Donlin v. Murphy

Decision Date01 April 2013
Docket NumberNo. 67823–0–I.,67823–0–I.
Citation174 Wash.App. 288,300 P.3d 424
CourtWashington Court of Appeals
PartiesJohn L. DONLIN, Appellant, v. Jerry MURPHY, in his individual capacity and in his capacity as director and officer of Greenshields Industrial Supply, Inc., a Washington corporation, and Contractor Supply Corporation, a Washington corporation, Respondents, and Greenshields Industrial Supply, Inc., Respondent in an action for dissolution of the corporation.

174 Wash.App. 288
300 P.3d 424

John L. DONLIN, Appellant,
v.
Jerry MURPHY, in his individual capacity and in his capacity as director and officer of Greenshields Industrial Supply, Inc., a Washington corporation, and Contractor Supply Corporation, a Washington corporation, Respondents,
and
Greenshields Industrial Supply, Inc., Respondent in an action for dissolution of the corporation.

No. 67823–0–I.

Court of Appeals of Washington,
Division 1.

April 1, 2013.


[300 P.3d 425]


Jose F. Vera, Vera & Associates PLLC, Seattle, WA, for Appellant.

Thomas Darrow Adams, Christopher D. Adams, Tayah E.h. Renfro, Adams & Duncan, Inc. P.S., Everett, WA, for Respondents.


LAU, J.

[174 Wash.App. 290]¶ 1 John Donlin appeals the trial court's dismissal of his shareholder derivative claims brought under CR 23.1 on the ground that he lacked standing to bring suit on behalf of an administratively-dissolved corporation whose assets had been sold through a receivership. Because Jerry Murphy's CR 12(b)(6) motion to dismiss was procedurally improper and because under the Washington Business Corporation Act (WBCA), title 23B RCW, shareholder [174 Wash.App. 291]standing to assert derivative claims survives the administrative dissolution of the corporation, we reverse the trial court's CR 12(b)(6) dismissal order and remand Donlin's derivative claims for trial.

FACTS

¶ 2 In 2005, Jerry Murphy told his friend, John Donlin, about a business opportunity involving a local business known as “Greenshields Industrial Supply” (GIS), a Washington corporation. Donlin agreed to purchase GIS jointly with Murphy. Donlin contributed approximately $250,000 toward the purchase

[300 P.3d 426]

price and Murphy contributed approximately $224,000, with the balance financed through a commercial loan. The purchase price included all GIS assets except the underlying storefront real estate. GIS leased the real estate from the Greenshields family, with an option to purchase.

¶ 3 Donlin and Murphy agreed to share ownership and management authority equally. Each became a 50 percent shareholder. When Murphy later asked for a 65/35 percent equity adjustment in his favor, Donlin was “stunned” and refused the demand. Although Donlin and Murphy continued to own equal shares, their relationship deteriorated.

¶ 4 In September 2007, Donlin read a news bulletin about the Greenshields family sale of the storefront real estate to a company called “Whido Isle LLC.” Donlin later received an e-mail from a friend, who told Donlin that Murphy and his wife owned Whido Isle. Murphy caused GIS to lease the storefront real estate from Whido Isle. The purchase option expired on December 31, 2007.

¶ 5 In April 2009, Donlin sued GIS for judicial dissolution and an accounting. As grounds for dissolution, Donlin alleged that the directorate was deadlocked,1 that Murphy [174 Wash.App. 292]had engaged in oppressive behavior,2 and that Murphy had misapplied and wasted corporate assets. 3 In August 2009, Murphy formed Contractor Supply Corporation (CSC), a Washington corporation. CSC agreed to operate GIS under an agency agreement. In September 2009, the court-ordered receiver assumed control of GIS during the dissolution process.

¶ 6 In October 2009, Donlin amended his complaint to allege derivative claims against Murphy for breach of fiduciary duty 4 and against CSC for violation of the Uniform Fraudulent Transfer Act (UFTA), chapter 19.40 RCW. The amended complaint also included direct claims against Murphy for conversion and ouster. In November 2009, on the receiver's recommendation, the trial court approved the sale of GIS's assets to CSC. In December 2009, the court discharged the receiver upon his distribution of the sale proceeds to GIS's creditors.

¶ 7 In April 2010, the Washington secretary of state administratively dissolved GIS for failure to file renewal paperwork and pay applicable fees. In June 2010, Murphy and CSC moved for summary judgment on all of Donlin's claims.5 The trial court denied the motion, ruling, “The sale of [174 Wash.App. 293][GIS] was court authorized on the condition the Plaintiff's and shareholders claims in this lawsuit would remain for trial and survive the sale, i.e., not be transferred.” Later that month, Donlin voluntarily dismissed his direct claims against Murphy.6

¶ 8 In September 2011, with trial less than two weeks away, CSC and Murphy (collectively, “Murphy”) moved successfully before a different judge to dismiss Donlin's derivative claims. Murphy argued among other things that the administrative dissolution of GIS deprived Donlin of standing and

[300 P.3d 427]

that Donlin failed to state a claim under UFTA. Although it cited CR 12(b)(1) 7 and (b)(6)8 as grounds for dismissal, the court did not explain its reasoning.9 The court denied Donlin's motion for reconsideration. Donlin appeals the court's dismissal order.

ANALYSIS

¶ 9 Murphy contends that “Donlin does not meet the standing requirements under CR 23.1 because the receivership liquidation and winding up together with the dissolution of the corporation have stripped Mr. Donlin of his proprietary interests.” Resp't's Br. at 17 (formatting omitted). He clarifies that the sale of GIS's assets and the administrative dissolution of the corporation left “no business to claim an interest in and no class of shareholders to fairly and adequately represent as required by CR 23.1.” Resp't's Br. at 21.

[174 Wash.App. 294]¶ 10 In June 2010, the trial court denied Murphy's motion for summary judgment that, among other things, challenged Donlin's standing. The court's order contained a handwritten interlineation stating, “The sale of [GIS] was court authorized on the condition the Plaintiff's and shareholders claims in this lawsuit would remain for trial and survive the sale, i.e., not be transferred.” Murphy did not move for reconsideration or request the court to clarify its ruling. And because he failed to cross appeal the ruling, its propriety is not before us.10

¶ 11 The summary judgment ruling clearly ordered a trial on Donlin's derivative claims. This ruling necessarily resolved the very standing challenge Murphy advanced in his subsequent CR 12(b)(6) motion to dismiss.

¶ 12 Murphy claims that the summary judgment order did not resolve his standing challenge “because the issue of standing was not before the court.” Resp't's Br. at 31. The record undermines this assertion. Our review of the record indicates Murphy's summary judgment motion placed Donlin's derivative standing squarely before the court. His summary judgment motion argued, “The assets of Greenshields Industrial Supply, Inc. were sold to Contractor Supply Corporation, an accounting was performed, and Greenshields has been administratively dissolved.” (Boldface omitted.) Murphy also argued that Donlin's derivative claims did not survive the receivership and asset sale. His brief framed the issue before the court as follows:

2. Do Plaintiff's claims for dissolution and accounting against [GIS] survive after [GIS's] assets are sold pursuant to a court supervised receivership and after [GIS] is administratively dissolved?

3. Do Plaintiff's derivative claims on behalf of [GIS] survive after all of [GIS's] assets have been sold pursuant to a court authorized sale?

174 Wash.App. 295]Elaborating on these issue statements, Murphy argued, “If a shareholder in a corporation is divested of ownership of that corporation while a derivative suit is pending, the suit will usually be dismissed.” For support, he relied on two standing cases, Johnson v. United States, 317 F.3d 1331 (Fed.Cir.2003), and Schilling v. Belcher, 582 F.2d 995 (5th Cir.1978). In both cases, a shareholder lost standing to pursue derivative claims when he was divested of his stock.11 The undisputed record leaves no doubt that Murphy's summary

[300 P.3d 428

judgment motion challenged Donlin's derivative standing.


¶ 13 The trial court rejected Murphy's standing challenge in its unappealed summary judgment order. Undeterred, Murphy moved before a different judge to dismiss Donlin's claims shortly before trial on standing grounds.12 This motion recast the standing arguments made in his summary judgment motion. The essential claim, however, was the same—Donlin lacked standing to maintain derivative claims on behalf of a corporation that no longer existed, premised on the receivership sale of its assets and its administrative dissolution. Donlin responded, correctly arguing that the summary judgment order “expressly wrote that Mr. Donlin's issues and claims survived to trial in this matter unaffected by the Court's confirmation of the sale to CSC.” Disregarding the earlier summary judgment ordering[174 Wash.App. 296]a trial on the merits, the trial court granted Murphy's motion to dismiss Donlin's claims.13

¶ 14 The record is silent on the court's rationale for readdressing the standing question that had previously been decided on the same facts and issues in the summary judgment motion. In doing so, the court violated Snohomish County Local Civil Rules 7(b)(2)(D)(6) & (7), which provide:

6. Reapplication on Same Facts. Except as stated below, when a motion has been ruled upon in whole or in part, the same motion may not be later presented to another judge. If the prior ruling was made without prejudice or when the prior motion has been granted conditionally, and the condition has not been met, any subsequent motion may be presented as set forth below. Reapplication shall be made in the same manner as a motion to reconsider.

...

7. Subsequent Motion; Different Facts. If a subsequent motion is made upon alleged different facts, the moving party must show by affidavit what motion was previously made, when and to which judge, what order or decision was made on it, and what new facts are claimed to be shown. For failure to comply with this requirement, the subsequent motion may be stricken, any order made upon such subsequent motion may be set aside, or provide such other relief as the court seems...

To continue reading

Request your trial
9 cases
  • In re Estate of Reugh
    • United States
    • Washington Court of Appeals
    • August 20, 2019
    ...Insurance Co. of Kansas v. Ohio Casualty Insurance Co. , 176 Wash. App. 185, 198-99, 312 P.3d 976 (2013) ; Donlin v. Murphy , 174 Wash. App. 288, 293 n.7, 300 P.3d 424 (2013). Whether a court has authority to act is determined independent of any inquiry into a petitioner’s standing to initi......
  • Williams v. City of Spokane
    • United States
    • Washington Court of Appeals
    • June 18, 2020
    ... ... of Kansas v. Ohio Casualty Insurance Co. , 176 Wn.App ... 185, 198-99, 312 P.3d 976 (2013); Donlin v. Murphy , ... 174 Wn.App. 288, 293 n.7, 300 P.3d 424 (2013). Whether a ... court has authority to act is determined independent of any ... ...
  • In re Estate of Reugh
    • United States
    • Washington Court of Appeals
    • August 20, 2019
    ...Universal Insurance Co. of Kansas v. Ohio Casualty Insurance Co., 176 Wn. App. 185, 198-99, 312 P.3d 976 (2013); Donlin v. Murphy, 174 Wn. App. 288, 293 n.7, 300 P.3d 424 (2013). Whether acourt has authority to act is determined independent of any inquiry into a petitioner's standing to ini......
  • Williams v. City of Spokane
    • United States
    • Washington Court of Appeals
    • June 18, 2020
    ...Universal Insurance Co. of Kansas v. Ohio Casualty Insurance Co., 176 Wn. App. 185, 198-99, 312 P.3d 976 (2013); Donlin v. Murphy, 174 Wn. App. 288, 293 n.7, 300 P.3d 424 (2013). Whether a court has authority to act is determined independent of any inquiry into a petitioner's standing to in......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT