Burns v. Norwesco Marine, Inc.

• Decision Date: 06 May 1975
• Docket Number: No. 910--II,910--II
• Citation: 13 Wn.App. 414,535 P.2d 860
• Parties: Dr. Theodore BURNS, Jr., Respondent, v. NORWESCO MARINE, INC., a Washington Corporation, et al., Defendants, John Warnock and Jane Doe Warnock, his wife, Appellants.
• Court: Washington Court of Appeals

Page 414

13 Wn.App. 414

535 P.2d 860

Dr. Theodore BURNS, Jr., Respondent, v. NORWESCO MARINE, INC., a Washington Corporation, et al., Defendants, John Warnock and Jane Doe Warnock, his wife, Appellants.

No. 910--II.

Court of Appeals of Washington, Division 2.

May 6, 1975.

John M. Warnock, pro se.

Gary H. Sexton, Ronald R. Pinckney, Walgren & Sexton, Inc., P.S., Bremerton, for respondent.

PEARSON, Judge.

John Warnock appeals after having judgment entered against him on a promissory note executed in favor of the respondent, Dr. Theodore Burns. Warnock's co-defendants, Norwesco Marine, Inc., Astron Boats, Inc., and Phil and Sandra Warnock, defaulted from this action. The facts are briefly set out below. Further details will be presented as they become relevant to the several issues in this case.

Norweco Marine, Inc. was in the business of building, repairing and selling boats. John Warnock was the president, incorporator, and shareholder in Norwesco Marine, and acted at times as its legal counsel. Phil Warnock, who is John Warnock's son, was also an incorporator of Norwesco Marine and served as its general manager. Norwesco Marine was not a profitable enterprise. In fact, at the time this lawsuit was commenced, it was in debt for approximately $40,000 and had few assets.

In February of 1971, Dr. Burns contracted with Norwesco Marine and Phil Warnock for the construction of a jet-propelled boat. Dr. Burns traded a used boat and trailer for the down payment, but did not deliver the boat's documents. Dr. Burns testified that Phil Warnock promised him delivery of the new boat within 3 to 5 weeks. The delivery deadline was not met. Dr. Burns made numerous inquiries during the following 2 months and was repeatedly promised by both John and Phil Warnock that the boat would be ready at any time. Meanwhile, the used boat traded by Dr. Burns was sold, despite the fact that Dr. Burns was holding the documents for security. The proceeds from the sale were apparently used to pay off corporation debts. His patience exhausted, and with the summer boating season imminent, Dr. Burns demanded in the latter part of May, 1971 a refund of the value of the traded boat. He settled for a promissory note, executed on May 29, 1971 by John Warnock, in his capacity as president of Norwesco Marine, for the amount of $4,500. A lump sum payment was promised on June 7, 1971. Dr. Burns subsequently purchased a jet boat from another dealer. Suit on the promissory note was filed on June 11, 1971. The primary issue at the August, 1972 trial was whether there were facts and circumstances which would justify piercing the corporate veil of Norwesco Marine so that John Warnock could be held personally liable on the note. The trial court held that there were, and accordingly a judgment in the amount of $4,500, plus $1,500 for attorney's fees, was entered. We affirm.

Warnock has made numerous assignments of error in his appeal, which can be reduced to four issues. First, Warnock contends that the trial court should have disqualified itself after having been presented with an affidavit of prejudice. However, several months prior to being presented with the affidavit, the court had made there rulings in the case, some of which required the exercise of discretion. Thus Warnock's right to demand a change of judges was lost. RCW 4.12.050. See In re McDaniel, 64 Wash.2d 273, 391 P.2d 191 (1964).

The second issue concerns a motion for a continuance made by Warnock, which was denied because of his failure to attend the hearing on that motion. On the date of the trial Warnock requested the court to reconsider its ruling, explaining that he was absent because of a hospital examination which he characterized as an 'emergency.' However, Warnock failed to present the court with a physician's statement or affidavit or any other proof verifying the reason for his absence. Thus it cannot be said that the court abused its discretion by refusing to grant the continuance. State v. Miles, 77 Wash.2d 593, 464 P.2d 723 (1970); State v. Larson, 12 Wash.App. 781, 532 P.2d 638 (1975).

Warnock next contends that plaintiff's counsel, Gary Sexton, should have been disqualified for conflict of interest. Warnock alleges that Sexton had been retained by Norwesco Marine to foreclose a lien on an automobile in 1970 and that the automobile was sold but title had never been perfected. Warnock reasons that Norwesco Marine was and still is a client of Sexton, and therefore should be automatically disqualified. Sexton, in a statement to the trial court, denied these charges and stated that he merely prepared an affidavit for Norwesco Marine which related to an automobile foreclosure.

Even assuming that Warnock's version of the facts is true, they are not sufficient to convince us that at the time Sexton was retained by the plaintiff he owed any further duty to Norwesco Marine. And in view of Sexton's denial of the allegations made by Warnock, the trial court was justified in inferring that Norwesco Marine was a former client (as opposed to a present client) of Sexton. The issue of Sexton's disqualification therefore falls within the rule of Kurbitz v. Kurbitz, 77 Wash.2d 943, 468 P.2d 673 (1970). There the Supreme Court held that an attorney who represented a party in a former matter should be disqualified from representing the opposing party when: (1) the present suit is substantially related to the former matter; or (2) the attorney had access to confidential information material to the present suit. See also National Bank of Commerce v. Fountain, 9 Wash.App. 727, 514 P.2d 194 (1973); T. C. Theatre Corp. v. Warner Bros. Pictures, Inc., 113 F.Supp. 265 (S.D.N.Y.1953); Annot. 52 A.L.R.2d 1243 § 3 (1957).

It is clear that this suit has nothing to do with the lien foreclosure. Further Warnock has not presented any evidence or even made any allegations that Sexton had access to confidential information material to the present suit. Therefore the trial court did not err by refusing to order Sexton disqualified to represent Dr. Burns.

The fourth issue concerns the trial court's decision to disregard the corporate existence of Norwesco Marine and hold John Warnock personally liable.

The corporate form is of course frequently utilized to limit the personal liability of its officers, directors and shareholders. And as a general rule, the corporate entity will be respected by the courts. There are circumstances, however, in which the corporate form has been so abused that, in order to do justice, the corporate personality will be disregarded so long as the rights of innocent third parties are not prejudiced. Superior Portland Cement, Inc. v. Pacific Coast Cement Co., 33 Wash.2d 169, 205 P.2d 597 (1949). Although the facts have varied from case to case, the corporate entity has been disregarded when it is used to perpetuate a fraud or wrong, gain an unjust advantage or evade an obligation. Allman Hubble Tugboat Co. v. Reliance Dev. Corp., 193 Wash. 234, ...