Evergreen Crane Services, Inc. v. Ford, 59611-0-I

CourtCourt of Appeals of Washington
Writing for the CourtLeach, J.
Decision Date28 April 2008
PartiesEVERGREEN CRANE SERVICES, INC., a Washington company, Respondent, v. MAX FORD and UNA FORD, husband and wife and their marital community, Appellants, and KERRY FORD and BARBARA L. FORD, husband and wife and their marital community, CRANES 4 RENT, INC., a Washington corporation, CRANE RENTAL, INC., a Washington corporation, and FORD CRANE, INC., a Washington corporation, Defendants.
Docket Number59611-0-I

EVERGREEN CRANE SERVICES, INC., a Washington company, Respondent,
v.

MAX FORD and UNA FORD, husband and wife and their marital community, Appellants,

and KERRY FORD and BARBARA L. FORD, husband and wife and their marital community, CRANES 4 RENT, INC., a Washington corporation, CRANE RENTAL, INC., a Washington corporation, and FORD CRANE, INC., a Washington corporation, Defendants.

No. 59611-0-I

Court of Appeals of Washington, Division 1

April 28, 2008


UNPUBLISHED OPINION

Leach, J.

Max Ford sold an operated crane business, Max Ford Crane Service, Inc. (MFCS), to Evergreen Crane Services, Inc., in a stock purchase agreement (SPA) that included a covenant not to compete. After a bench trial, the trial court ruled that Max Ford breached the SPA by continuing to collect MFCS accounts receivable after closing and by becoming involved in his son's operated crane business in violation of the covenant not to compete. We affirm, but remand for recalculation of the judgment without prejudgment interest.

FACTS

Max Ford owned and operated MFCS for several years. Initially, MFCS rented to its customers both "operated" cranes (cranes supplied with an operator) and cranes without operators, known as "bare" crane rentals. Sometime prior to selling MFCS, Ford formed a new company, Crane Rental Inc., for bare rentals and used MFCS solely for renting operated cranes.

Ford sold the stock of MFCS to Evergreen, a company owned by John Hines, for $1.05 million in a SPA dated May 14, 2004. Originally, the parties negotiated an asset sale in which Evergreen would purchase equipment, goodwill, and business agreements from MFCS for $1.1 million, with $900, 000 to be paid in cash at closing and the balance of $200, 000 to be financed by a promissory note from Hines to Ford. One week before the proposed May 14 closing, Ford asked Evergreen to change the transaction from an asset sale to a stock sale in exchange for reducing the sale price to $1 million. Further negotiations took place, and the parties agreed on a final purchase price of $1.05 million. The down payment remained $900, 000, and Hines' promissory note was $150, 000. The note included funds that Ford was to leave in the corporate checking account and an insurance premium Ford was to pay to Evergreen's liability insurance carrier. Although the parties had agreed to close within 30 days of signing the SPA, the sale closed on June 28, 2004.

The sale was for "all of the issued and outstanding stock of MFCS." The agreement provided that certain assets and liabilities would be transferred out of MFCS before closing and that those assets and liabilities would not be acquired by Evergreen. Included in the list of items Ford would keep was "[a]ll cash except $25, 000." Neither MFCS accounts receivable nor the MFCS checking account was on the list of assets to be transferred to Ford. However, after closing, Max and Una Ford continued to collect and retain MFCS accounts receivable and maintained control over the MFCS checking account.

The SPA contained the following covenant not to compete:

During the five (5) year period immediately following closing ("the Noncomptetion [sic] Term"), Ford shall not directly or indirectly, in any manner or capacity, as advisor, principal, agent, partner, officer, director shareholder, employee, creditor, member, manager or otherwise, within the geographic area consisting of the states of Washington, Oregon and California and the province of British Columbia, Canada (the "Protected Area") engage in the business of furnishing crane services which require furnishing of a crane operator as a part of said service

Similarly, Evergreen agreed not to engage in "bare" crane rentals. After the sale, Ford continued to run a bare rental crane business called Cranes for Rent (C4R) and shared his office building with Evergreen under a six-month lease, which was included in the SPA.

At trial, evidence was presented that Ford was involved in his son Kerry's operated crane business, Ford Crane Inc. (FCI). One witness claimed he had seen Ford operating a crane. Another witness testified that Ford referred a former MFCS customer to FCI for operated crane rental. When Kerry caused property damage at a gas station, Ford negotiated reparations on behalf of FCI with the gas station owner. When the owner asked for an insurance card, Ford told her that they did not have it with them and could not provide it until later in the day because they needed to get the crane to a job site. Kerry was also present, but Ford "did all the talking, " referred to the crane as "our" crane, and gave the impression that he was the owner of the FCI crane business. Evidence was also presented that Ford had allowed FCI to use C4R cranes free of charge and later created backdated invoices charging FCI for the cranes when confronted by Hines. Although C4R's standard form rental agreement required a late charge of one percent on all accounts over 30 days, FCI was not required to pay any finance charges when it did not pay for 120 days.

After a bench trial, the trial court ruled that Ford had breached the SPA and the covenant not to compete. The trial court awarded judgment against Max and Una Ford for $515, 948.

DISCUSSION

Findings of Fact

The trial court's findings of fact must be supported by substantial evidence, and its conclusions of law must be supported by the findings of fact.[1]Substantial evidence to support a finding of fact exists where there is sufficient evidence in the record "to persuade a rational, fair-minded person of the truth of the finding."[2] An appellate court may not substitute its evaluation of the evidence for that made by the trier of fact.[3] We conclude that the trial court's findings of fact and conclusions of law are supported by substantial evidence and reveal the following facts:

1. Max Ford diverted $174, 606.68 of corporate assets from Evergreen
2. For nearly fifteen years before the sale of MFCS in 2004, Kerry Ford owned only one crane.
3. After the sale in the summer of 2004, Kerry Ford changed the name of his operated crane business to Ford Crane Inc. (FCI) and began competing with crane companies that had twenty times his inventory in equipment.
4. FCI is in the business of furnishing crane services which require the furnishing of a crane operator.
5. After the sale of MFCS to Evergreen, Max Ford operated a bare crane rental business called Cranes for Rent (C4R).
6. Max Ford and/or C4R acted as a creditor to FCI in the following ways:
a. C4R loaned working capital to FCI in the form of making bare crane rentals to it without requiring payment until FCI was paid by its customer and not charging FCI for the delay in payment .
b. Max Ford and/or C4R mobilized cranes to FCI without sending an invoice to FCI.
c. The invoices prepared for FCI were backdated.
d. Backdating of invoices to FCI was done secretly, in order to represent that the transactions had occurred in the regular course of business when, in fact, they had not.
e. Ford required its other customers to pay for crane rentals within 30 days and charged them financing charges after 30 days.
7. Ford's practice of allowing FCI to pay for cranes after collecting its own receipts gave FCI a tremendous advantage over its competitors.
8. FCI had control over the crane inventory of C4R.
9. The customer list purchased by Evergreen was protected by the non competition agreement.
10. FCI generated gross receipts of at least $169, 852 from former MFCS customers.
11. FCI would not have been able to serve the number of customers it served nor generate the amount of revenue it generated without the assistance provided by Max Ford and/or C4R such as providing FCI with names of customers and the use of cranes on credit without any financing expense.
12. Max Ford had a special relationship with FCI and Kerry Ford in which Max Ford assisted FCI and Kerry Ford in an operated crane business.
13. Max Ford acted as an agent for FCI when he negotiated reparations for an accident caused by Kerry Ford at a gas station.
14. Max Ford was seen operating a crane on a FCI job site after the sale to Evergreen.

Conversion of Funds

Ford assigns error to the trial court's finding that Ford converted a total of $174, 606.68 when he failed to transfer the checking account to Evergreen and continued to collect accounts payable after closing. He also assigns error to the finding that his payment of $27, 285.87 to Evergreen was an insufficient effort to meet his obligation to transfer at closing the MFCS checking account with a balance of $25, 000. The trial court ruled on summary judgment that Evergreen was entitled to the checking account and accounts receivable, but reserved the amount of damages for trial. Ford does not assign error to the order granting summary judgment to Evergreen. Furthermore, although Ford assigns error to the pertinent findings of fact, he does not support the assignment of error with argument in his opening brief. "Accordingly, the assignment of error is waived, "[4]and the fact that Evergreen was entitled to the checking account and accounts receivable is a verity on appeal.

Ford argues that damages relating to the accounts were calculated incorrectly because some checks issued by Ford after closing were used to pay Evergreen's business expenses and should have been subtracted from the total accounts receivable. However, the trial court analyzed the MFCS bank statements and found that Ford had illegally diverted $174, 606.68 from the assets of MFCS after closing. It further found that because the amount of the checks later issued by Ford had been included in the promissory note from Hines, it was improper to deduct the amount of these checks from the diverted amount when calculating damages. Substantial...

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