CHENGDU GAISHI ELECTRONICS, LTD., a company incorporated under the laws of China, and ZHIZHENG WANG, an individual, for the WANG GROUP, Appellants,
G.A.E.M.S., INC., a Washington State corporation; DWG ACQUISITION COMPANY, LLC, a Washington State limited liability company; DEAN MERCIER and JANE DOE MERCIER, husband and wife and the marital community composed thereof; JOHN SMITH and JANE DOE SMITH, husband and wife and the marital community composed thereof; and DECATHLON ALPHA, III, L.P., a Delaware limited partnership, Respondents.
PUBLISHED IN PART
Gaishi Electronics, Ltd. (Chengdu) and the Wang Group brought
this suit, seeking repayment of a debt, against G.A.E.M.S.,
Inc. (GAEMS), DWG Acquisition Company LLC (DWG), Dean Mercier
and John Smith, two of DWG's board members, and Decathlon
Alpha III, L.P. (Decathlon), another of GAEMS's
creditors. The trial court denied Chengdu's motion to
appoint a receiver. It then granted DWG's motion to
dismiss for insufficiency of service of process. Chengdu and
the Wang Group appeal, averring that DWG waived this
affirmative defense and that the trial court erred in denying
the motion for receivership.
their joint brief, respondents GAEMS, DWG, and Mercier claim
that the orders from which the appeal was taken are not
appealable and that the appeal should be dismissed. On the
other hand, respondent Decathlon views the appeal as properly
taken but urges affirmance of the trial court rulings. We
view the matter as properly appealable and hold that the
defenses of insufficiency of process and insufficiency of
service of process were waived, thus necessitating reversal
of the order of dismissal. We also hold that the trial court
did not abuse its discretion in denying the motion to appoint
2017, GAEMS entered into financing agreements with Chengdu,
an electronics manufacturing company. That same year, DWG,
GAEMS's parent company, entered into a loan agreement
with the Wang Group, a consortium of several Chinese
financiers led by Qiqi "Denny" Wang, with GAEMS as
a guarantor. Wang, a former officer and director of GAEMS,
remains a 30 percent owner of DWG.
2017, GAEMS entered into another loan agreement, this time
with Decathlon. Simultaneously, DWG, GAEMS, the Wang Group
and Decathlon entered into a "Subordination and
Intercreditor Agreement," pursuant to which the Wang
Group subordinated its loan to Decathlon's and, with
limited exceptions, agreed that no payments would be made
toward the Wang loan until full payment was made on the
Decathlon loan. DWG, the Wang Group, and GAEMS also executed
a letter agreement amending their prior loan agreement to
reflect the subordination agreement's terms and confirm
that the Decathlon loan would be paid off prior to the Wang
October 2017, the Wang Group sued GAEMS and two DWG board
members seeking payment on its loan. Later, the Wang Group
voluntarily dismissed the case. However, 11 months later, the
Wang Group filed this lawsuit, naming Chengdu as an
additional plaintiff. The defendants in this action are
GAEMS, the previously-sued DWG members, Decathlon, and DWG.
October 2018, Chengdu moved for the trial court to appoint a
receiver to assume control of GAEMS and DWG. In its motion,
it argued that GAEMS was insolvent and that Chengdu had a
probable right to GAEMS's property. GAEMS and DWG, in
response, disputed these contentions and presented evidence
that GAEMS remained able to pay obligations as they came due,
had future prospects, and was not an appropriate candidate
for receivership. Separately, Decathlon opposed receivership
on the basis that, as the senior lender, it had priority over
the Wang Group to assert rights in GAEMS's property.
After considering the parties' extensive briefing, but
without comment or explanation, the trial court entered an
order declining to appoint a receiver.
filed a motion for reconsideration of the trial court's
denial of its motion to appoint a receiver, alleging that the
trial court had used the incorrect test to determine whether
GAEMS was insolvent, and requesting further explanation as to
why the motion was denied.
Chengdu's summons and complaint had referenced DWG, in
both the caption and in the body of the complaint, as
"DWG Acquisition, LLP." However, the correct name
of the entity was "DWG Acquisition Company LLC."
After this error was called to plaintiffs' counsels'
attention, Chengdu served on DWG an amended summons and
complaint, both of which referenced DWG as "DWG
Acquisition Company, LLC." In addition, the amended
complaint still contained an isolated reference to "DWG
Acquisition, LLP." On November 13, 2018, Chengdu filed a
praecipe, or errata sheet, seeking to replace the first page
of its amended complaint. It did not style this action as a
motion to amend. Indeed, it did not attempt to justify this
action by referencing any court rule or case authority.
same day, DWG filed a motion to dismiss Chengdu's claims
against it, based on the plaintiffs' failure to correctly
identify it on the summons and complaint and the
plaintiffs' failure to correct the error in the amended
complaint. Then, while its motion was pending, DWG joined in
GAEMS's counterclaims against Chengdu and filed a cross
claim against Denny Wang, who, until that point, had not been
named as a party.
opposed the motion to dismiss and, in its pleading in
opposition to the motion, indicated its willingness to move
to amend its amended complaint to properly name all parties.
Nevertheless, on December 3, 2018, the trial court, without
explanation, granted DWG's motion to dismiss.
prior to entry of the dismissal order, Chengdu filed its
motion to reconsider the trial court's denial of its
motion to appoint a receiver. On the same day that the trial
court granted DWG's motion to dismiss, it also denied the
motion for reconsideration, stating:
THIS MATTER having come before the Court on Plaintiffs'
Motion for Reconsideration and/or Clarification of
Court's Denial of Motion to Appoint General Receiver (the
"Motion"), Motion is DENIED.*
This case was dismissed on December 3, 2018 for insufficiency
of service of process.
first assigns error to the trial court's dismissal of its
action on the stated basis of insufficient service of
process. This decision was erroneous, it asserts,
because a motion based on insufficient service of process is
an allegation that the trial court lacks personal
jurisdiction over the defendant, and any objection by DWG to
the trial court's personal jurisdiction over it was
waived when it sought affirmative relief in the form of a
cross claim. We agree.
service of the summons and complaint is a prerequisite to a
court's obtaining jurisdiction over a party."
Harvey v. Obermeit, 163 Wn.App. 311, 318, 261 P.3d
671 (2011). Whether service of process was proper is a
question of law that this court reviews de novo. Heinzig
v. Seok Hwang, 189 Wn.App. 304, 310, 354 P.3d 943
(2015). A party may waive a claim of lack of personal
jurisdiction by requesting the court to grant affirmative
relief. Grange Ins. Ass'n v. State, 110
Wn.2d 752, 765, 757 P.2d 933 (1988). As this court has
"[A] party, when he counterclaims, cross-claims, or
impleads a third party, is seeking affirmative relief and is
thereby invoking the jurisdiction of the court. He cannot at
the same time deny that jurisdiction."
Kuhlman Eguip. Co. v. Tammermatic, Inc., 29 Wn.App.
419, 424, 628 P.2d 851 (1981) (quoting Globig v. Greene
& Gust Co., 193 F.Supp. 544, 549 (E.D. Wis. 1961)).
matters not that the counterclaims asserted may have been of
the compulsory variety. Although the assertion of compulsory
counterclaims does not waive the defense of lack of personal
jurisdiction, Kuhlman Equip., 29 Wn.App. at 423-24
n.4, "[u]nder CR 13(g), the assertion of a cross claim
is permissive" as opposed to compulsory. Krikava v.
Webber, 43 Wn.App. 217, 221, 716 P.2d 916 (1986) (citing
Nautilus, Inc. v. Transamerica Title Ins. Co. of
Wash., 13 Wn.App. 345, 353, 534 P.2d 1388 (1975)).
By asserting its cross claim, DWG sought affirmative relief,
thus invoking the jurisdiction of the court. By invoking the
jurisdiction of the court, it waived its defense of lack of
personal jurisdiction over it. The trial court erred by not
next asserts that the trial court erred by declining to
appoint a receiver over GAEMS's affairs. This is so,
Chengdu argues, because documentation before the trial court
showed that the total of GAEMS's liabilities exceeded the
total of GAEMS's assets. For their part, GAEMS and
Decathlon dispute that this reflected the proper analysis to
determine whether GAEMS was solvent. Further, they correctly note
that solvency is not the sole consideration before a trial
court on a motion for appointment of a receiver, and the
trial court's discretion to appoint or not appoint a
receiver is not dependent solely on this measure. GAEMS and
Decathlon have the better arguments.
receiver is "a person appointed by the court as the
court's agent, and subject to the court's direction,
to take possession of, manage, or dispose of property of a
person." RCW 7.60.005(10). Washington statutes identify
40 circumstances in which a receiver may be appointed; in
almost every circumstance, the trial court must make the
determination that appointing a receiver "is reasonably
necessary and that other available remedies either are not
available or are inadequate." RCW 7.60.025(1). The
appropriate item in RCW 7.60.025's list of scenarios
provides for such appointment
(i) In an action against any person who is not an individual
. . . if that person is insolvent or is not generally paying
the person's debts as those debts become due unless they
are the subject of bona fide dispute, or ...