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Warshawer v. Tarnutzer

United States District Court, W.D. Washington, Seattle

June 12, 2015

ROBERT WARSHAWER and KIM WARSHAWER, a married couple; GLENN BUTLER, Shareholder's Agent or the former shareholders of Black Rock Cable, Inc., Plaintiffs,
v.
RICK TARNUTZER, an individual; NANCY TARNUTZER, and individual, Defendants.

ORDER GRANTING GLENN BUTLER'S MOTION FOR SUMMARY JUDGMENT

RICARDO S. MARTINEZ, District Judge.

I. INTRODUCTION

This matter comes before the Court on Plaintiff Glenn Butler's Motion for Summary Judgment on Rick Tarnutzer's Ownership Claim In Black Rock Cable, Inc. Dkt. #46.[1] Through this motion, Mr. Butler seeks an Order: 1) declaring that Rick Tarnutzer held no ownership interest in Black Rock at the time of the Black Rock Merger; 2) dismissing with prejudice all claims by Rick Tarnutzer against the former Black Rock shareholders and against the $3 million in Black Rock Merger proceeds in escrow; and 3) authorizing the disbursement of the remaining $3 million in Black Rock Merger proceeds to the Black Rock shareholders. Id. Defendant Rick Tarnutzer opposes the motion, arguing that the motion should be denied because Plaintiff has misconstrued the applicable corporate law and because Black Rock is liable for violations of Washington State's securities fraud laws. Dkt. #58 at 2. For the reasons set forth below, the Court disagrees with Defendant Tarnutzer and GRANTS Mr. Butler's motion for summary judgment.

II. BACKGROUND

As noted in the Court's previous Orders in this matter, this case arises from the sale of Black Rock Cable ("Black Rock") and questions surrounding whether certain payments from Defendants to Plaintiffs prior to the sale were loans, gifts or investments into Black Rock. Dkt. #1. The instant motion pertains to Defendant Rick Tarnutzer's alleged ownership interest in Black Rock.[2]

Black Rock was incorporated in Nevada but operated exclusively in Washington, with its headquarters and principal place of business in Bellingham, WA. Dkt. #49 at ¶ 3. Although Black Rock began as a cable TV provider, the company abandoned that aspect of its business in 2002. Id. at ¶ 4. By 2003, Black Rock's business was based on building, owning and operating its own fiber optic network in Bellingham, WA. Id. Between 2004 and 2006, Black Rock expanded into Whatcom County, WA, Skagit County, WA, and Snohomish County, WA. Id.

As Black Rock rapidly expanded, it funded that expansion with its own revenue and through a line of credit at a local bank. Id. at ¶ 5. In 2007, Black Rock began exploring alternative ways of financing. Id. at ¶ 6. In September 2007, Plaintiff Robert Warshawer, who was also a shareholder and member of the Board of Directors of Black Rock, personally loaned the company $700, 000. Id. at ¶ 7. Mr. Warshawer raised that money by borrowing it from family members, including Defendants Nancy and Rick Tarnutzer. Id.

According to Defendants, in May or June of 2007, Plaintiff Kim Warshawer (who is Defendant Nancy Tarnutzer's daughter and Defendant Rick Tarnutzer's sister) was visiting in California and revealed to Mr. Tarnutzer that Black Rock was in serious financial trouble. Dkt. #6 at ¶ ¶ 2-3. Mr. Tarnutzer, believing that his sister's husband would be successful in turning the business around, decided to invest in Black Rock. Id. at ¶ 4-5. Accordingly, he sent a check to Plaintiffs in the amount of $100, 000, marking the check with the notation "Black Rock Cable Inv." Id. at 5-6 and Ex. A. Mr. Tarnutzer asserts that the notation "Inv." reflected the word "investment." He further asserts that he provided a note with the check stating that it was an investment. Id. at ¶ 6. Mr. Warshawer subsequently cashed the check. Plaintiffs characterize the payment as a loan that they have attempted to repay, asserting that Mr. Tarnutzer never directly invested in Black Rock. Dkt. #10 at ¶ 4.

Black Rock followed all corporate formalities with respect to the $700, 000 loan from Mr. Warshawer, including obtaining approval of the loan by the non-interested Board members and adopting a written Board resolution approving the loan in October 2007. Dkt. #49 at ¶ 9 and Ex. A.

From 2007 to 2012, Black Rock continued to operate successfully. Id. at ¶ 10. In November of 2012, the Black Rock shareholders approved a merger between Black Rock and WHD Black Rock, LLC ("WDHBR"), and the merger closed. Id. The Black Rock shareholders received approximately $30 million in Merger proceeds at closing. Dkt. #48 at ¶ 3. Since then, the shareholders have received approximately $5 million in additional distribution of merger proceeds. Id.

In November of 2013, after learning of the sale, Mr. Tarnutzer attempted to obtain a return on his $100, 000 "investment, " alleging that he was owed approximately $5 million. Dkts. #13, #18, Ex. G and #49 at ¶ 11 and Ex. B. When his efforts to collect the money were unsuccessful, his attorney wrote a letter to WDHBR's parent company, Wavedivision, providing notice of the dispute. Dkt. #18, Ex. G. Wavedivision has since held more than $3 million in escrow from distribution to Black Rock pending resolution of the dispute. Dkt. #10 at ¶ 9.

On June 6, 2014, Mr. Tarnutzer filed a lawsuit against the Warshawers, Black Rock Cable and Wavedivision in Orange County Superior Court in California. Dkt. #5, Ex. B. The same day, Robert Warshawer filed the instant lawsuit in Washington, in Whatcom County Superior Court, against Rick Tarnutzer and Nancy Tarnutzer. Dkt. #5, Ex. C. The Washington case was subsequently removed to this Court. Dkt. #1. The Tarnutzer Defendants then moved for a transfer to the Central District of California for consolidation with their "first-filed" case. Dkt. #4. This Court deferred the motion to transfer, and stayed this case pending further proceedings in California. Dkt. #8. On November 10, 2014, the parties notified this Court that the California action had been dismissed, and asked the Court to lift the stay and allow the matter to proceed. Dkt. #21. The Court did so on November 25, 2014. Dkt. #25.

Mr. Tarnutzer has since asserted a Counterclaim against Black Rock, alleging:

13. After receipt of the $100, 000 investment check, in June 2007, Robert Warshawer telephonically contacted Mr. Tarnutzer and thanked him for the investment. During this telephone conversation Mr. Tarnutzer and Robert Warshawer, on behalf of himself, his wife and Black Rock, discussed and agreed that Mr. Tarnutzer's investment would have the status of a founders/preferred stock ...

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