Harry, Betty May, Timothy & Scott Corliss, Apps. v. Larry P. Hughes And Harry & Beth Hart, Resps. ( 2014 )

IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON
HARRY and BETTY MAY CORLISS,
husband and wife; TIMOTHY CORLISS; No. 69432-4-
and SCOTT CORLISS, as individuals
O
and derivatively on behalf of DIVISION ONE
rHc:
WASHINGTON ROCK QUARRIES,
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CD
Appellants, "ri-J"1fl
eo
CD
LARRY P. HUGHES and JANE DOE —J r~^
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HUGHES, husband and wife and their
marital community; HARRY HART and
BETH HART, husband and wife and UNPUBLISHED OPINION
their marital community,
Respondents. FILED: February 18.2014
Spearman, A.C.J. — The main issue on appeal is whether the trial court
properly granted the summary judgment motions of Larry and Jane Doe Hughes
and Harry and Beth Hart, thereby dismissing the lawsuit of Harry, Betty, Timothy,
and Scott Corliss1 and Washington Rock Quarries, Inc. (WRQ) under the statute
of limitations. Larry Hughes and Harry Hart, together with Harry, Timothy, and
Scott Corliss, own WRQ. The lawsuit, alleging claims for usurpation of a
corporate opportunity, negligent misrepresentation, and breach of fiduciary duty,
Harry and Betty are husband and wife and the parents of Timothy and Scott.
No. 69432-4-1/2
was based primarily on Hughes and Hart's purchase of the King Creek Pit and
Kapowsin Quarry, property in which WRQ conducted its mining business, without
informing the Corlisses and without offering WRQ the opportunity to purchase the
property. The Corlisses contend the trial court erred in ruling as a matter of law
that they were put on notice of their claims by (1) Larry Hughes' September 2005
letter to Harry Corliss and (2) information received by John Carrosino, the
Corlisses' alleged agent, in 2007. We conclude that (1) Harry Corliss had notice
through the September 2005 letter but there is an issue of material fact as to
whether he was a director of WRQ or a mere shareholder at the time; (2) there is
an issue of material fact regarding whether statements to Carrosino bound the
Corlisses; and (3) the Corlisses' claims based on a post-sale amendment to the
King Creek lease and the re-permitting of the King Creek Pit were properly
dismissed for other reasons. We reverse in part, affirm in part, and remand.
FACTS
WRQ is in the business of mining and selling sand, gravel, and rock. Until
1993, its stock was owned 50 percent by Harry Hart (Hart) and 50 percent by
Edward Duggan. That year, Larry Hughes (Hughes) learned of the opportunity to
purchase Duggan's shares and informed his friend Harry Corliss (Harry).2 Harry
indicated his desire to purchase half of Duggan's shares but requested that they
be registered primarily in the name of his sons, Timothy (Tim) and Scott (Scott)
Corliss. The Corlisses and Hughes purchased Duggan's WRQ stock, and the
shares were thereafter owned as follows: Hart - 50 percent; Hughes - 25
2For clarity, the Corlisses will be referred to by their first names. No disrespect is
intended.
No. 69432-4-1/3
percent; Tim - 12.25 percent; Scott - 12.25 percent; and Harry - 0.50 percent.
The Corlisses own their stock as individuals.
Since 1993, Hart has been WRQ's president and Hughes has been its
secretary/treasurer. Scott was WRQ's vice president from 1993 until 2004 or
2007. Hughes, Hart, and Beth Hart have held three of the four seats on the board
of directors. Harry was a director from 1993 until sometime in 2004 to 2006,
when he was replaced by Scott due to deteriorating health.3
WRQ leased the King Creek Pit and the Kapowsin Quarry (collectively,
"the pits") from International Paper (IP) until 2005. In 2003, IP notified WRQ that
it would be cancelling the leases, leaving WRQ with five years to operate in the
pits. Hughes and Hart, without informing the Corlisses, negotiated with IP to buy
the pits and, in June 2005, formed Rainier Resources, LLC (RR) for that purpose.
RR is owned equally by the Hughes and Hart families. RR purchased the King
Creek pit (for $4,000,000) and Kapowsin pit (for $3,000,000), closing the sales
on September 22, 2005 and March 30, 2006, respectively. Since the purchases,
RR has honored IP's leases with WRQ and has not changed their terms, with the
exception of adding a "backhaul" provision to the King Creek lease in September
2005. Hughes and Hart also re-permitted the King Creek pit so that a greater
area of the pit could be mined. WRQ paid the re-permitting costs.
On or about August 19, 2005, Scott sent Hughes a letter regarding WRQ.
The letterhead stated "Corliss Resources" and the footer of the letter included the
3The parties dispute when Harry was replaced by Scott. In the same declaration
submitted in opposition to summary judgment, Scott states at one point that he replaced Harry on
the board of directors in 2004 and at another point that he replaced Harry in June 2005. The May
3, 2006 meeting minutes for WRQ's annual meeting of stockholders and directors indicate that
Scott took Harry's place on the board of directors in May 2006.
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address "P.O. Box 487, Sumner, Washington 98390." Clerk's Papers (CP) at
122. On September 2, Hughes responded by letter addressed to "Harry B
Corliss, Corliss Resources, P.O. Box 487, Sumner, WA 98390," though its
salutation was "Dear Scott."4 Hughes wrote, "You also should be aware that I
have purchased the gravel pit and the rock quarry from International Paper. I will
honor the terms of the lease International Paper has with Washington Rock."5 CP
at 116, 150.
In 2007, as part of estate planning for Harry and Betty and to gather
information about the Corliss family's investment in WRQ, Scott asked John
Carrosino, the president of Corliss Resources, Inc. (CRI, a company owned by
Tim, Scott, and Harry), to learn more about WRQ and its value. Carrosino met
with Hart on April 5, 2007. After the meeting, Carrosino requested copies of the
leases for the pits. Sometime between April 5 and May 8, Hughes told Carrosino
that he and Hart had purchased the pits. On May 8, however, Hart gave
Carrosino the original leases showing IP as the lessor/landholder. That day,
Carrosino emailed Hart, expressing confusion over the inconsistency between
the documents showing IP was the owner of the land and Hughes' and Hart's
statements in conversation that they owned the pits. He requested Hart's help in
clarifying who owned the pits. The next day, Carrosino had a phone conversation
with Hart, who did not state the leases were incorrect or that he and Hughes had
4 It is evident from the substance of the letter that itwas written in response to Scott's
letter, although both parties' discussion of the letter describes it as written to Harry.
5Betty Corliss wrote to Hughes in March 2006, seeking assistance with an unrelated
lawsuit. Hughes responded on March 8, 2006 and enclosed a copy of his September 2, 2005
letter. Hughes and Hart do not argue that the letter to Betty was sufficient to trigger the statute of
limitations.
No. 69432-4-1/5
purchased the pits. Carrosino continued to seek information about ownership. In
a June 6 email to Hart, Carrosino wrote,
The two pieces of material I do not have and would very much like
to get from you is the actual purchase of the real estate under the
two pits operating at Washington Rock and the related amended or
assigned leases with related royalty agreements. I would like to
have copies of the documents that support the leases you and Pat
have as land owners with Washington Rock as compared to the old
leases with the prior owners that are now no longer the land lords
[sic].
CP at 43. Hart never gave the requested documents to Carrosino. Concluding
that Hughes and Hart did not own the pits, Carrosino did not inform any of the
Corlisses of Hughes' and Hart's statements that they had purchased the pits.
According to Scott's and Tim's declarations, Scott learned of the purchase of the
pits in April 2009 when Hart told him during a meeting that Hughes purchased
the pits, and Tim learned ofthe purchase afterthat meeting.6
On February 8, 2012, the Corlisses, individually and derivatively on behalf
of WRQ, brought an action against Hughes and Hart, alleging that they never
informed the Corlisses of the negotiations or purchase of the pits or of the re-
permitting of the King Creek pit. The complaint alleged claims for usurpation of a
corporate opportunity, negligent misrepresentation, and breach of fiduciary duty.
Hughes and Hart filed motions for summary judgment based on the three-year
statute of limitations under RCW 4.16.090. They argued that the Corlisses had
notice of their claims in 2005 from Hughes' letter and in 2007 through Carrosino.
The trial court granted both Hughes' and Hart's motions. It denied the Corlisses'
motion for reconsideration. The court awarded Hughes and Hart attorney's fees
There is no evidence from Harry in the record.
No. 69432-4-1/6
and expenses under RCW 23B.07.400. The Corlisses appeal from the orders
granting summary judgment and awarding attorney's fees.
DISCUSSION
Statute of Limitations
The Corlisses contend the trial court erred in ruling that their claims were
barred by the statute of limitations.7 We review summary judgment de novo.
Jones v. Allstate Ins. Co.. 146 Wn.2d 291, 300, 45 P.3d 1068 (2002). The parties
agree that all claims are governed by RCW 4.16.080(4), which states that a
three-year statute of limitations applies to "[a]n action for relief upon the ground
of fraud, the cause of action in such case not to be deemed to have accrued until
the discovery by the aggrieved party of the facts constituting the fraud." The
statute begins to run when the plaintiff discovers, or by reasonable diligence
would have discovered, the cause of action. First Maryland Leasecorp v.
Rothstein. 72 Wn. App. 278, 282, 864 P.2d 17 (1993). The question of when the
plaintiff discovered or could have discovered such facts is one of fact. Sherbeck
v. Estate of Lyman. 15 Wn. App. 866, 869, 552 P.2d 1076 (1976). The party
seeking to toll the statute of limitations based on the discovery rule has the
burden to show the fraud could not have been discovered until three years before
the commencement of the action. Interlake Porsche & Audi. Inc. v. Bucholz, 45
Wn. App. 502, 518, 728 P.2d 597 (1986).
7The Corlisses also arguethateven if the statute of limitations bars their claims, the trial
court should have applied equitable tolling. We do not reach the issue given our disposition of this
appeal.
No. 69432-4-1/7
I. September 2005 letter
The Corlisses contend there are multiple questions of fact involving
Hughes' 2005 letter, including whether Harry received the letter and whether he
was competent enough in 2005 to understand it.8 But we conclude that this issue
is not properly before us. As Hughes notes, these arguments were made for the
first time in the Corlisses' motion for reconsideration. These arguments were not
closely related to a position asserted previously and depended on new facts;
thus, they are not properly before this court.9 River House Dev. Inc. v. Integrus
Architecture. P.S.. 167 Wn. App. 221, 231, 272 P.3d 289 (2012) (party bringing
motion for reconsideration may preserve issue for appeal that is closely related to
position previously asserted and does not depend on new facts). The trial court
8The Corlisses make several otherarguments with respect to Hughes' 2005 letter. They
argue that there is no evidence of who lived or worked at the address to which the letter was sent.
They are mistaken. The footer of Scott's letter to Hughes set forth the same address to which
Hughes sent his letter to Harry. The Corlisses also argue that Hughes and Hart may not rely on
the letter to show that notice was given because the statement on which they rely is false.
Specifically, they point out, the letter falsely states that Hughes, not RR, purchased the pits. This
argument is not well taken. The gist of the Corlisses' lawsuit is that Hughes and Hart usurped a
corporate opportunity by purchasing the pits; the opportunity to WRQ was lost when someone
other than WRQ bought the pits. The letter gave notice to Harry as to Hughes' purchase of the
pits, regardless of whether it was through RR.
9We also conclude that even if this issue is properly before this court, the trial courtdid
not abuse its discretion in denying the motion for reconsideration. This court reviews a trial court's
decision on a motion for reconsideration for abuse of discretion. Aluminum Co. of Am. v. Aetna
Cas. & Sur. Co.. 140 Wn.2d 517, 537, 998 P.2d 856 (2000). First, Hughes' testimony that he sent
the letter was unrebutted, and Scott's testimony showed the letter was received at CRI's office
and maintained in its files. Second, the Corlisses' evidence of Harry's incompetence consisted of
Scott's testimony that his dad had two bad falls in 2004 and 2005 and that, starting in 2004, Harry
gradually "started to let go a little bit." CP at 717. Contractual capacity is strongly presumed; the
party alleging incapacity bears the burden of proving incapacity by clear, cogent, and convincing
evidence. Page v. Prudential Life Ins. Co. of Am., 12 Wn.2d 101, 109, 120 P.2d 527 (1942). It
must be shown that the person had "no reasonable perception or understanding of the nature and
terms" of the information, jd. The trial court did not err in ruling that the Corlisses' evidence failed
to create a genuine issue of material fact that Harry could not have had a reasonable
understanding of the letter in 2005. Moreover, when a new theory is presented to the trial court
for the first time in a motion for reconsideration, the trial court may refuse to consider it. Wilcox v.
Lexington Eve Inst.. 130 Wn. App. 234, 241, 122 P.3d 729 (2005).
No. 69432-4-1/8
did not err in ruling on summary judgment that Hughes' letter gave Harry notice
of the purchase of the pits in 2005.
II. Hughes' and Hart's statements to Carrosino
The Corlisses contend there are genuine issues of material fact in dispute
regarding whether Carrosino received notice of the purchase of the pits and
whether he was an agent for any of the Corlisses. Hughes denies there are any
material facts in dispute on these issues. Hart concedes that questions of fact
exist whether Carrosino was an agent of any Corliss when he performed his task
and whether he acquired notice that Hughes and Hart purchased the pits, but
argues that reasonable minds could only conclude that Carrosino acted on behalf
of the Corlisses' entire 25 percent interest in WRQ and that Hughes and Hart told
him that they purchased the pits.10 We conclude there is an issue offact as to
whether Hughes' and Hart's representations to Carrosino bound the Corlisses or,
stated differently, whether Carrosino's knowledge of their representations should
be imputed to the Corlisses.
An agency relationship results from the manifestation of consent by one
person that another shall act on his behalf and subject to his control, with a
correlative manifestation of consent by the other party to act on his behalf and
subject to his control. Moss v. Vadman. 77 Wn.2d 396, 402-03, 463 P.2d 159(1970). For an agent's knowledge to be imputed to a principal, the knowledge
must be relevant to the agency and the matters entrusted to the agent. Roderick
10 While both parties agree there are disputed issues of material factwith respect to
whether Carrosino was an agent for any of the Corlisses, neither party specifically describes the
disputed issues of fact. It appears the parties' arguments are instead about the legal conclusions
that can be drawn from the facts.
No. 69432-4-1/9
Timber Co. v. Willapa Harbor Cedar Products. Inc.. 29 Wn. App. 311, 316-17,
627 P.2d 1352 (1981).
The existence of a principal-agent relationship is a question of fact
unless the facts are undisputed. The question of control or right of
control is also one of fact for the jury. But if the facts are undisputed
and, without weighing the credibility of witnesses, there can be but
one reasonable conclusion drawn from the facts, the nature of the
relationship between the parties becomes a question of law.
O'Brien v. Hafer. 122 Wn. App. 279, 284, 93 P.3d 930 (2004) (quotation marks
and citations omitted). The burden of establishing agency is on the party
asserting it. Jd.
First, we conclude that, as a matter of law, Carrosino was Scott's agent
because he acted on Scott's behalf and was subject to Scott's control while he
carried out his task. Scott's declaration establishes that, for various reasons
(including estate planning), he authorized and directed Carrosino to "gather some
information about the financial performance of WRQ and to help determine its
value." CP at 459. The Corlisses argue that because Carrosino was employed by
CR, he was not Scott's agent. But they cite no authority for the proposition that a
person can only be an agent for the entity that pays him. They also argue that
there can be no agency because Scott did not control the manner of Carrosino's
performance. The argument is not well taken. "The negligence of the agent is
imputed to the principal, because he has the right to control the acts of the agent.
It is the existence of the right of control, not its exercise, that is decisive."
Pagarigan v. Phillips Petroleum Co.. 16 Wn. App. 34, 37, 552 P.2d 1065 (1976)
(emphasis added) (quoting Poutre v. Saunders. 19 Wn.2d 561, 545, 143 P.2d
554 (1943)). A principal's control over the manner of performance is critical
No. 69432-4-1/10
where the agent harms a third party and the third party asserts a claim against
the principal, as in the cases cited by the Corlisses.11 But this case does not
involve the Corlisses' liability vis-a-vis Carrosino.
We also conclude there is no issue of fact that Carrosino was acting on
behalf of Harry and Tim. At his deposition, Scott described the purpose of
directing Carrosino to look into WRQ as being to assess the Corlisses'
investment in WRQ. He testified that the Corliss family wanted to know more
about its ownership interest in WRQ and the general business of WRQ. He noted
that Hart had expressed interest in buying the family's shares. Carrosino,
likewise, stated in his declaration that his task was for the Corliss family's benefit.
He stated that he was asked by Scott to look into the Corliss family's investment
in WRQ because the family had little information about the operations or financial
performance of WRQ. His goal was "to gather information for the Corliss family to
determine next steps." CP at 487. Carrosino made similar statements in his
deposition, testifying that his primary mission was to "lend a hand to gather
information and advise him and his other shareholders" of the value of WRQ.
(Emphasis added). CP at 62 He testified that the Corliss family was conducting
estate planning for Harry and Betty and that the valuation of WRQ was to be
used for that purpose. With this evidence, Hughes and Hart meet their initial
burden of showing a lack of an issue of fact that Scott had Harry and Tim's
11 See Barker v. SkagitSpeedway. Inc.. 119 Wn. App. 807, 814-15, 82 P.3d 244 (2003)
(no agency where plaintiff sought to hold defendant liable for alleged agent's negligence where
defendant did not have control over alleged agent); Bloedel Timberlands Dev., Inc. v. Timber
Industries, Inc., 28 Wn. App. 669, 674-75, 626 P.2d 30 (1981) (logging contractor was agent for
timber company, such that company was liable for its trespass, if company controlled the manner
of contractor's performance by controlling cutting of timber).
10
No. 69432-4-1/11
authority to direct Carrosino to investigate the Corlisses' interest in WRQ. Where
a defendant meets the initial burden of showing the absence of an issue of
material fact, the inquiry shifts to the plaintiff; if the plaintiff fails to make a
showing sufficient to establish the existence of an essential element in the
plaintiffs case, the trial court should grant the motion for summary judgment.
Young v. Key Pharm.. Inc.. 112 Wn.2d 216, 225, 770 P.2d 182 (1989).
The Corlisses assert that Scott did not have Tim or Harry's authority to act
as an agent. They point to the following statement in Tim's declaration:
18. At no time in 2007 to 2008 did I authorize John
Carrosino to act as my agent with respect to WRQ or any of my
other personal interests or investments.
CP at 464. But this is a conclusory statement of fact. An affidavit in support of or
in response to a motion for summary judgment fails to raise a genuine issue of
fact where it sets forth ultimate facts, conclusions of fact, conclusory statements
of fact, or legal conclusions. Snohomish County v. Rugg. 115 Wn. App. 218, 224,
61 P.3d 1184 (2002). Furthermore, Tim stated that he "never had a role or say in
the operation or management of WRQ" and had never been a part of
conversations between Hughes, Hart, Scott, or Harry. CP at 463. This shows a
lack of effort to maintain his shares independently and supports the inference
that the other Corlisses were authorized to deal on his behalf.
The Corlisses also argue that Carrosino was not an agent for any of them
because he could not affect their legal relations or those of WRQ. But the ability
to affect legal relations is not an essential element to the creation of an agency
relationship; it is merely an attribute of an agency relationship once created.
11
No. 69432-4-1/12
"Consent and control are the essential elements of an agency." Moss v. Vadman.
77 Wn.2d at 403; see also Restatement (Second) of Agency § 1 (1958) ("The
relation of agency is created as the result of conduct by two parties manifesting
that one of them is willing for the other to act for him subject to his control, and
that the other consents so to act."). The Corlisses' reliance on Moss to argue
otherwise is misplaced. In that case, the court held only that an agency
relationship was not created because the alleged agent had no intent to create
agency, did not consent to agency, and did not submit himself to the control of
the alleged principals. Moss. 77 Wn.2d at 403. The court mentioned an agent's
ability to affect legal relations because the facts of the case involved the alleged
agent's ability to bind the principal to a real estate purchase and sale agreement.
But this case does not involve Carrosino's assertion of legal relations on behalf of
the Corlisses.
The Corlisses also cite Zoda v. Eckert, Inc.. 36 Wn. App. 292, 674 P.2d
195 (1983), but that case did not state that an alleged agent's power to affect the
alleged principal's legal relations was required to create an agency relationship.
See id at 295-96 (agency requires that principal shall have right of control over
agent). Moreover, other cases discussing agency have not mentioned any
requirement that the alleged agent have the power to affect the alleged
principal's legal relations. See, e.g.. Deep Water Brewing. LLC v. Fairway
Resources Ltd.. 152 Wn. App. 229, 268-69, 215 P.3d 990 (2009); Goodman v.
Boeing Co.. 75 Wn. App. 60, 85-86, 877 P.2d 703 (1994).
12
No. 69432-4-1/13
Next, we conclude there is also no genuine issue of fact that Hughes and
Hart's statements to Carrosino put the latter on notice. "The statute begins to run
when the fraud should have been discovered, and a clue to the fact which if
followed up diligently would lead to discovery is in law equivalent to discovery."
Bay City Lumber Co. v. Anderson. 8 Wn.2d 191. 211. 111 P.2d 771 (1941)
(quoting Noves v. Parsons. 104 Wn. 594, 177 P. 651 (1919)). Reasonable minds
could not disagree that Hughes and Hart's statements were a clue that they
owned the pits. Although Hart failed to give Carrosino the updated leases, the
Corlisses do not dispute that Carrosino could have obtained ownership
information from third-party sources.12
But we conclude there is a genuine issue of material fact as to whether
Hughes' and Hart's statements to Carrosino bound any of the Corlisses.
The principal is not bound by a notification directed towards an
agent whose duties or apparent duties have no connection with the
subject matter to which the notification relates. It must be given to
one who has, or appears to have, authority in connection with it,
either to receive it, to take action upon it, or to inform the principal
or some other agent who has duties in regard to it....
Roderick. 29 Wn. App. at 316-17 (citing Restatement (Second) of Agency §
268, comment C at 585 (1958)). "The reason for this rule is that it would be
unreasonable to impute knowledge to an employer from an employee who would
not likely pass such knowledge along." ]d.
The evidence below showed that Carrosino did not inform the Corlisses of
Hughes' and Hart's statements because he believed that the issue of who owned
12 Carrosino did not seek documentation regarding ownership from Hughes, WRQ's
attorney, the Pierce County Recorder, the Pierce CountyTreasurer, the Pierce County Assessor,
or the Washington State Department of Natural Resources.
13
No. 69432-4-1/14
the pits was not necessary to his task of determining the amount of payments
due under the leases. Carrosino also did not tell the Corlisses because he
concluded that Hughes and Hart did not own the pits, where their statements
were inconsistent with the leases they provided to him and they did not send him
updated leases showing otherwise. Under these circumstances, we conclude it is
not the case that reasonable minds could come to only one conclusion on the
issue of whether the scope of Carrosino's agency required him to inform the
Corlisses of Hughes and Hart's statements. "[I]n situations where, though
evidentiary facts are not in dispute, different inferences may be drawn therefrom
as to ultimate facts such as intent, knowledge, good faith, negligence, et cetera,
a summary judgment would not be warranted." Preston v. Duncan. 55 Wn.2d
678, 681-82, 349 P.2d 605 (1960).
III. Effect of notice to Harry or Carrosino on Corlisses' claims
The next issue is what effect notice to Harry through the letter and notice
to all three Corlisses through Carrosino (if found) would have on whether the
Corlisses' claims are barred by the statute of limitations. The Corlisses concede
the claim for usurpation of a corporate opportunity is a derivative claim belonging
to WRQ,13 but contend the trial court erred in dismissing all of the claims because
each Corliss has independent claims for breach of fiduciary duty and negligent
misrepresentation based on Hughes and Hart's concealment of the purchase of
13 See Wagner v. Foote. 128 Wn.2d 408, 413, 908 P.2d 884 (1996) (corporate
opportunity doctrine centers on misappropriation of business opportunities belonging to
corporation).
14
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the pits.14 They contend a separate discovery rule analysis must be done for
each Corliss for each claim.
In response, Hughes contends all of the Corlisses' claims are derivative,
not individual. We agree. "'[A] stockholder may maintain an action in his own right
against a third party ... when the injury to the individual resulted from the
violation of some special duty owed to the stockholder but only when that special
duty had its origin in circumstances independent of the stockholder's status as a
stockholder.'" Sound Infiniti v. Snyder. 145 Wn. App. 333, 352, 186P.3d 1107
(2008), affirmed on other grounds. 169 Wn.2d 199, 237 P.3d 241 (2010) (quoting
Sabev v. Howard Johnson & Co.. 101 Wn. App. 575, 585, 5 P.3d 730 (2000)
(emphasis and alterations in original). Therefore, in Sound Infiniti. a minority
shareholder could maintain personal damage claims against majority
shareholders in their individual capacities only ifthe claims arose from something
other than shareholder status. ]d.
The Corlisses cite several cases for the general proposition that
shareholders in closely held companies owe one another fiduciary duties.15 They
contend that Hughes and Hart, as directors and officers, owed such duties to
them. Likewise, they cite cases for the proposition that Hughes and Hart are
14 They also contend each of them had independent claims based on the backhaul
amendment to the King Creek lease and the re-permitting of the King Creek pit, but as we will
explain those claims were properly dismissed for other reasons.
15 The Corlisses cite Lang v. Hougan. 136 Wn. App. 708, 150 P.2d 622 (2007); Arneman
v. Arneman. 43 Wn.2d 787, 264 P.2d 256 (1953); and Haw. Big Bend Land Co.. 32 Wn.2d 887,
204 P.2d 488 (1949).
15
No. 69432-4-1/16
liable for negligent misrepresentation.16 But they do not explain or provide
authority specifically addressing why they had an individual, as opposed to
derivative, right to sue in these circumstances. They do not explain how they
were individually harmed or how their claims are based on something other than
their status as stockholders. We conclude the Corlisses' claims are all derivative
claims on behalf of WRQ.
In a shareholder derivative suit, "both the cause of action and the
judgment thereon belong to the corporation." LaHue v. Keystone Inv. Co.. 6 Wn.
App. 765, 780, 496 P.2d 343 (1972).17 The stockholders in a derivative suit stand
in the shoes of the corporation and are subject to the same defenses against
which the corporation is subjected, jd. at 779. Thus, the next question is whether
notice to Harry through the letter and/or notice to all three Corlisses through
Carrosino (if the latter is found) constituted notice to WRQ of the claims based on
the purchase of the pits.
Harry received notice in September 2005 through Hughes' letter. But the
parties dispute whether Harry was a director or only a shareholder at that time,
16 The Corlisses cite Haberman v. Wash. Pub. Power Supply Svs.. 109 Wn.2d 107, 744
P.2d 1032 (1987); Boonstra v. Stevens-Norton. Inc.. 64 Wn.2d 621, 393 P.2d 287 (1964); and
Pates v. Tavlor. 31 Wn.2d 898, 199 P.2d 924 (1948).
17 Although direct recovery to shareholders may be allowed under exceptional
circumstances, resulting in a "forced distribution of corporate assets to shareholders," a judgment
in favor of the individual stockholders is improper where third party rights of higher priority are
involved. LaHue, 6 Wn. App. at 780-81. As Hughes points out, the Corlisses make no argument
regarding exceptional circumstances.
16
No. 69432-4-1/17
and the evidence creates an issue of fact as to this issue.18 If he was a director,
his knowledge would be imputed to WRQ. See Interlake Porsche & Audi. Inc. v.
Bucholz. 45 Wn. App. 502, 518, 728 P.2d 597 (1986) (notice to officer and
director is notice to corporation). However, if he was merely a shareholder, the
issue of notice to WRQ is unclear. The parties do not address under what
circumstances a shareholder's knowledge is imputed to a corporation
(particularly a closely held corporation with limited shareholders) where the
shareholder brings a derivative action. The parties are left to address this issue
on remand. If notice to all of the Corlisses in 2007 (through Carrosino) is found
on remand, then notice to WRQ is imputed through Scott, whom all parties agree
took over as a director for Harry no later than May 2006.
Other Claims
The Corlisses contend the trial court erroneously dismissed two of their
claims for other alleged wrongs because Hughes and Hart presented no
evidence that the statute of limitations ran as to those claims.19 They assert they
did not find out about these wrongs until after February 2009.
18 Hughes and Hart contend Scotttook overas a director for Harry in May 2006, as
shown by meeting minutes. The Corlisses contend Scott took over as a director in June 2005,
pointing to Scott's statement in his declaration that he officially took over as a director in June
2005. Scott further stated in his declaration that no meeting took place on June 6, 2005 and
suggests the minutes were manufactured by WRQ's attorney (also Hughes' attorney in this suit).
He stated that the 2005 annual meeting was not held until May 3, 2006. The meeting minutes for
the June 6, 2005 do not bear the signature of Hughes (WRQ's secretary), although the minutes
for other years do.
19
Hughes and Hart do not argue the statute of limitations ran as to these claims.
17
No. 69432-4-1/18
First, the Corlisses assert a claim based on a post-sale amendment to the
King Creek lease.20 The amendment allowed WRQ to use the King Creek
property for the deposit of backhaul material and required WRQ to pay RR the
greater of $1.50 per ton or 80 percent of the dump fee or tipping fee collected by
WRQ for material hauled from off-site and dumped into the King Creek pit.21. The
Corlisses contend this amendment created a new source of revenue for RR at
WRQ's expense.
Hart argues that WRQ suffered no damage as a matter of law because
backhaul is a right, not an obligation, under the amended lease and WRQ's
sharing of profits with RR when it elects to backhaul materials does not support a
claim. He points out that Scott agreed a backhaul feature is important and
desired. The Corlisses do not dispute that a backhaul feature is desirable, and
they offer no persuasive argument in reply, only contending that, but for the
amendment, all backhaul revenue would have remained with WRQ. But as the
parties agree, the previous lease did not permit WRQ to use the King Creek pit to
deposit backhaul material. We conclude this claim was properly dismissed.
Second, the Corlisses assert a claim based on Hughes and Hart's re-
permitting and expanding the King Creek pit. At the time of RR's purchase of the
pits, the King Creek mining permit allowed mining on 68.8 acres of the 580-acre
site. The re-permitting expanded that area to five times its size. WRQ paid for the
20 As Hart points out, no mention ofthis claim or the facts underlying it is mentioned in the
complaint. The claim is mentioned for the first time in the Corlisses' opposition to Hughes' motion
for summaryjudgment. Below, however, Hughes and Hart did not argue in their reply brief that
the claim was improperly before the trial court.
21 The amendment was signed by Hughes for RR and HartforWRQ.
18
No. 69432-4-1/19
costs for the new permit. The Corlisses contend it was wrongful to have WRQ
pay for a permit that would enrich RR when RR can terminate or elect not to
renew WRQ's lease at any time.
Hughes and Hart contend this claim was properly dismissed because
WRQ was already obligated under the pre-existing lease to pay the costs of
permit expansion.22 Scott testified that WRQ would have had to pay for the cost
of expanding the permits even if Hughes and Hart had not purchased the pits.
Scott also testified that WRQ did not overpay for the permit expansion and that it
"got a great deal." CP at 95. Hughes and Hart also contend that WRQ's
expansion of its King Creek permits means more material was available to WRQ
for mining than before, and thus more income is available for WRQ. They
contend the fact that they, as landlords, may also benefit from the expansion of
WRQ's permits does not alone give rise to a cause of action for damages. The
Corlisses offer no response to these arguments and we conclude this claim was
also properly dismissed.
22
The King Creek lease with WRQ states at Article 10:
10. Statutory Compliance and Permits. Lessee shall be responsible, at its cost,
for securing the necessary Pierce County permits. Ifan Environmental Impact
Statement is required to secure any Pierce County permits, its cost shall be
shared equally by Lessor and Lessee. Lessee shall be responsible, at Lessors
cost, for securing any DNR or surface mining permits. Lessor's total cost for its
obligations pursuant to this paragraph shall not exceed $40,000.00. Anycost
reimbursement by Lessor to Lessee for any permit expenses may, at Lessor's
option, be through a Royalty credit to Lessee.
CP at 142. The November 2003 amendment to the King Creek lease acknowledges that the
lessor's obligation to reimburse lessee for certain costs as set forth in Article 10 has been
satisfied. Thus, under the terms of the King Creek lease any further permitting was the
responsibility of WRQ.
19
No. 69432-4-1/20
Attorney's Fees to Hughes and Hart Below
The Corlisses appeal the trial court's award of attorney's fees to Hughes
and Hart. The court awarded fees under RCW 23B.07.400(4), which provides:
On termination of the [derivative] proceeding, the court may
require the plaintiff to pay any defendant's reasonable
expenses, including counsel fees, incurred in defending the
proceeding if it finds that the proceeding was commenced
without reasonable cause.
This court reviews an award of attorney's fees for abuse of discretion. State ex
rel. Quick-Ruben v. Verharen. 136 Wn.2d 888, 903, 969 P.2d 64 (1998).
The Corlisses contend the trial court failed to enter findings of fact or
conclusions of law and that such failure alone defeats the award of fees, citing
Mahler v. Szucs. 135 Wn.2d 398, 957 P.2d 632 (1998).23 But the court's order
indicated that the basis for the award was that there was no genuine issue of
material fact that the statute of limitations had run. Likewise, Hart contends on
appeal that the Corlisses' action lacked reasonable cause because it was
commenced outside of the statute of limitations.
We reverse the award of fees to Hughes and Hart. This court has stated,
in a case involving a similar statute, which provided for attorney's fees in a
citizen's action that is dismissed and "which the court also finds was brought
without reasonable cause," that the purpose of the statute was to prevent
frivolous and harassing lawsuits. State ex rel. Evergreen Freedom Foundation v.
Washington Educ. Ass'n. 111 Wn. App. 586, 615, 49 P.3d 894 (2002) (citation
23 The Corlisses do not challenge the amountof the fee award, only its basis. Thus, to the
extent the trial court did not enter specific findings supporting the amount of the award, such
failure does not affect the Corlisses' claim.
20
No. 69432-4-1/21
omitted).24 Here, the statute of limitations issue presented debatable issues of
fact and law. That the trial court decided these issues in favor of Hughes and
Hart was not a proper basis for finding the lawsuit lacked reasonable cause.
Hughes and Hart point to no evidence presented below to show that the lawsuit
was brought to harass or for an improper purpose.
Attorney's Fees on Appeal
Hughes and Hart request attorney's fees on appeal under RCW
23B.07.400. We deny the request. The Corlisses' appeal is not commenced
without reasonable cause.
Reversed in part, affirmed in part, and remanded.
WE CONCUR:
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24
The statute in Evergreen Freedom Foundation provided:
[l]n the case of a citizen's action which is dismissed and which the court also
finds was brought without reasonable cause, the court may order the person
commencing the action to pay all costs of trial and reasonable attorney's fees
incurred by the defendant.
Evergreen Freedom Foundation. 111 Wn. App. at 615 n.23 (quoting former RCW
42.17.400(4)(2002)).
21