Gregory H. Kirsch v. Cranberry Financial, Llc ( 2013 )

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COURT Of APPEALS blv, i
STATE OF V157 Wn. App. 777, 785, 239 P.3d 1109(2010).
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that argument is moot because the note ceased being the basis for collection of
the obligation when the sums were accelerated.
Cranberry argued both at the summary judgment hearing and in its opposition
briefing that the annual installment payments for the years 2006 to present were not
barred under RCW 4.16.040 because the statute of limitations runs separately against
each installment at the time it becomes due.8 The court granted in part and denied in
part Kirsch's motion. The court ruled that the annual installment payments under the
note for the years 2001 to 2005 were barred by RCW 4.16.040's six-year statute of
limitations. But the court also ruled that RCW 4.16.040 did not bar enforcement of
installment payments under the note for the years 2006 to present. Accordingly, the
court denied Kirsch's quiet title claim.
Kirsch moved for reconsideration, again arguing the Note was accelerated.
Cranberry argued in opposition that the note's acceleration clause was permissive and
no evidence indicated that Cranberry or its predecessors ever exercised the
acceleration option. After oral argument, the court denied Kirsch's motion, concluding
that the note's acceleration clause was permissive and Cranberry had not accelerated
the debt under the clause. In its oral ruling, the court indicated:
I think that the initial lawsuit did not effectively accelerate the note, because the
lawsuit was dismissed and not pursued. . .. [S]ince it has not been accelerated,
then the Court is willing to determine that any payments that have not, that are
not more than six years past due are still part of this lawsuit.
RP (Aug. 27, 2012) at 12.
8Cranberry conceded that the annual installment payments due under the note
for the years 2001-2005 were barred under RCW 4.16.040's six-year statute of
limitations.
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In January 2013, Cranberry moved for summary judgment against Kirsch
requesting (1) judgment against Kirsch on the breach of guaranty counterclaim, (2) a
determination that Cranberry's deed of trust is enforceable, and (3) dismissal of Kirsch's
claims as moot. Kirsch opposed the motion and "renew[ed] [his] prior motion for
summary judgment based on the statute of limitation, equitable estoppel, and laches."
Kirsch argued, "Acceleration of the debt on or prior to the 2004 lawsuit caused the
cause of action for the entire balance to accrue, and bars the present collections suit."
Kirsch submitted a "second declaration" supporting his argument. He described
Channel's default and explained it resulted in acceleration of the SBA loan:
13. The economic disaster, the SBA's improper conduct, and a complete lack of
working capital caused Channel Marine to miss the February of 2000 annual
loan payment. The SBA responded to the missed payment by declaring the
loan delinquent and accelerating the debt in April of 2001 in accordance with
the terms of the Note.
14. Extensive correspondence between the parties, both before and after
acceleration, discussed the reasons for the default, and outlined Channel
Marine's claims against the SBA. The correspondence included demands by
the SBA for immediate payment of the entire balance.
21. I also received a "demand" letter from fSBA successor] Capital Crossing in
which it stated that the debt had been accelerated and the entire amount,
including principal and interest, was immediately due.
22. In 2004 Capital Crossing, consistent with its demand letter, sued Channel
Marine, my wife and I, and others. . . . In the complaint Capital again alleged
that it had elected to accelerate the note and "to declare the entire principal
sum and all accrued interest on the Note due and payable."
27. We engaged in discovery, litigated, and discussed the issues from before the
filing in August of 2004 until Capital Crossing chose not to pursue the
collection in about 2005. Counsel for Capital Crossing withdrew in February
of 2008. Counsel for Channel Marine also withdrew. A dismissal for want of
prosecution was entered in April of 2009.
28. I relied on the decision by Capital Crossing to abandon its claims. My
records related to the SBA loan and the litigation, were no longer of
importance and were discarded or lost. Witnesses would not be very difficult
or impossible to locate, and memories (including mine) have certainly
dimmed with time.
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(Emphasis added.)
Cranberry moved unsuccessfully to strike Kirsch's second declaration as
untimely and irrelevant. The trial court considered Kirsch's second declaration. The
court granted Cranberry's summary judgment motion in all respects, entered judgment
against Kirsch for $785,900.42, plus costs and expenses, and dismissed Kirsch's claims
as moot. Kirsch appeals.
ANALYSIS
Standard of Review
We review summary judgment de novo and consider the facts and all reasonable
inferences in the light most favorable to the nonmoving party. Hearst Commc'ns, Inc. v.
Seattle Times Co.. 154 Wn.2d 493, 501, 115 P.3d 262 (2005). Summary judgment is
appropriate only if there is no genuine issue as to any material fact and the moving
party is entitled to judgment as a matter of law. Bulman v. Safeway, Inc., 144 Wn.2d
335, 351, 27 P.3d 1172 (2001). The nonmoving party cannot rely solely on the
allegations in his or her pleadings, on speculation, or on argumentative assertions that
unresolved factual issues remain. White v. State, 131 Wn.2d 1, 9, 929 P.2d 396 (1997).
Such assertions must be supported by evidence. Meyer v. Univ. of Wash., 105 Wn.2d
847, 852, 719 P.2d 98 (1986).
Statute of Limitations
Kirsch contends that, at the latest, Cranberry or its predecessors accelerated the
remaining debt in 2004 and, thus, the statute of limitations barred all amounts due under
the Note. Cranberry responds that no acceleration occurred and, thus, the statute of
limitations bars only those payments due before 2006.
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Generally, actions based on written contracts must be commenced within six
years after breach. RCW 4.16.040. The general rule for debts payable by installment
provides, "A separate cause of action arises on each installment, and the statute of
limitations runs separately against each ...." 31 Richard A. Lord, Williston on
Contracts § 79:17, at 338 (4th ed. 2004); see also 25 David K. Dewolf, Keller W.
Allen & Darlene Barrier Caruso, Washington Practice: Contract Law and
Practice § 16:20, at 196 (2012-13 Supp.) ("Where a contract calls for payment of an
obligation by installments, the statute of limitations begins to run for each installment at
the time such payment is due"); Hassler v. Account Brokers of Larimer County. Inc.. 274
P.3d 547, 553 (Colo. 2012) (same); Bay Area Laundry & Dry Cleaning Pension Trust
Fundv. FerbarCorp.ofCaL 522 U.S. 192, 208-09, 118 S. Ct. 542, 139 L. Ed. 2d 553(1997) (same).9 But if an obligation that is to be repaid in installments is accelerated—
either automatically by the terms of the agreement or by the election of the creditor
pursuant to an optional acceleration clause—the entire remaining balance of the loan
becomes due immediately and the statute of limitations is triggered for all installments
that had not previously become due. 31 Richard A. Lord, supra, § 79:17, at 338; §
9Kirsch contests this rule, arguing that Cranberry cites distinguishable family law
cases for the proposition that the statute of limitations runs against each installment
separately. Though some of Cranberry's cited cases are family law cases, they
describe a general proposition of contract law applying to all contracts in which
installment payments are due. Further, some of those family law cases cite 82 A.L.R.
316 (1931), which addresses in general terms, "[w]hen Statute of Limitations begins to
run against an action to recover upon contract payable in installments" and describes
the general rule: "The general rule in such a case is similar to the general rule herewith
noted in the case of contract obligations, it having been held that the Statute of
Limitations begins to run from the expiration of the period fixed for the payment of each
installment as it becomes due, for the part then payable." See Herzog v. Herzog, 23
Wn.2d 382, 388, 161 P.2d 142 (1945).
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79:18, at 347-50; 12 Am.Jur.2d, Bills & Notes § 581 (same); Bay Area, 522 U.S. at
208-09 (same). The statute of limitations commences upon maturity of a note. A.A.C.
Corp. v. Reed, 73 Wn.2d 612, 615, 440 P.2d 465 (1968).
The Uniform Commercial Code (UCC) similarly provides that a cause of action
for collection of the entire balance of a note accrues immediately upon acceleration:
Statute of Limitations
(a) Except as provided in subsection (e), an action to enforce the obligation of a
party to pay a note payable at a definite time must be commenced within six
years after the due date or dates stated in the note or, if a due date is
accelerated, within six years after the accelerated due date.
RCW62A.3-118.
Kirsch and Cranberry agree that the Note contains an optional acceleration
clause that the creditor may unilaterally invoke following default. It provides in relevant
part: "Holder is authorized to declare all or any part of the Indebtedness immediately
due and payable upon the happening of any of the following events: (1) Failure to pay
any part of the Indebtedness when due." The relevant inquiry for determining when the
present action accrued is whether Cranberry's predecessor exercised its option to
accelerate Kirsch's debt.
In the case of an acceleration provision exercisable at the option of the creditor:
Some affirmative action is required, some action by which the [creditor] makes
known to the [debtor] that he intends to declare the whole debt due. This
exercise of the option may, of course, take different forms. It may be exercised
by giving the [debtor] formal notice to the effect that the whole debt is declared to
be due, or by the commencement of an action to recover the debt, or perhaps by
any means by which it is clearly brought home to the [debtor] of the note that the
option has been exercised ....
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Weinberg v. Naher. 51 Wn. 591, 594, 99 P. 736 (1909) (emphasis added).10 "Under
Weinberg, acceleration must be made in a clear and unequivocal manner which
effectively apprises the maker that the holder has exercised his right to accelerate the
payment date." Glassmaker v. Ricard, 23 Wn. App. 35, 38, 593 P.2d 179 (1979). Other
jurisdictions agree that the creditor must perform some "'clear, unequivocal affirmative
act evidencing his intention to take advantage of the acceleration provision.'" Hassler,
274 P.3d at 553 (quoting Moss v. McDonald, 772 P.2d 626, 628 (Colo. App. 1988)).
This principle is consistent with that adopted by a majority of other states. See, e.g., 11
AM.JuR.2d, Bills and Notes § 169; United States v. Feterl, 849 F.2d 354, 357 (8th Cir.
1988); KIXX, Inc. v. Stallion Music, Inc., 610 P.2d 1385, 1388-89 (Utah 1980); State
Sec. Sav. Co. v. Pelster, 207 Neb. 158, 296 N.W.2d 702, 706 (1980). These
jurisdictions require that the "exercise of the option ... be made in a manner so clear
and unequivocal as to leave no doubt as to the holder's intention and to apprise the
maker effectively of the fact that the option has been exercised." 5 A.L.R.2d 968, § 4[a].
The parties here disagree on two main issues: (1) whether Cranberry's
predecessor, CCB, exercised the option to accelerate in 2004 when it filed a complaint
against Channel and Kirsch and (2) if it did exercise that option, whether the court
10 In Glassmaker. 23 Wn. App. at 38, Division Three of this court noted:
"Since the adoption of CR 3 in 1967, an action is commenced by service or filing of the
summons and complaint. Here, plaintiffs had merely filed their summons and complaint
at the time the delinquent payment was accepted by the bank. Thus, the actual notice
requirement of Weinberg and Hartge fv. Capeloto. 136 Wash. 538, 241 P. 5 (1925)] was
not satisfied. Commencement of an action under the old law was effective notice to the
maker." Here, there is no dispute the action was commenced by serving and filing the
summons and complaint. Thus, the 2004 lawsuit provided actual notice of the
acceleration.
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clerk's dismissal of the 2004 complaint for want of prosecution under CR 41 nullified the
acceleration's effect for purposes of the statute of limitations.11
First, there is no genuine fact dispute that Cranberry's predecessor CCB
unambiguously exercised its option to accelerate in 2004. As the above cases
establish, acceleration occurs upon notice to the debtor that the creditor intends to
declare the entire sum due and payable. CCB filed a complaint in which it declared that
it had "elected to declare the entire principal sum and all accrued interest on the Note
due and payable." Kirsch's answer to this acceleration election stated "Defendant lacks
knowledge and therefore neither admits or denies."12 CCB provided clear notice to
11 The trial court below apparently assumed the 2004 lawsuit accelerated the
debt but ruled that the subsequent dismissal reversed the acceleration. See Report of
Proceedings (RP) (June 22, 2012) at 15 ("The [2004] lawsuit doesn't toll the statute of
limitations, but it also once dismissed doesn't stand for the proposition . .. that the
previous determination to call the note due still stands, because once it is dismissed,
then nothing that happened in that lawsuit has any validity."); RP (Aug. 27, 2012) at 10-
12 ("If the party brings a lawsuit, and as part of that lawsuit savs we're entitled under the
note to receive full payment which is essentially an acceleration ... I would sav that's
probably evidence of their intent to do so. However, if the lawsuit is dismissed and not
pursued, then I don't think that is effective .... I think that the initial [2004] lawsuit did
not effectively accelerate the note, because the lawsuit was dismissed and not
pursued."); RP (Feb. 8, 2013) at 16 ("Cases were cited to this Court [at the first
summary judgment proceeding], and the Court determined that the abandonment of [the
2004 case] meant that that acceleration, that was wiped out at that point in time"); RP
(Feb. 8, 2013) at 22 ("So any acceleration that occurred as a result of [the 2004] cause
of action evaporated when the cause of action ended."); RP (Feb. 8, 2013) at 23
("[W]hen that [2004] lawsuit was abandoned, then there is no acceleration in effect at
that time."), RP (Feb. 8, 2013) at 25 ("[W]hen a lawsuit is allowed to go defunct, then
that, everything that underlies it is gone, and so . . . that means the acceleration that
was created by the filing of that [2004] lawsuit also is no longer in effect."), RP (Feb. 8,
2013) at 32 (in answering Kirsch's counsel's question "are you saying if [Cranberry's
predecessors] made a demand for full payment prior to 2004, it's meaningless because
they filed a 2004 lawsuit?", court answered, "Yes, it expired in that lawsuit.") (all
emphasis added).
12 Cranberry repeatedly asserts that "In his Answer, Kirsch denied the allegation
of acceleration under the Note." Resp't's Br. at 6. Kirsch neither admitted nor denied
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Kirsch of its intent to accelerate the debt. Thus, CCB took "affirmative action ... by
which the [creditor] makes known to the [debtor] that he intends to declare the whole
debt due." Weinberg, 51 Wn. at 594. Cranberry cites no contrary authority. CCB's
affirmative action accelerated the debt.13 We conclude that no material issues of fact
exist over whether Cranberry's predecessors exercised their option to accelerate the
debt.
We next address whether dismissal of the 2004 complaint for want of prosecution
nullified the acceleration for purposes of the statute of limitations. CR 41 (b)(2)(A)
authorizes involuntary dismissal on the clerk's motion:
In all civil cases in which no action of record has occurred during the previous 12
months, the clerk of the superior court shall notify the attorneys of record by mail
that the court will dismiss the case for want of prosecution unless, within 30 days
following the mailing of such notice, a party takes action of record or files a status
report with the court indicating the reason for inactivity and projecting future
activity and a case completion date. If the court does not receive such a status
report, it shall, on motion of the clerk, dismiss the case without prejudice and
without cost to either party.
"'[I]n ruling on a motion to dismiss pursuant to CR 41 [for want of prosecution], the trial
court may not generally consider the merits of the case nor the hardship which
application of the rule may bring.'" Foss Maritime Co. v. City of Seattle, 107 Wn. App.
CCB's "election to accelerate." And regardless of how Kirsch responded to CCB's
election to accelerate, the complaint clearly gave Kirsch notice of CCB's intent to do so.
This triggered acceleration.
13 We note that the trial court considered evidence indicating the debt was
accelerated even earlier than 2004. Kirsch's second declaration, quoted above,
indicates that the SBA sent Kirsch a demand letter in 2001 calling the entire debt due
and that CCB sent Kirsch a similar demand letter after succeeding to the SBA's interest
in the note, guaranty, and deed of trust. This declaration was before the court at oral
argument on Cranberry's summary judgment motion, and Kirsch's statements regarding
the earlier demand letters were unrebutted. See RP (Feb. 8, 2013) at 3-36. However,
even if we use the later 2004 date as the acceleration date, the statute of limitations still
bars collection of the debt as discussed below.
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669, 675, 27 P.3d 1228 (2001) (guoting Snohomish County v. Thorp Meats. 110Wn.2d
163, 168, 750 P.2d 1251 (1988)). "The primary function of an involuntary dismissal by a
clerk's motion is to clear the clerk's record of inactive cases." Vaughn v. Chung. 119
Wn.2d 273, 277, 830 P.2d 668 (1992). "It is an administrative provision that creates a
'relatively simple means by which the court system itself, on its own volition, may purge
its files of dormant cases.'" Vaughn, 119 Wn.2d at 277 (quoting Miller v. Patterson, 45
Wn. App. 450, 455, 725 P.2d 1016 (1986)).
When a case is dismissed involuntarily without prejudice under CR 41, refiling is
permitted so long as the statute of limitations has not expired. The time limit for refiling
is computed as if the first case had never been filed and is not tolled by the
commencement of the first action. Fittro v. Alcombrack, 23 Wn. App. 178, 180, 596
P.2d 665 (1979).
As discussed above, the 2004 lawsuit was dismissed without prejudice on the
clerk's motion for want of prosecution. The dismissal resolved no substantive issues.
Cranberry relies on CR 41 and cases interpreting it to argue that CCB's notice of
acceleration should be ignored when the case was dismissed for want of prosecution.
See Spice v. Pierce County, 149 Wn. App. 461, 204 P.3d 254 (2009); Wachovia SBA
Lending v. Kraft, 138 Wn. App. 854, 158 P.3d 1271 (2007); Beckman v. Wilcox. 96 Wn.
App. 355, 979 P.2d 890 (1999); Steinberg v. Seattle-First Nat'l Bank. 66 Wn. App. 402,
832 P.2d 124 (1992); Cork Insulation Sales Co. v. Torgeson, 54 Wn. App. 702, 775
P.2d 970 (1989); Logan v. North-West Ins. Co.. 45 Wn. App. 95, 724 P.2d 1059 (1986);
Fittro. 23 Wn. App. 178; Gould v. Bird & Sons. Inc., 5 Wn. App. 59, 485 P.2d 458(1971). We disagree. None of those cases control in the context of knowledge or
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notice between two parties and the unique circumstances present in this case.
Cranberry cites no authority for its argument that a mere administrative dismissal
disestablishes the fact of notice conveyed from one party to another.14 Our observation
in Lunsford v. Saberhagen Holdings. Inc.. 139 Wn. App. 334, 343, 160 P.3d 1089(2007), applies here: "Once rung, the bell is not unrung."15 We are unpersuaded by
Cranberry's reliance on the CR 41 dismissal.
Because Cranberry's predecessors accelerated the debt and the 2004 lawsuit's
dismissal had no effect on the notice given to Kirsch, Cranberry or its predecessors
were required to file suit "within six years after the accelerated due date
RCW 62A.3-118. Cranberry failed to do so. We conclude the six-year statute of
limitations bars Cranberry's collection of all portions of the debt at issue here.16
Attorney Fees
Both parties request an award of attorney fees and costs under RAP 18.1 and
the Note's attorney fees and costs provision.17 Under the terms of the Note and upon
14 We reemphasize that mandatory involuntary dismissal under CR 41(b)(2)(A)
benefits the court's docket management. It is not intended to confer any tactical or
substantive advantage to either party.
15 Kirsch's second declaration quoted above makes clear that Cranberry's
predecessors in interest treated the debt as having been accelerated. Its present claim
is unpersuasive based on this unrebutted evidence.
16 Given our disposition, we need not address Kirsch's remaining arguments.
17 The note provides that the debtor (here, Channel/Kirsch) shall pay the note
holder's (here, Cranberry's) expenses of any nature, including reasonable attorney fees
and costs, incurred to enforce the note's provisions. Similarly, Kirsch, as the prevailing
party on appeal, is entitled to reasonable attorney fees and costs under the note's
attorney fees and costs provision. See RCW 4.84.330.
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compliance with RAP 18.1, Kirsch is entitled to reasonable attorney fees and costs on
appeal.
CONCLUSION
For the reasons discussed above, we reverse the summary judgment order in
favor of Cranberry and remand with instructions to vacate the judgment and reinstate
Kirsch's quiet title action. We also award Kirsch reasonable attorney fees and costs on
appeal upon his compliance with RAP 18.1.
WE CONCUR:
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