GORDON SCHMIDT v. TIM HUSTON (2017)

PETITION FOR REHEARING WITH BRIEF ATTACHED

Appellant R. Gordon Schmidt (“Appellant”), by and through his counsel of record, ANGSTMAN JOHNSON, hereby petitions this Court, pursuant to Idaho Appellate Rule 42, for a rehearing of the Court's Opinion No. 148 issued on December 21, 2016.

I. Introduction.

Appellant respectfully contends that he addressed the District Court's second holding in his opening brief. Appellant respectfully asserts that he only sought Respondent Tim Huston's (“Respondent”) proportionate share of contribution after releasing Robin Navert, and thus addressed the District Court's second holding that releasing Robin Navert was not a prejudicial transaction. Appellant also respectfully asserts that Richard Navert was never released from the suit. Further, Appellant respectfully contends that the Supreme Court adopted a clearly erroneous factual error committed by the District Court when it ruled that Appellant was the sole remaining member of TRG Leasing, LLC. Finally, Appellant respectfully contends that the District Court did not have the discretion to rule that Respondent prevailed based upon release given that Respondent failed to plead release as required by Idaho Rule of Civil 8(c).

II. Appellant Addressed the Second Holding in His Opening Brief.

This Court contends that the District Court ruled in favor of Respondent on two separate grounds: 1) it would be unjust or inequitable to allow Appellant to recover from Respondent when Appellant knew or acquiesced to Richard Navert's failure to pay the TRG Loan; and 2) Respondent was released from his duty to contribute because Appellant prejudiced him by releasing Richard Navert from the suit. This Court held that because Appellant did not address the District Court's second ground in his opening brief, it need not address the merits of Appellant's arguments on either ground on appeal. However, Appellant respectfully contends that he adequately addressed the District Court's second ground in his opening brief in accordance with the Idaho Appellate Rules.

Idaho Appellate Rule 35 governs the content and requirements for arguments in opening briefs. Idaho Appellate Rule 35(6) mandates that the argument section of the appellant's brief 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.” In Appellant's opening brief, he addresses the holding that Respondent was released from his contribution duty because releasing Robin Navert was not a prejudicial transaction:

Appellant released Ms. Navert in November 2014 for $5,000.00 in the belief that she was insolvent. See Trial Transcript at p. 37, L14 - p. 38, L3. When Appellant released Ms. Navert, RNR was insolvent and a debtor in a pending bankruptcy. See Clerk's Record on Appeal, p. 56. Ms. Navert was a guarantor of RNR's debt which also rendered her insolvent. See Trial Transcript at p. 77, Li —p.78, L24; p. 106, L7—p. 109, L4.

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Appellant never released Respondent, and only released Ms. Navert due to her and her husband's insolvency.

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The Trial Court ultimately lumped the majority of the blame upon Mr. and Ms. Navert and RNR for never paying back the loan. However, during trial, the Trial Court allowed improper testimony into the Naverts' finances despite counsel's objections of relevancy, foundation, and disclosure. The Trial Court allowed Respondent's counsel to present irrelevant testimony on non-disclosed evidence over Appellant counsel's objections. See Trial Transcript at p. 16 L18-P18 L23; P. 59 at L 20-P 60 L6. Idaho law does not allow for this type of testimony to be admitted into the record given that Appellant's counsel never received copies of the exhibits prior to trial and the subject matter of the testimony did not confirm with the pled counts or defenses.

See Appellant's Opening Brief at p. 7, 16, and 17.

By making these arguments in his opening brief, Appellant squarely addressed why the release of Robin Navert was not a prudential transaction. Appellant did not address the release of Richard Navert, because Richard was never a party to this suit. Appellant declined to sue Richard Navert individually because he never signed a commercial guarantee for the TRG Loan. Richard Navert was never released from his liability to Respondent because he was never a party to this suit. The release of Robin Navert never affected Respondent's ability to cross-claim a right of contribution against Robin Navert or Richard Navert.

Furthermore, the release of Robin Navert did not affect Respondent's ability to individually pursue Richard Navert in a separate action. Robin Navert was released due to her insolvency—an uncontested fact. Appellant did not prejudice Respondent with this release because he only sought half of the remaining balance on the loan after the $5,000.00 settlement was added to the balance of the loan ($26,000.00 - $5,000.00 = $21,000.00; $21,000.00/2 = $10,500.00).

Moreover, Appellant expanded on these arguments in his reply brief:

The Trial court based its decision on a general premise it gleaned from the Bahara case that co-sureties can be discharged from their obligation due to prejudicial transactions between the other co-sureties or the creditor and sureties. See Clerk's Record on Appeal at p. 62. But the prejudicial transaction mentioned in Bahara never occurred in this case. Regarding the prejudicial transactions, the Bahara court held:

The debtors' argument is based on the proposition that if a creditor discharges a principal in a manner that prejudices the rights and interests of the surety, the surety will be discharged from performing. See Keystone Bank v. Flooring Specialists, Inc., 513 Pa. 103, 114, 518 A.2d 1179 (1987); see also First Nat'l Bank of Irwin v. Foster, 291 Pa. 72, 75, 139 A. 609 (1927) (“The uniform rule is that where a creditor releases the principal from payment of a debt he thereby releases the surety entirely, or, if he releases the principal from a part only, the surety is released pro tanto.”).

But the fact that the Bank may have released the Kubeckis from liability under the 1979 discharge the debtors from all liability under the 1979 Guaranty. See In re Bahara, 219 B.R. at 81.

See Appellant's Reply Brief at p. 8-9. As explained in Appellant's Reply Brief, the Bahara Court held that a creditor or co-surety cannot discharge a principal for payment of a debt and then seek that amount again from the other sureties. Given that the District Court relied upon the Bahara Court when it determined that the release of Robin Navert was prejudicial, the District Court incorrectly applied the law to the facts of this case. Appellant therefore fully addressed the release of both Robin Navert and Richard Navert in his brief, and respectfully requests that this Court now consider the merits of his arguments.

III. This Court Adopted the District Court's Clearly Erroneous Error.

In the District Court's opinion, it reached a conclusion of law that Appellant was the sole remaining member of TRG Leasing, LLC:

Further, the release of Richard Navert individually by Schmidt while standing in the capacity as the holder of note and collateral security interests attached, and further while standing in his capacity as the sole remaining member of TRG Leasing LLC, prejudiced the rights and interests of the co-surety to bring action against Navert for misappropriation, which liability might have proved to be fiduciary and non-dischargeable.

See Clerk's Record on Appeal at p. 68. This passage was cited by this Court on page 3 of its Opinion. However, Respondent remained a member in TRG Leasing, LLC at the time of trial. This fact was conspicuously cited in Appellant's opening brief:

Respondent was still a member of TRG as of the date of trial. See Trial Transcript at p. 179,L2-13.1

See Opening Brief at p. 3. Since Respondent remained a member of TRG Leasing, LLC, Appellant's release of Robin Navert did not prejudice Respondent's ability to bring a claim against either Richard Navert or Robin Navert on behalf of TRG Leasing, LLC. Given that both the District Court and this Court relied upon this clearly erroneous fact, Appellant respectfully requests a rehearing.

IV. Respondent failed to Plead Release as an Affirmative Defense.

Appellant respectfully requests this Court to rehear his appeal because the relief granted to Respondent violated Idaho Rule of Civil Procedure 8(C)(1)(N). In its Opinion, this Court ruled that a District Court may act “sua sponte” when granting equitable relief for the clean hands maxim. However, this Court did not address the fact that Respondent was granted relief upon the affirmative defense doctrine of release. Idaho Rule of Civil Procedure 8(1)(N) mandates that “In responding to a pleading a party must affirmatively state any avoidance or affirmative defense, including:․(N) Release.” Respondent was never put on notice of this defense prior to trial, thus barring Respondent from claiming he was released from his suretyship obligations. Although this Court has recently relaxed its requirements that affirmative defenses be plead in an answer, these defenses must be raised before trial to give the opposing party notice and an opportunity to address these defenses. See Novo v. Bingham Mem'l Hosp., 373 P.3d 681, 692-93 (Idaho 2016). In this case, Respondent never raised the affirmative defense of release prior to trial. As explained in Appellant's opening brief, counsel for Appellant objected to the affirmative defense raised by Respondent as untimely. See Appellant's Opening Brief at p. 13. Therefore, Appellant respectfully requests that his appeal be reheard and this Court address Respondent's waiver of the release affirmative defense.

V. Conclusion.

Appellant respectfully requests that his appeal be reheard based upon the following points: 1) Appellant addressed the release of Robin Navert and Richard Navert in both his opening and reply briefs; 2) this Court adopted a clearly erroneous factual error committed by the District Court; and 3) the Idaho Rules of Civil Procedure barred Respondent from a release of his suretyship liability because he never pled it as an affirmative defense.

ANTHONY M. SHALLAT Attorney for Plaintiff-Appellant

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that on this 11th day of January, 2017, I caused to be served a true copy of the foregoing PETITION FOR REHEARING WITH BRIEF ATTACHED by the method indicated below, and addressed to those parties marked served below:

Michelle R. Points

Points Law, PLLC

910 W. Main Street, Suite 222

Boise, ID 83702

X U.S. Mail, postage prepaid

Anthony M. Shallat

FOOTNOTES

1.   “Q. Mr. Huston is still a member of TRG Leasing; correct? A. Yes.”