TERRY L. MYERS, CHIEF U. S. BANKRUPTCY JUDGE.
Plaintiffs FTE Networks, Inc. and its wholly owned subsidiary Jus-Com, Inc. (referred to collectively as "FTE") brought this adversary proceeding seeking to except a debt from the discharge of defendant, chapter 7 debtor Ronald Ivie, Jr. ("Ivie"), under § 523(a)(6).
FTE is a contractor in the business of constructing telecommunications networks. Ericsson Inc. ("Ericsson") is a project manager that oversees construction projects for telecommunication service providers, such as CenturyLink. FTE and Ericsson entered into a "Master Service Agreement" in July 2014, which provided the terms of the relationship between Ericsson and FTE as its subcontractor on any future "task orders." Ex. 2017 ("MSA"). The MSA provides that any task orders accepted by FTE are subject to and become "a part of" the MSA. Id. at 2-3. The MSA included a three-year term, which automatically renewed for additional one-year terms until either party provided appropriate notice and terminated the MSA. Id. at 3.
Under the MSA, FTE performed construction of an expansion of CenturyLink's fiber optic network in Seattle, referred to by the parties as the "pilot project." In July 2014, Ivie, as president and manager of ID Consulting Solutions, LLC ("IDCS"), signed a contract with FTE to perform engineering and design work on the pilot project. Ex. 2039 at 12. IDCS was a business at least partially owned by Ivie.
Ericsson later issued an additional task order awarding FTE the task of further expanding the fiber optic network for CenturyLink in Seattle and also a task order to expand CenturyLink's network in Las Vegas.
In October 2014, FTE contracted with IM Services, LLC ("IMS") to provide engineering and design services related to the expansion of CenturyLink's fiber optic networks in Seattle and Las Vegas. Ex. 1000. IMS was a company created by Ivie and Alex McLarty ("McLarty"). According to McLarty, it was formed for the purpose of locating projects and obtaining funding for the projects. TR 2 at 7. After entering into its agreement with FTE, IMS then subcontracted with IDCS to perform the required engineering and design services. Once the services were rendered, IDCS
On January 5, 2015, Ivie, as the president of IDCS, contacted FTE requesting payment of outstanding invoices. Ivie explained that more than $360,000 was owed and that IDCS was unable to continue performing work under the contract for FTE without payment. Ex. 1030. FTE responded that a "closing" was scheduled for the following week, suggesting that payment would be available then. Id.
On January 16, 2015, Ivie again contacted FTE by email and explained that "I cannot continue spending $150K a month with $20K revenue," and "I have to have at least $15K a week to get caught up, if not, I will not make it." Ex. 1031. FTE responded by explaining that "[w]e are moving as fast as we can to get the docs in order" to complete "closing." Id.
On January 26, 2015, Ivie again contacted FTE, explaining "I'm running low on funds and cannot make payroll. ... At this point, if we do not get paid up in a week, I will be forced ... to submit a lien on the Seattle and LV project. I have no choice. ... This is coming to a point now, I have tried to hang on as long as possible, I have nowhere to go." Doc. No. 1032. FTE responded that it was finalizing a "refi" and that it would pay the outstanding invoices when it was complete. Further, FTE warned that filing liens would "be extremely bad for both of us" and would "get you no closer to being paid but will push it out much further." Id.
FTE failed to pay the outstanding invoices and the parties entered into negotiations regarding potential resolutions.
On July 10, 2015, Ivie caused IDCS to file a petition under chapter 11. Case No. 15-00918-TLM (the "IDCS Chapter 11"). IDCS, under Ivie's control, wanted to collect the FTE receivable. The schedules in the IDCS Chapter 11 case" asserted FTE owed $729,285.01. Ex. 1045. The approach taken to collect this receivable is at the heart of this action.
Though IDCS was represented by counsel, Ivie consulted only with IDCS's bookkeeper and controller, Sabitha Kelsey ("Kelsey"), and McLarty. Kelsey, who had some prior experience filing liens for a residential construction company in Nevada, suggested that mechanics liens might be a means by which IDCS could secure and collect the amounts due. Kelsey testified she was on the "forefront" of the effort to determine whether mechanics liens could be used to secure what IDCS was owed. McLarty, who had no prior experience with filing mechanics liens, assisted Kelsey in researching whether using
On July 21, 2015, IDCS, under Ivie's direction, issued fifteen-day notices of intent to lien, with attached letters signed by Ivie as president of IDCS (the"Lien Letters"). The Lien Letters were sent to hundreds of home and other real property owners in Seattle and Las Vegas. See, e.g., Exs. 2002, 2006. The Lien Letters generally outlined the relationships between CenturyLink, Ericsson, FTE, and IDCS, and explained that IDCS had provided engineering and design services necessary for expansion of CenturyLink's fiber optic network. The Lien Letters further explained that FTE had failed to pay IDCS for its services and, despite contacting Ericsson and CenturyLink, IDCS remained unpaid. The Lien Letters asserted that FTE's nonpayment created a "financial crisis" and that IDCS was forced to file liens in order to secure payment. Finally, the Lien Letters stated "[w]e regret having to process liens and for filing for protection; however, the company had no other option and will continue to leverage CenturyLink, the City Permit offices, County Engineering offices, Public Works, and the media for financial relief." Id. The Lien Letters included telephone numbers for individuals with FTE, Ericsson, and CenturyLink, and the property owners were told that liens would be filed on their property fifteen days from the date of notice if payment was not made to IDCS. Ex. 2002.
One week later, FTE initiated an adversary proceeding and filed therein a motion for an injunction preventing IDCS from filing liens in Seattle and Las Vegas as threatened in the Lien Letters. Adv. No. 15-6051-TLM. On August 3, 2015, the Court granted FTE's motion for a temporary restraining order.
On October 2, 2015, this Court entered a decision finding the Lien Letters were "asserted and sent without credible legal basis or support" and that they included contact information for CenturyLink, Ericsson, and FTE "to encourage predictably outraged property owners to contact these other parties, thus creating pressure and leverage on those parties."
Ivie filed his personal chapter 7 petition on March 25, 2016. FTE filed the complaint initiating this adversary proceeding
Meer v. Lilly (In re Lilly), 2012 WL 6589699, *6-7 (Bankr. D. Idaho Dec. 18, 2012).
As this Court has previously explained:
FTE further contends that because Ivie knowingly participated in these intentional torts, he is jointly and severally liable for the loss suffered. Under Idaho law:
Forbush v. Sagecrest Multi Family Property Owners' Assoc. Inc., 162 Idaho 317, 396 P.3d 1199, 1214 (2017). See also, Smith v. Great Basin Grain Co., 98 Idaho 266, 561 P.2d 1299 (1977). "Participation" may be found on the basis of direct action, but also may consist of knowing approval or ratification of the unlawful acts of others. Id.
There is preponderating evidence that Ivie was responsible for directing Kelsey and McLarty to research and prepare the Lien Letters. Ivie also signed those documents, and he directed they be sent. See Exs. 2002, 2006. Therefore, the Court concludes that to the extent IDCS is liable for damages caused by the issuance of the Lien Letters, Ivie is personally liable for the same.
The Idaho Supreme Court has explained the elements of tortious interference:
Wesco Autobody Supply, Inc. v. Ernest, 149 Idaho 881, 243 P.3d 1069, 1083 (2010).
The first two elements are met. It is undisputed that a contract existed between FTE and Ericsson, and that IDCS was aware of a contract between FTE and Ericsson, though perhaps not all the specific details of that contract.
To meet its burden of proof on the third element, FTE was required to show that IDCS's actions actually caused a breach of a contract. See Idaho First Nat'l Bank v. Bliss Valley Foods, Inc., 121 Idaho 266, 824 P.2d 841, 859 (1991). A showing of some distant, proximate causal connection is not sufficient. Id.
Ivie contends FTE has not shown a causal connection between the issuance of the IDCS Lien Letters and Ericsson's discontinuing its relationship with FTE. He argues that Ericsson's actions are more likely the result of FTE's failure to pay its subcontractor than IDCS's sending the Lien Letters. FTE, on the other hand, argues that the act of issuing the Lien Letters, constituted a breach of the MSA. The MSA provides:
Ex. 2017 at 16 (emphasis added).
This clause, upon which FTE's argument is based, provides two prohibitions: (1) actual creation, filing or attachment of a lien by FTE or its subcontractors, and (2) acts by FTE that would be prerequisite to its filing of a lien. In this case, it is undisputed that IDCS, a subcontractor, did not actually file a lien against any of the properties. Rather, IDCS sent the Lien Letters notifying property owners of its intent to file liens — prerequisites to actually filing the liens. However, under the MSA, subcontractors are not prohibited from acts prerequisite to filing lien claims; that prohibition only pertains to the "Contractor" (FTE). Thus FTE has not shown that IDCS's issuance of the Lien Letters were acts that themselves breached the MSA.
John Klumpp ("Klumpp"), FTE's Chief Strategy Officer, testified FTE had a strong relationship with Ericsson until the Lien Letters were issued. According to Klumpp, shortly after the Lien Letters were sent, the relationship "wound up." He further testified that the Lien Letters created a "crisis" that forced FTE, Ericsson, and CenturyLink to do "damage control." Klumpp explained that Ericsson did not "officially terminate" the MSA, but simply "didn't give us any more work. It was over." TR 1 at 189-209. Under the MSA, according to Klumpp, if at any time FTE was not "living up to the quality and the delivery standards time and whatever, then the work can go away. There's no guarantee in there." Id.
Thus while the Lien Letters clearly had an impact on the relationship between FTE and Ericsson, there is no preponderating evidence that the MSA was breached as a result. There was no evidence provided suggesting that Ericsson declared a breach. nor was there proof that Ericsson refused to give FTE additional work "because of a breach." Rather, Ericsson simply declined to issue additional task orders to FTE. According to Klumpp, this was within Ericsson's rights under the MSA if Ericsson was not content. Because FTE failed to meet its burden of proving that IDCS's issuance of the Lien Letters caused a breach of the MSA, it has failed to establish tortious interference with a contract under Idaho law.
FTE also alleges that, by sending the Lien Letters, IDCS intentionally and tortiously interfered with FTE's prospective economic advantage. To establish a claim for intentional interference with a prospective economic advantage, FTE must show:
Wesco, 243 P.3d at 1081 (quoting Cantwell v. City of Boise, 146 Idaho 127, 191 P.3d 205, 216 (2008)). With regard to the mens rea elements, a corporation is liable for this tort if the directors or officers of the corporation committed the acts constituting the tort while they had the requisite mental intent or knowledge. Steed v. Grand Teton Council of the Boy Scouts of America, Inc., 144 Idaho 848, 172 P.3d 1123, 1130 (2007).
There is no dispute that FTE had a valid economic expectancy in continuing its relationship with Ericsson, nor that FTE was injured when the relationship with Ericsson was diminished. The Court finds elements (1) and (5) are met.
The knowledge element may be "satisfied by actual knowledge of the prospective [economic advantage] or by knowledge of facts which would lead a reasonable person to believe that such interest exists." Highland Enters., Inc. v. Barker, 133 Idaho 330, 986 P.2d 996, 1004-05 (1999) (internal quotes and citations omitted).
Here, the preponderating evidence establishes IDCS's and Ivie's knowledge of FTE's expectancy. At the time IDCS commenced work for FTE on the pilot project in Seattle, Ivie was at least made generally aware of the relationship between Ericsson and FTE. Later, Ivie signed agreements on behalf of IMS to perform engineering and design work on larger Ericsson projects in both Seattle and Las Vegas and, again, Ivie was aware of the ongoing business relationship between Ericsson and FTE. Based on the history of FTE's relationship constructing fiber optic networks for Ericsson and Ivie's involvement in several such projects, and on the whole of the evidence, the Court finds Ivie had actual knowledge of FTE's expectancy of work from Ericsson. At a minimum, a reasonable person in Ivie's position would believe FTE had an economic expectancy in continuing the relationship and obtaining additional projects from Ericsson. Therefore, element (2) is met.
Intent to interfere may be demonstrated if it is shown that the actor desires to bring about the interference, or knows that the interference is certain or substantially certain to occur as a result of his action. Wesco, 243 P.3d at 1082 (internal quotes and citations omitted). Intent can be shown even if the interference is incidental to the actor's intended purpose and desire but known to him to be a necessary consequence of his actions. Id.
IDCS sent the Lien Letters with the intent of triggering a frenzy of contact to FTE, Ericsson, and/or CenturyLink from concerned property owners. IDCS wanted to bring this pressure to bear in an attempt to force payment, and a necessary consequence of such pressure was strain on the relationships among the three parties. This would necessarily include strain on and interference with FTE's relationship with Ericsson and, thus, the associated economic expectancy of FTE in continuing that relationship. This interference was substantially certain to occur as a result of the Lien Letters. Thus, FTE met its burden of proving IDCS intended to interfere with FTE's economic expectancy when it sent the Lien Letters, and element (3) is met.
Clearly one of IDCS's purposes in sending the Lien Letters was to encourage payment. However, as this Court previously found, the inclusion of the names and contact information for Ericsson, CenturyLink and FTE in the Lien Letters was to encourage outraged property owners to contact some or all of these parties, thus creating pressure and leverage. IDCS and Ivie made no legal inquiry into whether using liens or the threat of liens in these circumstances was proper. Though IDCS had legal counsel, it and Ivie instead relied on a bookkeeper's history with liens in a residential construction context and McLarty's inquiries. No credible legal basis for the threatened liens was ever established.
The Lien Letters were a wrongful means of attempting to elicit payment from FTE. The use of liens, especially in this manner, as opposed to legitimate business processes to collect its receivable, was intended and designed to inflict injury on FTE. It was, at the very least, a "wrongful means." Thus element (4) is established, and all five elements are met. IDCS and Ivie intentionally interfered with FTE's prospective economic advantage in continuing its relationship with Ericsson.
The Court turns to the most problematic aspect of this case — adequate proof of damages. In its complaint, FTE asserts it was damaged in an amount "not less than $750,000." Adv. Doc. No. 1 at 8. FTE's post-trial briefing asks for "an order from this Court determining the amount of lost profits FTE suffered as a result of Ivie's conduct and except[ing] that amount from discharge[.]" Adv. Doc. No. 41 at 4. Yet FTE's briefing does not suggest what that figure should be, or what FTE believes the evidence established as far as a damage amount.
"A person asserting a claim of damages has the burden of proving not only a right to damages, but also the amount of damages" with reasonable certainty. Bratton v. Scott, 150 Idaho 530, 248 P.3d 1265, 1272 (2011); O'Dell v. Basabe, 119 Idaho 796, 810 P.2d 1082, 1099 (1991). The Idaho Supreme Court held, in Horner v. Sani-Top, Inc., 143 Idaho 230, 141 P.3d 1099, 1106 (2006), that "when considering an award of damages for future losses, the question is whether the plaintiff has proven damages with reasonable certainty." Id. (quoting Moeller v. Harshbarger, 118 Idaho 92, 794 P.2d 1148, 1149 (1990)). "Reasonable certainty" does not require mathematical exactitude, but only that the amount of damages be taken out of the realm of speculation. Id.
FTE alleges the Lien Letters caused Ericsson to stop issuing work orders to FTE. Ivie argues Ericsson reacted to FTE's failure to pay IDCS for services it performed. Each effectively argues that the other is responsible for Ericsson's decision.
FTE has not addressed the idea that Ericsson was faced with both Ivie's conduct and FTE's own delay in paying IDCS. FTE's reply brief, Adv. Doc. No. 43, merely argued "[t]here is only one credible causal explanation for the dramatic decline in revenue, as the timing of the issuance of the lien notice letters matches perfectly with the decline, as opposed to a mere coincidence." However, as noted, the timing also matches up with the substantial unpaid receivable undergirding Ivie's ill-considered decision to issue such letters.
As noted above, the burden is on a plaintiff to establish, with reasonable certainty, not just a right to damages but the amount of damages. This includes addressing questions of allocation of damages. In Harris, Inc. v. Foxhollow Const. & Trucking, Inc., 151 Idaho 761, 264 P.3d 400 (2011), the Idaho Supreme Court affirmed a judgment entered against the plaintiff where the plaintiff failed to prove the amount of damages caused by the defendant.
Id. at 409.
While this Court is not attempting to allocate damages between two defendants, it must determine if any portion of FTE's damages can be attributed to Ivie with reasonable certainty. Bohm v. The Horsley Co. (In re Groggel), 333 B.R. 261 (Bankr. W.D. Penn. 2005), illustrates this problem. There, a chapter 7 trustee alleged that the defendant, Horsley, was 100% liable for damages resulting from a breached contract. However, the court found Horsley was at fault for only part of the damage to the debtor, Groggel, and the trustee failed to prove Horsley was 100% liable. Concluding that both Horsley and the debtor contributed to the damage the debtor suffered, the court explained:
Id. at 296.
This Court faces a dilemma similar to Harris and Groggel. It has determined that Ivie is liable for at least a portion of FTE's damages. However, FTE is also, on this record, partly responsible for the situation leading to Ericsson declining to assign future task orders to FTE. No competent evidence exists upon which the Court can identify Ivie's monetary liability. Were the Court to assign a portion of any claimed damages
FTE failed to show Ivie tortiously interfered with the contract between FTE and Ericsson, but it did prove that Ivie intentionally interfered with FTE's prospective economic advantage by harming FTE's relationship with Ericsson. Ivie's culpable conduct may have supported a claim under § 523(a)(6), but FTE failed to carry its burden of providing preponderating evidence of the amount of Ivie's liability. Thus, FTE has not met its burden of proving the existence of a debt owed by Ivie. This is prerequisite to establishing its claim under § 523(a)(6), and the Court need not address the additional issues under that section. Therefore, the Complaint will be dismissed.
Id. at 283. As discussed earlier, Idaho's standard is more exacting.
