Van Schaack Holdings, Ltd. v. Fulenwider

• Court: Colorado Supreme Court
• Writing for the Court: ROVIRA
• Citation: Van Schaack Holdings, Ltd. v. Fulenwider, 798 P.2d 424 (Colo. 1990)
• Decision Date: 10 September 1990
• Docket Number: 88SC527
• Parties: VAN SCHAACK HOLDINGS, LTD., a partnership, and H.C. Van Schaack, III, each Individually and/or Derivatively on Behalf of Box Elder Farms Company, a Colorado Corporation, Petitioners, v. L.C. FULENWIDER, Jr., L.C. Fulenwider III, and L.C. Fulenwider, Inc., a Colorado Corporation, Respondents.

Page 424

798 P.2d 424

VAN SCHAACK HOLDINGS, LTD., a partnership, and H.C. Van Schaack, III, each Individually and/or Derivatively on Behalf of Box Elder Farms Company, a Colorado Corporation, Petitioners, v. L.C. FULENWIDER, Jr., L.C. Fulenwider III, and L.C Fulenwider, Inc., a Colorado Corporation, Respondents.

No. 88SC527.

Supreme Court of Colorado En Banc.

Sept. 10, 1990.

Rehearing Denied Oct. 9, 1990.

Brenman Raskin Friedlob & Tenenbaum, P.C., Richard H. Goldberg, David H. Wollins, Denver, for petitioners.

Holme Roberts & Owen, Donald K. Bain, Richard G. Wilkins, Denver, for respondents.

Chief Justice ROVIRA delivered the Opinion of the Court.

We granted certiorari in this case to determine the proper disposition of a pending C.R.C.P. 54(b) ¹ appeal when the appellants voluntarily comply with the trial court's order. In Van Schaack Holdings, Ltd. v. Fulenwider, 768 P.2d 740 (Colo.App.1988), the court of appeals held that the parties, in effect, had settled the case in accord with the district court's order. Relying on the line of cases beginning with United States v. Munsingwear, Inc., 340 U.S. 36, 71 S.Ct. 104, 95 L.Ed. 36 (1950), the court of appeals dismissed the appeal as moot and vacated the lower court's judgment. We hold that there was no settlement, but under the circumstances of this particular case, the lower court's judgment was properly vacated when the appeal became moot. Accordingly, we affirm.

I

This case involves a dispute between petitioners, Van Schaack Holdings, Ltd. and H.C. Van Schaack, III (Van Schaack), and respondents, L.C. Fulenwider, Jr., L.C. Fulenwider, III, and L.C. Fulenwider, Inc. (Fulenwider), concerning a management agreement in which Fulenwider managed Box Elder Farms Company, a company jointly owned by Van Schaack and Fulenwider, in exchange for a percentage of gross income. Box Elder was formed in 1938 by Van Schaack and Fulenwider to manage nearly 40,000 acres of land located in Adams County. Its shareholders and directors consist entirely of members of the Van Schaack and Fulenwider families. The parties, who own equal portions of Box Elder stock, historically entered into management agreements in which Fulenwider was paid to manage the property. Each management contract was effective for 10 to 12 years and was then replaced by a new agreement.

In the early agreements, Fulenwider was to receive 10% of the price of any land sold. In the 1962 renewal of the management agreement this percentage was modified so that Fulenwider would receive 8% of the gross sales price. The following provision was also added: "In the event any property of Box Elder shall be taken through condemnation, Fulenwider shall receive from Box Elder a fee equal to 8% of the gross award made to Box Elder on account of the taking of such property." The parties subsequently incorporated this provision into their 1972 renewal agreement, but increased Fulenwider's share to 10% of the gross award.

In 1982, shortly before the 1972 renewal agreement was due to expire, the parties became aware that a portion of Box Elder property might be condemned by the City and County of Denver for construction of a new airport. Based on the potential condemnation of a large tract by Denver, Van Schaack did not think it fair to include, in the new agreement, those provisions which granted Fulenwider a percentage of the proceeds of any land sold or condemned. Fulenwider, however, thought that the parties should renew the same management agreement that had been operative for decades.

In October 1982, L.C. Fulenwider, Jr. and L.C. Fulenwider, III, as officers of Box Elder, signed a new management agreement with L.C. Fulenwider, Inc. The new agreement retained the provision that, in the event of a condemnation, Fulenwider would receive 10% of the gross award. Van Schaack objected to the inclusion of any condemnation clause in the renewal agreement, and, at the 1983 annual meeting of Box Elder, voted against ratifying the 1982 renewal of the management contract. Despite Van Schaack's opposition, the board of directors approved the renewal.

Thereafter, in October of 1985, Van Schaack brought this action against Fulenwider. The amended complaint consists of seven counts or claims for relief, all arising from Fulenwider's actions in causing Box Elder to enter into the 1982 management agreement. The claims are as follows: (1) derivative claim for relief for breach of fiduciary duty; (2) derivative claim for relief for constructive fraud; (3) derivative claim for relief requesting a declaratory judgment; (4) derivative claim for relief requesting rescission of the management contract; (5) derivative claim for relief requesting the imposition of a constructive trust; (6) direct claim for relief for breach of fiduciary duty; and (7) a request for dissolution of the Box Elder corporation.

Immediately after filing suit, Van Schaack requested that a hearing on the dissolution issue be expedited because condemnation of a substantial portion of the airport land was imminent, and tax considerations mandated that the corporation be dissolved before condemnation proceedings commenced. Expedited discovery was ordered, and a hearing on the dissolution claim took place four months after Van Schaack's request. The remaining six claims were scheduled to be tried a year later.

On March 7, 1986, after a five-day trial on the dissolution issue, the trial court ruled that the 1982 agreement unilaterally executed by Fulenwider was a product of self-dealing, was unlawfully adopted by the board of directors, was not ratified by Box Elder shareholders, and was unfair. Furthermore, the court found that the agreement was illegally oppressive, and that payments under it constituted corporate waste warranting entry of a dissolution order. The trial court certified the dissolution order and findings as a final judgment under C.R.C.P. 54(b). The trial court also entered an order appointing L.C. Fulenwider, III as receiver to oversee the dissolution of Box Elder.

Fulenwider obtained a stay of the dissolution order and appealed the trial court's orders. ² However, while the appeal was pending, Fulenwider signed a Statement of Intent to Dissolve By Written Consent of Shareholders (Statement of Intent) and Articles of Dissolution, which were filed with the Colorado Secretary of State. Fulenwider also filed a motion to lift the stay. Thereafter, the trial court discharged the receiver.

Van Schaack then filed a motion to dismiss the appeals on the ground of mootness. Fulenwider objected, claiming that the trial court's findings remained as disputed issues on appeal because they could affect the remaining claims if left unreviewed. The court of appeals denied the motion on June 16, 1986. Four months later, Fulenwider filed its own motion asking the court to dismiss the consolidated appeals and to vacate the trial court's orders upon which the appeals were based. This motion was denied by the court of appeals with leave to address the mootness issue in the briefs. After oral argument, the court of appeals dismissed the appeals because they were moot and vacated the lower court's judgment. Van Schaack, 768 P.2d at 741. We then granted certiorari to review the court of appeals judgment.

II

We first determine if the appeals became moot. A case is moot when a judgment, if rendered, would have no practical legal effect upon the existing controversy. Barnes v. District Court, 199 Colo. 310, 607 P.2d 1008 (1980). The general rule is that when issues presented in litigation become moot because of subsequent events, an appellate court will decline to render an opinion on the merits of an appeal. See Steffel v. Thompson, 415 U.S. 452, 459 n. 10, 94 S.Ct. 1209, 1216 n. 10, 39 L.Ed.2d 505 (1974); Humphrey v. Southwestern Dev. Co., 734 P.2d 637 (Colo.1987). We have held that when the appellant complies with a lower court's judgment pending appeal, mooting the question on appeal, the appeal should be dismissed. Blades v. Sanders, 158 Colo. 64, 404 P.2d 520 (1965); Cameron v. Carroll & Co., 138 Colo. 432, 334 P.2d 748 (1959). See also Stenback v. Front Range Financial Corp., 764 P.2d 380 (Colo.App.1988); 13A Wright, Miller & Cooper, Federal Practice and Procedure § 3533.2 (2d ed. 1984).

We agree that Fulenwider's challenges to the dissolution order and to the order appointing a receiver were mooted during appeal. By the time the cases were heard by the court of appeals, the corporation was in the process of dissolution. Thus, any determination as to the propriety of the dissolution order or the order appointing a receiver would have no effect. Having concluded that the appeals were moot, we now determine whether the court of appeals applied the proper procedure by vacating the trial court orders.

III

Whether an appellate court should vacate a lower court's judgment upon a determination that an appeal is moot is a matter of procedure which is not expressly addressed by the Colorado Rules of Civil Procedure or the Colorado Appellate Rules. Because our rules do not provide specific guidance, we determine the proper appellate procedure under our appellate authority and our authority of "general superintending control" over inferior courts. Colo. Const. art. VI, § 2. While we are not bound by the federal law on this matter, federal case law is useful as guidance.

When a case becomes moot on appeal, the usual practice is to dismiss the appeal and vacate the lower court's judgment. Deakins v. Monaghan, 484 U.S. 193, 108 S.Ct. 523, 98 L.Ed.2d 529 (1988); Great W. Sugar Co. v. Nelson, 442 U.S. 92, 99 S.Ct. 2149, 60 L.Ed.2d 735 (1979); United States v. Munsingwear, Inc., 340 U.S. 36, 71 S.Ct. 104, 95 L.Ed. 36 (1950); Duke Power Co. v. Greenwood County, 299 U.S. 259, 57 S.Ct. 202, 81 L.Ed. 178 (1936); Warren v. People ex rel. Stewart, 144 Colo. 57, 354 P.2d 1021 (1960). In Munsingwear, the Court indicated that if a case is mooted on appeal, it is "the duty of the...