Hern v. Looney, 16472-1-III

• Decision Date: 26 March 1998
• Docket Number: No. 16472-1-III,16472-1-III
• Citation: 90 Wn.App. 519,959 P.2d 1116
• Court: Washington Court of Appeals
• Parties: , 37 UCC Rep.Serv.2d 412 Alan HERN, Respondent, v. Arlen B. LOONEY, Jr. Secretary of Regulus Stud Mills, Inc., and August V. Klaue, Chairman of the Board of Regulus Stud Mills, Inc., Appellants.

Page 519

90 Wn.App. 519

959 P.2d 1116, 37 UCC Rep.Serv.2d 412

Alan HERN, Respondent, v. Arlen B. LOONEY, Jr. Secretary of Regulus Stud Mills, Inc. and August V. Klaue, Chairman of the Board of Regulus Stud Mills, Inc., Appellants.

No. 16472-1-III.

Court of Appeals of Washington,

Division 3,

Panel Six.

March 26, 1998.

Laurel H. Siddoway, Randall & Danskin PS, Spokane, for Appellants.

William D. Symmes, Witherspoon, Kelley, Davenport & Toole, Robert S. Magnuson, Spokane, for Respondent.

Joan Snover (Appearing Pro Se), Becky Weeks (Appearing Pro Se), Official Court Reporters, Spokane, for Other Parties.

SWEENEY, Judge.

The question here is whether a corporation's transfer agent is required to transfer an apparently validly endorsed stock share in the face of a dispute over the legality of the transfer. We conclude that he/she is and affirm the court's writ of mandamus but remand with directions to delete some unfounded findings in the order granting the writ.

FACTS

In 1975, Arlen B. Looney, Sr., Jack A. Hern, and August V. Klaue, stockholders in Regulus Stud Mills, Inc. (an Idaho corporation), agreed that upon each of their deaths the corporation would purchase the decedent's shares. The agreement permitted each to make a gift of all or part of his shares "to blood members of his immediate family." The gift, however, was subject to repurchase by the corporation on the death of the donee, just as if the donee were an original party to the agreement.

Mr. Klaue and Jack Hern became equal shareholders after Mr. Looney, Sr., died and the corporation purchased his shares pursuant to the agreement. Jack Hern later transferred all but one share of his stock to his son, Alan Hern. Alan Hern became the corporation's executive vice president. Jack Hern retained his position as president of the corporation; Mr. Klaue was chairman of the board, and Arlen B. Looney, Jr., was secretary-treasurer.

Jack Hern died on November 8, 1996. Later that month, Alan Hern presented Certificate No. 49 for transfer. The certificate, signed by Jack Hern and dated November 1, 1996, purported to transfer Jack Hern's remaining share to his son, Alan Hern. Alan Hern contended in an affidavit that Mr. Klaue and Mr. Looney, Jr., agreed at that time the signature on the certificate was Jack Hern's.

Transfer of the share would make Alan Hern an equal shareholder in the corporation. If the share were not transferred to Alan Hern, the corporation would be entitled to purchase it under the 1975 agreement and Mr. Klaue would become the majority shareholder.

Regulus refused to transfer the share pending advice of counsel. On December 10, 1996, Regulus's corporate counsel wrote to Alan Hern's attorney and questioned whether Jack Hern had effectively gifted the share to Alan. He asked for more information about the transfer. Following a telephone conversation between the lawyers on December 13, corporate counsel understood that Alan Hern would supply information on his father's medical condition on November 1, 1996.

On January 2, 1997, Alan Hern petitioned in Spokane County Superior Court for a writ of mandamus to compel transfer of the remaining share to him.

Meanwhile, Mr. Klaue (in his personal capacity as a Regulus shareholder) sued Jack Hern's estate in Benewah County, Idaho. He alleged that Jack Hern did not effectively gift the share to Alan Hern before his death because he signed the certificate sometime previously but did not date it. Mr. Klaue implies that the certificate was held undated until after Jack Hern's death, when it was completed and presented for transfer. He requested that Jack Hern's estate be directed to transfer the remaining share to Regulus pursuant to the 1975 agreement.

Regulus responded to the mandamus action that the stock ownership issue was more properly addressed in an Idaho court because Regulus, an Idaho corporation, conducts business in St. Maries, Idaho. It also questioned the legitimacy of the transfer because Alan Hern failed to provide medical records. And it therefore refused to register the transfer. Regulus also asked the Spokane County court to stay the mandamus proceedings pending resolution of the Idaho action.

Before the superior court hearing on January 28, 1997, Alan Hern filed the affidavits of two doctors and two nurses verifying Jack Hern's mental competence in the final weeks of his life. Regulus supplemented its answer and alleged that the matter is "determinable as a matter of law." It alternatively demanded a jury "[s]hould the trial court determine that the issues of fact raised by [Alan Hern's] recent evidentiary submissions ... are appropriately resolved in this proceeding...."

At the hearing, Alan Hern noted that Regulus had not requested assurances that Certificate No. 49 was valid. See IDAHO CODE § 28-8-402 (1995). ¹ He then argued that Regulus had waived this requirement. He further argued that he had provided appropriate assurances.

Regulus responded that there was a dispute about the validity of Jack Hern's purported gift. And because that issue was being contested in Idaho, it had no duty to record the transfer.

During the hearing, the court refused to hear testimony related to the issues pending in Idaho: "I don't want to engage in the mini trial of the matter that is pending in another state in this court. And the [Idaho] complaint is before the court, and as I have said, I have noticed it. I have not read it, but as far as this gentleman's subjective opinions as to why or why not he took certain actions or did not, I think we are getting far afield."

In a letter opinion, the Spokane County court held it had jurisdiction in the mandamus action and concluded that U.C.C. Article 8 required transfer of the stock certificate. Alan Hern's attorney prepared an order. The order not only required transfer of the share, it also included a finding that "it is uncontroverted that Alan Hern is the rightful owner of the one (1) share of stock of Regulus represented by Stock Certificate No. 49 indorsed by Jack Hern...."

In August 1997, the Idaho district court dismissed Mr. Klaue's action because Mr. Klaue also had filed a creditor's claim in Jack Hern's Washington probate proceedings. The court noted that the issues in the Idaho action were "the self-same issues pending in the creditor's claim proceedings in the Washington probate of the Jack Hern estate." According to Regulus, the dismissal of the Idaho action has been appealed.

ISSUES

Regulus identifies eight separate issues. However, they logically fall within four general areas: (1) Whether it was required to register the transfer under Article 8 of the Uniform Commercial Code? (2) Whether the superior court erred in failing to defer to the jurisdiction of the Idaho court by dismissing or staying this action? (3) Whether the superior court erred in failing to conduct a jury trial on disputed factual issues? And (4) whether the language of the superior court's order and writ was overbroad? We discuss each in order.

DISCUSSION

(1) Did the court err by requiring Regulus to transfer the share to Alan Hern?

IDAHO CODE § 28-8-401, in relevant part, provides:

(1) If a certificated security in registered form is presented to an issuer with a request to register transfer or an instruction is presented to an issuer with a request to register transfer of an uncertificated security, the issuer shall register the transfer as requested if:

(a) Under the terms of the security the person seeking registration of transfer is eligible to have the security registered in its name;

(b) The indorsement or instruction is made by the appropriate person or by an agent who has actual authority to act on behalf of the appropriate person;

(c) Reasonable assurance is given that the indorsement or instruction is genuine and authorized (section 28-8-402);

....

(g) The transfer is in fact rightful or is to a protected purchaser.

2) If an issuer is under a duty to register a transfer of a security, the issuer is liable to a person presenting a certificated security or an instruction for registration or to the person's principal for loss resulting from unreasonable delay in registration or failure or refusal to register the transfer.

An issuer may require assurance from the transferee of (among other things) the genuineness of the signature of the transferor. See IDAHO CODE § 28-8-402(1)(a). Subsection 402(2) allows an issuer to require other, unspecified, "reasonable assurance."

Mandamus is appropriate to compel officers of a corporation to register a stock transfer. RCW 7.16.160; Fuller v. Ostruske, 48 Wash.2d 802, 809, 296 P.2d 996 (1956).

Regulus claims it had no duty to register the transfer for two reasons: Alan Hern did not respond to requests for assurances that Jack Hern was legally competent, and a dispute over the lawful ownership of the share was pending in Idaho.

Regulus relies on the rule that a writ of mandate is appropriate only when the duty to be enforced exists at the time the writ is sought. Walker v. Munro, 124 Wash.2d 402, 409, 879 P.2d 920 (1994); State ex rel. Hamilton v. Cohn, 1 Wash.2d 54, 58, 95 P.2d 38 (1939). Because Alan Hern had not provided the requested assurance at the time he filed the mandamus action, Regulus claims it had no duty to register the transfer. Walker and Hamilton are distinguishable. Both involved questions about statutes that had not yet taken effect, so the duties were not "capable of performance." Walker, 124 Wash.2d at 409, 879 P.2d 920. Here, Regulus was capable of performing the duty Alan Hern sought to enforce. And in any event, Alan Hern ultimately provided the assurances.

Mr. Looney, Jr., and Mr. Klaue appeared in this mandamus action as representatives of the corporation. As such, they had a fiduciary relationship to those who presented conflicting claims to the same share. 12 WILLIAM MEADE FLETCHER ET AL., FLETCHER CYCLOPEDIA OF THE LAW OF PRIVATE CORPORATIONS § 5528, at...