Opinion
No. 58480-4-I.
June 4, 2007.
Appeal from a judgment of the Superior Court for King County, No. 05-2-10425-2, Michael J. Fox, J., entered April 27 and June 9, 2006.
This case concerns a breached agreement to settle certain outstanding accounts owed by Baurzhan Belbayev to two Korean companies. As the end of discovery drew near, Belbayev alleged for the first time that the contract was unenforceable because it was made under threats of physical harm. The trial court denied Belbayev's attempts to amend his answer and granted summary judgment to the companies. We affirm.
I.
Belbayev, a Russian national residing in Washington state, is a joint owner in two Russian companies that are involved in fishing, processing, and transporting seafood in Russian waters. Belbayev hired two Korean companies, Korwell Corporation and Global Star Shipping Co., Ltd., to provide equipment, services, and repairs to his vessels while at sea. The Belbayev companies paid Korwell and Global Star from the proceeds of the sale of their catch.
In early 2001, the Russian government instituted an auction-based licensing system. Belbayev was unable to obtain financing to participate in the auctions and was forced to shut down his fishing operations. Korwell and Global Star demanded immediate payment in full for services previously rendered, but Belbayev was unable to pay. In December 2001, Belbayev met in South Korea with representatives of Korwell and Global Star and entered into a notarized contract to obtain financing, settle outstanding accounts, and continue receiving future services. The contract, which included Belbayev's personal guarantee, stipulated that unpaid balances owed by the Belbayev companies would accrue interest at the rate of 24 percent per annum. Belbayev's vessels were repossessed by other creditors, and he went into default owing Korwell and Global Star over $1.8 million.
In March 2005, Korwell and Global Star brought action against Belbayev, his wife and their marital community to satisfy Belbayev's personal guarantee. In April 2005, the Belbayevs filed their answer, including affirmative defenses of failure to state a claim, failure to mitigate, contributory/comparative negligence, unclean hands, statute of limitations, failure to join all necessary parties, estoppel and waiver, and lack of subject matter jurisdiction, and one counterclaim of wrongful attachment and garnishment. During April through July 2005, multiple prejudgment writs of attachment and garnishment were executed against the Belbayevs, which they challenged with motions to vacate. In September 2005, the parties filed a confirmation of parties, claims and defenses, jointly representing that no additional claims or defenses would be raised. In February 2006, the trial court denied the Belbayevs' motion to increase the bond amount for the prejudgment writs.
In April 2006, over a year from the commencement of the suit and with about three months left in discovery, the Belbayevs moved for leave to amend their answer and counterclaims to add the affirmative defense of duress and causes of action for violations of the RICO Act (Racketeer Influenced and Corrupt Organizations Act) and WCPA (Washington Criminal Profiteering Act). Belbayev's declaration painted a new and different picture of his business dealings with Korwell and Global Star. He alleged that individuals associated with the Russian mafia went to his office in Vladivostok, Russia in 2001 and threatened to harm him and his family unless he paid his debts to Korwell and Global Star. When Belbayev did not pay, the men ordered him to a meeting in South Korea with representatives of Korwell and Global Star, which he attended out of fear for himself and his family. Belbayev did not want to sign the agreement they proposed because of its unfavorable terms. However, Belbayev asserted that he was visited in his hotel by an individual who threatened him and his family if he did not sign, so he reluctantly signed it. In 2002, all of Belbayev's vessels were given up as debt repayment to other creditors. Belbayev said that throughout 2003-2004, he received threatening payment demands from a Russian national named Page 4 Kulikov who was affiliated with the mafia and had been instructed to collect Korwell and Global Star's debts "by any means possible." Belbayev claims that he attempted to register a complaint with the local Russian police and the lower ranks of the Russian Federal Security Service, but found that they were controlled by the mafia. Eventually, someone "higher up" dealt with the matter "informally" and the threats ceased. Belbayev also submitted declarations from three of his Russian business affiliates, who supported his claims. Belbayev's declaration specified that he delayed bringing these claims because he feared for the safety of his family and business associates, but "I can do it now since this has become a public matter currently tried in a US court which cannot be corrupted by the mafia." The trial court denied the Belbayevs' motion to amend.
In May 2006, Korwell and Global Star moved for summary judgment, and the Belbayevs moved for leave to add the affirmative defense of illegal contract. In opposing summary judgment, the Belbayevs for the first time raised the affirmative defenses of impossibility, lack of consideration, and failure to exhaust remedies. The trial court granted summary judgment to Korwell and Global Star, denied the Belbayevs' motion to add the affirmative defense of illegal contract, and entered judgment against the Belbayevs and their marital community for more than $3.3 million plus 24 percent interest per annum. The Belbayevs appeal.
II.
The amendment of pleadings under CR 15(a) is reviewed for abuse of discretion. "Discretion is abused if it is manifestly unreasonable, or exercised on untenable grounds, or for untenable reasons." A court's decision is "manifestly unreasonable" if the court, despite applying the correct legal standard to the supported facts, adopts a view that no reasonable person would take.
Hines v. Todd Pac. Shipyards, 127 Wn. App. 356, 374, 112 P.3d 522 (2005).
Mayer v. Sto Indus., Inc., 156 Wn.2d 677, 684, 132 P.3d 115 (2006).
Review of an order granting summary judgment is de novo. Summary judgment is proper when there are no genuine issues of material fact and the moving party is entitled to prevail as a matter of law.
Vallandigham v. Clover Park Sch. Dist. No. 400, 154 Wn.2d 16, 26, 109 P.3d 805 (2005).
CR 56(c); Public Employees Mut. Ins. Co. v. Fitzgerald, 65 Wn. App. 307, 310-11, 828 P.2d 63 (1992).
The Belbayevs contend that the trial court abused its discretion by denying a motion to amend their answer, affirmative defenses and counterclaims on the basis of alleged duress and violations of the RICO Act and WCPA.
CR 15(a) permits a party to amend a pleading by leave of court. "The purposes of CR 15 are to 'facilitate a proper decision on the merits,' and to provide each party with adequate notice of the basis of the claims or defenses asserted against him." "Leave to amend should be freely given 'except where prejudice to the opposing party would result.'" The factors courts may consider in determining prejudice include undue delay, unfair surprise, jury confusion, introduction of remote issues, or a lengthy trial. "It is often said that the test as to whether the trial court should grant leave to amend is whether the opposing party is prepared to meet the new issue." Delay, excusable or not, in and of itself is not sufficient reason to deny the motion. Conclusory assertions about difficulties in preparing for trial are insufficient. The trial court need not specify its reasons for denying the motion if they are apparent in light of the circumstances shown in the record.
Herron v. Tribune Pub. Co., Inc., 108 Wn.2d 162, 165, 736 P.2d 249 (1987) (quoting Caruso v. Local Union No. 690 of Int'l Bhd. of Teamsters, 100 Wn.2d 343, 349, 670 P.2d 240 (1983)).
Herron, 108 Wn.2d at 165 (quotingCaruso, 100 Wn.2d at 349).
Herron 108 Wn.2d at 165-66.
3A Karl B. Tegland, Washington Practice: Rules Practice CR 15 at 320 (5th ed. 2006); Quackenbush v. State, 72 Wn.2d 670, 672, 434 P.2d 736 (1967).
Caruso v. Local Union No. 690 of Int'l Bhd. of Teamsters, 100 Wn.2d 343, 349, 670 P.2d 240 (1983).
3A Tegland, supra, at 320; Walla v. Johnson, 50 Wn. App. 879, 884, 751 P.2d 334 (1988).
Donald B. Murphy Contrs., Inc. v. King County, 112 Wn. App. 192, 199, 49 P.3d 912 (2002).
The Belbayevs contend that Korwell and Global Star failed to demonstrate prejudice because the new witnesses were all known to them and located in Korea; because no dispositive motions were filed; and because the Belbayevs offered to stipulate to an extension of discovery. The Belbayevs emphasize that it took time to gather the evidence and courage to bring these claims. But the dispositive issue is not whether the delay was excusable, but whether the nonmoving party would suffer prejudice. Here, the Belbayevs' new affirmative defenses and counterclaims, if allowed, would introduce completely different issues and dramatically alter the landscape of the case. Korwell and Global Star would have to contact many potential foreign witnesses in Korea and Russia, including unnamed individuals allegedly affiliated with the Russian mafia. The Belbayevs' motion was made more than a year after commencement of the lawsuit with only three months remaining before the discovery cutoff, and after the parties had filed a confirmation of joinder of parties, claims and defenses in which they indicated no additional claims would be raised. In Donald B. Murphy Contractors, Inc. v. King County, we held that the trial court did not abuse its discretion in finding that the opposing party would suffer prejudice where the CR 15(a) motion was made more than a year after the action commenced; the parties had filed a confirmation of joinder of parties, claims and defenses in which they indicated that no additional claims or defenses would be raised; and there were ten days remaining before the summary judgment hearing, less than two months remaining for discovery, and less than three months before the deadline for dispositive trial motions and the trial date. The record in this case contains clear evidence of prejudice.
112 Wn. App. 192, 199, 49 P.3d 912 (2002).
Donald B. Murphy Contrs., 112 Wn. App. at 199-200.
The Belbayevs further contend that the trial court abused its discretion in denying their motion to add a claim of illegality of contract. According to the Belbayevs, because the affirmative defense of illegality of contract is purely a question of law, there could be no prejudice to Korwell and Global Star in allowing the court to address the legality of provisions in the document. However, the Belbayevs' claim that the contract was illegal was based on their argument that the usury statute applies where commercial contracts create liability for a natural person if the person acts for noncommercial purposes.
In ruling on a CR 15(a) motion, a trial court may consider whether pursuit of the new claim would be futile. The Belbayevs' claims are based on the usury statute, RCW 19.52.030(1), which states that:
Shelton v. Azar, Inc., 90 Wn. App. 923, 928, 954 P.2d 352 (1998).
[T]he debtor may not commence an action on the contract to apply the provisions of this section if a loan or forbearance is made to a corporation engaged in a trade or business for the purposes of carrying on said trade or business unless there is also, in connection with such loan or forbearance, the creation of liability on the part of a natural person or that person's property for an amount in excess of the principal plus interest allowed pursuant to RCW 19.52.020.
However, RCW 19.52.080 states that "persons may not plead the defense of usury nor maintain any action thereon or therefor if the transaction was primarily for agricultural, commercial, investment, or business purposes." In Paulman v. Filtercorp, Inc., a corporate debtor invoked usury as an affirmative defense to an action brought against it by a lender to collect payments due on a loan that was also guaranteed by two natural persons. Our Supreme Court acknowledged that RCW 19.52.030(1) and RCW 19.52.080 are contradictory: "[w]hile the former expressly permits a corporate debtor to bring a usury action if it takes a loan that is guaranteed by a natural person, the latter expressly prohibits that same debtor from either bringing a usury action or invoking usury as a defense whether or not the loan is guaranteed by a natural person." In ruling that the usury statute was inapplicable, the court held that "the enactment of RCW 19.52.080 represents a calculated legislative decision not to afford the protection of the usury laws to either a corporation or a natural person who borrows money for business purposes." In the face of this clear language, the Belbayevs' argument that Paulman is inapplicable where the debtor seeking relief is a natural person and not a corporation is untenable. The determinative question is whether the loan was obtained for business or personal purposes.
127 Wn.2d 387, 899 P.2d 1259 (1995).
Paulman, 127 Wn.2d at 391.
Paulman, 127 Wn.2d at 390.
Paulman, 127 Wn.2d at 392 (emphasis added).
The Belbayevs argue that the loan was obtained for personal purposes because Belbayev's primary motivation for entering into the agreement was to protect himself and his family. This argument confuses the purpose of the loan with the circumstances surrounding its execution. The parties do not dispute that Belbayev owed Korwell and Global Star for services rendered, nor that the agreement concerned financing for the Belbayev companies and repayment of unpaid balances. A business loan made under duress is still a business loan. Thus, the exemption to the usury statute applies and prohibits Belbayev from asserting usury as a defense. The trial court did not abuse its discretion in denying the Belbayevs' motion to add a claim of illegality of contract.
The Belbayevs' final argument is that the trial court erred in granting summary judgment to Korwell and Global Star because there were genuine issues of material fact regarding (1) the usury defense, (2) the surety defense involving impossibility and lack of consideration, and (3) the exhaustion of remedy defense. Korwell and Global Star argue that the Belbayevs waived all of these defenses for failing to plead them in their answer, and that the claims also fail on substantive grounds.
Generally, affirmative defenses are waived unless affirmatively pled. To avoid surprise, CR 8(c) specifies that certain defenses are to be pled affirmatively, including failure of consideration, illegality, and "any other matter constituting an avoidance or affirmative defense." However, the affirmative defense requirement is not absolute, and will be considered harmless if it does not affect the substantial rights of the parties. Waiver is the voluntary and intentional relinquishment of a known right. Belbayev contends that his conduct was not voluntary because of the threats against him and his family. However, the alleged threats pertained to the contract and failure to pay, not to Belbayev's ability to bring affirmative defenses in this case. Therefore, these defenses were waived. Moreover, the usury defense was not available to Belbayev for reasons discussed above. And, because Belbayev's personal guarantee was unconditional, Korwell and Global Star were not required to exhaust their remedies by first seeking payment from the Belbayev companies.
Henderson v. Tyrrell, 80 Wn. App. 592, 624, 910 P.2d 522 (1996).
Henderson, 80 Wn. App. at 624 (citingMahoney v. Tingley, 85 Wn.2d 95, 100-01, 529 P.2d 1068 (1975)).
Harvey v. Univ. of Wash., 118 Wn. App. 315, 318, 76 P.3d 276 (2003).
McAllister v. Pier 67, Inc., 1 Wn App. 978, 983, 465 P.2d 678 (1970) (guarantor's promise is to perform if principal does not, and promise of guarantor becomes absolute if principal does not perform and other conditions precedent to liability are satisfied or excused).
The trial court did not abuse its discretion in denying the Belbayevs' motion to amend the pleadings because the record shows that Korwell and Global Star made a sufficient showing of prejudice and the usury defense was not available. Those affirmative defenses not pled in the answer were voluntarily waived.
AFFIRMED.
WE CONCUR.