Washington State Bank v. Medalia Healthcare L.L.C.

984 P.2d 1041, 96 Wash. App. 547
Court of Appeals of Washington·Decided July 12, 1999·No. No. 41263-9-I·Published·Cited by 36 cases

Opinion

Webster, J.

Respondent Washington State Bank filed a conversion action in King County against Appellant Meda-lia Healthcare, L.L.C., to recover the monetary value of secured collateral that Dr. Thomas Shelton, the borrower, sold to Medalia subsequent to the Bank’s secured interest. The King County Superior Court granted the Bank’s motion for a voluntary dismissal. Medalia appeals the King County Superior Court’s order denying Medalia’s motion for an award of attorney fees pursuant to RCW 4.84.330 or RCW 4.84.185.

The day after the King County action was dismissed, the Bank filed a similar conversion action in Pierce County. After ruling that it had subject matter jurisdiction, the Pierce County Superior Court granted the Bank’s partial motion [549] for summary judgment on liability. Medalia stipulated to damages and appeals Pierce County’s rulings concerning jurisdiction and liability on the conversion claim.

This consolidated appeal presents four issues: (1) did Pierce County have subject matter jurisdiction over the Bank’s conversion claim for monetary damages where the personal property allegedly converted was in King County; (2) did Medalia convert the collateral it purchased from Shelton; (3) is Medalia entitled to an award of attorney fees under RCW 4.84.330; and (4) is Medalia entitled to an award of attorney fees under RCW 4.84.185? We hold that: (1) Pierce County had subject matter jurisdiction because a conversion action for monetary recovery is transitory in nature and not subject to RCW 4.12.010 requirements; (2) Medalia committed conversion not by simply purchasing the encumbered collateral but by interfering with the Bank’s right to possession; (3) Medalia is not entitled to attorney fees under RCW 4.84.330 because conversion is not an action on a contract; and (4) Medalia is not entitled to attorney fees under RCW 4.84.185 because the Bank’s conversion action was not frivolous. Therefore, we affirm all rulings below.

BACKGROUND

A. Events Giving Rise to the Parties’ Dispute

In March 1994, the Bank loaned $150,000 to Dr. Thomas Shelton. Shelton gave the Bank a promissory note and a security interest in all the accounts, contract rights, equipment and general intangibles of his practice. The Bank filed a UCC-1 Financing Statement with the Washington State Department of Licensing on March 28, 1994. The security agreement prohibits Shelton from selling the collateral and requires that proceeds in the event of a sale be immediately delivered to the Bank. An unauthorized sale is a default by the debtor. The promissory note given to the Bank by Shelton provides that Shelton will pay attorney fees and legal expenses related to the Bank’s collection in [550] the event of default. The security agreement between the Bank and Shelton provides that Shelton will pay for the Bank’s attorney fees and legal expenses incurred in connection with enforcement of the agreement.

In October 1995, Shelton sold his practice to Medalia. Medalia paid Shelton $1,000 for supplies, $30,194 for furniture and equipment, and $24,498 for intangibles, for a total of $55,692. Medalia failed to conduct a UCC lien search and was unaware that the Bank had a prior security interest in the property. The Bank was not notified that Shelton sold the practice to Medalia.

The bank declared Shelton’s loan in default on September 18, 1996. The Bank and Medalia learned about each other’s interests in the property in October 1996 when Shelton filed a Chapter 13 bankruptcy petition.

B. Correspondence Between the Parties

A series of written correspondence, and apparently some telephone conversations, occurred between the parties involved. The Bank first presented a copy of its financing statement to Medalia on December 6, 1996. On January 13, 1997, a letter from the Bank sets out its conversion argument and requests Medalia to “reconsider its position,” an apparent reference to a prior telephone conversation. The Bank’s letter of January 28, 1997, rejects Meda-lia’s apparent offer to purchase the Bank’s interest for $10,000 but also indicates a willingness to negotiate. Meda-lia’s letter of January 28, 1997, states its position that the Bank has no conversion claim. The Bank’s letter of February 11, 1997, again sets out its conversion argument and claims that it is entitled to $55,692, the amount Medalia paid Shelton for the practice. On February 12, 1997, Meda-lia acknowledges the Bank’s perfected security interest in the tangible assets but asserts that the collateral is “in the possession of a Chapter 13 debtor under the U.S. Bankruptcy Code, 11 U.S.C. § 101, et seq.” and raises the prohibitions on creditor actions under 11 U.S.C. § 362 and 18 U.S.C. §§ 152 and 157 as reasons for not turning the collateral over to the Bank. King County Clerk’s Papers (KCP) [551] at 55. Noting that the Bank has twice rejected Medalia’s offer (presumably for $10,000), Medalia states that it is not interested in further negotiation. On February 24, 1997, another letter from Medalia’s counsel states that “Medalia has consistently acknowledged the Bank’s prior security interest and offered to pay fair market value for that interest to obviate the need for stay relief and other expenses.” Pierce County Clerk’s Papers (PCP) at 195. The letter adds: “If the [bankruptcy] stay is lifted, I assume that you will first attempt to coordinate with Dr. Shelton and Medalia to pick up the collateral for liquidation before filing an unnecessary (and frivolous) lawsuit.” PCP at 195. After obtaining relief from the bankruptcy stay, the Bank’s letter of March 21, 1997, sent to whom we assume is Shelton’s counsel,1 states:

Washington State Bank herewith makes demand on Thomas Shelton for possession of the collateral subject of that Commercial Security Agreement dated March 24, 1994, to include the equipment, accounts, and general intangibles of his medical practice. Dr. Shelton is instructed to assemble the collateral and make it available to representatives of the bank no later than 5 p.m., Monday, March 24, 1997 ....

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Washington State Bank v. Medalia Healthcare L.L.C., 984 P.2d 1041, 96 Wash. App. 547 (Wash. Ct. App. 1999).

984 P.2d 1041 (Washington State Bank v. Medalia Healthcare L.L.C.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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