SentinelC3 v. Hunt

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IN THE SUPREME COURT OF THE STATE OF WASHINGTON
SENTINELC3, INC., a Washington NO. 89317-9
Corporation,
ENBANC
Petitioner,
v.
Filed JUL 3 1 2014
CHRIS J. HUNT, an individual and the
marital community, if any, comprised of
CHRIS J. HUNT and CARMEN HUNT;
MICHAEL BLOOD, an individual and the
marital community, if any, comprised of
MICHAEL BLOOD and JANAE BLOOD,
Respondents.
GORDON McCLOUD, J.-This case concerns a judicial proceeding to
determine the fair value of shares in a closely held corporation. The primary
question presented is whether the respondents, shareholders who disagreed with the
Sentinel C3 v. Hunt, et ux., et al., No. 89317-9
corporation's estimate of that fair value, presented sufficient evidence to defeat the
corporation's motion for summary judgment. We must also decide whether the trial
court properly awarded attorney and expert fees to the corporation.
We hold that the respondents did not provide sufficient evidence to defeat the
corporation's motion for summary judgment. We also hold that the respondents did
not act in a manner that justified the trial court's award of fees to the corporation.
We therefore reverse the Court of Appeals as to the summary judgment issue and
affirm it as to the fees.
FACTS
Respondents Chris Hunt and Michael Blood (collectively Respondents)
owned shares of Petitioner SentinelC3 Inc. (Sentinel), a closely held corporation.
Hunt owned 1,000,000 shares (approximately a 22.2 percent interest), and Blood
owned 250,000 shares. On April19, 2010, Sentinel provided the Respondents with
a valuation report prepared by a business valuation expert named James Kukull
(Kukull Report). The Kukull Report valued the Respondents' interests at $0.1952
per share as of December 31, 2009.
On October 28, 2010, a majority ofthe Sentinel shareholders voted to approve
a reverse stock split. The Respondents were the only dissenting shareholders.
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As dissenting shareholders, the Respondents were entitled under
Washington's dissenters' rights statute to payment for the "fair value" of their
shares, plus interest, as of the date immediately preceding the reverse stock split.
RCW 23B.13.010, .250. Sentinel estimated the fair value of the shares to be the
same as that reflected in the Kukull Report: $0.1952 per share. It issued checks to
both men consistent with that estimate.
The Respondents disagreed with the estimate in the Kukull Report. Per RCW
23B.13.280, both Respondents notified Sentinel that they objected to the company's
valuation and had retained their own valuation expert to evaluate the shares. Each
claimed that the valuation expert placed the per share price at $0.4267, and each
objected that Kukull's valuation was outdated at the time of the reverse stock split.
In other respects, however, the Respondents' fair value estimates differed
from one another. Hunt asserted that the value of the shares would be 20 percent
higher if a "negotiated transaction of the corporation to a strategic buyer is
imminent" and stated that he believed that Sentinel was contemplating such a sale.
Clerk's Papers (CP) at 62. Blood claimed that Sentinel's nondissenting shareholders
had arranged some sort of"' close' agreement" whereby the number of total shares
was artificially inflated-and his own interest thereby artificially diminished-just
3
Sentinel C3 v. Hunt, et ux., et al., No. 89317-9
prior to the reverse stock split. CP at 328-29. He asserted that during discussions
following the reverse split vote,
it became clear that Sentinel had already offered and The Managing
Class of Shareholders ... accepted an agreement [that] allowed The
Managing Class . . . to exchange their shares of Sentinel for another
Sentinel asset with separate benefits before their fractional shares were
repurchased along with the Non Managing Class of Shareholders after
the recapitalization of Sentinel.
CP at 327-28. According to Blood, the proper value of his shares was $0.6443 per
share.
Pursuant to RCW 23B.13.300, Sentinel petitioned the superior court for a
determination of the shares' fair value. RCW 23B.13.300 requires a corporation to
commence such a proceeding within 60 days after receiving a dissenting
shareholder's demand for payment, unless the corporation elects to meet the demand
instead. That statute also provides that "[t]he dissenters are entitled to the same
discovery rights as parties in other civil proceedings" and that "[t]he court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value." RCW 23B.l3.300(5).
Blood and Hunt answered Sentinel's petition on March 10 and April 7, 2011,
respectively. On May 6, 2011, the trial court entered a case schedule order with a
discovery cutoff date of December 9, 2011.
4
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In early April 2011, the Respondents answered Sentinel's first interrogatories
and requests for production and identified the valuation experts they had retained as
"Meg Carlson and Korri Hall, the C & H Group, LLC." CP at 334, 348. The
Respondents refused to produce any documents related to Carlson's and Hall's
valuation, however, on the ground that they had "retained them as consulting experts
only." CP at 334, 349 (emphasis omitted). Hunt also asserted that his belief that
Sentinel might be contemplating a sale to a strategic buyer was "based upon the
actions of Sentinel C3." CP at 350. Blood did not explain the basis for his allegation
that Sentinel had artificially diminished his shares' value in a secret agreement.
In late June and early July 2011, Sentinel responded to the Respondents' first
interrogatories. Sentinel objected to many of the Respondents' interrogatories and
requests for production on the grounds that they were unduly burdensome, called for
privileged information, or were unlikely to lead to the discovery of admissible
evidence. Indeed, many ofthe Respondents' requests were quite broad. E.g., CP at
394 ("Please identify all corporate actions and/or corporate documents of Sentinel
C3 . . . which were created, started, discussed, partially carried out, completed or
which any other activity was performed related to the action or document between
January 1, 2008 and the present .... "). Despite its objections, Sentinel produced
many responsive documents. It also asked for a protective order preventing public
5
Sentinel C3 v. Hunt, et ux., et al., No. 89317-9
dissemination of corporate documents containing trade secrets. On August 5, 2011,
the Respondents stipulated to the entry of that protective order. The trial court
entered it one month later. CP at 565.
Four days after the Respondents stipulated to the entry of the protective order,
Sentinel moved for summary judgment on the ground that the dissenters had not
offered any evidence to refute the company's valuation. Sentinel also requested
attorney and expert fees under RCW 23B.13 .31 0(2)(b ). That statute allows the court
to
assess the fees and expenses of counsel and experts for the respective
parties, in amounts the court finds equitable: ... if the court finds that
the party against whom the fees and expenses are assessed acted
arbitrarily, vexatiously, or not in good faith with respect to the rights
provided by chapter 23B.13 RCW.
RCW 23B.13.310(2)(b). Along with this motion, Sentinel filed an affidavit by
Kukull swearing to the truth of the January 17, 2011, letter in which he stated that
"the value per share ... as shown in [his] appraisal report as of December 31, 2009
had [not] changed significantly as of October 31, 201 0." CP at 319-20.
Hunt filed a response on September 26, 2011. He argued that the discovery
cutoff date was December 9, 2011 (still two and a half months off), that he had
recently retained an (unnamed) expert who would testify as to the shares' value, and
that this expert was still going through the financial records obtained in discovery.
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Sentinel C3 v. Hunt, et ux., et al., No. 89317-9
He also asserted that Kukull' s letter and affidavit were contradicted by Sentinel's
financial records. Specifically, he claimed that the Kukull Report "relied upon a
statement that Sentinel C3 expected minimal or no growth in 201 0," and that this
statement was "no longer true as of October 28, 201 0" when "financial records
showed an increase in growth of approximately 9%." CP at 562.
Blood also filed a response in opposition to summary judgment. Like Hunt's,
Blood's response asserted that the Kukull Report was out of date and failed to reflect
higher than expected revenues at the time payment was due. Unlike Hunt's, it did
not mention any other expert's valuation. Instead, it reasserted Blood's theory that
Sentinel's "Management Class" had "concocted a plan to force [the Respondents]
out of the company" and reached a "secret agreement" to artificially diminish the
value of the dissenters' shares. CP at 576. Blood provided no specific
(nonconclusory) facts in support of these allegations.
In response, the parties stipulated to a short continuance for additional
discovery related to the newly disclosed (unnamed) expert witness. The court set a
new summary judgment hearing date for October 21, 2011.
On October 13, 2011, Hunt provided Sentinel with a copy of the expert
testimony he planned to introduce at trial-a valuation report by a certified public
accountant named Jerry Hecker (Hecker Report). Hunt did not file the report with
7
Sentinel C3 v. Hunt, et ux., et al., No. 89317-9
an affidavit from Hecker swearing to the truth of its contents. Instead, on October
18, he filed it with the court with an affidavit from his attorney stating that it was "a
true and accurate copy of Hunt's Fair Value Analysis of Sentinel C3, Inc." CP at
597. At the summary judgment hearing, Hunt's atton1ey acknowledged that his
affidavit was not sufficient to authenticate the Hecker Report. Verbatim Report of
Proceedings (VRP) (Oct. 21, 2011) at 18. He also acknowledged that it was not
sufficient to make the report admissible in a trial. !d.
The Respondents contended that Sentinel's motion for summary judgment
was premature because the discovery deadline was still two months away.
Accordingly, in their responses to Sentinel's motion for summary judgment, they
sought a continuance to pursue further discovery. 1
But the Respondents requested the continuance in the alternative. They
argued first that their respective affidavits sufficed to create genuine issues material
fact, and they requested the continuance only in the event that the trial court found
otherwise. At the summary judgment hearing, the court put them to a choice:
1
Civil Rule (CR) 56( f) allows a trial court to order a continuance when "it appear[s]
from the affidavits of a party opposing [a summary judgment] motion that he cannot, for
reasons stated, present by affidavit facts essential to justify his opposition." See also Guile
v. Ballard Cmty. Hasp., 70 Wn. App. 18, 24, 851 P.2d 689 (1993) (if nonmoving party
needs more time to respond to summary judgment motion, the party should request a
continuance under CR 56(£) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 326, 106 S. Ct.
2548, 91 L. Ed. 2d 265 (1986))).
8
Sentinel C3 v. Hunt, et ux., et al., No. 89317-9
[I]t seems the ... parties resisting the motion are saying we want you
to deny the motion or grant a continuance. The Court won't do that.
The Court is going to say to you either move for a continuance or not.
You can't say ifwe win, we don't want to continue; if we're not going
to win, we want it continued. . . . So right now before we go any further
I'm asking you to make your call. Are you moving for a continuance
or not?
VRP (Oct. 21, 2011) at 4.
In response, both Respondents expressly waived their requests for a
continuance, proceeding on the theory that they had created a genuine issue of
material fact just by swearing that their own valuation expert disagreed with
Sentinel's. Hunt seems to have believed that he could rely on the Hecker Report
without authenticating it because he had provided Sentinel with a copy. 2 Both
parties believed that their sworn disagreement with Sentinel's estimate was, in and
of itself, sufficient to create a genuine issue of material fact. 3
2
VRP (Oct. 21, 2011) at 4 ("We provided our expert's report to the petitioner.
There's no need to enter into a continuance.").
3
!d. at 12-13 (argument by Hunt's counsel) ("Now ignoring the existence of [the
Hecker Report], even if that report was never provided to petitioner in this case, petitioner
still has the obligation to prove the accuracy and completeness of their own report. There's
no substantiation provided by the petitioner to say that just because you have a report filed
immediately makes that report valid. In actuality [RCW] 23 B .13. 300 allows the Court
even the opportunity if there is a disagreement as to fair value to hire their own expert,
meaning that the petitioner has to actually prove the accuracy and validity of its own
report."), 21(argument by Blood proceeding prose) ("[T]he way I read the statute is that I
could come in and ask the Court could you please provide a court-appointed appraiser to
determine the actual value [of] this corporation. The value here is not enough for me to go
and get an attorney.").
9
Sentinel C3 v. Jlunt, et ux., et al., No. 89317-9
Because the Hecker Report was not admissible, the trial court refused to
consider it in the summary judgment proceeding. On the basis of the other evidence
presented, the court granted Sentinel's motion for summary judgment. In doing so,
it also granted Sentinel's motion for attmney fees but did not provide any reasoning
to support the award.
On November 18, 2011, the Respondents filed a motion for reconsideration.
Along with this motion, the Respondents filed a declaration by Hecker certifying
under penalty of perjury that he was prepared to testify that his valuation was more
accurate than Kukull's.
The trial court denied the motion for reconsideration on January 6, 2012. The
Respondents appealed. 4
The Court of Appeals framed the appeal as challenging three actions by the
trial court: "[(1)] the court's valuation ruling at summary judgment, [(2)] the
decision to exclude Hecker's valuation, and [(3)] the award of attorney fees without
4 The Respondents did not assign error to the trial court's denial of their motion for
reconsideration. Nor did they address that issue anywhere in their briefs on appeal. For
those reasons, we do not address the denial of their motion for reconsideration. The
technical failure to assign error on appeal does not waive an issue that is clearly argued in
the briefs, but when neither the assignments of error nor the substance of the briefs raises
an issue, the other party might be prejudiced if the court addressed it. State v. Olson, 126
Wn.2d 315, 318-22, 893 P .2d 629 (1995). Such prejudice is a "compelling reason" for the
court not to exercise its discretion under Rules of Appellate Procedure (RAP) 1.2(a) to
consider a case on its merits, overlooking procedural imperfections. Id. at 323-24.
10
Sentinel C3 v. Hunt, et ux., et al., No. 89317-9
appropriate findings." SentinelC3, Inc. v. Hunt, 176 Wn. App. 152, 158, 309 P.3d
582 (2013). It agreed with the Respondents on the first and last issues, holding that
the trial court erred by granting summary judgment on the valuation question and by
granting Sentinel's request for attorney fees. !d. It purported not to address the trial
court's decision to exclude the Hecker valuation. Jd. 5
The Court of Appeals concluded that the Respondents created a genuine issue
of material fact just by asserting that they had consulted an expert who disagreed
with Sentinel's valuation. Id. at 162. According to this logic, the Respondents had
no obligation to properly offer this expert's valuation-the trial court was
nevertheless obligated to presume that the valuation would be offered in admissible
form, and that it would support the Respondents' claims:
Mr. Blood's affidavit, his settlement demand, and his interrogatory
answers were all put before the court at summary judgment. In them,
he explained that the experts he and Mr. Hunt had consulted had
evaluated the company at $0.4267 cents per share. He then valued his
stock at an even higher rate due to the belief that the company had an
agreement to buy nearly one-quarter of its shares back from some of
5
The Court of Appeals' distinction between "the [trial] court's valuation ruling"
and "the decision to exclude Hecker's valuation" is untenable. Sentinel, 176 Wn. App. at
158. The Court of Appeals concluded that the Respondents' affidavits and interrogatory
answers established a genuine issue of material fact even though they were based entirely
on a consulting expert's valuation that "constituted hearsay." Id at 162. Thus, the Court
of Appeals held that evidence is sufficient to survive summary judgment even if it is
inadmissible because it is hearsay. That logic applies equally to evidence, like the Hecker
Report, that is inadmissible because it is unauthenticated. Thus, the Court of Appeals did
implicitly hold that the Hecker valuation should have been considered at summary
judgment.
11
Sentinel C3 v. Hunt, et ux., et al., No. 89317-9
the other stockholders. Mr. Hunt similarly used the consulting expert's
valuation as the basis for his request before increasing it due to the
belief that a sale was in the offing.
!d. (emphasis added). Thus, the Court of Appeals held that hearsay and
unsubstantiated "belief' are sufficient to defeat a motion for summary judgment. !d.
ANALYSIS
1. The Trial Court Did Not Err in Granting the Corporation's Motion for
Summary Judgment
A summary judgment ruling is reviewed de novo, with "'the appellate court
engag[ing] in the same inquiry as the trial court."' Ellis v. City ofSeattle, 142 Wn.2d
450, 458, 13 P.3d 1065 (2000) (quoting Trimble v. Wash. State Univ., 140 Wn.2d
88, 92-93, 993 P.2d 259 (2000)). On a motion for summary judgment, all facts
submitted and reasonable inferences therefrom must be viewed in the light most
favorable to the nonmoving party. Trimble, 140 Wn.2d at 93.
A court may grant a motion for summary judgment only if, on the basis of the
facts submitted, "'reasonable [minds] could reach but one conclusion."' Id. (quoting
Clements v. Travelers Indemn. Co., 121 Wn.2d 243, 249, 850 P.2d 1298 (1993)).
But "bare assertions that a genuine material issue exists" do not constitute facts
sufficient to defeat a motion for summary judgment. !d. Instead, an affidavit
opposing summary judgment must (1) be made on the affiant's personal knowledge,
(2) be supported by facts admissible in evidence, and (3) show that the affiant is
12
Sentinel C3 v. Hunt, et ux., et al., No. 89317-9
competent to testify to the matters therein. Civil Rule (CR) 56(e); Bernal v. Am.
Honda Motor Co., 87 Wn.2d 406, 412, 553 P.2d 107 (1976).
The Court of Appeals erred in ruling that the Respondents' assertions were
sufficient to defeat summary judgment. First, to defeat a motion for summary
judgment, a party must present more than "[u]ltimate facts" or conclusory
statements. Grimwood v. Univ. of Puget Sound, Inc., 110 Wn.2d 355, 359-60, 753
P .2d 517 (1988) (mere "supposition or opinion" insufficient to defeat summary
judgment). The Respondents' beliefs about secret deals and pending sales do not
meet this standard, because they were not based on any actual evidence.
Second, evidence submitted in opposition to summary judgment must be
admissible. Bernal, 87 Wn.2d at 412. Unauthenticated or hearsay evidence does
not suffice. See State v. (1972) Dan J. Evans Campaign Comm., 86 Wn.2d 503,
506-07, 546 P.2d 75 (1976) (statements in affidavits based on hearsay evidence carry
no weight at summary judgment); Int'l Ultimate, Inc. v. St. Paul Fire & Marine Ins.
Co., 122 Wn. App. 736, 745-47, 87 P.3d 774 (2004) (attorney's affidavit cannot
authenticate document about which attorney has no personal knowledge; document
is therefore inadmissible for purposes of summary judgment); Burmeister v. State
Farm Ins. Co., 92 Wn. App. 359, 365, 966 P.2d 921 (1998) (on summary judgment
motion court should consider only admissible evidence, and authentication is
13
Sentinel C3 v. Hunt, et ux., et al., No. 89317-9
"condition precedent to admissibility" (citing Rules of Evidence (ER) 901(a))); see
also Canada v. Blain's Helicopters, Inc., 831 F.2d 920, 925 (9th Cir. 1987) ("It is
well settled that unauthenticated documents cannot be considered on a motion for
summary judgment.") In Burmeister, the Court of Appeals rejected exactly the type
of improper authentication that Hunt attempted here. 92 Wn. App. at 365 (holding
trial court could not consider police report whose authenticity was sworn to by
plaintiff's attorney but not by officer who authored the report). Neither the unsworn
statements of the Respondents' consulting expert nor the Hecker Report meet this
standard. The Court of Appeals erred in holding otherwise. 6
In addition to arguing that the Hecker Report was admissible to preclude
summary judgment, the Respondents contend that their own sworn disagreement
with Sentinel's estimate was, in and of itself, sufficient to create a genuine issue of
material fact. Answer to Pet. for Discretionary Review at 15. They maintain that
6
The Respondents did make one assertion in opposition to summary judgment that
the Court of Appeals did not address-the assertion that Kukull' s valuation assumed
minimal or no growth in 2010, when financial records in fact showed growth that year.
This does not suffice to defeat the summary judgment motion, either. The Respondents
did not provide the financial records on which they based this assertion, did not explain
how it related to the value of their shares, and did not establish their own competence to
provide such an explanation. Thus, the assertion does not constitute the kind of admissible
evidentiary fact required to create a genuine material issue. Bernal, 87 Wn.2d at 412 ("To
support a denial of summary judgment, [an] affidavit ... must ... ( 1) be made on personal
knowledge, (2) set forth admissible evidentiary facts, and (3) affirmatively show the affiant
is competent to testify to the matters stated therein." (citing CR 56(e)).
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Sentinel C3 v. Hunt, et ux., et al., No. 89317-9
by accepting Kukull's evaluation over their own, the trial court improperly weighed
evidence and credibility at the summary judgment stage. !d. at 10.
The Respondents are correct that the court, rather than any expert witness,
makes the ultimate valuation decision in a dissenter's rights action. See Richey &
Gilbert Co. v. Nw. Natural Gas Corp., 16 Wn.2d 631, 647-50, 134 P.2d 444 (1943)
(court not bound to accept expert testimony as to valuation of property with no
definite market value). They are also correct that the owner of closely held shares
may testify as to the shares' value. In reMarriage of Gillespie, 89 Wn. App. 390,
403, 948 P.2d 1338 (1997).
But lay witness opinion testimony must be based on firsthand knowledge or
observation. ER 701;Ashleyv. Hall, 138 Wn.2d 151, 157-58,978 P.2d 1055 (1999).
Here, the Respondents established no basis for their valuation opinions other than
their consultation with independent experts. Because they never authenticated the
testimony of these experts, the trial court could not consider it when ruling on
Sentinel's motion for summary judgment. CR 56(e); Bernal, 87 Wn.2d at 412;
(1972) Dan J Evans Campaign Comm., 86 Wn.2d at 506-07; Int'l Ultimate, 122
Wn. App. at 745-47. The trial court therefore properly concluded that the
Respondents had produced no admissible evidence in support of their valuation
testimony prior to the summary judgment hearing.
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Ultimately, the Respondents advance an interpretation of the dissenters' rights
statute according to which a dissenting shareholder is always entitled to a trial:
[E]ven if Sentinel C3 was the only party with an expert ... or even the
only party with a valuation ... the court still had to determine if that
expert's valuation constituted fair value. In order to do that, the court
had to weigh the evidence and assess the credibility of Sentinel C3 's
expert - and the court cannot do that on summary judgment.
Br. of Appellants Hunt at 24.
We reject this interpretation of chapter 23B.13 RCW because it conflicts with
the statute's plain language. Under RCW 23B.13.300(5) the trial "may appoint one
or more persons as appraisers to receive evidence and recommend decision on the
question of fair value." (Emphasis added.) This statute is permissive, but under the
Respondents' theory it would become mandatory. 7 This does not comport with the
statutory scheme.
7
See VRP (Oct. 21, 2011) at 12-13 (argument by Hunt's counsel) ("Now ignoring
the existence of [the Hecker Report], even if that report was never provided to petitioner
in this case, petitioner still has the obligation to prove the accuracy and completeness of
their own report. There's no substantiation provided by the petitioner to say that just
because you have a report filed immediately makes that report valid. In actuality [RCW]
23B.13.300 allows the Court even the opportunity if there is a disagreement as to fair value
to hire their own expert, meaning that the petitioner has to actually prove the accuracy and
validity of its own report."), 21 (argument by Blood proceeding pro se) ("[T]he way I read
the statute is that I could come in and ask the Court could you please provide a court-
appointed appraiser to determine the actual value [of] this corporation. The value here is
not enough for me to go and get an attorney.").
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We note that this statutory scheme affords the trial judge considerable
discretion. Another judge might have appointed an appraiser to review Sentinel's
share valuation-the statute permits this. RCW 23B.13 .300(5). But the statute does
not require it. In this case the Respondents had ample time in which to produce
admissible evidence in support of their own valuation. They did not produce any
such evidence. Instead, they declined a continuance during which they could have
authenticated their expert testimony, opting to proceed on the theory that their mere
disagreement with Sentinel's valuation-unsubstantiated by any nonconclusory
evidence or basis of lmowledge-created a genuine issue of material fact. The trial
court correctly rejected that theory and ruled that no genuine issue of material fact
remained. We therefore reverse the Court of Appeals' decision as to the summary
judgment valuation ruling.
2. The Trial Court Erred in Awarding Attorney and Expert Fees to the
Corporation
This court reviews the award of attorney fees pursuant to statutes such as
RCW 23B.13.310 for abuse of discretion. Humphrey Indus., Ltd. v. Clay Street
Assocs., 170 Wn.2d 495, 506, 242 P.3d 846 (2010) (addressing analogous attorney
fee statute applicable to limited liability companies). Thus, "[ w]e reverse a trial
court's decision under this standard only if it 'is manifestly unreasonable, exercised
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Sentinel C3 v. Hunt, et ux., et al., No. 89317-9
on untenable grounds, or exercised for untenable reasons."' !d. (quoting Noble v.
Safe Harbor Family Pres. Trust, 167 Wn.2d 11, 17, 216 P.3d 1007 (2009)).
In determining an award of attorney fees, the trial court may not rely solely
on counsel's fee affidavits. Mahler v. Szucs, 135 Wn.2d 398, 434-35, 957 P.2d 632(1998) (citing Nordstrom, Inc. v. Tampourlos, 107 Wn.2d 735, 744, 733 P.2d 208(1987), implied overruling on other grounds recognized in Matsyuk v. State Farm
Fire & Cas. Co., 173 Wn.2d 643, 659, 272 P.3d 802 (2012)). Rather, it must supply
findings of fact and conclusions of law sufficient to permit a reviewing court to
determine why the trial court awarded the amount in question. Id. at 435 (record
must explain, for example, whether the rates billed were reasonable). ·
The dissenters' rights statute allows, but does not require, the court to
assess the fees and expenses of counsel and experts for the respective
parties, in amounts the court finds equitable: ... ifthe court finds that
the party against whom the fees and expenses are assessed acted
arbitrarily, vexatiously, or not in good faith with respect to the rights
provided by chapter 23B.13 RCW.
RCW 23B .13 .31 0(2)(b ). In this case, the trial court did not enter any findings of fact
or conclusions of law justifying its attorney fee award. Instead, it entered a two-
page "Judgment Summary" stating that it had denied the Respondents' motions for
reconsideration and was "therefore" granting Sentinel's request for attorney fees and
costs. CP at 1077-79. The Judgment Summary recited the amount of attorney fees
18
Sentinel C3 v. Hunt, et ux., et al., No. 89317-9
as $72,419.50. CP at 1077. It also recited $2,939.14 and $1,828.00 in costs and
expert expenses, respectively. !d.
The trial court erred by failing to explain the amount of its award. This
warrants a remand under Mahler, 135 Wn.2d at 434-35. However, we also agree
with the Court of Appeals' decision to reverse the award altogether because the
Respondents did not act arbitrarily, vexatiously, or in bad faith.
This court reversed an award of attorney fees for arbitrary, vexatious, and bad
faith pursuit of a valuation claim in Humphrey, 170 Wn.2d at 507-08. In that case,
the dissenting shareholder, Humphrey Industries, rejected the petitioner's payment
offer of $181,192.64 and demanded an additional $424,607 based on its own
estimate of its shares' fair value. !d. at 499. After a six-day bench trial, Humphrey's
interest was found to be $241,780.86-much closer to the petitioner's original offer
than to Humphrey's demand. Id. at 500 n.6. The trial court awarded attorney fees
to the petitioner, finding that Humphrey had acted "arbitrarily, vexatiously, and not
in good faith in pursuing its dissenter's rights claim." !d. at 501. This court reversed
that award, in light ofthe circumstances ofthe case. !d. at 507-08.
Under Humphrey, a dissenter does not necessarily act arbitrarily, vexatiously,
or in bad faith just because he or she makes a payment demand that is ultimately
19
Sentinel C3 v. Hunt, et ux., et al., No. 89317-9
found to be unsupported. 8 This reflects a commonsense interpretation of the
dissenters' rights statute. Under that statute, a dissenting shareholder has between
40 and 70 days to demand payment after the corporate action triggering his or her
dissenter's rights. 9 But if the demand for payment remains unsettled and the
corporation commences a judicial proceeding to determine fair value, the
shareholder is then entitled to discovery. RCW 23B.l3.300. In light ofthis statutory
scheme, we cannot conclude that a dissenting shareholder necessarily acts
arbitrarily, vexatiously, or in bad faith simply because his or her initial payment
demand is higher than that ultimately supported by the evidence-the shareholder
may not even be able to discover this evidence until well after the payment demand
must be made. For that reason, we affirm Humphrey's implicit holding: a dissenter
does not act arbitrarily, vexatiously, or in bad faith just because he or she makes a
payment demand that is ultimately found to be unsupported.
8
Humphrey Indus., Ltd. v. Clay Street Assoc., 176 Wn.2d 662, 671, 295 P.3d 231(20 13) ("This court implicitly found that it was necessary to determine whether the record
established that Humphrey's actions were arbitrary, vexatious, or not in good faith, and it
held that Humphrey's conduct, which included making an unsupported payment demand,
did not meet that standard.").
9 RCW 23B.l3.220(4), (5) (within 10 days after the corporate action triggering
dissenters' rights, the corporation must deliver to all eligible shareholders a notice of
dissenters' rights; such notice must set a date by which the corporation must receive the
payment demand, which must be between 30 and 60 days after the notice is delivered).
20
Sentinel C3 v. Hunt, et ux., et al., No. 89317-9
We further hold that the Respondents in this case were not engaging in
conduct that justifies an award of attorney or expert fees under the dissenter's right
statute. The Respondents were pursuing a misguided legal theory: that a corporate
petitioner's share valuation can never be approved on summary judgment, unless the
dissenting shareholders agree. While we reject that theory, we do not find that
pursuing it constituted vexatious, arbitrary, or bad faith behavior.
Had the Respondents not harbored a good faith belief in their interpretation of
the dissenters' rights statute, they surely would not have waived their request for a
continuance at the summary judgment hearing. (In preparation for their motion for
reconsideration, the Respondents promptly obtained a declaration from Hecker
authenticating his report.) Their legal strategy was flawed, but it was not arbitrary,
vexatious, or pursued in bad faith. We therefore affirm the Court of Appeals'
decision to reverse the award of attorney and expert fees.
CONCLUSION
Because the Respondents provided no admissible evidence to support their
share valuations, the trial court properly granted the corporate petitioner's motion
for summary judgment. We therefore reverse the Court of Appeals' decision on the
summary judgment ruling. We affirm the Court of Appeals, however, as to the
21
Sentinel C3 v. Hunt, et ux., et al., No. 89317-9
attorney and expert fees. The trial court abused its discretion by awarding those fees,
because the Respondents did not act arbitrarily, vexatiously, or in bad faith.
22
Sentinel C3 v. Hunt, et ux, et al, No. 89317-9
WE CONCUR:
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23