99 Wn. App. 533, BUTKO v. STEWART TITLE CO.[No. 23208-1-II. Division Two. January 21, 2000.]
ANNE I. BUTKO, ET AL., Appellants, v. THE STEWART TITLE COMPANY OF WASHINGTON, INC., Respondent.
[1] Appeal - Decisions reviewable - Standing - Aggrieved
Party - What Constitutes. To be an "aggrieved party" with standing to seek review under RAP 3.1, a party's proprietary, pecuniary, or personal rights must be substantially affected by the trial court's ruling.
[2] Judgment - Collateral Estoppel - Purposes. The purposes of the doctrine of collateral estoppel are to promote the policy of ending disputes, to promote judicial economy, and to prevent harassment of and inconvenience to litigants.
[3] Judgment - Collateral Estoppel - Elements - In General.
The doctrine of collateral estoppel bars relitigation of an issue decided in a prior action if: (1) the issue decided in the prior action is identical to the one presented in the second action; (2) the prior action ended in a final judgment on the merits; (3) the estopped party was a party or was in privity with a party to the prior action;
and (4) an injustice will not result.
[4] Judgment - Collateral Estoppel - Elements - Prior Determination - Final Judgment - Arbitration Award - In General. Collateral estoppel can be based on an arbitration proceeding that produces a final judgment on the merits.
[5] Estoppel - Elements - In General. The elements of equitable estoppel are: (1) an act, statement, or admission by the estopped party that is inconsistent with a claim it asserted later; (2) another's action in reasonable reliance on such act, statement, or admission; and (3) injury to the relying party if the court allows the estopped party to contradict or repudiate its prior act, statement, or admission. Estoppel is not favored, and the asserting party must prove the elements by clear, cogent, and convincing evidence.
[6] Judgment - Summary Judgment - Review - Role of Appellate Court. On appeal from a summary judgment, an appellate court engages in the same inquiry as the trial court and determines whether there are no genuine issues of material fact and whether the moving party is entitled to a judgment as a matter of law, considering the facts and the reasonable inferences from the facts in the light most favorable to the nonmoving party.
[7] Escrow - Escrow Agents - Fiduciary Duty - Scope. An
escrow holder is an agent who has a fiduciary relationship with all parties to the escrow. The holder must act strictly in accordance with the escrow agreement's provisions, strictly comply with the
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parties' instructions, exercise ordinary skill and diligence, and act with scrupulous honesty, skill, and diligence.
[8] Escrow - Escrow Agents - Fiduciary Duty - Third Party Beneficiaries. An escrow agent's fiduciary duty to a third party beneficiary of the escrow agreement is limited to informing such a beneficiary of the escrow's termination.
[9] Escrow - Escrow Agents - Fiduciary Duty - Disclosure of
Fraud. An escrow agent that has reasonable cause to believe a party to the transaction has committed fraud against another party has a fiduciary duty to inform the parties. If a party notifies the agent of the potential fraud, the agent owes a duty to the notifying party to advise other uninformed parties.
[10] Conversion - Elements - In General. Conversion is the willful interference with any chattel without lawful justification, depriving any person entitled to that chattel of its possession.
[11] Conversion - Elements - Property Interest - Intangible Personal Property - Corporate Stock. The tort of conversion encompasses a claim for damages arising from a defendant's willful acts that reduce the value of the plaintiffs shares of corporate stock.
[12] Conversion - Aiding and Abetting - Elements. A party is liable for aiding and abetting a conversion if it had knowledge of the conversion, assisted in it, and benefited from it, in whole or in part.
Nature of Action: Shareholders in corporations that held title to real property sought damages from an escrow agent involved in the closing of a loan in a real estate transaction involving corporate property. The shareholders alleged that the agent engaged in breach of contract, fraud, conspiracy, intentional interference with a business expectancy, breach of fiduciary duties, negligence, and conversion.
Superior Court: The Superior Court for Pierce County, No. 96-2-10456-1, M. Karlynn Haberly, J., entered a summary judgment in favor of the defendant on March 16, 1998.
Court of Appeals: The court holds that the plaintiffs had standing to appeal even though they were not parties to the escrow, that the action was not barred under the doctrines of collateral estoppel or equitable estoppel, and that there are genuine issues of material fact, precluding
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summary judgment, as to whether the defendant breached a fiduciary duty by failing to disclose the alleged fraud of one of the parties to the transaction and knowingly participating in the conversion of the plaintiffs' assets by helping that party convert the value of the plaintiffs' shares of stock. The court reverses the summary judgment on the breach of fiduciary duty and conversion claims and remands the case for trial.
Guy William Beckett, for appellants.
Richard Edward Keefe, Peter Scott Ehrlichman, and Camden Michael Hall of Foster Pepper & Shefelman, P.L.L.C. for respondent.
SEINFELD, J.-Anne Butko and her son, Richard Butko, sued escrow agent Stewart Title Company of Washington, Inc. over the 1993 closing of a loan and real estate transaction. They alleged that Stewart Title engaged in breach of contract, fraud, conspiracy, intentional interference with a business expectancy, breach of fiduciary duties, negligence, and conversion. The trial court dismissed the matter on summary judgment. Finding genuine issues of material fact only as to Richard Butko's breach of fiduciary duty claim and Anne Butko's conversion claim, we affirm in part and reverse in part.
FACTS
In the 1980s, Anne Butko, Richard Butko, attorney G. Patrick Healy, and Patrick Healy's brother, Michael Healy, formed about two dozen corporations and partnerships,
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each pertaining to a particular property. The following background information is necessary to understand the dispute between these former partners and Stewart Title Company of Washington, Inc. (Stewart Title).
A. BUTKO-HEALY CORPORATIONS/PROPERTIES
1. Creekridge Glen, Inc.
Anne Butko, Patrick Healy, and Michael Healy were coequal shareholders in Creekridge Glen, Inc. In July 1990, Anne Butko and the Healys, acting as co-equal shareholders in Creekridge Glen and in another corporation, Heaiko, purchased 722 acres located in Pierce County (Creekridge Glen property).
In October 1992, over Anne Butko's objection, Patrick Healy conveyed the Creekridge Glen property to C.G., Inc., a new corporation jointly owned by the Healy brothers.1 In January 1993, C.G., Inc. filed for bankruptcy and listed Anne Butko as codebtor. In August 1993, Patrick Healy pledged the Creekridge Glen property to secure the Shulman loan, described below.
2. Parkview Point, Inc.
Anne Butko and the Healy brothers also were co-equal shareholders and directors of Parkview Point, Inc. Ten Parkview Point subdivision lots had been pledged as additional security for the loans (the Centrum and Maori loans discussed below) used to finance the purchase of the Creekridge Glen property. Sometime later, Anne Butko and Patrick Healy conveyed the Parkview Point property from one of their partnerships, Healy Palisades, to Parkview Point.
1 In a separate action, Anne Butko sued Patrick and Michael Healy over Creekridge Glen and several other issues. Pierce County. No. 93-2-125017. The matter went to arbitration pursuant to partnership agreements. The arbitrator ruled that the transfer of assets from Creekridge Glen to C.G. was "fraudulent and without legal authority." The arbitrator also authorized Anne Butko to "institute all reasonable actions that may be available to her to recover" the Creekridge Glen property, and restrained Patrick Healy "from further transferring any assets that have been dealt with in this decision or encumbering them in any way, except as required by this decision."
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In 1993, Patrick Healy conveyed nine of the Parkview Point lots pledged as security for the Centrum and Macri loans to the assignees of those notes, and pledged another five lots as security for the Shulman loan.2 Anne Butko claims she did not authorize those transactions.
3. Madrona, Inc.
Richard Butko and Patrick Healy were co-equal shareholders and directors in Madrona, Inc., which held title to property in Pierce County (Madrona property). In October 1992, Patrick Healy acquired Richard Butko's interest in Madrona over Richard Butko's objection. In 1993, Patrick Healy pledged 71 Madrona lots as security for the Shulman loan.3
B. THE 1990 CENTRUM AND MACRI LOANS
To finance the purchase of the Creekridge Glen property, Anne Butko and the Healys signed promissory notes for two loans: one in favor of Centrum Financial Services (Centrum note), and one in favor of Macri Investments (Macri note). As security for these two loans, they each pledged their personal residences and other properties.4 They defaulted on the Centrum and Macri notes in February
2 Patrick Healy's actions in regard to Parkview Point were part of the arbitration discussed in footnote 1 There, the arbitrator noted that the Parkview Point actions were "not officially authorized by the directors" But the arbitrator also found Anne Butko's evidence insufficient to show that Patrick Healy had breached his fiduciary duties She had failed to prove that Patrick Healy was not acting to "pay legitimate bills" and to protect Anne Butko's interests in the various other "entities and projects" The arbitrator also found that Anne Butko had ratified Patrick Healy's actions by accepting a distribution of five Parkview Point lots and later selling one of them
3 Richard Butko sued Patrick Healy in a separate action, Butko v Madrona, Inc , Pierce County No 93-2-11968-8 Regarding Madrona, Inc , the trial court found Patrick Healy's ouster of Richard Butko to be illegal The trial court also found Patrick Healy's actions in regard to two other Butko-Healy corporations to be illegal Butko v Madrona, Inc., pending on appeal in this court, has been stayed pending entry of final judgment No 20200-0-II
4 The record indicates that Richard Butko was not a party to these 1990 transactions.
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1991, interest began accruing at 36 percent, and the lenders initiated various foreclosure actions.
C. THE 1993 TRANSACTIONS
1. Shulman Loan
After Patrick Healy put C. G., Inc. into Chapter 11 bankruptcy proceedings, Centrum moved to lift the Chapter 11 stay or, in the alternative, dismiss the case. Meanwhile, Patrick Healy sought a loan from equity financier Alex Shulman, trustee of Alaska Distributors Company 1990 Restated Profit Sharing Plan and Trust, to pay off the Centrum and Marci notes.
Shulman agreed to loan $1.7 million to C.G., Inc. and Madrona, Inc. The Creekridge Glen property, 71 lots of the Madrona property, five Parkview Point lots, and other property located in King County served as security for the new loan.
2. Parkview Point Conveyance
Contemporaneously with the Shulman loan negotiations, Patrick Healy negotiated with Raymond Davis, in-house counsel for Stewart Holding Company (Stewart Holding), who was attempting to collect on the Centrum note on behalf of assignee Stewart Guaranty, and with Peter Murphy, president of Jackpot Investments, Inc., assignee of the Macri note.5 Stewart Title Guaranty (Stewart Guaranty) and Pacific Northwest Realty Holding Company (another Stewart entity, and parent company of Jackpot),6 eventually agreed to satisfy the notes for $1.158 million in cash and deeds to nine of the Parkview Point lots pledged as security for the 1990 loans.
D. THE 1993 CLOSING
The parties retained Stewart Title to close the Shulman loan and the Parkview Point conveyance simultaneously.
5 Murphy was also director and chairman of Stewart Title. In 1997, Stewart Title changed its name to Pacific Northwest Title Company of Washington, Inc.
6 Jackpot dissolved itself at some point after the 1993 closing.
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1. Communications Related to Closing
a. Stewart Guaranty
On June 25, 1993, Stewart Holding in-house counsel Davis faxed a letter to Stewart Guaranty counsel Ed Sato listing Stewart Holding's conditions for satisfying the Centrum and Macri notes (Sato letter). One of these conditions was a corporate resolution containing Anne Butko's signature authorizing the conveyances. In what he described as "an excess of caution," Davis "wanted Anne Butko to confirm this deed in lieu of foreclosure." Davis also discussed these requirements with Murphy.
b. Stewart Title
On June 25, 1993, Stewart Title sent Patrick Healy its request for a corporate resolution containing Anne Butko's authorization of the Parkview Point conveyance. Stewart Guaranty's conditions, as outlined in the Sato letter and discussed between Davis and Murphy, formed the basis of this request.
Patrick Healy then sent Stewart Title a Parkview Point corporate resolution authorizing conveyance of the lots to the Centrum and Macri assignees. But the resolution contained Patrick Healy's signature only. When the closing officer saw the resolution, she wrote: "This seems awfully self-serving to me!" on her copy of the document.
Unsure whether the Parkview Point resolution was adequate to close the transaction, the closing officer sought guidance from her supervisors (either Peter Murphy or the supervising closing officer). But when First American Title Insurance Company (FATCO) indicated it was willing to issue title insurance without first obtaining Anne Butko's signatures, Stewart Title decided it could also forego her signature.
c. Healy-Butko
On July 22, 1993, Richard Butko wrote the Healy brothers a letter in which he acknowledged Patrick Healy's request that he and his mother execute "various documents, agreements, consents to action" and that Anne
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Butko agree to additional encumbrances and promissory notes aimed at settling debts with Centrum, Macri, and others. Richard Butko requested detailed information regarding "the new financing which [Patrick Healy had] proposed."
On July 26, 1993, Patrick Healy sent a letter to Richard Butko's attorney containing a general discussion of Crestview Glen and Parkview Point in conjunction with the refinancing and a request that Richard Butko return the "Consent to Action" regarding Parkview Point. The letter did not mention Shulman or the upcoming closing.
2. Title Insurance
Patrick Healy told Davis that he could obtain title insurance from FATCO without having to obtain Anne Butko's signature. He said that he was working on behalf of Anne Butko and she did not want to become involved any further in the transaction.7
FATCO's Pierce County manager/counsel Paul Hammann agreed to insure the transaction based in part on his perception that "Patrick Healy was running the show." Davis also approved of Healy's plan, and FATCO issued a commitment to issue title insurance.
3. Escrow Instructions
Shulman issued a set of escrow instructions that included disbursements to the assignees of the Centrum and Macri notes but contained no specific instructions as to the Parkview Point conveyances. The instructions noted merely that the "Stewart Title Guaranty Company lien . . . has been reconveyed or will be reconveyed simultaneously with the closing of this Loan." Neither the Shulman instructions nor the Sato letter lists Parkview Point or Anne Butko as parties to the transaction.
7 Anne Butko testified that Patrick Healy "took care of" or "controlled" "everything." Richard Butko testified that he and his mother relied on Patrick Healy to refinance the Centrum and Macri notes; neither he nor his mother made any attempts to obtain refinancing.
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4. The Closing and the C.G., Inc. Bankruptcy Estate
Patrick Healy filed the Shulman closing instructions and other documents pertaining to the Shulman loan in the C.G., Inc. Chapter 11 bankruptcy court file. Sato also filed a pleading in the bankruptcy case referencing the pending closing. But although Anne Butko was listed as a codebtor in the bankruptcy and had filed at least one pleading in the bankruptcy case, she did not receive a copy of the Shulman loan documents or Sato's pleading.
5. The Butko Letter
Closing commenced on August 18, 1993, when Shulman delivered a check to Stewart Title. Richard Butko claims he first learned of the closing on August 19. Then, late in the afternoon of August 19, counsel for the Butkos faxed a letter to Stewart Title (Butko letter) in which the Butkos asserted equitable ownership interests in the relevant properties and the corporations holding title to those properties.
Anne and Richard Butko claimed in the letter that (1) they had no advance knowledge of the closing and did not approve of it, (2) Healy lacked legal authority to carry out the transaction, and (3) the transaction was void therefor. They asked Stewart Title to interplead any funds not yet disbursed.
After reading the Butko letter, Murphy allowed the closing to proceed. He stated: "In my view, the transaction was already closed. In my view, a closing is recording and receipt of recording numbers of the major documents in a transaction."
Stewart Title did not contact either Anne or Richard Butko about the letter. Murphy testified that he did not consider them to be parties to the escrow and, thus, he had no obligation to contact them. Further, Murphy claimed he was not aware that Anne Butko was a Parkview Point director until he received the Butko letter. Nor did Stewart Title contact Patrick Healy or Shulman about the Butko letter. It finally forwarded a copy to FATCO on August 24, 1993.
On August 20, 1993, Stewart Title disbursed loan
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proceeds to Stewart Guaranty and Pacific Northwest Realty Holding Company. Disbursements for delinquent charges, taxes, fees, and service charges continued for approximately another three weeks.
As a result of the Shulman loan, the Macri and Centrum notes were paid off and the deed of trust on Anne Butko's house was extinguished.8
E. THE BUTKO v. STEWART TITLE SUIT
On August 16, 1996, Anne and Richard Butko, individually and on behalf of Creek-view Glen, Inc., Parkview Point, Inc., and Madrona, Inc., filed suit against Stewart Title and more than two dozen other individuals and entities connected with the 1993 transactions.9 Pierce County No. 962-10456-1. Regarding Stewart Title, the Butkos alleged breach of contract, fraud, conspiracy, intentional interference with their business expectancies, negligence, and conversion.
Among many prayers for relief, the Butkos asked the court to void the Shulman transaction and to convey the Creekridge Glen, Parkview Point, and Madrona properties back to them. In the alternative, they asked the court to award damages for the value of the Parkview Point lots.
In February 1998, the trial court granted summary judgment to the various Stewart entities, including Stewart Title. On March 16, 1998, the trial court entered an order dismissing the Butko claims with prejudice.
8 The bankruptcy court also dismissed the C.G., Inc. Chapter 11 proceeding. Later, the Healy Brothers
C.G., Inc./Madrona defaulted on the Shulman loan.
9 Among others, the Butkos sued Patrick and Michael Healy, Shulman, FATCO, and a host of Stewart entities including Stewart Title. The trial court consolidated the Butko suit with a contractor's lien foreclosure action brought against Anne and Richard Butko, the Healy brothers, Shulman and more than two dozen other parties. Pierce County No. 95-2-03123-0. Shulman joined as a third party plaintiff and sued the Healy brothers. Stewart Escrow filed a counterlclaim alleging that Anne and Richard Butko and their attorney engaged in a civil conspiracy.
In 1997, the trial court granted summary judgment in favor of Shulman. In its memorandum opinion, the court found that the conveyance from Creekridge Glen to C.G., Inc. was fraudulent. But the trial court reasoned that Shulman had no actual or constructive knowledge of the fraud.
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Also on March 16, 1998, the trial court entered a stipulated order based upon a March 10, 1998 settlement agreement between the Butkos and defendants Shulman, FATCO, and Takisaki (another lender). The order dismissed with prejudice all Butko claims against those parties, including all Stewart entities, except Stewart Title, against whom the Butkos specifically reserved their claims.
The Butkos appeal the trial court's order of summary judgment in favor of Stewart Title.
DISCUSSION
A. PROCEDURAL ISSUES
1. Standing
Stewart Title argues that the Butkos have no standing to appeal because they were not parties to the escrow.
[1] "Only an aggrieved party may seek review by the appellate court." RAP 3.1; see In re Estate of Wood, 88 Wn. App. 973, 976, 947 P2d 782 (1997) (citing RAP 3.1). "An aggrieved party is someone whose proprietary, pecuniary, or personal rights are substantially affected." Wood, 88 Wn. App. at 976 (citing In re Guardianship of Lasky, 54 Wn. App. 841, 848, 776 P.2d 695 (1989)). The appealing party must have a substantial interest in the subject matter before the trial court and is "aggrieved or prejudiced by the judgement or order of the court." State ex rel. Simeon v. Superior Court, 20 Wn.2d 88, 90, 145 R2d 1017 (1944).
a. Anne Butko's standing
Anne Butko had an interest in two properties subject to this controversy, Creekridge Glen and Parkview Point, but she briefs only the Parkview Point matter.10 Consequently, we limit our review to assignments of error as they pertain
10 Further, Creekridge Glen was not a party to the closing Anne Butko merely suggests, without full briefing, that she was a party to the closing as to Creekridge Glen because the transfer of the Creekridge Glen property from Creekridge Glen, Inc to C. G., Inc was done illegally Without thorough briefing, we are not able to consider this contention RAP 10 3(a)(5), Cowiche Canyon Conservancy v Bosley, 118 Wn.2d 801, 809, 828 P2d 549 (1992)
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to Parkview Point. RAP 10.3(a)(5); Cowiche Canyon Conservancy v. Bosley, 118 Wn.2d 801, 809, 828 R2d 549 (1992);
Smith v. King, 106 Wn.2d 443, 451, 722 R2d 796 (1986).
It is undisputed that Anne was a co-equal shareholder and director of Parkview Point at the time of closing. And Parkview Point, as title owner of the Parkview Point property, had a financial stake in the transaction. Thus, Anne, as owner of the corporation, also had a substantial pecuniary interest in the escrow insofar as it related to Parkview Point. Consequently, Anne Butko meets the definition of a "party" under RAP 3.1.
She also is "aggrieved" in a "legal sense." Simeon, 20 Wn.2d at 90. She produced evidence of the value of the nine lots conveyed to the Centrum and Macri assignees. Her loss of the value attributable to these lots may reasonably constitute damages that the trial court's summary judgment order caused her to forego. Thus, Anne Butko has standing to appeal the trial court's ruling as it applies to Parkview Point. RAP 3.1.
b. Richard Butko's Standing
Richard Butko's only direct connection to this dispute is his alleged ownership interest in Madrona; he had no ownership interest in Parkview Point. Contrary to Stewart Title's assertion, Madrona was a party to the Shulman loan.11
Richard Butko was a co-equal shareholder/director of Madrona until Patrick Healy expelled him. But as stated in footnote 3, a trial court has found his ouster to be illegal and that judgment is pending on appeal. Assuming the judgment is sustained on appeal, Richard Butko's interest in Madrona is similar to that of his mother's in Parkview Point. Thus, we consider his arguments on appeal with regard to Madrona. RAP 3.1.
2. Collateral Estoppel Stewart Title, citing Hanson v. City of Snohonzish, 121
11 Shulman's escrow instructions list Madrona, Inc. as a party.
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Wn.2d 552, 560-62, 852 E2d 295 (1993), argues that Anne Butko is collaterally estopped from challenging the Parkview Point conveyances because of the earlier arbitration on the matter. We disagree.
[2] "The doctrine of collateral estoppel prevents relitigation of an issue after the party estopped has had a full and fair opportunity to present its case." Hanson, 121 Wn.2d at 561 (citing Malland v. Department of Retirement Sys., 103 Wn.2d 484, 489, 694 P2d 16 (1985); Beagles v. Seattle-First Nat'l Bank, 25 Wn. App. 925, 929, 610 P2d 962 (1980)). "The purpose of the doctrine is to promote the policy of ending disputes, to promote judicial economy and to prevent harassment of and inconvenience to litigants." Hanson, 121 Wn.2d at 561 (citing Malland, 103 Wn.2d at 489; Beagles, 25 Wn. App. at 929).
[3] The elements of collateral estoppel are:
(1) the issue decided in the prior adjudication must be identical with the one presented in the second; (2) the prior adjudication must have ended in a final judgment on the merits; (3) the party against whom the plea is asserted was a party or in privity with a party to the prior adjudication; and (4) application of the doctrine must not work an injustice.
Barr v. Day, 124 Wn.2d 318, 325, 879 R2d 912 (1994) (quoting Hanson, 121 Wn.2d at 562).
[4] The party claiming collateral estoppel has the burden of proving all four elements. Neff v. Allstate Ins. Co., 70 Wn. App. 796, 799, 855 P2d 1223 (1993). Because it is a form of adjudication, arbitration can form a basis for collateral estoppel. Neff, 70 Wn. App. at 799-800; Dunlap v. Wild, 22 Wn. App. 583, 586-87, 591 P2d 834 (1979).
Here, the arbitration produced a final judgment on the merits; the arbitrator found, and the trial court affirmed, that Anne Butko had not proved Healy had breached his fiduciary duties to her in his handling of the Parkview Point lots. See Dunlap, 22 Wn. App. at 591 (finding arbitrator's decision to be final judgment on the merits). And Anne
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Butko was a party to both the arbitration and the action on appeal here. Barr, 124 Wn.2d at 325; Dunlap, 22 Wn. App. at 591.
But while the issue decided in arbitration is superficially similar to the issue in dispute here, breach of fiduciary duty, the two claims are not identical. Barr, 124 Wn.2d at 325; cf. Dunlap, 22 Wn. App. at 590-91 (finding collateral estoppel applicable when arbitrator's finding of misrepresentation identical to issue in subsequent trial). In the arbitration, Anne Butko alleged that Patrick Healy had breached his fiduciary duties as her attorney, financial advisor, business partner, and corporate officer. Here, she raises a distinct issue: whether Stewart Title breached its fiduciary duties as escrow agent.12 See Barr, 124 Wn.2d at 325.
Moreover, we cannot tell from the record whether the trial court ever considered the transfer of the Parkview Point lots as part of the Shulman closing. "We cannot assume the [trial] court adjudicated anything that is not comprehended in the judgment." Southwestern Sur. Ins. Co. v. Pacific Coast Cas. Co., 92 Wash. 654, 658, 159 P. 788 (1916).
Because Stewart Escrow has failed to show that the claims here are identical to the claims resolved in arbitration, its claim of collateral estoppel fails. See Barr, 124 Wn.2d at 325.
3. Equitable Estoppel
Stewart Title also claims that the doctrine of equitable estoppel bars the Butko claims. Again, we disagree.
[5] A party alleging equitable estoppel must prove: "(I) an admission, statement, or act inconsistent with a claim afterward asserted; (2) action by another in reasonable reliance on that act, statement, or admission; and (3) injury to the party who relied if the court allows the first party to
12 To support its claim of collateral estoppel, Stewart Title urges this court to compare Anne Butko's complaint against Patrick Healy, with her first amended complaint against Stewart Title We have done so and find that her complaint against Patrick Healy omits any reference to the Parkview Point conveyance
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contradict or repudiate the prior act, statement, or admission." Berschauer/Phillips Constr. Co. v. Seattle Sch. Dist. No. 1, 124 Wn.2d 816, 831, 881 E2d 986 (1994), review denied, 135 Wn.2d 1010 (1998). Because the courts do not favor estoppel, "a party asserting estoppel must prove each of its elements by clear, cogent and convincing evidence." Berschauer/Phillips, 124 Wn.2d at 831 (citing Colonial Imports, Inc. v. Carlton Northwest, Inc., 121 Wn.2d 726, 734, 853 E2d 913 (1993)).
Here, Stewart Title claims that the Butkos are equitably estopped from recovering because (1) they settled their claims against the other defendants; (2) they waited too long to sue Stewart title; (3) they knew about the 1993 transaction well before the date of closing; and (4) they vested Patrick Healy with authority to conduct the transaction on his own.
With regard to the settlement agreement, Stewart Title cites no authorities holding that a settlement agreement bars a plaintiff from pursuing related claims against a nonsettling defendant. Further, the Butkos specifically reserved their claims for monetary damages against Stewart Title. See RCW 4.22.060(2) (plaintiff may reserve claims against a nonsettling defendant).
Nor does the timing of the Butkos' lawsuit, filed within a few days of the three-year limit imposed by RCW 4.16.080, support Stewart Title's argument. Further, the record does not support the assertion that the Butkos had advance knowledge of the details of Patrick Healy's proposed refinancing deal. Although Patrick Healy filed the closing documents with the bankruptcy court handling the C.G., Inc. Chapter 11 case, nothing in the record indicates that the Butkos either received copies or had knowledge of those documents before the date of closing.
With regard to Patrick Healy's authority, the record shows that the Butkos did give him authority to obtain financing. But it does not show that they gave him authority to convey or encumber specific corporate assets without equally specific authority.
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Moreover, Stewart Title continued with the closing after it had received the Butko letter alleging Patrick Healy's lack of corporate authority.13 In that connection, Murphy played dual and potentially conflicting roles as escrow agent and party to the closing. Because these facts are sufficient to raise an issue as to Stewart Title's good faith, Stewart Title cannot prevail on summary judgment on an equitable estoppel defense. See Kramarevcky v. Department of Soc. & Health Serv., 122 Wn.2d 738, 743 n.1, 863 E2d 535 (1993);
Mutual of Enumclaw Ins. Co. v. Cox, 110 Wn.2d 643, 650, 757 E2d 499 (1988) (noting that "clean hands" doctrine requires that party asserting equitable estoppel must be free from fault in the transaction at issue).
B. BREACH OF FIDUCIARY DUTIES
The Butkos allege that Stewart Title breached its fiduciary duties by failing to inform them of the closing and by not suspending the closing upon Anne Butko's demand. We find Stewart Title owed no fiduciary duty to Anne Butko but that Richard Butko has raised genuine issues of material fact indicating a possible breach of fiduciary duty to him and Madrona.
[6] When reviewing a grant of summary judgment, the appellate court engages in the same inquiry as the trial court. Bishop v. Miche, 137 Wn.2d 518, 523, 973 E2d 465 (1999). Summary judgment is proper where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Bishop, 137 Wn.2d at 523; Taggart v. State, 118 Wn.2d 195, 198-99, 822 E2d 243 (1992). The court considers the facts and reasonable inferences from the facts in the light most favorable to the nonmoving party. Bishop, 137 Wn.2d at 523; Taggert, 118
13 Stewart Title claims the closing had been completed by the time it had received the letter We reject that argument An escrow does not terminate until the parties have satisfied all conditions of the escrow instructions III WASH STATE BAR ASS'N, WASHINGTON REAL PROPERTY DESK BOOK, ESCROWS/CLOSINGS, 42 2(5) (3d ed 1996) Here, the escrow issued disbursements until approximately three weeks after the date of the Butko letter Thus, the escrow had not yet terminated
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Wn.2d at 199. The appellate court reviews questions of law de novo Bishop, 137 Wn.2d at 523.
[7] An escrow holder is an agent who occupies a fiduciary relationship with all parties to the escrow. National Bank v. Equity Investors, 81 Wn.2d 886, 909-10, 506 E2d 20 (1973). An escrow holder's fiduciary duties are set forth in the escrow instructions. Equity Investors, 81 Wn.2d at 910.
As a general rule, the escrow holder must act strictly in accordance with the provisions of the escrow agreement; he must comply strictly with the instructions of the parties, and it is his duty to exercise ordinary skill and diligence, and due or reasonable care in his employment. In his fiduciary capacity, he must conduct the affairs with which he is entrusted with scrupulous honesty, skill, and diligence.
Equity Investors, 81 Wn.2d at 910 (quoting 30A C.J.S. Escrows 8 (1965)).
[8] An escrow holder's fiduciary duty will extend to a third party beneficiary for the limited purpose of informing such a beneficiary of the termination of the escrow. Gray v. England, 69 Wn.2d 52, 58, 417 E2d 357 (1966).
Here, nothing indicates that Anne Butko or Parkview Point were parties to the escrow. Even the Sato letter does not refer to her or Parkview Point as parties. Thus, notwithstanding Anne Butko's and Parkview Point's peripheral significance, they were not principals to whom Stewart Title owed a fiduciary duty.
Nor has Anne Butko set forth facts indicating that Stewart Title owed her a duty as a third party beneficiary. Although an escrow holder may owe a duty to third parties in limited circumstances, Anne Butko has not alleged facts indicating that her relationship with Stewart Title falls within any of those circumstances. See Gray, 69 Wn.2d at 58 (holding that escrow agent owed fiduciary duty to third party beneficiary to inform it of the termination of the escrow); Mur-Ray Management Corp. v. Founders Title Co., 169 Ariz. 417, 819 E2d 1003, 1009 (1991) (holding that
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escrow company owed duty of reasonable care when making representations to third parties). Further, assuming she was such a beneficiary, Stewart Title's duty would be limited to informing her of the termination of the escrow. Gray, 69 Wn.2d at 58.
The Butkos contend that when Stewart Title received the Butko letter, it had a fiduciary duty to stop the proceedings. As authority, they provide the following quote from
THOMPSON ON REAL PROPERTY:
If the [escrow] agent clearly knows of a fraud on a party to the escrow being committed by the other party in the escrow, the agent's fiduciary obligations would preclude him from proceeding with the escrow without disclosure to the defrauded principal. When the agent proceeds to perform the escrow with knowledge of the fraud he in effect is a participant in the fraud, and he is liable to the defrauded party if he does not disclose the fraud.
11 DAVID A. THOMAS, THOMPSON ON REAL PROPERTY 94.06(e), at 349-50 (1994).
In response, Stewart Title notes that no Washington case resolves the tension between the basic principle that (a) escrow agents have a limited duty to carry out their escrow instructions and are free from liability if they do so and (b) an exception for cases of fraud that the Arizona Supreme Court adopted. See Berry v. McLeod, 124 Ariz. 346, 604 E2d 610, 616 (1979).
In Berry, the plaintiff did not allege that the escrow company actively participated in fraud, instead, the plaintiff contended that the escrow company shut its eyes to a party's fraudulent acts. 604 E2d at 616. While recognizing that an escrow agent has no duty to disclose information unless required to do so by the escrow agreement, the Berry court held that an escrow agent has a duty to disclose "when the escrow agent knows that a fraud is being committed on a party to an escrow and the failure of the escrow agent to disclose the information of the fraud will assist in accomplishing the fraud." 604 E2d at 616; see also
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American State Bank v. Adkins, 458 N.W2d 807, 810 (S.D. 1990) (following Berry). As the Berry court further reasoned: "We agree that an escrow agent has no duty to look for fraud, but, if knowledge comes to the escrow agent that there is a fraud, there is a duty to disclose such information to the parties to the escrow." 604 R2d at 616.
The Berry rule also does not require that the escrow agent have actual knowledge of the commission of a fraud;
an agent may not "close its eyes in the face of known facts and console itself with the thought that no one has yet confessed fraud." Burkons v. Ticor Title Ins. Co., 168 Ariz. 345, 813 E2d 710, 718 (1991). "Although not required to investigate, when the agent is aware of facts and circumstances that a reasonable escrow agent would perceive 'as evidence of fraud,' there is a duty to disclose." Burkons, 813 E2d at 718 (quoting Note, Escrowee's Duty to Disclose Fraud: An Expansion of the Limited Agency Doctrine, 22 ARIZ. L. REV. 1146, 1153 (1980)).
Berry and its progeny are consistent with the policies underlying Washington escrow law. Although the escrow instructions reflect the intent of the parties with regard to the transaction and provide a roadmap for the escrow agent, an allegation that an escrow document was fraudulently procured may call into question the legal validity of the subject transaction. The fraudulently procured document may be inoperative to pass title, causing the escrow to be ineffective. See Angell v. Ingram, 35 Wn.2d 582, 587, 213 E2d 944, 15 A.L.R.2D 865 (1950); Hecomovich v. Nielsen, 10 Wn. App. 563, 569, 518 E2d 1081 (1974).
[9] It is the parties' goal to have an effective escrow proceeding, and the escrow agent should not be allowed to close its eyes to information that could interfere with this goal. By notifying the parties of the alleged fraud, the agent allows the parties to review the allegation and issue revised instructions to the escrow agent if necessary. Thus, we hold that an escrow agent has a fiduciary duty to inform the parties to the transaction if it has reasonable cause to believe a party has perpetrated a fraud against another
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party to the transaction. Burkons, 813 E2d at 718; Berry, 604 P2d at 616; American State Bank, 458 N.W2d at 810.
Applying this rule to the facts here, Stewart Title had reasonable cause to believe that Patrick Healy might have perpetrated a fraud on another party. Madrona was a principal to the transaction and the Butko letter clearly claimed that Richard Butko's ouster from Madrona was illegal, the pledging of Madrona property was unauthorized and, thus, the Shulman transaction was voidable.
Under the Berry rule, Shulman, apparently an uninformed party, clearly would have had a cause of action against Stewart Title for its nondisclosure. But the Butko claim goes a step farther; it requires us to decide if an escrow agent owes a duty to the notifying party (Richard Butko) to advise other uninformed parties of a potential fraud. In other words, does Richard Butko have a cause of action against Stewart Title for its failure to advise Shulman of the contents of the Butko letter.14
We believe the principles supporting the Berry rule support this extension of the rule. Here, Stewart Title, as escrow agent, was in a better position to advise the parties of the potential fraud. Thus, we conclude that Richard Butko has a cause of action assuming he can show that Stewart Title's failure to notify Shulman was the proximate cause of Richard Butko's damages.
Thus, upon receipt of the Butko letter, Stewart Escrow had a fiduciary duty to advise all parties about the allegations. Burkons, 813 E2d at 718; Berry, 604 E2d at 616;
American State Bank, 458 N.W2d at 810. With this information, the affected parties could have made further inquires, assessed whether the escrow instructions still reflected their intent, and possibly provided revised instructions to Stewart Title.
14 Butko provides no authority and we are aware of none that support the argument that Stewart Title had a duty to stop the escrow. If such a duty existed, it likely would conflict with the escrow agent's fiduciary duty to act strictly in accordance with the provisions of the escrow agreement Equity Investors, 81 Wn.2d at 910
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Further, there is an issue of material fact as to whether Stewart Title breached this duty when it proceeded with the closing without informing any other parties to the transaction. Stewart Title's inaction was particularly troublesome in light of the fact that its director, Murphy, also was the president of a party, Jackpot, that stood to benefit from the transaction. See Collins v. Heitman, 225 Ark. 666, 284 S.W.2d 628, 633 (1955) (escrow agent "cannot place himself in a situation where personal interests conflict with the duties owed his principal"); In re Discipline of Two Attorneys, 421 Mass. 619, 660 N.E.2d 1093, 1098 (1996) ("Surely, self-dealing by an escrow holder, such as an escrow holder's unauthorized collection from escrowed funds of a debt owed by a party to the escrow agreement, would be a breach of duty."); American State Bank, 458 N.W.2d at 811 (noting that escrow agent should avoid self-dealing that places his interests in conflict with obligation to party to escrow); Trevino v. Brookhill Capital Resources, Inc., 782 S.W.2d 279, 281 (Tex. Ct. App. 1989) (same reasoning quoted with approval in American State Bank). Consequently, the trial court erred in summarily dismissing Richard Butko's claim of breach of fiduciary duty15
C. CONVERSION
The Butkos also allege that Stewart Title knowingly participated in the conversion of their assets by helping Patrick Healy convert the value of their shares in Parkview Point and Madrona. Stewart Title responds that the tort of conversion relates only to personal property, not to real
15 Anne Butko, citing former RCW 18.44.070 (1990), claims that Stewart Title breached its fiduciary duty by distributing Shulman loan proceeds too early Stewart Title issued about $17,000 in distributions on the same day it received Shulman's personal check for more than a million dollars According to Anne Butko, Stewart Title could not make those distributions until the next business day Former RCW 18.44.070 But former RCW 18.44.070(3) allowed same day distribution if the previously deposited check was payable in Washington and drawn on a bank located in Washington Here, Shulman drew his check on Alaska Distributor's Seafirst Bank account in Seattle Consequently, this argument is unpersuasive
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property. It also contends that there is no evidence that it engaged in an unauthorized interference with the Butkos' property or property interests.
Although the assets of Parkview Point and Madrona largely consisted of the Parkview Point and Madrona real property, the Butkos claim damages for the diminished share value of their interests in Parkview Point and Madrona. The expanding law of conversion does encompass some claims involving rights in intangible personal property
"Conversion is a widespread, diffuse, pervasive, yet elusive, tort." 7 STUART M. SPEISER ET AL., THE AMERICAN LAW OF TORTS 24:1, at 697 (1990). "Highly technical in its rules and complications, perhaps more so than any other except defamation, it almost defies definition." W. PAGE KEETON ET AL., PROSSER AND KEETON ON THE LAW OF TORTS 15, at 88 (5th ed. 1984).
"Conversion originated as a device for resolving property disputes" descended primarily from the old common law action of trover. Russell A. Hakes, A Quest For Justice In The Conversion Of Security Interests, 82 KY. L.J. 837, 862 (1993-94); see also KEETON, supra, at 89; Val D. Ricks, Comment, The Conversion of Intangible Property: Bursting The Ancient Trover Bottle With New Wine, BYU L. REV. 1681, 1683 (1991). Trover applied traditionally to situations where a defendant found and then kept or disposed of the lost chattel of the plaintiff.16 KEETON, supra, at 89; Ricks, supra, at 1683.
[10] A common thread running through the "plethora" of definitions of conversion set forth by various American jurisdictions is "a wrongful taking, detention, or interference with, or an illegal assumption of ownership or possession, or illegal use or misuse, of the personal property of another." SPEISER, supra, at 699-700. Washington courts
16 Because a tangible chattel could be lost and found, such a chattel could be converted KEETON, supra, at 90. "Land, on the other hand, was obviously incapable of getting lost, and therefore trover would not lie for the dispossession or withholding of real property" KEETON, supra, at 90
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have been consistent with this general definition, describing conversion as the willful interference with any chattel without lawful justification whereby any person entitled to that chattel is deprived of the possession of it. Kruger v. Horton, 106 Wn.2d 738, 743, 725 E2d 417 (1986); Public Util. Dist. No. 1 v. Washington Pub. Power Supply Sys., 104 Wn.2d 353, 378, 705 E2d 1195, 713 E2d 1109 (1985); Judkins v. Sadler-Mac Neil, 61 Wn.2d 1, 3, 376 E2d 837 (1962).17 The plaintiff's remedy in a conversion action is to receive from the defendant the full value of the converted property. RESTATEMENT (SECOND) OF TORTS, 222A(1) (1965).
Over time, the tort of conversion has evolved to encompass documents that represent intangible rights, such as stock certificates. RESTATEMENT, supra, 242(1); KEETON, supra, at 91. And it later included conversion of some intangible rights related to important tangible objects, such as insurance policies. KEETON, supra, at 91. In its broadest application, the tort includes conversion of rights themselves, such as shareholder ownership rights, where there has been no accompanying conversion of a document. RESTATEMENT, supra, 242(2); KEETON, supra, at 91.
[11] The essence of conversion "'is that the property rights of the plaintiff have been dealt with in a manner adverse to him, inconsistent with his right of dominion and to his harm.'" Falker v. Sampen, 190 Conn. 412, 461 A.2d 681, 685 (1983) (quoting VanDerlip v. VanDerlip, 149 Conn. 285, 179 A.2d 619, 621 (1962)). "One who effectively prevents the exercise of intangible rights of the kind customarily merged in a document is subject to a liability similar to that for conversion, even though the document is not itself converted." RESTATEMENT, supra, 242(2); Quincy Cablesy stems, Inc. v. Sully's Bar, Inc., 650 F. Supp. 838, 848 (D. Mass. 1986) (holding that bar's unauthorized use of satellite video feed constituted conversion of cable system's
17 The RESTATEMENT (SECOND) OF TORTS states "Conversion is an intentional exercise of dominion or control over a chattel which so seriously interferes with the right of another to control it that the actor may justly be required to pay the other the full value of the chattel." Section 222A(1) (1965)
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ownership rights in transmissions); Charter Hosp. of Mobile, Inc. v. Weinberg, 558 So. 2d 909, 912-13 (Ala. 1990) (finding that hospital's unauthorized use of treatment protocol developed by former employee could constitute a conversion); Mears u. Crocker First Nat'l Bank, 84 Cal. App. 2d 637, 191 P.2d 501, 505 (1948) (holding that corporation's refusal to convert a shareholder's stock certificates into smaller blocks of shares to facilitate sale on stock exchange constituted conversion of owner's "unhampered right to dispose of property without limitations imposed by strangers to the title"); Prewitt v. Branham, 643 S.W.2d 122, 123 (Tex. 1982) (noting that lessee's rights under lease are personal property, thus conversion of the lease in which the right had been merged supports a conversion action for the value of the right represented by it). In light of the foregoing authorities, we hold that a cause of action for conversion will lie to recover damages arising from a defendant's willful acts that reduced the value of the plaintiff's shares of corporate stock.
Here, viewed in a light most favorable to the Butkos, the evidence is sufficient to raise an issue of material fact regarding Anne Butko's conversion claim. Her ownership of Parkview Point shares included a right to any proceeds derived from the liquidation of Parkview Point's assets- the Parkview Point Property. Evidence that Patrick Healy intentionally transferred approximately $400,000 worth of Parkview Point lots to the Centrum and Macri assignees without her approval supports a reasonable inference that her shares in Parkview Point lost value.
[12] Further, the record suggests that Stewart Title possibly had knowledge of a conversion, that it facilitated the conversion, and that it benefited therefrom in the form of escrow fees. Evans v. State Nat'l Bank, 24 F. 325, 332 (C.C. E.D. La. 1885); Banks v. Windham, 7 Ala. App. 616, 62 So. 297, 299 (1913); Hardie v. Peterson, 86 Mont. 150, 282 P.494, 498 (1929); Crowe v. Coursey, 601 S.W.2d 650, 655 (Mo. App. 1980); Talich v. Marvel, 115 Neb. 255, 212 N.W. 540, 542 (1927); Hooser v. G.M. Carlton Bros. & Co., 288
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S.W. 1095, 1097 (Tex. Civ. App. 1926); Davin v. Bowling, 146 Wash. 137, 138, 262 P. 123 (1927); 18 AM. JUR 2n, Conversion 70 (2d ed. 1985); 89 C.J.S. Trover & Conversion, 77 (1955). Consequently, the trial court erred in granting summary judgment on this claim. James F. O'Connell & Assoc. v. Transamerica Indem. Co., 61 Wn. App. 103, 111, 809 E2d 231 (1991); Brown v. Crescent Stores, Inc., 54 Wn. App. 861, 869, 776 E2d 705 (1989) (authorities on when a party aids and abets a conversion).
Richard Butko's ownership of shares in Madrona encompassed similar rights with regard to the Madrona Property. But the nature of the wrong is quite different; Patrick Healy took over Richard Butko's share of Madrona without Richard's agreement. Thus, there is a potential cause of action against Healy for his conversion of the actual corporate shares.
But to hold Stewart Title liable for conversion, there would have to be evidence that it had knowledge of the conversion; assisted in it; and benefited therefrom, in whole or part. Evans, 24 F. at 332; Banks, 62 So. at 299; Hardie, 282 E at 498; Crowe, 601 S.W2d at 655; Talich, 212 N.W. at 542; Hooser, 288 S.W. at 1097; 18 AM. JUR 2n, supra; 89 C.J.S., supra. There is no such evidence regarding Patrick Healy's ouster of Richard Butko from Madrona. And assuming Healy committed the tort, he did so well before Stewart Title received the Butko letter. Thus, because Richard Butko has not raised a genuine issue of material fact to support his conversion claim against Stewart Title, the trial court did not err in granting summary judgment.
Accordingly, we reverse the summary judgment dismissing Richard Butko's claim of breach of fiduciary duty with regard to Madrona and Anne Butko's claim of conversion with regard to Parkview Point and remand both matters for trial We affirm on all other issues.
A majority of the panel having determined that only the foregoing portion of this opinion will be printed in the Washington Appellate Reports and that the remainder shall be filed for public record pursuant to RCW 2.06.040, it is so ordered.
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BRIDGEWATER, C.J., and MORGAN, J., concur. Reconsideration denied March 8, 2000.