OVERSEAS MANAGEMENT, LTD. v. Shtikel
| Decision Date | 26 February 2001 |
| Docket Number | No. 46429-9-I.,46429-9-I. |
| Citation | 105 Wash.App. 80,18 P.3d 1144 |
| Court | Washington Court of Appeals |
| Parties | CONSULTING OVERSEAS MANAGEMENT, LTD., Respondent, v. Dmitri SHTIKEL and Anatol Ionis, Appellants. |
Kimberlee Walker-Olsen, Lynnwood, for appellants.
Stephen A. Bernheim, Edmonds, for respondent.
At issue is whether the trial court erred by imposing personal liability for a corporate loan on the corporation's officers for conversion and misrepresentation. Because there was no conversion of loan proceeds and no misrepresentation, we reverse.
Dmitri Shtikel is president of Commonwealth Enterprises, Inc., and Anatol Ionis is its treasurer. In May 1997, Shtikel, as president of Commonwealth Enterprises, Inc., entered into a loan agreement with Pegasus Aviation Company, Ltd. Pegasus loaned $550,000 to Commonwealth for the expressly stated purpose of financing the purchase and resale of a specific shipment of manganese ore produced by a Ukrainian factory. Under the agreement, Commonwealth agreed to a "one-time flat interest" payment of $200,000, due eleven days after signing. Commonwealth also agreed to make an "additional payment" of $170,000 and to repay the entire principal amount within one month. Pegasus disbursed the funds to Commonwealth by wire transfer.
For reasons not apparent in the record before us, Commonwealth was unable to purchase the manganese ore identified in the agreement. Instead, it invested the loan proceeds in various banking transactions without first advising Pegasus of the inability to fulfill the original purpose of the loan. Those investments failed, and Commonwealth lost the $550,000. It has not repaid Pegasus any of the amounts due under the loan agreement. Apparently, there is no security for the loan.
Pegasus commenced an action against Shtikel and Ionis, seeking to hold them personally liable for the loan.1 Neither officer had either personally guaranteed the loan or signed the loan documents in his personal capacity. Pegasus later moved for summary judgment, asserting that Shtikel and Ionis had committed conversion, innocent and negligent misrepresentation, and fraudulent concealment. The trial court granted Pegasus' motion, concluding that Shtikel and Ionis had "committed the torts of conversion and negligent misrepresentation [and] are individually and personally liable for such torts."
Shtikel and Ionis appeal.
Shtikel and Ionis argue that the trial court erred by applying the theory of constructive trust to an alleged conversion of loan proceeds, and by granting summary judgment in Pegasus' favor on its claim. We agree.
We may affirm an order granting summary judgment if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law.2 We consider all facts and reasonable inferences in the light most favorable to the nonmoving party.3 This court reviews questions of law de novo.4 The tort of conversion is "the act of willfully interfering with any chattel, without lawful justification, whereby any person entitled thereto is deprived of the possession of it."5 Money may become the subject of conversion, but only if the party charged with conversion wrongfully received the money, or if that party had an obligation to return the money to the party claiming it.6
Under certain circumstances, corporate officers may face personal liability for tortious conduct other than by piercing the corporate veil.7 In Dodson, our Supreme Court imposed personal liability on a corporate officer who actively participated in the conversion of plaintiff's property.8 The court determined that "[t]he liability of an officer of a corporation for his own tort committed within the scope of his official duties is the same as the liability for tort of any other agent or servant."9 But the court recognized that, for personal liability to arise, "the officer...must, in fact, assist his principal in the conversion."10 It concluded that, "[w]here the officer performs an act or a series of acts which would amount to conversion if he acted for himself alone, he is personally liable, even though the acts were performed for the benefit of his principal and without profit to himself personally."11
Our courts have since reaffirmed this principle.12 In Betchard-Clayton, we cited Dodson with approval and held two corporate officers personally liable for the conversion of a real estate down payment.13 In Johnson, our Supreme Court similarly held two corporate officers personally liable for the corporation's fraud.14 The court recognized that "an officer of a corporation who takes no part whatever in a tort committed by the corporation is not personally liable," but concluded that "this immunity vanishes if such corporate officer knowingly participated in, cooperated in the doing of, or directed that the acts be done."15
Here, Shtikel and Ionis do not dispute that they actively participated in the decision to invest the loan proceeds in various banking transactions after the original purpose of the loan was no longer possible. Thus, the critical question is whether Commonwealth converted the loan proceeds. Because Commonwealth's application of the loan proceeds to an alternative transaction did not constitute conversion, Shtikel and Ionis cannot be personally liable.
Pegasus argues Commonwealth and its officers committed conversion by using loan proceeds for a purpose other than that specified in the loan agreement. But the critical question here is whether the loan proceeds were owned by Commonwealth or Pegasus, not whether Commonwealth used the proceeds for a purpose other than that stated in the loan agreement. State v. Gillespie16 provides the answer to the question of ownership of loan proceeds. That case was a prosecution for theft.17 The bank from which Gillespie obtained a loan claimed that the defendant had represented that the loan would be used to purchase a sailboat.18 The bank also claimed that it was to receive a preferred marine mortgage as collateral for the loan.19 As it turned out, the loan proceeds were used for another purpose and no collateral came to the bank.20 The issue on appeal was whether the trial court erred in submitting to the jury an instruction on an alternative theory of theft by embezzlement.21
After tracing out the wording of the relevant theft and embezzlement statutes, the court concluded that once Gillespie signed the note and received the loan check, he, not the bank, owned the loan proceeds.22 Thus, in that case, there was no embezzlement because Gillespie owned the loan funds upon disbursal by the bank.23 Subsequent authority approves this approach.24
Here, as in Gillespie, Commonwealth obtained title to the proceeds upon signing the loan agreement and the disbursal of those proceeds by wire transfer. Although the loan agreement expressly provides that Commonwealth was to sign a promissory note to evidence the debt, counsel at oral argument advised that only the loan agreement is in the record before us. We deem this factual point to be insufficient to distinguish the Gillespie line of cases and the principles stated in the Uniform Commercial Code from this case. The result is the same: Commonwealth owned the funds after signing the relevant documents and the disbursal by wire transfer occurred. Because the proceeds then belonged to Commonwealth, Ionis and Shtikel did not commit conversion when they failed to apply them as specified by the loan agreement. Accordingly, there was no tort for which a court may hold Ionis and Shtikel individually liable.
Shtikel and Ionis also argue that the trial court erred by imposing a constructive trust on the proceeds. We agree.
A constructive trust is an equitable remedy that "compel[s] restoration, where one through actual fraud, abuse of confidence reposed and accepted, or through other questionable means, gains something for himself which, in equity and good conscience, he should not be permitted to hold."25 Although courts will typically impose a constructive trust in cases of "fraud, misrepresentation, bad faith, or overreaching,"26 they may also do so "in broader circumstances not arising to fraud or undue influence."27 Such trusts arise "where the retention of the property would result in the unjust enrichment of the person retaining it."28 Indeed, the primary purpose of a constructive trust is to prevent unjust enrichment.29
Washington courts will impose a constructive trust "when there is clear, cogent, and convincing evidence of the basis for impressing the trust."30 These trusts arise independently of the intention of the parties, and "may arise even though acquisition of the property is not wrongful."31
In Betchard-Clayton, we imposed a constructive trust to return a real estate down payment to its rightful owner. There, buyers made a $10,000 down payment toward the purchase of a restaurant, and conditioned payment of the entire purchase price on the landlord's approval of the lease assignment.32 We concluded that, when the seller was unable to obtain the landlord's consent, "the contract simply failed for want of satisfaction of a condition precedent."33 We determined that, "[o]n the failure of the contract, the $10,000 reverted to [the buyer's] ownership, but was held by [the seller] which no longer had any right to the property."34 We held that "[t]he imposition of a constructive trust is the appropriate equitable remedy to prevent an unjust enrichment and to return the funds to their rightful owner."35
Here, unlike Betchard-Clayton, Commonwealth was the rightful owner of the funds when Pegasus disbursed them. In Betchard-Clayton, "[o]n the failure of the contract, the [down payment] reverted to [the purchaser's] ownership."36 Thus, there was a need for the trial court to impose a constructive trust to return the funds to their rightful owner. Because there was no tort of conversion here,...
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