Seth Burrill Prods., Inc. v. Rebel Creek Tackle, Inc. ( 2019 )

FILED
JULY 11, 2019
In the Office of the Clerk of Court
WA State Court of Appeals, Division III
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION THREE
SETH BURRILL PRODUCTIONS, INC., ) No. 35572-1-III
a Washington corporation, )
)
Respondent, )
)
v. ) UNPUBLISHED OPINION
)
REBEL CREEK TACKLE, INC., a )
Washington corporation, )
)
Appellant. )
PENNELL, A.C.J. — Rebel Creek Tackle, Inc. appeals orders from the Spokane
County Superior Court denying summary judgment and imposing CR 11 sanctions.
We affirm the orders on review and award attorney fees and costs to Seth Burrill
Productions, Inc.
BACKGROUND
Rebel Creek Tackle, Inc. (RCT) was formed to handle the business affairs of a
fishing lure that came to be known as the “‘Bud’s Diver.’” Seth Burrill II, slip op. at 2. 1
1
Unless otherwise noted, background facts are drawn from this court’s two prior
decisions in this matter, Seth Burrill Prods., Inc. v. Rebel Creek Tackle, Inc., No. 32119-
3-III (Wash. Ct. App. July 7, 2015) (Seth Burrill I) (unpublished),
https://www.courts.wa.gov/opinions/pdf/321193.unp.pdf, and Seth Burrill Prods., Inc., v.
Rebel Creek Tackle, Inc., No. 34401-1-III (Wash. Ct. App. Apr. 11, 2017) (Seth Burrill
II) (unpublished), https://www.courts.wa.gov/opinions/pdf/344011_unp.pdf.
No. 35572-1-III
Seth Burrill Prods., Inc. v. Rebel Creek Tackle, Inc.
RCT licensed Seth Burrill Productions, Inc. (SBP) as “the exclusive producer and
distributor of the lures, granting it ‘full, unrestricted use of the injection molds,’” which
were later sent to Plastic Injection Molds, Inc. (PIM), for production in Richland,
Washington. Seth Burrill I, slip op. at 1-2.
The 2010 license agreement (Agreement) between RCT and SBP required SBP to
sell 15,000 units within the first five years of the Agreement, and thereafter sell at least
3,000 units per year. The Agreement specified that if SBP did not meet these sales
expectations, RCT could terminate the Agreement by written notice within 30 days of the
five-year anniversary date, or, thereafter, by 30 days’ notice.
Due to conflicts between the parties, RCT unilaterally terminated the Agreement
in 2012 and started distributing the fishing lures produced by PIM. SBP brought a breach
of contract action and, in May 2013, an arbitrator determined that RCT breached the
Agreement and entered an award that reinstated the Agreement, with modifications, and
provided damages. Some of the modifications to the Agreement included that (1) SBP
was to have use of the injection molds, (2) RCT was to “‘cooperate in the transfer and/or
delivery of said molds as requested by [SBP],’” Seth Burrill I, slip op. at 2 (alteration in
original), and (3) the expiration date for termination of the Agreement was extended from
May 31, 2015, to May 31, 2016, such that the Agreement became a six-year contract
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instead of a five-year contract. A month later, SBP successfully obtained an order
confirming the arbitration award, pursuant to RCW 7.04A.220 and RCW 7.04A.250,
in Spokane County Superior Court cause number 13-2-01982-0.
Shortly after prevailing in arbitration, SBP contacted PIM to get the injection
molds transferred for the lures, but because the molds were RCT’s property, PIM would
not provide SBP the molds without permission. After unsuccessfully attempting to
contact RCT, SBP contacted RCT’s counsel who refused to agree to the transfer of the
molds, told PIM to not give SBP the molds, and told SBP that he no longer represented
RCT. After further unsuccessful attempts to contact RCT, SBP filed a motion for
contempt in the superior court, which then determined RCT intentionally violated the
court order confirming the arbitration award, and imposed remedial sanctions. RCT
appealed, and this court found RCT’s appeal was without any merit, affirmed the superior
court’s contempt finding, and awarded attorney fees and costs for the appeal to SBP.
Despite this court’s ruling, SBP was unable to collect from RCT on its judgment,
so SBP “offered to forgo a portion of the judgment amount and release other claims
against [RCT] in exchange for partial payment of the judgment and assignment of the
molds,” and the patent assets. Seth Burrill II, slip op. at 3. SBP also wanted to engage in
discovery of RCT’s assets. Ultimately, RCT expressed no desire to accept SBP’s offer,
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which led to SBP’s motion “for an order authorizing supplemental proceedings to
determine the extent of [RCT’s] nonexempt property available to satisfy the judgment.”
Id. Later on, when SBP served RCT with written discovery requests authorized by the
superior court, RCT’s answers provided that “it did not have a current bank account, an
insurance policy, a corporate minute book, or financial statements and had not filed
income tax returns or made a profit between 2010 and 2013.” Id. at 4. RCT claimed that
the only assets it owned were the fishing lure molds, its patent assets, its Agreement with
SBP, and an application for rights outside of the United States.
Due to SBP’s concerns about ever collecting on its judgment, in the spring of
2016, SBP filed a motion in superior court “to appoint a general receiver for [RCT] and
order [RCT] to assign the patent and molds to the receiver.” Id. at 5. The superior court
granted SBP’s motion for a receivership. RCT immediately filed a notice of appeal and
moved in the superior court for a stay of the receivership. RCT then paid a large cash
sum into the registry of the superior court and filed a notice of supersedeas, but the
superior court denied RCT’s motion for stay.
RCT moved for discretionary review of the order denying a stay of the
receivership. It also filed a motion for stay in this court. Appellate review commenced
after our commissioner ruled that the receivership order was appealable as a matter of
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right. The commissioner also stayed the receivership during the pendency of the appeal.
While this matter was on appeal, RCT’s counsel prepared a motion for declaratory
judgment of termination of the Agreement, dated June 1, 2016. The motion bears no case
number, but it is captioned as a pleading for the Court of Appeals. 2 The body of the
motion states it has been “filed in both the Court of Appeals and in the Spokane County
Superior Court.” Clerk’s Papers at 73. This representation is misleading. The motion
was filed with this court as part of the then-pending appeal. However, it was not directly
filed with the superior court. Instead, the motion was merely e-mailed to the superior
court. Id. at 79-80. A copy of the motion only made its way into the superior court file as
part of the appellate record from the prior appeal.
The substance of RCT’s declaratory judgment motion alleged that SBP had
breached the Agreement by failing to sell 15,000 Bud’s Diver units by June 1, 2016 (the
date specified in the arbitration award). RCT’s motion claimed it was noted for hearing
on June 2, 2016. Id. at 73. The record on review does not show that such a hearing ever
occurred.
2
The top caption of the pleading reads, “IN THE COURT OF APPEALS,
DIVISION III, STATE OF WASHINGTON.” Clerk’s Papers at 73. The pleading is
entitled “APPELLANT’S MOTION FOR DECLARATORY JUDGMENT OF
TERMINATION OF LICENSE AGREEMENT AND FOR HEARING ON AN
EMERGENCY BASIS ON JUNE 2, 2016.” Id.
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In a decision dated April 11, 2017, this court determined the superior court did not
abuse its discretion in granting SBP’s motion to appoint a receiver, affirmed the order
appointing the receiver and the superior court’s refusal to assess RCT’s post-judgment
claim to setoffs, and awarded SBP attorney fees and costs. A mandate was filed
terminating review of the case on May 11, 2017.
Shortly after issuance of the mandate, the superior court entered orders terminating
the receivership and disbursing the cash funds held in the court’s registry. The court’s
orders resolved the parties’ dispute regarding the initial arbitration award and contempt
sanction. The court orders provided that SBP was to file a satisfaction of judgment with
the superior court after receiving the disbursement. However, no satisfaction of judgment
was filed.
On July 6, 2017, RCT filed a motion for summary judgment in the superior court.
The motion purported to relate to the motion for declaratory judgment that had been filed
with the Court of Appeals in June 2016. RCT’s motion requested a declaration that the
Agreement was terminated and that rights and access to Bud’s Diver be returned to RCT.
RCT’s motion was not supported by any authenticated documents. Instead, RCT
appended a series of unsworn exhibits to its memorandum of authorities in support of
summary judgment.
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After RCT filed for summary judgment, SBP contacted RCT’s counsel requesting
that RCT withdraw its motion as it was not grounded in fact or law, and SBP notified
RCT that if it was not going to withdraw its motion, SBP would pursue CR 11 sanctions
against RCT’s counsel.
RCT declined to withdraw its motion for summary judgment, and SBP filed a
memorandum opposing RCT’s motion and a separate motion for CR 11 sanctions against
RCT’s counsel. In its response to SBP’s opposition to summary judgment and motion
for CR 11 sanctions, RCT argued its motion for declaratory judgment was proper since
the original superior court case had not yet been dismissed. RCT also requested CR 11
sanctions against SBP.
The superior court denied RCT’s motions for summary judgment and for CR 11
sanctions. The court granted SBP’s motion for CR 11 sanctions. In its oral ruling,
the superior court explained that the main issue with RCT’s summary judgment motion
was that there were no pleadings tied to RCT’s claims. The court imposed $4,500 in
CR 11 sanctions. Payment was to be made by counsel for RCT to counsel for SBP as
recoupment for having to defend the summary judgment motion.
After the superior court made its ruling, RCT requested that it stay the case since
the matter would proceed to arbitration. The superior court initially granted RCT’s
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request for a stay, but after reconsideration it denied RCT’s request. In doing so, the
superior court stated that it did not make a ruling as to whether the parties’ dispute must
go to arbitration and that the parties agreed that arbitration was an available option. The
superior court further explained its CR 11 sanctions were also due to the frivolousness of
RCT’s countermotion for CR 11 sanctions against SBP.
Shortly after the superior court’s ruling, RCT filed a claim for arbitration. An
arbitration decision and award was entered on January 22, 2018, and filed in the superior
court on May 9, 2018. The arbitration decision granted RCT its requested relief and ruled
that the Agreement was terminated due to SBP’s failure to meet sales target requirements.
The arbitrator also awarded RCT payment for outstanding royalties in an amount that had
already been offered by SBP prior to the arbitration. The arbitration decision concluded
that RCT and SBP would share equally in the payment of arbitration fees and costs, and
neither party would be awarded attorney fees or costs.
During the interim of the arbitration proceedings, RCT appealed the superior
court’s decision on RCT’s motion for summary judgment and the CR 11 sanctions.
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ANALYSIS
Summary judgment and motion to stay
RCT contends the superior court erred in denying its motion for summary
judgment because SBP failed to sell the required units under the Agreement, which
allowed for termination of the Agreement, and the superior court failed to consider and
decide which forum was required to hear these issues. RCT further argues that when the
superior court found the Agreement and termination issue should proceed to arbitration,
the superior court abused its discretion in declining to stay the case.
RCT’s challenge to the superior court’s summary judgment ruling, ruling on
arbitrability, and motion for stay have been rendered moot by the outcome of arbitration.
Arbitration has taken place despite the denial of a stay and that forum has settled the
issues of whether SBP breached the Agreement and owed RCT royalties. This court
cannot provide further relief. Thus, the substantive issue of whether RCT should have
prevailed on its summary judgment motion and motion to stay are not issues that require
appellate resolution.
CR 11 sanctions
The purpose of CR 11 is to prevent baseless filings, filings made for improper
purposes, and abuses of the judicial system. Biggs v. Vail, 124 Wn.2d 193, 197, 876 P.2d
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448 (1994); Bryant v. Joseph Tree, Inc., 119 Wn.2d 210, 219, 829 P.2d 1099 (1992). If a
party engages in such conduct, the court can impose an appropriate sanction. CR 11(a).
A baseless filing is one not supported by the facts or existing law. Bryant, 119 Wn.2d at
219-20. In awarding sanctions for a baseless filing, the court must assess “whether a
reasonable attorney in like circumstances could believe his or her actions to be factually
and legally justified.” Id. at 220. Because CR 11 sanctions have a potential chilling
effect, a court should impose sanctions only when it is “patently clear that a claim has
absolutely no chance of success.” Skimming v. Boxer, 119 Wn. App. 748, 755, 82 P.3d
707 (2004).
A superior court’s decision to impose CR 11 sanctions is reviewed for abuse of
discretion. Id. at 754. This is a deferential standard. We will not reverse a superior
court’s CR 11 decision unless “its order is manifestly unreasonable or based on untenable
grounds.” Wash. State Physicians Ins. Exch. & Ass’n v. Fisons Corp., 122 Wn.2d 299,
339, 858 P.2d 1054 (1993). An order meets this standard only if it falls outside the
bounds of a decision a reasonable person could make. State v. Castellanos, 132 Wn.2d
94, 97, 935 P.2d 1353 (1997).
The superior court’s CR 11 sanctions against counsel for RCT were justified for
several reasons. First, as noted by the superior court, RCT lacked a proper basis for filing
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a summary judgment motion because the motion was not tied to any existing legal claims.
SBP initiated the superior court case in order to confirm an arbitration decision and to
hold RCT in contempt for failing to abide by the decision. RCT’s request for declaratory
relief was factually and legally unrelated to these issues. RCT may have had a justifiable
desire for a declaratory judgment, confirming termination of the Agreement. It may have
also been legally defensible to argue that the declaratory judgment was not subject to
arbitration. But these substantive issues are beside the point. To obtain relief, RCT
needed to initiate a new cause of action (which has since been done). It was not
appropriate to attempt to piggyback off of an unrelated, preexisting case.
Second, RCT’s motion for summary judgment was not supported by properly
authenticated exhibits. CR 56(e); SentinelC3, Inc. v. Hunt, 181 Wn.2d 127, 141, 331 P.3d
40 (2014). Counsel for SBP repeatedly advised counsel for RCT of the problems with its
filings, but RCT simply ignored the issue.
Finally, RCT lacked a viable basis for requesting CR 11 sanctions against counsel
for SBP. When the superior court pressed counsel for RCT to explain its sanctions
motion, counsel for RCT simply stated that it was entitled to prevail on the merits of its
request to terminate the Agreement. This does not come close to meeting the criteria for
CR 11 sanctions. A party’s pleadings are not subject to CR 11 sanctions simply because
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they are unsuccessful. Instead, as set forth above, CR 11 is aimed at preventing baseless
filings that are not grounded in fact or law. RCT failed to provide any explanation of
how SBP’s court filings (which were ultimately successful) failed to meet this standard.
Not only was the superior court justified in imposing CR 11 sanctions, the
sanctions were also reasonable in scope. SBP initially requested $13,000 in sanctions,
based on the time incurred responding to RCT’s motion. But the superior court only
imposed $4,500, explaining that it was a reasonable attorney fee recoupment. This was
an adequate exercise of discretion.
ATTORNEY FEES AND COSTS
Both RCT and SBP request attorney fees on appeal pursuant to RAP 18.1 and
RAP 18.9(a). RAP 18.9(a) “permits an appellate court to award a party attorney fees as
sanctions, terms, or compensatory damages when the opposing party files a frivolous
appellate action.” Advocates for Responsible Dev. v. W. Wash. Growth Mgmt. Hrgs. Bd.,
170 Wn.2d 577, 578, 245 P.3d 764 (2010). “An appeal is frivolous if, considering the
entire record, the court is convinced that the appeal presents no debatable issues upon
which reasonable minds might differ, and that the appeal is so devoid of merit that there
is no possibility of reversal.” Id.12
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We find RCT’s appeal frivolous and, as a result, SBP is entitled to attorney fees as
sanctions under RAP 18.9(a). 3 Counsel for RCT has inaccurately represented the manner
in which it filed the motion for declaratory judgment, as set forth above. The declaratory
motion was never properly filed as a superior court motion, requesting action by the
superior court. 4 In addition, even if the declaratory judgment motion had been filed with
the superior court, the motions for declaratory judgment and summary judgment would
still have been improper as they were unrelated to any pending claims for relief in the
superior court. RCT received fair warning of the deficiencies in its filings from both SBP
and the superior court. Yet RCT persisted with this appeal and has never provided a
tenable response to the procedural flaws outlined by SBP and the superior court. Instead,
RCT’s briefing is devoted to the issues of arbitrability and whether the parties’
Agreement had been terminated—issues that were rendered moot by the arbitration
3
It necessarily follows that RCT is not entitled to attorney fees or costs.
4
The motion for declaratory judgment is not included in the record on review,
except as an unsworn exhibit to RCT’s motion for summary judgment. In response to
SBP’s claim that RCT’s motion was never filed, RCT has merely cited a letter received
from counsel for SBP, stating, “‘In addition, your Motion for Declaratory Judgment of
Termination of License Agreement, filed with the Spokane County Superior Court on
June 1, 2016, . . . [.]’” Appellant’s Reply Br. at 2 n.2. This citation to correspondence
does not constitute proof of filing. This court has had to engage in an independent review
of court records in order to discern whether and how the declaratory judgment motion
was filed.
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decision that was issued in RCT' s favor prior to filing of RCT' s opening brief.
CONCLUSION
The orders on appeal are affirmed. SBP shall be awarded reasonable attorney fees
and costs on appeal, subject to its timely compliance with RAP 14.4 and RAP 18.1 (d).
A majority of the panel has determined this opinion will not be printed in
the Washington Appellate Reports, but it will be filed for public record pursuant to
RCW 2.06.040.
Q
Pennell, A.CJ.
WE CONCUR:
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