Per & Melody Westerdal v. Name Intelligence, Inc. , 195 Wash. App. 170 ( 2016 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
RAYMOND BERO, an individual, ) No. 73434-2-I
)
Plaintiff, ) (Consolidated with
) No. 73536-5-I) ~
v. ) c... ~
) DIVISION ONE r—
NAME INTELLIGENCE, INC., a )
Washington corporation; JAY )
WESTERDAL, an individual; ) E~f ~
WESTERDALCORP LLC a ) PUBLISHED OPINION
Washington limited liability company, )
)
Respondents, )
) FILED: July 25, 2016
PER WESTERDAL and MELODY )
WESTERDAL, individually and the )
marital community composed thereof, )
)
Appellants, )
)
JOHN AND JANE DOES 1-30, )
)
Defendants. )
_________________________________________________________________________________ )
LEAcH, J. — Per and Melody Westerdal appeal the trial court’s order
terminating this receivership proceeding. They contend that the trial court should
have first either disallowed or adjudicated their claim to 25 percent of a valuable
receivership asset. Because the receivership had fulfilled its purpose and the
trial court reasonably determined it would be wasteful and unnecessary to
continue it, the trial court did not abuse its discretion terminating it. We affirm.
No. 73434-2-I (consol. with
No. 73536-5-I) I 2
FACTS
Jay Westerdal owns Name Intelligence Inc., a company that buys and
sells Internet domain names. Raymond Bero, a former employee, sued Jay1 and
his companies, Name Intelligence and Westerdalcorp LLC. The parties settled in
2012.2 As part of the settlement, Jay gave Bero a promissory note for $2.5
million. Jay’s parents, Per and Melody, guaranteed Jay’s debt to Bero up to
$200,000. The next year, Bero sued Jay again, for breach of the settlement
agreement. He alleged that Jay defaulted on his payments and attempted to sell
domain names that Bero had an interest in. The trial court eventually entered a
$1 .4 million judgment against Jay.
Jay did not pay the judgment. At Bero’s request, in August 2014, the trial
court placed Jay’s companies and certain real and personal property in
receivership. The primary purpose of the receivership was to protect Bero’s
security interests in Jay’s assets. Later, in December 2014, Jay satisfied Bero’s
judgment against him.
1 For clarity, Jay and his parents, Per and Melody, are referred to by their
first names.
2 Although Bero named Jay’s parents, Per and Melody Westerdal, in the
complaint, they were later dismissed.
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Also during the receivership, Per and Melody asserted a $350,000
secured claim, which included their guaranty payment to Bero and other loans.
Jay paid Per and Melody this amount in full in December 2014.
Meanwhile, Jay had a brokerage agreement, made before the
receivership, with Breathe Luxury Limited to auction off a high-priced domain
name, “holiday.com.” Jay and Breathe Luxury disagreed about how Breathe
Luxury would conduct the auction. Jay wrote Breathe Luxury in November 2015,
two days before the scheduled auction. His letter accused Breathe Luxury of
breaching the brokerage agreement and declared the auction off. Breathe
Luxury proceeded with the auction but did not receive a bid that met the reserve
price.
In December 2014, after Jay had paid his secured debts to his parents
and Bero, Per and Melody asserted an unsecured claim to 25 percent of
holiday.com’s eventual sale price.3 The trial court denied without prejudice Per
and Melody’s motion to allow this claim. At a March 2015 hearing, the trial court
determined that it did not need to decide this claim as part of the receivership, as
the claim was not within the scope of the initial order and Per and Melody could
assert it in a separate lawsuit. The trial court terminated the receivership.
~ They also claimed that Jay owed them several other debts; altogether,
they claimed over $1.6 million, $957,825 of it for holiday.com.
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Per and Melody appeal the trial court’s orders terminating the receivership
and denying their motion for reconsideration.
ANALYSIS
Trial Court’s Authority To Terminate Receivership
The parties disagree about how and whether chapter 7.60 RCW limits the
trial court’s ability to terminate a receivership. How much discretion chapter 7.60
RCW gives the trial court presents a question of statutory interpretation that this
court reviews de novo.4
This court interprets a statute primarily “to ascertain and give effect to the
intent of the legislature.”5 It begins “with the statute’s plain language and
ordinary meaning.”6 “Where the legislature has not defined a term, we may look
to related statutes and dictionary definitions, as well as the statute’s context, to
determine the plain meaning of the term.”7
Chapter 7.60 RCW gives the trial court broad discretion over
receiverships.8 For instance, the power to appoint a receiver is discretionary.9
~ Bostain v. Food Express, Inc., 159 Wash. 2d 700, 708, 153 P.3d 846
(2007).
~ Cornu—Labat v. Hosp. Dist. No. 2, 177 Wash. 2d 221, 231-32, 298 P.3d 741
(2013).
6 Nat’l Elec. Contractors Ass’n v. Riveland, 138 Wash. 2d 9, 19, 978 P.2d 481
(1999).
~ Buchheit v. Geicjer, 192 Wash. App. 691, 696, 368 P.3d 509 (2016).
8 See, e.g., RCW 7.60.055; 18 WILLIAM B. STOEBUCK & JOHN W. WEAvER,
WAsHINGToN PRAcTIcE: REAL ESTATE: TRANsAcTIoNs § 18.6, at 310 (2d ed. 2004).
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The trial court appoints a receiver “as the court’s agent, and subject to the court’s
direction, to take possession of, manage, or dispose of property of a person.”1°
A general receiver thus has broad powers to manage the receivership property,
liquidate assets, and satisfy creditors.11
Because receiverships are an “extraordinary remedy,” Washington courts
employ them with caution.12 Except in certain narrow, inapplicable
circumstances, the trial court may appoint a receiver only when it finds that a
receivership “is reasonably necessary and that other available remedies either
are not available or are inadequate.”13 Accordingly, Washington courts have long
recognized that a receivership should terminate “as soon as practicable after its
~ MONY Life Ins. Co. v. Cissne Family L.L.C., 135 Wash. App. 948, 952-53,
148 P.3d 1065 (2006).
10 RCW 7.60.005(10).
11 RCW 7.60.015. The statute defines “general receiver” as one
“appointed to take possession and control of all or substantially all of a person’s
property with authority to liquidate that property and, in the case of a business
over which the receiver is appointed, wind up affairs.”
12 Gahagan v. Wisner, 139 Wash. 664, 667, 247 P. 965 (1926); King
County Dep’t of Cmty. & Human Servs. v. Nw. Defs. Ass’n, 118 Wash. App. 117,
127, 75 P.3d 583 (2003) (“A court acting in equity must act with restraint.”); RCW
7.60.025(1).
13 RCW 7.60.025(1); Nw. Defs. Ass’n, 118 Wash. App. at 126. Those
narrow circumstances are where a statute requires a receiver, a state agent
seeks a receiver, or a party seeks a receivership with respect to real property
under RCW 7.60.025(1)(b)(ii).
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purposes have been accomplished.”14 “[A] receivership is merely ancillary to the
main cause of action; it is not an independent remedy.”15
Per and Melody do not contend that the statutory section on termination
limits the trial court’s ability to terminate a receivership. Indeed, this argument
would fail under the statute’s plain language. RCW 7.60.290(5) gives the trial
court the “power to” terminate the receivership: “Upon motion of any party in
interest, or upon the court’s own motion, the court has the power to discharge the
receiver and terminate the court’s administration of the property over which the
receiver was appointed.” By its terms, the section imposes no limit on the trial
court’s power to terminate the receivership.16 And the term “power to” itself,
without any mandatory or limiting language, implies a broad grant of discretion.17
14 Boothe v. Summit Coal Mining Co., 63 Wash. 630, 634, 116 P. 269
(1911) (quoting 34 CYcL0PEDIAOF LAwAND PROCEDURE 310 (1910)).
15 Nw. Defs. Ass’n, 118 Wash. App. at 127-28.
16 The rest of the subsection provides,
If the court determines that the appointment of the receiver was
wrongfully procured or procured in bad faith, the court may
assess against the person who procured the receiver’s
appointment (a) all of the receiver’s fees and other costs of the
receivership and (b) any other sanctions the court determines to
be appropriate.
Contrary to Per and Melody’s suggestion, that sentence plainly applies only when
the trial court determines a party wrongfully procured the appointment—which no
one contends was the case here—and even then it confers a discretionary power
on the trial court.
17 Black’s Law Dictionary defines “power” as “[t]he ability to act or not act.”
BLACK’S LAW DICTIONARY 1358 (10th ed. 2014).
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Despite the plain language of RCW 7.60.290(5), Per and Melody argue
that other sections of the receivership statute limit the trial court’s power. In
particular, they claim that RCW 7.60.220(1) prohibits the trial court from
terminating a receivership until all properly served claims have either been
satisfied or affirmatively disallowed. This subsection states that “[c}Iaims properly
served upon the general receiver and not disallowed by the court are entitled to
share in distributions from the estate in accordance with the priorities provided for
by this chapter or otherwise by law.” Because they properly served their claim
and the trial court did not disallow it, Per and Melody argue, they were “entitled
to share in distributions from” the receivership assets. They contend they have a
“statutorily vested right” that is terminable only when the court disallows their
claim.
As with RCW 7.60.290(5), no court appears to have interpreted RCW
7.60.220(1). As neither the statute nor case law defines “entitle,” a court looks
“to extrinsic aids, such as dictionaries, to find the word’s ordinary meaning.”18
Black’s Law Dictionary defines “entitle” as “[t]o grant a legal right to or qualify
for.”19 Per and Melody claim that the legislature intended to give claimants a
Dep’t of Labor & Indus. v. Kantor, 94 Wash. App. 764, 775, 973 P.2d 30
18
(1999) (interpreting “entitled” in Industrial Insurance Act, Title 51 RCW).
19 BLAcK’s, at 649. Webster’s Third New International Dictionary 758
(2002) defines it similarly.
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“vested right” to distributions, provided the claimants properly served their claim
and the trial court did not disallow it.2° Under this interpretation, properly serving
a claim that is not then disallowed would be both necessary and sufficient to
receive a distribution.
Per and Melody’s proposed interpretation mandates distributions from
receivership assets for every properly served claim the court does not disallow.
This proposed interpretation conflicts with RCW 7.60.230, which states that the
trial court must allow a claim before the receiver’s duty to distribute to the creditor
becomes mandatory.21 It also conflicts with the receiver’s discretionary powers
of distribution.
We think a different interpretation is more practical and more consistent
with the broad authority given to a general receiver to manage receivership
property.22 A claimant who becomes “entitled” by properly serving a claim, which
the trial court does not then disallow, has taken steps necessary to qualify for,
but not sufficient to receive, a distribution. This interpretation preserves the
discretion of the trial court to manage the duration of the extraordinary remedy of
20They contend, “Structured as it is, RCW 7.60.220(1) permits objections
then requires that they be sustained.”
21 RCW 7.60.230(1) provides, “Allowed claims in a general receivership
shall receive distribution under this chapter in the order of priority under (a)
through (h) of this subsection.” (Emphasis added.)
22 RCW 7.60.015.
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receivership and to take into account such practical considerations as the
ongoing cost of continuing it. This latter interpretation is consistent with the
statutory scheme for receiverships, which gives the court broad discretion and
provides a general receiver with broad authority to manage receivership
property.23
In sum, because RCW 7.60.290(5) contains no language limiting the
power it grants a trial court to terminate a receivership, the statute gives the trial
court discretion when to terminate a receivership. This broad discretion
comports with the policy of treating receiverships as an exceptional remedy.24 It
is also consistent with the law in other jurisdictions, as it appears that every
jurisdiction to address the issue has left the decision to terminate a receivership
to the trial court’s sound discretion.25 If the legislature intended chapter 7.60
RCW to mandate a trial court to decide all claims brought during a general
receivership before terminating it, the legislature easily could have done so.
23 RCW7.60.015.
24 See Gahagan, 139 Wash. at 667; RCW 7.60.025(1).
25 See, e.g., Hill v. Hill, 460 S.W.3d 751, 763 (Tex. App. 2015), review
denied, No. 15-0327 (Tex. Aug. 14, 2015); Fifth Third Bank v. Dayton Lodge,
LLC, Ohio App. 3d —, 2013-Ohio-5755, 6 N.E.3d 638, at ~ 52; Singer v.
Goff, 334 Mich. 163, 167, 54 N.W.2d 290 (1952); United States v. Amodeo, 44
F.3d 141, 146 (2d Cir. 1995); Sec. & Exch. Comm’n v. An-Car Oil Co., 604 F.2d
114, 119 (1st Cir. 1979); see also 13 AM. JUR. 2d Business Trusts § 90 (2009)
(“The termination of a receivership also lies within the judicial discretion of the
court, in the exercise of which the court will consider the rights and interests of all
parties concerned.”).
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Trial Court’s Use of Discretion To Terminate Westerdal Receivership
Per and Melody contend that the trial court disregarded its prior order,
misunderstood its statutory duties and authority, and erroneously thought that
keeping the receivership would add unnecessary complexity and waste
resources while terminating it would not prejudice Per and Melody. In short, Per
and Melody assert that the trial court abused its discretion in terminating the
receivership.
Per and Melody contend that the trial court’s own receivership order
limited its discretion to terminate the receivership.26 Per and Melody cite no
authority for the proposition that a trial court’s own order can limit its statutory
authority. Generally, this court will not consider arguments without supporting
legal authority.27 But we do not need to decide this question of law because, as
discussed below, the trial court did comply with its prior order.
But we note that the trial court has inherent authority to interpret and
enforce its order.28 And because a receivership is an equitable remedy and the
26Paragraph 2.52 provided that receiverships “shall terminate only upon
payment in full of all amounts due the Receiver and satisfaction in full of all
amounts due under the [Bero] Judgment.”
27 RAP 10.3(a)(6); MONY Life Ins. Co., 135 Wash. App. at 954.
28 See Allen v. Am. Land Research, 95 Wash. 2d 841, 852, 631 P.2d 930
(1981) (“The superior court’s inherent authority to enforce orders and fashion
judgments is not dependent on the statutory grant.”).
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receiver serves at the direction of the trial court,29 the court retains the authority
to modify the order appointing the receiver in light of changed circumstances.3°
Per and Melody offer no reason why the trial court could not change its mind if its
later decision conflicted with its original order.
Per and Melody argue the trial court erroneously treated paragraph 2.52
as requiring, rather than permitting, the trial court to terminate the receivership on
fulfillment of certain conditions. But nothing in the trial court’s memorandum on
its order indicates that it thought paragraph 2.52 required it to terminate the
receivership.31 It viewed paragraph 2.52 the same way Per and Melody do, as
only permitting termination once the purpose of paying “all amounts due under
the [Bero] Judgment” was satisfied. The trial court determined the judgment had
been satisfied. It did not terminate the receivership because it thought it had to.
It terminated the receivership because it knew it could and determined that it had
29 MONY Life Ins. Co., 135 Wash. App. at 953; RCW 7.60.005(10).
~° See State ex rel. Bradford v. Stubblefield, 36 Wash. 2d 664, 674, 220 P.2d
305 (1950) (“[A] court of equity has inherent power to modify or vacate a
permanent preventive injunction where a change in circumstances demonstrates
that the continuance of the injunction would be unjust or inequitable or no longer
necessary.”).
31 The court said, “While one could parse the language of the court’s July
2014 order. to argue that this does not mandate the termination ‘upon
. .
payment in full,’ the point of the receivership, set out in Bero’s motion last July,
was for the purpose set out in paragraph 2.52 .That condition has been met.”
. . .
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good reason to—specifically, the complexity of the issues Per and Melody raised
and the ongoing cost of continuing the receivership.
Per and Melody challenge both these premises. They dispute that the
purpose of the receivership was satisfied. They assert that their claim should
have been subrogated to Bero’s and thus that “all amounts due under the
Judgment” were not fully satisfied before termination as paragraph 2.52 required.
Under the settlement agreement, Per and Melody guaranteed Jay’s debts to
Bero up to $200,000.00. Jay then defaulted on his debt to Bero, triggering Per
and Melody’s liability. Per and Melody now contend that they “had the right to
step into Bero’s shoes” because Jay owes them the portion of his liability to Bero
that Per and Melody “satisfied via the Guaranty.” But Jay repaid that money to
Per and Melody. Jay gave his mother a check for $359,028.65 on December 3,
2014, in full satisfaction of the guaranty payment and other loans. Per and
Melody acknowledge the payment. Still, Per and Melody claim that Jay’s liability
to them under the guaranty means the “requirement that ‘all amounts due under
the Judgment’ be fully satisfied was not met.” This misrepresents the record.
Per and Melody’s claim to 25 percent ownership in holiday.com is completely
separate from Jay’s liability under the guaranty.
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Per and Melody further contend the trial court ignored its statutory
authority in terminating the receivership without addressing their claim. They
assert that because RCW 7.60.055 gives the trial court exclusive jurisdiction over
all property “with respect to which the receiver is appointed,” the trial court must
adjudicate their claim within the receivership, since they could not bring it
elsewhere during the receivership. But they do not explain why, with the
receivership terminated, they cannot now bring their claim as a separate lawsuit
in an appropriate court.
Per and Melody also contend that the trial court disregarded RCW
7.60.220(3), which allows the court to estimate an unhiquidated claim when
liquidation would “unduly delay the administration” of the receivership. Per and
Melody contend the trial court should have at least considered estimation to
eliminate the complexity of Per and Melody’s claim. They offer no authority,
however, that would require the trial court to estimate a claim when the claim is
outside the purpose of the receivership and that purpose has already been
fulfilled.
Thus, Per and Melody are wrong that the trial court misinterpreted its prior
order.
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Per and Melody also challenge the trial court’s reasons for terminating the
receivership, even if its purpose was satisfied. Contrary to the trial court, they
contend that keeping the receiver would not add unnecessary complexity and
waste resources and that ending the receivership would prejudice them.
We review the trial court’s decision to terminate for an abuse of discretion.
The trial court’s reasoning with respect to complexity and waste is persuasive;
Per and Melody’s is not. The trial court cited the receivership’s cost: $6,000 per
month for the receiver, with attorney fees of $525 per hour. The receiver would
also take a one percent commission from a sale of holiday.com. Per and
Melody’s response to these costs is, in short, that the parties could stop paying
the receiver.
Per and Melody also assert that resolving their claim within the
receivership would have several practical advantages: the trial court had Per
and Melody’s claim and Jay’s response in front of it; it controlled assets that were
central to the dispute under RCW 7.60.055(1); “[t]he Receiver was on hand,
serving as an arm of the court”; and the trial court could estimate Per and
Melody’s claim under RCW 7.60.220(3). This court does not need to speculate
about how much these perceived conveniences would actually benefit Per and
Melody. The trial court could reasonably decide that other procedural obstacles
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under the receivership statute counter these advantages: Jay has reserved the
argument that the claim was time barred under RCW 7.60.210, to which Per and
Melody’s only defense is their unsupported statement that notice of the
receivership went to the wrong address. And, under RCW 7.60.220(2), Per and
Melody would still have to mediate the claim, which Jay requested, but Per and
Melody have apparently refused to do.32
The trial court could also reasonably find unpersuasive Per and Melody’s
assertions that the termination of the receivership prejudices them. They point to
three advantages that they contend the receivership statute offers them: that
their claim was “deemed allowed absent affirmative disallowance by the trial
court”; that the statute allows the trial court to estimate their claim, allowing for
reductions in time and expense; and that RCW 7.60.210(4) provides a
presumption that Per and Melody’s claim was valid.33 But these “protections”
would not help resolve Per and Melody’s claim. For instance, Per and Melody’s
argument based on the claim estimation provision, RCW 7.60.220(3), is circular.
The purpose of that provision is to avoid “unduly delay[ing] the administration of
32 “Upon the request of. any party in interest objecting to the creditor’s
. .
claim, .. an objection is subject to mediation prior to adjudication of the
.
objection.” RCW 7.60.220(2).
~ Per and Melody contend Jay’s objections fail to rebut the presumption in
RCW 7.60.210(4). The parties dispute whether Jay caused holiday.com not to
sell. Jay says it did not sell because it failed to meet minimum bid, but Per and
Melody say it was because Jay interfered.
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the case” by having to adjudicate unliquidated and potentially complex claims
during the receivership. Per and Melody cannot then use this provision to justify
prolonc~inq the receivership for a claim that is unrelated to the case being
administered. Whether or not the receiver estimates Per and Melody’s claim to
25 percent of holiday.com, that claim is unsecured and contested; they would still
need discovery and trial to prove it.34
Further, the receivership had substantial assets. The trial court could
reasonably conclude that ending the receivership would not impair Per and
Melody’s ability to recover. Per and Melody claimed $1.6 million for 25 percent of
holiday.com and assorted other debts. The receivership assets totaled over $34
million when it was terminated. Since a receivership’s primary purpose is to
protect the debtor’s assets for creditors,35 it has less utility when, as here, the
debtor does not appear in danger of becoming insolvent. Had the receivership
continued, the receiver would have none of the usual tasks of a receiver, such as
managing assets, paying bills, or winding up companies; the receiver would have
controlled those assets only while waiting for the parties to resolve an unrelated
claim.
~‘ The trial court and receiver each acknowledged this.
35 See 65 AM. JUR. 2d Receivers § 182 (2011).
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Finally, Per and Melody claim that the trial court’s manner of interpretation
invites abuse by ignoring serious allegations about Jay’s misconduct that
prejudice creditors. They contend that when there are serious allegations a
debtor has engaged in inequitable and unlawful conduct that affected a
receivership, it is improper to “reward” the debtor with dismissal of the case to his
benefit and at the expense of creditors. But as discussed above, the
receivership’s purpose was to ensure satisfaction of Bero’s judgment for breach
of his settlement agreement with Jay. The receivership was ancillary to Bero’s
cause of action.36 Whatever advantages the receivership may offer them, Per
and Melody do not explain why the trial court could not reasonably decide that a
separate lawsuit would provide a more appropriate setting for their claim.
The trial court here properly exercised its powers over the receiver: the
receiver fulfilled the receivership’s initial purpose, and the trial court reasonably
determined that continuation of the receivership would be wasteful and
inefficient. Per and Melody cite no authority that would warrant reversal of a trial
court’s termination of a receivership because not all creditor claims are resolved.
Because the receivership’s purpose was satisfied once the Bero judgment was
paid in full and Per and Melody’s guaranty satisfied, the trial court did not abuse
its discretion in terminating it.
36 See Nw. Defs. Ass’n, 118 Wash. App. at 127-28.
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CONCLUSION
Because the trial court had discretion to terminate the receivership and did
not abuse that discretion, we affirm.
WE CONCUR:
A ~PC~f``)1
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