The Bert Kuty Revocable Living Trust, V Columbia River Properties Inc ( 2013 )

F1 ED
COURT OF APPEALS
ONISIOM 11
2013 JUN 27 AM 9:32
SVTE..
OF S iIGT
Ov
t
IN THE COURT OF APPEALS OF THE STATE OF W
DIVISION II
THE BERT KUTY REVOCABLE LIVING
TRUST, by its TRUSTEE, DAVID NAKANO, No. 42811 3 II
- -
Appellant,
V.
GERRY and JOHN DOE MULLEN, husband and ORDER WITHDRAWING OPINION IN
wife; MICHAEL and JANE DOE MULLEN, RESPONSE TO MOTION TO ENLARGE
husband and wife; D. .INC., ba/
C d/ / TIME AND TO PUBLISH OPINION
NORTHWEST PROPERTIES OF S. .
W AND FILING AMENDED PART
WASHINGTON, a Washington corporation; PUBLISHED OPINION
Columbia River Properties, Inc., Washington
a
corporation; FREDERICK and JANE DOE
LEMP, husband and wife;NEW ENTERPRISE,
LLC, a Washington LLC;ROBERT and
DANIELE HAYES, husband and wife; RUSTY
and JANE DOE FIELDS, husband and wife;
ENDEAVOR, INC. d/ a ENDEAVOR
b/
CONSULTANTS INC.; JOHN and JANE DOES 1
10.
Respondents _ __ __ I __ _ --- - __
1.
THIS MATTER came before the court on the motion of a third party requesting an
extension of time to file a motion to publish and requesting publication of the opinion filed in this
court on April 30,2013. Respondents filed no response objecting to publication of the opinion and
appellant filed a response citing no objection to a part published opinion.
Upon consideration of the,motion and responses thereto, it is hereby
ORDERED, that the unpublished opinion filed on April 30, 2013, is withdrawn and the
0.
42811 3 II
- -
amended part published opinion is filed simultaneously with this order.
2
F II. —
ICI
lRT OF
k^. APPEALS
O-
No. 42811 3 II
- - lb1[
Calt:
l
2013 JUN 21 AM 9 32
STA.. OF
a..::
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION II
THE BERT KUTY REVOCABLE LIVING
TRUST,by its TRUSTEE, DAVID NAKANO, No. 42811 3 II
- -
Appellant,
V. PART PUBLISHED OPINION
GERRY and JOHN DOE MULLEN, husband and
wife;MICHAEL and JANE DOE MULLEN,
husband and wife;D. .INC., b a/
C d/ /
NORTHWEST PROPERTIES OF S. . W
WASHINGTON, a Washington corporation;
Columbia River Properties, Inc., Washington
a
corporation; FREDERICK and JANE DOE
LEMP, husband and wife;NEW ENTERPRISE,
LLC, a Washington LLC; ROBERT and
DANIELE HAYES, husband and wife; RUSTY
and JANE DOE FIELDS, husband and wife;
ENDEAVOR, INC. d/ a ENDEAVOR
b/
CONSULTANTS INC. JOHN and JANE DOES 1
10.
Respondents.
VAN DEREN J. . The Bert Kuty Revocable Living Trust ( uty Trust)appeals the
T. —
P K
trial court's summary judgment dismissal of its claim for an accounting of proceeds from a
trustee's sale against Robert and Daniele Hayes and summary judgment dismissal of its
91
No. 42811-
11- 3
successor liability claim against Columbia River Properties, Inc. We affirm the trial court and
award attorney fees to the Hayeses on appeal.
FACTS
This dispute stems from a failed real estate transaction and subsequent nonjudicial
foreclosure, which the Kuty Trust alleged was an equity stripping scheme. The Kuty Trust
owned various parcels of real property that it listed for sale through its real estate agent, Jerry
Mullen of D. .Inc. d/ a Northwest Properties of S. . Washington. Mullen introduced the
C b/ W
Kuty Trust trustee, David Nakano, to Rusty Fields of Endeavor, Inc. Nakano understood that
Endeavor assisted purchasers of real property.
In 2006, Mullen and Fields presented the Kuty Trust with a prospective buyer,New
Enterprises, LLC,for the undeveloped lot involved in the instant lawsuit. New Enterprises
offered to purchase the lot for $ 0, 00 with a combination of financing sources. The Kuty Trust
8 0
accepted a small down payment and a promissory note secured by a deed of trust for the
remainder of the purchase price. New Enterprises executed a promissory note for $ 6, 00 and a
5 0
deed of trust securing the note in favor of the Kuty Trust.
New Enterprises then entered into a speculative construction loan agreement with
LeGrand Investments, LLC,in which LeGrand Investments agreed to loan up to $ 38, 00 to
2 0
New Enterprises for the lot and for funds to construct a single family residence. New Enterprises
1
In the unpublished portion of the opinion, we discuss the Kuty Trust's contention that the trial
court erred it granting summary judgment dismissal of the Kuty Trust's other claims against the
Hayeses and in awarding attorney fees and costs against the Kuty Trust. We also discuss the
Hayeses' request for attorney fees on appeal.
2 New Enterprises, LLC was owned by Frederick Lemp.
3
LeGrand Investments, LLC was owned by Darren Williams.
No.42811 3 II
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executed a promissory note for $ 38, 00 to LeGrand Investments and secured the note through a
2 0
deed of trust on the lot. This transaction required the Kuty Trust to subordinate its deed of trust
to LeGrand Investments' deed of trust. Fields and Endeavor structured the deal and prepared the
documents.
New Enterprises' promissory note to LeGrand Investments was for a face amount of
238, 00,but it was labeled a " uilding Construction Line of Credit."Clerk's Papers (CP)at
0 B /
146. The note provided, This promissory note is a line of credit and shall be disbursed to the
"
borrower in draws that are acceptable to the lender."CP at 146. By its provisions, the note
matured on November 16, 2007, a year from its execution, and a balloon payment for the
principal advanced and compound interest was due at that time. LeGrand Investments recorded
its deed of trust on November 17, 2006. Also on November 17, 2006, LeGrand Investments,
through its managing member, Darren Williams,wired New Enterprises an initial loan
disbursement of 31, 00 to purchase the property. On November 30, 2006, LeGrand
$ 0
Investments, through Williams, issued a $ , certified check to New Enterprises as an initial
9000
construction draw.__ $ 0, 00 was the totaldisbursed under the promissory noteline of credit --
This 4 0 - /
to New Enterprises from LeGrand Investments.
Robert and Daniele Hayes were looking for an investment opportunity with an attractive
rate of return. The Hayeses had no involvement in the initial loan transaction or any ownership
interest or other involvement with LeGrand Investments. The Hayeses purchased LeGrand
Investments' interest in the promissory note line of credit and deed of trust on the Kuty Trust lot
/
for $ 0, 00 which was the amount LeGrand Investments had disbursed to New Enterprises,
4 0 —
LeGrand Investments assigned all rights and interest in its deed of trust to the Hayeses on
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No. 42811 3 II
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November 29, 2006, and the assignment was recorded that same day. LeGrand Investments
assigned all its rights and interest in the promissory note to the Hayeses on December 1, 2006.
New Enterprises defaulted on the LeGrand Investments Hayes promissory note by failing
/
to pay the loan balance when it matured and became due on November 16, 2007. The Hayeses
commenced foreclosure proceedings. The Hayeses hired an attorney to serve as trustee for the
foreclosure proceedings. New Enterprises did not respond to the Hayeses' notice of default. The
trustee scheduled a trustee's sale for July 25,2008, and sent notice of the sale by first class mail
and certified mail to New Enterprises and to the Kuty Trust because it held a junior security
interest in the property. The notice of trustee's sale provided that the principal owing was
40, 00,plus interest, late charges, and default interest for a total of 63, 24.
0 62.
$ 7
On April 30, 2008, the Kuty Trust's attorney requested evidence of the loan claimed in
the notice of foreclosure. On May 9,the trustee sent the Kuty Trust's attorney documentation
showing the $ 000 in loan disbursements to New Enterprises. On June 11, and on June 12, the
40,
Kuty Trust's new attorney requested proof of the funds advanced on the loan and a copy of the
promissory note and deed of trust being foreclosed.The trustee provided the requested _
"
documentation to the new attorney.
On July 2,2008, the Kuty Trust sued, alleging various claims related to an equity
stripping scheme including: 1)
( breach of contract, negligence, negligent misrepresentation,
malpractice and violation of the consumer protection act against the Mullens, D. .Inc.,
C and
G
No.42811 3 II
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Columbia River Properties; 2)
( breach of contract against New Enterprises and the Lemps; 3)
(
fraud, violation of consumer protection act, negligent misrepresentation and or negligence
/
against the Fieldses, Endeavor, New Enterprises, the Lemps, LeGrand Investments, and the
Hayeses; and (4)conversion of funds against the Hayeses.
The trustee's sale was held on July 25. The Hayeses directed the trustee to credit the
entire outstanding obligation secured by the deed of trust as their opening bid at the sale. Robert
Hayes testified in his declaration that he did not tender any funds or documentation as part of the
bid at the trustee's sale. There were no other bidders at the sale, so the Hayeses' credit bid was
successful. The trustee provided the Hayeses with a trustee's deed for the property but did not
5
prepare or file a written notice of surplus because there were no monies paid to him at the sale.
The Hayeses' attorney, who was also the trustee, wrote a letter to counsel for the Kuty
Trust noting that the Kuty Trust had waived its right to contest the sale or the underlying
obligations on the property because it had not used the statutory presale remedies. Accordingly,
he requested that the Kuty Trust dismiss its lawsuit against the Hayeses.
The Hayeses movedfor surnmary judgment dismissal of the claims against t em. The
-
Kuty Trust opposed the motion, moved for a continuance of the motion under CR 56( ) allow
f to
further discovery, and filed an amended complaint adding a claim for an accounting of
foreclosure proceeds. On November 14, 2008, the trial court granted partial summary judgment
4
The original complaint named NWREP, Inc. db a Northwest Properties of S. . Washington as
/ / W
a defendant, but the complaint was later amended to substitute D. .Inc. d/ a Northwest
C b/
Properties of S. . Washington for NWREP, Inc. The second amended complaint also added
W
Columbia River Properties as a defendant alleging that Columbia River Properties was a
successor company to D. .Inc.
C
5. See RCW 61. 4.
080.
2
6
See RCW 61. 4.
130.
2
7
No. 42811 3 II
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in favor of the Hayeses. It granted summary judgment dismissal with prejudice of the Kuty
Trust's claims " hallenging either the validity or the finality of the trustee's sale of the subject
c
real property"and claims "challenging the validity of the debt as described in the Notice of
Trustee's Sale and foreclosed upon by the trustee's sale."CP at 257. But the trial court did not
dismiss the Kuty Trust's claims against the Hayeses for fraudulent misrepresentation.
After responding to interrogatories, the Hayeses renewed their motion for summary
judgment, requesting that, he trial court dismiss the remainder of the Kuty Trust's claims against
t
them. Both Robert Hayes and the trustee provided declarations in support of the renewed motion
for summary judgment. The Kuty Trust conceded that the Hayeses should be dismissed from the
civil conspiracy and fraud claims, but the Kuty Trust requested that the Hayeses be dismissed
without prejudice in case further discovery revealed the Hayeses were involved in the alleged
equity stripping scheme. The Kuty Trust opposed summary judgment on the accounting claim
and argued that it should proceed to trial. On January 30, 2009,the.rial court granted the
t
Hayeses' motion for summary judgment dismissal with prejudice of all remaining claims against
them
The Kuty Trust filed a second amended complaint substituting D. .Inc. for NWREP,
C
Inc.because the Kuty Trust learned that Mullen worked for D. .Inc. rather than NWREP, Inc.
C
The Kuty Trust also added Columbia River Properties as a defendant and alleged that if the Kuty
Trust obtained a judgment against D. .Inc., was unable to recover it,Columbia River
C but
Properties should be liable as D. .Inc.' successor company.
C s
Columbia River Properties moved for summary judgment, arguing that it was not liable
as a successor company to D. .Inc. It filed a declaration from Chris Fry,the sole shareholder of
C
Columbia River Properties, in support of its motion. Fry incorporated and was the prior owner
No. 42811 3 II
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of D. .Inc., he sold his entire interest in 2004 and moved to California. In 2009, he returned
C but
to southwest Washington and was employed by D. .Inc. He was appointed corporate secretary,
C
but he held no ownership -nterest. D. . Inc.' business was struggling, so a few months later,
i C s
Fry incorporated Columbia River Properties and quit working for D. .Inc. When D. . Inc.
C C
dissolved, most of its employees and real estate agents were hired by Columbia River Properties.
Through Fry's efforts, Columbia River Properties acquired a portion of D. .Inc.' former
C s
business.
The Kuty Trust filed a cross motion for summary judgment, arguing that the material
facts were not in dispute and that the trial court should hold as a matter of law that Columbia
River Properties was liable as a successor company of D. .Inc. In the alternative, the Kuty
C
Trust requested that the trial court deny Columbia River.Properties' motion and proceed to trial:
In support of its summary judgment motion, the Kuty Trust submitted a declaration with
a document from the Mullens' bankruptcy proceeding. On Columbia River Properties' motion,
the bankruptcy document was stricken as hearsay. Thus, the trial court did not consider the
Mullens' bankruptcy document iri deciding the " ummary judgment motion.
s
On April 1, 2011, the trial court granted Columbia River Properties' motion for summary
judgment. The trial court denied both parties' requests for attorney fees. The Kuty Trust
unsuccessfully sought reconsideration of the evidentiary ruling and the grant of summary
judgment to Columbia River Properties.
7
In one section of its bankruptcy filings,the Mullens were directed to "[ ist all property that has
1]
been repossessed by a creditor, sold at a foreclosure sale, transferred through a deed in lieu of
foreclosure or returned to the seller, within one year immediately preceding the commencement
of this case."CP at 538 (emphasis omitted).The Mullens listed Fry as the " reditor or seller"
c
and Northwest Properties as the " escription and value of property," January 15,2009, as the
d and
date of repossession, foreclosure sale,transfer or return."CP at 538 (capitalization omitted).
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No. 42811-
11- 3
The Kuty Trust's case continued to trial against defendants not parties to this appeal.
Based on the evidence presented at trial and the orders of default against the defendants, the trial
court entered findings of fact and conclusions of law. The trial court entered judgment against
D. .Inc., Enterprises, and the Lemps on multiple theories. The Kuty Trust was awarded
C New
77
127, 89.in damages and $ 0, 35.in attorney fees and costs. The record provided on
4 44
7 1
appeal does not reveal the outcome of litigation against the Mullens, the Fields, LeGrand
Investments, or Endeavor.
The Kuty Trust timely appeals the three interlocutory orders granting summary judgment
dismissal of all claims against the Hayeses and Columbia River Properties.
ANALYSIS
The Kuty Trust argues that ( )
1 summary judgment dismissal of its claims for an
accounting of the proceeds of the trustee's sale against the Hayeses was improper because
several genuine issues of material fact regarding the value of the note,the price at the foreclosure
sale, and the postsale apportionment of the sale proceeds remain; and (2) trial court erred in
the
granting Columbia River Properties'"
summaryjudgment motion and denying the Kuty Trust's
-
summary judgment motion on the claim that Columbia River Properties was a successor to D. .
C
Inc. We disagree and affirm the trial court's rulings.
8
The Lemps filed a pro se answer denying all allegations, but it appears from the record that
they did not further,defend the lawsuit.
9 Endeavor and Rusty Fields answered the complaint and filed a motion to dismiss. LeGrand
Investments also filed an answer and denied the allegations. No other information is available to
this court.
10
The trial court's summary judgment dismissal of the Kuty Trust's unjust enrichment, fraud,
and civil conspiracy claims against the Hayeses is discussed in the unpublished portion of this
opinion.
10
No. 42811 3 II
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I. STANDARD OF REVIEW
We review a trial court's order for summary judgment de novo,performing the same
inquiry as the trial court. Ruvalcaba v. Kwang Ho Baek, 175 Wn. d 1, 6,282 P. d 1083 (2012).
2 3
Summary judgment should only be granted if after considering all the pleadings,
affidavits, depositions or admissions and all reasonable inferences drawn
therefrom in favor of the nonmoving party, it can be said (1)that there is no
genuine issue as to any material fact, 2)
( that all reasonable persons could reach
only one conclusion, and (3)that the moving party is entitled to judgment as a
matter of law.
Baker v. Schatz, 80 Wn. App. 775, 782, 912 P. d 501 (1996).A genuine issue of material fact
2 "
exists. here reasonable minds could differ on the facts controlling the outcome of the litigation."
w
Ranger Ins. Co. v. Pierce County, 164 Wn. d 545, 552, 192 P. d 886 (2008).
2 3
The moving party bears the burden of demonstrating that there is no genuine issue of
material fact. Atherton Condo. Apartment -Owners Ass'n Bd. OfDirs. V. Blume Dev. Co.,
115
Wn. d 506, 516, 799 P. d 250 (1990).After the moving party submits adequate affidavits,the
2 2 "`
nonmoving party must set forth specific facts which sufficiently rebut the moving party's
contentions and disclose the existence of a genuine issue as to a material fact."'
Visser v. Craig,
139 Wn. App. 152, 158, 159 P. d 453 (2007)quoting Meyer v. Univ. of Wash.,105 Wn. d 847,
3 ( 2
852, 719 P. d 98 (1986)). " nonmoving party fails to do so,then the summary judgment is.
2 If the
proper."Vallandigham v. Clover Park Sch. Dist. No. 400, 154 Wn. d 16, 26, 109 P. d 805
2 3
2005).
II. SUMMARY JUDGMENT ORDERS WERE APPROPRIATE
A. Accounting Claim
The Kuty Trust argues that the trial court erred by granting summary judgment dismissal
of its claim for an accounting of trustee's sale proceeds against the Hayeses because several
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No. 42811 3 II
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genuine issues of material fact remain regarding the value of the promissory note, the price at the
trustee's sale, and the postsale apportionment of the proceeds. We disagree.
The statutory deed of trust is a "`
three party transaction in which land is conveyed by a
-
borrower, the grantor, to a trustee, who holds title in trust for a lender,the beneficiary, as security
for credit or a loan the lender has given the borrower. "' Bain v. Metro. Mortg. Grp.,
Inc.,
175
Wn. d 83, 92 93,285 P. d 34 (2012)internal quotation marks omitted)quoting 18 WILLIAM B.
2 - 3 ( (
STOEBUCK & JOHN W.WEAVER, WASHINGTON PRACTICE: REAL ESTATE: TRANSACTIONS § 17. 3,
at 260 (2d ed. 2004)).
Chapter 61. 4 RCW governs deeds of trust in Washington. In re Tr. s
2 '
Sale ofReal Prop. ofGiannusa, 169 Wn. App. 904, 907, 282 P. d 122 (2012).Under this act, if
3
the borrower defaults under the terms of the obligation secured by a deed of trust that grants the
trustee the power of sale, the trustee may usually foreclose the deed, of trust and sell the property
without judicial supervision at a trustee's sale. Former RCW 61. 4.
005(
8 1998);
2 ) ( RCW
030;
61. 4.
2 Bain, 175 Wn. d at 93; Giannusa, 169 Wn. App. at 907. Any person other than the
2
trustee, including the beneficiary, may bid at the trustee's sale. RCW 61. 4.The
070(
1
2 ).
beneficiary may bid up t0the amount ofits secured obligation without paying the trustee
additional sums by making a " redit bid ":
c
The trustee shall, at the request of the beneficiary, credit toward the beneficiary's
bid all or any part of the monetary obligations secured by the deed of trust. If the
beneficiary is the purchaser, any amount bid by the beneficiary in excess of the
amount so credited shall be paid to the trustee....the purchaser is not the
If
beneficiary, the entire bid shall be paid to the trustee.
RCW 61. 4.The trustee shall apply the proceeds of the sale first to the expenses of the
070(
2
2 ):
sale, including trustee and attorney fees, and second to the obligation secured by the deed of
trust. RCW 61. 4.
080(
1 2). (
2 ), trustee shall deposit the surplus proceeds, if any, with the
The
clerk of the superior court of the county in which the sale took place. RCW 61. 4.A
080(
3
2 ). "
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No. 42811 3 II
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second deed of trust beneficiary has a superior interest in the surplus over the borrower."
Giannusa, 169 Wn. App. at 908.
New Enterprises defaulted on its obligation to repay the Hayeses under the terms of the
speculative loan agreement and the promissory note. Because the obligation was secured by a
deed of trust, the Hayeses, as the beneficiaries of the deed of trust, commenced nonjudicial
foreclosure proceedings under RCW 61. 4. The notice of trustee's sale, which was sent to the
2
Kuty Trust, clearly stated the default amount due was $ 3, 24.which was based on a
62,
6 7
calculation of principal, interest, and late charges. The trustee provided the Kuty Trust with
copies of the check and wire transfer evidencing the $ 0, 00 principal loan disbursements when
4 0
the Kuty Trust's attorneys requested such evidence.
The Hayeses' bid was the only bid at the trustee's sale. The Kuty Trust did not bid. At
the Hayeses' direction, the trustee credited them with the entire outstanding obligation as their
opening bid. There were no other bids, so the Hayeses' credit bid was successful. The trustee's
declaration stated, T] were no monies, let alone an[ ]surplus monies paid to me at the
"[ here y
sale."CP at 278.
The Kuty Trust alleges that the trial court erred by granting summary judgment on its
accounting claim against the Hayeses because genuine issues of material fact existed about the
value of the note,price at the trustee's sale, and the postsale apportionment of proceeds. But a
genuine issue of material fact does not exist here —notwithstanding the Kuty Trust's dispute
about the note, price, and distribution of proceeds—
because the disputed facts do not control the
outcome of this claim. See Ranger Ins.,164 Wn. d at 552.
2
The Hayeses had no obligation to account for the proceeds of the trustee's sale. It is the
duty of the trustee to collect proceeds of the sale and treat them in accordance with the statutory
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No. 42811 3 II
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provisions. RCW 61. 4.080. The Hayeses were beneficiaries of the deed of trust and the
070, .
2
buyers at the trustee's sale, but they were not the trustee. Thus, we hold that the Kuty Trust's
claim for an accounting from the Hayeses fails as a matter of law,and it was properly dismissed
on summary judgment.
Even if the Hayeses had a duty to account for the proceeds of the sale or if the Kuty Trust
had sued the trustee for an accounting, the undisputed record shows that the trustee's sale did not
generate surplus proceeds. Thus, there were no surplus proceeds to account for and no proceeds
that the Kuty Trust could claim based on their junior security interest foreclosed by the sale.
The Kuty Trust's theory is that the Hayeses tendered their deed of trust and or promissory
/
note (both stating that the debt was $ 000)to purchase the property at the trustee's sale."
238,
The Kuty Trust argues that because the Hayeses were only owed the amount distributed on the
loan ($ 000 principal plus interest and late charges for a total of 63, 24.the remainder of
40, 62),
$ 7
the " roceeds"approximately $ 74, 00)should have been available to satisfy the second -
p ( 1 0
position secured interest of the Kuty Trust. The Kuty Trust argues that the face.value of the note
and the p rice at the foreclosure sale are disputed and
p> thus summ judgment on the accounting
claim was improperly granted. But this is not a true factual dispute. The Hayeses do not dispute
that the deed of trust and promissory note both state a face amount of 238, 00. And the Kuty
$ 0
Trust's allegation of the purchase price being disputed is based solely on its understanding that
the deed of trust and or promissory note was "
/ tendered"to purchase the property at the trustee's
sale. But the Kuty Trust does not present any personal knowledge of the trustee's sale. Thus,
Robert Hayes' and the trustee's testimony about the sale is factually undisputed.
11
The Kuty Trust oscillates between alleging that the Hayeses tendered their promissory note,
the deed of trust, or both, as payment at the trustee's sale.
14
No.42811 3 II
- -
Any dispute stems from the Kuty Trust's misplaced focus on the " ace value"of the
f
promissory note and/or deed of trust and its mischaracterization of the Hayeses' credit bid. As
the Hayeses point out, the " ace value"of the deed of trust or promissory note is not relevant
f
under the statutes governing nonjudicial foreclosure.
RCW 61. 4.
f) to state the " um owing on the obligation
040(
1)( the trustee
2 requires s
secured by the [d] of t] in the notice of sale. Here,New Enterprises owed the Hayeses
eed [ rust"
the principal amount of the loan ($ 000)plus interest, default interest, and a late charge, which
40,
totaled $ 3, 24.at the time of the notice of sale. The $ 38, 00 listed on the deed of trust is
62
6 7 2 0
irrelevant to the foreclosure proceeding because it was not the amount in default.at the time of
foreclosure.
At the foreclosure sale, the Hayeses instructed the trustee to make a credit bid in the
amount of the monetary obligations secured by the deed oftrust, as provided in RCW 61. 4.
070.
2
The monetary obligation secured by the deed of trust was only $ 3, 24.so their credit bid
62,
6 7
could not exceed that amount. See RCW 61. 4. The undisputed testimony from Robert
070.
2
Hayes and the trustee is that the Hayeses did not tender "their deed of trust orpromissory note -
" -
as payment.
Moreover, tender of a promissory note or deed of trust is not one of the forms of payment
at a trustee's sale authorized by statute. RCW 61. 4.
070(
2 amounts
2 ) (must be paid to the trustee
in the form of cash, certified check, cashier's check, money order, or funds received by verified
electronic transfer).The Hayeses' credit bid was the sole bid at the trustee's sale and, thus, it
was the winning bid. The Kuty Trust's allegation that the purchase price at the sale was
238, 00 is not supported by any evidence.
0
15
No. 42811 3 II
- -
Because the Hayeses' winning bid was not in excess of their credit bid,they were not
required to pay any amount to the trustee. See RCW 61. 4.Thus, the trustee could not
070(
2
2 ).
have received any surplus sale proceeds to deposit with the superior court for ultimate
disbursement to second -position secured parties whose interest was foreclosed by the sale. See
RCW 61. 4. Accordingly, even if the Kuty Trust had sought an accounting of foreclosure
080.
2
proceeds from the correct party, there are no genuine material facts in dispute and we hold as a
matter of law that there are no funds for which to account because the trustee's sale did not
generate any surplus proceeds. Thus, the trial court did not err by dismissing the Kuty Trust's
claim for an accounting on summary judgment
B. Successor Liability Claim
The Kuty Trust also assigns error to the trial court's order granting summary judgment to
Columbia River Properties and denying the Kuty Trust's motion for summary judgment on its
claim that Columbia River Properties was liable as a successor company of D. .Inc.12 In its
C
opening brief on appeal, the Kuty Trust argues that the trial court erred and asks us to reverse
and remand to the triatcourt with directions to against Columbia River
"
Properties. But in its reply brief,the Kuty Trust states that the trial court erred by resolving key
factual disputes and it requests that we reverse and remand to the trial court for trial on its
successor liability theories.
We decline to address the arguments made in the Kuty Trust's reply brief because they
were not preserved and are too late to warrant consideration: RAP 2. (
a); Canyon
5 Cowiche
12
After Columbia River Properties moved for summary judgment, the Kuty Trust filed a
combination response and cross motion for summary judgment. The Kuty Trust agreed that the
material facts were undisputed and that the issue should be resolved on summary judgment, but
the Kuty Trust argued that the trial court should grant summary judgment in its favor.
16
No. 42811 341
-
Conservancy v. Bosley, 118 Wn. d 801, 809, 828 P. d 549 (1992).Thus, we address only
2 2
whether the trial court erred by granting Columbia River Properties' motion for summary
judgment rather than the Kuty Trust's motion for summary judgment.
The parties dispute whether Columbia River Properties is liable for judgments against
D. .Inc.based on some apparent connections between Columbia River Properties and D. . Inc.
C C
Fry incorporated D. .Inc. in 1998. Fry owned all corporate stock of D. . Inc. and was its
C C
president until he sold his entire interest in the corporation to Mike and Gerry Mullen and
relocated to California in December 2004. The Mullens purchased D. . Inc. for $ 05, 00, for
C 1 0
which Fry took a promissory note. Fry did not hold any corporate position in D. ,Inc. while he
C
was in California. In California,Fry worked in a few real estate brokerages, including running a
property management office for two years. During the four years that Fry lived in California, his
contact with the Mullens and D. .Inc. was limited to a handful of social visits when he was in
C
the area.
At the end of 2008, Fry was considering leaving California and began to search for job
in Washington or Oregon._
Frycontacted D. .Inc. ask about ajob and learned that D. .Inc:
C to C
needed a property manager because the previous manager had quit.13 In February 2009,Fry
returned from California and began work for D. .Inc. as manager of its property management
C
division. Fry did not acquire any shares of D. .Inc., he was appointed as the corporate
C but
secretary and a signatory on the corporate bank account so that he could manage the business
while the Mullens were on vacation.
13
Property management entails managing property for owners, including collecting rents and
coordinating maintenance, rather than facilitating sales.
17
No. 42811 3 II
- -
D. .Inc. was struggling financially by the time Fry returned from California. Creditors
C
called the office on a regular basis, and it was clear to Fry that the business was headed in the
wrong direction. Fry decided to open his own real estate and property management business. He
incorporated Columbia River Properties in May 2009 and quit working for D. .Inc. The
C
Mullens allowed Fry to use D. . Inc.' commercial address to incorporate Columbia River
C s
Properties as a courtesy and convenience because Fry was still working at D. .Inc. and did not
C
yet have commercial space of his own. Columbia River Properties was issued a real estate
license on June 30, 2009, When Columbia River Properties opened for business on August 1,
2009, it opened at a new and separate location from D. .Inc. The Mullens informed Fry that
C
they closed down D. .Inc., Fry was not involved in the process.
C but
Generally, a corporation purchasing the assets of another corporation does not become
liable for the debts and liabilities of the selling corporation. Cambridge Townhomes, LLC v.
Pac. Star Roofing, Inc., Wn. d 475, 481 82,209 P. d 863 (2009).But the general rule does
166 2 - 3
not apply i£ there is an express or implied agreement for the purchaser to assume liability;
1) "(
O the purchase is a de facto mer ger or consolidationO the P urchaser is a were continuation
2 3
of the seller; or ( ) transfer of assets is for the fraudulent purpose of escaping liability."'
4 the
Cambridge Townhomes, 166 Wn. d at 482 (quoting Hall v. Armstrong Cork, Inc., Wn. d
2 103 2
258, 261 62,692 P. d 787 (1984))
- 2
In Meisel v. M & N Modern Hydraulic Press, Co., Supreme Court considered
our
whether liability should be imposed against Modern Hydraulic Corporation ( odern)based on
M
its connection to M & N Modern Hydraulic Press Company ( &N). Wn. d 403, 404 05,
M 97 2 -
1982).M &
645 P. d 689 (
2 N manufactured hydraulic presses. Meisel, 97 Wn. d at 404 05
2 -
Nicholas Brodsky, Jr. owned 99 percent of M & N' corporate stock shares, and he personally
s
18
No. 42811 3 II
- -
owned the land, buildings, and equipment that M & N leased to conduct its manufacturing
activities. Meisel, 97 Wn. d at 404.
2 Brodsky transferred all of his M & N stock back to the
corporation and to his mother for consideration. Meisel, 97 Wn. d at 404. Brodsky then
2
incorporated Modern and became its sole officer and shareholder. Meisel, 97 Wn. d at 404.
2
Brodsky terminated M & N' leases and then leased his equipment, land, and buildings to
s
Modern, which commenced manufacturing a custom line of hydraulic presses. Meisel, 97 Wn. d
2
at 404 05. M &
- N stopped manufacturing when Brodsky terminated its leases, but it continued
to service its machines and collect accounts receivable. Meisel, 97 Wn. d
2 at 405. M & N was
later dissolved. Meisel, 97 Wn. d at 405.
2
The plaintiff, Meisel, was injured while operating equipment that her employer had
purchased from M & N. Meisel, 97 Wn. d at 405. Meisel sued M &
2 N,which dissolved shortly
after commencement of the suit, and Modern under multiple successor liability theories. Meisel,
97 Wn. d at 405. On appeal from summary judgment dismissal of Meisel's claims against
2
Modern, our Supreme Court rejected Meisel's initial characterization of Modern as a successor
company of M & N and,thus, did notanalyze whether the case fit within an exception to the -
" -
general rule of nonliability for corporate successors. Meisel, 97 Wn. d at 405, 407.
2
The Court held that an essential prerequisite to the entire inquiry was whether there was a
transfer of assets from M & N to Modern. Meisel, 97 Wn. d at 407. The Court held that
2
Modern was not a successor
corporation because none of M & N' assets were transferred to
s
Modern. Meisel, 97 Wn. d at 409. Although Modern used the same land, buildings, and
2
equipment that M & N used, those assets did not belong to M & N;they belonged to Brodsky
personally. Meisel, 97 Wn. d at 409. Brodsky had merely divested himself of ownership of M
2
N and began a new corporation. Meisel, 97 Wn. d at 409.
2
19
No. 42811 3 II
- -
Similarly, Columbia River Properties is not a successor of D. . Inc. because there was no
C
meaningful transfer of assets from Columbia River Properties to D. . Inc. Columbia River
C
Properties purchased two file cabinets from D. .Inc.for $ 0 each, but it acquired no other
C 5
equipment. Fry explained that D. . Inc. did not transfer its clients to Columbia River Properties.
C
Fry had to pursue the clients and convince them to sign with him at Columbia River Properties.
D. . Inc. did not, and could not, transfer its real estate listing agreements or property
C
14
management contracts to Columbia River Properties. Fry explained that a licensed real estate
broker cannot transfer a listing agreement to another brokerage without the property owner's
consent. A listing stays with a broker until it expires or is cancelled by both parties. But "[ s
a]
D. ., wound down and closed its business, it terminated management contracts and listing
C Inc.
agreements."CP at 504. Columbia River Properties was able to obtain some of that business,
but in each case, the property owner was free to contract with any licensed brokerage. Fry
testified that there were not a significant number of re-
signings, maybe one or two.
Columbia River Properties did acquire 25 to 30 property management contracts that were
formerly held byD.
C. - Fry testified that D. .Inc.' property management contracts were
- Inca C s
primarily month to month transactions. Fry had to pursue the clients and convince them to sign
with him at Columbia River Properties. Fry called the clients, told them about his new company,
and asked them to sign with him at Columbia River Properties. He did not tell them that D. .
C
Inc. was closing, but he knew that D. .Inc. was informing its clients that it was closing down.
C
He also noted that many of the clients were clients that Fry had initially acquired when he owned
D. .Inc.
C
14 D. .Inc.' business was primarily real estate sales, but it also had a property management
C s
division that accounted for 20 to 25 percent of its gross income.
20
No. 42811 3 II
- -
When D. .Inc. closed down,Fry offered the former D. .Inc. real estate agents and
C C
employees jobs at Columbia River Properties. The majority of real estate agents working for
D. . Inc. at the time it closed, including Gerry Mullen,joined Columbia River Properties. A
C
former bookkeeper and a former maintenance person also came to work at Columbia River
Properties. But the real estate agents and employees were not transferred.from D. .Inc. to
C
Columbia River Properties.
The Kuty Trust alleges that Columbia River Properties acquired D. .Inc.' webpage,
C s
telephone number, and goodwill. The website for D. . Inc. and Columbia River Properties
C
looked nearly identical, but Fry declared that he did not acquire D. .Inc.' website. When Fry
C s
was the owner of D. .Inc.he used a company to design his website, and when he started
C
Columbia River Properties, he called the same company and asked them to make him a new
website using a template similar to the one they had previously designed for him. The websites
have separate domain names. Fry asked Mullen if he would be abandoning D. .Inc.' telephone
C s
number when it closed down. Mullen agreed to sign a release of the numbers with Comcast.
There is no evidence that Fry acquired D. . Inc's goodwill;the most"obvious sources of
C
goodwill—
business name and locationare unique.
—
The Kuty Trust argues that these facts show that Columbia River Properties is a "mere
21
No. 42811 3 II
- -
15
continuation"of D. . Inc.
C Br. of Appellant at 44. To determine whether a successor business
is a mere continuation of the seller business, we consider two factors: 1)
( whether there is a
common identity between the officers, directors, and stockholders of the selling and purchasing
companies and (2) sufficiency of the consideration running to the seller corporation in light
the
16
of the assets being sold. Cambridge Townhomes, 166 Wn. d at 482. Our objective is to
2
discern whether the "`
purchaser represents merely a new hat for the seller. "' Cambridge
Townhomes, 166 Wn. d at 482 (internal quotation marks omitted) quoting Cashar v. Redford,
2 (
28 Wn. App. 394, 397, 624 P. d 194 (1981)).
2
But under the facts of this case, the Kuty Trust did not present any evidence
demonstrating that D. . Inc.made a meaningful transfer of assets to Columbia River Properties.
C
Without a transfer of assets, Columbia River Properties is not a successor company of D. . Inc.
C
See Meisel, 97 Wn. d at 407 (recognizing that the general rule of no successor liability and the
2
15 At the trial court, the Kuty Trust also briefly addressed two other exceptions: express or
implied agreement to assume liabilities and the transfer of assets for a fraudulent purpose of
escap liabilities. But in its opening brief on appeal, the Kuty Trust focuses solely on the
p g p g pP Y Y
mere continuation"exception. In its reply brief,the Kuty Trust states that three of the four
exceptions apply—
express or implied assumption of liability,mere continuation, and fraudulent
transferbut provides argument only on the " ere continuation"exception. Reply Br. of
— m
Appellant at 13. We do not address the implied or express agreement to assume liabilities or the
fraudulent purpose exceptions alluded to in the Kuty Trust's reply brief because arguments
raised for the first time in a reply brief are too late to warrant consideration, and the arguments
first mentioned in the reply brief are not developed or supported by citations to authority or the
record. RAP 10.a)(Cowiche Canyon Conservancy, 118 Wn. d at 809; Howell v. Spokane
6);
3( 2
Inland Empire Blood Bank, 117 Wn. d 619, 624, 818 P. d 1056 (1991).
2 2
16
Division One added a third part to the test —whether
there is a transfer of all or substantially
all of the predecessor corporation's assets. Gall Landau Young Const. Co. v. Hedreen, 63 Wn.
App. 91, 97, 816 P. d 762 (1991).In Eagle Pacific Insurance Co. v. Christensen Motor Yacht
2
Corp., Wn. App. 695, 706 n. ,934 P. d 715 (1997),
85 1 2 affd, 135 Wn. d 894, 959 P. d 1052
2 2
1998), rejected the addition of a third element and applied the traditional two -factor test. In
we
2009, in Cambridge Townhomes, our Supreme Court applied the traditional two -factor test
without discussing a third factor. 166 Wn. d at 482.
2
22
No. 42811 3 II
- -
exceptions to the general rule presuppose a transfer, in some form, of assets from one business to
another).Because Columbia River Properties is not a successor company of D. .Inc.,
C
application of the " ere continuation"analysis is inappropriate and flawed. See Meisel, 97
m
Wn. d at 405, 407, 409. For example, the first factor, which compares the identity of officers,
2
directors, and stockholders, presupposes that the comparison will be between the " elling"and
s
purchasing"corporations. Cambridge Townhomes, 166 Wn. d at 482. Moreover, the second
2
factor is whether the selling corporation received adequate consideration for the transfer of its
assets. See Cambridge Townhomes, 166 Wn. d at 482. When there is no sale or transfer of
2
assets, these factors do not apply. Thus, we hold that the trial court did not err by finding that
Columbia River Properties was not liable as a successor corporation to D. .Inc.
C
In sum, the trial court properly granted summary judgment dismissal of the Kuty Trust's
claim against Columbia River Properties and its claim against the Hayeses for an accounting of
the trustee's sale proceeds. As further discussed in the unpublished portion of this opinion, we
affirm the trial court on the remaining issues and award attorney fees on appeal to the Hayeses.
A majority ofthe panel having determined that only the fore g oin gP
J y p g Y portion of this opinion
p
will be printed in the Washington Appellate Reports and that the remainder shall be filed for
public record in accordance with RCW 2.6.it is so ordered.
040,
0
III. SUMMARY JUDGMENT DISMISSAL OF REMAINING CLAIMS WAS APPROPRIATE
The Kuty trust also appeals the trial court's summary judgment dismissal of its claims for
unjust enrichment, fraud, and civil conspiracy against Robert and Daniele Hayes.
A. Unjust Enrichment Claim
The Kuty Trust argues that there is a "triable"case on its unjust enrichment claim. Br.of
Appellant at 34. Although the Kuty Trust does not formally assign error to any trial court ruling
23
No.42811 3 II
- -
on this issue or discuss an alleged error of the trial court, it appears that the Kuty Trust is arguing
that the trial court erred by granting summary judgment dismissal of its unjust enrichment claim
against the Hayeses.. the Kuty Trust's complaint does not allege an unjust enrichment claim.
But
The Kuty Trust argues that it amended its complaint to add an unjust enrichment claim against
the Hayeses. The Hayeses argue that an unjust enrichment claim was not before the trial court.
The Kuty Trust amended its original complaint to add a section titled " ccounting of
A
Foreclosure Proceeds."CP at 266 (boldface omitted).Our review of the complaint, amended
complaint, and second amended complaint does not reveal anything approximating an unjust
enrichment claim. In its reply brief,the Kuty Trust argues that the unjust enrichment claim was
raised below because it is essentially the same as the accounting claimit is merely " second
— a
perspective on the fundamental claim about the distribution of the proceeds of the foreclosure
sale."Reply Br.of Appellant at 4. The Kuty Trust does not provide authority to support this
characterization.
We do not address the Kuty Trust's unjust enrichment claim because the Kuty Trust did
not present it to the trial does not otherwise argue that preservation was not required. - _ _
See RAP 2. (
a) (
5 stating that generally an issue cannot be raised for the first time on appeal unless
it is manifest error
a " affecting a constitutional right "); Giannusa, 169 Wn. App. at 912.
B. Fraud and Civil Conspiracy Claims
The Kuty Trust also assigns error to the trial court's summary judgment dismissal with
prejudice of its claims for fraud and civil conspiracy against the Hayeses. The Kuty Trust
concedes that the claims were improbable and, thus, dismissal was proper; but the Kuty Trust
argues that the trial court should have dismissed the claims without prejudice to allow refiling if
subsequent discovery revealed evidentiary support for the claims.
24
No. 42811 3 II .
- -
Although the Kuty Trust assigned error and framed a question regarding the alleged error,
it did not devote any portion of its opening brief to this issue, nor did it discuss, cite to the
record, or cite authority related to dismissal with prejudice rather than without prejudice. The
Hayeses noted in their response brief that the Kuty Trust appeared to abandon the issue. We
agree.
We will not address an assignment of error that appears abandoned. RAP 10.
a)(
6)
3(
appellate brief should contain argument supporting issues presented for review, citations to legal
authority, and references to relevant parts of the record);
Howell v. Spokane & Inland Empire
Blood Bank, 117 Wn. d 619, 624, 818 P. d 1056 (199 1)assignment.of error unsupported by
2 2 (
legal argument will not be considered on appeal).For the first time in its reply brief, the Kuty
Trust provides argument that the fraud and civil conspiracy claims against the Hayeses should
not have been dismissed with prejudice because the Hayeses were potentially liable parties i.
— e.,
although discovery had not produced any evidence to support the claims against the Hayeses,
neither had it disproved the claim. We will not consider an issue raised for the first time in a
reply brief. Cowiche Canyon Conservancy, 118 Wn. d at 809 (
2 - stating that an 'issue raised and
-
17
argued for the first time in a reply brief is too late to warrant consideration),
Thus, we do not address the assignment of error because the Kuty Trust waived it by not
developing an argument supporting its assignment of error in its opening brief, the issue was first
17
But even if we addressed the Kuty Trust's argument, the Kuty Trust fails to inform us how the
Hayeses' potential liability affects the trial court's analysis of a summary judgment motion. Nor
did the Kuty Trust provide authority or analysis related to its request for voluntary dismissal.
The Kuty Trust alleges without authority that the trial court " hould have allowed further
s
discovery into those claims and should have allowed the [Kuty] Trust to assert or dismiss the
claims based on the outcome of that discovery."Reply Br.of Appellant at 6. Generally, without
argument and citation to authority, we will not review an assignment of error. RAP 10. a)( 6);
3(
Howell, 117 Wn. d at 624.
2
25
No.42811 3 II
- -
addressed in its reply brief and, even in the reply brief, the argument and authority was
inadequate. See RAP 10.
a)(Cowiche Canyon Conservancy, 118 Wn. d at 809; Howell, 117
6);
3( 2
Wn: d at 624.
2
IV. CR 11 SANCTIONS AND RCW 4.4.ATTORNEY FEES AND COSTS
185
8
After the claims against the Hayeses were dismissed on summary judgment, the Hayeses
requested attorney fees and costs under CR 11 and RCW 4.4.alleging that the Kuty Trust's
185,
8
claims against the Hayeses were frivolous and filed without a reasonable prefiling inquiry. The
Hayeses' attorney presented a declaration detailing his experience and hourly rate and attached a
billing invoice detailing costs and his time spent defending the Hayeses. The Kuty Trust
opposed the motion for attorney fees and costs, arguing that it did not violate CR 11 and RCW
185
4.4.because its attorney conducted an elaborate and detailed approximately six week long
8
investigation before filing the action. The Kuty Trust's attorney filed a declaration explaining
18
his prefiling investigation. Further,the Kuty Trust noted that it did not oppose dismissal of the
fraud and civil conspiracy claims against the Hayeses once discovery and investigation in
19-
another case cast doubt on the Hayeses' involvement in the alleged scheme. Thus, the Kuty
Trust argued that the claims against the Hayeses were not frivolous when filed or litigated.
18 We discuss the attorney's declaration in the analysis of attorney fees.
19
The Kuty Trust served discovery requests that included interrogatories on the Hayeses at the
time it filed the complaint, but the Hayeses moved for summary judgment before answering the
discovery requests. The Hayeses provided answers to the interrogatories only after claims
survived the first summary judgment motion. After the Kuty Trust received new information in
a different casenot involving the Kuty Trust or the parties on appeal and the Hayeses'
— —
answers to interrogatories denying involvement in the alleged scheme under penalty of perjury,
the Kuty Trust did not oppose the Hayeses' summary judgment motion and conceded that the
civil conspiracy and fraud claims against the Hayeses should be dismissed.
26
No. 42811 3 II
- -
In the alternative, the Kuty Trust argued that the Hayeses' fee request should not be
granted in its entirety because the Hayeses' late discovery substantially increased fees on both
sides. The trial court granted the Hayeses' motion for attorney fees under CR 11 and RCW
185.
4.4. The court ordered the Kuty Trust and its counsel to pay $
8 20
7, for attorney fees
265.
and costs incurred in responding to the Kuty Trust's claims.
The Kuty Trust assigns error to the trial court's imposition of attorney fees and costs
under CR 11 and RCW 4.4.for filing a frivolous lawsuit without a reasonable prefiling
185
8
inquiry into the legal and factual basis for its suit against the Hayeses. The Kuty Trust also
argues that even if the award of attorney fees was appropriate, the trial court erred by failing to
do a proper lodestar analysis in determining the amount of the fees. We disagree.
A. CR 11 Sanction and RCW 4.4.Fees and Costs
185
8
We review a trial court's award of attorney fees under RCW 4.4.or CR 11 for abuse
185
8
of discretion and will reverse only if the trial court exercised its discretion on untenable grounds
or for untenable reasons. In re Recall Charges Against Lindquist, 172 Wn. d 120, 135 36,258
2 -
P:
3 9 2011 We review findings of act f6r substantial evidence,_ -
which is a quantum of
evidence sufficient to persuade a rational person that the premise is true. Stiles v. Kearney, 168
Wn. App. 250, 260, 277 P. d 9,review denied, 175 Wn. d 1016 (2012).Unchallenged findings
3 2
of fact are verities on appeal. In re Estate ofJones, 152 Wn. d 1, 8, 93 P. d 147 (2004).
2 3
Under RCW 4.4.in any civil action, a court may award attorney fees to the
185,
8
prevailing party if the action was "
frivolous and advanced without reasonable cause."RCW
185. "`
4.4. A lawsuit is frivolous when it cannot be supported by any rational argument on the
8
law or facts. "' Stiles, 168 Wn. App. at 260 (internal quotation marks omitted) quoting Skimming
(
v. Boxer, 119 Wn. App. 748, 756, 82 P. d 707 (2004)).
3
27
No. 42811 3 II
- -
Under CR 11, an attorney's signature on a pleading, motion, or legal memoranda
constitutes the attorney's certification that the attorney has
read the pleading, motion, or legal memorandum, and that to the best of the ...
attorney's knowledge, information, and belief, formed after an inquiry reasonable
under the circumstances: ( )it is well grounded in fact; 2)it is warranted by
1 (
existing law or a good faith argument for the extension, modification, or reversal
of existing law or the establishment of new law.
CR 11 also provides:
If a pleading, motion, or legal memorandum is signed in violation of this rule, the
court ... may impose upon the person who signed it,a represented party, or both,
an appropriate sanction, which may include an order to pay to the other party or
parties the amount of the reasonable expenses incurred because of the filing of the
pleading, motion, or legal memorandum, including a reasonable attorney fee.
A trial court may not impose CR 11 sanctions for a baseless filing ` nless it also finds
u
that the attorney who signed and filed the [pleading, motion, or legal memorandum] failed to
conduct a reasonable inquiry into the factual and legal basis of the claim."'
Stiles, 168 Wn. App.
at 261 (alteration and emphasis in original)quoting- ryant v. Joseph Tree, Inc., Wn. d 210,
( B 119 2
220, 829 P. d 1099 (1992)).
2 Courts evaluate an attorney's conduct and prefiling investigation
using objective standard that asks what was reasonable to believe at the time of theoffending
filing. Stiles, 168 Wn. App: at 261 62. To impose sanctions, the trial court must enter findings
-
specifying the actionable conduct. Stiles, 168 Wn.App. at 262.
In its order granting attorney fees, the trial court made detailed findings of fact and
W.
No. 42811 3 II
- -
conclusions of law supporting its award. We review the trial court's challenged findings of fact
and conclusions of law. But the Kuty Trust failed to challenge any of the trial court's findings of
fact.
20
The trial court's findings of fact state:
1. The [Kuty Trust] and its attorney filed this lawsuit on July 2,2008:
In both the original complaint and the subsequent amended complaint, the [Kuty
Trust] affirmatively alleged that Mr. Hayes, either directly or [illegible] agents,
had made affirmative misrepresentations to the [Kuty Trust] prior to the [Kuty
s sale of property to the defendant New Enterprise[s], The [Kuty
Trust]' LLC.
Trust] further alleged that the Hayes[ s]and the other defendants had engaged in
e
a "conspiracy" to commit " equity stripping fraud" to steal the [ Kuty Trust]'
s
equity by first convincing the [Kuty Trust] to take a second deed of trust on the
property, and then foreclosing a first deed of trust for an inflated amount beyond
the amount actually loaned.
2. Over two months prior to filing this lawsuit the [ Kuty Trust]
requested evidence that the principal amount claimed due in the Hayes[ s]' e
Notice of Foreclosure which listed $40, 00. in principal, $
— 000 96
18, 54. in
4
interest and penalties, plus other costs and advances estimated to date in the
amount of $2,40had actually been loaned to the defendant New
001. —
Enterprise[s]. May 9, 2008, the Hayes[ s]'attorney sent copies of
On e
documentation of the $
00
40, 00.in loan disbursements to the [Kuty Trust]' then
0 s
attorney.
3. On June 11, and again on June 12, 2008, the [Kuty Trust]'
s current
attorney wrote two more letters to the Hayes[ s]'
e attorney, again requesting
copies of the same documentation of the lending previously provided to-Kuty[
s prior
Trust]' counsel. On June 19, 2008, the Hayes[ s]'
e attorney forwarded
copies of the same documentation to [the Kuty Trust]'
s counsel.
4. Thus, long before the [ Kuty Trust] filed its original complaint,
much less its later amended complaint, the [Kuty Trust] and its attorney were
aware that the Hayes[ s]were seeking only to foreclose in the amount of the loan
e
actually made, not some inflated amount as alleged in the complaint. Despite
being aware that there was absolutely no factual basis for the alleged Hayes[ s]'
e
involvement in the "equity stripping fraud" complained of in the [Kuty Trust]' s
complaint, the [Kuty Trust] and its attorney nonetheless filed this lawsuit against
the Hayes[es].
5. On November 14, 2008 the [Kuty Trust] amended its complaint to
include a claim for an accounting from the Hayes[ s]of alleged proceeds from the
e
trustee's sale. On January 30, 2009, the Court granted the Hayes[ s]'
e motion for
summary judgment and dismissed all of the [Kuty Trust]' s claims against them,
including the claim for an accounting, as that claim was not only factually without
meritthere having been no monies paid at the sale it was directed at the wrong
—
29
No. 42811-
11- 3
Instead, the Kuty Trust asserts that its . nsuccessful substantive claims are well-
u
recognized causes of action in Washington and meritorious under the circumstances. And the
Kuty Trust further asserts that its counsel carried out an elaborate prefiling investigation,
directing us to its counsel's declaration explaining the prefiling investigation . The Kuty Trust's
party, because only the trustee, not the beneficiary of a deed of trust or a
purchaser at a trustee's sale, has any duty to account for surplus proceeds pursuant
to the provisions of Chapter 61. 4 RCW.
2
CP at 340 43. Based on its findings of fact, the trial court entered the following conclusions of
-
law:
1. [The Kuty Trust]' s counsel failed to adequately investigate or
make reasonable inquiry into the facts supporting the [Kuty Trust]' s complaint,
and further ignored the facts he did obtain and included clearly false claims in the
two complaints he filed in this matter. These actions constitute violations of Civil
Rule 11.
2. The claims made by the [Kuty Trust] against the Hayes[ s]in its
e
complaints herein were frivolous and advanced without reasonable cause.
CP at 343.
21
The Kuty Trust's counsel filed a declaration explaining his prefiling investigation. He stated
that in March 2008,two individuals who had sold real property approached him independently
with similar experiences in which they sold property for a small down payment and a second -
position note and deed of trust for the balance of the sale price. The transactions were structured
similarly and both resulted in the sellers losing their security interests in the property when the
buyers quickly defaulted on the note secured by' he first -
t position deed of trust. The attorney's
investigation revealed that the transactions involved some of the same parties, including
Endeavor. It appeared to the attorney that the buyers and lenders were colluding to strip the
equity from the sellers in second -position. The lender in this case, LeGrand Investments,
appeared to be related to Endeavor, the third party who structured the deal and drafted the
documents, because it had used Endeavor in its own purchases and shared office space with
Endeavor or had office space near Endeavor at one point.
In a different transaction, the owner of the defaulting buyer was a principal of and
registered agent for Endeavor. The attorney also discovered that the owner of the corporate
lender in one of the other transactions was primarily employed marketing an online tax
avoidance scheme that appeared to be illegal and to have been incorporated into the real estate
transactions the attorney was investigating. The attorney also learned of a third seller who had
been 'involved in similar transaction and lost his security interest.
The attorney declared that he did as much investigation as he could do without formal
discovery but that the evidence supported an argument that there was a scheme of intentional and
fraudulent equity stripping through foreclosure in the transactions. He filed the lawsuit against
all parties involved in the transactions, including the Hayeses, because the evidence suggested
30
No. 42811-
11- 3
brief merely reargues the merits of its substantive claims without addressing the trial court's
findings of fact and conclusions of law.
As our Supreme Court has explained, this is an inappropriate approach on appeal:
As a general principle, an appellant's brief is insufficient if it merely contains a
recitation of the facts in the light most favorable to the appellant even if it
contains a sprinkling of citations to the record throughout the factual recitation. It
is incumbent on counsel to present the court with argument as to why specific
findings of the trial court are not supported by the evidence and to cite to the
record to support that argument. See RAP 10. .For the most part counsel has not
3
done this.
Strict adherence to the aforementioned rule is not merely a technical
nicety. Rather, the rule recognizes that in most cases, like the instant, there is
more than one version of the facts. If we were to ignore the rule requiring counsel
to direct argument to specific findings of fact which are assailed and to cite to
relevant parts of the record as support for that argument, we would be assuming
an obligation to comb the record with a view toward constructing arguments for
counsel as to what findings are to be assailed and why the evidence does not
support these findings. This we will not and should not do.
In re Estate ofLint, 135 Wn. d 518, 531 32,957 P. d 755 (1998).
2 - 2
Here,the trial court found that the Kuty Trust's fraud and civil conspiracy claims were
not factually supported because the Hayeses were seeking to foreclose the amount of the loan
actually made, not an inflated amount as alleged in the complaint and that the Kuty Trust knew
that there was no factual basis for the Hayeses' involvement in the alleged scheme.
The trial court also found that the claim for accounting of proceeds was not factually or
legally supported because there were no monies paid at the sale and because the Hayeses had no
duty to account for proceeds of the trustee's sale. Finally, the trial court found that the Kuty
Trust's counsel "
failed to adequately investigate or make reasonable inquiry into the facts
concerted efforts among all defendants. He concedes that he did not have direct evidence of the
Hayeses' involvement in the sale of the Kuty Trust property,but that the Hayeses appeared to be
the principal beneficiary of the equity stripping scheme because they got the property for a
fraction of its value. This strongly suggested to the attorney that the Hayeses were involved in
the scheme even though they purchased the lender's interest after the initial sale and loan.
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No. 42811 3 II
- -
supporting the [Kuty Trust]'
s complaint, and further ignored the facts he did obtain and included
clearly false claims in the two complaints he filed in this matter. " CP at 343.
We hold that the unchallenged findings of fact support the trial court's conclusions that
the Kuty Trust's counsel violated CR. 1 and that the Kuty Trust's claims were frivolous and
1
advanced without reasonable cause. Because the trial court's imposition of sanctions was not
unreasonable or based on untenable grounds, we affirm it. Stiles, 168 Wn. App. at 263.
B. Amount of the Attorney Fee Award
The Kuty Trust also argues that the trial court erred by failing to do a lodestar analysis to
determine the amount of attorney fees to award. We disagree.
Under the lodestar methodology, the trial court must determine the reasonable number of
hours expended by counsel and the reasonableness of the hourly rate of counsel. Mahler v.
Szucs, 135 Wn. d 398, 435, 957 P. d 632, 966 P. d 305 (1998).The lodestar fee is calculated
2 2 2
by multiplying the reasonable hourly rate by the reasonable hours incurred by counsel.
Mahler, 135 Wn. d at 435. In Mahler, our Supreme Court reaffirmed that an adequate record
2
upon which to
P a fee award required and held that findingg s of fact andconclusions of
n
law are required to establish such a record. 135 Wn. d at 435.
2
Here,the Hayeses' attorney requested fees and costs, stated his qualifications and
customary hourly rate, and attached a timesheet detailing his work on the case and costs
incurred. The Hayeses' attorney had been practicing law since 1993 and was a partner in his law
firm. His hourly rate was $ 00,which he believed to be reasonable and customary for his
250.
level of experience in the community, but he had billed the Hayeses only $ 25. 0 per hour. He
2 0
22
The trial court erroneously labeled this finding of fact a conclusion of law,but we review it as
a finding of fact regardless of its label. Willener v. Sweeting, 107 Wn. d 388, 394, 730 P. 0 45
2 2
1986).
32
No. 42811 3 II
- -
declared that he had spent 28. 0 hours on the matter resulting in $ 390.in fees and $ 20
4 00
6, 285.
in costs. He had also spent an additional 2. hours preparing the Hayeses' motion for attorney
5
fees and costs, and he anticipated spending another 4 hours reviewing the Kuty Trust's response
pleadings, preparing a reply, and appearing for the argument for an additional $
50.
1,462.
In its oral ruling,the trial court determined that $ 00 was a reasonable hourly rate for the
2
locale. The trial court also found that the hours requested were reasonable. The trial court
explained its attorney fee award on the record, but it did not make written findings of fact and
conclusions of law.
Although the trial court did not include its calculation in its written findings of fact and
conclusions of law, its oral findings'and conclusions of law are sufficient for our review. The
oral record is clear, and the Kuty Trust does not allege that the hourly rate was unreasonable or
that the hours credited by the court were unreasonable. We do not require the unnecessary step
of remanding to the trial court to amend its written findings of fact to include the analysis when
the analysis is clear from the record and there is no substantive challenge to the court's analysis.
V. ATTORNEY FEES AND COSTS ON APPEAL
The Hayeses request attorney fees and costs under RAP 18. (
a),
9 which permits such an
award against a party who files a frivolous appeal. "An appeal is frivolous under RAP 18. if it
9
raises no debatable issues and is so devoid of merit that there is no reasonable possibility of
reversal."Andrus v. Dep't of Transp.,128 Wn. App. 895, 900, 117 P. d 1152 (2005).
3
We hold that the Kuty Trust's appeal against the Hayeses is frivolous. The Kuty Trust's
appeal on their claim for an accounting of foreclosure proceeds is factually and legally without
merit because the Hayeses had no duty to account for proceeds of a trustee's sale and, even if
33
No. 42811 3 11
- -
they did,the undisputed evidence shows that the Hayeses purchased the property on a credit bid
so there were no proceeds to account for.
The Kuty Trust's appellate arguments related to its unjust enrichment, civil conspiracy,
and fraud claims were not preserved, presented too late to warrant consideration, or inadequately
briefed. Finally, the trial court's unchallenged findings of fact clearly supported its conclusion
that the Kuty Trust and its counsel violated CR 11 and supported an award of fees and costs
under RCW 4.4.by filing claims against the Hayeses that were frivolous and advanced
185
8
without reasonable care. The trial court did not enter written findings of facts and conclusions of
law demonstrating its lodestar analysis for the fee award, but its oral decision is sufficient to
review its analysis and, he Kuty Trust does not allege that the trial court's determination of
t
counsel's hourly rate or time spent was unreasonable.
The Kuty Trust presented no debatable point of law and the chance for reversal was
nonexistent. Thus,the Kuty Trust's appeal against the Hayeses is frivolous and supports an
award of reasonable appellate fees and costs to the Hayeses, which a commissioner shall
determine upon compliance with RAP 18 9( ); --
: a
We affirm the trial court and award attorney fees on appeal to the Hayeses.
i
f:
We concur:
I
PWN(A
WO swICK, C.J.
34