Northgate Ventures Llc v. Geoffrey H. Garrett Pllc ( 2019 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
NORTHGATE VENTURES LLC, ) No. 78495-1-1
)
Appellant, )
) DIVISION ONE
v. )
)
GEOFFREY H. GARRETT PLLC (fka ) PUBLISHED OPINION
Byrd Garrett PLLC); GEOFF GARRETT)
PLLC; and GEOFFREY H. GARRETT ) FILED: October 21, 2019
and SABINA S. GARRETT, )
)
Respondents. )
)
MANN, A.C.J. — In 2010, Northgate Ventures LLC (Northgate) entered an eight-
year commercial lease agreement with the law firm Geoffrey H. Garrett PLLC. In 2016,
Geoffrey H. Garrett PLLC asked Northgate to terminate its lease. After Northgate
declined, Geoffrey' H. Garrett PLLC stopped making monthly rental payments and
vacated the premises. Shortly thereafter Geoffrey H. Garrett PLLC was dissolved and
placed into receivership. Its principal, Geoffrey Garrett, then formed a new law firm,
Geoff Garrett PLLC and continued to practice law.
Northgate sued for breach of the lease and sought to hold Garrett personally
liable as a member of Geoffrey H. Garett PLLC, and Geoff Garrett PLLC liable as a
No. 78495-1-1/2
successor entity. Northgate appeals the trial court's decision granting summary
judgment and dismissing its claims against Garrett and Geoff Garrett PLLC. Northgate
contends that Garrett and Geoff Garrett PLLC are mere continuations of Geoffrey H.
Garrett PLLC and fraudulently transferred goodwill from Geoffrey H. Garrett PLLC to
Geoff Garrett PLLC. We disagree and affirm.
-
Garrett is an attorney practicing law in Washington, focusing primarily on estate
and financial planning. In 2007, Garrett purchased the law firm Stanley R. Byrd, Inc.,
P.S.(Stanley R. Byrd), an estate planning law firm. Garrett then changed the firm name
to Byrd Garrett PLLC, and later to Geoffrey H. Garrett, PLLC. Garrett purchased
Stanley R. Byrd, Inc., P.S. for $600,000. $539,497.10 of the purchase price was
allocated to goodwill, or "the value of clients."
In August 2010, Northgate and Geoffrey H. Garrett PLLC entered an eight-year
commercial lease for office space in Seattle. The lease was between Geoffrey H.
Garrett PLLC and Northgate. Garrett did not sign a personal guaranty for the lease."
On August 25, 2016, Garrett notified Northgate that he was significantly changing his
law practice, no longer required the office space and requested to terminate the lease or
in the alternative, sublet the office space. Northgate declined the request. Garrett was
unable to find a tenant to sublet and Geoffrey H. Garrett PLLC stopped making monthly
rental payments of $6,912.00 in October 2016 and vacated the premises in November
2016.
RCW 25.15.126 provides limited liability for members of an LLC. Northgate could have
requested that Garrett sign a personal guaranty as allowed by RCW 25.15.126(2).
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Geoffrey H. Garrett PLLC was not a profitable law firm and reported losses for
the last seven years of its existence.2 Garrett subsidized the firm from 2013 to 2016 by
using his personal 401(k) retirement account, which totaled $1 million. Garrett also
used almost the entirety of a $300,000 home equity line of credit from Chase (Chase
HELOC)to remain current on Geoffrey H. Garrett PLLC's obligations.
On November 23, 2016, Geoffrey H. Garrett PLLC executed a general
assignment for the benefit of creditors assigning all property to attorney Nathan
Riordan. The assignment granted interest in "all of Assignor's property. .. including,
but not limited to, all real property, fixtures, goods, interests, stock, inventory,
equipment, furniture, furnishing, accounts receivable, general intangibles, bank
deposits, cash, promissory notes, cash value and proceeds of insurance policies,
claims, and damages belong to the Assignor." Geoffrey H. Garrett PLLC then petitioned
the court to appoint a receiver and the court appointed Riordan. Northgate participated
in the receivership filing a proof of claim.
While operating, Geoffrey H. Garrett PLLC charged a flat fee for its estate
planning clients and the clients paid a 75 percent down payment at the start of projects.
Estate settlement clients also paid a flat fee, paying 60 percent up front, then 15 percent
in the second month, 15 percent in the third month, and then the remaining balance
when the work was completed. Because of Geoffrey H. Garrett PLLC's fee structure,
there were rarely unpaid receivable accounts.
All property of Geoffrey H. Garrett PLLC was administered by the receiver.
Office furniture of Geoffrey H. Garrett PLLC was sold to Garrett for $4,705.00. After
2 Garrett contends that the last seven years resulted in losses of "$98,746.00, $77,235.00,
$18,923.00, $119,075.00, $90,458.00, $83,932.00 and $75,781."
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Geoffrey H. Garrett PLLC was liquidated, the receiver moved for approval of the final
report and accounting, authority to make disbursements, discharge of the receiver,
termination of the receivership, and exoneration of the bond. The trial court granted the
receiver's motion. The final report included the receipts and disbursements of the
receiver and the expenses the receiver incurred. The receiver surrendered Geoffrey H.
Garrett PLLC's $7,300 deposit, abandoned the remaining office assets, and disbursed
$1,120.13 to Northgate. Northgate did not appeal the order approving the final report.
After appointment of the receiver, but before the court terminated the
receivership, Garrett incorporated a new law firm, Geoff Garrett, PLLC. Garrett mailed
all of the former Geoffrey H. Garrett PLLC clients a letter informing them of his new firm
and his desire to continue serving as their estate planning attorney. Garrett continued
representing 33 clients.
Northgate sued Geoffrey H. Garrett PLLC for breach of its lease and damages of
$129,733.66. Northgate alleged Garrett and Geoff Garrett PLLC were successors of
Geoffrey H. Garrett PLLC, making them liable to Northgate under the lease. Northgate
also alleged violations of the Uniform Fraudulent Transfer Act and justifications for
piercing the corporate veil and claims of improper windup.
All parties filed motions for summary judgment. The trial court granted summary
judgment for Garrett and Geoff Garret PLLC and dismissed Northgate's successor and
personal liability claims. The court found, however, that Geoffrey H. Garrett PLLC was
liable to Northgate for its breach of lease. The court awarded attorney fees and costs to
Garrett and Geoff Garrett PLLC under the terms of the lease.
Northgate appeals.
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Northgate first contends that the trial court erred in granting summary judgment
and dismissing its claims against Garrett and Geoff Garrett PLLC because Northgate
was entitled to a determination of successor liability as a matter of law. We disagree.
A.
We review summary judgment orders de novo, engaging in the same inquiry as
the trial court. Summary judgment is warranted only when there is no genuine dispute
of material fact and the moving party is entitled tc5 judgment as a matter of law.
CR56(c). The facts and all reasonable inferences are viewed in the light most favorable
to the nonmoving party. Young v. Key Pharmaceuticals, Inc., 112 Wash. 2d 216, 225-26,
770 P.2d 182 (1989).
A person or group of persons licensed or legally authorized to render
professional services within Washington may form and become members of a
professional limited liability company (PLLC). RCW 25.15.046. As a general rule,
unless a member of a PLLC agrees to be obligated personally,3 members of a PLLC are
not liable for the liabilities of the PLLC.
The debts, obligations, and liabilities of a limited liability company, whether
arising in contract, tort or otherwise, are solely the debts, obligations, and
liabilities of the limited liability company; and no member or manager of a
limited liability company is obligated personally for any such debt,
obligation, or liability of the limited liability company solely by reason of
being or acting as a member or manager respectively of the limited liability
company.
• RCW 25.15.126. Similarly, Washington "adheres to the general rule that a corporation
purchasing the assets of another corporation does not become liable for the debts and
3 Under RCW 25.15.126(2) a member or manager of a PLLC may agree to be obligated
personally for the debts, obligations, or liabilities of the PLLC.
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No. 78495-1-1/6
liabilities of the selling corporation." Cambridge Townhomes, LLC v. Pac. Star Roofing,
Inc., 166 Wash. 2d 475, 481-82, 209 P.3d 863(2009).
There is no dispute that Northgate contracted with Geoffrey H. Garrett PLLC and
did not require Garrett to personally guarantee the commercial lease contract. Thus, in
order to prevail in its claim against Garrett personally, or Geoff Garrett PLLC, Northgate
must demonstrate that an exception to the general rule applies. Recognized exceptions
include where the "purchaser is a mere continuation of the seller" or where the transfer
is for "fraudulent purpose of escaping liability." Columbia State Bank v. lnvicta Law Grp.
PLLC, 199 Wash. App. 306, 320, 402 P.3d 330(2017)(quoting Cambridge, 166 Wn.2d at '
482); RCW 25.15.061 (recognizing limited application of common law piercing the
corporate veil doctrine to PLLCs).
B.
Northgate first argues that Geoff Garrett PLLC is a successor entity of Geoffrey
H. Garrett PLLC because it is a mere continuation of Geoffrey H. Garrett PLLC.
Washington courts rely on several factors to determine whether a successor
business is a mere continuation of the seller. These include (1)"a common identity
between the officers, directors, and stockholders of the selling and purchasing.
companies," and (2)"the sufficiency of the consideration running to the seller
corporation in light of the assets being sold." Cambridge, 166 Wash. 2d at 482. These
factors help the court determine whether the "'purchaser represents merely a new hat
for the seller." Cambridge, 166 Wash. 2d at 482 (quoting Cashar v. Redford, 28 Wash. App.
394, 397, 624 P.2d 194 (1981)).
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No. 78495-1-1/7
There is no dispute that Garrett was the sole member of both Geoffrey H. Garrett
PLLC and Geoff Garrett PLLC. Thus, our inquiry is focused on whether Geoff Garrett
PLLC paid adequate consideration for the assets of Geoffrey H. Garrett PLLC.
Northgate contends that Geoff Garrett PLLC failed to pay adequate consideration for
the assets of Geoffrey H. Garrett PLLC because the clients, client lists, and client files
should have been subject to the receivership because they were goodwill of Geoffrey H.
Garrett PLLC. Because a law firm's clients are not property of the law firm, we
disagree.
On November 23, 2016, Garrett Garrett PLLC petitioned the court to appoint a
receiver through a general assignment of its property for the benefit of creditors. "A
receiver may be appointed by a superior court of this state. . . in accordance with RCW
7.08.030(4) and (6), in cases in which a general assignment for the benefit of creditors
has been made." RCW 7.60.025(j). A receiver may be appointed "in any other action
for the dissolution or winding up of any other entity provided by Title... 25 RCW."
RCW 7.60.025(t). An assignment for the benefit of creditors must be substantially
similar to the form assignment in RCW 7.08.030(1). Under RCW 7.08.030(1), the
assignment must assign
all of assignor's property. . .including, but not limited to all real property,
fixtures, goods, stock, inventory, equipment, furniture, furnishings,
accounts receivable, general intangibles, bank deposits, cash, promissory
notes, cash value and proceeds of insurance policies, claims, and
demands belonging to the assignor.
The assignee shall take possession and administer the estate, and shall
liquidate the estate with reasonable dispatch and convert the estate into
money, collect all claims and demands hereby assigned as and to the
extent they may be collectible, and pay and discharge all reasonable
expenses, costs, and disbursements in connection with the execution and
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No. 78495-1-1/8
administration of this assignment from the proceeds of such liquidations
and collections.
(Emphasis added). In accordance with the statute, Geoffrey H. Garrett PLLC assigned
all of its property to Nathan Riordan of Riordan Law, PS.
When a business is placed in receivership, the goal is to "liquidate the estate with
reasonable dispatch and convert the estate into money." RCW 7.08.030(1). Here,
Riordan liquidated all of Geoffrey H. Garrett PLLC's property and notified creditors.
Geoffrey H. Garrett PLLC forfeited its security deposit for the lease, totaling $7,300, to
Northgate. Northgate's claim totaled $7,603.20. After liquidation, there was $9,076.25.
The receiver collected its fee and expenses of $7,921.48, leaving $1,154.77 for the
remaining creditors. From the remaining cash, Northgate was paid a pro rata share of
$1,120.13 for its claim.
While the receivership statute requires that all property be assigned to the
assignee, a lawyer's clients are not a commodity. A lawyer has no proprietary interest
in their clients, nor their client's files. Dixon v. Crawford, McGilliard, Peterson & Yelish,
163 Wash. App. 912, 924, 262 P.3d 108(2011)(indicating that "[a] firm's current clients
may be evidence of the firm's 'expectation of continued public patronage,' but clients
are not a commodity" and neither the attorney, nor the law firm had "a proprietary
interest in the clients."); see also RPC 1.17(c)(written notice of sale must explain
"client's right to retain another legal practitioner or to take possession of the file.")
(emphasis added). Under the Rules of Professional Conduct(RPC):
The practice of law is a profession, not merely a business. Clients
are not commodities that can be purchased and sold at will. Pursuant to
this Rule, when a lawyer or an entire firm ceases to practice, or ceases to
practice in an area of law, and other lawyers or firms take over the
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No. 78495-1-119
representation, the selling lawyer or firm may obtain compensation for the
reasonable value of the practice as may withdrawing partners of law firms.
RPC 1.17 cmt. 1.
Because they were not property, Geoffrey H. Garrett PLLC was not required to
assign its clients and client files to the receiver. The receivership statute contemplates
liquidating property into cash, rather than preserving a business as a going concern,
therefore there was no requirement that the receiver attempt to sell Geoffrey H. Garrett
PLLC. RCW 7.08.030(1).
Northgate contends that Garrett transferred valuable goodwill because when
Garrett purchased Stanley R. Byrd, Inc., P.S. from Byrd for $600,000, the majority of the
purchase price, $539,497.10, represented goodwill value of the continued patronage of
Stanley R. Byrd, Inc., P.S.'s clients. Northgate is correct that under the RPCs clients
can be valued as goodwill in limited transactions—but only when "[t]he entire practice,
or the entire area of practice, is sold to one or more lawyers or law firms." RPC 1.17(b).
Thus, in the context of the sale of a law practice, goodwill can be valued. RPC 1.17.
But we do not agree with Northgate's position that goodwill, in the form of a lawyer's
clients and client lists, can be placed in a receivership to be liquidated for the benefit of
creditors.4
Northgate relies primarily on lnvicta and Cambridge, contending that Geoff
Garrett PLLC received Geoffrey H. Garrett PLLC's clients for inadequate consideration
4 Furthermore, Northgate submitted a claim and did not object to the receivership or argue that
assets were hidden from the receiver. Geoffrey H. Garrett PLLC forfeited its deposit to Northgate. The
court approved the final accounting and terminated the receivership and Geoffrey H. Garrett PLLC was
dissolved. The receiver wound up Geoffrey H. Garrett PLLC's business and the law firm ceased
operations.
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No. 78495-1-1/10
and therefore should be liable as a successor entity. These cases, however, are
distinguishable.
In Invicta, this court held that Mark Jordan's sole proprietorship was a mere
continuation of Invicta PLLC. Jordan operated his law firm, Invicta, PLLC and was the
sole owner and managing partner. Invicta, 199 Wash. App. at 313. While Invicta was in
operation, Jordan personally guaranteed several loans. Invicta, 199 Wash. App. at 312.
When Jordan no longer wanted to pay those loans, he filed for Chapter 7 bankruptcy
and the bankruptcy court discharged Jordan's personal guaranty on the loan
agreement. Invicta, 199 Wash. App. at 312. Then, Jordan ceased operating Invicta
PLLC, defaulting on his loan obligations and began operating a sole proprietorship.
Invicta, 199 Wash. App. at 312. Rather than dissolving Invicta PLLC, which would require
paying its creditors from Invicta's assets, Jordan transferred all assets to his sole
proprietorship and continued operations. Invicta, 199 Wn. App./ at 313. "Jordan simply
chose to quit operating the PLLC and began operating the sole proprietorship." Invicta,
199 Wash. App. at 321-22. Jordan "continued his individual law practice, using the same
name, website, signage, telephone number, offices, insurance, employees, and
equipment and representing the same clients." Invicta, 199 Wash. App. at 314. Jordan
even used the same lease agreement, subtenant agreement, existing client agreements
and malpractice insurance as Invicta PLLC. Invicta, 199 Wash. App. at 314.
While our opinion in Invicta mentioned the transfer of clients without
consideration, that factor was one of many considered, which as a whole, demonstrated
mere continuation. Invicta, 199 Wash. App. at 318. We determined that the sole
proprietorship
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No. 78495-1-1/11
(1) operated at the same location as the PLLC, and had the same offices, space,
signage, telephone number, and address,(2) operated under the same lease as
the PLLC, and between September 30, 2013, and February 2015 continued to
hold itself out to the landlord as the PLLC,(3) used the same office equipment,
furniture, and inventory as the PLLC,(4) used the same contact information as
the PLLC including the same phone number, e-mail address, fax number,
letterhead, and website,(5) used the same employees as the PLLC, and (6) held
itself out to its current and new subtenants as the PLLC including entering a new
sublease agreement on October 31, 2013, under the name of the PLLC, and as
the trial court explained, held itself out to its malpractice insurance carrier as the
PLLC for over a year.
lnvicta, 199 Wash. App. at 322.
In contrast, here, Geoffrey H. Garrett PLLC wound up and ceased operations.
The clients were not property and therefore were not subject to the assignment for the
benefit of creditors. Geoff Garrett PLLC operated as new entity, informed its clients of
the change, signed a new lease at a different location, formed a new website, and
changed its letterhead.
Similarly, in Cambridge, the court found that P.J. lnterprize Inc. was a mere
continuation of Gerald Utley's sole proprietorship because Utley transferred assets from
his sole proprietorship to P.J. lnterprize without consideration. Cambridge, 166 Wash. 2d
at 483. While Utley was operating P.J. lnterprize as a sole proprietorship, Utley
contracted with Polygon, a general contractor, to install vinyl siding for a condominium
development. Cambridge, 166 Wash. 2d at 480. Later, Utley incorporated his business as
P.J. Inc. and completed more work for the condominium development. Cambridge, 166
Wash. 2d at 480. A construction defect claim arose associated with P.J. Interprize's work
and Utley filed for chapter 7 bankruptcy. Cambridge, 166 Wash. 2d at 480. Polygon sued
P.J. Inc. and the trial court found that P.J. Inc. could not be liable for P.J. Interprize's
work under a mere continuation theory. Cambridge, 166 Wash. 2d at 481.
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No. 78495-1-1/12
Our Supreme Court reversed, holding that P.J. Inc. could be held as a mere
continuation of Utley's sole proprietorship, P.J. lnterprize. Cambridge, 166 Wash. 2d at
481. As a sole proprietor, Utley was not protected from liability and could not escape
the sole proprietorship's liability by incorporating. Cambridge, 166 Wash. 2d at 483. P.J.
Inc. did not provide consideration for the assets of P.J. lnterprize because Utley merely
transferred P.J. Interprize's assets to P.J. Inc. Cambridge, 166 Wash. 2d at 483. P.J.
lnterprize was the same business, with the same clients, meeting the requirements
under a mere continuation theory of successor liability. Cambridge, 166 Wash. 2d at 483.
Here, Geoffrey H. Garrett PLLC was not profitable for years and ultimately
dissolved, placing all of its property in a receivership to be liquidated. The receiver
liquidated the assets into cash and paid creditors their pro rata share. Garrett did not
personally guarantee the lease with Northgate. When Northgate began doing business
with Geoffrey H. Garrett PLLC, it was on notice that its members were shielded from
personal liability, and without a personal guaranty, Northgate may be unable to collect if
the PLLC became insolvent.
Northgate's mere continuation claim fails.
C.
Northgate next contends that Geoff Garrett PLLC is a successor entity of
Geoffrey H. Garrett PLLC because Garrett fraudulently transferred clients from Geoffrey
H. Garrett PLLC to Geoff Garrett PLLC.
Successor liability may be imposed "where the transfer of assets is for the
fraudulent purpose of escaping liability." Eagle Pac. Ins. Co. v. Christensen Motor
Yacht Corp., 85 Wash. App. 695, 707, 934 P.2d 715(1997). A fraudulent transfer can be
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No. 78495-1-1/13
shown by (1) proving fraud or actions otherwise lacking good faith,(2) insufficient
consideration received for the assets, and (3) that the predecessor was left unable to
respond to creditor's claims. Eagle Pac., 85 Wash. App. at 707.
There cannot be a fraudulent transfer unless there is a transfer of assets. For
example, in Meisel v. M & N Modern Hydraulic Press Co., 97 Wash. 2d 403, 409,645
P.2d 689 (1982), Nicholas Brodsky Jr. inherited 100 shares of M & N Modern Hydraulic
Press Company(M & N)stock from his father. Brodsky sold of all of his shares of M &
N stock. Meisel, 97 Wash. 2d at 404. Brodsky incorporated Modern Hydraulic Corporation
(Modern). Meisel, 97 Wash. 2d at 404. M & N leased commercial property from Brodsky,
and Brodsky terminated M & N's lease and evited M & N. Meisel, 97 Wash. 2d at 404.
Modern then began leasing the same buildings and land from Brodsky and leased
equipment from M & N. Meisel, 97 Wash. 2d at 404. M & N ceased manufacturing when
Brodsky terminated its lease, but continued to service the machines and collect
accounts receivable. Meisel, 97 Wash. 2d at 405. Eventually, M & N was dissolved.
Meisel, 97 Wash. 2d at 405. Marie Meisel, an employee of Cosmopolitan Diecast of
Seattle, had her hand amputated by a trim press. Meisel, 97 Wash. 2d at 405.
Cosmopolitan had purchased the press from M & N before it was dissolved. Meisel, 97
Wash. 2d at 404. Meisel sought to hold Modern liable as a successor of M & N. Meisel,
97 Wash. 2d at 405.
Our Supreme Court determined that Modern was not a successor corporation
because Brodsky "divested himself of ownership of M & N and began a new
corporation—Modern. None of M & N's assets were transferred to Modern. While
Modern used the same land, buildings, and equipment that M & N used, those were not
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No. 78495-1-1/14
M & N's assets; they were Brodsky's personal property." Meisel, 97 Wash. 2d at 409; see
also Martin v. Abbott Laboratories, 102 Wash. 2d 581, 615, 689 P.2d 368 (1984)(noting
that the Meisel court concluded "successor liability was inapplicable because there had
been no transfer of assets").
Similarly here, Garrett divested himself of Geoffrey H. Garrett PLLC when he
filed for a receivership and ceased operating Geoffrey H. Garrett PLLC. All property
was assigned to the receiver for the benefit of Geoffrey H. Garrett PLLC's creditors.
Thus, Northgate fails to establish that any property was fraudulently transferred from
Geoffrey H. Garrett PLLC to Geoff Garrett PLLC.
Northgate also contends that Garrett and Geoff Garrett PLLC are liable under the
former Uniform Fraudulent Transfer Act(UFTA), ch. 19.40 RCW, and that the trial court
erred in dismissing its corporate veil argument and improper windup claim.5 We
disagree.
A.
Under Washington's former UFTA creditors have a cause of action against
transferees who received fraudulently conveyed property of debtors. Thompson v.
Hanson, 167 Wash. 2d 414, 416, 219 P.3d 659 (2009). Former RCW 19.40.041 states:
(a) A transfer made or obligation incurred by a debtor is fraudulent as to a
creditor, whether the creditor's claim arose before or after the transfer was
made or the obligation was incurred, if the debtor made the transfer or
incurred the obligation:
(2) Without receiving a reasonably equivalent value in exchange for the
transfer or obligation, and the debtor:
5 The UFTA was amended effective July 23, 2017, and is now the Uniform Voidable Transactions
Act. The former provisions of the UFTA apply to the alleged transaction because it occurred prior to July
23, 2017. RCW 19.40.905.
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No. 78495-1-1/15
(i) Was engaged or was about to engage in a business or a transaction for
which the remaining assets of the debtor were unreasonably small in
relation to the business or transaction; or
(ii) Intended to incur, or believed or reasonably should have believed that
he or she would incur, debts beyond his or her ability to pay as they
became due.
Former RCW 19.40.041(a)(2017).
Northgate's claim fails as a matter of law because it cannot show that Geoff
Garrett PLLC received clients, client list, and client files for inadequate consideration
because that property did not belong to Geoffrey H. Garrett PLLC.
B.
Northgate contends that it presented competent evidence that Garrett
intentionally used the corporate form to evade his obligations to creditors. Northgate
also contends that Garrett transferred the assets for no consideration, which impaired
Geoff H. Garrett PLLC's ability to satisfy its debts. From this evidence, Northgate
contends that summary judgment was not appropriate because whether to pierce the
corporate veil is a question of fact.
"[T]wo separate, essential factors must be established" for a court to pierce the
corporate veil. Dickens v. Alliance Analytical Labs., LLC, 127 Wash. App. 433, 440, 111
P.3d 889 (2005). First, the corporate form must be used to violate or evade a duty and
second, the fact finder must establish that disregarding the corporate veil is necessary
and required to prevent an unjustified loss to the injured party. Columbia Asset
Recovery Grp. LLC v. Kelly, 177 Wash. App. 475, 486, 312 P.3d 687(2013). If the court
finds that the corporate veil may be pierced, members of the limited liability company
may be personally liable for acts or liabilities of the company. Chadwick Farms Owners
Ass'n v. FHC LLC, 166 Wash. 2d 178, 199, 2017 P.3d 1251 (2009). Whether a corporate
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No. 78495-1-1/16
form should be disregarded is a question of fact. Truckweld Equip. Co., Inc. v. Olson,
26 Wash. App. 638, 643, 618 P.2d 1017(1980).
Northgate has failed to identify a duty that Garrett breached. Garrett did not
transfer property from Geoffrey H. Garrett PLLC to Geoff Garrett PLLC to evade
creditors because the clients, client files, and client lists are not property. Dismissal of
Northgate's piercing the corporate veil claim was appropriate.
C.
Northgate finally contends that Garrett is liable under an improper windup theory
for failing to distribute the value of its client lists to its creditors. Northgate also
contends that Garrett improperly transferred the Chase HELOC loan obligation to Geoff
Garrett PLLC and received payments for work completed by Geoffrey H. Garrett PLLC.
"[A]ny person winding up an LLC's affairs who has not complied with RCW
25.15.300 is personally liable to the claimants." Chadwick Farms Owners Ass'n v. FHC.
LLC, 139 Wash. App. 300, 314, 160 P.3d 1061 (2007) rev'd on other grounds, Chadwick,
166 Wash. 2d 178. In Chadwick Farms, the defendant FHC was a contractor that
constructed the Chadwick Farms condominiums. Chadwick Farms, 139 Wash. App. at
304. After the completion of the project, FHC ceased operations without winding up.
Chadwick Farms, 139 Wash. App. at 304. FHC did not submit the required annual report
and renewal fee to the Secretary of State and was administratively dissolved. Chadwick
Farms, 139 Wash. App. at 304. The Chadwick Farms Homeowners Association (CFHA)
sued FHC for a number of construction defects. Chadwick Farms, 139 Wash. App. at 305.
The court held that the trial court erred by not allowing CFHA to amend its complaint
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No. 78495-1-1/17
and add the LLC members as defendants due to improperly winding up the LLC. 139
Wash. App. at 314.
Unlike Chadwick Farms, Geoffrey H. Garrett PLLC complied with RCW
25.15.300 by petitioning the court for a receivership and assigning all property to the
receiver. As discussed above, the client, client list, and client files were not property
that could be assigned for the benefit of creditors. Northgate's claim fails as a matter of
law.
Iv.
A party requesting attorney fees on appeal is entitled to fees if "applicable law
grants to a party the right to recover reasonable attorney fees." RAP 18.1. The lease
contains an attorney fee provision that states:
In the event of a dispute between the parties over the terms of this
Agreement . .. the non-prevailing party shall be pay [sic] the prevailing
party's attorneys'[sic]fees and costs (not limited to statutory costs),
whether incurred before the proceeding is started, for the proceeding and
for any appeals.
In the underlying action, the lease is central to the dispute between Northgate and the
Garrett defendants. Since Northgate is seeking to enforce the lease against Garrett and
Geoff Garrett PLLC, the attorney fee provision is applicable to this appeal. See Invicta,
199 Wash. App. at 332 ("a claim for successor liability follows an underlying cause of
action for breach of contract and merely exists to extend 'the liability on that cause of
action to a corporation that would not otherwise be liable."). Geoffrey H. Garrett PLLC,
Geoff Garrett PLLC, and Garrett are entitled to reasonable attorney fees and costs.
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No. 78495-1-1/18
We affirm.
WE CONCUR:
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