Joon Kim, Et Ano. v. Albert D. Rosellini, Jr., Et Ux ( 2014 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
o
!»0
CO CD
JOON KIM; P.D.Q. INCORPORATED, No. 70063-4-1 ^~^
"
_c~
5;^°
dba P.D.Q. DELI MART, 3=» ^-h
DIVISION ONE
a -^°
cr> °"n^,
-tl -T(
Respondents, — ^¥> —
——
~-x>r~
^>-vfn
3»
v. •x.
ir
o of
"
~ -;
ROSELLINI, husband and wife,
FILED: August 11. 2014
Appellants.
Cox, J. —A corporate entity may be disregarded and liability imposed
against its shareholders when they intentionally use the corporation to "violate or
evade a duty owed to another" and disregard is "necessary and required to
prevent unjustified loss to the injured party."1 Here, the findings of fact by the
superior court amply support the requirements to disregard the corporate entity
and impose personal liability against the corporation's shareholders, Albert and
Vicki Rosellini (collectively the Rosellinis). We affirm.
In 2001, Joon Kim purchased P.D.Q. Inc. dba P.D.Q. Deli Mart. P.D.Q. is
a convenience store that sells gasoline to retail customers.
1 Meisel v. M & N Modern Hydraulic Press Co.. 97 Wn.2d 403, 409-10,
645 P.2d 689 (1982) (internal quotation marks omitted).
No. 70063-4-1/2
At the time of purchase, the prior owners and Fortune Oil Company Inc., a
Washington corporation, were parties to a Shell Branded Retailer Contract
(gasoline supply contract). The Rosellinis were the sole shareholders and
owners of Fortune Oil, which sold gasoline to the prior owners.
The prior owners assigned their interest in the gasoline supply contract to
Kim as part of the purchase of P.D.Q.
Based on the gasoline supply contract, Fortune Oil provided gasoline to
Kim from 2001 to 2006. According to the contract terms, all credit card
purchases by P.D.Q. customers were processed by Shell. Shell credited the
purchases to Fortune Oil's account minus handling fees. Fortune Oil then
credited this net to Kim.
By October 2006, Fortune Oil owed Kim a net of $32,076.20 from credit
card purchases. After numerous demands, Fortune Oil failed to pay this balance
to Kim.
Kim commenced an action in King County District Court against Fortune
Oil, the Rosellinis, and another entity. The parties waived the gasoline supply
contract's arbitration requirement.
Only Fortune Oil confessed to a judgment in favor of Kim in the amount of
$32,076.20 plus interest, attorney fees, and costs. The confession of judgment
stated that Fortune Oil's liability arose out of its breach of contract and failure to
pay the credit card sales proceeds to Kim. The confession ofjudgment made no
mention of the Consumer Protection Act (CPA).
No. 70063-4-1/3
It appears that the claims in that action for personal liability against the
Rosellinis were dismissed. In any event, the confession of judgment does not
mention them as judgment debtors.
In supplemental proceedings following entry of judgment against the
corporation, Kim discovered information that allegedly proved that the Rosellinis
had abused the corporate form. Kim then commenced this action in superior
court against the Rosellinis, Fortune Oil, and The Fortune Company Inc., another
Washington corporation that the Rosellinis own.
Kim alleged that the Rosellinis were personally liable to Kim on several
grounds: piercing the corporate veil doctrine, unlawful distribution to a
shareholder and related company, fraudulent transfer, and violation of the CPA.
At a bench trial for these claims, the Rosellinis did not appear to testify.
Likewise, they did not present any witnesses. Kim presented the deposition
testimony of Albert Rosellini and other evidence.
The superior court decided that it should pierce the corporate veil of
Fortune Oil and that the Rosellinis were personally liable to Kim for the unpaid
debt owed by that entity. The court entered its amended findings of fact and
conclusions of law. It did not make any findings or conclusions that the CPA was
violated.
Rather, when the superior court awarded fees, it stated that Fortune Oil's
confession of judgment in the district court action included a confession to all
claims, including a CPA violation, that were asserted in that case. Based solely
No. 70063-4-1/4
on this latter statement, the superior court reasoned that an award of attorney
fees under the CPA was appropriate for the superior court action.
The Rosellinis appeal.
PIERCING THE CORPORATE VEIL
The Rosellinis argue that the superior court erred when it pierced the
corporate veil and held them personally liable to Kim for the unpaid indebtedness
of Fortune Oil. We disagree.
Generally, the corporate form protects officers and shareholders from
personal liability.2 But the corporate entity may be disregarded in some
circumstances.3
"The question whether the corporate form should be disregarded is a
question of fact.'"4 This court reviews the trial court's findings of fact underlying
corporate disregard for substantial evidence.5 This court reviews de novo
conclusions of law.6
2 See Truckweld Equip. Co. v. Olson. 26 Wn. App. 638, 644, 618 P.2d
1017 (1980); Grayson v. Nordic Const. Co.. Inc.. 92 Wn.2d 548, 552-53, 599
P.2d 1271 (1979).
3 Truckweld. 26 Wn. App. at 644.
4 Norhawk Invs.. Inc. v. Subway Sandwich Shops. Inc.. 61 Wn. App. 395,
398, 811 P.2d 221 (1991) (quoting Truckweld. 26 Wn. App. at 643).
5 Roqerson Hiller Corp. v. Port of Port Angeles. 96 Wn. App. 918, 924, 982
P.2d 131 (1999).
6 Id.No. 70063-4-1/5
"Separate corporate entities should not be disregarded solely because
one cannot meet its obligations."7 But the trial court was permitted to pierce the
corporate veil and reach the Rosellinis if Kim demonstrated that (1) the corporate
form was used to violate or evade a duty, and (2) the corporate form must be
disregarded to prevent loss to an innocent party.8
For the first element, the court must find an abuse of the corporate form.9
"[S]uch abuse typically involves 'fraud, misrepresentation, or some form of
manipulation of the corporation to the stockholder's benefit and creditor's
detriment.'"10
In Morgan v. Burks, the supreme court explained that the first element can
be met where "the liability-causing activity did not occur only for the benefit of the
corporation, and the corporation and its controllers are thus alter egos.'u
For the second element, the court must find that "wrongful corporate
activities . . . actually harm the party seeking relief so that disregard is
7Meisel, 97 Wn.2d at411.
8 Wash. Water Jet Workers Ass'n v. Yarbrough, 151 Wn.2d 470, 503, 90
P.3d 42 (2004).
9Meisel, 97 Wn.2d at410.
10 Jd (quoting Truckweld. 26 Wn. App. at 645).
11 93 Wn.2d 580, 585, 611 P.2d 751 (1980) (emphasis added).
No. 70063-4-1/6
necessary."12 "Intentional misconduct must be the cause of the harm that is
avoided by disregard."13
Here, the superior court decided that the corporate form of Fortune Oil
would be disregarded and "all liabilities of Fortune Oil, including the amount owed
by Fortune Oil to Kim, are the personal and individual liabilities of Albert Rosellini
and Vicki Rosellini, and Fortune Company."14 Notwithstanding the reference to
Fortune Company, a judgment was entered only against the Rosellinis.
Based on the amended written findings of facts and conclusions of law, it
appears that the superior court determined that the first element of the corporate
disregard doctrine was satisfied based on four independent grounds: (1) Fortune
Oil and the Rosellinis were alter egos because they "functioned as one entity,"
(2) Fortune Oil breached a fiduciary duty owed to Kim, (3) Fortune Oil and the
Rosellinis improperly made distributions to shareholders under RCW 23B.06.400,
and (4) Fortune Oil and the Rosellinis fraudulently transferred assets in violation
of RCW 19.40.051. We note that the superior court's oral ruling only focuses on
the first and second of these grounds.
The superior court then determined that the second element of the
doctrine was satisfied. The Rosellinis' intentional misconduct caused harm to
Kim because there were not adequate funds to pay the amount owed to Kim
under the gasoline supply contract.
12Meisel, 97 Wn.2d at410.
13 idL
14 Clerk's Papers at 406.
No. 70063-4-1/7
The Rosellinis only make arguments regarding the first element of the
doctrine. Thus, we focus most of our comments on it.
Alter Ego
The Rosellinis argue that the superior court erred when it pierced the
corporate veil on the basis that the Rosellinis commingled their assets with those
of Fortune Oil and failed to maintain corporate records. It appears that they take
issue with the court's finding that the "Rosellinis and Fortune Oil functioned as
one entity" or that Fortune Oil was the Rosellinis' alter ego.
Washington recognizes the "alter ego" doctrine, which provides, "'Where a
private person so dominates and controls a corporation that such corporation is
his alter ego, a court is justified in piercing the veil of corporate entity and
holding that the corporation and private person are one and the same."'15
To determine whether a corporation is a private person's alter ego,
Washington courts have looked to whether the private person commingled his or
her property with that of the corporation.16 "'[Tjhere must be such a commingling
of property rights or interests as to render it apparent that they are intended to
function as one, and, further, to regard them as separate would aid the
consummation of a fraud or wrong upon others.'"17
15 Standard Fire Ins. Co. v. Blakeslee. 54 Wn. App. 1, 5, 771 P.2d 1172(1989) (quoting Pohlman Inv. Co. v. Va. City Gold Mining Co.. 184 Wash. 273,
283,51 P.2d 363 (1935)).
16 Norhawk. 61 Wn. App. at 400-01; J.I. Case Credit Corp. v. Stark. 64
Wn.2d 470, 475, 392 P.2d 215 (1964).
17 Norhawk. 61 Wn. App. at 401 (alteration in original) (quoting Stark. 64
Wn.2d at 475).
7
No. 70063-4-1/8
The supreme court has also considered whether "corporate records or
formalities" were kept and whether there was any indication of "an overt intention
by [the private person] to disregard the corporate entity."18
Here, the Rosellinis were the sole owners of Fortune Oil. The superior
court made multiple findings that the Rosellinis commingled their personal assets
and their other company's assets with Fortune Oil's assets. For example, finding
of fact 10 states:
In the federal tax returns and on the accounting ledgers, the
transfers from Fortune Oil to the Rosellinis are listed as
"shareholder loans". The Rosellinis freely commingled their bank
accounts with Fortune Oil and Fortune Company's bank accounts
to the degree that moneys were deposited and withdrawn from the
company accounts and the personal accounts without any record
whatsoever.'191
Additionally, the superior court made a number of findings that the Rosellinis
made loans or transfers to themselves and to other companies that they owned.
These loans were not documented, and it is not clear whether they were paid
back to Fortune Oil. Finding of fact 13 states:
The Rosellinis have no record to support what happened to the
loans and the money owed by [Albert Rosselini's] companies to
Fortune Oil. The Rosellinis simply commingled their personal
assets with Fortune Oil and Fortune Company without regard for
record keeping.1201
18 Grayson. 92 Wn.2d at 553.
19 Clerk's Papers at 403.
20 Id, at 404.
8
No. 70063-4-1/9
These challenged findings are supported by substantial evidence, including
Albert Rosellini's deposition transcript and federal tax returns. The Rosellinis
provided no other evidence at trial.
During his deposition, Mr. Rosellini explained that he made numerous
transfers of funds between Fortune Oil's account and his personal account and
Fortune Company's account. He stated that he only kept records for "some" of
these transactions. He also explained that Fortune Oil loaned $500,000 to
Ferndale Truck Stop, another one of his companies, but this money was never
paid back to Fortune Oil. He also stated he did not know what happened to
loans to shareholders listed in his federal tax returns.
Additionally, as stated in findings of fact 10 and 13, the superior court
found that Fortune Oil did not keep many corporate records. Finding of fact 7
also focuses on the lack of records:
The corporate records of Fortune Oil are sparse. Albert Rosellini
testified that he kept few, if any, record of any of the financial
transactions between himself and Fortune Oil, and between
Fortune Oil, Fortune Company and Ferndale Gas.[211
This challenged finding is also supported by Mr. Rosellini's deposition transcript.
Given these findings of fact, the superior court properly decided that the
Rosellinis and Fortune Oil were functioning as one entity.
Moreover, determining that the Rosellinis and Fortune Oil were separate
would aid in the "'consummation of a fraud or wrong upon others.'"22 As the
21 jd at 402.
22 Norhawk. 61 Wn. App. at 401 (quoting Stark. 64 Wn.2d at 475).
9
No. 70063-4-1/10
superior court stated, "But for the commingling of assets of Fortune Oil with that
of the Rosellinis, there would have been adequate funds to pay the creditors of
Fortune Oil, including Kim."23
In sum, the superior court properly pierced the corporate veil and held the
Rosellinis personally liable to Kim for the unpaid amounts owed by Fortune Oil.
The Rosellinis argue that each financial transaction, including loans or
transfers, was recorded in QuickBooks. They point to a QuickBooks printout of
one of their accounts to show how a loan was recorded. While the printout
appears to show movement of funds between Fortune Oil and Mr. Rossellini, the
purpose of the funds is not known and it is not clear that these funds were paid
back.
Had the Rosellinis wished to add at trial to the testimony given at Mr.
Rossellini's deposition, they could have done so. They did not, and the superior
court was left only with the deposition testimony and other evidence submitted at
trial. The evidence at trial was sufficient to support the court's findings.
Moreover, an appellate court "will not 'disturb findings of fact supported by
substantial evidence even ifthere is conflicting evidence.'"24 Because there is
substantial evidence regarding the lack of records to document the loans,
whatever QuickBooks purports to show by way of conflicting evidence does not
alter the analysis.
23 Clerk's Papers at 406.
24 McClearv v. State. 173 Wn.2d 477, 514, 269 P.3d 227 (2012) (quoting
Merriman v. Cokelev. 168Wn.2d627, 631, 230 P.3d 162 (2010)).
10
No. 70063-4-1/11
The Rosellinis also assert that the fact that Mr. Rosellini could not explain
the loans or transfers is not evidence that they were improper. They point out
that he had a bookkeeper and a professional CPA maintain his records, so it
makes sense that he could not explain some of the loans or transfers. But, if he
wanted others to explain the transfers at trial he had the opportunity to do so. For
whatever reason, the Rosellinis chose not to present such witnesses at trial. The
evidence that was presented at trial supports the superior court's findings. On
appeal, we do not reweigh the evidence or evaluate a witness's credibility.25
The Rosellinis cite Meisel v. M & N Modern Hydraulic Press Co. to argue
that Kim did not prove that the abuse of the corporate form involved fraud or
misrepresentation, which is required to pierce the corporate veil.26 But Meisel
stated that "such abuse typically involves 'fraud, misrepresentation, or some
form of manipulation of the corporation to the stockholder's benefit and
creditor's detriment."27
Here, the superior court found that the Rosellinis were commingling and
transferring funds in a way that prevented Kim from being paid money owed to
him from the credit card purchases. This conduct appears to be a form of
manipulation of the corporation to the Rosellinis' benefit and to Kim's detriment.
25 Bale v. Allison. 173 Wn. App. 435, 458, 294 P.3d 789 (2013).
26 Appellant's Opening Brief at 12-15 (citing Meisel v. M& N Modern
Hydraulic Press Co.. 97 Wn.2d 403, 645 P.2d 689 (1982)).
27 Meisel. 97 Wn.2d at 410 (emphasis added).
11
No. 70063-4-1/12
Thus, the corporate disregard elements were met, and this argument is not
persuasive.
Given that Fortune Oil was the Rosellinis' alter ego, which supports
piercing the corporate veil, we need not reach the Rosellinis' arguments
regarding breach of fiduciary duty, distribution to shareholders under RCW
23B.06.400, and fraudulent transfer under RCW 19.40.051.
ATTORNEY FEES
The Rosellinis next argue that the superior court erred when it granted
attorney fees to Kim under the CPA based on Fortune Oil's confession of
judgment. In response, Kim asserts two separate bases to support the attorney
fee award—a CPA violation and the gasoline supply contract. We conclude that
neither of these bases support the attorney fee award.
"This court applies a two-part review to awards or denials of attorney fees:
(1) [this] court reviews de novo whether a legal basis exists for awarding attorney
fees by statute, under contract, or in equity and (2) the court reviews the
reasonableness of an attorney fee award for abuse of discretion."28
Fee Award Based on CPA
Kim argues that the superior court correctly determined that the Rosellinis
personally violated the CPA, and this violation provides a basis for the award of
attorney fees. Butthe superior court did not make any findings or conclusions
determining that there was a CPA violation in its amended findings offact and
28 Hall v. Feigenbaum. 178 Wn. App. 811, 827, 319 P.3d 61. review
denied. 180Wn.2d 1018(2014).
12
No. 70063-4-1/13
conclusions of law. Thus, we have no findings or conclusions on this issue to
review.29
Rather, the superior court gave the following rationale for the fee award,
which was based on the confession of judgment and the CPA:
4) The Complaint in District Court alleged a violation of the
Consumer Protection Act. The Confession of Judgment by
FORTUNE OIL COMPANY, INC. in the District Court was a
general confession of judgment to the Complaint. It was signed by
Albert Rosellini, President. Therefore, FORTUNE OIL COMPANY,
INC. confessed to judgment against it for all claims, including
violation of the Consumer Protection Act Albert Rosellini, Jr.
was the only officer and shareholder active in the corporation.
Therefore, he participated and directed the acts of the corporation
and is personally liable for the violations of the Consumer
Protection Act which the corporation confessed to having
committed. Under RCW 19.86 etseq. Plaintiff is awarded
attorney's fees and costs. . . .[30]
It is unclear to this court what a "general" confession of judgment is.
Confessions of judgment are authorized by statute and are designed to resolve
disputes among willing parties.31 A confession ofjudgment must be in writing
and comply with certain requirements, including the following:
(2) If it be for money due or to become due, it shall state
concisely the facts out of which the indebtedness arose, and
shall show that the sum confessed to be due, is justly due or to
become due.[321
29 See, e.g.. Berrvman v. Metcalf. 177 Wn. App. 644, 659, 312 P.3d 745(2013) ("Because the trial court made no findings regarding the specific
challenged items, the record does not allow for a proper review ofthese
issues."), review denied. 179 Wn. App. 1026, 320 P.3d 718 (2014).
30 Clerk's Papers at 406-07 (emphasis added).
31 RCW 4.60.050; see Pederson v. Potter. 103 Wn. App. 62, 68, 11 P.3d
833 (2000).
32 RCW 4.60.060 (emphasis added).
13
No. 70063-4-1/14
Here, Fortune Oil entered into a confession of judgment. It agreed that it
was liable to Kim for a total of $47,472.78. The confession of judgment stated
the following facts to explain why the indebtedness arose:
This consent and Confession of Judgment arises out of
Defendant's breach of Shell Branded Retailer Contract
("Contract") dated October 7, 1996, which is incorporated herein by
reference, entered by and between Defendant Fortune Oil
Company, Inc., and Sung Bok No and Joon Deuk No, subsequently
assigned to Plaintiffs Joon Bum Kim and P.D.Q. Incorporated, and
Defendant's failure to pay the credit card sales proceeds to
Plaintiffs.™
By its plain terms, this confession of judgment only references breach of contract
as a basis for liability. It does not mention the CPA as a basis for anything.
Thus, the CPA should not have been a basis either for the underlying amount
owed or for any award of fees predicated on the confession of judgment in the
district court.
Kim relies on the same basis to request fees on appeal. For the same
reasons, we deny this request.
Fee Award Based on Gasoline Supply Contract Provision
Alternatively, Kim argues that he is entitled to attorney fees based on the
gasoline supply contract provision that addresses fees.34 We disagree.
The gasoline supply contract between Fortune Oil and Kim states that
attorney fees shall be awarded to the prevailing party:
33 Clerk's Papers at 344 (emphasis added).
34 See jd. at 45 ("In the alternate, Kim and PDQ are entitled to attorney's
fees and costs based on the gasoline supply contract, which mandates that the
prevailing party is entitled to attorney's fees and costs. Ex. 1, Para. 22.").
14
No. 70063-4-1/15
22. CHOICE OF LAW, ARBITRATION
This contract will be governed by the laws of the State of
Washington, and the venue of any dispute shall be in Seattle,
Washington. In the event of any dispute regarding this contract, the
parties agree to arbitrate the matter with the American Arbitration
Association, using the Commercial Rules, and shall abide the
decision of the arbiter. The prevailing party to any dispute
brought before the arbiter, shall be entitled to attorneys fees
and costs™
But by its plain terms, the attorney fees provision limits an award to "disputes
brought before [an] arbiter." Because no arbiter was involved in this litigation, no
award of fees is permitted under the plain words of this contract provision.
In sum, we conclude that the trial court did not properly award attorney
fees. Thus, we reverse this award.
JUDGMENT IN FAVOR OF ATTORNEY
Finally, the Rosellinis argue that the superior court erred when it named
Karl Park, the Rosellinis' attorney, as a judgment creditor and granted judgment
in his favor. They assert that this was error because he was not a party to the
action. Notably, the Rosellinis fail to claim any prejudice. And neither party
provides any authority to support their arguments regarding this issue.
Accordingly, we do not address this claim any further.36
35 Ex. 1, H 22 (emphasis added).
36 RAP 10.3(6); McKee v. Am. Home Prods. Corp.. 113 Wn.2d 701, 705,
782P.2d 1045(1989).
15
No. 70063-4-1/16
We affirm the judgment, except for the award of attorney fees, which we
reverse. We deny Kim's request for attorney fees on appeal.
&tt.T
WE CONCUR:
JQJ)^AHffQt^Y
16