Brewster 9 LP v. Trout-Blue Chelan-Magi LLC ( 2024 )

FILED
AUGUST 15, 2024
In the Office of the Clerk of Court
WA State Court of Appeals Division III
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION THREE
BREWSTER 9, LP; BREWSTER )
HEIGHTS PACKING & ORCHARDS, ) No. 39507-3-III
LP; BREWSTER HEIGHTS PACKING, )
INC.; CASS & ALYCIA GEBBERS )
D/B/A CWAC; DIMITY ORCHARDS )
LLC; DMC DETERING, LLC; )
GEBBERS FARMS INC.; GVL ) UNPUBLISHED OPINION
ORCHARDS LP; HMJD ORCHARDS )
LLC; JD CHERRIES, LLC; MAC & )
CASS PARTNERSHIP, LP; MAC & )
FRANCO ORCHARDS, LP; MAC & )
KEVIN, LP; MAC & RANDY-ROYS, )
LP; MAC & TOM FRUIT, LP; PEDRO )
GUZMAN; TAYLOR ORCHARDS )
GROUP, LP; WESTCO ORCHARDS, )
LLC; APPLE HOUSE WAREHOUSE & )
STORAGE, INC.; AA ORCHARDS; )
DAN AGAPO, AND ALTA FRESH, LLC )
D/B/A CHELAN FRESH MARKETING, )
Petitioners, )
)
v. )
TROUT-BLUE CHELAN-MAGI, LLC; )
INTERNATIONAL FARMING )
CORPORATION, LLC; CASCADIA )
CAPITAL, LLC; ED JOHNSON; AL )
ROBISON; CHALIE MCNAIRY AND )
MARK STENNES, )
)
Respondents, )
CHELAN HOLDCO, INC., )
Defendants. )
)
No. 39507-3-III
Brewster 9 LP, et al. v. Trout-Blue Chelan-Magi LLC, et al.
COONEY, J. — Chelan Fruit Cooperative was purchased by International Farming
Corporation LLC (IFC) and reorganized. In addition to IFC, Brewster Heights Packing
& Orchards LP (BHPO) submitted a bid to purchase Chelan Fruit Cooperative but their
bid was rejected in favor of IFC’s. As part of the reorganization, Chelan Fruit
Cooperative members’ equity interests were converted into shares of Chelan Holdco Inc.
(Chelan Holdco), the holding company for Chelan Fruit LLC, previously Chelan Fruit
Cooperative. Following the sale and reorganization of Chelan Fruit Cooperative, BHPO
and others filed a lawsuit against those involved in the transaction, including Chelan
Holdco, IFC, and Chelan Fruit LLC. BHPO alleged that there was misconduct involved
in the transaction and that IFC’s bid was chosen over BHPO’s because of a conspiracy or
“scheme” in which the defendants were involved.
Following BHPO’s lawsuit, the defendants moved to dismiss some of their claims
pursuant to CR 12(b)(6). Ultimately, the trial court dismissed six of BHPO’s claims with
prejudice. BHPO appeals the dismissal of four of those claims as well as the court’s
order that dismissed the causes of action with prejudice. We affirm the trial court’s order
dismissing the four causes of action. Further, because BHPO did not request leave to
amend their complaint below, we decline to address their argument that their claims were
improperly dismissed with prejudice.
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No. 39507-3-III
Brewster 9 LP, et al. v. Trout-Blue Chelan-Magi LLC, et al.
BACKGROUND
Chelan Fruit LLC, is a Washington limited liability company that grows, markets,
and sells fruit, particularly apples, pears, and cherries. Chelan Fruit LLC, was previously
a grower-owned cooperative known as Chelan Fruit Cooperative. Chelan Fruit
Cooperative’s grower-members could accrue “capital retains, which [were] allocated
equity.” Clerk’s Papers (CP) at 293. Chelan Fruit Cooperative’s grower-members could
also vote on certain corporate matters. In 2020, Chelan Fruit Cooperative was bought by
IFC and reorganized.
BHPO owns shares in Chelan Holdco, the majority owner of Chelan Fruit LLC,
and was previously a member of Chelan Fruit Cooperative.
Prior to the sale and reorganization of Chelan Fruit Cooperative, BHPO entered
into a joint license with Chelan Fruit Cooperative related to the trademarked SugarBee
apple. Chelan Fruit Cooperative obtained a license agreement that granted it the right to
propagate and commercialize the SugarBee apple, subject to minimum acreage
restrictions. If Chelan Fruit Cooperative did not convince enough grower-members to
plant the SugarBee apple, it would lose its license. BHPO agreed to participate in the
development of the SugarBee apple and obtained an exclusive sublicense to plant, grow,
and produce the SugarBee apple.
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No. 39507-3-III
Brewster 9 LP, et al. v. Trout-Blue Chelan-Magi LLC, et al.
SALE OF CHELAN FRUIT COOPERATIVE AND REORGANIZATION
In late 2020, Chelan Fruit Cooperative began evaluating a potential sale of the
cooperative. Chelan Fruit Cooperative sought multiple offers and engaged Cascadia
Capital, an investment banking firm with agricultural experience, to assist in marketing
the sale of Chelan Fruit Cooperative. One of the bids to acquire Chelan Fruit
Cooperative came from IFC and another was presented jointly by BHPO and a separate
company, Auvil Fruit LLC. IFC’s bid was ultimately accepted.
In October 2021, Chelan Fruit Cooperative underwent a corporate reorganization
to reduce Chelan Fruit Cooperative’s tax liabilities and increasing payouts to the grower-
members. The restructuring and reorganization transaction would result in Chelan Fruit
Cooperative’s members’ “capital credit accounts converting into shares of Chelan
Holdco, which would become the majority owner of Chelan Fruit LLC.” CP at 303-04.
IFC became the majority shareholder of Chelan Holdco.
COMPLAINT AND ALLEGATIONS OF MISCONDUCT
Following the sale and reorganization of Chelan Fruit Cooperative, BHPO and
others (collectively BHPO) filed a lawsuit against IFC, Chelan Holdco, Chelan Fruit
LLC, Cascadia Capital, Ed Johnson, Al Robison, Charlie McNairy and various “Does”
(collectively Chelan Fruit). BHPO alleged that their bid was more lucrative than the IFC
bid and that IFC’s bid was chosen due to a conspiracy or “scheme.” CP at 280. BHPO
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Brewster 9 LP, et al. v. Trout-Blue Chelan-Magi LLC, et al.
argued Chelan Fruit devised and carried out such a “scheme” in order to “illegally
capitalize on the SugarBee® apple’s value.” Id.
Defendant Mr. Johnson is the immediate-past CEO1 of Chelan Fruit LLC; Mr.
Robison is on the board of directors of Chelan Fruit LLC; Mr. McNairy is the current
CEO of IFC; and Mr. Mark Stennes is the former interim CEO of Chelan Fruit
Cooperative. Relevant to this appeal are BHPO’s first, second, seventh, and eighth
causes of action.
BHPO’s first cause of action is for a breach of fiduciary duty. BHPO alleged that
BHPO and other SugarBee apple growers were in a fiduciary relationship with Chelan
Fruit LLC (previously Chelan Fruit Cooperative) based on their joint sublicense
agreement to produce the SugarBee apple. BHPO alleged that Chelan Fruit breached this
fiduciary duty:
By preparing to sell the SugarBee® apple through multiple sales-
and-marketing desks and at prices to which BHPO never agreed, Chelan
Holdco (acting by and through its officers and directors) and Chelan Fruit,
LLC (acting by and through its officers and directors) are taking advantage
of the trust BHPO and the other SugarBee® apple grower Equity Holders
placed in them to monitor and control the quantity and quality of the
SugarBee® apples sold. They are thereby breaching the fiduciary duty they
owe to BHPO and the other SugarBee® apple grower Equity Holders.
CP at 311 (emphasis added).
1
Chief executive officer.
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Brewster 9 LP, et al. v. Trout-Blue Chelan-Magi LLC, et al.
BHPO’s second cause of action is also for a breach of fiduciary duty. BHPO
alleged that Chelan Fruit Cooperative’s officers and directors “owe their grower-
members fiduciary duties in connection with merger transactions” and that these
fiduciary duties were breached that led to “an unfair merger process and deficient
purchase price.” CP at 312-13.
BHPO’s seventh cause of action is for primary liability under the Securities Act of
Washington (WSSA), chapter 21.20 RCW. BHPO argues that Chelan Holdco, Mr.
Johnson, and Mr. McNairy are primarily liable under WSSA because they “omitted and
misrepresented material facts regarding the Merger Transaction that resulted with the
singular goal of shedding Chelan Fruit LLC’s obligations under the SugarBee Marketing
Agreement, and the SugarBee Acreage Restriction.” CP at 321. BHPO also alleged that
the grower-members “exchanged their equity value in Chelan Fruit Cooperative for
shares in Chelan Holdco and are owed the full value of such equity interests. This
exchange constitutes a sale of securities under RCW 21.20.430. Chelan Holdco is,
therefore, a ‘seller’ of securities under RCW 21.20.430.” CP at 321 (emphasis added)
(citation to record omitted).
BHPO’s eighth cause of action is for secondary liability under WSSA. BHPO
alleged IFC, Chelan Fruit, Cascadia Capital, Mr. Johnson, and Mr. McNairy had a
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No. 39507-3-III
Brewster 9 LP, et al. v. Trout-Blue Chelan-Magi LLC, et al.
relationship with the “sellers” of securities and are therefore jointly liable for the alleged
WSSA violations.
CR 12(b)(6) MOTION TO DISMISS
Shortly after filing their answer, Chelan Fruit filed a CR 12(b)(6) partial motion to
dismiss some of BHPO’s claims. BHPO opposed the 12(b)(6) motion and moved for
leave to file a second amended complaint. The court granted BHPO’s motion to file a
second amended complaint and set a schedule for supplemental briefing on the partial
motion to dismiss.
After BHPO filed their second amended complaint, Chelan Fruit and BHPO filed
supplemental briefing on the partial motion to dismiss and the court heard argument on
the motion. The court ultimately dismissed BHPO’s first, second, fifth, sixth, seventh,
and eighth causes of action with prejudice.
Thereafter, BHPO and Chelan Fruit stipulated that there was “no just reason for
delay and that final judgment should be entered as to all claims dismissed by the
Dismissal Order” pursuant to CR 54(b). CP at 545. The court signed an order stating the
same.2
BHPO appeals.
After BHPO’s notice of appeal was filed with this court, the clerk of court sent
2
the parties a letter stating that the CR 54(b) findings were insufficient to permit review as
a matter of right. An amended CR 54(b) stipulation and order was filed by the parties
thereafter.
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No. 39507-3-III
Brewster 9 LP, et al. v. Trout-Blue Chelan-Magi LLC, et al.
ANALYSIS
BREACH OF FIDUCIARY DUTY (FIRST CAUSE OF ACTION)
BHPO argues that the trial court erred in dismissing its first cause of action under
CR 12(b)(6) because it pleaded a “plausible breach-of-fiduciary duty claim against”
Chelan Fruit. Appellants’ Opening Br. at 33. We disagree.
We review a CR 12(b)(6) dismissal de novo. Kinney v. Cook, 159 Wn.2d 837,
842, 154 P.3d 206 (2007). “Dismissal is warranted only if the court concludes, beyond a
reasonable doubt, the plaintiff cannot prove ‘any set of facts which would justify
recovery.’” Id. (quoting Tenore v. AT&T Wireless Servs., 136 Wn.2d 322, 329-30, 962
P.2d 104 (1998)). All of the facts alleged in the complaint are taken as true, and this
court may consider hypothetical facts supporting the plaintiffs’ claim. FutureSelect
Portfolio Mgmt., Inc. v. Tremont Grp. Holdings, Inc., 180 Wn.2d 954, 962, 331 P.3d 29(2014), aff’d, 190 Wn.2d 281, 413 P.3d 1 (2018). Thus, a complaint will survive a
CR 12(b)(6) motion to dismiss if there is any set of facts that would justify recovery.
Hoffer v. State, 110 Wn.2d 415, 420, 755 P.2d 781 (1988). However, if the plaintiffs’
claims remain legally insufficient, even under their proffered hypothetical facts, dismissal
under CR 12(b)(6) is appropriate. Gorman v. Garlock, Inc., 155 Wn.2d 198, 215, 118
P.3d 311 (2005).
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No. 39507-3-III
Brewster 9 LP, et al. v. Trout-Blue Chelan-Magi LLC, et al.
BHPO’s first cause of action is for breach of fiduciary duty by Chelan Holdco and
its John Doe officers and directors, and Chelan Fruit LLC and its John Doe officers and
directors. BHPO alleged it had a fiduciary relationship with Chelan Fruit LLC (formerly
Chelan Fruit Cooperative) and Chelan Holdco based on BHPO’s agreement to partner
with Chelan Fruit LLC, to develop the SugarBee apple. The court granted Chelan Fruits’
CR 12(b)(6) motion to dismiss this claim, concluding that there was no fiduciary
relationship.
Fiduciary duties include the obligation of due care, loyalty, and good faith.
Rodriguez v. Loudeye Corp., 144 Wn. App. 709, 723, 189 P.3d 168 (2008). A fiduciary
relationship exists in law when “the nature of the relationship between the parties [is]
historically considered fiduciary in character; e.g., trustee and beneficiary, principal and
agent, partner and partner, husband and wife, physician and patient, attorney and client.”
McCutcheon v. Brownfield, 2 Wn. App. 348, 356-57, 467 P.2d 868 (1970). A fiduciary
duty can exist as a matter of law but may also develop in fact. Liebergesell v. Evans,
93 Wn.2d 881, 890, 613 P.2d 1170 (1980).
As a general rule, absent circumstances that allow a participant to relax their guard
and repose their trust in another, participants to a business relationship do not have a
fiduciary relationship. Id. at 889-90. However, special circumstances may establish a
fiduciary relationship in fact where one would not normally arise in law. Annechino v.
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No. 39507-3-III
Brewster 9 LP, et al. v. Trout-Blue Chelan-Magi LLC, et al.
Worthy, 162 Wn. App. 138, 143, 252 P.3d 415 (2011) (citing Liebergesell, 93 Wn.2d at
890), aff’d, 175 Wn.2d 630, 290 P.3d 126 (2012). Whether a fiduciary duty exists in fact
may depend on the development of factual proof. See Liebergesell, 93 Wn.2d at 891.
In Liebergesell, our Supreme Court considered whether special circumstances
established a fiduciary relationship in fact between a borrower and a lender where the
borrower, a businessman, induced a widowed school teacher to lend him money at a 20
percent interest rate even though he knew rates over 12 percent were illegal. Id. at 884-
85. The court considered whether the borrower could estop the lender from raising the
usury defense based on a fiduciary relationship between the parties. Id. at 891. In noting
that a “fiduciary relationship between two persons may exist either because of the nature
of the relationship between the parties historically considered fiduciary in character,” the
court concluded that the lender had submitted sufficient evidence of a fiduciary
relationship to overcome summary judgment. Id. at 890 (quoting McCutcheon, 2 Wn.
App. at 356).
In Hutson v. Wenatchee Federal Savings & Loan Ass’n, we considered whether a
savings and loan association had a duty to define the phrase “mortgage insurance” where
a borrower alleged she asked the lender for credit life insurance, but the lender only
procured mortgage insurance. 22 Wn. App. 91, 92, 100, 588 P.2d 1192 (1978). There,
the lender did not explain the difference between the two and the borrower assumed she
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No. 39507-3-III
Brewster 9 LP, et al. v. Trout-Blue Chelan-Magi LLC, et al.
was paying for credit life insurance when she was really only paying for mortgage
insurance. Id. at 93. We held:
While the lender’s duty is not that of a fiduciary, . . . under the
circumstances of this case, it was a jury question whether the lender had
a duty to define any ambiguous or specialized terms which might mislead
unknowledgeable and uncounseled customers, members of the lay public
who rely on the lender’s advice. The relationship between such parties
involves more trust and confidence than is true of ordinary arm’s length
dealing, even though the lender legitimately profits from the transaction.
Id. at 105.
Here, with the exception of plaintiff Pedro Guzman, all the parties are businesses,
intertwined through a purely contractual relationship, not unknowledgeable and
uncounseled individuals who may be prone to mislead one another. Imposing a fiduciary
duty relationship in fact would place the parties in the untenable position of providing
due care, loyalty, and good faith to their own constituents while simultaneously acting
primarily for the benefit of those with whom they are contractually obligated. Because
BHPO could not prove any set of facts showing that their relationship with Chelan Fruit
LLC, and Chelan Holdco was anything more than contractual, dismissal pursuant to
CR 12(b)(6) was appropriate.
BREACH OF FIDUCIARY DUTY (SECOND CAUSE OF ACTION) AND VIOLATION OF
THE WSSA (SEVENTH AND EIGHTH CAUSES OF ACTION)
BHPO argues that the allegations in the second amended complaint, as to the
second cause of action for breach of fiduciary duty, challenge the entire fairness of the
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No. 39507-3-III
Brewster 9 LP, et al. v. Trout-Blue Chelan-Magi LLC, et al.
merger itself and the court erred in dismissing that cause of action for lack of standing.
With respect to their WSSA claims (seventh and eighth causes of action), BHPO asserts
the trial court improperly concluded there was no “sale” of securities within the meaning
of WSSA and in granting Chelan Fruits’ CR 12(b)(6) motion.
As a preliminary issue, Chelan Fruit contends BHPO lacks standing to prosecute
their second, seventh, and eighth causes of action because they assert direct claims. In
acknowledging the causes of action are direct claims, BHPO argues that because their
allegations attack the “fairness and validity of the merger itself” they possess standing
because these causes of action do not need to be derivative. Appellant’s Opening Br. at
32. BHPO’s argument is unpersuasive.3 BHPO relies on the Washington Supreme
Court’s decision in Sound Infiniti, Inc. v. Snyder, 169 Wn.2d 199, 237 P.3d 241 (2010)
(Sound Infiniti II), to argue that in the case of a fraudulent action, a shareholder of a
Washington corporation is not limited to the statutory appraisal remedy.
Whether a party has standing to assert a cause of action is a question of law we
review de novo. West v. Thurston County, 144 Wn. App. 573, 578, 183 P.3d 346 (2008).
3
BHPO cites a multitude of Delaware cases for this proposition. However,
looking to Delaware caselaw on this issue is unnecessary considering there is applicable
law in Washington and the Delaware statutes lack an exclusivity requirement like
Washington. See Sound Infiniti, Inc. v. Snyder, 169 Wn.2d 199, 208-12, 237 P.3d 241(2010).
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If a plaintiff lacks standing, their claims cannot be resolved on the merits and must
necessarily fail. Ullery v. Fullerton, 162 Wn. App. 596, 604-05, 256 P.3d 406 (2011).
Standing is a common law doctrine that prohibits a litigant from raising the legal
rights of another. Grant County Fire Prot. Dist. No. 5 v. City of Moses Lake, 150 Wn.2d
791, 802, 83 P.3d 419 (2004). Generally, a shareholder cannot sue for harm done to a
corporation or its shareholders, because “the corporation is viewed as a separate entity,
and the shareholder’s interest is too remote to meet the standing requirements.”
Gustafson v. Gustafson, 47 Wn. App. 272, 276, 734 P.2d 949 (1987). Because of the
possibility of abuse by corporate officers and directors, a narrow exception exists that
allows shareholders to bring derivative suits on behalf of the corporation. Dolin v.
Murphy, 174 Wn. App. 288, 297, 300 P.3d 424 (2013). However, shareholders can bring
a direct claim when the claim arises from something other than their status as a
shareholder. Sound Infiniti, Inc. v. Snyder, 145 Wn. App. 333, 352, 186 P.3d 1107(2008) (Sound Infiniti I), aff’d, 169 Wn.2d 199, 237 P.3d 241 (2010).
Here, the plaintiffs are former Chelan Fruit Cooperative members who, in their
second, seventh, and eighth causes of action, allege direct claims for harm suffered by all
former members of Chelan Fruit Cooperative. As BHPO concedes, such claims arise
directly from their status as shareholders.
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Chelan Fruit contends the dissenter’s rights statute, codified in the Washington
Business Corporation Act, chapter 23B.13 RCW, is the exclusive remedy for a dissenting
shareholder. In response, BHPO invokes the Supreme Court’s recognition that in certain
cases, such as those involving fraud, the statutory appraisal remedy may be inadequate.
Sound Infiniti II, 169 Wn.2d at 208-09. In Sound Infiniti II, the court affirmed “the
general principle enshrined in [RCW 23B.13.020] that the appraisal proceeding should be
the exclusive remedy” for a dissenting shareholder. Id. at 209. However, a showing of
fraudulent action, rather than the mere allegation of fraudulent conduct, is required to
allow a dissenting shareholder to advance a direct claim. Id.
The fraud exception of RCW 23B.13.020(2), and recognized in Sound Infiniti II, is
not applicable to BHPO’s second, seventh, or eighth causes of action in the second
amended complaint. Rather than claiming the transaction itself was fraudulent, BHPO
claims IFC’s bid was chosen over BHPO’s because of a conspiracy or “scheme,”
resulting in IFC acquiring Chelan Fruit for less than fair value, resulting in the members
receiving insufficient compensation. RCW 23B.13.020 offers the exact relief BHPO
seeks. The statutory right to dissent allows a dissenter to “obtain payment of the fair
value of the shareholder’s shares.” RCW 23B.13.020(1).
BHPO lacks standing to assert the direct claims alleged in their second, seventh,
and eighth causes of action. The narrow exception detailed in Sound Infiniti II does not
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No. 39507-3-III
Brewster 9 LP, et al. v. Trout-Blue Chelan-Magi LLC, et al.
apply to the facts BHPO alleges in their second amended complaint. RCW 23B.13.020 is
the exclusive means of providing BHPO fair and accurate compensation for their interest
in Chelan Fruit. Because BHPO lacked standing, we decline to address BHPO’s
argument that the trial court improperly concluded there was no “sale” of securities
within the meaning of WSSA.
The trial court did not err when it granted Chelan Fruit’s CR 12(b)(6) motion
dismissing BHPO’s second cause of action. We also affirm the trial court’s dismissal of
BHPO’s seventh and eighth causes of action, although on different grounds.
WHETHER THE TRIAL COURT ERRED IN DISMISSING BHPO’S CLAIMS WITH
PREJUDICE
BHPO contends the court erred by dismissing their claims with prejudice. We
decline to address the alleged error.
RAP 2.5(a) states that this court may refuse to review any claim of error that was
not raised in the trial court, subject to certain exceptions. In Washington Cooperative
Chick Ass’n v. Jacobs, our Supreme Court explained that after once amending its
complaint, the plaintiffs could not amend it again without permission from the trial court,
which could have been granted or denied within the trial court’s discretion. 42 Wn.2d
460, 465, 256 P.2d 294 (1953); CR 15(a) (“A party may amend the party’s pleading once
as a matter of course at any time before a responsive pleading is served . . . . Otherwise,
a party may amend the party’s pleading only by leave of court or by written consent of
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No. 39507-3-III
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the adverse party.” (Emphasis added.)). However, because the plaintiffs did not request
“leave to file any additional amendments to its pleading and did not attempt to show that
any successful amendment could be made” at the trial court level, the Supreme Court
could not consider the issue. Chick Ass’n, 42 Wn.2d at 466.
Similarly, here, BHPO did not request leave to amend their complaint again at the
trial court level. Additionally, they do not and did not explain how a further amendment
would cure the deficiencies in their second amended complaint. Because they failed to
request leave to amend at the trial court level, we decline to consider the issue.
CONCLUSION
We affirm the trial court’s dismissal of the first and second causes of action and,
on different grounds, affirm the trial court’s dismissal of the seventh and eighth causes of
action.
A majority of the panel has determined this opinion will not be printed in the
Washington Appellate Reports, but it will be filed for public record pursuant to RCW
2.06.040.
Cooney, J.
WE CONCUR:
Fearing, J. Staab, A.C.J.
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