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Gefre v. Davis Wright Tremaine, LLP

Supreme Court of Alaska

August 2, 2013

Nicholas A. GEFRE and Charles T. Beck, individually and as a derivative action on behalf of Petro Alaska, Inc., an Alaskan corporation, Appellants,
v.
DAVIS WRIGHT TREMAINE, LLP; Jon S. Dawson; Richard A. Klobucher; Burr Pease & Kurtz; and John C. Siemers, Appellees. Burr Pease & Kurtz And John C. Siemers, Cross-Appellants,
v.
Nicholas A. Gefre and Charles T. Beck, individually and as a derivative action on behalf of Petro Alaska, Inc., an Alaskan corporation, Cross-Appellees.

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[Copyrighted Material Omitted]

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Daniel W. Hickey and Anne M. Preston, Gruenstein & Hickey, Anchorage, and James J. Ragen and Gail M. Ragen, Ragen & Ragen, Seattle, Washington, for Appellants and Cross-Appellees.

Patrick B. Gilmore, Atkinson, Conway & Gagnon, Anchorage, for Appellees Davis Wright Tremaine, LLP, Jon S. Dawson, and Richard A. Klobucher.

Clay A. Young and Kendra E. Bowman, Delaney Wiles, Inc., Anchorage, for Appellees

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and Cross-Appellants Burr Pease & Kurtz and John C. Siemers.

Before: CARPENETI, Chief Justice, FABE, WINFREE, and STOWERS, Justices.

WINFREE, Justice.

I. INTRODUCTION

Shareholders of a closely held corporation brought a derivative suit against a shareholder-director and the corporation's former attorneys for fiduciary fraud, fraudulent conveyance, legal malpractice, and civil conspiracy. After an evidentiary hearing, the superior court ruled all the claims were time-barred. We affirm the superior court's dismissal of most claims, but reverse its dismissal of two claims and remand those claims for further proceedings.

II. FACTS AND PROCEEDINGS

A. Facts

1. Gefre, Beck, and Steffen form Island Fuel (Petro Alaska).

Nicholas Gefre, Charles Beck, and Edward Steffen, who were friends and co-workers, formed Island Fuel, Inc. (Petro Alaska) in 1985. Steffen took 52% of the corporation's stock; Gefre and Beck took 24% each. Each became a member of the Board of Directors. The Board appointed Steffen President, Gefre Vice-President, and Beck Secretary and Treasurer. None had prior corporate experience, and despite his title as Secretary, Beck did not maintain the corporate books or minutes. Steffen acted as the company manager and Gefre and Beck worked in the company's day-to-day operations.

Petro Alaska was successful and there was agreement to expand operations. In January 1988 Steffen and his wife leased a Ketchikan property (the Property) from Stephen and Cheryl Day.[1] Steffen executed the lease in his name, although the lease referenced him as an individual doing business as Petro Alaska; the lease also indicated that Petro Alaska would make improvements on the Property. The Board met in December 1988 and ratified the lease and authorized Steffen to pursue, on Petro Alaska's behalf, a lease with an option to purchase the Property.

2. Steffen retains Davis Wright Tremaine.

In December 1988 Steffen contacted the law firm Davis Wright Tremaine (DWT) to represent Petro Alaska. The initial engagement letter from DWT partner Richard Klobucher stated DWT would provide Petro Alaska general corporate representation and " eventually [represent] all of the shareholders in personal estate and estate tax planning matters." The corporate representation specifically included a review of current corporate affairs. DWT then prepared the December 1988 Board meeting minutes, which reflected that the Property was a corporate opportunity Steffen was pursuing on Petro Alaska's behalf. DWT soon began estate planning for Steffen, but had no direct contact with Gefre or Beck.

DWT partner Judith Nevins helped Steffen pursue a lease of the Property with an option to purchase. Nevins understood DWT represented Petro Alaska, and advised Steffen that the lease should be in Petro Alaska's name. Steffen initially agreed, but later told Nevins that the Days wanted the lease made in Steffen's name. Believing it was an accommodation to the Days, Nevins drafted a letter to the Days' attorney stating Steffen, rather than Petro Alaska, would be the lessee. Nevins did not communicate this change to Gefre or Beck because she believed Steffen would do so.

Nevins finalized the lease in January 1990. The lease granted Steffen an option to purchase the Property, with a rebate on the purchase price equivalent to rent paid. It did not memorialize Nevins's understanding that Steffen held the Property for Petro Alaska's benefit; instead, it provided that the Property could be subleased by Steffen to Petro Alaska only if Steffen maintained at

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least 52% ownership of Petro Alaska. DWT billed Petro Alaska for its lease-related legal fees.

Steffen informed Gefre and Petro Alaska's bookkeeper that he had negotiated a five-year lease for the company with a purchase option. He did not disclose that the lease was in his name. The Board did not formally adopt or ratify the lease at Petro Alaska's December 1991 Board meeting, which was its last official meeting prior to this litigation. Petro Alaska paid the lease rent, and its financial statements for 1990 through 1992 indicated that Petro Alaska leased and had an option to purchase the Property.

3. Steffen exercises the purchase option.

Steffen exercised the purchase option in December 1993 and took title to the Property. He received credit against the purchase price for Petro Alaska's lease payments. Petro Alaska's 1993 financial statement stated: " Effective January 1, 1994, the company's majority stockholder acquired the property on which its Ketchikan, Alaska operations are located. Effective January 1, 1994 the company leased this property from the majority stockholder." Petro Alaska's financial statements from 1994 to 2006 included the lease payments to Steffen. Petro Alaska's bookkeeper was aware that Steffen had purchased the Property and was leasing it to Petro Alaska. Gefre and Beck were not told.

DWT prepared consent minutes in lieu of Board meetings for 1992 through 1994. The 1993 consent indicated Petro Alaska had purchased the Property for $750,000. The 1994 consent contained a provision on the first page approving the lease between Steffen and Petro Alaska. Gefre and Beck signed the second page, but later denied seeing or approving the provision ratifying the lease between Steffen and Petro Alaska.

Gefre discovered by early 1995 that Steffen owned the Property. He confronted Steffen, who claimed he purchased it for Petro Alaska because the Days did not want to sell to a corporation. Steffen assured Gefre that he held the Property for Petro Alaska and would transfer title. Steffen repeatedly promised Gefre that he would transfer the title, but did not.

4. Gefre retains attorney Clay Keene.

Gefre retained Ketchikan attorney Clay Keene in 1997 to help secure title to the Property for Petro Alaska. Keene advised Gefre that he had fiduciary duties as a Board member and could be personally liable to Petro Alaska for not fulfilling those duties. Specifically, Keene informed Gefre that his fiduciary duties included ensuring Petro Alaska received title to the Property.

In November 1997 Keene ghostwrote a letter to Steffen for Gefre and Beck. In this letter Gefre and Beck acknowledged Petro Alaska had not maintained required corporate formalities, including Board meetings, and stated a desire to begin doing so. They also acknowledged Steffen held title to the Property as an accommodation to Petro Alaska, and asked Steffen to transfer the Property to Petro Alaska by the end of 1997. They requested that Gefre, Beck, and Steffen meet with Petro Alaska's outside accountant, Peter Hogan, to discuss tax consequences of transferring the Property to Petro Alaska.

Gefre, Beck, and Steffen met with Hogan in November 1997. They agreed Steffen would transfer title to Petro Alaska and the shareholders as individuals. Steffen stated he would work with Hogan to transfer the title, and Hogan memorialized the meeting. Neither Gefre nor Beck contacted Hogan to verify whether title had been transferred. Nothing changed with respect to how Petro Alaska's directors conducted corporate affairs. In 1998 Steffen contacted DWT about establishing a limited liability company into which he could transfer his real estate holdings, including the Property. Petro Alaska was billed for at least some of this work.

5. Beck requests a buyout, and Steffen destroys records.

Beck's health deteriorated in the late 1990s and he left Alaska for medical treatment. He asked for a buyout of his Petro Alaska shares in 2000, but this did not occur. Petro Alaska continued to pay Beck's wages and health insurance for a time, but these payments eventually were discontinued.

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In 2000 Beck contacted Connie Williams, Petro Alaska's bookkeeper from 1986 to 1997, regarding possible corporate wrongdoing by Steffen. She provided Beck a list of suspected improprieties, including appropriating corporate money to acquire personal property, funding personal real estate ventures with corporate funds, and personally purchasing the Property with Petro Alaska making the loan payments coded as " rent." Beck believed Williams, but did not show the list to Gefre or Hogan. Near the same time, a Petro Alaska employee informed Beck that Steffen was destroying corporate records.

In the early 2000s Gefre became aware that Steffen had directed Petro Alaska staff not to send Gefre financial statements. Gefre nonetheless knew he had a right to review corporate records. Both Beck and Gefre repeatedly requested corporate records from Steffen, but he ignored or put off their requests. Beck concluded before June 2002 that Steffen would not transfer the Property's title to Petro Alaska.

6. Beck retains attorney Clay Keene and considers suit.

Beck retained Keene in May 2002 regarding Steffen's self-dealing and the Property. He told Keene about Williams's information on Steffen's self-dealing. He also gave Keene copies of corporate records he had received from Gefre. In June 2002 Keene ghostwrote a letter for Beck to send to Steffen. In this letter Beck requested copies of 30 categories of corporate records, including Property-related records, and requested that all corporate documents be preserved. Beck also informed Steffen that his failing health required him to liquidate his Petro Alaska shares and offered to sell them for $500,000. A copy of the letter was sent to Gefre.

In July 2002 Beck received a reply from Petro Alaska, including documents enabling Beck to resign as a director and officer. In a response ghostwritten by Keene, Beck declined to resign until his concerns about the company were resolved. He also requested copies of all corporate minutes and bylaws.

Keene ghostwrote another letter for Beck in late July 2002. This letter to Steffen reiterated Beck's demands for corporate records, including records related to the Property, stated his intent to remain a director, and expressed his concern with Steffen's record-request obstruction. Beck copied Gefre and a Petro Alaska employee, asking the employee to send him copies of certain records.

Steffen referred Beck's letters to attorney Jonathan Michaels at DWT. Michaels did not know former DWT partner Nevins, who had left DWT before he joined the law firm, and had had no prior contact with Petro Alaska. Michaels drafted a response to Beck's second letter for Steffen, which Steffen modified. Steffen's response included certain corporate records and stated that: (1) he purchased the Property and leased it to Petro Alaska; (2) the other requested records could be reviewed at Petro Alaska's offices; (3) neither Petro Alaska nor its shareholders were able to purchase Beck's shares; and (4) Petro Alaska requested Beck's resignation because he had not actively participated in managing Petro Alaska.

In August 2002 Beck contacted Keene to express concerns about incomplete corporate minutes. He also stated his fear that Steffen might attempt to bankrupt Petro Alaska and leave. Keene ghostwrote another letter for Beck to send to Steffen, reiterating Beck's demands for corporate records, stating Steffen's purchase of the Property was a misappropriation of Petro Alaska's corporate opportunity, and stating Beck could not be removed as a director or officer. Gefre was sent a copy.

At this time Beck began considering legal action against Steffen. He again contacted former bookkeeper Williams and asked for information on Steffen's self-dealing. She responded with information about several instances of Steffen's self-dealing and offered further assistance. Beck never followed up with Williams.

Beck consulted further with Keene, who advised him that although he could be removed as a director, Beck retained access to the Board's records as a shareholder. In August Beck had Keene ghostwrite more letters to Steffen, containing demands and statements similar to Beck's previous letters. Keene advised Beck that a suit against Steffen

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was possible, but suggested that contacting the Alaska Department of Labor (DOL) to file a complaint might yield the same results as litigation. He also noted that if Beck personally pursued an action against Steffen, Steffen could avail himself of Petro Alaska's assets to defend himself at the company's expense. In September 2002 Beck contacted DOL about investigating Steffen. He emphasized that ...


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