Johnson v. Carlson
| Decision Date | 11 July 2016 |
| Docket Number | No. 73347-8-I,73347-8-I |
| Court | Washington Court of Appeals |
| Parties | JACK A. JOHNSON, in his capacity as the trustee of KEY DEVELOPMENT PENSION; f/k/a G & G MEATS PENSION FUND AND COLUMBIA MEAT PRODUCTS PENSION PLAN, Appellant, v. CLYDE E. CARLSON and PRISCILLA A. CARLSON, husband and wife, and the marital community composed thereof, Respondents. |
UNPUBLISHED OPINION
SCHINDLER, J. — Jack A. Johnson as the trustee of Key Development Pension (Key Development) appeals the trial court's decision that the loans to Clyde E. Carlson and his spouse violated the usury statute, chapter 19.52 RCW. Key Development contends the court erred in concluding it did not meet the burden of proving the loans were exempt from the usury statute as business loans. We disagree, and affirm.
FACTS
Jack A. Johnson, Gary Dahlby, and Clyde Carlson knew each other for many years and were longtime friends. Beginning in the late 1970s until 1994, Johnson and Dahlby owned G & G Meats and formed the G & G Meats Pension Fund. Johnson and Dahlby were the trustees of the pension fund. Carlson owned a floatplane business in Renton; Northwest Seaplanes Inc. Northwest Seaplanes Inc. is a seasonal business. Northwest Seaplanes Inc. maintained corporate records and bank accounts and filed corporate tax returns
Carlson knew Johnson and Dahlby used the pension fund to make loans. In November 2000, Johnson and Dahlby agreed to loan Carlson $150,000.
On November 10, 2000, Carlson and his spouse Priscilla Carlson executed a promissory note.1 Carlson and Priscilla agreed to pay G & G Meats Pension Fund the principal sum of $150,000 with interest computed at the rate of 18 percent per annum. The promissory note states, in pertinent part:
FOR VALUE RECEIVED, Clyde E. Carlson and Priscilla A. Carlson (collectively, "Borrower" herein) promises to pay to the order of G & G MEATS PENSION FUND . . . ("Lender" herein), the principal sum of One Hundred Fifty Thousand and no/100 Dollars ($150,000.00), with interest thereon from the date hereof, computed on monthly balances on the basis of a 360-day year, at the rate of eighteen percent (18%) per annum.
The promissory note states Carlson shall make interest-only payments of $6,750 in July, August, September, and October 2001 with "all accrued and unpaid interest . . . due in full on November 10, 2001." The promissory note gives Carlson the option "to extend the Maturity Date of this Note until November 10, 2002." The obligation for the promissory note is joint and several.
Johnson wrote a check to "Clyde Carlson" for $149,500 on the G & G Meats Pension Fund account. Carlson deposited the check into his personal bank account.
At some point after 2000, the G & G Meats Pension Fund changed to the Columbia Meat Products Pension Plan. In April 2002, Johnson and Dahlby agreed to make another loan to Carlson for $150,000.
On April 18, 2002, Carlson and Priscilla executed a promissory note for $150,000. The obligation on the promissory note is joint and several. The loan is due on April 17, 2003. Carlson and Priscilla agreed to pay Columbia Meat Products Pension Plan the principal with interest computed at the rate of 18 percent per annum. The 2002 promissory note states, in pertinent part:
FOR VALUE RECEIVED, Clyde E. Carlson and Priscilla A. Carlson (collectively, "Borrower" herein) promises to pay to the order of Columbia Meat Products Pension P[l]an . . . ("Lender" herein), the principal sum of One Hundred Fifty Thousand and no/100 Dollars ($150,000.00), with interest thereon from the date hereof, computed on monthly balances on the basis of a 360-day year, at the rate of eighteen percent (18%) per annum.
On April 22, 2002, Johnson wrote a check to "Clyde Carlson" on a corporate account in the amount of $150,000.2 Carlson deposited the check into his personal bank account.
At some point, the Columbia Meat Products Pension Plan changed to the Key Development Pension.
Carlson made interest-only payments on the loans. The parties agreed multiple times to extend the maturity date for both promissory notes. In 2006, the parties agreed to reduce the interest rate on the notes from 18 percent to 14 percent per annum. In 2009, Johnson agreed to extend the maturity date on the promissory notes to October 2012. Carlson continued to make interest-only payments until October 2010.
On October 23, 2012, Johnson, as the trustee of Key Development Pension (Key Development), filed a lawsuit against Carlson and his spouse Priscilla (collectively, Carlson) for the amount due on the promissory notes. Carlson asserted as an affirmative defense that the promissory notes violated the Washington usury statute, chapter 19.52 RCW.
Key Development did not dispute the interest rate for the promissory notes exceeded the maximum interest rate allowed by the usury statute but claimed the business purpose exemption applied.
At trial, Key Development did not dispute it had the burden to prove the exemption applied. The parties also stipulated to the admission of copies of the promissory notes, the checks to Carlson for the two loans, Carlson's handwritten interest payment records, the 2000 to 2003 personal tax returns for Carlson, and the 2000 to 2004 corporate tax returns for Northwest Seaplanes Inc.
Dahlby testified that in 2000, Carlson told him he "wanted to borrow some money for — to expand — I don't know about expand, but he wanted to borrow it for the business." Dahlby said that after talking to Johnson, he and Johnson agreed to make a loan to Carlson from the pension fund.
Dahlby also testified that the following year, he loaned Carlson $200,000 to "restart Northwest Seaplanes or something on that order." Dahlby said Carlson repaid the $200,000 loan to him in full.
Johnson testified Carlson contacted him in 2002 about making another loan, and he and Dahlby agreed to loan Carlson $150,000 from the pension fund. According toJohnson:
Key Development introduced into evidence copies of the checks for the interest payments Carlson wrote on the account for Northwest Seaplanes Inc. or its subsidiary for the 2000 and 2002 loans. The interest paid on the 2000 promissory note totaled $234,020. The interest paid on the 2002 promissory note totaled $207,750.
During the cross-examination of Johnson, the court admitted evidence about other loans Key Development or Johnson made including promissory notes, deeds of trust, and other documents.
Carlson testified that he did not recall "having a conversation with either Mr. Dahlby or Mr. Johnson about the purpose" of either the 2000 or the 2002 loan. Carlson testified he used the $150,000 from the 2000 loan to purchase an apartment in Campbell River, British Columbia, and to remodel a vacation home in Arizona and in Chelan. Carlson testified he used the $150,000 from the 2002 loan to settle a lawsuit over his father's estate. Carlson testified the timing of the interest-only payments he made using the Northwest Seaplanes Inc. account coincided with the months when his business income was the highest because those were the months he "g[o]t paid."
Certified public accountant Gary Lien testified and the court admitted the report he prepared into evidence. Lien testified he reviewed the 2000 and 2002 promissory notes, the interest payment records on the loans, Northwest Seaplanes Inc. tax returns for the years 2000 through 2008, and Carlson's personal tax returns for the years 2000through 2003 and 2005 through 2008. Lien testified none of the Northwest Seaplanes Inc. accounting documents reflected either the 2000 or the 2002 loan "as a business liability." Lien testified the corporate tax returns did not include a deduction for the interest payments on the loans. In his opinion, Carlson's use of his business account to write checks to pay the interest on the promissory notes did not necessarily show a business purpose. In the report, Lien states:
I am not surprised at the fact that many if not all of the monthly payments on the Promissory Notes came from the checking account of the Borrower's business rather than their personal checking account. I have seen that frequently in my years of practice.
The court concluded the interest on the two loans was usurious and Key Development did not carry its burden of establishing the business loan exemption under RCW 19.52.080 applied.
The court found the "testimony of Mr. Carlson, Mr. Johnson, and Mr. Dahlby is not determinative of or convincing regarding the purpose of the funds at the inception of the Loans." The court found the agreement to loan Carlson money was very informal—Johnson and Dahlby did not ask Carlson to provide "documentation of any kind."
The court found the terms of the 2000 and 2002 promissory notes did not indicate that the loans were for a business purpose and the checks for the loan proceeds were written "to Mr. Carlson, not his corporation." The court found that although Johnson believed the loans were for a business purpose, he "controlled the preparation of the loans and used his counsel to prepare" the promissory notes. The court found that unlike other loans made by the pension fund for a business purpose, "[n]either of the Carlson Notes specifies a business or commercial purpose." The court found the interest payments Carlson made using checks drawn on the account ofNorthwest Seaplanes Inc. did not establish the loans were used for a business purpose. The court concluded the evidence showed the loans to Carlson were personal loans.
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