### FILED AUGUST 15,2013 In the Office ofthe Clerk ofCourt WA State CourtofAppeals, Division III

INTHE COURT OF APPEALS OF THE STATE OF WASHINGTON DIVISION THREE SENTINELC3, INC., a Washington ) No. 30553-8-111 Corporation, ) consolidated with 30592-9-111; ) 30837-5-111; 30881-2-111 Respondent, ) ) 

### v. ) PUBLISHED OPINION ) CHRIS J. HUNT, an individual andthe ) marital community, ifany, comprised of ) CHRIS l. HUNT and CARMEN HUNT; ) MICHAEL BLOOD, an individual and the ) marital community, ifany, comprised of ) MICHAEL BLOOD and JANAE ) BLOOD, ) ) Appellants. ) KORSMO, 

### C.l.

- Dissenting shareholders appeal from rulings at summary judgmentthatvalued their shares in accordance withthe corporation's offer and imposed penalties and attorney fees for intransigence. Wereverse and remand for further proceedings. FACTS SentinelC3 (Sentinel) is a closely held corporationthat facilitates transactions betweenhealth careproviders and medical equipment suppliers. Itbegan in 2003 as anNo. 30553-8-III consolidated with 30592-9-III; 30837-5-111; 30881-2-111 SentinelC3 v. Hunt
Idaho corporation, but became a Washington corporation in 2010. Its activities that year triggered the actions that resulted in this appeal. At that time, the biggest single shareholder in the corporation was Chris Hunt with 1,000,000 shares, approximately 22 percent ofthe corporation's 4,500,000 total shares. Four members ofthe Owens family owned 3,000,000 shares, while Michael Blood and Ken Moore each owned 250,000 shares (approximately 5.5 percent). Sentinel attempted .1 1 

## , to buyout

### Mr. Hunt that April. Its expert, James Kukull, using the corporation's value on 1 

### f December 31, 2009, valuedthe shares at $107,200 when usinga "minority,



# i 

# l J nonmarketable basis" or at $195,200 on a "control, marketable basis." 

### Mr. Kukull 

# i explained that a "control, marketable basis" valuation was the same as "fair value" under

'I the dissenters' rights statute. The company offeredthe lower value; Mr. Hunt declined to sell.
! On October 8, 2010, the company became a Washington corporation. Atthe same 

# i i time, it proposed a reverse stock split of 1.5 million to one; those with less than one new
, l 1 , share were required to sell their stock. The shareholders voted 5 to 2, with 

### Mr. Hunt and

2 

## j I 

# l iNo. 30553·8·111 consolidated with 30592-9-111; 30837·5-111; 30881·2·111 SentinelC3 v. Hunt

Mr. Blood1 dissenting, to adoptthe reverse stock split on October28, 2010. After forcing outthe two dissenters, the remaining shareholders instituted a forward stock split that issued them the same number ofshares ofthe new stock as they used to own. Sentinel paid Mr. Hunt $195,200.00plus interest in accordance with the greater valuation Mr. Kukull hadpreviously made andpaid Mr. Blood $48,956.60 plus interest. BothHunt and BloodbelievedMr. Kukull's valuation to be out ofdate. Each made counteroffers to Sentinel based on a valuation from an undisclosedprofessional, subsequently determinedto be C&H Group.2 Huntrevised his valuation upwards 20 percentbased onthe beliefthat a buy-out ofSentinel was imminent. Blood's valuation

was revised upwards based onhis view thatthere were only approximately 3,000,000 shares ofSentinel (ratherthan the original 4,500,000 shares) because ofan alleged agreement for the company to buy the stock ofsome ofthe other shareholders. Kukull expressed the viewthat because offalling earnings before taxes, Sentinel's value had not significantly changed since his original valuation despite an increase in sales.

1Although both the Blood and Hunt marital communities are parties to this action, we will referto them in the singular for convenience. 2Both men declinedto producethe documents supporting the new valuation on the basis that C&H was only a consulting expert. 3No. 30553-8-111 consolidated with 30592-9-111; 30837-5-111; 30881-2-111 SentinelC3 v. Hunt
Sentinel instituted an action January 31, 2011, in the Spokane County Superior Courtto establish the fair value ofthe dissenting shares in accordance with RCW 23B.13.300. Discovery ensued; Mr. Huntrequested that Sentinel provide business records, contracts, and marketingplans going back five years. Sentinel objected onthe basis thatthe records were irrelevantto the valuation process, but agreed to disclose ifa protective order could beworked out.3 Sentinel filed a proposedprotective order on August 5,2011, and filed a motion for summaryjudgmentfour days later. Thetrial court granted the protective order on September 7. A few weeks later Hunt disclosed Jerry Hecker as his expert witness and also filed an answerto the summaryjudgment motion. 4 Counsel for Mr. Hunt filed a declaration on October 18,2011, with Mr. Hecker's valuation report attached; Mr. Hecker, however, hadnot certified his report. Thetrial court heard the summaryjudgmentmotion on October 21. The court found that Hecker's valuation was not admissible through counsel's declaration and excluded it while notingthat it presented genuine issues offact that would have defeated summaryjudgment. Both Hunt and Blood had submitted their own affidavits that took

3 Sentinel indicated a fear that Mr. Hunt might use the information to compete with it.4 Bloodhas proceeded pro se while Hunthas been represented by counsel throughout the action. 4No. 30553-8-II1 consolidated with 30592-9-III; 30837-5-111; 30881-2-111 SentinelC3 v. Hunt
issue with some ofKukull's work and referenced their own original demands. The court granted summaryjudgment and later awarded Sentinel its attorney fees and costs under RCW 23B.13.310. The dissenters soughtreconsideration and Mr. Hunt submitted an admissible copy of

### Mr. Hecker's report. The court denied reconsideration, commenting only that there

was "not sufficient cause shown to alter" its decision. BothHunt and Blood timely appealed after the denial ofreconsideration. The court subsequently entered ajudgment in Sentinel's behalffor attorney fees and costs. Once again, the dissenters individually appealed to this court. The four matters were consolidated. ANALYSIS This appeal challenges the court's valuation ruling at summaryjudgment, the decisionto exclude Hecker's valuation, and the award ofattorney fees without appropriate findings. We agree with the challenges to the valuation and the attorney fee award; those two matters are discussed in that order. In light ofour disposition, we do not address the exclusion ofthe valuation.



### 5No.**30553~8~III** consolidated with**30592~9~III; 30837-5~III;**  30881-2-II1 SentinelC3 v. Hunt Summaryjudgmentrulings are reviewed de novo since an appellate court sits in the same position as the trial court. Hubbardv. Spokane County, 146 Wn.2d 699, 706­ 07,50 P.3d 602 (2002). Summaryjudgment is proper when, after viewing the evidence in a light most favorable to the opposingparty, there are no issues ofmaterial fact and the moving party is entitledtojudgmentas a matter oflaw. Trimble v. Wash. State Univ., 140 Wn.2d 88, 93, 993 P.2d 259 (2000). All facts and reasonable inferences are construed in the light most favorable to the nonmoving party. Id. Summaryjudgment should be granted ifreasonable persons could reach but one conclusion based on all of the evidence. Id. Valuation of Dissenters'Shares The parties strenuously debate the propriety ofresolving a dissenters' rights valuation case at summaryjudgment, with the appellants contending that the trial court's obligations under the valuation statute necessitate weighing ofevidence and preclude resolution at summaryjudgment. We need not go that far because we conclude that the appellants did establish material questions offact that precluded summaryjudgment.



### 6No. 30553-8-III consolidatedwith 30592-9-III; 30837-5-III; 30881-2-III SentinelC3 v. Hunt

In a dissenters' rights action, a corporation is required to petition a court to determine the "fairvalue ofthe shares and accrued interest." RCW 23B.13.300(1). "Fair value," intum, is defined as the value ofthe shares immediately before the effective date ofthe corporate action to which the dissenter objects, excluding any appreciation ordepreciation in anticipation ofthe corporate action unless exclusion would be inequitable. RCW 23B.l3.010(3). These standards are part ofthe current Washington Business Corporation Act, Title 23B RCW, adopted by LAWS OF 1989, ch. 165. Priorto the adoption ofthe current provisions, the former corporations act had required that the trial court "shall, by its decree, determine the value ofthe shares" held by the dissenters. 

### § 3803-41 Rem. Supp. 1949 (quoted inIn re Nw. GreyhoundLines, 41 Wn.2d 672,677,251 P.2d 607 (1952».5 Notingthatthe legislature had not developed a definition of"value," Greyhounddefined it as a word that contemplates a consideration ofall the facts and circumstancespertinent to a particular case in an effort to arrive at a fair and reasonable compromise or arbitration which may in some degree be lacking in mathematical exactness or certitude. 41 Wn.2d at 680. 5This provision subsequently was codified at former RCW 23.01.450(1) and former RCW 23A.24.040. 7No. 30553-8-II1 consolidated with 30592-9-III; 30837-5-111; 30881-2-111 SentinelC3 v. Hunt
The legislature in 1965 changed the statute to reflectthe need to give "fairvalue" rather than "value" to the minority shares. LAWS OF 1965, ch. 53 § 83 (repealing LAWS OF 1949, ch. 188). In adopting the current Business Corporation Act in 1989, the legislature notedthatthe term "fairvalue" "leaves untouched the accumulated case law." SENATE JOURNAL, 51st Leg., 2nd Spec. Sess., at 2977-3112 (Wash. 1989) (reprintingthe Comments on the Washington Business Corporation Act preparedby the Corporate Act Revision Committee ofthe Washington State BarAssociation, §13.01). Since "value" and "fairvalue" mean the same, ourcourts have continued to apply Greyhoundto the valuation ofdissenters' shares. E.g., Matthew 

### G. Norton Co. v. Smyth, 112 Wn. App. 865,874,51 PJd 159 (2002); Robblee v. Robblee, 68 Wn. App. 69, 77-78, 841 P.2d 1289 (1992). Atthe time ofGreyhound, the statutory scheme required the trial courtto appoint

an appraiserto value the stock. 41 Wn.2d at 676 (citing § 3803-41, Rem. Supp. 1949). The appraiser's valuation was not dispositive; the trial court was to reviewthe valuation de novo. 

### ld. at 683,685. Our current statute permits, but does not require, the courtto appoint one ormore appraisers to assist it. RCW 23B.13JOO(5). The court has "plenary and exclusive"jurisdictionoverthe case. 

### ld. The modem statute "retains the concept of 8 

# I I
f 

# INo. 30553-8-II1 consolidated with 30592-9-III; 30837-5-III; 30881-2-111 SentinelC3 v. Hunt judicial appraisal as the ultimate means ofdetermining fair value." SENATE JOURNAL, 51st Leg., 2nd Spec. Sess., at 3092-3093 (Wash. 1989) (reprinting the Comments on the Washington Business Corporation Actprepared by the Corporate Act Revision Committee ofthe Washington State BarAssociation, §13.30). We believe this statutory arrangement thus retains the obligation ofthe trialjudge to undertake a de novo review ofthe evidence and not uncritically acceptthe appraiser's report. In this respect the obligation is similarto that imposed in other areas. 

### E.g., Richey & 

### Gilbert Co. v. 

### Nw. Natural Gas Corp., 16 Wn.2d 631, 649-50,134 P.2d 444 (1943) ('" And, while great weight should always be given to the opinions ofthose familiar with the subject, they are notto be blindly received, but are to be intelligently examined by thejury in the light oftheir own general knowledge.'" (quoting

### Headv. 

### Hargrave, 105 U.S. 45, 49,26L. Ed. 1028 (1881)); 

### In re Marriage a/Pilant, 42 Wn. App. 173,178, 709 P.2d 1241 (1985) (courtrejected the testimony ofthe sole expert on a pension valuation issue: "A court is not required to acceptthe opiniontestimony of experts solely because oftheir special knowledge; rather, the court decides an issue upon its own fairjudgment, assisted by the testimony ofexperts."); 

### Suther v. 

### Suther, 28 Wn.



### 9No. 30553-8-II1 consolidated with 30592-9-III; 30837-5-III; 30881-2-III SentinelC3 v. Hunt App. 838, 627 P.2d 110 (1981) (court in dissolution proceedingproperly valued stock differently than experts). With this background, we now address the issues presented by the summary judgmentruling. First, the dissenters argue that in light ofthe court's obligation to find fair value, the court could neverresolve a dissenters' rights case at summaryjudgment because the court must weigh the testimony and determine whetherto accept the expert's valuation, actions that are contrary to the standards ofa summaryjudgmenthearing. As

a categorical matter, we reject the argument while acknowledging that it has some force. This court previously has permitted summaryjudgment onvaluation procedures in a dissenters' rights case. See Matthew G. Norton Co., 112 Wn. App. 865 (partial summary judgment). We can envision valuation fact patterns that would be subject to summary judgment. For instance, ifcompeting experts agreed onthe corporation's fair value, but

one ofthem improperly applied a discount that our courts have already rejected, we could

see a trialjudge accepting the agreed-upon valuation for the corporation sincethe fact of valuation was not in dispute. The trial court would also, however, have been free to reject the valuation altogether.

10No. 30553-8-II1 consolidated with 30592-9-III; 30837-5-III; 30881-2-III SentinelC3 v. Hunt Nonetheless, the trial court's duty to find fair value and not blindly acceptthe expert's opinion has some play in this summaryjudgment and informs the court on whether a material question offact exists. Mr. Blood's affidavit, his settlement demand, and interrogatory answers were all put before the court at summaryjudgment. In them, he explained that the experts he and Mr. Hunt had consulted had evaluatedthe company at $0.4267 cents per share. He then valued his stock at an even higher rate due to the beliefthatthe company had an agreement to buy nearly one-quarter ofits shares back from some ofthe other stockholders. Mr. Hunt similarly used the consulting expert's valuation as the basis for his request before increasing it due to the beliefthat a sale was in the offing. We believe these facts established a genuine issue ofmaterial fact that wentto the court's duty in this case to determine the fair value ofthe stock. The court was given a valuation of42 cents per share attributed to an expertthat conflicted with Kukuil's valuation of 19 cents per share. Although it constituted hearsay and was set forth without the reasoning supporting the valuation, this unchallenged evidence still suggested that Kukull's valuation was not the sole calculation before the court. The courthad a duty under the statuteto consider all ofthat information in making its determination offair 

### 11No. 30553-8-III consolidated with 30592-9-III; 30837-5-III; 30881-2-II1 SentinelC3 v. Hunt
value. Given the evidentiary support for Kukull's work, it was reasonable for the court to be persuaded by that valuation. Nonetheless, under these facts, that determination required the court to considerthe dissenters' evidence. While it was understandably rejected, the weighing ofthat evidence at summaryjudgmentwas improper and needed to be done at trial.6 The dissenters' valuations, even without the evidence from their trial expert Hecker, raised a question offact under the court's statutory duty in this area. The conflicting evidence did not allow the court to determine fair value at summaryjudgment. Accordingly, we reverse the summaryjudgmentorder and remand for further proceedings. AttorneyFees In light ofour reversal ofthe summaryjudgmentruling, the award ofattorney fees necessarily falls. The award also failed on its merits.

6 Theparties do not address, and we do not consider, whether moving the company from Idaho to Washington changed its tax burdens or other costs in a manner that would have impacted the valuation ofthe corporation. The change was effective priorto the reverse stock split and thus was a relevant consideration, although the record does not indicate ifthe change had any significance. 12No. 30553-8-III consolidated with 30592-9-III; 30837-5-III; 30881-2-III SentinelC3 v. Hunt
RCW 23B.13.310 governs the award ofcosts and attorney fees in these actions, which provides: (1) The court in a proceeding commenced under RCW 23B.13.300 shall determine all costs ofthe proceeding, includingthe reasonable compensation and expenses ofappraisers appointed by the court. The court shall assess the costs against the corporation, exceptthat the court may assess the costs against all or some ofthe dissenters, in amounts the court finds equitable, to the extentthe court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under RCW 23B.13.280. (2) The court may also assess the fees and expenses ofcounsel and experts for the respective parties, in amounts the court finds equitable: (a) Against the corporation and in favor ofany or all dissenters if the court finds the corporation did not substantially comply with the requirements ofRCW23B.13.200 through 23B.13.280; or (b) Against either the corporation or a dissenter, in favor ofany otherparty, ifthe court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by chapter 23B.13 RCW. (3) Ifthe court finds that the services ofcounsel for any dissenter were ofsubstantial benefitto other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out ofthe amounts awarded the dissenters who were benefited. Subsections (1) and (2) set forth the general principles at issue in this action. The corporation will normally bearthe costs, including those ofappraisal, unless the court finds that some ofthe dissenters acted "arbitrarily, vexatiously, or not in good faith" with respect to the payment demand. RCW 23B.13.310(1). The court can award attorney 13No. 30553-8-III consolidated with 30592-9-III; 30837-5-III; 30881-2-III SentinelC3 v. Hunt fees, as well as expert fees, againstthe corporation ifit does not substantially comply with the statute's dissenters' rights processes. RCW 23B.l3.310(2)(a). The court can
assess attorney and expert fees against any party that acts "arbitrarily, vexatiously, ornot in good faith" underthe statute. RCW 23B.13.310(2)(b). The amount ofthe award of attorney and expert fees mustbe "equitable." RCW 23B.l3.310(2). RCW 23B.13.31O appears directed toward intransigence and unreasonable behavior. The legislature expressed the intent ofthis provision: Proposed section 13.31 provides that generally the costs ofthe appraisal proceeding should be assessed againstthe corporation. Butthe court is authorizedto assess these costs, in whole or in part, againstthe dissenters ifit concludes they acted arbitrarily, vexatiously, ornot in good faith in making the Proposed section 13.28 demand for additional payment. Similarly, counsel fees may be charged against the corporation or against dissenters upon a finding ofa failure to comply in good faith with the requirements ofthis chapter. Individual dissenters, in turn, can be called upon to pay counsel fees for otherdissenters ifthe court finds that the services were ofsubstantial benefitto the other dissenters. Thepurpose ofthese grants ofdiscretion with respect to costs and counsel fees is to increase the incentives ofboth sides to proceed in good faith underthis chapterto attemptto resolve their disagreement withoutthe need ofa formaljudicial appraisal ofthe value ofshares. SENATE JOURNAL, 51st Leg., 2nd Spec. Sess., at 3093 (Wash. 1989) (reprintingthe Comments onthe Washington Business Corporation Actprepared by the CorporateAct Revision Committee ofthe Washington State BarAssociation, §13.31). 14No. 30553-8-III consolidated with 30592-9-III; 30837-5-III; 30881-2-III SentinelC3 v. Hunt

Ina pair ofopinions on the same case, the Washington Supreme Courtrecently dealt with the virtually identical fee provisions ofRCW 25.15.480 that govern limited liability companies. 7 It stated the standards ofreview in the first opinion: an award under the statute is not mandatory, but is discretionary with the trial court and is reviewed on appeal for abuse ofthat discretion. Humphrey Indus. v. Clay St. Assocs., 170 Wn.2d 495, 506-07,242 P.3d 846 (2010) (Humphrey I). In the second opinion, the court clarified its holding in the first case with respectto the behavior and standards governing fee awards
.. Asprovided in the statute, fees are available only ifa party acted "arbitrarily, vexatiously, and not in good faith." HumphreyIndus. 

### v. Clay St. Assocs., 176 Wn.2d 662, 670,295 P.3d 231 (2013) (Humphrey II). The court also clarified thatthe dissenters' actions ofdeclining the corporation's offer and submitting an excessive valuation did notviolate the statutory standard. Id. NeitherHumphrey I norHumphrey 

### II addresses the trial court's obligations in addressing a fee request. We believe that consistentwith the standards in other attorney fee award situations, the trial court is obligated to enter findings offact and conclusions

7 The events inthis case, including the appellate briefing, occurred betweenthe twoHumphrey opinions, so the trial court and theparties did not have the benefit of Humphrey 

### II. 15No. 30553-8-III consolidated with 30592-9-III; 30837-5-III; 30881-2-II1 SentinelC3 v. Hunt
oflaw that support its detennination that a party acted "arbitrarily, vexatiously, or not in good faith" under the statute. See generally, Mahler v. Szucs, 135 Wn.2d 398, 435, 957 P.2d 632 (1998) (requiring trial court to apply lodestar formula and enter written findings to facilitate review). The failure to enter appropriate findings will nonnally result in a remand. Id. Application ofthese principles to this case requires that we reverse the attorney fee award. The absence ofa record explaining the basis for the fee award at minimum would require a remand. Id. However, in light ofHumphrey II, nothing in the record of this case supports a detennination ofarbitrary, vexatious, orbad faith litigation. The dissenters did not accept Sentinel's valuation and, instead, soughttheir own which they then used as the basis for their counterproposals. Litigation ensued when Sentinel did not accept the counterproposals. The record does not suggest that either side instigated the litigation by behaving improperly, nor does it show that either side engaged in litigation conduct that would trigger fees under the statute. Sentinel argues that the failure to admit Hecker's report (or any expert opinion) at the summaryjudgment hearingjustifiedthe award. For two reasons, it did not. First, the failure to admit evidence is not the same as a failure to obtain a valuation. At worst, 16No. 30553·8-111 consolidated with 30592-9·111; 30837·5·111; 30881·2-111 SentinelC3 v. Hunt assuming some sort ofduty even existed, the failure to properly authenticate the report only hurt the dissenters and was negligence, not intransigence or arbitrary conduct.8 The dissenters had evidence to support their position and had made the evidence known to Sentinel, butthey simply did not present it in admissible fonn at the hearing. Second, even ifthe dissenters had behaved vexatiously atthe summaryjudgment hearing, such action would nothave retroactively made the entire proceedings arbitrary

or vexatious. An award offees to address vexatious behavior is proper under the statute. Nothing in the statute should beread, however, to shift the entire costs ofthe litigation to
onepartyjustbecause ofa late stumble in the proceedings. Instead, we read the statute
as attempting to discourage bad faith and arbitrary behavior by providing a remedy to the nonoffending party for all costs associated with the bad behavior. Properly and perfectly conductedpretrial litigation does not become vexatious merely because ofarbitrary conduct during the ensuingtrial. As noted in the legislative history, arbitrary or vexatious behavior that triggers litigation may properly shift the cost ofthe entire case because it causes the ensuing litigation. However, the remedy for later occurring

8 Itappears that theproblem arose in the rush to get the report completed and filed before the summaryjudgmenthearing. With the benefit ofhindsight, itwould have been betterto have continued the hearing, but the failure to do so was not arbitrary conduct that harmed Sentinel. 17No. 30553-8-II1 consolidated with 30592-9-III; 30837-5-III; 30881-2-III SentinelC3 v. Hunt improper behavior should only reach the consequences ofthe offending conduct; it does not address earlier proper conduct. For the reasons noted, the award ofattorney fees is reversed. Bothparties seek attorney fees for this appeal. We exercise our discretion underthe statute to decline their requests. Appellants, as prevailing parties, are entitledto solely their statutory costs and fees inthis action. RAP 14.1, et seq. Reversed and remanded.

# ~c~ > b Korsmo, C.J. WE CONCUR:

18