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and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

Fremont Indemnity Co., in liquidation,
f/k/a Fremont Compensation Insurance Co.
v. Commencement International Corp., et al.,
No. 31129-1II (Wash.App. 11/02/2004)

FREMONT INDEMNITY CO., in liquidation, f/k/a FREMONT COMPENSATION INSURANCE CO., Appellant, v. COMMENCEMENT INTERNATIONAL CORP., a Washington corporation; BRADFORD L. SCHULTZ and CAROLYN W. SCHULTZ, husband and wife, individually and d/b/a COMMENCEMENT INTERNATIONAL CORP.; and DOES 1 through 10, inclusive, Respondents.

No. 31129-1-II

COURT OF APPEALS OF WASHINGTON, DIVISION TWO

November 2, 2004, 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NOTICE: [*1] RULES OF THE WASHINGTON COURT OF APPEALS MAY LIMIT CITATION TO UNPUBLISHED OPINIONS.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 Pierce County. Docket No: 03-2-07497-2. Date filed: 10/17/2003. Judge signing: Hon. Thomas J Felnagle.

COUNSEL: For Appellant(s): Stephen D. Cramer, Attorney at Law, Federal Way, WA.

For Respondent(s): Gregory Austin Jacoby, Joseph P Zehnder, McGavick Graves PS, Tacoma, WA.

JUDGES: Authored by David H. Armstrong. Concurring: Marywave Van Deren, J. Robin Hunt.

OPINIONBY: ARMSTRONG

OPINION: ARMSTRONG, J. -- Fremont Indemnity Company sued Bradford L. and Carolyn W. Schultz and Commencement International Corporation, alleging that the Schultzes used Commencement as a sham corporation to avoid their individual liability to creditors. Commencement had not paid Fremont for workers' compensation insurance it provided, and Fremont asked the court to disregard Commencement's corporate form and hold the Schultzes liable. The trial court granted the Schultzes' motion for summary judgment and Fremont appeals. Because Fremont presented no evidence that the Schultzes abused the corporate form, we affirm.

FACTS

In its complaint, Fremont [*2] alleged that Commencement constituted an alter ego of the Schultzes, existing as a mere "shell" and sham without adequate capital, assets, stock, or stockholders. Clerk's Papers at 5. Further, Fremont alleged that the Schultzes used Commencement to avoid individual liability to creditors. Thus, Fremont asked the court to disregard the corporate form and make the Schultzes liable for the $ 23,084 in unpaid insurance premiums Commencement owed to Fremont.

In support of the Schultzes' summary judgment motion, Carolyn Schultz declared that Commencement was incorporated in December 1993 and was liquidated in early 1999. During its years of operation, Commencement built small boats, refurbished and repaired small and large vessels, and constructed heliports. Between 1993 and 1999, Carolyn was a director and one of several Commencement shareholders. She also served as Commencement's president from 1993 to approximately 1996.

Carolyn also declared that at all times material to the suit, Commencement was a duly licensed corporation in Washington state and had complied with all requisite corporate formalities such as (1) filing annual reports; (2) maintaining and filing corporate records and [*3] forms; (3) maintaining corporate assets separate from those of the shareholders; (4) issuing stock; and (5) being capitalized.

Carolyn declared that she never transacted business in her individual capacity for Commencement; she did not personally arrange for Fremont's insurance; she never met or spoke with any Fremont representative; nor did she state orally or in writing, that she or her husband would answer for Commencement's debts; and finally, she never improperly diverted any of Commencement's assets to her husband or herself.

In his declaration, Bradford Schultz stated that he has never been an officer, board member, or shareholder of Commencement; he acted only as a consultant to Commencement between approximately 1993 and 1999; he provided management consulting services and technical consulting services for the heliport operations; he did not personally arrange for Fremont's insurance; he did not tell anyone at Fremont, either orally or in writing, that he or his wife would be individually liable for Commencement's debts; and he never improperly diverted any of Commencement's assets to himself or his wife.

Fremont countered with a declaration from James Shreve, who was the [*4] president and production manager of Commencement from June 1997 to November 1998. Shreve declared that, to the best of his knowledge, the Schultzes owned the corporation, and he considered Bradford the sole decision maker. Soon after he was hired, Shreve noticed that Commencement had not paid certain payroll taxes to the Internal Revenue Service and Washington state. When he told Bradford that the taxes needed to be paid, Bradford said that he did not want to pay the taxes because he wanted to use the money to pay off a personal line of credit.

But Shreve paid most of the taxes anyway. As a result, Bradford terminated his employment. Four months before his termination, Bradford also directed him to pay a personal judgment against Bradford with corporate funds. Shreve did not say whether he followed those directions.

ANALYSIS

I. Standard of Review

We review a summary judgment de novo. See Retired Pub. Employees Council of Wash. v. Charles, 148 Wn.2d 602, 612, 62 P.3d 470 (2003) (stating that when reviewing an order of summary judgment, the appellate court engages in the same inquiry as the trial court). Summary judgment is appropriate only if the pleadings, [*5] affidavits, depositions, and admissions on file demonstrate the absence of any genuine issues of material fact and that the moving party is entitled to judgment as a matter of law. CR 56(c); Charles, 148 Wn.2d at 612. We consider all facts submitted and all reasonable inferences from them in the light most favorable to the nonmoving party. Wilson v. Steinbach, 98 Wn.2d 434, 437, 656 P.2d 1030 (1982).

The nonmoving party may not rely on speculation, argumentative assertions that unresolved factual issues remain, or on having its affidavits considered at face value. Seven Gables Corp. v. MGM/UA Entm't Co., 106 Wn.2d 1, 13, 721 P.2d 1 (1986). After the moving party has submitted adequate affidavits, the burden shifts to the nonmoving party to set forth specific facts sufficiently rebutting the moving party's contentions and disclosing the existence of a material issue of fact. Seven Gables, 106 Wn.2d at 13.II. Corporate Disregard

A properly functioning corporation is an entity separate and distinct from its officers and shareholders. Truckweld Equip. Co. v. Olson, 26 Wn. App. 638, 644, 618 P.2d 1017 (1980). [*6] In exceptional circumstances, the court will disregard the corporate form when its recognition would aid in perpetrating a fraud or result in a manifest injustice. Truckweld, 26 Wn. App. at 644 (citing Harrison v. Puga, 4 Wn. App. 52, 480 P.2d 247 (1971)). Under such circumstances, the court may assess liability against corporate shareholders and officers. See Morgan v. Burks, 93 Wn.2d 580, 585, 587, 611 P.2d 751 (1980).

To hold corporate officers and shareholders liable for the debts or judgments of a corporation, the court must find: (1) the officers or shareholders intentionally used the corporate form to violate or evade a duty; and (2) disregarding the corporate form 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) (quoting Morgan, 93 Wn.2d at 587).

Officers or shareholders abuse the corporate form when they create such a unity of ownership and interest that the corporation ceases to exist separately. Burns v. Norwesco Marine, Inc., 13 Wn. App. 414, 418, 535 P.2d 860 (1975). This abuse [*7] usually involves "fraud, misrepresentation, or some form of manipulation of the corporation to the stockholder's benefit and creditor's detriment." Meisel, 97 Wn.2d at 410 (citing Truckweld, 26 Wn. App. at 645). If the party challenging the corporate form shows abuse, it must then prove it was actually harmed by the wrongdoing. Meisel, 97 Wn.2d at 410.

Fremont argues that summary judgment is inappropriate in cases of alter ego liability because "whether the corporate form should be disregarded is a question of fact." Truckweld, 26 Wn. App. at 643. While it may be a question of fact, we will still uphold summary judgment if the facts presented demonstrate that the moving party is entitled to judgment and the nonmoving party fails to offer evidence that creates an issue of material fact. Seven Gables, 106 Wn.2d at 13. Here, the issue is whether Fremont presented sufficient evidence in response to the Schultzes' summary judgment motion to establish an issue of material fact as to whether the Schultzes abused Commencement's corporate form and whether Fremont was harmed by the wrongdoing.

In response to the Schultzes' declarations, [*8] Fremont offered only Shreve's affidavit. Shreve did not rebut the Schultzes' declarations. He stated that Bradford asked him not to pay corporate taxes because Bradford wanted to use the money for personal expenses. But Shreve did not comply with Bradford's request; instead, he paid the taxes. Nor does Shreve state that he used corporate funds to pay off a Schultz personal judgment as Bradford had asked him to. These statements show at most that Bradford attempted to misuse corporate funds; they do not establish that any misuse occurred. Moreover, the Shreve affidavit does not say what amount of money Bradford asked for, when he asked for it, what funds Commencement had at the time to pay creditors, or whether the improper payment, if made, would have affected Fremont's claim for unpaid premiums. In addition, Shreve did not suggest that Carolyn engaged in any misconduct. In short, Fremont presented no evidence that the Schultzes abused the corporate form or that, if they did, Fremont was harmed by the abuse.III. Attorney Fees

The Schultzes ask for attorney fees under RAP 18.1 n1 and RCW 4.84.330. n2 They argue that unilateral attorney fee provisions [*9] should be applied bilaterally. Thus, they argue that this court should award them attorney fees because we would have awarded Fremont attorney fees if it had prevailed against the Schultzes holding them liable as alter egos under the contract. We decline to award attorney fees. Because neither party offered the contract between Fremont and Commencement, the record before us does not establish that either party was entitled to attorney fees.

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n1 Under RAP 18.1(a),

If applicable law grants to a party the right to recover reasonable attorney fees or expenses on review before either the Court of Appeals or Supreme Court, the party must request the fees or expenses as provided in this rule, unless a statute specifies that the request is to be directed to the trial court.

n2 RCW 4.84.330 states:

In any action on a contract or lease entered into after September 21, 1977, where such contract or lease specifically provides that attorney's fees and costs, which are incurred to enforce the provisions of such contract or lease, shall be awarded to one of the parties, the prevailing party, whether he is the party specified in the contract or lease or not, shall be entitled to reasonable attorney's fees in addition to costs and necessary disbursements.

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Affirmed.

A majority of the panel having determined that this opinion will not be printed in the Washington Appellate Reports, but will be filed for public record pursuant to RCW 2.06.040, it is so ordered.

Armstrong, P.J.We concur:

Hunt, J.

Van Deren, J.

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