Court Opinion

ID: 9561732
Source: CourtListenerOpinion
Date Created: 2023-08-21 18:14:53.871006+00
Date Added: 2024-06-11T09:14:19.369058
License: Public Domain

Steffen, J.,
with whom Mowbray, J., agrees,
dissenting:
I respectfully dissent. In this appeal the Leavitts contend, among other things, that since the Konings were at all pertinent times officers and directors of Aspen Inn Corporation (Aspen), their conduct constituted a breach of their fiduciary duties to *90Aspen and the lower court erred in not so finding. This Court has repeatedly held that reversal of a lower court’s decision is appropriate where there is no substantial conflict in the evidence on any material point and the decision is manifestly contrary to the evidence. Avery v. Gilliam, 97 Nev. 181, 625 P.2d 1166 (1981). My review of the record revealed error warranting reversal.
At all relevant times, Conrad and Amy Koning were the sole officers, directors and shareholders of Leisure Sports Incorporation (Leisure). The State of Utah leased land to Leisure to develop a ski resort. Leisure subleased parcels of the land to third persons. Services at the ski resort are provided by Mt. Holly Ski Corporation (Mt. Holly). The Konings organized and were officers, directors and majority shareholders of Mt. Holly.
On July 5, 1972, the Konings and Jack and Dorothy Leavitt organized Aspen for the purpose of building a hotel at the ski resort. The Leavitts and Konings were each fifty percent shareholders. All four were directors. The officers were: Conrad Koning, President; Amy Koning, Vice-President; Jack Leavitt, Vice-President; and Dorothy Leavitt, Treasurer. As part of the capital contribution to Aspen, the Konings, through Leisure, contributed a forty-six-year sublease on one of the lots at the resort. The sublease was fully prepaid and was contributed to Aspen free and clear.
Aspen then obtained a $105,000 construction loan from United Mortgage Company (United), and built a twenty-one-room hotel on the lot. This loan was secured by a first trust deed on the hotel in favor of United. The hotel was completed in the summer of 1973.
In November, 1975, Aspen sold the hotel to Paul and Alma Sprague for $230,000. The Spragues agreed to assume the unpaid balance of the construction loan. A promissory note for $112,829.92 (the Sprague note) was also executed in favor of Aspen, secured by a second trust deed on the hotel. The sublease on the hotel land was assigned by Aspen to the Spragues. The assignment additionally provided that the Spragues would pay Leisure $300.00 per year as an annual lease fee on the hotel lot. The assignment also gave Aspen the right to cure any default under the sublease. The Spragues subsequently defaulted on their obligations to United, Aspen and Leisure.
In a letter dated March 19, 1976, addressed to Jack Leavitt, Conrad Koning called for discussion of Leisure’s intention to terminate the sublease on the hotel lot for nonpayment of the $300.00 annual fee owed by the Spragues. At a directors’ meeting shortly thereafter, Mr. Koning announced his intention to terminate the sublease and take over the hotel on behalf of Leisure if the $300.00 was not paid. Jack Leavitt informed Koning that his *91willingness to destroy their mutual investments in Aspen to protect Leisure on a mere $300.00 debt evidenced a conflict of interest.
The Leavitts did not cure the nonpayment of the $300.00 lease fee on behalf of Aspen because “it wasn’t their obligation to pay for it” and, faced with the overwhelming financial burden involved in preventing a foreclosure by United, “payment of the $300.00 would have been money down the drain.”1 In late March, 1976, the Spragues abandoned the hotel.
On July 26, 1976, the Konings entered the hotel, changed the locks and posted a sign on the door declaring the hotel to be the sole property of Leisure. On August 3, 1976, the Konings filed a “Statement of Facts and Notice of Cancellation of Leasehold” with the Beaver County Recorder in Beaver, Utah, stating that the underlying subleasehold interest was thereby cancelled and that the property, appurtenances and improvements were the sole property of Leisure.2 The single reason for seizure of the hotel was nonpayment of the $300.00 debt owed to Leisure.
In a letter dated November 10, 1976, addressed to the Leavitts, Mr. Koning wrote:
As you know, Leisure Sports Inc. has canceled the underlying leasehold interest on the Aspen Inn for nonpayment of the annual lease, and taken possession of the property and is now paying it’s [sic] cost of operation and maintenance.
. . . The Aspen Inn Corporation’s security interest in the property are [sic] just as surely gone as if the hotel while in the hands of Sprague, being uninsured had burned down.
On February 18, 1977, Leisure transferred the hotel and leasehold to Mt. Holly in return for stock.
In October, 1977, the Konings received notice that United had elected to sell the hotel pursuant to its rights under its first trust deed. A trustee’s sale was noticed for October 27, 1977, on the steps of the Beaver County courthouse. Two days before the trustee’s sale, the Konings filed a “Notice of Beneficial Interest” with the Beaver County Recorder informing any potential bidders that they would not be acquiring any interest in the property whatsoever. This warning was repeated by Conrad Koning on the Beaver County courthouse steps immediately preceding the trustee’s sale.
*92United purchased the hotel at the trustee’s sale for $25,000. The Konings refused to honor the trustee’s deed for the hotel and would not surrender possession of the hotel. United then filed an action to quiet title, to obtain possession and to recover a deficiency judgment. The Konings, Mt. Holly, Leisure, Paul Sprague and the Leavitts were named as defendants. The Utah action eventually was settled by the parties and dismissed with prejudice.
Subsequently, a shareholders’ derivative action was brought on behalf of Aspen by the Leavitts against the Konings, Leisure and Mt. Holly. The Leavitts also sued for damages suffered individually. The trial court found that the Konings acted in good faith and did not breach any fiduciary duty owed to Aspen. Whether the Konings were acting on behalf of Leisure, Mt. Holly, or individually, I disagree with the lower court’s decision.
It is well established that corporate officers and directors have a fiduciary relationship with their corporation. Among those duties which officers and directors owe their corporation are undivided loyalty, good faith, honesty and full disclosure. Western Indus., Inc. v. General Ins. Co., 91 Nev. 222, 533 P.2d 473 (1975); Nicholson v. Evans, 642 P.2d 727 (Utah 1982).
These duties extend to all the corporation’s assets. Officers and directors are “obligated to use their ingenuity, influence, and energy, and to employ all the resources of the corporation, to preserve and enhance the property and earning power of the corporation, even if the interests of the corporation are in conflict with their own personal interests.” Nicholson, 642 P.2d at 730.
Moreover, as Justice Oakes stated in Nicholson:
The duty of the directors of a corporation is to further the interests and business of the association and to conserve its property. Any action on the part of directors looking to the impairment of corporate rights, the sacrifice of corporate interests, the retardation of the objects of the corporation, and more especially the destruction of the corporation itself, will be regarded as a flagrant breach of trust on the part of the directors engaged therein [citation omitted].

Id.

In the present case, it is the Konings’ conduct with respect to the major asset of Aspen, the hotel, which gives rise to a breach of their fiduciary duty. The Konings allege that Leisure’s termination of the sublease was consistent with its express terms and therefore no fiduciary duty was breached. Nevertheless, the relevant inquiry is not whether Leisure acted properly, but whether the Konings acted improperly as directors and officers of Aspen. An officer may be subject to liability when his acts or omissions *93constitute a breach under the general principles applicable to the performance of his trust. Bancroft-Whitney v. Glen, 411 P.2d 921, 936 (Cal. 1966).
Assuming Leisure had a legally enforceable claim upon the hotel’s title as a result of the nonpayment of the $300 debt, good faith required Leisure, and necessarily the Konings, being officers and directors of both Leisure and Aspen, to take the hotel subject to the existing security interests of United and Aspen. The record discloses, of course, that the Konings had actual notice of both security interests. However, the Konings, through Leisure, recorded a document that gave notice to all persons that “the underlying subleasehold interest in Lot 16C is hereby cancelled . . . and the leasehold property, appurtenances and improvements are the sole property of the Lessor, LSI [Leisure], ...” Moreover, Mr. Koning wrote the Leavitts, informing them that Aspen had no security interest in the hotel. Finally, after transferring the hotel to Mt. Holly in exchange for stock, Mr. Koning, as president of Mt. Holly, recorded a document warning any bidders that they would be acquiring no interest in the property whatsoever and repeated this warning at the trustee’s sale on the Beaver County courthouse steps.
While Aspen’s treasurer, Dorothy Leavitt, did not pay the annual lease for reasons specified in the statement of facts, supra, Mr. Koning, president of Aspen, made no effort himself to pay the $300 allegedly owed to Leisure although he had authority to write checks on the corporation’s account.3 Despite the fact that the Konings were officers and directors of Leisure and Mt. Holly, they were likewise officers and directors of Aspen and therefore bound by fiduciary duties to the latter corporation. Compliance with such duties is critical when the corporation is in financial difficulty, as was Aspen. See Nicholson, supra, 642 P.2d at 730. As corporate fiduciaries, the Konings were charged with the responsibility of protecting Aspen’s interests. The Konings’ conduct surrounding the hotel’s seizure and its subsequent sale was performed in a manner hostile to Aspen’s interest and brazenly inconsistent with the undivided loyalty to which Aspen was entitled.
*94Moreover, where a foreclosure sale of property securing a debt has been tainted with fraud, misconduct or unfairness, the debtor will have either a complete defense to an action to collect the debt, or a setoff against the debt for impairment of security. 59 C J.S. Mortgage § 599 (1949). It would thus appear that Aspen’s claim against the Spragues on the underlying debt may be vulnerable to the challenge that the debt was discharged when Aspen’s president breached his fiduciary duty and impaired the security for the debt at the trustee’s sale.
As a result of the Konings’ conduct, it is difficult to determine what amount the trustee might have secured beyond the balance due on United’s priority debt if the sale had been free of burdens attributable to the Konings’ actions. Concerning the question of ascertaining imprecise damages, this Court held in Bader v. Cerri, 96 Nev. 352, 609 P.2d 314 (1980), that:
The rule against the recovery of uncertain damages generally is directed against uncertainty as to the existence or cause of damage rather than to measure or extent [citations omitted]. However, if there is evidence that damage resulted from the defendant’s wrongful act and a reasonable method for ascertaining the extent of damage is offered through testimony, the fact that some uncertainty exists as to the actual amount of damage sustained, does not preclude recovery. Brown v. Lindsay, 68 Nev. 196, 228 P.2d 262 (1951). It is sufficient if the evidence adduced will permit the jury to make a fair and reasonable approximation.
In addition, the United States Supreme Court in Story Parchment Co. v. Patterson Parchment Paper Co., 282 U.S. 555 (1931), held that:
[t]he wrongdoer is not entitled to complain that they [damages] cannot be measured with the exactness and precision that would be possible if the case, which he alone is responsible for making, were otherwise [citation omitted]. As the Supreme Court of Michigan has forcefully declared, the risk of uncertainty should be thrown upon the wrongdoer instead of upon the injured party.
Given the great discrepancy between the fair market value of the hotel property, being approximately $230,000, and the bid price of $25,000, it can be said with reasonable certainty that damage did occur. Koning willfully sabotaged the trustee’s sale and should therefore bear the risk of any uncertainty in the amount of damages.
I am therefore satisfied that judgment should have been entered against the Konings for one-half the balance of the Sprague nóte, *95plus costs and interest.4 Moreover, to insure that the Konings could not profit from their wrongdoing, they should not be allowed to share in or enjoy any portion of such a judgment. In my view, judgment should therefore be entered in favor of Jack and Dorothy Leavitt individually. See Pearlman v. Feldman, 219 F.2d 173 (2d Cir. 1955); Atkinson v. Marquart, 541 P.2d 556 (Ariz. 1975). In addition to the amount of one-half of the Sprague note, the Leavitts and Aspen were forced to incur attorney’s fees for having to defend themselves in the Utah action because of the Konings’ and Leisure’s wrongful refusal to honor the trustee’s sale deed. These damages may be precisely established and should likewise be recovered. Accordingly, I would direct that judgment be entered against the Konings reflecting such an amount.
As a final point, since in my view the Konings should be obligated to pay one-half of the note secured by the second trust deed, it would follow that the Konings, upon making such payment, would succeed to Aspen’s position vis-a-vis the Spragues. Then, if the Spragues were determined to be liable for any portion of the Sprague note, despite the Konings’ conduct, the Konings necessarily would be entitled to that sum.
Since my review of the record reveals unwarranted overreaching amounting to a clear breach of fiduciary duty by the Konings, I would reverse the judgment of the trial court as noted above. I therefore respectfully dissent from the opinion of my brethren in the majority.

 The record indicates Aspen had only $532.27 in its account at that time.

 Under Utah Code. Ann. § 57-3-2 (1953), a presumption arises that a recorded writing affecting real estate gives notice to all persons of its contents.

 The sublease was initially conveyed to Aspen fully prepaid in exchange for Aspen stock. It is unclear on the record why the $300 annual fee established in the assignment of the sublease to the Spragues should not have inured to the benefit of Aspen. It is also unclear why any default in the payment of such an annual fee by the Spragues would operate as a default against Aspen since the latter party presumably had paid full consideration for the fully prepaid sublease. There was clearly no obligation under the terms of the sublease for Aspen to pay Leisure the $300 annual fee which apparently was remitted each year to the State of Utah.

 Since the Leavitts owned fifty percent of the Aspen stock, their share of the recovery on the Sprague indebtedness would have been one-half of the balance collected on the note.