Opinion
No. 22409-1-III
Filed: August 31, 2004 UNPUBLISHED OPINION
Appeal from Superior Court of Yakima County. Docket No: 01-2-02413-1. Judgment or order under review. Date filed: 09/12/2003. Judge signing: Hon. Robert N Jr Hackett.
Counsel for Appellant(s), Robert E. Jr Lawrence-Berrey, Attorney at Law, 117 N 3rd St Ste 201, PO Box 1586, Yakima, WA 98907-1586.
Counsel for Respondent(s), James Ketner Jr Adams, Wagner Luloff and Adams, 110 N 5th Ave Ste 200, Yakima, WA 98902-2642.
Robert Ogdon appeals the summary dismissal of his claim against Byron Nelson Company, Inc. (BNC) and Scott Main, its president, for breach of a fiduciary duty by misrepresentation and for violation of RCW 21.20.010, the Securities Act of Washington. Mr. Ogdon alleged Mr. Main misrepresented the value of the company's stock to him and, in relying on the misrepresentation, he sold his stock in BNC for less than its fair value. The trial court determined Mr. Ogdon had not shown justifiable reliance as a matter of law and granted BNC's motion for summary judgment. We affirm.
In 1994, Scott Main created BNC, a small company engaged in the sale, installation, and service of fruit packing equipment. BNC's primary source of income came from its packing equipment sales.
In 1997, Tim Main, Scott's father, joined BNC. The two decided to incorporate. Scott was designated the president and majority owner with a 51 percent interest in the company, while Tim owned the remaining 49 percent of stock. Although BNC was very successful in 1999 with $1.2 million in sales, Tim and Scott no longer wanted to work together by the summer of that year. Scott offered to sell his interest in BNC to Tim for $225,000: Tim offered to sell his interest to Scott for less than $200,000. Neither offer was accepted.
In September 1999, Scott sent a letter to his father terminating his employment. Later that month, Tim purchased one-half interest in Yakima Wire Works (YWW). YWW was the producer of an automatic bagging system, which was used in connection with other agricultural packing equipment sold by BNC. BNC sold the YWW system in integrated systems with packing equipment. Tim began selling the YWW system with packing equipment lines he had sold before for BNC. Tim and YWW were then competitors of BNC.
At this time, BNC had been sued by one of its customers and two other customers threatened suit. BNC had also lost Compac, its most important distributor. BNC suffered loss of revenue and profit.
Knowing Scott would not purchase his interest in BNC, Tim gave his 49 percent interest in the company to his nephew, Robert `Andy' Ogdon, in April 2000. Mr. Ogdon had worked for BNC since May 3, 1999, first as a technician and then in sales. In transferring the stock, Tim told Mr. Ogdon the stock was worth between $150,000 and $200,000. Prior to getting the stock from Tim, Mr. Ogdon heard father and son discussing the sale of their respective interests in the company. Mr. Ogdon thought Tim wanted to sell his interest to Scott for approximately $100,000 and Scott wanted to sell his interest to Tim for between $250,000 and $300,000.
Soon after acquiring the stock from Tim, Mr. Ogdon overheard Scott telling a friend he did not want anyone but himself owning BNC. As a result, Mr. Ogdon advised Scott he was willing to sell his stock to him. He told Scott that Tim believed the stock was valuable, but Scott said the company was worthless. Scott also told Mr. Ogdon BNC had been having financial difficulties since Tim had left the company. Scott often complained about BNC's bills and insufficient money to meet the payroll.
Mr. Ogdon did not consult anyone concerning the value of his stock. He did not review BNC's financial books and records despite being aware he was entitled to this information as a shareholder of the company.
In June 2000, Scott proposed a trade of land for Mr. Ogdon's interest in BNC. Scott and Diane, his wife, owned a parcel of unimproved property in Terrace Heights. Mr. Ogdon thought it was worth about $10,000. He visited the property on several occasions and agreed to the trade for his stock.
In September 2001, Mr. Ogdon sued BNC, alleging that Scott's misrepresentations concerning the value of the stock and his breach of fiduciary duties in failing to allow him access to the corporate books caused him to sell his interest in the company for substantially less than its fair value. In August 2003, the court granted Mr. Ogdon's motion to clarify or amend his complaint to assert a violation of RCW 21.20.010, the Securities Act of Washington.
Arguing Scott made no misrepresentations and Mr. Ogdon could not show justifiable reliance in any event, BNC moved for summary judgment. The court granted the motion and denied Mr. Ogdon's motion for reconsideration. He appeals.
In reviewing a summary judgment order, this court engages in the same inquiry as did the superior court. Our Lady of Lourdes Hosp. v. Franklin County, 120 Wn.2d 439, 451, 842 P.2d 956 (1993). Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Greater Harbor 2000 v. City of Seattle, 132 Wn.2d 267, 278, 937 P.2d 1082 (1997) (quoting CR 56(c)).
The burden is on the moving party to establish its right to judgment as a matter of law. Facts and reasonable inferences from them are considered in favor of the nonmoving party. Our Lady of Lourdes, 120 Wn.2d at 452. The moving party may meet this initial burden by demonstrating there is no evidence to support the nonmoving party's case. Young v. Key Pharms., Inc., 112 Wn.2d 216, 225, 770 P.2d 182 (1989). The burden then shifts to the party that has the burden of proof at trial to `come forward with evidence sufficient to establish the existence of each essential element of its case.' Howell v. Spokane Inland Empire Blood Bank, 117 Wn.2d 619, 625, 818 P.2d 1056 (1991). If the plaintiff fails to do so, summary judgment is proper. Id.
Mr. Ogdon claims BNC's president misrepresented the stock's value and violated the Securities Act of Washington. RCW 21.20.010 states in relevant part:
It is unlawful for any person, in connection with the offer, sale or purchase of any security, directly or indirectly:
. . . .
(2) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading.
To establish a claim under this statute, Mr. Ogdon must not only prove that the misrepresentations were material, but that he also relied on the misrepresentations in connection with the sale of the securities. See Hines v. Data Line Sys., Inc., 114 Wn.2d 127, 134, 787 P.2d 8 (1990).
The central issues here are whether Mr. Ogdon relied on the alleged misrepresentations concerning the value of his stock and whether the trial court erred in concluding as a matter of law he could not prove reliance because he possessed contradictory information as to the stock's value and nevertheless failed to investigate further.
Reliance is vital in establishing liability under both state and federal securities laws. In re Boise Cascade Sec. Litig., 420 F. Supp. 99, 101 (W.D. Wash. 1976). In order to recover damages in an action under the Securities Act of Washington, an aggrieved party must normally show a right to rely on the representation as made. Guarino v. Interactive Objects, Inc., Wn. App., 86 P.3d 1175, 1187 (2004). Moreover, a right to rely on the representation, or justifiable reliance, is an essential element of a fraudulent or negligent misrepresentation claim. Stiley v. Block, 130 Wn.2d 486, 505, 925 P.2d 194 (1996); Westby v. Gorsuch, 112 Wn. App. 558, 50 P.3d 284 (2002), review denied, 149 Wn.2d 1008 (2003).
Whether a party justifiably relied is generally a question of fact. Barnes v. Cornerstone Invs., Inc., 54 Wn. App. 474, 478, 773 P.2d 884, review denied, 113 Wn.2d 1012 (1989). When reasonable minds can reach but one conclusion, however, questions of fact may be determined as a matter of law. Id.
BNC contends Mr. Ogdon did not have the right to rely on Scott's representations because he had information in his possession or available to him that was contradicted by Scott's statements. BNC argues Mr. Ogdon knew the stock was valuable, was told it was valuable, and had access to the financial books and records. He just failed to examine them before making the trade.
`[W]hen there is a positive, distinct, and definite representation, the representee [generally] has no duty to investigate the truth of the representation.' Westby, 112 Wn. App. at 575 (citing Rummer v. Throop, 38 Wn.2d 624, 633, 231 P.2d 313 (1951)). But justifiable reliance also involves scrutiny of the plaintiff's diligence in ascertaining facts for himself, as well as his exercise of care and judgment in acting upon representations running counter to knowledge within his possession or reach. Id.
Even if Scott misrepresented the value of Mr. Ogdon's stock, the evidence supports the court's conclusion that Mr. Ogdon failed as a matter of law to exercise care and judgment in acting upon those representations. Mr. Ogdon had been told by Tim, the previous owner, the stock was valuable and worth $150,000. He was also aware Tim had tried to sell the stock to Scott for $100,000. These facts indicate Mr. Ogdon should have been aware Scott's statements may not have been accurate or truthful. But Mr. Ogdon made no inquiry. The court properly determined as a matter of law that Mr. Ogdon could not have justifiably relied on those statements. Thus, the misrepresentation and statutory claims fail.
In September 2000, Scott applied for a loan with Banner Bank. In listing his assets, he stated that the value of his 100 percent ownership in BNC was $509,659.
Mr. Ogdon also requests attorney fees on appeal. Because he has not prevailed, he is not entitled to attorney fees.
Affirmed.
A majority of the panel has determined this opinion will not be printed in the Washington Appellate Reports, but it will be filed for public record pursuant to RCW 2.06.040.
SCHULTHEIS, J., and KURTZ, J., concur.