Court Opinion

ID: 4316223
Source: CourtListenerOpinion
Date Created: 2018-09-27 20:00:29.743045+00
Date Added: 2024-06-11T14:44:39.613815
License: Public Domain

NOT FOR PUBLICATION

                    UNITED STATES COURT OF APPEALS
                                                                              FILED
                           FOR THE NINTH CIRCUIT
                                                                              SEP 27 2018
                                                                          MOLLY C. DWYER, CLERK
                                                                            U.S. COURT OF APPEALS
RRW LEGACY MANAGEMENT                            Nos. 16-35648
GROUP, INC., a Washington Corporation;                16-35836
ANTOINETTE WALKER; CAMPBELL
INVESTMENT COMPANY, a                            D.C. No. 2:14-cv-00326-MJP
Washington Corporation,

              Plaintiffs-Appellees,              MEMORANDUM*

 v.

CAMPBELL WALKER, an individual,

              Defendant-Appellant.

CAMPBELL INVESTMENT                              No.   16-35649
COMPANY, a Washington corporation,
                                                 D.C. No. 2:14-cv-01544-MJP
              Plaintiff-Appellee,

 v.

CAMPBELL M. WALKER, a foreign
individual,

              Defendant-Appellant.

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
                    Appeal from the United States District Court
                      for the Western District of Washington
                    Marsha J. Pechman, District Judge, Presiding

                       Argued and Submitted August 27, 2018
                                Seattle, Washington

Before: HAWKINS, McKEOWN, and W. FLETCHER, Circuit Judges.

      In these two consolidated appeals, defendant Campbell M. Walker

(“Campbell”) appeals the district court’s order granting summary judgment in

favor of RRW Legacy Management Group (“RRW”) and Antoinette Walker; its

order granting partial summary judgment in favor of Campbell Investment

Company (“CIC”), as well as other rulings and findings as to damages; and its

award of attorney’s fees to CIC. We have jurisdiction pursuant to 28 U.S.C. §

1291, and we affirm the district court in all respects.

                                 1. The RRW Matter

      We review the district court’s summary judgment decision de novo.

Universal Health Servs. Inc. v. Thompson, 363 F.3d 1013, 1019 (9th Cir. 2004).

The district court did not err in finding that Campbell was properly removed from

his position as general partner of Argyll Limited Partnership. Campbell committed

“willful misconduct,” a listed “for cause” reason for removal under Section 7.1 of

the Argyll Limited Partnership Agreement (“Agreement”), by failing to keep the

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company records in Washington as required by the Agreement. Campbell contests

the definition of “willful misconduct” used by the district court, but the definition

used by the court does not materially differ from the one advanced by Campbell

himself. Compare 6 Wash. Prac., Wash. Pattern Jury Instr. Civ. WPI 14.01 (6th

ed.) (“Willful misconduct is the intentional doing of an act which one has a duty to

refrain from doing or the intentional failure to do an act which one has the duty to

do when he or she has actual knowledge of the peril that will be created and

intentionally fails to avert injury.”), with Adkisson v. Seattle, 258 P.2d 461, 466

(Wash. 1953) (“To constitute wilful misconduct, there must be actual knowledge,

or that which the law deems to be the equivalent of actual knowledge, of the peril

to be apprehended, coupled with a conscious failure to avert injury.” (citation and

quotation marks omitted)). Campbell’s conduct satisfies either definition. The

district court properly granted summary judgment on the basis that Campbell “did

things it was his duty to refrain from doing and failed to do things which duty

dictated that he do,” acted with “actual knowledge of the peril,” and failed to avert

injury.

      We review for an abuse of discretion the district court’s determination not to

apply laches. In re Beaty, 306 F.3d 914, 921 (9th Cir. 2002). Under Washington

law, a party asserting laches must show (1) “knowledge or reasonable opportunity

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to discover on the part of a potential plaintiff that he has a cause of action against a

defendant”; (2) “unreasonable delay by the plaintiff in commencing that cause of

action”; and (3) “damage to the defendant resulting from the unreasonable delay.”

Carrillo v. City of Ocean Shores, 94 P.3d 961, 970 (Wash. Ct. App. 2004) (citing

Lopp v. Peninsula Sch. Dist. No. 401, 585 P.2d 801, 804 (Wash. 1978)). Absent

“highly unusual circumstances,” laches is not applied before the statute of

limitations runs on the cause of action. Id. Washington’s Uniform Declaratory

Judgments Act does not have a statute of limitations, but Washington courts

require lawsuits under the Act to be brought within a reasonable time. Auto. United

Trades Org. v. State, 286 P.3d 377, 379 (Wash. 2012) (en banc).

      The district court did not abuse its discretion in rejecting Campbell’s laches

defense because RRW filed its first amended complaint in Washington state court

on February 26, 2014, slightly over a month after three of Campbell’s siblings

voted to remove him on January 21, 2014. Campbell argues that the district court

should have focused on the events underlying his removal rather than the date of

his removal and the plaintiff’s lawsuit. We disagree. Nothing in the Agreement

establishes a limitations period for the removal of a general partner. There is also

evidence in the record that plaintiffs were previously unaware of their right to

remove Campbell.

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                                  2. The CIC Matter

      The district court did not err in granting partial summary judgment to CIC as

to the payments made to Darshan League Limited (“Darshan”) on the ground that

Campbell breached his fiduciary duty to CIC when he authorized $3 million in

payments from CIC to Darshan, an entity owned by Campbell’s father and, later,

by Campbell upon his father’s death. We agree with the district court that the

payments were “a textbook example of a ‘conflicting interest transaction.’” See

Wash. Rev. Code § 23B.08.700(1)(a) (defining a “conflicting interest transaction”

as one where “the director knows at the time of commitment that the director or a

related person is a party to the transaction”). The safe harbors of Wash. Rev. Code

§ 23B.08.710(2)(a)–(c) do not apply because Campbell did not receive approval of

these transactions from a majority of disinterested directors or shareholders and did

not produce any evidence that the transactions were fair to CIC.

      The district court did not abuse its discretion in rejecting Campbell’s laches

and good faith defenses. A party asserting laches must demonstrate prejudice from

the plaintiffs’ delay. Carrillo, 94 P.3d at 970. Campbell argues that the plaintiffs’

delay deprived him of the opportunity to present testimony from his father as to the

reason or reasons for Campbell’s decisions, including that “the funds paid to

Darshan were to be used for the benefit of all of CIC’s shareholders” and “the

                                           5
intended tax benefits to CIC of making payments to Darshan.” But there is no good

faith defense to a conflicting interest transaction. Therefore, this testimony is not

legally relevant, and Campbell was not prejudiced from any delay in suit.

      Campbell argues that the district court erred in awarding damages for

breaches of fiduciary duty at the bench trial for which there was no preceding

determination of liability. We disagree. To the extent that the district court may

have mischaracterized the issues remaining for adjudication during the bench trial,

Campbell has not identified any practical consequence from the court’s purported

misstatements. The district court’s findings of fact contain all elements for a

conflicting interest transaction for each category of damages, and the court

permitted CIC and Campbell to present evidence for each transaction. Campbell

argues that the district court erred in denying his motion to exclude all evidence of

damages due to CIC’s failure to make initial disclosures as required by Fed. R.

Civ. P. 26(a)(1). We review decisions whether to impose discovery

sanctions—including decisions to exclude evidence under Fed. R. Civ. P.

37(c)(1)—for abuse of discretion. Yeti by Molly, Ltd. v. Deckers Outdoor Corp.,

259 F.3d 1101, 1105–06 (9th Cir. 2001). The district court did not abuse its

discretion in denying Campbell’s motion to exclude all evidence of damages.

CIC’s failure to make initial disclosures was both substantially justified and

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harmless. After consolidation, the parties jointly proposed an amended case

schedule, which the district court largely adopted, that did not include a deadline

for disclosures. Accordingly, neither CIC nor Campbell ever made any initial

disclosures, and Campbell did not raise the issue until shortly before trial. The

failure was also harmless because the district court limited CIC’s damages

testimony to damage categories claimed in its experts’ reports, and Campbell had

the opportunity to depose the experts regarding those reports.

      A district court’s decision to allow or exclude evidence based on the hearsay

rule is also reviewed for abuse of discretion. Calmat Co. v. U.S. Dep’t of Labor,

364 F.3d 1117, 1122 (9th Cir. 2004). The district court did not abuse its discretion

in admitting CIC’s “QuickBooks” reports over Campbell’s hearsay objection. The

“QuickBooks” reports are admissible under Fed. R. Evid. 1006.

      Campbell argues that the court erred in conducting a damages analysis that

was inconsistent with Interlake Porsche & Audi, Inc. v. Bucholz, 728 P.2d 597

(Wash. Ct. App. 1986). We disagree. Interlake held that “[t]he duty of

reimbursement is limited to those losses that were proximately caused by the

fiduciary’s misconduct,” and that, as a result, a court may not identify a

corporation’s expenditures over a given period of time and then shift the burden to

the fiduciary to prove that all expenses were legitimate. Id. at 605 (citation

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omitted). Interlake did not alter the background rules that “damages need not be

shown with mathematical certainty,” and that “evidence of damage is sufficient if it

affords a reasonable basis for estimating the loss and does not subject the trier of

fact to mere speculation or conjecture.” Id. at 603 (citations omitted). The district

court’s analysis is consistent with Interlake because the court awarded damages

where it found that plaintiffs met their burden to show losses, and reduced damages

where appropriate to account for totals that included legitimate business expenses.

      The district court did not err in awarding attorney’s fees to CIC. Washington

law permits courts to award attorney’s fees for breach of fiduciary duty where that

breach rises to the level of “constructive fraud.” See Hsu Ying Li v. Tang, 557 P.2d
342, 346 (Wash. 1976). The plain language of Tang shows that the court declined

to award attorney’s fees based on a common fund theory, but awarded fees,

instead, based on a constructive fraud theory. Id. at 345–46; Green v. McAllister,

14 P.3d 795, 803–04 (Wash. Ct. App. 2003). The district court did not err in

applying Tang.

      Washington courts define “constructive fraud” as “failure to perform an

obligation, not by an honest mistake, but by some ‘interested or sinister motive.’”

Green, 14 P.3d at 804 (quoting In re Estate of Marks, 957 P.2d 235, 241 (Wash.

                                           8
Ct. App. 1998)). The district court’s extensive findings of self-dealing provide

sufficient evidence of constructive fraud.

      AFFIRMED.

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