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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 (2/16/2024) sp-7687
Notice: 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, email
corrections@akcourts.gov.
THE SUPREME COURT OF THE STATE OF ALASKA
LEE E. BAKER, JR., )
) Supreme Court No. S-18504
Appellant, )
) Superior Court No. 3AN-07-08461 CI
v. )
) O P I N I O N
KENNETH M. DUFFUS, )
) No. 7687 - February 16, 2024
Appellee. )
)
Appeal from the Superior Court of the State of Alaska, Third
Judicial District, Anchorage, William F. Morse, Judge.
Appearances: Michael Bedinger, Jones Bedinger, LLC,
Anchorage, for Appellant. Adam W. Cook and Zoe A.
Eisberg, Birch Horton Bittner & Cherot, Anchorage, for
Appellee.
Before: Maassen, Chief Justice, Carney, Borghesan, and
Pate, Justices. [Henderson, Justice, not participating.]
CARNEY, Justice.
INTRODUCTION
Lee Baker and Kenneth Duffus were partners in a real estate development
company that failed after Baker defrauded it. After the company's members were sued
for defaulting on a loan, Duffus cross-claimed against Baker, claiming Baker violated
the Unfair Trade Practices and Consumer Protection Act (UTPA). Baker filed further
counterclaims, which the superior court dismissed. A jury found for Duffus, but we
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reversed because Baker's counterclaims were improperly dismissed. During a second
trial, Baker filed a motion for partial summary judgment, arguing that the UTPA did
not apply at all. The superior court rejected these arguments, and Duffus won another
jury verdict for over $1 m illion.
Baker now appeals only the superior court's denial of his summary
judgment motion before the second trial. He argues that his conduct was part of a real
estate transaction, which would place it outside of the UTPA's scope. And he argues
that his fraud was entirely within the company 's internal operations, which would also
place it beyond the statute. We reject these arguments and affirm the superior court.
FACTS AND PROCEEDINGS
A. Facts
In 2004 Baker, Duffus, and a third individual not involved in this appeal
formed Harvest Properties, LLC (Harvest), a limited liability company, to develop
residential property for sale in Anchorage. Each was a member-manager with an equal
share in the company. Harvest took out - and each member personally guaranteed -
a $4.5 million bank loan. In 2007 Harvest and its members defaulted on the loan, and
the bank sued for repayment. Duffus settled but cross-claimed against Baker, alleging
that Baker had defrauded the company and bank and had violated the UTPA. After a
jury initially found for Duffus on his claims, we reversed and remanded for a new trial ,
holding that the superior court had erroneously dismissed Baker's counterclaims against
1
Duffus.
B. Proceedings
At the second trial, Duffus again alleged that Baker had defrauded Harvest
and the bank. According to him Baker offered to "provide accounting and bookkeeping
services for Harvest" through Discovery Construction, Inc. (DCI), a separate
corporation that he owned. These services were to be "an in-kind contribution" made
1 For more details, see Baker v. Duffus, 441 P.3d 432, 435 (Alaska 2019).
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"without direct personal compensation" from Harvest. Duffus agreed to this
arrangement. But, Duffus alleged, Baker proceeded to withdraw money for work that
was not done, failed to make capital contributions, wrote "about $312,000 in
unauthorized checks to himself, DCI, and his wife's company," and "ma[de] personal
use of Harvest Properties' cash without informing the other members or asking for
authorization." As a result Harvest had almost no funds by early 2007. Duffus alleged
that "[his] loss was directly caused by . . . Baker's embezzlement . . . and failure to
make requisite contributions."
Baker moved for partial summary judgment. He argued that the UTPA
was "inapplicable to the facts of this case" because Harvest's activities - and, by
extension, his own fraud - were "real estate transactions" excluded from UTPA
coverage. He also argued that the UTPA only protected "consumers," a category that
did not include Duffus. And he argued that because he was not a "business" and his
fraud was entirely within Harvest's internal operations, the claims did not arise from
"the conduct of trade or commerce" as required by the UTPA. Duffus opposed.
The superior court granted the motion in part and denied it in part. It
rejected Baker's UTPA arguments, finding that the fraud was not part of a real estate
transaction, that the UTPA applies to conduct within businesses and involving
2
individuals, and that Baker was liable to Harvest despite being a member-manager.
The case proceeded to trial, and another jury found in Duffus's favor. The jury found
that Baker had "engage[d] in an unfair or deceptive act or practice" that was "a
substantial factor in causing harm to Kenneth Duffus." For those acts it specifically
awarded damages of $200,000, which the court trebled per the UTPA's damages
2 The court granted summary judgment on a claim that Duffus agreed to
have dismissed.
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3
provision. In total Duffus was awarded $1.8 million in damages and fees. This appeal
followed.
STANDARD OF REVIEW
We "review denials of summary judgment motions de novo to determine
. . . whether the moving party is entitled to judgment as a matter of law, viewing all
4
facts in the light most favorable to the non-movant." "Statutory interpretation is also
5
a question of law, which we review de novo." We interpret statutes "according to
reason, practicality, and common sense, considering the meaning of the statute's
6
language, its legislative history, and its purpose." We adopt "the rule of law most
7
persuasive in light of precedent, reason, and policy." A denial of summary judgment
8
is "generally unreviewable" after trial if the denial was on factual grounds, but it is
9
reviewable if "entered on a legal ground that affected the subsequent trial."
3 See AS 45.50.531(a).
4 State, Dep't of Health & Soc. Servs., Div. of Fam. & Youth Servs. v.
Sandsness, 72 P.3d 299, 301 (Alaska 2003).
5 Madonna v. Tamarack Air, Ltd. , 298 P.3d 875, 878 (Alaska 2013).
6 Nelson v. Mun. of Anchorage , 267 P.3d 636, 639 (Alaska 2011).
7 L.D.G., Inc. v. Brown , 211 P.3d 1110, 1118 (Alaska 2009).
8 Greene v. Tinker, 332 P.3d 21, 32 (Alaska 2014).
9 Id. (quoting ConocoPhillips Alaska, Inc. v. Williams Alaska Petroleum,
Inc., 322 P.3d 114, 133 n.66 (Alaska 2014)). In this case Duffus concedes that the court
"never expressly identified a dispute of material fact" regarding the UTPA claim.
Instead the superior court's denial of summary judgment was on entirely legal grounds.
Duffus argues that we should nevertheless exercise our discretion to "affirm the
decision of the superior court on any basis supported by the record." Soules v.
Ramstack, 95 P.3d 933, 937 (Alaska 2004). He points to the existence of what he
believes is a disputed material fact that could have justified denial on factual grounds.
But we have explicitly stated that our review of summary judgment denial "focuses on
the [first] court 's basis for ruling" and not on a party or appellate court's subsequent
"belief that the case could be resolved" in another manner. Larson v. Benediktsson , 152
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DISCUSSION
Baker appeals only the denial of his motion for summary judgment . He
argues that his embezzlement is "inextricably tied to the company's real estate
transactions" and therefore outside the UTPA's scope. He also argues that he
committed fraud "in his role as a managing member," not as a third party, and that such
conduct is also outside the UTPA's scope. We reject both arguments.
A. Baker's Fraud Was Not Part Of A Real Estate Transaction.
Neither the list of acts or practices expressly prohibited by the UTPA ,
"[n]or [] any other provisions of the Act, suggest that the legislature intended the sale
of real property to come within the Act's purview."10 Baker argues that because Harvest
was formed to conduct real estate transactions and the funds he misappropriated were
inextricable from that larger goal, Duffus's entire claim is outside the scope of the
UTPA. Duffus responds that real estate transactions in this context require "a transfer
of interest in real property," and that because Baker's fraud was not part of such a
transfer, it falls under the statute. The superior court found that "Baker's alleged
misconduct was not a transaction involving real property for purposes of the UTPA. In
fact, rather than involving . . . real estate transactions, the alleged embezzlement
prevented those transactions by contributing to the financial ruin of Harvest Properties ."
In a line of cases stretching back over 40 years, we have made clear that
real estate transactions are not covered by the UTPA .11 One of those cases, Roberson
v. Southwood Manor Associations, LLC , presented the question of whether a residential
P.3d 1159, 1170 (Alaska 2007). We therefore review the denial of summary judgment
in this case.
10 State v. First Nat'l Bank of Anchorage, 660 P.2d 406, 413 (Alaska 1982).
11 See id.; Barber v. Nat'l Bank of Alaska, 815 P.2d 857, 861 (Alaska 1991);
Roberson v. Southwood Manor Assocs., LLC, 249 P.3d 1059, 1062-63 (Alaska 2011);
Alaska Tr., LLC v. Bachmeier , 332 P.3d 1, 9 (Alaska 2014).
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lease - and a potentially deceptive provision in it - fell within the UTPA's scope.12
We reaffirmed that "the relevant distinction" was between "real property transactions
and non-real property transactions."13 And we defined real property transactions as
containing "a transfer of the property's interest."14 Because leases include a transfer of
interest, we held that the UTPA did not apply to them.15 In a footnote we added that
this "transfer in interest is required" and stated that such a requirement should
"ameliorate . . . concern that a broad reading of 'transactions involving real property'
would preclude a UTPA claim for such deceptive practices as a 'home construction
scam,' because such practices do not involve an interest transfer."16
In this case Baker's embezzlement and fraud affected only Harvest's
ability to realize larger, future goals involving the unrealized transfer of undeveloped
property. His conduct did not, as the superior court noted, interfere with the actual
transfer of an interest. Rather than affecting actual closed sales of real property,17
signed leases,18 or completed foreclosures,19 it resembled a "home construction
12 249 P.3d at 1060-62.
13 Id. at 1061.
14 Id. at 1062.
15 Id.
16 Id. at 1062 n.30.
17 Cf. State v. First Nat'l Bank of Anchorage, 660 P.2d 406, 409 (Alaska
1982).
18 Cf. Roberson v. Southwood Manor Assocs., LLC, 249 P.3d 1059, 1060-62
(Alaska 2011).
19 Cf. Alaska Tr., LLC v. Bachmeier , 332 P.3d 1, 9 (Alaska 2014).
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scam."20 The UTPA therefore applies to Baker's conduct in this case.21
Baker's reference to the statutory definition of "real estate transaction" in
AS 08.88.990(13)(A) does not save his argument. That provision is found in a chapter
of the Alaska Statutes that governs "real estate brokers and other licensees."22 It defines
"real estate transaction" to include "an act conducted as a result of or in pursuit of a
contract to transfer an interest in a unit of real property, or an act conducted in an attempt
to obtain a contract to market real property."23
But a definition from an unrelated statute does not dictate the application
of our own cases. We presume that terms share definitions "[w]hen the legislature uses
the same term in two closely related statutes."24 But the comparison here is not between
two statutes; it is between a statutory term and a term from our cases.25 Indeed our
interpretation of the UTPA focuses not on the legislature's use of the term "real estate
transactions" but on its omission of the term entirely.26
20 Cf. Roberson, 249 P.3d at 1062 n.30.
21 Duffus presses the policy implications of Baker's position, saying that it
would swallow up "any good or service sold to a company that is in the business of
selling property." Because this case can be resolved in light of the statute's text and
application of our precedent, we do not reach these arguments. Cf. Ward v. State, 288
P.3d 94, 106 (Alaska 2012) (noting that if statute is clear, policy arguments are for
legislature).
22 AS 08.88.010-990.
23 AS 08.88.990(13)(A).
24 BP Pipelines (Alaska) Inc. v. State, Dep't of Revenue, 325 P.3d 478, 483
(Alaska 2014) (quoting Tesoro Alaska Petroleum Co. v. Kenai Pipe Line Co., 746 P.2d
896, 906 (Alaska 1987)).
25 Cf. Aloha Lumber Corp. v. Univ. of Alaska , 994 P.2d 991, 1002 (Alaska
1999) (referring to separate statutory definition for "consumer goods" but only as its
"generally understood" definition and not as binding for UTPA purposes).
26 See State v. First Nat'l Bank of Anchorage, 660 P.2d 406, 412-13 (Alaska
1982) (applying ejusdem generis and emphasizing that, at time of decision, "none of
the enumerated prohibited acts mentions real property.").
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B. Baker's Conduct Was Not Part Of Harvest's Internal Operations.
Baker next argues that his "conduct was not in the course of trade or
commerce as required by the UTPA" because it occurred during the course of his
internal company responsibilities, rather than through his provision of a good or service.
He acknowledges that the UTPA can apply to actions taken by a member of a company
toward the company and concedes that he "abused his membership in the company and
role as bookkeeper," thus breaching the operating agreement and his fiduciary duties.
But he emphasizes that an action must be "an unfair, arms-length transaction" to be
covered by the UTPA and that his fraud was not such a transaction. Duffus responds
that Baker's contribution of services through DCI was an arms-length transaction.
We first distinguished between fiduciary and arms-length relationships for
the purposes of applying the UTPA in Alaska Interstate Construction, LLC v. Pacific
Diversified Investments, Inc .27 In that case a member-manager of a limited company
was convicted of self-dealing for fraudulently leasing two aircraft from a separate
corporation he owned to the limited liability company that he operated (and partially
owned).28 We rejected the defendant's argument "that fiduciary and arms-length
relationships are mutually exclusive."29 Instead we concluded that "[e]ven where a
party has a fiduciary relationship with a business entity, the UTPA can apply if the
parties also engage in arms-length commercial transactions."30
In illustrating where to draw the line, we compared and contrasted two
cases from the North Carolina Supreme Court, one ruling that state's version of the
UTPA applied and one ruling that it did not. In the first an employee engaged in
misconduct within the UTPA's scope by abusing his position to arrange for the purchase
27 279 P.3d 1156 (Alaska 2012).
28 Id. at 1159-62.
29 Id. at 1169-70.
30 Id. at 1171.
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of parts and services by his employer from his own companies.31 We quoted the North
Carolina court's characterization of the scheme as involving "buyer-seller relations in
a business setting."32 By contrast, in the second case, an employee's misconduct fell
outside of the UTPA's scope when he funneled business intended for his employer to
his own business.33 We described that case as turning on that employee's breach of his
fiduciary obligations to the company and placing "internal operations" beyond the
UTPA's reach.34
Applying this reasoning to Alaska Interstate , we concluded that the
aircraft leases were between two parties "act[ing] as separate entities in arms-length
transactions."35 We noted that the relationship between the parties "fit[] more closely"
with the facts of the first case, where business entities were set up by an employee to
provide his employer with services.36 The UTPA therefore applied.37
This case presents an even closer call. It is true, as Baker emphasizes, that
"there [wa]s no independent contract or agreement for third-party services" between
Harvest and DCI. But on a motion for summary judgment, "[w]e review the facts in
the light most favorable to the non-moving party and draw all factual inferences in the
non-moving party's favor."38 In this case Duffus alleged that it was Baker who
31 Id. at 1170-71; see generally Sara Lee Corp. v. Carter, 519 S.E.2d 308
(N.C. 1999).
32 Alaska Interstate , 279 P.3d at 1171; Sara Lee, 519 S.E.2d at 312.
33 Alaska Interstate , 279 P.3d at 1171; see generally White v. Thompson, 691
S.E.2d 676 (N.C. 2010).
34 Alaska Interstate , 279 P.3d at 1171; White, 691 S.E.2d at 680.
35 Alaska Interstate, 279 P.3d at 1171.
36 Id.
37 See id. at 1169-72.
38 Achman v. State , 323 P.3d 1123, 1126 (Alaska 2014) (quoting Kalenka v.
Jadon, Inc. , 305 P.3d 346, 349 (Alaska 2013)).
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proposed the bookkeeping arrangement. He also swore in his affidavit that Baker wrote
unauthorized checks from Harvest to, among others, DCI. The record therefore
supports the inference that Baker leveraged the existence of his own separate
corporation to control and misappropriate Harvest funds - actions that "fit[] more
closely" with an arms-length transaction than a purely internal breach of fiduciary
obligations.39 We conclude that the UTPA applies here as well.40
CONCLUSION
We AFFIRM the superior court's denial of summary judgment.
39 Cf. Alaska Interstate , 279 P.3d at 1171.
40 We do not address Duffus's argument that Baker is estopped from raising
his arguments, as it was not raised at trial.
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