Northgate Ventures Llc v. Geoffrey H. Garrett Pllc

450 P.3d 1210

• Court: Court of Appeals of Washington
• Decided: October 21, 2019
• Docket: 78495-1
• Status: Published

Opinion

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

NORTHGATE VENTURES LLC, ) No. 78495-1-1 ) Appellant, ) ) DIVISION ONE v. ) ) GEOFFREY H. GARRETT PLLC (fka ) PUBLISHED OPINION Byrd Garrett PLLC); GEOFF GARRETT) PLLC; and GEOFFREY H. GARRETT ) FILED: October 21, 2019 and SABINA S. GARRETT, ) ) Respondents. ) )

MANN, A.C.J. — In 2010, Northgate Ventures LLC (Northgate) entered an eight-

year commercial lease agreement with the law firm Geoffrey H. Garrett PLLC. In 2016,

Geoffrey H. Garrett PLLC asked Northgate to terminate its lease. After Northgate

declined, Geoffrey' H. Garrett PLLC stopped making monthly rental payments and

vacated the premises. Shortly thereafter Geoffrey H. Garrett PLLC was dissolved and

placed into receivership. Its principal, Geoffrey Garrett, then formed a new law firm,

Geoff Garrett PLLC and continued to practice law.

Northgate sued for breach of the lease and sought to hold Garrett personally

liable as a member of Geoffrey H. Garett PLLC, and Geoff Garrett PLLC liable as a No. 78495-1-1/2

successor entity. Northgate appeals the trial court's decision granting summary

judgment and dismissing its claims against Garrett and Geoff Garrett PLLC. Northgate

contends that Garrett and Geoff Garrett PLLC are mere continuations of Geoffrey H.

Garrett PLLC and fraudulently transferred goodwill from Geoffrey H. Garrett PLLC to

Geoff Garrett PLLC. We disagree and affirm.

- Garrett is an attorney practicing law in Washington, focusing primarily on estate

and financial planning. In 2007, Garrett purchased the law firm Stanley R. Byrd, Inc.,

P.S.(Stanley R. Byrd), an estate planning law firm. Garrett then changed the firm name

to Byrd Garrett PLLC, and later to Geoffrey H. Garrett, PLLC. Garrett purchased

Stanley R. Byrd, Inc., P.S. for $600,000. $539,497.10 of the purchase price was

allocated to goodwill, or "the value of clients."

In August 2010, Northgate and Geoffrey H. Garrett PLLC entered an eight-year

commercial lease for office space in Seattle. The lease was between Geoffrey H.

Garrett PLLC and Northgate. Garrett did not sign a personal guaranty for the lease."

On August 25, 2016, Garrett notified Northgate that he was significantly changing his

law practice, no longer required the office space and requested to terminate the lease or

in the alternative, sublet the office space. Northgate declined the request. Garrett was

unable to find a tenant to sublet and Geoffrey H. Garrett PLLC stopped making monthly

rental payments of $6,912.00 in October 2016 and vacated the premises in November

2016.

RCW 25.15.126 provides limited liability for members of an LLC. Northgate could have requested that Garrett sign a personal guaranty as allowed by RCW 25.15.126(2). 2 No. 78495-1-1/3

Geoffrey H. Garrett PLLC was not a profitable law firm and reported losses for

the last seven years of its existence.2 Garrett subsidized the firm from 2013 to 2016 by

using his personal 401(k) retirement account, which totaled $1 million. Garrett also

used almost the entirety of a $300,000 home equity line of credit from Chase (Chase

HELOC)to remain current on Geoffrey H. Garrett PLLC's obligations.

On November 23, 2016, Geoffrey H. Garrett PLLC executed a general

assignment for the benefit of creditors assigning all property to attorney Nathan

Riordan. The assignment granted interest in "all of Assignor's property. .. including,

but not limited to, all real property, fixtures, goods, interests, stock, inventory,

equipment, furniture, furnishing, accounts receivable, general intangibles, bank

deposits, cash, promissory notes, cash value and proceeds of insurance policies,

claims, and damages belong to the Assignor." Geoffrey H. Garrett PLLC then petitioned

the court to appoint a receiver and the court appointed Riordan. Northgate participated

in the receivership filing a proof of claim.

While operating, Geoffrey H. Garrett PLLC charged a flat fee for its estate

planning clients and the clients paid a 75 percent down payment at the start of projects.

Estate settlement clients also paid a flat fee, paying 60 percent up front, then 15 percent

in the second month, 15 percent in the third month, and then the remaining balance

when the work was completed. Because of Geoffrey H. Garrett PLLC's fee structure,

there were rarely unpaid receivable accounts.

All property of Geoffrey H. Garrett PLLC was administered by the receiver.

Office furniture of Geoffrey H. Garrett PLLC was sold to Garrett for $4,705.00. After

2 Garrett contends that the last seven years resulted in losses of "$98,746.00, $77,235.00, $18,923.00, $119,075.00, $90,458.00, $83,932.00 and $75,781." 3 No. 78495-1-1/4

Geoffrey H. Garrett PLLC was liquidated, the receiver moved for approval of the final

report and accounting, authority to make disbursements, discharge of the receiver,

termination of the receivership, and exoneration of the bond. The trial court granted the

receiver's motion. The final report included the receipts and disbursements of the

receiver and the expenses the receiver incurred. The receiver surrendered Geoffrey H.

Garrett PLLC's $7,300 deposit, abandoned the remaining office assets, and disbursed

$1,120.13 to Northgate. Northgate did not appeal the order approving the final report.

After appointment of the receiver, but before the court terminated the

receivership, Garrett incorporated a new law firm, Geoff Garrett, PLLC. Garrett mailed

all of the former Geoffrey H. Garrett PLLC clients a letter informing them of his new firm

and his desire to continue serving as their estate planning attorney. Garrett continued

representing 33 clients.

Northgate sued Geoffrey H. Garrett PLLC for breach of its lease and damages of

$129,733.66. Northgate alleged Garrett and Geoff Garrett PLLC were successors of

Geoffrey H. Garrett PLLC, making them liable to Northgate under the lease. Northgate

also alleged violations of the Uniform Fraudulent Transfer Act and justifications for

piercing the corporate veil and claims of improper windup.

All parties filed motions for summary judgment. The trial court granted summary

judgment for Garrett and Geoff Garret PLLC and dismissed Northgate's successor and

personal liability claims. The court found, however, that Geoffrey H. Garrett PLLC was

liable to Northgate for its breach of lease. The court awarded attorney fees and costs to

Garrett and Geoff Garrett PLLC under the terms of the lease.

Northgate appeals.

4 No. 78495-1-1/5

Northgate first contends that the trial court erred in granting summary judgment

and dismissing its claims against Garrett and Geoff Garrett PLLC because Northgate

was entitled to a determination of successor liability as a matter of law. We disagree.

A.

We review summary judgment orders de novo, engaging in the same inquiry as

the trial court. Summary judgment is warranted only when there is no genuine dispute

of material fact and the moving party is entitled tc5 judgment as a matter of law.

CR56(c). The facts and all reasonable inferences are viewed in the light most favorable

to the nonmoving party. Young v. Key Pharmaceuticals, Inc., 112 Wn.2d 216, 225-26,

770 P.2d 182 (1989).

A person or group of persons licensed or legally authorized to render

professional services within Washington may form and become members of a

professional limited liability company (PLLC). RCW 25.15.046. As a general rule,

unless a member of a PLLC agrees to be obligated personally,3 members of a PLLC are

not liable for the liabilities of the PLLC.

The debts, obligations, and liabilities of a limited liability company, whether arising in contract, tort or otherwise, are solely the debts, obligations, and liabilities of the limited liability company; and no member or manager of a limited liability company is obligated personally for any such debt, obligation, or liability of the limited liability company solely by reason of being or acting as a member or manager respectively of the limited liability company.

• RCW 25.15.126. Similarly, Washington "adheres to the general rule that a corporation

purchasing the assets of another corporation does not become liable for the debts and

3 Under RCW 25.15.126(2) a member or manager of a PLLC may agree to be obligated personally for the debts, obligations, or liabilities of the PLLC. 5 No. 78495-1-1/6

liabilities of the selling corporation." Cambridge Townhomes, LLC v. Pac. Star Roofing,

Inc., 166 Wn.2d 475, 481-82, 209 P.3d 863(2009).

There is no dispute that Northgate contracted with Geoffrey H. Garrett PLLC and

did not require Garrett to personally guarantee the commercial lease contract. Thus, in

order to prevail in its claim against Garrett personally, or Geoff Garrett PLLC, Northgate

must demonstrate that an exception to the general rule applies. Recognized exceptions

include where the "purchaser is a mere continuation of the seller" or where the transfer

is for "fraudulent purpose of escaping liability." Columbia State Bank v. lnvicta Law Grp.

PLLC, 199 Wn. App. 306, 320, 402 P.3d 330(2017)(quoting Cambridge, 166 Wn.2d at '

482); RCW 25.15.061 (recognizing limited application of common law piercing the

corporate veil doctrine to PLLCs).

B.

Northgate first argues that Geoff Garrett PLLC is a successor entity of Geoffrey

H. Garrett PLLC because it is a mere continuation of Geoffrey H. Garrett PLLC.

Washington courts rely on several factors to determine whether a successor

business is a mere continuation of the seller. These include (1)"a common identity

between the officers, directors, and stockholders of the selling and purchasing.

companies," and (2)"the sufficiency of the consideration running to the seller

corporation in light of the assets being sold." Cambridge, 166 Wn.2d at 482. These

factors help the court determine whether the "'purchaser represents merely a new hat

for the seller." Cambridge, 166 Wn.2d at 482 (quoting Cashar v. Redford, 28 Wn. App.

394, 397, 624 P.2d 194 (1981)).

6 No. 78495-1-1/7

There is no dispute that Garrett was the sole member of both Geoffrey H. Garrett

PLLC and Geoff Garrett PLLC. Thus, our inquiry is focused on whether Geoff Garrett

PLLC paid adequate consideration for the assets of Geoffrey H. Garrett PLLC.

Northgate contends that Geoff Garrett PLLC failed to pay adequate consideration for

the assets of Geoffrey H. Garrett PLLC because the clients, client lists, and client files

should have been subject to the receivership because they were goodwill of Geoffrey H.

Garrett PLLC. Because a law firm's clients are not property of the law firm, we

disagree.

On November 23, 2016, Garrett Garrett PLLC petitioned the court to appoint a

receiver through a general assignment of its property for the benefit of creditors. "A

receiver may be appointed by a superior court of this state. . . in accordance with RCW

7.08.030(4) and (6), in cases in which a general assignment for the benefit of creditors

has been made." RCW 7.60.025(j). A receiver may be appointed "in any other action

for the dissolution or winding up of any other entity provided by Title... 25 RCW."

RCW 7.60.025(t). An assignment for the benefit of creditors must be substantially

similar to the form assignment in RCW 7.08.030(1). Under RCW 7.08.030(1), the

assignment must assign

all of assignor's property. . .including, but not limited to all real property, fixtures, goods, stock, inventory, equipment, furniture, furnishings, accounts receivable, general intangibles, bank deposits, cash, promissory notes, cash value and proceeds of insurance policies, claims, and demands belonging to the assignor.

The assignee shall take possession and administer the estate, and shall liquidate the estate with reasonable dispatch and convert the estate into money, collect all claims and demands hereby assigned as and to the extent they may be collectible, and pay and discharge all reasonable expenses, costs, and disbursements in connection with the execution and

7 No. 78495-1-1/8

administration of this assignment from the proceeds of such liquidations and collections.

(Emphasis added). In accordance with the statute, Geoffrey H. Garrett PLLC assigned

all of its property to Nathan Riordan of Riordan Law, PS.

When a business is placed in receivership, the goal is to "liquidate the estate with

reasonable dispatch and convert the estate into money." RCW 7.08.030(1). Here,

Riordan liquidated all of Geoffrey H. Garrett PLLC's property and notified creditors.

Geoffrey H. Garrett PLLC forfeited its security deposit for the lease, totaling $7,300, to

Northgate. Northgate's claim totaled $7,603.20. After liquidation, there was $9,076.25.

The receiver collected its fee and expenses of $7,921.48, leaving $1,154.77 for the

remaining creditors. From the remaining cash, Northgate was paid a pro rata share of

$1,120.13 for its claim.

While the receivership statute requires that all property be assigned to the

assignee, a lawyer's clients are not a commodity. A lawyer has no proprietary interest

in their clients, nor their client's files. Dixon v. Crawford, McGilliard, Peterson & Yelish,

163 Wn. App. 912, 924, 262 P.3d 108(2011)(indicating that "[a] firm's current clients

may be evidence of the firm's 'expectation of continued public patronage,' but clients

are not a commodity" and neither the attorney, nor the law firm had "a proprietary

interest in the clients."); see also RPC 1.17(c)(written notice of sale must explain

"client's right to retain another legal practitioner or to take possession of the file.")

(emphasis added). Under the Rules of Professional Conduct(RPC):

The practice of law is a profession, not merely a business. Clients are not commodities that can be purchased and sold at will. Pursuant to this Rule, when a lawyer or an entire firm ceases to practice, or ceases to practice in an area of law, and other lawyers or firms take over the

8 No. 78495-1-119

representation, the selling lawyer or firm may obtain compensation for the reasonable value of the practice as may withdrawing partners of law firms.

RPC 1.17 cmt. 1.

Because they were not property, Geoffrey H. Garrett PLLC was not required to

assign its clients and client files to the receiver. The receivership statute contemplates

liquidating property into cash, rather than preserving a business as a going concern,

therefore there was no requirement that the receiver attempt to sell Geoffrey H. Garrett

PLLC. RCW 7.08.030(1).

Northgate contends that Garrett transferred valuable goodwill because when

Garrett purchased Stanley R. Byrd, Inc., P.S. from Byrd for $600,000, the majority of the

purchase price, $539,497.10, represented goodwill value of the continued patronage of

Stanley R. Byrd, Inc., P.S.'s clients. Northgate is correct that under the RPCs clients

can be valued as goodwill in limited transactions—but only when "[t]he entire practice,

or the entire area of practice, is sold to one or more lawyers or law firms." RPC 1.17(b).

Thus, in the context of the sale of a law practice, goodwill can be valued. RPC 1.17.

But we do not agree with Northgate's position that goodwill, in the form of a lawyer's

clients and client lists, can be placed in a receivership to be liquidated for the benefit of

creditors.4

Northgate relies primarily on lnvicta and Cambridge, contending that Geoff

Garrett PLLC received Geoffrey H. Garrett PLLC's clients for inadequate consideration

4 Furthermore, Northgate submitted a claim and did not object to the receivership or argue that assets were hidden from the receiver. Geoffrey H. Garrett PLLC forfeited its deposit to Northgate. The court approved the final accounting and terminated the receivership and Geoffrey H. Garrett PLLC was dissolved. The receiver wound up Geoffrey H. Garrett PLLC's business and the law firm ceased operations. 9 No. 78495-1-1/10

and therefore should be liable as a successor entity. These cases, however, are

distinguishable.

In Invicta, this court held that Mark Jordan's sole proprietorship was a mere

continuation of Invicta PLLC. Jordan operated his law firm, Invicta, PLLC and was the

sole owner and managing partner. Invicta, 199 Wn. App. at 313. While Invicta was in

operation, Jordan personally guaranteed several loans. Invicta, 199 Wn. App. at 312.

When Jordan no longer wanted to pay those loans, he filed for Chapter 7 bankruptcy

and the bankruptcy court discharged Jordan's personal guaranty on the loan

agreement. Invicta, 199 Wn. App. at 312. Then, Jordan ceased operating Invicta

PLLC, defaulting on his loan obligations and began operating a sole proprietorship.

Invicta, 199 Wn. App. at 312. Rather than dissolving Invicta PLLC, which would require

paying its creditors from Invicta's assets, Jordan transferred all assets to his sole

proprietorship and continued operations. Invicta, 199 Wn. App./ at 313. "Jordan simply

chose to quit operating the PLLC and began operating the sole proprietorship." Invicta,

199 Wn. App. at 321-22. Jordan "continued his individual law practice, using the same

name, website, signage, telephone number, offices, insurance, employees, and

equipment and representing the same clients." Invicta, 199 Wn. App. at 314. Jordan

even used the same lease agreement, subtenant agreement, existing client agreements

and malpractice insurance as Invicta PLLC. Invicta, 199 Wn. App. at 314.

While our opinion in Invicta mentioned the transfer of clients without

consideration, that factor was one of many considered, which as a whole, demonstrated

mere continuation. Invicta, 199 Wn. App. at 318. We determined that the sole

proprietorship

10 No. 78495-1-1/11

(1) operated at the same location as the PLLC, and had the same offices, space, signage, telephone number, and address,(2) operated under the same lease as the PLLC, and between September 30, 2013, and February 2015 continued to hold itself out to the landlord as the PLLC,(3) used the same office equipment, furniture, and inventory as the PLLC,(4) used the same contact information as the PLLC including the same phone number, e-mail address, fax number, letterhead, and website,(5) used the same employees as the PLLC, and (6) held itself out to its current and new subtenants as the PLLC including entering a new sublease agreement on October 31, 2013, under the name of the PLLC, and as the trial court explained, held itself out to its malpractice insurance carrier as the PLLC for over a year.

lnvicta, 199 Wn. App. at 322.

In contrast, here, Geoffrey H. Garrett PLLC wound up and ceased operations.

The clients were not property and therefore were not subject to the assignment for the

benefit of creditors. Geoff Garrett PLLC operated as new entity, informed its clients of

the change, signed a new lease at a different location, formed a new website, and

changed its letterhead.

Similarly, in Cambridge, the court found that P.J. lnterprize Inc. was a mere

continuation of Gerald Utley's sole proprietorship because Utley transferred assets from

his sole proprietorship to P.J. lnterprize without consideration. Cambridge, 166 Wn.2d

at 483. While Utley was operating P.J. lnterprize as a sole proprietorship, Utley

contracted with Polygon, a general contractor, to install vinyl siding for a condominium

development. Cambridge, 166 Wn.2d at 480. Later, Utley incorporated his business as

P.J. Inc. and completed more work for the condominium development. Cambridge, 166

Wn.2d at 480. A construction defect claim arose associated with P.J. Interprize's work

and Utley filed for chapter 7 bankruptcy. Cambridge, 166 Wn.2d at 480. Polygon sued

P.J. Inc. and the trial court found that P.J. Inc. could not be liable for P.J. Interprize's

work under a mere continuation theory. Cambridge, 166 Wn.2d at 481.

11 No. 78495-1-1/12

Our Supreme Court reversed, holding that P.J. Inc. could be held as a mere

continuation of Utley's sole proprietorship, P.J. lnterprize. Cambridge, 166 Wn.2d at

481. As a sole proprietor, Utley was not protected from liability and could not escape

the sole proprietorship's liability by incorporating. Cambridge, 166 Wn.2d at 483. P.J.

Inc. did not provide consideration for the assets of P.J. lnterprize because Utley merely

transferred P.J. Interprize's assets to P.J. Inc. Cambridge, 166 Wn.2d at 483. P.J.

lnterprize was the same business, with the same clients, meeting the requirements

under a mere continuation theory of successor liability. Cambridge, 166 Wn.2d at 483.

Here, Geoffrey H. Garrett PLLC was not profitable for years and ultimately

dissolved, placing all of its property in a receivership to be liquidated. The receiver

liquidated the assets into cash and paid creditors their pro rata share. Garrett did not

personally guarantee the lease with Northgate. When Northgate began doing business

with Geoffrey H. Garrett PLLC, it was on notice that its members were shielded from

personal liability, and without a personal guaranty, Northgate may be unable to collect if

the PLLC became insolvent.

Northgate's mere continuation claim fails.

C.

Northgate next contends that Geoff Garrett PLLC is a successor entity of

Geoffrey H. Garrett PLLC because Garrett fraudulently transferred clients from Geoffrey

H. Garrett PLLC to Geoff Garrett PLLC.

Successor liability may be imposed "where the transfer of assets is for the

fraudulent purpose of escaping liability." Eagle Pac. Ins. Co. v. Christensen Motor

Yacht Corp., 85 Wn. App. 695, 707, 934 P.2d 715(1997). A fraudulent transfer can be

12 No. 78495-1-1/13

shown by (1) proving fraud or actions otherwise lacking good faith,(2) insufficient

consideration received for the assets, and (3) that the predecessor was left unable to

respond to creditor's claims. Eagle Pac., 85 Wn. App. at 707.

There cannot be a fraudulent transfer unless there is a transfer of assets. For

example, in Meisel v. M & N Modern Hydraulic Press Co., 97 Wn.2d 403, 409,645

P.2d 689 (1982), Nicholas Brodsky Jr. inherited 100 shares of M & N Modern Hydraulic

Press Company(M & N)stock from his father. Brodsky sold of all of his shares of M &

N stock. Meisel, 97 Wn.2d at 404. Brodsky incorporated Modern Hydraulic Corporation

(Modern). Meisel, 97 Wn.2d at 404. M & N leased commercial property from Brodsky,

and Brodsky terminated M & N's lease and evited M & N. Meisel, 97 Wn.2d at 404.

Modern then began leasing the same buildings and land from Brodsky and leased

equipment from M & N. Meisel, 97 Wn.2d at 404. M & N ceased manufacturing when

Brodsky terminated its lease, but continued to service the machines and collect

accounts receivable. Meisel, 97 Wn.2d at 405. Eventually, M & N was dissolved.

Meisel, 97 Wn.2d at 405. Marie Meisel, an employee of Cosmopolitan Diecast of

Seattle, had her hand amputated by a trim press. Meisel, 97 Wn.2d at 405.

Cosmopolitan had purchased the press from M & N before it was dissolved. Meisel, 97

Wn.2d at 404. Meisel sought to hold Modern liable as a successor of M & N. Meisel,

97 Wn.2d at 405.

Our Supreme Court determined that Modern was not a successor corporation

because Brodsky "divested himself of ownership of M & N and began a new

corporation—Modern. None of M & N's assets were transferred to Modern. While

Modern used the same land, buildings, and equipment that M & N used, those were not

13 No. 78495-1-1/14

M & N's assets; they were Brodsky's personal property." Meisel, 97 Wn.2d at 409; see

also Martin v. Abbott Laboratories, 102 Wn.2d 581, 615, 689 P.2d 368 (1984)(noting

that the Meisel court concluded "successor liability was inapplicable because there had

been no transfer of assets").

Similarly here, Garrett divested himself of Geoffrey H. Garrett PLLC when he

filed for a receivership and ceased operating Geoffrey H. Garrett PLLC. All property

was assigned to the receiver for the benefit of Geoffrey H. Garrett PLLC's creditors.

Thus, Northgate fails to establish that any property was fraudulently transferred from

Geoffrey H. Garrett PLLC to Geoff Garrett PLLC.

Northgate also contends that Garrett and Geoff Garrett PLLC are liable under the

former Uniform Fraudulent Transfer Act(UFTA), ch. 19.40 RCW, and that the trial court

erred in dismissing its corporate veil argument and improper windup claim.5 We

Under Washington's former UFTA creditors have a cause of action against

transferees who received fraudulently conveyed property of debtors. Thompson v.

Hanson, 167 Wn.2d 414, 416, 219 P.3d 659 (2009). Former RCW 19.40.041 states:

(a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:

(2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:

5 The UFTA was amended effective July 23, 2017, and is now the Uniform Voidable Transactions Act. The former provisions of the UFTA apply to the alleged transaction because it occurred prior to July 23, 2017. RCW 19.40.905. 14 No. 78495-1-1/15

(i) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or

(ii) Intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due.

Former RCW 19.40.041(a)(2017).

Northgate's claim fails as a matter of law because it cannot show that Geoff

Garrett PLLC received clients, client list, and client files for inadequate consideration

because that property did not belong to Geoffrey H. Garrett PLLC.

Northgate contends that it presented competent evidence that Garrett

intentionally used the corporate form to evade his obligations to creditors. Northgate

also contends that Garrett transferred the assets for no consideration, which impaired

Geoff H. Garrett PLLC's ability to satisfy its debts. From this evidence, Northgate

contends that summary judgment was not appropriate because whether to pierce the

corporate veil is a question of fact.

"[T]wo separate, essential factors must be established" for a court to pierce the

corporate veil. Dickens v. Alliance Analytical Labs., LLC, 127 Wn. App. 433, 440, 111

P.3d 889 (2005). First, the corporate form must be used to violate or evade a duty and

second, the fact finder must establish that disregarding the corporate veil is necessary

and required to prevent an unjustified loss to the injured party. Columbia Asset

Recovery Grp. LLC v. Kelly, 177 Wn. App. 475, 486, 312 P.3d 687(2013). If the court

finds that the corporate veil may be pierced, members of the limited liability company

may be personally liable for acts or liabilities of the company. Chadwick Farms Owners

Ass'n v. FHC LLC, 166 Wn.2d 178, 199, 2017 P.3d 1251 (2009). Whether a corporate 15 No. 78495-1-1/16

form should be disregarded is a question of fact. Truckweld Equip. Co., Inc. v. Olson,

26 Wn. App. 638, 643, 618 P.2d 1017(1980).

Northgate has failed to identify a duty that Garrett breached. Garrett did not

transfer property from Geoffrey H. Garrett PLLC to Geoff Garrett PLLC to evade

creditors because the clients, client files, and client lists are not property. Dismissal of

Northgate's piercing the corporate veil claim was appropriate.

Northgate finally contends that Garrett is liable under an improper windup theory

for failing to distribute the value of its client lists to its creditors. Northgate also

contends that Garrett improperly transferred the Chase HELOC loan obligation to Geoff

Garrett PLLC and received payments for work completed by Geoffrey H. Garrett PLLC.

"[A]ny person winding up an LLC's affairs who has not complied with RCW

25.15.300 is personally liable to the claimants." Chadwick Farms Owners Ass'n v. FHC.

LLC, 139 Wn. App. 300, 314, 160 P.3d 1061 (2007) rev'd on other grounds, Chadwick,

166 Wn.2d 178. In Chadwick Farms, the defendant FHC was a contractor that

constructed the Chadwick Farms condominiums. Chadwick Farms, 139 Wn. App. at

304. After the completion of the project, FHC ceased operations without winding up.

Chadwick Farms, 139 Wn. App. at 304. FHC did not submit the required annual report

and renewal fee to the Secretary of State and was administratively dissolved. Chadwick

Farms, 139 Wn. App. at 304. The Chadwick Farms Homeowners Association (CFHA)

sued FHC for a number of construction defects. Chadwick Farms, 139 Wn. App. at 305.

The court held that the trial court erred by not allowing CFHA to amend its complaint

16 No. 78495-1-1/17

and add the LLC members as defendants due to improperly winding up the LLC. 139

Wn. App. at 314.

Unlike Chadwick Farms, Geoffrey H. Garrett PLLC complied with RCW

25.15.300 by petitioning the court for a receivership and assigning all property to the

receiver. As discussed above, the client, client list, and client files were not property

that could be assigned for the benefit of creditors. Northgate's claim fails as a matter of

law.

Iv.

A party requesting attorney fees on appeal is entitled to fees if "applicable law

grants to a party the right to recover reasonable attorney fees." RAP 18.1. The lease

contains an attorney fee provision that states:

In the event of a dispute between the parties over the terms of this Agreement . .. the non-prevailing party shall be pay [sic] the prevailing party's attorneys'[sic]fees and costs (not limited to statutory costs), whether incurred before the proceeding is started, for the proceeding and for any appeals.

In the underlying action, the lease is central to the dispute between Northgate and the

Garrett defendants. Since Northgate is seeking to enforce the lease against Garrett and

Geoff Garrett PLLC, the attorney fee provision is applicable to this appeal. See Invicta,

199 Wn. App. at 332 ("a claim for successor liability follows an underlying cause of

action for breach of contract and merely exists to extend 'the liability on that cause of

action to a corporation that would not otherwise be liable."). Geoffrey H. Garrett PLLC,

Geoff Garrett PLLC, and Garrett are entitled to reasonable attorney fees and costs.

17 No. 78495-1-1/18

We affirm.

WE CONCUR: