Wintersport Ltd.
v.
Millionaire.com, Inc.

This case is not covered by Casetext's citator
The Court of Appeals of Washington, Division OneMay 24, 2004
No. 52334-1-I. (Wash. Ct. App. May. 24, 2004)

No. 52334-1-I.

Filed: May 24, 2004. UNPUBLISHED OPINION

Appeal from Superior Court of King County. Docket No: 01-2-18570-5. Judgment or order under review. Date filed: 04/18/2003. Judge signing: Hon. Douglass a North.

Counsel for Appellant(s), Robert G. Jr Nylander, Cutler Nylander, 505 Madison St. Ste 220, Seattle, WA 98104-1111.

Robert L White (Appearing Pro Se), 199 Rose Hill Way, Bluffton, SC 29910.

Counsel for Respondent(s), John Tennyson Mellen, Keller Rohrback LLP, 1201 3rd Ave Ste 3200, Seattle, WA 98101-3052.


Wintersport Ltd., a Washington corporation located in Woodinville, entered into an agreement with Millionaire.com, Inc., a Nevada corporation based in South Carolina. Via telephone, Wintersport asked Robert L. White, the CEO (chief executive officer), president, and a shareholder of Millionaire.com, to personally guarantee Millionaire.com's debt, and White agreed to do so. When Millionaire.com defaulted, Wintersport sued White in Washington and obtained a judgment against White and Millionaire.com.

On appeal, White argues that the trial court should have dismissed Wintersport's claims against him for want of personal jurisdiction and because enforcement of an oral guaranty is barred by the statute of frauds. We decide that the court properly exercised jurisdiction over White, but the oral guaranty was not an original promise — it was collateral to the original contract between Millionaire.com and Wintersport — and therefore is unenforceable under the statute of frauds. We reverse and dismiss.

FACTS

Wintersport contacted Millionaire.com to offer advertising, production, and printing services for Millionaire.com's magazine, Opulence. Wintersport and Millionaire.com agreed to and performed a $170,000 contract for the printing of one monthly issue in October 2000, and entered negotiations to print the next month's issue. David Strong, senior vice-president of Millionaire.com, and Ron Leiter, president of Wintersport, handled most of the negotiations and communications.

Due to financial difficulties, Millionaire.com reduced the size of its order for the second issue and requested payment terms on the reduced price of $80,000. Concerned about Millionaire.com's creditworthiness, Leiter told Strong that Wintersport would only extend credit to Millionaire.com if Millionaire.com paid a $10,000 down payment and White personally guaranteed the balance due. During a phone call between their respective offices in Washington and South Carolina, Leiter requested and received White's oral agreement to the personal guaranty. Leiter then sent a confirming fax to White's office, and White express mailed to Wintersport a $10,000 check drawn on Millionaire.com's account.

When Millionaire.com failed to pay the amount due on the contract, Wintersport filed suit against Millionaire.com, White, and White's wife in Washington. White's local counsel moved to dismiss White and his wife for lack of personal jurisdiction. The court dismissed White's wife, but denied the motion with respect to White. A bench trial ended in entry of judgment in Wintersport's favor against Millionaire.com and White. At trial, White represented himself pro se and Millionaire.com. He did not present any witnesses. Instead, he presented closing arguments in which he denied making the personal guaranty and refuted Wintersport's allegations. The trial court entered findings of fact and conclusions of law concluding that: (1) the personal guaranty was made; (2) White benefited from the guaranty because of his "substantial position" with Millionaire.com; (3) there was personal jurisdiction, and; (4) the statute of frauds did not bar enforcement of the personal guaranty. White appeals, contending that the trial court lacked personal jurisdiction and erred when it found the oral guaranty enforceable.

Millionaire.com does not appeal.

ANALYSIS

Under Washington's long-arm statute, RCW 4.28.185(1)(a), Washington courts have personal jurisdiction over nonresident defendants who have transacted any business in this state. To satisfy Washington's long-arm statute and the due process principles of Int'l Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed.2d 95, (1945) and World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980), a plaintiff seeking to hail a nonresident defendant into court must show the following:

RCW 4.28.185(1)(a) provides:

"Any person, whether or not a citizen or resident of this state, who in person or through an agent does any of the acts in this section enumerated, thereby submits said person, and, if an individual, his personal representative, to the jurisdiction of the courts of this state as to any cause of action arising from the doing of any of said acts:

"(a) The transaction of any business within this state[.]"

(1) The nonresident defendant or foreign corporation must purposefully do some act or consummate some transaction in the forum state; (2) the cause of action must arise from, or be connected with, such act or transaction; and (3) the assumption of jurisdiction by the forum state must not offend traditional notions of fair play and substantial justice, consideration being given to the quality, nature, and extent of the activity in the forum state, the relative convenience of the parties, the benefits and protection of the laws of the forum state afforded the respective parties, and the basic equities of the situation.

Tyee Constr. Co. v. Dulien Steel Prods. Inc., 62 Wn.2d 106, 115-16, 381 P.2d 245 (1963) (footnotes omitted). "It is the quality and nature of the activities which determine if the contact is sufficient, not the number of acts or mechanical standards." Perry v. Hamilton, 51 Wn. App. 936, 940, 756 P.2d 150 (1988). Each case's facts must be weighed to determine whether sufficient "minimum contacts" have been shown. Kulko v. Superior Court, 436 U.S. 84, 92, 98 S.Ct. 1690, 56 L.Ed.2d 132 (1978).

The mere existence of a contract with a Washington corporation is insufficient to establish personal jurisdiction. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 478, 105 S.Ct. 2174, 2185, 85 L.Ed.2d 528 (1985). Prior negotiations and contemplated future consequences, along with the terms of the contract and the parties' actual course of dealing, are the factors to be evaluated in determining "whether the defendant purposefully established minimum contacts within the forum state." Burger King, 471 U.S. at 479.

White relies upon several non-Washington cases finding no jurisdiction over nonresident guarantors solely by execution of a guaranty in favor of a third party. In those cases, there was no evidence that the guarantor conducted business in the forum state or that the guarantor gained a particular benefit from entering the guaranty. See Bond Leather Co. v. Q.T. Shore Mfg. Co., 764 F.2d 928, 934 (1st Cir. 1985); Misco Leasing v. Vaughn, 450 F.2d 257 (10th Cir. 1971); Basic Food Indus. Inc. v. Eighth Judicial Dist. Court, 94 Nev. 111, 575 P.2d 934, 936 (1978).

For example, in Bond Leather, when a New Jersey corporation had financial problems, its company president suggested that his brother's Ohio-based company guaranty its debt to a Massachusetts corporation. The brother executed the guaranty and mailed it to Massachusetts, but his company's role was entirely passive. Bond Leather, 764 F.2d at 934. The court held that there was no personal jurisdiction, as the guarantor acquired no privileges or protections associated with doing business in Massachusetts on the basis of its single commercial contract with a Massachusetts corporation and it gained no financial benefit from the guaranty. Bond Leather, 764 F.2d at 934. Likewise, in Basic Food and Misco Leasing, there was no evidence that the involved nonresident guarantors had transacted business in the forum state. Both guarantors were shareholders of the respective debtor corporations, but neither had any direct involvement in the underlying transaction. Both received and executed written guaranties outside of the forum state.

Wintersport argues that under the Burger King purposeful availment analysis, White purposefully availed himself of the opportunity to transact business in Washington by promising to guaranty Millionaire.com's debts, thereby inducing Wintersport to proceed with its contract with Millionaire.com. Wintersport also contends that this case is comparable to Griffiths Sprague Stevedoring Co. v. Bayly, Martin Fay, Inc., 71 Wn.2d 679, 430 P.2d 600 (1967), in which personal jurisdiction was asserted over a nonresident whose commercial activities in Washington were limited to a single contact, but who deliberately engaged in that commercial activity. According to Wintersport, a determination of personal jurisdiction over nonresident guarantors is proper in situations where the guarantor is a shareholder and corporate officer and purposefully avails of the opportunity to conduct business in the forum state. Wintersport relies upon Marcus Food Co. v. Family Foods of Tallahassee, Inc., 729 F. Supp. 753 (D.C. Kan. 1990), Marathon Metallic Bldg. Co. v. Mountain Empire Constr. Co., 653 F.2d 921 (5th Cir. 1981), and United Buying Group, Inc. v. Coleman, 296 N.C. 510, 251 S.E.2d 610 (1979) for this proposition. In these cases, the nonresident guarantors were officers and directors of a company benefited by the guaranty, they derived commercial benefits from the guaranty, and they purposefully availed themselves of the benefits and protections of the forum's laws. Wintersport argues that the same types of facts relied upon in the nonresident guarantor cases it cites support personal jurisdiction over White.

For instance, in Marcus Food, the president and sole shareholder of a Florida corporation was found to be subject to Kansas jurisdiction after he commenced and participated in negotiations with a Kansas corporation and allegedly made an oral guaranty. He also allegedly committed fraud by signing two checks on his company's behalf, knowing that there were insufficient funds to pay them, thereby exposing himself to personal jurisdiction on the basis of his tortious conduct. And in United Buying Group, personal jurisdiction existed in North Carolina over a Virginia defendant who traveled to North Carolina in connection with his business, sent a security deposit to North Carolina, and engaged in negotiations with a North Carolina corporation on his company's behalf. But there was no personal jurisdiction over the defendant's New York-based brother who guarantied the debt of his brother's company and received no commercial benefit from the guaranty. Similarly, the Fifth Circuit found jurisdiction in Marathon Metallic, which involved two officers/shareholders who had specifically formed their Colorado corporation to distribute the Texas-based plaintiff's products and agreed to provide a continuous guaranty of their corporation's debts to the plaintiff's business. Marathon Metallic, 653 F.2d at 923.

Before addressing whether the trial court properly found jurisdiction over White, we must first consider whether White's appeal derives solely from the trial court's findings of fact and conclusions of law, which are reviewed for substantial evidence, or whether White may also appeal the denial of his motion to dismiss for lack of personal jurisdiction. Such motions are reviewed de novo under the same standard that applies to summary judgment motions when evidence outside the pleading is filed. See Puget Sound Bulb Exch. v. Metal Bldgs. Insulation, Inc., 9 Wn. App. 284, 289, 513 P.2d 102 (1973) (motion to dismiss under CR 12(b)(2) for lack of personal jurisdiction is treated as one for summary judgment when evidence outside the pleadings is filed).

Ordinarily, a decision denying summary judgment on the basis of disputed material facts is not reviewable on appeal. Johnson v. Rothstein, 52 Wn. App. 303, 304, 759 P.2d 471 (1988). But when a motion is denied as a matter of law, this court has declined to hold that the trial court's decision is not reviewable. See Johnson, 52 Wn. App. at 305 n. 4 (noting that discretionary review is available under RAP 2.3, court declined to decide whether summary judgment denial based upon a substantive legal issue can be appealed).

Even if we assume that the summary judgment motion is reviewable, we nevertheless conclude that the trial court did not err. The level of White's involvement in negotiating and entering into the guaranty makes this case distinguishable from the ones he cites and more similar to the nonresident guarantor cases cited by Wintersport.

There is no dispute that White made the oral guaranty. There is also no dispute that this lawsuit arose from the guaranty. While the underlying contract and the request for a guaranty initiated from Wintersport, the focus is on White's actions. White's guaranty acted as a significant inducement to Wintersport to proceed with the contract, because without it, Wintersport would not have agreed to extend credit to Millionaire.com. And White did have multiple contacts with Wintersport in his capacity as Millionaire.com's CEO and president. Viewing both the nature and the context of White's actions, we conclude that he acted purposefully by entering into a contract in his personal capacity with a Washington corporation, even if he never visited the state. Although there is little evidence of White receiving a particular benefit from the guaranty by virtue of his status as a shareholder (while his exact holdings are unknown, it is undisputed that he is not a controlling shareholder), White's involvement in the transaction provides sufficient evidence that he did transact business in the State of Washington.

At trial, White denied making the guaranty, but the trial court found that the guaranty was made. White has not challenged this finding; thus, it is a verity on appeal. See State v. Hill, 123 Wn.2d 641, 644, 870 P.2d 313 (1994).

We also consider the factors for personal jurisdiction, including "the quality, nature, and extent of the activity in the forum state, the relative convenience of the parties, the benefits and protection of the laws of the forum state afforded the respective parties, and the basic equities of the situation." Tyee, 62 Wn.2d 116 (footnote omitted). Contrary to White's assertion, this case is not on all fours with Tyee. In Tyee, personal jurisdiction did not exist over a New Jersey company that acted as a broker between a Washington and another out-of-state company. The dispute at issue centered not on the broker relationship, but on the contract between the Washington seller of certain equipment and the Washington company hired to dismantle the equipment for shipment. The court concluded that the broker had been drawn into the "vortex" of the dispute by the seller and dismantler and characterized the broker's involvement as isolated and incidental.

In contrast, here, the dispute arose directly from White's purposeful actions in Washington. In the context of this dispute, White's actions were substantial and purposeful in facilitating the transaction between Millionaire.com and Wintersport. More important, White knew that he was dealing with a Washington corporation when he made the guaranty and could have reasonably anticipated from his involvement that there was a possibility of being hailed into Washington courts to defend an alleged breach of that guaranty. For this reason, it does not offend traditional notions of fair play and justice to allow Wintersport to proceed against White in Washington courts. We recognize the burden of forcing White to respond to Wintersport's complaint in Washington, but conclude that the equities weigh in favor of personal jurisdiction based upon White's "minimum contacts" with Washington in his personal capacity and the purposeful quality of those contacts. This conclusion requires us to address White's second argument, which is that the guaranty is unenforceable under the statute of frauds.

The statute of frauds provides that, "every special promise to answer for the debt, default, or misdoings of another person" must be in writing or else it is void. RCW 19.36.010. There is a distinction, however, between original promises, which do not fall within the statute, and collateral promises, which do. Morrison-Knudsen Co. v. Hite Crane Rigging, Inc., 36 Wn. App. 860, 863, 678 P.2d 346 (1984). Wintersport argues that White's oral guaranty is outside the statute of frauds because White received a personal benefit from the guaranty due to his interest in continuing the business of Millionaire.com. White argues, however, that standing alone, ownership of stock is insufficient to support a finding that his promise was original. He also challenges the trial court's findings of fact that he received a personal benefit from the guaranty as unsupported by substantial evidence. We review the court's factual findings for substantial evidence, which must in turn support the court's conclusions of law. Landmark Dev., Inc. v. City of Roy, 138 Wn.2d 561, 573, 980 P.2d 1234 (1999).

An original promise occurs when the promisor receives some consideration or direct benefit from the promise. Morrison-Knudsen, 36 Wn. App. at 863. "If the leading object is to benefit the promisor, it does not matter if the effect of the promise is to pay the debt of another." Washington Belt Drive Sys., Inc. v. Active Erectors, 54 Wn. App. 612, 618, 774 P.2d 1250 (1989). A frequent scenario in which courts enforce oral original promises is when promisors agree to be billed directly for services provided to a third party. Stowell Lumber Corp. v. Wyman, 19 Wn.2d 487, 143 P.2d 457 (1943); Davies v. Carey, 72 Wn. 537, 130 P. 1137 (1913).

White contends that this case presents the classic example of an unenforceable promise in which a promisor agrees to pay the debts of another if that party fails to pay. Smith v. Twohy, 70 Wn.2d 721, 724, 425 P.2d 12 (1967), held that in such circumstances a showing of direct benefit is necessary to take the promise out of the statute of frauds. Twohy further held that the benefits accruing as incidents of stock ownership are insufficient to show a direct benefit. Twohy, 70 Wn.2d at 724 (citing Jannsen v. Curtis, 182 Wn. 499, 47 P.2d 662 (1953)). Twohy's holding is well established and mirrors that of Goldie-Klenert Dist. Co. v. Bothwell, 67 Wn. 264, 121 P. 60 (1912), in which the court also declined to enforce a shareholder's oral promise to guaranty debts of a corporation in which he was the largest shareholder, explaining:

If I say to a coal dealer, "Deliver a load of coal to my neighbor A and I will pay for it," the debt is mine, and the promise is not within the statute; but if I say to him deliver the coal and "I will pay for it if he does not," or, "I will guarantee the payment," or that I will "indemnify him against loss," or use equivalent words, the debt upon a delivery of the goods is not my debt; the promise is not direct, but collateral, and the contract or promise must be in writing. The courts are practically a unit upon the hypotheses stated. To state the matter in another form, a direct promise to pay for goods to be delivered to another upon the credit of the promisor is not within the statute, while a collateral promise is.

Goldie-Klenert, 67 Wash. at 266-67. Thus, benefits derived from one's status as a shareholder do not constitute the type of "direct benefit" necessary to convert a collateral guaranty to an original promise.

Wintersport relies upon Morrison-Knudsen, in which a general contractor agreed orally to ensure that its subcontractor's debts to another company were paid. The court found that the benefit the general contractor received to ensure continuation of its construction project was sufficient to take the promise outside the statute of frauds. But Morrison-Knudsen did not involve a shareholder who guarantied the debts of the company. Instead, the guarantor was a general contractor that was at risk of breaching its contract with the project owner if the subcontractor's debts caused the project to be delayed. This was a critical factor in finding the promise was original, not collateral. The court stated,

In this case, Hite was threatening to leave both the fabrication site and the construction site. The trial court found M-K agreed to assure the debt because it would benefit from Hite's continued crane services. M-K had an interest in seeing the contract was completed on schedule. This is sufficient benefit to make the agreement original and take the promise out of the statute of frauds. Morrison-Knudsen, 36 Wn. App. at 865. There was also evidence that the general contractor had taken over the debtor's contract by giving the subcontractor instructions on how to perform work for the project. Morrison-Knudsen, 36 Wn. App. at 862, 866.

Here, the trial court found that "White obtained a personal benefit from the Guaranty in that the Guaranty induced Sun Mountain to perform a contract for a company in which he held a substantial position." Finding of fact 4. White disputes this finding and argues that it does not support the court's corresponding conclusion of law. When determining whether a "loan, induced by [a shareholder's] promise, will serve as a substantial benefit to [the promisor] personally," the court is to carefully examine closely held and managed corporations. Washington Belt, 54 Wn. App. at 618, (quoting South South Nat'l Bank v. Meek, 14 Wn. App. 577, 583-84, 544 P.2d 25 (1975).

In Washington Belt, the individual who made the oral guaranty for a debt was the sole owner, manager, and director of the corporation that defaulted on the debt. The court enforced the guaranty, explaining that it was applying the exception to the general rule that such promises are not enforceable without a showing of direct benefit to the promisor. The case at bar, like the Morrison-Knudsen case, is an example of a case where C (Active) contracts with B (Washington Belt) for goods. B performs. C becomes financially embarrassed or in arrears, and A (Sparling) promises to pay C's debt to B. A's promise falls within the statute of frauds unless A received some direct benefit.

Washington Belt, 54 Wn. App. at 618. The court then stated,

When the trial court explored the relationship between the Sparlings and Active it concluded that because the Sparlings were the sole owners, managers and directors of Active, and basically were the corporation, a judgment would have been personally detrimental to the Sparlings. Therefore the guaranty in exchange for forbearance had a direct and personal benefit to the Sparlings and was an original promise. We agree.

Washington Belt, 54 Wn. App. 619 (emphasis added).

We find that the situation presented here is not comparable to the one in Washington Belt. The direct benefit inquiry here is the sole criteria for determining whether the promise was original or collateral. This case presents a situation where White promises to pay if Millionaire.com does not; but under Twohy, mere status as a shareholder is insufficient to take this kind of promise out of the statute of frauds. Wintersport has not shown that White's benefit amounted to anything more than an indirect incident of share ownership. Although White owned stock in Millionaire.com, the evidence presented on this issue was scanty at best, and there is not substantial evidence to support the trial court's findings that White received a personal benefit from Millionaire.com's successful completion of the printing contract with Wintersport.

At trial, Wintersport argued that Millionaire.com's future and White's job depended on the success of Opulence and that White received a substantial benefit to his company by entering into a guaranty. There is, however, no direct evidence of this. White describes Wintersport's claims as "speculative," and he is correct. The record is devoid of any evidence that could support these arguments. Any citations to the record on this point came from Wintersport's attorney's closing remarks. This is not evidence. Moreover, several of Wintersport's factual assertions are not supported by any citation to the record. Wintersport's remaining citations to the record on this issue do not support the contention made. Since the burden was on Wintersport to prove the benefit White received and it failed to sustain its burden, we conclude that White's oral guaranty fell within the statute of frauds.

For example, Report of Proceedings at 89, which Wintersport cites for the statement that moving ahead with printing Opulence was crucial to Millionaire.com's viability, contains only testimony from Wintersport's graphic designer that there was a time crunch for production to deliver the issue to the printer for timely printing.

White requests attorney fees under RCW 4.28.185(5), which provides the court with authority to award attorney fees at its discretion. Park Hill Corp. v. Don Sharp, Inc., Better Homes Gardens, 60 Wn. App. 283, 289, 803 P.2d 326 (1991). White argues that he is entitled to fees if he obtains a favorable jurisdiction ruling, but we have decided this issue against him. We therefore decline his request.

We reverse and dismiss.

KENNEDY and COX, JJ., concur.