Chevalier v. Woempner

Van Deren, J.

¶1 — Gary Woempner appeals the trial court’s award of $96,122.75, plus $137,089.48 in prejudgment interest, to Gary Chevalier for a 49 percent interest in Alki International Inc., Woempner’s solely owned corporation. In his initial briefing, Woempner argued that (1) substantial evidence did not support the finding that Woempner and Ronald Bequette entered into a partnership agreement, (2) the corporate form of Alki precluded a finding that a partnership existed, and (3) any partnership agreement was void for illegality. After oral argument and our examination of the record, we asked the parties for additional briefing and evidence relating to Bequette’s alleged ownership of an option interest in Alki that Chevalier claims was the basis of a partnership purchase from Bequette. Based on our review of the record, we hold that Bequette’s sale to Chevalier of “49 Shares of Option for Alki Int’l” in 1996 did not convey any property interest to Chevalier because no evidence supports Bequette’s ownership of 49 shares of an option in Alki. Ex. 24. We also hold that RCW 25.05.055 precludes a finding that Bequette had a partnership interest in Alki. Accordingly, we reverse the trial court’s finding that Chevalier owns an interest in Alki and vacate the resulting judgment in Chevalier’s favor.

FACTS

¶2 The facts of this case were highly contested at trial, and testimony focused on whether Bequette and Woempner formed a partnership absent any written evidence of a partnership agreement and whether that alleged partnership superseded or somehow owned Woempner’s solely owned corporation, Alki. At times, the witnesses contradicted their earlier testimony, but at trial, Bequette maintained that he formed a partnership with Woempner and then sold his interest in the partnership to Chevalier for over $50,000, entitling Chevalier to one half of Woempner’s corporation.

¶3 Chevalier admitted that he knew nothing about the formation of a partnership but maintained that his payment to Bequette entitled him to an ownership interest in Alki even though (1) he never saw any evidence that Bequette owned any interest in Alki, (2) Chevalier worked solely as an employee of Alki, (3) Chevalier claimed unemployment benefits from the company as an employee after April 1999, and (4) nothing changed in his work for Alki after he paid Bequette. Woempner denies that there was any partnership formed with Bequette at any time.

¶4 Woempner testified that he owned two moving and storage companies: Perry Moving and Storage Company Inc. and Ace Van and Storage Co. Inc. His companies conducted the actual transportation for Bequette’s freight forwarding businesses: Admiral Forwarders Inc. and Alderwood Freight Forwarders Inc.¹ In the 1990s, Woempner began to consider entering the freight forwarding business.

¶5 Bequette has worked in the international freight forwarding business since 1985; and his freight forwarding companies work for the United States Armed Forces and arrange for the shipment of household goods and belongings when military personnel are transferred from one duty station to another.

¶6 In 1993, Admiral hired Chevalier. In 1994, Chevalier wanted to become involved in the international freight forwarding business as an owner and he discussed his desire to do so with Bequette. During their discussion, Bequette and Chevalier concluded that Chevalier would not be able to start his own business because he did not have enough assets to obtain a surety bond.²

¶7 Bequette contacted Woempner and discussed Woempner’s desire to start a freight forwarding company. Woempner, Chevalier, and Bequette had a lunchtime conversation wherein Bequette suggested that he and Woempner start a new freight forwarding business. According to Chevalier, Alki was not formed at that lunch, and Bequette stated that an agreement “didn’t come to fruition in any single event” but in a series of subsequent telephone conversations. Report of Proceedings (Oct. 21, 2003 afternoon session) at 33. There were no other face-to-face meetings between Woempner and Bequette, and no formal agreement was reached regarding Bequette’s participation in Alki at the restaurant meeting. Chevalier was not involved in any other conversations with Bequette and Woempner about forming a partnership.

¶8 Woempner denied any discussion that suggested that he would be a partner with Bequette or Chevalier, and he emphasized that if Bequette were to have an interest in another freight forwarding company, it would violate the rules applicable to these companies shipping for military families.³ He agreed to have Chevalier be the office person for the new company he started.

¶9 Bequette testified that he proposed that the business be in Woempner’s name with Bequette as a silent partner, advising Woempner who to contact and how to comply with license requirements. Bequette’s name was not to appear on any documents relating to the business. Chevalier would run the day-to-day operations and, eventually, buy Bequette’s share of the company. Bequette first testified that there was no discussion about the division of profits but later said that Alki’s profits were to be split 50/50 until his sale. There is no written documentation of an agreement between or among Chevalier, Bequette, or Woempner. There is no evidence that Woempner ever split profits with Bequette.⁴

¶10 Woempner hired legal counsel in Washington, D.C., to assist in filling out the application to obtain a license for the freight forwarding business; he also paid $7,500 in license fees. Bequette’s companies, Alderwood and Admiral, contributed money to assist in the formation of Alki, and Woempner repaid Admiral and Bequette for the costs advanced.

¶11 Woempner drafted the articles of incorporation for Alki, and on March 25, 1994, he filed the articles of incorporation with the secretary of state for the State of Washington. The principal office of the corporation was listed as Tacoma, Washington, but the Alki office operated out of Bothell, in the same building as Bequette’s companies. Woempner’s name is the only name that appears on Alki’s articles of incorporation. The bylaws, dated May 20, 1994, listed Woempner as president and secretary of Alki. The corporate tax returns show only Woempner as the owner and the Alki bank accounts, as well as an A.G. Edwards account, were in only Woempner’s name. Woempner never issued share certificates in Alki.

¶12 Bequette agreed to sell Chevalier his interest in Alki for $50,750. Bequette and Chevalier executed a written contract in 1996 entitled “49 Shares of Option for Alki XntT under which Chevalier and Bequette maintain Chevalier purchased 49 percent of Alki for $50,750, plus interest. Ex. 24 (emphasis added). No money from this sale went to the corporation or Woempner and Woempner never signed any acknowledgement, nor did the corporate documents reflect the addition of another owner. The record does not reveal any testimony or evidence relating to Bequette’s ownership or interest in any shares or an option for any shares in Alki.

¶13 In April 1999, Chevalier sued Woempner and Alki, seeking a declaratory judgment as to his rights and status with regard to his claimed ownership in Alki and alleging breach of contract and breach of fiduciary duties. The trial court concluded that Bequette’s and Woempner’s association created a partnership at will; that the written agreement conveying “49 Shares of Option for Alki Int’l” to Chevalier “reflected the parties’ intent that Chevalier would purchase a 49% interest in Alki”; and that from April 1, 1996 to February 1999, Chevalier was entitled to 49 percent of the profits of Alki. Ex. 24 (emphasis added); Clerk’s Papers at 177 (emphasis added). The trial court concluded that (1) Woempner exercised his right to dissociate himself from the partnership when he told Chevalier that he did not have an interest in Alki and (2) Woempner’s exercise of his right to dissociate himself required dissolution of the partnership and a winding up of its business affairs under RCW 25.05.300. The trial court dismissed all claims against Bequette.

¶14 On August 9, 2010, a second trial was held to determine the value of Chevalier’s interest in Alki from April 1,1996, through February 1999. On January 14,2011, the trial court awarded Chevalier $96,122.75 for his share of the Alki partnership and $137,089.48 in prejudgment interest. Woempner appeals.⁵

ANALYSIS

I. Standard of Review

¶15 We review a trial court’s findings of fact and conclusions of law to determine whether substantial evidence supports the findings and, if so, whether the findings support the trial court’s conclusions of law. Scott v. Trans-Sys., Inc., 148 Wn.2d 701, 707-08, 64 P.3d 1 (2003). “Substantial evidence” is the “quantum of evidence sufficient to persuade a rational fair-minded person the premise is true.” Sunnyside Valley Irrig. Dist. v. Dickie, 149 Wn.2d 873, 879, 73 P.3d 369 (2003). We review conclusions of law de novo. Sunnyside Valley, 149 Wn.2d at 880. “Appellate courts do not hear or weigh evidence, find facts, or substitute their opinions for those of the trier-of-fact. Instead, they must defer to the factual findings made by the trier-of-fact.” Quinn v. Cherry Lane Auto Plaza, Inc., 153 Wn. App. 710, 717, 225 P.3d 266 (2009).

II. The Operative Document

¶16 The parties focus their arguments on the trial court’s findings of facts and conclusions of law regarding the parties’ intent to form a partnership, why Alki was a corporation solely owned by Woempner, and Bequette’s purported sale of a 49 percent interest in Woempner’s business. But we need not reach those issues because the operative document, the sale document between Bequette to Chevalier, did not convey anything more than shares in an “option,” the existence of which was not proved at trial. Therefore, the trial court’s findings that a partnership was formed between Bequette and Woempner and then between Woempner and Chevalier are not supported by substantial evidence and its conclusions of law fail for lack of support in the findings.

A. Bequette Drafted a Document Selling Chevalier 49 Shares of an Option in Alki

¶17 Bequette drafted the agreement he and Chevalier executed. That document is entitled: “49 Shares of Option for Alki Int’l” under which Chevalier argues he purchased 49 percent of Alki for $50,750, plus interest, with all money paid to Bequette. Ex. 24 (emphasis added). The agreement further provided that Chevalier’s nonpayment of the sum due would result in the “option” reverting to Bequette. Ex. 24. Bequette did not explain at trial why, if he was selling a partnership interest in Alki, he referred to this interest as an “option” in the agreement.⁶

¶18 The testimony is undisputed that Bequette did not hold any shares in Alki; the record shows that Bequette told Chevalier that the document conveyed a partnership interest in Alki, despite Bequette’s draft conveyance twice referring to sale of shares of an “option”; and Bequette never testified that he owned shares in an option in Alki. Neither Bequette nor any other witness testified that Bequette had earned, purchased, or was entitled to 49 shares of an option in Alki. And the trial record is devoid of evidence of the creation of an option interest, its value, when or how it had to be exercised, whether other shares of an option existed, and who might have owned any remaining option shares. Moreover, when directed to address the issue of an option’s existence and effect in supplemental briefing, Chevalier merely maintained that the option agreement and its execution for 49 shares of an option was the sole agreement representing the Bequette-Chevalier sale. Finally, there is no evidence in the record supporting the trial court’s finding and conclusion that the value of 49 shares of an option was equivalent to a 49 percent interest in Alki.

B. Chevalier Purchased Shares of an Option in Alki That Was Not Proved at Trial

¶19 An option contract is “a complete, valid and binding agreement” to which general contract principles apply. Bennett Veneer Factors, Inc. v. Brewer, 73 Wn.2d 849, 853, 441 P.2d 128 (1968). In applying these general contract principles, our primary goal in interpreting the option contract is to ascertain the parties’ mutual intent. U.S. Life Credit Life Ins. Co. v. Williams, 129 Wn.2d 565, 569, 919 P.2d 594 (1996). Under Washington’s “objective manifestation” theory of contracts, we determine the parties’ intent by focusing on the objective manifestations expressed in their contract rather than focusing on the parties’ unexpressed subjective intentions. Hearst Commc’ns, Inc. v. Seattle Times Co., 154 Wn.2d 493, 503, 115 P.3d 262 (2005). In other words, we “impute an intention corresponding to the reasonable meaning of the words used” in the contract. Hearst, 154 Wn.2d at 503. Thus, the parties’ subjective intent “is generally irrelevant if the intent can be determined from the actual words used” in the contract. Hearst, 154 Wn.2d at 503-04. And “[w]e do not interpret what was intended to be written but what was written.” Hearst, 154 Wn.2d at 504. Accordingly, we give language in the option contract its ordinary, usual, and popular meaning unless the contract clearly demonstrates a contrary intent. Hearst, 154 Wn.2d at 504. We construe ambiguities in a contract against the drafter. Rouse v. Glascam Builders, Inc., 101 Wn.2d 127, 135, 677 P.2d 125 (1984).

¶20 Although stocks and stock options are both transferable property interests, the character of the property interests differ; “[s]tock may be converted when it is sold, but stock options, as a right to purchase stock, disappear when the owner exercises the options and purchases the stock. Once the owner exercises the options, he has irrevocably exchanged one kind of property (stock options) for another kind of property (stock).” In re Marriage of Langham, 153 Wn.2d 553, 565, 106 P.3d 212 (2005). Thus, Bequette’s purported ownership of stock options in Alki did not equate with an ownership interest in Alki. Likewise, under the sales contract, Bequette sold his purported property interest in “49 Shares of Option for Alki Int’l” to Chevalier, not a 49 percent ownership interest in Alki.⁷ Ex. 24.

¶21 Here, the evidence at trial, including the unambiguous language used in the sales agreement, is conclusive that Bequette sold Chevalier 49 shares of a purported option he held for an interest in Alki. But Bequette told Chevalier and testified at trial that the “option” sale was really a sale of a purported partnership interest in Alki. There being no evidence supporting the existence of 49 (or more) shares of an option owned by Bequette, there is likewise no evidence supporting the trial court’s conclusion that Bequette’s sale to Chevalier of shares of an option he did not own, or even claim to own, legally transferred a partnership interest in Alki.

¶22 Thus, although the parties focused on whether substantial evidence supported the trial court’s finding of a partnership between Bequette and Woempner, these findings are irrelevant to whether Bequette actually conveyed a partnership interest to Chevalier. Bequette’s own unambiguous writing conveyed only shares of an option in Alki, an interest the record does not indicate even existed. Thus, he conveyed 49 shares of an unproven option to Chevalier.

III. No Substantial Evidence of Bequette’s Alleged Partnership Interest

¶23 Even if the language of the sales agreement had demonstrated Bequette’s intent to convey a partnership interest in Alki to Chevalier, substantial evidence does not support the finding that Bequette and Woempner formed a partnership and, thus, does not support the trial court’s conclusion that Bequette owned any interest in Alki that he could sell to Chevalier. Bequette testified that he transferred his interest in Alki to Chevalier through the sales agreement. Chevalier maintains that position in his supplemental briefing. “It is undeniable that . . . Bequette intended to, and did, transfer his interest in Alki International to . . . Chevalier. The vehicle for that transfer was Exhibit 24 [(the option agreement)].” Suppl. Br. of Resp’t at 8. But the record does not support a finding that Bequette had the interest in Alki that was conveyed by the option purchase agreement, exhibit 24.

¶24 Bequette’s writing regarding his ownership and transfer of an interest in shares of an option in Alki directly contradicts his trial testimony that he and Woempner formed a partnership. If Bequette is to be believed at all given the nature of his testimony, at best he and Woempner formed an association under the Washington Business Corporation Act, Title 23B RCW.

¶25 RCW 25.05.055 controls the formation of business partnerships in Washington and states in relevant part:

(1) Except as otherwise provided in subsection (2) of this section, the association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership.

(2) An association formed under a statute other than this chapter, a predecessor statute, or a comparable statute of another jurisdiction is not a partnership under this chapter. ■

(Emphasis added.) Under the plain language of these provisions, an association formed under the Washington Business Corporation Act “is not a partnership” RCW 25.05.055(2) (emphasis added). Under RCW 25.05.055, it is irrelevant whether the parties intended to use the corporate form merely as a medium for representing their partnership because RCW 25.05.055(2) provides that once an association has been formed under another statute, that association is not a partnership.

¶26 Bequette wanted Chevalier to pay him over $50,000 and convinced Chevalier to do so by representing that Bequette held a 50 percent interest in Alki. Bequette then drafted, and he and Chevalier executed, a written contract in 1996 entitled “49 Shares of Option for Alki Inti,” under which the trial court found that Chevalier purchased 49 percent of Alki for $50,750, plus interest, paid to Bequette. Ex. 24 (emphasis added). No money from this sale went to the corporation or Woempner. No documentation of the valuation of Bequette’s share or option interest exists in the record, nor is there any documentation or evidence that Bequette owned the option he sold to Chevalier.⁸

¶27 The trial court’s conclusion that the parties formed a partnership is contrary to the plain language of RCW 25.05.055, and substantial evidence does not support it. The evidence shows that Bequette knew how to create advantages for himself, that he told Chevalier that he owned an interest in Alki, and that he sold Chevalier 49 shares of an unproven option in Alki. The evidence is also clear that Chevalier did not know about and was not involved with any partnership formed between Bequette and Woempner. He simply believed Bequette’s representations about his ownership. But this is not sufficient evidence to support the trial court’s disregard of Woempner’s legal corporate ownership and operation of Alki or the trial court’s conclusion that Bequette’s sale of shares in an option in Alki to Chevalier (with no evidence of ownership and reasonable value of the shares) was actually a partnership transaction among Bequette, Chevalier, and Woempner.

¶28 Because we hold that Chevalier held no interest in Alki through his payment to Bequette, we do not address the parties’ other issues. We reverse the trial court’s order finding that Chevalier owns an interest in Alki and vacate the judgment against Woempner and Alki in favor of Chevalier, and we remand for dismissal.

Quinn-Brintnall, J., concurs.

1 Bequette was awarded one of the companies in his divorce; at trial, he testified that he planned to sell the company to his brother.

2 According to Chevalier, bonding companies require individuals or companies to have a million dollars in assets in order to get “bonded.” Report of Proceedings (Oct. 22, 2003) at 145.

3 For a freight forwarding company to qualify to conduct business with the military, the business must first be approved by the Military Travel Management Command (MTMC). The rules and regulations of the MTMC preclude a person from having common financial administrative control (CFAC) of more than one freight forwarding company competing for business in the same traffic channel. If the military command learns of a person owning more than one freight forwarding company, it may take away or suspend the license of the freight forwarding company.

Carriers that fail to disclose their CFAC relationships are subject to disqualification from Department of Defense transportation programs, debarment from federal contracting, criminal prosecution for false statements, and civil prosecution.

The CFAC program is an expression of procurement policy and procedure and is not considered a rule of general application to the public. Therefore, it is not published in the Code of Federal Regulations.

Clerk’s Papers at 85.

4 Bequette could not decide whether payments from Alki to him or his businesses totaling $40,000 were profits or reimbursement of costs advanced. He also could not clarify whether a $20,000 payment from Alki to Bequette’s father was so directed because of the MTMC regulations or due to Bequette’s pending divorce. Bequette did not report the second $25,000 payment from Chevalier in his tax returns. And none of the payments from Alki were reported on Bequette’s tax returns as profits.

5 Woempner appeals (1) the order denying his motion for summary judgment entered on September 5, 2000, (2) the order dismissing Bequette on July 27,2004, (3) the findings of fact and conclusions of law entered on July 27, 2004, (4) the amended findings of fact and conclusions of law and declaratory judgment entered on November 5, 2004, and (5) the findings and fact and conclusions of law and judgment entered on January 14, 2011.

6 He could not explain what happened to the other one percent of his purported interest. And in his supplemental briefing, Chevalier failed to explain the nature of the “[slhares of an [o]ption” that he purchased from Bequette. Ex. 24.

7 Even if Bequette held an option interest in Alki, Chevalier’s purchase of 49 shares of that option would not support a finding that Chevalier owned 49 percent of Alki. First, there is no evidence of how many option shares were issued or what the substance of the option was. Second, to convert an option into stock ownership requires a purchase of the stock, i.e., Chevalier would owe the corporate owner (presumably Woempner) for the shares of stock at the preset option price.

8 And perhaps not remarkably, despite Bequette’s and Chevalier’s insistence that they were partners with Woempner from 1994 until the trial court’s 2003 ruling that Chevalier owned a partnership interest in Alki and until final ruling in 2010, and their insistence that they were entitled to a share of the partnership’s value and profits, they failed to file any partnership tax returns related to Alki with the federal government. Wash. Court of Appeals oral argument, Chevalier v. Woempner, No. 41711-1-II (May 15, 2012) at 19 min., 3 sec. (on file with court).