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State ex rel. Hayes Oyster Co. v. Keypoint Oyster Co.

Washington Supreme Court
391 P.2d 979 (Wash. 1964)



Coast Oyster Co. (Coast) was a publicly held company that owned oyster beds. Verne Hayes (Verne) was chief executive officer, director, and major stakeholder. Under his employment contract, Verne was not allowed to compete against Coast. Verne also co-owned Hayes Oyster Co. (Hayes) with his brother, Sam. The Coast employment agreement included an exception to its noncompete provision for Verne’s dealings with Hayes. Coast had financial difficulties, and Verne proposed that Coast sell two oyster beds. Verne then negotiated for another Coast employee, Engman, to buy the beds on behalf of a to-be-formed corporation, Keypoint Oyster Co. (Keypoint) (defendant), with financing from Hayes. Engman and Verne would each own half of Keypoint’s shares. Coast’s board approved the sale for $250,000, with Verne voting a majority of the company’s shares between his own and those for which he held proxies. Verne did not disclose his or Hayes’s involvement with Keypoint. After Verne received his Keypoint stock, he had Coast make a payment that was Keypoint’s obligation under the sale contract. Verne later sold his Coast shares and settled his employment contract. Coast then sued Verne and Sam, seeking their Keypoint shares and disgorgement of any profits Hayes derived from the oyster bed sale. The trial court found for the Hayeses, concluding that Verne had breached no duty to Coast. Coast appealed, arguing that even though the Keypoint transaction was otherwise fair, Verne should have to turn over his secret profits.

Rule of Law


Holding and Reasoning (Denney, J.)

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