Opinion
No. 25134-9-III.
April 8, 2008.
Appeal from a judgment of the Superior Court for Spokane County, No. 04-2-04507-4, Harold D. Clarke III, J., entered March 31, 2006.
Affirmed by unpublished opinion per Kulik, J., concurred in by Schultheis, A.C.J., and Brown, J.
A Spokane County jury found that Gregory Henning breached fiduciary duties or committed constructive fraud to convert $91,750 from the plaintiffs — his brother Scott Henning and their equally-owned former business Cascade Falls, LLC. The trial court awarded Scott prejudgment interest, attorney fees, and costs for a total judgment of $183,696.76.
We refer to Greg Henning and Scott Henning by their first names for clarity.
Greg appeals, contending the trial court erred by (1) ruling Greg withdrew as a Cascade Falls member and was judicially estopped from claiming otherwise; (2) ruling Scott's claims were not barred by statutes of limitation for Uniform Commercial Code (UCC) and common law conversion/fiduciary breach/fraud claims; (3) ruling Scott was not required to file a derivative action to recover from Greg; (4) ruling Scott was not required to file a claim for an accounting in order to maintain the lawsuit; and (5) refusing to give a jury instruction on apparent authority. Greg also contends the court erred by awarding Scott attorney fees and prejudgment interest. We affirm the trial court in all respects.
BACKGROUND FACTS AND PRETRIAL PROCEDURE
In 1997, Greg and Scott Henning formed, as equal owners, Naturescapes Northwest LLC, to fabricate and install artificial landscape rock used in swimming pools and waterfalls. Greg also viewed the business as a chance to supplement his separate swimming pool construction business, Pavilion Pools, LLC, in which Scott had no involvement. Pavilion Pools provided initial startup capital for the Naturescapes entity, which was later renamed Cascade Falls, LLC. By the end of 2000, however, Greg and Scott discussed going in different directions, and Greg withdrew as a Cascade Falls member. Greg reiterated this fact in an affidavit he filed in 2002 in an Idaho lawsuit, the "Puryear" matter, in which he stated under oath that he withdrew from Cascade Falls in January 2001.
Beginning in 2001, Scott continued to operate Cascade Falls as its sole member. Ona Marr, the tax preparer for Cascade Falls, understood that Greg had withdrawn from Cascade Falls. Ms. Marr thus prepared Cascade Falls' tax return to show Scott as sole owner. The 2001 tax return reflected the income from the entity's Coldwater Creek project undertaken by Scott.
In 2004, Scott learned of certain irregular business and accounting activities by Greg, who, unbeknownst to Scott, had continued to operate using the Cascade Falls' name and one of its bank accounts. Scott then filed this lawsuit on September 29, 2004. Scott alleged breach of fiduciary duties, fraud, and conversion of Cascade Falls' money by Greg. Scott alleged he was Cascade Falls' sole remaining member because Greg withdrew in January 2001. Scott also named Greg's separate entity, Pavilion Pools, LLC, and Ms. Marr as defendants. Ms. Marr was subsequently dismissed as a party. Greg and Pavilion Pools asserted various counterclaims against Scott and Cascade Falls for money owed. The jury ultimately awarded Pavilion Pools $10,281.79 in damages. The court awarded Pavilion Pools $3,742 in prejudgment interest, $57.81 in costs and $200 statutory attorney fees. No appeal is taken from that judgment.
Prior to trial, Greg sought a declaratory ruling that he was still a member of Cascade Falls because Scott had not formally consented in writing to his withdrawal pursuant to the limited liability company (LLC) disassociation statute, RCW 25.15.130. Scott contended Greg should be estopped from claiming membership in Cascade Falls in light of his affidavit in the Puryear lawsuit.
The Puryear lawsuit, filed in Idaho, involved Pavilion Pools, Naturescapes Northwest, Cascade Falls, and other parties. As part of a summary judgment motion to dismiss Pavilion Pools as a party, Greg submitted an affidavit stating that he withdrew from Cascade Falls. Cascade Falls was involved, but Pavilion Pools' only connection was that it had provided Naturescapes with its startup money in 1997. Scott filed a companion affidavit in the Puryear case confirming that Naturescapes' name had been changed to Cascade Falls, that Greg's affidavit was true, and that he (Scott) was sole owner of Cascade Falls as of January 1, 2001. Both affidavits were drafted by the attorney for Greg and Pavilion Pools.
In the matter here, the court ruled Greg was judicially estopped from claiming membership in Cascade Falls because of his affidavit filed in the Puryear case. The court also rejected Greg's contention that Scott's lawsuit was statutorily deficient because Scott did not file it as a derivative action.
Greg also filed a pretrial motion to exclude from evidence (1) certain Cascade Falls checks negotiated before September 29, 2001, as barred by the UCC three-year statute of limitation applicable to conversion of negotiable instruments, RCW 62A.3-118(g); and (2) those same money transfers as barred by the three-year statute of limitation for claims of fiduciary breach, fraud, and conversion. RCW 4.16.080. The court ruled the UCC did not apply, and that the jury should determine whether Scott's claims were otherwise time-barred because he should have discovered them earlier.
TRIAL EVIDENCE
From its inception, Cascade Falls maintained its bank account at Spokane Teachers Credit Union (STCU). Scott and Greg were joint signers with mutual access to the account. In lieu of taking regular salaries or draws, they paid personal expenses directly from that account with the understanding the withdrawals would be equalized. Each of them commingled their personal and business affairs in this account.
In 2000, Cascade Falls was the successful bidder as general contractor on a $700,000 contract for the "Mirabeau Springs" project at Mirabeau Point in Spokane. Greg negotiated the contract and did not involve Scott in any part of the project. Scott, instead, tended to Cascade Falls' other day-to-day business. Greg opened a second Cascade Falls' bank account at STCU for the Mirabeau funds (Mirabeau account). Greg was sole signatory. He completely managed and controlled that account. Scott had no access. Greg knew Scott was about to file for bankruptcy and feared that if Scott accessed the account, he would spend the money and Cascade Falls would be unable to pay vendors. Greg did regularly transfer money from the Mirabeau account into the Cascade Falls' joint account.
Scott agreed to the Mirabeau account arrangement but did not know it was in Cascade Falls' name. He saw only the account number when Greg made the transfers into Cascade Falls' joint account. Scott never asked for access to the Mirabeau account, and he trusted Greg to be fair and honest in their business dealings, consistent with their equal partnership agreement. Greg likewise acknowledged a fiduciary obligation to Cascade Falls and his brother. He knew Scott trusted him. Greg nevertheless testified Scott had no interest in seeing the bank statements or the books relating to the Mirabeau project because Scott had no involvement in the project.
Greg essentially completed the Mirabeau Springs project by November 2000. At year end, Greg told Scott he wished to withdraw as a Cascade Falls member as of January 1, 2001. Greg testified that he, in fact, withdrew at that time because the company did not have any projects, and he and Scott had discussed going in different directions. The Mirabeau account then had a balance of $79,762.41. Greg did not relinquish the account and made no accounting to Scott, who was unaware of these funds. Also unbeknownst to Scott, Greg loaned $69,500 to their brother Mark from the Mirabeau account — $22,500 in 2000 and $47,000 in 2001. According to Scott, the $47,000 was never repaid to Cascade Falls.
On May 1, 2001, Greg entered into an additional $138,997 contract to perform a second Mirabeau Point project known as "Mirabeau Trails." Despite his withdrawal from Cascade Falls earlier in the year, Greg represented himself to Mirabeau officials as a Cascade Falls member and signed the contract in its name. He also used Cascade Falls' contractor's and business licenses and liability insurance for the project. Greg testified he did so because Mirabeau Trails was a fast track project and he did not have time to form a new company. He said Scott agreed to this. But Scott testified he had absolutely no knowledge of the Mirabeau Trails project. Greg also continued to use the Mirabeau bank account and admitted to personally taking all of the proceeds of the Mirabeau Trails project. He explained that he and Scott had agreed that, in exchange, Scott would take a subcontract for an artificial waterfall project with Coldwater Creek and keep those proceeds. Scott denied any such discussions. Scott testified that Greg did help him negotiate the Coldwater Creek contract, but that he (Scott) signed the contract in his capacity as Cascade Falls' owner.
Scott began the Coldwater Creek project in the fall of 2001. Cascade Falls was low on money, however, and Scott had to rely on another entity (Land Expressions) to supply and back charge him for labor. This cost Cascade Falls an extra net $28,000. Scott testified that the money Greg loaned to Mark could have provided Cascade Falls the needed capital for the Coldwater Creek project.
Greg closed the Mirabeau bank account by the beginning of 2002. He made no accounting to Scott and did not show him any bank statements. Ms. Marr had always prepared the annual Cascade Falls income tax returns. Prior to 2001, the returns reflected Greg was a member of the company and the member who dealt with tax matters. Ms. Marr was told that Greg withdrew from Cascade Falls in 2001. She prepared the tax return accordingly, showing Scott as sole owner. She relied on bookkeeping data from Scott. He accounted for Cascade Falls revenue (including Coldwater Creek income), but not any Mirabeau Trails revenue because he did not know it existed. Ms. Marr testified she was likewise unaware until 2004 that a second Cascade Falls bank account (the Mirabeau account) existed. Consequently, Cascade Falls' revenue was substantially underreported on its 2001 tax return.
Shortly after completing the Coldwater Creek project in 2001, Scott decided to cease the Cascade Falls business. Cascade Falls was then a defendant in a lawsuit (the "Beal" matter), which resulted in a $20,000 arbitration award against Cascade Falls in 2004. When opposing counsel looked to Cascade Falls for assets, it was discovered that the Mirabeau revenue had not been reported. Scott then became suspicious and asked Greg for the Mirabeau records. Greg refused and said it was none of his business. Under threat of litigation, Ms. Marr gave Scott information indicating STCU would have the account data he needed. But STCU denied Scott any account access or information because he was not a signatory on the Mirabeau account. Scott was only able to obtain the records by subpoena upon filing a lawsuit.
Based upon the trial evidence, Greg sought a jury instruction as to the applicability of the statute of limitation in RCW 4.16.080 and whether the discovery rule should apply to Scott's fraud, fiduciary breach, and conversion claims. The court denied the instruction on the basis the only reasonable interpretation of the evidence was that the discovery rule did apply; thus, Scott could not have reasonably discovered his claims within the limitation period due to Greg's concealment of the Mirabeau account information.
The jury found that Greg breached fiduciary duties or committed constructive fraud to convert Scott's money. The jury awarded Scott $91,750 in damages. The court awarded Scott $41,968.50 in attorney fees, $49,288.60 in prejudgment interest, and $959.66 in costs, for a total judgment of $183,696.76. Greg appeals.
LLC DISASSOCIATION STATUTE — JUDICIAL ESTOPPEL
The first issue is whether the LLC disassociation statute, RCW 25.15.130, requires strict written consent to a member's withdrawal, such that the court erred by ruling Greg was judicially estopped from denying that he withdrew from Cascade Falls as of January 1, 2001.
Application of RCW 25.15.130 .
RCW 25.15.130 provides in pertinent part:
(1) A person ceases to be a member of a limited liability company, . . . upon the occurrence of one or more of the following events:
(a) The member dies or withdraws by voluntary act from the limited liability company as provided in subsection (3) of this section;
. . . .
(3) A member may withdraw from a limited liability company at the time or upon the happening of events specified in and in accordance with the limited liability company agreement. If the limited liability company agreement does not specify the time or the events upon the happening of which a member may withdraw, a member may not withdraw prior to the time for the dissolution and commencement of winding up of the limited liability company, without the written consent of all other members at the time.
(Emphasis added.)
Greg contends that the statute states a bright-line rule for LLC membership withdrawal that requires strict written consent by the other members and, thus, precludes application of equitable principles. He contends his 2002 affidavit in the Idaho lawsuit cannot suffice as an effective withdrawal from Cascade Falls because Scott presented no statutory written consent. Greg, thus, argues that as a matter of law, he continues as a member of Cascade Falls and the case must be remanded to assess a proper accounting based on the correct relationship between the parties after January 2001. We disagree.
No Washington case interpreting RCW 25.15.130(1)(a), (3) is cited. While we recognize the general principle that a court's equitable powers are subject to partnership statutes, we decline to rigidly apply that principle to the unique facts of this case. See, e.g., Guntle v. Barnett, 73 Wn. App. 825, 833, 871 P.2d 627 (1994).
The pleadings and evidence factually establish that Greg withdrew from Cascade Falls in January 2001, with Scott's consent. Greg does not dispute this point. Greg admitted in his trial testimony that he withdrew. Scott effectively restated consent in his affidavit in the Idaho lawsuit when he said Greg's withdrawal statement was true and that he (Scott) was the sole member and manager of Cascade Falls as of January 2001. Moreover, as the trial court commented in its letter ruling, the parties (and certainly the consenting member Scott) acted like Greg had withdrawn because Cascade Falls' 2001 federal tax return and its annual report filed with the State of Washington both listed Scott as the sole member. Under these circumstances, we see nothing in the statute that precludes a finding that Scott consented. Greg's references to RCW 26.33.080 (adoption) and RCW 19.36.010 (statute of frauds) do not support his contentions. We reject Greg's arguments that RCW 25.15.130(3) precludes application of equitable principles.
Judicial Estoppel.
The question then becomes whether the trial court erred by ruling that Greg was judicially estopped from claiming membership in Cascade Falls in view of his 2002 affidavit filed in the Idaho lawsuit.
Greg contends the doctrine did not apply because the doctrine required proof that Greg gained an advantage in the Idaho litigation and then sought a second advantage by taking an incompatible position in this subsequent litigation; or, that the prior court accepted his position. See City of Spokane v. Marr, 129 Wn. App. 890, 893, 120 P.3d 652 (2005) (citing Johnson v. Si-Cor, Inc., 107 Wn. App. 902, 906, 28 P.3d 832 (2001)). Greg contends the record before this court contains no evidence that he benefited from, or that the Idaho court even adopted or accepted, his affidavit stating that he withdrew from Cascade Falls. Greg's arguments fail.
In Arkison v. Ethan Allen, Inc., 160 Wn.2d 535, 538-39, 160 P.3d 13 (2007), our Supreme Court reiterated the law with respect to judicial estoppel:
"Judicial estoppel is an equitable doctrine that precludes a party from asserting one position in a court proceeding and later seeking an advantage by taking a clearly inconsistent position."
Bartley-Williams v. Kendall, 134 Wn. App. 95, 98, 138 P.3d 1103 (2006). The doctrine seeks "`to preserve respect for judicial proceedings,'" and "`to avoid inconsistency, duplicity, and . . . waste of time.'" Cunningham v. Reliable Concrete Pumping, Inc., 126 Wn. App. 222, 225, 108 P.3d 147 (2005) (alteration in original) (internal quotation marks omitted) (quoting Johnson v. Si-Cor, Inc., 107 Wn. App. [at 906]. We review a trial court's decision to apply the equitable doctrine of judicial estoppel for abuse of discretion. Bartley-Williams, 134 Wn. App. at 98.
Three core factors guide a trial court's determination of whether to apply the judicial estoppel doctrine: (1) whether "a party's later position" is "`clearly inconsistent' with its earlier position"; (2) whether "judicial acceptance of an inconsistent position in a later proceeding would create `the perception that either the first or the second court was misled'"; and (3) "whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped." New Hampshire v. Maine, 532 U.S. 742, 750-51, 121 S. Ct. 1808, 149 L. Ed. 2d 968 (2001) (quoting Edwards v. Aetna Life Ins. Co., 690 F.2d 595, 599 (6th Cir. 1982)). These factors are not an "exhaustive formula" and "[a]dditional considerations" may guide a court's decision. Id. at 751; see, e.g., Markley v. Markley, 31 Wn.2d 605, 614-15, 198 P.2d 486 (1948).
Similarly, in Save Columbia Credit Union Committee v. Columbia Community Credit Union, the court stated the "essence of judicial estoppel" is (1) the party to be estopped must be asserting a position inconsistent with an earlier position; (2) the party seeking estoppel must have relied on, and been misled by, the other party's first position; and (3) it appears unjust to allow the estopped party to change positions. Save Columbia Credit Union Comm. v. Columbia Cmty. Credit Union, 134 Wn. App. 175, 186, 139 P.3d 386 (2006) (citing Falkner v. Foshaug, 108 Wn. App. 113, 124 n. 36, 29 P.3d 771 (2001)). In Westway Construction v. Benton County, this court cited Save Columbia for the proposition that the essence of judicial estoppel is that the party to be estopped must be asserting a position inconsistent with an earlier position. Westway Constr., Inc. v. Benton County, 136 Wn. App. 859, 868, 151 P.3d 1005 (2006).
Greg is correct that there is no evidence before this court as to what benefit he gained from his affidavit in the Idaho court, or whether that court actually accepted his statement as true. Nonetheless, applying the core factors from Arkison, the affidavit is clearly inconsistent with his current assertion that he did not withdraw from Cascade Falls on January 1, 2001. Scott relied on Greg's assertion when filing Cascade Falls' April 2001 annual report to the State of Washington and the 2001 federal tax return reflecting Coldwater Creek income, but not the Mirabeau income that Greg failed to disclose. Cascade Falls was, thus, subject to potential additional tax liability for underreporting income. Moreover, because Greg's position now contradicts his sworn statement, he creates the perception that the Idaho court was misled. This raises the specter of disrespect for judicial proceedings that the doctrine of judicial estoppel seeks to avoid.
We conclude that the trial court did not abuse its discretion by ruling Greg was judicially estopped from denying that he withdrew from Cascade Falls in January 2001. We, therefore, do not address Scott's alternative equitable estoppel arguments not ruled on by the trial court.
STATUTE OF LIMITATION — DISCOVERY RULE
Applicability of UCC.
The issue here is whether the court erred by denying Greg's pretrial motion to exclude from evidence all Mirabeau account checks negotiated before September 29, 2001, as barred by the UCC three-year statute of limitation applicable to conversion of negotiable instruments, RCW 62A.3-118(g).
Greg contends that Scott's pleadings indicate he sought to hold Greg liable for conversion of negotiable instruments (checks) under the UCC and that the checks were the sole liability-creating mechanism. Greg asserts that Washington courts have applied the UCC in every instance where an employee or fiduciary was involved in the conversion of checks and this court should do likewise. Bank of Am. NT SA v. David W. Hubert, P.C., 153 Wn.2d 102, 101 P.3d 409 (2004); Richards v. Seattle Metro. Credit Union, 117 Wn. App. 30, 36-37, 68 P.3d 1109 (2003); Von Gohren v. Pac. Nat'l Bank, 8 Wn. App. 245, 246-47, 505 P.2d 467 (1973). Greg concludes that since no checks were written after September 2001, all claims related to converted written checks before that date should be dismissed as time-barred under the UCC. We disagree.
RCW 62A.3-420(a) provides in pertinent part:
The law applicable to conversion of personal property applies to instruments. An instrument is also converted if it is taken by transfer, other than a negotiation, from a person not entitled to enforce the instrument or a bank makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment.
Under the UCC, there is a conversion of the instrument in the following circumstances: (a) Nonreturn — when the drawee to whom it is delivered for acceptance refuses to return it on demand, (b) Nonpayment — the person to whom it is delivered for payment refuses on demand to return it or pay it, and (c) Forged indorsement — the instrument is paid on a forged indorsement. 6A Ronald A. Anderson, Uniform Commercial Code § 3-419:77, at 97 (3d ed. 1998). In addition, there are four incidents of conversion under the UCC by judicial decision: (a) Unauthorized indorsement — if the instrument is paid on an unauthorized indorsement, (b) Missing indorsement — when payment is made on paper that lacks a necessary indorsement, (c) Violation of a restrictive indorsement — bank is liable when it deposits into a false account checks of the customer payable to the customer's president that were endorsed restrictively "for deposit," and (d) Theft of blank checks — where blank checks of drawer are stolen and drawer's signature is forged, a purchaser of the checks obtaining payment from drawee bank commits conversion. 6A Anderson, supra, § 3-419:78, at 98.
In addition, a non-UCC conversion action may be brought under the UCC's common law supplemental provisions for conversion. For example, there is a conversion of a negotiable instrument when any person unlawfully takes, detains, or refuses to surrender a negotiable instrument belonging to another person. 6A Anderson, supra, § 3-419:88, at 102-03.
RCW 62A.3-118(g) provides, "an action . . . for conversion of an instrument, for money had and received, or like action based on conversion . . . must be commenced within three years after the cause of action accrues." This subsection does not define when a cause of action accrues. See RCWA 62A.3-118, cmt. 1. No Washington case on this point is cited.
As illustrated by Greg's cited cases, the majority's holding is that the discovery rule does not apply to conversion actions under the UCC and the cause of action accrues upon negotiation of the instrument. But each of these cases arose in the context of forged or incomplete indorsements or embezzlement with a bank as a defendant — all clearly UCC conversion situations. Greg's cited Washington UCC cases likewise involve bank defendants in disputes over check negotiability or dishonor.
Here, Scott's amended complaint alleged common law conversion by Greg for wrongfully retaining money belonging to Scott. The complaint does not sound in conversion of instruments (checks) under the UCC. Clearly, Scott did not file any action on the instruments. There was never a dispute as to the negotiability or validity of the checks written by Greg on the Mirabeau account. Scott sought no redress from any entity or individual who accepted the checks, nor is there any allegation that anyone was not entitled to enforce the instruments. Rather, Greg happened to choose checks as the means to convert money for personal purposes. The money — not the instruments — is at issue. And Greg cites no authority that the UCC (and hence RCW 62A.3-118(g)) applies to the common law conversion claim in these circumstances. We conclude the trial court did not err by denying Greg's motion to exclude evidence about checks negotiated before September 29, 2001.
Application of RCW 4.16.080 and the Discovery Rule.
Greg next asserts that the court erred by refusing to give Greg's requested instruction on the application of the discovery rule to Scott's claim of fiduciary breach, fraud, and conversion, or whether the claims should be barred by the statute of limitation.
The statute of limitation for conversion of money and breach of fiduciary responsibility is three years. RCW 4.16.080(2). The period begins to run when the plaintiff's cause of action accrues. Malnar v. Carlson, 128 Wn.2d 521, 529, 910 P.2d 455 (1996). A cause of action accrues when the plaintiff knows, or in the exercise of due diligence should have known, all of the essential elements of the cause of action. In re Estates of Hibbard, 118 Wn.2d 737, 752, 826 P.2d 690 (1992); G.W. Constr. Corp. v. Prof'l Serv. Indus., 70 Wn. App. 360, 367, 853 P.2d 484 (1993). When a delay occurs between the injury and the plaintiff's discovery of it and the delay was not caused by the plaintiff sleeping on his rights, the court may apply the discovery rule, which operates to toll the date of accrual until the plaintiff knows, or through the exercise of due diligence, should have known all the facts necessary to establish a legal claim. Crisman v. Crisman, 85 Wn. App. 15, 20, 931 P.2d 163 (1997). The limitation period for fraud is also three years, but the legislature has incorporated the discovery rule into that statute. RCW 4.16.080(4); see also Freitag v. McGhie, 133 Wn.2d 816, 822, 947 P.2d 1186 (1997). The burden is on the plaintiff to show that the facts giving rise to the claim were not discovered or could not have been discovered by due diligence within the limitation period. G.W. Constr., 70 Wn. App. at 367. The due diligence question is for the jury unless reasonable minds could reach only one conclusion. Goodman v. Goodman, 128 Wn.2d 366, 373, 907 P.2d 290 (1995); Burns v. McClinton, 135 Wn. App. 285, 300, 143 P.3d 630 (2006), review denied, 161 Wn.2d 1005 (2007).
In view of these principles, Greg contends the court erred by applying the discovery rule as a matter of law to allow Scott's claims relating to events occurring more than three years prior to filing of the complaint on September 29, 2004. Scott's trial evidence showed only that he did not discover the factual elements of the cause of action, not that he could not have discovered the contents of the Mirabeau account in 2000 or 2001. Greg further argues the discovery rule for fraud cannot apply because there was no proof that he affirmatively concealed any information about the Mirabeau account. He contends that, at the very least, whether Scott proved he could not have discovered his claims in 2000 or 2001 presents an issue of fact that should have been submitted to the jury. We reject Greg's contentions.
Greg apparently proposed a jury instruction on the statute of limitation and he assigns error to the court's failure to give the instruction. But we cannot review Greg's contentions to the extent they involve the details or scope of the instruction because he has not included the instruction in the record on appeal. See RAP 9.6(b)(1)(F); State v. Meas, 118 Wn. App. 297, 303 n. 6, 75 P.3d 998 (2003).
Scott had no access to the Mirabeau account or any information about the account, including that it was in Cascade Falls' name. Still, Scott had no reason to believe Greg was failing to honor their equal partnership agreement. He trusted Greg and Greg knew this. Scott first became suspicious during the Beal arbitration in May 2004 and asked Greg for the Mirabeau records. Greg said it was none of his business. Greg eventually closed the account without making any financial disclosures to Scott.
We agree with the trial court that the only reasonable conclusion from the evidence is that Scott could never have discovered the facts to support his causes of action for breach of fiduciary duty, constructive fraud, and conversion had he not ultimately obtained the Mirabeau records by subpoena. Greg's conduct allowed for Scott's discovery of his claims only by fortuity. In these circumstances, there is a distinction between Scott's knowing a Mirabeau bank account existed and his ability to reasonably discover Greg's secret conversion of money.
We reject Greg's further arguments that a jury should decide whether Scott's trust of Greg and Scott's ignorance, passivity, and disavowal of knowledge of the affairs of the business are excuses for his failure to timely discover Greg's activities. His cited cases are inapposite.
We also reject Greg's further contention that reversal is required because the court failed to make an express finding that Scott could not reasonably have earlier discovered his claims. Relying on Burns, Greg asserts that lack of such a finding is tantamount to a finding against Scott — the party with the burden of proof. Burns, 135 Wn. App. at 300. But Burns does not apply because it arose in the procedural context of the court failing to make a finding of material fact after a bench trial — not the situation here.
In summary, we find no evidence from which a trier of fact could reasonably conclude that Scott should have suspected Greg's financial improprieties during 2000 and 2001. The court, thus, did not err by applying the discovery rule as a matter of law based upon the evidence presented at trial. This conclusion obviates Greg's additional contentions that the court erred pretrial or during trial by refusing to outright dismiss Scott's claims as barred by the statute of limitation.
LACK OF DERIVATIVE CLAIM
The next issue is whether the trial court erred by allowing evidence of damages in support of Scott's fraud and conversion claim when Scott did not file a derivative action.
With regard to derivative actions by LLC members, RCW 25.15.370 provides:
A member may bring an action in the superior courts in the right of a limited liability company to recover a judgment in its favor if managers or members with authority to do so have refused to bring the action or if an effort to cause those managers or members to bring the action is not likely to succeed.
Greg relies on this statute to contend that Scott has only a derivative claim against Greg with respect to conversion and fraud because no manager or member of Cascade Falls has refused to bring a lawsuit for conversion or fraud. Greg asserts that Scott cannot demonstrate that he has any independent claim and, thus, the court erred by allowing the jury to consider any evidence in support of Scott's personal claims for fraud and conversion.
Greg does not specify what alleged ruling of the court he considers to be error, or where in the record the alleged error arose. Nor does he show that he objected to the verdict form or instructions regarding Scott's status as a plaintiff. The record does reveal the court ruled by written order: "With respect to Defendant's argument that Plaintiff Scott Henning's testimony should be limited to that of a CR 30(b)(6) witness for Cascade Falls, L.L.C., the Court finds that the motion is not appropriate at this time and therefore denies the motion." Clerk's Papers (CP) at 700. But Greg does not develop any pertinent argument in this appeal to explain why any particular ruling was error. His contentions do not command further review. See Green v. McAllister, 103 Wn. App. 452, 469, 14 P.3d 795 (2000).
LACK OF CLAIM FOR ACCOUNTING
Greg next asserts that the court erred by admitting evidence supporting Scott's request for an accounting from Greg of Cascade Falls' assets when Scott's complaint did not state a claim for an accounting.
The requisites for a cause of action for an accounting are (1) a fiduciary relation existed between the parties, or that the account is so complicated that it cannot be conveniently taken in an action at law; and (2) the plaintiff has demanded an accounting from the defendant and the defendant has refused to render it. State v. Taylor, 58 Wn.2d 252, 262, 362 P.2d 247 (1961) (quoting Seattle Nat'l Bank v. Sch. Dist. No. 40, 20 Wash. 368, 373-74, 55 P. 317 (1898)); Corbin v. Madison, 12 Wn. App. 318, 327, 529 P.2d 1145 (1974). Greg contends that because Scott made no allegation of a previous demand for a general accounting and refusal by Greg to comply, the court erred when it admitted accounting evidence pertaining to Cascade Falls' assets at trial. This argument is without merit.
Scott's complaint and amended complaint stated claims against Greg for breach of fiduciary duty, fraud, and conversion. There was no claim stated for a general accounting. Greg cites no authority that a suit for an accounting is a prerequisite for collection of damages for an LLC member's conversion of funds based upon claims of fiduciary breach or fraud. Scott did include in the request for judgment and relief that Greg be directed to account for Cascade Falls' finances from 2000 through 2002. Hence, there was accounting evidence admitted at trial to prove plaintiffs' claims.
Greg provides no record cite that he objected to the admission of any particular accounting evidence, nor does he provide any citation to the court's ruling that is the subject of his assignment of error. RAP 10.3(a)(4), (6). Thus, we do not further review Greg's contentions. See State v. Meas, 118 Wn. App. 297, 303 n. 6, 75 P.3d 998 (2003).
APPARENT AUTHORITY
Greg also asserts that the court erred by refusing to give his proposed jury instruction on actual or apparent authority. Greg contends the instruction was necessary to argue his theory that for Cascade Falls and Scott to claim proceeds from the 2001 Mirabeau Trails project, Greg must have had the actual or apparent authority to sign the contract in Cascade Falls' name. Absent such authority, he contends Scott and Cascade Falls could have no ownership interest in the proceeds upon which to base a claim for damages. In other words, Greg was free to keep all Mirabeau Trails' proceeds if he lacked apparent authority to undertake the project in Cascade Falls' name. City Loan Co. v. State Credit Ass'n, 5 Wn. App. 560, 563, 490 P.2d 118 (1971). Thus, Greg contends the court's refusal to give the instruction deprived him of the opportunity to argue his theory that no conversion, fraud, or fiduciary breach could have occurred in 2001. These arguments also fail and Greg's citation to City Loan is misplaced.
Greg's assignment of error states the trial court erred by instructing the jury that Greg Henning and Cascade Falls could claim any monies from the Mirabeau Trails project in the year 2001, in spite of the fact that Greg had no actual or apparent authority from Cascade Falls to enter into the contract with Mirabeau Point. He states no issue in the assignments of error section of his brief. In his argument section, Greg states the court erred by refusing to give his proposed jury instruction on actual or apparent authority. Greg's citations to the record indicate he did request an apparent authority instruction at trial. And during the instruction conference, he did except to the court's refusal to give the instruction. But the appellate record does not include the proposed instruction, either in the report of proceedings or clerk's papers. Greg's contention is, thus, not further reviewable. RAP 9.6(b)(1)(F); Meas, 118 Wn. App. at 303 n. 6.
ATTORNEY FEES
Lump Sum Verdict.
The initial question is whether the trial court lacked authority to award attorney fees based upon a lump sum jury verdict form that did not segregate liability for breach of fiduciary duty or constructive fraud.
Greg contends that attorney fees are not recoverable in an action for conversion. And because of the nature of the lump sum general and undifferentiated verdict form, the court was without a basis for determining whether, in fact, the jury awarded any damages for breach of fiduciary duty or constructive fraud. He argues, therefore, that the attorney fee award must be reversed.
Scott responds that when, as here, the claims are so related under the same fact pattern that no reasonable segregation of successful or unsuccessful claims could be made, there need not be any segregation of attorney fees. We agree with Scott.
The court gave Scott's proposed verdict form to the jury. Question 1 asked: "Did Gregory Henning's conduct either breach a fiduciary duty owed to Plaintiffs or constitute constructive fraud?" The jury answered "yes." CP at 1171. Question 2 asked: "Did Gregory Henning convert Plaintiffs' money?" The jury answered "yes." CP at 1171. The jury was further instructed that if it answered "yes" to either or both of questions 1 and 2, it was to answer question 3 by stating the "total amount of money damages Gregory Henning owes to Plaintiffs." The jury answered $91,750. CP at 1172.
In Hume v. American Disposal Co., 124 Wn.2d 656, 672, 880 P.2d 988 (1994), the court stated that the attorney fee award "must properly reflect a segregation of the time spent on issues for which attorney fees are authorized from time spent on other issues." But segregation of attorney fees is not required if "the trial court finds the claims to be so related that no reasonable segregation of successful and unsuccessful claims can be made." Id. at 673.
In Mayer v. Sto Industries, Inc., 156 Wn.2d 677, 693, 132 P.3d 115 (2006), the court adopted this language from Hume. The court held that given the trial court's clear explanation that work related to the Consumer Protection Act could not be segregated from work related to the Washington product liability act, the trial court's award of attorney fees under the Consumer Protection Act was not an abuse of discretion. Id.
Similarly, Ethridge v. Hwang states the rule that a court is not required to artificially segregate time when the claims all relate to the same fact pattern but allege different bases of recovery. Ethridge v. Hwang, 105 Wn. App. 447, 461, 20 P.3d 958 (2001). There, the plaintiff prevailed on claims under the Manufactured/Mobile Home Landlord-Tenant Act, the Consumer Protection Act, and for tortious interference — all involving the same core of facts. There was a basis to award attorney fees for the first two claims but not for the tortious interference, which did, however, involve the same attorney preparation as the other claims. The court held that segregating the fee was not necessary when nearly every fact in the case related in some way to all three claims. Id.
Greg correctly argues in his reply brief that in cases relating to the same fact pattern, the trial court must make a finding that the claims are so related that segregation is not possible. Here, the court's written findings of fact and conclusions of law regarding the attorney fee award do not contain such a finding. But the court did state in its memorandum decision:
[T]he jury found the Defendant's actions constituted either a breach of a fiduciary duty or a constructive fraud. The finding of conversion by the jury is part of the breach or fraud. The Court finds that all of the claims arose out of the same course of conduct so if an award of fees is appropriate there is no need to segregate the award.
CP at 1100.
This court may resort to the memorandum decision to determine the trial court's resolution of an issue. E.g., Womble v. Local Union 73, 64 Wn. App. 698, 702, 826 P.2d 224 (1992). The trial court's memorandum decision sufficiently comports with the Hume and Ethridge rules such that the claims (including conversion) need not be segregated. We conclude that the general jury verdict form does not preclude an attorney fee award in this case.
Attorney Fee Award for Greg's Fiduciary Breach.
Greg contends the court erred in awarding attorney fees for breach of fiduciary duty because no identifiable fund was created to preserve Cascade Falls' partnership assets.
Under the American rule, attorney fees are not awarded as part of the costs of litigation unless authorized by contract, statute, or recognized ground in equity. E.g., Hsu Ying Li v. Tang, 87 Wn.2d 796, 797-98, 557 P.2d 342 (1976). In Tang, one partner of an apartment management business filed suit against the only other partner. The court explained that the suit, in effect, protected the common fund of partnership assets, but that the common fund exception did not apply because the suit benefited only the suing partner. Id. at 799. But the court then stated:
[T]he power to award attorney fees "springs from our inherent equitable powers, [and] we are at liberty to set the boundaries of the exercise of that power." Weiss v. Bruno, 83 Wn.2d 911, 914, 523 P.2d 915 (1974). Given the facts and circumstances of this case, we believe it is appropriate to award petitioner attorney fees.
Id. (alteration in original). The court then discussed the conduct of the partnership manager, Mr. Tang, which gave rise to the controversy:
[H]e kept no records of the names of the tenants nor the amount of rentals collected. He deposited the partnership's funds in the same bank account in which he held his personal funds. Out of this same bank account he disbursed the partnership's expenses and his personal expenses. He kept no records of which disbursements were for partnership expenses. When petitioner requested an accounting, respondent failed to produce an accounting, because he had kept no records and had commingled the funds and disbursements.
Id. at 799-800. The court deemed this conduct a breach of fiduciary duty tantamount to constructive fraud that warranted sharing the expense of the lawsuit with the plaintiff. Id. at 801.Subsequent cases have interpreted Tang as basing the fee award on the prevailing party having preserved an identifiable fund in the form of partnership assets. See Asarco Inc. v. Air Quality Coalition, 92 Wn.2d 685, 716, 601 P.2d 501 (1979); see also Perez v. Pappas, 98 Wn.2d 835, 845, 659 P.2d 475 (1983). Like Tang, the instant case is an identifiable fund case in that the lawsuit preserved Cascade Falls entity assets for Scott's benefit.
The holding in Tang was also applied in Green, where one partner (Mr. Green) sued his three former partners for breach of their agreement and an accounting. The defendants' attempt to deprive Mr. Green of his interest in certain land was deemed constructive fraud and breach of fiduciary duty. Green, 103 Wn. App. at 468. The court concluded that an innocent partner is entitled to fees if the conduct constituting the breach of fiduciary duty violates the partnership agreement or is "`tantamount to constructive fraud.'" Id. at 468-69 (quoting Tang, 87 Wn.2d at 800). "`A partner should share the expense of a lawsuit when he breaches his fiduciary duty to other partners.'" Green, 103 Wn. App. at 469 (quoting Tang, 87 Wn.2d at 801).
Here, the trial court specifically and correctly relied on Tang and Green to conclude it had authority and discretion to award attorney fees to plaintiffs on the equitable ground of breach of partnership fiduciary duty. The court concluded Greg should share the expense of a lawsuit and, thus, awarded Scott one-half of $83,397 in fees, or $41,698.50.
PREJUDGMENT INTEREST
Greg asserts the trial court erred by awarding prejudgment interest to Scott when Washington's LLC statutes provide no express authority for prejudgment interest and the parties did not otherwise address the subject in their LLC agreement.
Prejudgment interest is generally available for liquidated damages and where evidence of damage affords a reasonable basis to estimate loss and does not subject the trier of fact to mere speculation or conjecture. Prier v. Refrigeration Eng'g Co., 74 Wn.2d 25, 31-32, 442 P.2d 621 (1968); McConnell v. Mothers Work, Inc., 131 Wn. App. 525, 535-36, 128 P.3d 128 (2006). Prejudgment interest awards rest on the principle that a defendant retaining money which ought to be paid to the plaintiff should pay interest on the money because the plaintiff loses the "use value" of the money. Hansen v. Rothaus, 107 Wn.2d 468, 473, 730 P.2d 662 (1986) (quoting Prier, 74 Wn.2d at 34).
Greg does not dispute that the damages awarded to Scott were liquidated in the amount of $49,288.60. He instead relies on Green to contend that the liquidated damages rule does not apply in the LLC context and prejudgment interest is not available because it is not expressly authorized by chapter 25.15 RCW.
First, Greg's reliance on Green is misplaced. There, the partner's damages were unliquidated. The court explained, however, that the Prier liquidated funds rule was inapplicable in partnership cases. Green, 103 Wn. App. at 471 (citing Seattle-First Nat'l Bank v. Marshall, 31 Wn. App. 339, 351-52, 641 P.2d 1194 (1982)). Thus, even though the amount was unliquidated, there existed a statutory basis under former Page 33 RCW 25.04.420 (1955) for the award of prejudgment interest. Green, 103 Wn. App. at 471.
The statute was repealed effective January 1, 1999 and not recodified.
It is true that chapter 25.15 RCW contains no provision for prejudgment interest. But we interpret Green and Marshall to mean that a prejudgment interest award was statutorily authorized even though the sum was unliquidated; hence, the Prier liquidated funds rule did not apply. That reasoning is inapplicable here because the sum is liquidated — and the parties agree on that point. They also did not contract out of prejudgment interest in the event of a dispute. Thus, in awarding prejudgment interest, the court reasoned: "[B]oth parties assert an award of prejudgment interest is appropriate as the sums awarded by the jury were liquidated. The Court will accept that mutual position." CP at 1154. The trial court did not err by awarding prejudgment interest.
ATTORNEY FEES ON APPEAL
Scott requests an award of attorney fees on appeal. He contends the appeal is a continuation of the dispute arising out of Greg's breaches of fiduciary duty and/or commission of constructive fraud for which Scott was awarded attorney fees at trial. Thus, fees that Scott is forced to incur on appeal should be reimbursed by Greg.
RAP 18.1(b) requires a separate section of the appellate brief devoted to the fee issue and supporting argument and authority. Thweatt v. Hommel, 67 Wn. App. 135, 148, 834 P.2d 1058 (1992). Scott does devote a section of his brief to his attorney fee request but he cites no authority for his attorney fee claim. Citation to authority is required for an award of attorney fees and costs. Austin v. U.S. Bank, 73 Wn. App. 293, 313, 869 P.2d 404 (1994). Scott's request is denied.
We affirm the trial court in all respects.
A majority of the panel has determined this opinion will not be printed in the Washington Appellate Reports, but it will be filed for public record pursuant to RCW 2.06.040.
Schultheis, A.C.J., Brown, J.