between the shareholders and not the corporation. It is true that a violation of the 
Shareholder Agreement may have individual characteristics if the violation did not involve H & 
M. However, these are not the facts of this case. H & M was a party to the stock redemption that 
Kugler challenges, and any harm would have only affected Kugler due to his status as a 
shareholder. We hold that the district court properly characterized Kugler’s first cause of action 
as a derivative claim.   
Kugler’s second cause alleges that Nelson breached the duty of good faith, breached his 
employment contract, and committed fraud, all of which damaged Kugler and H & M. Kugler 
fails to identify any damage individual to him or having its origin in circumstances independent 
of the his status as a shareholder. This claim only alleges that Nelson’s misconduct as a corporate 
officer damaged H & M. The district court properly concluded that this claim is derivative.  
Kugler’s third cause of action alleges that Powers Candy purchased vehicles and 
inventory from H & M without just compensation and owed H & M money. This cause of action 
only asserts a wrong to H & M and Kugler identifies no basis for a determination that he has 
suffered individualized harm. The district court correctly identified this as a derivative claim. 
Kugler’s fourth cause of action has both derivative and individual components. It alleges 
that the Defendants improperly removed Kugler from his position as a director of H & M, 
damaging H & M and Kugler. Any damage to H & M caused by Kugler losing his seat on the 
board would be derivative because the damages would flow through H & M. However, we 
acknowledge that his removal as a director might, in some circumstances, give rise to a personal 
cause of action. We affirm the decision of the district court because Kugler has failed to identify 
any damages resulting from his removal as a director. Kugler was not entitled to a seat on the 
board of directors. See McCann II, 152 Idaho at 817, 275 P.3d at 832. H & M’s Bylaws provide 
that directors are not entitled to compensation. In the absence of damages, the district court 
properly dismissed Kugler’s fourth cause of action to the extent it advanced a non-derivative 
claim.  
Having correctly determined that Kugler’s claims were derivative, the district court 
granted summary judgment because Kugler “failed to comply with either I.C. § 30-1-742 or Rule 
23(f). The demand required under I.C. § 30-1-742 was not provided to the corporation and Rule 
 
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23(f)’s requirements regarding the form and allegations of the complaint have not been met in 
either the original or amended complaint.”  
For the first time on appeal, Kugler asserts that he was excused from making a demand 
on H & M because such a demand would be futile. In support of this claim, Kugler relies on our 
decision in Orrock v. Appleton, 147 Idaho 613, 213 P.3d 613 (2009). Although we would not 
ordinarily entertain a claim raised for the first time on appeal, see e.g. Gordon v. Hedrick, 159 
Idaho 604, 612, 364 P.3d 951, 959 (2015), we choose to explain why Kugler’s claim is without 
merit. In Orrock, we explained the important policy underlying the demand requirement:  
“To prevent abuse of [a shareholder derivative suit] ... equity courts established as 
a precondition ‘for the suit’ that the shareholder demonstrate ‘that the corporation 
itself had refused to proceed after suitable demand, unless excused by 
extraordinary conditions.’ ” Kamen [v. Kemper Fin. Servs., Inc.], 500 U.S. [90, 
95–96 (1991)] (quoting Ross v. Bernhard, 396 U.S. 531, 534, (1970)). The 
demand requirement “affords the directors an opportunity to exercise their 
reasonable business judgment[.]” Daily Income Fund, Inc. v. Fox, 464 U.S. 523, 
533 (1984). “[T]he function of the demand doctrine in delimiting the respective 
powers of the individual shareholder and of the directors to control corporate 
litigation clearly is a matter of ‘substance,’ not ‘procedure.’ ” Kamen, 500 U.S. at 
96–97. 
Orrock, 147 Idaho at 618, 213 P.3d at 403. In order to advance this policy, Idaho Rule of Civil 
Procedure 23(f) provides, in pertinent part, that: “The complaint shall also allege with 
particularity the efforts, if any, made by the plaintiff to obtain the action which plaintiff 
desires from the directors or comparable authority and, if necessary, from the shareholders or 
members, and the reasons for the plaintiff’s failure to obtain the action or for not making the 
effort.” As we held in Orrock, a plaintiff’s failure to satisfy the Rule’s pleading requirement 
regarding futility is grounds for dismissal. 147 Idaho at 618–19, 213 P.3d at 403–04. Kugler’s 
Amended Complaint does not advance any explanation for his failure to make the requisite 
demand. 
 
More importantly, although Kugler is correct that we discussed futility as an exception to 
the demand requirement in Orrock, he fails to recognize that we did so because Delaware law 
governed the substantive claims. Id. at 617–18, 213 P.3d at 402–03. H & M is an Idaho 
corporation and Idaho law governs this action. Idaho law does not recognize the futility 
exception to the demand requirement. In McCann I, this Court explained why it found that the 
legislature had abrogated the exception: 
 
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we presume the legislature was aware of the common law futility exception when 
the statute [I.C. § 30-1-742] including two exceptions to the demand requirement 
was adopted, but the legislature chose not to add a provision expressing the 
concept of futility as an exception. This appears to be a clear demonstration of the 
legislature’s intent to no longer recognize “futility” as an exception to the 
requirement of demand as a condition preceding the institution of a shareholder’s 
derivative action.  
McCann I, 138 Idaho at 236, 61 P.3d at 593. As Idaho law does not recognize futility, Kugler’s 
claim that he was excused from making a demand on H & M is without merit. The district court 
properly dismissed Kugler’s complaint.  
B. Kugler’s apparent claim that the district court improperly denied his motion to 
disqualify opposing counsel is waived. 
The district court denied Kugler’s motion to disqualify counsel. In his opening brief, 
Kugler raises the following issue: “Did the District Court abuse it’s [sic] discretion in denying 
appellant’s motion for disqualification of Mrs. Redmond4 as attorney for the Defendants Powers 
and Armstrong which is effectively a representation of H & M Distributing, Inc.?” Although 
Kugler posed the question, his opening brief did not attempt to explain what the answer to the 
question might be, much less provide argument or authority in support of his implicit claim of 
error. “We will not consider assignments of error not supported by argument and authority in the 
opening brief.” Hogg v. Wolske, 142 Idaho 549, 559, 130 P.3d 1087, 1097 (2006). We find that 
Kugler has waived this claim of error.   
C. The district court did not abuse its discretion by awarding attorney fees to the 
Defendants.  
The district court initially awarded Defendants $15,000 in attorney fees based on (1) the 
Shareholder Agreement, (2) the Settlement Agreement, and (3) Idaho Code section 12-120(3). 
After the Defendants moved for reconsideration of the attorney fee award, the district court 
increased the attorney fee award by $4,000 because Defendants’ counsel spent “extraordinary, 
but reasonable, time” responding to Kugler’s litigation conduct.  
In this appeal, Kugler argues that the district court could not have awarded fees under the 
Shareholder Agreement and Idaho Code section 12-120(3). The Defendants respond that Kugler 
has waived his challenge to the award of attorney fees because he failed to address the district 
court’s alternative ground for awarding attorney fees under the Settlement Agreement.  
                                                          
 
4 Ms. Redmond represents the Defendants. 
 
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It is generally true that when a lower court makes a decision on alternative grounds and 
one or more of those grounds are not challenged on appeal, we will affirm. See e.g. Hilliard v. 
Murphy Land Co., LLC, 158 Idaho 737, 741, 351 P.3d 1195, 1199 (2015). However, we are not 
willing to affirm on the alternative ground for one simple reason: Kugler was not a party to the 
Settlement Agreement.  
Instead, we affirm the district court’s award based upon Idaho Code section 12-120(3), 
which provides: 
In any civil action to recover on an open account, account stated, note, 
bill, negotiable instrument, guaranty, or contract relating to the purchase or sale of 
goods, wares, merchandise, or services and in any commercial transaction unless 
otherwise provided by law, the prevailing party shall be allowed a reasonable 
attorney’s fee to be set by the court, to be taxed and collected as costs. 
Under this statute, when a commercial transaction comprises the gravamen of a lawsuit, the 
prevailing party shall be awarded attorney fees. Idaho Transp. Dep’t v. Ascorp, Inc., 159 Idaho 
138, 141, 357 P.3d 863, 866 (2015). “All transactions other than those for personal or household 
purposes are considered commercial transactions.” Carrillo v. Boise Tire Co.. Inc., 152 Idaho 
741, 755, 274 P.3d 1256, 1270 (2012). “[I]n order for a transaction to be commercial, each party 
to the transaction must enter the transaction for a commercial purpose.” Id. at 756, 274 P.3d at 
1271. “[T]he commercial transaction must be integral to the claim and constitute a basis on 
which the party is attempting to recover.” Am. Bank v. BRN Dev., Inc., 159 Idaho 201, 208, 358 
P.3d 762, 769 (2015) (alteration original) (quoting Clayson v. Zebe, 153 Idaho 228, 236, 280 
P.3d 731, 739 (2012)).  
Kugler claims an award of attorney fees cannot be supported by Idaho Code section 12-
120(3) because the Defendants used H & M for personal reasons. Kugler misunderstands 
applicable law. Kugler’s causes of action arise from a commercial transaction. His causes of 
action relate to transactions between H & M, its shareholders, and Kugler for commercial 
purposes, not personal or household purposes. We find that the district court properly concluded 
that Kugler’s claims were governed by Idaho Code section 12-120(3). 
Kugler also challenges the amount of attorney fees that the district court awarded as 
follows: “Mrs. Redmond was disappointed in the award of fees made by the trial Court and 
asserted a claim for additional fees on an asserted claim that appellant caused a delay in 
proceedings is also unfounded [sic].” Kugler’s conclusory statement is insufficient to 
 
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demonstrate that the district court abused its discretion by increasing the award of attorney fees. 
For these reasons, we affirm the district court’s award of attorney fees.   
D. We award attorney fees on appeal to the Defendants. 
The Defendants request attorney fees on appeal under the terms of the Shareholder 
Agreement, Idaho Code section 12-120(3), and Idaho Code section 12-121. Idaho Code section 
12-120(3) applies on appeal and in lower courts. Oakes v. Boise Heart Clinic Physicians, PLLC, 
152 Idaho 540, 546, 272 P.3d 512, 518 (2012). As discussed in the previous section, Idaho Code 
section 12-120(3) applies to this action. As the prevailing parties, we award attorney fees on 
appeal to the Defendants. Because we award attorney fees pursuant to Idaho Code section 12-
120(3), we do not address the other grounds upon which Defendants seek an award of fees.  
IV. CONCLUSION 
We affirm the judgment of the district court award attorney fees and costs on appeal to 
the Defendants. 
 
Chief Justice J. JONES and Justices EISMANN, BURDICK and W. JONES, CONCUR.