Nicholson v. Ash

• Decision Date: 11 October 1990
• Docket Number: No. 89CA0459,89CA0459
• Citation: 800 P.2d 1352
• Parties: R. James NICHOLSON, Plaintiff-Appellant, v. Irving ASH, E.G. Koelling, Ronald L. Seigneur, C.E. Snow, Sandra V. Chadwick, Peter M. Eggleston, and Cogswell & Wehrle, a Partnership, Defendants-Appellees. . V
• Court: Colorado Court of Appeals

Page 1352

800 P.2d 1352

R. James NICHOLSON, Plaintiff-Appellant, v. Irving ASH, E.G. Koelling, Ronald L. Seigneur, C.E. Snow, Sandra V. Chadwick, Peter M. Eggleston, and Cogswell & Wehrle, a Partnership,

Defendants-Appellees.

No. 89CA0459.

Colorado Court of Appeals,

Div. V.

Oct. 11, 1990.

Morrato, Bieging, Burrus & Colantuno, P.C., I. Thomas Bieging, Stephen B. Shapiro, Englewood, for plaintiff-appellant.

No appearance for Irving Ash.

Arnold & Porter, Thomas C. Seawell, Scot W. Anderson, Denver, for defendant-appellee E.G. Koelling.

Shaw, Spangler & Roth, W. Bruce Thompson, Laura E. Foster, Denver, for defendants-appellees Ronald L. Seigneur, Sandra V. Chadwick and Peter M. Eggleston.

Law Offices of Paul E. Vranesic, Howard S. Goodman, Denver, for defendant-appellee C.E. Snow.

Hall & Evans, Alan Epstein, Robert S. Treece, Robin L. Beattie, Denver, for defendant-appellee Cogswell & Wehrle.

Opinion by Judge CRISWELL.

Plaintiff, R. James Nicholson, appeals from the judgment entered by the trial court under C.R.C.P. 54(b) dismissing his fourth, fifth, sixth, and seventh claims for relief. These claims sought recovery from defendants for their alleged breach of fiduciary obligations which plaintiff claims they owed to him. He asserts that the trial court erred in entering its judgment pursuant to C.R.C.P. 12(b) because the allegations of the fourth claim for relief were sufficient to assert that plaintiff and the defendants named in that claim were in a confidential relationship that gave rise to fiduciary obligations on those defendants' part. He also asserts that, contrary to the trial court's ruling, he had standing to pursue individual claims against certain of the defendants in their capacity as corporate directors because of his guaranty of certain corporate debts. We disagree with plaintiff's assertions and affirm the trial court's judgment.

According to the allegations of plaintiff's complaint, he purchased capital stock in American Bankshares, Ltd. (American), which owned 100% of the stock in the American Bank of Commerce (the bank). In conjunction with his purchase of this capital stock, plaintiff personally guaranteed the repayment of a portion of certain loans made to American or to the bank in order for American to acquire ownership of the bank.

Approximately two years after plaintiff's stock acquisition and debt guaranty, the bank failed, and the state bank commissioner closed it. Claiming that the bank's failure caused him a personal loss resulting from the derelictions of others, plaintiff instituted this suit against four groups of defendants.

First, plaintiff alleged, in his first three claims, that another party, not joined in this appeal, acted as a promoter and, through breach of a promoter's fiduciary obligations, fraud, and negligent misrepresentations, induced plaintiff to acquire his stock interest in American and to guarantee a portion of the acquisition debt. Under these claims, plaintiff sought to recover from the promoter and American the amount that he paid to acquire the stock and any amount that he had been, or would be, required to pay under his loan guarantee.

A second group of defendants consisted of the promoter and two other individuals who plaintiff asserted had all acted as consultants to the bank. These latter two individuals have instituted bankruptcy proceedings, and as a result, our opinion shall not affect their legal rights.

In his fourth claim for relief, plaintiff alleged that he had reposed special trust and confidence in these three individuals, and others, based upon the representations allegedly made by them to plaintiff that they possessed expertise in banking matters, that they would carefully supervise the bank's operations, and that the income from those operations would be sufficient to service the debts to which plaintiff's guaranty applied. He asserts that these representations of expertise and the special interest and confidence he reposed in the individuals named in this fourth claim resulted in the creation of a fiduciary obligation on their part. He further alleges that these individuals violated that obligation by failing to monitor the bank's operations and by permitting the bank to engage in improper practices. Plaintiff sought to recover under this fourth claim any damages resulting to him because of his guaranty of the acquisition debt.

The third group of defendants consisted of the members of the board of directors of American (defendants, Irving Ash, Sandra V. Chadwick, Peter M. Eggleston, and E.G. Koelling) and the members of the board of directors of the bank (Ash, Chadwick, Eggleston, Koelling, and Ronald L. Seigneur). As we read the allegations of his complaint, plaintiff asserts two alternate theories of liability against these directors.

First, the allegations of the fourth claim of relief, by asserting that the members of both boards of directors made the representations and were guilty of the acts and omissions described in that claim, seek to impose liability upon these defendants under those allegations.

Second, in the fifth and sixth claims, plaintiff asserts that, as directors of American or of the bank, American's wholly owned subsidiary, these defendants owed to plaintiff, as a stockholder in American, the fiduciary obligation to manage the bank in a careful and prudent manner, but that they violated this duty by mismanaging the bank's operations. Under these claims, plaintiff seeks to recover only those damages sustained by him as a result of his guaranty of a portion of the acquisition debt; he does not seek to recover for any loss of his investment in American's capital stock.

The fourth category of defendants consisted of a law partnership that had provided legal counsel to American and the bank, several of whose members or employees served on the board of directors of both corporations. In his seventh claim for relief, plaintiff seeks to hold the law firm liable under the doctrine of respondeat superior for any damage caused to him by any member or employee of the firm while acting as a director of either American or the bank.

In response to motions to dismiss filed by defendants pursuant to C.R.C.P. 12, the trial court adopted written findings and conclusions in which it determined that plaintiff's first three claims stated proper claims. See Christy v. Cambron, 710 F.2d 669 (10th Cir.1983). No issue respecting these claims, therefore, is presented by this appeal.

The trial court dismissed the fourth claim, concluding that the allegations of that claim did not, as a matter of law, properly allege the existence of any fiduciary relationship.

It also dismissed the fifth and sixth claims, concluding that the right of action against directors for mismanagement is one that is owned by the corporation itself which is the party damaged thereby. Thus, the action must be for the benefit of that corporation and instituted by it, or by a stockholder in a derivative action. In the latter case, a plaintiff must allege and prove either a prior demand upon the directors to institute suit or the futility of any such demand. See C.R.C.P. 23.1. Since plaintiff did not seek to maintain a derivative action, but sought to collect damages for his own benefit, the trial court dismissed these two claims.

Finally, because of its dismissal of the fifth and sixth claims, the court concluded that the seventh claim, which was based solely upon the doctrine of respondeat superior, was also required to be dismissed.

I.

Plaintiff first asserts that the fourth claim for relief properly alleged the existence of a confidential relationship between the defendants described therein and himself so that he was justified in reposing special trust and confidence in them. Thus, he says, these defendants owed to him a fiduciary duty that was violated by their later mismanagement of American and the bank. Under the circumstances disclosed by this record, we disagree.

We recognize that a confidential relationship may arise when one party justifiably imposes special trust and confidence in another, so that the first party relaxes the care and vigilance that he would normally exercise in entering into a transaction. Further, such a confidential relationship may arise from a multitude of differing circumstances. See Page v. Clark, 197 Colo. 306, 592 P.2d 792 (1979); Dolton v. Capitol Federal Savings & Loan Ass'n, 642 P.2d 21 (Colo.App.1981).

If such a relationship is shown to exist, the person in whom the special trust is placed owes a duty to the other party similar to the duty of a fiduciary. He must act in good faith and with due regard to the interests of the one reposing the confidence. Meyer v. Schwartz, 638 P.2d 821 (Colo.App.1981). And, a breach of such duty gives rise to an actionable cause of action for damages sustained by such breach. See Rubenstein v. South Denver National Bank, 762 P.2d 755 (Colo.App.1988).

However, the prior Colorado opinions suggest, and we hold, that the confidential relationship giving rise to the duty must have been established prior to the date of the transaction that gives rise to the claim. See First National Bank of Meeker v. Theos, 794 P.2d 1055 (Colo.App.1990).

In Page v. Clark, supra, the two parties had a joint business relationship before the contract at issue was entered into; in Dolton v. Capitol Federal Savings & Loan Ass'n, supra, plaintiff had negotiated several previous loans with defendant; and in Rubenstein v. South Denver National Bank, supra, the plaintiff had been a depositor in the defendant bank before the events giving rise to his claim occurred. Further, in United Fire & Casualty Co. v. Nissan Motor Corp., 164 Colo. 42, 433 P.2d 769 (1967), the court, in rejecting the assertion that the defendant owed a fiduciary obligation to plaintiff, emphasized that there had been shown "no prior business agency, no professional or confidential relationship" between the parties. (emphasis...