Transamerica Cash Reserve, Inc. v. Dixie Power and Water, Inc.

• Decision Date: 06 March 1990
• Docket Number: 860508,Nos. 20450,s. 20450
• Citation: 789 P.2d 24
• Parties: TRANSAMERICA CASH RESERVE, INC., a Maryland corporation, and First National Bank of Boston, Plaintiffs and Appellees, v. DIXIE POWER AND WATER, INC., Darrell G. Hafen, Transworld Securities, S.A., a corporation, and Does 1 through 100 inclusive, Defendants and Appellants.
• Court: Utah Supreme Court

Page 24

789 P.2d 24

TRANSAMERICA CASH RESERVE, INC., a Maryland corporation, and First National Bank of Boston, Plaintiffs and Appellees, v. DIXIE POWER AND WATER, INC., Darrell G. Hafen, Transworld

Securities, S.A., a corporation, and Does 1

through 100 inclusive, Defendants and Appellants.

Nos. 20450, 860508.

Supreme Court of Utah.

March 6, 1990.

Scott A. Gubler, St. George, for defendants and appellants.

John L. Miles, J. MacArthur Wright, St. George, for plaintiffs and appellees.

ZIMMERMAN, Justice:

Dixie Power & Water, Inc., appeals from a grant of summary judgment in favor of Transamerica Cash Reserve, Inc., and First National Bank of Boston (collectively referred to as "Transamerica") for monies owed Transamerica by Darrell G. Hafen and from the trial court's denial of its post-judgment objections to the findings of fact and conclusions of law. Dixie claims, inter alia, that the trial court erred in finding as a matter of law that Dixie was the alter ego of co-defendant Darrell G. Hafen and in denying Dixie's counsel an attorney's lien against funds of Dixie that were claimed by Transamerica. We reverse the trial court's alter ego holding and the summary judgment based on that holding, affirm the denial of an attorney's lien, and find no reason to reach the other issues raised on appeal.

Transamerica Cash Reserve, Inc., a money market mutual fund, and First National Bank of Boston, the transfer agent for Transamerica, brought this action against Hafen, Transworld Securities, S.A., and Dixie Power & Water, Inc., to recover monies Hafen allegedly obtained from Transamerica via a series of fraudulent transactions. Testimony elicited at a hearing indicated that Hafen had made deposits purporting to total $1,465,000 to the Transamerica money market fund. On these deposits, Transamerica ultimately collected only $12,000. Before Transamerica was aware of the true nature of Hafen's deposits, he had withdrawn $406,380.75 from the account. The suit against Hafen and Dixie was part of the effort by Transamerica to recover its losses.

In addition to claiming directly against Hafen, Transamerica asserted that Dixie was the alter ego of Hafen. Transamerica moved for a prejudgment writ of attachment against any funds owned by the various defendants then on deposit at First Security Bank's office in St. George. Dixie had funds on deposit with First Security. The district court granted Transamerica's motion, finding as a matter of law that Dixie is Hafen's alter ego and that Dixie's assets are, in fact, Hafen's and are reachable by Hafen's creditors.

According to the record, Hafen's stock ownership gave him complete control of Dixie. However, Dixie was not involved in Hafen's scheme, and none of Dixie's assets, including the money on deposit with First Security, was obtained as a result of Hafen's fraudulent activities. In fact, Dixie's funds on deposit at First Security were the proceeds of a legitimate sale of water rights owned by Dixie. The court based its alter ego decision on a finding that no corporate formalities were observed by Hafen, his family, or the other shareholders of Dixie. Specifically, the evidence showed that there were no shareholders' meetings, no board of directors' meetings, and no tax returns filed for Dixie and that Dixie's secretary, Hafen's son, knew almost nothing of Dixie's business affairs.

Following the grant of the writ of attachment, Dixie's counsel, Scott A. Gubler, filed a notice of an attorney's lien, claiming a portion of the attached funds as due for fees. The court ruled that an attorney's lien should be impressed on the attached funds. Transamerica then moved to amend that ruling, arguing that the assets attached did not belong to Dixie but to Hafen and were therefore not properly subject to attachment. The court agreed and ordered the lien discharged.

Transamerica moved for summary judgment on its complaint, seeking payment of Hafen's debt from Dixie's assets based on the pleadings, evidence, and live testimony. The district court granted the motion on the premise that Dixie was the alter ego of Hafen.

On appeal, Dixie challenges several rulings of the district court. We need only consider two of those claims: first, the finding that Dixie was the alter ego of Hafen, thus permitting Transamerica to reach its assets, and second, the denial of the request for an attorney's lien on Dixie's funds.

We note the applicable standard of review. Summary judgment is proper only when no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. E.g., Utah State Retirement Office v. Salt Lake County, 780 P.2d 813, 814-15 (Utah 1989); CECO v. Concrete Specialists, Inc., 772 P.2d 967, 969 (Utah 1989); Utah R.Civ.P. 56(c). Because summary judgment by definition does not resolve factual issues, a challenge to summary judgment presents for review only questions of law. We review those conclusions for correctness, according no particular deference to the trial court. E.g., Mountain Fuel Supply Co. v Salt Lake City Corp., 752 P.2d 884, 887 (Utah 1988); Scharf v. BMG Corp., 700 P.2d 1068, 1070 (Utah 1985).

We first address the trial court's determination that Dixie's assets should be treated as Hafen's. In the usual case, the corporation is viewed as a legal entity distinct from its shareholders. Under the equitable "alter ego" doctrine as it originally evolved, courts would, upon a proper showing, disregard the integrity of the corporation and view a controlling shareholder as indistinguishable from the corporation, thereby permitting creditors of the corporation to reach the assets of a controlling shareholder. See Dockstader v. Walker, 29 Utah 2d 370, 372-73, 510 P.2d 526, 528 (1973); Geary v. Cain, 79 Utah 268, 273, 9 P.2d 396, 398 (1932). This was done to prevent the legal separation between the corporation and the controlling shareholder or shareholders from being used to perpetuate an injustice on third parties. In some states, the doctrine evolved to permit creditors of an individual shareholder to reach the assets of the corporation when the requirements of the doctrine are satisfied. See Rainbo Gold Mines v. Magnus, 371 F.2d 519, 524-25 (10th Cir.1966); Shamrock Oil & Gas Co. v. Ethridge, 159 F.Supp. 693 (D.Colo.1958); Minich v. Gem State Developers, Inc., 99 Idaho 911, 917, 591 P.2d 1078, 1084 (1979). But see Olympic Capital Corp. v. Newman, 276 F.Supp. 646, 655 (C.D.Cal.1967). That issue has yet to be addressed in Utah, although it follows logically from the basic premise of the alter ego rule and appears consistent with our case law. But even assuming we...