Bero v. Name Intelligence, Inc.

• Decision Date: 25 July 2016
• Docket Number: No. 73434–2–I,C/w No. 73536–5–I,73434–2–I
• Citation: 195 Wash.App. 170,381 P.3d 71
• Parties: Raymond Bero, an individual, Plaintiff, v. Name Intelligence, Inc., a Washington corporation; Jay Westerdal, an individual; Westerdalcorp LLC, a Washington limited liability company, Respondents, Per Westerdal and Melody Westerdal, individually and the marital community composed thereof, Appellants, John and Jane Does 1–30, Defendants.
• Court: Washington Court of Appeals

195 Wash.App. 170

381 P.3d 71

Raymond Bero, an individual, Plaintiff,

v. Name Intelligence, Inc., a Washington corporation; Jay Westerdal, an individual; Westerdalcorp LLC, a Washington limited liability company, Respondents,Per Westerdal and Melody Westerdal, individually and the marital community composed thereof, Appellants,John and Jane Does 1–30, Defendants.

No. 73434–2–I

C/w No. 73536–5–I

Court of Appeals of Washington, Division 1.

FILED: July 25, 2016

Marc S. Stern, Attorney at Law, 1825 NW 65th St., Seattle, WA, 98117–5532, for Appellants.

Howard Mark Goodfriend, Smith Goodfriend PS, 1619 8th Ave. N, Seattle, WA, 98109–3007, Dillon Edward Jackson, Foster Pepper PLLC, 1111 3rd Ave., Ste. 3000, Seattle, WA, 98101–3292, for Respondents.

Leach

, J.

¶ 1 Per and Melody Westerdal appeal the trial court's order terminating this receivership proceeding. They contend that the trial court should have first either disallowed or adjudicated their claim to 25 percent of a valuable receivership asset. Because the receivership had fulfilled its purpose and the trial court reasonably determined it would be wasteful and unnecessary to continue it, the trial court did not abuse its discretion terminating it. We affirm.

FACTS

¶ 2 Jay Westerdal owns Name Intelligence Inc., a company that buys and sells Internet domain names. Raymond Bero, a former employee, sued Jay¹ and his companies, Name Intelligence and Westerdalcorp LLC. The parties settled in 2012.² As part of the settlement, Jay gave Bero a promissory note for $2.5 million. Jay's parents, Per and Melody, guaranteed Jay's debt to Bero up to $200,000. The next year, Bero sued Jay again, for breach of the settlement agreement. He alleged that Jay defaulted on his payments and attempted to sell domain names that Bero had an interest in. The trial court eventually entered a $1.4 million judgment against Jay.

¶ 3 Jay did not pay the judgment. At Bero's request, in August 2014, the trial court placed Jay's companies and certain real and personal property in receivership. The primary purpose of the receivership was to protect Bero's security interests in Jay's assets. Later, in December 2014, Jay satisfied Bero's judgment against him.

¶ 4 Also during the receivership, Per and Melody asserted a $350,000 secured claim, which included their guaranty payment to Bero and other loans. Jay paid Per and Melody this amount in full in December 2014.

¶ 5 Meanwhile, Jay had a brokerage agreement, made before the receivership, with Breathe Luxury Limited to auction off a high-priced domain name, “holiday.com.” Jay and Breathe Luxury disagreed about how Breathe Luxury would conduct the auction. Jay wrote Breathe Luxury in November 2015, two days before the scheduled auction. His letter accused Breathe Luxury of breaching the brokerage agreement and declared the auction off. Breathe Luxury proceeded with the auction but did not receive a bid that met the reserve price.

¶ 6 In December 2014, after Jay had paid his secured debts to his parents and Bero, Per and Melody asserted an unsecured claim to 25 percent of holiday.com's eventual sale price.³ The trial court denied without prejudice Per and Melody's motion to allow this claim. At a March 2015 hearing, the trial court determined that it did not need to decide this claim as part of the receivership, as the claim was not within the scope of the initial order and Per and Melody could assert it in a separate lawsuit. The trial court terminated the receivership.

¶ 7 Per and Melody appeal the trial court's orders terminating the receivership and denying their motion for reconsideration.

ANALYSIS

Trial Court's Authority To Terminate Receivership

¶ 8 The parties disagree about how and whether chapter 7.60 RCW limits the trial court's ability to terminate a receivership. How much discretion chapter 7.60 RCW gives the trial court presents a question of statutory interpretation that this court reviews de novo.⁴

¶ 9 This court interprets a statute primarily “to ascertain and give effect to the intent of the legislature.”⁵ It begins “with the statute's plain language and ordinary meaning.”⁶ “Where the legislature has not defined a term, we may look to related statutes and dictionary definitions, as well as the statute's context, to determine the plain meaning of the term.”⁷

¶ 10 Chapter 7.60 RCW gives the trial court broad discretion over receiverships.⁸ For instance, the power to appoint a receiver is discretionary.⁹ The trial court appoints a receiver “as the court's agent, and subject to the court's direction, to take possession of, manage, or dispose of property of a person.”¹⁰ A general receiver thus has broad powers to manage the receivership property, liquidate assets, and satisfy creditors.¹¹

¶ 11 Because receiverships are an “extraordinary remedy,” Washington courts employ them with caution.¹² Except in certain narrow, inapplicable circumstances, the trial court may appoint a receiver only when it finds that a receivership “is reasonably necessary and that other available remedies either are not available or are inadequate.”¹³ Accordingly, Washington courts have long recognized that a receivership should terminate “ ‘as soon as practicable after its purposes have been accomplished.” ’¹⁴ “[A] receivership is merely ancillary to the main cause of action; it is not an independent remedy.”¹⁵

¶ 12 Per and Melody do not contend that the statutory section on termination limits the trial court's ability to terminate a receivership. Indeed, this argument would fail under the statute's plain language. RCW 7.60.290(5)

gives the trial court the “power to” terminate the receivership: “Upon motion of any party in interest, or upon the court's own motion, the court has the power to discharge the receiver and terminate the court's administration of the property over which the receiver was appointed.” By its terms, the section imposes no limit on the trial court's power to terminate the receivership.¹⁶ And the term “power to” itself, without any mandatory or limiting language, implies a broad grant of discretion.¹⁷

¶ 13 Despite the plain language of RCW 7.60.290(5)

, Per and Melody argue that other sections of the receivership statute limit the trial court's power. In particular, they claim that RCW 7.60.220(1) prohibits the trial court from terminating a receivership until all properly served claims have either been satisfied or affirmatively disallowed. This subsection states that “[c]laims properly served upon the general receiver and not disallowed by the court are entitled to share in distributions from the estate in accordance with the priorities provided for by this chapter or otherwise by law.” Because they properly served their claim and the trial court did not disallow it, Per and Melody argue, they were “ ‘entitled to share in distributions from’ ” the receivership assets. They contend they have a “statutorily vested right” that is terminable only when the court disallows their claim.

¶ 14 As with RCW 7.60.290(5)

, no court appears to have interpreted RCW 7.60.220(1). As neither the statute nor case law defines “entitle,” a court looks “to extrinsic aids, such as dictionaries, to find the word's ordinary meaning.”¹⁸

Black's Law Dictionary defines “entitle” as “[t]o grant a legal right to or qualify for.”¹⁹ Per and Melody claim that the legislature intended to give claimants a “vested right” to distributions, provided the claimants properly served their claim and the trial court did not disallow it.²⁰ Under this interpretation, properly serving a claim that is not then disallowed would be both necessary and sufficient to receive a distribution.

¶ 15 Per and Melody's proposed interpretation mandates distributions from receivership assets for every properly served claim the court does not disallow. This proposed interpretation conflicts with RCW 7.60.230

, which states that the trial court must allow a claim before the receiver's duty to distribute to the creditor becomes mandatory.²¹ It also conflicts with the receiver's discretionary powers of distribution.

¶ 16 We think a different interpretation is more practical and more consistent with the broad authority given to a general receiver to manage receivership property.²² A claimant who becomes “entitled” by properly serving a claim, which the trial court does not then disallow, has taken steps necessary to qualify for, but not sufficient to receive, a distribution. This interpretation preserves the discretion of the trial court to manage the duration of the extraordinary remedy of receivership and to take into account such practical considerations as the ongoing cost of continuing it. This latter interpretation is consistent with the statutory scheme for receiverships, which gives the court broad discretion and provides a general receiver with broad authority to manage receivership property.²³

¶ 17 In sum, because RCW 7.60.290(5)

contains no language limiting the power it grants a trial court to terminate a receivership, the statute gives the trial court discretion when to terminate a receivership. This broad discretion comports with the policy of treating receiverships as an exceptional remedy.²⁴ It is also consistent with the law in other jurisdictions, as it appears that every jurisdiction to address the issue has left the decision to terminate a receivership to the trial court's sound discretion.²⁵ If the legislature intended chapter 7.60 RCW to mandate a trial court to decide all claims brought during a general receivership before terminating it, the legislature easily could have done so.

Trial Court's Use of Discretion To Terminate Westerdal Receivership

¶ 18 Per and Melody contend that the trial court disregarded its prior order, misunderstood its statutory duties and authority, and erroneously thought that keeping the receivership would add unnecessary complexity and waste resources while terminating it would not prejudice Per and Melody. In short, Per and Melody assert that the trial court abused its...