Auto West, Inc. v. Baggs

678 P.2d 286, 1984 Utah LEXIS 754
CourtUtah Supreme Court
DecidedJanuary 23, 1984
Docket17984
StatusPublished
Cited by7 cases

This text of 678 P.2d 286 (Auto West, Inc. v. Baggs) is published on Counsel Stack Legal Research, covering Utah Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Auto West, Inc. v. Baggs, 678 P.2d 286, 1984 Utah LEXIS 754 (Utah 1984).

Opinions

STEWART, Justice:

This is an appeal by Auto West, Inc., Charles Bryan, Paul Graff, and Norman P. Stephens (appellants) from a judgment awarding them $6,334.12 in damages, and an appeal by Charles Bryan from a judgment awarding Richard Baggs $25,000 damages for slander. The trial court also ruled that certain stock proxies executed by Graff and Bryan in favor of Baggs were irrevocable and valid. On this appeal, Auto West, Bryan, Graff and Stephens contend (1) that the money judgment in their favor was insufficient; (2) that the circuit judge who tried the case was without authority to conduct the case and was biased; and (3) that the trial court erred in ruling that the proxies were valid. Bryan contends that the slander judgment was unsupported by the evidence and contrary to the law.

In 1976, Baggs and a partner purchased a Volkswagen automobile dealership in Cedar City, Utah, and formed Auto West, Inc. Baggs acquired 51 percent of the Auto West stock and his partner acquired the remaining 49 percent. Business was slow, [288]*288and by June, 1978, Auto West was in serious financial trouble.

In 1978, Bryan approached Baggs and expressed an interest in the dealership. Bryan told Baggs that he and his two partners, Graff and Stephens, had cash that they could invest in Auto West. After negotiations, Bryan bought a 30 percent interest in Auto West; Graff bought a 25 percent interest; and Stephens bought a 25 percent interest. Baggs' partner sold out his entire interest, and Baggs was left with a 20 percent interest. Baggs continued to work as the Auto West general manager and the dealer-operator. Bryan, Graff, Stephens, and Baggs became officers and directors of Auto West.

Auto West requested Volkswagen’s approval of the change in the ownership of Auto West. Volkswagen agreed to execute a dealer agreement on condition that Baggs obtain majority voting rights in the stock. To comply, Graff and Bryan executed irrevocable voting proxies to Baggs for an indefinite period.

Baggs continued to run the business, operating it somewhat informally as if it were a sole proprietorship. He did not record all monetary and other pertinent transactions in the company books; he raised his own pay without consulting anyone; he “borrowed” cash from the corporation; and he billed Auto West for work done on his home and the homes of Bryan and Graff by an Auto West employee.

When Bryan and Graff realized that Auto West had paid for the work on their homes, they requested an accounting from the employee who had done the work so that they could repay Auto West. This request led Bryan, Stephens, and Graff to investigate whether any accounting discrepancies existed; the investigation revealed several improprieties. Bryan, Stephens, and Graff became angry with Baggs because of his accounting practices and came to believe that Baggs had taken monies from the corporation that had not been accounted for.

This investigation occurred while Baggs was on vacation. Before Baggs returned, Bryan, Graff, and Stephens took control of Auto West. A new sales manager was appointed to replace Baggs. Bryan informed some of the employees of Auto West that Baggs had “stolen” or “embezzled” funds belonging to Auto West and that upon his return he would be terminated from his employment. Bryan also told several prominent business people and citizens of Cedar City that Baggs had “taken,” “stolen,” or “embezzled” large sums of money from Auto West.

When Baggs returned, the board of directors of Auto West met and terminated Baggs from his positions as dealer-operator, executive vice-president, and general manager of Auto West. Bryan and Graff also prepared documents to rescind the irrevocable proxies that they had previously given to Baggs. The locks on Auto West were changed, and Baggs was prevented from entering the premises.

I.

On December 26, 1979, Auto West commenced an action in the Fifth Judicial Court of Iron County against Baggs for termination of the proxies, an accounting, and a return of all monies improperly taken from Auto West, Inc. The Honorable J. Harlan Burns, District Judge, entered a partial default judgment because Baggs had apparently failed to respond. In reality, however, Baggs had filed a timely motion to dismiss plaintiffs’ complaint. When Baggs received notice of the default judgment, he immediately filed a motion to vacate. Thereafter, Judge Burns disqualified himself and signed an order pursuant to U.C.A., 1953, § 78-4-15 (as enacted in 1977), appointing Judge Owens, a circuit judge, to sit as a district judge pro tempore to hear the case.

The appellants filed a motion contending that Judge Owens had not been lawfully appointed to sit on the case. The appellants also sought to disqualify Judge Owens on the basis of prejudice. These motions were denied by another circuit court judge.

[289]*289Baggs filed an answer and counterclaimed against the appellants, alleging slander. After a bench trial, the trial judge ruled that the irrevocable voting proxies were valid because they were coupled with an interest and entered judgment against Baggs and in favor of Auto West for the value of the items which Baggs had charged to Auto West for his own personal benefit. The judge also awarded Baggs a judgment of $25,000 against Bryan on the slander cause of action.

While this lawsuit has been on appeal, Auto West filed for a Chapter 11 bankruptcy. On April 8, 1982, Auto West executed a stipulation in the bankruptcy proceeding agreeing to cease operation as a Volkswagen dealership. Subsequently, a plan of reorganization for Auto West was approved.

The first issue on this appeal is whether the Honorable Robert F. Owens was properly appointed to hear this case. The appellants argue that according to U.C.A., 1953, § 78-3-16,1 all parties must each agree to the appointment of a judge pro tempore. That rule, however, pertains only if the judge sits pursuant to the terms of § 78-3-16. But § 78-4-15, relied on here by the original district judge, does not require the parties’ approval. At the time of the appointment of Judge Owens, § 78-4-15 provided in relevant part:

Any judge of the circuit court may, at the request of any judge of the district court and with the approval of the state court administrator, sit as a district judge and in those instances shall have the same powers as a district judge.2

Judge Owens’ appointment to sit as a district judge was lawful pursuant to this section.

Appellants’ contention that Judge Owens was prejudiced or biased against appellants is without merit. We find nothing in the record to support the contention.

II.

We turn next to the appellants’ contention that the trial court erred in ruling that the proxies executed by Graff and Bryan in favor of Baggs are valid. The trial judge held the proxies were irrevocable and valid because the proxies were coupled with an interest. The interest was that the proxies were given to protect the interest of all the parties in maintaining the Volkswagen franchise. The appellants argue that U.C.A., 1953, § 16-10-31 made the proxies invalid eleven months after their execution.

At common law, shares had to be voted in person at corporate meetings. 5 Fletcher, Cyclopedia Corporations § 2050 (rev. vol. 1976). With time, it became apparent that allowing voting by proxy could serve legitimate interests. Now all states have statutes which authorize proxies.

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Auto West, Inc. v. Baggs
678 P.2d 286 (Utah Supreme Court, 1984)

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Bluebook (online)
678 P.2d 286, 1984 Utah LEXIS 754, Counsel Stack Legal Research, https://law.counselstack.com/opinion/auto-west-inc-v-baggs-utah-1984.