Haley v. Highland

• Court: Washington Supreme Court
• Writing for the Court: MADSEN, J.
• Citation: Haley v. Highland, 142 Wash.2d 135, 12 P.3d 119 (Wash. 2000)
• Decision Date: 02 November 2000
• Docket Number: No. 67402-7.
• Parties: J.T. HALEY, Respondent, v. Carl HIGHLAND, Petitioner.

12 P.3d 119

142 Wash.2d 135

J.T. HALEY, Respondent, v. Carl HIGHLAND, Petitioner.

No. 67402-7.

Supreme Court of Washington, En Banc.

Argued December 9, 1999.

Decided November 2, 2000.

Leland Ripley, Seattle, Carl Highland, Bellevue, for Petitioner.

Jeffrey Thornton Haley, Bellevue, William Robert Bishin, Seattle, for Respondent.

MADSEN, J.

In deElche v. Jacobsen, 95 Wash.2d 237, 622 P.2d 835 (1980), and Keene v. Edie, 131 Wash.2d 822, 935 P.2d 588 (1997), we held that a tortfeasor's one-half interest in community property, both personal and real, may be reached to satisfy a judgment for a separate tort committed during marriage. In this case we are asked to decide whether deElche and Keene should be extended to allow the use of a tortfeasor's one-half interest in community personal property to satisfy a judgment based on a separate tort committed prior to marriage. We hold that these assets may be reached in the event a tortfeasor's separate property is insufficient to satisfy the claim.

FACTS

Coresoft Corporation (Coresoft), a closelyheld software company, was founded in 1984. Respondent Jeffrey T. Haley (Haley), a software attorney, began his involvement with Coresoft by consulting the company on minor legal issues. In 1989, Haley made an initial financial investment in Coresoft, becoming a member of the company's Board of Directors (Board).

The financial well-being of Coresoft was in a constant state of deterioration, yet its stockholders remained optimistic that it would one day become profitable. To expedite this desired result the Board determined that a professional president should be hired to turn Coresoft around financially. Petitioner Carl Highland (Highland) was chosen for the position and took office in July of 1989.

Coresoft continued to experience financial difficulties after Highland's arrival. A symptom of Coresoft's fiscal disarray was the fact that during Highland's tenure the company periodically failed to pay withholding taxes due the Internal Revenue Service (IRS), yet continued to deduct the owed amounts from employees' total compensation. This illegal activity exposed Coresoft to significant potential liability. During this period Highland made reports to the Board regarding the well-being of Coresoft, both written and oral, which omitted any reference to Coresoft's illegal tax activities.

On multiple occasions in 1989 and 1990, Haley purchased Coresoft stock and made loans to the corporation. These financial outlays by Haley occurred at the same time Coresofts's illegal activities were being undertaken. Thereafter, Coresoft filed for bankruptcy. In total, Haley absorbed a loss of $122,350 from investments made during Highland's tenure.

In 1994, Haley filed suit against Highland in King County Superior Court, alleging common law fraud, violation of state and federal securities laws, deceptive business practices, restitution, slander, and breach of promise to pay. The claims were based on an allegation that Highland failed to inform Haley, as well as the rest of the Board, of Coresoft's illegal tax activities. Highland responded by denying he had any knowledge of Coresoft's illegal activities at the time he made his reports to the Board.

Haley agreed to waive all claims in excess of $35,000 and submit the lawsuit to arbitration. In May 1995, an arbitrator found in favor of Haley. In granting the award the arbitrator filled out a preprinted form, typing in the following language: "$2,500 plus interest at the rate of 12% per annum from June 8, 1990." Clerk's Papers (CP) at 10. That is the extent of the appellate record regarding the arbitrator's findings.

Haley appealed the arbitration award and sought a trial de novo. At trial, a superior court jury awarded Haley $2,500 for securities law violations, the same amount as the arbitrator, but found against him on all other claims. As permitted by the Securities Act of Washington, Chapter 21.20 RCW, the trial court added interest at eight percent per annum from June 8, 1990. RCW 21.20.430. The court also granted Haley attorney fees and costs in the amount of $19,262, resulting in a total judgment in favor of Haley for $23,126.

All of Highland's tortious conduct occurred in 1989 and 1990. Highland was unwed during this entire period, making the tort judgment against him a separate liability, but was subsequently married in 1992. Highland's wife was not named as a party to the suit, nor does either party dispute that Haley's claim is against Highland in his separate capacity. Unlike Highland, Haley was married at all times pertinent to this case.

Highland was also granted attorney fees and costs, but in the amount of $24,321, an amount which exceeded Haley's total award. This award was made pursuant to MAR 7.3, which allows an attorney fee award against a party that appeals an arbitration "award and fails to improve the[ir] position on the trial de novo." Mandatory Arbitration Rule (MAR) 7.3. The trial court found that only compensatory damages, which were $2,500 at trial as well as the arbitration, not attorney fees, should be taken into account in making an assessment of whether a party has improved its position under MAR 7.3.

The parties then attempted to collect their respective judgments. This case has a long and drawn out post-trial history related to the parties' collection efforts. Only those matters relevant to this petition will be addressed. On April 23, 1996, Haley obtained, from King County Superior Court, an order enjoining Highland from transferring all his personal property, including, among other items, the judgment he held against Haley. Highland moved for reconsideration of the order. On May 1, 1996, the trial court vacated its previous order and entered a revised order, assessing $250 in terms against Haley for "violation of CR 11 for presenting an order that exceeded statutory authorization." CP at 241. The revised order did not specify in what manner Haley had "exceeded statutory authorization," but it did continue to restrict Highland from transferring the judgment he held against Haley. CP at 242.

On May 3, 1996, Haley obtained a writ of execution against both Highland's MAR judgment and the $250 award of CR 11 terms granted by the trial court. Highland filed a motion to quash the writ. On June 11, 1996, the trial court heard the motion and entered an order quashing the writ and finding that Highland's MAR judgment against Haley, as well as the $250 in terms was exempt from execution by reason of RCW 26.16.200. This statute provides that "[n]either husband or wife is liable for the debts or liabilities of the other incurred before marriage...." RCW 26.16.200.

Haley then filed a motion for reconsideration of the order, which was denied without comment on July 8, 1996. Haley also filed a motion to establish that Highland's marital community was liable for the judgment against Highland, that one-half of Highland's personal earnings are subject to execution to satisfy the judgment, and that Highland's MAR judgment against Haley is subject to execution to satisfy Haley's securities law claim. The motion was heard by the trial court on July 18, 1996. The court denied the motion, "hold[ing] that RCW 26.16.200 controls the disposition of this case" and terms were imposed against Haley in the amount of $250. CP at 405. Highland garnished Haley's community bank account for $2,154.24 in attempting to satisfy his MAR attorney fee award. On December 2, 1996, Haley filed a Motion For an Order Directing Clerk to Hold Garnishment Funds. The trial court issued a ruling on December 16, 1996, stating:

This Court's order of July 18, 1996 states that RCW 26.16.200 controls the disposition of this case. Specifically, this Court has held that the judgments in favor of each party in this case are community assets, and the judgments against each of the parties are separate liabilities, thus they cannot be executed to satisfy each other, nor can community [property] assets be used to satisfy the separate liabilities.

CP at 463.

Highland did not appeal the trial court's order on its merits. Instead, on July 1, 1997, Highland moved to vacate the December 16, 1996 order pursuant to CR 60. Highland's motion was based upon the following provisions: CR 60(b)(1) irregularity in obtaining an order, and CR 60(b)(4) fraud, misrepresentation or other misconduct of an adverse party. After hearing arguments on August 12, 1997, the trial court denied Highland's CR 60 motion.

Haley appealed the trial court's rulings and Highland cross-appealed the trial court's denial of his CR 60 motion to vacate. The Court of Appeals, Division One, issued a partially published opinion. Haley v. Highland, 92 Wash.App. 48, 960 P.2d 962 (1998). In the published section, the court reversed the trial court's determination as to RCW 26.16.200, holding that Haley is able to execute against Highland's one-half interest in community personal property. Id. at 54, 960 P.2d 962. In the unpublished section, the court reversed the MAR 7.3 attorney fee award granted to Highland. Haley v. Highland, No. 38213-6-1, slip op. at 8-13 (Wash. Ct.App. Aug. 17, 1998). The court did not address any of the additional issues raised by the parties.

ANALYSIS

I

The principal issue presented by this case is whether the judgment against Highland, a married person, for tortious conduct that occurred before his marriage may be enforced against his one-half interest in community personal property if his separate property is insufficient to satisfy the claim. Highland argues that RCW 26.16.200 shields his community property from collection under these circumstances. Haley contends RCW 26.16.200 is inapplicable, and that Highland's one-half interest in community property is subject to execution per this court's decisions in deElche v. Jacobsen, 95 Wash.2d 237, 622 P.2d 835, and Keene v. Edie, 131 Wash.2d 822, 935 P.2d 588.

We recognize at the outset that our prior decisions in deE...