Bishop of Victoria v. Corporate Bus. Park
| Decision Date | 08 May 2007 |
| Docket Number | No. 33909-9-II.,No. 33579-4-II.,33579-4-II.,33909-9-II. |
| Citation | 138 Wn. App. 443,158 P.3d 1183 |
| Court | Washington Court of Appeals |
| Parties | BISHOP OF VICTORIA CORPORATION SOLE, a British Columbia, Canada, corporation, Appellant, v. CORPORATE BUSINESS PARK, LLC, a Washington limited liability company; Joseph C. Finley, an individual; and the marital community composed of Joseph C. Finley and Jane Doe Finley, Respondents. Joseph C. Finley, Appellant, v. Corporate Business Park, LLC, a Washington limited liability company; Bishop of Victoria, Ltd., a Canadian corporation; Victoria Properties, Inc., a Canadian corporation; Norman Isherwood, individually and as a marital community with Jane Doe Isherwood; David Osmond, individually and as a marital community with Jane Doe Osmond, Respondents. |
¶ 1 The Bishop of Victoria Corporation appeals a jury verdict in favor of Joseph Finely for damages resulting from a breach of fiduciary and contractual duties, arguing that the court should have granted its motion for judgment as a matter of law. We must decide what duty the manager-members of a limited liability company owe to each other and whether the evidence in this case supports a jury finding that this duty was breached. We reverse.
¶ 2 In the late 1980s, Joseph Finley formed Swiftsure Farms, an Arabian horse breeding business in Auburn, Washington. The Bishop of Victoria Corporation Sole (BV), the corporation that holds the real property assets of the Roman Catholic Diocese of Victoria, British Columbia, Canada, gave a substantial loan to Swiftsure Farms after the business suffered financial trouble. Finley was never able to fully repay the debt to BV. FINLEY AND BV FORM A LIMITED LIABILITY COMPANY
¶ 3 In early 1997, Finley approached the leaders of BV with an idea for an investment opportunity. Finley was aware of a large parcel of land in Lacey, Washington (the Lacey Property) that was being sold from a foreclosure lender for one-third its appraised value. Finley proposed that he and BV purchase the Lacey Property with the intention of selling it at a substantial profit, enabling Finley to repay BV for his previous debt. They agreed, and BV and Finley formed a company called Corporate Business Park, LLC (CBP) that would purchase the Lacey Property. BV and Finley were the two sole members of CBP.
¶ 4 The Operating Agreement specified that CBP was a "limited liability company," LLC, engaged "solely in the business of investing in, developing[,] and marketing real property located in the State of Washington." Ex. 405. Members of BV and Finley later testified that Finley agreed to contribute his labor and expertise to CBP and that BV agreed to contribute financially to CBP. Finley had expertise, experience, and knowledge of the Lacey Property, and BV had financial capabilities and financial resources. There was no evidence presented that either party's obligation to contribute was quantified.
¶ 5 Under the terms of the Agreement, Finley and BV were both managers of CBP. The Operating Agreement did not specify the time in which Finley was required to sell the Lacey Property, but BV's financial officer testified that she expected it to sell quickly.
¶ 6 CBP purchased the Lacey Property for approximately $5,000,000 United States dollars (USD) and obtained a mortgage for $5,250,000 in order to have excess proceeds to pay the debt service on the mortgage for one year. CBP first listed the property for sale for $18,000,000.
¶ 7 The Lacey Property did not immediately sell, CBP missed several payments, and CBP exhausted the excess proceeds from the mortgage. BV and Finley then refinanced the first mortgage with AG Capital Funding Partners, L.P., (AG) for $7,500,000. On behalf of CBP, they executed a promissory note and deed in trust for the Lacey Property to AG as security for the refinance.
¶ 8 For a time, CBP was able make the payments to AG from the excess proceeds from the refinance. Eventually, the reserve again ran out, and BV started making monthly payments to AG on behalf of CBP. BV made monthly payments of $81,250 to AG.
¶ 9 On February 24, 1999, there was a change in leadership at the Victorian Diocese when the old bishop retired and a new bishop replaced him and hired his own staff. As part of this change, the new bishop replaced BV's financial officer.
¶ 10 This change in leadership marked a shift in BV's approach to CBP. The new bishop did not approve of the Diocese's involvement in CBP. BV's new financial officer explained that BV was suffering financially from the mortgage payments to AG and that the new leadership was concerned that the Lacey Property would never sell. BV's priority became only that the Lacey Property be sold and the debts be satisfied. During trial, the finance officer admitted that, under the new leadership, BV was willing to forfeit any potential profit to CBP in selling the Lacey Property, as long as CBP's debt was satisfied.
¶ 11 Each party suspected the other's motives. The new leadership at BV took the perspective that "Finley has no personal interest in selling the Property unless he can sell it for a premium price that may never be available." Clerk's Papers (CP) at 1039 (). Finley accused the new leadership of wanting "to sell the property for pennies on the dollar so that it can withdraw from what the new regime considers to be a bad investment." CP at 1125 (Declaration of Joseph C. Finley Re: Motion for Receiver).
¶ 12 In April 1999, the new bishop decided not to make CBP's April payment to AG. After this missed payment, the interest rate on the principle rose and AG sued CBP, Finley, and BV for foreclosure.
¶ 13 On May 5, 1999, Finley and BV then signed an Addendum to CBP's Operating Agreement. The Addendum specified that Finley owed BV $1,463,936.97 Canadian dollars (CAD) and that CBP owed BV $1,662,666.01 CAD. It stated that, before allocating any profits of CBP to the members, BV would first receive full payment of all outstanding debts to BV. As security for repayment, Finley assigned his interest in CPB to BV. Lastly, the Addendum stated that BV "may, but has no obligation to, make further advances to [CBP]." CP at 2766. Both parties later testified that before this Addendum, BV had agreed to finance CBP's debt service.
¶ 14 AG obtained a judgment of $8,154,895.83 against CBP, Finley, and BV and a decree of foreclosure on the Lacey Property. The trial court issued an order to allow AG to apply the proceeds from a sheriff's sale of the Lacey Property toward payment of the judgment.
¶ 15 BV began exploring options to satisfy the foreclosure judgment. BV's finance officer informed Finley that he would contact other Dioceses in attempt to gain financial help with the foreclosure judgment. At one point, BV offered AG $1,000,000 to release BV from liability under the foreclosure judgment, relieving BV's individual responsibility, but leaving CBP and Finley responsible. BV admitted that this arrangement would have been detrimental to CBP. At trial, BV's finance officer stated that BV should never have been involved in CBP and that BV was interested in ceasing its dealings with AG, the foreclosure judgment, and CBP.
¶ 16 In 2000, BV raised $13,000,000 CAD dollars from the parishioners of the Victorian Diocese and issued debentures1 in exchange for their money. In a deed of trust, BV pledged all land BV owned in British Columbia as security for repayment of the debentures. In a supplemental deed of trust, BV purportedly pledged the proceeds of the "Judgment, Mortgage and Loan Documents" as additional security for the debentures. CP at 4376.
¶ 17 The Bishop issued an information statement disclosing that BV planned to use the debenture money to reduce its indebtedness. In the statement, he claimed BV planned to either: (1) reach a settlement with AG; or (2) take over AG's position, recover the Lacey Property, and offer it for sale.
¶ 18 The parishioners' funds were transferred to Fisgard Asset Management (Fisgard),2 a trustee set up on behalf of the parishioners. BV and Fisgard agreed that Fisgard would purchase the judgment from AG. The interest on the judgment had accrued and the amount due had grown to $8,701,832.07 USD. Fisgard negotiated with AG and bought the judgment at a discount for $8,296,056.00 USD. Thereafter, AG assigned the judgment and decree of foreclosure to Fisgard.
¶ 19 Relations between Finley and BV came to an impasse and, in September 2000, BV filed a petition seeking appointment of a receiver for CBP. The trial court appointed the receiver as custodian of the assets, operations, and business of CBP. The receiver had the power to manage and operate CBP's assets or to dispose of CBP's operations.
¶ 20 In an order dated May 25, 2001, the trial court ordered the receiver to enter into a partial settlement with Fisgard, in which Fisgard agreed to stay foreclosure actions over the Lacey Property for one year to allow the receiver to sell the property. If the receiver did not sell the Lacey Property by April 26, 2002, the court ordered the receiver to surrender a deed-in-lieu of foreclosure to the Lacey Property to Fisgard. The trial court, the receiver, Finley, and BV all signed the order agreeing to the deed-in-lieu.
¶ 21 The...
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