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and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

Benaroya Capital Company, LLC v. EMF Partners, LLC et al.,
No. 54428-4-I (Wash.App. 07/05/2005)

No. 54428-4-I

COURT OF APPEALS OF WASHINGTON, DIVISION ONE

2005 Wash. App. LEXIS 1593

July 5, 2005, Filed

NOTICE: [*1] RULES OF THE WASHINGTON COURT OF APPEALS MAY LIMIT CITATION TO UNPUBLISHED OPINIONS. PLEASE REFER TO THE WASHINGTON RULES OF COURT.

PRIOR HISTORY: Appeal from Superior Court of King County. Docket No: 02-2-11673-6. Date filed: 06/14/2004. Judge signing: Hon. Michael S Spearman.

COUNSEL: For Appellant(s): Fred B Burnside, Attorney at Law, Seattle, WA. Bradley L. Fisher, Davis Wright Tremaine, Seattle, WA. Stephen Michael Rummage, Attorney at Law, Seattle, WA.

For Respondent(s): Matthew Thomas Adamson, Jameson Babbitt Stites & Lombard, Seattle, WA. Alan B. Bornstein, Attorney at Law, Seattle, WA.

JUDGES: Authored by Anne Ellington. Concurring: Marlin Appelwick, Ronald Cox.

OPINIONBY: ANNE ELLINGTON

OPINION: ELLINGTON, A.C.J. In this factually complex commercial real estate case, we are asked to overturn pretrial summary judgments as to successor liability and de facto merger, and to reverse a jury's verdict on liability and damages. We affirm in all respects.

BACKGROUND

Benaroya Capital Company, LLC (Benaroya) owned commercial real estate in Redmond known as Willows II. In November 1999, Benaroya entered into a five-year lease with EMF Corporation (EMFC), which manufactured coin-counting kiosks, medical [*2] equipment, and other electronic equipment. The rent began at $9,350 per month plus a pro rata share of certain expenses. The lease contained a clause prohibiting assignment without Benaroya's consent:

Lessee shall not either voluntarily or by operation of law assign, transfer, convey or encumber this Lease or any interest under it . . . without Lessor's prior written consent, which consent will not be unreasonably withheld or delayed. . . . Any assignment or subletting without Lessor's consent shall be void, and shall, at Lessor's option, constitute a default under this Lease.
Ex. 2, P12.

EMFC was in financial trouble, and soon after occupying the premises, EMFC solicited a holding company, Thomas James International, Inc. (TJI), to try to turn the failing business around. TJI created a wholly-owned subsidiary called EMF Partners, LLC (EMFP), and in April 2000, EMFP acquired EMFC's assets and liabilities, including the lease, by way of an asset purchase and sale agreement (APSA). The APSA purported to limit EMFP's liability:
Buyer shall assume the agreements, leases, permits, accounts payable, registrations and other liabilities of Seller in connection with the [*3] Assets and the Business as set forth on Exhibit "B-5", in an amount not to exceed Forty Thousand and No/100 Dollars ($40,000.00).
Ex. 182, P 2.3. The referenced Exhibit B-5 included the Benaroya lease. Benaroya was not informed of the EMFC-EMFP transaction until October 2001.

EMFP continued EMFC's business in the Willows II space for about 16 months. In July 2001, EMFP's general manager Deborah Harrison signed a letter agreement with Benaroya amending the lease on behalf of "EMF." The agreement authorized Benaroya to begin marketing the space to prospective replacement tenants, given that Harrison had notified Benaroya that EMF would vacate the space on August 1. The agreement provided that "[y]ou [EMF] will continue to be responsible for the Lease until a replacement tenant begins paying rent for the space, and for the portion of the real estate commission pertaining to the then unexpired term of your Lease." Ex. 3.

In August 2001, EMFP moved its operations to a building owned by TJI. EMFP continued paying rent for the Willows II space through November 2001, but stopped all payments in December 2001. EMFP offered to forfeit the deposit and pay rent for two more months [*4] if Benaroya would cancel the remainder of the lease. Benaroya declined.

In January 2002, Benaroya terminated the lease, reserving the right to seek all remedies. In March 2002, Benaroya demanded that EMFC and EMFP pay $479,835.85 in past-due rent and damages. In response, EMFP's attorney advised that EMFP was insolvent and suggested that Benaroya mitigate its damages.

Throughout this period TJI owned 100 percent of EMFP. In March, TJI formed another wholly-owned subsidiary, Valberg I LLC (Valberg).

In April 2002, Benaroya sued EMFP and EMFC.

In May 2002, TJI's majority shareholder and chairman of the board Thomas Kroon engaged Terry Greenke n1 to undertake an appraisal of EMFP. Kroon informed Greenke of the Benaroya lawsuit. From his conversation with Kroon, Greenke understood that "Benaroya is seeking the full amount over the life of the lease which approximates $400,000. It is likely that judgment would go Benaroya's way in the full amount, and that would force Company into bankruptcy." Clerk's Papers at 2559.

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n1 Greenke was employed by Trident Capital Partners, the owner of which serves on TJI's board of directors.

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Kroon placed certain limitations on Greenke's work, such that Greenke made "no attempt to accurately value and inventory individual assets," and "did not personally conduct an audit of individual expenses or revenue." Ex. 47 at 216. Instead, the analysis and conclusions in the report were largely based on information furnished by Kroon and TJI: "No attempt has been made to verify the accuracy or completeness of this information." Id.

Greenke was provided a revenue projection for the company which anticipated a 2002 operating income of $551,568 and net income before taxes of $514,665. For some reason he could not recall, Greenke had written "ignore" on the document. Report of Proceedings (RP) (Mar. 29, 2004) at 90. He undertook no valuation of customer relationships. Although Greenke testified he took Kroon's projections of the company's future at face value (Kroon projected EMFP revenues at $6.7 million for years 2002 through 2005), Greenke's appraisal valued EMFP's assets at only $300,000.

In June 2002, Valberg acquired EMFP's assets for the appraised price of $300,000. n2 The three most profitable customers of EMFC/EMFP thus became Valberg's customers. n3 Valberg earned more [*6] than $1.6 million from these customers in the 17 months following the June 2002 transfer.

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n2 This transaction was complicated. EMFP and another TJI company, Damar Machine Company, together owed $591,683 on a line of credit and term loan from Wells Fargo, guaranteed by TJI's individual shareholders, including Kroon. Patrick Duff (chief financial officer of EMFP), Damar, and TJI instructed Wells Fargo to transfer $300,000 from TJI's account to Valberg, then from Valberg to EMFP, then from EMFP to Wells Fargo, to retire part of that debt. Duff then instructed Wells Fargo to transfer $295,649 from TJI's account to Wells Fargo to retire the remainder of the EMFP/Damar debt. Wells Fargo then extended Valberg a $275,000 line of credit and term loan, secured by Valberg's assets and guaranteed by Damar and TJI's individual owners. Evidence admitted during trial indicated the TJI-Valberg transaction was originally to be a capital contribution for Valberg's purchase of EMFP, but Duff later changed the form of the transaction to a loan. In an e-mail, Duff explained the reason for making it a loan instead of an equity investment: "The benefit of structuring the transaction this way is to protect the TJI I, LLC investment in Valberg I LLC, so that any legal suits that might try to go through Valberg Corp. or EMF Partners to Valberg I LLC will have a harder time getting to the TJI I investment." Ex. 56. Duff testified that the Benaroya suit was the only lawsuit in existence at the time. [*7]

n3 In 2000 through 2002, EMFP shifted its product line to shed the unprofitable customers it had acquired when it purchased EMFC in April 2000. The record indicates Medtronic, ProSafety, and A.B. Dick (the so-called "Big 3" customers) together represented only 36 percent of EMFP's revenues in the last eight months of 2000, but grew to 64 percent in 2001 and 92 percent in first five months of 2002. As the Big 3 accounted for more and more of EMFP's business, EMFP's losses declined significantly.

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Meanwhile, also in June 2002, Benaroya signed a 10-year lease with Schindler Elevator Corporation for the EMF space after making $191,770 worth of tenant improvements. In August 2002, Schindler moved in and began paying rent at $9,800 per month, gradually increasing to a maximum of $14,641 per month over 10 years.

In July and September 2002, Judge Glenna Hall granted Benaroya partial summary judgment against EMFC and EMFP, respectively, in the amount of $17,992.18 as the amount owed under the lease as of January 31, 2002 (pre-lease termination damages), but reserved issues relating to post-termination [*8] damages and attorney fees for trial.

In October, four months after Valberg acquired its assets, EMFP filed for Chapter 7 bankruptcy protection. Benaroya was listed as a creditor and received notice of the filing. The bankruptcy trustee did not challenge Valberg's purchase of EMFP's assets, and concluded there was no property available for distribution. The bankruptcy proceedings concluded in February 2003.

In February 2003, six months after Schindler moved in, Benaroya sold Willows II.

In July 2003, Benaroya amended its complaint, joining Valberg, TJI, and Kroon as defendants. Benaroya alleged that Valberg was liable for EMFP's debts on three theories of successor liability, n4 and that TJI and Kroon were liable for EMFP's debts on a theory of corporate disregard. Benaroya claimed post-lease termination damages of $364,276: $76,154 in unpaid rents for the time between lease termination to the sale of the building, $191,770 in tenant improvement costs incurred to attract Schindler as a mitigating tenant, $96,351 in leasing commission costs incurred to attract Schindler, and the remaining EMFC commission costs.

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n4 Benaroya alleged Valberg was a mere continuation of EMFP, that the asset transfer was a de facto merger, and that the asset transfer was for the fraudulent purpose of escaping liability. See Martin v. Abbott Labs., 102 Wn.2d 581, 609, 689 P.2d 368 (1984).

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In January 2004, the parties filed cross motions for summary judgment. Judge Michael Spearman confirmed Judge Hall's ruling that EMFP was liable for EMFC's breach as its assignee, despite the anti-assignment clause and EMFP's purported limitation of liability, n5 and also concluded that the EMFP-Valberg transaction was a de facto merger as a matter of law. All other motions were denied, and the case proceeded to jury trial.

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n5 The court allowed the new defendants to relitigate this issue, which had been resolved by Judge Hall when only EMFC and EMFP were defendants.

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The jury awarded damages against each defendant, and the court entered judgments in the amount of $694,216 against EMFP, Valberg, and Kroon, including both pre- and post-termination damages totaling $387,494; n6 interest, n7 attorney fees, and costs; against TJI, in the amount of $375,621 including both pre- and post-termination damages, interest, attorney fees, and costs; and against EMFC, in the amount of $473,597, including the same components. [*10]

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n6 This amount was reduced from the jury verdict, evidently at Benaroya's suggestion.

n7 Interest included post-judgment interest on the amount awarded for pre-lease termination damages on partial summary judgment and pre-judgment interest on the principal judgment amount.

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The court rejected all challenges to the judgment and denied defendants' post-trial motion for judgment as a matter of law. This appeal followed.

DISCUSSION

EMFP's Liability for Breach of Lease. Appellants first contend the trial court erred by granting summary judgment for Benaroya on its claim against EMFP for breach of the commercial lease. We apply the usual standard of review in summary judgment. n8

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n8 We review summary judgment decisions de novo, viewing the facts and all reasonable inferences in the light most favorable to the non-moving party. Anderson v. State Farm Ins. Co., 101 Wn. App. 323, 329, 2 P.3d 1029 (2000). Summary judgment is appropriate where the pleadings, depositions, answers to interrogatories, admissions, and affidavits show there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. CR 56(c).

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Appellants point out that the lease signed by EMFC and Benaroya prohibits assignment without Benaroya's consent. Because Benaroya never consented to the assignment from EMFC to EMFP, appellants argue the assignment was void, and EMFP thus has no obligation to Benaroya under the lease.

Appellants rely on an Oregon case, Cascade Shopping Center v. United Grocers, Inc., 106 Or. App. 428, 808 P.2d 720 (1991). In Cascade, the lessor (Cascade) and lessee (R.V.L.P. Foods, Inc.) signed a lease containing an anti-assignment clause. Id. at 430 n.2. R.V.L.P. defaulted on obligations to United Grocers, which held perfected security interests in the lessee's inventory and "leasehold interests." R.V.L.P. assigned the lease to United Grocers without Cascade's consent. United Grocers expressly declined to assume any of R.V.L.P.'s obligations, on the lease or otherwise. United Grocers took possession, but was unable to come to terms with Cascade, and ultimately stipulated to a judgment for Cascade on possession of the premises. But Cascade later sued United Grocers on the lease, arguing United Grocers assumed R.V.L.P.'s obligations for certain work and debts. [*12] The court held that because Cascade neither consented to the assignment nor acknowledged United Grocers as the assignee, the assignment was void, and United Grocers acquired neither rights nor obligations under the lease. Id. at 433. Further, because United Grocers expressly refused to assume its predecessor's liabilities, United Grocers was not in privity with Cascade and not liable for its predecessor's obligations. Id.

Cascade is inapposite here. Like United Grocers, EMFP seeks to avoid liability by raising the anti-assignment clause as a shield. But United Grocers started with a security interest in the lease, and ended up with a purported assignment under which the lessor sought to hold United Grocers responsible for the original lessee's breach of its obligations. Here, EMFP assumed the obligations of the lease and operated under it, and EMFP was the breaching party.

The law in Washington is clear: an assignee may not raise the invalidity of an assignment as a defense to liability:

As we have previously held, 'the invalidity of an assignment, on the ground that it has not been assented to by the lessor, can be raised only by the lessor. [*13] ' The benefit of the restrictive covenant being for the lessor, only OTR was in a position to challenge the validity of the Flakey Jake assignment.

OTR v. Flakey Jakes, Inc., 112 Wn.2d 243, 247-48, 770 P.2d 629 (1989) (quoting Morrison v. Nelson, 38 Wn.2d 649, 659, 231 P.2d 335 (1951)). As the court noted in OTR, Washington is in accord with other jurisdictions n9 and prohibits an assignee from casting aside the obligations assumed.

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n9 The court quoted 51C C.J.S. Landlord & Tenant §33c (1968):
Restrictions against assignment or subletting imposed by the terms of the lease are intended for the benefit of the lessor [OTR's predecessors] rather than the lessee, and likewise benefit the lessor's assigns [OTR]; and if neither of these objects to a breach of the restriction no one else may do so. One to whom the term has been assigned [Selig] in breach of the restriction cannot set up the breach in defense of an action brought against him by the lessor on the lease or in defense of an action brought against him by the lessee [Flakey Jake's] on obligations incident to the assignment.

OTR, 112 Wn.2d at 248 (alterations in original).

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Appellants contend OTR is distinguishable because the lease language in OTR made an unconsented assignment voidable, whereas the clause in this case provides that such an assignment "shall be void." Ex. 2, P12. This distinction is immaterial. However worded, the provision is intended for the benefit of the lessor, and only the lessor may challenge the assignment. OTR, 112 Wn.2d at 247-48. Having accepted the benefits of the lease and operated its business at Willows II for 16 months, EMFP cannot now invoke the non-assignment clause as a defense to the lease obligations. Id. at 248-49.

Appellants also argue Benaroya itself consistently denied that an assignment had taken place and, unlike the OTR lessor, never acknowledged EMFP as the assignee. This argument is specious. The record is clear that EMFP made no attempt to inform Benaroya of the assignment until after it vacated the premises some 16 months after the assignment occurred. EMFP's nearly indistinguishable name gave Benaroya little reason to suspect its space was occupied by a different entity, and there is evidence to suggest EMFP informed Benaroya that only the name had [*15] changed. Far from proving Benaroya refused consent, the record suggests EMFP went to considerable lengths to conceal the assignment.

Appellants also point out that an assignee in an executory contract is not liable on the underlying obligations absent an express assumption of those obligations. Lewis v. Boehm, 89 Wn. App. 103, 107, 947 P.2d 1265 (1997); Higgenbotham v. Topel, 9 Wn. App. 254, 259, 511 P.2d 1365 (1973). They argue the $40,000 limitation on liability contained in the APSA demonstrates EMFP did not expressly assume EMFC's obligations under the lease, and argue it cannot, therefore, be liable for them.

But the record is clear that EMFP did expressly assume EMFC's obligations under the lease. First, EMFP's conduct strongly suggests it intended to assume the lease liability. EMFP staff repeatedly characterized the lease as "our lease," informed Benaroya it had "acquired" the lease from EMFC, and attempted to negotiate cancellation of the lease. In her declaration, Harrison acknowledged that EMFP "agreed to assume" the lease. Clerk's Papers at 2907. And notably, Kroon recognized EMFP was bound by the lease when he informed appraiser [*16] Greenke that Benaroya was seeking the full amount of unpaid rents over the life of the lease, the liability approximated $400,000, and it was "likely that judgment would go Benaroya's way in the full amount." Clerk's Papers at 2559.

More importantly, EMFP expressly assumed the lease obligations in the July 2001 letter agreement amending the lease. The letter acknowledged that EMF would be vacating the premises prior to the expiration of the lease term. The letter also stated:
We'll try to re-lease your space for you as quickly as possible. You have advised us that you will fully vacate the Premises by August 1, 2001. You will continue to be responsible for the Lease until a replacement tenant begins paying rent for the space, and for the portion of the real estate commission pertaining to the then unexpired term of your Lease.

. . . When signed and approved by all parties, this will constitute an Amendment to the Lease.
Clerk's Papers at 2884 (emphasis added). EMFP's general manager Deborah Harrison signed the letter on behalf of "EMF." Thus, EMFP expressly agreed to a lease amendment confirming its obligations.

Appellants fail to explain why Benaroya would be [*17] bound by a liability limitation clause in a contract to which it was not a party. Because EMFP expressly assumed EMFC's obligations on the lease, the rules expressed in Lewis and Higgenbotham have no application here. Benaroya was entitled to summary judgment against EMFP. n10

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n10 For the first time in their reply brief, appellants argue Benaroya can escape the limitation of liability only by proving EMFP intended to relinquish its contractual right or that Benaroya gave consideration to EMFP to forego the limitation of liability. We will not consider arguments that were never raised before the trial court, or that are raised on appeal for the first time in a reply brief. Dang v. Ehredt, 95 Wn. App. 670, 677, 977 P.2d 29 (1999). We therefore grant Benaroya's motion to strike these arguments.

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De Facto Merger. A corporation purchasing the assets of another corporation does not become liable on the debts of the selling corporation unless the purchaser agrees to be so bound, or the purchase [*18] is a de facto merger, or the purchaser is a mere continuation of the seller, or the transfer of assets is for the fraudulent purpose of escaping liability. Martin v. Abbott Labs., 102 Wn.2d 581, 609, 689 P.2d 368 (1984). On summary judgment, the trial court concluded the EMFP-Valberg transaction was a de facto merger. n11 The effect of this ruling was to make Valberg liable for EMFP's obligations on the Benaroya lease.

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n11 Benaroya had also moved for summary judgment as to the other three exceptions to the rule against successor liability, but the court determined there were questions of fact as to the purpose of the transfer and whether adequate consideration was given for EMFP's assets.

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"Generally, a de facto merger is found where a seller corporation continues its business existence as an absorbed part of the buyer and the seller's shareholders or officers continue their interest in the business after the dissolution of the selling corporate entity." Fox v. Sunmaster Products, Inc., 63 Wn. App. 561, 570, 821 P.2d 502 (1991). [*19] Our courts have recognized de facto mergers where shareholders maintain their interest because the purchasing company gives shares of its own stock as consideration for the selling corporation's assets. Uni-Com Northwest, Ltd. v. Argus Publishing Co., 47 Wn. App. 787, 802, 737 P.2d 304 (1987). Appellants contend, however, that because no shares of stock changed hands, the trial court erred by ruling the Valberg-EMFP transaction was a de facto merger.

In Uni-Com, the court held that a de facto merger takes place only where the consideration paid to the selling corporation consists of shares of the purchasing corporation's stock (as opposed to cash): "The theory behind the requirement of a stock transfer is that the shareholders of the seller corporation retain an interest in the business transferred." Id.; see also Cashar v. Redford, 28 Wn. App. 394, 398, 624 P.2d 194 (1981). The court therefore held no de facto merger occurred, even though the sole shareholder of the selling corporation retained a majority ownership interest in the acquiring corporation. Uni-Com, 47 Wn. App. at 802.

Here, however, TJI owned 100 percent [*20] of the shares in both EMFP and Valberg before the transaction, and continued to own 100 percent of Valberg after Valberg purchased EMFP.

Transfer of stock is certainly a benchmark, but it is not the only benchmark. A de facto merger may occur without a transfer of stock where one entity owns all the stock in both the selling and purchasing corporations. In Atlas Tool Co. v. Commissioner of Internal Revenue, 614 F.2d 860, 870 (3d Cir. 1980), the Third Circuit observed:

De facto mergers have been found where a sale is really a merger[,] one corporation absorbing the other, the absorbed corporation going out of existence and losing its identity to the absorbing corporation that remains. In de facto situations, the factors considered have included: (1) continuation of the same shareholder control[,] particularly in the instance of a sole shareholder, (2) intention to dissolve the selling company, (3) retention of executive and operating personnel of the vendor by the transferee, (4) transfer of assets and shares, (5) assumption of vendor's liabilities, (6) a "pooling of interests." . . . [E]very factor is not essential for applying the doctrine.

The [*21] court found a de facto merger where one man owned 100 percent of the shares of both purchasing and selling companies, because "[a]lthough there was no stock transfer here, and only cash was involved, there was clearly a continuation of stockholder interest." Id. at 871.

This case is similar, and under the peculiar circumstances here, we would elevate form over substance were we to refuse to recognize a de facto merger simply because TJI did not transfer shares to itself.

Moreover, the substance of the transaction reveals it was a merger. Valberg took over all of EMFP's operations. All of EMFP's 11 remaining employees became employees of Valberg. Valberg assumed all of EMFP's accounts payable. EMFP ceased operations and filed for bankruptcy four months later. And internal TJI documents identify the transaction as a merger. A draft business plan for Valberg states, "Valberg LLC is the result of the organizational merger of Valberg Corp and EMF Partners LLC." Clerk's Papers at 2574. And in TJI board minutes dated April 2, 2002, Kroon identified the plan to "fold all [EMFP's] current on-going operations into the new Valberg I, LLC effective April 3, 2002." Clerk's [*22] Papers at 2583.

The trial court properly granted summary judgment to Benaroya on this issue.

Inadequate Consideration. Another of the exceptions to the general rule against liability of successors is where "the transfer of assets is for the fraudulent purpose of escaping liability." Abbott Labs., 102 Wn.2d at 609. The jury was instructed it could find the EMFP-Valberg transaction was a fraudulent transfer if "the selling company received insufficient consideration for the assets transferred to it by the purchasing company." Clerk's Papers at 2036. The court also instructed the jury how to decide whether the consideration was sufficient. n12 The jury found the sale of EMFP to Valberg fraudulent. Appellants contend there was insufficient proof to support the jury's finding of inadequate consideration, and that the trial court abused its discretion by denying their post-trial motion for a new trial or for judgment as a matter of law.

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n12 Instruction 16 provided:
In determining whether EMF Partners received insufficient consideration for the assets it transferred to Valberg of [sic] you may consider whether the amount paid was more or less than their fair market value.

Fair market value is the amount in cash which a well-informed buyer, willing but not obliged to buy the property, would pay, and which a well-informed seller, willing but not obliged to sell it, would accept, taking into consideration all uses to which the property is adapted or may be reasonably adaptable.
Clerk's Papers at 2040.

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We review the denial of a motion for judgment as a matter of law de novo, applying the same standard as the trial court. Sing v. John L. Scott, Inc., 134 Wn.2d 24, 29, 948 P.2d 816 (1997). n13

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n13 A motion for judgment as a matter of law must be granted "when, viewing the evidence most favorable to the nonmoving party, the court can say, as a matter of law, there is no substantial evidence or reasonable inference to sustain a verdict for the nonmoving party." Sing, 134 Wn.2d at 29. Substantial evidence is evidence sufficient to persuade a fair-minded, rational person of the truth of the declared premise. Bering v. Share, 106 Wn.2d 212, 220, 721 P.2d 918 (1986).

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Appellants acknowledge the evidence that EMFP's assets were worth $693,537, not the $300,000 appraised value, but contend the evidence showed EMFP received $765,000 for the assets and the consideration was therefore adequate as a matter of law. According to appellants, this consideration consisted of [*24] $175,000 in EMFP's accounts payable assumed by Valberg, and $595,000 in secured debt owed by EMFP to Wells Fargo, which was paid by Valberg and TJI.

This description of the consideration directly contradicts both the APSA, which confirms the "total purchase price" was $300,000, n14 and the bill of sale, which states:
That EMF Partners, L.L.C., a Washington limited liability company ("Seller"), for and in consideration of the sum of Three Hundred Thousand Dollars ($300,000.00) paid to Seller by Valberg I, LLC ("Buyer"), the receipt and adequacy of which are hereby acknowledged, hereby sells, and delivers unto Buyer all of the inventory, intangible and tangible assets used as part of or in connection with Seller's operation including, but not limited to, the furniture, fixtures, equipment, and the goodwill related to Seller's operation (the "Assets") described on Exhibit A attached hereto and incorporated herein by reference.
Ex. 74 (emphasis added). This evidence, together with expert testimony valuing EMFP's assets at $693,537, is sufficient to support the jury's finding of inadequate consideration. n15

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n14 The APSA indicates the $300,000 purchase price was allocated as follows:

Inventory $ 283,750.41
Accounts Receivable $ 66,851.93
Computers & software $ 23,855.00
Furniture and Fixtures $ 4,268.00
Leasehold Improvements $ 67,504.00
Equipment $ 28,805.00
Accounts Payable ($ 175,034.34)

Total Purchase Price: $ 300,000.00

Ex. 74, P2.4. [*25]

n15 Moreover, the jury had evidence the secured debt to Wells Fargo, which appellants assert Valberg and TJI paid as part of the consideration for EMFP's assets, was jointly owed by another wholly-owned TJI business, Damar, and was personally guaranteed by the individual owners of TJI, including Kroon. Because half of this debt repayment came from TJI, which was not liable on the loan and did not itself purchase EMFP's assets, the jury was free to reject the defendants' argument that it constituted part of the consideration.

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Corporate Disregard. The doctrine of corporate disregard allows liability to be assessed against shareholders when the corporation has been intentionally used to violate or evade a duty. Morgan v. Burks, 93 Wn.2d 580, 585, 611 P.2d 751 (1980). Two factors must be present to warrant disregard: "First, the corporate form must be intentionally used to violate or evade a duty; second, disregard must be 'necessary and required to prevent unjustified loss to the injured party.'" Meisel v. M & N Modern Hydraulic Press Co., 97 Wn.2d 403, 410, 645 P.2d 689 (1982) [*26] (quoting Morgan, 98 Wn.2d at 587, 611 P.2d 751).

The jury found that disregard of Valberg's corporate form was necessary to prevent unjustified harm to Benaroya. Appellants contend the court erred in denying their post-trial motion for judgment as a matter of law. We will affirm the denial of a motion for judgment as a matter of law if substantial evidence or reasonable inference supports the verdict. Sing, 134 Wn.2d at 29.

The jury was instructed:

In order to prove a claim of corporate disregard against defendant Kroon, the plaintiff has the burden of proving:

(1) Defendant Kroon intentionally used a company or companies to violate or evade a duty of EMF Partners to pay money to plaintiff; and

(2) That disregard of corporate form of the company or companies controlled by Kroon is necessary to avoid an unjustified loss to plaintiff.
Clerk's Papers at 2042. The jury was instructed in the same way with respect to defendant TJI. The jury was also instructed that "[i]n determining whether plaintiff has suffered an unjustified loss, you may consider whether the defendant's conduct caused the plaintiff actual harm." Clerk's Papers at 2044.

Appellants [*27] first argue the evidence showed Benaroya suffered no harm as a result of the transfer of EMFP's assets to Valberg because EMFP was unable to satisfy Benaroya's claims before the asset transfer, and the transfer put Benaroya in no worse position. This argument is problematic, however, given the jury's finding that EMFP received inadequate consideration for its assets. As our Supreme Court explained in the context of successor liability:

If the buying corporation pays sufficient consideration for the seller's assets, the selling corporation's creditors can then seek to satisfy their judgments from the sale proceeds. If the sale proceeds are equivalent in value to the transferred assets, then, assumedly, but not necessarily, no harm has been done to the creditors of the selling corporation.

Eagle Pacific Ins. Co. v. Christensen Motor Yacht Corp., 135 Wn.2d 894, 902, 959 P.2d 1052 (1998). The correlative principle is also true: where the buying corporation does not pay sufficient consideration for the seller's assets, the seller's creditors are less able to collect their debts, which causes them harm. The same evidence that supports the jury's finding [*28] that there was inadequate consideration supports its finding that disregard was necessary to protect Benaroya from unjustified loss.

Appellants next argue it was unnecessary to hold TJI and Kroon liable under a disregard theory because Benaroya had already obtained a judgment against Valberg as EMFP's successor. n16 But the law provides for shareholder liability "when the facts illustrate an overt intention to disregard the corporate entity by using it for an improper purpose such as violating or evading a duty owed." Culinary Workers v. Gateway Cafe, Inc., 91 Wn.2d 353, 366, 588 P.2d 1334 (1979). n17 In Culinary Workers, the Supreme Court held Bypass Sales, Inc., a successor to Gateway, as well as its individual owners, liable for the debts and contractual responsibilities of the predecessor corporation because the evidence showed the creation of Bypass and dissolution of Gateway "appear[ed] to have been designed to avoid their [contractual] responsibilities." Id. at 367.

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n16 Valberg presumably possessed all the assets of EMFC and EMFP with which to satisfy Benaroya's claim. The parties do not indicate whether Valberg is able to satisfy the judgment. [*29]

n17 See also Harrison v. Puga, 4 Wn. App. 52, 63, 480 P.2d 247 (1971) ("When the corporate stockholder himself by his overt acts in dealing with the corporation disregards the separate entity of the corporation to the prejudice of such third person, he can scarcely complain if the court judges him by his conduct and likewise disregards the corporate entity in order to enforce the right owed to the person dealing with that corporation.").

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Similarly, here, the jury found Kroon participated in or approved a fraudulent asset transfer between EMFP and Valberg, and that both TJI and Kroon intentionally used Valberg to violate or evade a duty owed by EMFP to Benaroya. Evidence showed that TJI and Kroon's conduct in the EMFP-Valberg transaction subjected Valberg to a $300,000 debt to TJI. Originally considered an equity investment, TJI specifically recast the distribution as a loan to make it more difficult for Benaroya to reach TJI's investment.

Furthermore, a judgment against Valberg does little to ensure Benaroya's ability to collect. The evidence demonstrated that Kroon and [*30] TJI were willing to remove assets and future revenue from Benaroya's reach by transferring the assets to newly created, wholly owned corporations. Kroon and TJI control Valberg, and could easily move these assets once again. Under the circumstances, the jury could reasonably conclude it was necessary to make TJI and Kroon personally liable in order to prevent unjustified loss to Benaroya.

Appellants contend this conclusion is inconsistent with Morgan and Eagle Pacific. In Morgan, the Supreme Court held the corporate entity could not be disregarded in a suit against shareholders to establish personal liability for a tort committed by the corporation's president in the course of his employment, despite the corporation's post-tort fraudulent transfers of corporate assets to individual shareholders and subsequent bankruptcy. Id., 93 Wn.2d at 586. The Morgan Court held it was unnecessary to pierce the veil because the bankruptcy trustee cancelled the fraudulent transfers and restored the assets to the corporation. Id. at 588. This was sufficient to protect the plaintiffs because the avoidance left the liable corporation with the same assets [*31] subject to judgment as if the fraudulent transfers had not taken place.

Morgan is distinguishable. First, there was no continuation of the business enterprise. Thus, the trustee's actions restored to the corporation all current and future assets. Here, the EMFP-Valberg transaction was undertaken to protect the significant future revenue from Big 3 customers from Benaroya's reach. In such circumstances, the assets are a moving target. Second, the jury in Morgan specifically found the shareholders did not overtly intend to disregard the corporate entity for an improper purpose; instead, the jury found the shareholders were not engaged in a joint venture with the corporation's president at the time of the tort, and the court indicated the individuals might in fact have been unaware of the nature of the post-tort fraudulent transfers. Id. at 582. In contrast, the jury here found TJI and Kroon had orchestrated the fraudulent transfers, and the evidence showed this conduct was specifically intended to make it difficult for Benaroya to reach TJI's assets.

Eagle Pacific is also of no help to appellants. There, the court reversed the trial court's decision to [*32] disregard the defendant's corporate form because the plaintiff failed to show the sole shareholder's conduct had any effect on its ability to collect from the successor corporation or otherwise put it in any worse position. Eagle Pacific Ins. Co. v. Christensen, 85 Wn. App. 695, 708, 934 P.2d 715 (1997). Division Two's decision clearly rests upon the fact that the asset transfer was supported by sufficient consideration. Id. The decision thus implies the individual shareholder would have been liable on a disregard theory if the evidence had shown, as it does here, that there was inadequate consideration for the debtor corporation's assets.

The trial court did not err in refusing to grant defendants' motion for judgment as a matter of law.

Evidentiary Rulings. On Benaroya's motion in limine, the court precluded defendants from presenting evidence concerning EMFP's post-transfer bankruptcy, and the details of Benaroya's sale of Willows II and the mitigating lease. Appellants contend these decisions were in error and prejudiced its defense. n18

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n18 We review evidentiary decisions for abuse of discretion. Sunbreaker Condo. Ass'n v. Travelers Ins. Co., 79 Wn. App. 368, 372, 901 P.2d 1079 (1995). A court abuses its discretion if its decision is manifestly unreasonable or exercised on untenable grounds or for untenable reasons. State ex rel. Carroll v. Junker, 79 Wn.2d 12, 26, 482 P.2d 775 (1971).

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The defendants' offer of proof on the bankruptcy issue indicated they would provide testimony about the bankruptcy process, the treatment of secured debt in bankruptcy, how the assets of an estate are marshaled and disposed of, and the creditors' prospects for recovery in the liquidation process. Other evidence would show that Benaroya was identified as a creditor and received notice when EMFP filed for bankruptcy, but did nothing in connection with the proceedings, and that the EMFP sale to Valberg was fully disclosed and unchallenged by the trustee. The defendants' counsel explained:

In sum, the evidence offered by the defendants would show that Benaroya had no prospects for recovering any amounts from EMF Partners, and there is simply no causal connection to any claim of loss that has been made in this case; that its only claims would have been in bankruptcy, where it would have received nothing.
RP (Apr. 1, 2004, 4:45 p.m.) at 4.

Appellants contend this evidence was relevant to the issue of corporate disregard because it would show that Benaroya would have been unable to collect from a bankrupt EMFP, and thus the asset transfer did not harm Benaroya. Appellants [*34] also argue that with evidence of EMFP's financial state, "the adequacy of the consideration . . . would have been apparent." App. Br. at 35.

We disagree. The proffered evidence is merely hypothetical, and would invite the jury to speculate what might have happened had the defendants not engaged in a fraudulent transfer before declaring bankruptcy. In this sense, the situation is similar to one addressed by the California Supreme Court in Economy Refining & Service Co. v. Royal Nat'l Bank of New York, 20 Cal. App. 3d 434, 97 Cal.Rptr. 706 (1971). There, the chairman and board of directors of one corporation, Universal Petrochem Corporation (UPC), transferred all its assets to himself, and then to a new corporation, Economy Refining & Service, which had substantially the same ownership. The assets were transferred along with some, but not all, liabilities. This transaction left UPC without assets to satisfy Royal National Bank's pre-existing judgment against it, while debts owed to the shareholder and his associates continued as liabilities of the new corporation.

In defense to a claim of successor liability, Economy argued there had been no harm to Royal National [*35] Bank because UPC was so heavily indebted that "had there been a foreclosure on the secured creditors' claims, there would have been nothing left for appellant." Id., 97 Cal.Rptr. at 712. The argument is thus very similar to the appellants' argument that Benaroya was not harmed because it would have recovered nothing in bankruptcy given Wells Fargo's higher priority secured debt. The California court rejected the argument as speculative, because UPC's straitened condition at the time of the transfers did not establish that circumstances would not have improved, and "the fact that Royal National Bank was about to cause its judgment to be recorded . . . does not mean that the bank would be able to execute at once or that it would have wished to do so." Id.

Likewise, the allegation that EMFP was unable to pay its debts and was contemplating bankruptcy at the time its assets were transferred to Valberg does not prove Benaroya would have been unable to collect, or even that bankruptcy was inevitable. The court did not abuse its discretion by excluding the evidence of EMFP's bankruptcy.

The trial court also excluded certain evidence pertaining to Benaroya's sale of [*36] Willows II. n19 While the court allowed evidence of the fact of the sale (including the date of sale, that the sale included the Schindler Elevator lease, the amount of the re-leasing commissions, and the amount of payments made to Benaroya and the new building owner under the Schindler lease), it refused to admit evidence of the sale price or Benaroya's profit from the sale.

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n19 As stated above, evidentiary rulings are reviewed for abuse of discretion. Sunbreaker Condo. Ass'n., 79 Wn. App. at 372. Appellants nonetheless contend the court's evidentiary decision should be reviewed de novo because it relied on Benaroya's argument under Hargis v. Mel-Mad Corp, 46 Wn. App. 146, 730 P.2d 76 (1986) that Benaroya was entitled to "double recovery" App. Br. at 45. Appellants' argument appears to be that because the court's evidentiary ruling was based on a proposition of law, it is in fact a conclusion of law. Appellants cite no authority to support this approach to standard of review, and we reject it.

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The defendants' offer of proof indicated they would provide evidence showing (1) Benaroya sold Willows II for $2.3 million, which included the Schindler lease and tenant improvements; (2) the Schindler lease made the property more desirable and more valuable, and was marketed as a prominent selling point; (3) the building sold quickly, while vacant buildings took longer to sell; (4) the improvements made to attract Schindler were capital improvements that were part of the sale; and (5) Benaroya's net return from the sale was more than $200,000, with its taxable gain on the sale more than $500,000. See RP (Mar. 24, 2004) at 73-75.

Appellants contend this evidence would show that Benaroya is in the same or better position than it would have enjoyed had EMFP not breached the lease, because the value of the improvements Benaroya made to attract Schindler, and Schindler's 10-year lease, allowed it to sell the building for more than it might have otherwise. This argument is entirely hypothetical. Appellants never offered evidence showing that the Schindler improvements increased the market value of the property, and that fact cannot be assumed. Similarly, while it may be intuitive [*38] that a tenant with a 10-year lease is more valuable than one with three years remaining, that also cannot be assumed, and appellants' offer of proof included no evidence of the comparative value of the Schindler lease. Finally, appellants are in the unenviable position of arguing their breach improved things for the lessor. The evidence was irrelevant and was properly excluded. ER 401.

Jury Instructions. Appellants contend the trial court erred in giving certain instructions and in failing to give others. n20 Appellants first argue the court erred instructing the jury that Kroon could be liable under a successor liability theory, even though Kroon did not acquire any of EMFP's assets. The court instructed the jury: "In order to prove a claim [of] successor liability against Kroon, plaintiff has the burden of proving defendant Kroon participated in or with knowledge approved of the asset transfer between EMF Partners and Valberg." Clerk's Papers at 2041. Appellants contend this instruction invents a claim of successor liability against an officer or shareholder, and is tantamount to a per se veil-piercing, passing liability to anyone who approved a challenged transaction.

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n20 Jury instructions are reviewed de novo. Boeing Co. v. Key, 101 Wn. App. 629, 632, 5 P.3d 16 (2000). Jury instructions are sufficient if they permit each party to argue its theory of the case, are not misleading, and when read as a whole, properly inform the trier of fact of the applicable law. Id. at 633. An erroneous instruction does not require reversal unless prejudice is shown. Id. Error is not prejudicial unless it presumptively affects the outcome of the trial. Id.

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The jury was instructed to reach this issue, however, only if it first answered at least one of three questions in the affirmative: whether Valberg was a mere continuation of EMFP, whether the asset transfer was fraudulent, or whether EMFP received inadequate consideration for its assets. n21 Thus, viewed as a whole, the instructions provided an accurate statement of the law: Kroon was liable only if he participated in or approved of wrongful conduct. Grayson v. Nordic Const. Co., Inc., 92 Wn.2d 548, 554, 599 P.2d 1271 (1979) ("If a corporate officer participates in wrongful conduct or with knowledge approves of the conduct, then the officer, as well as the corporation, is liable for the penalties."). Accord State v. Ralph Williams' North West Chrysler Plymouth, Inc., 87 Wn.2d 298, 553 P.2d 423 (1976); Johnson v. Harrigan-Peach Land Dev't Co., 79 Wn.2d 745, 489 P.2d 923 (1971); Consulting Overseas Management, Ltd. v. Shtikel, 105 Wn. App. 80, 18 P.3d 1144 (2001).

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n21 The jury answered yes to each of these questions.

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The phrase "responsible corporate officer doctrine" would have been more accurate than "successor liability," n22 but there is little chance this semantic discrepancy affected the outcome of the trial, and thus, reversal is not required. Boeing, 101 Wn. App. at 632.

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n22 See Dept. of Ecology v. Lundgren, 94 Wn. App. 236, 243, 971 P.2d 948 (1999) (noting that rule holding liable a corporate officer who participates in the wrongful conduct, or knowingly approves of the conduct, is known as the responsible corporate officer doctrine).

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Appellants next argue the court improperly relieved Benaroya of its burden to prove the elements of its successor liability claim by instructing the jury that "Valberg has the burden of proving that the transfer of assets from EMF Partners to Valberg was done in good faith." Clerk's Papers at 2037. As our Supreme Court has explained, however, "when the same individuals control two or more businesses, the burden is on them to prove the good faith [*41] of transactions between the businesses." Tacoma Assoc. of Credit Men v. Lester, 72 Wn.2d 453, 458, 433 P.2d 901 (1967). The instruction accurately stated the law.

Appellants seek to distinguish Tacoma on grounds it concerns a statute regarding fraudulent conveyances since replaced by the Uniform Fraudulent Transfers Act. But the statute has nothing to do with the court's discussion of the burden of proof, which relies on Geddes v. Anaconda Copper Mining Co., 254 U.S. 590, 41 S. Ct. 209, 65 L. Ed. 425 (1921), which involved a suit challenging transactions between corporations with common directors where the consideration was inadequate. The court set aside the transaction, and held that in such circumstances, the usual burden of proving fraud may be shifted from the plaintiff to the defendant:

The relation of directors to corporations is of such a fiduciary nature that transactions between boards having common members are regarded as jealously by the law as are personal dealings between a director and his corporation, and where the fairness of such transactions is challenged[,] the burden is upon those who would maintain them to show their [*42] entire fairness[,] and where a sale is involved[,] the full adequacy of the consideration. Especially is this true where a common director is dominating in influence or in character. This court has been consistently emphatic in the application of this rule, which, it has declared, is founded in soundest morality, and we now add in the soundest business policy.

254 U.S. at 599. This passage has been often quoted, and the rule has been applied in both state and federal courts. n23 There was no error.

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n23 See, e.g., Shlensky v. South Parkway Bldg. Corp., 19 Ill. 2d 268, 282-83, 166 N.E.2d 793 (1960) (reciting the rule set forth above, and stating, "In our judgment, the Geddes rule . . . is not only legally cogent, but is consistent with the entire concept of the fiduciary relation in the fabric of our commercial law. The contrary rule, urged by defendants, whereby those attacking the transactions of fiduciaries would have the burden of establishing its unfairness or fraudulency is not only without substantial support in the case law, but would put a premium on sharp practices by directors by putting the onus of proof on their victims, and would also tend to further separate corporate management from ownership.").

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Appellants next contend the court abused its discretion by refusing to give certain instructions. We review the refusal to give a requested instruction for abuse of discretion. Stiley v. Block, 130 Wn.2d 486, 498, 925 P.2d 194 (1996).

Appellants assert the court's refusal to instruct the jury on the legal effect of Wells Fargo's security interest in EMFP's assets n24 materially prejudiced their ability to present its case. Appellants do not, however, explain why that is so. Appellants also assign error to the court's failure to instruct that "[a] shareholder or owner has no duty to commit additional funds in an already faltering corporation." Clerk's Papers at 1970. Appellants fail to allege the refusal to give this instruction caused any prejudice, and cite no authority to support the contention that the instruction was necessary or appropriate. We will not consider arguments that are not supported by pertinent authority or meaningful analysis. RAP 10.3; Cowiche Canyon Conservancy v. Bosley, 118 Wn.2d 801, 809, 828 P.2d 549 (1992). n25

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n24 Appellants proposed two instructions on this topic. Proposed Instruction 12 provided: In this case Wells Fargo Bank was a secured creditor of EMF Partners, its debtor. Wells Fargo Bank had a security interest in certain of EMF Partners' assets, which assets are called collateral. An agreement that provides for a security interest in collateral is effective according to its terms against purchasers of the collateral and against the debtor's creditors. Clerk's Papers at 1965. Proposed Instruction 13 provided: A security interest in collateral continues notwithstanding the sale of the collateral to a third party unless the secured party, in this case Wells Fargo Bank, authorizes the sale of the collateral free of the security interest. Clerk's Papers at 1966. [*44]

n25 In any event, these arguments are without merit. Appellants were not entitled to the instructions on security interests because they were not supported by substantial evidence. Appellants point to no evidence that EMFP was in default to Wells Fargo; that Wells Fargo was foreclosing on its security interests in EMFP assets; or that Wells Fargo would follow the assets rather than looking to co-borrower Damar or to those who personally guaranteed the loan.

Moreover, the absence of the instruction did not prevent appellants from arguing their case. They elicited testimony from Mark Nemirow, an attorney who oversaw Benaroya's real estate acquisitions, about what a security interest is, and that he did not know whether Benaroya would have been able to collect anything from EMFP given the secured debt. They also elicited testimony from the plaintiff's expert business appraiser, Steve Horsman, that the bank's security interest would affect Benaroya's ability to collect.

Likewise, appellants were not entitled to an instruction on an owner's duty to invest. This "point of law" is an obvious proposition, which the jury likely understood without instruction. Additionally, the absence of the instruction did not prevent the defendants from arguing the issue, and is extremely unlikely to have affected the outcome of the trial. Brigham admitted that owners are not obligated to continue to subsidize their company's ongoing losses. There was no abuse of discretion.

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Sufficiency of Evidence to Support Jury's Award. Appellants finally contend the jury's award of post-lease termination damages was too large, and that under CR 59(a)(6), n26 the court should have amended the judgment n27 or granted a new trial. n28

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n26 CR 59(a)(6) provides:
The verdict or other decision may be vacated and a new trial granted . . . on the motion of the party aggrieved for any one of the following causes materially affecting the substantial rights of such parties.

. . . .

(6) Error in the assessment of the amount of recovery whether too large or too small, when the action is upon a contract.

n27 Though appellants mention this remedy, they make no argument and cite no authority concerning remittitur. Accordingly, we consider only the decision denying the motion for a new trial.

n28 We review the denial of a CR 59 motion for new trial for abuse of discretion, looking at the record to see whether substantial evidence would support a verdict of the size rendered. Hendrickson v. Konopaski, 14 Wn. App. 390, 395, 541 P.2d 1001 (1975).

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Appellants argue the award was excessive because the "most that could have been awarded" was $122,170.99, including: (1) rent damages of $76,153.96; (2) then-unamortized portion of the commission on the EMF lease, or $17,017.00; (3) "the amortized portion of the Schindler lease commission or $3,966.75"; (4) "depreciated or amortized improvements of $8,283.56"; and (5) "construction expenses of $16,749.72." App. Br. at 43.

Appellants offer no authority in support of the notion that the jury could only award "amortized" or "depreciated" amounts, and the jury was never so instructed. n29 Appellants do not assign error to any of the instructions on the issue of damages, nor do they argue the court refused to give any requested instruction on damages. The only authority appellants