DLB Collection Trust by Helgesen & Waterfall v. Harris

• Decision Date: 22 March 1995
• Docket Number: No. 930474-CA,930474-CA
• Citation: 893 P.2d 593
• Court: Utah Court of Appeals
• Parties: DLB COLLECTION TRUST, by HELGESEN & WATERFALL, Trustee, Plaintiff, v. Gary S. HARRIS; Geneil L. Harris; and Harris-Oneida Investment Company, a Utah corporation, Defendants. HARRIS FAMILY TRUST; Gary S. Harris; and Geneil L. Harris; Third-Party Plaintiffs and Appellant, v. ESTATE OF Darwin M. LARSEN, Hal R. Jensen; Wesley G. Harline; Rex M. Kohler; Milton R. Goff; and James R. Foulger, Third-Party Defendants and Appellee.

Page 593

893 P.2d 593

DLB COLLECTION TRUST, by HELGESEN & WATERFALL, Trustee, Plaintiff, v. Gary S. HARRIS; Geneil L. Harris; and Harris-Oneida

Investment Company, a Utah corporation, Defendants.

HARRIS FAMILY TRUST; Gary S. Harris; and Geneil L. Harris; Third-Party Plaintiffs and Appellant, v. ESTATE OF Darwin M. LARSEN, Hal R. Jensen; Wesley G.

Harline; Rex M. Kohler; Milton R. Goff; and

James R. Foulger, Third-Party Defendants

and Appellee.

No. 930474-CA.

Court of Appeals of Utah.

March 22, 1995.

Stephen G. Stoker, Salt Lake City, for appellant.

Jack C. Helgesen and Michael V. Houtz, Ogden, for appellee.

Before BENCH, BILLINGS and WILKINS, JJ.

OPINION

BILLINGS, Judge:

We have determined that "[t]he facts and legal arguments are adequately presented in the briefs and record and the decisional process would not be significantly aided by oral argument." Utah R.App.P. 29(a)(3).

Third-party plaintiff, the Harris Family Trust (the Trust), appeals the trial court's grant of summary judgment in favor of the Estate of Darwin M. Larsen (the Estate). The trial court ruled as a matter of law that the Trust could not maintain an action against the Estate and that the Trust presented insufficient evidence to create a material issue of fact on its contribution claim. On appeal, the Trust contends the trial court's rulings were in error. The Estate responds that this court lacks jurisdiction over this case. We affirm.

FACTS

Gary S. Harris (Harris), Darwin M. Larsen (Larsen), and two others were shareholders and directors of Citizen's Bankshares, Inc. (Citizen's Bankshares), the sole shareholder of The Citizens Bank Corporation (the Bank), which operated as Citizens Bank in Ogden, Utah. These four shareholders also created and operated Citizen's Service Corporation (CSC), a separate corporation that borrowed money with personal guarantees from the four shareholders and used it to purchase bad loans at a discount from the Bank.

In 1985, the Bank was closed by the Utah Department of Financial Institutions and its assets were liquidated by the Federal Deposit Insurance Corporation (the FDIC). The FDIC pursued claims against the Bank and its directors and officers, which Larsen subsequently settled.

In 1986, some of the notes to finance CSC were assigned to DLB Collection Trust (DLB). When DLB filed suit against Harris, Harris joined Larsen as a third-party defendant alleging several causes of action, including a contribution claim for payments Harris alleges he made on debts of the Bank and CSC, and a claim that Larsen negligently managed a large real estate transaction that led to the failure of the Bank.

Eventually all of the directors except Larsen filed personal bankruptcy. Larsen died in 1989 and his estate was joined as a party. Prior to filing bankruptcy in 1991, Harris produced an assignment dated April 5, 1987, transferring his cause of action to the Trust.

In 1992, all other parties were dismissed by stipulation and the Estate moved for summary judgment. The Trust conceded dismissal of all causes of action against the Estate except the contribution and negligence claims. At a hearing before Judge David E. Roth on June 17, 1992, the trial court granted the Estate's motion for summary judgment and dismissed all of the Trust's remaining claims. On June 22, the Trust filed a Motion to Reconsider and a Supplemental Affidavit of Harris. Judge Roth retired before hearing the motion. Judge Glasmann heard the motion on September 1, 1992, and orally denied it, upholding Judge Roth's prior grant of summary judgment in favor of the Estate.

Subsequently, on November 17, 1992, Judge Glasmann entered his final orders, granting the Estate's motion for summary judgment and denying the Trust's motion to reconsider. Neither the Estate nor the Trust were given notice that the court had entered final orders. In November, the Trust scheduled a hearing to argue the form of the findings and orders, which took place on January 6, 1993. At the January hearing, Judge Glasmann informed the parties that he had mistakenly signed the final orders, not realizing that the parties had requested a hearing on the content of the findings. Both parties stipulated that Judge Glasmann could set aside the orders and then reenter them. Both orders were formally reentered on April 5, 1993. The Trust filed its notice of appeal on May 3, 1993.

JURISDICTION

The Estate contends that this court lacks jurisdiction to hear this appeal because the Trust's notice of appeal was not timely filed. The Estate maintains the trial court did not have the authority to set aside and reenter a final order to allow the Trust an opportunity to appeal. We disagree. ¹

At the January hearing, the parties reargued the merits of the Trust's Motion for Reconsideration and the proposed findings of facts. Judge Glasmann chose to stand by his prior findings, but upon stipulation by both parties, agreed to vacate his orders and to reenter them to give the Trust an opportunity to appeal. Despite this stipulation, the Estate now complains of the propriety of Judge Glasmann's actions. ²

It is settled that stipulations are conclusive and binding on the parties, unless good cause is shown for relief. See Higley v. McDonald, 685 P.2d 496, 499 (Utah 1984). This court "cannot overlook or disregard stipulations which are absolute and unequivocal. Stipulations of attorneys may not be disregarded or set aside at will." L.P.S. by Lutz v. Lamm, 708 F.2d 537, 539 (10th Cir.1983). We find that having stipulated to the trial court's actions, the Estate may not now complain about them on appeal. See Leaver v. Grose, 610 P.2d 1262, 1264 (Utah 1980) (finding that, having stipulated, defendant could not come forward to complain of the trial court's actions on appeal); Redevelopment Agency v. Mitsui Inv., Inc., 522 P.2d 1370, 1372-73 (Utah 1974) (finding that, having stipulated at trial, defendant should not "feel too badly abused" by court's refusal to allow it to renege on its stipulation on appeal). Our conclusion is particularly appropriate because the Estate's stipulation could well have misled the Trust into not exercising its rights under Rule 4 of the Utah Rules of Appellate Procedure. ³

We therefore conclude that, pursuant to the parties' stipulation, the trial court had the inherent authority and good cause to vacate its prior order and to enter a new one. As a result, this court has jurisdiction to consider this appeal on its merits.

DERIVATIVE OR INDIVIDUAL RIGHT OF ACTION

The Trust contends Larsen negligently supervised and controlled the financial and business affairs of the Bank and related entities, thereby causing the loss the Trust suffered. The Trust argues that the trial court erred when it acknowledged that Larsen was negligent, but determined, as a matter of law, that the claim belonged to the corporation, not the Trust individually.

Under Utah law, claims of negligent mismanagement of a corporation may be maintained only as a shareholders' derivative action. See Richardson v. Arizona Fuels Corp., 614 P.2d 636, 640 (Utah 1980) (holding "[t]he rule in Utah is that mismanagement of the corporation gives rise to a cause of action in the corporation, even if the mismanagement results in damage to stockholders"); Morris v. Ogden State Bank, 84 Utah 127, 140-41, 28 P.2d 138, 143 (1934) (finding mismanagement of corporation could be redressed by corporation, but not in action brought by stockholder individually).

On appeal, the Trust concedes that under Richardson and Morris it cannot assert a claim against the Estate for the loss of the value of the stock Harris held in Citizen's Bankshares or CSC. Rather, the Trust contends Harris may assert an individual cause of action because Larsen's actions constituted a wrong both to the corporation and to Harris as an individual.

There is a well-recognized exception to the general rule that allows a shareholder to bring an individual cause of action if the harm to the corporation also damaged the shareholder as an individual rather than as a shareholder. See Richardson, 614 P.2d at 638; Cunningham v. Kartridg Pak Co., 332 N.W.2d 881, 883 (Iowa 1983); 12B William Fletcher, The Law of Private Corporations § 5920 (rev. ed. 1993). The exception, however, does not arise merely because the acts complained of result in damage both to the corporation and the shareholder; rather, it is confined to cases in which the wrong itself amounts to a breach of duty owed to the shareholder personally. Empire Life Ins. Co. of Am. v. Valdak Corp., 468 F.2d 330, 335 (5th Cir.1972).

Thus, a shareholder may pursue a claim when the wrongful acts are not only against the corporation, but are also violations of a duty arising from a contract or otherwise, and owed directly to the shareholder. See ITT Diversified Credit Corp. v. Kimmel, 508 F.Supp. 140, 144 (N.D.Ill.1981); Zokoych v. Spalding, 36 Ill.App.3d 654, 344 N.E.2d 805, 813 (1976).

The Trust seeks relief based on Harris's relationship with Larsen as a co-signer and guarantor on millions of dollars of debt Harris incurred as one of the co-owners of CSC. ⁴ The recent Colorado case, Nicholson v. Ash, 800 P.2d 1352 (Colo.Ct.App.1990), is helpful to this court's analysis. In Nicholson, the plaintiff contended he had standing to pursue individual claims against the defendants in their capacity as corporate directors because of his personal guaranty of corporate debts. Id. at 1353. The plaintiff alleged that in conjunction with his purchase of capital stock in American Bankshares, Ltd. (American), which owned 100% of the stock in American Bank of Commerce (Commerce Bank), he also guaranteed the repayment of a portion of certain loans made to American or Commerce Bank. Id. He asserted that the directors of either American or Commerce Bank violated the duty owed him as a stockholder to manage Commerce Bank in a careful and prudent manner. The plaintiff claimed this breach of duty resulted in a...