126 Wash. App. 285 | Wash. Ct. App. | 2005
¶1 A condominium homeowners association appeals a trial court’s order dismissing its case on summary judgment. The association sued the condominium’s developer, a dissolved corporation, for breach of contract after construction defects caused water damage to the building’s
¶2 Ballard Square is a 20-unit condominium building located in Seattle. Dynasty Construction Company (Dynasty) was Ballard Square’s developer and general contractor. Dynasty sold its first Ballard Square unit in May 1992 and completed construction of the building by the end of 1992. The company was administratively dissolved in October 1995. Soon after construction was completed, homeowners noticed water penetration in the subterranean basement and roof and some window condensation. Sometime later, they noticed water penetration in the above-ground exterior walls.
13 In early 1997, the homeowners filed an insurance claim to cover the cost of repair. The insurance company found water leaking through the exterior stucco finish, but the company paid to repair only those areas that were in an imminent state of collapse. Also in early 1997, engineering investigators visited the condominium building and made exploratory openings in the exterior walls. They reported that portions of the exterior walls in some units were severely decayed, and in some areas the interior gypsum sheathing board and plywood sheathing were wet or damp from water leaking through the stucco siding. Sometime later, an architect looked at the damage and stated that the building “is experiencing severe decay and it is in a state of imminent collapse in certain areas . . . .” In the architect’s
¶4 In October 2002, the Ballard Square Homeowners Association (Association) sued Dynasty for breach of contract, alleging that Dynasty breached the portion of the Purchase and Sale Agreement Addendum that states that “[t]he Unit and entire project shall be completed substantially in accordance with the plans and specifications prepared, and from time to time amended, by Seller.”
DISCUSSION
¶5 On appeal of a trial court’s decision to grant summary judgment, we review questions of law de novo.
¶6 Dynasty argues that the Association’s claim is barred because Dynasty was administratively dissolved in October 1995, seven years before the Association filed its case. At
¶7 Washington’s Business Corporation Act contains both types of statutes. RCW 23B.14.050 states that “[a] dissolved corporation continues its existence but may not carry on any business except that appropriate to wind up and liquidate its business and affairs . .. ,”
¶8 Citing RCW 23B.14.340, Dynasty argues that the Association’s claim is barred because Dynasty dissolved in 1995 and the Association did not file its claim within two years of the dissolution. The Association responds that the two year period applies only to claims that existed before the corporation dissolved, and because its claim accrued after Dynasty’s dissolution, RCW 23B. 14.340 does not bar the action. The parties therefore raise two issues involving the interpretation of RCW 23B.14.340: (1) does the statute apply to actions that arise after dissolution; and (2) if the statute does not apply to actions arising after dissolution, what limits, if any, do parties raising postdissolution claims face? Dynasty bears the burden of proving that the statute bars the present action.
¶9 In deciding whether RCW 23B. 14.340 provides a two year limitation period for claims that did not exist until after the corporation dissolved, we must determine the legislature’s intent and purpose as it is expressed in the act
¶10 RCW 23B.14.340 is not ambiguous. It clearly applies only to claims existing before a corporation dissolves. The “claim existing. . . prior to such dissolution” language is clear.
¶12 In 1989, the Washington legislature repealed its 1965 corporations act and enacted Title 23B RCW, includ
¶13 We previously reached a similar conclusion in Smith v. Sea Ventures, Inc., where we held that RCW 23B.14.340 does not govern postdissolution claims based on predissolution contractual rights.
¶14 Based on the statute’s plain language and Smith v. Sea Ventures, Inc., we hold that RCW 23B.14.340 does not apply to postdissolution claims and therefore it does not bar the Association’s action.
II. In the absence of legislative enactment, claims arising after dissolution are governed by common law and thus are precluded
¶15 In this case, we must answer the question not raised in Sea Ventures: that is, because the Association’s claim arose after Dynasty dissolved, what, if any, time limitations apply to its postdissolution claim.
¶16 As discussed above, sections 14.06 and 14.07 of the 1984 RMBCA were enacted to remedy this confusion. And while the Washington legislature adopted section 14.06, establishing a survival period for predissolution claims, it expressly declined to adopt section 14.07, which establishes a survival period for postdissolution claims.
¶17 We encourage the legislature to adopt section 14.07, as it would resolve the conundrum the present statute creates. There are competing policy considerations in play here. “An absolute bar to causes of action based upon post-dissolution claims certainly is unreasonable.”
¶18 Under the common law rule, all claims against a corporation terminate upon its dissolution. By statute, claims arising after dissolution survive only during the period necessary for a corporation to wind up its affairs. Because Washington’s Business Corporation Act does not provide for the survival of any other postdissolution claims, the common law rule applies. The trial court properly dismissed the Association’s claim.
Kennedy and Schindler, JJ., concur.
Review granted at 155 Wn.2d 1024 (2005).
Dynasty then filed a third-party complaint against Wall Finishes, the stucco siding subcontractor. The trial court stayed Dynasty’s claims against Wall Finishes pending the outcome of this appeal. Wall Finishes is not a party to this appeal.
Mains Farm Homeowners Ass’n v. Worthington, 121 Wn.2d 810, 813, 854 P.2d 1072 (1993).
Mason v. Kenyon Zero Storage, 71 Wn. App. 5, 8-9, 856 P.2d 410 (1993).
Condor Enters., Inc. v. Boise Cascade Corp., 71 Wn. App. 48, 54, 856 P.2d 713 (1993) (citing CR 56(c); Marincovich v. Tarabochia, 114 Wn.2d 271, 274, 787 P.2d 562 (1990)).
Hansen v. Friend, 118 Wn.2d 476, 485, 824 P.2d 483 (1992) (citing Wilson v. Steinbach, 98 Wn.2d 434, 437, 656 P.2d 1030 (1982)).
Bortle v. Osborne, 155 Wash. 585, 597, 285 P. 425 (1930).
16A William Meade Fletcher, Fletcher Cyclopedia op the Law of Private Corporations § 8144 (rev. vol. 2003) (citing § 8142). See also RCW 23B.14.050.
Fletcher Cyclopedia Corporations § 8144 (citing § 8142).
Id. (citing Leader Buick, GMC Trucks, Inc. v. Weinmann, 841 So. 2d 34 (La. Ct. App. 2003); Winston v. Stewart & Elder, P.C., 2002 OK 68, 55 P.3d 1063). See also RCW 23B.14.340.
Fletcher Cyclopedia Corporations § 8144. A survival statute differs from a statute of limitations in that a survival statute extends the life of a corporation for a limited time so that it may sue or be sued, while a statute of limitations affects the time in which a stale claim may be brought. Swindle v. Big River Broad. Corp., 905 S.W.2d 565, 568 (Term. Ct. App. 1995) (citing MS. v. Dinkytown Day Care Ctr., Inc., 485 N.W.2d 587, 589 (S.D. 1992)).
Fletcher Cyclopedia Corporations § 8144.
RCW 23B.14.050(1). See also RCW 23B.14.210(3) (an administratively dissolved corporation continues its corporate existence in order to wind up and liquidate its business and affairs).
RCW 23B.14.050(2)(e).
(Emphasis added.)
State v. Riker, 123 Wn.2d 351, 366-67, 869 P.2d 43 (1994) (the defendant generally bears the burden of proving an affirmative defense) (citing State v. Camara, 113 Wn.2d 631, 639-40, 781 P.2d 483 (1989); State v. Rice, 102 Wn.2d 120, 122-26, 683 P.2d 199 (1984); State v. Moses, 79 Wn.2d 104, 110, 483 P.2d 832 (1971), cert. denied, 406 U.S. 910 (1972); State v. Mays, 65 Wn.2d 58, 68, 395 P.2d 758 (1964), cert. denied, 380 U.S. 953 (1965); State v. Knapp, 54 Wn. App. 314, 320-22, 773 P.2d 134, review denied, 113 Wn.2d 1022 (1989); State v. Gilcrist, 25 Wn. App. 327, 328-29, 606 P.2d 716 (1980)). See also Shute v. Chambers, 142 Ill. App. 3d 948, 951-52, 492 N.E.2d 528, 97 Ill. Dec. 92 (1986) (the defense that an action was untimely under a corporate dissolution statute is an affirmative defense).
State v. Grays Harbor County, 98 Wn.2d 606, 607, 656 P.2d 1084 (1983) (citing In re Pers. Restraint of Lehman, 93 Wn.2d 25, 27, 604 P.2d 948 (1980)).
Auto. Drivers & Demonstrators Union Local No. 882 v. Dep’t of Ret. Sys., 92 Wn.2d 415, 420, 598 P.2d 379 (1979) (citing Hartman v. Wash. State Game Comm’n, 85 Wn.2d 176, 532 P.2d 614 (1975)), appeal dismissed, cert. denied, 444 U.S. 1040 (1980).
Edelman v. State ex. rel. Pub. Disclosure Comm’n, 116 Wn. App. 876, 882-83, 68 P.3d 296 (2003) (citing Vashon Island Comm, for Self-Gov’t v. Wash. State Boundary Review Bd. for King County, 127 Wn.2d 759, 771, 903 P.2d 953 (1995)), aff’d, 152 Wn.2d 584, 99 P.3d 386 (2004).
Grays Harbor County, 98 Wn.2d at 607 (citing Lehman, 93 Wn.2d at 27; Garrison v. Wash. State Nursing Bd., 87 Wn.2d 195, 196, 550 P.2d 7 (1976)).
Id. at 607-08 (citing Whitehead v. Dep’t of Soc. & Health Servs., 92 Wn.2d 265, 268, 595 P.2d 926 (1979); Ropo, Inc. v. City of Seattle, 67 Wn.2d 574, 577, 409 P.2d 148 (1965); Garrison, 87 Wn.2d at 196).
See D. Gilbert Friedlander & P. Anthony Lannie, Post-Dissolution Liabilities of Shareholders and Directors for Claims Against Dissolved Corporations, 31 Vand. L. Rev. 1363, 1370 (1978) (“by its own terms [the survival statute] applies only to predissolution claims”).
See id. at 1376 (“Treating post-dissolution claims in the same way as predissolution claims in effect renders the [‘prior to such dissolution’] language
Laws of 1965, ch. 53, § 108.
In 1946, the American Bar Association’s Corporate Law Committee first published the Model Business Corporation Act (MBCA). Since that time, the Committee has continuously revised the Act. In 1960 and 1964, the Committee published annotated versions of the MBCA, and in 1984 it published the Revised Model Business Corporation Act (RMBCA). See Wayne N. Bradley, An Empirical Study of Defective Incorporation, 39 Emory L. J. 523, 532-33 (1990).
See Official Comment, Revised Model Business Corporation Act (1984) § 14.07 (“Earlier versions of the Model Act did not recognize the serious problem created by possible claims that might arise long after the dissolution process was completed and the corporate assets distributed to shareholders.”).
The 2000 amendment to the RMBCA reduced the time limit from five years to three years. Fletcher Cyclopedia Corp. § 8144.10.
Laws of 1989, ch. 165, §§ 167, 204.
Senate Journal, 51st Leg., 2d Spec. Sess., cmt. at 2983 (Wash. 1989).
Id. at 3095-96.
93 Wn. App. 613, 618-19, 969 P.2d 1090, review denied, 138 Wn.2d 1003 (1999).
Id. at 617-18.
Id. at 618 (emphasis added) (citing David B. Hunt, Tort Law — Towards a Legislative Solution to the Successor Products Liability Dilemma — Niccum v. Hydra Tool Corp., 438 N.W.2d 96 (Minn. 1989), 16 Wm. Mitchell L. Rev. 581, 597-98 (1990); Ann E. Conaway Stilson, Re-examining the Fiduciary Paradigm at Corporate Insolvency and Dissolution: Defining Directors’ Duties to Creditors, 20 Del. J. Corp. L. 1, 14 n.44 (1995)).
Id.
Id. at 617.
Id. at 619.
In Sea Ventures, the shareholders, not the corporation, had appropriated fishing rights belonging to Smith, the purchaser. This court held that “where shareholders have taken affirmative steps to appropriate those assets after corporate dissolution,” an injured party may recover “corporate assets distributed to former shareholders upon dissolution ... in certain cases.” This court permitted Smith to proceed against the offending shareholders personally. Id. at 618-19.
See, e.g., Audrey J. Anderson, Corporate Life After Death: CERCLA Preemption of State Corporate Dissolution Law, 88 Mich. L. Rev. 131, 154 (1989) (courts are unsure how strictly they should apply survival statutes and they have had difficulty applying these statutes “because [their] language provides no guidance regarding claims that arise after dissolution”); Friedlander & Lannie, 31 Vand. L. Rev. at 1365 (the pre-1984 MBCA’s survival statute “does not resolve clearly any of the major post-dissolution liability issues. Its ambiguous language has furnished litigants and courts with little guidance in determining the legislatively intended answers to key issues.”). As we noted above, section 14.07 was included in the new Model Act to answer this question.
Senate Journal, 51st Leg., 2d Spec. Sess., cmt. at 2983, 3095 (Wash. 1989).
In re Marriage of Williams, 115 Wn.2d 202, 208, 796 P.2d 421 (1990) (citing State v. Calderon, 102 Wn.2d 348, 351, 684 P.2d 1293 (1984); State v. McCullum, 98 Wn.2d 484, 493, 656 P.2d 1064 (1983); Glass v. Stahl Specialty Co., 97 Wn.2d 880, 887-88, 652 P.2d 948 (1982); Green Mt. Sch. Dist. No. 103 v. Durkee, 56 Wn.2d 154, 161, 351 P.2d 525 (1960)).
Friedlander & Lannie, 31 Vand. L. Rev. at 1410.
Id. at 1411.
Some scholars have discussed a “trust fund” theory as the most viable way for a postdissolution claim to survive. It would permit a creditor to sue the directors and shareholders of a dissolved corporation on the theory that the corporation’s assets were distributed to the shareholders under a creditor’s lien. See, e.g.,
Dynasty also argues that the Association’s claim is barred by the statute of limitations for a variety of reasons. But because we decide this case on other grounds, we need not address these arguments.