Court Opinion

ID: 2813009
Source: CourtListenerOpinion
Date Created: 2015-06-30 15:35:58.773029+00
Date Added: 2024-06-11T12:34:14.751071
License: Public Domain

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
                                  DIVISION ONE

GUSTAVO NELSON ARZOLA, an
individual, MICHAEL KLATT, an                No. 71455-4-
individual, and SUSAN PROSSER, an
individual,
                                             ORDER WITHDRAWING OPINION
      Appellants/Cross Respondents,          AND SUBSTITUTING OPINION

CARL TAYLOR, an individual,

                     Plaintiff,

              v.

NAME INTELLIGENCE, INC., a
Washington corporation; and
JAY WESTERDAL, an individual,

      Respondents/Cross Appellants.

      The court has determined that the opinion filed on June 15, 2015, should

be withdrawn and a substitute published opinion be filed. Now, therefore, it is

hereby

         ORDERED that the opinion filed on June 15, 2015, be withdrawn and a

substitute published opinion be filed.

         DATED this offi^day of Ai-nrvo               2015.

                                                     | yl

                                                       i J.^^j.
 IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

GUSTAVO NELSON ARZOLA, an
individual, MICHAEL KLATT, an                   No. 71455-4-
individual, and SUSAN PROSSER, an
individual,                                     DIVISION ONE

      Appellants/Cross Respondents,             PUBLISHED OPINION

CARL TAYLOR, an individual,

                    Plaintiff,

NAME INTELLIGENCE, INC., a
Washington corporation; and
JAY WESTERDAL, an individual,
                                                FILED: June 29, 2015
      Respondents/Cross Appellants.

      Trickey, J. — Where a party has voluntarily satisfied a trial court decision

that the appellate court later modifies, RAP 12.8 requires the trial court to order

restitution in appropriate circumstances.     Here, the defendants appealed a

judgment that awarded the plaintiffs damages for nonpayment of wages. This
court modified that judgment, determining that the compensation paid plaintiffs did

not constitute wages. Thus, the defendants were entitled to recover the monies
they had paid for exemplary damages, attorney fees, and litigation expenses.

Defendants were also entitled to prejudgment interest assessed from the time

payment was made.

       The defendants cross appeal the interest rate for prejudgment interest

awarded, asserting that the trial court was required to impose the statutory rate of
12 percent. Because this is an action in equity, the court can determine the
No. 71455-4-1/2

prejudgment interest rate. Here, the trial court awarded 5 percent prejudgment

interest. Under the circumstances, the trial court did not abuse its discretion in its

equitable award of prejudgment interest. We affirm.

                                       FACTS

       Gustavo Arzola, Michael Klatt, and Susan Prosser (collectively Arzola) were

employees of Name Intelligence Inc. (Nl), a Washington corporation co-founded

by respondent Jay Westerdal, its chief executive officer, president, and 100

percent shareholder.      Arzola sued Nl for monies owed under stock right

cancellation agreements.     The trial court determined that the amounts owed

constituted wages. The trial court entered a judgment on February 18, 2011, which

included exemplary damages, attorney fees, and costs as required under chapter

49.52 RCW.

       Nl and Westerdal paid the judgment in full, submitting a check to Arzola's

counsel. At the same time, they notified Arzola that they were appealing the

judgment. On appeal, Nl and Westerdal challenged the trial court's decision that
payments owed to Arzola constituted wages entitling Arzola to exemplary
damages of twice the amount of wages wrongfully withheld, as well as attorney

fees and costs. This court held that the monies owed did not constitute wages and

reversed the award of exemplary damages, attorney fees, and costs.1
       Nl and Westerdal filed a motion under RAP 12.8 to recover the monies paid

along with 12 percent prejudgment interest. The trial courtawarded the monies Nl

1Arzola v. Name Intelligence. Inc.. 172 Wash. App. 51, 288 P.3d 1154 (2012).
                                          2
No. 71455-4-1 / 3

had paid for exemplary damages, attorney fees, and costs, but awarded only the

five percent prejudgment interest. Arzola timely appeals.2
       Nl and Westerdal cross appeal, arguing that the prejudgment interest rate

should be 12 percent.

                                       ANALYSIS

      This court reviews an award under RAP 12.8 for a manifest abuse of

discretion. Ehsani v. McCullouqh Family P'ship, 160 Wash. 2d 586, 589, 159 P.3d
407 (2007). An abuse of discretion occurs only when exercised in a manifestly
unreasonable manner or on untenable grounds. In re Marriage of Littlefield, 133
Wash. 2d 39, 46-47, 940 P.2d 1362 (1997).

       RAP 12.8 provides:

              If a party has voluntarily or involuntarily partially or wholly
       satisfied a trial court decision which is modified by the appellate
       court, the trial court shall enter orders and authorize the issuance of
       process appropriate to restore to the party any property taken from
       that party, the value ofthe property, or in appropriate circumstances,
       provide restitution. An interest in property acquired by a purchaser
       in good faith, under a decision subsequently reversed or modified,
       shall not be affected by the reversal or modification of that decision.

A party is entitled to a refund where one has satisfied a later reversed judgment.
Sloan v. Horizon Credit Union, 167 Wash. App. 514, 520, 274 P.3d 386 (2012).

       Arzola's argument that RAP 12.8 does not require restitution after
modification of a judgment is not well taken. Our Supreme Court has construed
RAP 12.8 as requiring practitioners and courts to look to the common law of
restitution as set forth in the Restatement of Restitution to determine the

2 Arzola filed a motion for reconsideration more than 10 days after the judgment. The
court denied the motion as untimely.
No. 71455-4-1/4

postreversal remedy. Ehsani, 160 Wash. 2d at 590. Section 74 of the Restatement

of Restitution (1937) states:

       A person who has conferred a benefit upon another in compliance
       with a judgment, . . . is entitled to restitution if the judgment is
       reversed or set aside, unless restitution would be inequitable or the
       parties contract that payment is to be final; if the judgment is
       modified, there is a right to restitution of the excess.

       Under RAP 12.8 and section 74 of the Restatement of Restitution, Nl and

Westerdal are entitled to be restored to their original positons upon reversal of the

trial court's judgment. See Simonson v. Fendell, 101 Wash. 2d 88, 93, 675 P.2d 1218

(1984) ("The general principle is that rescission contemplates restoration of the

parties to as near their former position as possible or practical.").

       On remand from this court, the trial court awarded Nl and Westerdal

$254,598.36, calculated as follows:

       $145,007.00 (exemplary/double damages for 2009)
       $7,381.82 (exemplary/double damages for 2010)
       $97,860.00 (attorney fees)
       $4,349.54 (litigation costs)

       Procedurally, Arzola argues that the trial court should have conducted an

evidentiary hearing on the RAP 12.8 motion. Both parties submitted declarations

in support of their positions. The trial court issued its ruling without oral argument.

The facts are undisputed, and thus there was no need for an evidentiary hearing.

See Kwiatkowski v. Drews. 142 Wash. App. 463, 479, 176 P.3d 510 (2008).

       Arzola then argues that because RAP 12.8 provides an equitable remedy,

the trial court should have assessed what benefit they received from the monies

paid. Specifically, Arzola contends that the amounts paid for taxes and attorney
No. 71455-4-1/5

fees were not a direct monetary benefit to them and therefore should be excluded

from restitution.

       In support, Arzola submitted declarations establishing the amount of federal

income taxes paid on the funds distributed to each of them. In response, Nl and

Westerdal provided a declaration by a certified public accountant indicating that

such payments were recoverable under section 1341 of the Internal Revenue

Code. Under that section, Arzola could elect to either deduct the repayment on

their tax returns or claim a refundable tax credit, whichever option provided the

most tax benefit. Arzola did not submit anything to refute this declaration.

       Citing Ehsani, Arzola argues that the attorney fees paid were not a benefit
to them and therefore should not have been assessed against them. Arzola's

reliance on Ehsani for this argument is misplaced. There, the judgment was paid

into the attorney's client trustaccount. The clients specifically directed the attorney
to distribute proceeds to the clients' creditors and to himself. Ehsani. 160 Wash. 2d
at 589. But here, the judgment itself awarded attorney fees to the lawyers as part
of a statutory scheme. The fees paid were erroneously awarded under RCW
49.48.030. Neither Nl nor Westerdal should bear the attorney fee expenses Arzola

paid to their attorneys. Arzola's situation is more similar to Sloan v. Horizon Credit
Union, 167 Wash. App. 514, 274 P.3d 386 (2012), where the court permitted
restitution under RAP 12.8 for CR 11 attorney fees in a judgment that was

subsequently reversed.

        Arzola contends next that the trial court erred in entering a joint judgment in

favor of both Nl and Westerdal and jointly against all three plaintiffs. Arzola argues
No. 71455-4-1/6

that Westerdal was not entitled to be a judgment debtor because NI paid the check.

But the judgment listed both Nl and Westerdal as the judgment debtor. Further,

the order clauses specified that judgment in the amount of $256,698.36 was

against Jay Westerdal, individually. Because Westerdal was individually liable, he

is entitled to be reimbursed. The fact that Nl paid the check is immaterial. See

Sloan, 167 Wash. App. at 519-21 (not material that someone other than the judgment

debtor tendered funds in satisfaction of the debt).

       The first judgment listed each of the employees as the judgment creditors.

The trial court did not enter separate judgments. A judgment against all was

appropriate on remand.

Prejudgment Interest

       The trial court awarded 5 percent prejudgment interest. Arzola argues that

no prejudgment interest should be awarded. Nl and Westerdal cross appeal
asserting that the trial court was required to impose 12 percent prejudgment

interest.

       This court reviews prejudgment interest awards for abuse of discretion.

Scoccolo Constr.. Inc. v. City of Renton, 158 Wash. 2d 506, 519,145 P.3d 371 (2006).

An award of prejudgment interest is appropriate where a party retains funds rightly

belonging to another party and thereby denies the party the use value of the
money. Crest. Inc. v. Costco Wholesale Corp.. 128 Wash. App. 760, 775, 115 P.3d
349 (2005). A prevailing party is entitled to prejudgment interest, provided the
damages are liquidated. Lakes v. von der Mehden, 117 Wash. App. 212, 214, 70
P.3d 154 (2003). Here, the claim is liquidated because the measure of damages
No. 71455-4-1/7

does not require the exercise of discretion. Egerer v. CSR W.. LLC. 116 Wash. App.
645, 653, 67 P.3d 1128 (2003).            Thus, an award of prejudgment interest is

appropriate.

       We turn now to the question of whether the trial court erred in imposing only

five percent prejudgment interest. Interest is not a penalty but compensation for

the loss of use of those funds. Jones v. Best. 134 Wash. 2d 232, 242, 950 P.2d 1

(1998).

      Here,    the prejudgment interest is not awarded pursuant to RCW

19.52.010(1). Rather, its basis lies in the court rule, RAP 12.8. Restitution to a

judgment debtor for the amounts paid by the judgment debtor to satisfy a judgment

that is later modified by the appellate court is an equitable remedy. Ehsani. 160
Wash. 2d at 589-90. In matters of equity, trial courts have broad discretionary powers

to fashion equitable remedies and we review the trial court's consideration of the

equities for abuse of discretion. Recreational Eguip.. Inc. v. World Wrapps Nw..

Inc.. 165 Wash. App. 553, 559, 266 P.3d 924 (2011).

          Nl and Westerdal were deprived of the use of their funds and the payment

of interest is appropriate here to avoid injustice.3 The trial court awarded "a

reasonable, equitable rate of interest of 5 [percent] on the above amount of

restitution, from the date of payment of the judgment on March 2, 2011."4 Under

3 An award of less than the 12 percent prejudgment interest requested by Nl and
Westerdal was appropriate where the trial court had evidence before it that two of the
plaintiffs had placed the money in their bank accounts where it earned 0.5 percent and
0.41 percent interest. Neither the third plaintiff nor the third plaintiff's attorneys submitted
any evidence of the interest made on the monies from the judgment. In view of this, a
reduction of the 12 percent prejudgment interest rate requested was appropriate.
4 Clerk's Papers (CP) at 98.
No. 71455-4-1 / 8

the circumstances here, we conclude that the five percent interest was not so

manifestly unreasonable or based on such untenable grounds as to constitute an

abuse of discretion.

      We affirm the trial court.

                                           | r >kJ^Z. y i J

WE CONCUR:

                                             ^^

                                      8
No. 71455-4-1
Arzola v. Name Intelligence. Inc. - Concurrence

      Leach, J. (concurring) — I concur in the result only.