Opinion
No. 55168-0-I.
May 1, 2006.
Appeal from a judgment of the Superior Court for King County, No. 02-2-33564-1, Ronald Kessler, J., entered September 10 and October 11, 2004.
Counsel for Appellant(s), Charles Stephen Ferguson, Attorney at Law, 1001 4th Ave Ste 3200, Seattle, WA 98154-1003.
Counsel for Respondent(s), Matthew D. Taylor, Lee Smart Cook Martin Patterson PS Inc, 701 Pike St Ste 1800, Seattle, WA 98101-3929.
Joel Evans Wright, Lee Smart Cook et al, 701 Pike St Ste 1800, Seattle, WA 98101-3929.
John Forsythe Jenkel, Forsberg Umlauf, 900 4th Ave Ste 1700, Seattle, WA 98164-1039.
Affirmed by unpublished opinion per Grosse, J., concurred in by Appelwick, C.J., and Coleman, J.
As a general rule, with exceptions not met here, a shareholder of a corporation cannot sue as an individual where the basis for the cause of action is a contract between the corporation and a third party. The trial court's dismissal of the action by Chui Ming Chan is affirmed.
FACTS
In 1999, Chui Ming Chan (Chan) retained Jones Law Group, founded by Marianne K. Jones (Jones), to form a limited liability corporation to enable the solicitation of investors for various real estate projects and other ventures. Vivien Chang (Chang), an associate of Jones Law Group, was assigned to assist Chan. Chang formed two corporations for Chan, one being Genesis Technology Investments, LLC (Genesis).
Later, Chan and Chang entered into a confidential consulting relationship in which Chang agreed to advise Chan on investments. This agreement was made without the knowledge or approval of Jones or Jones Law Group.
Chang introduced Chan to people in the biotech industry and other investment arenas. Through Chang, Chan met Robin L. Sells, the owner and CEO of Solo Watersports, Inc. (Solo). On May 25, 2000, a "Memorandum of Understanding" negotiated by Chang and Sells was entered between Genesis and Solo. Under the agreement Genesis purchased an interest in Solo. By the plain terms of the memorandum, Genesis is the party that entered into the "Memorandum of Understanding" with Solo. Chang indicated she urged Chan not to sign the agreement because Genesis lacked the funds ultimately required by the agreement. Chan decided to sign the agreement anyway. For a number of reasons, the agreement turned sour.
Thereafter, Chan became displeased with Chang and Jones Law Group's representation of his interests. He asserts that Chang and the Jones Law Group, as well as Sells, misled him. After discussions with Jones, Chan's representation by the firm and Chang was terminated. All fees and costs paid to the firm incurred by Chan and his companies were refunded.
But Genesis continued its attempt to invest in Solo. Chan hired new counsel, Kenneth Chang, who sought to renegotiate the agreement with Solo or achieve the return of the initial investment. No agreement was reached and Sells rejected the request for a return of the investment. Solo eventually refunded $10,000 of the $55,000 investment made.
Chan filed suit against Vivien Chang, Jones and Jones Law Group, as well as Sells, Solo and others, alleging an improper sale of unregistered securities and violations of the anti-fraud provisions of the Securities Act of Washington, chapter 21.20 RCW. Chan also alleged professional negligence against Chang, Jones and Jones Law Group. Chan brought suit in his own name and not in the name of Genesis.
Without reaching the standing issue, defendants Sells and Solo Watersports, Inc. were dismissed from the lawsuit for the failure of Chan to timely serve them with process.
Chang, Jones and Jones Law Group moved under CR 12(b)(6) and/or CR 56(c) to dismiss the action, asserting that Chan did not have standing to sue on behalf of Genesis. While the motion was pending, Chan sought to amend the complaint to add Genesis as a plaintiff. The trial court permitted the amendment, but did not address the issue of whether the amendment related back to the time of the original filing of the complaint despite specific objection by the defendants.
At the hearing on the motion, the trial court granted the motion to dismiss Chan's complaint against the defendants for a lack of standing and reserved the defendants' motion to dismiss Genesis' amended complaint based on the running of the statute of limitations. There was a short discussion regarding whether the amendment related back to the time of filing of the original complaint and the trial court reserved ruling, requesting briefing from the parties. The court specifically invited Chan to brief the issue and gave counsel two weeks to submit a brief. The court gave the defendants two weeks following the filing of Chan's brief to submit a response. The court set a date for hearing approximately one month following the date of the summary judgment hearing.
Chan filed a motion for reconsideration, arguing only the standing issue. Chan failed to submit briefing on the relation back issue as requested by the court. On the date set for hearing, the trial court dismissed Genesis' claims indicating that the court received no response regarding the relation back issue relative to Genesis. The court denied Chan's motion for reconsideration as to his standing and also ordered dismissal of Genesis' suit as to all remaining defendants due to the running of the statute of limitations. Later that day Chan filed a brief on the relation back issue. But Chan did not file a motion for reconsideration after the dismissal.
Chan and Genesis appeal, arguing that the trial court erred in determining that Chan did not have standing to sue individually, and also arguing for the first time on appeal that the amendment adding Genesis as a plaintiff relates back to the date of the original complaint.
ANALYSIS
Chan and Genesis appeal the decisions on the dismissal motions. Chang, Jones and Jones Law Groups' initial motion to dismiss was brought pursuant to CR 12(b)(6) for failure to state a claim upon which relief could be granted. Because the motion addressed matters outside of the complaint, it is treated and disposed of as provided in CR 56. This court reviews an order of summary judgment de novo and performs the same inquiry as the trial court.
Mulcahy v. Farmers Ins. Co. of Wash., 152 Wn.2d 92, 98, 95 P.3d 313 (2004).
Initially, Chan claims the trial court erred in granting dismissal due to his personal lack of standing on the claims brought. We disagree. There is only one transaction that is the subject of the complaint in this case. That is the transaction memorialized by the "Memorandum of Understanding" between Genesis and Solo. The memorandum states in pertinent part:
The parties, Genesis Technology Investments, LLC, a Washington limited liability company, ("Genesis") and Solo Watersports, Inc., a Washington corporation, ("Solo") and Robin Sells hereby agree as follows:
Contrary to Chan's argument the document was signed by him in a representative capacity for Genesis. Chan was a shareholder in Genesis. As a general rule, a shareholder cannot sue as an individual where the basis for the cause of action is a contract between a corporation and a third person. "Even a shareholder who owns all or most of the stock, but who suffers damages only indirectly as a shareholder, cannot sue as an individual."
Sabey v. Howard Johnson Co., 101 Wn. App. 575, 584, 5 P.3d 730 (2000); Hunter v. Knight, Vale Gregory, 18 Wn. App. 640, 646, 571 P.2d 212 (1977).
Sabey, 101 Wn. App. at 584 (citing 12B William Meade Fletcher, et al., Fletcher Cyclopedia of the Law of Private Corporations sec. 5910 (perm. ed. rev. vol. 1993)).
"There are two often overlapping exceptions to the general rule: (1) where there is a special duty, such as a contractual duty, between the wrongdoer and the shareholder; and (2) where the shareholder suffered an injury separate and distinct from that suffered by other shareholders."
Sabey, 101 Wn. App. at 584-85 (citing Fletcher Cyclopedia of the Law of Private Corporations sec. 5911).
Here, Chan fails to show that Chang, Jones or Jones Law Group owed a special duty to him independent of his status of a Genesis shareholder. Further, he has not shown that he suffered any damage separate or distinct from that suffered as a shareholder of Genesis. All claims made by Chan arise out of his capacity as a shareholder of Genesis. Chan continues to argue he was personally damaged as well, but does not explain how his damages are independent of his status as a shareholder. His claims are entirely derivative from the rights of Genesis. The trial court did not err in dismissing Chan's personal claims.
Chan also claims the trial court erred in dismissing Genesis' claims due to the running of the statute of limitations as the amendment of the complaint relates back to the initial filing date of the complaint.
The statute of limitations for security law ends three years following the contract of sale. The statute of limitations for legal malpractice claims is also three years. The claims here arose out of the "Memorandum of Understanding," which was signed on May 25, 2000. The statute of limitations ran as of May 25, 2003. Chan did not move to amend the complaint to add Genesis as a party until August of 2004. So, unless the amendment of the complaint relates back to the filing of the original complaint, Genesis must be dismissed.
RCW 21.20.430(4)(b) ('No person may sue under this section more than three years after the contract of sale. . . .'). The definition of '[p]erson' includes corporations and limited liability companies. RCW 21.20.005(9).
RCW 4.16.080(3); Simburg, Ketter, Sheppard Purdy, L.L.P. v. Olshan, 109 Wn. App. 436, 447, 988 P.2d 467, 33 P.3d 742 (1999).
As noted above, Genesis and Chan argue on appeal that the amendment adding Genesis as a plaintiff relates back to the original filing of the complaint by Chan. But this argument is rejected because it is being briefed and argued for the first time on appeal. This court may decline to consider an argument that was not raised, or was raise only indirectly at trial. Nowhere in the pleadings of Chan or Genesis in response to the motion to dismiss is there any discussion or authority for the proposition that the changes made to the complaint relate back to the original filing. In fact, at the original hearing, the trial court specifically invited counsel to brief the issue, set a deadline for this briefing and set the time for a response. The court also set a hearing date. However, Chan ignored the trial court's specific invitation and failed to file a brief. On the day set for hearing the court dismissed Genesis. Coincidentally, Chan and Genesis filed an untimely brief on the "relation back" issue on that date. But it appears by the time the brief was filed the decision was already issued by the court. At that point, Chan and Genesis could have moved for reconsideration regarding the trial court's decision dismissing Genesis pursuant to the limitations statute, but did not. Failure to properly raise an issue before the trial court generally precludes a party from raising it on appeal. Given the record before this court, the trial court did not err in dismissing Genesis' claims.
Beal v. City of Seattle, 134 Wn.2d 769, 779-80, 954 P.2d 237(1998).
State v. Gardner, 104 Wn. App. 541, 545, 16 P.3d 699 (2001).
RAP 2.5(a); see also Tiffany Family Trust v. City of Kent, 155 Wn.2d 225, 239, 119 P.3d 325 (2005).
The court stated in its decision dismissing Genesis' action: '[N]o response has been received regarding the statute of limitations relative to Genesis.'
See Robinson v. Khan, 89 Wn. App. 418, 420, 948 P.2d 1347 (1998) (Court refused to review argument that the trial court erred in failing to bar a claim based on the applicable statute of limitations, where the party failed to file a motion on the issue, it was not briefed below, and the party failed to cross-appeal in any event.).
Affirmed.
COLEMAN and APPELWICK, JJ., concur.