Humphrey Indus., Ltd. v. Clay St. Assocs., LLC

• Decision Date: 14 February 2013
• Docket Number: No. 86643–1.,86643–1.
• Citation: 176 Wash.2d 662,295 P.3d 231
• Parties: HUMPHREY INDUSTRIES, LTD., Appellant, v. CLAY STREET ASSOCIATES, LLC; 615 Commerce; Clay Associates Phase II LLC; Scott Rogel; Lori Goldfarb; Joseph Rogel and Lee Ann Rogel, husband and wife; ABO Investments; and Avram Investments, Respondents.
• Court: Washington Supreme Court

176 Wash.2d 662

295 P.3d 231

HUMPHREY INDUSTRIES, LTD., Appellant,

v.CLAY STREET ASSOCIATES, LLC; 615 Commerce; Clay Associates Phase II LLC; Scott Rogel; Lori Goldfarb; Joseph Rogel and Lee Ann Rogel, husband and wife; ABO Investments; and Avram Investments, Respondents.

No. 86643–1.

Supreme Court of Washington, En Banc.

Argued Sept. 20, 2012.

Decided Feb. 14, 2013.

David Christopher Spellman, Stanton Phillip Beck, Andrew J. Gabel, Lane Powell PC, Seattle, WA, for Appellant.

Gregory J. Hollon, Barbara Himes Schuknecht, McNaul Ebel Nawrot & Helgren, Alan B. Bornstein, Attorney at Law, Seattle, WA, for Respondents.

GONZÁLEZ, J.

[176 Wash.2d 665]¶ 1 This case concerns attorney fees under the dissenters' rights provisions of the Washington Limited Liability Company Act (LLC Act), chapter 25.15 RCW. We first considered this dispute two years ago when we reversed the award of attorney fees imposed on Humphrey Industries Ltd. (Humphrey) and remanded to the trial court to reconsider an award of attorney fees in Humphrey's favor. On remand, the trial court awarded Humphrey part of its fees but also reinstated part of the attorney fee award against Humphrey that we had reversed. Humphrey appealed directly to this court, contending that the trial court on remand failed to follow our order.

¶ 2 We hold that the trial court erred by imposing fees on Humphrey. The law of the case precluded the trial court from revisiting issues that it found supported the award of fees against Humphrey. We award Humphrey prejudgment interest on the reversed fee awards. Humphrey has not supported its argument that the individual members are liable for the limited liability company's (LLC) debts.

I. Facts And Procedural History

¶ 3 The relevant facts of the case are set out below, but a more detailed history may be found in our earlier opinion. Humphrey Indus., Ltd. v. Clay St. Assocs., LLC, 170 Wash.2d 495, 242 P.3d 846 (2010). Humphrey, Scott Rogel, Joseph and Lee Ann Rogel, and ABO Investments ¹ formed Clay Street Associates LLC (Clay Street or the LLC) in 1997 to purchase and manage a single parcel of real property in Auburn, Washington.

[176 Wash.2d 666]¶ 4 A dispute arose in 2004, when Scott Rogel sought to sell Clay Street's property and dissolve the LLC to satisfy a property settlement reached in his divorce. Humphrey refused to consent to the sale, implicating the provision in Clay Street's LLC agreement that the property “ ‘shall not be sold, conveyed, and/or assigned without the mutual consent of each of the members....' ” Id. at 498, 242 P.3d 846 (alteration in original) (quoting Clerk's Papers (2010 CP) at 54). Following the advice of an attorney, the other members circumvented the unanimity requirement to sell property by forming a new LLC, which they merged with Clay Street. The members gave Humphrey notice of its statutory right to dissent to the merger, which it exercised, demanding payment of the fair value of its interest in Clay Street.

¶ 5 Because Clay Street had not yet sold the property and lacked other funds with which to pay Humphrey, it failed to pay Humphrey within 30 days of the effective merger date, as required by statute. Nearly six months later—but within the same month that Clay Street sold the property—Clay Street paid Humphrey $181,192.64, which the LLC calculated to be the fair value of Humphrey's interest as of the merger date plus interest for the delay.

¶ 6 Humphrey disagreed with Clay Street's estimate of the fair value of Humphrey's interest. Negotiations failed and Humphrey filed suit. Clay Street later filed a formal petition to determine the value of the company, and the two cases were consolidated.

¶ 7 The trial court found that Clay Street's value on the date of the merger was $3.15 million and ordered Clay Street to pay Humphrey an additional $60,588.22. The court denied Humphrey's request for attorney fees under RCW 25.15.480(2),² finding that although Clay Street violated the LLC Act by failing to pay Humphrey within 30 days, it had substantially complied with the LLC Act “ ‘given that [it] lacked any funds to make the payment to Humphrey, that it could not obtain the requisite funds without a sale of the property, and that it was willing to pay the statutorily required interest during the period of delay.’ ” 170 Wash.2d at 500–01, 242 P.3d 846 (alteration in original) (quoting CP at 2315). The court did award fees and expenses to Clay Street and to Joseph and Lee Ann Rogel (the Rogels), however, based on its finding that Humphrey acted arbitrarily, vexatiously, and not in good faith in pursuing its dissenter's rights claim. This finding was based in part on Humphrey's rejection of both a pretrial settlement offer and a CR 68 offer of judgment.

¶ 8 The Court of Appeals affirmed the trial court in all respects. Humphrey Indus., Ltd. v. Clay St. Assocs., noted at 147 Wash.App. 1045, 2008 WL 5182026, at *7. This court granted Humphrey's petition for review, Humphrey Indus., Ltd. v. Clay St. Assocs., 166 Wash.2d 1014, 210 P.3d 1019 (2009), which objected to the Court of Appeals' determination that Clay Street substantially complied with the statutory deadline for payment of fair value—and thus that it could not be held liable for Humphrey's fees and expenses—and to the court's finding that Humphrey acted arbitrarily, vexatiously, and not in good faith. Although the Court of Appeals held that the trial court erred by considering the CR 68 offer in determining whether Humphrey's conduct was vexatious, it nevertheless upheld the finding “because the rest of the evidence amply supports it.” Id.

¶ 9 We reviewed the case, held that Clay Street did not substantially comply with the LLC Act, and remanded to the trial court to determine whether Humphrey was entitled to fees. We also reversed the fees against Humphrey because “[t]he trial court should not have relied on Humphrey's prelitigation conduct or conduct in other suits against Clay Street and the Rogels....” 170 Wash.2d at 508, 242 P.3d 846. Further, we stated:

Even if the evidence was admitted for a permissible purpose, given the circumstances of this case, the record does not establish that Humphrey's actions were arbitrary, vexatious, and not in good faith. If any acts were in bad faith, they were committed by the other members of Clay Street, who sought to bypass the dissenters' rights statute and section 8.1 of their own LLC Agreement, which specifies that the property “shall not be sold, conveyed, and/or assigned without the mutual consent of each of the members....”

Id. (quoting 2010 CP at 54). We awarded Humphrey attorney fees for the appeal because it was the prevailing party.

¶ 10 On remand, the trial court noted that “[a]n award of attorney's fees under the LLC Act is discretionary with the trial court.” Clerk's Papers (CP) at 712. The trial court then quoted a section of our opinion, stating that

“the award of attorney fees under RCW 25.15.480(2) is not mandatory.... [t]hus even if Clay Street did fail to substantially comply with the 30 day statutory deadline, or if Humphrey did act arbitrarily, vexatiously, or not in good faith, the opposing party is not automatically entitled to an award of attorney fees. Rather, the decision to award attorney fees rests in the discretion of the trial court.”

Id. (emphasis omitted) (quoting 170 Wash.2d at 507, 242 P.3d 846). The trial court granted Humphrey $7,479.86, the amount of attorney fees it calculated was reasonably associated with Clay Street's failure to substantially comply with the LLC Act.

¶ 11 The trial court also reinstated a portion of the fees against Humphrey that this court had reversed. The trial court cited our finding that the “ ‘trial court should not have relied on Humphrey's pre-litigation conduct or conduct in other suits against Clay Street and the Rogels in awarding fees against Humphrey,’ ” id. at 716 (quoting 170 Wash.2d at 508, 242 P.3d 846), but “recall[ed] that quite apart from the evidence found inadmissible by the Supreme Court, there was significant other evidence that indicated that Humphrey acted ‘arbitrarily, vexatiously, or not in good faith....’ ” Id. at 716 (quoting RCW 25.15.480(2)(b)). The court reinstated part of the attorney fee award in Clay Street's favor and the entire award to the Rogels. The trial court also denied Humphrey's request for prejudgment interest on the fees that this court had reversed, finding that the amounts were unliquidated because the trial court needed to exercise its discretion in recalculating them and noting that prejudgment interest is not appropriate when an appellate court reverses a trial court judgment.

¶ 12 Humphrey appealed directly to this court.

II. Analysis

1. RCW 25.15.480(2)(b) Fee Awards Against Humphrey

¶ 13 Humphrey claims that the trial court on remand failed to follow this court's order to consider only whether Humphrey was entitled to attorney fees due to Clay Street's failure to substantially comply with the LLC Act. ³ Humphrey contends that the law of the case doctrine prohibited the trial court on remand from imposing attorney fees against Humphrey because doing so required the court to revisit issues that we had already resolved. Under the law of the case doctrine, “the parties, the trial court, and this court are bound by the holdings of [this] court on a prior appeal until such time as they are ‘authoritatively overruled.’ ” Greene v. Rothschild, 68 Wash.2d 1, 10, 414 P.2d 1013 (1966); see also State v. Worl, 129 Wash.2d 416, 424, 918 P.2d 905 (1996).

¶ 14 Humphrey argues that we held that Humphrey's conduct did not rise to the level indicated in RCW 25.15.480(2)(b), such that the trial court violated the law of the case doctrine by reinstating fees against Humphrey under that section. Indeed, we rejected “the trial court's finding that Humphrey acted arbitrarily, vexatiously, and not in good faith, a finding that rested in part on Humphrey's rejection of a pretrial settlement offer and...