Stanley Xu And Nanling Chen, V. Judgment Services, Llc

• Court: Court of Appeals of Washington
• Decided: June 17, 2024
• Docket: 85986-2
• Status: Unpublished

Opinion

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

PARKRIDGE PROPERTY, LLC, a Washington limited liability company, No. 85986-2-I

Plaintiff, DIVISION ONE

v. UNPUBLISHED OPINION

STANLEY XU and NANLING CHEN, husband and wife and the marital community comprised thereof,

Appellants,

LONGWELL PARKRIDGE, LLC, a Washington limited liability company; BRITTANY PARK APARTMENTS, L.L.C., a Washington limited liability company; and STERLING SAVINGS BANK, a Washington banking corporation,

Defendants,

JUDGMENT SERVICES, LLC, as assignee of STERLING SAVINGS BANK,

Respondent.

FELDMAN, J. — The sole issue in this appeal stemming from litigation that

began in 2011 is the applicable interest rate on the judgment. Where, as here, a

trial court awards undifferentiated damages for both tort and contract claims, the

applicable post-judgment interest rate is determined by whether the damages are No. 85986-2-I

“primarily based on” the judgment debtor’s tortious conduct or breach of contract.

Here, because the contract claims encompass the tort claims and are the broader

of the two types of claims, the trial court did not err in applying the interest rate that

applies to a judgment on a breach of contract claim where the underlying contract

fails to specify the rate. We affirm.

I

This is the third appeal in litigation between Stanley Xu and Nanling Chen

(the Xus) and various other parties involving financing to facilitate improvements

and the Xus’ purchase of a 249-unit apartment complex in Everett. The detailed

factual background is set forth in our two prior decisions1 and will be repeated here

only as necessary to the analysis of the discrete legal issue on appeal.

Briefly, through various misrepresentations, the Xus secured an $18 million

loan from Sterling Bank on behalf of an entity owned by the Xus and Charles

Diesing. The Xus personally guaranteed the loan. Sterling paid off a prior loan

and deposited the remaining loan proceeds—approximately $2.7 million—in the

Xus’ personal bank account. After Diesing discovered the misconduct, he initiated

litigation on behalf of his company against the Xus and others. A court-appointed

receiver later sold the real property. The sale proceeds were distributed to

Sterling, but were not sufficient to satisfy the Sterling loan. The total deficiency

amount was $676,217.42.

1 See Sterling Sav. Bank v. Xu, No. 72149-6-I (Wash. Ct. App. Sept. 28, 2015) (unpublished),

https://www.courts.wa.gov/opinions/pdf/721496.pdf., and CFD Funding I, LLC v. Xu, No. 83604-8- I (Wash. Ct. App. April 3, 2023) (unpublished), https://www.courts.wa.gov/opinions/pdf/836048.pdf.

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In the ensuing litigation, Sterling asserted against the Xus both tort claims

for fraudulent and intentional misrepresentation, fraudulent omission, and

fraudulent inducement and a contract claim for breach of the personal guaranty.

Sterling then moved for summary judgment against the Xus. At the hearing on

Sterling’s motion, the Xus conceded liability on the breach of contract claim and

contested liability only as to the alleged fraud. The trial court ruled in Sterling’s

favor and entered judgment against the Xus in the amount of $676,217.42 (“the

Sterling Judgment”). Eventually, the Sterling Judgment was assigned to Judgment

Services, LLC.

In 2023, after resolving an appeal related to other issues, this court

remanded the matter and directed the trial court to address Judgment Services’

motion to determine the interest rate applicable to the Sterling Judgment. On

remand, the trial court ruled, as Judgment Services had argued, that the principal

judgment amount accrued interest at 12 percent per annum under RCW

4.56.110(6), which we quote and discuss below. The court entered an updated

judgment in accordance with that ruling. The Xus appeal.

II

RCW 4.56.110 governs the rate at which post-judgment interest accrues on

judgments in civil litigation. It identifies particular interest rates for several

categories of judgments, including those founded on (1) written contracts that

specify an interest rate, (2) unpaid child support, (3) tortious conduct, (4) unpaid

private student loan debt, and (5) unpaid consumer debt. RCW 4.56.110(1)-(5).

Lastly, there is also a catch-all provision, RCW 4.56.110(6), for judgments that are

3 No. 85986-2-I

not listed in RCW 4.56.110(1)-(5). Because an award of post-judgment interest is

mandatory under the statute and involves application of the statute to particular

facts, we review the trial court’s decision de novo. TJ Landco, LLC v. Harley C.

Douglass, Inc., 186 Wn. App. 249, 256, 346 P.3d 777 (2015).

The Sterling Judgment is based on more than one type of claim (tort and

contract) and is therefore a “mixed judgment.” Woo v. Fireman’s Fund Ins. Co.,

150 Wn. App. 158, 164, 208 P.3d 557 (2009). Such a judgment is subject to only

one interest rate. Id. Here, because the guaranty does not specify an interest

rate, RCW 4.56.110(1) does not apply. Nor do RCW 4.56.110(2), (4), and (5)

apply. Instead, the interest rate that applies to the Sterling Judgment is either

provided by RCW 4.56.110(3)(b), which governs judgments founded on the

tortious conduct of individuals and private entities, or RCW 4.56.110(6), which

governs judgments that are not covered by RCW 4.56.110(1)-(5), including

judgments on a breach of contract claim where the underlying contract fails to

specify an interest rate. The interest rate that would apply under RCW 4.56.110(6)

is 12 percent. 2 According to Judgment Services, the interest rate that would apply

to the Sterling Judgment under RCW 4.56.110(3)(b) is 5.25 percent. 3

Given the disparity in interest rates, the Xus predictably claim that tortious

conduct is the primary basis for their liability. They focus on the trial court’s order

2 RCW 4.56.110(6) states: “Except as provided under subsections (1) through (5) of this section, judgments shall bear interest from the date of entry at the maximum rate permitted under RCW 19.52.020 on the date of entry.” RCW 19.52.020(1) sets the maximum legal rate of interest at twelve percent or four percentage points above the “equivalent coupon issue yield,” whichever is higher. 3 RCW 4.56.110(3)(b) states: “Except as provided in (a) of this subsection [relating to judgments

founded on the tortious conduct of a public agency], judgments founded on the tortious conduct of individuals or other entities, whether acting in their personal or representative capacities, shall bear interest from the date of entry at two percentage points above the prime rate . . . .”

4 No. 85986-2-I

granting summary judgment “for breach of guaranty and fraud.” That order

includes the following findings:

1. Mr. Xu and Ms. Chen knowingly made material, false representations to Sterling Bank, intending Sterling Bank to rely on them, which induced Sterling to make the $18,000,000.00 loan to Parkridge Property, LLC (Parkridge Loan).

2. Sterling Bank had a right to rely on Mr. Xu and Ms. Chen’s representations. Sterling Bank relied on Mr. Xu and Ms. Chen’s representations to its detriment.

3. Sterling Bank suffered a loss in the amount of $676,217.42 due to its reliance on Mr. Xu and Ms. Chen’s false representations.

4. Mr. Xu and Ms. Chen executed a continuing Guaranty, promising to pay Sterling Bank all amounts owing under the Parkridge Loan.

The Xus emphasize that while the trial court specifically found that their fraudulent

conduct caused the damages Sterling incurred, it made no specific finding that the

damages resulted from breach of the guaranty. The Xus also argue that the fraud

claims dominated Sterling’s case because (1) Sterling characterized the guaranty

itself as a part of the Xus’ fraudulent inducement to secure the loan, (2) the fraud

claims were more numerous than the contract claims, and (3) the fraud claims

were the focus of the summary judgment hearing and the only claims discussed

by the court in its oral ruling.

Judgment Services, in contrast, asserts that the judgment is primarily based

on the Xus’ liability for breach of contract because all components of the damage

award—principal, interest, late fees, penalty, attorney fees, and costs—represent

the debt that arose from the underlying contracts, including the promissory note,

the deed of trust, and the guaranty. Judgment Services contends that Sterling’s

fraud claim was “unnecessary to obtain any of the amount awarded in the Sterling

5 No. 85986-2-I

Judgment.” Judgment Services also points out that the summary judgment

hearing and the court’s findings focused on the fraud claims because the Xus

conceded liability under the guaranty for the remaining amount of the loan.

The parties claim that two cases are especially instructive in determining

what interest rate applies here. In the first case, Woo, Woo sued Fireman’s Fund,

his liability insurance carrier, after it denied coverage and declined to defend him

in a suit brought by a former employee. 150 Wn. App. at 162. Woo alleged breach

of the duty to defend, bad faith, and violation of the Consumer Protection Act

(CPA). Id. at 163. The court granted summary judgment to Woo on the breach of

contract claim, and the jury found in his favor on the remaining claims. Id. The

court entered judgment for a principal amount of $1,081,554.95. Id. Fireman’s

Fund then paid the judgment, including post-judgment interest under RCW

4.56.110(3), and moved for full satisfaction of judgment, which the trial court

granted. Id. at 164.

On appeal, Woo argued that the judgment was founded on contract, not tort

as the trial court had concluded, because his relationship with Fireman’s Fund

arose from an insurance contract, whereas Fireman’s Fund maintained that the

parties’ contractual relationship was “not dispositive.” Id. at 167, 169. We agreed

with Fireman’s Fund and concluded that, in order to determine whether the

judgment was based on contract or tort, it was necessary to take into account “‘all

aspects of the . . . relationship’” and all aspects of the judgment. Id. at 170 (quoting

Safeco Ins. Co. of Am. v. Butler, 118 Wn.2d 383, 394, 823 P.2d 499 (1992)). We

then examined each component of the judgment: the jury’s award of $750,000 by

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special verdict as damages for bad faith; the court’s award of $71,554.95 for

damages caused by Fireman’s Fund’s breach of the duty to defend; the court’s

award of $250,000 for damages based on the verdict of bad faith and application

of coverage by estoppel; CPA damages totaling $10,000; attorney fees premised

on bad faith totaling $96,396.22; and attorney fees premised on breach of the duty

to defend totaling $71,524.25. Id. at 172-73. Observing that over $1 million of the

damages was based on claims sounding in tort, this court held that “[c]onsidering

the component parts of the judgment, it is clear that it is primarily based on

amounts founded on or based on the tortious conduct” of Fireman’s Fund. Id. at

173. Therefore, the applicable post-judgment interest rate was the one that applies

to tort judgments.

The second case that the parties claim is instructive here is Unigard Ins.

Co. v. Mutual of Enumclaw Ins. Co., 160 Wn. App. 912, 250 P.3d 121 (2011), which

involved insurance coverage and bad faith litigation related to environmental

cleanup costs. The trial court granted summary judgment as to liability, and the

case proceeded to a jury trial on damages. Id. at 917. The total judgment was

over $2 million based on (i) jury verdicts for economic damages, (ii) damages

awarded by the court under the CPA, and (iii) attorney fees and costs. Id. at 918.

The trial court then applied the 12 percent interest rate under RCW 4.56.110(6) to

the liquidated portion of the judgment consisting of past economic damages. Id.

at 926. Mutual of Enumclaw, Unigard’s insurer, appealed.

On appeal, Mutual of Enumclaw argued that the trial court should have

applied the rate applicable to judgments founded on tort claims, and we agreed.

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Id. at 928. Citing Woo, we stated that, to determine the appropriate interest rate

for a mixed judgment, “a court should examine the component parts of the

judgment, [and] determine what the judgment is primarily based on.” Id. at 925.

Even though the damages awarded to Unigard were undifferentiated as between

tort and contract claims, we reasoned that the damages were primarily based on

tort because, once bad faith was established, Mutual of Enumclaw was estopped

from asserting coverage defenses, including the defense that the underlying policy

had a $300,000 per occurrence coverage limit. Id. at 927-28. In addition, the

“establishment of . . . bad faith created a presumption of harm” and shifted the

burden to Mutual of Enumclaw to rebut all alleged elements of damage. Id. at 928.

Accordingly, we concluded that the tort-based aspect of the litigation “dominated

the contract aspect and drove the result.” Id.

While both parties claim that Woo and Unigard support their position, the

facts at issue here are materially different from those in Woo and Unigard.

Because the trial court here awarded undifferentiated damages of $676,217.42 on

both the contract and tort claims, we cannot determine the applicable interest as

we did in Woo by categorizing each component of damages and comparing the

amounts. We also cannot say that the judgment was primarily based on the Xus’

tortious conduct simply because the fraud allegations were more numerous or

because the Xus conceded liability under the guaranty. The emphasis on tort

claims in the summary judgment proceeding and in the trial court’s findings simply

reflects the fact that fraud was the only contested issue. Nor does it seem relevant

that, according to Sterling’s theory of the case, the Xus executed the guaranty as

8 No. 85986-2-I

“consideration” for the loan and “to induce” Sterling to make the loan. It does not

appear that the Xus’ motivation for executing the guaranty was relevant to

establishing any element of Sterling’s contract claims. Sterling’s theory as to an

issue it was not required to prove fails to establish that the judgment was primarily

based in tort. And unlike Unigard, we also cannot say that one claim “drove the

result” because once that claim was established it affected the extent of liability on

the other type of claim by precluding potentially critical defenses or by shifting the

burden of proof. Id.

Instead, the dispositive consideration here—consistent with the courts’

focus on “all aspects” of the parties’ relationship and judgment in Woo and

Unigard—is the breadth of the underlying claims. As Judgment Services points

out, in addition to breaching their obligation to satisfy “all obligations of the

Borrower” under the loan, the Xus’ fraudulent conduct constituted a breach of a

separate, specific term of the contract. Sterling alleged breach with respect to both

aspects of the contract. It was not necessary to establish fraud to demonstrate

that the Xus breached their obligation to make “punctual payment when due,

whether at stated maturity, by acceleration or otherwise of all obligations of the

Borrower.” And contrary to the Xus’ claim in reply, Sterling also alleged that the

Xus breached the provision of the guaranty that obligated them to pay all “liabilities,

costs, [and] expenses” stemming from “fraud, material misrepresentation or failure

to disclose a material fact.” Because this latter aspect of Sterling’s contract claim

encompassed Sterling’s tort claims, the contract claims are broader than those

based in tort.

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On this record, where we cannot substantially replicate the analysis in Woo

and Unigard, we hold that the Sterling Judgment is primarily based on the contract

aspects of the litigation because of the broader nature of the contract claims. The

trial court did not err in concluding that the interest rate under RCW 4.56.110(6)

applies.

Affirmed.

WE CONCUR: