Court Opinion

ID: 2717189
Source: CourtListenerOpinion
Date Created: 2014-08-11 21:06:08.206616+00
Date Added: 2024-06-11T12:39:13.554985
License: Public Domain

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