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Jul102018

Stoddard v. S&N Logging, Inc.: Plaintiff’s Lawsuit Dismissed on Summary Judgment for Failure to State a Claim Within the Statute of Limitations.

In Stoddard v. S&N Logging, Inc., No. 35038-0-III (Wash. Ct. App. Jan. 25, 2018), S&N Logging, Inc. (“S&N”) and Newman Logging, Inc. (collectively “Defendants”) moved for summary judgment against Roy B. Stoddard (“Plaintiff”) for failure to claim a remedy from the dissolution of a corporation within the time allowed by the statute of limitations. The Washington State Court of Appeals affirmed the trial court’s grant of summary judgment.

S&N was formed in 1992 by Stoddard and Donald Newman. In 1994 Defendants distributed 25% equity to Plaintiff, with the rest of the shares distributed to Donald Newman. Plaintiff assigned his stock shares to the Roy B. Stoddard Revocable Living Trust (“Stoddard Trust”). Plaintiff was charged with a federal crime and borrowed money from Defendants to pay for legal fees. According to the allegations, Plaintiff moved to safeguard his assets held within the Stoddard Trust, mainly his 25% interest in the S&N after Defendants declined a second loan to Stoddard. The complaint asserts that Stoddard transferred his 25% to Newman. Plaintiff, however, asserted that he kept his trust’s interest in S&N. Defendant changed the name of S&N to Newman Logging, Inc. No notice was given to Defendants that Plaintiff still considered himself a shareholder of the company. Defendants obtained a certificate from the Washington Secretary of State confirming the dissolution of Newman Logging Inc. The complaint alleged Plaintiff sent a letter on behalf of the Stoddard Trust demanding a review of corporate records to which Defendants refused. Plaintiff filed suit against Defendants alleging breach of a fiduciary duty to the corporation by failing to maintain S&N and Newman Logging, Inc.’s corporate status and for distributing corporate assets to Donald Newman. Plaintiff sought accounting of the Defendants’ financial affairs, a declaratory judgment acknowledging Plaintiff’s 25% interest in Defendants, and the distribution of leftover corporate assets to Plaintiff. Defendants filed a motion to dismiss which was granted by the trial court.

RCW 23B.14.340 provides for the possibility of recovery from a corporation after its dissolution for a wrong incurred before its dissolution. However, an action pursuing a remedy must commence within three years of the corporation’s effective date of dissolution. RCW 23B.14.350 addresses the conduct and affairs of a corporation after it is dissolved. For example, under the statute a dissolved corporation must cease all normal business activity except those concerning the process of dissolving the company and liquidating its assets to pay off any debts.

Stoddard argues that RCW 23B.14.350 creates ambiguity and does not apply to his shareholder suit for a corporate accounting and other remedies. The court disagreed, holding that the statute of limitations of three years provided in RCW 23B.14.340 is “sweeping” and applies to any action commenced against a dissolved company. The court concludes that the certificate of the dissolution of the Newman, Inc. provided by the Washington Secretary of State in 2010 started the three-year timeframe for when a suit could be brought. Stoddard’s 2016 action was thus outside of that three-year timeframe.

Accordingly, the court granted Defendant’s motion to dismiss.

The primary materials for this case may be found on the DU Corporate Governance website.

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