                                                                 FILED
                                                              AUGUST 15,2013 

                                                        In the Office ofthe Clerk of Court 

                                                       WA State Court of Appeals, Division III 





         IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON 


                                   DIVISION THREE 



SENTINELC3, INC., a Washington          )              No. 30553-8-111
Corporation,                            )              consolidated with 30592-9-111;
                                        )              30837-5-111; 30881-2-111
                   Respondent,          )
                                        )
       v.                               )              PUBLISHED OPINION
                                        )
CHRIS J. HUNT, an individual and the    )
marital community, if any, comprised of )
CHRIS l. HUNT and CARMEN HUNT;          )
MICHAEL BLOOD, an individual and the )
marital community, if any, comprised of )
MICHAEL BLOOD and JANAE                 )
BLOOD,                                  )
                                        )
                   Appellants.          )

      KORSMO,   C.l. - Dissenting shareholders appeal from rulings at summary

judgment that valued their shares in accordance with the corporation's offer and imposed

penalties and attorney fees for intransigence. We reverse and remand for further

proceedings.

                                         FACTS

      SentinelC3 (Sentinel) is a closely held corporation that facilitates transactions

between health care providers and medical equipment suppliers. It began in 2003 as an
     No. 30553-8-III consolidated with 30592-9-III; 

     30837-5-111; 30881-2-111 

     SentinelC3 v. Hunt 



     Idaho corporation, but became a Washington corporation in 2010. Its activities that year

     triggered the actions that resulted in this appeal.

             At that time, the biggest single shareholder in the corporation was Chris Hunt with

     1,000,000 shares, approximately 22 percent of the corporation's 4,500,000 total shares.

     Four members of the Owens family owned 3,000,000 shares, while Michael Blood and

     Ken Moore each owned 250,000 shares (approximately 5.5 percent). Sentinel attempted
.1
,
1
     to buyout Mr. Hunt that April. Its expert, James Kukull, using the corporation's value on
1
f
     December 31, 2009, valued the shares at $107,200 when using a "minority,
J

l
i
     nonmarketable basis" or at $195,200 on a "control, marketable basis." Mr. Kukull

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

i
'I
     the dissenters' rights statute. The company offered the lower value; Mr. Hunt declined to

     sell.

!            On October 8, 2010, the company became a Washington corporation. At the same
i
i    time, it proposed a reverse stock split of 1.5 million to one; those with less than one new
,
l
,
1
     share were required to sell their stock. The shareholders voted 5 to 2, with Mr. Hunt and




                                                    2



j
I
i

l
No. 30553·8·111 consolidated with 30592-9-111;
30837·5-111; 30881·2·111
SentinelC3 v. Hunt


          1
Mr. Blood dissenting, to adopt the reverse stock split on October 28, 2010. After forcing

out the two dissenters, the remaining shareholders instituted a forward stock split that

issued them the same number of shares of the new stock as they used to own.

       Sentinel paid Mr. Hunt $195,200.00 plus interest in accordance with the greater

valuation Mr. Kukull had previously made and paid Mr. Blood $48,956.60 plus interest.

Both Hunt and Blood believed Mr. Kukull's valuation to be out of date. Each made

counteroffers to Sentinel based on a valuation from an undisclosed professional,

subsequently determined to be C&H Group.2 Hunt revised his valuation upwards 20

percent based on the belief that a buy-out of Sentinel was imminent. Blood's valuation

was revised upwards based on his view that there were only approximately 3,000,000

shares of Sentinel (rather than the original 4,500,000 shares) because of an alleged

agreement for the company to buy the stock of some of the other shareholders. Kukull

expressed the view that because of falling earnings before taxes, Sentinel's value had not

significantly changed since his original valuation despite an increase in sales.




       1 Although both the Blood and Hunt marital communities are parties to this action,
we will refer to them in the singular for convenience.
       2 Both men declined to produce the documents supporting the new valuation on
the basis that C&H was only a consulting expert.
                                              3
No. 30553-8-111 consolidated with 30592-9-111;
30837-5-111; 30881-2-111
SentinelC3 v. Hunt


           Sentinel instituted an action January 31, 2011, in the Spokane County Superior

Court to establish the fair value of the dissenting shares in accordance with RCW

23B.13.300. Discovery ensued; Mr. Hunt requested that Sentinel provide business

records, contracts, and marketing plans going back five years. Sentinel objected on the

basis that the records were irrelevant to the valuation process, but agreed to disclose if a

protective order could be worked out. 3 Sentinel filed a proposed protective order on

August 5,2011, and filed a motion for summary judgment four days later. The trial court

granted the protective order on September 7. A few weeks later Hunt disclosed Jerry
                                                                                              4
Hecker as his expert witness and also filed an answer to the summary judgment motion.

Counsel for Mr. Hunt filed a declaration on October 18,2011, with Mr. Hecker's

valuation report attached; Mr. Hecker, however, had not certified his report.

           The trial court heard the summary judgment motion on October 21. The court

found that Hecker's valuation was not admissible through counsel's declaration and

excluded it while noting that it presented genuine issues of fact that would have defeated

summary judgment. Both Hunt and Blood had submitted their own affidavits that took

       3       Sentinel indicated a fear that Mr. Hunt might use the information to compete
with it.
       Blood has proceeded pro se while Hunt has been represented by counsel
           4
throughout the action.
                                         4
No. 30553-8-II1 consolidated with 30592-9-III;
30837-5-111; 30881-2-111
SentinelC3 v. Hunt


issue with some ofKukull's work and referenced their own original demands. The court

granted summary judgment and later awarded Sentinel its attorney fees and costs under

RCW 23B.13.310.

       The dissenters sought reconsideration and Mr. Hunt submitted an admissible copy

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

was "not sufficient cause shown to alter" its decision. Both Hunt and Blood timely

appealed after the denial of reconsideration.

       The court subsequently entered a judgment in Sentinel's behalf for attorney fees

and costs. Once again, the dissenters individually appealed to this court. The four

matters were consolidated.

                                       ANALYSIS

       This appeal challenges the court's valuation ruling at summary judgment, the

decision to exclude Hecker's valuation, and the award of attorney fees without

appropriate findings. We agree with the challenges to the valuation and the attorney fee

award; those two matters are discussed in that order. In light of our disposition, we do

not address the exclusion of the valuation.




                                                5
No.   30553~8~III
                consolidated with   30592~9~III;
30837-5~III; 30881-2-II1
SentinelC3 v. Hunt


        Summary judgment rulings are reviewed de novo since an appellate court sits in

the same position as the trial court. Hubbard v. Spokane County, 146 Wn.2d 699, 706­

07,50 P.3d 602 (2002). Summary judgment is proper when, after viewing the evidence

in a light most favorable to the opposing party, there are no issues of material fact and the

moving party is entitled to judgment as a matter of law. Trimble v. Wash. State Univ.,

140 Wn.2d 88, 93, 993 P.2d 259 (2000). All facts and reasonable inferences are

construed in the light most favorable to the nonmoving party. Id. Summary judgment

should be granted if reasonable persons could reach but one conclusion based on all of

the evidence. Id.

        Valuation ofDissenters' Shares

        The parties strenuously debate the propriety of resolving a dissenters' rights

valuation case at summary judgment, with the appellants contending that the trial court's

obligations under the valuation statute necessitate weighing of evidence and preclude

resolution at summary judgment. We need not go that far because we conclude that the

appellants did establish material questions of fact that precluded summary judgment.




                                              6

No. 30553-8-III consolidated with 30592-9-III;
30837-5-III; 30881-2-III
SentinelC3 v. Hunt


       In a dissenters' rights action, a corporation is required to petition a court to

determine the "fair value of the shares and accrued interest." RCW 23B.13.300(1). "Fair

value," in tum, is defined as

       the value of the shares immediately before the effective date of the
       corporate action to which the dissenter objects, excluding any appreciation
       or depreciation in anticipation of the corporate action unless exclusion
       would be inequitable.

RCW 23B.l3.010(3). These standards are part of the current Washington Business

Corporation Act, Title 23B RCW, adopted by LAWS OF 1989, ch. 165.

       Prior to the adoption of the current provisions, the former corporations act had

required that the trial court "shall, by its decree, determine the value of the shares" held

by the dissenters. § 3803-41 Rem. Supp. 1949 (quoted in In re Nw. Greyhound Lines, 41

Wn.2d 672,677,251 P.2d 607 (1952».5 Noting that the legislature had not developed a

definition of "value," Greyhound defined it as a word that

       contemplates a consideration of all the facts and circumstances pertinent to
       a particular case in an effort to arrive at a fair and reasonable compromise
       or arbitration which may in some degree be lacking in mathematical
       exactness or certitude.

41 Wn.2d at 680.

      5 This provision subsequently was codified at former RCW 23.01.450(1) and
former RCW 23A.24.040.
                                          7
    No. 30553-8-II1 consolidated with 30592-9-III;
    30837-5-111; 30881-2-111
    SentinelC3 v. Hunt


           The legislature in 1965 changed the statute to reflect the need to give "fair value"

    rather than "value" to the minority shares. LAWS OF 1965, ch. 53 § 83 (repealing LAWS

    OF 1949, ch. 188). In adopting the current Business Corporation Act in 1989, the

    legislature noted that the term "fair value" "leaves untouched the accumulated case law."

    SENATE JOURNAL, 51st Leg., 2nd Spec. Sess., at 2977-3112 (Wash. 1989) (reprinting the

    Comments on the Washington Business Corporation Act prepared by the Corporate Act

    Revision Committee of the Washington State Bar Association, §13.01). Since "value"

    and "fair value" mean the same, our courts have continued to apply Greyhound to the

    valuation of dissenters' shares. E.g., Matthew G. Norton Co. v. Smyth, 112 Wn. App.

    865,874,51 PJd 159 (2002); Robblee v. Robblee, 68 Wn. App. 69, 77-78, 841 P.2d

    1289 (1992).

           At the time of Greyhound, the statutory scheme required the trial court to appoint

    an appraiser to value the stock. 41 Wn.2d at 676 (citing § 3803-41, Rem. Supp. 1949).

    The appraiser's valuation was not dispositive; the trial court was to review the valuation

    de novo. ld. at 683,685. Our current statute permits, but does not require, the court to

    appoint one or more appraisers to assist it. RCW 23B.13JOO(5). The court has "plenary

    and exclusive" jurisdiction over the case. ld. The modem statute "retains the concept of

                                                 8



I

I
f


I
No. 30553-8-II1 consolidated with 30592-9-III;
30837-5-III; 30881-2-111
SentinelC3 v. Hunt


judicial appraisal as the ultimate means of determining fair value." SENATE JOURNAL,

51st Leg., 2nd Spec. Sess., at 3092-3093 (Wash. 1989) (reprinting the Comments on the

Washington Business Corporation Act prepared by the Corporate Act Revision

Committee of the Washington State Bar Association, §13.30).

       We believe this statutory arrangement thus retains the obligation of the trial judge

to undertake a de novo review of the evidence and not uncritically accept the appraiser's

report. In this respect the obligation is similar to that imposed in other areas. E.g.,

Richey & Gilbert Co. v. Nw. Natural Gas Corp., 16 Wn.2d 631, 649-50,134 P.2d 444

(1943) ('" And, while great weight should always be given to the opinions of those

familiar with the subject, they are not to be blindly received, but are to be intelligently

examined by the jury in the light of their own general knowledge.'" (quoting Head v.

Hargrave, 105 U.S. 45, 49,26 L. Ed. 1028 (1881)); In re Marriage a/Pilant, 42 Wn.

App. 173,178, 709 P.2d 1241 (1985) (court rejected the testimony of the sole expert on a

pension valuation issue: "A court is not required to accept the opinion testimony of

experts solely because of their special knowledge; rather, the court decides an issue upon

its own fair judgment, assisted by the testimony of experts."); Suther v. Suther, 28 Wn.




                                              9

No. 30553-8-II1 consolidated with 30592-9-III;
30837-5-III; 30881-2-III
SentinelC3 v. Hunt


App. 838, 627 P.2d 110 (1981) (court in dissolution proceeding properly valued stock

differently than experts).

       With this background, we now address the issues presented by the summary

judgment ruling. First, the dissenters argue that in light of the court's obligation to find

fair value, the court could never resolve a dissenters' rights case at summary judgment

because the court must weigh the testimony and determine whether to accept the expert's

valuation, actions that are contrary to the standards of a summary judgment hearing. As

a categorical matter, we reject the argument while acknowledging that it has some force.

This court previously has permitted summary judgment on valuation procedures in a

dissenters' rights case. See Matthew G. Norton Co., 112 Wn. App. 865 (partial summary

judgment). We can envision valuation fact patterns that would be subject to summary

judgment. For instance, if competing experts agreed on the corporation's fair value, but

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

see a trial judge accepting the agreed-upon valuation for the corporation since the fact of

valuation was not in dispute. The trial court would also, however, have been free to

reject the valuation altogether.




                                             10
No. 30553-8-II1 consolidated with 30592-9-III;
30837-5-III; 30881-2-III
SentinelC3 v. Hunt


       Nonetheless, the trial court's duty to find fair value and not blindly accept the

expert's opinion has some play in this summary judgment and informs the court on

whether a material question of fact exists. Mr. Blood's affidavit, his settlement demand,

and interrogatory answers were all put before the court at summary judgment. In them,

he explained that the experts he and Mr. Hunt had consulted had evaluated the company

at $0.4267 cents per share. He then valued his stock at an even higher rate due to the

belief that the company had an agreement to buy nearly one-quarter of its shares back

from some of the other stockholders. Mr. Hunt similarly used the consulting expert's

valuation as the basis for his request before increasing it due to the belief that a sale was

in the offing.

       We believe these facts established a genuine issue of material fact that went to the

court's duty in this case to determine the fair value of the stock. The court was given a

valuation of 42 cents per share attributed to an expert that conflicted with Kukuil's

valuation of 19 cents per share. Although it constituted hearsay and was set forth without

the reasoning supporting the valuation, this unchallenged evidence still suggested that

Kukull's valuation was not the sole calculation before the court. The court had a duty

under the statute to consider all of that information in making its determination of fair

                                              11
No. 30553-8-III consolidated with 30592-9-III;
30837-5-III; 30881-2-II1
SentinelC3 v. Hunt


value. Given the evidentiary support for Kukull's work, it was reasonable for the court to

be persuaded by that valuation. Nonetheless, under these facts, that determination

required the court to consider the dissenters' evidence. While it was understandably

rejected, the weighing of that evidence at summary judgment was improper and needed to

be done at trial. 6

       The dissenters' valuations, even without the evidence from their trial expert

Hecker, raised a question of fact under the court's statutory duty in this area. The

conflicting evidence did not allow the court to determine fair value at summary judgment.

Accordingly, we reverse the summary judgment order and remand for further

proceedings.

       Attorney Fees

       In light of our reversal of the summary judgment ruling, the award of attorney fees

necessarily falls. The award also failed on its merits.




       6 The parties do not address, and we do not consider, whether moving the
company from Idaho to Washington changed its tax burdens or other costs in a manner
that would have impacted the valuation of the corporation. The change was effective
prior to the reverse stock split and thus was a relevant consideration, although the record
does not indicate if the change had any significance.
                                              12
No. 30553-8-III consolidated with 30592-9-III;
30837-5-III; 30881-2-III
SentinelC3 v. Hunt


       RCW 23B.13.310 governs the award of costs and attorney fees in these actions,

which provides:

       (1) The court in a proceeding commenced under RCW 23B.13.300 shall
       determine all costs of the proceeding, including the reasonable
       compensation and expenses of appraisers appointed by the court. The court
       shall assess the costs against the corporation, except that the court may
       assess the costs against all or some of the dissenters, in amounts the court
       finds equitable, to the extent the court finds the dissenters acted arbitrarily,
       vexatiously, or not in good faith in demanding payment under RCW
       23B.13 .280.
              (2) The court may also assess the fees and expenses of counsel and
       experts for the respective parties, in amounts the court finds equitable:
              (a) Against the corporation and in favor of any or all dissenters if
       the court finds the corporation did not substantially comply with the
       requirements ofRCW 23B.13.200 through 23B.13.280; or
              (b) Against either the corporation or a dissenter, in favor of any
       other party, if the court finds that the party against whom the fees and
       expenses are assessed acted arbitrarily, vexatiously, or not in good faith
       with respect to the rights provided by chapter 23B.13 RCW.
              (3) If the court finds that the services of counsel for any dissenter
       were of substantial benefit to other dissenters similarly situated, and that the
       fees for those services should not be assessed against the corporation, the
       court may award to these counsel reasonable fees to be paid out of the
       amounts awarded the dissenters who were benefited.

       Subsections (1) and (2) set forth the general principles at issue in this action. The

corporation will normally bear the costs, including those of appraisal, unless the court

finds that some of the dissenters acted "arbitrarily, vexatiously, or not in good faith" with

respect to the payment demand. RCW 23B.13.310(1). The court can award attorney
                                             13
No. 30553-8-III consolidated with 30592-9-III;
30837-5-III; 30881-2-III
SentinelC3 v. Hunt


fees, as well as expert fees, against the corporation if it does not substantially comply

with the statute's dissenters' rights processes. RCW 23B.l3.31 0(2)(a). The court can

assess attorney and expert fees against any party that acts "arbitrarily, vexatiously, or not

in good faith" under the statute. RCW 23B.13.31 0(2)(b). The amount of the award of

attorney and expert fees must be "equitable." RCW 23B.l3.310(2).

       RCW 23B.13.31O appears directed toward intransigence and unreasonable

behavior. The legislature expressed the intent of this provision:

              Proposed section 13.31 provides that generally the costs of the
      appraisal proceeding should be assessed against the corporation. But the
      court is authorized to assess these costs, in whole or in part, against the
      dissenters if it concludes they acted arbitrarily, vexatiously, or not in good
      faith in making the Proposed section 13.28 demand for additional payment.
      Similarly, counsel fees may be charged against the corporation or against
      dissenters upon a finding of a failure to comply in good faith with the
      requirements of this chapter. Individual dissenters, in turn, can be called
      upon to pay counsel fees for other dissenters if the court finds that the
      services were of substantial benefit to the other dissenters.
              The purpose of these grants of discretion with respect to costs and
      counsel fees is to increase the incentives of both sides to proceed in good
      faith under this chapter to attempt to resolve their disagreement without the
      need of a formal judicial appraisal of the value of shares.

SENATE JOURNAL, 51 st Leg., 2nd Spec. Sess., at 3093 (Wash. 1989) (reprinting the

Comments on the Washington Business Corporation Act prepared by the Corporate Act

Revision Committee of the Washington State Bar Association, §13.31).
                                             14
No. 30553-8-III consolidated with 30592-9-III;
30837-5-III; 30881-2-III
SentinelC3 v. Hunt


       In a pair of opinions on the same case, the Washington Supreme Court recently

dealt with the virtually identical fee provisions ofRCW 25.15.480 that govern limited
                    7
liability companies. It stated the standards of review in the first opinion: an award under

the statute is not mandatory, but is discretionary with the trial court and is reviewed on

appeal for abuse of that discretion. Humphrey Indus. v. Clay St. Assocs., 170 Wn.2d 495,

506-07,242 P.3d 846 (2010) (Humphrey I). In the second opinion, the court clarified its

holding in the first case with respect to the behavior and standards governing fee awards ..

As provided in the statute, fees are available only if a party acted "arbitrarily,

vexatiously, and not in good faith." Humphrey Indus. v. Clay St. Assocs., 176 Wn.2d

662, 670,295 P.3d 231 (2013) (Humphrey II). The court also clarified that the

dissenters' actions of declining the corporation's offer and submitting an excessive

valuation did not violate the statutory standard. Id.

       Neither Humphrey I nor Humphrey II addresses the trial court's obligations in

addressing a fee request. We believe that consistent with the standards in other attorney

fee award situations, the trial court is obligated to enter findings of fact and conclusions



       The events in this case, including the appellate briefing, occurred between the
       7
two Humphrey opinions, so the trial court and the parties did not have the benefit of
Humphrey II.
                                            15
No. 30553-8-III consolidated with 30592-9-III;
30837-5-III; 30881-2-II1
SentinelC3 v. Hunt


of law that support its detennination that a party acted "arbitrarily, vexatiously, or not in

good faith" under the statute. See generally, Mahler v. Szucs, 135 Wn.2d 398, 435, 957

P.2d 632 (1998) (requiring trial court to apply lodestar formula and enter written findings

to facilitate review). The failure to enter appropriate findings will nonnally result in a

remand. Id.

       Application of these principles to this case requires that we reverse the attorney

fee award. The absence of a record explaining the basis for the fee award at minimum

would require a remand. Id. However, in light of Humphrey II, nothing in the record of

this case supports a detennination of arbitrary, vexatious, or bad faith litigation. The

dissenters did not accept Sentinel's valuation and, instead, sought their own which they

then used as the basis for their counterproposals. Litigation ensued when Sentinel did not

accept the counterproposals. The record does not suggest that either side instigated the

litigation by behaving improperly, nor does it show that either side engaged in litigation

conduct that would trigger fees under the statute.

       Sentinel argues that the failure to admit Hecker's report (or any expert opinion) at

the summary judgment hearing justified the award. For two reasons, it did not. First, the

failure to admit evidence is not the same as a failure to obtain a valuation. At worst,

                                             16
No. 30553·8-111 consolidated with 30592-9·111;
30837·5·111; 30881·2-111
SentinelC3 v. Hunt


assuming some sort of duty even existed, the failure to properly authenticate the report

only hurt the dissenters and was negligence, not intransigence or arbitrary conduct. 8 The

dissenters had evidence to support their position and had made the evidence known to

Sentinel, but they simply did not present it in admissible fonn at the hearing.

       Second, even if the dissenters had behaved vexatiously at the summary judgment

hearing, such action would not have retroactively made the entire proceedings arbitrary

or vexatious. An award of fees to address vexatious behavior is proper under the statute.

Nothing in the statute should be read, however, to shift the entire costs of the litigation to

one party just because of a late stumble in the proceedings. Instead, we read the statute

as attempting to discourage bad faith and arbitrary behavior by providing a remedy to the

nonoffending party for all costs associated with the bad behavior. Properly and perfectly

conducted pretrial litigation does not become vexatious merely because of arbitrary

conduct during the ensuing trial. As noted in the legislative history, arbitrary or

vexatious behavior that triggers litigation may properly shift the cost of the entire case

because it causes the ensuing litigation. However, the remedy for later occurring

        8 It appears that the problem arose in the rush to get the report completed and filed
before the summary judgment hearing. With the benefit of hindsight, it would have been
better to have continued the hearing, but the failure to do so was not arbitrary conduct
that harmed Sentinel.
                                              17
No. 30553-8-II1 consolidated with 30592-9-III;
30837-5-III; 30881-2-III
SentinelC3 v. Hunt


improper behavior should only reach the consequences of the offending conduct; it does

not address earlier proper conduct.

       F or the reasons noted, the award of attorney fees is reversed. Both parties seek

attorney fees for this appeal. We exercise our discretion under the statute to decline their

requests. Appellants, as prevailing parties, are entitled to solely their statutory costs and

fees in this action. RAP 14.1, et seq.

       Reversed and remanded.




                                             >~c~    Korsmo, C.J.
                                                                    b



WE CONCUR:




                                              18 

