Lipshie v. Tracy Inv. Co.

Decision Date01 July 1977
Docket NumberNo. 8678,8678
Citation566 P.2d 819,93 Nev. 370
PartiesNorman W. LIPSHIE, Appellant, v. TRACY INVESTMENT COMPANY, a Nevada Corporation, Respondent.
CourtNevada Supreme Court

Smith & O'Brien, and Richard A. Avila, Las Vegas, for appellant.

Lionel, Sawyer and Collins and Stephen L. Morris, Las Vegas, for respondent.

MANOUKIAN, Justice:

This appeal is taken from an order of the District Court granting summary judgment in favor of Respondent, Tracy Investment Company, against Appellant, Norman W. Lipshie, plaintiff below. This action was commenced by Lipshie to recover the amount of $127,780.00, less third party payments, on a promissory note executed by Bonanza No. 2, a Nevada corporation, doing business as the Bonanza Hotel and Casino, and personally endorsed by Lawrence Paul Wolf. Summary judgment was granted in favor of Appellant against Bonanza No. 2 on March 26, 1971. Wolf died in 1971, and thereafter Lipshie twice amended his complaint to substitute Wolf's estate, as well as to include Respondent Tracy as a defendant, pleading additional theories of recovery. A cross-complaint was filed by Wolf against co-defendant Tracy. Thereafter, motions for summary judgment were proffered by Tracy against both the initial complainant and the cross-complainant, which the trial court granted on the ground that "no genuine issue as to any material fact had been established by Lipshie or Wolf regarding Tracy's liability to either Lipshie or Wolf." We are concerned solely with the grant of summary judgment against Appellant Lipshie.

Appellant has raised the following issues for our determination: (1) Whether Tracy Investment Company, under the alter ego doctrine, should be held liable to Lipshie for the debt owed him by Bonanza No 2? If the former is answered in the negative, whether Tracy was unjustly enriched so as to allow quasi-contractual recovery by Lipshie? (2) Whether Lipshie can be regarded as a third party beneficiary of the October 28, 1968, agreement between Wolf and Tracy? (3) Whether Tracy is liable to Lipshie for representations purportedly made by Wolf as its agent? Review of these questions prompts us to conclude that the trial court was correct in so entering summary judgment in favor of Tracy Investment Company, and, accordingly, for the reasons hereinafter expressed, we affirm.

In 1966, Lipshie purchased 178.43 shares of Bonanza Hotel and Casino stock for $79,305.00 and concurrently loaned to Bonanza $79,305.00. Thereafter, he loaned to Bonanza an additional $177,780.00, each loan evidenced by unsecured promissory notes.

Soon experiencing financial difficulties, Bonanza filed a Petition for Arrangement under Chapter XI of the Bankruptcy Act in the United States District Court, Las Vegas, Nevada. In March, 1968, Appellant timely filed a creditor's proof of claim in the amount of $272,652.40 in the Bonanza Bankruptcy proceedings.

Wolf, the then president and majority stockholder of Bonanza, proceeded to attract funding for a plan of arrangement, and in June, 1968, entered into negotiations with Dal-Tex Corp., and others, to fund Bonanza's plan of arrangement. In summary, Dal-Tex Corp. preliminarily agreed to fund the plan and settle with Bonanza's creditors in exchange for the stock and assets of Bonanza. Lipshie, being aware of Dal-Tex Corp.'s intentions, insisted through Wolf that his interest as a creditor be recognized before he would assign his stock to Bonanza. Appellant ultimately assigned his stock to "Bonanza No. 2, or nominee."

On October 17, 1968, a memorandum of discussion was executed by Wolf and a Dal-Tex Corp. representative setting forth the basic understanding of the parties' plan of arrangement. The obligation owed Lipshie was referred to in paragraph 6 of the memorandum.

"6. New corporation to assume the so-called Lipshie loan (Lipshie and Wolf) of $290,000.00 and the so-called Ling and Howard loan in an amount ranging from $131,000.00 up to $158,000.00. Both of said loans shall be retired in 60 equal monthly installments commencing two years after closing."

Prior to the execution of any formal documents of agreement with Dal-Tex Corp., and it appears without the knowledge of Appellant, Wolf entered into negotiations with Tracy, whereby Tracy succeeded by assignment to all of the rights and interests of the prospective purchaser, Dal-Tex Corp. The Tracy-Wolf agreement, executed October 28, 1968, contained the following provisions relative to Lipshie.

"III(a): The indebtedness of Bonanza No. 2 to Norman Lipshie and Lawrence Paul Wolf in the principal amount of $290,000.00 shall survive the Chapter XI proceeding of Bonanza No. 2 and shall be retired as hereinafter provided."

"III(c): The obligation of Bonanza No. 2 in the sum of $290,000.00 to Lipshie and Wolf shall be paid in 84 equal monthly installments commencing thirty (30) days following the close of the escrow herein provided and there shall be no interest payable on said obligation." (Emphasis added.)

The October 28, 1968, agreement acknowledged the pre-existing agreement between Wolf (Bonanza) and Dal-Tex Corp.

Pursuant to the agreement, Wolf was advanced money to aid him in securing the assignments of stock and releases of loan claims held by the various Bonanza stockholders. Further, Tracy advanced the sum of $100,000.00 to Wolf " . . . to be used by Wolf by way of down payment outside of escrow to obtain the said assignments and releases of loan claims from the shareholders . . .". It was further provided that Wolf's application of such sum would be subject to the "general supervision" of a Tracy representative.

Wolf then approached Lipshie in order to obtain the assignment of stock, together with the withdrawal of Lipshie's claim in bankruptcy. Lipshie agreed to this under the following conditions: the payment of $64,000.00 for his stock and the coincident loan of $79,305.00; a $50,000.00 down payment against the second loan by Lipshie in the sum of $177,780.00, and a promissory note for the $127,780.00 balance on said loan. Tracy through and outside of escrow, indirectly provided funds for the acquisition or payment of the following: Lipshie's Bonanza stock, the payment of his original $79,305.00 loan to Bonanza, and the $50,000.00 in partial satisfaction of his $177,780.00 loan to Bonanza.

Following Lipshie's compliance with the agreement, Bonanza, through its president, executed a note dated December 2, 1968, in the amount of $127,780.00 to be paid to Lipshie in 84 monthly installments. Prior to December 2, 1968, and following the releases by the several stockholders, Bonanza's plan of arrangement was approved by the Federal District Court.

Tracy assumed management and control of Bonanza's assets on or about November 26, 1968; the officers of Tracy were essentially the same officers of Bonanza; the officers of Tracy were the directors of Bonanza; Kirk Kerkorian was the sole stockholder of Tracy, chairman of the board and director of Tracy, and chairman of the board and director of Bonanza; the principal place of business and resident agent for Tracy and Bonanza were the same; while owned by Tracy, Bonanza was never a going concern; Bonanza's primary source of funds were those provided by Tracy, including operating capital, and within approximately 60 days of or prior to the closing of the Bonanza-Tracy escrow on December 2, 1968, Tracy sold the Bonanza properties, including all of the outstanding stock, for a substantial profit, including an assumption by the purchaser of the Lipshie obligation in the sum of $127,780.00.

Thereafter, following a breach by the purchasers, Tracy served them and Bonanza with a Notice of Default and Election to Sell under Deed of Trust. The Deed of Trust was foreclosed upon, and on July 29, 1970, the trustee conveyed Bonanza's real and personal property to another corporation.

In deciding the propriety of the summary judgment, we must review the evidence most favorable to the party against whom summary judgment was granted and give that party the benefit of all favorable inferences that may be drawn from the subsidiary facts. Ottenheimer v. Real Estate Division, 91 Nev. 338, 535 P.2d 1284 (1975); Brewer v. Annett, 86 Nev. 700, 475 P.2d 607 (1970); Old West Enterprises v. Reno Escrow Co., 86 Nev. 727, 476 P.2d 1 (1970). Summary judgment is appropriate only when it is quite clear what the truth is, and that no genuine issue remains for trial. Perry v. Byrd, 87 Nev. 431, 488 P.2d 550 (1971); Short v. Hotel Riviera, Inc.,79 Nev. 94, 378 P.2d 979 (1963). After reviewing the record and viewing the evidence most favorable to Appellant, we find no material issues of fact to be resolved. Summary judgment on all issues was appropriate. NRCP 56(c).

1. Alter Ego Doctrine: It is Appellant's position that the Bonanza Corporation was an instrumentality used by Tracy Investment Company to obstruct payment of the debt owing Appellant. Essentially, as stated by Appellant, "the factual basis of liability rests in the manner by which Tracy, its officers and directors, and sole shareholder systematically used the Bonanza and other corporate screens to ultimately deprive Lipshie of his stock interest in the Bonanza Corporation and monies due under the subject promissory note." 1

The requirements for applying the alter ego doctrine are set forth in McCleary Cattle Co. v. Sewell, 73 Nev. 279, 282, 317 P.2d 957, 959 (1957).

(1) The corporation must be influenced and governed by the person asserted to be its alter ego. (2) There must be such unity of interest and ownership that one is inseparable from the other; and (3) The facts must be such that adherence to the fiction of separate entity would, under the circumstances, sanction a fraud or promote injustice. (Emphasis added.)

A cursory review of the facts would cause us to erroneously conclude that the first two requirements are satisfied by virtue of the interlocking nature of the officers and directors of the two corporations, ...

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