Ryan & Wages, Llc, / Cross- Res. v. Tom Wages, / Cross-app.

• Court: Court of Appeals of Washington
• Decided: March 18, 2013
• Docket: 68253-9
• Status: Unpublished

Opinion

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

RYAN AND WAGES, LLC, a Washington) t^O limited liability company through its No. 68253-9-1 <^> i->.~--. members, JULIA MCCORD and S- ^nO THE CONJUNCTIONAL DIVISION ONE f^K -y3 ,.-,--. , -,—, ___-

PATRIOTIC SOVEREIGN PATHWAY, --*-

cx> -*"Ot -:.-.. -or • '^c Appellant/ Cross-Respondent,

v.

TOM WAGES, an individual, UNPUBLISHED OPINION

Respondent/ FILED: March 18,2013 Cross-Appellant,

REDDING LAKE STEVENS, LLC, an Oregon limited liability company,

Respondent.

Becker, J. — One cannot sue for breach under a contract that has a

prevailing party attorney fee clause and then cry foul when held liable for an

award of fees to a successful defendant. After Redding Lake Stevens LLC won

dismissal from Ryan and Wages LLC's lawsuit for breach of contract, the court

properly applied the equitable mutuality of remedies doctrine to award Redding No. 68253-9-1/2

prevailing party fees under the contract. Finding no error in this decision, or in

the decisions challenged by Tom Wages in his cross appeal, we affirm.

FACTS

Tom Wages and Doris Ryan formed Ryan and Wages LLC (the company)

in 2004. In December 2005, Ryan died and her interest in the company passed

to her son and daughter, Floyd Ryan and Julia McCord. We will refer to Floyd

Ryan and Julia McCord as "the heirs."

Around the same time, the company and an Oregon investment firm were

forming Redding Lake Stevens LLC (Redding), a real estate venture to develop

two assisted living facilities, one in Redding, California, and the other in Lake

Stevens, Washington. The Redding project was built, but due to a problem of

sewer access, it was not possible to build a facility on the Lake Stevens property.

The heirs filed a derivative shareholder action on behalf of the company,

in which they sued Redding for breaching its own operating agreement. They

also sued Tom Wages for misappropriating company funds and sought his

removal as manager of the company. In May 2010, Wages counterclaimed for

judicial dissolution of the company. The heirs did not oppose the dissolution

request.

In December 2010, while the dissolution was pending, Redding paid the

company $1.25 million. This money became the focal issue in the dissolution

dispute between Wages and the heirs. Despite the pending dissolution, Wages

argued the money should be distributed to the members as income according to No. 68253-9-1/3

their ownership of the company. Such a distribution would have resulted in

Wages receiving around $635,000.

The following year, in September 2011, the court granted Redding

summary judgment dismissal from the heirs' shareholder action for breach of

contract. The court awarded Redding $43,237.60 in attorney fees.

In December 2011, a two-day bench trial was held to resolve the

dissolution and distribution of the company's assets. The company's operating

agreement required that in a corporate dissolution, assets were to be distributed

first to creditors, and next to members due a return of their initial capital

contributions. The court heard testimony from Wages, from the heirs, and from

the company's certified public accountant, Michael Cunningham, about the

parties' contributions to and withdrawals from the company.

The testimony reflected that the company's only liquid assets were the

$1.25 million held in an attorney trust account and a bank account containing

about $2,000. Cunningham calculated that Wages had received more payouts

from the company than he initially put in, so that Wages had a negative capital

balance. Cunningham calculated the heirs' balance of unpaid returns on their

initial contributions at over $3 million. According to Cunningham, the heirs'

capital account balance was "much, much higher than the available cash to

distribute" during the dissolution. The court entered findings of fact and

conclusions of law, distributing the full $1.25 million to the heirs, reserving only

enough to cover the company's last debts to third parties and the attorney fee No. 68253-9-1/4

award to Redding.

The heirs appeal the attorney fee award to Redding. Wages appeals the

distribution of the full $1.25 million to the heirs.

ATTORNEY FEES

The heirs sued Redding for breaching the Redding Lake Stevens LLC

Operating Agreement. Their complaint included a request for attorney fees and

costs. Paragraph 13.4 of the operating agreement authorized an award of

reasonable attorney fees to the prevailing party in any suit "commenced to

enforce or interpret any provision of this Agreement":

ATTORNEYS' FEES: If any legal proceeding is commenced to enforce or interpret any provision of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees at trial and on any appeal (including but not limited to expert witness fees, transcript costs and other similar expenses), in addition to the costs and disbursements allowed by law.

After Redding won summary dismissal from the suit by persuading the

court it was not a party to the operating agreement that created it, the court relied

on paragraph 13.4 to award Redding more than $43,000 in attorney fees and costs. The heirs contend this award constituted legal error.

Whether a specific statute, contractual provision, or recognized ground in

equity authorizes an award of attorney fees is a question of law reviewed de novo. Tradewell Group. Inc. v. Mavis, 71 Wn. App. 120, 126, 857 P.2d 1053

(1993).

We find no error in the fee award. The award was a straightforward No. 68253-9-1/5

application of the equitable doctrine of mutuality of remedies. See generally

Herzoq Aluminum, Inc. v. Gen. Am. Window Corp.. 39 Wn. App. 188, 692 P.2d

867 (1984). If the heirs had prevailed against Redding in their suit to enforce the

Redding Operating Agreement, they would have been entitled to an award of

fees from Redding under paragraph 13.4. Because Redding prevailed in the

action instead, the mutuality doctrine permits it to claim the same entitlement.

The mutuality of remedies doctrine authorizes contractual attorney fee awards

even after the contract itself is ruled invalid or unenforceable. Kaintz v. PLG,

Inc., 147 Wn. App. 782, 789, 197 P.3d 710 (2008).

The heirs argue the Kaintz holding is limited to cases where the parties to

the litigation are also parties to the contract, and where the contract is ruled

unenforceable as to all parties. But neither Kaintz nor the authorities it relies on

impose any such limits on the rule. Here, the contract allowed an award of

attorney fees to the "prevailing party." This standard terminology means the

prevailing party in the litigation. It is not a limitation to the parties to the

agreement, as the heirs argue.

We affirm the fee award to Redding. Redding also requests an award of

its fees and costs for defending this appeal. Paragraph 13.4 expressly provides

for such relief. Redding's request is granted.

IN LIMINE RULING

Wages contends the court erred as a matter of law by granting the heirs'

motion in limine. Wages planned to introduce an expert witness at trial to offer No. 68253-9-1/6

the opinion that the $1.25 million payment from Redding should be characterized

as "income" or "profits," as opposed to a return of "capital." Wages expected the

testimony to support his argument that he was entitled to receive a share of the

money before the court considered the parties' relative capital account balances.

The heirs argued the testimony was irrelevant.

The court tentatively granted the motion but left the matter open for further

discussion during trial. "Now, whether or not it's helpful for the Court or the Court

needs this expert testimony, it's a little bit early for me to say. ... at this point I'm

going to grant the motion." When given an opportunity to renew his objection to

the tentative ruling during trial, however, Wages' counsel responded, "Actually,

that won't be necessary. We'll rest our case now, too, Your Honor."

Having effectively withdrawn his challenge to the in limine ruling at trial,

Wages has waived this challenge on appeal. In a comparable situation, where a

court tentatively denies a party's motion in limine and the evidence that is the

subject of the motion is later introduced at trial, the losing party is obligated to

renew an objection to the evidence in order to preserve the error for review.

Sturgeon v. Celotex Corp., 52 Wn. App. 609, 623, 762 P.2d 1156 (1988). By

failing to renew objections at trial when the opportunity is offered, the objecting

party fails "to give the trial court an opportunity to correct the error at the time

when it could and should have been corrected." Sturgeon, 52 Wn. App. at 623.

We apply the same rationale here. By withdrawing his challenge to the in

limine ruling at trial, Wages removed the matter from the court's consideration. If No. 68253-9-1/7

the ruling was error, Wages gave the court no opportunity to correct it.

In any event, the ruling was not erroneous. The expert's proposed

testimony was irrelevant to the judicial dissolution trial. In a dissolution, the court

is required to distribute the corporation's assets according to a hierarchy

specified in the company's operating agreement, or according to a statutory

hierarchy if no operating agreement exists. See Noble v. A & R Envtl. Servs.,

LLC, 140 Wn. App. 29, 35, 164 P.3d 519 (2007), citing RCW 25.15.300. Here,

the company's operating agreement required the court to distribute the

company's remaining assets first to repay debts to creditors, and next to repay

members in return of their capital contributions. Payment to members "in respect

of their share of profits"—the step Wages wished the court would take first,

before members' capital contributions were returned—was the very last step of

the process under the operating agreement.

Wages' only claim before the court was for judicial dissolution under

chapter 25.15 RCW. The opening statements reflected Wages' understanding

that the purpose of the trial was to dissolve the company. The court was

required to follow the dissolution scheme set forth in the company's operating

agreement. The expert's testimony to distinguish "income" from "capital" was

irrelevant to that task.

Wages argues the expert's testimony was nevertheless relevant because

a subsection of the dissolution statute cross-references a statute permitting

"interim distributions" of income to members "before the member's dissociation No. 68253-9-1/8

from the limited liability company and before the dissolution and winding up

thereof" RCW 25.15.215 (emphasis added), cited in RCW25.15.300(1)(b). The

dissolution statute places these distributions in the second step of the distribution

hierarchy—but it does so only "unless otherwise provided in a limited liability

company agreement." RCW 25.15.300(1 )(b). Here, the company's operating

agreement did provide otherwise. It made payments to members in return of

their capital contributions the second step of the distribution hierarchy, while

relegating income distributions to members to the last step of the process.

Wages contends he became entitled to a distribution from the $1.25

million at the time the money was received in December 2010, and since he did

not receive a distribution at that time, he became a creditor whose debt should

have been repaid as the first step of dissolution under RCW 25.15.230. But by

December 2010, when Redding made the payment at issue, the parties were

well into their litigation of Wages' claim for dissolution. By then the members'

entitlement to distributions under RCW 25.15.230 had passed.

The expert's testimony would also have been cumulative. Wages' counsel

remarked at trial that his expert's testimony "may or may not be necessary,"

depending on how Cunningham, the company's accountant, testified. Wages

cross-examined Cunningham at length. After Cunningham finished testifying,

Wages withdrew his objection to the in limine ruling, signaling Wages' own belief

that the expert's testimony was no longer necessary. The exclusion of evidence

which is cumulative or has speculative probative value is not reversible error.

8 No. 68253-9-1/9

Havens v. C&D Plastics, Inc., 124 Wn.2d 158, 169-70, 876 P.2d 435 (1994).

FINDINGS OF FACT

Wages assigns error to the court's findings of fact and conclusions of law

in which the court determined the value of the heirs' initial contributions to the

company and adopted Cunningham's calculations as to all parties' capital

account balances. A trial court's factual determinations are not disturbed if they

are supported by substantial evidence. Davis v. Dep't of Labor & Indus., 94

Wn.2d 119, 123, 615P.2d 1279(1980). If substantial evidence supports the

finding, it does not matter that other evidence may contradict it. State v.

Camarillo, 115 Wn.2d 60, 71, 794 P.2d 850 (1990).

Substantial evidence supported the court's decision to rely on

Cunningham's calculations of the parties' capital account balances. Cunningham

gave detailed testimony and was subject to cross-examination and direct

examination by the court. Cunningham's process, ledgers, correspondence with

the parties concerning his calculations, and the tax returns he prepared were

examined in court. The story he told was consistent with the parties' testimony.

The court found his testimony credible and his calculations reliable. It is not our

role as an appellate court to substitute our judgment for that of the trial court, or

to weigh the evidence or the credibility of witnesses. Davis, 94 Wn.2d at 124.

The $4,048,000 valuation given by the court to the 13.3-acre Lake

Stevens property was also supported by substantial evidence. The parties

agreed to that value in the Redding Operating Agreement, which all parties— No. 68253-9-1/10

including Wages—signed in 2005. Cunningham testified that he understood the

tax value of the Lake Stevens property was around $3.4 million before the parties

agreed to a higher "book value." Cunningham gave testimony that he reported

the $4,048,000 value to the Internal Revenue Service on the heirs' K-1 corporate

tax forms.

Although Wages testified that he and the heirs mutually agreed to delete

the $4,048,000 value for the property when they executed the first amendment to

the Operating Agreement, this was a matter sharply contested at trial and the

court was not obliged to believe Wages' testimony.

We also reject Wages' argument that the court erred as a matter of

contract interpretation by failing to adjust the $4,048,000 figure downward based

on exhibit C to the Redding Operating Agreement. An appellate court's primary

goal in interpreting a contract is to ascertain the parties' intent. Anderson Hay &

Grain Co. v. United Dominion Indus., Inc., 119 Wn. App. 249, 254, 76 P.3d 1205

(2003), review denied, 151 Wn.2d 1016(2004). Exhibit C provided that the value

of a contribution should be reduced by $23,000 for each of the 176 planned units

not actually built on the Lake Stevens property. Since no units were ever built on

the property, this argument would place the value of the property at $0. That

suggestion is frivolous. Moreover, exhibit C's adjustment calculation refers

specifically to a contribution amount totaling $3,048,312, not $4,048,000. It is

therefore not clear that the parties ever intended exhibit C to be used to adjust

the Lake Stevens property's value.

10 No. 68253-9-1/11

Wages argues for the first time in his reply brief on appeal that the court's

use of the $4,048,000 figure was error because Cunningham reflected

uncertainty at trial as to whether this was a proper valuation of the Lake Stevens

property. This argument is a nonstarter; the court did not rely on Cunningham's

opinions to determine the property value. That value was set forth in the

Redding Operating Agreement, signed by all parties in 2005.

Cunningham testified plainly that no matter how the numbers shifted to

account for a few uncertainties, Wages' capital account balance would still be in

the negative, while the heirs' unreturned initial contributions were in the millions.

The court did not err by returning the $1.25 million to the heirs. Even after

receiving that distribution, they still bore significant losses.

Affirmed. Redding Lake Stevens LLC's request for fees and costs on

appeal is granted, subject to compliance with RAP 18.1.

WE CONCUR:

IT