FILED JUNE 7, 2022 In the Office of the Clerk of Court WA State Court of Appeals Division III
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON DIVISION THREE
GREAT AMERICAN INSURANCE ) No. 37959-1-III COMPANY, a foreign corporation, ) ) Respondent, ) ) v. ) ) 1914 COMMERCE LEASING, LLC, a ) Texas limited liability company; IRA C. ) WADDEY, JR. & ANN M. WADDEY, ) husband and wife; HIGH AND CHERRY ) LLC, an Ohio limited liability company; ) HOME SAVINGS BANK aka FIRST ) UNPUBLISHED OPINION FEDERAL BANK OF THE MIDWEST, ) an Ohio corporation; LINCOLN SQUARE ) ASSOCIATES 1766 LLC, a Delaware ) limited liability company; UDG 11th & ) BURNSIDE, LLC, an Oregon limited ) liability company; DRI/MAPLE 20th ) Street Station, LLC, a Delaware limited ) liability company; BCA Partners, LLC, an ) Indiana limited liability company; and ) ) ) No. 37959-1-III Great Am. Ins. Co. v. 1914 Commerce Leasing, LLC
BARRY M. DAVIDSON, solely in his ) capacity as General Receiver of STAY ) ALFRED, INC., a Delaware corporation, ) fka ALFREDS AWAY, LLC, a ) Washington limited liability company, ) ) Defendants, ) ) TSO CHATTANOOGA ) DEVELOPMENT, LP, Georgia limited ) partnership, ) ) Petitioner. )
PENNELL, J. — TSO Chattanooga Development, LP seeks review of adverse
superior court orders denying its motion to dismiss for lack of personal jurisdiction and
enjoining litigation in the state of Tennessee. We reverse.
FACTS
TSO Chattanooga is a limited partnership, formed under Georgia law, owning
mixed commercial/residential property in Chattanooga, Tennessee. In April 2019, TSO
Chattanooga leased its property to a short-term rental startup, Stay Alfred, Inc. Stay
Alfred is a Delaware corporation, with its principal place of business in Spokane County,
Washington. The two parties entered into a commercial lease agreement (the Lease) and
Stay Alfred agreed to make monthly rental payments pursuant to the terms and conditions
of the Lease.
2 No. 37959-1-III Great Am. Ins. Co. v. 1914 Commerce Leasing, LLC
Two aspects of the Lease are pertinent to our review. First, the Lease had a force
majeure1 clause that read:
If either party hereto shall be delayed or hindered in, or prevented from, the performance of any act required under this Lease by reason of strikes, walk outs, labor troubles, inability to procure materials, failure of power, weather, restrictive governmental laws or regulations, riots, insurrection, terrorism, war or other reason of like nature not the fault of the party delayed in performing work or doing as required under the terms of this Lease, then performance of such act or obligation shall be excused for the period of the delay and the period for cure or performance of any such act shall be extended for a period equivalent to the period of such delay. The provisions of this Section shall not excuse Tenant [Stay Alfred] from prompt payment of rent or any other monetary obligation under this Lease.
Clerks Papers, Great Am. Ins. Co. v. 1914 Commerce Leasing, LLC, No. 37877-2-III (CP)
at 850-51. Second, the Lease contained a “governing law/jurisdiction” clause that read:
All rights and remedies of Landlord under this Lease shall be cumulative, and none shall exclude any other rights or remedies allowed by law. All the terms hereof shall be construed according to the laws of the State of Tennessee. Any action to enforce this Lease must be filed in the state or federal courts in Hamilton County, Tennessee, where the Premises is located.
1 Force Majeure is French for a superior force. In American law it is defined as “[a]n event or effect that can be neither anticipated nor controlled; esp., an unexpected event that prevents someone from doing or completing something that he or she had agreed or officially planned to do. The term includes both acts of nature (e.g., floods and hurricanes) and acts of people (e.g., riots, strikes, and wars).” Bryan A. Garner, BLACK’S LAW DICTIONARY (11th ed. 2019).
3 No. 37959-1-III Great Am. Ins. Co. v. 1914 Commerce Leasing, LLC
Id. at 850.
Great American Insurance Company issued a lease guaranty bond (the Bond) on
behalf of Stay Alfred with respect to the Lease. The Bond provided that Great American
was bound to TSO Chattanooga for the sum of two months’ unpaid rent under the Lease,
not to exceed $187,500.00. The Bond also contained a force majeure clause. However,
the wording of the Bond’s force majeure clause differed from that in the Lease:
If said Principal [Stay Alfred] fails to make the monthly Base Rent payment(s) required in the Agreement due to a Force Majeure event, then said Surety [Great American] is not liable for any payment(s) then due subsequent to and arising, directly or indirectly, from the Force Majeure event.
CP at 871.
In April 2018, Stay Alfred and Great American entered into an indemnity
agreement relating to the issuance of the Bond. Stay Alfred also deposited the sum of
$803,029 with Great American as collateral for the TSO Chattanooga Bond and other
similar lease agreement bonds pertaining to other properties. According to the indemnity
agreement, Great American must return any portion of Stay Alfred’s cash deposit that is
not consumed by losses or expenses incurred by Great American in connection with the
Bond claims.
4 No. 37959-1-III Great Am. Ins. Co. v. 1914 Commerce Leasing, LLC
In April and May of 2020, Stay Alfred failed to make its monthly rental payment to
TSO Chattanooga as required by the Lease. Stay Alfred’s default was purportedly related
to the COVID-19 pandemic. The amount of unpaid rent totaled $159,468. On May 18,
2020, TSO Chattanooga made a claim against the Bond for the unpaid rent due under the
Lease. Great American refused payment.
On May 26, 2020, Stay Alfred petitioned in Spokane County Superior Court for
appointment of a general receiver and executed an assignment for the benefit of creditors
pursuant to Washington’s receivership statute, chapter 7.60 RCW.
On June 8, 2020, TSO Chattanooga filed a proof of claim in Stay Alfred’s
receivership case in Spokane County Superior Court. TSO Chattanooga demanded all
money owed on the Lease, totaling $4,378,566 as of May 26, 2020. CP 439. The proof of
claim specified it was not a waiver or release of any claim of lack of venue or jurisdiction.
On June 23, 2020, Great American filed an adjunct complaint for declaratory
judgment in Spokane County Superior Court against TSO Chattanooga and a number of
similarly situated companies having rental relationships with Stay Alfred. Great American
asked the superior court to determine whether the Bond’s force majeure clause excused
its performance and liability under the Bond. Great American did not identify any
5 No. 37959-1-III Great Am. Ins. Co. v. 1914 Commerce Leasing, LLC
additional bases for avoiding liability. Great American requested the superior court enter
a declaratory judgment finding it was not liable to TSO Chattanooga under the Bond.
On July 21, 2020, TSO Chattanooga filed suit against Great American in Hamilton
County, Tennessee, seeking enforcement of the Bond and recovery of the amounts due
under the Bond. Great American successfully removed the Tennessee suit to federal
court.
On September 1, 2020, Great American filed a motion in Spokane County to
enjoin TSO Chattanooga from pursuing its lawsuit against Great American in Tennessee
until the receivership court rendered a final disposition and ruling on the declaratory
judgment action. Soon after, TSO Chattanooga contested personal jurisdiction and filed
a motion to dismiss Great American’s declaratory judgment claim.
In support of Great American’s motion to enjoin, the general receiver of Stay
Alfred (the Receiver), submitted a declaration clarifying how bond claims against Great
American affected the receivership. The Receiver acknowledged the indemnity agreement
between Stay Alfred and Great American and explained:
5. To the extent that Great American suffers a loss or expense as a result of the Bond Claims asserted against the lease guarantee bonds issued by Great American, I understand that Great American will assert a claim against the receivership estate as a secured creditor to the extent of those losses and expenses. Great American’s secured claim against the
6 No. 37959-1-III Great Am. Ins. Co. v. 1914 Commerce Leasing, LLC
receivership estate would reduce the amount of estate assets available for distribution to other creditors. 6. As the Receiver for Stay Alfred, it is also my understanding that Great American is in the possession of cash collateral that Stay Alfred posted as a source of potential reimbursement to Great American for losses and expenses arising out of the Bond Claims. 7. I further understand that any remaining cash collateral would become available to the receivership estate in the event it is not consumed by losses or expenses, including any allowable attorneys’ fees and costs, incurred by Great American in connection with the Bond Claims. Thus, to the extent Great American suffers a loss or expense in connection with the Bond Claims, it may result in a reduction of assets available to the receivership estate.
CP at 444-45.
In October 2020, Stay Alfred answered Great American’s complaint for
declaratory judgment, asserted affirmative defenses, and made a counterclaim against
Great American seeking declaratory judgment relief as follows:
The rights and obligations of Stay Alfred and [Great American] to the Cash Deposit regarding the extent to which the Cash Deposit is not consumed by allowable losses or expenses arising from the Bond Claims, including any allowable attorneys’ fees and costs incurred by [Great American] in connection therewith.
CP at 515.
The Spokane County Superior Court subsequently granted Great American’s
motion to enjoin TSO Chattanooga from maintaining any action against Great
American relating to the Bond outside of the declaratory judgment action, pursuant
7 No. 37959-1-III Great Am. Ins. Co. v. 1914 Commerce Leasing, LLC
to RCW 7.60.055(1) and RCW 7.60 et seq., until the declaratory judgment action
was resolved by way of final order or judgment. The court found venue and jurisdiction
for Great American’s declaratory judgment action was proper and exclusive in Spokane
County Superior Court, pursuant to RCW 7.60.055(1) and RCW 7.60, et seq. The
Spokane court rejected TSO Chattanooga’s claim regarding lack of personal jurisdiction,
reasoning TSO Chattanooga had sufficient contacts with the State of Washington and that
Washington’s receivership act gave the court in rem jurisdiction over property of the
receivership.
TSO Chattanooga moved in the superior court to certify the personal jurisdiction
decision for review by this court pursuant to RAP 2.3(b)(4). The superior court granted
certification and a commissioner of this court granted discretionary review of the order
denying the motion to dismiss and granting Great American’s motion to enjoin out-of-
state actions.
ANALYSIS
Personal jurisdiction
Washington courts can exercise personal jurisdiction over nonresident defendants
to the extent permitted by the federal due process clause. Shute v. Carnival Cruise
Lines, 113 Wn.2d 763, 766-67, 783 P.2d 78 (1989). When it comes to personal
8 No. 37959-1-III Great Am. Ins. Co. v. 1914 Commerce Leasing, LLC
jurisdiction, federal due process is based on the concept of minimum contacts.
Specifically, the issue is whether a nonresident defendant has sufficient minimum
contacts with the state such that the maintenance of the suit does not offend traditional
notions of fair play and substantial justice. Daimler AG v. Bauman, 571 U.S. 117, 126,
134 S. Ct. 746, 187 L. Ed. 2d 624 (2014) (citing Int’l Shoe Co. v. Washington, 326 U.S.
310, 66 S. Ct. 154, 90 L. Ed. 95 (1945)). Our review of personal jurisdiction issues is de
novo. Future Select Portfolio Mgmt., Inc. v. Tremont Grp. Holdings, Inc., 180 Wn.2d
954, 963, 331 P.3d 29 (2014).
There are two categories of personal jurisdiction, general and specific. General
jurisdiction applies when a nonresident does substantial and consistent business in the
state, such that it is “‘essentially at home’” in the state. Ford Motor Co. v. Montana
Eighth Judicial District Court, __ U.S. __, 141 S. Ct. 1017, 1024, 209 L. Ed. 2d 225
(2021) (quoting Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919,
131 S. Ct. 2846, 180 L. Ed. 2d 796 (2011). As the name implies, specific jurisdiction is
case specific. A Washington court can gain specific jurisdiction over a nonresident
defendant if the defendant has interacted with the state in a way that is related to the
plaintiff’s legal claims. See id. at 1025.
In this case, there is no claim of general jurisdiction. Instead, Great American’s
9 No. 37959-1-III Great Am. Ins. Co. v. 1914 Commerce Leasing, LLC
argument for jurisdiction over TSO Chattanooga is premised on a theory of specific
jurisdiction based on TSO Chattanooga’s relationship with Stay Alfred.2 We therefore
focus our personal jurisdiction discussion on the topic of specific jurisdiction as it relates
to the interactions between TSO Chattanooga and Stay Alfred.
Three factors are relevant to determining specific jurisdiction pursuant to federal
due process and Washington’s long arm statute:3
(1) The nonresident defendant or foreign corporation must purposefully do some act or consummate some transaction in the forum state; (2) the cause of action must arise from, or be connected with, such act or transaction; and (3) the assumption of jurisdiction by the forum state must not offend traditional notions of fair play and substantial justice, consideration being given to the quality, nature, and extent of the activity in the forum state, the relative convenience of the parties, the benefits and protection of the laws of the forum state afforded the respective parties, and the basic equities of the situation.
Shute v. Carnival Cruise Lines, 113 Wn.2d at 767. See also Downing v. Losvar, No.
36298-1-III, slip op. at 21-22 (Wash. Ct. App. Apr. 14, 2022),
https://www.courts.wa.gov/opinions/pdf/362981_ord.pdf.
2 There is no claim that the relationship between TSO Chattanooga and Great American gives rise to personal jurisdiction. 3 RCW 4.28.185.
10 No. 37959-1-III Great Am. Ins. Co. v. 1914 Commerce Leasing, LLC
None of the three factors weigh in favor of finding specific jurisdiction over TSO
Chattanooga. The only connection TSO Chattanooga has with Washington is the fact that
Stay Alfred has its principal place of business in Washington. TSO Chattanooga and Stay
Alfred did not engage in business in Washington and their contractual relationship arose
from leased property in Tennessee. The dispute between TSO Chattanooga and Stay
Alfred did not transpire in Washington; the nonpayment of rent occurred in Tennessee
and was purportedly caused by business disruptions in Tennessee related to the impact of
the COVID-19 pandemic. And notions of fair play and substantial justice do not tie
TSO Chattanooga to Washington, particularly given the Lease specified that all disputes
were to be resolved in the state of Tennessee.
Great American fails to cite any cases finding personal jurisdiction over an out-of-
state landlord-tenant dispute based simply on the fact that a corporate tenant has its home
office in Washington. Where no authority for an assertion is made, we may presume none
exists. DeHeer v. Seattle Post-Intelligencer, 60 Wn.2d 122, 126, 372 P.2d 193 (1962).
The fact that TSO Chattanooga had a relationship with Stay Alfred, who unilaterally
chose to be located in the state of Washington, is insufficient to confer personal
jurisdiction. Walden v. Fiore, 571 U.S. 277, 285, 134 S. Ct. 1115, 188 L. Ed. 2d 12
(2014) (“the plaintiff cannot be the only link between the defendant and the forum”). We
11 No. 37959-1-III Great Am. Ins. Co. v. 1914 Commerce Leasing, LLC
therefore disagree with the superior court’s assessment that TSO Chattanooga is subject
to personal jurisdiction in Washington based on its contractual interactions with Stay
Alfred.
In rem and receivership jurisdiction
Apart from arguing personal jurisdiction, Great American claims the Spokane
Court had in rem jurisdiction because the Bond at issue in this case is property of the
estate and the receivership court has jurisdiction over Stay Alfred’s estate property.
Great American’s argument misunderstands the nature of a bond. The concept of
a two party “[o]wner-versus-lien-claimant relationship” does not apply in the context of a
bond claim. Inland Empire Dry Wall Supply Co. v. W. Sur. Co., 189 Wn.2d 840, 849,
408 P.3d 691 (2018). A surety relationship is a three-party relationship involving a surety,
principal, and obligee. Id. Pursuant to this relationship, the surety agrees to answer for the
debt of default of the principal. Id. Upon default, the surety must make payment to the
obligee directly. The principal has no right to the funds. The whole point of a bond is to
afford the obligee a certain amount of recovery for breach by the principal without the
concern that recovery will be limited should the principal become bankrupt or insolvent.
Id. at 856. If the surety pays on the bond to the obligee, the surety may seek recovery from
the principal pursuant to an indemnity agreement. However, any such claim is separate
12 No. 37959-1-III Great Am. Ins. Co. v. 1914 Commerce Leasing, LLC
from the obligee’s claim on the Bond. Id. A bond claimant may make a claim against the
surety without joining the bond principal as a necessary party. Id.
We agree with Great American that TSO Chattanooga’s bond claim may impact
the property at issue in Stay Alfred’s receivership proceeding. If TSO Chattanooga fails
in its bond claim against Great American, then the funds used by Stay Alfred to secure the
Bond will likely be released and made available to the estate for satisfaction of creditor
claims. Alternatively, if TSO Chattanooga succeeds on its bond claim, then Great
American will likely seek indemnification from Stay Alfred, retain Stay Alfred’s security
deposit, and thereby effectively reduce estate funds. But these alternative conditions turn
on the contractual relationship between Great American and Stay Alfred. They do not
alter the surety relationship between TSO Chattanooga and Great American.
Given the impact of the parties’ dispute on property of the estate of Stay Alfred, it
might have made sense for the parties’ dispute to be decided under Washington’s broad
receivership statute, had personal jurisdiction not been at issue. See RCW 7.60.055(1)
(The receivership court has subject matter jurisdiction over “all controversies relating to
the collection, preservation, application and distribution of” estate property.). But
personal jurisdiction is at issue here. The receivership statute’s conferral of subject matter
jurisdiction does not eliminate a nonresident defendant’s right to challenge personal
13 No. 37959-1-III Great Am. Ins. Co. v. 1914 Commerce Leasing, LLC
jurisdiction. See Hanson v. Denckla, 357 U.S. 235, 254, 78 S. Ct. 1228, 2 L. Ed. 2d 1283
(1958) (a court does not acquire personal jurisdiction “by being the ‘center of gravity’ of
the controversy, or the most convenient location for litigation”). Despite the broad powers
conferred by the receivership statute, the Spokane County Superior Court lacked personal
jurisdiction over TSO Chattanooga.
Consent to jurisdiction
Great American’s final argument is that TSO Chattanooga consented to
Washington’s jurisdiction by filing a proof of claim in the receivership action. This is
Great American’s strongest argument in favor of personal jurisdiction. We nevertheless
reject its application.
A Washington court can exercise personal jurisdiction over a nonresident
defendant based on consent or waiver. Kysar v. Lambert, 76 Wn. App. 470, 484, 887 P.2d
431 (1995). A party waives their lack of personal jurisdiction claim if, before the court
rules, they request affirmative relief or otherwise consent, expressly or impliedly, to the
court’s personal jurisdiction. In re Marriage of Steele, 90 Wn. App. 992, 997-98, 957
P.2d 247 (1998).
By filing a proof of claim with the Spokane receivership court, TSO Chattanooga
likely consented to Washington jurisdiction over the issue of Stay Alfred’s liability for
14 No. 37959-1-III Great Am. Ins. Co. v. 1914 Commerce Leasing, LLC
breach of the Lease. TSO Chattanooga may have also consented to jurisdiction over any
related counterclaims held by Stay Alfred against TSO Chattanooga. See In re PNP
Holdings Corp., 184 B.R. 805, 806 (B.A.P. 9th Cir. 1995). But these conclusions do not
resolve the issue of whether TSO Chattanooga has consented to Washington’s resolution
of its rights under the Bond.
The issue of liability under the Bond is distinct from liability under the Lease.
As framed in Great American’s complaint for declaratory judgment, Great American’s
liability to TSO Chattanooga turns solely on the applicability of the Bond’s force majeure
clause. Stay Alfred’s lease does not contain a similar clause. The force majeure clause in
the Bond provides Great American with a complete defense to payment. But the force
majeure clause in the Lease does not relieve Stay Alfred from any financial obligations.
The nature of the parties’ force majeure bond dispute is one that counsels against a
waiver of personal jurisdiction. Deciding whether Great American is relieved from
payment on the Bond based on a force majeure requires the resolution of complex, highly
local facts. The business impacts of the COVID-19 pandemic have varied by jurisdiction.
Washington businesses were subject to stay at home orders that may not have been in
place in Tennessee. The impact of COVID-19 on Stay Alfred’s ability to find short-term
tenants for TSO Chattanooga’s building turns on facts that occurred in Tennessee, not
15 No. 37959-1-III Great Am. Ins. Co. v. 1914 Commerce Leasing, LLC
Washington. TSO Chattanooga retains a significant interest in ensuring that resolution of
Great American’s force majeure claim is decided by a Tennessee court.
Great American points out that its liability on the Bond does not turn solely on the
force majeure clause, it also depends on whether Stay Alfred has violated the terms of the
Lease. This point is valid, but it does not change our analysis. For one thing, the only
defense to nonpayment of the Bond pleaded by Great American pertains to the force
majeure clause. But even if Great American had asserted a broader basis for avoiding
liability, the fact remains that the Bond agreement is distinct from the Lease agreement.
Because liability under the Bond is distinct from liability under the Lease, any waiver of
personal jurisdiction over litigation involving the Lease does not extend to litigation over
the Bond.
TSO Chattanooga has never affirmatively done anything to choose Washington as
the arbiter of its rights under the Bond. The fact that Stay Alfred’s lease liability to TSO
Chattanooga will be resolved in Washington is the result of Stay Alfred’s decision to file
for receivership in Washington and TSO Chattanooga’s choice to file a proof of claim.
In other words, TSO Chattanooga has done nothing to avail itself of Washington’s laws
beyond consenting to the receivership court’s adjudication of the Lease between TSO
16 No. 37959-1-III Great Am. Ins. Co. v. 1914 Commerce Leasing, LLC
Chattanooga and Stay Alfred. Waiver of personal jurisdiction does not apply in the
context of the Bond.
Federal court injunctions
The Spokane County Superior Court lacked personal jurisdiction over TSO
Chattanooga and in rem jurisdiction over the Bond claimed by TSO Chattanooga.
The court therefore lacked authority to enjoin Tennessee courts from addressing TSO
Chattanooga’s claim against Great American for payment on the Bond. The injunction
order must therefore be reversed.
CONCLUSION
The orders on review are reversed. Great American’s claim against TSO
Chattanooga must be reversed based on lack of personal or in rem jurisdiction. Similarly,
the superior court’s injunction restraining TSO’s Chattanooga’s suit against Great
American for payment of the Bond is reversed, as the superior court does not have
jurisdiction over the Bond. TSO Chattanooga’s motion to supplement the appellate record
is denied as moot.
17 No. 37959-1-III Great Am. Ins. Co. v. 1914 Commerce Leasing, LLC
A majority of the panel has determined this opinion will not be printed in the
Washington Appellate Reports, but it will be filed for public record pursuant to RCW
2.06.040.
_________________________________ Pennell, J.
WE CONCUR:
______________________________ Fearing, J.
______________________________ Staab, J.