Filed Washington State Court of Appeals Division Two
March 5, 2024
THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION II BENJAMIN ORVOLD and COREY No. 57103-0-II ORVOLD, husband and wife, and the marital community composed thereof,
Appellants/Cross Respondents,
v. UNPUBLISHED OPINION
SERGEY KOTELEVSKIY, a married man, NATASHA KOTELEVSKIY, a married woman, and the marital community composed thereof; and JMFB-3 LLC, a limited liability company,
Respondents/Cross-Appellants.
CHE, J. ⎯ Benjamin and Corey Orvold appeal the grant of partial summary judgment
dismissing breach of warranty and corporate disregard claims against Sergey and Natasha
Kotelevskiy individually; the Kotelevskiys cross appeal the denial of their motion for attorney
fees. In August 2015, Sergey Kotelevskiy (Kotelevskiy), through a limited liability company
(LLC), conveyed real property to the Orvolds by way of a statutory warranty deed. In March
2019, Kotelevskiy received notice of an adverse possession action concerning the property
conveyed to the Orvolds. The Orvolds demanded that Kotelevskiy defend the Orvolds’ title.
Kotelevskiy declined.
The Orvolds brought suit against the Kotelevskiys individually and the LLC alleging two
causes of action: (1) breach of warranties for conveying property that was adversely possessed No. 57103-0-II
and failing to defend the Orvolds’ title and, in the alternative, (2) corporate disregard. The
Kotelevskiys moved for partial summary judgment to dismiss the claim against them personally,
arguing that the Orvolds had not produced evidence of fraud, misrepresentation, or manipulation
of the corporate form as required to pierce the LLC’s veil. The Kotelevskiys do not dispute that
the Orvolds have a deed claim against the LLC. The trial court granted partial summary
judgment in favor of the Kotelevskiys, dismissing the claims against them personally. The trial
court also denied the Kotelevskiys’ motion for fees. The Orvolds appeal the trial court’s partial
summary judgment order and the Kotelevskiys cross appeal the trial court’s denial of their
motion for fees.
We affirm the trial court’s orders granting partial summary judgment for the Kotelevskiys
and denying attorney fees for the Kotelevskiys. Additionally, we decline to award fees on appeal
to either party.
FACTS
In September 2014, Justin Bartlett, a real estate broker, formed JMFB-3, LLC (LLC).
Bartlett, through the LLC, entered into a purchase and sale agreement for property located in
Puyallup, Washington. Bartlett assigned the LLC to Kotelevskiy. Kotelevskiy provided earnest
money for the Puyallup property sale using a personal check. Following the sale, the property
was conveyed to the LLC.
In August 2015, the LLC conveyed the property, its only asset, to the Orvolds by way of
a statutory warranty deed. The statutory warranty deed guaranteed that the grantor would defend
the title should it be challenged in a future action. The sale was completed using Kotelevskiy’s
social security number because the LLC did not have a tax identification number. In his
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declaration, Kotelevskiy explained that he used his social security number for the LLC because
he believed IRS procedures allowed him to report the single member LLC’s revenue under his
own 1040 tax return. The sale proceeds were distributed directly into Kotelevskiy’s personal
bank account because the LLC did not have a bank account at that time.
Later, Kotelevskiy changed the name of the LLC intending to use it for a contracting
business. At some point after the sale to the Orvolds, Kotelevskiy created a separate bank
account for the LLC; however, the account was rarely used because the LLC did little business.
The LLC “sat idle for two years” until 2017 when Kotelevskiy acquired a gift of real property
that was conveyed to the LLC. Clerk’s Papers (CP) at 31. Unable to build an entire home on the
property, Kotelevskiy, through the LLC, conveyed the gifted property to a construction
company.
More than three years after the sale of the Orvold property, Kotelevskiy allowed the
LLC’s registration to lapse and the LLC was administratively dissolved in 2019. Since the
LLC’s transaction with the Orvolds, Kotelevskiy has purchased and sold multiple properties in
his name.
In March 2019, the Orvolds demanded that Kotelevskiy defend the Orvolds’ title against
an adverse possession claim.1 Kotelevskiy did not defend the Orvolds’ title.
In April 2021, the Orvolds brought suit against the LLC and the Kotelevskiys
individually, alleging breach of warranties and, in the alternative, that they used the LLC and its
1 The Orvolds’ neighbors, Mark and Debra Martin, brought suit for quiet title to a portion of the Orvolds’ property. The trial court found that the Martins adversely possessed a portion of the Orvolds’ property and granted the Martins’ entire claim to the portion of the property. The trial court also awarded the Martins attorney fees and costs. The Orvolds appealed and this court affirmed, granting the Martins further attorney fees and costs on appeal.
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corporate form to evade the duty to defend title to the Puyallup property. Kotelevskiy
maintained he did not have any personal duties to the Orvolds and that the LLC alone had duties
to the Orvolds. The Orvolds sought an award of attorney fees and costs.
In August 2021, the Kotelevskiys moved for partial summary judgment seeking to be
dismissed as individual defendants and awarded attorney fees and costs. The Kotelevskiys
argued that dismissal was proper as there was no causation, fraud, misrepresentation or improper
conduct in the transaction between the Orvolds and the LLC.
In response, the Orvolds explained that the underlying claim was for breach of warranties
and that piercing the LLC’s veil was necessary to determine if the individual defendants were
liable for that breach. The Orvolds alleged that the LLC was Kotelevskiy’s alter ego because
corporate formalities were not followed and the transaction was conducted as though
Kotelevskiy was acting in his personal capacity.
The trial court denied the Kotelevskiys’ motion, explaining that the motion was
premature and that there were genuine issues of material fact. The trial court granted the
Orvolds’ motion to amend their complaint.2 In their amended complaint the Orvolds argued that
the LLC was Kotelevskiy’s alter ego or, in the alternative, that Kotelevskiy used the LLC to
evade a duty.
In May 2022, the Kotelevskiys renewed their motion for partial summary judgment. In
their renewed motion, the Kotelevskiys argued that discovery had not produced evidence of
2 In their initial complaint, the Orvolds brought suit against the Kotelevskiys individually on the basis that the LLC was unformed and unfiled. The Orvolds subsequently discovered that the LLC was properly formed. Accordingly, the trial court granted the Orvolds’ motion to amend their complaint to assert a new basis to disregard the LLC and hold the Kotelevskiys personally liable.
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fraud, misrepresentation, or manipulation of the corporate form as required to pierce the LLC’s
veil. The Kotelevskiys emphasized the Orvolds’ discovery responses, which explained that the
Orvolds were not alleging that the Kotelevskiys committed fraud. Instead the Orvolds were
alleging “that, if the corporate form is not disregarded, the LLC would act as a shield to
perpetrate a fraud upon us.” CP at 280.
The Orvolds further stated that they did not seek any documents from the Kotelevskiys
individually or the LLC prior to their sale closing. The Orvolds were unable to produce any
communications with the Kotelevskiys prior to their closing. Instead, the Orvolds explained that
all of the facts supporting their disregard claim were learned after the sale of the property and
that, at the time of the sale, the Orvolds had no reason to believe the LLC was a shell entity or
alter ego of Kotelevskiy. When asked what duty Kotelevskiy evaded by using the LLC, the
Orvolds stated that, under their deed warranties, Kotelevskiy owed a duty as a potential creditor.
The trial court granted partial summary judgment in favor of the Kotelevskiys, dismissing
the Kotelevskiys individually and reserving any issue of fees for a CR 54 motion. Later, the trial
court denied the Kotelevskiys’ motion for attorney fees.
The Orvolds appeal the trial court’s partial summary judgment order and the
Kotelevskiys cross-appeal the trial court’s denial of their motion for attorney fees.
ANALYSIS
I. STANDARD OF REVIEW
Performing the same inquiry as the trial court, we review grants of summary judgment
de novo. Landstar Inway Inc. v. Samrow, 181 Wn. App. 109, 120, 325 P.3d 327 (2014). Under
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CR 56(c), “[s]ummary judgment is appropriate where there is no material issue of fact and the
moving party is entitled to judgment as a matter of law.” Id.
II. ALTER EGO DOCTRINE
The Orvolds claim that under the warranty deed, the grantor had the obligation to defend
the title that the grantor transferred to them. Thus, the LLC had an obligation to defend against
the adverse possession claim when demanded. Additionally, the Orvolds claim that the
Kotelevskiys had the same duty as individuals.
The Orvolds argue that the trial court erred in dismissing their claims against the
Kotelevskiys under the alter ego doctrine due to a lack of fraud or wrongdoing. Specifically, the
Orvolds contend that the alter ego doctrine does not require fraud or detrimental reliance and that
it provides for personal liability when the corporation and the individual are one and the same
such that the acts of the individual are acts of the corporation. Thus, the Kotelevskiys’ failure to
individually defend against the Orvolds’ adverse possession claim provides the Orvolds with this
cause of action. At oral argument, the Orvolds claimed that the alter ego doctrine is a completely
separate standard from the doctrine of piercing the corporate veil such that the alter ego doctrine
does not require any finding of misconduct or fraudulent activities.
The Kotelevskiys argue that the alter ego doctrine does not attribute the actions of entities
to its owners and that the Orvolds are actually attempting to pierce the LLC’s veil. The
Kotelevskiys do not dispute that the Orvolds have a deed claim against the LLC. The
Kotelevskiys contend that the Orvolds are trying to go behind the LLC and apply the deed
warranties to the member of the LLC. The Kotelevskiys further argue that the alter ego doctrine
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requires causation and that none of the facts asserted by the Orvolds justify disregarding the
corporate entity. We agree with the Kotelevskiys.
RCW 64.04.030 governs statutory warranty deeds. Edmonson v. Popchoi, 172 Wn.2d
272, 278, 256 P.3d 1223 (2011). Under RCW 64.04.030, where property is conveyed by a
warranty deed, the grantor warrants that they “will defend the title thereto against all persons
who may lawfully claim the same.”
Generally, we recognize the corporate entity as existing separate and apart from its
directors, officers, and stockholders. Block v. Olympic Health Spa, Inc., 24 Wn. App. 938, 944,
604 P.2d 1317 (1979). However, in exceptional situations, “the corporate entity will be
disregarded where its recognition would aid in perpetrating a fraud or result in a manifest
injustice.” Truckweld Equip. Co. v. Olson, 26 Wn. App. 638, 644, 618 P.2d 1017 (1980).
“The doctrine of disregarding the corporate entity or piercing the corporate veil is an
equitable remedy imposed to rectify an abuse of the corporate privilege.” Id. at 643. The
doctrine requires two factors: “[f]irst, 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) (quoting Morgan v. Burks, 93 Wn.2d 580, 587, 611 P.2d 751 (1980)). Reasons for
disregarding the corporate entity and imposing liability directly on a corporate officer include
“public advantage, requirements of justice, alter ego, fraud, bad faith, or other wrong.” Harrison
v. Puga, 4 Wn. App. 52, 62, 480 P.2d 247 (1971).
Under the alter ego doctrine, “‘[w]here a private person so dominates and controls a
corporation that such corporation is his alter ego, a court is justified in piercing the veil of
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corporate entity and holding that the corporation and private person are one and the same.’”
Standard Fire Ins. Co. v. Blakeslee, 54 Wn. App. 1, 5, 771 P.2d 1172 (1989) (quoting Pohlman
Inv. Co. v. Virginia City Gold Mining Co., 184 Wn. 273, 283, 51 P.2d 363 (1935)). The doctrine
is “applied when ‘the corporate entity has been disregarded by the principals themselves so that
there is such a unity of ownership and interest that the separateness of the corporation has ceased
to exist.’” Grayson v. Nordic Const. Co., Inc., 92 Wn.2d 548, 553, 599 P.2d 1271 (1979)
(quoting Burns v. Norwesco Marine, Inc., 13 Wn. App. 414, 418, 535 P.2d 860 (1975)).
The alter ego doctrine has been most commonly used to impose personal liability on
corporate officers for fraud committed by the corporation. Blakeslee, 54 Wn. App. at 5-6.
However, the doctrine may also impose liability on a corporation for the individual acts of its
“shareholders who owned all or substantially all of the corporation’s stock.” Id. at 6.
In determining whether a corporation is the alter ego of a corporate officer, our Supreme
Court has considered whether there is evidence “that corporate records or formalities were not
kept” and whether there was “an overt intention by [the corporate officer] to disregard the
corporate entity.” Grayson, 92 Wn.2d at 553. However, the mere “informality in the operation
of a closely held corporation” will not lead to disregard where “the informality neither prejudices
nor misleads the plaintiff.” Roderick Timber Co. v. Willapa Harbor Cedar Products, Inc., 29
Wn. App. 311, 315, 627 P.2d 1352 (1981).
Here, assuming without deciding that the LLC was Kotelevskiy’s alter ego, partial
summary judgment was appropriate because the Orvolds failed to put forward any facts
demonstrating (1) that the corporate form was intentionally used to violate or evade a duty and
(2) that the informality with which Kotelevskiy operated the LLC misled or prejudiced them.
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Moreover, none of the cases cited to by the Orvolds state that alter ego liability does not require
fraud, misrepresentation, or other misconduct. Rather, in each of these cases where alter ego
liability is discussed as a method of piercing the corporate veil, there is some form of
misconduct. See Columbia Asset Recovery Grp., LLC v. Kelly, 177 Wn. App. 475, 312 P.3d 687
(2013) (failed to satisfy a personal guarantee); see also Grayson, 92 Wn.2d at 554 (directed the
mailing of a deceptive advertising brochure).
The Orvolds contend that Kotelevskiy “owed [the Orvolds] a duty as a potential creditor,
given the warranties made in the Statutory Warranty Deed.” CP at 280. But the deed is between
the grantor, the LLC, and the grantee, the Orvolds. Thus, any duties owed to the Orvolds under
the deed were owed by the LLC and the Kotelevskiys do not dispute that the Orvolds have a
deed claim against the LLC.
Furthermore, although the record suggests that Kotelevskiy did not maintain corporate
formalities, the Orvolds have not demonstrated that they were misled or prejudiced by this
informality. Kotelevskiy, as the LLC’s sole member, operated the LLC in an informal manner,
using his personal funds to purchase the property, his social security number to complete the sale
to the Orvolds, and his personal bank account for receipt of the sale’s proceeds. However, the
Orvolds have provided no facts that demonstrate how this informality misled or prejudiced the
Orvolds.
Instead, the Orvolds entered into a sale agreement with the LLC without having reviewed
any documents related to the Kotelevskiys personally or the LLC. The Orvolds explicitly stated
that at “the time of the sale, [they] had no reason to believe the LLC was a shell entity/alter ego”
and that the facts supporting their disregard claim were learned after they purchased the property.
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CP at 276. Moreover, the Orvolds explicitly stated that they “are not alleging that [the
Kotelevskiys] committed fraud” nor that Kotelevskiy’s “contributions of personal funds harmed
[the Orvolds].” CP at 280, 278.
Accordingly, partial summary judgment is appropriate because the Orvolds failed to
provide any facts (1) that Kotelevskiy intentionally used the LLC to evade or violate a duty or
(2) that Kotelevskiy, in failing to maintain corporate formalities, misled or prejudiced the
Orvolds. Thus, there is no genuine issue of material fact and the trial court properly granted
partial summary judgment for the Kotelevskiys personally as a matter of law.
ATTORNEY FEES
The Orvolds argue that they are entitled to an award of costs and fees on appeal under
RAP 18.1 because the Kotelevskiys failed to defend their title. In the Kotelevskiys’ cross-
appeal, they appear to argue that the trial court erred in denying their motion for attorney fees
because they were entitled to an award of fees under the mutuality of remedy doctrine and that
for this same reason, they are entitled to attorney fees on appeal. We hold the Kotelevskiys were
not entitled to attorney fees below and neither party is entitled to attorney fees on appeal.
We may award fees on appeal under RAP 18.1(a) if “applicable law grants to a party the
right to recover reasonable attorney fees or expenses on review” and the party properly requests
it. In Washington, a court may award attorney fees when authorized by a statute, contract, or a
recognized ground in equity. Kaintz v. PLG, Inc., 147 Wn. App. 782, 785, 197 P.3d 710 (2008).
We engage in de novo review to determine whether there is a legal basis to award attorney fees.
Falcon Props. LLC v. Bowfits 1308 LLC, 16 Wn. App. 2d 1, 11, 478 P.3d 134 (2020).
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In real property cases, where a grantor is found to have breached the warranty to defend,
they are liable for the attorney fees incurred by the grantee in defending their title. Edmonson,
172 Wn.2d at 283.
Under RCW 4.84.330, in any contract action where the contract “specifically provides
that attorneys’ fees and costs” incurred in enforcing the contract “shall be awarded to one of the
parties, the prevailing party . . . shall be entitled to reasonable attorneys’ fees.” Mutuality of
remedy, an equitable principle, supports “the award of attorney fees to the prevailing party in an
action brought on a contract.” Kaintz, 147 Wn. App. at 784. The principle can support an award
of attorney fees “even in circumstances in which the party that prevailed did so by establishing
that the contract at issue was unenforceable or inapplicable.” Id.
Here, the Orvolds brought a breach of warranties claim against the Kotelevskiys. As
discussed above, the trial court did not err in granting partial summary judgment dismissing the
Kotelevskiys. We recognize that there remains litigation pending against the LLC, of which
Kotelevskiy is the sole member. As to the Kotelevskiys’ mutuality of remedy argument,
mutuality of remedy does not apply here because the Kotelevskiys are not parties to the statutory
warranty deed. Just as the Kotelevskiys are not personally liable for defending the Orvolds’ title,
they were not entitled to an award of attorney fees below. While attorney fees may be awarded
in equity, it is not required.
Thus, we hold that the trial court did not err in denying the Kotelevskiys’ motion for
attorney fees. For the same reasons, the Kotelevskiys are not entitled to attorney fees on appeal.
Finally, the Orvolds did not prevail on appeal, so we decline to grant them attorney fees on
appeal.
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CONCLUSION
We affirm the trial court and decline to award fees to either party.
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 in accordance with RCW
2.06.040, it is so ordered.
Che, J. We concur:
Glasgow, C.J.
Veljacic, J.