Opinion
No. 64799-7-I.
March 21, 2011. UNPUBLISHED OPINION
Appeal from a judgment of the Superior Court for Snohomish County, No. 09-2-04394-7, Arden J. Bedle, J. Pro Tem., entered December 11, 2009.
Affirmed by unpublished opinion per Spearman, J., concurred in by Leach, A.C.J., and Lau, J.
Worldwide Water, Inc., Clear Water Compliance Services, Inc., and Cascade Ecosolutions, Inc. (collectively Worldwide) appeal the trial court's order authorizing a receiver to transfer Worldwide's prospective claims to its secured lender, Plainfield Specialty Holdings. These were claims that Worldwide allegedly planned to bring against Plainfield for breach of contract, breach of implied duty of good faith and fair dealing, promissory estoppel, fraudulent inducement, and negligent misrepresentation. We decline to exercise our discretion under RAP 2.5(a) to consider certain arguments raised by Worldwide for the first time on appeal because the failure to raise these arguments resulted in a record that is not sufficiently developed for review. Worldwide's other arguments do not provide a basis for reversal. We affirm.
FACTS
Clear Water, which designed, developed, and installed storm water filtration systems, was co-founded in 1998 by Thomas Leggiere. In 2006, Clear Water began searching for additional funding of $5 million for repayment of debt, acquisition of equipment, research and development, and general working capital. It sought to expand its products and services as well as its geographic reach. In March 2007, Leggiere met an investment broker from Plainfield Asset Management, and within several months Clear Water entered into a business relationship with Plainfield. Worldwide Water was formed as a holding company to oversee and provide services for subsidiary companies, including Clear Water. On July 27, 2007, through a note purchase agreement, Worldwide agreed to the issue and sale of up to $20 million in secured notes to Plainfield Security Holdings II, Inc. Ultimately, Plainfield loaned Worldwide over $12 million. Plainfield's loans were protected by a security interest in all then-owned and after-acquired property of Worldwide, including all general intangibles, as described in a security agreement. Plainfield perfected its security interest by filing Uniform Commercial Code (U.C.C.)-1 financing statements in Delaware and Washington.
In October 2008, Plainfield gave Worldwide written notice of default. Worldwide failed to cure the default, and on November 15, 2008, Plainfield sent Worldwide a notice of acceleration and intention to exercise remedies. On April 9, 2009, Plainfield filed a summons and complaint for monies due against Worldwide, seeking damages in the amount of Worldwide's default. It also moved for the appointment of a general receiver to protect and preserve Worldwide's remaining assets and Plainfield's security interests. In response, Worldwide's founding shareholders (Intervenors) filed a consolidated motion to intervene and in opposition to Plainfield's motion for appointment of a receiver. Leggiere filed a declaration in support. Worldwide filed a brief joining Intervenors' opposition to the appointment of a receiver, but did not answer the complaint or assert counterclaims against Plainfield. Neither Worldwide nor Intervenors denied that Worldwide's assets were insufficient to satisfy its debt to Plainfield.
The trial court appointed a custodial receiver, Tyrell B. Vance LLC, to take charge of Worldwide. The court also granted the Intervenors' motion to intervene, and they filed no other pleadings in the matter. On May 29, 2009, the receiver moved to convert the custodial receivership into a general receivership. The receiver informed the court that Worldwide could not be salvaged and asked for permission to liquidate its assets for the benefit of Plainfield and other creditors. Neither party objected. The trial court granted the motion on June 9.
The receiver prepared a schedule of Worldwide's property and liabilities pursuant to RCW 7.06.090. It did not include any legal claims of Worldwide against Plainfield, and neither party objected to the schedule. On July 31, 2009, the trial court granted the receiver's motion to sell certain assets of Worldwide in an auction. The auction was held on August 6, 2009 and resulted in proceeds of $1,475,000, from which Plainfield received $850,000. The receiver filed a motion to terminate the receivership. The receiver noted that "[b]ecause the sale of the assets did not generate sufficient funds to pay the secured creditor in full, there will be [no] distribution to unsecured creditors." The receiver requested authority to disburse the remaining funds in the amount of $253,049 to Plainfield and to assign any remaining assets to Plainfield. Notice of the receiver's proposed order of termination and disbursement was sent to Worldwide's approximately 300 creditors.
Plainfield did not object to the receiver's proposal but requested language in the proposed order stating that the receiver was authorized to assign to Plainfield any assets of Worldwide that remained after the disbursement of funds in accordance with the order, including "any claims or causes of action possessed by the Receivership Entitites." Worldwide agreed to the termination of the receivership but objected to the assignment of claims or causes of action that Worldwide held against Plainfield. Worldwide's response stated:
[T]he defendant companies request that the Court exclude from that assignment any claims and/or causes of action which the defendant companies may possess against Plainfield. Plainfield should not be in a position to receiver [sic], in effect, a release of claims simply because this receivership has now terminated. This Court's order can clarify that Plainfield preserves its set-off rights against any claims that the companies may assert against it, but this Court should not sanction an assignment of those claims to Plainfield, effectively causing a release of those claims.
The receiver informed the trial court: "Although the Receiver did not do a formal investigation into the allegations against Plainfield, the Receiver in the course of fulfilling its duties, examined the claims and decided not to pursue these." The receiver also noted that even after the disbursement of Worldwide's remaining assets, Worldwide would still owe Plainfield more than $12 million, as well as $290,000 for receivership fees.
The trial court heard the receiver's motion to terminate the receivership and to distribute Worldwide's remaining assets on December 11, 2009. During the hearing, the trial court remarked that the receiver did not appear to take a position on whether Worldwide's claims against Plainfield should be included in the remaining assets distributed to Plainfield. The following exchange took place:
Attorney for receiver: Well, it's a difficult [position], your Honor, because the receiver is trying to be a neutral party in this case. The receiver did, as I indicated, look at these briefly, did not determine that it was sufficient allegations to expend the attorney's fees, basically, to explore this any further.
Court: Well it's not an asset that the receiver wished to explore.
Attorney for receiver: That's right.
At the conclusion of the hearing, the trial court stated:
I'm struck with a couple of things. One is the tremendous balance of moneys that are still owed to this plaintiff, Plainfield . . . And perhaps I Don't know enough of the facts of this case, the rather speculative nature of the potential claim of defendants versus Plainfield for somehow violating the underlying contract itself, and even if [there] were a recovery it would have to be so substantial to recover the other moneys that were owed. . . . And so at this point I'm going to include any potential causes of action by the defendant corporations against Plainfield as a corporate asset, which they would themselves possess.
On December 11, 2009, the trial court entered an order granting the receiver's motion to terminate the receivership and authorizing the receiver to assign Worldwide's remaining assets to Plainfield, including "any claims or causes of action possessed by the Receivership Entities." Worldwide appeals the order insofar as it authorized the receiver to assign its claims against Plainfield to Plainfield.
It is not apparent from the record whether the receiver has actually assigned the claims to Plainfield, as authorized by the court.
DISCUSSION
Worldwide requests that we exercise our discretion to consider the arguments it raises for the first time on appeal because they are pertinent to the substantive issues raised below. It contends that an adequate factual record exists. Worldwide argues that the trial court erred in authorizing the receiver to transfer its claims to Plainfield because (1) such a transfer exceeded the receiver's statutory authority, (2) the claims are commercial tort claims, not contract claims, and are therefore not included in Plainfield's security interest in Worldwide's assets, and (3) Plainfield has no incentive to pursue tort claims against itself or to maximize the value of those claims.
Plainfield argues that Worldwide's arguments should be rejected because they were not raised below, and that even if we reach the merits we should affirm because (1) the receivership act gave the trial court express authority to distribute Worldwide's unsold assets to Plainfield, (2) Plainfield had a perfected security interest in Worldwide's claims because the claims are grounded in the parties' contractual relationship, and are not commercial tort claims under U.C.C. Article 9 or Washington law, (3) Worldwide was afforded notice and opportunity to contest distribution and/or assert its claims, and (4) the trial court reasonably relied on the receiver's finding that Worldwide's claims were without sufficient merit or value to pursue when it effectively compromised that claim to partially satisfy Worldwide's $12 million debt to Plainfield.
We decline to exercise our discretion under RAP 2.5(a) to consider the arguments made by Worldwide for the first time on appeal. Worldwide's failure to raise the arguments below results in a record that is not sufficiently developed for review. It also deprived the trial court of an earlier opportunity to resolve the dispute over Worldwide's claims. RAP 2.5(a) "reflects a policy of encouraging the efficient use of judicial resources." State v. Scott, 110 Wn.2d 682, 685, 757 P.2d 492 (1988). Trial courts "must be given a chance to view and correct the claimed error before the matter can be reviewed" by an appellate court. State v. Hammond, 64 Wn.2d 591, 593, 392 P.2d 1010 (1964).
First, the record is not sufficiently developed to allow review of a central issue: whether Plainfield had a security interest in Worldwide's claims. It is undisputed that Plainfield's security interest would include Worldwide's claims if they are contract-based, but not if they are "commercial tort claims" under U.C.C. art. 9. If Plainfield had a security interest in the claims, then it was proper for the trial court to authorize the receiver to assign them to Plainfield at the termination of the receivership. But Worldwide did not argue below that Plainfield did not have a security interest in its claims because they were commercial tort claims. Worldwide also did not file a complaint or an answer to Plainfield's lawsuit, so the only evidence in the record containing facts that would ostensibly support a claim against Plainfield is the declaration of Thomas Leggiere. That declaration was not filed in support of any motion of Worldwide, but rather in support of the Intervenors' motion to intervene and opposing Plainfield's motion for appointment of a receiver. It alone is insufficient to allow us to determine whether Worldwide's claims are commercial tort claims or based in contract.
Second, Worldwide's failure to raise its arguments before the trial court deprived the court of an earlier opportunity to resolve the parties' dispute over the assignment of the claims. Worldwide argues that even if Plainfield had a security interest in the claims, it was required to foreclose on them in accordance with the U.C.C., including the U.C.C.'s requirement of a commercially reasonable disposition of collateral in a manner designed to maximize its value, under RCW 62A.9A.610. Worldwide also argues that the Receivership Act only authorized the receiver to sell the claims pursuant to RCW 7.60.260, administer the cause of action under RCW 7.60.060(1)(c), or abandon the property under RCW 7.60.150. Without ruling on these arguments, we point out that Worldwide's failure to raise them before the trial court deprived the court of an opportunity to consider ordering the claims to be included in the August 2009 auction of Worldwide's assets or otherwise resolve this issue. Furthermore, Worldwide did not object to the receiver's schedule of Worldwide's property and liabilities, which did not include any legal claims against Plainfield.
To this, Plainfield responds that it is doubtful whether the procedural safeguards of U.C.C. art. 9 apply at all in a receivership proceeding, because art. 9 contains a preemption provision that states that it does not apply to the extent that "[a]nother statute of this state expressly governs the creation, perfection, priority, or enforcement of a security interest created by this state or a governmental unit of this state. . . [.]" RCW 62A.9A-109(c)(2). Plainfield points out that the receivership act contains statutes expressly governing priorities and enforcement of security interests, including notice, claim, and objection procedures. Moreover, Plainfield contends that Worldwide did receive due process rights under art. 9, noting that the only such safeguard cited by Worldwide is that disposition of collateral be commercially reasonable and pointing out that "[a] collection, enforcement, disposition, or acceptance is commercially reasonable if it has been approved . . . [i]n a judicial proceeding. . . ." RCW 62A.9A-627(c)(1).
Notwithstanding its failure to raise these arguments before the trial court, we would consider Worldwide's arguments if it showed that the court, in authorizing the receiver to transfer its claims to Plainfield, erroneously applied the law. That is because a "trial court's obligation to follow the law remains the same regardless of the arguments raised by the parties before it." State v. Quismundo, 164 Wn.2d 499, 505-06, 192 P.3d 342 (2008). But Worldwide points to no authority for the proposition that a creditor with a secured interest in a debtor's legal claims may not, as a matter of law, be assigned those claims if they are asserted against the creditor itself. Nor does Worldwide show that the trial court abused its broad discretion in determining the manner of disposition of receivership property. Walton v. Severson, 100 Wn.2d 446, 452, 670 P.2d 639 (1983). The RCW 7.60.055 provides:
Except as otherwise provided for by this chapter, the court in all cases has exclusive authority over the receiver, and the exclusive possession and right of control with respect to all real property and all tangible and intangible personal property with respect to which the receiver is appointed, wherever located, and the exclusive jurisdiction to determine all controversies relating to the collection, preservation, application, and distribution of all the property, and all claims against the receiver arising out of the exercise of the receiver's powers or the performance of the receiver's duties. . . .
Worldwide points to no provision of the statute that prohibits a trial court, in its discretion, from authorizing property to be transferred to a secured creditor.
We are left to consider the arguments Worldwide raised before the trial court: (1) that a creditor should not have a security interest in claims against itself and (2) that while Plainfield could take some legal action post-receivership to foreclose on the claims, it could, but it would be inappropriate for the trial court to "give Plainfield a release for nothing" of claims that Worldwide may have against it. These arguments were made in the sparest of terms and were not accompanied by legal authority. They do not provide a basis for reversal.
Affirmed.
WE CONCUR: