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IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
THE SAGE GROUP I, LLC, a Washington limited liability company; No. 71405-8-1 M3, INC., a Washington corporation; RONALD WORMAN and SALLY DIVISION ONE WORMAN, individually and the marital community composed thereof; ERIK VAN ALSTINE, individually and his UNPUBLISHED OPINION marital community,
Appellants,
JOHN KOTTER and NANCY DEARMAN, individually and the marital community composed thereof; KOTTER ASSOCIATES, INC., a Massachusetts corporation; KOTTER INTERNATIONAL, INC., a Massachusetts corporation; SAGE|KOTTER, LLC, an inactive Delaware limited liability company,
Respondents. FILED: August 24, 2015
Leach, J. — The Sage Group I LLC, M3 Inc., Ronald and Sally Worman,
and Erik Van Alstine (collectively Sage Group) appeal a trial court's summary
judgment ruling that collateral estoppel bars Sage Group's constructive trust
claims against John Kotter and Kotter's wife, Nancy Dearman (collectively the
Kotters), and the Kotters' business entities. Sage Group also challenges the trial NO. 71405-8-1/2
court's denial of its motions for summary judgment on the basis of constructive
trust and successor liability.
Because Sage Group had a full and fair opportunity at arbitration to litigate
the central issue in this case—the value of a former business partner's ownership
interest—we affirm the trial court's conclusion that collateral estoppel bars Sage
Group's claims for constructive trust. And because the arbitrator and trial court
both correctly determined that no property existed over which they could justly
impose a constructive trust, we affirm the trial court's denial of Sage Group's
motion for summary judgment.
FACTS
In 2002, Ronald Worman and Dana Green formed the Sage Group, which
provided advice, consulting, and services to business entities, using its "Path to
Value™" methodology. As managing members of the Sage Group, Worman and
Green shared equally the income generated by consulting agreements, plus any
stock or other ownership interests they obtained in the companies they assisted.
Erik Van Alstine, who ran M3 Inc., was not a member of the Sage Group but at
various times worked as a consultant to the company.
In spring 2007, Van Alstine e-mailed Dr. John Kotter, a Harvard Business
School professor and successful author of books on business leadership and
organizational change. Kotter and his wife, Nancy Dearman, established and
-2- NO. 71405-8-1/3
owned Kotter Associates Inc., a multimillion dollar business they operated. Van
Alstine, Worman, and Green believed that Kotter represented a valuable
business opportunity, and Kotter wished to promote his ideas in a way that
reached many more people.
In fall 2007, Van Alstine introduced Kotter to the Sage Group, and in
February 2008, Kotter and the Sage Group executed a written consulting
agreement. This agreement, signed by Green as "Managing Principal," provided
for $20,000 per month payments to the Sage Group from February through
October 2008 in exchange for using its Path to Value™ methodology to
implement Kotter's business plan. The agreement specified that it was "intended
to provide for the provision of consulting services on an independent contractor
basis, and is expressly not intended to create a joint venture, partnership,
agency, employment or other relationship." It made no reference to Worman or
Van Alstine.
Because Green, Worman, and Van Alstine agreed that Green would take
the lead in building a relationship with the Kotters, Green continued to travel to
Boston and work directly with them. In June 2008, John Kotter proposed
creating a new relationship: "No consultant and client. All new revenue from
joint activities is split by some formula." Green agreed, and he and Kotter
pursued plans to create a new business. Initially, Worman participated in some
-3- NO. 71405-8-1/4
discussions. In communications about business and personal goals and
priorities, Kotter emphasized the importance of maintaining a reputation "as pure
as snow white" and that he "won't work with anybody of questionable ethics."
Green, Van Alstine, and Worman agreed that they would share equity interests in
the new business equally but did not tell the Kotters about this arrangement.1
The Sage Group, Worman, and Van Alstine worked with Green to help
develop Sage|Kotter, established as a Delaware limited liability company (LLC) in
August 2008. Green continued to communicate with Worman about ongoing
negotiations related to ownership interests but disclosed progressively less
information. By the last months of 2008, Green pursued only his interests in
Sage|Kotter and no longer promoted Worman's interests as his co-member or
the interests of Sage Group as a whole.
In October 2008, Kotter proposed that Dearman own 51 percent of
Sage|Kotter and Green or "[Green] and friends" own 49 percent. In December,
however, Worman received from Green a proposed Sage|Kotter operating
agreement that allocated to the Kotters and Green 96 percent of the company
and all voting and management rights. It provided Worman a 4 percent
nonvoting interest. The agreement made no provision for Van Alstine. In
1 They also did not tell them that in 2000, state authorities found Van Alstine and a company on whose board Worman was a member liable for violations of securities laws. -4- NO. 71405-8-1/5
January 2009, over Worman and Van Alstine's objections, Green and the Kotters
executed the final version of the Sage|Kotter LLC operating agreement. This
agreement allocated to Green and the Kotters 38 percent and 62 percent
ownership interests, respectively. It also made no provision for Worman or Van
Alstine.
The Sage|Kotter operating agreement provided that the Kotters could
unilaterally dissolve the LLC at any time during a five-year "initial period." The
Kotters' attorney clarified in an e-mail that "[Kotter] expressly wants to retain and
does retain all his 'inventions' under the IP [intellectual property] Licensing
Agreement, while, at the same time, he grants the LLC an exclusive license to all
such inventions." And a member services agreement executed by Green and
Kotter memorialized Kotter's absolute control over his intellectual property as
"head of research, with the title Chief Innovation Officer":
[Kotter] is expressly granted the authority to claim the copyright or the sharing of the copyright for all ideas, products or services based substantially on his work on behalf of himself, on behalf of Sage|Kotter or on behalf [of] some combination of individuals and SageJKotter, as he deems fair and appropriate in his sole and absolute discretion.!21
In 2009, Sage|Kotter generated revenues almost triple what Kotter
Associates had generated the previous year, increasing from $2.8 million to over
$7 million. The majority of revenue came from consulting fees, such as a
2 This agreement is undated but includes a footer dated January 5, 2009. -5- NO. 71405-8-1/6
contract between Sage|Kotter and Westinghouse Electric Company for $1
million, which Green signed as "President and CEO [chief executive officer]" of
Sage| Kotter.
Claiming that Green usurped a business opportunity and committed
breaches of contract, fiduciary duties, and good faith by pursuing his personal
interest in Sage|Kotter without their consent, Worman and Van Alstine
commenced separate legal actions against Green. In April 2009, Worman filed
an arbitration demand and complaint against Green under the terms of the Sage
Group's LLC agreement. Van Alstine, not a member of Sage Group LLC, later
filed a separate lawsuit in King County Superior Court. The same counsel
represented Worman and Van Alstine in their respective actions, and they
coordinated discovery. Van Alstine and Worman sought damages,
disgorgement, and imposition of a constructive trust "for all property, profits,
and/or benefits derived by Green related to Sage|Kotter and/or Green's interest
therein."
The Kotters learned in late spring 2009 about the arbitration demand.
They had some discussions with Green and his attorney around the time of a
failed mediation in October 2009. Sage|Kotter paid some of Green's legal fees.
The Kotters learned of Van Alstine's lawsuit in late fall 2009. NO. 71405-8-1/7
In a December 7, 2009, letter, the Kotters' attorney told counsel for Green
and counsel for Worman and Van Alstine that the Kotters "will not allow the
internal dispute between your clients to disrupt the business operations of
Sage|Kotter or divert the attention of our clients or its employees from carrying
out the goals that led to its formation":
Accordingly, this is to advise your respective clients that unless the present dispute between your clients is resolved in a manner satisfactory to our clients on or before December 21, 2009, our clients intend to exercise their rights under the Sage|Kotter Operating Agreement, dissolve Sage|Kotter and immediately commence to wind up its affairs.
Green and Worman did not resolve their dispute. Van Alstine's lawsuit against
Green continued.
On January 6, 2010, Green and the Kotters signed a "Settlement
Agreement and Mutual Releases." It had the stated purposes of effecting the
orderly liquidation of Sage|Kotter and settling all actual and potential claims
between the Kotters and Green. The agreement terminated Green's
employment as CEO of Sage|Kotter. Green received $150,000 as a "settlement
payment" and an additional $160,889 in liquidated distributions in proportion to
his 38 percent interest. The Kotters also received liquidated distributions, and NO. 71405-8-1/8
Kotter Associates Inc. received the remaining assets and obligations.3 The
agreement included a broad mutual release of Sage|Kotter-related claims.
In July 2010, arbitrator Judge Robert Alsdorf (retired) heard Worman's
arbitration action. Worman requested an award of almost $5 million, his
calculation of half the value of Green's 38 percent equity interest in Sage|Kotter.
The arbitrator found that because "[t]he evidence overwhelmingly supports
the conclusion" that Green breached contract and/or fiduciary duties by his self-
dealing, Worman was entitled to damages and other relief. This conclusion was
"bolstered by a strong showing of spoliation of hard copy and electronic records
that had been in Mr. Green's possession, custody, and control." Judge Alsdorf
characterized Green's testimony as "unclear" and lacking credibility and the
Kotters' testimony as "credible."
However, the arbitrator rejected Worman's proposed valuation of Green's
interest, noting that "[t]he projections on which claimants and their expert
purported to establish a value were not factually sound and were at best
speculative." Judge Alsdorf concluded that because of the Kotters' contractual
authority to unilaterally dissolve Sage|Kotter and Kotter's absolute control over
his intellectual property, Green's interest in the company was essentially
3 The Kotters later changed the name of the company to Kotter International Inc. -8- NO. 71405-8-1/9
"terminable at will," and a reasonable buyer would have been "extremely unlikely
to pay more than a nominal premium" for it.
The arbitrator concluded that "the only reasonable measure of damages is
not a business valuation per se but a requirement that [Green] disgorge 50% of
the value he in fact received in 2009 for the business opportunity that he had
wrongfully taken at the end of 2008." Judge Alsdorf awarded Worman
$522,883.00 in damages: the sum of $413,562.50 (half of the 2009 benefits and
compensation Sage|Kotter paid Green), $34,320.50 (half of Green's
compensation for the last two months of 2008), and $75,000.00 (half of Green's
"settlement payment"). Judge Alsdorf also granted declaratory relief, ordering a
"required sales event" under the terms of the Sage Group's LLC agreement and
terminating Green's status and rights of control or participation as a manager in
the Sage Group. In September 2010, Judge Alsdorf awarded Worman
$480,532.66 in reasonable attorney fees and costs.
Worman and Van Alstine consolidated discovery in the arbitration with
discovery in Van Alstine's state court action. Van Alstine's action settled before
trial, in May 2011.
In August 2011, Worman and Van Alstine filed an amended complaint
against the Kotters and their business entities, alleging conspiracy, fraudulent
transfer, aiding and abetting breach of fiduciary duty, and unjust enrichment. NO. 71405-8-1/10
They requested, among other things, imposition of a constructive trust over
Green's 38 percent equity or membership interest in the Kotter business entities.
Over the next two years of litigation, Worman and Van Alstine filed a
motion to dismiss Kotter's counterclaims and four motions for summary
judgment. The trial court denied all the motions.
On November 27, 2013, the trial court granted the Kotters' motion for
summary judgment, ruling that Worman and Van Alstine were collaterally
estopped from pursuing a constructive trust remedy over Green's 38 percent
interest in Sage|Kotter. On January 21, 2014, the trial court entered a final
judgment.
Sage Group, Worman, and Van Alstine appeal.
STANDARD OF REVIEW
This court reviews a trial court's order on summary judgment de novo,
performing the same inquiry as the trial court and drawing all inferences in favor
of the nonmoving party.4 CR 56(c) requires summary judgment when the
pleadings, affidavits, depositions, and admissions on file demonstrate that there
are no genuine issues of material fact and that the moving party is entitled to
judgment as a matter of law.
4 Lvbbert v. Grant County, 141 Wn.2d 29, 34, 1 P.3d 1124 (2000). -10- NO. 71405-8-1/11
ANALYSIS
Collateral Estoppel
Sage Group asserts that collateral estoppel does not bar its claims for
constructive trust. Collateral estoppel, or issue preclusion, prohibits a party from
relitigating issues in a subsequent proceeding, even when it asserts different
claims or causes of action.5 "The purpose of the doctrine is to promote the policy
of ending disputes."6 Collateral estoppel precludes only those issues that have
actually been litigated and necessarily determined in the earlier proceeding.7
And the party against whom collateral estoppel is asserted must have had a "full
and fair opportunity to litigate the issue in the earlier proceeding."8 A party
asserting collateral estoppel must show that (1) the issue in both actions is
identical; (2) the earlier proceeding ended in a judgment on the merits; (3) the
party against whom collateral estoppel is asserted was a party to, or in privity
with a party to, the earlier proceeding; and (4) applying collateral estoppel does
not work an injustice on the party precluded from litigating the issue.9
5 Christensen v. Grant County Hosp. Dist. No. 1. 152 Wn.2d 299, 306, 96 P.3d 957 (2004) (quoting Rains v. State. 100 Wn.2d 660, 665, 674 P.2d 165 (1983)). 6 Nielson v. Spanawav Gen. Med. Clinic, Inc., 135 Wn.2d 255, 262, 956 P.2d 312 (1998). 7 Christensen, 152 Wn.2d at 307 (citing Shoemaker v. City of Bremerton, 109 Wn.2d 504, 507, 745 P.2d 858 (1987)). 8 Christensen, 152 Wn.2d at 307 (citing Nielson, 135 Wn.2d at 264-65). 9 World Wide Video of Wash., Inc. v. City of Spokane, 125 Wn. App. 289, 305, 103 P.3d 1265 (2005) (quoting Christensen, 152 Wn.2d at 307). -11- NO. 71405-8-1/12
First, Sage Group argues that the issues in both actions are not identical:
"The issue of valuation was neither identical to the issues in the arbitration, nor
was it necessarily determined in the arbitration." Sage Group contends that
because the value of Green's interest was not an element of the disgorgement
remedy, findings about that value were not "'necessarily determined' and are, at
most, evidentiary facts to which collateral estoppel does not apply." Sage Group
also maintains that because a court may impose a constructive trust in specie,
"the value of Green's interest, even if 'speculative,' is not material to
enforcement."
Sage Group correctly notes that collateral estoppel applies to "ultimate
facts," or facts "directly at issue in the first controversy upon which the claim
rests" but does not apply to "evidentiary facts, facts which may be in controversy
in the first action and are proven but which are merely collateral to the claim
asserted."10 But as the trial court stated in its order, "While the parties in this
case give different labels to the remedies sought, in the Alsdorf Arbitration and
this case, one of the central damages issue[s] in each has been to determine the
value of Green's interest in Sage|Kotter." Thus, the "ultimate facts" in both the
arbitration and Sage Group's lawsuit against the Kotters involved the valuation of
Green's 38 percent interest in Sage|Kotter. We agree with the trial court that for
10 Beagles v. Seattle-First Nat'l Bank, 25 Wn. App. 925, 930-31, 610 P.2d 962 (1980). -12- NO. 71405-8-1/13
purposes of collateral estoppel, "[t]he remedy issue to be decided here is
identical to the issue that Judge Alsdorf decided."11
Sage Group also contends that because Van Alstine could not have been
joined as a party to the arbitration, Kotter cannot establish privity. We disagree.
One must show more than representation by the same counsel to
establish privity for purposes of issue preclusion.12 But as the trial court noted,
counsel for Worman and Van Alstine consolidated discovery in both cases, and
"[discovery from one case was used in the other and pleadings in each
referenced the other proceeding. In fact, Judge Alsdorf referenced the Superior
Court discovery proceedings in his pretrial Arbitration Orders." Van Alstine,
pursuing claims in a parallel proceeding relating to the same issue, "exercised
control" via the same attorneys, same discovery, and same legal theories, and
was thus "virtually represented" in the arbitration, the resolution of which would
directly affect his own superior court claims.13 Thus, due to Van Alstine's
11 As for the second element of collateral estoppel claim, the parties do not dispute that the arbitration represented a final judgment on the merits. See also Neff v. Allstate Ins. Co., 70 Wn. App. 796, 799-800, 855 P.2d 1223 (1993) (for purposes of collateral estoppel, arbitration may be "prior adjudication" ending in a final judgment). 12 Collins v. E.T. DuPont de Nemours & Co., 34 F.3d 172, 178 (3d Cir. 1994). 13 Collins. 34 F.3d at 178; see also Carson Inv. Co. v. Anaconda Copper Mining Co., 26 F.2d 651, 657 (9th Cir. 1928) (privity established where counsel for both parties conferred and participated together in preparation of trial on issues, parties had right to exercise joint control over litigation and cooperated in both proceedings); Everett v. Abbey, 108 Wn. App. 521, 532-33, 31 P.3d 721 -13- NO. 71405-8-1 /14
preexisting legal relationship to Worman, the trial court fairly concluded that
'"they represent the same legal right.'"14 We agree that the parties were in privity
for purposes of collateral estoppel.
Finally, Sage Group argues that barring its claims on the basis of
collateral estoppel works an injustice because Sage Group did not have an
"'unencumbered' opportunity to litigate [its] claim in the earlier action." Sage
Group bases this argument on the arbitrator's finding of a "strong showing" of
Green's spoliation of hard copy and electronic evidence and on allegations that
the Kotters "withheld discoverable evidence from the Arbitration," producing it for
the first time in this action.
To decide if application of collateral estoppel will work an injustice,
"'Washington courts focus on whether the parties to the earlier proceeding had a
full and fair hearing on the issue.'"15 If a party might receive procedural
opportunities in a later action that were unavailable in the first and could
(2001) (collateral estoppel did not apply where parties were not represented by counsel and did not control any part of proceedings); Paradise Orchards Gen. P'ship v. Fearing, 122 Wn. App. 507, 515-16, 94 P.3d 372 (2004) (no privity where party had no opportunity to argue theory of case in first proceeding). 14 Collins, 34 F.3d at 177 (quoting E.I.B. v. J.R.B., 259 N.J. Super. 99, 102, 611 A.2d 662 (1992) (privity in claim preclusion context)). 15 State Farm Fire & Cas. Co. v. Ford Motor Co., 186 Wn. App. 715, 725, 346 P.3d 771 (2015) (internal quotation marks omitted) (quoting Hadlev v. Maxwell, 144 Wn.2d 306, 311, 27 P.3d 600 (2001)). Appellants cite State Farm in a statement of additional authorities. -14- NO. 71405-8-1/15
reasonably cause a different result, application of collateral estoppel would be
unjust.16
Applying collateral estoppel does not work an injustice here. Contrary to
Sage Group's claims, the spoliated records were not "key evidence." Their
omission did not prevent procedural fairness. These records pertained to
Green's "substantially changed focus and motivation" leading to his self-dealing
and breaches of contract and fiduciary duty, which were not in dispute. They did
not relate to the value of Green's interest in Sage|Kotter or to damages.
Moreover, as the trial court noted, the matter of Green's spoliation "was known
and litigated during the Arbitration, and the documents and their destruction was
a major reason why Judge Alsdorf found Green incredible on issues of liability."
Sage Group also argues that collateral estoppel works an injustice
because the Kotters wrongly withheld discoverable evidence: the written
"Member Services Agreement" through which Kotter licensed his intellectual
property to Sage|Kotter. This written agreement contradicts Kotter's testimony in
the arbitration that he orally licensed the intellectual property.
16 Parklane Hosiery Co. v. Shore, 439 U.S. 322, 332, 99 S. Ct. 645, 58 L. Ed. 2d 552 (1979); State Farm, 186 Wn. App. at 725; see also Frese v. Snohomish County, 129 Wn. App. 659, 664-66, 120 P.3d 89 (2005) (collateral estoppel did not bar plaintiffs' action where new evidence presented in second action would likely have changed result in first). -15- NO. 71405-8-1/16
Sage Group does not show any lack of fairness. First, Sage Group does
not show it was deprived of any procedural opportunities. As the trial court
noted, both Worman and Van Alstine conducted and shared discovery. Judge
Alsdorf granted in part Worman's motion to compel discovery of certain
Sage|Kotter financial documents. Where the arbitrator reserved ruling, Worman
could have shown good cause or moved to compel the production of other
records but chose not to do so. Second, the member services agreement
supports the conclusion Judge Alsdorf reached without it. Consistent with the
Sage|Kotter operating agreement, the member services agreement provided for
"voluntary termination" by Kotter. Because the exceptionally "one-sided business
agreement" already allowed Kotter to unilaterally dissolve the LLC and revoke
any license to his intellectual property, the trial court concluded that there was no
reasonable likelihood that production of the written member services agreement
before arbitration would have caused a different result: "The Arbitration was
procedurally fair and the documents later disclosed would not reasonably have
changed the outcome."
Because the essential factual basis of the constructive trust claim was
resolved against Worman in the arbitration, Van Alstine was in privity with
Worman, and the arbitration was procedurally fair, the trial court did not err in
concluding that collateral estoppel barred Sage Group's constructive trust claims.
-16- NO. 71405-8-1/17
Constructive Trust and Successor Liability
Nor did the trial court err by denying Sage Group's motion for summary
judgment for constructive trust and successor liability. "A constructive trust is an
equitable remedy which arises when the person holding title to property has an
equitable duty to convey it to another on the grounds that they would be unjustly
enriched if permitted to retain it."17 Where a fiduciary transfers property subject
to a constructive trust, the transferee holds the property subject to a constructive
trust unless the transferee is a bona fide purchaser who paid valuable
consideration and took without notice of the transferor's violation of duty.18 A
party requesting the imposition of a constructive trust must show the trust arose
from the relationship of the parties involved and that the property justly belongs
to that party.19
Sage Group argues that because the Kotters dissolved and transferred
the assets of Sage|Kotter, the arbitrator was unable to impose a constructive
trust and thus "unable to award a complete remedy for Green's breach." And
because the Kotters and Kotter International acquired Green's 38 percent
ownership interest "without consideration and with notice of the Wormans'
pending claims," Sage Group contends, "[they] took it subject to a constructive
17 City of Lakewood v. Pierce County. 144 Wn.2d 118, 126, 30 P.3d 446 (2001). 18 Hesthaoen v. Harbv. 78 Wn.2d 934, 945-46, 481 P.2d 438 (1971). 19 City of Lakewood, 144 Wn.2d at 129. -17- NO. 71405-8-1/18
trust as a matter of law," from which Sage Group is entitled to "a complete
remedy for Green's fiduciary breaches."
Sage Group does not show any entitlement to a constructive trust. First,
Sage Group does not establish that the Kotters owed them any duty. It was
Green who owed and breached fiduciary duties to Worman and Van Alstine, and
their interest in Sage|Kotter was limited to his interest. Second, because of the
Kotters' extraordinary authority under the LLC agreement, Green's 38 percent
ownership interest had little or no value, and the Kotters did nothing improper by
exercising their authority to dissolve Sage|Kotter. Therefore, the Kotters were
not unjustly enriched by the termination of Sage|Kotter so as to justify the
imposition of a constructive trust. Finally, Sage Group had no relationship with
the Kotters and cannot show that any Kotter property rightfully belongs to them.
Sage Group cites no authority supporting its claim that a court properly
imposes a constructive trust over property that has no value. As the arbitrator
noted, the Kotters did not "transfer" any continuing business interest of Green's.
Rather, they terminated and liquidated his interest in consideration of $150,000
they paid "in settlement of any and all possible interests, claims, differences or
disputes between the Greens and the Kotter Parties, of any kind or nature," plus
a liquidated distribution of Sage|Kotter assets proportionate to Green's interest.
Both the arbitrator and the trial court found that because of the remarkable
-18- NO. 71405-8-1/19
degree of power Kotter maintained over the company and the one-sided nature
of the operating agreement, Green's interest remained "nominal" in value and
"terminable at will," and that the Kotters did in fact terminate it. Judge Alsdorf
concluded that under the facts of this case, no property rightfully belonging to
Sage Group existed over which to impose a constructive trust:
Had Sage|Kotter continued to exist, or had it been established that Sage|Kotter was to be recreated and Mr. Green restored to ownership, a continuing or constructive trust could have been imposed on any present and/or future interest as requested. As it was, however, the final preponderance of the evidence was not only that the Kotters themselves had divested Mr. Green of his own interest in Sage|Kotter but also that the parties' jointly hoped-for valuable business opportunity had always been more illusory than real.
Worman and Van Alstine were not co-members of Sage|Kotter to whom
Kotter owed a fiduciary duty in terminating the LLC. Nor were they judgment
creditors whose claims Kotter deliberately avoided in conveying the assets of
Sage|Kotter to Kotter Associates Inc. Green's compensation and benefits from
the business opportunity, settlement payment, and liquidated distributions were
the only property to which Worman and Van Alstine had a claim, and they
received the value of that property at arbitration and in settlement. No property
of Green's remained by which the Kotters could be unjustly enriched. Therefore,
the Sage Group identified no Kotter property over which a court could reasonably
impose a constructive trust. Green, the only possible claimant to the Sage|Kotter
-19- NO. 71405-8-1/20
assets under the LLC agreement, accepted a settlement that the Sage Group did
not challenge.20
For the same reason, Sage Group's successor liability claim also fails.
Generally, a corporation that purchases the assets of another corporation does
not assume the debts and liabilities of the selling corporation.21 However, to
protect the rights of creditors and minority shareholders, Washington law
recognizes four "narrow exceptions" to the general rule: (1) the purchaser
agrees to assume liability, (2) the purchase is a de facto merger or consolidation,
(3) the purchaser is a "mere continuation" of the seller, or (4) the transfer of
assets is for the fraudulent purpose of escaping liability.22
Sage Group argues that the third exception applies here, alleging that
Kotter International is a "mere continuation" of Sage|Kotter and should not
escape liability for Green's 38 percent interest. But the settlement and mutual
release liquidated and terminated Green's interest, whether identified in specie or
in dollars. Sage Group could and did rightfully assert claims against the property
Green received at dissolution, but Kotter International assumed no liability based
on those claims. The trial court did not err by denying Sage Group's motions for
summary judgment on constructive trust and successor liability.
20 The Kotters argue, "If anything, Green is the one who was unjustly enriched," and Worman and Van Alstine benefited from his unjust enrichment. 21 Martin v. Abbott Labs., 102 Wn.2d 581, 609, 689 P.2d 368 (1984). 22 Martin, 102 Wn.2d at 609. -20- NO. 71405-8-1/21
CONCLUSION
Because collateral estoppel bars Sage Group's constructive trust claims
and the trial court correctly denied Sage Group's motions for summary judgment
and successor liability, we affirm.
WE CONCUR:
| ^\f / -^ ^ ^T
-21-