Goldberg Family Inv. Corp. v. Quigg, No. 44915-3-II

CourtCourt of Appeals of Washington
Writing for the CourtBJORGEN, A.C.J.
Docket NumberNo. 44915-3-II
PartiesGOLDBERG FAMILY INVESTMENT CORPORATION, a Washington corporation, Appellant, v. WILLIAM D. QUIGG and CAROL QUIGG, and the marital community comprised thereof; and PATRICK D. QUIGG and KATHLEEN A. QUIGG, and the marital community comprised thereof, Respondents.
Decision Date28 October 2014

GOLDBERG FAMILY INVESTMENT CORPORATION, a Washington corporation, Appellant,
v.
WILLIAM D. QUIGG and CAROL QUIGG, and the marital community comprised thereof;
and PATRICK D. QUIGG and KATHLEEN A. QUIGG, and the
marital community comprised thereof, Respondents.

No. 44915-3-II

COURT OF APPEALS OF THE STATE OF WASHINGTON DIVISION II

October 28, 2014


UNPUBLISHED OPINION

BJORGEN, A.C.J. This appeal arises out of a lawsuit "by Goldberg Family Investment Corporation (Goldberg) to compel William and Patrick Quigg (the Quiggs) to arbitrate claims related to the failure of a limited liability company in which Goldberg and entities in which the Quiggs were officers had ownership interests. The Quiggs opposed Goldberg's claims, arguing that Goldberg (1) lacked standing, (2) was not the real party in interest, and (3) could not compel them to arbitrate because they were not parties in their individual capacities to the agreements containing the arbitration clauses.

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Before us, Goldberg appeals two trial court orders. The first order granted the Quiggs' motion to strike portions of Goldberg's pleadings as unauthenticated hearsay. Goldberg claims that the trial court erred in granting this motion because it did not offer the statements in the pleadings for their truth, but only to show that its claims were subject to arbitration. The second order granted summary judgment to the Quiggs on the arbitrability of Goldberg's claims, denied Goldberg's motion to compel arbitration, denied Goldberg's motion to strike the Quiggs' affirmative defenses and counterclaim, and dismissed Goldberg's claims with prejudice. Goldberg contends that the trial court erred in granting this order because the arbitration clauses at issue required the Quiggs to arbitrate in their individual capacities and because it had standing to pursue the claims at issue.

Holding that the trial court properly granted the Quiggs' motion to strike, properly determined that the arbitration clauses did not bind the Quiggs in their individual capacities, and properly determined that Goldberg lacked standing and was not the real party in interest for the type of claims it brought, we affirm.

FACTS

In 1993 a group of investors formed a limited partnership, Grays Harbor Paper L.P. (the Partnership), to operate the Hoquiam Paper Mill and related assets. Among the entities involved in forming the Partnership were its general partner, Grays Harbor Industrial Inc. (GHI), and a number of limited partner entities, including Goldberg, WDQ Investments Inc., and Quigg Investments Inc. William Quigg signed the limited partnership agreement as the president of both GHI and WDQ. Patrick Quigg signed the limited partnership agreement as the president of Quigg Investments Inc.

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The limited partnership agreement contained an arbitration clause. The clause provided, in relevant part, that

[a]ny dispute, controversy or claim arising out of or in connection with, or relating to [the Partnership Agreement] or any breach or alleged breach hereof, upon the request of any party involved, shall be submitted to, and settled by, arbitration in Grays Harbor County, Washington, or any other venue agreed upon by the parties, pursuant to American Arbitration Association, or under any other form of arbitration mutually acceptable to the parties so involved.

Clerk's Papers (CP) at 56-57.

In 2010 the partners created Grays Harbor Paper LLC (the LLC) and merged the Partnership into it. The merger resulted in the partners receiving "generally equivalent shares of ownership" in the LLC as those they had possessed in the Partnership. Through this merger the LLC obtained "all properties and assets, and all the rights, privileges, powers, immunities and franchises of [the Partnership]." CP at 164.

Like the limited partnership agreement, the LLC operating agreement contained an arbitration clause. The clause provided that

[a]ny controversy, claim or dispute of whatever nature arising between any of the parties under this Agreement, the other Transaction Documents or in connection with the transactions contemplated hereunder, including those arising out of or relating to the breach, termination, enforceability, scope or validity hereof, whether such claim existed prior to or arises on or after the date hereof (a "Dispute"), shall be resolved by mediation or, failing mediation, by binding arbitration. The agreement to mediate and arbitrate contained in this Section 16.1 shall continue in full force and effect despite the expiration, rescission or termination of this Agreement.

CP at 129. Any party to the agreement wishing to invoke the arbitration clause could do so by serving a written "[d]ispute [n]otice" on the party it wished to arbitrate with "setting forth the nature of the [d]ispute." CP at 129. Once successfully invoked, the LLC operating agreement's

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arbitration clause provided that the Federal Arbitration Act would govern and specified the arbitration's procedures and substantive governing law.

The LLC became insolvent in 2011 and eventually assigned its assets to a court appointed receiver. Goldberg filed a notice of appearance in the receivership matter as an interested party, but filed no claims related to this suit.

After the opening of the receivership estate, Goldberg served a dispute notice on the Quiggs under the arbitration clause, making various allegations of misconduct related to the LLC's failure. The notice alleged that William Quigg, through his alter ego GHI, the Partnership's general partner, had misappropriated partnership funds in breach of fiduciary duties he owed to Goldberg. The notice asserted that these financial improprieties continued when the Partnership became an LLC by virtue of William Quigg's role as a de facto manager of the LLC. The notice further alleged that Patrick Quigg took part in his brother's "diversions of funds" and then failed to seek disgorgement of the ill-gotten gains in violation of fiduciary duties that he owed Goldberg. CP at 15.

Despite receiving the notice of dispute, the Quiggs declined to arbitrate Goldberg's claims. Consequently, Goldberg filed a complaint to compel arbitration.

Before the Quiggs responded to Goldberg's complaint, the receiver appeared in the matter by filing a notice of automatic stay. The notice advised the parties that "[w]hile [the LLC] is not a party to this litigation, the claims made herein are assets of the Receivership estate and the commencement of this action constitutes a violation of the automatic stay" triggered by the creation of the receivership estate. CP at 157. Goldberg filed no answer and ultimately, the

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receiver assigned all of the LLC's assets to its senior secured creditor; the supervising trial court approved the assignment and closed the receivership.

The Quiggs answered Goldberg's complaint on three grounds. First, the Quiggs denied the substance of Goldberg's allegations. Second, the Quiggs contended that they had not agreed to arbitrate any dispute with Goldberg. In support of this argument, the Quiggs noted that they were not parties to the Partnership or LLC operating agreements in their individual capacities. Finally, the Quiggs maintained that Goldberg was not the real party in interest and lacked standing to make its claims. The Quiggs argued that had the Partnership and the LLC suffered any injuries as Goldberg alleged the right to any remedy belonged to the LLC. The Quiggs contended that this right had passed into the receivership estate and the receiver had assigned it to the LLC's senior secured creditor. The Quiggs' answer also contained a counterclaim requesting declaratory relief and dismissal with prejudice of Goldberg's claims based on their real party in interest and standing arguments.

Goldberg then moved to compel arbitration, arguing that the trial court could compel the Quiggs to arbitrate whether or not they had signed the Partnership and LLC operating agreements in their individual capacities. In support, Goldberg noted that the federal courts had compelled nonsignatories to arbitrate under numerous theories and that the courts of this state had seemingly adopted those theories. Of these theories, Goldberg contended that two required the Quiggs to arbitrate. First; Goldberg claimed that principles of agency law required the Quiggs to arbitrate with it because they were corporate officers in entities that had signed the Partnership and LLC operating agreements. Second, Goldberg argued that, because various entities that had signed the Partnership and LLC operating agreements were alter egos for the

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Quiggs, the trial court could compel them to arbitrate in the place of those entities by disregarding the entities' corporate form.

Goldberg also moved to strike the Quiggs' standing and real party in interest defenses and dismiss the associated counterclaim with prejudice.1 Goldberg first contended that the standing and real party in interest issues concerned the merits of its right to recover, and therefore the arbitrator, rather than the trial court, needed to resolve them. Goldberg then argued that, under the Uniform Limited Partnership Act, chapter 25.05 RCW, and the Washington Limited Liability Company Act, chapter 25.15 RCW, general partners and LLC managers owe fiduciary duties to limited partners and LLC members as well as to the business entity itself. Goldberg maintained that it alleged a breach of a fiduciary duty...

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