Court Opinion

ID: 4446606
Source: CourtListenerOpinion
Date Created: 2019-10-14 19:15:33.848689+00
Date Added: 2024-06-11T14:53:19.252088
License: Public Domain

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

 MARGARET L. CURTIS, individually and              No. 78248-7-I
 as Personal Representative of the Estate          (Consolidated with No. 78405-6
 of Allen L. Curtis,                               and No. 78340-8)

              Respondent/Cross-Appellant,          DIVISION ONE

                  V.
                                                   UNPUBLISHED OPINION
 VLADAN R. MILOSAVLJEVIC,

             Appellant/Cross-Respondent,

 LARI-ANNE MILOSAVLJEVIC, HIDDEN
 CREEK II, LLC, ROCK & SHIELD, LLC,
 MEADOWDALE MARINA, LLC, and
 ICARUS HOLDING, LLC,

                                 Defendants.       FILED: October 14, 2019

       CHUN, J.    —   The trial court concluded Vladan Milosavljevic owed

$1,268,528.16 on a $1.4 million loan obligation to Margaret Curtis and the Estate

of Allen Curtis (collectively, Curtis). In arriving at the figure, the court applied

offsets against the debt for (1) Milosavljevic’s conveyance of a property to Hidden

Creek II, LLC, of which the Curtises were the sole members, and (2) his

subsequent expenditures incurred in developing the property.

       On appeal, Milosavljevic argues the limitations period on the loan

agreement claim expired prior to suit and, in the alternative, that he should have

received credit against the loan obligation for his personal services rendered in
No. 78248-7-1/2

developing the property. Milosavijevic also argues the trial court erred in its

computation of the credits.

           Curtis cross-appeals, arguing the trial court should not have applied

offsets against the loan obligation because the transfer and expenditures solely

benefited Hidden Creek, and no legal basis exists for veil-piercing. Curtis also

asserts that, under a previously discharged bankruptcy plan, Milosavijevic

already owed a deed of trust on the transferred property; hence, Curtis argues,

this constitutes another reason why the trial court should not have applied an

offset for the transfer. Finally, Curtis claims the trial court erred in denying

interest on a $239,404.80 payment by Milosavljevic, which he owed under his

bankruptcy plan.

       We affirm the trial court’s determination that a six-year statute of

limitations governs the loan agreement. But because Milosavljevic’s transfer of

property and expenditures benefitted Hidden Creek—and no basis exists for veil-

piercing—we reverse the trial court’s application of offsets to the debt.

Additionally, we affirm the trial court’s conclusion that Milosavljevic does not owe

interest on the $239,404.80 payment. Because of the discharge of

Milosavljevic’s bankruptcy plan, the payment qualities as voluntary.

                                      I. BACKGROUND

       On February 18, 2010, Milosavljevic filed a chapter 11 bankruptcy petition

in the United States Bankruptcy Court for the Western District of Washington.

Allen and Margaret Curtis filed a claim for $3,259,615.59 in the case.1

       1   A prior loan agreement, not at issue in this case, formed the basis for this claim.

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No. 78248-7-1/3

       The terms of the bankruptcy plan provided for the Curtises to receive the

balance of a settlement payment due to Milosavijevic and a deed of trust on

certain property in Bothell (Kenmore parcel). In addition, the Bankruptcy Court

held $248,214.76 for potential claims the IRS may have against Milosavljevic.

The Bankruptcy Court expected that the IRS would find Milosavljevic owed no tax

during the period relevant to bankruptcy, and ordered that in the event these held

funds exceeded the IRS claim, the remainder be disbursed to the Curtises. On

September 16, 2011, the Curtises received partial payment of their bankruptcy

claim in the amount of $1,401,155.14; but Milosavljevic never granted the deed

of trust on the Ken more parcel.

       The Curtises made a new loan of $1 .4 million to Milosavljevic. On

October 3, 2011, Milosavljevic and the Curtises entered into a written loan

agreement providing as follows:
       LOAN AGREEMENT b/n VLADAN MILOSAVLJECIV [sic] & ALLEN
       and MARGARET CURTIS
       I, VLADAN MILOSAVLJEVIC, will pay ALLEN AND MARGARET
       CURTIS, our loan of $1,400,000.00 (one million-four hundred-00
       dollars)
       My personal guarantee, is [the Kenmore parcel]
       [Signed by Milosavljevic and the Curtises.]
      On February 13, 2012, the IRS amended its claim to $0.00, and the

Bankruptcy Court ordered that the $248,214.76 held in its registry be released to

Milosavljevic’s counsel. The Bankruptcy Court directed Milosavljevic’s counsel to

disburse some of the funds to himself and the United States Trustee’s office, and

the balance of the funds—$239,404.80—to the Curtises. On April 10, 2012,

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No. 78248-7-1/4

Milosavijevic withdrew the funds in cash but did not transfer the proceeds to the

Curtises. Milosavijevic’s counsel, however, reported to the Bankruptcy Court that

payment had been made to the Curtises pursuant to the terms of the chapter 11

plan. On April 20, 2012, the Bankruptcy Court entered an Order Discharging

Debtors and Final Decree Closing Case for the plan (“Order of Discharge”).

       On March 12, 2013, Milosavljevic formed Hidden Creek, a limited liability

company, designating himself as the manager and the Curtises as the only

members. On March 14, 2013, Milosavljevic conveyed the Kenmore parcel to

Hidden Creek; the property’s value amounted to $550,000 at the time of transfer.

After the transfer, Milosavljevic worked to improve the property and incurred

$434,526.96 in out-of-pocket expenses in doing so. Milosavljevic also claimed at

trial to have worked over 2,000 hours to develop the Kenmore parcel.

       Allen Curtis died on December 31, 2015. Margaret Curtis, his wife, serves

as the personal representative of his estate. According to Milosavljevic, after

Allen Curtis’s death, Margaret Curtis encouraged him to continue development of

the Kenmore parcel and ready it for sale. On February 8, 2017, Curtis filed a

complaint against Milosavljevic seeking, among other claims, recovery of the

loaned $1.4 million.

       Milosavijevic paid $239,404.80 to Curtis on May 1, 2017.

      On October 27, 2017, Curtis moved for summary judgment. In response,

Milosavljevic argued that the three-year limitations period of RCW 4.16.080

barred the suit. On December 1, 2017, the trial court denied Curtis’s motion. On

December 8, 2017, Curtis moved for reconsideration, requesting either summary

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 No. 78248-7-1/5

judgment on the note or partial summary judgment on Milosavljevic’s affirmative

defenses, including his statute of limitations defense. In an order reconsidering

its denial of Curtis’s summary judgment motion, the trial court granted partial

summary judgment and struck the statute of limitations defense. It concluded

that, whether analyzed as a negotiable instrument under RCW 62A.3-1 04 or as a

written contract, the six-year limitations period applied to the loan agreement.

        The matter proceeded to a bench trial in 2018. In its Findings of Fact and

Conclusions of Law, the trial court concluded that Milosavljevic owed payment

under the loan agreement, but applied offsets for (1) Milosavljevic’s conveyance

of the Kenmore parcel to Hidden Creek, and (2) his out-of-pocket expenses

incurred in developing the property. After its computation of this sum, the court

concluded Milosavljevic owed $976,235.46 in principal and $292,292.71 in

prejudgment interest, applying the transfer and expenditures first to accrued

interest and then to principal.2 In addition, the trial court concluded the Order of

Discharge discharged all of Milosavljevic’s obligations under the Chapter 11 plan,

rendering the $239,404.80 payment voluntary with no interest owing. Both sides

appeal.

        2In its Findings of Fact and Conclusions of Law, the trial court stated that Milosavijevic
owed $974,094.07 in principal and $291,443.70 in pre-judgment interest, “As calculated in
Attachment A.” These figures appear to be in error, as they differ from the calculations in
Attachment A and those in the trial court’s Judgment. The parties appear to agree that, under the
judgment, Milosavijevic owes $976,235.46 in principal and $292,292.71 in interest.

                                                5
 No. 78248-7-1/6

                                          II. ANALYSIS
     A. Appeal from Order Granting Reconsideration of Denial of Summary
        Judgment
         Milosavljevic argues that the trial court erroneously concluded that a six-

year limitations period governs the parties’ loan agreement. He contends that

the three-year statute of limitations, RCW 4.16.080(3), applies to the agreement,

which he characterizes as a partially integrated contract.3 Curtis argues the trial

court properly concluded otherwise.4 We agree with Curtis.

         We review de novo an order granting summary judgment and perform the

same inquiry as the trial court. Owen v. Burlington N. & Santa Fe R.R., 153
Wash. 2d 780, 787, 108 P.3d 1220 (2005). “Summary judgment is available only if

the pleadings, depositions, answers to interrogatories, admissions on file, and

any affidavits show that there is no genuine issue as to any material fact and that

the moving party is entitled to judgment as a matter of law.” Bogle and Gates,

PLLC v. Holly Mountain Res., 108 Wash. App. 557, 560, 32 P.3d 1002 (2001). We

will not reverse a court’s ruling on reconsideration absent a showing of manifest

abuse of discretion. Hook v. Lincoln County. Noxious Weed Control Bd., 166
Wash. App. 145, 158, 269 P.3d 1056 (2012). “A trial court abuses discretion when

         ~ Rcw4.16.o80: “The following actions shall be commenced within three years:      .   .(3).

Except as provided in RCW 4.16.040(2), an action upon a contract or liability, express or implied,
which is not in writing, and does not arise out of any written instrument[.]”
         ~ As an alternative basis for concluding the six-year limitations period governed the loan
agreement, the trial court determined the loan agreement constituted a negotiable instrument as
defined by RCW 62A.3-104. On appeal, Milosavijevic argues the court erred in reaching this
finding; Curtis concedes error is likely. Because we ultimately conclude the trial court properly
determined the loan agreement is governed by a six-year statute of limitations as a contract in
writing, we decline to examine whether the loan agreement may also be a negotiable instrument.

                                                 6
 No. 78248-7-1/7

 its decision is based on untenable grounds or reasons.” Wilcox v. Lexington Eye

 Inst., l3OWn. App. 234, 241, 122 P.3d 729 (2005).

        “A written agreement for purposes of [RCW 4.16.040(1)’s six-year]

limitation period must contain all essential elements of the contract, which include

the subject matter, parties, terms and conditions, and price or consideration.”

Urban Dev., Inc. v. Evergreen Bldg. Prods. LLC, 114 Wash. App. 639, 650, 59 P.3d
112 (2002). Additionally, “a borrower’s promise to repay loaned funds is.                     .   an

essential element of a loan agreement.” Nat’l Bank of Commerce of Seattle v.

Preston, 16 Wash. App. 678, 680, 558 P.2d 1372 (1977). But “if resort to parol

evidence is necessary to establish any material element then the contract is

partly oral and the 3-year statute of limitations applies.” Nat’l Bank of Commerce

of Seattle, 16 Wash. App. at 679. To decide whether an agreement is written, or

partly oral and partly in writing, a court must consider “all relevant, extrinsic

evidence, either oral or written     .   .   .   .   That is a question of fact.” Barber v.

Rochester, 52 Wash. 2d 691, 698, 328 P.2d 711 (1958). If the loan agreement

contains all essential elements, then it constitutes a written agreement subject to

a six-year statute of limitations.

       We review only the pleadings, depositions, answers to interrogatories,

admissions on file, and any affidavits available to the trial court at the time of

decision to determine whether the loan agreement was a contract in writing. See

Bogle & Gates, PLLC, 108 Wash. App. at 560. In addition, because the order of

reconsideration effectively granted partial summary judgment on Milosavljevic’s

                                                         7
 No. 78248-7-1/8

 statute of limitations defense, we draw all reasonable inferences in his favor.

 See Bocile & Gates, PLLC, 108 Wash. App. at 560.

         The loan agreement includes the essential elements of the subject matter,

 parties, consideration, and promise to repay loaned funds: Milosavljevic

promised to repay $1.4 million in loaned funds back to the Curtises.5

RCW 9.52.010 supplies the interest rate for the agreement.6

         Milosavljevic contends that one must resort to extrinsic evidence to

understand additional and essential terms and conditions of the agreement;

namely, that Milosavljevic was to use some of the funds to develop the Kenmore

parcel, that the parties planned to share in the profits of the development of the

Kenmore parcel, and his belief that by conveying the Kenmore parcel to the

Curtises he satisfied his debt to them. But the evidence available to the trial

court at reconsideration does not show that these were essential elements of the

loan agreement. ~

        At the stage of the motion for reconsideration and summary judgment,

Milosavljevic failed to raise a genuine issue of fact as to whether the loan

agreement was a contract in writing. Thus, the trial court did not err in

concluding that a six-year limitations period applied to the loan agreement.

            “I, VLADAN MILOSAVLJEVIC, will pay ALLEN AND MARGARET CURTIS, our loan of
$1,400,000 (one million-four hundred-00 dollars).” Milosavljevic’s argues that the meanings of
“will pay” and “our loan” are ambiguous. His argument is unpersuasive.
          6 RCW 19.52.010 supplies a 12 percent interest rate “where no different rate is agreed to

in writing between the parties.”
          ~ Milosavljevic points to testimonial evidence from the trial as a means of establishing that
not all essential elements of the loan agreement were in writing. His assignment of error,
however, is to the pretrial ruling. Thus, we do not consider this evidence in reaching our
conclusion.

                                                  8
 No. 78248-7-1/9

    B. Appeal from Trial

        “Where the trial court has weighed the evidence, our review is limited to

ascertaining whether the findings of fact are supported by substantial evidence

and, if so, whether the findings support the conclusions of law and the judgment.”

Tacoma v. State, 117 Wash. 2d 348, 361, 816 P.2d 7(1991). We reviewde novo

questions and conclusions of law. Sunnyside Valley lrri.ciation Dist. v. Dickie, 149
Wash. 2d 873, 880, 73 P.3d 369 (2003).

       1. Loan Agreement Offsets

       Milosavljevic argues the trial court properly applied offsets against the loan

obligation for his transfer of the Kenmore parcel to Hidden Creek and his

expenditures in developing the property, but that the trial court improperly denied

offsets for his personal services in developing the property. Curtis argues no

offsets can be properly applied because Milosavijevic’s transfer, expenditures,

and services benefitted Hidden Creek, and not the Curtises. We conclude that

the trial court improperly applied offsets against the loan obligation.

       Here, under the loan agreement, Milosavljevic owed an amount to the

Curtises. Milosavljevic’s expenditures, personal services, and conveyance of the

Kenmore parcel, however, benefitted Hidden Creek. The LLC form protects its

members from personal liability on the LLC’s obligations. RCW 25.15.126. As

such, the Curtises could not be personally liable to Milosavljevic with respect to

benefit he conferred upon Hidden Creek. The liabilities in question were not

between the same parties, indicating they could not be properly offset against

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No. 78248-7-1110

each other. Cf~ Johnson v. California-Washington Timber Co., 161 Wash. 96, 103,

296 P. 159 (1931) (separate liabilities between the same parties may be offset).

            Notwithstanding the foregoing, the trial court applied offsets against the

loan obligation for Milosavljevic’s expenditures and conveyance of the Kenmore

parcel to Hidden Creek. It is unclear under what theory the trial court did so.

Disregard of the LLC form appears to be the most likely justification.8 Ct In re

Rapid Settlements, Ltd.’s Application for Approval of Transfer of Structured

Settlement Payment Rights, 166 Wash. App. 683, 691-695, 271 P.3d 925 (2012)

(allowing offset despite no mutuality of obligation because veil-piercing was

justified).

        A court “may disregard the LLC entity to impose personal liability on the

LLC’s members.” Landstar Inway, Inc. v. Samrow, 181 Wash. App. 109, 123, 325
P.3d 327 (2014). In doing so, the court applies the same test as is used to pierce

the corporate form and apply liability on a corporation’s shareholders. Landstar

Inway, 181 Wash. App. at 123; RCW25.15.061. Acourt may disregard the LLC

form and impose liability on its members in circumstances where (1) the LLC

form is used intentionally to violate or evade a duty, and (2) disregard is

necessary and required to prevent unjustified loss to the injured party. Meisel v.

M & N Modern Hydraulic Press Co., 97 Wash. 2d 403, 410, 645 P.2d 689 (1982). A

        8The trial court’s oral ruling provides:
       With regards to the LLC, however, the court cannot ignore that the Curtises are
       the people who benefit from that transfer to the LLC. They are the only principal
       agents of the LLC, and the court would find that at least the LLC was an agent of
       the Curtises’ and the receipt of that conveyance was in payment for the for that
                                                                              —

       loan.
       3 Report of Proceeding at 367.

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 No. 78248-7-I/li

 court looks for evidence of fraud, misrepresentation, or some form of

 manipulation of the LLC to the member’s benefit when conducting this analysis.

 Truckweld EQuip. Co. v. Olson, 26 Wash. App. 638, 644-45, 618 P.2d 1017 (1980)

 (applying the same rule to corporations). The party alleging abuse of the LLC

form bears the burden of proof. Jet Boats, Inc. v. Puqet Sound Nat’l Bank, 44
Wash. App. 32, 46, 721 P.2d 18 (1986). “The absence of a finding of fact in favor

of the party with the burden of proof about a disputed issue is the equivalent of a

finding against that party on that issue.” Car Wash Enters., Inc. v. Kampanos, 74
Wash. App. 537, 546, 874 P.2d 868 (1994).

         Here, none of the trial court’s findings of fact demonstrated fraud,

misrepresentation, or abuse of the LLC form by the Curtises. Thus, by granting

Milosavljevic offsets against the loan for his expenditures and conveyance of the

Kenmore parcel to Hidden Creek, the trial court unjustifiably disregarded the LLC

form.9 Because we determine offsets were improper,1° we decHne to decide

whether the trial court properly computed their application to the loan agreement.

         ~ Because doing so would also require piercing the form of Hidden Creek, Milosavijevic is
likewise not entitled to any offset for his personal services in developing the Kenmore parcel.
         10 In support of his claim that he is entitled to offsets, Milosavljevic additionally advances

an unjust enrichment theory. But he cannot use the theory of unjust enrichment to circumvent the
protections of the LLC form. ~ McKesson HBOC. Inc. v. New York State Common Retirement
Fund, Inc., 339 F.3d 1087, 1093-1096 (9th Cir. 2003) (disallowing unjust enrichment claim
against a Delaware public corporation where piercing the corporate veil was unjustified); see also
QVC, Inc. v. OurHouseWorks, LLC, 649 Fed.Appx. 223, 228 (3d Cir. 2016) (“[P]ermitting a party
that has contracted with a subsidiary to recover damages from a corporate parent on an unjust
enrichment theory would allow plaintiffs to evade Illinois corporate liability limitations. QVC cannot
use the equitable remedy of unjust enrichment to circumvent state veil-piercing requirements
       see also N. Am. Steel Connection, Inc. v. Watson Metal Prods. Corp., 515 Fed.Appx. 176,
179-181 (3d Cir. 2013) (rejecting an unjust enrichment claim on the basis that piercing the
corporate veil was unjustified).

                                                  11
No. 78248-7-1/12

        2. Interest on the $239,404.80 Payment

        Curtis argues that the trial court erred by not imposing a 12 percent

interest rate on Milosavijevic’s $239,404.80 payment. Milosavijevic argues the

trial court properly found no interest due on the payment, because it was

rendered voluntary by the Bankruptcy Court’s Order of Discharge. We agree

with Milosavijevic.

        Under 11   U.s.c § 524(a), “any judgment of any court that does not honor
[a] bankruptcy discharge is ‘void’ to that extent.” In re Pavelich, 229 B.R. 777,

781 (B.A.P. 9th Cir. 1999). If a state court judgment purports to establish

personal liability of a debtor on a discharged debt, the judgment is void.

Pavelich, 229 B.R. at 782. A federal court need not give full faith and credit to

state court judgments that are void under 11 U.S.C.   § 524(a)(1). Pavelich, 229
B.R. at 782.

       While state courts cannot “vary the terms of the discharge, they have

considerable authority to except particular debts from discharge,” and “determine

whether a particular debt is or is not within the discharge.” Pavelich, 229 B.R. at

783. State court jurisdiction to determine dischargeability is concurrent with

federal bankruptcy court jurisdiction. Herring v. Texaco, Inc., 161 Wash. 2d 189,

195, 165 P.3d 4 (2007). We review de novo whether a debt is discharged by an

order of discharge. See DeAtley v. Barnett, 127 Wash. App. 478, 483, 112 P.3d
540 (2005) (reviewing de novo whether a bankruptcy discharge that discharged

the debtor’s obligation of performance also discharged the debtor’s

corresponding right of first refusal).

                                         12
 No. 78248-7-1/13

       A bankruptcy court closes a case after the estate is fully administered.

11 U.S.C.    § 350(a). A discharge for cause held after notice and hearing
discharges all plan debts. 11 U.S.C.    § 1141(d)(5)(A). Buta discharge does not
eliminate a debtor’s obligation to pay debts excepted from discharge by

11 U.S.C.    § 523. 11 U.S.C. § I 141(d)(2); see also Pavelich, 229 B.R. at 783
(referring to child support debts subject to II U.S.C. 523(a)(5), drunk driving

injury debts subject to II U.S.C. 523(a)(9) as examples of debts that a state

court has jurisdiction to decide whether they are exempt from discharge).

       The Order of Discharge here granted a discharge under 11 U.S.C.         § 1141,
and declared that the bankruptcy estate was fully administered and thus closed.

The Order of Discharge made no reservation in its grant of discharge under

11 U.S.C.    § 1141. The Bankruptcy Court entered the Order of Discharge based
on an erroneous understanding that Milosavljevic had fully complied with his

obligations to the Curtises. But even if the Order wrongfully discharged the plan,

Curtis’s debt is not of a kind enumerated by 11 U.S.C.    § 523. Additionally, even
in full view of the fact that not all facets of the plan were complied with before the

original Order of Discharge, the Bankruptcy Court recently declined to vacate the

Order of Discharge. Thus, the trial court, acting in concurrent jurisdiction with the

federal bankruptcy courts, could not have properly excepted Curtis’s debt from

discharge.

       In accord with its determination that the Order of Discharge discharged all

of Milosavijevic’s Chapter 11 plan obligations, the trial court properly declined to

                                          13
No. 78248-7-1/14

impose interest on the “voluntary payment” of $239,404.80. The payment was

voluntary and as such, no interest is due.

        We affirm in part, reverse in part, and remand for further proceedings

consistent with this opinion.11

                                                       c~~4             I

WE CONCUR:

                                                         ~
                    ‘c9~                                   ‘~

          In light of the above conclusions, we need not address the other issues raised
by the parties.

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