LaHue v. Keystone Inv. Co., 1020--I

• Decision Date: 24 April 1972
• Docket Number: No. 1020--I,1020--I
• Citation: 6 Wn.App. 765,496 P.2d 343
• Parties: Clifton LaHUE, as Receiver for Richland Marina, Inc., a defunct Washington corporation, and Patricia Opgenorth Emerick, as a stockholder of Richland Hyatt House, Inc., a Washington corporation, Respondents and Cross-Appellants, v. KEYSTONE INVESTMENT COMPANY, a Washington corporation, et al., Appellants, Frank Kroetch and Jane Doe Kroetch, his wife, et al., Defendants.
• Court: Washington Court of Appeals

Page 765

6 Wn.App. 765

496 P.2d 343

Clifton LaHUE, as Receiver for Richland Marina, Inc., a defunct Washington corporation, and Patricia Opgenorth Emerick, as a stockholder of Richland Hyatt House, Inc., a Washington corporation, Respondents and Cross-Appellants, v. KEYSTONE INVESTMENT COMPANY, a Washington corporation, et al., Appellants Frank Kroetch and Jane Doe Kroetch, his wife, et al., Defendants.

No. 1020--I.

Court of Appeals of Washington, Division 1, Panel One.

April 24, 1972.

Rehearing Denied May 24, 1972.

Petition for Review Denied Aug. 21, 1972.

Arthur R. Paulsen, Warren J. Deheim, Tacoma, for appellants.

Critchlow, Williams, Ryals & Schuster, Rembert Ryals, Richland, for respondents.

Edmund J. Jones, Seattle, for cross-respondents.

HOROWITZ, Chief Judge.

This appeal and cross-appeal principally concern a judgment in favor of Richland Hyatt House, Inc. and its stockholders entered by the trial court in a derivative stockholder's suit.

A number of parties are involved. We shall generally refer to plaintiff LaHue, the receiver for Richland Marina, Inc., as receiver; the co-plaintiff stockholder, formerly Mrs. Opgenorth, as Mrs. Emerick; the defendants Keystone Investment Company, James Walker, Gordon Smith, and the respective wives of Walker and Smith, as defendants Keystone; and the defendants H. Glen Scott and C. Robert Suess and their respective wives, together with their partnership known as Scott and Suess, as defendants Scott.

The pertinent facts as the court found or could have found them are these.

For a number of years Richland Marina, Inc., based in Richland, Washington, through its president, Charles H. Opgenorth, promoted the financing and construction of a motel in Richland. Many persons invested their money in the promotion, and many persons became unpaid corporate creditors. The principal asset of Richland Marina, Inc. consisted of a motel site lease from the City of Richland. The promotion proved unsuccessful. Richland Marina, Inc. became, and for a number of years was, actually insolvent.

By early 1964, defendant Scott, a building contractor, became seriously interested in the promotion. A plan, very general in terms, was worked out for the financing, construction and management of the proposed motel that would include provision for the creditors and investors of Richland Marina, Inc. The plan contemplated that a new corporation would be formed unencumbered by the debts of Richland Marina, Inc. or the claims of its stockholders. Richland Marina, Inc. would transfer its motel site lease to the new corporation. The new corporation, together with the limited partnership shortly referred to, would enter into a motel construction contract with Scott and Suess Construction Company. The corporation would also continue with a motel management contract with Hyatt Corporation of America for the management of the motel upon construction. Northwest Mortgage Co. would enter into a commitment with the new corporation for permanent mortgage financing upon the security of the transferred motel lease, to become performable upon the completion of construction. Approximately $300,000 in new capital funds would be raised for the new corporation to make the plan workable.

The creditors and investors of Richland Marina, Inc. would be provided for as follows. A limited partnership, to be known as Richland Hyatt House Associates, would be formed with the new corporation would raise substantial funds with a view would raise substantial funds with a new to ultimately owning the motel. To raise the needed partnership funds, limited partnership units would be sold or exchanged to the extent necessary for the interests of the creditors or investors in Richland Marina, Inc. The raising of the funds, both by the limited partnership and by the new corporation, was to be the basic responsibility of Mr. Opgenorth.

The plan was then implemented. About April 1, 1965, Richland Hyatt House, Inc., the new corporation, was formed. Its initial paid-in capital was $500, consisting of $250 shares of non-par stock issued for $2 per share. Ultimately the total shares issued were divided among its first named directors: 146 shares to Scott, 23 shares to his accountant, Wesley H. Seelye, and 81 shares to Charles H. Opgenorth. The arrangement was temporary pending the raising of additional share capital. It was not expected that the shares would have any substantial value, the issuance of such shares being but a first step in the consummation of an over-all plan. Scott later became president and Seelye secretary-treasurer of the new corporation.

On June 21, 1965, Richland Marina, Inc. transferred its motel site lease to the new corporation for a nominal consideration. No express agreement was entered into concerning the reassignment of the lease back to Richland Marina, Inc. in the event that the plan as above described failed or was abandoned. In June 1965 the new corporation and the limited partnership entered into a motel construction contract with the defendants Scott and Suess conditioned upon the contractor determining that the new corporation had adequate financing. The new corporation continued with a pre-incorporation contract dated January 6, 1965, with Hyatt Corporation of America for the management of the future motel. On June 25, 1965, Northwest Mortgage, Inc. entered into a long-term conditional mortgage commitment with the new corporation to lend the latter $1,050,000 upon completion of the motel. In June 1965 a certificate of limited partnership, to be known as Richland Hyatt House Associates, was executed by six leaders in the motel promotion enterprise. However, nothing further was done to activate the limited partnership, nor was any new capital raised either by the new corporation or by the limited partnership.

Mr. Opgenorth died in July 1965. His death proved fatal to the success of the enterprise. Scott was left in control of the new corporation. Meetings were held both by Richland Hyatt House, Inc. and by Richland Marina, Inc. in the remaining months of 1965 to salvage what could be salvaged from the unfulfilled plans. In addition, a so-called 'rump group' of persons interested in the motel promotion met to make further plans. Mrs. Emerick (then Mrs. Opgenorth) was elected a director and officer both of Richland Marina, Inc. and Richland Hyatt House, Inc.

Doubts began to be raised concerning the possible success of the motel construction enterprise. Scott became unhappy with the outlook and decided to leave. On December 23, 1965, he granted an option to J. Harlow Tucker to sell his 146 controlling shares, the option requiring payment to Scott of sums totaling $50,000 and requiring the optionee to

exert his best efforts toward the advancement of the programs now under way by Richland Hyatt House, Inc., and Richland Hyatt House Associates, in the best interests of those persons who have contributed to and participated in those programs to date.

Tucker knew of the Richland Hyatt House, Inc. contracts and of the plans to take care of the creditors and investors in Richland Marina, Inc. Tucker worked with the defendant Kroetch in effecting a sale of the Scott option to Keystone Investment Company. Keystone Investment Company ultimately paid Scott approximately $37,000 of the $50,000 consideration promised. The court found that in making the purchase Keystone Investment Company 'received the same subject to the obligations that Scott has assumed, i.e., they took his position.'

On January 6, 1966, Scott resigned as a director and officer of Richland Hyatt House, Inc. On January 12, 1966, at the corporation's annual stockholder's meeting, formal notice of the sale, but not of the purchase price, was given to remaining stockholders, officers and directors present. There was some evidence that prior to the meeting one of the principal creditors and investors in Richland Marina, Inc. had been notified of the promised purchase price. At any rate, no objection was made to the sale. The persons informed of the sale believed that the success of the motel project was better assured by the entry of the new stockholder.

At the January 12, 1966, meeting, Walker of Keystone Investment Company and six others were elected directors. Later the same day, the Board of Directors elected Walker as president and Smith (also of Keystone) as secretary of the corporation. The court found:

Not later than January 12, 1966, the officers of Richland Marina, Inc. and its principal creditors were fully informed that Scott had terminated his interest in and activities with Richland Hyatt House, Inc. They also knew or should have known that the stock had been sold for a considerable sum of money.

Following the election of Messrs. Walker and Smith, Kroetch, in some way not altogether clear, became active in the affairs of the corporation. Neither Walker, Smith, nor Kroetch took further steps to implement the original plan looking to the construction of the motel for the benefit of the creditors and investors of Richland Marina, Inc. Instead, Walker, Smith and Kroetch negotiated with Mr. Zurelli of the Merit Company, a contractor, to sell to the latter Richland Hyatt House, Inc.'s only remaining asset, namely the motel site lease, for $113,000. A sale required the consent of the lessor, City of Richland. In exchange for support in obtaining such consent from the lessor, there was testimony that Walker and Kroetch promised certain creditors or investors in Richland Marina, Inc.--but not Richland Marina, Inc. itself--that the purchase price would be used to pay the claims of Marina creditors. Whether and to what extent the requested support was given by each of the persons to whom the promises were made is not altogether clear. At any rate, the sale was consummated with the necessary consent, the $113,000 was paid and deposited in the corporation's bank account over which Walker and Smith had check-signing authority.

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