Philip Holroyd And On Behalf Bret's Independent, Llc, App v. Bret Hartman, Resp ( 2017 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON CZZO
WELLS FARGO BANK, N.A., a national)
banking association, ) ND
) No. 74808-4-1
Plaintiff, )
) DIVISION ONE
LC)
v. )
CD
) CD
BRET'S INDEPENDENT, LLC, a )
Washington limited liability company; )
BRET HARTMAN, individually; and ) UNPUBLISHED OPINION
PHILIP HOLROYD, individually, )
) FILED: March 27, 2017
Defendants. )
)
PHILIP HOLROYD, individually and on )
behalf of BRET'S INDEPENDENT, LLC,)
)
Appellant, )
)
v. )
)
BRET HARTMAN, )
)
Respondent. )
)
BECKER, J. —This is an appeal from a summary judgment dismissal of a
lawsuit alleging that a member of a limited liability company breached a contract
and fiduciary duties. The appellant raises issues on appeal that were not
preserved in the trial court, and he makes only a conclusory showing of
damages. Accordingly, we affirm.
No. 74808-4-1/2
We review summary judgment orders de novo, engaging in the same
inquiry as the trial court. Mahoney v. Shinpoch, 107 Wash. 2d 679, 683, 732 P.2d
510 (1987). Summary judgment is proper when, viewing the evidence and
available inferences in favor of the nonmoving party, there are no genuine issues
of material fact. CR 56(c).
Taken in the light most favorable to appellant Philip Holroyd, the record
shows that Holroyd and respondent Bret Hartman became business partners in
1996. They formed a limited liability company, Bret's Independent LLC, to
operate an automotive service and repair shop that they opened on leased
property. Holroyd provided the start-up capital. For 11 years, Holroyd and
Hartman comanaged the business and it prospered.
Around 2007, they experienced a downturn in profits. Holroyd stopped
taking draws to free up cash for the business. About the same time, Holroyd left
to care for his mother, who had health problems. Hartman assumed primary
management responsibility and continued to take draws.
The business began defaulting on financial obligations, including debt
owed to Wells Fargo Bank. The state business license was not renewed in 2008,
and as a result, the State dissolved the limited liability company on June 2, 2008.
Hartman continued to operate the shop. Although Holroyd stayed in
contact with Hartman and periodically visited the shop, he was unaware that the
state license had expired and that the company was not meeting its obligations to
creditors.
2
No. 74808-4-1/3
Hartman ceased operation of the company in September 2011. Through
his own investment company, he purchased the property and some of the
equipment that Bret's Independent LLC had leased. With it, he opened an auto
shop business that he incorporated as Bret's, Inc.
In January 2012, Wells Fargo commenced the current suit to recover the
debt, naming Holroyd and Hartman as defendants along with Bret's Independent
LLC. Holroyd cross claimed against Hartman for breach of contract and breach
of fiduciary duty and filed a derivative action against Hartman on behalf of the
limited liability company. Holroyd appeals from the orders of summary judgment
by which all his claims against Hartman were dismissed. Wells Fargo is not a
party to the appeal, and its claims are not at issue.
We start with Holroyd's appeal from the dismissal of the derivative action.
When Hartman moved to dismiss the derivative action, he argued it was time
barred and the company could not sue or be sued, given that it was dissolved in
2008. In his responsive brief, Holroyd agreed to dismissal of the derivative
action. He acknowledged that pursuing the action could expose the company to
additional creditor claims.
Once Holroyd agreed to dismiss the derivative action, the trial court was
not obligated to give it any further consideration. Holroyd argues on appeal that
the trial court should have recognized that the parties were continuing to litigate
the derivative action even after he agreed to dismiss it, but he cites no point in
the record where the derivative action was put back before the trial court for
decision. Issues not presented to the trial court will not be addressed on appeal.
3
No. 74808-4-1/4
RAP 2.5(a). The trial court did not err in dismissing the derivative action on
summary judgment.
We next address Holroyd's assignments of error to the dismissal of his
direct claims against Hartman for breach of contract and breach of fiduciary duty.
These claims arise from Holroyd's assertion that during the period of time he was
away taking care of his mother, Hartman mismanaged the business and
improperly transferred large sums of money to himself. Holroyd contends that he
was shortchanged when Hartman unilaterally transferred the assets and
accounts receivable from their company to Hartman's new business.
To sustain a cause of action for breach of contract or breach of fiduciary
duty, a plaintiff must supply proof of damages. Nw. lndep. Forest Mfrs. v. Dep't
of Labor & Indus., 78 Wash. App. 707, 712, 899 P.2d 6(1995); Senn v. Nw.
Underwriters, Inc., 74 Wash. App. 408, 414, 875 P.2d 637(1994); Micro
Enhancement Intl, Inc., v. Coopers & Lybrand, LLP, 110 Wash. App. 412, 433-34,
40 P.3d 1206 (2002). Holroyd's declaration asserts that Hartman's overreaching
caused him the loss of hundreds of thousands of dollars and hundreds of hours
of labor he invested in building the business over the years. But the record does
not include evidence sufficient to prove Holroyd was denied compensation or
distributions that he was entitled to.
When Hartman moved for summary judgment, he argued that Holroyd
was not owed anything under the terms of a written operating agreement, a copy
of which he submitted. In response, Holroyd declared that the parties did not
have a written operating agreement and that his signature on the agreement
4
No. 74808-4-1/5
submitted by Hartman was forged. On appeal, Holroyd takes a different position:
that the written agreement submitted by Hartman was valid and enforceable, and
Hartman breached it by making payments to himself and leaving Holroyd with
nothing.
Holroyd asserts that the terms of the agreement are ambiguous and need
to be interpreted so that the intent of the parties can be determined. He relies on
a version of the operating agreement that emerged not long before trial, but he
did not alert the trial court to his change of position. Even if this procedural
problem could be overcome and the written agreement is now to be regarded as
enforceable, Holroyd does not explain how the allegedly ambiguous terms may
be interpreted as requiring Hartman to wind up the company in a way that would
have resulted in Holroyd receiving compensation under the agreement.
The claim for breach of fiduciary duty rests on the fact that Hartman
withdrew funds during a period when the business was not meeting obligations to
creditors. But Hartman's failure to satisfy creditor debts is not, by itself, sufficient
to prove damage to Holroyd. Similarly, the fact that Hartman received
compensation while acting as the company's sole manager does not, without
more, prove that Hartman retained compensation and assets that should have
been shared with Holroyd. While Holroyd communicates a general sense that he
feels cheated, he does not present evidence showing how proper bookkeeping
between 2008 and 2011 would have produced a better result for him.
For example, Holroyd asserts that he sustained damages because he
received no compensation when the assets of the company were transferred to
5
No. 74808-4-1/6
Hartman. This argument fails because Holroyd has not rebutted evidence that
the company owned no tangible assets when it ceased operations. A valuation
report concluded that as of November, 2011, the fair market value of the
business did not exceed its liabilities.
Holroyd contends that he should have been compensated for the transfer
of goodwill and customers to Hartmann's new business. He fails to point to
specific evidence supporting this assertion. At most, the record creates
speculation that Hartman might be benefitting from goodwill generated by Bret's
Independent LLC. Speculation does not create an issue of material fact. Seven
Gables Corp. v. MGM/UA Entm't Co., 106 Wash. 2d 1, 12, 721 P.2d 1(1986).
Affirmed.
WE CONCUR:
6