Plywood Marketing Associates v. Astoria Plywood Corp.

• Decision Date: 21 December 1976
• Docket Number: No. 1784--II,1784--II
• Citation: 16 Wn.App. 566,558 P.2d 283
• Parties: , 96 A.L.R.3d 1231 PLYWOOD MARKETING ASSOCIATES, a Cooperative Corporation, Appellant, v. ASTORIA PLYWOOD CORPORATION, a Washington Corporation, Respondent, and Cross-Appellant.
• Court: Washington Court of Appeals

Page 566

16 Wn.App. 566

558 P.2d 283, 96 A.L.R.3d 1231

PLYWOOD MARKETING ASSOCIATES, a Cooperative Corporation, Appellant, v. ASTORIA PLYWOOD CORPORATION, a Washington Corporation,

Respondent, and Cross-Appellant.

No. 1784--II.

Court of Appeals of Washington, Division 2.

Dec. 21, 1976.

John L. LaLonde, Boettcher, LaLonde, Kleweno, Lodge, Ladley, Witteman, Schreiber & Kelly, Vancouver, Edwin J. Peterson, Tooze, Kerr, Peterson, Marshall & Shenker, Portland, Or., for appellant.

James F. McAteer, Lenihan, Ivers, Jensen & McAteer, Seattle, for respondent.

PETRIE, Chief Judge.

During the first four years of its existence, Plywood Marketing Associates, a plywood sales cooperative made tentative advances to its members totaling $70,583,316. During the same period, its net margins totaled only $69,951,689. A dispute arose as to how the resulting 'loss' of $631,627 should be absorbed.

PMA sued a member who had withdrawn from the cooperative, Astoria Plywood Corporation, to recover claimed 'over-advances' to Astoria totaling $71,739 together with interest thereon from October 31, 1970, the last date of PMA's fourth fiscal year and also the effective date of Astoria's withdrawal from PMA. PMA contended that all its 'losses,' including those which developed from unprofitable sales of nonmember products, should be charged to its members and allocated among them on the basis of their respective percentages of participation on a total dollar volume over the entire four-year period. Astoria defended on the theories (1) that PMA's losses attributable to financially unsuccessful dealings with products of nonmembers should not be charged to the members; (2) that an accord and satisfaction had previously been reached between PMA and Astoria as to all losses which had occurred in the three-year period ending October 31, 1969; and (3) that no losses should be allocated against Astoria in excess of its fiscal year 1970 percentage of patronage.

The trial court held that nonmember transaction losses were chargeable to the members and that PMA and Astoria had reached an accord and satisfaction as to all losses resulting from the first three years of operation but, nevertheless, assessed Astoria with a portion of subsequently discovered pre-1970 losses, as well as its share of 1970 losses, all based on Astoria's 1970 percentage of patronage. The trial court denied PMA's prayer for prejudgment interest. Both parties have appealed to this court.

We hold:

1. Under the circumstances of PMA's method of operation, losses resulting from financially unsuccessful transactions with products of nonmembers are chargeable to members.

2. An accord and satisfaction was reached after the close of fiscal year 1969 only as to a method of allocating all the three-year losses then known to PMA's Board of Directors, in the amount of $167,099. Under that method of allocation, Astoria was assessed (and paid back) $33,287.

3. Because PMA's General Manager, Fritz Page, had engaged in certain marketing activities without board approval, had falsely prepared certain invoices, and had concealed these activities from the board until fiscal year 1970, additional losses actually were incurred prior to 1970, but were not discovered until 1970. The corrected amount of pre-1970 losses totaled $390,949 (including the $167,099 for which an accord and satisfaction had been reached). These losses should be allocated among the members on the basis of each member's three-year percentage of patronage. During that three-year period, Astoria's percentage of patronage on a dollar basis was 19.921 percent. Accordingly, Astoria should be assessed a total of $77,881 for pre-1970 losses, from which should be deducted the previously allocated and paid assessment of $33,287 and an acknowledged additional credit of $3,787.

4. PMA's fiscal year 1970 losses totaled $240,678. In that year Astoria's percentage of patronage dropped to 5.986 percent. Accordingly, Astoria should be assessed a total of $14,407 for 1970 losses.

5. PMA acknowledges the validity of that portion of the trial court's judgment which awarded Astoria the amount of $5,000 for return of its membership fee together with prejudgment interest thereon from September 27, 1970.

6. Judgment against Astoria should be modified to award PMA the amount of $55,214 together with interest thereon at the prejudgment rate of interest from June 11, 1971, the date upon which PMA made demand upon Astoria.

For a more understandable explanation of our conclusions, we must relate some of PMA's history and operations.

Nine manufacturers of plywood and other wood products formed PMA in 1966 as an Oregon cooperative corporation to market their products. Each member mill was represented on PMA's board of directors after paying a membership fee of $5,000 and an assessment of $3,000 to cover PMA's start-up costs. Article 7, section 2 of the Bylaws provides that the 'cooperative shall do business for or with its members on a nonprofit cooperative basis.' PMA was authorized to, and did, function by taking title to members' products, selling them and collecting the proceeds. The board was authorized, however, to establish so-called marketing 'pools,' with the 'net savings' derived from the sale of products in each pool to be credited to the participating members on a pro rata basis. In addition, article 7, section 7 of the Bylaws provided for distributive charging of losses in the following manner:

If the cooperative During a fiscal period or pool period shall sustain a loss on any pool, such loss shall be charged to the members having interests in that pool, . . . or in some other proper manner, in accordance with sound cooperative accounting practice . . . If in any fiscal year the cooperative shall incur a net operating loss which is recognizable for tax purposes, the board of directors shall have authority to Charge off such loss either against net margins of future years or against capital credits Or in such other manner as will afford the cooperative the maximum benefits for tax purposes.

(Emphasis added.)

PMA was authorized to make advance payments to any member in anticipation of the receipt of proceeds from the sale of that member's products, subject to 'adjustment and settlement as at the close of the applicable fiscal year or pool period.' 'Net margins,' or profits, were to be apportioned as described in article 7, section 9 of the Bylaws:

(a) The cooperative shall deduct and retain from the sums received by it from its sales of members' products or from other services rendered for its members, on a pool or other basis as provided in section 7 of this article, Any sums advanced or paid by the cooperative on the products involved, any costs incurred by the cooperative on the goods sold, and the cost of the cooperative's operations and services and of maintaining the cooperative, together with reasonable charges for appropriate valuation reserves, And any losses incurred. The net balance . . . shall be apportioned among the members for or to whom such services were rendered, prorata according to the patronage of the cooperative by those members during the period involved. Such apportionment among members shall be based upon the dollar value of the products handled and other services rendered by the cooperative. . . .

(Emphasis added.)

The Bylaws further provide that acceptance of membership in PMA constitutes an agreement to abide by its articles, bylaws, and regulations. A member could file a written withdrawal effective only as of the anniversary of its election to membership. An annual audit was required following the close of each fiscal year, which the board established at October 31.

PMA Bylaws and operations are subject to the Oregon Cooperative Corporation Act, ORS Chapter 62, which the parties agree is controlling. ORS 62.415 provides as follows:

Apportionment and distribution of net proceeds or savings or net losses. (1) The net proceeds or savings of a cooperative shall be apportioned, distributed and paid periodically to those persons entitled to receive them, at such times and in such reasonable manner as the bylaws shall provide; except that net proceeds or savings on patronage of the cooperative by its members shall be apportioned and distributed among those members in accordance with the ratio which each member's patronage during the period involved bears to total patronage by all members during that period. The bylaws may contain any reasonable provisions for the apportionment and charging of net losses.

(5) . . . Net losses shall be computed in accordance with generally accepted accounting principles applicable to cooperative corporations, . . .

(Emphasis added.)

At the formation of PMA in November 1966, the attorney for PMA advised each member, including Astoria, as to the sharing of potential losses:

A Member which patronizes the organization by marketing products through it or otherwise using its services Can be liable to the organization for that member's prorata share of any loss suffered by the marketing cooperative on products handled by it for that member or For that member's prorata share of any general operating loss of the marketing cooperative. Such share would be in direct proportion to the amount of business done by that member with the cooperative; hence the member would not share any such losses unless it had in some way patronized or used the cooperative during the period involved.

There is no statutory authority, nor any authority under the present articles of incorporation and bylaws of the marketing cooperative, for levy of any assessment against a member independently of the member's share of any loss suffered on any marketing transaction or other business done by the cooperative for that member.

(Emphasis added.)

PMA's initial operating practice was to obtain customer orders and solicit plywood from member mills, who shipped directly to the customer. PMA was...