Timberland Bank v. Shawn Mesaros ( 2018 )

Filed
Washington State
Court of Appeals
Division Two
May 15, 2018
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION II
TIMBERLAND BANK, a Washington No. 50207-1-II
corporation,
Respondent,
v.
SHAWN A. MESAROS and JANE DOE UNPUBLISHED OPINION
MESAROS, individually, and the marital
community they comprise, THE STATE OF
WASHINGTON, DEPARTMENT OF
SOCIAL AND HEALTH SERVICES: and
Also all other persons or parties unknown
claiming any right, title, estate, lien, or interest
in the real estate describe in the complaint
herein,
Appellants.
SUTTON, J. — Shawn A. Mesaros appeals from a trial court’s charging order requiring him
to provide documentation from his limited liability company (LLC) to Timberland Bank,
restraining him from taking any corporate action on behalf of the LLC, foreclosing his LLC
interest, and ordering a sheriff’s sale of his LLC interest to satisfy a judgment. Mesaros does not
challenge the portion of the charging order foreclosing on his LLC interest or ordering the sheriff’s
sale. Nor does he challenge the subsequent foreclosure sale. Instead, he argues that the charging
order contravened RCW 25.15.251 and .256 by (1) requiring him to provide the LLC’s records
and (2) restraining him from managing and operating the LLC. Mesaros also argues that because
of this error, we should reverse the contempt orders that the trial court issued after he failed to
No. 50207-1-II
comply with the challenged portions of the charging order. We hold that this appeal is moot and
dismiss this appeal.
FACTS
I. CHARGING ORDER
After Timberland Bank obtained a judgment against Mesaros, Timberland Bank foreclosed
on real property owned by Mesaros.1 On January 17, 2017, Timberland Bank moved under RCW
25.15.256 for an order charging Mesaros’s transferrable interest2 in Pamria, LLC with payment of
the still unsatisfied portion of the judgment.3 Mesaros was the sole “owner” of Pamria. Clerk’s
Papers (CP) at 31.
1
Timberland Bank obtained a judgment and a decree of foreclosure against real property owned
by Mesaros. There is nothing in the record suggesting the real property had any relationship to
Mesaros’s LLC.
In December 2017, in a separate appeal, we held that the sheriff’s sale of Mesaros’s real
property was void because the sale was held and the execution was returned outside the authorized
statutory period. Timberland Bank v. Mesaros, 1 Wash. App. 2d 602, 603, 406 P.3d 719 (2017).
We set aside the sale and reversed and remanded the matter for further proceedings. Timberland
Bank, 1 Wash. App. 2d at 603.
The parties have not addressed the effect of this reversal on the matters at issue in this
appeal. Because the parties have not briefed the effect of the reversal of the foreclosure sale of
Mesaros’s real property, we do not address it.
2
“‘Transferable interest’ means a member’s or transferee’s right to receive distributions of the
limited liability company’s assets.” RCW 25.15.006(19). A “[d]istribution” is “a transfer of
money or other property from [an LLC] to a member in the member’s capacity as a member or to
a transferee on account of a transferable interested owned by the transferee.” RCW 25.15.006(3).
3
RCW 25.15.256(1) allows for the trial court to issue a charging order. RCW 25.15.256(1)
provides, in part,
On application to a court of competent jurisdiction by any judgment creditor of a
member or transferee [of an LLC], the court may charge the transferable interest of
the judgment debtor with payment of the unsatisfied amount of the judgment with
2
No. 50207-1-II
Concerned that Mesaros would act in bad faith or would attempt to hide the LLC’s assets,
Timberland Bank also asked the trial court to restrain Mesaros from taking any action on behalf of
the LLC, “including transacting any company business or accessing any funds belonging to
Pamria, LLC.” CP at 22. Additionally, Timberland Bank requested that the trial court order
Mesaros to provide copies of the LLC agreement and all corporate minutes. Timberland Bank
argued that it needed access to these records to determine whether foreclosure on Mesaros’s
interest in the LLC would be beneficial.
Mesaros conceded that Timberland Bank was “entitled to a charging order.” CP at 26;
Verbatim Report of Proceedings (VRP) (Jan. 23, 2017) at 4. But he argued that under RCW
25.15.251(1)(b), 4 Timberland Bank was not entitled to a charging order restraining him from
taking action on behalf of the LLC and/or requiring him to provide access to the LLC’s records.
He asserted that under RCW 25.15.251, the charging order would only entitle Timberland Bank to
receive disbursements from the LLC.
interest. To the extent so charged, the judgment creditor has only the rights of a
transferee.
4
RCW 25.15.251(1)(b) provides,
A transfer, in whole or in part, of a transferable interest:
....
Does not, as against the members or the limited liability company, entitle the
transferee to participate in the management of the limited liability company’s
activities, to require access to information concerning the limited liability
company’s transactions except as provided in subsection (5) of this section or in
RCW 25.15.136(11), or to obtain access to information to which a member is
otherwise entitled pursuant to RCW 25.15.136 or the limited liability company’s
other records.
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No. 50207-1-II
Timberland Bank replied that even if the trial court agreed with Mesaros’s arguments, the
trial court should immediately foreclose on Mesaros’s “membership interest” in the LLC under
RCW 25.15.256(2).5 CP at 31. Timberland Bank argued that because Mesaros was the sole owner
of the LLC and his interest in the LLC was less than the amount of the judgment entered in this
case, that 100 percent of his interest should be transferred under RCW 25.15.256. Timberland
Bank further asserted that once 100 percent of his transferable interest in the LLC was transferred,
Mesaros was “dissociated pursuant to RCW 25.15.131(1)(b)”6 and could not participate in the
management of the LLC. CP at 32. Timberland also asserted that because Mesaros had not
produced the documents needed to evaluate whether the LLC agreement modified RCW
25.15.131(1)(b) and because Mesaros had engaged in other forms of intransigence, the trial court
must order production of the records that Timberland Bank had requested.
On January 23, the trial court issued a charging order that (1) granted Timberland Bank’s
motion for a charging order charging Mesaros’s LLC interest, (2) required Mesaros to “provide
true copies of all corporate records requested in the motion to [Timberland Bank] within 10 days
of this order,” (3) restrained Mesaros “from taking any corporate action on behalf of [the LLC],
including accessing any funds belonging to the LLC,” (4) foreclosed Mesaros’s interest in the
5
RCW 25.15.256(2) provides: “A charging order constitutes a lien on the judgment debtor’s
transferable interest. The court may order a foreclosure upon the transferable interest subject to
the charging order at any time. The purchaser at the foreclosure sale has the rights of a transferee.”
(Emphasis added).
6
RCW 25.15.131(1)(b) provides: “A person is dissociated as a member of a limited liability
company upon . . . [t]he transfer of all of the member’s transferable interest in the [LLC].” “When
a person is disassociated as a member of [an LLC]: The person’s right to participate as a member
in the management and conduct of the [LLC’s] activities terminates.” RCW 25.15.131(3)(a).
4
No. 50207-1-II
LLC, and (5) ordered the Grays Harbor County Sheriff “to sell the interest of . . . Mesaros pursuant
to RCW 6.21 et seq.” CP at 52-53. Mesaros filed a timely notice of appeal.7
II. CONTEMPT ORDERS
Eighteen days after the trial court entered the charging order, Timberland Bank filed a
motion for an order to show cause why Mesaros should not be found in contempt. Timberland
Bank asserted that Mesaros had not provided the records that he had been directed to provide and
that Mesaros had “attempted to negotiate a check that was payable to [the] LLC,” in violation of
the restrictions contained in the January 23 order. CP at 34.
On February 21, the trial court issued an order finding Mesaros in contempt of the January
23 order. The contempt order provided that Mesaros could purge the contempt if he produced the
required documents, reversed “all corporate activities taken by [the LLC] authorized or initiated
by” Mesaros, provided the original check to Timberland Bank, and paid attorney fees and costs.
On March 6, the trial court reviewed the February 21 contempt order. Mesaros’s counsel
admitted that Mesaros had not complied with the trial court’s January 23 order and requested that
the trial court stay enforcement of the contempt order pending the resolution of the appeal of the
charging order. Timberland Bank responded that there was no authority to stay enforcement of
the contempt proceeding or the contempt order until the resolution of the appeal of the charging
order.
Apparently rejecting Mesaros’s request for a stay, the trial court determined that Mesaros
had not purged the contempt and found that Mesaros remained in contempt. The trial court
7
In this notice of appeal, Mesaros designated and attached only the January 23 charging order.
5
No. 50207-1-II
imposed additional sanctions of $1,000 a day for each day the contempt continued.8 Mesaros did
not appeal from either contempt order or amend his existing notice of appeal challenging the
January 23 charging order to include the contempt orders.
In July 2017, Mesaros’s interest in the LLC was sold to a party not involved in this
litigation. Mesaros has not appealed this sale.
ANALYSIS
Mesaros challenges the portions of the January 23 charging order that (1) prohibited him
from participating in the management of the LLC and (2) required him to provide Timberland
Bank with the LLC records the bank requested. He argues that these portions of the January 23
charging order exceeded the trial court’s authority under RCW 25.15.2569 and violated RCW
8
Mesaros did not appeal from either contempt order. Thus, to the extent his arguments could be
construed as independent challenges to these orders, those arguments are not properly before us.
RAP 2.4(a), (b), (c).
Nothing in the record shows whether Mesaros is still incurring the daily sanctions or
whether he has complied with any of the requirements for purging the contempt.
9
RCW 25.15.256 provides in part:
(1) On application to a court of competent jurisdiction by any judgment
creditor of a member or transferee, the court may charge the transferable interest of
the judgment debtor with payment of the unsatisfied amount of the judgment with
interest. To the extent so charged, the judgment creditor has only the rights of a
transferee. The court may appoint a receiver of the share of the distributions due
or to become due to the judgment creditor in respect of the limited liability company
and make all other orders, directions, accounts, and inquiries the judgment debtor
might have made or that the circumstances of the case may require to give effect to
the charging order.
(2) A charging order constitutes a lien on the judgment debtor’s transferable
interest. The court may order a foreclosure upon the transferable interest subject to
the charging order at any time. The purchaser at the foreclosure sale has the rights
of a transferee.
6
No. 50207-1-II
25.15.251.10 Mesaros does not challenge the portions of the trial court’s order foreclosing his
interest in the LLC and ordering the Grays Harbor County Sheriff to sell Mesaros’s interest in the
LLC. Nor does he challenge the resulting foreclosure sale.
....
(5) This section provides the exclusive remedy by which a judgment
creditor of a member or transferee may satisfy a judgment out of the judgment
debtor’s transferable interest.
10
RCW 25.15.251 provides:
(1) A transfer, in whole or in part, of a transferable interest:
(a) Is permissible; and
(b) Does not, as against the members or the limited liability company, entitle
the transferee to participate in the management of the limited liability company’s
activities, to require access to information concerning the limited liability
company’s transactions except as provided in subsection (5) of this section or in
RCW 25.15.136(11), or to obtain access to information to which a member is
otherwise entitled pursuant to RCW 25.15.136 or the limited liability company’s
other records.
(2) A transfer of a transferable interest entitles the transferee to receive
distributions to which the transferor would otherwise be entitled, to the extent
transferred.
(3) Upon transfer of less than the transferor’s entire transferable interest in
the limited liability company, the transferor retains the rights, duties, and
obligations of the transferor immediately prior to the transfer other than the
transferable interest transferred.
(4) Except as otherwise provided in (b) of this subsection, a transferee that
becomes a member with respect to a transferable interest is liable for the
transferor’s obligations with respect to the transferable interest. Except to the
extent such liabilities are assumed by agreement:
(a) Until a transferee of a transferable interest becomes a member with
respect to the transferable interest, the transferee has no liability as a member solely
as a result of the transfer; and
(b) A transferee is not obligated for liabilities associated with a transferable
interest that are unknown to the transferee at the time the transferee becomes a
member.
7
No. 50207-1-II
Timberland Bank argues that (1) this appeal is moot because the LLC has been sold and
Mesaros no longer has any interest in the LLC and (2) even if the appeal is not moot, the trial
court acted within its authority. We agree with Timberland Bank that this appeal is moot.
Generally, we do not address issues that are moot. State v. Hunley, 175 Wash. 2d 901, 907,
287 P.3d 584 (2012). Issues are moot if we cannot provide any effective relief. Hunley, 175
Wash. 2d at 907. Mesaros has not shown that we can provide any effective relief.11
(5) In a dissolution and winding up, a transferee is entitled to an account of
the limited liability company’s transactions only from the date of dissolution.
(6) For the purposes of this chapter:
(a) The pledge of, or granting of a security interest, lien, or other
encumbrance in or against, any or all of a transferable interest is not a transfer of
the transferable interest, but a foreclosure or execution sale or exercise of similar
rights with respect to any or all of transferable interest is a transfer of the
transferable interest to the transferee pursuant to such foreclosure or execution sale
or exercise of similar rights.
(b) Where a transferable interest is held in a trust or estate, or is held by a
trustee, personal representative, or other fiduciary, the transfer of the transferable
interest, whether to a beneficiary of the trust or estate or otherwise, is a transfer of
such transferable interest, but the mere substitution or replacement of the trustee,
personal representative, or other fiduciary does not constitute a transfer of such
transferable interest.
11
Mesaros does not argue that this appeal addresses any issues of continuing and substantial public
interest. See Reply Br. at 3; Hunley, 175 Wash. 2d at 907 (we may retain and decide an otherwise
moot appeal if it involves matters of continuing and substantial public interest).
8
No. 50207-1-II
Mesaros argues that this case is not moot because reversal of the charging order would
restore him to the position he was before the charging order was issued and he could “challenge
any entity that improperly claims it owns more than Mesaros’[s] transferable interest in [the
LLC].” Reply Br. at 3. We disagree.
RCW 25.15.131(1)(b) provides that a member of an LLC is dissociated from the LLC upon
“[t]he transfer of all of the member’s transferable interest in the [LLC].” “When a person is
dissociated as a member of [an LLC],” that “person’s right to participate as a member in the
management and conduct of the [LLC’s] activities terminates.” RCW 25.15.131(3)(a).
Mesaros does not argue that the trial court erred in entering the charging order and ordering
the foreclosure. Nor has he appealed from the foreclosure sale of his transferrable interest in the
LLC. Thus, the sale of all of Mesaros’s transferrable interest dissociated him from the LLC, and
he no longer has the right to participate in the management and conduct of the LLC’s activities.12
RCW 25.15.131(1)(b), (3)(a). So, even assuming without deciding that the trial court could not
have restricted Mesaros’s management of the LLC activities prior to the sale, restoration of his
management rights would no longer have any effect because of the foreclosure of all of his
transferrable interest in the LLC and his resulting dissociation. As to the production of records,
Mesaros does not explain why the issue of whether Timberland Bank could have access to certain
12
To the extent Mesaros may also be asserting that he had the right to manage the LLC as a
manager of a manager-managed LLC, rather than as a member of the LLC, this claim goes beyond
the record on appeal. There is no documentation in the record showing whether the LLC was a
member-managed or a manager-managed LLC or that Mesaros was designated as the manager of
the LLC. See State v. McFarland, 127 Wash. 2d 322, 335, 899 P.2d 1251 (1995) (the court will not
review matters outside of the trial record on direct appeal).
9
No. 50207-1-II
LLC records to determine if foreclosure was a viable option is not moot now that Mesaros’s
transferrable interests have been sold.
Mesaros also argues that reversal of the charging order would “provide a basis for [him]
to move to purge any contempt finding by the trial court.” Reply Br. at 3. But Mesaros does not
explain how he would be able to purge the contempt even if this appeal were successful.13
At best, Mesaros asserts that if his arguments are successful, we should vacate the contempt
orders that arose out of the charging order. But he cites to no authority requiring us to vacate a
contempt order if the underlying order is later found to be improper. In fact, as Timberland Bank
recognizes, the law is otherwise. As long as the trial court had jurisdiction over the parties and the
subject matter, and it did not lack the inherent power to make the order involved, “‘a party refusing
to obey [the trial court’s order], however erroneously made, is liable for contempt.’” Mead Sch.
Dist. No. 354 v. Mead Ed. Ass’n, 85 Wash. 2d 278, 534 P.2d 561 (1975) (quoting Dike v. Dike, 75
Wash. 2d 1, 8, 448 P.2d 490 (1968)). Mesaros does not contend that the trial court lacked jurisdiction
over the parties or the subject matter, or that the trial court lacked the inherent power to issue the
contempt order.
13
Again, we note that Mesaros has not appealed the contempt orders.
10
No. 50207-1-II
Accordingly, we dismiss this appeal as moot.
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.
SUTTON, J.
We concur:
LEE, A.C.J.
WORSWICK, J.
11