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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Lee E. Baker Jr. v. Kenneth M. Duffus (5/17/2019) sp-7362

Lee E. Baker Jr. v. Kenneth M. Duffus (5/17/2019) sp-7362

        Notice:   This op inion  is subj ect  to correction bef ore p ublication  in  the PA CIFI C REPORTER.  

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        303 K Street, Anchorage, Alaska 99501, p hone  (907)  264-0608, f ax  (907)  264-0878, email 

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                 THE SUPREME COURT OF THE STATE OF ALASKA 



LEE E. BAKER JR.,                                 ) 

                                                   )   Supreme Court No. S-16427 

                        Appellant,                ) 

                                                   )   Superior Court No. 3AN-07-08461 CI 

        v.                                         ) 

                                                   )   O P I N I O N 

KENNETH M. DUFFUS,                                 ) 

                                                   )   No. 7362 - May  17, 2019 

                        Appellee.                 ) 

                                                   ) 



                Appeal from the Superior Court of the State of Alaska, Third 

                Judicial District, Anchorage, William F. Morse, Judge. 



                Appearances:     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. 



                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 


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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 proj ect 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- 



                                              -2-                                           7362 


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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.  



                                                -3-                                            7362 


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                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 



                                           1 

Consumer Protection Act (UTPA),  prejudgment interest, attorney's fees, and costs.  



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



                                      2 

a number of procedural issues.   



        1       See AS 45.50.531(a). 



        2       Baker's other points on appeal relate to pretrial and trial rulings.  Because 



we vacate  summary judgment  and hold that Baker's  counterclaims relate back, these 

issues have been rendered moot. 



                                                   -4-                                                7362 


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III.    STANDARD OF REVIEW 



                                                                                  3 

                "We  review  a  grant  of  summary judgment  de  novo."     Interpreting  the 



                                                                                     4 

Alaska Civil Rules "presents a question of law that we review de novo."   "[W]e review 

de novo whether an amendment satisfies Rule 15(c)'s requirements for relation back."5 



IV.     DISCUSSION 



        A.      It Was Error Not To Determine Whether Baker's 2015 Counterclaims 

                Were Compulsory To Duffus's 2013 Amended Cross-Complaint. 



                The superior court granted Duffus's motion to amend his cross-complaint 



in December 2013.  Duffus's amendment gave Baker the right to respond to the new 



cross-claims, including the right to bring any claims against Duffus that were compulsory 



                                             6 

to  the  newly  asserted  cross-claims.     Baker's  answer  for  the  first  time  asserted 



counterclaims  against  Duffus.    In  response,  Duffus  moved  to  dismiss all  of  Baker's 



counterclaims as untimely because their respective statutes of limitation had run.  After 



his motion to dismiss was denied, Duffus moved for summary judgment on the same 



grounds.  



        3       Mitchell v.  Teck  Cominco Alaska Inc.,  193 P.3d 751, 757 (Alaska 2008) 



(citing Miller v. Saf eway, Inc.,  170 P.3d 655, 658 (Alaska 2007)). 



        4       Ellingstad v. State, Dep 't of  Nat. Res., 979 P.2d 1000, 1004 (Alaska 1999); 



see also City of  Kodiak v. Parish, 986 P.2d 201, 202 (Alaska  1999). 



        5       Sellers v. Kurdilla, 377 P.3d  1, 7 (Alaska 2016). 



        6       See  Alaska  R.  Civ.  P.  15(a)  (requiring  party  to  plead  in  response  to 



amended pleading either within time remaining to respond to original pleading or within 

10 days of service of amended pleading, whichever is longer, unless the court orders 

otherwise); Thomp son 's  Estate v. Mercedes-Benz, Inc., 5 14 P.2d  1269,  1272 (Alaska 

1973)  (holding  that  adding  cross-complaint  to  original  answer  qualifies  as  amended 

pleading governed by Rule  15). 



                                                  -5-                                               7362 


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                In ruling on the summary judgment motion, the superior court considered 



only  whether  Baker's  claims  were  compulsory  to  the  2007  FNBA  complaint  and 



Duffus's 2007 cross-claim alleging that Baker failed to make capital contributions to 



Harvest.  But the operative pleading at the time of the summary judgment motion was 



                                                  7 

Duffus's 2013 amended cross-complaint.   To determine whether Baker's claims were 



permitted as compulsory counterclaims, the court needed to analyze whether they were 

compulsory to the cross-claims in Duffus's 2013 amended cross-complaint.8 



                                                                                        9 

                Whether counterclaims are compulsory is a question of law.   Alaska Civil 

Rule 13 governs counterclaims and cross-claims.10  Under Rule  13(a) a counterclaim is 



compulsory if it arises out of the same transaction or occurrence as the opposing party's 

claim.11  Claims arise out of the same transaction or occurrence if there is a "  'logical 



        7       See Alaska R. Civ. P. 15(a) (containing nearly identical language to Fed. 



R. Civ. P.  15(a)); 6 CHARLES ALAN WRIGHT, ARTHUR R. MILLER & MARY KAY KANE, 

FEDERAL PRACTICE AND PROCEDURE   1476 (3d ed. 2018) ("A pleading that has been 

amended  under  [Federal  Rule  of  Civil  Procedure]  15(a)  supersedes  the  pleading  it 

modifies  and  remains  in  effect  throughout  the  action  unless  it  subsequently  is 

modified.");  Thomp son 's Estate, 514 P.2d at  1272 (finding that cross-claim amended 

original answer and treating cross-claim as amended pleading under Alaska Civil Rule 

15);  see  also  Musser  v.  Wells  Fargo  Home  Mortg.,  Inc.,  No.  S-12155,  2008  WL 

1914375, at *3 (Alaska Apr. 30, 2008) (citing 6 CHARLES ALAN WRIGHT, ARTHUR R. 

MILLER & MARY KAY KANE, FEDERAL PRACTICE AND PROCEDURE  1476 (2d ed. 1990)) 

(acknowledging  in  an  unpublished  decision  that  "an  amended  complaint  supersedes 

earlier pleadings"). 



        8       See Alaska R. Civ. P.  13,  15(c). 



        9       See Ellingstad, 979 P.2d at  1004. 



        10      See Alaska R. Civ. P.  13. 



        11      Alaska R. Civ. P.  13(a):   



                                                                                         (continued...) 



                                                   -6-                                               7362 


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relationship '  between  the  claims."12    To  determine  whether  claims  share  a  logical 



relationship  we  consider  whether  one  party's  ability  to  recover  his  or  her  alleged 

damages "depend[s] on the success or failure of [the other party's] claims"13 and whether 



"a decision on [the] counterclaims was . . . necessary to the result in [the original] suit."14 



                 Baker's 2015 counterclaims are logically related to Duffus's 2013 cross- 



claims.  In his 2013 cross-claims Duffus alleged that Baker failed to make contractually 



required  capital  contributions, breached the  fiduciary  duty  of  care  as manager  of the 



LLC, breached the duty of loyalty, and that Baker's actions amounted to conversion and 



UTPA violations.  These claims all related to Baker's management responsibilities and 



duties with respect to the LLC,  and  can  only be read to  assert that Baker  caused the 



Prominence  Pointe  proje ct's  ultimate  failure  and  the  alleged  harm  to  Duffus  that 



           15 

resulted.    



         11      (...continued) 



                 Compulsory  Counterclaims.  A  pleading  shall  state  as  a 

                 counterclaim  any  claim  which  at  the  time  of  serving  the 

                 pleading  the  pleader  has  against  any  opposing  party,  if  it 

                 arises out of the transaction or occurrence that is the subj ect 

                 matter of the opposing party's claim and does not require for 

                 its  adjudication  the  presence  of  third  parties  of  whom  the 

                 court cannot acquire jurisdiction. 



         12      Domke v. Alyeska Pip eline Serv.  Co.,  137 P.3d 295,  301  (Alaska 2006) 



(quoting Ellingstad, 979 P.2d at  1010). 



         13      Id. at 302. 



         14      Id. 



         15      See Recreational Data Servs,. Inc. v.  Trimble Navigation Ltd., 404 P.3d 



120,  132-36 (Alaska 2017) (discussing the causation element of breach of contract and 

breach of fiduciary duty claims). 



                                                     -7-                                                 7362 


----------------------- Page 8-----------------------

                Baker   asserted   in  his   2015   counterclaims   that   Duffus   caused   the 



Prominence  Point  proj ect's  failure  because  of  his  negligent  engineering  and  false 



representations that the property could be subdivided into more individual lots than was 



feasible.  In his opposition to Duffus's motion for summary judgment, Baker also argued 



that his 2015 counterclaims related back and were in response to several of the cross- 



claims  from Duffus's 2013 pleading.   Thus, Duffus's 2013  cross-claims  and Baker's 



2015  counterclaims meet  the  logical-relationship test because  they rely  on  opposing 



theories of causation.  Because each party's ability to recover damages "depend[s] on the 

success or failure of [the other's] claim," their claims are compulsory to each other.16 



                But the  superior  court never  considered whether Baker's  counterclaims 



were compulsory to Duffus's 2013 cross-claims.  It was error for the court to consider 



only whether Baker's  counterclaims were compulsory to FNBA's original  claim  and 



Duffus's  2007  cross-complaint.    We  therefore  vacate  the  court's  grant  of  summary 



judgment prohibiting Baker from asserting his counterclaims against Duffus. 



        B.      Baker's Compulsory Counterclaims Relate Back.   



                 1.     Rule 15(c) is self-executing. 



                Because   it   did   not   consider   whether   Baker's   counterclaims   were 



compulsory to the proper pleadings, the superior court did not determine whether they 



related back.  To determine whether Baker's counterclaims relate back to Duffus's 2013 



cross-claims, it is necessary to look to Alaska Civil Rule 15(c), which governs when an 



                                      17 

amended pleading relates back.    



        16      Domke,  137 P.3d at 302. 



        17      Alaska R. Civ. P. 15(c); see also MacDonald v. Riggs, 166 P.3d 12, 17-18 



(Alaska 2007) ("[I]f [a] counterclaim is compulsory, it will relate back.");  Domke, 137 

P.3d at 301 ("A compulsory counterclaim relates back  .  .  . a permissive counterclaim 

                                                                                         (continued...) 



                                                   -8-                                               7362 


----------------------- Page 9-----------------------

              Federal Rule of Civil Procedure 15(c) states:  "An amendment to a pleading 



relates back to the date of the original pleading when . . . the amendment asserts a claim 

or defense that [is compulsory]."18  Alaska Rule 15(c) uses similar language:  "Whenever 



the claim or defense in the amended pleading  [is compulsory], the amendment relates 

back to the date of the original pleading."19  We have not previously had occasion to 



consider precisely how Alaska Rule 15(c) operates, but the United States Supreme Court 

has held that Federal Rule 15(c) is self-executing.20  Additionally, the use of the word 



"whenever"  in  Alaska  Rule  15(c)  indicates  that  it  applies  automatically  in  such 



circumstances.    Therefore,  by  its  terms,  Rule   15(c)  is   self-executing  and  will 



automatically relate back a claim or defense if it is compulsory. 



              We determined that Baker's counterclaims were compulsory to Duffus's 



2013 cross-claims because they were logically related.  And they were logically related 



because  they  arose  from the  same  transaction  or  occurrence.   Baker's  counterclaims 



therefore  automatically relate back to Duffus's 2013  cross-claims because they were 

compulsory.21 



       17      (...continued) 



does not."). 



       18     Fed. R. Civ. P.  15(c)(1)(B). 



       19     Alaska R. Civ. P.  15(c). 



       20     Krup ski v. Costa Crociere S. p . A., 560 U.S. 538, 553 (2010) ("Rule [15(c)] 



mandates relation back once the Rule's requirements are satisfied; it does not leave the 

decision whether to grant relation back to the district court's equitable discretion.");  see 

also Sellers v. Kurdilla, 377 P.3d 1, 6 n.4 (Alaska 2016) (quoting affirmatively Krup ski, 

560 U.S. at 553). 



       21     See Alaska R. Civ. P.  13(a);  Domke,  137 P.3d at 301-02. 



                                             -9-                                          7362 


----------------------- Page 10-----------------------

                2.      Baker's counterclaims are not barred by statutes of limitation. 



                Because Duffus originally filed suit against Baker in 2007, any statutes of 



limitation applicable to his claims and Baker's subsequent defenses and counterclaims 

would have run by 2009 or 2010.22  For Baker to "escape the bar of the . . . statute[s] of 



limitation[],"  his  counterclaims  must  relate  back  to  Duffus's  original  2007  cross- 

complaint.23  We established that Baker's counterclaims were compulsory and therefore 



relate back to Duffus's 2013 cross-claims.  Whether Baker's counterclaims are barred 



by the statutes of limitation therefore depends upon whether Duffus's 2013 cross-claims 



relate back to his original 2007 cross-complaint. 



                Like  determining  whether  counterclaims  are  compulsory,  determining 



                                                                                                        24 

whether amended pleadings relate back is a question of law that we review de novo.                          



Comparing  Duffus's  2013  amended  cross-complaint  with  his  original  2007  cross- 



complaint demonstrates that it relates back.  Duffus's 2007 cross-complaint primarily 



focused  on  the  operating  agreement  and  each  LLC  member's  duty  to  make  capital 



contributions to Harvest.  His 2013 amended cross-complaint expanded on these 2007 



claims  not  only  by  incorporating  the  original  claim  that  Baker  failed  to  make 



contractually required capital contributions, but also by adding new claims of breach of 



fiduciary duty, breach of the duty of loyalty, and other general conversion and UTPA 



        22      See  AS  45.50.531(f)  (establishing  a  two-year  statute  of  limitations  for 



UTPA claims);  AS 09.10.053 (establishing a three-year statute of limitations for breach 

of contract and liability claims);  AS 09.10.070(a)(3) (establishing a two-year statute of 

limitations for conversion and other general tort claims). 



        23      See Magestro v. State, 785 P.2d 12 11, 12 13 (Alaska 1990) ("Since the State 



properly raised the statute of limitations defense, we must next determine whether the 

proposed amendments relate back under Rule  15(c) and thus escape the bar of the . . . 

statute of limitations."). 



        24      Kurdilla, 377 P.3d at 7. 



                                                  -10-                                                7362 


----------------------- Page 11-----------------------

claims that specifically focused on the LLC's losses allegedly caused by Baker.  Both of 



Duffus's pleadings focused on the transactions or occurrences that caused the LLC's 



losses;  Duffus's  2013  cross-claims  therefore  relate  back  to  his  2007  original  cross- 



complaint. 



               Because  Baker's  counterclaims  relate  back  to  Duffus's  2013  amended 



cross-complaint, and Duffus's 2013 amended cross-complaint relates back to his original 



2007 cross-complaint, Baker's counterclaims likewise relate back to Duffus's original 



2007  cross-complaint.    Relating  back  to  the  2007  cross-complaint  allows  Baker  to 

"escape the bar of the . . . statute[s] of limitation[]."25 



V.     CONCLUSION 



               We REVERSE the superior court's grant of summary judgment on Baker's 



claims  because  it  was  error  to  determine  that  his  2015  counterclaims  were  not 



compulsory to Duffus's 2013 cross-claims, VACATE the judgment, and REMAND for 



a new trial because both Duffus's 2013 cross-claims and Baker's 2015 counterclaims 



relate back to Duffus's original 2007 cross-complaint. 



       25      Magestro, 785 P.2d at  12 12. 



                                              -11-                                          7362 

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