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Columbia Asset Recovery Group, LLC v. Kelly

Court of Appeals of Washington, Division 1

November 4, 2013

COLUMBIA ASSET RECOVERY GROUP, LLC, a Washington limited liability corporation, Appellant,
JOSEPH R. KELLY, as the Successor Personal Representative of THE ESTATE OF WILLIAM D. PHILLIPS, SR., deceased, Respondent.


Columbia Asset Recovery Group, LLC (CARG) appeals from the trial court's order dismissing its complaint for lack of personal jurisdiction. Timothy Kennedy, CARG's sole member, was the guarantor of a one million dollar Business Loan Agreement and Promissory Note executed by William Phillips and Atlantic Frost Holdings, LLC (AFH). The Agreement contains jurisdiction and venue provisions permitting the lender, Columbia State Bank, to bring a collection action in King County. After Phillips died, neither his estate nor AFH paid the balance of the Note. Accordingly, the lender demanded payment from Kennedy. In response, Kennedy formed CARG and caused CARG to purchase the lender's rights under the Agreement and Note, which the lender assigned to CARG. CARG then filed suit in King County against the Estate of Phillips (the Estate). However, the trial court dismissed CARG's complaint for lack of personal jurisdiction. Because there is a genuine issue of material fact as to whether CARG and the lender intended CARG's payment to constitute a discharge of the Estate's payment obligation, the trial court erred by granting the Estate's motion to dismiss. We reverse and remand for further proceedings consistent with this opinion.


In June 2009, Phillips and AFH executed a Commercial Line of Credit Agreement and Promissory Note (Note) in the principal amount of $1, 000, 000, payable to Columbia State Bank (the Bank), and a Business Loan Agreement (Agreement). Phillips and AFH were the primary obligors. However, Timothy Kennedy personally guaranteed payment of the Note in the event that Phillips and AFH failed to pay. The Note contains a provision providing for payment to be made in Seattle. The Agreement includes a jurisdiction provision providing that Phillips and AFH "agree to waive any objection to jurisdiction or venue on the ground that [they] are not residents of [the Bank's] locality"—which was Seattle.

Phillips died in an airplane crash in 2010. Subsequently, the personal representative of the Estate negotiated two extensions of the Note. The Estate paid interest on the AFH loan through February 2011 but, by March 17, 2011, the Estate informed the Bank that it could no longer pay the interest on the AFH loan pursuant to Maryland probate law.[1] When the Agreement and Note became due in April 2011, neither AFH nor the Estate paid.

Meanwhile, on October 22, 2010, the Bank demanded that Kennedy make good on his guaranty.[2] On April 13, 2011, Kennedy spoke with a representative of the Bank regarding "options for enforcement of [the AFH Loan]." Kennedy subsequently formed CARG, a Washington limited liability company. Kennedy's counsel later told the Estate's counsel that "Mr. Kennedy formed [CARG] to facilitate his satisfying the guaranty."

Kennedy filed a counterclaim for indemnity against the Estate in the Delaware Court of Chancery on July 25, 2011. In his counterclaim, Kennedy claimed that Phillips "is the primary obligor on the debt owed to Columbia Bank. Kennedy, as guarantor, is entitled to be indemnified for any amounts he is required to pay to Columbia Bank."

On August 4, 2011, the Bank and CARG entered into the Loan Purchase and Assignment Agreement (LPA Agreement). In the LPA Agreement, the Bank and CARG agreed to several provisions that the parties highlight in disputing whether the Bank and CARG intended the LPA Agreement to operate as an assignment rather than a discharge:

• "The Bank has made demand on Kennedy for payment of the amounts owing under the Loan pursuant to the Commercial Loan Guaranty. Kennedy has instead proposed to purchase the Loan through a new entity he has established for that purpose, [CARG]."
• "The purchase price will be funded by a loan from Bank to Kennedy, the proceeds of which Kennedy will loan to [CARG]."
• "Subject to the terms and conditions of this Agreement, the Bank also hereby agrees to assign to [CARG] all of the Bank's interests, rights and obligations under the Cooperation Agreement

CARG then paid the Bank $1, 026, 071.94.

On February 3, 2012, Kennedy's counsel stated in a letter to the Estate's counsel that Kennedy had been "forced to honor his personal guarantee" of the obligation owed by Phillips and AFH. One week later, the Estate's counsel asked Kennedy's counsel to confirm that the LPA Agreement "satisfied Mr. Timothy Kennedy's personal guarantee." Kennedy's counsel provided a letter from the Bank to Kennedy stating that "[f]rom the bank's perspective, your purchase of the loan for full face value certainly satisfied all of your obligations to the Bank under your personal guaranty, and we therefore view you to have honored your guaranty in full." Additionally, Kennedy's counsel—during a hearing before the Delaware Court of Chancery—stated that "Mr. Kennedy used [CARG] as the vehicle to satisfy his personal guarantee." Finally, Kennedy submitted a declaration to the United States District Court for the Western District of Washington that stated, "Since the filing of the Complaint, I have been required to make good on my guarantee of that debt by Columbia State Bank."

On March 15, 2012, CARG brought suit to enforce the Agreement and Note against the Estate in King County Superior Court. On June 8, 2012, the Estate, pursuant to CR 12(b)(2), moved to dismiss the complaint for lack of personal jurisdiction. In its motion, the Estate argued that Kennedy and CARG were alter egos and that Kennedy had fulfilled his obligation as guarantor by virtue of the Bank's assignment to CARG, which had thereby discharged the Agreement and Note. It followed from this, the Estate contended, that the King County jurisdiction and venue ...

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