Ballard Square Condo. Owners Ass'n v. Dynasty Construction Co.

• Decision Date: 14 March 2005
• Docket Number: No. 53856-0-I, No. 54250-8-I.
• Citation: 108 P.3d 818,126 Wash.App. 285
• Court: Washington Court of Appeals
• Parties: BALLARD SQUARE CONDOMINIUM OWNERS ASSOCIATION, a Washington nonprofit corporation, Appellant, v. DYNASTY CONSTRUCTION COMPANY, a Washington corporation; Shin Lu Mark Liu and Jane Doe Liu, and the marital community composed thereof; Yung Pai Shu Liu and John Doe Liu, and the marital community composed thereof, Respondents, v. Wall Finishes, Inc., a Washington corporation, Third-Party Defendant.

108 P.3d 818

126 Wash.App. 285

BALLARD SQUARE CONDOMINIUM OWNERS ASSOCIATION, a Washington nonprofit corporation, Appellant, v. DYNASTY CONSTRUCTION COMPANY, a Washington corporation; Shin Lu Mark Liu and Jane Doe Liu, and the marital community composed thereof; Yung Pai Shu Liu and John Doe Liu, and the marital community composed thereof, Respondents, v. Wall Finishes, Inc., a Washington corporation, Third-Party Defendant.

Nos. 53856-0-I, 54250-8-I.

Court of Appeals of Washington, Division 1.

March 14, 2005.

Todd Christopher Hayes, Foster Pepper Shefelman PLLC, Todd K. Skoglund, Christopher Richard Casey, Seattle, WA, for Appellant.

Eileen I. McKillop, Heather Dawn Shand Perkins, Seattle, WA, for Respondent.

AGID, J.

¶ 1 A condominium homeowners association appeals a trial court's order dismissing its case on summary judgment. The association sued the condominium's developer, a dissolved corporation, for breach of contract after construction defects caused water damage to the building's exterior walls. The association argues the trial court erred in concluding that their contract claim was barred by both the statute of limitations and the Business Corporation Act. Because the Business Corporation Act does not expressly permit post-dissolution claims against dissolved corporations except during the period in which they are winding up their affairs, and the common law prohibited them, the common law rule still applies and all claims against Dynasty had terminated before the association filed suit. We affirm.

FACTS

¶ 2 Ballard Square is a 20-unit condominium building located in Seattle. Dynasty Construction Company (Dynasty) was Ballard Square's developer and general contractor. Dynasty sold its first Ballard Square unit in May 1992 and completed construction of the building by the end of 1992. The company was administratively dissolved in October 1995. Soon after construction was completed, homeowners noticed water penetration in the subterranean basement and roof and some window condensation. Sometime later, they noticed water penetration in the above-ground exterior walls.

¶ 3 In early 1997, the homeowners filed an insurance claim to cover the cost of repair. The insurance company found water leaking through the exterior stucco finish, but the company paid to repair only those areas that were in an imminent state of collapse. Also in early 1997, engineering investigators visited the condominium building and made exploratory openings in the exterior walls. They reported that portions of the exterior walls in some units were severely decayed, and in some areas the interior gypsum sheathing board and plywood sheathing were wet or damp from water leaking through the stucco siding. Sometime later, an architect looked at the damage and stated that the building "is experiencing severe decay and it is in a state of imminent collapse in certain areas[.]" In the architect's opinion, Dynasty's failure to build the structure in compliance with existing law and/or sound construction standards caused the damage. The estimated cost of repair was over $1.4 million.

¶ 4 In October 2002, the Ballard Square Homeowners Association (Association) sued Dynasty for breach of contract, alleging that Dynasty breached the portion of the Purchase and Sale Agreement Addendum that states that "[t]he Unit and entire project shall be completed substantially in accordance with the plans and specifications prepared, and from time to time amended, by Seller."¹ In April 2004, the trial court dismissed the Association's case on summary judgment.

DISCUSSION

¶ 5 On appeal of a trial court's decision to grant summary judgment, we review questions of law de novo.² We consider all facts and reasonable inferences in the light most favorable to the nonmoving party.³ Absent a genuine issue of any material fact, the moving party is entitled to summary judgment as a matter of law.⁴ Summary judgment is proper "only if reasonable persons could reach only one conclusion from all of the evidence."⁵

¶ 6 Dynasty argues that the Association's claim is barred because Dynasty was administratively dissolved in October 1995, seven years before the Association filed its case. At common law, a corporation ceased to exist upon dissolution, and all claims against that corporation were terminated by operation of law.⁶ Responding to the inequitable results this rule caused, state legislatures enacted two kinds of statutes. The two are not exclusive, but rather typically exist together in the same statutory scheme. The first continues a corporation's existence during its winding up activities, allowing the corporation to sue and be sued while winding up.⁷ Most states have enacted this kind of statute.⁸ The second enables a dissolved corporation to sue and be sued independent of its winding up activities.⁹ These statutes are known as "survival" statutes, and they typically preserve a remedy against a corporation for a finite period after the dissolution date.¹⁰ All states have adopted a survival statute.¹¹

¶ 7 Washington's Business Corporation Act, chapter 23B.14 RCW, contains both types of statutes. RCW 23B.14.050 states that "[a] dissolved corporation continues its existence but may not carry on any business except that appropriate to wind up and liquidate its business and affairs [.]"¹² The statute also provides that a corporation's dissolution does not prevent the commencement of a proceeding against the corporation in its corporate name.¹³ Because chapter 23B.14 RCW deals exclusively with corporate dissolutions and sections .050 and .210 deal with post-dissolution winding up and liquidation, these provisions permit lawsuits by and against a corporation so long as it is still in the process of winding up its affairs. Washington's survival statute, RCW 23B.14.340, states that a corporation's dissolution "shall not take away or impair any remedy available against such corporation [...] for any right or claim existing, or any liability incurred, prior to such dissolution if action or other proceeding thereon is commenced within two years after the date of such dissolution."¹⁴

¶ 8 Citing RCW 23B.14.340, Dynasty argues that the Association's claim is barred because Dynasty dissolved in 1995 and the Association did not file its claim within two years of the dissolution. The Association responds that the two year period applies only to claims that existed before the corporation dissolved, and because its claim accrued after Dynasty's dissolution, RCW 23B.14.340 does not bar the action. The parties therefore raise two issues involving the interpretation of RCW 23B.14.340: (1) does the statute apply to actions that arise after dissolution; and (2) if the statute does not apply to actions arising after dissolution, what limits, if any, do parties raising post-dissolution claims face? Dynasty bears the burden of proving that the statute bars the present action.¹⁵

I. RCW 23B.14.340 does not apply to actions arising after dissolution.

¶ 9 In deciding whether RCW 23B.14.340 provides a two year limitation period for claims that did not exist until after the corporation dissolved, we must determine the Legislature's intent and purpose as it is expressed in the act¹⁶ by looking to the statutory scheme as a whole.¹⁷ We must first decide whether its language is ambiguous; that is, whether it is capable of more than one reasonable interpretation.¹⁸ If the language is plain and unambiguous, we determine its meaning from the statute itself.¹⁹ But if it is ambiguous or unclear, we may look to legislative history to discern legislative intent.²⁰

¶ 10 RCW 23B.14.340 is not ambiguous. It clearly applies only to claims existing before a corporation dissolves. The "claim existing ... prior to such dissolution" language is clear.²¹ To hold that the statute applies to both pre-dissolution and post-dissolution claims would render the "prior to" language meaningless, something we cannot do.²²

¶ 11 Both the legislative history and Washington case law also support our conclusion that the survival statute only applies to pre-existing claims. Washington's previous survival statute, RCW 23A.28.250, is almost identical to RCW 23B.14.340 and contains the same "claim existing ... prior to such dissolution" language. The previous statute was enacted in 1965,²³ and it used the same language as that found in early versions of the Model Business Corporation Act (MBCA).²⁴ But scholars repeatedly expressed concern about the MBCA's language because it caused confusion about post-dissolution claims. In response to this concern, the 1984 Revised Model Business Corporation Act (RMBCA) added two new sections.²⁵ Section 14.06 provides for claims known at the time of dissolution, requiring the dissolving corporation to notify all known claimants of its dissolution and give those claimants a limited period of time in which to file a claim. Section 14.07 addresses claims unknown at the time of dissolution and provides a five year period in which post-dissolution claims must be filed.²⁶

¶ 12 In 1989, the Washington Legislature repealed its 1965 corporations act and enacted chapter 23B RCW, including RCW 23B.14.340.²⁷ In its comments to chapter 23B, the Legislature stated that it substantially relied on the provisions, purposes, and principles of the 1984 RMBCA.²⁸ In doing so, it adopted section 14.06, which is now codified as RCW 23B.14.060. But the Legislature declined to adopt section 14.07 which would permit claims that were discovered within 5 years of a corporate dissolution.²⁹ It also confusingly enacted RCW 23B.14.340, which the RMBCA intended to be supplanted by sections 14.06 and 14.07. The Legislature's failure to eliminate the "prior to such dissolution" language of RCW 23B.14.340, combined with its rejection of section 14.07, compels the conclusion that it intended that the survival statute apply only to claims existing before the corporation dissolved.

¶ 13 We previously reached a...