Rrw Legacy Mgt. Grp. v. Campbell Walker ( 2018 )

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FILED
FOR THE NINTH CIRCUIT
SEP 27 2018
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
RRW LEGACY MANAGEMENT Nos. 16-35648
GROUP, INC., a Washington Corporation; 16-35836
ANTOINETTE WALKER; CAMPBELL
INVESTMENT COMPANY, a D.C. No. 2:14-cv-00326-MJP
Washington Corporation,
Plaintiffs-Appellees, MEMORANDUM*
v.
CAMPBELL WALKER, an individual,
Defendant-Appellant.
CAMPBELL INVESTMENT No. 16-35649
COMPANY, a Washington corporation,
D.C. No. 2:14-cv-01544-MJP
Plaintiff-Appellee,
v.
CAMPBELL M. WALKER, a foreign
individual,
Defendant-Appellant.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Appeal from the United States District Court
for the Western District of Washington
Marsha J. Pechman, District Judge, Presiding
Argued and Submitted August 27, 2018
Seattle, Washington
Before: HAWKINS, McKEOWN, and W. FLETCHER, Circuit Judges.
In these two consolidated appeals, defendant Campbell M. Walker
(“Campbell”) appeals the district court’s order granting summary judgment in
favor of RRW Legacy Management Group (“RRW”) and Antoinette Walker; its
order granting partial summary judgment in favor of Campbell Investment
Company (“CIC”), as well as other rulings and findings as to damages; and its
award of attorney’s fees to CIC. We have jurisdiction pursuant to 28 U.S.C. §
1291, and we affirm the district court in all respects.
1. The RRW Matter
We review the district court’s summary judgment decision de novo.
Universal Health Servs. Inc. v. Thompson, 363 F.3d 1013, 1019 (9th Cir. 2004).
The district court did not err in finding that Campbell was properly removed from
his position as general partner of Argyll Limited Partnership. Campbell committed
“willful misconduct,” a listed “for cause” reason for removal under Section 7.1 of
the Argyll Limited Partnership Agreement (“Agreement”), by failing to keep the
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company records in Washington as required by the Agreement. Campbell contests
the definition of “willful misconduct” used by the district court, but the definition
used by the court does not materially differ from the one advanced by Campbell
himself. Compare 6 Wash. Prac., Wash. Pattern Jury Instr. Civ. WPI 14.01 (6th
ed.) (“Willful misconduct is the intentional doing of an act which one has a duty to
refrain from doing or the intentional failure to do an act which one has the duty to
do when he or she has actual knowledge of the peril that will be created and
intentionally fails to avert injury.”), with Adkisson v. Seattle, 258 P.2d 461, 466
(Wash. 1953) (“To constitute wilful misconduct, there must be actual knowledge,
or that which the law deems to be the equivalent of actual knowledge, of the peril
to be apprehended, coupled with a conscious failure to avert injury.” (citation and
quotation marks omitted)). Campbell’s conduct satisfies either definition. The
district court properly granted summary judgment on the basis that Campbell “did
things it was his duty to refrain from doing and failed to do things which duty
dictated that he do,” acted with “actual knowledge of the peril,” and failed to avert
injury.
We review for an abuse of discretion the district court’s determination not to
apply laches. In re Beaty, 306 F.3d 914, 921 (9th Cir. 2002). Under Washington
law, a party asserting laches must show (1) “knowledge or reasonable opportunity
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to discover on the part of a potential plaintiff that he has a cause of action against a
defendant”; (2) “unreasonable delay by the plaintiff in commencing that cause of
action”; and (3) “damage to the defendant resulting from the unreasonable delay.”
Carrillo v. City of Ocean Shores, 94 P.3d 961, 970 (Wash. Ct. App. 2004) (citing
Lopp v. Peninsula Sch. Dist. No. 401, 585 P.2d 801, 804 (Wash. 1978)). Absent
“highly unusual circumstances,” laches is not applied before the statute of
limitations runs on the cause of action. Id. Washington’s Uniform Declaratory
Judgments Act does not have a statute of limitations, but Washington courts
require lawsuits under the Act to be brought within a reasonable time. Auto. United
Trades Org. v. State, 286 P.3d 377, 379 (Wash. 2012) (en banc).
The district court did not abuse its discretion in rejecting Campbell’s laches
defense because RRW filed its first amended complaint in Washington state court
on February 26, 2014, slightly over a month after three of Campbell’s siblings
voted to remove him on January 21, 2014. Campbell argues that the district court
should have focused on the events underlying his removal rather than the date of
his removal and the plaintiff’s lawsuit. We disagree. Nothing in the Agreement
establishes a limitations period for the removal of a general partner. There is also
evidence in the record that plaintiffs were previously unaware of their right to
remove Campbell.
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2. The CIC Matter
The district court did not err in granting partial summary judgment to CIC as
to the payments made to Darshan League Limited (“Darshan”) on the ground that
Campbell breached his fiduciary duty to CIC when he authorized $3 million in
payments from CIC to Darshan, an entity owned by Campbell’s father and, later,
by Campbell upon his father’s death. We agree with the district court that the
payments were “a textbook example of a ‘conflicting interest transaction.’” See
Wash. Rev. Code § 23B.08.700(1)(a) (defining a “conflicting interest transaction”
as one where “the director knows at the time of commitment that the director or a
related person is a party to the transaction”). The safe harbors of Wash. Rev. Code
§ 23B.08.710(2)(a)–(c) do not apply because Campbell did not receive approval of
these transactions from a majority of disinterested directors or shareholders and did
not produce any evidence that the transactions were fair to CIC.
The district court did not abuse its discretion in rejecting Campbell’s laches
and good faith defenses. A party asserting laches must demonstrate prejudice from
the plaintiffs’ delay. Carrillo, 94 P.3d at 970. Campbell argues that the plaintiffs’
delay deprived him of the opportunity to present testimony from his father as to the
reason or reasons for Campbell’s decisions, including that “the funds paid to
Darshan were to be used for the benefit of all of CIC’s shareholders” and “the
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intended tax benefits to CIC of making payments to Darshan.” But there is no good
faith defense to a conflicting interest transaction. Therefore, this testimony is not
legally relevant, and Campbell was not prejudiced from any delay in suit.
Campbell argues that the district court erred in awarding damages for
breaches of fiduciary duty at the bench trial for which there was no preceding
determination of liability. We disagree. To the extent that the district court may
have mischaracterized the issues remaining for adjudication during the bench trial,
Campbell has not identified any practical consequence from the court’s purported
misstatements. The district court’s findings of fact contain all elements for a
conflicting interest transaction for each category of damages, and the court
permitted CIC and Campbell to present evidence for each transaction. Campbell
argues that the district court erred in denying his motion to exclude all evidence of
damages due to CIC’s failure to make initial disclosures as required by Fed. R.
Civ. P. 26(a)(1). We review decisions whether to impose discovery
sanctions—including decisions to exclude evidence under Fed. R. Civ. P.
37(c)(1)—for abuse of discretion. Yeti by Molly, Ltd. v. Deckers Outdoor Corp.,
259 F.3d 1101, 1105–06 (9th Cir. 2001). The district court did not abuse its
discretion in denying Campbell’s motion to exclude all evidence of damages.
CIC’s failure to make initial disclosures was both substantially justified and
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harmless. After consolidation, the parties jointly proposed an amended case
schedule, which the district court largely adopted, that did not include a deadline
for disclosures. Accordingly, neither CIC nor Campbell ever made any initial
disclosures, and Campbell did not raise the issue until shortly before trial. The
failure was also harmless because the district court limited CIC’s damages
testimony to damage categories claimed in its experts’ reports, and Campbell had
the opportunity to depose the experts regarding those reports.
A district court’s decision to allow or exclude evidence based on the hearsay
rule is also reviewed for abuse of discretion. Calmat Co. v. U.S. Dep’t of Labor,
364 F.3d 1117, 1122 (9th Cir. 2004). The district court did not abuse its discretion
in admitting CIC’s “QuickBooks” reports over Campbell’s hearsay objection. The
“QuickBooks” reports are admissible under Fed. R. Evid. 1006.
Campbell argues that the court erred in conducting a damages analysis that
was inconsistent with Interlake Porsche & Audi, Inc. v. Bucholz, 728 P.2d 597
(Wash. Ct. App. 1986). We disagree. Interlake held that “[t]he duty of
reimbursement is limited to those losses that were proximately caused by the
fiduciary’s misconduct,” and that, as a result, a court may not identify a
corporation’s expenditures over a given period of time and then shift the burden to
the fiduciary to prove that all expenses were legitimate. Id. at 605 (citation
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omitted). Interlake did not alter the background rules that “damages need not be
shown with mathematical certainty,” and that “evidence of damage is sufficient if it
affords a reasonable basis for estimating the loss and does not subject the trier of
fact to mere speculation or conjecture.” Id. at 603 (citations omitted). The district
court’s analysis is consistent with Interlake because the court awarded damages
where it found that plaintiffs met their burden to show losses, and reduced damages
where appropriate to account for totals that included legitimate business expenses.
The district court did not err in awarding attorney’s fees to CIC. Washington
law permits courts to award attorney’s fees for breach of fiduciary duty where that
breach rises to the level of “constructive fraud.” See Hsu Ying Li v. Tang, 557 P.2d
342, 346 (Wash. 1976). The plain language of Tang shows that the court declined
to award attorney’s fees based on a common fund theory, but awarded fees,
instead, based on a constructive fraud theory. Id. at 345–46; Green v. McAllister,
14 P.3d 795, 803–04 (Wash. Ct. App. 2003). The district court did not err in
applying Tang.
Washington courts define “constructive fraud” as “failure to perform an
obligation, not by an honest mistake, but by some ‘interested or sinister motive.’”
Green, 14 P.3d at 804 (quoting In re Estate of Marks, 957 P.2d 235, 241 (Wash.
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Ct. App. 1998)). The district court’s extensive findings of self-dealing provide
sufficient evidence of constructive fraud.
AFFIRMED.
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