Heritage Restoration, Inc v. Douglas Radabaugh, Et Ux. ( 2015 )

COURT OF APPEALS
IN THE COURT OF APPEALS OF THE STATE OFMAMIINGTON
DIVISION II 015 AUG 26 PSI 2: 20
ST
HERITAGE RESTORATION, INC., oE q 9&_VJ GTON
BY
Respondent, 0EMUT
V
DOUGLAS RADABAUGH and SHIRLEY UNPUBLISHED OPINION
RADABAUGH, husband and wife,
MELNICK, J. — Douglas and Shirley Radabaugh appeal after the trial court ordered that
funds held in the court registry should be disbursed to Heritage Restoration ( Heritage). Heritage
performed work on the Radabaughs' home. After disputes arose, litigation ensued. Pursuant to a
stipulated order, the Radabaughs' insurance company paid the policy proceeds into the court
registry after the parties could not agree to whom the funds belonged. The Radabaughs went
through bankruptcy procedures and at the conclusion, Heritage moved the trial court to disburse
the funds to it. The trial court ruled in Heritage' s favor. The Radabaughs argue that the trial court
modified a pre -bankruptcy judgment and circumvented bankruptcy law. Because the trial court' s
order disbursing funds to Heritage did not modify a judgment and because the Radabaughs
presented no evidence the trial court circumvented bankruptcy law, we affirm.
FACTS
I. WORI{ ON THE RADABAUGHS' HOME
Snow and rain damaged the Radabaughs' home. Following the submission of a claim for
damages with their insurer, Grange Insurance Association ( Grange), the Radabaughs hired
Heritage to restore the interior of their home. The Radabaughs and Heritage entered into a written
contract. Terms of the contract included that "`` [ Heritage] will not go beyond the general scope
45925 -6 -II
of the insurance coverage without approval of [ the Radabaughs]"' and that "`` [ the Radabaughs
agree] to immediately forward all draws issued as partial or full payment regarding this claim."
Clerk' s Papers ( CP) at 36. Additionally, the contract stated that the Radabaughs authorized and
directed Grange to "`` pay [ Heritage] directly and/ or include [ Heritage] on all draws issued as partial
or full payment regarding this claim."' CP at 37.
11. DISPUTE
Dissatisfied with Heritage' s work, the Radabaughs refused to pay. Heritage then filed a
complaint for breach of contract, unjust enrichment, and lien foreclosure against the Radabaughs. 1
The Radabaughs filed counterclaims and sought damages.
III. INSURANCE PROCEEDS
Prior to litigation, Grange issued a two- party check to the Radabaughs and Heritage for
17, 157. 50: The Radabaughs sent Heritage the check, endorsed to Heritage, adding the phrase
payment in full." CP at 39. Heritage retained the check, but did not cash it. Because the parties
disputed to whom the insurance funds belonged, the parties jointly moved the trial court for an
order providing that Grange, a non- party, deposit $ 17, 157. 50 ( funds) into the court registry " by
way of a check made payable to `` Thurston County Superior Court Clerk' s Office."' CP at 30. The
trial court granted the motion and Grange deposited the funds.
IV. LITIGATION
After a trial, the court found that Heritage substantially completed the work contemplated
by the contract and under a quantum meruit theory ruled that the Radabaughs owed Heritage
1 Heritage had previously recorded a lien against the Radabaughs' property.
11
45925 -6 -II
24, 350. On October 14, 2011, the trial court entered a $ 20, 600 judgment in Heritage' s favor.2
The trial court' s findings of fact, conclusions of law, and judgment did not address ownership of
the funds in the court registry, nor did it release the funds.
On November 9, 2011, Heritage moved for release of the funds in the court registry. It
argued that the funds " should be released to Heritage in partial satisfaction of its judgment" against
the Radabaughs and that the Radabaughs " legally assigned the funds to Heritage when they signed
the [ c] ontract." CP at 57, 58.
V, BANKRUPTCY
On November 16, 2011, the Radabaughs filed for bankruptcy under chapter 7 of the United
3
States Bankruptcy Code. Pursuant to. 11 U.S. C. § 362, an automatic stay of all judicial
proceedings went into effect and notice was filed with the trial court on November 17, 2011. On
November 18, 20.11, Heritage received notice of the bankruptcy as creditors subject to discharge
of the Radabaughs' bankruptcy filing. On February 27, 2012, the United States Bankruptcy Court
granted the Radabaughs a discharge under 11 U.S. C. § 727.4
2 The trial court subtracted repair costs and the value of damage to the Radabaughs' home from
the final judgment amount.
3 Title 11 U.S. C.
4
The record on appeal contains only the notice of discharge that specifies "[ t] he discharge
prohibits any attempt to collect from the debtor a debt that has been discharged" and "[ t] he chapter
7 discharge order eliminates a debtor' s legal obligation to pay a debt that is discharged." CP at
75. The record does not contain a schedule of discharged debts. However, in a hearing before the
trial court, the Radabaughs and Heritage both acknowledged that the judgment was discharged in
the bankruptcy.
3
45925 -6 -II
On May 17, 2012, the bankruptcy Trustee moved to abandon the funds held in the court
registry. The notice and motion for abandonment refers to the funds as "[ t] he asset ... described
on schedule C of the bankruptcy schedules as ``$ 17, 150. 50 check in Thurston Co. Superior Court
registry from insurance payment to Radabaugh. "' CP at 90. On June 8, 2012, Heritage filed a
response to the Trustee' s motion. On June 12, 2012, the Trustee withdrew its motion with the
bankruptcy court.
On December 9, 2013, the Trustee filed a report stating, "[ T] here is no property available
for distribution from the estate over and above that exempted by law."' CP at 98.
VI. HEARING ON MOTION TO DISBURSE FUNDS
On March 7, 2012, the Radabaughs filed a response to Heritage' s motion for release of the
funds, arguing that the trial court should release the funds to the Radabaughs as the owners of the
funds. On March 21, 2012, Heritage responded by stating that the funds were already Heritage' s
property because the funds had been legally and equitably assigned before the bankruptcy.
Heritage also argued that the Radabaughs' bankruptcy discharge did not prohibit the trial court
from disbursing the funds to Heritage because Heritage, as the rightful owner of the money, was
not attempting to satisfy the judgment against the Radabaughs.
During the March 30, 2012 trial court hearing, the Radabaughs argued that the
bankruptcy' s stay of proceedings was still in effect. The Radabaughs' position was that because
Heritage' s judgment against the Radabaughs " was entirely discharged in the bankruptcy court,"
5 Although on appeal both parties imply that the Radabaughs listed the funds in the court registry
as exempt property in the bankruptcy action, the records before the trial court and us do not
demonstrate whether the Radabaughs actually listed the funds as an exemption and whether the
bankruptcy court treated them as an exemption. At the time the Radabaughs filed for bankruptcy,
the ownership of the funds was in dispute and had not been resolved by the trial court.
51
45925 -6 -II
the funds were " an asset that was abandoned back to the debtor post - bankruptcy." RP ( Mar. 30,
2012) at 12. The trial court dismissed the motion without prejudice and asked the parties to
supplement the record regarding the bankruptcy.
VII. ORDER DISBURSING FUNDS To HERITAGE
On January 13, 2014, Heritage again moved the trial court to release the funds. At the
February 21 hearing, Heritage agreed that the bankruptcy court discharged the judgment against
the Radabaughs, but it again argued that the Radabaughs legally assigned the funds to Heritage
prior to bankruptcy, and therefore " the money was already Heritage' s under assignment." Report
of Proceedings ( RP) ( Feb. 21, 2014) at 9. Heritage argued that because the trial court entered a
judgment for $20, 600 in Heritage' s favor, the funds, which were deposited into the court registry
prior to the trial and judgment, belonged to Heritage. It also argued that the Radabaughs legally
assigned the funds to Heritage under the original contract because the Radabaughs manifested an
intention to assign the funds to Heritage. Alternatively, Heritage argued that the Radabaughs also
equitably assigned the funds to Heritage. The Radabaughs again argued that because the judgment
was discharged in the bankruptcy, " it is no longer an operative way [ for Heritage] to get at this
money." RP ( Feb. 21, 2014) at 12.
After considering counsels' arguments and the evidence presented, the trial court granted
Heritage' s motion and released the funds to Heritage. It entered a finding that "[ a] t no time during
the pendency [ of] the Radabaughs' bankruptcy action did the Trustee in that case file any motion
in any court asserting that the Radabaughs held any claim to or an ownership interest in the funds
held in this court' s registry under this cause." CP at 117. Thus, the trial court ordered that
Heritage is the owner of the funds on deposit with the registry of court and is the party entitled to
5
45925 -6 -II
the same, because the Radabaughs legally or equitably assigned the funds to Heritage." 6 CP at
118.
The Radabaughs appeal.'
ANALYSIS
The Radabaughs argue that the trial court reformed a judgment discharged in bankruptcy
and improperly disbursed money to Heritage that was being held in the court' s registry pursuant
to a stipulated order. We disagree.
MOTION TO STRIKE FROM APPELLANT' s BRIEF
As a preliminary matter, Heritage moves to strike the following factual statements in the
Radabaughs' brief that are unsupported by citations to the record:
Heritage Restoration received a money judgment against the Radabaughs based on
Findings of Fact and Conclusions of Law prepared by Heritage Restoration' s Counsel and
approved and issued by the Trial Court.
Heritage Restoration filed a claim in bankruptcy as a creditor of the Radabaughs. That
claim was based entirely on the judgment it had received.
The Heritage judgment was not paid in full in the bankruptcy.
Br. of Resp' t at 7 ( quoting Br. of Appellants at 4, 5, 9). Heritage argues that "[ o] ne of the above
claims is untrue, one is intentionally misleading, and the other requires further explanation and
context." Br. of
Resp' t at 7. The purpose of rules governing the content of appellate briefs is to
enable us and opposing counsel to review the accuracy of the factual statements made in the briefs.
6 The Radabaughs neither assigned error to nor argued or briefed the issue that Heritage had not
been legally or equitably assigned the funds.
7. The record on appeal does not contain the following items: the bankruptcy petition with attached
schedules, proof of claims, claimed exemptions, or documentation regarding the abandonment.
45925 -6 -II
Litho Color, Inc. v. Pac. Emp' rs Ins. Co., 98 Wn. App. 286, 305, 991 P.2d 638 ( 1999); RAP
10. 3( a), 10. 4. Because we will not consider any statements unsupported by reference to the record
or by citation of authority, we grant Heritage' s motion. RAP 10. 3( a)( 5); Cowiche Canyon
Conservancy v. Bosley, 118 Wash. 2d 801, 809, 828 P.2d 549 ( 1992).
II. STANDARD OF REVIEW
Unchallenged findings of fact are verities on appeal. Robel v. Roundup Corp., 148 Wash. 2d
35, 42, 59 P.3d 611 ( 2002). " An unchallenged conclusion of law becomes the law of the case."
King Aircraft Sales, Inc. v. Lane, 68 Wash. App. 706, 716, 846 P.2d 550 ( 1993).
RAP 10. 3( g) provides that an " appellate court will only review a claimed error which is
included in an assignment of error or clearly disclosed in the associated issue pertaining thereto."
Generally, we will not address issues that a party does not raise appropriately. CalPortland Co. v.
LevelOne Concrete LLC, 180 Wn. App. 379, 392, 321 P.3d 1261 ( 2014). But where a party' s brief
makes clear what part of the decision below is being challenged, we will overlook the party' s
failure to specifically assign error to it. CalPortland Co., 180 Wn: App. at 392.
We review the trial court' s decision to disburse the funds held in the court registry for an
abuse of discretion. Pac. Nw. Life Ins. Co. v. Turnbull, 51 Wash. App. 692, 699, 754 P.2d 1262
1988). A trial court abuses its discretion when its decision is manifestly unreasonable or' based
on untenable grounds or reasons. Pac. Nw. Life. Ins., 51 Wash. App., at 699.
III. ORDER To DISBURSE
A. Findings of Fact Are Verities on Appeal
The Radabaughs failed to assign error to any findings of fact as required under RAP
10. 3( g). Because unchallenged findings of fact are verities on appeal, we treat the following
findings as verities on appeal:
7
45925 -6 -II
At no time during the pendency [ ofJ the Radabaughs' bankruptcy action did the
Trustee in that case file any motion in any court asserting that the Radabaughs held
any claim to or an ownership interest in the funds held in this court' s registry under
this cause.
CP at 117.
B. The Radabaughs Failed to Assign Error to the Trial Court' s Order to Disburse
In this case, the Radabaughs listed assignments of error; however, all of the assignments
of error assert that the trial court either reformed a judgment or circumvented the bankruptcy
court' s order when it disbursed.funds. None assigns error to the disbursal order. The Radabaughs'
arguments misconstrue the trial court' s order. The trial court never reformed Heritage' s judgment.
It merely determined who rightfully owned the funds in the registry. In addition, although the trial
court gave the parties an opportunity to supplement the trial court record with all of the relevant
bankruptcy documents and orders, the record is devoid of any evidence demonstrating the
bankruptcy court exercised control of the funds in the trial court registry.
There does not appear to be a dispute that the judgment was discharged in bankruptcy;
however, the trial court found that Heritage already owned the funds: " Heritage is the owner of
the funds on deposit with the registry of court, and is the party entitled to the same, because the
8 The dissent claims the Radabaughs did assign error to the order to disburse. However, all of the
Radabaughs' assignments of error and issues pertaining to the assignments of error reference either
a judgment modification or a bankruptcy discharge. The Radabaughs claim the trial court modified
the judgment after the bankruptcy court discharged it. The trial court neither modified the
judgment nor disbursed money based on a discharged judgment. None of the Radabaughs'
assignments of error or issues pertain to the court' s order to disburse the money. Assuming the
Radabaughs have properly assigned error, they have nonetheless failed to brief or argue these
issues addressed by the dissent and we do not consider them. RAP 10. 3( a)( 6), RAP 12. 1;
Avellaneda v. State, 167 Wn. App. 474, 485 n. 5, 273 P.3d 477 ( 2012); Wash. Prof'l Real Estate
LLC v. Young, 163 Wn. App. 800, 818 n. 3, 260 P.2d 991 ( 2011).
45925 -6 -II
9
Radabaughs legally or equitably assigned the funds to Heritage." CP at 118. The trial court
disbursed the funds not to satisfy Heritage' s judgment, but because it found Heritage owned the
funds. And, the trial court had no evidence the funds had been dealt with in the bankruptcy
proceedings or that the funds had been awarded to either party. Therefore, we affirm the trial court
because the assignments of error and issues the Radabaughs raise are inadequate to merit review.
C. The Trial Court Did Not Abuse Its Discretion.
In the event that we misconstrue the Radabaughs argument, we also decide the merits of
the case and hold that the trial court did not abuse its discretion by ordering that the funds belonged
to and should be distributed to Heritage.
The trial court " has the power and responsibility of protecting the fund [ in the court
registry] and of disposing of it in accordance with the applicable principles of law and equity for
the protection- of the litigants and the public whose interests are affected by the final disposition
thereof." Pac. Nw. Life. Ins., 51 Wash. App. at 699 ( quoting Wilson v. Henkle, 45 Wash. App. 162,
10).
169, 724 P.2d 1069 ( 1986) In other words, the trial court only has authority to disburse the
funds within its custody to the party that demonstrates they are entitled to the funds.
The funds held in the court registry are governed by CR 67 and RCW 4. 44.480-. 500. CR
67 provides:
In an action in which any part of the relief sought is a judgment for a sum of money
or the disposition of a sum of money ... a party ... may deposit with the court all
or any part of such sum ... [ which] shall be deposited and withdrawn in accordance
with the provisions of RCW 4. 44.480 through 4. 44. 500.
9 The Radabaughs do not assign error to the trial court' s determination that Heritage is the owner
of the funds under assignment, nor do the Radabaughs provide any argument on appeal regarding
this issue. See CalPortland Co., 180 Wash. App. at 392.
to
Superseded by statute on other grounds as stated in Ferguson Firm, PLLC v. Teller & Assocs.,
PLLC, 178 Wn. App. 622, 632, 316 P.3d 509 ( 2013), review denied sub nom. Ferguson Firm,
PLLC v. Waid, 180 Wash. 2d 1025, 328 P.3d 903 ( 2014).
9
45925 -6 -II
Once the Rinds are deposited with the court, they are " subject to the further direction of the court"
and " shall not be loaned out, unless, with the consent of all the parties having an interest in, or
making claim to the same." RCW 4. 44. 480, . 500. Funds deposited in the court registry are held
in custodia legis. See Maybee v. Machart, 110 Wash. 2d 902, 904, 757 P.2d 967 ( 1988).
Here, the parties could not agree to whom the funds belonged and they jointly moved for
an order providing that Grange deposit funds into the court registry " by way of a check made
payable to `` Thurston County Superior Court Clerk' s Office."' CP at 30. It is clear, however, that
the funds belonged to either the Radabaughs or Heritage. There is nothing in the record to show
that the bankruptcy court' s actions affected the funds. Therefore, after considering evidence at .
trial and in the motions to disburse, the trial court found that Heritage, not the Radabaughs, owned
the funds. The Radabaughs do not challenge this finding. We cannot say the trial court abused its
discretion in disbursing the funds to Heritage. Its decision is neither manifestly unreasonable nor
based on untenable grounds or reasons. See Pac. Nw. Life. Ins., 51 Wn. App. at. 699.
IV. ATTORNEY FEES
Heritage requests attorney fees on appeal. We may award attorney fees to the prevailing
party on appeal if "allowed by statute, rule, or contract and the request is made pursuant to RAP
18. 1( a)." Malted Mousse, Inc. v. Steinmetz, 150 Wash. 2d 518, 535, 79 P.3d 1154 ( 2003). The
contract between Heritage and the Radabaughs provides for reasonable attorney fees and court
costs "[ i] n the event this account is referred to an attorney for collection." CP at 13. Here, the
Radabaughs' account was referred to an attorney for collection when Heritage filed its complaint.
Thus, as the prevailing party, Heritage is entitled to attorney fees on appeal.
10
45925 -6 -II
We affirm.
A majority of the panel having determined that this opinion will not be printed in the
Washington Appellate Reports, but will be filed for public record in accordance with RCW
2. 06. 040, it is so ordered.
Melnick, J.
I concur:
s
Maxa, P. J. O —
11
45925 -6 -II
LEE, J. ( dissenting) — I respectfully disagree with the majority' s narrow interpretation of
what is required to assign error in a case. Here, the assignments of error and arguments made in
Radabaugh' s briefs clearly show that they challenge the trial court' s order disbursing the funds
that had been deposited into the registry of the court to Heritage. Therefore, the merits of the
appeal should be reached.
In reaching the merits of the appeal, I also respectfully disagree with the majority and
would hold that the trial court' s conclusion that Heritage " owned" the funds because Radabaugh
legally or equitably assign the funds to Heritage is not supported by any findings of fact.
Therefore, the trial court erred. Accordingly, I would reverse and remand for the trial court to
determine which party is rightfully entitled to the funds held in the court registry.
A. ASSIGNMENTS OF ERROR
I concur with the majority that RAP 10. 3( g) provides that we will only review a claimed
error which is included in an assignment of error or clearly disclosed in the associated issue
pertaining thereto and will not address issues that a party does not properly raise. Majority at 7. I
also concur with the majority that where a party' s brief makes perfectly clear what part of the
decision below is being challenged, we will overlook the party' s failure to specifically assign error
to it. Majority at 7. I disagree, however, with the majority' s narrow interpretation of Radabaugh' s
assignments of error and the majority' s conclusion that "[ t] he Radabaughs neither assigned error
to nor argued or briefed the issue that Heritage had not been legally or equitably assigned the
funds," that " all of the Radabaughs' assignments of error and issues pertaining to the assignments
of error reference either a judgment modification or a bankruptcy discharge," and that "[ n] one
assigns error to the disbursal order." Majority at 6, n.6; majority at 8, n.8; majority at 8.
12
45925 -6 -II
The majority, relying on RAP 10. 3( g), asserts that Radabaugh does not assign error to the
superior court' s disbursement order. Majority at 8. However, Radabaugh' s first assignment of
error states:
The Trial Court Erred in Disbursing Money Held in the Registry of Court to
Respondent Heritage Restoration based on a Judgment Heritage Restoration had
Obtained Against the Appellants Radabaugh when the Radabaughs had Filed for
and Obtained a Bankruptcy. Discharge of Debts, Using one of their Property
Exemptions to Secure the Money in Court, in a Bankruptcy Proceeding in which
Heritage Restoration had Filed a Creditor' s Claim Based on Its Judgment.
Br. of Appellant at 2. Radabaugh also indentifies the following "Issues Pertaining to Assignments
ofError":
3. Is it proper for a Trial Court to disregard a bankruptcy discharge to pay a
judgment based on an equitable right to payment of money when the Bankruptcy
Code at 11 U.S. C. § 101( 5)( 8)( A) & ( B) specifically provides that such equitable
claims are discharged along with purely legal claims to payment of debt?
4. Is it proper for Trial Court to disburse money belonging to a judgment
debtor in partial payment of a judgment that has been discharged in bankruptcy
prior to the disbursement?
Br. of Appellant at 3.
In the opening brief, Radabaugh presented six pages of argument to support the contention
that the trial court erred in disbursing the funds held in the court registry to Heritage. These
arguments relate to Radabaugh' s contention that ( 1) Heritage' s claim against Radabaugh is legal,
not equitable; and therefore, the trial court exhibited " an improper use of equitable powers to
provide equitable equivalent of a legal remedy when the legal remedy is sufficient as a matter of
law," ( 2) " whether conceived legally or equitably, Heritage Restoration' s claim was discharged by
the Radabaugh bankruptcy prior to disbursement of the Radabaugh insurance proceeds held by the
Court," and ( 3) the trial court " erred by disbursing exempt money belonging to the Radabaughs,
in circumvention of bankruptcy law." Br. of Appellant at 10, 13, 15
13
45925 -6 -II
We must liberally interpret the appellate rules "to promote justice and facilitate the decision
of cases on the merits." RAP 1. 2. " Cases and issues will not be determined on the basis of
compliance or noncompliance" with the appellate rules, except in compelling circumstances where
justice demands. Id. Here, there are no compelling circumstances where justice demands refusing
to address the merits of this case. Because we interpret the Rules of Appellate Procedure liberally
to promote justice and facilitate the decision of cases on the merits," Radabaugh' s lack of precise
language saying " we challenge the court' s disbursement order" should be forgiven because their
briefing as a whole, including the assignments of error and arguments, is based on the argument
that the trial court erred by ordering the funds be released to Heritage.
B. THE TRIAL COURT' S ORDER RELEASING FUNDS TO HERITAGE
The majority holds that the trial court " disbursed the funds not to satisfy Heritage' s
judgment, but because it found Heritage owned the funds." Majority at 9. The majority' s opinion
assumes that the trial court' s determination that Heritage owned the funds was correct. I disagree.
1. Standard of Review
As acknowledged by the majority, we review the trial court' s decision to disburse the funds
held in the court registry for an abuse of discretion. Majority at 9; Pac. Nw. Life Ins. Co. v.
Turnbull, 51 Wn. App. 692, 699, 754 P.2d 1262, review denied, 111 Wash. 2d 1014 ( 1988). A trial
court abuses its discretion when its decision is manifestly unreasonable or based on untenable
grounds or reasons. Pac. Nw. Life. Ins., 51 Wash. App. at 699.
As also acknowledged by the majority, the trial court only has the authority to disburse
funds held in the court registry to the party that demonstrates they are entitled to the funds.
Majority at 9. Here, the trial court concluded that Heritage was the " owner" of the funds " because
14
45925 -6 -II
the Radabaughs legally or equitably assigned the funds to Heritage." Clerk' s Papers ( CP) at 124.
In reaching this conclusion, the trial court abused its discretion.
2. Heritage' s Claim To The. Funds Was Discharged In Bankruptcy
Under federal Bankruptcy Code, the commencement of a bankruptcy action " creates an
estate comprising all legal or equitable interests of the debtor in property." Nw. Wholesale, Inc. v.
PAC Organic Fruit, LLC, 183 Wash. App. 459, 483, 334 P.3d 63 ( 2014), review granted, 182 Wash. 2d
1009 ( 2015); 11 U.S. C. § 541( a). " A bankruptcy debtor has an affirmative duty under the
Bankruptcy Code to disclose all assets, including contingent and unliquidated claims." 11 U.S. C.
521( a)( 1)( B); Arkison v. Ethan Allen, Inc., 160 Wash. 2d 535, 539, 160 P.3d 13 ( 2007).
In a bankruptcy action, the " bankruptcy trustee is required to marshal assets of the
bankruptcy debtor and use them to pay creditors." Krueger v. Tippett, 155 Wash. App. 216, 221,
229 P.3d 866 ( 2010). Under 11 U.S. C. §§ 541 and 542, all property which the debtor owns or may
have an interest in becomes part of the bankruptcy estate. 11 U.S. C. § 541( a), § 542( a). This
11
includes property in the possession of others. 11 U.S. C. § 541( a), § 542( a)
Upon the filing of a petition in bankruptcy, a stay issues by operation of law which
prevents the commencement or continuation of any judicial proceeding against the debtor."
Anderson v. City of Seattle, 123 Wash. 2d 847, 852 n. 2, 873 P.2d 489 ( 1994); 11 U.S. C. § 362( a)( 1).
The stay is superseded by a permanent injunction upon discharge, which prohibits third parties
11 Assets that are " burdensome" or of "inconsequential value" to the estate may be abandoned by
the Trustee. 11 U.S. C. § 554( a). When the Trustee abandons property, "`` title reverts to the
bankrupt, nunc pro tunc."' Krueger, 155 Wn. App. at 222 ( quoting Mason v. C.I.R., 646 F.2d
1309, 1310 ( 9th Cir. 1980)); Brown v. O' Keefe, 300 U.S. 598, 602- 603, 57 S. Ct. 543, 81 L. Ed.
Abandonment does not create an interest in or transfer property to a creditor. Krueger,
827 ( 1937).
155 Wash. App. at 222.
15
45925 -6 -II
from pursuing the debtor for the discharged debt. 11 U.S. C. § 524( a)( 2). " Any attempt to modify
the permanent injunction must be made in accordance with federal bankruptcy law." Anderson,
123 Wash. 2d at 852 n.2.
Here, the record demonstrates that the bankruptcy trustee filed, then withdrew, its motion
to abandon the funds held in the court registry. Thus, the funds most likely was a part of the
bankruptcy estate, but the record before the trial court and this court is insufficient to determine
whether the funds actually became part of the bankruptcy estate.
A debtor must identify, list, and notify creditors. Herring v. Texaco, Inc., 161 Wash. 2d 189,
196, 165 P.3d 4 ( 2007) ( citing In re Maya Constr. Co., 78 F.3d 1395, 1399 ( 9th Cir. 1996)).
Known creditors are entitled to actual notice before their claims are discharged. City ofNew York
v. N.Y., New Haven & Hartford R. R., 344 U.S. 293, 296, 73 S. Ct.. 299, 97 L. Ed. 333 ( 1953).
Here, the record indicates that the bankruptcy court sent notice to Heritage as a creditor on
November 18, 2011. Therefore, Heritage was a known creditor in the bankruptcy action and
received actual notice.
Pursuant to section 501 of the Bankruptcy Code, creditors may file a proof of claim, which
permits the creditor to share in distributions of the bankruptcy estate. 11 U.S. C. § 501( a). A
creditor must file a timely proof of claim in order to participate in any recovery. In re Townsend
Farms, Inc., 54 B.R. 8, 9 ( Bankr. D. S. C. 1984). Section 101( 5)( A) provides that a claim is a " right
to payment, whether or not such right is reduced to judgment ... [ or] equitable." 11 U.S. C. §
101( 5)( A). Section 101( 5)( B) further provides that a claim is also a " right to an equitable remedy
for breach of performance if such breach gives rise to a right to payment, whether or not such right
to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured, or unsecured." 11 U.S. C. § 101( 5)( B). The term " creditor" means an " entity
Mi-
45925 -6 -II
that has a claim against the debtor that arose at the time of or before the order for relief concerning
the debtor." 11 U.S. C. § 101( 10)( A). Here, the record before the trial court and on appeal is
insufficient to determine whether Heritage filed a timely proof of claim pursuant to section 501
during the bankruptcy action.
A debtor may remove property from the bankruptcy estate through the exemption process.
11 U.S. C. § 522( b). The debtor must file a list of property that the debtor claims as exempt. 11
U.S. C. § 522( l). Unless a party in interest files an objection to the debtor' s claim of exemptions
within 30 days, the property claimed as exempt on such list is deemed exempt. 11 U.S. C. § 522( l);
In re Bush, 346 B.R. 523, 524- 25 ( Bankr. E.D. Wash. 2006) ( citing Taylor vs. Freeland & Kronz,
503 U.S. 638, 643, 112 S. Ct. 1644, 118 L. Ed. 2d 280 ( 1992)). Such objection must be filed with
the bankruptcy court. Also, a " debtor retains the right to sell, transfer, encumber, or use any
property that is exempt." Deveny v. Hadaller, 139 Wn. App 605, 620, 161 P.3d 1059 ( 2007); 11
U.S. C. § 522.
Radabaugh asserts that the funds had been secured to Radabaugh by application of an
exemption in the bankruptcy action. However, this assertion is made without citation to the record.
RAP 10. 3( a)( 5). Radabaugh also asserts that the funds were listed as exempt property in the
bankruptcy action. However, the portion of the record to which Radabaugh cites does not support
this assertion. See CP at 98- 99. Heritage argues that Radabaugh " attempted to claim the funds as
one of their exemptions in the bankruptcy action." Br. of Resp' t at 19. However, this assertion is
also made without citation to the record. RAP 10. 3( a)( 5).
The parties made no argument to the trial court regarding exemption. However, the record
does include the bankruptcy trustee' s notice and motion for abandonment. That motion refers to
17
45925 -6 -II
the funds as "[ t] he asset ... described on schedule C of the bankruptcy schedules." 12 CP at 90.
Given the record before the trial court and on appeal, there is insufficient evidence to determine
whether the funds were exempted from the bankruptcy estate. The record is also insufficient to
determine whether Heritage filed a timely objection pursuant to 11 U.S. C. § 522.
A bankruptcy discharge releases a debtor from liability on debts and enjoins any creditor's
effort to collect a discharged debt as a personal liability of the debtor. 11 U.S. C. § 727( b) and §
524( a)( 1), ( a)( 2); see also Heilman v. Heilman ( In re Heilman), 430 B.R. 213, 218 ( B. A.P. 9th Cir.
2010)). Section 524( a) provides that a discharge granted in a bankruptcy case:
1) voids any judgment at any time obtained, to the extent that such judgment is a
determination of the personal liability of the debtor with. respect to any debt
discharged under section 727... of this title, whether or not discharge of such debt
is waived;
2) operates as an injunction against the commencement or continuation of an
action, the employment of process, or an act, to collect, recover or offset any such
debt as a personal liability of the debtor, whether or not discharge of such debt is
waived.
11 U.S. C. § 524( a).
Section 727( b) provides that, except for non -dischargeable debts listed in § 523( a), a
discharge under § 727( a) discharges a debtor from. all debts that arose before bankruptcy. 11
U.S. C. § 727( b); Beezley v. Cal. Land Title Co. ( In re Beezley), 994 F. 2d .1433, 1434 ( 9th Cir.
1993). This discharge occurs regardless of whether, in the instance of a no -asset chapter 7 case,
as was the case here, the debt was listed in a debtor' s schedules. 11 U.S. C. § 727( b); Beezley, 994
F.2d at 1434. The granting of a discharge is effective immediately upon the entry of an order of
discharge. 11 U.S. C. § 727.
12 Schedule C is property claimed as exempt by the debtor.
18
45925 -6 -II
However, a discharge in bankruptcy does not extinguish the debt itself. 11 U.S. C. § 524( e).
Rather, it releases a debtor from personal liability for the debt. 11 U.S. C. § 524( a)( 2). The debt
still exists and may be collected from any other entity that might be liable. 11 U.S. C. § 524( e);
Patronite v. Beeney ( In re Beeney), 142 B.R. 360, 363 ( B. A.P. 9th Cir. 1992).
Here, the United States Bankruptcy Court granted Radabaugh a discharge under 11 U.S. C.
727. The parties agreed before the trial court that Heritage' s judgment against Radabaugh was
discharged by the bankruptcy court. Therefore, the discharge released Radabaugh from personal
liability on the debt and enjoined Heritage' s effort to collect the debt as a personal liability of
Radabaugh. 11 U.S. C. § 727( b). Accordingly, the trial court, based on the record before it, abused
its discretion in concluding that Heritage is the owner of the funds.
3. There Was No Assignment Of Funds
The trial court also concluded that Heritage " owned" the funds because Radabaugh legally
or equitably assigned the funds to Heritage. CP at 124. Even accepting the majority' s position
that the trial court' s findings of fact are verities on appeal because Radabaugh did not assign error
to them, there are no findings of fact to support the trial court' s conclusion, and the trial court erred
in concluding that Radabaugh legally or equitably assigned the funds to Heritage.
a. No findings of fact supports the conclusion that Radabaugh legally or equitably
assigned the funds to Heritage
We review de novo whether a trial court' s findings support its conclusions of law. Shelton
Constr. Grp., LLC v. Haymond, _ Wn. App. , 351 P.3d 895, 901 ( 2015); Gamboa v. Clark,
183 Wash. 2d 38, 44, 348 P.3d 1214 ( 2015); Scott' s Excavating Vancouver, LLC v. Winlock Props.,
LLC, 176 Wn. App. 335, 342, 308 P.3d 791 ( 2013), review denied, 179 Wash. 2d 1011 ( 2014).
The only finding that the trial court made with regard to whether Heritage or Radabaugh
was entitled to the funds stated:
19
45925 -6 -II
6. On October 14, 2011, the Court entered a judgment in favor of Heritage and
against the Radabaughs for the principal sum of $20, 600. 00, representing the net
value of materials and services provided and rendered by Heritage to the
Radabaughs under the contract.
CP at 123. The finding that Heritage' s judgment against Radabaugh arising from contract does
not support the trial court' s conclusion that Radabaugh legally or equitably assigned the funds to
Heritage. Therefore, the trial court erred in concluding that Radabaugh legally or equitably
assigned the funds to Heritage.
b. No legal assignment
To create a valid and binding assignment, "[ n] o particular words of art are required."
Amende v. Town ofMorton, 40 Wash. 2d 104, 106, 241 P.2d 445 ( 1952). However, the assignor must
intend to transfer and invest property in the assignee. Carlile v. Harbour Homes, Inc., 147 Wn.
App. 193, 208, 194 P.3d 280 ( 2008), review granted in part, 166 Wash. 2d 1015 ( 2009). The intent
to deprive the assignor of control must be clear. Amende, 40 Wash. 2d at 106.
Heritage argues that because the parties' original contract for home repairs required
Radabaugh to forward all insurance. proceeds to Heritage, Radabaugh evidenced an intention to
assign the funds held in the court registry to Heritage. The contract included a clause that stated,
Radabaugh agrees] to immediately forward all draws issued as partial or full payment regarding
this claim." CP at 36. Additionally, the contract stated that Radabaugh authorizes and directs
Grange Insurance Association to "`` pay [ Heritage] directly and/ or include [ Heritage] on all draws
issued as partial or full payment regarding this claim."' CP at 37.
However, after the trial giving rise to Heritage' s judgment against Radabaugh, the trial
court concluded that Radabaugh' s obligation to pay was never triggered under the contract with
Heritage. That conclusion has never been challenged by any party. Because Radabaugh was not
obligated to pay Heritage under the contract, Radabaugh did not evidence an intention to assign
20
45925 -6 -II
the funds to Heritage. Furthermore, the stipulated motion and order directing Grange Insurance
Association to deposit the funds into the court registry acknowledged that the parties disputed to
whom the funds properly belonged. Because the parties disputed ownership, of the funds,
Radabaugh could not have assigned to Heritage funds which it did not own. Therefore, Radabaugh
did not assign the funds to Heritage under the parties' original contract.
c. No equitable assignment
To accomplish an equitable assignment, " an assignor must have intended to transfer a
present interest in the debt or fund and, pursuant to such intention, must have made an absolute
appropriation of the thing assigned, relinquishing all control or power of revocation over it to the
use of the assignee." Mercantile Ins. Co. ofAm. v. Jackson, 40 Wash. 2d 233, 236, 242 P.2d 503
1952). An equitable assignment may be accomplished orally or by writing. Mercantile Ins. Co.,
40 Wash. 2d at 236. However, the words or transactions must indicate " an intent, on the one side, to
assign, and an intent, on the other, to receive ... assuming there is a valuable consideration."
Mercantile Ins. Co., 40 Wash. 2d at 236. The language utilized and the surrounding circumstances
must " plainly reveal[] an intent on the part of the assignor to make an actual or constructive transfer
to the assignee of a present interest." Robert Wise Plumbing & Heating, Inc. v. Alpine Dev. Co.,
72 Wash. 2d 172, 178, 432 P.2d 547 ( 1967).
Heritage contends that even if the parties' contract is unenforceable, the contract provisions
in which Radabaugh agreed to pay Heritage or authorized Grange Insurance Association to pay
Heritage for work performed still evidence Radabaugh' s intention to equitably assign the funds to
Heritage. Br. of Resp' t at 16. But if Radabaugh never had a duty to pay under the contract, then
Radabaugh never intended to assign the funds to Heritage.
21
45925 -6 -II
In support of its position, Heritage claims that once the funds were deposited in the court
registry, " the only dispute remaining" was regarding the value of Heritage' s work performed. Br.
of Resp' t at 17. But the record does not support this argument. Because the stipulated motion and
order directing Grange Insurance Association to deposit the funds into the court registry
acknowledged that the parties disputed to whom the funds properly belonged, a dispute regarding
ownership of the funds remained. Thus, Radabaugh clearly did not intend to assign the funds to
Heritage because Radabaugh still maintained an ownership claim to the funds.
The trial court dispersed the funds held in the court registry because " Radabaugh legally
or equitably assigned the funds to Heritage." CP at 118. Because Radabaugh did not assign the
funds to Heritage, Heritage did not own the funds prior to Radabaugh' s bankruptcy action. Thus,
the trial court erred when it determined that Heritage was entitled to the funds because Radabaugh
assigned the funds to Heritage.
Furthermore, the parties did not agree that the trial court could disburse the funds to
whomever prevailed at trial, nor did either party actually prevail at trial. See CP at 29- 30; CP at
47 (" The Court further rules that the parties have each failed to prevail on their primary claims
Therefore, there is no prevailing party in this litigation."). The judgment did not provide that
Heritage was entitled to the funds. Thus, it does not logically follow that Radabaugh assigned the
funds to Heritage.
The trial court may only exercise its discretion to disperse funds held in a court registry to
the party entitled to the funds. The trial court exercised its discretion on an untenable ground
because its conclusion that Heritage " owned" the funds as a result of Radabaugh legally or
equitably assigning the fund to Heritage is not supported by any finding of fact and Heritage was
not entitled to the funds. Therefore, the trial court abused its discretion.
22
45925 -6 -II
C. ATTORNEY FEES.
It follows that I disagree with the majority' s award of attorney fees on appeal to Heritage.
Because I would hold that the trial court erred, Heritage is not the prevailing party and would not
be entitled to attorney fees.
The trial court abused its discretion when it concluded that Heritage " owned" the funds
because Radabaugh legally or equitably assigned the funds to Heritage. Therefore, I would reverse
and remand for the trial court to, determine which party is rightfully entitled to the funds held in
the court registry.
Lee, J.
23