Washington

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

Hertz Equipment Rental Corp. v. C.Garrett Enterprises, Inc.,
No. 44007-1-I9 (Wash.App.Div.1 02/05/2001)

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON DIVISION ONE

No. 44007-1-I

2001.WA.0000202

February 5, 2001

HERTZ EQUIPMENT RENTAL CORP., A DELAWARE CORPORATION,

RESPONDENT,

V.

C. GARRETT ENTERPRISES, INC., A/K/A C.G.E., A FOREIGN CORPORATION;

DEFENDANT,

AND WAHCO CONSTRUCTION, INC., A WASHINGTON CORPORATION,

APPELLANT.

STEPHEN W. WONG,

RESPONDENT,

V.

WAHCO CONSTRUCTION, INC., A WASHINGTON CORPORATION,

APPELLANT.

WAHCO CONSTRUCTION, INC.,

APPELLANT,

V.

EQUIPMENT RENTAL COMPANY, A WASHINGTON CORPORATION; STEPHEN W. WONG; SAUNDERS CABLE, INC., A FOREIGN CORPORATION; CURTISS SIMMONS CAPITAL RESOURCES, INC., A FOREIGN CORPORATION;

RESPONDENTS,

AND K&D SERVICES, INC., A WASHINGTON CORPORATION; EXCLUSIVE LANDSCAPING, INC., A WASHINGTON CORPORATION; AND GARY PEDIGO,

DEFENDANTS.

Source of Appeal: Appeal from Superior Court of King County Docket No: 96-2-23628-4 Judgment or order under review Date filed: 01/06/1999 Judge signing: Hon. Brian D. Gain

Counsel: Counsel for Appellant(s) Douglas R. Roach Groff & Murphy 1191 2nd Ave Ste 1900 Seattle, WA 98101 Counsel for Respondent(s) Ronald D. Goldberg Attorney At Law 106 W Roy St Seattle, WA 98109 James H. Dailey PO Box 59161 Renton, WA 98058-2161 Gary D. Brajcich 601 W Main Ave Ste 714 Spokane, WA 99201 Bradley L. Powell Oles Morrison Rinker & Baker Llp 33rd Fl. Columbia Center 701 5th Ave. Seattle, WA 98104 John Lukjanowicz Oles Morrison & Rinker 33rd Fl. Columbia Center 701 5th Ave. Seattle, WA 98104-7082 Peter E. Moye Workland & Witherspoon 601 W Main Ave Ste 714 Spokane, WA 98201-0677 Hertz Eqpt. Rental (Appearing Pro Se) P.O. Box 26360 Oklahomacity, OK 73126-0360

Judges: Authored by C. Kenneth Grosse Concurring: William W. Baker Anne L. Ellington

The opinion of the court was delivered by: Grosse, J.

UNPUBLISHED OPINION

This case involves a number of claims to monies owed or previously paid to subcontractor C. Garrett Enterprises, Inc. by the general contractor WAHCO Construction, Inc. The claims are from individual and corporate creditors of CGE, Inc., a Washington corporation. CGE, Inc. is now defunct and its principal Claude A. Garrett cannot be found. WAHCO Construction, Inc. eventually interpleaded the amount it believed was owed to CGE, Inc. but made setoff claims to a large portion of the funds. The parties submitted the matter to the court below on an agreed statement of facts.

FACTS

In 1995, WAHCO Construction, Inc. (WAHCO) won a bid for and constructed a project in Colorado for U.S. West. WAHCO engaged C. Garrett Enterprises, Inc. (Garrett Enterprises) as a subcontractor on the project. In August of 1995, Curtiss Simmons Capital Resources, Inc. (CSCR) entered into a factoring contract (assignment agreement) with Garrett Enterprises to purchase some or all of Garrett Enterprises' receivables on the contract with WAHCO. WAHCO acknowledged the assignment in writing and fully agreed to it until such time as CSCR notified WAHCO otherwise. WAHCO made payments directly to CSCR on behalf of Garrett Enterprises. CSCR does not claim any amount owing on the Colorado project.

In 1996, after completion of the Colorado project, WAHCO was awarded a separate contract with U.S. West for a project in Washington state. In connection with this project, WAHCO again contacted and engaged Garrett Enterprises to do subcontracting work. Claude A. Garrett formed a new Washington corporation, CGE, Inc. for the Washington project. WAHCO then signed the new subcontract with CGE, Inc. At all times, WAHCO knew it was dealing with Claude A. Garrett, who was the principal in both Garrett Enterprises and CGE, Inc. During the course of the Washington project, CGE, Inc. submitted invoice summaries to WAHCO bearing the name of Garrett Enterprises, but the actual individual invoices were in the name of CGE, Inc. WAHCO signed off on these summaries.

Unbeknownst to WAHCO, CSCR advanced funds to Claude Garrett based upon the Washington project invoices in the amount of $56,243.94. However, WAHCO paid funds on the Washington project directly to CGE, Inc. in the amount of $28,477.10. CSCR did not know that Claude Garrett had incorporated in Washington under CGE, Inc., or that WAHCO had paid CGE, Inc. directly on the project.

The total amount of CGE, Inc.'s billings to WAHCO on the Washington project was $155,423.86. U.S. West made corrections to CGE, Inc.'s invoices resulting in a deduction of $10,870.12 from that amount.

WAHCO terminated CGE, Inc.'s contract prior to completion. After termination the Washington State Department of Labor & Industries made demand upon WAHCO for the unpaid wages of several employees of CGE, Inc. in the amount of $22,677.32, which WAHCO paid. It also paid $8,818.96 in federal payroll taxes, a minor fine from King County in the amount of $564.00, and damage and cleanup claims of $10,514.31 all due to CGE, Inc.'s failure to pay or act.

Earlier, in March 1996, Claude Garrett, as president of CGE, Inc., received credit from Hertz Equipment Rental Corporation (Hertz) to rent heavy equipment and trucks. Notice was given to U.S. West and WAHCO that Hertz was renting its equipment to CGE, Inc. for use on the Washington project. In the middle of June 1996, CGE, Inc. issued a check to Hertz which was returned for insufficient funds. In September 1996, Hertz sued C. Garrett Enterprises, Inc., a/k/a/ C.G.E, and WAHCO. On September 16, 1996, the King County Superior Court issued a prejudgment writ of garnishment directing WAHCO to withhold payment from CGE, Inc. to satisfy its indebtedness to Hertz in the amount of $21,604.96. The amount was reduced to judgment.

At an earlier date, in April or May of 1996, Saunders Cable, Inc. subcontracted with CGE, Inc. for work on the Washington project. In August 1996, Saunders Cable issued a demand notice for past due invoices (due from CGE, Inc.) to WAHCO in the amount of $21,299.36. Additionally, CGE, Inc. rented equipment from Equipment Rental, Inc. Its claim is for $21,665.26.

Previously in May 1996, Claude Garrett and Stephen W. Wong, an accountant hired for CGE, Inc., agreed to a line of credit up to $50,000, evidenced by a revenue participation agreement between Wong and Garrett. The line of credit was personally guaranteed by Claude Garrett as well as by CGE, Inc. From May 10 to June 13, 1996, Wong advanced a total of $53,000 to CGE, Inc. Documentation submitted by Hertz indicates that CGE, Inc. was likely insolvent on or before June 24, 1996. By July 1, 1996, CGE, Inc.'s contract with WAHCO had been terminated. On that date Wong served notice of a lien against CGE, Inc.'s receivables on WAHCO. On July 10, 1996, Wong filed Uniform Commercial Code (UCC) documentation as security for the funds advanced to CGE, Inc.; at the time he knew CGE, Inc. was insolvent. In March 1997, Wong sued WAHCO to enforce his lien on the accounts receivable.

In early April 1997, CSCR demanded payment of $51,925.77 based upon the Washington project invoices from which it advanced funds to Claude Garrett. In May, the Hertz and Wong cases were consolidated. Also in early May, CSCR brought suit in Colorado against WAHCO.

On June 30, 1997, WAHCO filed an answer to the complaint, a counterclaim, a cross claim, and a third party complaint for interpleader, naming all defendants with known or threatened claims to any funds WAHCO was holding on account of its subcontract with CGE, Inc. for the Washington project. A motion to enjoin CSCR from proceeding in the Colorado action was granted by the King County Superior Court.

By March 3, 1998, WAHCO had been billed $52,096.34 for legal work on all of the claims in Washington and in Colorado. CSCR and Wong disputed WAHCO's claim to these fees and to other setoffs.

The judgment included an award of $28,477.10 plus interest to CSCR against WAHCO for WAHCO's improper payment of amounts due on the Washington project to CGE, Inc. which should have been paid to CSCR under the continuing assignment agreement. It also included a judgment in WAHCO's favor against CGE, Inc. in the amount of $81,921.81 plus $17,707.67 in attorney fees for all setoffs and damages caused by CGE, Inc.'s breach and Claude Garrett's eventual disappearance. The amount of fees allowed, roughly one-third of that requested, excluded fees for defending any action against CSCR for the improper payment of amounts due. Additionally, Hertz was awarded a judgment in the amount of $23,333.87 plus interest against WAHCO as a secured creditor under its prejudgment writ of garnishment and subsequent judgment against CGE, Inc. The trial court found that Wong, as the accountant for CGE, Inc., was an 'insider' of the Washington corporation as well as a creditor for an antecedent debt. Further, the trial court found that with 'inside information' Wong rushed to file his security interest only after discovering that the corporation was no longer viable, an action the court indicated was prohibited under the Uniform Fraudulent Transfer Act (RCW 19.40). Thus, the court reduced Wong's position to that of an unsecured creditor.

WAHCO appealed the decision of the trial court; CSCR and Wong filed cross appeals.

DISCUSSION

Initially we must determine whether the trial court erred in finding CGE, Inc. and C. Garrett Enterprises, Inc. alter ego corporations for the purposes of the claims. WAHCO argues the trial court erred in concluding that C. Garrett Enterprises, Inc., a Colorado corporation, and CGE, Inc., a Washington corporation, should be treated as alter ego corporations for purposes of the action. However, WAHCO has not assigned error to the findings/conclusions of the trial court with regard to treatment of the corporations as alter egos.*fn1 ''It is well-established law that an unchallenged finding of fact will be accepted as a verity upon appeal.''*fn2 A trial court's conclusion of law to which no error is assigned is the law of the case.*fn3 Even if we were to review the documents before the court, there is sufficient evidence to support the conclusion of the trial court.*fn4

WAHCO claims the trial court erred in finding that it incorrectly paid CGE, Inc. monies from the Washington project that should have been paid to CSCR (CGE, Inc.'s assignee) as a secured creditor under the assignment agreement. WAHCO's primary argument on this issue centers on its claim that WAHCO was not properly notified that CGE, Inc. assigned its interest in proceeds of the Washington contract to CSCR and that Garrett Enterprises, as assignor to CSCR on the Colorado project, had no rights in the Washington project contract. However, considering that the corporations were alter egos of one another, and that WAHCO did not properly assign error to the trial court's finding or conclusion that Garrett Enterprises and CGE, Inc. were alter ego corporations, WAHCO's argument begs the question.

WAHCO does not dispute that a debtor cannot destroy a perfected security interest of a secured party merely by changing its name or corporate structure,*fn5 but it claims that the rule does not apply here because the Garrett corporate 'entities' are not virtually the same.*fn6 The decision of the court regarding the alter ego status of the corporations, which is supported by substantial evidence, answers this argument.

The assignment agreement sets forth that until CSCR gives notice to WAHCO, any proceeds due Garrett Enterprises are subject to the assignment. Further, the UCC is clear that once an account debtor (WAHCO) is given notice of a valid assignment and acknowledges this assignment, subsequent payment to the assignor or other person or entity other than the assignee (CSCR) is done at the debtor's peril and does not discharge the debtor from liability to the assignee.*fn7

WAHCO made payments to CGE, Inc. in the amount of $28,477.10 on accounts receivable that Garrett Enterprises (the alter ego corporation of CGE, Inc.) assigned to CSCR. WAHCO made these payments to CGE, Inc. despite the fact that it had notice of the assignment and further that it signed off on the weekly invoice summaries on Garrett Enterprises stationery. The trial court properly determined that CSCR was entitled to judgment against WAHCO in the amount of $28,477.10 and remained obligated to CSCR for that amount, despite the fact that it paid the same amount to CGE, Inc.

WAHCO argues in the alternative that even if it is bound to pay on the assignment agreement, that agreement did not cover all of Garrett Enterprises'/CGE, Inc.'s receivables to CSCR and that recovery should be limited to those invoices on which CSCR actually paid, an amount it claims is equal to $9,294.12, rather than the full $28,477.10.

WAHCO acknowledged the assignment of Garrett Enterprises' accounts receivable to CSCR upon execution of the assignment agreement. That acknowledgment was by letter, from C. Garrett Enterprises, Inc., which WAHCO, by signing and returning, acknowledged and agreed to on August 28, 1995. The acknowledgment provided in pertinent part:

In order to accommodate the changes and growth in our business, we have entered into a factoring agreement with Curtiss Simmons Capital Resources, Inc. (CSCR) and HAVE ASSIGNED AND SOLD TO CSCR all of our rights in accounts receivable due from you. Therefore, we wish to inform you that payment on all current and future invoices should be made payable to and mailed directly to:

CURTISS SIMMONS CAPITAL RESOURCES, INC. {address}

The Assignment of Accounts has been duly recorded under Colorado statutes and under the Colorado Uniform Commercial Code. Please make the proper notations on your ledger, acknowledge the terms and conditions of this letter by signing below and returning it to CSCR via facsimile . . . .

Curtiss Simmons will request, via FAX, your written verification of each invoice submitted to you by our company. Your prompt confirmation to CSCR that the invoice is approved, the amount is correct, and that there are no offsets or counterclaims will be greatly appreciated.

This notice and the instructions contained herein remain in full force and effect until you are notified by Curtiss Simmons Capital Resources, Inc. in writing to the contrary.

Unfortunately for WAHCO, the plain language of this acknowledgement is that Garrett Enterprises assigned all rights in the accounts receivable due from WAHCO. Although CSCR had the right to refuse to purchase some of those receivables, the assignment of all of them is clear.

Through a declaration of Keith R. Fosness, the controller for WAHCO, WAHCO claimed that only $9,294.12 of the $28,477.10 directly paid to CGE, Inc. applied to actual invoices allegedly sold to CSCR. And although the declaration so states, a review of those pages attached to the Fosness declaration shows a number of invoices and a total payment of $28,477.10 with no such indication on the clerk's papers marked as to which invoices WAHCO now claims were either purchased or not purchased by CSCR.

CSCR did not purchase a portion of the accounts receivable, rather it took a security interest in all of the accounts receivable by assignment.*fn8 It had the right to look to those receivables for payment. WAHCO mistakenly paid CGE, Inc. directly on $28,477.10 of those receivables. The trial court did not err in reducing this amount to judgment.

WAHCO asserts that the trial court erred by refusing to allow it to deduct the attorney fees it incurred in defending against CSCR in the Colorado and Washington actions from the contract balance. It claims the fees are due under its contract with CGE, Inc. as the result of CGE, Inc.'s breach, or in the alternative that the trial court erred by refusing an award of fees under the common fund doctrine or as a prevailing party against CSCR. A review of the record indicates that the trial court did not abuse its discretion or err in limiting WAHCO's recovery of fees. In his cross appeal, Wong does not dispute that WAHCO may deduct some reasonable fees for the activities of its attorneys for preparing and filing the interpleader lawsuit, and for the payment of wages, taxes, social security, and payroll, but claims that the trial court was too liberal in its award of fees. Again, a review of the record shows the trial court did not abuse its discretion in the award of fees to WAHCO.*fn9

Common Fund

As stated by the trial court, we agree that WAHCO should have simply interpleaded the contract balance earlier than it did and 'gone from there.' WAHCO chose instead to attempt to figure what amount to interplead after deducting what it claimed. WAHCO should have interpleaded the full amount and made its claims to the portion to which it was entitled. The trial court awarded the fees to WAHCO that it would have been entitled to regardless of when the interpleader was filed. The court disallowed any portion of the fees that WAHCO argued was for the 'defense of the common fund,' finding that the primary motivation was not to save the common fund, and because it lost a portion of its action against CSCR.

The common fund doctrine is a recognized ground in equity for granting attorney fees.*fn10 Under the common fund theory, attorney fees are authorized only when the litigants preserve or create a common fund for the benefit of others as well as themselves. Here, the protracted litigation with CSCR did not serve to 'preserve' the fund. WAHCO met with limited success in its litigation with CSCR and ultimately did not prevail in its attempt to avoid liability on the amount improperly paid to CGE, Inc. Even if the trial court were to have used the 'common fund' ground, the extra litigation of WAHCO and CSCR could be stated to result in a 'savings' to the eventually interpleaded 'common fund' of approximately $27,766.84. Using the percentage formula found in 'common fund' cases (an amount approaching 25 percent of the fund saved or created), WAHCO's 'recovery' would have been in the neighborhood of $6,850, an amount less than it recovered under the breach of contract theory. It did not 'create' the fund through its litigation. The fund was already there as receivables from the contract.

The other beneficiaries of the fund chose not to join WAHCO in its suit against CSCR and the court's refusal to force those beneficiaries to fund WAHCO's suit is not unreasonable, nor an abuse of discretion.

Finally, WAHCO claims the trial court should have granted it fees as a prevailing party against CSCR. It claims a unilateral contractual provision for attorney fees should be applied bilaterally, thereby allowing the prevailing party on a contract dispute to recover its fees. However, the 'reciprocal attorney fee rule' applies only where one party to a contract sues another party to the same contract. Here there was no contract between WAHCO and CSCR that provided for the recovery of attorney fees and there are no grounds to award attorney fees to either party. Contrary to WAHCO's argument, it did not fully prevail in Washington and did not prevail at all in any Colorado suit.*fn11

CSCR's Cross Appeal

In its cross appeal, CSCR claims the trial court erred in determining it did not hold a secured claim for payment from the interpleaded funds for the remaining amount of $27,766.84 that it paid on invoices submitted by CGE, Inc. over the amount paid by WAHCO to CGE, Inc. The trial court determined that CSCR as the assignee of Garrett Enterprises/CGE, Inc. stands in the shoes of the assignor and receives reimbursement only after allowed setoffs and disbursements to the other secured and unsecured parties. Thus, as there was no fund remaining, CSCR's claim for this portion of the debt was extinguished under the judgment.

It is well-settled law that an assignee steps into the shoes of the assignor and has all the rights of the assignor.*fn12 CSCR claims it is a secured creditor to these funds, or at the very least an unsecured creditor entitled to payment from the interpleaded funds in equal distribution with the remaining unsecured creditors. What CSCR fails to mention is that the perfected security agreement was not before the trial court, only the assignment agreement and the acknowledgement. Although it attempted to remedy this situation by attaching the perfected security agreement to its brief and making a motion to supplement the record, these motions were denied by a commissioner of this court. Therefore, as the assignee, standing in the shoes of C. Garrett Enterprises, Inc./CGE, Inc., CSCR is not a creditor of CGE, Inc. but only entitled to any remainder of the funds once CGE, Inc.'s debts are paid. CSCR's claim as assignee is inferior to all creditors. This claim is different from the one it possessed against WAHCO for the funds improperly paid under the assignment agreement. The trial court did not err.

Wong's Cross Appeal

The trial court found that Wong's claim was in violation of the Uniform Fraudulent Transfer Act provisions (RCW 19.40) as an 'insider' of CGE, Inc. It held that for the Uniform Fraudulent Transfer Act (UFTA) to have any meaning, Wong must be a creditor of an antecedent debt because he became aware of potential insolvency through his activities as an accountant for the corporation, and thus he was relegated to unsecured creditor status. Wong claims the court erred in this determination and we agree. The UFTA applies to transfers made or obligations between creditors and insolvent debtors under certain conditions enumerated in the statute.*fn13

Under the act, a transfer is any disposition of or parting with an asset, including the creation of a lien or other encumbrance.*fn14 The UFTA defines assets as property of a debtor, but does not include property to the extent it is encumbered by a valid lien. A valid lien is an interest in property to secure payment that is effective against the holder of a subsequent judicial lien. An article 9 security interest must be perfected to be effective against subsequent judicial lien holders.*fn15

Under Washington's UFTA (specifically RCW 19.40.011(7)(ii), the section defining an insider of a corporation), an insider is a director, officer, person in control, a partnership in which the debtor is a general partner, a general partner in a specific kind of partnership not at issue here, or a relative of a general partner, director, officer, or person in control of the debtor. Although Wong was an accountant for CGE, Inc., he did not possess the requisite control or any of the other indicia necessary to find him to be an insider under the statute.*fn16 The trial court erred as a matter of law in determining Wong to be an insider.

Additionally, the trial court found that the corporation was insolvent on or before June 24, 1996 and that this affected Wong's priority status when, on July 1, 1996, he informed WAHCO that he was looking to the corporate receivables as security for the debt. The court determined that Wong rushed to perfect his security interest by filing his UCC-1 documentation due to his knowledge of the corporation's insolvent status. But this insolvency was also known to others when the corporation's checks were returned due to insufficient funds. There was nothing improper about Wong's taking steps to perfect his security interest once it became clear that claims were arising against CGE, Inc, and that WAHCO had terminated its contract with CGE, Inc. Therefore, when the UCC documentation was filed, Wong was a secured creditor.

The court reasoned that the only way to interpret the UFTA to give it meaning was to find the actions of a person in Wong's position, who rushed in to perfect or protect his interest in order to defeat other claims that may have arisen, an evil that the Legislature intended to prohibit. The trial court found that Wong's action to perfect was actually a conveyance in fraud of creditors. The court was incorrect.

A fraudulent conveyance, or more correctly a conveyance in fraud of creditors, may generally be defined as a transaction by means of which the owner of real or personal property has sought to place the land or goods beyond the reach of his or her creditors, or which operated to the prejudice of their legal or equitable rights--or a conveyance which operated to the prejudice of the legal or equitable rights of other persons, including subsequent purchasers.{*fn17}

Before the case of Clearwater v. Skyline Construction Co.,*fn18 there were no cases in Washington specifically establishing the quantum of evidence required to prove a fraudulent transfer. The court indicated that the predecessor of the UFTA, containing essentially similar provisions, required proof of intent to defraud had to be demonstrated by 'clear and satisfactory' proof. In contrast, proof of a fraudulent conveyance was to be shown by 'substantial evidence.'*fn19 The Clearwater court adopted the substantial evidence test to prove a fraudulent conveyance.

The court in Rainier National Bank v. McCracken stated:

There are certain circumstances which so frequently attend conveyances or transfers to defraud creditors that they are recognized as badges or indicia of fraud. 'Among the generally recognized badges of fraud are the insolvency or indebtedness of the transferor, lack of consideration for the conveyance, relationship between the transferor and the transferee, the pendency or threat of litigation, secrecy or concealment, departure from the usual method of business, the transfer of the debtor's entire estate, the reservation of benefit to the transferor, and the retention by the debtor of possession of the property.' (Footnotes omitted.) 37 Am. Jur. 2d Fraudulent Conveyances sec. 10, at 701-02 (1968). Accord, 37 C.J.S. Fraudulent Conveyances sec.sec. 79-97 (1943).{*fn20}

The filing of a UCC-1 is not a conveyance and in any event the transaction here does not possess the indicia of a fraudulent conveyance. Wong must be placed back in line as a secured creditor as of the date of the perfection of his security interest, entitling him to $50,000 which was secured by the UCC-1 filing.

Wong is also correct when he claims the trial court erred in its determination that Hertz's claims were prior to his. Hertz became a lien creditor only after the date of the judgment in the superior court, which was more than two months after Wong perfected his lien. Therefore, Hertz's relative position and that of the unsecured creditors will necessarily change on remand, although on brief review of the amounts at issue Hertz will likely recover under its judgment.

In the conclusion section of his brief, Wong summarily requests attorney fees and damages be awarded to him on appeal against Hertz. We deny attorney fees or damages on appeal. Wong failed to include a separate section in his brief devoted to these issues as required by RAP 18.1(b). This requirement is mandatory.*fn21 The rule requires more than a bald request for attorney fees on appeal. There must be argument and citation to authority to advise this court of the appropriate grounds for an award.*fn22 As Wong fails to fulfill these requirements, fees and damages on appeal are denied.

WAHCO and CSCR also seek attorney fees on appeal, citing RAP 18.1(b). Neither party has improved its position on appeal and has not provided sufficient argument to be granted fees on appeal under a contract, statute, or ground in equity. We deny attorney fees on appeal.

The decision of the trial court is affirmed in part, reversed in part, and the case remanded for entry of a judgment consistent with this opinion.

Opinion Footnotes

*fn1 Conclusion of law 2 states: 'Although C. Garrett Enterprises, Inc., a Colorado corporation, and CGE, Inc., a Washington corporation, are separate legal entities, this Court finds that these two entities should be treated as alter ego corporations for purposes of this action.'

*fn2 In re Contested Election of Schoessler, 140 Wn.2d 368, 385, 998 P.2d 818 (2000) (quoting State v. Hill, 123 Wn.2d 641, 644, 870 P.2d 313 (1994)).

*fn3 In re Estate of Campbell, 87 Wn. App. 506, 512 n.1, 942 P.2d 1008 (1997).

*fn4 Up until the date the contract was signed for the Washington project, WAHCO dealt exclusively with Claude Garrett and C. Garrett Enterprises, Inc. WAHCO conducted its dealings with Garrett and C. Garrett Enterprises, Inc. for the Washington project until Garrett asked WAHCO to change the name on the contract to CGE, Inc. The invoice summaries provided to WAHCO were on the stationery of C. Garret Enterprises, Inc., even though the individual invoices were on the stationery of CGE, Inc. These facts support the notion that WAHCO knew or should have known that it was dealing with the same entity and that the entities engaged in identical business practices. It is clear that Claude Garrett was the president and principal shareholder of each corporation. Considering the assignment agreement, WAHCO was at least on notice and should have asked CSCR to release it from the acknowledgement agreement before proceeding with payments directly to CGE, Inc. The trial court did not err in determining that the corporations were alter egos of each other.

*fn5 See American Heritage Bank & Trust Co. v. O.&E., Inc., 40 Colo. App. 306, 576 P.2d 566, 568 (1978) (citing Inter Mountain Ass'n of Credit Men v. Villager, Inc., 527 P.2d 664 (Utah 1974)).

*fn6 See Vance v. Casebolt, 841 P.2d 394, 398 (Colo. App. 1992).

*fn7 RCW 62A.9-318(3); Colo. Rev. Stat. 4-9-318; Mid-States Sales Co. v. Mountain Empire Dairymen's Ass'n, 741 P.2d 342, 347 (Colo. App. 1987).

*fn8 A true copy of the Colorado UCC-1 form was never before the trial court, and a commissioner of this court ruled that it was too late to supplement the record. But, there has never been a disagreement that it was filed.

*fn9 WAHCO sought an amount of over $52,000 as attorney fees as a result of CGE, Inc.'s breach of its contract with WAHCO. After two hearings on the attorney fees, the trial court concluded that WAHCO was entitled to a setoff of $17,707.67 for fees incurred as a result of the breach. It disallowed the remainder, which was billing for the fees WAHCO incurred in the Colorado and Washington actions with CSCR, because WAHCO was not entitled to the fees it incurred in defending the improper payment of the $28,477.10 to CGE, Inc. rather than CSCR. The trial court was correct in determining that WAHCO was independently liable and responsible for these costs whether CGE, Inc. breached its contract with WAHCO or not.

*fn10 Bowles v. Dep't of Retirement Sys., 121 Wn.2d 52, 70, 847 P.2d 440 (1993); In re Estate of Marks, 91 Wn. App. 325, 338, 957 P.2d 235 (1998).

*fn11 The suit in Colorado was stayed by the Washington court pending resolution of the Washington action.

*fn12 Estate of Jordan v. Hartford Accident & Indem. Co., 120 Wn.2d 490, 495, 844 P.2d 403 (1993) (citing Morse Electro Prods. Corp. v. Beneficial Indus. Loan Co., 90 Wn.2d 195, 198, 579 P.2d 1341 (1978)); Federal Fin. Co. v. Gerard, 90 Wn. App. 169, 177, 949 P.2d 412 (1998).

*fn13 See RCW 19.40.041-.051; Eagle Pac. Ins. Co. v. Christensen Motor Yacht Corp., 85 Wn. App. 695, 702-03, 934 P.2d 715 (1997), aff'd, 135 Wn.2d 894, 959 P.2d 1052 (1998).

*fn14 RCW 19.40.011(12).

*fn15 RCW 62A.9-301.

*fn16 The trial court found Wong to be an insider under the following facts: (1) on or about May 10, 1996, Wong and Garrett agreed to a line of credit up to $50,000 as evidenced by a revenue participation agreement between Wong and Garrett; (2) that when the Washington corporation conducted its meeting on May 28, 1996, Wong and Garrett prepared and executed additional documentation to evidence the agreement and for security documentation; (3) the line of credit was individually guaranteed by Garrett individually as well as the corporation, and contemplated that Wong would receive five percent of the corporation's earnings and an option to purchase stock; (4) the documentation provided to the court indicated that Wong was the accountant for the corporation. These facts do not add up to insider status under RCW 19.40.011(7).

*fn17 Rainier Nat'l Bank v. McCracken, 26 Wn. App. 498, 506, 615 P.2d 469 (1980) (citing 37 Am. Jur. 2d Fraudulent Conveyances sec. 1 (1968)).

*fn18 Clearwater v. Skyline Constr. Co., 67 Wn. App. 305, 321, 835 P.2d 257 (1992).

*fn19 See Sparkman & McLean Co. v. Derber, 4 Wn. App. 341, 349, 481 P.2d 585 (1971).

*fn20 McCracken, 26 Wn. App. at 506.

*fn21 Wilson Court Ltd. P'ship v. Tony Maroni's, Inc., 134 Wn.2d 692, 710 n.4, 952 P.2d 590 (1998) (citing Phillips Bldg. Co. v. An, 81 Wn. App. 696, 705, 915 P.2d 1146 (1996)).

*fn22 Austin v. U.S. Bank, 73 Wn. App. 293, 313, 869 P.2d 404 (1994).

The legal opinions are a matter of public record (that's how we got them), and as such there can be no defamation for republishing them. Sometimes, however, legal opinions are reversed, vacated, or significantly modified, etc., and we do not discover this fact until somebody points it out to us. As we do not desire to publish inaccurate or outdated information, if a legal opinion has been reversed, vacated, or significantly modified, please advise us of this fact immediately, by fax to (877) 698-0678 or you may also send regular postal correspondence to Riser Adkisson LLP at 1827 Powers Ferry Road, Building One, Suite 200, Atlanta GA 30339.