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Willner's Fuel Distributors v. R. Noreen and T. Rosson (10/7/94), 882 P 2d 399
<![CDATA[
NOTICE: This opinion is subject to formal correction
before publication in the Pacific Reporter. Readers
are requested to bring errors to the attention of the
Clerk of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501.
THE SUPREME COURT OF THE STATE OF ALASKA
WILLNER'S FUEL DISTRIBUTORS, ) Supreme Court No. S-5265
INC., )
)
Appellant, ) Superior Court No.
) 4FA-91-104 CI
v. )
) O P I N I O N
ROBERT S. NOREEN and )
THOMAS A. ROSSON, ) [No. 4133 - October 7, 1994]
)
Appellees. )
______________________________)
Appeal from the Superior Court of the
State of Alaska, Fourth Judicial District,
Fairbanks,
Niesje J. Steinkruger, Judge.
Appearances: Charles D. Silvey, A.
Rene' Broker, and Zane Wilson, Staley,
DeLisio, Cook & Sherry, Inc., Fairbanks, for
Appellant. Christian N. Bataille, Fairbanks
and Robert S. Noreen, pro se, Fairbanks, for
Appellees.
Before: Moore, Chief Justice,
Rabinowitz, Matthews and Compton, Justices.
[Burke, Justice, not participating.*]
RABINOWITZ, Justice.
I. FACTS AND PROCEEDINGS
Thomas A. Rosson, Jr. formed a solely owned
corporation, Rosson & Company, Inc., (Rosson, Inc.) in 1983.1
Rosson, Inc. was involuntarily dissolved on November 27, 1985 by
the State of Alaska.
In 1986, attorney Robert S. Noreen (Noreen) filed a
voluntary bankruptcy petition for Rosson, Inc. and for Thomas
Rosson individually in the United States Bankruptcy Court for the
District of Alaska. Willner's Fuel Distributors, Inc.
(Willner's) was listed as one of the twenty largest unsecured
creditors of Rosson, Inc.2 Willner's also was listed on the
schedule of debts of Thomas Rosson individually. Both petitions
were dismissed by orders dated April 9, 1988. No discharges were
issued.
On April 8, 1988, Thomas Rosson and Rosson, Inc. sued
the Fairbanks North Star Borough, R & M Engineering Consultants,
and Glacier State Telephone Company (collectively referred to as
"Borough") for breach of contract and negligence, and
additionally sued the Fairbanks North Star Borough individually
for business interference. The alleged breaches arose out of
conduct following the August 20, 1984 award of a road contract,
apparently to Rosson, Inc. Noreen was the attorney of record for
both Thomas Rosson and Rosson, Inc. in this action.3 Noreen
claims that "at some point during this time frame"Thomas Rosson
told him that Rosson, Inc. had been involuntarily dissolved in
1985.
On May 9, 1988, Willner's filed suit against Thomas
Rosson and Rosson, Inc. for $20,212.17. Noreen entered an
appearance for Thomas Rosson individually, but did not enter an
appearance for the corporation in the suit brought by Willner's.
After filing its suit, Willner's learned that Rosson, Inc. had
been involuntarily dissolved in 1985. On February 2, 1989,
Willner's applied for default against Rosson, Inc.
At some time in March, the suit by Thomas Rosson and
Rosson, Inc. against the Borough was settled for $100,000.00.
Noreen explains that "Thomas Rosson settled the lawsuit against
the Fairbanks North Star Borough for $100,000.00 both in his
individual capacity and as the past president or assignee of
interests in the dissolved corporation Rosson & Company, Inc."4
Noreen asserts that "[t]his settlement was concluded and
settlement checks were received by attorney Noreen no later than
March 26, 1989." The checks were made payable jointly to Thomas
Rosson and Robert Noreen. Rosson, Inc. was not a payee.
The chronology of events on March 28, 1989 is disputed.
On that date, Noreen and the attorney for Willner's signed and
filed a stipulation that the lawsuit against Thomas Rosson
individually would be dismissed without prejudice. According to
Noreen, at sometime "in the morning"of March 28 Thomas Rosson
accompanied Noreen to National Bank of Alaska (NBA), where Noreen
deposited the settlement monies from the suit by Thomas Rosson
and Rosson, Inc. against the Borough into his trust account.
Noreen directed the NBA teller to transfer $80,000.00 from the
trust account to Thomas Rosson, by cashier's check.5 Noreen
explains that he then wrote a check to himself from the
settlement proceeds for his fee of $20,000.00, and deposited the
check into his business account. At the time of the two
transactions, Noreen asserts, he had no knowledge that Willner's
was procuring a default judgment, writ of execution, or levy
against Rosson, Inc.
Also on March 28, a default judgment in the amount of
$25,257.44 was entered against Rosson, Inc. in the suit by
Willner's against Thomas Rosson and Rosson, Inc., because Rosson,
Inc. had "failed to plead in or otherwise defend this action."
Noreen states that he was presented with a levy on his trust
account to satisfy this default judgment "in the afternoon of
March 28, 1989." According to Noreen, the settlement proceeds
had already been distributed "to his client Thomas Rosson
individually and as sole corporate representative of Rosson Inc.,
pursuant to client demand"by this time. In a response to the
levy, Noreen stated that he had no funds of Rosson, Inc. under
his control.
On January 24, 1991, Willner's filed a complaint
against Noreen and Thomas Rosson, alleging that Noreen had
violated AS 09.40.040 in his response to the levy and had
wrongfully disbursed the funds of an insolvent dissolved
corporation. Willner's sought both the money award of Rosson,
Inc.'s debt to Willner's and other damages. Willner's then filed
a motion for summary judgment concerning Noreen's alleged
violation of AS 09.40.040 based on his alleged false statements
made in response to a court levy. Noreen filed a motion for
judgment on the pleadings or, in the alternative, for summary
judgment, contending inter alia that he owed Willner's no
fiduciary duty. Noreen also moved for summary judgment regarding
the AS 09.40.040 claim.
Thereafter, the superior court entered a memorandum
decision and order denying the summary judgment motion by
Willner's on the AS 09.40.040 claim and granting judgment to
Noreen on this claim. Additionally, the superior court granted
Noreen's summary judgment motion on the tort claims that
Willner's raised. The superior court concluded that "[a]s a
matter of law, Noreen did not violate any statutory or common law
duty to Willner's."
The remaining claims of Willner's against Thomas Rosson
were scheduled for a default judgment trial. Subsequently, the
superior court issued an order stating that the judgment against
Willner's on the claims against Noreen would not become effective
until either the claims by Willner's against Thomas Rosson were
resolved or until further order of the court.6 Thereafter, the
superior court entered findings of fact and conclusions of law,
and a final default judgment, against Thomas Rosson in favor of
Willner's. This appeal followed.
II. DISCUSSION
A. The AS 09.40.040 Summary Judgment Motion
Alaska Statute 09.40.040 states in relevant part:
All persons having in their
possession personal property belonging to the
defendant or owing a debt to the defendant at
the time of service upon them of [a writ and
notice of attachment pursuant to AS
09.40.010] shall deliver, transfer, or pay
the property or debts to the peace officer,
or be liable to the plaintiff for the amount
of the property or debts until the attachment
is discharged or a judgment recovered by
plaintiff is satisfied.
In his argument before the superior court, Noreen
contended that Willner's had served the levy too late, since it
was served some time after the banking transaction in question
had occurred. The superior court agreed, finding that "the levy
by Willner's was served on Mr. Noreen later in the day [after the
NBA transactions]."
In its motion for summary judgment on the AS 09.40.040
claim,7 Willner's relied on the deposition testimony of process
server David G. Chausse, who described service of the levy as
occurring between 1:30 and 1:40 p.m. on March 28, 1989.8
Willner's also relied on the testimony of Deborah Kimmell, the
operations supervisor at the NBA office where transfer of the
Borough litigation settlement proceeds to Thomas Rosson took
place. Kimmell testified that no bank record could identify the
precise time that the cashier's check to Thomas Rosson was
prepared. The debit memo regarding the $80,000 charge against
Noreen's account was dated March 29, 1989. Kimmell reasoned that
this could only occur if the transaction took place on March 29,
or at the end of the March 28 workday after 5:00 p.m., based upon
the bank's standard practice of completing a debit memo at the
time of the transaction.
We conclude that Noreen's assertion in his opposition
to Willner's motion that the levy was served after he had
returned from NBA, Chausse's statement that he served the levy at
approximately 1:30 p.m., and Kimmell's statement implying that
the transactions at NBA could have occurred after 5:00 p.m. on
March 28, together raise genuine issues of material fact as to
when Noreen authorized the issuance of the $80,000 cashier's
check.9 Accordingly, the superior court erred in its resolution
of this question and its consequent grant of summary judgment to
Noreen on the AS 09.40.040 claim.
B. Noreen's Summary Judgment Motion as to the Breach
of Fiduciary Duty Claims
Willner's contends that Noreen owed and breached a
fiduciary duty to corporate creditors.10 Willner's argues that
once Rosson, Inc. was dissolved and became insolvent, Thomas
Rosson, in his capacity as director, owed Willner's a fiduciary
duty to preserve corporate assets, because those assets had
become an informal trust fund for the benefit of Rosson, Inc.'s
creditors. Willner's urges this court to fashion a similar
fiduciary duty, running from Noreen in his capacity as corporate
counsel to the creditors of the dissolved, insolvent corporation.
Thomas Rosson's liability to Willner's is not directly
at issue in this appeal. Nonetheless, a determination whether
Thomas Rosson owed a fiduciary duty to creditors bears on the
existence of a similar duty on Noreen's part. Though it did not
explain its reasons for holding Thomas Rosson liable under Alaska
law to Willner's, the superior court properly could have
proceeded under either of two theories.
First, under the "trust fund"theory, directors of an
insolvent corporation may be personally liable to creditors for a
breach of fiduciary duty resulting from an improper distribution
of assets:
An insolvent corporation is civilly dead
in the sense that its property may be
administered in equity as a trust fund for
the benefit of creditors. The fact which
creates the trust is the insolvency, and when
that fact is established, the trust arises,
and the legality of the acts thereafter
performed will be decided by very different
principles than in the case of
solvency. . . .
The courts . . . have held officers
and directors of corporations to be at one
time agents or mandataries, and at another
time, trustees, and have defined their
liability accordingly; and they have been
held as trustees where they took such
advantage of their position of trust as
public policy could not tolerate.
. . . .
. . . Clearly, it [is] not meant
that directors of a corporation are trustees,
in a strict and technical sense, in all of
their relations with the corporation, its
stockholders and creditors; but, as clearly,
it [is] implied that they should be treated
as such when they have unlawfully profited
through breach of duty, and at the expense of
the corporation.
Bovay v. H.M. Byllesby & Co., 38 A.2d 808, 813 (Del. 1944); see
also Rosebud Corp. v. Boggio, 561 P.2d 367, 372 (Colo. App.
1977); Geyer v. Ingersoll Publications Co., 621 A.2d 784, 787-88
(Del. Ch. 1992) (Chandler, V.C.) (noting the continued vitality
of Bovay, and holding that directors' fiduciary duty to creditors
arises with the fact of insolvency, not when the insolvent
corporation institutes statutory proceedings such as a
bankruptcy); Whitfield v. Kern, 192 A. 48, 54-55 (N.J. 1937).
See generally 3A William M. Fletcher, Fletcher Cyclopedia of the
Law of Private Corporations 1175, 1180, 1182 (Stephen M.
Flanagan & Charles R.P. Keating eds., perm. ed. rev. vol. 1986)
(characterizing informal trust fund theory as majority rule).
Second, the superior court, viewing Rosson, Inc. as a
dissolved corporation, could have held Thomas Rosson liable for a
post-dissolution asset distribution in violation of former AS
10.05.216(c).11 Though this provision makes directors personally
liable "to the corporation for the value of the assets
distributed," former AS 10.05.216(c) (emphasis added), several
courts construing similar statutory language apply the trust fund
theory to allow creditors as a class to sue. See Ficor, Inc. v.
McHugh, 639 P.2d 385, 393 (Colo. 1982) (allowing statutory remedy
to all creditors as a group); cf. Kidde Indus., Inc. v. Weaver
Corp., 593 A.2d 563, 566 (Del. Ch. 1991) (Chandler, V.C.)
(applying trust fund theory to allow creditors an action under a
statute subjecting nonresident directors to personal jurisdiction
based upon the directors' fiduciary duty to creditors). Contra
Nachazel v. Mira Corp., Mfg., 466 N.W.2d 248, 255-56 (Iowa 1991)
(applying plain meaning analysis to statutory language, and
holding that creditors had no cause of action against corporate
officers and directors). We agree with the courts in Ficor and
Weaver, and therefore hold that Thomas Rosson, in his capacity as
director of Rosson, Inc., owed Willner's and the other creditors
of the corporation a fiduciary duty to preserve its assets, in
particular the proceeds from the Borough settlement, for their
benefit.12
As for Noreen's liability, we note that Noreen
represented two clients: Thomas Rosson, a natural person, and
Rosson, Inc., a dissolved corporation. The interests of these
two clients with respect to the net proceeds of their claim,
$80,000, were not identical. The corporation's interest was in
maximizing its share of the proceeds and in disbursing the
proceeds to its creditors in accordance with the priorities
established by law. Thomas Rosson's interest was in maximizing
his individual claim to the proceeds. A lawyer who represents
clients with conflicting interests is in a sensitive position and
may be liable for breach of the lawyer's fiduciary
responsibilities to either client. Just as creditors may sue
directors on behalf of a dissolved corporation, creditors may
maintain similar actions against the attorney of the dissolved
corporation for breach of the attorney's fiduciary obligations.
See Robertson v. White, 633 F. Supp. 954, 969-71 (W.D. Ark. 1986)
(holding that, in a consolidated action by both an agricultural
co-op's bankruptcy trustee and a class consisting of the co-op's
members, shareholders, and creditors, the plaintiffs could
maintain a negligence action against the co-op's counsel--for
harm to the co-op, not to the class--because the co-op "enjoys
privity of contract with its professional advisors"); cf. Ohman
v. Kahn, 685 F. Supp. 1302, 1311 (S.D.N.Y. 1988) (allowing
investor in corporation an action against corporate counsel
because action was brought derivatively on corporation's behalf);
Karris v. Water Tower Trust & Sav. Bank, 389 N.E.2d 1359, 1370
(Ill. App. 1979) (holding that had attorney breached fiduciary
duty to corporation, a shareholder could sue the attorney through
a derivative action); Rowen v. Le Mars Mut. Ins. Co., 282 N.W.2d
639, 654 (Iowa 1979) (allowing policyholders in a derivative
action against the insurer a claim against the insurer's
attorney, on the grounds that "all who assist or cooperate in the
breach of fiduciary duties--whether directors or not--are liable
for the resulting damage"); Robertson v. Gaston Snow & Ely
Bartlett, 536 N.E.2d 344, 350 n.5 (Mass.) (holding that any
shareholder's claim against corporate counsel for breach of
fiduciary duty must be through a derivative action), cert.
denied, 493 U.S. 894 (1989). This case can be viewed as such an
action. So viewed, there are questions of fact concerning
whether Noreen breached his fiduciary duty to Rosson, Inc.
The corporate assets at issue here were placed in
Noreen's attorney's trust account, and thus were in his custody
and control. Requiring an insolvent or dissolved corporation's
attorney to protect assets in his or her custody from a
director's improper distribution would not impose an unwarranted
burden on the legal profession. In fact, an attorney often has
an ethical duty to protect third-party claims to funds in his or
her custody from a client's wrongful interference. See Alaska
Rules of Professional Conduct 1.15 cmt.
By way of summation, we hold that if an attorney
represents both a dissolved or insolvent corporation and a
director or officer of that firm, and if the attorney controls
corporate assets, then the attorney must protect the financial
rights of creditors to these assets, where he or she knows or
should know that the director or officer intends to interfere
with creditors' claims through an improper distribution of these
assets. To do otherwise would sanction a class of wrongs without
a remedy. Accordingly, as a matter of law, we hold that Noreen
was not entitled to summary judgment.13
III. CONCLUSION
The superior court erred in granting summary judgment
to Noreen on Willner's AS 09.40.040 motion, as there were genuine
questions of material fact as to the relative timing of the
service of the levy and the NBA transactions, and the possession
of the funds at the time of the levy. The superior court also
erred in holding that Noreen owed no duty to a creditor of the
dissolved, insolvent corporation. We hold that such a duty may
exist, that genuine issues of fact exist as to Noreen's violation
of this duty, and accordingly that Noreen was not entitled to
summary judgment as a matter of law.
REVERSED and REMANDED to the superior court for further
proceedings.
_______________________________
* Justice Burke participated in oral argument but retired
from the court before the opinion was rendered.
1 Rosson, the individual, is referred to as "Thomas
Rosson"to distinguish him from Rosson, Inc.
2 Willner's is an Alaska corporation that distributes
fuels and petroleum products.
3 The April 8, 1988 complaint filed by "Thomas Rosson Jr,
Rosson & Company, Inc." against the Borough identified the
contract as being between the Borough and a single "plaintiff,"
identified as "Rosson."
4 Noreen has refused to identify what portion of the
proceeds he believed to belong to either Rosson, Inc. or Thomas
Rosson, on the grounds of attorney-client privilege.
5 Thomas Rosson subsequently presented the check for
payment at a Seattle bank on April 5.
6 This action apparently was taken in response to a
request by Willner's that final judgment not be entered "on the
basis that common issues involving both defendants . . . remained
to be resolved."
7 In reviewing a grant or denial of summary judgment, we
must determine whether any genuine issues of material fact exist,
and whether the moving party is entitled to judgment as a matter
of law. Drake v. Hosley, 713 P.2d 1203, 1205 (Alaska 1986); see
also Alaska R. Civ. P. 56(c). In determining if there are any
genuine issues of material fact, the court must view the facts in
the light most favorable to the non-moving party. Wright v.
State, 824 P.2d 718, 720 (Alaska 1992).
8 Noreen argues on appeal that Willner's cannot raise
factual issues that were not before the superior court at the
time of its ruling, and lists his own deposition and the
deposition of David G. Chausse in the category of documents that
"either did not exist or were not timely submitted to the trial
judge in considering the motion." He urges us to consider on
appeal only a small part of his deposition and none of the
Chausse deposition.
Our review relies solely upon those excerpts from the
deposition testimony that Willner's had attached to its motion
documents before the superior court: the motion for summary
judgment, the reply to Noreen's opposition to summary judgment,
and the motion for reconsideration.
9 We note that there is documentary evidence that Noreen
deposited a $20,000 check drawn on his trust account for his fee
in the Rosson case in an account he held at the First National
Bank of Anchorage during the morning of March 28, 1989. If one
accepts Noreen's testimony that he wrote the $20,000 check at the
same time he authorized the $80,000 cashier's check, this deposit
is powerful support for Noreen's testimony that these
transactions took place before the levy was served. However, if
the March 29 debit memo casts doubt on the timing of the
authorization for the cashier's check, it may also cause doubt on
Noreen's testimony that he wrote the $20,000 check at the same
time that he authorized the cashier's check.
10 In the alternative, Willner's argues extensively that
under the theory of equitable subrogation, it and other creditors
"stand in the shoes"of Rosson, Inc., and that Noreen therefore
breached his fiduciary duty to the corporation itself. However,
the record indicates that Willner's did not present this theory
to the superior court. The closest that Willner's comes to
arguing an equitable subrogation theory is a one-sentence remark,
without citation to authority, in its opposition to summary
judgment: "Here, Willner's a known creditor, stepped into the
insolvent corporate 'shoes' of Rosson and Company, Inc. for
purposes of asset entitlement." Willner's makes a similar one-
sentence remark in its motion for reconsideration. Though the
concept of equitable subrogation indeed has been described with
the metaphor that Willner's uses, see Atlanta Int'l Ins. Co. v.
Bell, 475 N.W.2d 294, 298 (Mich. 1991) ("Equitable subrogation
has been described as a 'legal fiction' that permits one party to
stand in the shoes of another."), Willner's cursory remarks in
its motion documents do not demonstrate that Willner's offered
such a theory to the superior court. Therefore, Willner's cannot
raise this argument on appeal. See Gates v. City of Tenakee
Springs, 822 P.2d 455, 460 (Alaska 1991).
11 Former AS 10.05.216(c) stated in part:
The directors who vote for or
assent to the distribution of assets of a
corporation to its shareholders during the
liquidation of the corporation without the
payment and discharge of, or making adequate
provision for, all known debts, obligations,
and liabilities of the corporation are
jointly and severally liable to the
corporation for the value of the assets
distributed, to the extent that the debts,
obligations and liabilities of the
corporation are not paid and discharged.
(Emphasis added). This provision was reenacted, in slightly
modified form, as part of the new Alaska Corporations Code. See
AS 10.06.480(a)(2).
12 Former AS 10.05.594(a) provided that the dissolution of
a corporation did not "take away or impair a remedy available to
or against the corporation, its directors, officers, or
shareholders, for a right or claim existing, or a liability
incurred, prior to dissolution if an action or other proceeding
is commenced within two years after the date of dissolution."
Though the parties disputed the applicability of this limitations
period in their summary judgment motions, this issue is not
before us on appeal.
Furthermore, the formal dissolution of Rosson, Inc.
occurred in 1985. The corporation filed its suit against the
Borough in 1988, well after the limitations period had run, and
the allegedly improper transfer of the Borough settlement
proceeds to Thomas Rosson occurred in 1989.
13 Though it was one of many unsecured creditors to
Rosson, Inc., Willner's is suing Noreen on behalf of itself
alone, and is suing for the full amount of the debt owed it, plus
interest. Had the proceeds from the Borough settlement remained
with the corporation, they would have been allocated among all
the creditors, with senior and secured creditors having priority
over junior and unsecured creditors such as Willner's. Many
jurisdictions that hold directors and officers of an insolvent or
dissolved corporation liable to creditors for an improper asset
distribution nonetheless disallow actions by single creditors or
require single creditors to sue on behalf of all creditors. See,
e.g., In re MortgageAmerica Corp., 714 F.2d 1266, 1271 (5th Cir.
1983) (construing Texas law to require money collected by a
single creditor to first be "distributed pro-rata to all
creditors"); Ficor, Inc. v. McHugh, 639 P.2d 385, 393 (Colo.
1982) (allowing all creditors as a group a cause of action for
directors' improper post-dissolution distribution); Portage
Insulated Pipe Co. v. Costanzo, 275 A.2d 451, 453 (N.J. App.
1971) (per curiam) (holding that where directors of an insolvent
corporation give improper priority to repaying one creditor over
another, a single creditor either must bring the action through a
receiver or must raise it in equity on behalf of all creditors);
Sutton v. Reagan & Gee, 405 S.W.2d 828, 834 (Tex. App. 1966)
(allowing action against director of insolvent corporation either
through a suit by the receiver or trustee in bankruptcy or
through a creditor's bill brought on all creditors' behalf).
Had Noreen not disbursed the proceeds from the Borough
settlement to Rosson, instead retaining the funds in his
attorney's trust account, he could have been vulnerable to claims
upon the funds not only from Willner's but also from Rosson,
Inc.'s other creditors. In such a situation, Noreen, as
stakeholder for the proceeds, could deposit them in the superior
court registry and file a claim for interpleader, requiring the
joinder of all of Rosson, Inc.'s creditors, in order to avoid
multiple liability and vexatious litigation. See, e.g., Johnston
v. All State Roofing & Paving Co., Inc., 557 P.2d 770, 773
(Alaska 1976); Alaska R. Civ. P. 22.
If upon remand it is determined that Noreen is liable
for wrongfully disbursing the proceeds for the Borough settlement
to Thomas Rosson, then any recovery against Noreen should be
deposited into the superior court registry, and Willner's should
notify all other creditors of the availability of these funds for
allocation. Allowing Willner's to recover on its own behalf is
not permissible, because doing so would prejudice other
creditors.
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