Opinion
Nos. 64812-8-I; 65012-2-I.
March 28, 2011. UNPUBLISHED OPINION
Appeals from a judgment of the Superior Court for King County, No. 04-2-05087-1, Brian D. Gain, J., entered January 11, 2010.
Affirmed by unpublished opinion per Dwyer, C.J., concurred in by Cox and Leach, JJ.
Berschauer Phillips Construction Company (BPCC) obtained an order of default and a default judgment against Concrete Science Services of Seattle (CSS), a terminated Minnesota limited liability company (LLC). In an effort to collect upon the judgment, BPCC sought to execute upon CSS's purported claims against its insurer, two attorneys hired on CSS's behalf, and the corporate president of one of CSS's members. However, BPCC has not established that Minnesota law allows a Minnesota LLC to accrue property subsequent to its termination. Because it is not apparent that CSS could own the causes of action upon which BPCC sought to execute, the alleged choses in action are too uncertain to be subject to execution under Washington law. Accordingly, we affirm the trial court's orders quashing the writs of execution.
I
In the summer of 2002, BPCC, a Washington corporation, subcontracted with CSS, a Minnesota limited liability company, regarding the staining of concrete floors at Redmond Junior High School.
Subsequent to the completion of that project, CSS's members and governors voted to dissolve the company. On September 12, 2003, they filed a notice of dissolution and articles of termination with the Minnesota Secretary of State. On that same day, the Minnesota Secretary of State issued a certificate of termination, which provided that "the existence of the limited liability company is terminated as of this date." Clerk's Papers (CP) at 617.
In March 2004, BPCC filed a lawsuit in the King County Superior Court against CSS and other subcontractors involved in the Redmond Junior High School project. CSS did not appear in the action, and, on August 30, 2005, BPCC obtained an order of default and a default judgment against CSS in the amount of $318,611.97. One month later, BPCC informed CSS's insurer, Mutual of Enumclaw Insurance Company (MOE), of the lawsuit and demanded payment of the judgment. On CSS's behalf, MOE retained attorneys Scott Clement and John Drotz to represent CSS. Approximately 10 months later, Clement and Drotz filed a motion to vacate the default judgment. The King County Superior Court denied the motion. Clement and Drotz, on behalf of CSS, appealed from the trial court's order denying the motion to vacate the default judgment. This court affirmed the trial court's ruling on the ground that the motion to vacate was not brought within a reasonable period of time.
Thereafter, in October 2008, BPCC filed a lawsuit asserting CSS's purported claims against MOE in the Thurston County Superior Court. BPCC alleged that it had "attached all available choses in action Concrete Science had against the MOE insurance policy." CP at 719. BPCC alleged that these "choses in action" — claims that had never been asserted by CSS — arose due to MOE's failure "to act reasonably and promptly in dealing with the default judgment against its insured." CP at 719.
In July 2009, BPCC filed an amended complaint, alleging that, in addition to attaching CSS's purported claims against MOE, it had also attached CSS's claims against attorneys Clement and Drotz and against Jennifer Faller, the corporate president of one of CSS's members. The amended complaint alleges that Clement and Drotz, "[b]y failing [to] remove the default judgment in a timely manner and in failing to put their true client's interests above those of MOE," had "failed to meet the standard of care for attorneys in Washington State." CP at 745. It further alleges that Faller "failed to timely tender claims to her company's insurance carrier" and "failed to reasonably assist MOE, Clement, and Drotz in resisting the default judgment." CP at 746-47. As with the purported claims against MOE, CSS had filed no lawsuits or other claims against Clement, Drotz, or Faller.
The amended complaint incorrectly spells Faller's name as "Fowler" and incorrectly asserts that Faller was "the principal and owner of Concrete Science." CP at 745.
On December 2, 2009, the King County Superior Court issued three writs of execution, directing the sheriff of Thurston County to levy on CSS's claims against MOE, Clement, Drotz, and Faller. A sheriff's sale of the claims was set for February 10, 2010.
Clement and Drotz thereafter filed a motion in the King County Superior Court seeking to quash the writ of execution and strike the sheriff's sale of the purported claims against them, contending that "there are no such claims that plaintiff seeks to attach, and even if there were, such claims are not subject to being executed upon." CP at 429. The superior court granted Clement's and Drotz's motion. MOE and Faller together filed a similar motion. MOE's and Faller's motion was granted "on the alternative and equally applicable grounds that" (1) "CSS has no property on which to execute" and (2) any property, if it exists, "is not property capable of execution because it is too uncertain." CP at 862.
BPCC appeals from both orders quashing the writs of execution.
II
BPCC contends that CSS's unasserted claims against MOE, Clement, Drotz, and Faller are "choses in action" that are owned by CSS, a terminated limited liability company, and that can be executed upon pursuant to Washington law. We disagree.
CSS was terminated prior to the alleged conduct of MOE, Clement, Drotz, and Faller from which the purported claims arose. Thus, to determine whether BPCC, as CSS's judgment creditor, can execute upon those claims, we must first ascertain whether a Minnesota limited liability company can acquire property in the form of such causes of action subsequent to its termination.
The Minnesota Limited Liability Company Act, chapter 322B Minn. Stat., provides the procedures pursuant to which Minnesota LLCs are terminated. Termination is "the end of a limited liability company's existence as a legal entity." Minn. Stat. § 322B.03, Subd. 48. It is effective "[w]hen the articles of termination have been filed with the secretary of state." Minn. Stat. § 322B.826, Subd. 1. Thus, pursuant to Minnesota law, CSS ceased to exist as a legal entity on September 12, 2003, the day that it was terminated.
RCW 25.15.310(1)(a) provides that "[t]he laws of the state . . . under which a foreign limited liability company is organized govern its organization and internal affairs and the liability of its members and managers." Thus, Minnesota's Limited Liability Company Act controls questions regarding CSS's termination.
BPCC urges us to determine that CSS (1) was not properly terminated pursuant to Minnesota law; (2) is, thus, still a legal entity; and (3) can, accordingly, acquire property. However, the record clearly establishes that Minnesota's Secretary of State issued a certificate of termination on September 12, 2003. A Washington court is not the proper forum in which to challenge an official action of the Minnesota Secretary of State.
Although Minnesota's Limited Liability Company Act generally precludes the assertion of claims against an LLC brought more than two years after the LLC files a notice of dissolution, Minn. Stat. § 322B.82, Subd. 3, a statute does provide an additional process through which creditors or claimants of a terminated Minnesota LLC can, in some circumstances, apply to a Minnesota court to permit certain posttermination claims to proceed. See Minn. Stat. § 322B.863, Subd. 2. Where a creditor or claimant successfully petitions a Minnesota court to "reopen" such a claim, that claim may be brought against the LLC to the extent of the LLC's undisposed assets or against a member of the LLC so long as the amount sought does not exceed the value of that distributed to the member in the LLC's termination. Minn. Stat. § 322B.863, Subd. 2. Given that Minnesota's Limited Liability Company Act sets forth procedures through which creditors can, in some circumstances, reach the assets of a terminated LLC, it appears that the Minnesota legislature contemplated circumstances in which creditors would seek to assert such claims and, accordingly, provided remedies, though limited, for some such creditors. The circumstances presented in this case, however, are not among the circumstances addressed by the statutory provision, and BPCC has not sought to avail itself of such remedies.
This provision of Minnesota's Limited Liability Company Act provides:
Claims reopened. At any time within one year after articles of termination have been filed with the secretary of state pursuant to section 322B.816 or 322B.82, subdivision 1, clause (2), or a decree of termination has been entered, a creditor or claimant who shows good cause for not having previously filed the claim may apply to a court in this state to allow a claim:
(1) against the limited liability company to the extent of undisposed assets; or
(2) if the undisposed assets are not sufficient to satisfy the claim, against a member, whose liability is limited to a portion of the claim that is equal to the portion of the distributions to members in liquidation or termination received by the member, but in no event may a member's liability exceed the amount that the member actually received in the termination.
Minn. Stat. § 322B.863, Subd. 2.
Moreover, Minnesota's Limited Liability Company Act nowhere indicates that an LLC formed pursuant to the laws of that state can acquire property subsequent to its termination. Indeed, the statutory provision defining termination as "the end of a limited liability company's existence as a legal entity," Minn. Stat. § 322B.03, Subd. 48, suggests otherwise. BPCC has not established that Minnesota law permits an LLC formed pursuant to Minnesota law to acquire ownership of causes of action accruing subsequent to the LLC's termination.
Because BPCC sought to execute upon the purported causes of action in Washington, our state's execution statute determines whether BPCC may so proceed. Washington's execution statute provides that "[a]ll property, real and personal, of the judgment debtor that is not exempted by law is liable to execution." RCW 6.17.090. Our Supreme Court has determined that the "statute is sufficiently broad to include unliquidated tort claims even if of dubious value." Woody's Olympia Lumber, Inc. v. Roney, 9 Wn. App. 626, 633, 513 P.2d 849 (1973). However, it has also been recognized that an unliquidated claim may be too uncertain to be subject to execution. See, e.g., United Pac. Ins. Co. v. Lundstrom, 77 Wn.2d 162, 172, 459 P.2d 930 (1969) (holding that a claim was not subject to execution where the value of the claim would not be "mathematically ascertainable when judgment was rendered on the claim").
Here, the "choses in action" upon which BPCC sought to execute are anything but certain. Indeed, it is not established that CSS could come into ownership of such claims accruing subsequent to its termination. Thus, it is not clear that CSS owns property upon which BPCC, as CSS's judgment creditor, can execute. Even assuming that the purported "choses in action" at issue herein set forth cognizable claims under Washington law, the requisite certainty that the claims are owned by CSS — and, thus, can be executed upon by a judgment creditor of the terminated LLC — is not extant.
Minnesota law governs the affairs and liabilities of CSS. Whether Minnesota statutes allow a Minnesota court to reopen the affairs of a terminated LLC and declare the LLC to be the owner of an asset — a cause of action — that accrued after termination is a question for the Minnesota judiciary. Whether the answer to that question is satisfactory or serves Minnesota's public policy is a concern necessarily addressed to the Minnesota legislature. On the record before us, CSS's purported ownership of causes of action that accrued after its termination is too uncertain for such purported claims to be subject to execution.
We affirm the superior court's orders quashing the writs of execution.
We concur.