Roil Energy, LLC v. Joseph (Jay) Edington, et ux ( 2016 )

FILED
AUGUST 2, 2016
In the Office of the Clerk of Court
WA State Court of Appeals, Division Ill
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION THREE
ROIL ENERGY, LLC., a Nevada Limited )
Liability Company, by and through the ) No. 32577-6-111
derivative claim of ALLAN HOLMS, a )
married man and a Washington Resident, )
)
Appellants, )
) UNPUBLISHED OPINION
v. )
)
JOSEPH ("JAY") EDINGTON and JANE )
DOE EDINGTON, husband and wife and )
residents of Spokane County, Washington; )
TOLL RESERVE CONSORTIUM INC., )
a Nevada Corporation recently renamed as )
HOLMS ENERGY DEVELOPMENT )
CORPORATION, a Nevada Corporation; )
VAL AND MARI HOLMS, husband and )
wife, and the marital community )
comprised thereof, residents of the State of )
Montana; HOLMS ENERGY, LLC, a )
Nevada Limited Liability Company, and )
BAKKEN RESOURCES, INC., a Nevada )
Corporation. )
)
Respondents. )
FEARING, C.J. -This appeal pits two half-brothers, Allan Holms and Val Holms,
No. 32577-6-111
Roil Energy v. Edington
against one another. The dispute arises from discussions between the two brothers
concerning development of mineral rights owned by Val. The trial court held that the
two never formed an enforceable agreement, but found that Val committed fraud, breach
of fiduciary duty, conspiracy, and oppression of Allan. The trial court denied Allan an
award of damages because of lack of proof of damages. We affirm the dismissal of the
contract claim, but reverse the tort judgments because an element of each tort cause of
action is proof of damages.
FACTS
The business dispute on appeal lies between Allan Holms and Val Holms, half-
brothers who share the same father. Allan resides in Spokane, and Val lives in Montana.
When Allan and Val's father died, each inherited mineral interests located in McKenzie
County, North Dakota. The interests of each brother lie on separate parcels, and Allan's
mineral interests are not involved in this appeal.
Val Holms' mineral interests are the subject of this appeal. Val's interests lie
within the North Dakota Bakken Oil Fields, scene of recent oil production. Val shared
his mineral interests with his sister Evenette Greenfield and a cousin, with each holding a
one-third interest. The interest came through Val's mother, who was not the mother of
Allan. Presumably the interests are undivided, but the record does not show such. In
2009, Val Holms transferred his mineral interests to Toll Reserve Consortium, Inc., a
Nevada corporation.solely owned by Val.
2
No. 32577-6-111
Roil Energy v. Edington
Sometime in late 2009, Allan Holms met Jay Edington at a social event. Edington
is a Spokane financial consultant involved in mergers and acquisitions of public
companies. Edington suggested to Allan that the two work together on an investment
scheme involving public "shell" companies. Contemporaneous to Edington's proposal to
Allan Holms, Val Holms asked brother Allan for an $80,000 loan to open an auto body
shop. During a 2009 Christmas visit in Spokane, Allan declined the loan request and
suggested to Val that the two develop Val's North Dakota mineral interests instead.
Allan Holms introduced Val to Jay Edington during the Christmas holiday.
II
During the initial meeting and in other meetings in January and February 2010, Edington
proposed the utilization of a reverse merger to raise capital for development of Val's
mineral interests. This court remains uneducated as to what capital the three needed to
raise to exploit the mineral interests held by Val Holms, why Val would not reap more
income by leasing his mineral rights to an oil company, and how Val's one-third interest
could be developed without participation of the owners of the remaining two-thirds
interest.
The reverse merger sought by Jay Edington entailed placing Val Holms' North
Dakota mineral interests in a private entity owned by Edington and the Holms, the three
acquiring a controlling interest in the shares and management of a public shell company,
and then transferring the mineral interests of the private entity to the public company in
exchange for the public company's shares. Edington explained that the three could more
3
No. 32577-6-III
Roil Energy v. Edington
easily raise capital by selling the shares of an established, but nonoperating, publicly-
traded company. When the private company acquired a majority interest in the public
company's stock during the asset transfer, the private company would become the
controlling entity and merge into the public company.
According to Jay Edington, the reverse merger, as compared to forming a new
public company, lessened the expense and decreased the time needed to raise capital.
Creating a new public corporation requires filing with the Securities and Exchange
Commission and completing extensive paperwork before the selling of shares
commences. Edington assured Allan and Val Holms that a reverse merger would also
permit transfer of the mineral rights for shares of a company free of taxation.
Allan and Val Holms respectively claim that each did not understand the reverse
merger process recommended by Jay Edington. Allan and Val's imperfect understanding
extended to knowing the three would form a limited liability company with Allan
contributing initial funding, Val providing his mineral interests, and Edington providing
the labor and expertise to procure a public shell company for the reverse merger and
marketing the shell company's shares. Allan agreed to supply seed capital of from
$200,000 to $250,000 and to raise two million dollars in private equity from investors
who would buy shares in the public corporation.
On February 1, 2010, Jay Edington chose APD Antiquities, Inc. (APD) as the
target public shell corporation for the reverse merger. Edington was the founder of and a
4
I
l
I
I
I
No. 32577-6-III
Roil Energy v. Edington
f
l
consultant to APD. He advised Allan Holms to purchase 2.5 million shares of APD
common stock for $0.02 per share. On February 1, Edington also sent a template to
Allan and Val for reverse mergers and asset purchase agreements.
The trio did not execute any written agreement, but Jay Edington outlined each
party's responsibilities in a timeline chart that he presented to Allan and Val Holms on
February 13, 2010. The timeline listed that Allan would submit $200,000 to the limited
liability company by March 1, 2010, and Val would assign his North Dakota mineral
interests to the company and record the transfer by March 8, 2010.
According to Val Holms, Allan, Edington, and he discussed numerous ownership
percentages for the business venture. Val Holms consistently told others that he intended
to hold the controlling interest in both the limited liability company and APD Antiquities
because the value of his mineral interests exceeded the value of Allan's and Jay
Edington's contributions. According to Edington, the division of ownership shares was
never finalized. Allan claims the parties agreed to a 40/40/20 split in ownership.
By early February 2010, Jay Edington commenced surreptitiously e-mailing Val
Holms and expressing unhappiness in Allan's participation in the venture. Val's sister,
Evenette Greenfield, gained copies of these secretive e-mails and later supplied copies to
Allan. In a February 3, 2010 e-mail to Val, Edington expressed irritation at Allan's greed
and his desire to act as "'Big Daddy"' while Val and Edington performed the work. Ex.
82 at 1. Edington expressed worry that Allan intended to keep the equity from the APD
5
No. 32577-6-111
Roil Energy v. Edington
Antiquities shares he would purchase for the three or share the shares with Val without
providing any shares to Edington. Edington rhetorically asked why he would invest his
time, energy, and expertise to reap Allan a fortune. Edington desired a three-way split of
the APD Antiquities shares.
Jay Edington recommended to Val and Allan Holms that the three men form their
J limited liability company, as the private entity for the reverse merger, in Nevada. On
!
I February 19, 2010, the threesome formed Roil Energy, LLC, a Nevada limited liability
! company that designated Edington's daughter, a Nevada resident, as the registered agent.
The formation document listed Allan, Val, and Edington as managing members of Roil
Energy.
Jay Edington's reverse merger plan contemplated that he, Val Holms, and Allan
Holms would not be the only members of Roil Energy, LLC. Instead an additional
member or members would participate to the extent of an undetermined percentage
ownership interest in the limited liability company. Neither Val nor Allan Holms knew
the identity of the additional member or members, and no percentage membership
interest was ever assigned to those unidentified members.
On February 19, 2010, the same day as the formation of Roil Energy, Allan and
Val Holms rendezvoused in Butte, Montana. Val brought copies of the two mineral
deeds and told Allan the originals had been mailed to North Dakota for filing. The deeds
had not been mailed or recorded and were never recorded. The mineral deeds purported
6
No. 32577-6-111
Roil Energy v. Edington
to transfer Val's mineral rights, through his company, Toll Reserve Consortium, Inc., to
Roil Energy for $10 in consideration. Val Holms did not intend to record the deeds until
Allan Holms contributed the $200,000 and performed other commitments. According to
Jay Edington, the reverse merger plan anticipated the transfer of the mineral interests
after the closing of an agreement, raising of needed capital, and a private stock
placement. At the Butte meeting, Val handed copies of each deed to Allan.
Tom Greenfield, son of Evenette Greenfield and nephew of both Allan Holms and
Val Holms, attended the meeting between Allan and Val Holms on February 19, 2010.
Based on the discussion, Tom Greenfield concluded that Val would hold a majority
interest in the venture.
During the brothers' Butte meeting, Allan delivered a check for $10,000 to Val to
open a Roil Energy company bank account. Val later opened the account, deposited the
check, and used the deposited funds to pay company bills, including his monthly salary of
$6,000.
APD Antiquities, the shell target corporation, needed funds from investors to
purchase the mineral interests from the limited liability company formed by Allan and
Val Holms and Jay Edington. As a prelude to seeking investors for APD Antiquities,
APD needed to acquire the right to purchase the mineral interests through an option to
purchase agreement, so that potential investors knew that such a right existed despite the
transfer of the interests occurring later. No option to purchase agreement was ever
7
No. 32577-6-III
Roil Energy v. Edington
drafted.
According to Jay Edington, a valuation of Val Holms' mineral interests was
needed to effectuate the reverse merger. Presumably the potential investors in APD
Antiquities would wish to know the value of the asset being transferred to the
corporation. The parties sought a valuation from Boyd Hennimen, a petroleum geologist
and friend of Allan Holms. Hennimen refused to prepare a valuation of the mineral
interests because, for at least two reasons, a valuation would be difficult. No drilling had
occurred on the subject land, and Val gained his mineral interests through a gift.
Jay Edington continued to express, to Val Holms, displeasure with Allan. In late
February 2010, Edington mentioned frustration over Allan's controlling style, delay in
forwarding names of nominees for the APD Antiquities stock transfers, and tardiness in
transferring funds for the purchases. By late February, Val concluded that his brother
intended to gain control of his mineral interests.
On February 23, 2010, Jay Edington sent Allan and Val Holms a draft letter of
intent from APD Antiquities agreeing to an asset purchase agreement with Roil Energy
and a draft executive summary for Bakken Resources, Inc., a new public corporation that
would replace APD Antiquities. Edington requested that Allan and Val provide
information for the executive summary regarding the property location, nearby oil wells,
and other germane data. The Holms brothers never completed the draft summary. The
parties never finalized or signed a letter of intent.
8
No. 32577-6-III
Roil Energy v. Edington
Allan Holms never contributed to Roil Energy any additional sums beyond the
$10,000 of seed capital and did not raise any of the $2 million he agreed to raise from
new investors. He did not approach any potential investors, other than conducting a
phone conversation with an unidentified person at Morgan Stanley. Allan did, however,
buy 1.3 million shares of APD Antiquities from existing shareholders at 2 to 4.5 cents per
share. The purchased shares represented fifty-five percent of APD's common stock. Jay
Edington and Val Holms expected Allan to share the shares.
Jay Edington arranged for the sale of APD Antiquities' shares from current
shareholders. Allan Holms purchased the shares of APD Antiquities through nominees.
The purpose of using nominee purchasers was to prevent any one record shareholder
from holding more than 9.9 percent of the corporation's common stock. Allan Holms
and Jay Edington knew that APD Antiquities stock value might, upon the reverse merger,
significantly increase in value. We do not know if Allan and Edington shared this
information with sellers of APD stock.
In a February 24, 2010, phone conversation, Jay Edington warned Val Holms of
Allan's potential control of the venture. Edington advised Val that, if the trio completed
the proposed transaction, Val would not control Roil Energy or APD Antiquities, since
Allan would control 3.8 million shares of APD out of a total of 5.2 million shares
outstanding. On another occasion, Edington cautioned Val that Allan insisted that Val
not be involved in the APD Antiquities stock acquisition.
9
No. 32577-6-111
Roil Energy v. Edington
E-mail from Jay Edington to Val Holms, on February 24, 2010, documents the
intent of the pair to withdraw from any venture involving Allan. In the first e-mail of the
day, Edington expressed anger at "beingjerked around by Allan." Ex. 150 at 1.
Edington informed Val that Allan refused to buy corporate stock according to the deal
Edington had structured and Allan refused to share the purchased stock with Val.
Edington declared: "Thank God you did not send those documents [mineral deeds] in for
recording." Ex. 150 at 1. Edington added: "Fortunately, there is absolutely nothing in
writing at this time, so nothing legally binding that he can hang his hat on, if you decide
to pull the rug out." Ex. 150 at 1. Edington recommended finding a way to "unwind this
immediately and hope the fallout is not too much." Ex. 150 at 1. He suggested
purchasing the remaining shares and conceiving a "logical reason" for aborting the trio's
plan to develop the mineral interests. Ex. 150 at 2. Edington recommended enlisting the
help of geologist Boyd Henneman, who had been consulted on the Bakken oil fields.
Edington stated: "I might even go so far [as] to utilize another public company that I
know about." He warned Val, however, that "[i]f Allan wires any funds or sends in
checks to APD, then we are technically locked in." Ex. 150 at 2.
In a later February 24, 2010, e-mail, Jay Edington explained to Val Holms that
they each must raise $25,000 to render "Plan B" feasible. Ex. 154. On February 25,
Edington drafted an e-mail for Val to send Allan disclosing that Val knew about the APD
Antiquities stock Allan purchased and planned to buy and asking: "Am I safe to assume
10
No. 32577-6-III
Roil Energy v. Edington
that I participate in these shares and they are being purchased for the three of us?" Ex.
160. During the evening of February 25, 2010, Val Holms e-mailed Allan Holms:
Allan,
Funny thing-I was just going through the time line that Jay has
developed and in my rush to get my part finished with Boyd, I apparently
overlooked a very important piece of the puzzle. I see that 2.5 million
shares are being purchased from the company at $.02 and some additional
shares from existing shareholders.
I am very disappointed that this has not been brought to my
attention. Is it safe to assume that I am participating in this transaction
concerning these shares? Are they being purchased for all three of the
partners or is this another one of your self-enrichment deals that does not
figure me into the equation?
Val
Ex. 161.
Brother Allan Holms responded early morning February 26:
Thanks for the vote of confidence. It helps to discuss questions
rather than make assumptions and then try to pick a fight.
The deal has not changed and is as discussed with you numerous
times, we share everything 50/50. I am currently putting up all of the
money to buy the shares from existing people at from .02 to .045 cents a
share. According to Jay these become free trading shares and are liquid.
Supposedly I receive my cost back in the future and we share those stocks
1/3; 1/3; and 1/3. They will not even be issued in my name. The 2.5
million shares are purchased and the money goes into the company. The
other shares are purchased from existing shareholders of the public
company.
I have to wire the money today. If there is going to be a concern on
your part, let me know before noon when I am supposed to send the wires.
Incidentally, as you know I have sailed my own ship all my life and I have
given you the option of getting on that ship if you want.
Ex. 163.
11
No. 32577-6-III
Roil Energy v. Edington
Val Holms responded to Allan the same day:
Sounds good to me. I was taken back by the time line and was
wondering what the hell was going on being that you seem to be on top of
everything and was wondering why this was not brought to my attention.
It's not that I am trying to start a war but I have been around you long
enough to know that nothing gets by you and it took me by surprise that it
had not been brought up.
Go ahead and wire the money and I will see you either late Saturday
or Sunday. I wouldn't worry about getting your money back because it is a
dead ringer to produce. If you are concerned I have a couple of investors
that would be more than happy to get in on the deal in any way that they
can. All I know is time is slipping by and it seems that you have been so
wrapped up in your other deals that you do not have the time to concentrate
on the project at hand, and I don't want to lose it because we are dragging
our feet too long.
Ex. 165.
During February 2010, Jay Edington sustained communications with Allan Holms
as though Edington continued with plans for the reverse merger venture to capitalize and
exploit Val's mineral interests. On February 26, Edington urged Allan to wire funds for
stock purchase agreements.
Two days later, Edington sent Allan and Val Holms a draft of an operating
agreement for Roil Energy that he advised was "critical" to define the ownership of its
managing members. He explained that the operating agreement could be dated any time
after formation of the limited liability company, but, "legally speaking," Roil Energy
lacked a valid agreement that established ownership interests in the company. Ex. 171.
The draft agreement contained blanks wherein the respective ownership interests of the
12
No. 32577-6-111
Roil Energy v. Edington
members of Roil Energy would be inserted. No one ever inserted figures into the blanks.
The parties never signed an operating agreement.
In late February 2010, geologist Boyd Henneman met Allan Holms, Val Holms,
and Jay Edington and presented a disappointing outlook for development of mineral
interests in McKenzie County, North Dakota. On March 4, Edington and Val prepared
an e-mail for Val to send to Allan. Val may have spoken with Allan on the telephone
before sending the message. In the sent e-mail, Val stated: "I am sorry that you have
changed your mind to proceed with Bakken Resources, and I can fully understand your
position in not wanting to go forward with it[,] especially after our meeting with Boyd
[Henneman]." Ex. 183. Val continued: "for the time being I am going to retain my
mineral rights and hope that Boyd was wrong. But I doubt it." Ex. 183.
On March 5, 2010, Allan Holms wrote Val to say that Val must have
misunderstood, and that Allan still desired to proceed with the plan to develop the
mineral interests. Allan suggested that they slow the process and conduct more research.
Allan did not agree with Boyd Henneman' s opinion and cautioned that the brothers
needed to consider Jay Edington' s business interests as well.
On March 5, Allan Holms also e-mailed Jay Edington about Val's plans to
withdraw from the trio's venture. Edington slyly responded: "This is all news to me, but
explains why I have not had any calls from Val. I think Boyd took the wind out of Val's
sails and also sensitized him about public companies." Ex. 189. Ten minutes later,
13
No. 32577-6-III
Roil Energy v. Edington
Edington sent Val a draft e-mail to send to Allan stating that, after "soul searching," Val
had decided to "step back from Bakken." Ex. 190. Edington also told Val to claim he
had not talked to Edington since the last meeting. Val sent Edington' s recommended e-
mail to Allan and then did not respond to e-mail and telephone calls from Allan.
On March 6, 2010, Jay Edington outlined Plan B in an e-mail to Val Holms and
stated that the pair should dissolve Roil Energy immediately. Edington expressed delight
that Val chose "to eliminate Allan from the Bakken Resources, Inc. project." Ex. 194 at
2. Edington's steps proposed for Plan B included ceasing use of APD Antiquities as the
public shell company and consummating a reverse merger with a new public company
called Multisys Language Systems, Inc., already formed to market language education
software. Edington' s daughter created Multisys, and she no longer valued her marketing
partner. Plan B further involved immediate dissolution of Roil Energy, because of
Allan's partial ownership of the limited liability company. Edington wrote: "The reality
I
I is that Roil never executed an operating agreement, so it does not legally exist." Ex. 194
I
at 3. Plan B finally entailed purchasing all or part of Evenette Greenfield's share in the
II mineral interests. Edington assured Val that, under Plan B, Val would gain "absolute
control" of the mineral interests company and protection from Allan's bullying. Ex. 194
I
!
at 3.
I On March 7, 2010, the day after explaining Plan B to Val Holms, Jay Edington
I
I sent Allan Holms an e-mail stating that, with Val now unresponsive, Edington and Allan
1
l 14
1
No. 32577-6-111
Roil Energy v. Edington
should treat the $10,000 seed capital Allan provided to Roil Energy as a loan. Edington
gave a personal guarantee to Allan that Allan would be reimbursed for all money he
contributed toward the Roil Energy and APD Antiquities venture. Edington assured
Allan that Edington preferred that the Roil Energy venture proceed as planned. Edington
then e-mailed Val, with a copy to Allan, expressing concern that Val had not returned
Edington's telephone calls. Edington declared that he had invested time in the project
and wanted to know Val's thoughts. Edington then sent a private e-mail to Val that
explained that Edington's previous e-mail to the brothers opened the door for Val to
respond with a list of reasons why he rejected the proposed mineral interests venture.
According to Edington, Val and Edington could isolate Allan, unwind Roil Energy, and
"go underground" to develop a new reverse merger without Allan. Ex. 202.
Allan Holms unsuccessfully continued attempts to contact Val and to assure him
Allan did not want his mineral interests. In one e-mail, Allan agreed that, if the proposed
venture failed to proceed, the mineral interests would revert to Val. Val and Jay
Edington prepared reasons for Val's withdrawal from the venture. In a resulting March
9, 2010, e-mail, Val explained that he wanted to hold his mineral interests to "insure the
financial future ofme and my family." Ex. 210. He did not wish to lose control over the
mineral rights.
On March 16, 2010, Val Holms filed, in Nevada, articles of dissolution for Roil
Energy, LLC, by signing only his name as a managing member. On March 18, Val sent a
15
No. 32577-6-111
Roil Energy v. Edington
letter, with an enclosed check for $10,000, to Allan. The letter read, in part: "in
repayment of the loan made to Roil" and "[t]his clears up any obligations that I may have
had to you regarding Roil Energy." Ex. 236 at 2. Allan negotiated the check. Val closed
the Roil Energy bank account. Jay Edington repaid Allan the sum Allan spent on
purchasing APD Antiquities stock.
Plan B proceeded. Val Holms and Jay Edington formed Holms Energy, LLC,
transferred Val's North Dakota mineral interests to Holms Energy, and, in November
2010, completed a reverse merger with Multisys Language Systems, Inc., the public shell
company. The pair renamed Multisys as Bakken Resources, Inc. Bakken Resources
transferred to Holms Energy, LLC, 40,000,000 shares of Bakken Resources, Inc. stock,
$100,000 cash, and a ten-year overriding royalty of approximately 29 .41 percent of the
gross amount of royalty payments received by Bakken Resources. By April 2013,
Bakken received royalties from multiple wells producing oil and gas. Bakken Resources
is now a publicly traded Nevada corporation.
Allan Holms professed shock, in spring 2011, that Jay Edington and brother Val
used Val's North Dakota mineral interests to form and operate Bakken Resources.
Beginning in February 2012, Allan and Edington unsuccessfully attempted a scheme
whereby Allan would join the board of directors of Bakken Resources, the two would
demand the resignation of Val as chief executive officer of the company, and Edington
and Allan would assume control of Bakken Resources.
16
No. 32577-6-III
Roil Energy v. Edington
l
lI PROCEDURE
On March 14, 2012, Allan Holms sued, on his own and Roil Energy's behalf, Jay
I
J
Edington, Holms Energy Development Corporation, Bakken Resources, Inc., Holms
Energy, LLC, Toll Reserve Consortium, Inc., Val Holms and Mari Holms. Allan alleged
breach of contract and fiduciary duties, wrongful dissolution of Roil Energy, LLC, civil
conspiracy, tortious interference with a prospective business opportunity, fraud, and
declaratory judgments. In amended complaints, Allan added claims of constructive trust
and breach of the contract to form a joint enterprise. In July 2013, Allan and Edington
filed a certificate of revival for Roil Energy that related back to the date of the LLC's
formation.
The trial court dismissed on summary judgment the claim of tortious interference
before trial. Allan Holms settled with Jay Edington before trial.
The court conducted a bench trial from November 4 through November 18, 2013.
During trial, Jay Edington testified that, in a reverse merger scheme using an asset
purchase as the strategy, the scheme follows a two-step process. First, an option to
purchase the asset is prepared and executed, and then an asset purchase agreement is
prepared and executed. An option to purchase is necessary to show investors in the
public shell company that the company has a binding option to acquire the critical asset.
According to Jay Edington, Allan, Val Holms, and he never finalized or signed an option
agreement or asset purchase agreement. William F. Ross, an expert who testified on
17
No. 32577-6-111
Roil Energy v. Edington
behalf of Allan Holms, stated that, in the two most common types of reverse mergers, the
parties need either a signed asset purchase and sale agreement or a signed merger
agreement.
On December 2, 2013, the trial court issued findings of fact and conclusions of
law. The court found that Val Holms did not record the mineral deeds conveying Toll
Reserve Consortium's mineral interests to Roil Energy because he never received the
total $200,000 Allan agreed to pay as seed money for Roil Energy. Val did not intend to
record the deeds and transfer title to Roil Energy until Allan paid the $200,000 and
performed his other commitments to raise capital. According to the trial court, Allan
Holms never approached any potential investors as promised. The parties never agreed to
their respective percentages in Roil Energy, LLC. Jay Edington contemplated additional
members in the limited liability company beyond the three.
The trial court also found that the Holms brothers and Jay Edington never signed
an operating agreement in Roil Energy, never signed an agreement establishing their
respective ownership interests in Roil Energy, never signed a document that allocated the
shares anticipated to be received from APD Antiquities, and never signed a document
establishing an agreement to enter and fulfill the terms of a reverse merger. The transfer
of Val Holms' mineral interests to Roil Energy was not scheduled to occur until the
satisfaction of many steps and would occur on closing of the deal. The valuation of the
mineral interests was necessary to the reverse merger. The raising of capital and a private
18
No. 32577-6-111
Roil Energy v. Edington
placement of corporate stock would precede the transfer of the mineral interests.
The trial court noted that at various times, Allan Holms, Val Holms, and/or Jay
Edington discussed the two brothers sharing APD Antiquities stock equally or splitting
the stock with Jay Edington with the brothers each receiving forty percent of the stock
and Edington receiving twenty percent. By mid-February, Jay Edington communicated
other arrangements with each brother separately.
Based on the findings of fact, the trial court concluded that Allan Holms, Val
Holms, and Jay Edington never entered into an enforceable contract. Necessary terms for
the entry of an agreement included the valuation of Val Holms' mineral rights, the
timing, amount and form of seed capital, the timing and amount of subsequent equity
investment, the percentage of ownership among Allan Holms, Val Holms, and Jay
Edington, the number of members in the limited liability company, and entry of an
operating agreement for Roil Energy, LLC. The parties contemplated entering many
agreements before binding themselves to a joint venture. The agreements included an
option to purchase Val Holms' mineral interests, an operating agreement from Roil
Energy, and an asset purchase agreement for APD to acquire Val Holms' mineral
interests. Because of the hidden communications and mistrust among the three, the
parties never formed a common purpose, community of interest, or equal right of control.
The trial court concluded that any agreement by Val Holms to transfer his mineral
interests to Roil Energy was unenforceable under the Washington statute of frauds since
19
No. 32577-6-III
Roil Energy v. Edington
any agreement was only oral. The trial court denied Allan any relief under a constructive
trust. Because the parties never formed an enforceable contract, the trial court concluded
that Val had the right to withdraw from the negotiations and to develop his mineral rights
in a different transaction.
Despite the lack of an enforceable agreement, the trial court found that Val Holms
uttered material false representations of fact to Allan, on which misrepresentations Allan
relied when withdrawing from the project. According to the court, as a result of the
misrepresentations, Allan lost the opportunity to participate in the reverse merger project
as initially configured. The trial court concluded that Val committed fraud, but, due to
significant differences between the proposed Roil Energy and APD Antiquities reverse
merger and the completed Holms Energy and Multisys Language Systems merger, Allan
lacked ascertainable damages. The court ordered only declaratory relief that Val's and
Jay Edington's attempt to dissolve Roil Energy was unlawful and ineffective under
Nevada law.
The trial court also concluded that Val Holms and Jay Edington committed civil
conspiracy, breach of fiduciary duties, and oppression of Allan, as a minority
shareholder, when Val and Edington fraudulently caused Allan to abandon his
participation with Roil Energy. Again, the court limited the remedy to declaratory relief.
The trial court concluded that Allan Holms could not recover "benefit of the
bargain" damages. Clerk's Papers (CP) at 4438. Nevertheless, the court stated that Val
20
No. 32577-6-III
Roil Energy v. Edington
might never have developed his mineral interests if Allan had not introduced Jay
Edington to Val. Consequently, the court invited the parties to brief what, if any,
facilitation value Allan lost by the fraudulent actions of Jay Edington and Val to exclude
him from the business venture. The court warned the parties, without objection, that it
would not consider new evidence.
After the hearing on damages, the trial court entered additional findings of fact and
conclusions of law. The trial court found that contributions and shares of earnings are not
sufficiently comparable between Allan Holms and Jay Edington to form a fair basis for
damages based on a facilitation value. The trial court granted Allan and Roil Energy
reasonable expenses, including attorney fees, under the Nevada Revised Statute (NRS)
86.489 for successful derivative claims of fraud, civil conspiracy, breach of fiduciary
duties, and minority shareholder oppression.
In a final order, the trial court entered supplemental findings and conclusions
regarding attorney fees awarded to Allan Holms. The court granted Allan Holms, under
NRS 86.489, attorney fees of $399,570.50 and litigation expenses of $13,362.58.
LAW AND ANALYSIS
Allan Holms and Roil Energy argue on appeal that the trial court misguidedly
dismissed their claim for tortious interference on summary judgment, erroneously ruled
after trial that the parties did not enter a binding agreement for a joint venture, mistakenly
concluded that the North Dakota mineral interest deeds were unenforceable, and
21
No. 32577-6-111
Roil Energy v. Edington
incorrectly denied Allan Holms and Roil Energy damages. Val Holms cross appeals.
Val contends that the trial court erred in ruling that Allan sustained tort claims, when
damages are an element of the torts and Allan proved no damages. Val asks that we
reverse the award of fees and costs since Allan did not sustain any tort cause of action.
Tortious Interference
We first address the one cause of action dismissed on summary judgment. Allan
Holms contends the trial court erred in granting Val's motion for partial summary
judgment and thereby dismissing Roil Energy's claim of tortious interference with a
business expectancy. Allan alleged that Val, Holms Energy, and Bakken Resources
tortiously interfered with Roil Energy's opportunity to own and develop the North
Dakota mineral interests and the interference prevented Roil Energy from benefiting from
the exploitation of the minerals.
We encounter difficulty in reviewing Allan Holms' assigned error because, in his
appeal brief, Allan cites to trial exhibits and excerpts from the final judgment to argue the
existence of questions of fact as to his cause of action for tortious interference.
Nevertheless, the trial court disposed of the cause of action before trial and based on
summary judgment declarations. Allan does not outline for us the facts found in the
I
l
declarations supporting and opposing the summary judgment motion and does not argue
that those facts warranted denial of the summary judgment motion. For this reason alone,
i
J we deny Allan's assignment of error.
l
i
22
l
No. 32577-6-111
Roil Energy v. Edington
We must have before us the precise record reviewed by the trial court when
granting summary judgment. Harris v. Kuhn, 80 Wn.2d 630,632,497 P.2d 164 (1972);
Clarkv. Tacoma Hous. Auth., 11 Wn. App. 518,519,523 P.2d 1200 (1974). Allan
Holms may have sent to us the precise record before the trial court on summary
judgment, but we cannot be sure of such and, more importantly, Allan does not identify
for us the contents of that record.
If we were to mix the facts before the trial court on summary judgment with the
facts presented at trial, as Allan Holms does, we would also affirm the summary
judgment dismissal of the cause of action for tortious interference on the basis that Allan
showed no damages. Washington recognizes the fundamental premise that "a person has
a right to pursue his valid contractual and business expectancies unmolested by the
wrongful and officious intermeddling of a third party." Ca/born v. Knudtzon, 65 Wash. 2d
157, 162, 396 P.2d 148 (1964). To prove tortious interference with a business
expectancy, the plaintiff must show (1) the existence of a valid business expectancy, (2)
the defendant's knowledge of that expectancy, (3) the defendant's intentional
interference, causing termination of the expectancy, (4) the interference was by improper
means or for an improper purpose, and (5) resulting damage. Newton Ins. Agency &
Brokerage, Inc. v. Caledonian Ins. Grp. Inc., 114 Wash. App. 151, 157-58, 52 P.3d 30
(2002), review granted and case dismissed, 148 Wash. 2d 1021 (2003). A claim oftortious
interference with a business expectancy requires a threshold showing of resulting
23
No. 32577-6-111
Roil Energy v. Edington
pecuniary damages. Tamosaitis v. Bechtel Nat'!, Inc., 182 Wn. App. 241,249,327 P.3d
1309, review denied, 181 Wash. 2d 1029, 340 P.3d 229 (2014).
We analyze below whether Allan Holms established compensable damages and
conclude, as did the trial court, that he did not meet this burden. Since damages is a
requisite element of the tort of interference, Allan could not sustain the cause of action
even if the trial court denied the summary judgment motion and allowed the claim to
proceed to trial. Although the trial court did not base its summary judgment ruling on the
lack of damages, we may affirm the trial court on any ground supported by the record. In
re Marriage ofRideout, 150 Wash. 2d 337, 358, 77 P.3d 1174 (2003); Truck Ins. Exch. v.
VanPort Homes, Inc., 147 Wash. 2d 751, 766, 58 P.3d 276 (2002).
Findings of Fact
Val Holms contends that we must treat the trial court's findings of fact as verities
because Allan did not include a separate assignment of error for each challenged finding
of fact and failed to include, in his brief, the text of those findings of fact. Generally,
unchallenged findings are verities on appeal. Cowiche Canyon Conservancy v. Bosley,
118 Wash. 2d 801, 808, 828 P.2d 549 (1992). RAP 10.3(a)(4) requires the appellant to
provide a "separate concise statement of each error a party contends was made by the
trial court, together with the issues pertaining to the assignments of error." Any
challenged finding should be typed verbatim in the appellant briefs text or in an
appendix to the brief. RAP 10.4(c).
24
No. 32577-6-III
Roil Energy v. Edington
Allan Holms' opening brief includes a section entitled "Assignment of Error," but
he did not cite the findings and conclusions challenged in those assignments of error. He
also failed to type the challenged findings verbatim. We may, however, waive
compliance with RAP 10.3(a)(4) and RAP 10.4(c) in order to serve the interests of
justice. RAP 1.2(c); In re Marriage of Zeigler, 69 Wash. App. 602, 606, 849 P.2d 695
(1993). When the nature of the challenge is clear and the challenged findings are stated
in the appellant brief, the court will consider the merits. Green River Cmty. College,
District No. JO v. Higher Educ. Pers. Bd., 107 Wn.2d 427,431, 730 P.2d 653 (1986).
Our appellate record contains the trial court's findings of fact and conclusions of
law. In his brief, Allan Holms identifies the findings challenged, and Val shows no
prejudice with respect to a failure of Allan's noncompliance with the rules of appellate
procedure. Accordingly, we review the merits of Allan's assignments of error.
Enforceable Joint Venture Agreement
Allan Holms contends that the evidence, as a matter of law, established that he and
his brother entered an enforceable agreement for a joint venture. This argument omits the
undisputed fact that Allan and Val did not negotiate bilaterally for an agreement to
develop Val's North Dakota mineral rights. We encounter difficulty addressing Allan's
contention when he fails to note the trilateral nature of the discussions. Since many, if
not all, discussions assumed that Jay Edington would hold an ownership interest in the
reverse merger scheme, Allan may destroy his claim of an enforceable contract by
25
No. 32577-6-III
Roil Energy v. Edington
omitting Edington as one of the persons needed to assent to an agreement.
The essential elements of a joint venture include ( 1) an express or implied
contract, (2) a common purpose, (3) a community of interest, and (4) an equal right to
control. Paulson v. Pierce County, 99 Wash. 2d 645, 654, 664 P.2d 1202 (1983); Ballo v.
James S. Black Co., 39 Wash. App. 21, 27, 692 P.2d 182 (1984). The trial court concluded
that the trial evidence did not fulfill any of the four elements of a joint venture. We are
inclined to agree with the trial court. Nevertheless, we focus only on whether Allan and
Val Holms entered an express or implied contract.
We assume that the general rules of contract formation apply also to the formation
of a contract to enter a joint venture. The prevailing view appears to support a conclusion
that ordinary contract rules apply to joint venture agreements. Mason v. Rose, 176 F .2d
486, 489 n.10 (2d Cir. 1949). To prove the existence of a contract, a party must show
that the parties manifested to each other their mutual assent to the same bargain at the
same time. Pac. Cascade Corp. v. Nimmer, 25 Wash. App. 552, 555-56, 608 P.2d 266
(1980). Usually "mutual assent" takes the form of an offer and an acceptance. Keystone
Land & Dev. Co. v. Xerox Corp., 152 Wash. 2d 171, 178, 94 P.3d 945 (2004). An offer is a
promise to perform as stated in exchange for a return promise being given. Pac. Cascade
Corp. v. Nimmer, 25 Wash. App. at 556. The intention to do something is not a promise to
do it. Pacific Cascade Corp. v. Nimmer, 25 Wash. App. at 556. The terms assented to
must be sufficiently definite. P.E. Sys., LLC v. CPI Corp., 176 Wn.2d 198,207, 289 P.3d
26
No. 32577-6-111
Roil Energy v. Edington
638 (2012).
The trial court entered both findings of fact and conclusions of law to the effect
that Allan and Val Holms, either by themselves or in tandem with Jay Edington, never
reached a binding compact. Whether the parties have mutually assented to definite terms
is normally a question of fact for the fact finder. P.E. Sys., LLC v. CPI Corp., 176 Wash. 2d
at 207. To prevail on appeal, Allan Holms must show a lack of evidence to support the
trial court's conclusion that the parties never reached a binding agreement.
Allan Holms focuses on an e-mail exchange between the brothers on February 26,
2010. In a message to Val, Allan wrote, in part: "The deal has not changed and is as
discussed with you numerous times, we share everything 50/50." Ex. 163. Val
responded: "Sounds good to me." Ex. 165. According to Allan, these two sentences
constitute a binding agreement.
In his argument, Allan Holms omits a later sentence from his February 26 e-mail
to Val: "Supposedly I receive my cost back in the future and we share those stocks 1/3;
1/3; and 1/3." Ex. 163. As already indicated, the parties contemplated a tripartite
agreement that included Jay Edington, not a bilateral agreement between Allan and Val.
Confusion arises if Allan and Val share everything fifty-fifty, but yet stock is shared with
a third party. Also, even if we found that Val and Allan agreed to this overarching
concept, the agreement remains indefinite because the two never defined what constituted
"everything" that they would split in half.
27
No. 32577-6-III
Roil Energy v. Edington
Allan Holms' legal argument particularly fails because of overwhelming evidence
that the parties never reached a definitive agreement and compelling testimony that the
parties did not anticipate a binding agreement until the accomplishment of many tasks.
Allan Holms never approached any potential investors as promised. The parties never
agreed to the percentage ownership interests of each member of Roil Energy, LLC, nor to
the number of company members. The parties never executed an operating agreement for
the limited liability company, although Edington drafted a proposed agreement. Val
Holms always intended to hold the majority interest in any entity that owned his mineral
interests, but Allan did not agree. The three businessmen never finalized or executed an
option agreement or asset purchase agreement for the reverse merger. They did not draft
the necessary documents for approval of a stock offering from the Securities and
Exchange Commission. No one valued the mineral interests. Necessary terms for the
entry of an agreement included the valuation of Val Holms' mineral rights, the timing,
amount and form of seed capital, the timing and amount of subsequent equity investment,
the percentage of ownership among Allan Holms, Val Holms, and Jay Edington, the
number of members in the limited liability company, and entry of an operating agreement
for Roil Energy, LLC.
Allan Holms argues that, in reliance on Val's objective manifestation of assent of
an agreement for a joint venture, Allan gave Val $10,000 as seed money for Roil Energy
and purchased $40,000 in APD Antiquities shares for the joint venture. This argument
28
No. 32577-6-111
Roil Energy v. Edington
assumes that the parties objectively reached an agreement. Conduct performed by Allan
in conformance to discussions toward the end of an agreement never consummated does
not create a binding agreement when none otherwise exists. Allan's argument also fails
to note that he had promised to provide the limited liability company $200,000, not
$10,000, and Val returned the $10,000. Allan also recouped the price for the APD
Antiquities stock. If Allan believed the parties entered into an enforceable agreement, he
should not have accepted repayment.
Allan Holms contends that a joint venture arose by implied contract. According to
Allan, overwhelming and undisputed evidence showed Val's intent to enter into a
contract with Allan. He relies on Nicholson v. Kilbury, 83 Wash. 196, 145 P. 189 (1915)
for the proposition that the parties need not enter into a written partnership agreement
before the court will find a joint venture relationship established. Nevertheless,
Nicholson v. Kilbury involved an eight-year relationship between an aunt and niece,
during which time the two operated many hotels. The aunt told friends and relatives that
the two were partners for purposes of the business. The state Supreme Court held that,
under the circumstances, a partnership was deemed established as a matter of law.
Nicholson v. Kilbury lacks a close relationship to our appeal. Allan and Val
Holms never engaged in a business for a number of years. The Holms brothers
anticipated entering numerous written agreements before consummating the joint venture.
No definitive agreement was ever signed. The parties had conflicting testimony as to the
29
No. 32577-6-III
Roil Energy v. Edington
terms of the relationship. Many essential details remained unresolved.
Allan Holms principally relies on Mason v. Rose, 176 F.2d 486 (2d Cir. 1949),
wherein the federal appeals court applied both English and California law, since the court
discerned no difference between the two jurisdictions' contract principles. Mason aids
Val, not Allan Holms. Celebrated British actor James Mason entered a written agreement
with experienced motion picture executive David Rose. Under the writing, the parties
agreed to form a company to produce movies starring James Mason. Among other terms
of the agreement, Rose committed to manage the company, including arranging financing
for, distribution of, and production of the films. The two men agreed to split the profits
of the venture. The trial court found that the parties lacked an enforceable agreement.
The federal district court reasoned that the venture contemplated by the writing was a
substantial and ambitious project that anticipated many steps not found in the short
agreement. The writing lacked details of the method of raising capital, the payment of
salaries to contract players, the purchase of film stories, the payment of overhead, and the
disposition and reinvestment of any profits. The Second Circuit Court of Appeals
affirmed. The writing was too indefinite with respect to the parties' respective rights and
obligations. The appeals court rejected David Rose's argument that an agreement
creating a joint venture is in a special category and not subject to as strict test of
definiteness as contracts generally. The appellate court noted that the parties had failed
to define the financial arrangements for the production of films, the management needed
I
I
l
30
1
No. 32577-6-III
Roil Energy v. Edington
for the venture, and the services to be provided by James Mason.
This court defers to the trial court's evaluation of the credibility of the witnesses
and the persuasiveness of the evidence. Merriman v. Cokeley, 168 Wash. 2d 627, 631, 230
PJd 162 (2010). We do not substitute our judgment for that of the trial court even ifwe
might resolve the factual dispute differently. Sunnyside Valley lrrig. Dist. v. Dickie, 149
Wash. 2d 873, 879-80, 73 PJd 369 (2003). Substantial evidence supports the trial court's
findings that Allan and Val Holms had not mutually assented to the same bargain at the
same time. These findings support the court's conclusion that the brothers lacked an
enforceable agreement for the joint venture. The trial court did not err.
Mineral Deeds
Allan Holms next assigns error to the trial court's conclusion that the statute of
frauds bars the enforcement of the North Dakota mineral interest deeds. According to
Allan, Val's execution of the signed and notarized mineral deeds, on behalf of Toll
Reserve Consortium, and delivery of those deeds to Allan passed title to Roil Energy.
Val handed notarized copies of the deeds to Allan on February 19, 2010, during the Butte
meeting.
We decline to address whether the statute of frauds forbids enforcement of the
North Dakota mineral deeds. The trial court entered findings, supported by substantial
evidence that Val Holms did not intend to transfer title of the mineral rights until a later
date when Allan contributed the full $200,000 and fulfilled other promises. Therefore,
31
No. 32577-6-111
Roil Energy v. Edington
we agree with the trial court that there was no delivery of the mineral deeds under the
law. Under this conclusion, satisfaction of the statute of frauds is immaterial. A
reviewing court may affirm the trial court on any grounds established by the pleadings
and supported by the record. In re Marriage ofRideout, 150 Wash. 2d at 358 (2003); Truck
Ins. Exch. v. VanPort Homes, Inc., 147 Wash. 2d at 766 (2002). Allan Holms agrees that
North Dakota law and properly applied Washington law echo one another with regard to
the subject of delivery. Therefore, we rely on Washington law.
Essential to the validity of a deed is a delivery of the instrument. Raborn v.
Hayton, 34 Wash. 2d 105, 109, 208 P.2d 133 (1949); Martin v. Shaen, 26 Wash. 2d 346, 349,
173 P.2d 968 (1946); Martin v. Shaen, 22 Wn.2d 505,512, 156 P.2d 681 (1945). Stated
differently, a deed, in order to pass title, must be delivered by the grantor to the grantee.
Anderson v. Ruberg, 20 Wash. 2d 103, 107, 145 P.2d 890 (1944).
Whether there has been a valid delivery under the circumstances depends on the
intention of the grantor. Juel v. Doll, 51 Wash. 2d 435, 436-37, 319 P.2d 543 (1957);
Raborn v. Hayton, 34 Wash. 2d at 109 (1949); Anderson v. Ruberg, 20 Wash. 2d at 107
(1944). Before the court can find a delivery, the intention of the grantor to consummate
the transaction so as to fully vest the title in the grantee must be clearly shown. Puckett v.
Puckett, 29 Wash. 2d 15, 18, 185 P.2d 131 (1947). To constitute a delivery, the evidence
must show that the grantor intended that the deed should pass the title at the time and that
he should lose all control over the deed. Mathewson v. Shields, 184 Wash. 284, 288, 50
32
No. 32577-6-III
Roil Energy v. Edington
P.2d 898 (1935); Showalter v. Spangle, 93 Wash. 326,332, 160 P. 1042 (1916). Each
case, necessarily, must be decided from the standpoint of its own facts and affords but
little, if any, assistance in deciding another other than as to the principles of law involved.
Anderson v. Ruberg, 20 Wash. 2d at 108.
The trial court was permitted to accept Val Holms' testimony that he did not
intend to pass title to Roil Energy when handing Allan copies of the deeds. When the
intention of the parties to the transaction is a controlling question, either party has the
right to give direct testimony as to what his intention was at the time of such transaction.
Cannon v. Seattle Title Trust Co., 142 Wash. 213,216,252 P. 699 (1927); Malloy v.
Drumheller, 68 Wash. 106, 117, 122 P. 1005 (1912).
In Raborn v. Hayton, 34 Wash. 2d 105 (1949), the court cancelled a deed and quieted
title to property in the heir of the grantor under the deed. The grantor, before her death,
signed a deed in favor of her former husband. The attorney preparing the deed testified at
trial that the grantor did not intend title to pass to the former husband until he paid the
sum of $20,000. The former husband never paid the sum. After the death of the former
wife, the former husband took possession of the deed and recorded it. The court annulled
the deed because of the failure to pay. In our appeal, Allan Holms never paid the
consideration agreed for the transfer of the mineral interests.
Val Holms delivered to Allan a copy, not the original, of the two mineral interest
deeds. In Blachowski v. Blachowski, 135 N.J. Eq. 425, 39 A.2d 94 (N.J. Ch. 1944), the
33
i
I
I
I
No. 32577-6-III
Roil Energy v. Edington
grantor's agent delivered a copy of the deed to the grantee, who recorded a copy. The
court, nevertheless, held that the deed did not transfer title since the grantor had no
present intention to part with title. The New Jersey court observed that an essential
element of delivery is the intent of the grantor that the deed shall become immediately
effective as a conveyance in accordance with its terms. Even if there be a physical
delivery of the document by the grantor to the grantee, the deed does not become
operative if the grantor expects it not to become effective until a later final delivery.
Allan Holms characterizes Val Holms' defense as one of conditional delivery of
the deeds. Allan then cites Richmond v. Morford, 4 Wash. 337 (1892) for the proposition
that Washington does not recognize "conditional delivery." The result of Richmond v.
Morford is consistent with Washington rejecting the rule of "conditional delivery."
Nevertheless, the grantor delivered to the grantee the original of the deed, not a copy as
Val delivered to Allan. The grantee, contrary to Allan Holms, had not failed to fulfill
promises. Also, we note that the prevailing view now may be that a "conditional
delivery" is not an effective delivery. Turner v. Mallernee, 640 S.W.2d 517, 522 (Mo.
Ct. App. 1982); DiMaio v. Musso, 762 A.2d 363, 365 (Pa. Super. Ct. 2000); McLaughlin
v. Mcloughlin, 237 A.D.2d 336,337,654 N.Y.S.2d 407 (1997); Lerner Shops ofNC.,
Inc. v. Rosenthal, Inc., 225 N.C. 316, 34 S.E.2d 206, 208 (1945).
Val Holms represented to Allan Holms that he recorded the deeds, but no
testimony supports a finding that Val intended a transfer of title despite that
34
No. 32577-6-111
Roil Energy v. Edington
representation. The trial court found Val possessed no intent to transfer title until the
completion of additional steps. Val Holms' false representations may give rise to a claim
for fraud, but not for enforcement of the North Dakota deeds.
Damages
The trial court found that Allan Holms proved each element of the claims for
fraud, civil conspiracy, breach of fiduciary duty, and oppression of minority interest.
Nevertheless, the trial court initially denied an award of damages because the structure of
the proposed Roil Energy and APD Antiquities merger significantly differed from the
completed Holms Energy and Bakken Resources merger. Thus, the trial court ruled that
it could not award Allan damages based on a benefit of the bargain measurement.
Consequently, the trial court asked the parties to brief what, if any, "facilitation value"
Allan lost from the fraudulent action of Val and Jay Edington. After supplemental
briefing and argument, the trial court concluded that Allan's and Jay Edington's
contributions and share of earnings were not sufficiently comparable to form a fair basis
for facilitation damages. Consequently, the trial court awarded Allan no damages.
Allan Holms assigns error to the trial court's failure to award damages. We
review the trial court's decision regarding damages for abuse of discretion. Harmony at
Madrona Park Owners Ass 'n v. Madison Harmony Dev., Inc., 143 Wash. App. 345, 357-
58, 177 P.3d 755 (2008). A trial court abuses its discretion if its decision is manifestly
unreasonable or based on untenable grounds. State ex rel. Carroll v. Junker, 79 Wash. 2d
35
No. 32577-6-111
Roil Energy v. Edington
12, 26,482 P.2d 775 (1971). We will reverse a damages award only if it is outside the
range of evidence, shocks the conscience, or is the result of passion or prejudice. Mason
v. Mortg. Am., Inc., 114 Wash. 2d 842, 850, 792 P.2d 142 (1990). We find no abuse of
discretion.
Generally, the measure of damages for fraud and breach of fiduciary duties is the
benefit of the bargain. Salter v. Heiser, 39 Wn.2d 826,831,239 P.2d 327 (1951). But
when a plaintiff seeks damages that are not inherent in the benefit of the bargain rule, he
or she will be awarded damages for all losses proximately caused by the defendant's
wrong. Salter, 39 Wash. 2d at 832; Senn v. Nw. Underwriters, Inc., 74 Wn. App. 408,414,
875 P.2d 637 (1994). Uncertainty as to the fact of damage is a ground for denying
liability, but uncertainty as to the quantum of damages is not fatal to a plaintiff's right to
recover. Wenz/er & Ward Plumbing & Heating Co. v. Sellen, 53 Wash. 2d 96, 98-99, 330
P.2d 1068 (1958). In determining whether the evidence is sufficient to provide a
reasonable basis for estimating loss, the court (1) should be exceedingly reluctant to
immunize defendants due to insufficient evidence of loss, and (2) should have sufficient
evidence to assess damages without speculation and conjecture. Jacqueline's Wash., Inc.
v. Mercantile Stores Co., 80 Wn.2d 784,786,498 P.2d 870 (1972). The plaintiff must
produce the best evidence of loss available under the circumstances. Jacqueline's Wash.,
Inc. v. Mercantile Stores Co., 80 Wash. 2d at 787.
The trial court concluded it could not assess damages based on a benefit of the
36
No. 32577-6-111
Roil Energy v. Edington
bargain because the eventual structure, capitalization, and merger of the Holms
Energy/Bakken Resources venture significantly differed from the original planned
venture among Roil Energy, APD Antiquities, and others. In the Holms Energy/Bakken
Resources merger, Bakken Resources held an option to acquire the mineral rights that did
not ripen until Bakken Resources delivered $1.5 million in escrow. This second reverse
merger agreement also included an overriding royalty to Holms Energy based on the
revenue from the minerals and an additional payment to Val Holms of $100,000 for his
mineral interests. When the parties completed the Holms Energy and Bakken Resources
merger, Bakken Resources received the funds in escrow and it then issued a certificate
for forty million shares to Holms Energy. Holms Energy, in tum, transferred the North
Dakota mineral rights to Bakken Resources. Val received eighty percent of the forty
million shares and Jay Edington garnered 20 percent of the shares. Val became the chief
executive officer of Bakken.
An analysis that Allan Holms proved no damages tracks the analysis that the
parties reached no enforceable joint venture agreement. Allan Holms requested damages
in the amount of his expected profits from the joint venture. Allan argued at trial that,
based on a forty/forty/twenty split that the parties agreed on, the court should have
awarded him forty percent of the Bakken shares, forty percent of the $100,000 Bakken
paid to Val for his mineral interests, and forty percent of the Holms Energy overriding
royalties. These figures total $4,516,433. Nevertheless, in his appeal brief, Allan Holms
37
No. 32577-6-111
Roil Energy v. Edington
argues that he had an agreement with his brother for a split of fifty-fifty of the income,
not a three party division of forty /forty/twenty, illustrating that even Allan's differing
positions shows the lack of an agreement and an inability to assess damages. If the
parties never reached an agreement, Allan was entitled to no profits. He never held an
interest in the North Dakota mineral rights, such that he was entitled to royalties.
The trial court found that Allan Holms, Val Holms, and Jay Edington failed to
reach an agreement about their respective ownership interests in Roil Energy and APD
Antiquities. Moreover, the three participants never valued the North Dakota mineral
rights and never discussed an override royalty payable to Roil Energy. Allan and
Edington insisted, during trial testimony, that the parties agreed that Allan, Val, and
Edington would split ownership of Roil Energy and APD Antiquities forty/forty/twenty.
Nevertheless, Val testified that the parties never allocated the shares, and he insisted he
always intended to retain fifty-one percent. The parties also intended to include other
members in Roil Energy with an undetermined percentage of ownership interest.
Exhibits showed that Edington's fear, in early February 2010 that the Holms brothers
would deny him any shares of Roil Energy. Later that month, when Val inquired ifhe
would gamer any share of APD Antiquities, Allan responded that the two brothers would
"share everything 50/50." Ex. 163. In the same e-mail, however, Allan discordantly
wrote that the three partners would respectively receive one third of APD Antiquities.
Neither Allan nor Val furnished information for the proposed operating agreement, which
38
No. 32577-6-111
Roil Energy v. Edington
data would have defined the ownership interests of the managing members. Based on the
trial testimony, the trial court wisely ruled that Val's testimony was more credible and
that the evidence established that the three participants reached no agreement. In tum,
the trial court reasonably ruled that it could not discern what, if any, benefits or income
Allan would have reaped if he had not been defrauded. Stated differently, the trial court
was within its discretion in ruling that Allan failed to prove damages resulting from the
fraud, conspiracy, breach of fiduciary duty, and oppression of minority interest. This
conclusion is bolstered on the recognition that Val need not have defrauded Allan in
order to terminate discussions with Allan regarding development of the mineral rights.
Allan Holms underscores his expert's testimony that the original trio's reverse
merger plan replicated the final structure of the Holms Energy/Bakken Resources merger.
This testimony does not assist Allan since the parties never agreed to the original reverse
merger plan. Also, the trial court heard evidence contrary to the expert's testimony.
Allan Holms also argues that he was entitled to a facilitation value because he
introduced Jay Edington to Val. Allan notes that Edington's share of the Holms
Energy/Bakken Resources venture was 7 .9 million shares, which Allan contends is the
value Val assigned to Edington's participation in the new scheme. Allan asserts that he is
entitled to the value of those shares of approximately $1,975,000, minus the $200,000
Allan agreed to invest in the original venture, for a total of $1,775,000.
The trial court reasonably concluded that the contributions and share of earnings
39
No. 32577-6-III
Roil Energy v. Edington
are not sufficiently comparable between Allan Holms and Jay Edington to form a fair
basis for damages and denied recovery. Therefore, we hold that the trial court did not
abuse its discretion in denying damages for facilitation.
Allan Holms emphasizes the trial court's finding of fact 28, in which the court, in
part, found "sufficient evidence of a direct loss suffered by Allan Holms." CP at 4438.
From this finding, Allan argues that he must be granted some damages. Nevertheless, the
finding was a precursor to the trial court allowing Allan to argue that he was entitled to
recover damages for facilitating the contact between Jay Edington and Val Holms. In the
end, Allan proved no facilitation damages.
On appeal, Allan Holms complains that the trial court refused to allow him to
present additional evidence to support an award based on facilitation value.
Nevertheless, he never objected to the trial court's announcement that it would not
entertain additional evidence. He never asked to reopen his case for presentation of new
evidence. Therefore, he waived this assignment of error. Generally, issues not raised in
the trial court may not be raised for the first time on appeal. RAP 2.5(a); State v. Nitsch,
100 Wn. App. 512,519,997 P.2d 1000 (2000).
Allan Holms cites no case wherein a court awards damages to a party for
introducing two parties who eventually form a successful business relationship and
exclude the first party from an interest in the business. Nor do we find a decision,
wherein a court granted damages to a claimant under these circumstances.
40
No. 32577-6-III
Roil Energy v. Edington
We question whether the trial court even needed to employ a sophisticated
analysis as to whether the operation of Holms Energy and Bakken Resources replicated
any agreement reached by Jay Edington, Allan Holms, and Val Holms, or any agreement
contemplated by them. Allan Holms failed to meet the conditions of selling APD
Antiquities stock and tendering $200,000 such that Val Holms had any obligation to part
with any mineral rights. If Val never became obligated to transfer any mineral interests
to Allan, Allan was never injured by Val's traitorous behavior.
Constructive Trust
Allan Holms contends that the trial court also erred in refusing to impose a
constructive trust on some of the profits of the Holms Energy/Bakken Resources venture.
Allan argues a constructive trust is the appropriate remedy in equity when a defendant
intentionally interfered with the plaintiffs business relationship arid thereby acquired the
property that was the subject of that relationship. The trial court concluded that this
remedy was not available because any income of Bakken Resources and Holms Energy
was based on a different corporate structure than the joint venture Allan hoped to enter.
Nevertheless, according to Allan, without his involvement in the Roil Energy project, Val
would have never capitalized his mineral rights into a going venture worth in excess of
$14,000,000 plus annual lease royalties.
A constructive trust arises where a person holding title to property is subject to an
equitable duty to convey it to another on the ground that he would be unjustly enriched if
41
No. 32577-6-III
Roil Energy v. Edington
he were permitted to retain it. Baker v. Leonard, 120 Wash. 2d 538, 547-48, 843 P.2d 1050
(1993); Dave Johnson Ins., Inc. v. Wright, 167 Wn. App. 758,773,275 P.3d 339 (2012).
A court can impose a constructive trust arising in equity when clear, cogent, and
convincing evidence serves as the basis for the decision. Baker v. Leonard, 120 Wash. 2d at
54 7. The primary purpose of a constructive trust is to prevent unjust enrichment.
Consulting Overseas Mgmt., Ltd. v. Shtikel, 105 Wash. App. 80, 87, 18 P.3d 1144 (2001).
Val Holms always owned the mineral interests in the North Dakota property
during the time that Val and Allan discussed a joint venture. Allan never tendered the
$200,000 needed to participate in the venture. The parties never reached an agreement.
The trio of Val Holms, Allan Holms, and Jay Edington kept shifting allegiances in order
to isolate another, including isolating Val. On these grounds alone, the trial court
reasonably concluded that Allan has no just entitlement to any of the income from the
mineral rights. We deny all assignments of error in Allan Holms' appeal.
Fraud, Conspiracy, Fiduciary Breach, and Oppression of Minority
We begin our review of Val Holms' cross appeal. Val first argues that the trial
court erred when it declared him to be liable in fraud, civil conspiracy, and breach of
fiduciary duty when damages is an element of each cause of action. We agree.
A claim for fraud fails as a matter of law if the plaintiff fails to prove all nine of its
essential elements. Brummett v. Washington's Lottery, 171 Wash. App. 664, 675, 288 P.3d
48 (2012). The ninth element of fraud is "resulting damages." Brummett v.
42
No. 32577-6-III
Roil Energy v. Edington
Washington's Lottery, 171 Wash. App. at 675. As with a fraud claim, a claim of civil
conspiracy also requires the element of damages. Platts v. Platts, 73 Wash. 2d 434, 438,
438 P.2d 867 (1968). Finally, proof of damages is an essential element of a claim of
breach of fiduciary duty. Senn v. Nw. Underwriters, Inc., 74 Wash. App. at 414 (1994);
Interlake Porsche+ Audi, Inc. v. Bucholz, 45 Wash. App. 502, 509, 728 P.2d 597 (1986);
29 DAVID K. DEWOLF, WASHINGTON PRACTICE: WASHINGTON ELEMENTS OF AN
ACTION§ 12:1, at 365-66 (2015-16 ed.).
Val Holms also contends that damages are an element of a cause of action for
oppression of a minority shareholder. Nevertheless, a minority owner's claim for
oppression arises from the majority owner's fiduciary duties. Baur v. Baur Farms, Inc.,
832 N.W.2d 663, 670 (Iowa 2013); McLaughlin v. Schenk, 2009, UT 64, 220 P.3d 146,
156; Hayes v. Olmsted & Assocs., Inc., 173 Or. App. 259, 21 P.3d 178, 181 (2001);
Hollis v. Hill, 232 F.3d 460, 470 (5th Cir. 2000) (applying Nevada law). A cause of
action for oppression could be considered a species of breach of fiduciary duty. Allan
Holms cites no Nevada law to the contrary. Because an action for shareholder oppression
is linked to a breach of fiduciary duty, we hold that damages is an element of the cause of
action for oppression of a minority owner.
Allan Holms argues that an action in fraud is valid even though the injury lacks a
compensable market value and cites Sigman v. Stevens-Norton, Inc., 70 Wash. 2d 915, 921-
22, 425 P.2d 891 (1967) for this proposition. Whereas, such may be true, the claimant
43
f
No. 32577-6-111
Roil Energy v. Edington
must still prove some damages as confirmed in Sigman v. Stevens-Norton, Inc., 70 Wash. 2d
at 921.
Allan Holms failed to prove that he suffered any damages. Accordingly, his
causes of action for fraud, breach of fiduciary duty, oppression of minority owner, and
conspiracy should have been dismissed. The trial court also erred when entering a
declaratory judgment that Val Holms committed fraud, conspiracy, breach of fiduciary
duty, and oppression, since damages are integral to the causes of action.
In response to Val Holms cross appeal, Allan distinguishes between the meaning
of the words "damage" and "damages." "Damage" means legal injury, while "damages"
is the monetary compensation for such legal injury. Gilmartin v. Stevens Inv. Co., 43
Wn.2d 289,302,261 P.2d 73,266 P.2d 800 (1954) (Schwellenbach, J., dissenting).
According to Allan, the trial court's unchallenged findings support a conclusion that he
suffered damage due to Val's fraud, conspiracy, breach of fiduciary duties, and
oppression of minority interest and he need only prove damage, not damages, to sustain
his tort theories. Unfortunately for Allan, his citation of a dissenting opinion helps him
none. Washington courts have never adopted Justice Schwellenbach's distinction, in his
dissenting opinion in Gilmartin, between "damage" and "damages."
Attorney Fees
Val Holms contends that, because his brother failed to sustain any cause of action,
Allan is not the prevailing party on any claim, and Allan may not be awarded any fees
44
No. 32577-6-111
Roil Energy v. Edington
and costs. We agree.
The trial court awarded Allan Holms partial reasonable attorney fees and costs
under a Nevada statute, NRS 86.489 that applies to shareholder derivative actions. Roil
Energy was formed in Nevada. The statute declares:
If a derivative action is successful, in whole or in part, or if anything
is received by the plaintiff as a result of a judgment, compromise or
settlement of an action or claim, the court may award the plaintiff
reasonable expenses, including reasonable attorney's fees, and shall direct
the plaintiff to remit to the limited-liability company the remainder of those
proceeds received by the plaintiff.
NRS 86.489. The statute does not aid Allan because he was not successful on any of his
claims and he recovered nothing.
Allan Holms also asks for an award of reasonable attorney fees and costs on
appeal. Because he does not prevail on any claim on appeal, we deny the request.
CONCLUSION
We affirm the trial court's dismissal of Allan Holms' and Roil Energy's claims for
tortious interference with business expectancy and breach of contract. We concur with
the trial court that Allan Holms proved no damages. We reverse the trial court's
judgments for fraud, breach of fiduciary duties, civil conspiracy, and oppression of a
minority shareholder, and we vacate the trial court's order of reasonable attorney fees and
costs in favor of Allan Holms.
A majority of the panel has determined this opinion will not be printed in the
45
I
No. 32577-6-III
Roil Energy v. Edington
Washington Appellate Reports, but it will be filed for public record pursuant to RCW
2.06.040.
Fearing, C.J.
WE CONCUR:
{
46