Humphrey Indus. LTD v. Clay St. Assocs. LLC, No. 82687-1. Humphrey Industries, Ltd. (through several business partners) created Clay Street Associates, LLC, to hold a single real estate asset located in Auburn, Washington. In order to break a deadlock with principal George Humphrey regarding the sale of the property, the other members of Clay Street agreed to merge the company into a new limited liability company to facilitate the sale. Humphrey dissented from the merger and demanded payment pursuant to the dissenters’ rights provisions of the Washington Limited Liability Company Act, chapter 25.15 RCW. Clay Street agreed to pay Humphrey the fair market value of his interest as of the merger date but did not pay until the property sold.

Humphrey rejected the value calculation and sued. The trial court found that the property was worth more than Clay Street had calculated, and awarded Humphrey the difference plus interest. However, the court awarded Clay Street attorneys fees, finding that the dissenting Humphrey had acted arbitrarily, vexatiously, or not in good faith. The Court of Appeals (Div. I) affirmed.

The Supreme Court (Justice Jim Johnson writing) reversed the Court of Appeals and remanded for reconsideration of the attorney fee award. The court held that the lower courts erred in finding that Clay Street “substantially complied” with the LLCA.

In re Custody of S.C.D.-L., No. 84186-1. In a per curiam decision, the Supreme Court reversed a trial court’s order awarding custody of S.C.D-L. to her grandmother, Edna Littell. The court wrote that Ms. Littell failed to allege or offer facts at the show cause hearing conducted under RCW 26.10.030 that S.C.D-L. was not in the physical custody of one of her parents or that neither parent was a suitable custodian.

“A nonparent may petition for custody of a child if the child is not in the physical custody of a parent or if the petitioner alleges that neither parent is a suitable custodian. RCW 26.10.030(1). The trial court must deny a hearing on the petition unless the nonparent submits an affidavit (1) declaring that the child is not in the physical custody of one of the child’s parents or that neither parent is a suitable custodian and (2) setting forth facts supporting the requested custody order. S.C.D-L. was in [her father] Mr. Littell’s physical custody at the time Ms. Littell filed her petition, and the petition
does not allege that he is an unfit parent. Instead, the petition implies it would be in the child’s best interest to reside with Ms. Littell, but the ‘best interests of the child’ standard does not apply to nonparent custody actions."

State v. Patel, No. 82649-8. The Supreme Court upheld a conviction for attempted child rape where the “victim” was actually a police officer posing as a child.

Mitel Patel was caught in a police sting operation when he chatted with a detective pretending to be a 13-year-old girl and went to meet and have sex with “her.” He was convicted of second degree attempted rape of a child. Patel argues that the state did not offer proof that the intended victim (the detective) was underage, and thus did not prove an essential element of the attempted crime. The trial court and Court of Appeals disagreed, holding it sufficient that Patel believed his intended victim to be underage.

The Supreme Court (Justice Tom Chambers writing the four-vote lead opinion) agreed, holding that “a defendant may be convicted of attempted rape of a child where the alleged victim is a fictitious underage character created by the police.” The court reasoned that unlike convictions for actual child rape, which require a showing that the child was underage, attempt crimes do not depend on the ultimate harm that would have resulted from commission of the crime. Rather, the person is guilty of an attempt “if, with intent to commit a specific crime, he or she does any act which is a substantial step toward the commission of that crime.” RCW 9A.28.020(1).

Chief Justice Madsen and Justice Richard Sanders wrote separate concurring opinions.

For years Dot Foods qualified for an exemption from the Washington business & occupation tax as an out-of-state seller. In 1999, the state Department of Revenue amended its interpretation of the qualifications for the out-of-state exemption. In order to qualify for the exemption, out-of-state sellers could never sell any consumer products that anyone will eventually sell in a permanent retail establishment anywhere in the chain of distribution. The Department of Revenue then determined that Dot Foods should pay the B&O tax for sales that occurred between 2000 and 2003. Dot paid the tax and then filed suit against the Department to recover a refund.

The Department argued that Dot should not qualify for the B&O tax exemption because its sales included non-consumer products, and some products eventually ended up in permanent retail establishments. The trial court ruled in the Department’s favor. The Court of Appeals affirmed the trial court, holding that Department’s new interpretation of the statute was reasonable.

The questions before the Supreme Court are (1) whether an out-of-state seller qualifies for the B&O tax exemption when it sells some non-consumer products, and (2) if so, does such a seller qualify for the B&O tax exemption when some of its products ultimately end up in permanent retail establishments?

The Supreme Court, with Justice Charles Johnson writing the 5-vote majority, ruled in favor of Dot Foods. The court said that the law (RCW82.04.423(1)(d) requires out-of-state sellers to make sales “exclusively” through a seller’s representative, but that “exclusively” does not mandate that all sales consist of consumer products. Additionally, the court rejected the argument that Dot loses its exemption because some of its products end up in retail stores. “The wording of the statute has not changed since its enactment; only the Department’s interpretation and application of the statute have changed. Considering the foregoing, we reject the Department’s interpretation. To do otherwise would add words to and rewrite an unambiguous statute.”

Justice Johnson took the Department of Revenue to task for its argument that its interpretation of the statute is entitled to judicial deference. “The Department’s argument for deference is a difficult one to accept, considering the Department’s history interpreting the exemption. Initially, and shortly after the statutory enactment, the Department adopted an interpretation which is at odds with its current interpretation. One would think that the Department had some involvement or certainly awareness of the legislature’s plans to enact this type of statute.”

Justice Debra Stephens and three other justices dissented, writing that the out-of-state exemption from the B&O tax should be interpreted narrowly and that by allowing Dot Foods to claim the exemption the majority decision “expands the exemption well beyond its intended scope.”

State v. Heddrick, No. 80841-4. In 2004, Steven Ray Heddrick, Jr., was charged with felony harassment. While awaiting trial, Heddrick was allegedly involved in an altercation with jailhouse staff, which resulted in a subsequent charge of custodial assault. Concerns about Heddrick’s competency for trial arose several times. Eventually the trial court determined that Heddrick was competent to stand trial without conducting an evidentiary hearing, without having written competency evaluations, and without entering a written competency order. Heddrick argues that the trial court failed to follow proper procedures in declaring him competent to stand trial, and that he was denied a lawyer during the competency hearing.

The Supreme Court ruled that Heddrick, through his appointed counsel, waived completion of the statutory competency procedures. Additionally, the court ruled that Heddrick did not suffer a complete denial of counsel during a critical stage in the proceedings. Justice Susan Owens wrote the unanimous opinion.

The issue involves the standard by which shareholders may commandeer control of a corporation to sue in its name in what is called a shareholder derivative lawsuit. Such suits are a limited and disfavored exception to the rule that corporate governance is vested in the business judgment of officers and directors. Before taking the reins of a company in a lawsuit, must a shareholder first make demand of the corporation to take action itself, and then only proceed if the corporate leaders refuse the demand? Or could shareholders excuse themselves from the requirement by claimint demand would be "futile"? Far from an esoteric journey through the business law textbook, the question has real consequences for current and potential Washington companies because shareholder derivative suits are very susceptible to a form of lawsuit abuse called the "strike suit."

. . .

Unfortunately, after recognizing the national trend against which it was deciding, and admitting it was adopting a pro-plaintiff standard, the court answered AWB's questions above with a resounding "No"