IT IS ORDERED, sua sponte:
1. Opinion No. 4111, published on August 19, 1994, is WITHDRAWN.
2. Opinion No. 4133, in which the second paragraph of note 8 at page 7 in Opinion No. 4111 is deleted, is issued on this date in its place.
Entered by direction of the Court at Anchorage, Alaska on October 7, 1994.
EASTAUGH, J., not participating.
Before MOORE, C.J., and RABINOWITZ, MATTHEWS and COMPTON, JJ.
I. FACTS AND PROCEEDINGS
Thomas A. Rosson, Jr., formed a solely owned corporation, Rosson & Company, Inc. (Rosson, Inc.) in 1983.
In 1986, attorney Robert S. Noreen (Noreen) filed a voluntary bankruptcy petition for Rosson, Inc. and for Thomas Rosson individually in the United States Bankruptcy Court for the District of Alaska. Willner's Fuel Distributors, Inc. (Willner's) was listed as one of the twenty largest unsecured creditors of Rosson, Inc.
On April 8, 1988, Thomas Rosson and Rosson, Inc. sued the Fairbanks North Star Borough, R & M Engineering Consultants, and Glacier State Telephone Company (collectively referred to as "Borough") for breach of contract and negligence, and additionally sued the Fairbanks North Star Borough individually for business interference. The alleged breaches arose out of conduct following the August 20, 1984 award of a road contract, apparently to Rosson, Inc. Noreen was the attorney of record for both Thomas Rosson and Rosson, Inc. in this action.
On May 9, 1988, Willner's filed suit against Thomas Rosson and Rosson, Inc. for $20,212.17. Noreen entered an appearance for Thomas Rosson individually, but did not enter an appearance for the corporation in the suit brought by Willner's. After filing its suit, Willner's learned that Rosson, Inc. had been involuntarily dissolved in 1985. On February 2, 1989, Willner's applied for default against Rosson, Inc.
At some time in March, the suit by Thomas Rosson and Rosson, Inc. against the Borough was settled for $100,000.00. Noreen explains that "Thomas Rosson settled the lawsuit against the Fairbanks North Star
The chronology of events on March 28, 1989 is disputed. On that date, Noreen and the attorney for Willner's signed and filed a stipulation that the lawsuit against Thomas Rosson individually would be dismissed without prejudice. According to Noreen, at sometime "in the morning" of March 28 Thomas Rosson accompanied Noreen to National Bank of Alaska (NBA), where Noreen deposited the settlement monies from the suit by Thomas Rosson and Rosson, Inc. against the Borough into his trust account. Noreen directed the NBA teller to transfer $80,000.00 from the trust account to Thomas Rosson, by cashier's check.
Also on March 28, a default judgment in the amount of $25,257.44 was entered against Rosson, Inc. in the suit by Willner's against Thomas Rosson and Rosson, Inc., because Rosson, Inc. had "failed to plead in or otherwise defend this action." Noreen states that he was presented with a levy on his trust account to satisfy this default judgment "in the afternoon of March 28, 1989." According to Noreen, the settlement proceeds had already been distributed "to his client Thomas Rosson individually and as sole corporate representative of Rosson Inc., pursuant to client demand" by this time. In a response to the levy, Noreen stated that he had no funds of Rosson, Inc. under his control.
On January 24, 1991, Willner's filed a complaint against Noreen and Thomas Rosson, alleging that Noreen had violated AS 09.40.040 in his response to the levy and had wrongfully disbursed the funds of an insolvent dissolved corporation. Willner's sought both the money award of Rosson, Inc.'s debt to Willner's and other damages. Willner's then filed a motion for summary judgment concerning Noreen's alleged violation of AS 09.40.040 based on his alleged false statements made in response to a court levy. Noreen filed a motion for judgment on the pleadings or, in the alternative, for summary judgment, contending inter alia that he owed Willner's no fiduciary duty. Noreen also moved for summary judgment regarding the AS 09.40.040 claim.
Thereafter, the superior court entered a memorandum decision and order denying the summary judgment motion by Willner's on the AS 09.40.040 claim and granting judgment to Noreen on this claim. Additionally, the superior court granted Noreen's summary judgment motion on the tort claims that Willner's raised. The superior court concluded that "[a]s a matter of law, Noreen did not violate any statutory or common law duty to Willner's."
The remaining claims of Willner's against Thomas Rosson were scheduled for a default judgment trial. Subsequently, the superior court issued an order stating that the judgment against Willner's on the claims against Noreen would not become effective until either the claims by Willner's against Thomas Rosson were resolved or until further order of the court.
A. The AS 09.40.040 Summary Judgment Motion
Alaska Statute 09.40.040 states in relevant part:
In his argument before the superior court, Noreen contended that Willner's had served the levy too late, since it was served some time after the banking transaction in question had occurred. The superior court agreed, finding that "the levy by Willner's was served on Mr. Noreen later in the day [after the NBA transactions]."
In its motion for summary judgment on the AS 09.40.040 claim,
We conclude that Noreen's assertion in his opposition to Willner's motion that the levy was served after he had returned from NBA, Chausse's statement that he served the levy at approximately 1:30 p.m., and Kimmell's statement implying that the transactions at NBA could have occurred after 5:00 p.m. on March 28, together raise genuine issues of material fact as to when Noreen authorized the issuance of the $80,000 cashier's check.
B. Noreen's Summary Judgment Motion as to the Breach of Fiduciary Duty Claims
Willner's contends that Noreen owed and breached a fiduciary duty to corporate
Thomas Rosson's liability to Willner's is not directly at issue in this appeal. Nonetheless, a determination whether Thomas Rosson owed a fiduciary duty to creditors bears on the existence of a similar duty on Noreen's part. Though it did not explain its reasons for holding Thomas Rosson liable under Alaska law to Willner's, the superior court properly could have proceeded under either of two theories.
First, under the "trust fund" theory, directors of an insolvent corporation may be personally liable to creditors for a breach of fiduciary duty resulting from an improper distribution of assets:
Bovay v. H.M. Byllesby & Co., 27 Del. Ch. 381, 38 A.2d 808, 813 (1944); see also Rosebud Corp. v. Boggio, 39 Colo. App. 84, 561 P.2d 367, 372 (1977); Geyer v. Ingersoll Publications Co., 621 A.2d 784, 787-88 (Del. Ch. 1992) (Chandler, V.C.) (noting the continued vitality of Bovay, and holding that directors' fiduciary duty to creditors arises with the fact of insolvency, not when the insolvent corporation institutes statutory proceedings such as a bankruptcy); Whitfield v. Kern, 122 N.J. Eq. 332, 192 A. 48, 54-55 (1937). See generally 3A William M. Fletcher, Fletcher Cyclopedia of the Law of Private Corporations § 1175, 1180, 1182 (Stephen M. Flanagan & Charles R.P. Keating eds., perm. ed. rev. vol. 1986) (characterizing informal trust fund theory as majority rule).
Second, the superior court, viewing Rosson, Inc. as a dissolved corporation, could have held Thomas Rosson liable for a post-dissolution asset distribution in violation of former AS 10.05.216(c).
As for Noreen's liability, we note that Noreen represented two clients: Thomas Rosson, a natural person, and Rosson, Inc., a dissolved corporation. The interests of these two clients with respect to the net proceeds of their claim, $80,000, were not identical. The corporation's interest was in maximizing its share of the proceeds and in disbursing the proceeds to its creditors in accordance with the priorities established by law. Thomas Rosson's interest was in maximizing his individual claim to the proceeds. A lawyer who represents clients with conflicting interests is in a sensitive position and may be liable for breach of the lawyer's fiduciary responsibilities to either client. Just as creditors may sue directors on behalf of a dissolved corporation, creditors may maintain similar actions against the attorney of the dissolved corporation for breach of the attorney's fiduciary obligations. See Robertson v. White, 633 F.Supp. 954, 969-71 (W.D.Ark. 1986) (holding that, in a consolidated action by both an agricultural co-op's bankruptcy trustee and a class consisting of the co-op's members, shareholders, and creditors, the plaintiffs could maintain a negligence action against the co-op's counsel — for harm to the co-op, not to the class — because the co-op "enjoys privity of contract with its professional advisors"); cf. Ohman v. Kahn, 685 F.Supp. 1302, 1311 (S.D.N.Y. 1988) (allowing investor in corporation an action against corporate counsel because action was brought derivatively on corporation's behalf); Karris v. Water Tower Trust & Sav. Bank, 72 Ill.App.3d 339, 27 Ill.Dec. 951, 962, 389 N.E.2d 1359, 1370 (1979) (holding that had attorney breached fiduciary duty to corporation, a shareholder could sue the attorney through a derivative action); Rowen v. LeMars Mut. Ins. Co., 282 N.W.2d 639, 654 (Iowa 1979) (allowing policyholders in a derivative action against the insurer a claim against the insurer's attorney, on the grounds that "all who assist or cooperate in the breach of fiduciary duties — whether directors
The corporate assets at issue here were placed in Noreen's attorney's trust account, and thus were in his custody and control. Requiring an insolvent or dissolved corporation's attorney to protect assets in his or her custody from a director's improper distribution would not impose an unwarranted burden on the legal profession. In fact, an attorney often has an ethical duty to protect third-party claims to funds in his or her custody from a client's wrongful interference. See Alaska Rules of Professional Conduct 1.15 cmt.
By way of summation, we hold that if an attorney represents both a dissolved or insolvent corporation and a director or officer of that firm, and if the attorney controls corporate assets, then the attorney must protect the financial rights of creditors to these assets, where he or she knows or should know that the director or officer intends to interfere with creditors' claims through an improper distribution of these assets. To do otherwise would sanction a class of wrongs without a remedy. Accordingly, as a matter of law, we hold that Noreen was not entitled to summary judgment.
The superior court erred in granting summary judgment to Noreen on Willner's AS 09.40.040 motion, as there were genuine questions of material fact as to the relative timing of the service of the levy and the NBA transactions, and the possession of the funds at the time of the levy. The superior court also erred in holding that Noreen owed no
REVERSED and REMANDED to the superior court for further proceedings.
BURKE, J., not participating.
Our review relies solely upon those excerpts from the deposition testimony that Willner's had attached to its motion documents before the superior court: the motion for summary judgment, the reply to Noreen's opposition to summary judgment, and the motion for reconsideration.
(Emphasis added). This provision was reenacted, in slightly modified form, as part of the new Alaska Corporations Code. See AS 10.06.480(a)(2).
Furthermore, the formal dissolution of Rosson, Inc. occurred in 1985. The corporation filed its suit against the Borough in 1988, well after the limitations period had run, and the allegedly improper transfer of the Borough settlement proceeds to Thomas Rosson occurred in 1989.
Had Noreen not disbursed the proceeds from the Borough settlement to Rosson, instead retaining the funds in his attorney's trust account, he could have been vulnerable to claims upon the funds not only from Willner's but also from Rosson, Inc.'s other creditors. In such a situation, Noreen, as stakeholder for the proceeds, could deposit them in the superior court registry and file a claim for interpleader, requiring the joinder of all of Rosson, Inc.'s creditors, in order to avoid multiple liability and vexatious litigation. See, e.g., Johnston v. All State Roofing & Paving Co., Inc., 557 P.2d 770, 773 (Alaska 1976); Alaska R.Civ.P. 22.
If upon remand it is determined that Noreen is liable for wrongfully disbursing the proceeds for the Borough settlement to Thomas Rosson, then any recovery against Noreen should be deposited into the superior court registry, and Willner's should notify all other creditors of the availability of these funds for allocation. Allowing Willner's to recover on its own behalf is not permissible, because doing so would prejudice other creditors.