Polygon Northwest v. NSP Development, Inc.

• Decision Date: 25 August 2004
• Citation: 96 P.3d 837,194 Or.App. 661
• Parties: POLYGON NORTHWEST COMPANY, a Washington general partnership, Respondent, v. NSP DEVELOPMENT, INC., an Oregon corporation, Appellant, and Sherwood H.D., LLC, and Anthony Paul Brenneke, Appellants. NSP Development, Inc., an Oregon corporation, Counterclaim Plaintiff, v. Polygon Northwest Company, a Washington general partnership, Counterclaim Defendant.
• Court: Oregon Court of Appeals

96 P.3d 837

194 Or.App. 661

POLYGON NORTHWEST COMPANY, a Washington general partnership, Respondent, v. NSP DEVELOPMENT, INC., an Oregon corporation, Appellant, and Sherwood H.D., LLC, and Anthony Paul Brenneke, Appellants.

NSP Development, Inc., an Oregon corporation, Counterclaim Plaintiff, v. Polygon Northwest Company, a Washington general partnership, Counterclaim Defendant.

98-11-07897; A114485.

Court of Appeals of Oregon.

Argued and Submitted April 7, 2003.

Decided August 25, 2004.

Michael D. Hoffman, Portland, argued the cause for appellant Sherwood H.D., LLC. On the briefs were Marjorie A. Speirs, Redmond, Janet M. Schroer, and Hoffman, Hart & Wagner, LLP, Portland.

Gary E. Rhoades, Portland, argued the cause and filed the briefs for appellant Anthony Paul Brenneke.

Warren F. Wadsworth and Bittner & Hahs, P.C., Portland, filed the briefs for appellant NSP Development, Inc.

Sarah J. Ryan, Portland, argued the cause for respondent. With her on the briefs were Mitchell C. Baker and Ball Janik LLP.

Before LANDAU, Presiding Judge, and ARMSTRONG and BREWER, Judges.

ARMSTRONG, J.

Defendants NSP Development, Inc. (NSP), Sherwood H.D., LLC (Sherwood), and Anthony Paul Brenneke appeal from a contempt judgment.¹ The court based its judgment on a finding that defendants had violated a court order that required NSP and others to apply funds received from the sale of a parcel of real property to a money judgment that Polygon Northwest Company (Polygon) had against NSP. We affirm.

The contempt proceeding arose after NSP failed to pay a judgment of approximately $330,000 that it owed to Polygon. Polygon had obtained the judgment in an action that sought the return of a refundable earnest money deposit. Pursuant to the judgment, the trial court issued an order in January 2000 that required Brenneke, NSP's president and sole shareholder, to appear for a judgment-debtor examination and that restrained NSP from transferring any assets. At the judgment-debtor examination, Brenneke testified that NSP had no assets with which to pay Polygon's judgment. Polygon later learned that NSP held an option to purchase real property in Sherwood, Oregon, and had entered into a contract to sell the property to Home Depot USA, Inc. On Polygon's motion, the trial court entered an order on May 19, 2000, that required NSP and any party acting in concert with it to apply to Polygon's judgment any interest or proceeds that they received from the sale of the property. The order stated:

"IT IS HEREBY ORDERED that NSP Development, Inc., and/or any entity or person acting in concert with NSP Development, Inc., is required to apply any interest in the Spada-Option Agreement, the contingent interest in the property subject to the Option Agreement, and any interest in the Home Depot USA, Inc. Real Estate Purchase and Sale Agreement or any proceeds therein to satisfaction of the judgement owed to [Polygon]."

The order was served on NSP and its attorney, Simon. At that time, Simon represented NSP, Sherwood, and Brenneke. The service on NSP was made by serving a copy of the order on Brenneke, who was NSP's registered agent. Simon appeared before the trial court on June 8, 2000, and moved on Sherwood's behalf to delete from the order the language that referred to those acting in concert with NSP and to the proceeds of the Home Depot sale. Sherwood was a company owned and controlled by Brenneke, and, at the time that the court entered the May 2000 order on the Home Depot sale, it was the entity that had a contract to sell the property to Home Depot. The court denied Sherwood's motion but suggested that a hearing could be held to determine whether the order applied to Sherwood if Sherwood was uncertain about that. None of the defendants requested such a hearing.

The sale of the property to Home Depot closed on August 22, 2000. Sherwood received over $1.4 million from the sale. None of that money was applied to Polygon's judgment. Instead, the proceeds were distributed to Brenneke and other companies controlled by him. Polygon then filed a motion for an order requiring NSP, Sherwood, and Brenneke to show cause why they should not be held in contempt for violating the May 2000 order. The order was served on all defendants. After a hearing, the court found defendants in contempt for violating the May 2000 order. It entered a judgment that awarded Polygon its attorney fees for the contempt proceeding and a $50,000 penalty against NSP and Sherwood for the contempt.

In an appeal from a contempt judgment, a contemnor may not attack the underlying order that he or she violated unless the contemnor had no meaningful opportunity to obtain review of the order before violating it. State ex rel Mix v. Newland, 277 Or. 191, 200, 560 P.2d 255 (1977); see also State v. Crenshaw, 307 Or. 160, 168, 764 P.2d 1372 (1988)

. That limitation applies because "[t]he integrity of the judicial process demands compliance with court orders until such time as they are altered by orderly appellate review." State ex rel Mix,

277 Or. at 200,

560 P.2d 255. The limitation does not apply, however, to a challenge to the court's jurisdiction to enter the underlying order; such a challenge can be raised on appeal from a contempt judgment. See, e.g., Crenshaw, 307 Or. at 165-66,

764 P.2d 1372.

Defendants frame their argument about the trial court's authority to enter the May 2000 order as an issue of subject matter jurisdiction. They contend that no statute authorized the court to enter the order, so the court lacked subject matter jurisdiction to enter it. Defendants are wrong.

An order or judgment entered by a court that lacks subject matter jurisdiction is void and not merely voidable. Because it is void, it can be collaterally attacked. While defendants seek to rely on that principle, they never explain how the court lacked subject matter jurisdiction to enter the May 2000 order. Instead, they cite as support for their position cases involving judgments that were void for reasons other than a lack of subject matter jurisdiction.

For example, they cite a series of cases that have held that court orders that grant temporary restraining orders or injunctions without statutorily required undertakings are void. State ex rel v. La Follette, 100 Or. 1, 196 P. 412 (1921), is exemplary. It involved a contempt proceeding against a defendant for failure to comply with an injunction that was entered without an undertaking. The court recognized that the trial court had subject matter jurisdiction to enter the injunction, but it held that an undertaking was an indispensable requirement that had to be met in order for the court to issue an injunction. Id. at 9-10, 196 P. 412.

Defendants also cite State ex rel Nayberger v. McDonald et al., 128 Or. 684, 694-96, 274 P. 1104 (1929), in which the court held that an order appointing a receiver was void because the information on which the court acted was insufficient to establish a basis to appoint a receiver. Because the order was void, it followed that the court lacked authority to enter it, but, here again, the court had subject matter jurisdiction to enter the order.

Finally, defendants cite Hood River County v. Stevenson, 177 Or.App. 78, 81, 33 P.3d 325 (2001), in which we held that the lack of a proper plaintiff constituted a flaw that rendered the judgment in that case void. Hood River County is a standing case. It has no bearing on the jurisdictional issue that defendants have raised in this case.

In short, the claimed lack of statutory authority that defendants identify as a jurisdictional defect does not bear on the court's subject matter jurisdiction to enter the May 2000 order. We therefore reject defendants' contention that the court lacked subject matter jurisdiction to enter the order. We also are satisfied that defendants' claim that the court lacked statutory authority to enter the May 2000 order does not involve a requirement that is equivalent to the mandatory requirements that were held in the cited cases to be jurisdictional requirements. Consequently, whatever the merits of the statutory argument that defendants make, it is not a jurisdictional argument that can be raised in this proceeding.

Sherwood and Brenneke also contend that they cannot be found in contempt for violating the May 2000 order because they were not parties to the proceeding between Polygon and NSP in which the court entered the order. In their view, to the extent that the May 2000 order purported to control their actions, it is void and subject to challenge by them in this proceeding because the court lacked personal jurisdiction over them when it entered the order.

Sherwood and Brenneke cite no case that supports that proposition, and we have found none. It has long been established in Oregon and elsewhere that a nonparty can be subject to a court order. "[A] stranger to an injunction, who has notice or knowledge of its terms, is bound thereby, and may be punished for contempt for violating its provisions." State ex rel Thompson v. Lavery, 31 Or. 77, 85, 49 P. 852 (1897). Sherwood's and Brenneke's jurisdictional argument is contrary to that principle. That is because a stranger to an injunction could violate the injunction and then successfully defend against being found in contempt for violating it by asserting that, because she was not a party in the action that led to the injunction, she was not subject to the injunction.

We can assume for the purpose of this discussion that the trial court lacked personal jurisdiction over Sherwood and Brenneke when it entered the May 2000 order in the action between Polygon and NSP. What we mean by that is that neither defendant was a party to the action at that time. However, when Sherwood and Brenneke were served with the May 2000 order, the court acquired jurisdiction over them with regard to the order. There are issues that Sherwood and Brenneke could raise at that point, including issues about...