BUTKO v. STEWART TITLE COMPANY OF WASHINGTON INC (2000)

Anne Butko and her son, Richard Butko, sued escrow agent Stewart Title Company of Washington, Inc. over the 1993 closing of a loan and real estate transaction.   They alleged that Stewart Title engaged in breach of contract, fraud, conspiracy, intentional interference with a business expectancy, breach of fiduciary duties, negligence, and conversion.   The trial court dismissed the matter on summary judgment.   Finding genuine issues of material fact only as to Richard Butko's breach of fiduciary duty claim and Anne Butko's conversion claim, we affirm in part and reverse in part.

fACTS

In the 1980s, Anne Butko, Richard Butko, attorney G. Patrick Healy, and Patrick Healy's brother, Michael Healy, formed about two dozen corporations and partnerships, each pertaining to a particular property.   The following background information is necessary to understand the dispute between these former partners and Stewart Title Company of Washington, Inc. (Stewart Title).

a. Butko-Healy Corporations/Properties

1. Creekridge Glen, Inc.

Anne Butko, Patrick Healy, and Michael Healy were co-equal shareholders in Creekridge Glen, Inc.   In July 1990, Anne Butko and the Healys, acting as co-equal shareholders in Creekridge Glen and in another corporation, Healko, purchased 722 acres located in Pierce County (Creekridge Glen property).

In October 1992, over Anne Butko's objection, Patrick Healy conveyed the Creekridge Glen property to C. G., Inc., a new corporation jointly owned by the Healy brothers.¹  In January 1993, C. G., Inc. filed for bankruptcy and listed Anne Butko as codebtor.   In August 1993, Patrick Healy pledged the Creekridge Glen property to secure the Shulman loan, described below.

2. Parkview Point, Inc.

Anne Butko and the Healy brothers also were co-equal shareholders and directors of Parkview Point, Inc.   Ten Parkview Point subdivision lots had been pledged as additional security for the loans (the Centrum and Macri loans discussed below) used to finance the purchase of the Creekridge Glen property.   Sometime later, Anne Butko and Patrick Healy conveyed the Parkview Point property from one of their partnerships, Healy Palisades, to Parkview Point.

In 1993, Patrick Healy conveyed nine of the Parkview Point lots pledged as security for the Centrum and Macri loans to the assignees of those notes, and pledged another five lots as security for the Shulman loan.²  Anne Butko claims she did not authorize those transactions.

3. Madrona, Inc.

Richard Butko and Patrick Healy were co-equal shareholders and directors in Madrona, Inc., which held title to property in Pierce County (Madrona property).   In October 1992, Patrick Healy acquired Richard Butko's interest in Madrona over Richard Butko's objection.   In 1993, Patrick Healy pledged 71 Madrona lots as security for the Shulman loan.³

b. The 1990 Centrum and Macri Loans

To finance the purchase of the Creekridge Glen property, Anne Butko and the Healys signed promissory notes for two loans:  one in favor of Centrum Financial Services (Centrum note), and one in favor of Macri Investments (Macri note).   As security for these two loans, they each pledged their personal residences and other properties.⁴  They defaulted on the Centrum and Macri notes in February 1991, interest began accruing at 36 percent, and the lenders initiated various foreclosure actions.

C. The 1993 Transactions

1. Shulman Loan

After Patrick Healy put C. G., Inc. into Chapter 11 bankruptcy proceedings, Centrum moved to lift the Chapter 11 stay or, in the alternative, dismiss the case.   Meanwhile, Patrick Healy sought a loan from equity financier Alex Shulman, trustee of Alaska Distributors Company 1990 Restated Profit Sharing Plan and Trust, to pay off the Centrum and Macri notes.

Shulman agreed to loan $1.7 million to C.G., Inc. and Madrona, Inc.   The Creekridge Glen property, 71 lots of the Madrona property, five Parkview Point lots, and other property located in King County served as security for the new loan.

2. Parkview Point Conveyance

Contemporaneously with the Shulman loan negotiations, Patrick Healy negotiated with Raymond Davis, in-house counsel for Stewart Holding Company (Stewart Holding), who was attempting to collect on the Centrum note on behalf of assignee Stewart Guaranty, and with Peter Murphy, president of Jackpot Investments, Inc., assignee of the Macri note.⁵  Stewart Title Guaranty (Stewart Guaranty) and Pacific Northwest Realty Holding Company (another Stewart entity, and parent company of Jackpot),⁶ eventually agreed to satisfy the notes for $1.158 million in cash and deeds to nine of the Parkview Point lots pledged as security for the 1990 loans.

d. The 1993 Closing

The parties retained Stewart Title to close the Shulman loan and the Parkview Point conveyance simultaneously.

1. Communications Related to Closing

a. Stewart Guaranty

On June 25, 1993, Stewart Holding in-house counsel Davis faxed a letter to Stewart Guaranty counsel Ed Sato listing Stewart Holding's conditions for satisfying the Centrum and Macri notes (Sato letter).   One of these conditions was a corporate resolution containing Anne Butko's signature authorizing the conveyances.   In what he described as “an excess of caution,” Davis “wanted Anne Butko to confirm this deed in lieu of foreclosure.”   Davis also discussed these requirements with Murphy.

b. Stewart Title

On June 25, 1993, Stewart Title sent Patrick Healy its request for a corporate resolution containing Anne Butko's authorization of the Parkview Point conveyance.   Stewart Guaranty's conditions, as outlined in the Sato letter and discussed between Davis and Murphy, formed the basis of this request.

Patrick Healy then sent Stewart Title a Parkview Point corporate resolution authorizing conveyance of the lots to the Centrum and Macri assignees.   But the resolution contained Patrick Healy's signature only.   When the closing officer saw the resolution, she wrote:  “This seems awfully self-serving to me!” on her copy of the document.

Unsure whether the Parkview Point resolution was adequate to close the transaction, the closing officer sought guidance from her supervisors (either Peter Murphy or the supervising closing officer).   But when First American Title Insurance Company (FATCO) indicated it was willing to issue title insurance without first obtaining Anne Butko's signatures, Stewart Title decided it could also forego her signature.

c. Healy - Butko

On July 22, 1993, Richard Butko wrote the Healy brothers a letter in which he acknowledged Patrick Healy's request that he and his mother execute “various documents, agreements, consents to action” and that Anne Butko agree to additional encumbrances and promissory notes aimed at settling debts with Centrum, Macri, and others.   Richard Butko requested detailed information regarding “the new financing which [Patrick Healy had] proposed.”

On July 26, 1993, Patrick Healy sent a letter to Richard Butko's attorney containing a general discussion of Crestview Glen and Parkview Point in conjunction with the refinancing and a request that Richard Butko return the “Consent to Action” regarding Parkview Point.   The letter did not mention Shulman or the upcoming closing.

2. Title Insurance

Patrick Healy told Davis that he could obtain title insurance from FATCO without having to obtain Anne Butko's signature.   He said that he was working on behalf of Anne Butko and she did not want to become involved any further in the transaction.⁷

FATCO's Pierce County manager/counsel Paul Hammann agreed to insure the transaction based in part on his perception that “Patrick Healy was running the show.”   Davis also approved of Healy's plan, and FATCO issued a commitment to issue title insurance.

3. Escrow Instructions

Shulman issued a set of escrow instructions that included disbursements to the assignees of the Centrum and Macri notes but contained no specific instructions as to the Parkview Point conveyances.   The instructions noted merely that the “Stewart Title Guaranty Company lien ․ has been reconveyed or will be reconveyed simultaneously with the closing of this Loan.”   Neither the Shulman instructions nor the Sato letter lists Parkview Point or Anne Butko as parties to the transaction.

4. The Closing and the C. G., Inc. Bankruptcy Estate

Patrick Healy filed the Shulman closing instructions and other documents pertaining to the Shulman loan in the C. G., Inc.   Chapter 11 bankruptcy court file.   Sato also filed a pleading in the bankruptcy case referencing the pending closing.   But although Anne Butko was listed as a codebtor in the bankruptcy and had filed at least one pleading in the bankruptcy case, she did not receive a copy of the Shulman loan documents or Sato's pleading.

5. The Butko Letter

Closing commenced on August 18, 1993, when Shulman delivered a check to Stewart Title.   Richard Butko claims he first learned of the closing on August 19.   Then, late in the afternoon of August 19, counsel for the Butkos faxed a letter to Stewart Title (Butko letter) in which the Butkos asserted equitable ownership interests in the relevant properties and the corporations holding title to those properties.

Anne and Richard Butko claimed in the letter that (1) they had no advance knowledge of the closing and did not approve of it, (2) Healy lacked legal authority to carry out the transaction, and (3) the transaction was void therefor.   They asked Stewart Title to interplead any funds not yet disbursed.

After reading the Butko letter, Murphy allowed the closing to proceed.   He stated:  “In my view, the transaction was already closed.   In my view, a closing is recording and receipt of recording numbers of the major documents in a transaction.”

Stewart Title did not contact either Anne or Richard Butko about the letter.   Murphy testified that he did not consider them to be parties to the escrow and, thus, he had no obligation to contact them.   Further, Murphy claimed he was not aware that Anne Butko was a Parkview Point director until he received the Butko letter.   Nor did Stewart Title contact Patrick Healy or Shulman about the Butko letter.   It finally forwarded a copy to FATCO on August 24, 1993.

On August 20, 1993, Stewart Title disbursed loan proceeds to Stewart Guaranty and Pacific Northwest Realty Holding Company.   Disbursements for delinquent charges, taxes, fees, and service charges continued for approximately another three weeks.

As a result of the Shulman loan, the Macri and Centrum notes were paid off and the deed of trust on Anne Butko's house was extinguished.⁸

e. The Butko v. Stewart Title Suit

On August 16, 1996, Anne and Richard Butko, individually and on behalf of Creekview Glen, Inc., Parkview Point, Inc., and Madrona, Inc., filed suit against Stewart Title and more than two dozen other individuals and entities connected with the 1993 transactions.⁹  Pierce County No. 96-2-10456-1.   Regarding Stewart Title, the Butkos alleged breach of contract, fraud, conspiracy, intentional interference with their business expectancies, negligence, and conversion.

Among many prayers for relief, the Butkos asked the court to void the Shulman transaction and to convey the Creekridge Glen, Parkview Point, and Madrona properties back to them.   In the alternative, they asked the court to award damages for the value of the Parkview Point lots.

In February 1998, the trial court granted summary judgment to the various Stewart entities, including Stewart Title.   On March 16, 1998, the trial court entered an order dismissing the Butko claims with prejudice.

Also on March 16, 1998, the trial court entered a stipulated order based upon a March 10, 1998 settlement agreement between the Butkos and defendants Shulman, FATCO, and Takisaki (another lender).   The order dismissed with prejudice all Butko claims against those parties, including all Stewart entities, except Stewart Title, against whom the Butkos specifically reserved their claims.

The Butkos appeal the trial court's order of summary judgment in favor of Stewart Title.

dISCUSSION

a. Procedural Issues1. Standing

Stewart Title argues that the Butkos have no standing to appeal because they were not parties to the escrow.

“Only an aggrieved party may seek review by the appellate court.”   RAP 3.1;  see In re Estate of Wood, 88 Wash.App. 973, 976, 947 P.2d 782 (1997) (citing RAP 3.1).  “An aggrieved party is someone whose proprietary, pecuniary, or personal rights are substantially affected.”  Wood, 88 Wash.App. at 976, 947 P.2d 782 (citing In re Guardianship of Lasky, 54 Wash.App. 841, 848, 776 P.2d 695 (1989)).   The appealing party must have a substantial interest in the subject matter before the trial court and is “aggrieved or prejudiced by the judgement or order of the court.”   State ex rel. Simeon v. Superior Court, 20 Wash.2d 88, 90, 145 P.2d 1017 (1944).

a. Anne Butko's standing

Anne Butko had an interest in two properties subject to this controversy, Creekridge Glen and Parkview Point, but she briefs only the Parkview Point matter.¹⁰  Consequently, we limit our review to assignments of error as they pertain to Parkview Point.   RAP 10.3(a)(5);  Cowiche Canyon Conservancy v. Bosley, 118 Wash.2d 801, 809, 828 P.2d 549 (1992);  Smith v. King, 106 Wash.2d 443, 451, 722 P.2d 796 (1986).

It is undisputed that Anne was a co-equal shareholder and director of Parkview Point at the time of closing.   And Parkview Point, as title owner of the Parkview Point property, had a financial stake in the transaction.   Thus, Anne, as owner of the corporation, also had a substantial pecuniary interest in the escrow insofar as it related to Parkview Point.   Consequently, Anne Butko meets the definition of a “party” under RAP 3.1.

She also is “aggrieved” in a “legal sense.”  Simeon, 20 Wash.2d at 90, 145 P.2d 1017.   She produced evidence of the value of the nine lots conveyed to the Centrum and Macri assignees.   Her loss of the value attributable to these lots may reasonably constitute damages that the trial court's summary judgment order caused her to forego.   Thus, Anne Butko has standing to appeal the trial court's ruling as it applies to Parkview Point.  RAP 3.1.

b. Richard Butko's Standing

Richard Butko's only direct connection to this dispute is his alleged ownership interest in Madrona;  he had no ownership interest in Parkview Point.   Contrary to Stewart Title's assertion, Madrona was a party to the Shulman loan.¹¹

Richard Butko was a co-equal shareholder/director of Madrona until Patrick Healy expelled him.   But as stated in footnote 3, a trial court has found his ouster to be illegal and that judgment is pending on appeal.   Assuming the judgment is sustained on appeal, Richard Butko's interest in Madrona is similar to that of his mother's in Parkview Point.   Thus, we consider his arguments on appeal with regard to Madrona.   RAP 3.1.

2. Collateral Estoppel

Stewart Title, citing Hanson v. City of Snohomish, 121 Wash.2d 552, 560-62, 852 P.2d 295 (1993), argues that Anne Butko is collaterally estopped from challenging the Parkview Point conveyances because of the earlier arbitration on the matter.   We disagree.

“The doctrine of collateral estoppel prevents relitigation of an issue after the party estopped has had a full and fair opportunity to present its case.”   Hanson, 121 Wash.2d at 561, 852 P.2d 295 (citing Malland v. Department of Retirement Sys., 103 Wash.2d 484, 489, 694 P.2d 16 (1985);  Beagles v. Seattle-First Nat'l Bank, 25 Wash.App. 925, 929, 610 P.2d 962 (1980)).  “The purpose of the doctrine is to promote the policy of ending disputes, to promote judicial economy and to prevent harassment of and inconvenience to litigants.”  Hanson, 121 Wash.2d at 561, 852 P.2d 295 (citing Malland, 103 Wash.2d at 489, 694 P.2d 16;  Beagles, 25 Wash.App. at 929, 610 P.2d 962).

The elements of collateral estoppel are:

(1) the issue decided in the prior adjudication must be identical with the one presented in the second;  (2) the prior adjudication must have ended in a final judgment on the merits;  (3) the party against whom the plea is asserted was a party or in privity with a party to the prior adjudication;  and (4) application of the doctrine must not work an injustice.

Barr v. Day, 124 Wash.2d 318, 325, 879 P.2d 912 (1994) (quoting Hanson, 121 Wash.2d at 562, 852 P.2d 295).

The party claiming collateral estoppel has the burden of proving all four elements.  Neff v. Allstate Ins. Co., 70 Wash.App. 796, 799, 855 P.2d 1223 (1993).   Because it is a form of adjudication, arbitration can form a basis for collateral estoppel.  Neff, 70 Wash.App. at 799-800, 855 P.2d 1223;  Dunlap v. Wild, 22 Wash.App. 583, 586-87, 591 P.2d 834 (1979).

Here, the arbitration produced a final judgment on the merits;  the arbitrator found, and the trial court affirmed, that Anne Butko had not proved Healy had breached his fiduciary duties to her in his handling of the Parkview Point lots.   See Dunlap, 22 Wash.App. at 591, 591 P.2d 834 (finding arbitrator's decision to be final judgment on the merits).   And Anne Butko was a party to both the arbitration and the action on appeal here.  Barr, 124 Wash.2d at 325, 879 P.2d 912;  Dunlap, 22 Wash.App. at 591, 591 P.2d 834.

But while the issue decided in arbitration is superficially similar to the issue in dispute here, breach of fiduciary duty, the two claims are not identical.  Barr, 124 Wash.2d at 325, 879 P.2d 912;  cf.  Dunlap, 22 Wash.App. at 590-91, 591 P.2d 834 (finding collateral estoppel applicable when arbitrator's finding of misrepresentation identical to issue in subsequent trial).   In the arbitration, Anne Butko alleged that Patrick Healy had breached his fiduciary duties as her attorney, financial advisor, business partner, and corporate officer.   Here, she raises a distinct issue:  whether Stewart Title breached its fiduciary duties as escrow agent.¹²  See Barr, 124 Wash.2d at 325, 879 P.2d 912.

Moreover, we cannot tell from the record whether the trial court ever considered the transfer of the Parkview Point lots as part of the Shulman closing.  “We cannot assume the [trial] court adjudicated anything that is not comprehended in the judgment.”  Southwestern Surety Ins. Co. v. Pacific Coast Cas. Co., 92 Wash. 654, 658, 159 P. 788 (1916).

Because Stewart Escrow has failed to show that the claims here are identical to the claims resolved in arbitration, its claim of collateral estoppel fails.   See Barr, 124 Wash.2d at 325, 879 P.2d 912.

3. Equitable Estoppel

Stewart Title also claims that the doctrine of equitable estoppel bars the Butko claims.   Again, we disagree.

A party alleging equitable estoppel must prove:  “(1) an admission, statement, or act inconsistent with a claim afterward asserted;  (2) action by another in reasonable reliance on that act, statement, or admission;  and (3) injury to the party who relied if the court allows the first party to contradict or repudiate the prior act, statement, or admission.”  Berschauer/Phillips Constr. Co. v. Seattle Sch. Dist. No. 1, 124 Wash.2d 816, 831, 881 P.2d 986 (1994), review denied, 135 Wash.2d 1010, 960 P.2d 937 (1998).   Because the courts do not favor estoppel, “a party asserting estoppel must prove each of its elements by clear, cogent and convincing evidence.”   Berschauer/Phillips, 124 Wash.2d at 831, 881 P.2d 986 (citing Colonial Imports, Inc. v. Carlton Northwest Inc., 121 Wash.2d 726, 734, 853 P.2d 913 (1993)).

Here, Stewart Title claims that the Butkos are equitably estopped from recovering because (1) they settled their claims against the other defendants;  (2) they waited too long to sue Stewart title;  (3) they knew about the 1993 transaction well before the date of closing;  and (4) they vested Patrick Healy with authority to conduct the transaction on his own.

With regard to the settlement agreement, Stewart Title cites no authorities holding that a settlement agreement bars a plaintiff from pursuing related claims against a non-settling defendant.   Further, the Butkos specifically reserved their claims for monetary damages against Stewart Title.   See RCW 4.22.060(2) (plaintiff may reserve claims against a non-settling defendant).

Nor does the timing of the Butkos' lawsuit, filed within a few days of the three-year limit imposed by RCW 4.16.080, support Stewart Title's argument.   Further, the record does not support the assertion that the Butkos had advance knowledge of the details of Patrick Healy's proposed refinancing deal.   Although Patrick Healy filed the closing documents with the bankruptcy court handling the C.G., Inc.   Chapter 11 case, nothing in the record indicates that the Butkos either received copies or had knowledge of those documents before the date of closing.

With regard to Patrick Healy's authority, the record shows that the Butkos did give him authority to obtain financing.   But it does not show that they gave him authority to convey or encumber specific corporate assets without equally specific authority.

Moreover, Stewart Title continued with the closing after it had received the Butko letter alleging Patrick Healy's lack of corporate authority.¹³  In that connection, Murphy played dual and potentially conflicting roles as escrow agent and party to the closing.   Because these facts are sufficient to raise an issue as to Stewart Title's good faith, Stewart Title cannot prevail on summary judgment on an equitable estoppel defense.   See Kramarevcky v. Department of Social & Health Serv., 122 Wash.2d 738, 743 n. 1, 863 P.2d 535 (1993);  Mutual of Enumclaw Ins. Co. v. Cox, 110 Wash.2d 643, 650, 757 P.2d 499 (1988) (noting that “clean hands” doctrine requires that party asserting equitable estoppel must be free from fault in the transaction at issue).

b. Breach of Fiduciary Duties

The Butkos allege that Stewart Title breached its fiduciary duties by failing to inform them of the closing and by not suspending the closing upon Anne Butko's demand.   We find Stewart Title owed no fiduciary duty to Anne Butko but that Richard Butko has raised genuine issues of material fact indicating a possible breach of fiduciary duty to him and Madrona.

When reviewing a grant of summary judgment, the appellate court engages in the same inquiry as the trial court.  Bishop v. Miche, 137 Wash.2d 518, 523, 973 P.2d 465 (1999).   Summary judgment is proper where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law.  Bishop, 137 Wash.2d at 523, 973 P.2d 465;  Taggart v. State, 118 Wash.2d 195, 198-99, 822 P.2d 243 (1992).   The court considers the facts and reasonable inferences from the facts in the light most favorable to the nonmoving party.  Bishop, 137 Wash.2d at 523, 973 P.2d 465;  Taggart, 118 Wash.2d at 199, 822 P.2d 243.   The appellate court reviews questions of law de novo.  Bishop, 137 Wash.2d at 523, 973 P.2d 465.

An escrow holder is an agent who occupies a fiduciary relationship with all parties to the escrow.  National Bank v. Equity Investors, 81 Wash.2d 886, 909-10, 506 P.2d 20 (1973).   An escrow holder's fiduciary duties are set forth in the escrow instructions.  Equity Investors, 81 Wash.2d at 910, 506 P.2d 20.

As a general rule, the escrow holder must act strictly in accordance with the provisions of the escrow agreement;  he must comply strictly with the instructions of the parties, and it is his duty to exercise ordinary skill and diligence, and due or reasonable care in his employment.   In his fiduciary capacity, he must conduct the affairs with which he is entrusted with scrupulous honesty, skill, and diligence.

Equity Investors, 81 Wash.2d at 910, 506 P.2d 20 (quoting 30A C.J.S. Escrows § 8 (1965)).

An escrow holder's fiduciary duty will extend to a third party beneficiary for the limited purpose of informing such a beneficiary of the termination of the escrow.  Gray v. England, 69 Wash.2d 52, 58, 417 P.2d 357 (1966).

Here, nothing indicates that Anne Butko or Parkview Point were parties to the escrow.   Even the Sato letter does not refer to her or Parkview Point as parties.   Thus, notwithstanding Anne Butko's and Parkview Point's peripheral significance, they were not principals to whom Stewart Title owed a fiduciary duty.

Nor has Anne Butko set forth facts indicating that Stewart Title owed her a duty as a third party beneficiary.   Although an escrow holder may owe a duty to third parties in limited circumstances, Anne Butko has not alleged facts indicating that her relationship with Stewart Title falls within any of those circumstances.   See Gray, 69 Wash.2d at 58, 417 P.2d 357 (holding that escrow agent owed fiduciary duty to third party beneficiary to inform it of the termination of the escrow);  Mur-Ray Management Corp. v. Founders Title Co., 169 Ariz. 417, 819 P.2d 1003, 1009 (1991) (holding that escrow company owed duty of reasonable care when making representations to third parties).   Further, assuming she was such a beneficiary, Stewart Title's duty would be limited to informing her of the termination of the escrow.  Gray, 69 Wash.2d at 58, 417 P.2d 357.

The Butkos contend that when Stewart Title received the Butko letter, it had a fiduciary duty to stop the proceedings.   As authority, they provide the following quote from Thompson on Real Property:

If the [escrow] agent clearly knows of a fraud on a party to the escrow being committed by the other party in the escrow, the agent's fiduciary obligations would preclude him from proceeding with the escrow without disclosure to the defrauded principal.   When the agent proceeds to perform the escrow with knowledge of the fraud he in effect is a participant in the fraud, and he is liable to the defrauded party if he does not disclose the fraud.

11 David A. Thomas, Thompson on Real Property § 94.06(e), at 349-50 (1994).

In response, Stewart Title notes that no Washington case resolves the tension between the basic principle that (a) escrow agents have a limited duty to carry out their escrow instructions and are free from liability if they do so and (b) an exception for cases of fraud that the Arizona Supreme Court adopted.   See Berry v. McLeod, 124 Ariz. 346, 604 P.2d 610, 616 (1979).

In Berry, the plaintiff did not allege that the escrow company actively participated in fraud, instead, the plaintiff contended that the escrow company shut its eyes to a party's fraudulent acts.  604 P.2d at 616.   While recognizing that an escrow agent has no duty to disclose information unless required to do so by the escrow agreement, the Berry court held that an escrow agent has a duty to disclose “when the escrow agent knows that a fraud is being committed on a party to an escrow and the failure of the escrow agent to disclose the information of the fraud will assist in accomplishing the fraud.”  604 P.2d at 616;  see also American State Bank v. Adkins, 458 N.W.2d 807, 810 (S.D.1990) (following Berry ).   As the Berry court further reasoned:  “We agree that an escrow agent has no duty to look for fraud, but, if knowledge comes to the escrow agent that there is a fraud, there is a duty to disclose such information to the parties to the escrow.”  604 P.2d at 616.

The Berry rule also does not require that the escrow agent have actual knowledge of the commission of a fraud;  an agent may not “close its eyes in the face of known facts and console itself with the thought that no one has yet confessed fraud.”  Burkons v. Ticor Title Ins. Co., 168 Ariz. 345, 813 P.2d 710, 718 (1991).  “Although not required to investigate, when the agent is aware of facts and circumstances that a reasonable escrow agent would perceive ‘as evidence of fraud,’ there is a duty to disclose.”  Burkons, 813 P.2d at 718 (quoting Note, Escrowee's Duty to Disclose Fraud:  An Expansion of the Limited Agency Doctrine, 22 Ariz. L.Rev. 1146, 1153 (1980)).

Berry and its progeny are consistent with the policies underlying Washington escrow law.   Although the escrow instructions reflect the intent of the parties with regard to the transaction and provide a roadmap for the escrow agent, an allegation that an escrow document was fraudulently procured may call into question the legal validity of the subject transaction.   The fraudulently procured document may be inoperative to pass title, causing the escrow to be ineffective.   See Angell v. Ingram, 35 Wash.2d 582, 587, 213 P.2d 944, 15 A.L.R.2d 865 (1950);  Hecomovich v. Nielsen, 10 Wash.App. 563, 569, 518 P.2d 1081 (1974).

It is the parties' goal to have an effective escrow proceeding, and the escrow agent should not be allowed to close its eyes to information that could interfere with this goal.   By notifying the parties of the alleged fraud, the agent allows the parties to review the allegation and issue revised instructions to the escrow agent if necessary.   Thus, we hold that an escrow agent has a fiduciary duty to inform the parties to the transaction if it has reasonable cause to believe a party has perpetrated a fraud against another party to the transaction.  Burkons, 813 P.2d at 718;  Berry, 604 P.2d at 616;  American State Bank, 458 N.W.2d at 810.

Applying this rule to the facts here, Stewart Title had reasonable cause to believe that Patrick Healy might have perpetrated a fraud on another party.   Madrona was a principal to the transaction and the Butko letter clearly claimed that Richard Butko's ouster from Madrona was illegal, the pledging of Madrona property was unauthorized and, thus, the Shulman transaction was voidable.

Under the Berry rule, Shulman, apparently an uninformed party, clearly would have had a cause of action against Stewart Title for its nondisclosure.   But the Butko claim goes a step farther;  it requires us to decide if an escrow agent owes a duty to the notifying party (Richard Butko) to advise other uninformed parties of a potential fraud.   In other words, does Richard Butko have a cause of action against Stewart Title for its failure to advise Shulman of the contents of the Butko letter.¹⁴

We believe the principles supporting the Berry rule support this extension of the rule.   Here, Stewart Title, as escrow agent, was in a better position to advise the parties of the potential fraud.   Thus, we conclude that Richard Butko has a cause of action assuming he can show that Stewart Title's failure to notify Shulman was the proximate cause of Richard Butko's damages.

Thus, upon receipt of the Butko letter, Stewart Escrow had a fiduciary duty to advise all parties about the allegations.  Burkons, 813 P.2d at 718;  Berry, 604 P.2d at 616;  American State Bank, 458 N.W.2d at 810.   With this information, the affected parties could have made further inquires, assessed whether the escrow instructions still reflected their intent, and possibly provided revised instructions to Stewart Title.

Further, there is an issue of material fact as to whether Stewart Title breached this duty when it proceeded with the closing without informing any other parties to the transaction.   Stewart Title's inaction was particularly troublesome in light of the fact that its director, Murphy, also was the president of a party, Jackpot, that stood to benefit from the transaction.   See Collins v. Heitman, 225 Ark. 666, 284 S.W.2d 628, 633 (1955) (escrow agent “cannot place himself in a situation where personal interests conflict with the duties owed his principal”);  In re Discipline of Two Attorneys, 421 Mass. 619, 660 N.E.2d 1093, 1098 (1996) (“Surely, self-dealing by an escrow holder, such as an escrow holder's unauthorized collection from escrowed funds of a debt owed by a party to the escrow agreement, would be a breach of duty.”);  American State Bank, 458 N.W.2d at 811 (noting that escrow agent should avoid self-dealing that places his interests in conflict with obligation to party to escrow);  Trevino v. Brookhill Capital Resources, Inc., 782 S.W.2d 279, 281 (Tex.Ct.App.1989) (same reasoning quoted with approval in American State Bank ).   Consequently, the trial court erred in summarily dismissing Richard Butko's claim of breach of fiduciary duty.¹⁵

d. Conversion

The Butkos also allege that Stewart Title knowingly participated in the conversion of their assets by helping Patrick Healy convert the value of their shares in Parkview Point and Madrona.   Stewart Title responds that the tort of conversion relates only to personal property, not to real property.   It also contends that there is no evidence that it engaged in an unauthorized interference with the Butkos' property or property interests.

Although the assets of Parkview Point and Madrona largely consisted of the Parkview Point and Madrona real property, the Butkos claim damages for the diminished share value of their interests in Parkview Point and Madrona.   The expanding law of conversion does encompass some claims involving rights in intangible personal property.

“Conversion is a widespread, diffuse, pervasive, yet elusive, tort.”   7 Stuart M. Speiser et al., The American Law of Torts § 24:1, at 697 (1990).   “Highly technical in its rules and complications, perhaps more so than any other except defamation, it almost defies definition.”   W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 15, at 88 (5th ed.1984).

“Conversion originated as a device for resolving property disputes” descended primarily from the old common law action of trover.   Russell A. Hakes, A Quest For Justice In The Conversion Of Security Interests, 82 ky. L.JJ. 837, 862 (1993-94);  see also keeton, supra, at 89;  Val D. Ricks, Comment, The Conversion of Intangible Property:  Bursting The Ancient Trover Bottle With New Wine, BYU L.Rev. 1681, 1683 (1991).   Trover applied traditionally to situations where a defendant found and then kept or disposed of the lost chattel of the plaintiff.¹⁶  Keeton, supra, at 89;  Ricks, supra, at 1683.

A common thread running through the “plethora” of definitions of conversion set forth by various American jurisdictions is “a wrongful taking, detention, or interference with, or an illegal assumption of ownership or possession, or illegal use or misuse, of the personal property of another.”   Speiser, supra, at 699-700.   Washington courts have been consistent with this general definition, describing conversion as the willful interference with any chattel without lawful justification whereby any person entitled to that chattel is deprived of the possession of it.  Kruger v. Horton, 106 Wash.2d 738, 743, 725 P.2d 417 (1986);  Public Util. Dist. No. 1 v. Washington Pub. Power Supply Sys., 104 Wash.2d 353, 378, 705 P.2d 1195, 713 P.2d 1109 (1985);  Judkins v. Sadler-Mac Neil, 61 Wash.2d 1, 3, 376 P.2d 837 (1962).¹⁷  The plaintiff's remedy in a conversion action is to receive from the defendant the full value of the converted property.   restatement (Second) of TortsS, § 222 A(1) (1965).

Over time, the tort of conversion has evolved to encompass documents that represent intangible rights, such as stock certificates.   restatement, supra, § 242(1);  Keeton, supra, at 91.   And it later included conversion of some intangible rights related to important tangible objects, such as insurance policies.   Keeton, supra, at 91.   In its broadest application, the tort includes conversion of rights themselves, such as shareholder ownership rights, where there has been no accompanying conversion of a document.   restatement, supra, § 242(2);  Keeton, supra, at 91.

The essence of conversion “ ‘is that the property rights of the plaintiff have been dealt with in a manner adverse to him, inconsistent with his right of dominion and to his harm.’ ”  Falker v. Samperi, 190 Conn. 412, 461 A.2d 681, 685 (1983) (quoting VanDerlip v. VanDerlip, 149 Conn. 285, 179 A.2d 619, 621 (1962)).  “One who effectively prevents the exercise of intangible rights of the kind customarily merged in a document is subject to a liability similar to that for conversion, even though the document is not itself converted.”   restatement, supra, § 242(2);  Quincy Cablesystems, Inc. v. Sully's Bar, Inc., 650 F.Supp. 838, 848 (D.Mass.1986) (holding that bar's unauthorized use of satellite video feed constituted conversion of cable system's ownership rights in transmissions);  Charter Hosp. of Mobile, Inc. v. Weinberg, 558 So.2d 909, 912-13 (Ala.1990) (finding that hospital's unauthorized use of treatment protocol developed by former employee could constitute a conversion);  Mears v. Crocker First Nat'l Bank, 84 Cal.App.2d 637, 191 P.2d 501, 505 (1948) (holding that corporation's refusal to convert a shareholder's stock certificates into smaller blocks of shares to facilitate sale on stock exchange constituted conversion of owner's “ unhampered right to dispose of property without limitations imposed by strangers to the title”);  Prewitt v. Branham, 643 S.W.2d 122, 123 (Tex. 1982) (noting that lessee's rights under lease are personal property, thus conversion of the lease in which the right had been merged supports a conversion action for the value of the right represented by it).   In light of the foregoing authorities, we hold that a cause of action for conversion will lie to recover damages arising from a defendant's willful acts that reduced the value of the plaintiff's shares of corporate stock.

Here, viewed in a light most favorable to the Butkos, the evidence is sufficient to raise an issue of material fact regarding Anne Butko's conversion claim.   Her ownership of Parkview Point shares included a right to any proceeds derived from the liquidation of Parkview Point's assets -the Parkview Point Property.   Evidence that Patrick Healy intentionally transferred approximately $400,000 worth of Parkview Point lots to the Centrum and Macri assignees without her approval supports a reasonable inference that her shares in Parkview Point lost value.

Further, the record suggests that Stewart Title possibly had knowledge of a conversion, that it facilitated the conversion, and that it benefited therefrom in the form of escrow fees.  Evans v. State Nat'l Bank, 24 F. 325, 332 (C.C.E.D.La.1885);  Banks v. Windham, 7 Ala.App. 616, 62 So. 297, 299 (1913);  Hardie v. Peterson, 86 Mont. 150, 282 P. 494, 498 (1929);  Crowe v. Coursey, 601 S.W.2d 650, 655 (Mo.App.1980);  Talich v. Marvel, 115 Neb. 255, 212 N.W. 540, 542 (1927);  Hooser v. G.M. Carlton Bros. & Co., 288 S.W. 1095, 1097 (Tex.Civ.App.1926);  Davin v. Dowling, 146 Wash. 137, 138, 262 P. 123 (1927);  18 am.Jur.2d, Conversion § 70 (2d ed.1985);  89 C.J.S. Trover & Conversion, § 77 (1955).   Consequently, the trial court erred in granting summary judgment on this claim.  James F. O'Connell & Assoc. v. Transamerica Indem. Co., 61 Wash.App. 103, 111, 809 P.2d 231 (1991);  Brown v. Crescent Stores, Inc., 54 Wash.App. 861, 869, 776 P.2d 705 (1989) (authorities on when a party aids and abets a conversion).

Richard Butko's ownership of shares in Madrona encompassed similar rights with regard to the Madrona Property.   But the nature of the wrong is quite different;  Patrick Healy took over Richard Butko's share of Madrona without Richard's agreement.   Thus, there is a potential cause of action against Healy for his conversion of the actual corporate shares.

But to hold Stewart Title liable for conversion, there would have to be evidence that it had knowledge of the conversion;  assisted in it;  and benefited therefrom, in whole or part.  Evans, 24 F. at 332;  Banks, 62 So. at 299;  Hardie, 282 P. at 498;  Crowe, 601 S.W.2d at 655;  Talich, 212 N.W. at 542;  Hooser, 288 S.W. at 1097;  18 am.Jur.2d, supra;  89 C.J.S., supra.   There is no such evidence regarding Patrick Healy's ouster of Richard Butko from Madrona.   And assuming Healy committed the tort, he did so well before Stewart Title received the Butko letter.   Thus, because Richard Butko has not raised a genuine issue of material fact to support his conversion claim against Stewart Title, the trial court did not err in granting summary judgment.

Accordingly, we reverse the summary judgment dismissing Richard Butko's claim of breach of fiduciary duty with regard to Madrona and Anne Butko's claim of conversion with regard to Parkview Point and remand both matters for trial.   We affirm on all other issues.

A majority of the panel having determined that only the foregoing portion of this opinion will be printed in the Washington Appellate Reports and that the remainder shall be filed for public record pursuant to RCW 2.06.040, it is so ordered.

FOOTNOTES

1.   In a separate action, Anne Butko sued Patrick and Michael Healy over Creekridge Glen and several other issues.   Pierce County.   No. 93-2-125017.   The matter went to arbitration pursuant to partnership agreements.   The arbitrator ruled that the transfer of assets from Creekridge Glen to C.G. was “fraudulent and without legal authority.”   The arbitrator also authorized Anne Butko to “institute all reasonable actions that may be available to her to recover” the Creekridge Glen property, and restrained Patrick Healy “from further transferring any assets that have been dealt with in this decision or encumbering them in any way, except as required by this decision.”

2.   Patrick Healy's actions in regard to Parkview Point were part of the arbitration discussed in footnote 1.   There, the arbitrator noted that the Parkview Point actions were “not officially authorized by the directors.”   But the arbitrator also found Anne Butko's evidence insufficient to show that Patrick Healy had breached his fiduciary duties.   She had failed to prove that Patrick Healy was not acting to “pay legitimate bills” and to protect Anne Butko's interests in the various other “entities and projects.”   The arbitrator also found that Anne Butko had ratified Patrick Healy's actions by accepting a distribution of five Parkview Point lots and later selling one of them.

3.   Richard Butko sued Patrick Healy in a separate action, Butko v. Madrona, Inc., Pierce County No. 93-2-11968-8.   Regarding Madrona, Inc., the trial court found Patrick Healy's ouster of Richard Butko to be illegal.   The trial court also found Patrick Healy's actions in regard to two other Butko-Healy corporations to be illegal.   Butko v. Madrona, Inc., pending on appeal in this court, has been stayed pending entry of final judgment.   No. 20200-0-II.

4.   The record indicates that Richard Butko was not a party to these 1990 transactions.

5.   Murphy was also director and chairman of Stewart Title.   In 1997, Stewart Title changed its name to Pacific Northwest Title Company of Washington, Inc.

6.   Jackpot dissolved itself at some point after the 1993 closing.

7.   Anne Butko testified that Patrick Healy “took care of” or “controlled” “everything.”   Richard Butko testified that he and his mother relied on Patrick Healy to refinance the Centrum and Macri notes;  neither he nor his mother made any attempts to obtain refinancing.

8.   The bankruptcy court also dismissed the C. G., Inc. Chapter 11 proceeding.   Later, the Healy brothers/C.   G., Inc./Madrona defaulted on the Shulman loan.

9.   Among others, the Butkos sued Patrick and Michael Healy, Shulman, FATCO, and a host of Stewart entities including Stewart Title.   The trial court consolidated the Butko suit with a contractor's lien foreclosure action brought against Anne and Richard Butko, the Healy brothers, Shulman and more than two dozen other parties.   Pierce County No. 95-2-03123-0.   Shulman joined as a third party plaintiff and sued the Healy brothers.   Stewart Escrow filed a counterclaim alleging that Anne and Richard Butko and their attorney engaged in a civil conspiracy.In 1997, the trial court granted summary judgment in favor of Shulman.   In its memorandum opinion, the court found that the conveyance from Creekridge Glen to C. G., Inc. was fraudulent.   But the trial court reasoned that Shulman had no actual or constructive knowledge of the fraud.

10.   Further, Creekridge Glen was not a party to the closing.   Anne Butko merely suggests, without full briefing, that she was a party to the closing as to Creekridge Glen because the transfer of the Creekridge Glen property from Creekridge Glen, Inc. to C.G., Inc. was done illegally.   Without thorough briefing, we are not able to consider this contention.   RAP 10.3(a)(5);  Cowiche Canyon Conservancy v. Bosley, 118 Wash.2d 801, 809, 828 P.2d 549 (1992).

11.   Shulman's escrow instructions list Madrona, Inc. as a party.

12.   To support its claim of collateral estoppel, Stewart Title urges this court to compare Anne Butko's complaint against Patrick Healy, with her first amended complaint against Stewart Title.   We have done so and find that her complaint against Patrick Healy omits any reference to the Parkview Point conveyance.

13.   Stewart Title claims the closing had been completed by the time it had received the letter.   We reject that argument.   An escrow does not terminate until the parties have satisfied all conditions of the escrow instructions.   iII Wash. State Bar Ass'n, Washington Real Property Desk Book, Escrows/Closings, § 42.2(5) (3d ed.1996). .   Here, the escrow issued disbursements until approximately three weeks after the date of the Butko letter.   Thus, the escrow had not yet terminated.

14.   Butko provides no authority and we are aware of none that support the argument that Stewart Title had a duty to stop the escrow.   If such a duty existed, it likely would conflict with the escrow agent's fiduciary duty to act strictly in accordance with the provisions of the escrow agreement.  Equity Investors, 81 Wash.2d at 910, 506 P.2d 20.

15.   Anne Butko, citing former RCW 18.44.070 (1990), claims that Stewart Title breached its fiduciary duty by distributing Shulman loan proceeds too early.   Stewart Title issued about $17,000 in distributions on the same day it received Shulman's personal check for more than a million dollars.   According to Anne Butko, Stewart Title could not make those distributions until the next business day.   Former RCW 18.44.070.   But former RCW 18.44.070(3) allowed same day distribution if the previously deposited check was payable in Washington and drawn on a bank located in Washington.   Here, Shulman drew his check on Alaska Distributor's Seafirst Bank account in Seattle.   Consequently, this argument is unpersuasive.

16.   Because a tangible chattel could be lost and found, such a chattel could be converted.   Keeton, supra, at 90.  “Land, on the other hand, was obviously incapable of getting lost, and therefore trover would not lie for the dispossession or withholding of real property.”   Keeton, supra, at 90.

17.   The restatement (Second) of Torts states:  “Conversion is an intentional exercise of dominion or control over a chattel which so seriously interferes with the right of another to control it that the actor may justly be required to pay the other the full value of the chattel.”   § 222 A(1) (1965).

SEINFELD, J.

MORGAN, J., and BRIDGEWATER, C.J., concur.