Gustavo Nelson Arzola, / Cross-res. v. Name Intelligence, Inc., / Cross-app. ( 2015 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
GUSTAVO NELSON ARZOLA, an
individual, MICHAEL KLATT, an No. 71455-4-1
individual, and SUSAN PROSSER, an
individual, DIVISION ONE
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Appellants/Cross Respondents, PUBLISHED OPINION c=> -ACS.
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CARL TAYLOR, an individual,
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NAME INTELLIGENCE, INC., a
Washington corporation; and
JAY WESTERDAL, an individual,
FILED: June 15, 2015
Respondents/Cross Appellants.
Trickey, J. — Where a party has voluntarily satisfied a trial court decision
that the appellate court later modifies, RAP 12.8 requires the trial court to order
restitution in appropriate circumstances. Here, the defendants appealed a
judgment that awarded the plaintiffs damages for nonpayment of wages. This
court modified that judgment, determining that the compensation paid plaintiffs did
not constitute wages. Thus, the defendants were entitled to recover the monies
they had paid for exemplary damages, attorney fees, and litigation expenses.
Defendants were also entitled to prejudgment interest assessed from the time
payment was made.
The defendants cross appeal the interest rate for prejudgment interest
awarded, asserting that the trial court was required to impose the statutory rate of
12 percent. Because this is an action in equity, the court can determine the
No. 71455-4-1/2
prejudgment interest rate. Here, the trial court awarded 5 percent prejudgment
interest. Under the circumstances, the trial court did not abuse its discretion in its
equitable award of prejudgment interest. We affirm.
FACTS
Gustavo Arzola, Michael Klatt, and Susan Prosser (collectively, Arzola)
were employees of Name Intelligence Inc. (Nl), a Washington corporation co-
founded by respondent Jay Westerdal, its chief executive officer, president, and
100 percent shareholder. Arzola sued Nl for monies owed under stock right
cancellation agreements. The trial court determined that the amounts owed
constitutedwages. The trial court entered a judgment on February 18, 2011, which
included exemplary damages, attorney fees, and costs as required under chapter
49.52 RCW.
Nl and Westerdal paid the judgment in full, submitting a check to Arzola's
counsel. At the same time, they notified Arzola that they were appealing the
judgment. On appeal, Nl and Westerdal challenged the trial court's decision that
payments owed to Arzola constituted wages entitling Arzola to exemplary
damages of twice the amount of wages wrongfully withheld, as well as attorney
fees and costs. This court held that the monies owed did not constitute wages and
reversed the award of exemplary damages, attorney fees, and costs.1
Nl and Westerdal filed a motion under RAP 12.8 to recover the monies paid
along with 12 percent prejudgment interest. The trial court awarded the monies Nl
1Arzola v. Name Intelligence. Inc.. 172 Wash. App. 51, 288 P.3d 1154 (2012).
2
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had paid for exemplary damages, attorney fees, and costs, but awarded only the
5 percent prejudgment interest. Arzola timely appeals.2
Nl and Westerdal cross appeal, arguing that the prejudgment interest rate
should be 12 percent.
ANALYSIS
This court reviews an award under RAP 12.8 for a manifest abuse of
discretion. Ehsani v. McCullough Family P'ship. 160 Wash. 2d 586, 589, 159 P.3d
407 (2007). An abuse of discretion occurs only when exercised in a manifestly
unreasonable manner or on untenable grounds. In re Marriage of Littlefield, 133
Wash. 2d 39, 46-47, 940 P.2d 1362 (1997).
RAP 12.8 provides:
If a party has voluntarily or involuntarily partially or wholly
satisfied a trial court decision which is modified by the appellate
court, the trial court shall enter orders and authorize the issuance of
process appropriate to restore to the party any property taken from
that party, the value of the property, or in appropriate circumstances,
provide restitution. An interest in property acquired by a purchaser
in good faith, under a decision subsequently reversed or modified,
shall not be affected by the reversal or modification of that decision.
A party is entitled to a refund where one has satisfied a later reversed judgment.
Sloan v. Horizon Credit Union, 167 Wash. App. 514, 520, 274 P.3d 386 (2012).
Arzola's argument that RAP 12.8 does not require restitution after
modification of a judgment is not well taken. Our Supreme Court has construed
RAP 12.8 as requiring practitioners and courts to look to the common law of
restitution as set forth in the Restatement of Restitution to determine the post
2 Arzola filed a motion for reconsideration more than 10 days after the judgment. The
court denied the motion as untimely.
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reversal remedy. Ehsani, 160 Wash. 2d at 590. Section 74 of the Restatement of
Restitution (1937) states:
A person who has conferred a benefit upon another in compliance
with a judgment, . . . is entitled to restitution if the judgment is
reversed or set aside, unless restitution would be inequitable or the
parties contract that payment is to be final; if the judgment is
modified, there is a right to restitution of the excess.
Under RAP 12.8 and section 74 of the Restatement of Restitution, Nl and
Westerdal are entitled to be restored to their original positons upon reversal of the
trial court's judgment. See Simonson v. Fendell. 101 Wash. 2d 88, 93,675 P.2d 1218
(1984) ("The general principle is that rescission contemplates restoration of the
parties to as near their former position as possible or practical.").
On remand from this court, the trial court awarded Nl and Westerdal
$254,598.36, calculated as follows:
$145,007.00 (exemplary/double damages for 2009)
$7,381.82 (exemplary/double damages for 2010)
$97,860.00 (attorney fees)
$4,349.54 (litigation costs)
Procedurally, Arzola argues that the trial court should have conducted an
evidentiary hearing on the RAP 12.8 motion. Both parties submitted declarations
in support of their positions. The trial court issued its ruling without oral argument.
The facts are undisputed and thus there was no need for an evidentiary hearing.
See Kwiatkowski v. Drews. 142 Wash. App. 463, 479, 176 P.3d 510 (2008).
Arzola then argues that because RAP 12.8 provides an equitable remedy,
the trial court should have assessed what benefit they received from the monies
paid. Specifically, Arzola contends that the amounts paid for taxes and attorney
No. 71455-4-1 / 5
fees were not a direct monetary benefit to them and therefore should be excluded
from restitution.
In support, Arzola submitted declarations establishing the amount of federal
income taxes paid on the funds distributed to each of them. In response, Nl and
Westerdal provided a declaration by a certified public accountant indicating that
such payments were recoverable under section 1341 of the Internal Revenue
Code. Under that section, Arzola could elect to either deduct the repayment on
their tax returns or claim a refundable tax credit, whichever option provided the
most tax benefit. Arzola did not submit anything to refute this declaration.
Citing Ehsani, Arzola argues that the attorney fees paid were not a benefit
to them and therefore should not have been assessed against them. Arzola's
reliance on Ehsani for this argument is misplaced. There, the judgment was paid
into the attorney's clienttrust account. The clients specifically directed the attorney
to distribute proceeds to the clients' creditors and to himself. Ehsani, 160 Wash. 2d
at 589. But here, the judgment itself awarded attorney fees to the lawyers as part
of a statutory scheme. The fees paid were erroneously awarded under RCW
49.48.030. Neither Nl nor Westerdal should not bear the attorney fee expenses
Arzola paid to their attorneys. Arzola's situation is more similar to Sloan v. Horizon
Credit Union, 167 Wash. App. 514, 274 P.3d 386 (2012), where the court permitted
restitution under RAP 12.8 for CR 11 attorney fees in a judgment that was
subsequently reversed.
Arzola contends next that the trial court erred in entering a joint judgment in
favor of both Nl and Westerdal and jointly against all three plaintiffs. Arzola argues
No. 71455-4-1/6
that Westerdal was not entitled to be a judgment debtor because Nl paid the check.
But the judgment listed both Nl and Westerdal as the judgment debtor. Further,
the order clauses specified that judgment in the amount of $256,698.36 was
against Jay Westerdal, individually. Because Westerdal was individually liable, he
is entitled to be reimbursed. The fact that Nl paid the check is immaterial. See
Sloan, 167 Wash. App. at 519-21 (not material that someone other than the judgment
debtor tendered funds in satisfaction of the debt).
The first judgment listed each of the employees as the judgment creditors.
The trial court did not enter separate judgments. A judgment against all was
appropriate on remand.
Prejudgment Interest
The trial court awarded 5 percent prejudgment interest. Arzola argues that
no prejudgment interest should be awarded. Nl and Westerdal cross appeal
asserting that the trial court was required to impose 12 percent prejudgment
interest.
This court reviews prejudgment interest awards for abuse of discretion.
Scoccolo Const.. Inc. ex rel. Curb One. Inc. v. City of Renton, 158 Wash. 2d 506, 519,
145 P.3d 371 (2006). An award of prejudgment interest is appropriate where a
party retains funds rightly belonging to another party and thereby denies the party
the use value of the money. Crest. Inc. v. Costco Wholesale Corp., 128 Wash. App.
760, 775, 115 P.3d 349 (2005). A prevailing party is entitled to prejudgment
interest, provided the damages are liquidated. Lakes v. von der Mehden. 117 Wn.
App. 212, 214, 70 P.3d 154 (2003). Here, the claim is liquidated because the
No. 71455-4-1/7
measure of damages does not require the exercise of discretion. Eqerer v. CSR
W.. LLC. 116 Wash. App. 645, 653, 67 P.3d 1128 (2003). Thus, an award of
prejudgment interest is appropriate.
We turn now to the question of whether the trial court erred in imposing only
5 percent prejudgment interest. Interest is not a penalty but compensation for the
loss of use of those funds. Jones v. Best. 134 Wash. 2d 232, 242, 950 P.2d 1 (1998).
Here, the prejudgment interest is not awarded pursuant to RCW
19.52.010(1). Rather, its basis lies in the court rule, RAP 12.8. Restitution to a
judgment debtor for the amounts paid by the judgment debtor to satisfy a judgment
that is later modified by the appellate court is an equitable remedy. Ehsani. 160
Wash. 2d at 589-90. In matters of equity, trial courts have broad discretionary powers
to fashion equitable remedies and we review the trial court's consideration of the
equities for abuse of discretion. Recreational Equip.. Inc. v. World Wrapps Nw..
Inc.. 165 Wash. App. 553, 559, 266 P.3d 924 (2011).
Nl and Westerdal were deprived of the use of their funds and the payment
of interest is appropriate here to avoid injustice.3 The trial court awarded "a
reasonable, equitable rate of interest of 5 [percent] on the above amount of
restitution, from the date of payment of the judgment on March 2, 2011 ."4 Under
the circumstances here, we conclude that the 5 percent interest was not so
3 An award of less than the 12 percent prejudgment interest requested by Nl and
Westerdal was appropriate where the trial court had evidence before it that two of the
plaintiffs had placed the money in their bank accounts where it earned .5 percent and .41
percent interest. Neither the third plaintiff nor the third plaintiff's attorneys submitted any
evidence of the interest made on the monies from the judgment. In view of this, a reduction
of the 12 percent prejudgment interest rate requested was appropriate.
4 Clerk's Papers (CP) at 98.
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manifestly unreasonable or based on such untenable grounds as to constitute an
abuse of discretion.
We affirm the trial court.
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WE CONCUR:
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No. 71455-4-1
Arzola v. Name Intelligence, Inc. - Concurrence
Leach, J. (concurring) — I concur in the result only.