Case Title: WOODS v. WELLS FARGO BANK WYOMING

Citation: 

Docket Number: 02-142

State: wyoming

Court: Wyoming Supreme Court

Date: 2004-05-26T00:00:00Z

Document:
WOODS v. WELLS FARGO BANK WYOMING2004 WY 6190 P.3d 724Case Number: 02-142, 02-174, 02-179Decided: 05/26/2004
APRIL 
TERM, A.D. 2004

 

                                                                                                            

 

STEVEN 
R. WOODS,

 

Appellant(Defendant),

 

v.

 

WELLS 
FARGO BANK WYOMING,

 

Appellee(Plaintiff).

 

 

STEVEN 
R. WOODS, in behalf

of 
Imperial Homes, Inc., a

Wyoming 
corporation,

 

Appellant(Plaintiff),

 

v.

 

WELLS 
FARGO, as successor to

NORWEST 
BANK OF WYOMING, N.A.,

a 
National Banking Association, doing

business 
in Wyoming; TRACY ZUBROD,

Bankruptcy 
Trustee for the Estate of ROGER

WOODS; 
RONALD WOODS and

MARQUIETTA 
C. WOODS, in their

individual 
capacities,

                                                                                                

Appellees(Defendants).

 

STEVEN 
R. WOODS, individually and

in 
his capacity as a Co-Trustee of

W 
R Revocable Trust,

 

Appellant(Defendant),

                                                                                                

v.

                                                                                                

ROGER 
A WOODS,

 

Appellee(Plaintiff),

 

and

 

MARQUIETTA 
C. WOODS and

WELL 
FARGO BANK, WYOMING, N.A.

 

Appellees(Intervenors).

 

 

Appeal 
from the District Court of Laramie County

The 
Honorable Nicholas G. Kalokathis, Judge

 

 

Representing 
Appellant:

Bernard 
Q. Phelan, Phelan-Watson Law Office, Cheyenne, Wyoming

 

Representing 
Appellee Wells Fargo Bank Wyoming, N.A.:

Peter 
K. Michael, P.C., Cheyenne, Wyoming; Gary R. Scott of Hirst & Applegate, 
P.C., Cheyenne, Wyoming

 

Representing 
Appellee Marquietta Woods:

            
Janet L. Tyler, Laramie, Wyoming 

 

 

 

Before 
HILL, C.J., and GOLDEN, LEHMAN, KITE, and VOIGT, JJ.

 

 

GOLDEN, 
Justice.

 

[¶1]           
We 
have consolidated for purposes of appeal three separate lawsuits involving 
disputes among the principals of Imperial Homes, Inc. (Imperial).  In the first case, No. 02-142, Steven R. 
Woods appeals from several post judgment rulings of the district court, 
primarily one vacating a satisfaction of the judgment that had been entered 
against him in favor of Imperial.  
In the second case, No. 02-174, Steven R. Woods appeals the dismissal of 
his shareholder's derivative action against fellow shareholders and Wells Fargo 
Bank in its capacities as president of Imperial and trustee for the 
corporation's majority shareholder.  
In the third case, No. 02-179, Steven R. Woods appeals three orders of 
the district court regarding administration of the W R  Revocable Trust.  Finding no abuse of discretion or legal 
error in any of these matters, we affirm the decisions of the district court in 
all three cases.

 

ISSUES

 

 

[¶2]           
In 
the first matter, Woods v. Wells Fargo 
Bank Wyoming, Appellant Steven R. Woods states the issues as 
follows:

 

I.  Was the corporation president, who is 
afforded the authority to "in general supervise and control all business and 
affairs of the corporation," authorized to release a money judgment against a 
director?

 

II.  Is a court order obtained through the 
action of a terminated lawyer clearly erroneous if the court had notice of such 
termination?

 

III.  Is a judicial finding "clearly 
erroneous" if based upon inadmissible hearsay evidence?

 

Appellee 
Wells Fargo Bank of Wyoming sees the issues as:

 

I.  Whether the district court properly 
vacated the satisfaction of judgment because it was executed without authority 
from the judgment creditor's Board of Directors.

 

II.  Whether the satisfaction of judgment 
should have been vacated because it was an undisclosed and unfair conflict of 
interest transaction between the judgment creditor and one of its 
directors.

 

III.  Whether the district court properly 
vacated the satisfaction of judgment because it was unsupported by any 
consideration from the judgment debtor to the judgment 
creditor.

 

IV.  Whether attorney Timothy Kingston's 
representation of Imperial Homes, Inc. undermines the district court's decision 
to vacate the satisfaction of judgment.

 

V.  Whether the district court could 
properly consider Timothy Kingston's affidavit supporting the motions for 
vacation of the satisfaction of judgment.

 

 

 

[¶3]           
In 
his appeal of the dismissal of the shareholders derivative suit, Steven Woods 
presents one issue:

 

In a 
derivative stockholders action, was summary judgment properly granted where 
there was evidence that the demand requirement of Wyo. Stat. § 17-16-741 would 
be futile and where plaintiff, holding twenty-five percent (25%) of the 
outstanding stock, was sufficiently motivated to pursue the corporation's claim 
against Wells Fargo and the other officers and directors?

 

Wells Fargo 
restates this issue:

 

Did the 
District Court abuse its discretion in finding that Plaintiff did not fairly and 
adequately represent the interests of the other shareholders and the corporation 
and in dismissing Plaintiff's derivative action lawsuit?

 

 

Case 
Number 02-179

 

[¶4]           
In his 
appeal of the district court's three orders concerning administration of the 
trust, Steven Woods states the following issues:

 

I.  May a court deny distribution of a trust 
estate when the unambiguous purposes of the trust have been accomplished and the 
trust is passive?

 

II.  Without pleading a cause of action or 
defense, a trustee is granted leave to intervene in a suit for the sole purpose 
of conducting discovery.  Does the 
district court thereafter have subject matter jurisdiction to approve the 
trustee's administration of the estate?

 

III.  Where the trial on the issue of removal 
of defendant as co-trustee was conducted without notice or a meaningful 
opportunity to present evidence, and the defendant's counterclaim was dismissed 
without any hearing at all, was defendant denied due process of 
law?

 

Wells Fargo 
states the issues similarly:

 

I.  Whether the district court properly 
denied a beneficiary's motion for immediate in-kind distribution of trust real 
estate.

 

II.  Whether the district court properly 
entered and enforced an order requiring the successor trustee to obtain court 
approval for all asset sales that were contested by any 
beneficiary.

 

III.  Whether the district court followed due 
process of law in proceedings that resulted in removal of 
co-trustees.

 

 

 

[¶5]           
We 
will review the facts of this case in some detail as they pertain to all three 
cases, as it is necessary to understand the posture of the cases in this Court 
and because the facts reveal corporate machinations that necessarily informed 
the trial judge's exercise of discretion in each case.  Even at this level of detail, however, 
we have omitted much of the procedural skirmishing that has been characteristic 
of the litigation.

 

[¶6]           
Imperial 
Homes, Inc., was a Wyoming corporation started by Raymond Woods and engaged 
primarily in residential construction.  
Before his death, Raymond Woods established the W R  Revocable Trust and  transferred his majority Imperial 
shareholdings into the trust.  After 
his death in 1995, the trust remained the majority shareholder, with the other 
shares divided among Raymond Woods' four children, Steven R. Woods, Roger A. 
Woods, Marquietta Woods, and Ronald Woods, and Raymond's brother, Donald 
Woods.

 

[¶7]           
Raymond 
Woods' trust documents provided that, after his death, his sons Steven and Roger 
Woods would be successor co-trustees of the W R  Revocable Trust.  They in fact began to serve as 
co-trustees after their father's death in 1995.  By May 1997, however, a dispute between 
them resulted in Roger's filing a complaint against his co-trustee brother for 
an accounting and declaratory judgment. Their sister, Marquietta Woods, also a 
trust beneficiary, intervened and requested that both brothers be removed as 
trustees.  At the hearing on these 
motions,1 Steven Woods' attorney argued 
procedural objections, but no evidence was presented; Marquietta wanted both 
trustees removed, and Roger assented to his own removal if Steven were also 
removed.  The district court on 
February 18, 1998, ordered the removal of both trustees and, on February 25, 
1998, named Norwest Bank Wyoming, N.A., as sole successor trustee.  Norwest Bank later merged with Wells 
Fargo Bank, the current trustee.

 

[¶8]           
Steven Woods 
filed a W.R.C.P. 60(b) motion for relief from the order removing him as trustee, 
which was denied on March 18, 1998.  
He also filed a petition for writ of review in this Court, case number 
98-341, which was denied on December 15, 1998.  He also moved under Rule 60(b) in the 
district court for an order that the court approve any proposed transfer of 
trust assets.  The trustee and other 
beneficiaries did not object to court approval so the district court ordered 
that the trustee give ten days notice of any proposed transfer and, if any 
beneficiary objected, the trustee would be required to obtain court approval 
before the transfer could be completed.  
This procedure was followed for several transactions until Steven Woods 
through new counsel raised, for the first time in February 2002, the argument 
that the district court lacked jurisdiction to require the pre-approval 
procedure he himself had requested. 

 

[¶9]           
During the 
procedural skirmishing following the replacement of the co-trustees, Norwest in 
the spring of 1998 was attempting to inventory the trust assets but received no 
cooperation from the prior trustees.  
So on June 26, 1998, Norwest moved to intervene in the action commenced 
by Roger Woods in order that the bank could avail itself of formal 
discovery.  Decision on the 
intervention was postponed until after final ruling on Steven Woods' motion for 
a new trial.  Steven Woods, however, 
refused to participate in the scheduled hearing, insisting instead on a 
continuance and discovery regarding who was at fault as between the brothers. 
 On August 31, 1998, the district 
court issued an order denying the continuance because fault in the dispute was 
not relevant, denying a new trial or other relief from the order removing the 
co-trustees, affirming the appointment of Norwest Bank as successor trustee and 
granting the bank's motion to intervene. 

 

[¶10]      The 
bank exercised the trust's rights as majority shareholder in Imperial and served 
on the corporation's board of directors.  
On July 27, 1998, the bank's trust officer, Richard Cuthbertson, was 
elected president of the corporation.  
In the fall of 1999, the trust pursuant to court order distributed its 
Imperial shares equally to Raymond Woods' four children.  When the trust shares passed out of the 
trust and the bank no longer had majority control of the corporation, the board 
of directors, on July 27, 1999, named Steven Woods to replace Cuthbertson as 
president. 

 

[¶11]      During 
the five months immediately after his becoming president, a time when the 
corporation's business was inactive, Steven withdrew for his personal use 
approximately $80,000 of the $90,000 balance in the corporate bank account. When 
the other shareholders learned of this transfer, a special shareholders meeting 
was called for January 6, 2000, and a board of directors meeting for January 10, 
2000, as a result of which Steven was removed as president and replaced by 
Ronald Woods. 

 

[¶12]      The 
board also on January 14, 2000, authorized their attorney, Timothy Kingston, to 
pursue recovery of the transferred funds from Steven. On January 24, 2000, the 
corporation filed an action in district court against Steven Woods, seeking an 
accounting and recovery of the corporate funds.  The corporation obtained a prejudgment 
writ of attachment based upon the affidavit of then-president Ronald Woods 
alleging Steven's theft of the funds.

 

[¶13]      On 
October 25, 2000, nine months after the corporation began its lawsuit against 
him, Steven Woods filed a shareholders derivative action against Wells Fargo and 
the other shareholders.  He alleged 
that Wells Fargo Bank, when it was holder as trustee of a majority of the shares 
in Imperial and its president, mismanaged the business to the detriment of the 
corporation and its shareholders.  
The gravamen of his complaint was that the bank had acted to liquidate 
corporate real estate assets rather than operate the business as a going 
concern.  Following discovery, 
defendant Wells Fargo filed a motion for summary judgment as to the entire cause 
of action, which was granted on the grounds that the plaintiff did not fairly 
and adequately represent the interests of the shareholders of Imperial Homes and 
had not made the necessary demand on the corporation as required by W.R.C.P. 
23.1 and Wyo. Stat. Ann. § 17-16-741.

 

[¶14]      Meanwhile, 
Mr. Kingston, during 2000 and 2001, was representing the corporation in yet 
another lawsuit, one brought against Imperial by a corporate creditor, Delbert 
Weidenhamer.  The W R  Revocable Trust was also named a 
defendant in that lawsuit because the corporation had transferred to the trust 
property in which Weidenhamer held an interest as mortgagee.  The parties, including Imperial through 
its attorney, Mr. Kingston, reached a settlement of that litigation in February 
of 2001, by the terms of which the trust would pay $60,000 to Weidenhamer and 
the corporation would transfer to him several installment land contracts payable 
to Imperial and having an agreed value of $90,000.  After the settlement was executed on 
April 26, 2001, however, it was discovered that Ronald had already liquidated 
those contracts for his own account and they had no remaining value to 
Weidenhamer or Imperial. 

 

[¶15]      Immediately 
after the corporate attorney and other shareholders discovered Ronald's prior 
sale of the land contracts, Ronald, as president but without any action of the 
board of directors, purported to terminate Mr. Kingston's services as attorney 
for the corporation.  However, no 
pleadings were filed at that time in any of the pending lawsuits to remove Mr. 
Kingston, and he continued to act on behalf of the corporation through its board 
of directors.  He filed a summary 
judgment motion in the collection action against Steven Woods on May 23, 2001, 
in Imperial's action for recovery of the $80,000.  As part of his summary judgment 
response, Steven Woods filed a motion to disqualify Mr. Kingston as the 
corporation's attorney on the grounds that Steven Woods had retained him as the 
corporation's attorney and believed Mr. Kingston represented Steven individually 
in his capacity as president. The court denied the motion to disqualify and 
granted the corporation's summary judgment on July 18, 2001, against Steven 
Woods in the amount of $80,789.41. 

 

[¶16]      Steven 
Woods did not appeal the summary judgment or the denial of Mr. Kingston's 
disqualification.  However, on July 
31, 2001, two documents were filed in the case, one entitled "Release and 
Satisfaction in Full of the Judgment in It's [sic] Entirety," and the other, 
"General Release of Judgment Payment in Full in It's [sic] Entirety."  The former document, although unsigned, 
recited that it was signed by Ronald D. Woods; the latter document was signed by 
"Ronald D. Woods, President, Executive officer of Imperial Homes, Inc."2  Testimony later established that the 
purported release documents were drafted by Ronald Woods and filed by Steven 
Woods.

 

[¶17]      Imperial 
responded through Attorney Kingston by moving on August 29, 2001, to set aside 
the satisfaction and release of judgment.  
Imperial also proceeded to enforce the judgment through garnishment of 
Steven Woods' bank accounts.  Steven 
Woods in turn moved to stay execution, raising as grounds once again the 
authority of Mr. Kingston to represent the corporation.  Imperial countered by moving to release 
garnished funds held by the clerk.  
The district court held a hearing on these post-judgment matters on March 
28, 2002, then ordered on April 9, 2002, that the "release of judgment" was 
void, that enforcement of the judgment against Steven Woods would not be stayed, 
and that garnished funds would be released to the judgment creditor/corporation. 
 It is the court's decision on these 
three motions that is currently before this Court on appeal in case number 
02-142.

 

[¶18]      After 
the filing but before the ruling on those post-judgment motions, Marquietta 
Woods filed a petition for the dissolution of Imperial, as a result of which the 
district court on October 22, 2001, appointed a receiver to operate the 
corporation.  Imperial then, through 
its receiver and after court approval, assigned its judgment against Steven 
Woods to the W R  Revocable Trust, 
of which Wells Fargo Bank Wyoming, N.A., remained the trustee.  Pursuant to the assignment, Wells Fargo 
therefore appears as the judgment creditor/appellee in case number 02-142.  Wells Fargo also appears as 
defendant/appellee in case number 02-174, the shareholders derivative suit by 
Steven Woods against Wells Fargo for its actions as president of Imperial.  Finally, Wells Fargo appears as 
defendant/appellee, in its capacity as trustee of the W R  Revocable Trust, in case number 02-179, 
which is Steven Woods' appeal of three orders entered regarding administration 
of the trust.

 

 

Steven 
R. Woods v. Wells Fargo Bank Wyoming, Case No. 
02-142

 

Standard 
of Review

 

[¶19]      The 
order appealed from in this matter was a combined ruling of the trial court on 
two post-judgment motions of the judgment creditor and one of the judgment 
debtor.  Post-judgment enforcement 
and execution proceedings are addressed to the sound discretion of the trial 
court and are reviewed on appeal only for an abuse of discretion, Orosco v. Schabron, 9 P.3d 264, 266 
(Wyo. 2000), including motions to set aside a satisfaction of judgment. W.F. Conelly Constr. Co. v. L. Harvey 
Concrete, Inc., 785 P.2d 94, 97 (Ariz. App. 1989).

 

[¶20]      In 
Gore v. Sherard, 2002 WY 114, ¶20, 50 P.3d 705, ¶20 (Wyo. 2002), we restated our abuse of discretion 
standard:

 

[T]he 
core of our inquiry must reach "the question of reasonableness of the choice 
made by the trial court." Vaughn v. 
State, 962 P.2d 149, 151 (Wyo. 1998).   "Judicial discretion is a 
composite of many things, among which are conclusions drawn from objective 
criteria; it means a sound judgment exercised with regard to what is right under 
the circumstances and without doing so arbitrarily or capriciously."  Id. (quoting Byerly v. Madsen, 41 Wash. App. 495, 704 P.2d 1236, 1238 (Wash. App. 1985)); Basolo v. Basolo, 907 P.2d 348, 353 (Wyo. 
1995).  We must ask ourselves whether the district court could reasonably 
conclude as it did and whether any facet of its ruling was arbitrary or 
capricious.

 

 

Discussion

 

[¶21]      We 
will first address Steven Woods' challenge to Mr. Kingston's representation of 
Imperial, as it affects all of the cases.  
Mr. Kingston was retained for this litigation by resolution of the board 
of directors on January 14, 2000, and commenced the lawsuit on January 24, 
2000.  He filed the corporation's 
summary judgment motion May 23, 2001.  
It was not until June 6, 2001, that Steven Woods' attorney filed a motion 
to disqualify Imperial's attorney.  
The motion did not allege that Mr. Kingston had been terminated, only 
that his representation constituted or gave the appearance of a conflict of 
interest because Steven Woods as president of Imperial had consulted with Mr. 
Kingston.  The court denied the 
motion to disqualify when it granted Imperial's summary judgment on July 18, 
2001, for the stated reason that the motion was untimely.  There was no appeal of that order, yet 
Steven Woods raised the authority of the plaintiff's attorney once again in 
post-judgment pleadings on September 10, 2001, and October 15, 2001, this time 
on the grounds that Mr. Kingston had been terminated by Ronald Woods when he was 
Imperial's president.

 

[¶22]      Mr. 
Kingston was retained to represent the corporation, and was specifically 
instructed to commence the lawsuit against Steven Woods by Imperial's board of 
directors.  He entered his 
appearance in the litigation on behalf of Imperial by filing the complaint in 
January 2000.  The corporation 
accepted the benefit of this filing and presumably continued to pay Mr. 
Kingston.  The corporate plaintiff 
to this date has filed no pleadings denying his authority or seeking his removal 
or substitution as counsel. Throughout this time, therefore, Mr. Kingston is 
presumed to have been representing Imperial for all purposes in the litigation 
and could withdraw only with leave of court.  Wyo. Uniform Rules for Dist. Ct. 
102(a)(2), (c). 

 

[¶23]      It 
was not until summary judgment was granted and post-judgment enforcement 
proceedings began that Steven Woods as defendant asserted in any pleadings that 
Mr. Kingston had been terminated as Imperial's attorney.  The first pleading alleging the 
termination was filed on September 10, 2001  some twenty months after the 
commencement of the litigation, four months after the motion for summary 
judgment, two months after the grant of summary judgment  and only in response 
to Imperial's pleadings, filed by Mr. Kingston, seeking to set aside the pro se 
satisfaction of judgment prepared by Ronald Woods and filed by Steven Woods at a 
time when Mr. Kingston was still Imperial's attorney of record.  The belated allegation was obviously 
being used as a tactical weapon by Ronald and Steven Woods to defeat the 
corporation's judgment, and to this date no motion seeking leave of court for 
Mr. Kingston's withdrawal or substitution of other counsel has been 
filed.

 

[¶24]      Among 
the many policy reasons for the requirement of leave of court for withdrawal of 
counsel is to avoid the confusion created by such self-help machinations as 
appear in the record of this case.  
It is all the more important where principals of a corporation are 
deliberately attempting to blur the separate identity of the corporation and its 
attorney's loyalties.  See, e.g., Bowen v. Smith, 838 P.2d 186, 
197-98 (Wyo. 1992) (Brown, J., concurring).

 

[T]he 
purpose of the Rules can be subverted when they are invoked by opposing parties 
as procedural weapons.  The fact 
that a Rule is a just basis for a lawyer's self-assessment, or for sanctioning a 
lawyer under the administration of a disciplinary authority, does not imply that 
an antagonist in a collateral proceeding or transaction has standing to seek 
enforcement of the Rule.

 

Wyo. 
Rules of Prof'l Conduct for Attorneys, Scope, ¶6, at 697.  Even if Mr. Kingston in fact had a 
conflict of interest or acted on behalf of Imperial after his services were 
terminated, any remedy would lie with the corporate client and the Board of 
Professional Responsibility, not the corporation's judgment creditor.  There is nothing in the record to 
indicate that the corporation through its board of directors or later its 
receiver attempted to replace Mr. Kingston as corporate attorney or to void any 
of his actions.  In fact, the 
receiver after his appointment continued to use Mr. Kingston's services when the 
judgment in this matter was assigned to the W R  Revocable Trust.  Appellant cites no pertinent authority 
for his contention of per se invalidity for actions taken by Mr. Kingston in 
obtaining and attempting to enforce the corporation's judgment against him.  We will not permit the rules of conduct 
for attorneys to be used very late in the game to collaterally attack a judgment 
that was not appealed or to permit opposing counsel to decide unilaterally when 
they will ignore opposing counsel and deal directly with an opposing party.  CRB v. Dept. of Family Services, 974 P.2d 931, 936-37 (Wyo. 1999).  While 
it is true that in general a corporate president may sometimes have authority to 
retain and change the corporation's attorney, such authority will not be applied 
blindly without regard to common sense and context.  Where a corporation is attempting to 
enforce its judgment against one former president for misappropriation, and the 
successor president/brother may have similarly sold corporate assets for his own 
account, replacement of the corporation's attorney is a matter for the board of 
directors, not one of the involved presidents.  Moreover, the appropriate remedy would 
be for the Board of Professional Responsibility to enforce, not the 
corporation's judgment creditor.

 

[¶25]      Turning 
to the specific post-judgment orders, the district court vacated the 
satisfaction of judgment on two separate grounds, the first being that the 
corporate president did not have authority to execute the release and the second 
being that there was no consideration for the release.  We first consider Steven Woods' argument 
on appeal that Ronald Woods was authorized as president of the corporation to 
execute a satisfaction of judgment on behalf of the 
corporation.

 

[¶26]      The 
Wyoming Business Corporation Act provides:

 

All 
corporate powers shall be exercised by or under the authority of, and the 
business and affairs of the corporation managed under the direction of, its 
board of directors, subject to any limitation set forth in the articles of 
incorporation or in [a shareholder's agreement].

 

Wyo. 
Stat. Ann. § 17-16-801(b) (LexisNexis 2003).  Consistent with the statute, we have 
said that "[a] corporation's bylaws and any resolutions adopted by the 
corporation's board of directors in accordance with the bylaws determines the 
extent of the president's authority."  
Squaw Mt. Cattle Co. v. Bowen, 
804 P.2d 1292, 1295 (Wyo. 1991).  
Ultra vires acts of a corporate president or other agent are void unless 
under agency principles an innocent third party is permitted to enforce an 
action taken with apparent authority or ratification of the corporation.  J 
Bar H, Inc. v. Johnson, 822 P.2d 849, 859 (Wyo. 1991).

 

[¶27]      Appellant 
cites Imperial's by-laws to the effect that the president "shall in general 
supervise and control all of the business and affairs of the corporation" and 
"in general shall perform all duties incident to the office of President and 
such other duties as may be prescribed by the Board of Directors from time to 
time."  He argues without citation 
of authority that satisfaction of a judgment is part of the general "business 
and affairs" of Imperial.  We must 
disagree.

 

[¶28]      The 
by-laws' grant of authority to the president, as in the case of his authority to 
dismiss the corporate attorney, must be construed in context.  "Whether the initiation of litigation is 
in the ordinary course of business depends on the nature of the 
litigation."  Keogh Corp. v. Howard, Weil, Labouisse, 
Friedrichs, Inc., 827 F. Supp. 269, 272 (S.D.N.Y. 
1993).

 

It 
has long been the general rule that the authority of a board of directors to 
manage a corporation's affairs extends to control of the corporation's 
litigation  including decisions regarding its initiation, defense, abandonment, 
and settlement.  

Correlatively, 
absent express delegation of the corporate directors' authority to control the 
decision whether to conduct litigation on the corporation's behalf, via express 
provision in the corporate articles, bylaws, or a properly adopted resolution, . 
. . no one else may legitimately exercise that authority.

 

Chun 
v. Board of Trustees, 
952 P.2d 1215, 1226 (Hawaii 1998) (citations omitted).

 

[¶29]      The 
same would apply to settlement of litigation or release of judgments.  Imperial was primarily involved in the 
residential construction business.  
It was not a collection agency, where the enforcement and satisfaction of 
judgments could be considered the ordinary business of the corporation.  More significantly, Steven Woods was not 
an innocent third party dealing with the corporation but was a former president 
with an $80,000 judgment against him for misappropriating corporate money.  Even if the record showed the president 
routinely engaged in collection activities on behalf of the corporation against 
its customers -- of which there was in fact no evidence -- such authority could 
not reasonably be construed to include authority over the $80,000 debt of a 
former president that resulted from misappropriation, that had been reduced to 
judgment, and that represented one of the corporation's only assets at that 
time.  The bylaws in this case and 
the question of authority to settle litigation are strikingly similar to Squaw Mountain, 804 P.2d  at 1295, and 
the result must be the same:  a 
president's general authority to supervise and control the business and affairs 
of a corporation does not include authority over settlement of litigation or 
release of judgments against a corporate director and former 
president.

 

[¶30]      Steven 
Woods does not challenge on appeal the district court's finding that the release 
was not given in exchange for payment of the judgment or other 
consideration.  Even if we had 
determined that the corporate president did have authority to execute a release 
of judgment, the lack of consideration by itself would be sufficient grounds to 
uphold the district court's order setting aside the release.  W.F. Conelly Const., 785 P.2d  at 
97.

 

[¶31]      Wells 
Fargo is also correct in its conflict-of-interest analysis.  Wyo. Stat. Ann. § 17-16-831(a) 
(LexisNexis 2003) provides that:

 

(a) 
A conflict of interest transaction is a transaction with the corporation in 
which a director of the corporation has a direct or indirect interest.  A conflict of interest transaction is 
not voidable by the corporation solely because of the director's interest in the 
transaction if any one (1) of the following is true:

            
(i) The material facts of the transaction and the director's interest 
were disclosed or known to the board of directors or a committee of the board of 
directors and the board of directors or committee authorized, approved or 
ratified the transaction;

            
(ii) The material facts of the transaction and the director's interest 
were disclosed or known to the shareholders entitled to vote and they 
authorized, approved or ratified the transaction; or

            
(iii) The transaction was fair to the corporation.

 

In 
Lynch v. Patterson, 701 P.2d 1126, 
1131-32 (Wyo. 1985), we ruled that failure of the involved director to prove one 
of the above exceptions renders the transaction voidable by the corporation and 
also a violation of the general director loyalty statute, Wyo. Stat. Ann. § 
17-16-830 (LexisNexis 2003).

 

[¶32]      When 
Ronald and Steven Woods agreed to the satisfaction of judgment, and when it was 
signed by Ronald and filed by Steven, they were on Imperial's board of 
directors.  Their arrangement was 
not disclosed to their sister, the other board member, nor was it ever 
authorized, approved or ratified by the board or the shareholders.  Moreover, Steven Woods did not pay the 
judgment or give any other consideration in exchange for the satisfaction. The 
evidence is uncontroverted that the satisfaction of judgment was gratuitously 
granted by Ronald to Steven, was not an arms-length transaction and deprived 
Imperial of a valuable asset.  Since 
the release is obviously a conflict of interest transaction for the benefit of 
Steven Woods and none of the exceptions in § 17-16-831 even arguably apply, the 
release would be voidable by the corporation even without considering the 
president's authority to execute it.  
Though not part of the district court's stated reasoning, the court's 
decision would be sustainable on this ground alone.  Masinter v. Markstein, 2002 WY 64, ¶8, 
45 P.3d 237, ¶8 (Wyo. 2002).

 

[¶33]      Steven 
Woods' last contention on appeal is that the district court rulings must be set 
aside because the court improperly received and may have relied upon hearsay 
evidence in the form of affidavits from Attorney Kingston and Marquietta Woods 
when it set aside the satisfaction of judgment and denied the motion to quash 
execution on the judgment.  Again, 
Steven Woods presents no pertinent authority or cogent argument.  The decision appealed from concerns 
three post-judgment motions. W.R.C.P. 6(c) indicates the filing of affidavits in 
support of or opposition to motions.  
Notwithstanding the rule, however, the court's findings that the 
corporate president lacked authority to release a judgment against a director 
and former president, and that Steven Woods gave no consideration for the 
release, are fully supported in the record even without the affidavits.  Appellant is correct that the facts in 
this regard were substantially undisputed; he is incorrect in arguing that 
undisputed facts must lead to his preferred legal 
conclusion.

 

 

Steven 
Woods v. Wells Fargo, No. 02-174

 

[¶34]      In 
the second of the consolidated cases, a shareholder derivative lawsuit, Steven 
Woods alleged that Wells Fargo's predecessor, Norwest Bank, as director, officer 
and majority shareholder of Imperial, elected to liquidate the corporation 
rather than operate it as a going concern, to the detriment of the corporation 
and its shareholders.  Wells Fargo 
filed a motion for summary judgment as to the entire action, on the grounds that 
the plaintiff had failed to comply with the prerequisites, under statute3 and rule of civil procedure,4 for filing a shareholder derivative 
action.

 

[¶35]      The 
district court granted Wells Fargo's summary judgment motion, finding that 
Steven Woods' complaint did not contain a verified allegation of demand upon 
Imperial.  The court also found 
that, even assuming the demand were made or could be excused, the pleadings, 
findings and judgment entered in Imperial 
Homes, Inc. v. Steven R. Woods dictated the conclusion that Steven Woods 
could not fairly and adequately represent the interests of the other 
shareholders. 

 

 

 

[¶36]      
We 
have often stated that, in reviewing a summary judgment, we apply the same 
standards as the trial court, without affording any deference to the trial 
court's decisions on issues of law. Hutchins 
v. Payless Auto Sales, Inc, 2004 WY 22, ¶11, 85 P.3d 1010, ¶11 (Wyo. 
2004).  However, federal case law 
provides that a determination of whether a shareholder fairly and adequately 
represents a corporation under F.R.C.P. 23.1 is to be decided on a case-by-case 
basis and is left to the sound discretion of the trial court.  Lewis v. Curtis, 671 F.2d 779, 783 (3d 
Cir.), cert. denied, 459 U.S. 880, 74 L. Ed. 2d 144 (1982).  We adopt the 
same standard of review.

 

[¶37]      
We 
have also often stated our abuse of discretion standard:  "We 
perceive the core of our inquiry as reaching the question of reasonableness of 
the choice made by the trial court."  
Vaughn v. State, 962 P.2d 149, 
151 (Wyo. 1998).  In Vaughn, we reaffirmed the standard 
adopted in Martin v. State, 720 P.2d 894, 897 (Wyo. 1986):

 

Judicial 
discretion is a composite of many things, among which are conclusions drawn from 
objective criteria; it means a sound judgment exercised with regard to what is 
right under the circumstances and without doing so arbitrarily or capriciously. 
Byerly v. Madsen, 41 Wash. App. 495, 
704 P.2d 1236 (1985).

 

Vaughn, 
962 P.2d  at 151.

 

 

Discussion

 

[¶38]      
The 
district court's summary judgment ruling was based on two independent grounds, 
the defective pleading and Steven Woods' standing to bring a shareholder's 
derivative action.  In regard to the 
latter, the court primarily considered the fact that, at the time Steven Woods 
filed his derivative action, there was pending against him a lawsuit by Imperial 
for misappropriation of corporate funds.  
By the time the district court decided the summary judgment in Steven 
Woods' shareholder action, the corporation had obtained and begun collection of 
an $80,000 judgment against him.

 

[¶39]      
In 
his appeal, Steven Woods argues that the demand requirement should be waived 
where it would be obviously futile, and that he is sufficiently motivated to 
pursue a claim against Wells Fargo.  
There is much more to the analysis, however, even if the formal pleading 
requirement were excused as futile.  
Various factors have been identified in determining whether a 
shareholder/plaintiff in a derivative action fairly and adequately represents 
the interests of the other shareholders.  
Appellant Steven Woods addresses only one of those factors, the capacity 
of the plaintiff to vigorously prosecute the matter on behalf of the 
corporation.  Among other factors to 
be considered are the existence of any personal economic interest of the 
plaintiff that is adverse to the other shareholders' or corporation's interests; 
other pending litigation between the plaintiff and defendants; plaintiff's 
vindictiveness towards the defendants; and the degree of support for the 
plaintiff's position by other shareholders.  Davis v. Comed, Inc., 619 F.2d 588, 
593-94 (6th Cir. 1980); 13 William M. Fletcher, et al., Fletcher Cyclopedia of the Law of Private 
Corporations § 5981.41 (Perm. ed. rev. vol. 1995).  These factors are significant because 
"a 
stockholder who brings suit on a cause of action derived from the corporation 
assumes a position, not technically as a trustee perhaps, but one of fiduciary 
character. He sues, not for himself alone, but as representative of a class 
comprising all who are similarly situated."  Davis, 619 F.2d  at 592 (quoting Cohen v. Beneficial Loan Corp., 337 U.S. 541, 549-50 (1949)).

 

[¶40]      
Although 
Steven Woods did not object to the court's taking judicial notice of the other 
proceedings between him and the corporation, he does argue their relevancy.  Not only are the other proceedings 
relevant, they are essential in considering whether he fairly and adequately 
represents the other shareholders under the appropriate criteria.  When he filed his derivative action, 
Steven Woods stood accused by the corporation of stealing almost all of its cash 
assets.  By the time of the 
dismissal of the derivative action, the district court had found that in fact he 
had taken the funds and entered judgment against him for more than $80,000.  The other shareholders not only 
acquiesced in Imperial's lawsuit against Steven Woods, they authorized it in a 
special meeting.  Moreover, Steven 
Woods alleged in his complaint and acknowledged in his summary judgment 
affidavit 
that 
all of the other shareholders acquiesced in the allegedly wrongful actions or 
inactions of the bank in operating the corporation.  Based on this alone, the district court 
could very reasonably conclude that Steven Woods did not fairly and adequately 
represent their interests when his economic interest is in fact adverse to all 
of the other shareholders.  In 
addition, the factual history is replete with evidence of animosity, hostility 
and chicanery toward Imperial and its other shareholders that would render a 
mockery of the fair representation requirement if Steven Woods were permitted to 
represent the interests of the corporation or its shareholders.  The case of Palmer v. U.S. Savings Bank of America, 
553 A.2d 781 (N.H. 1989), likewise involved an attempted derivative suit filed 
by a shareholder who had pending litigation against the corporation.  In addition to a clear conflict of 
interest, the court in dismissing the derivative action noted the possibility of 
a shareholder plaintiff filing a derivative action against a corporation to gain 
leverage in the pre-existing lawsuit.  
Id. at 786-87.  The 
same concern is present in this case.  
Given his misappropriation of corporate assets, the related pending 
litigation, his total lack of support from other shareholders and animosity 
toward them, the district court's decision can only be deemed a sound one, based 
on objective criteria and not arbitrary or 
capricious.

 

 

Steven 
Woods v. Roger Woods, Marquietta Woods and Wells Fargo, No. 
02-179

 

[¶41]      In 
this third of the consolidated appeals, Steven Woods challenges three orders of 
the district court regarding the administration of the W R  Revocable Trust, namely, the order 
denying distribution of the trust, the order granting the trustee's 
intervention, and the order removing the brothers as 
co-trustees.

 

 

 

[¶42]      The 
meaning of a trust instrument is determined by the same rules that govern the 
interpretation of contracts.  Kerper v. Kerper, 780 P.2d 923, 934 
(Wyo. 1989).  The intent of the 
settlor is determined, if possible, from the trust document itself. 
Id.  The determination of 
whether the agreement is ambiguous on its face does not require extrinsic 
evidence and is therefore a question of law which we review de novo.  Hutchison v. Hill, 3 P.3d 242, 245 (Wyo. 
2000).  The interpretation of an 
unambiguous trust instrument likewise does not require consideration of evidence 
and is reviewed de novo.  Samuel v. Zwerin, 868 P.2d 265, 266 
(Wyo. 1994).  The interpretation of 
an ambiguous instrument is a mixed question of law and fact, Burbank v. Wyodak Resources Dev. Corp., 
11 P.3d 943, 947 (Wyo. 2000), which will be reversed only if it is clearly 
erroneous or contrary to the great weight of the evidence.  Hutchison, 3 P.3d  at 
245.

 

 

 

[¶43]      Two 
articles of the W R  Revocable Trust 
document address distribution of the trust corpus after Raymond Woods' 
death:

 

ARTICLE 
VI.

PAYMENT 
AT DEATH OF GRANTOR

 

A.  Upon the death of Grantor, Successor 
Trustee shall pay directly, or to Grantor's Personal Representatives as said 
Personal Representative shall direct, Grantor's funeral and burial expenses, 
claims legally enforceable against Grantor's Estate, expenses of administering 
Grantor's Estate including expenses of last illness, if any, attorney's and 
accountant's fees, if deemed necessary in the best judgment of Successor 
Trustee, and any estate and inheritance taxes payable by reason of Grantor's 
death.  If no Personal 
Representative is appointed, Successor Trustee shall pay all such expenses 
directly out of the Trust Estate.  
All such expenses, claims and taxes shall be paid without apportionment 
and without contribution from any person.

            
B.  After Grantor's death, 
and after making any payments necessary under the provisions of Paragraph A of 
this Article VI Successor Trustee shall, from the principal of the Trust Estate, 
transfer, convey and distribute equally to the Grantor's children STEVEN R. 
WOODS, ROGER A. WOODS, RONALD D. WOODS, and MARQUIETTA C. WOODS, share and share 
alike and the trust terminated. . . .

 

Article 
X addresses the trustee's powers:

 

            
In order to carry out the provisions of this Trust, Trustee and Successor 
Trustee shall have all powers conferred by the Wyoming Uniform Trustees' Powers 
Act, W.S. 4-8-101 through 4-8-111 (all of which is incorporation [sic] herein by 
this reference).  Such powers shall 
be exercised in good faith and in accordance with Trustees' fiduciary 
obligations.  In general, Trustee 
and Successor Trustee shall have the power to any and all things for the 
preservation and the management of the Trust Estate which they deem necessary or 
for the best interest of the Beneficiaries of the Trust.  Trustees shall not incur any liability 
for any loss or damage incurred by reason of the exercise of any of Trustees' 
fiduciary powers so long as they were exercised in good faith and without 
willful negligence.

 

[¶44]      A 
portion of the referenced Uniform Trustees' Powers Act5 states at Wyo. Stat. Ann. § 4-8-103 
(LexisNexis 2001):

 

            
(a) From time of creation of the trust until final distribution of the 
assets of the trust, a trustee has the power to perform, without court 
authorization, every act which a prudent investor would perform for the purposes 
of the trust including but not limited to the powers specified in subsection 
(c).

 

* 
* * *

            
(c) A trustee has the power, subject to subsections (a) and 
(b):

            
* * * *

(vii) 
To acquire or dispose of an asset, for cash or on credit, at public or private 
sale, and to manage, develop, improve, exchange, partition, change the character 
of, or abandon a trust asset or any interest therein, and to encumber, mortgage, 
or pledge a trust asset for a term within or extending beyond the term of the 
trust, in connection with the exercise of any power vested in the 
trustee;

* 
* * *

(xix) 
To pay or contest any claim; to settle a claim by or against the trust by 
compromise, arbitration or otherwise; and to release, in whole or in part, any 
claim belonging to the trust to the extent that the claim is uncollectible; . . 
. .

 

[¶45]      The 
trust's accountant testified at the hearing on Defendant's Motion for 
Distribution in 2000 that all of the estate tax issues had not been 
finalized.  As payment of taxes was 
a stated pre-condition for termination of the trust, and the trust's real estate 
would be a source of funds to pay the taxes, this alone was sufficient 
justification for the district court to deny Steven Woods' motion to require 
distribution of the real estate.

 

[¶46]      In 
addition, the trust had been involved in a quiet title action regarding a claim 
to a mortgage on one of the commercial real estate parcels held by the 
trust.  This action remained pending 
at the time of the August 2000 hearing on Steven Woods' motion to distribute all 
of the trust assets.

 

[¶47]      The 
trust instrument provided that, upon the grantor's death, the trustee was to pay 
all claims legally enforceable against the grantor's estate and all estate and 
inheritance taxes payable by reason of his death.  Only then was the trust property to be 
distributed to grantor's children.  
The instrument also gave the trustee all powers to manage and preserve 
the trust property as found in the Wyoming Uniform Trustees' Powers Act.  In at least two respects, therefore, the 
possible outstanding tax liability and the pending quiet title action, the 
conditions for final distribution of the trust real estate had not occurred, and 
the district court properly denied distribution of the trust's real 
estate.

 

[¶48]      By 
its incorporation of the Uniform Trustees' Powers Act, the trust instrument 
incorporated the power to sell trust property found at § 4-8-103(c)(vii), as it 
existed at the time the trust was created.  
The trust directs distribution of the property equally among the four 
children, but does not otherwise specify whether the real property be 
distributed in kind or first liquidated.  
The direction to pay taxes and claims, however, implies that at least 
some of the property is to be converted to cash.  The Restatement (Second) of Trusts § 347 
(1959) authorizes distribution of trust assets in kind or in cash, as is 
reasonable under the circumstances.  
The real estate that was the subject of Steven Woods' motion to 
distribute consists of three parcels of commercial real estate.  As noted above, the parties are far from 
amicable and partition litigation is likely if they received the properties as 
tenants in common.  Several of the 
other beneficiaries opposed the motion.  
Under these circumstances, we cannot conclude that the district court 
abused its discretion in denying the motion to distribute the trust assets in 
kind.

 

[¶49]      Appellant 
Woods next argues that the district court erred procedurally when it allowed the 
intervention of the trustee, and that it was therefore without subject matter 
jurisdiction to order the prior approval of the sale of trust property.  The order requiring pre-approval was 
entered in January 1999 at Steven Woods' own request, and he first raised his 
objection to it in 2002.  Because of 
his obvious invited error problem and delay in challenging the order, he now 
raises subject matter jurisdiction objections.

 

[¶50]      "Subject 
matter jurisdiction is the power to hear and determine cases of the general 
class to which the proceedings in question belong.'" Lacey v. Lacey, 925 P.2d 237, 238 (Wyo. 1996) (quoting Fuller v. State, 568 P.2d 900, 903 
(Wyo. 1977)).  Subject matter 
jurisdiction is therefore not a subject of judicial discretion, In Interest of DG, 825 P.2d 369, 376 
(Wyo. 1992), nor can it be created or destroyed by procedural 
irregularities.  The Rules of Civil 
Procedure do not extend or limit the jurisdiction of any court.  W.R.C.P. 82; Frederick v. District Court, 399 P.2d 583, 584 (Wyo. 1965).

 

[¶51]      Nevertheless, 
Woods attempts to bootstrap alleged procedural irregularities over the 
intervention of the trustee into an argument that any orders of the court 
following intervention are without subject matter jurisdiction, even 
encompassing orders which he himself requested.  His attempt must fail.  The jurisdiction of the district courts 
is defined in Wyo. Const. Art. 5, § 10, which states:

 

The 
district court shall have original jurisdiction of all causes both at law and in 
equity and in all criminal cases, of all matters of probate and insolvency and 
of such special cases and proceedings as are not otherwise provided for. The 
district court shall also have original jurisdiction in all cases and of all 
proceedings in which jurisdiction shall not have been by law vested exclusively 
in some other court; . . . .

 

The district 
courts of Wyoming have plenary jurisdiction over trust administration.  Wyo. Stat. Ann. § 4-10-203 (LexisNexis 
2003); Spear v. Nicholson, 882 P.2d 1237, 1241 (Wyo. 1994).  We fail to 
see how any defect in the process by which the trustee intervened in the case, 
even if it were established, would divest the court of the power to enter orders 
regarding trust administration.

 

[¶52]      
Finally, 
Woods argues that the removal of the co-trustees in 1998 and the appointment of 
Norwest Bank as successor trustee was done without notice and an opportunity to 
be heard, and therefore deprived him of due process under the United States and 
Wyoming Constitutions.  A review of 
the record shows that Steven Woods and his attorneys not only received notice of 
every hearing but attended and participated to some extent in every 
proceeding.  On several occasions, 
they refused to present evidence or participate as directed by the court because 
they did not agree with the court's decisions on timing or subject matter of the 
proceedings, but they nevertheless participated and argued their 
disagreement.  The court's refusal 
to schedule matters to their liking does not rise to a constitutional 
violation.

 

[¶53]      Most 
importantly, the right to due process does not exist in a vacuum.  Both the Wyoming and United States 
Constitutions require that due process of law be provided before deprivation of 
life, liberty or property.  The 
burden of proving unconstitutionality is a heavy one; a claim of due process 
involves a requirement that the party claiming the constitutional protection 
demonstrate a protected interest in life, liberty or property, and the interest 
has been infringed in an impermissible way. Michael v. 
Hertzler, 900 P.2d 1144, 1146, 1148 (Wyo. 1995). Woods does not address how he has 
a constitutionally protected life, liberty or property interest in remaining as 
co-trustee of the W R  Revocable 
Trust, or how he would have retained such a right but for the court's alleged 
procedural mistakes.  There being no 
evidence or cogent argument on these points, we need not consider them 
further.  Johnson v. 
Creager, 2003 WY 
110, ¶14, 76 P.3d 799, ¶14 (Wyo. 2003).

 

 

 

[¶54]      The 
orders of the district court in all three of the consolidated cases are 
supported by the record, are within the trial court's discretion and otherwise 
consistent with law, and are therefore affirmed.

 

FOOTNOTES

 

1The 
hearing was not recorded.  Pursuant 
to W R A.P. 3.03, the parties stipulated to the 
proceedings.

 

2The 
substantive portion of the latter document states in 
full:

 

            
FOR GOOD CONSIDERATION, the undersigned jointly and severally hereby 
forever release, discharge, acquit and forgive from any and all claims, actions, 
suits, demands, agreements, and each of them, if more than one, liabilities, 
judgments, and proceedings both at law and in equity arising from the beginning 
of time to the date of these presents and as more particularly related to or 
arriving from:  Imperial Homes, Inc. 
a Wyoming Corporation against Steven R. Woods a Wyoming resident.  Hereby as set forth herein this 
document.  Furthermore releasing 
said Judgment more know as stated in the motions, actions filed in the Laramie 
Co. District Court, more known as Doc. 156 No. 243 in it's [sic] entirety 
payment in full.

            
Default

            
This release shall be binding upon and inure to the benefit of the 
parties, their successors, assigns and personal representatives. 

3Wyo. Stat. Ann. § 17-16-741.  
Standing.

 

(a)  A shareholder may not 
commence or maintain a derivative proceeding unless the 
shareholder:

(i) 
Was a shareholder of the corporation at the time of the act or omission 
complained of, or became a shareholder through transfer by operation of law from 
one who was a shareholder at the time; and

(ii) Fairly and adequately represents the interests of the corporation in 
enforcing the right of the corporation.

 

4W.R.C.P. 23.1, "Derivative actions by shareholders," is similar to 
F.R.C.P. 23.1, and provides:

 

In 
a derivative action brought by one or more shareholders or members to enforce a 
right of a corporation or of an unincorporated association, the corporation or 
association having failed to enforce a right which may properly be asserted by 
it, the complaint shall be verified and shall allege that the plaintiff was a 
shareholder or member at the time of the transaction of which the plaintiff 
complains or that the plaintiff's share or membership thereafter devolved on the 
plaintiff by operation of law. The complaint shall allege with particularity the 
efforts, if any, made by the plaintiff to obtain the action the plaintiff 
desires from the directors or comparable authority and, if necessary, from the 
shareholders or members, and the reasons for the plaintiff's failure to obtain 
the action or for not making the effort. The derivative action may not be 
maintained if it appears that the plaintiff does not fairly and adequately 
represent the interests of the shareholders or members similarly situated in 
enforcing the right of the corporation or association. The action shall not be 
dismissed or compromised without the approval of the court, and notice of the 
proposed dismissal or compromise shall be given to shareholders or members in 
such manner as the court directs.

 

5Repealed in 2003.  2003 Wyo. 
Sess. Laws ch. 124, § 3.