Opinion
CV 03-748-ST, CV 03-6394-ST.
November 19, 2004
ORDER
Magistrate Judge Stewart issued a Findings and Recommendation in this action (Doc. #128), in which the Magistrate Judge recommended that: (1) Plaintiff Summit Properties' (Summit) Motion for Summary Judgment (Doc. #76) be granted as to its first and third claims for relief, and as against Defendant/Third-Party Plaintiff New Technology Electrical Contractors' (New Tech) first counterclaim and New Tech and Integrated Electrical Services' (IES) third, fourth, and fifth counterclaims; (2) New Tech and IES' Motion for Summary Judgment (Doc. #80) be denied; and (3) Milestone Investment Company (Milestone), William Coleman (Coleman), and CD Crouser's (Crouser) Motion for Summary Judgment (Doc. #89) be granted against New Tech and IES' second, third, fourth, and fifth third-party claims.
Milestone, Coleman, and Crouser filed objections to the Findings and Recommendation, as did New Tech and IES. The matter is now before the court pursuant to 28 U.S.C. § 636(b)(1)(B) and Fed.R.Civ.P. 72(b). When a party objects to any portion of the Magistrate's Findings and Recommendation, the district court must make a de novo determination of that portion of the Magistrate's report. 28 U.S.C. § 636(b)(1)(B); McDonnell Douglas Corp. v. Commodore Bus. Mach. Inc., 656 F.2d 1309, 1313 (9th Cir. 1981).
The court has given the file of this case a de novo review, and has also carefully evaluated the Magistrate Judge's Findings and Recommendation, the objections, and the entire record. Magistrate Judge Stewart's reasoning and recommendations are sound, correct, and entitled to adoption.
FACTUAL AND PROCEDURAL BACKGROUND
The factual history of this litigation was thoroughly recited in the Magistrate Judge's Findings and Recommendation and is repeated here only to the extent that it is applicable to the parties' objections.
This case involves a lease dispute between Summit, an Oregon corporation, and New Tech and IES. IES is a Delaware corporation and New Tech is a wholly-owned subsidiary of IES. The dispute centers around a lease between Milestone, the lessor, and New Tech, the lessee, for property referred to as the Campus Way Property located in Hillsboro, Oregon. Third-party defendant Coleman executed the lease on behalf of Milestone, and third-party defendant Crouser executed it on behalf of New Tech. At the time of execution, Coleman was the president of New Tech and Milestone, and Crouser was the vice-president of finance for New Tech and its Chief Financial Officer.
In early 2001, David Ramm (Ramm), IES' Chief Executive Officer and sole director of New Tech, gave oral authorization to Coleman to execute the lease, but explained that he wanted Coleman to prepare a package of documents concerning the lease for IES' approval. Coleman and Crouser prepared the documents and claim that they sent them to Dick Muth (Muth), IES' Regional Operating Officer, with the intent that Muth would take them to an IES meeting in February 2001.
On March 20, 2001, Coleman sent the documents, except the lease, via facsimile to Muth. Crouser also sent the package of documents to IES' senior-counsel and New Tech's assistant secretary, Ray Holan. On April 18, 2001, Coleman delivered a copy of the documents, including the lease, to Bob Weik (Weik), Muth's immediate superior. The lease was unsigned and dated April 1, 2001. Ramm, Ben Mueller (IES' Chief Operating Officer), Weik, and Coleman reviewed the documents, and Mueller orally approved New Tech's move to the Campus Way Property and the necessary tenant improvements. Coleman and Crouser then executed the lease and did not change the April 1, 2001, date.
After the execution, New Tech contracted with Milestone to make nearly $1 million dollars in tenant improvements. The Campus Way Property was then marketed for sale as being subject to a seven-year lease. In September 2001, at the time Summit purchased the property, it was subject to the Milestone-New Tech lease. In connection with the purchase of the property, Summit took formal assignment of the lease. New Tech moved on to the property in late September or early October of 2001.
IES publicized New Tech's move in its company newsletter. Signs identifying IES and New Tech as the tenant of the Campus Way Property were prominently displayed on the side of the building. IES occupied a portion of the building and paid some of the monthly rent and other expenses. For twenty-one months, New Tech performed all of its lease obligations, including paying monthly rent, property taxes, and insurance.
In April 2003, New Tech and IES served Summit with a complaint alleging that the lease was void or voidable due to misconduct on the part of Coleman and Crouser. In July 2003, New Tech delivered the keys to the Campus Way Property to Summit along with prorated July rent. Since then, New Tech has failed to fulfill any of its obligations under the lease.
DISCUSSION
1. Third-Party Defendants' Objections
In her Findings and Recommendation, Magistrate Judge Stewart found that New Tech had a claim for breach of fiduciary duty against Coleman and Crouser arising out of their execution of the Campus Way Property lease. Nonetheless, Judge Stewart concluded that New Tech's claim should be dismissed because New Tech ratified Coleman and Crouser's actions. In so concluding, Judge Stewart expressly found that genuine issues of material fact remained as to an alternate basis for dismissal, namely whether New Tech authorized the acts constituting breach of fiduciary duty.
Milestone, Coleman, and Crouser (collectively third-party defendants) assert that Judge Stewart improperly denied summary judgment on New Tech's claim for breach of fiduciary duty based on authorization because New Tech's directors expressly authorized Coleman's and Crouser's actions. This court disagrees.
Third-party defendants acknowledge that New Tech, not IES, has a claim for breach of fiduciary duty. They further acknowledge that if they are liable, they are liable to New Tech, and not to IES. However, the record demonstrates that a question of fact remains as to whether the purported authorization for their actions derived from New Tech or IES. In his deposition, Coleman testified that he did not get approval from either New Tech or IES before signing the lease. Yet, Coleman and Crouser both assert that they executed the lease after they received final approval from IES on April 18, 2001. They argue that this approval authorized their actions because Ramm and Mueller had the authority to authorize the execution of the lease. Robert Stalvey, the Chief Operating Officer of IES' Electrical Division who subsequently replaced Mueller, claims that they did not.
Third-party defendants stress that they did not violate a fiduciary duty owed to New Tech because New Tech, through its sole director, Ramm, authorized their actions. However, the court finds that it is unclear whether the alleged approval by Ramm was given in his capacity as IES' Chief Executive Officer or as New Tech's sole director. Furthermore, because Coleman and Crouser allegedly received authorizing statements from both New Tech and IES officers, it is unclear whether Coleman and Crouser acted pursuant to authority granted by New Tech or IES or both.
For these reasons, the court agrees with Judge Stewart's finding that questions of fact remain as to whether New Tech effectively authorized the third-party defendants' actions.
2. Defendants/Third-Party Plaintiffs' Objections
Defendants and Third-Party Plaintiffs New Tech and IES (collectively defendants) also filed objections. They assert that the lease is void because Crouser's purported authority was not in writing in violation of the Oregon Statute of Frauds.
In Oregon, a lease for more than one year is void unless it is in writing. O.R.S. 41.580(1). If an agent is executing the lease on behalf of a principal, the authority of the agent must be in writing. Id. As the Magistrate Judge noted, Oregon courts have not addressed whether an exception to the Statute of Frauds exists for executive or other corporate officers. Nonetheless, there is considerable support in the Ninth Circuit that Oregon would recognize such an exception — to wit, that an executive officer of a corporation is not an "agent" and therefore his or her authority does not need to be in writing. See, e.g., E.K. Wood Lumber Co. v. Moore Mill Lumber Co., 97 F.2d 402, 408 (9th Cir. 1938) ("The executive officer of a corporation is something more than an agent. He is the representative of the corporation itself.") (internal quotations and citation omitted); Jeppi v. Brockham Holding Co., 206 P.2d 847, 850-51 (Cal. 1949); Ripani v. Liberty Loan Corp., 157 Cal. Rptr. 272, 276-77 (Cal.App. 1979).
The reasoning behind this exception is that a corporation cannot act for itself; the acts of corporate officers on behalf of the corporation are therefore deemed to be the acts of the corporation itself. See id. Accordingly, this court agrees with Magistrate Judge Stewart's finding that because Crouser, acting as New Tech's chief financial officer, signed the lease, he bound the corporation.
Because this court concludes that Crouser's purported authority did not need to be in writing, it is unnecessary to proceed to defendants' argument that any ratification needed to be in writing. In addition, because this court agrees with the Magistrate Judge's finding that the lease is valid and enforceable, there is no need to address defendants' argument that apparent or actual authority does not avoid the Statute of Frauds.
Even if the lease was originally invalid because Crouser lacked written authority to enter into it, defendants have partially performed the lease, thereby removing the lease from the constraints of the Statute of Frauds. Equity will relieve a party from the effects of the Statute of Frauds where there is part performance on the part of the lessee, such as taking possession of the premises subject to the lease, paying rent, making improvements, or a combination of these elements. Young v. Neill, 225 P.2d 66 (Or. 1950).
[S]uch part performance must be unequivocally and exclusively referable to the contract, in the sense that it must, of itself, give rise to an inference of the existence of the contract, and the doing of it must not be susceptible of being otherwise reasonably accounted for, and such part performance must be pursuant to the contract.Strong v. Hall, 453 P.2d 425, 429 (Or. 1969) (citations omitted).
Defendants rely on Strong for the proposition that New Tech's occupancy of the property and payment of rent do not unequivocally establish an agreement to a seven-year lease on the terms provided in the lease; rather, such actions only show a tenancy. Defendants reliance is misplaced.
Strong involved an "Option for Purchase of Real Estate" agreement in which the plaintiffs were allowed to live on the property and granted an election to purchase the subject property at an agreed price. Id. at 426. In the meantime, the plaintiffs agreed to pay the defendant a monthly amount and make repairs and improvements. Id. at 426, 428. Plaintiffs asserted that they exercised their option to purchase and that from the date of their election to purchase they operated under an oral contract of sale with defendant and all payments were to be counted toward the purchase price. Id. at 427. The terms of the sale were embodied in an unsigned writing. Id. Defendant argued that because the contract remained unsigned, she properly treated all payments as rent. Id. at 428. Plaintiffs brought suit asserting that the Statute of Frauds was inapplicable because they partly performed the terms of the oral agreement. The Oregon Supreme Court disagreed.
The Court held that payments made by plaintiffs to defendant, possession by plaintiffs, and repairs and improvements by plaintiffs did not constitute part performance, and therefore, the Statute of Frauds voided the oral contract. Id. at 429-30. The Court explained that plaintiffs' actions were "all susceptible of being accounted for as consistent with defendant's contention that plaintiffs were tenants and that such acts do not speak of the purported contract" for purchase of the property. Id. at 430 (emphasis added).
Conversely, the facts present here do unequivocally and exclusively refer to a lease agreement, such that it gives rise to an inference of the existence of the lease and that defendants' actions were taken pursuant to the terms of the lease. Id. at 429. Indeed, defendants do not dispute that they were tenants of the property. Defendants authorized nearly $1 million dollars in tenant improvements. They occupied the premises on or near the commencement date of the lease. They paid monthly rent for twenty-one months in accordance with the lease requirements. They paid all utilities, property taxes, and insurance as required by the lease. Accordingly, the court finds that defendants knew of the existence of the lease, acted as tenants according to the terms of the lease, and that their partial performance bars the application of the Statute of Frauds.
Defendants further argue that this court should not adopt Judge Stewart's findings pertaining to their counterclaims of fraud and negligent misrepresentation. The Magistrate Judge found as a matter of law that they are barred by the statute of limitations.
An action based on fraud or deceit must be commenced within two years after the discovery of the fraud or deceit. O.R.S. 12.110(1). Whether the plaintiff should have discovered the alleged fraud or deceit at a particular point and whether the plaintiff used reasonable diligence to discover the alleged fraud or deceit are generally questions for the factfinder. Loewen v. Galligan, 882 P.2d 104, 115 (Or.App. 1994). They are questions of law when only one conclusion can reasonably be drawn from the evidence. Id.
Defendants argue that the Findings and Recommendation do not set forth any facts that prove that defendants discovered prior to August 2002 that the seven-year lease had been signed. They assert that mere knowledge that New Tech was a tenant of the Campus Way Property is insufficient to establish as a matter of law that defendants knew that such tenancy was pursuant to a specific seven-year lease, as opposed to some other form of tenancy arrangement. The court finds these arguments unpersuasive.
Ramm testified that he visited New Tech's offices in early 2001, knew of the plans to move New Tech onto the Campus Way Property, and instructed Coleman to prepare documents concerning the lease proposal. Coleman then sent documents detailing the lease and proposed move to Muth and Holan some time prior to April 1, 2001. On April 18, 2001, Coleman hand-delivered a copy of the Campus Way Property documents, including the lease, to Weik. Meuller then orally approved New Tech's move to the property and the tenant improvements. Defendants have not submitted any evidence to the contrary. Nor is there any evidence controverting that the lease was for a period of seven years.
Corporations are not sentient beings and therefore cannot know, be aware of, or discover anything except through the acts of their duly constituted directors, officers, and agents. As such, a corporation is charged with knowledge of facts its directors, officers, and agents learn within the scope of their employment. F.D.I.C. v. Smith, 980 P.2d 141, 146 (Or. 1999); Williams' Bakery v. Coy, 370 P.2d 1021, 1023 (Or. 1962). Accordingly, the court finds that only one inference can be reasonably drawn from these facts: that defendants knew of the lease and its terms prior to April 2001, well before August 2002. CONCLUSION
For these reasons, Magistrate Judge Stewart's Findings and Recommendation (Doc. #128) is ADOPTED in its entirety. Summit's Motion for Summary Judgment (Doc. #76) is GRANTED as it its first and third claims, and as against New Tech's first counterclaim and New Tech and IES' third, fourth, and fifth counterclaims. New Tech and IES' Motion for Summary Judgment (Doc. #80 in CV 03-748-ST; Doc. #58 in CV 03-6394-ST) is DENIED. Milestone, Coleman, and Crouser's Motion for Summary Judgment (Doc. #89 in CV 03-748; Doc. #66 in CV 03-6394-ST) is GRANTED against New Tech and IES' second, third, fourth, and fifth claims.
IT IS SO ORDERED.