Garlock et al v. OptimisCorp et al, No. 3:2022cv05108 - Document 72 (W.D. Wash. 2023)
Court Description: ORDER granting Plaintiffs' 38 Motion for Summary Judgment and denying Defendant's 43 Motion for Partial Summary Judgment. The Court HEREBY: (1) GRANTS judgment pursuant to RCW 7.28.300 quieting title on Garlock's residence and Jenn ings' residence; (2) GRANTS summary judgment to Plaintiffs on all of Optimis' counterclaims; (3) DENIES Defendants' motion for partial summary judgment; and (4) ORDERS Defendant to file a responsive brief, limited to seven (7) pages, regarding the indemnity issue on or before 10/13/2023 and Plaintiffs to file a reply brief, limited to five (5) pages, on or before 10/27/2023. Signed by Judge Barbara J. Rothstein. (SB)
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Garlock et al v. OptimisCorp et al Doc. 72 Case 3:22-cv-05108-BJR Document 72 Filed 09/27/23 Page 1 of 20 1 The Honorable Barbara J. Rothstein 2 3 4 5 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF WASHINGTON AT TACOMA 6 7 8 GARLOCK et al., 9 Plaintiffs, 10 Civil Action No. 3:22-cv-5108-BJR v. 11 ORDER GRANTING PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT AND DENYING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT 12 13 OPTIMISCORP, 14 Defendant. 15 16 I. 17 INTRODUCTION Defendant OptimisCorp (“Optimis”) holds a promissory note that is secured by liens on 18 19 the personal residences of Patrick Garlock (“Garlock”) and Michael Jennings (“Jennings”) 20 (collectively “Plaintiffs”).1 Plaintiffs filed this lawsuit seeking declaratory judgment that the 21 promissory note is unenforceable because the applicable statute of limitations has expired, and to 22 quiet title against the liens on their personal residences. 2 Optimis, who acquired the promissory 23 note through a loan purchase agreement, filed counterclaims to enforce the note, for attorneys’ 24 25 26 27 1 Plaintiffs’ wives, Larene Garlock and Nancy Jennings, are also plaintiffs in this lawsuit. Plaintiffs originally filed this case in Pierce County Superior Court; Optimis removed it to this Court in February 2022. Dkt. No. 1 2 1 Dockets.Justia.com Case 3:22-cv-05108-BJR Document 72 Filed 09/27/23 Page 2 of 20 1 fees under a fee-shifting provision in the note, for damages allegedly caused by Plaintiffs’ breach 2 of the loan purchase agreement, breach of the duty of good faith and fair dealing, and unjust 3 enrichment. Currently before the Court is Plaintiffs’ motion for summary judgment and 4 Defendant’s motion for partial summary judgment. Dkt. Nos. 38 & 43. Having reviewed the 5 6 7 motions, the oppositions and replies thereto, the record of the case, and the relevant legal authority, the Court will grant Plaintiffs’ motion and deny Defendant’s motion. 3 II. 8 9 10 11 BACKGROUND Plaintiffs Garlock and Jennings owned MVP Physical Therapy (“MVP”), which operated multiple physical therapy clinics in Washington State. In 2007, MVP took out two loans that were evidenced by two promissory notes. The first note was for $805,000 and MVP was the designated 12 13 14 borrower; the second note was for $930,000 and Garlock and Jennings were the designated borrowers. Both notes were secured by the same collateral: a commercial security agreement with 15 publicly recorded UCC filings against MVP assets and deeds of trust against Plaintiffs’ respective 16 homes. Both loans required monthly payments that were paid by MVP. Plaintiffs contend that 17 each loan was a business loan, and the proceeds were used entirely for MVP’s benefit.4 18 19 20 21 22 23 24 25 26 27 3 Defendant also moves to strike most of Plaintiffs’ declarations filed in support of their motion for summary judgment. See Dkt. No. 49. Defendant argues that the declarations contain hearsay, parol evidence, and other inadmissible statements, arguing that Plaintiffs introduce this evidence to contradict “the unambiguous terms of the Loan Purchase Agreement and the Note.” Id. at 10. Defendant particularly objects to Plaintiffs’ statements with respect to the parties’ intent surrounding the Loan Purchase Agreement. While the Court discusses Plaintiffs’ allegations regarding the parties’ intent in the Background section, infra, it does so merely to clearly frame the dispute between the parties. The Court does not rely on Plaintiffs’ declarations in concluding that the Note is unenforceable and, therefore, does not need to resolve Defendants’ motion to strike. 4 Defendant disputes this and instead claims that the loan for which Garlock and Jennings were the designated borrowers was used to buy out their prior business partners and therefore benefitted them personally. 2 Case 3:22-cv-05108-BJR Document 72 Filed 09/27/23 Page 3 of 20 1 2 3 The two loans were refinanced through Heritage Bank (“Heritage” or “the Bank”) in January 2008, with a maturity date of May 25, 2013. The first loan was payable in the principal amount of $774,828.33, and MVP was again the designated borrower. The second loan was 4 payable in the principal amount of $918,720.45, and Plaintiffs remained the designated 5 6 borrowers. Once again both loans were secured by a commercial security agreement with publicly 7 recorded UCC filings against MVP assets, and deeds of trusts against Plaintiffs’ respective 8 homes. MVP continued to make the monthly payments on both loans. 9 10 11 In February 2008, Optimis purchased MVP and it became a wholly owned subsidiary of Optimis. 5 Optimis assumed control of MVP’s business operations and Garlock and Jennings remained on as employees of MVP. According to Plaintiffs, “the plan was to build MVP’s 12 13 14 business and work toward a liquidation event in which MVP would be sold or shares would be sold through a public offering … [and Plaintiffs] would reap their reward with appreciated shares 15 in Optimis.” Dkt. No. 38 at 3-4. From March 2008 through December 2012, MVP, under the 16 control of Optimis, made all monthly payments on both loans. 17 18 19 Both loans matured in May 2013 and the monthly payments on each loan became sporadic. Plaintiffs allege that this is because Optimis began experiencing financial difficulty due to litigation in which Optimis and its CEO, Alan Morelli, were the plaintiffs and former owners of 20 21 22 23 another physical therapy business that Optimis acquired, Optimis’ former directors, and Optimis’ former CFO were defendants. 6 Optimis eventually obtained financing to pay off the loan on which MVP was the designated borrower, but the loan on which Plaintiffs were the designated 24 25 26 27 5 Between 2007 and 2009, Optimis acquired nine physical therapy businesses, including MVP. See OtpimisCorp v. Waite, No. CV 8773-VCP, 2015 WL 5147038 (Del. Ch. Aug. 26, 2015) aff’d 137 A.3d 970 (Del. 2016) 6 3 Case 3:22-cv-05108-BJR Document 72 Filed 09/27/23 Page 4 of 20 1 borrowers remained unpaid with an outstanding balance of approximately $494,000.00 2 (hereinafter “the Note”). The Note is the subject of this lawsuit. 3 In July 2015, Heritage issued a Notice of Default on the Note and announced its intention 4 to nonjudicially foreclose on the deeds of trust against Plaintiffs’ homes. Plaintiffs allege that 5 6 Optimis reassured the Bank that it intended to pay off the loan, initially representing that it would 7 obtain financing to purchase the Note. Optimis was also in negotiations to sell MVP to another 8 organization known as Benchmark. However, neither of these options panned out so, on August 9 17, 2015, Optimis and Heritage executed a loan purchase agreement through which the Bank 10 11 agreed to sell the Note (and corresponding security) “As Is” to Optimis for $490,000 (hereinafter, “the Loan Purchase Agreement”). Plaintiffs signed a “Borrower Approval” through which they 12 13 14 consented to the sale of the Note to Optimis. This is where the parties’ stories diverge significantly. Plaintiffs allege that it was 15 understood by all involved that the Note was MVP’s debt as evidenced by the fact that MVP, not 16 Plaintiffs, had made the monthly payments on the loan since its inception, as well as the fact that 17 the debt was secured by MVP’s assets in addition to Plaintiffs’ residences. Plaintiffs allege that 18 19 Optimis agreed to purchase the Note from Heritage in order to stop the foreclosures on their homes. However, Plaintiffs claim that Optimis did not have the funding available to buy the Note 20 21 from Heritage so Optimis’ lawyer, Larry O’Shea, and accountant, Scott Schroeder, came up with 22 a plan whereby Garlock and Jennings would transfer $225,000 and $414,008, respectively, from 23 their 401(k) accounts into IRAs from which Optimis could use the funds to buy the Note. The 24 funds in the IRAs were made available to Optimis through two means: (1) a capital infusion 25 through purchase of Optimis Service Inc. (“OSI”) stock and (2) loans to Optimis that were 26 evidenced by convertible notes. Plaintiffs allege that Optimis ultimately collected $625,000 of 27 4 Case 3:22-cv-05108-BJR Document 72 Filed 09/27/23 Page 5 of 20 1 their 401(k) funds through this transfer, $490,000 of which was used to purchase the Note from 2 Heritage. According to Plaintiffs, the terms of the parties’ agreement were: (1) MVP would 3 remain responsible for the debt evidenced by the Note after Optimis purchased it from Heritage, 4 (2) Optimis would release the liens on Plaintiffs’ homes, and (3) Optimis would repay the loans 5 6 7 evidenced by the convertible notes within a year, thereby restoring Plaintiffs’ retirement funds. Optimis disagrees with Plaintiffs’ description of its acquisition of the Note. Optimis 8 claims that it never considered the Note MVP’s debt, but instead, everyone understood that the 9 Note was Plaintiffs’ debt, as evidenced by the fact that the Note was secured by liens on 10 11 Plaintiffs’ homes in addition to MVP’s assets. Optimis alleges that it agreed to purchase the Note from Heritage in order to help Plaintiffs and to release the Bank’s security interest on MVP’s 12 13 14 assets. Optimis further alleges that it never agreed to release Plaintiffs from the debt, nor did it agree to release the liens on Plaintiffs’ homes. Lastly, Optimis claims that it did not use Plaintiffs’ 15 401(k) funds to purchase the Note; rather, Plaintiffs’ use of those funds to purchase the OSI and 16 convertible notes was meant to “show[] a greater commitment by [Garlock and Jennings] to 17 Optimis.” Dkt. No. 51 (Declaration of Alan Morelli) at ¶ 6. 18 19 While the parties disagree on the terms and funding of the purchase the Note, there is no dispute as to three key facts: (1) Optimis did not seek payment from Plaintiffs on the Note until it 20 21 filed its counterclaims in this lawsuit; (2) this amounted to not seeking payment for nearly seven 22 years; and (3) Optimis has not released the liens on Plaintiffs’ homes. Plaintiffs also allege that 23 Optimis never issued the convertible notes, nor repaid the loans that were secured by those notes. 24 Plaintiffs instituted this action in March 2022, seeking a declaration that the Note is no longer 25 enforceable because the applicable statute of limitations has expired and seeking to quiet title on 26 the liens on their residences. Optimis counterclaimed, seeking to enforce the Note ($490,000 plus 27 5 Case 3:22-cv-05108-BJR Document 72 Filed 09/27/23 Page 6 of 20 1 another approximately $1.3 million in interest), among other relief. The parties’ cross motions 2 followed. 3 III. STANDARD OF REVIEW 4 The standard for summary judgment is familiar: “Summary judgment is appropriate when, 5 6 viewing the evidence in the light most favorable to the nonmoving party, there is no genuine 7 dispute as to any material fact.” Zetwick v. County of Yolo, 850 F.3d 436, 440 (9th Cir. 2017) 8 (quoting United States v. JP Morgan Chase Bank Account No. Ending 8215, 835 F.3d 1159, 1162 9 (9th Cir. 2016)). A court’s function on summary judgment is not “to weigh the evidence and 10 determine the truth of the matter but to determine whether there is a genuine issue for trial.” 11 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). If there is not, summary judgment is 12 13 warranted. IV. 14 DISCUSSION 15 As stated above, Plaintiffs move for summary judgment on their quiet title claim, arguing 16 that the applicable statute of limitations governing the Note has expired. They also seek summary 17 dismissal of each of Optimis’ counterclaims. Optimis, in turn, seeks summary judgment on 18 19 Plaintiffs’ quiet title claim, and summary judgment on its counterclaims to enforce the Note, to recover attorneys’ fees under the fee-shifting provision of the Note, and to recover damages it 20 21 22 allegedly incurred as a result of Plaintiffs’ breach of the Loan Purchase Agreement. A. Plaintiffs Are Entitled to Quiet Title against the Deeds of Trust on Their Personal Residences 23 An owner is entitled to quiet title if the statute of limitations has expired on the promissory 24 25 note that is secured by a deed of trust on that property. Cedar W. Owners Ass’s v. Nationstar 26 Mortg., LLC, 434 P.3d 554, 559 (Wash. App. Ct.), review denied 441 P.3d 1200 (Wash. 2019); 27 see also RCW 7.28.300 (“The record owner of real estate may maintain an action to quiet title 6 Case 3:22-cv-05108-BJR Document 72 Filed 09/27/23 Page 7 of 20 1 against the lien of a mortgage or deed of trust on the real estate where an action to foreclose such 2 mortgage or deed of trust would be barred by the statute of limitations.”) Here, Plaintiffs argue 3 that they are entitled to quiet title against the deeds of trust on their personal residences because 4 the applicable six-year statute of limitations to enforce the Note began to run on August 17, 2015, 5 6 and expired on August 17, 2021. Optimis counters that the statute of limitations did not begin to 7 run until August 17, 2021, and, therefore, has not expired. Alternatively, Optimis argues that if 8 the statute of limitations did begin to run on August 17, 2015, Plaintiffs acknowledged the debt in 9 2018 and 2019, thereby restarting the six-year statute of limitations. Lastly, Optimis claims that 10 11 Plaintiffs waived their right to avoid their obligation to satisfy the debt. 7 The Court addresses each argument below. 12 1. 13 The Six-Year Statute of Limitations Began to Run on August 17, 2015 Under Washington law, promissory notes and deeds of trust are subject to a six-year 14 15 statute of limitations that begins to run “after the cause of action has accrued.” Terhune v. North 16 Cascade Trustee Services, Inc., 446 P.3d 683, 688 (Wn. App. 2019) quoting RCW 4.16.005. The 17 parties agree that the applicable statute of limitations is six years; however, they disagree as to 18 19 when the limitations period began to run. Plaintiffs contend that the six-year limitation period began to run on August 17, 2015, the date that Optimis purchased the Note and Plaintiffs signed 20 21 22 the Borrower Approval form, and expired six years later on August 17, 2021, over seven months before Optimis filed its counterclaim demanding payment on the Note. Optimis counters that 23 24 7 25 26 27 Defendant also argues that Plaintiffs have not shown that they are the record owners of their personal residences and, therefore, are not entitled to quiet title on the liens. Dkt. No. 49 at 12-13. This argument is readily dispensed with because Plaintiffs alleged in the Complaint that they own the residences and Defendant conceded the fact of ownership in its Answer. See Dkt. No. 1, Ex. 2 (Complaint) at ¶¶ 1 & 2; Dkt. No. 14 (Answer) at ¶¶ 1 & 2. 7 Case 3:22-cv-05108-BJR Document 72 Filed 09/27/23 Page 8 of 20 1 pursuant to Barer v. Goldberg, 582 P.2d 868, 871 (Wash. App. Ct. 1978) the six-year limitations 2 period did not begin to run until August 17, 2021. 3 There are two types of promissory notes: installment and demand. An installment 4 promissory note requires that periodic payments be made while a demand note “is payable 5 6 immediately on the date of its execution.” GMAC v. Everett Chevrolet, Inc., 317 P.3d 1074, 1078 7 (Wash. App. Ct. 2014). Under Washington law, the six-year statute of limitation accrues on an 8 installment note “for each monthly installment from the time it becomes due”, Terhune, 446 P.3d 9 at 688, while the statute of limitations “for demand loans begins to run on the date the loan is 10 made.” Wallace v. Kuehner, 46 P.3d 823, 829 (Wash. App. Ct. 2002). However, Washington 11 courts recognize a limited exception—known as the Barer exception—to the general rule that the 12 13 14 six-year limitations period begins to run on the date that a demand loan is made. These courts recognize that there is a small subset of demand loans in which the contracting parties specifically 15 contemplate at the time of entering the loan that the loan would not be paid back right away. 16 Barer v. Goldberg, 582 P.2d 868, 871 (Wash. App. Ct. 1978) (stating that the statute of 17 limitations on a demand loan typically begins to run when the loan is made but “an exception to 18 19 the rule exists when delay in making demand is contemplated by the parties at the time the contract is made and where speedy demand would violate the spirit of the contract”); see also 20 21 Cochran v. Cochran, 233 P. 918, 920 (Wash. 1925) (stating that the general rule that the statute of 22 limitations begins to run on the date that a demand loan is made does not “apply to a case where 23 delay in making the demand is contemplated by the parties at the time the contract was made, and 24 where a speedy demand would manifestly violate its intent”); Nilson v. Castle Rock School Dist., 25 945 P.2d 765, 767 (Wash. Ct. App. 1997) (the Barer exception applied where “the circumstances 26 surrounding the demand loan agreement reveal[ed] that the parties contemplated repayment 27 8 Case 3:22-cv-05108-BJR Document 72 Filed 09/27/23 Page 9 of 20 1 sometime in the future” because “[t]hey neither anticipated nor intended that there would be an 2 immediate demand since the purpose of the agreement was to relieve the school of initially paying 3 for the uniforms”). 4 For this small subset of demand loans, Washington courts have concluded that it would 5 6 subvert the parties’ intent if the statute of limitations began to accrue on the date the loan was 7 executed. Instead, for those demand loans were the parties expressly contemplated at the time that 8 they entered the loan that payment would be delayed, Washington courts have determined that the 9 limitations period does not begin to run until either actual demand is made, or if a demand is not 10 made within six years of the loan’s execution, then the six-year limitation period begins to accrue 11 at the conclusion of six years. Barer, 582 P.2d at 871; see also Wallace, 46 P.3d at 828 (“Under 12 13 14 Barer, the statute of limitations begins to run either (1) when an actual demand for payment is made, or (2) at the end of the statutory period noted in the statute of limitations. In other words, 15 once a period of time equivalent to the statute of limitations period elapses without actual 16 demand, a demand will be presumed, and the statute of limitations begins to run.”). 17 18 19 Here, Optimis argues that the Note is a demand note and because Optimis did not demand payment within six years of purchasing the Note, under Barer, a demand must be presumed at the expiration of six years, and the statute of limitations began to run at that point. In other words, 20 21 Optimis argues that the six-year limitation period did not begin to run until August 17, 2021. 22 Optimis’ argument fails for at least two reasons. First, the Barer exception only applies to demand 23 notes. Here, there is no dispute that the Note between Plaintiffs and Heritage was an installment 24 note and Optimis purchased the Note “As Is”. Optimis seems to suggest that merely because it 25 purchased the Note from Heritage, doing so somehow converted the Note from an installment 26 note into a demand note. Optimis cites no authority for this proposition and the Court is likewise 27 9 Case 3:22-cv-05108-BJR Document 72 Filed 09/27/23 Page 10 of 20 1 unpersuaded by this argument. Second, it is not the failure of a creditor to demand payment on a 2 demand loan within the relevant limitations period that triggers the Barer exception. Rather, the 3 Barer exception only applies when the parties to the loan expressly contemplated at the time of 4 entering the loan that payment would be delayed. There is nothing in the record to indicate that 5 6 Plaintiffs and Optimis expressly “contemplated a delay in payment” or that “a speedy demand” 7 for payment by Optimis would have “manifestly violate[d]” the purpose of the Note. Cochran, 8 233 P. at 920; Hopper v. Hemphill, 575 P.2d 746, 748 (Wash. App. Ct. 1978) (concluding that the 9 statute of limitations began to run on the date of the demand loan because there was nothing in the 10 record that suggested the parties intended otherwise when they entered their contract). Simply put, 11 the Barer exception is inapplicable to this case. Thus, this Court concludes that the six-year 12 13 14 15 16 17 18 19 statute of limitations began to run on August 17, 2015 (the dated that Optimis purchased the Note and Plaintiffs signed the Borrower Approval) and expired six years later on August 17, 2021. 2. Plaintiffs Did Not Acknowledge the Debt in 2018 or 2019 “The running of the statute of limitations is generally a bar to an action on an unpaid debt.” In re Tragopan Properties, LLC, 263 P.3d 613, 614 (Wash. App. Ct. 2011). However, the limitations period may be renewed pursuant to RCW 4.16.280 if the debtor issues a written acknowledgment of the debt. Id.; see also Jewell v. Long, 876 P.2d 473, 474 (Wash. App. Ct. 20 21 1994) (same). To restart the limitations period, the debt acknowledgment must: (1) be in writing, 22 (2) be communicated to the creditor, (3) recognize the existence of a debt, and (4) not indicate an 23 intent not to pay. In re Plastino, 2020 WL 7753628, *5 (W.D. Wash. December 29, 2020) citing 24 Tragopan, 263 P.3d at 616. 25 26 “Washington courts differentiate between acknowledgments written before and after the statutory period” has expired. First American Title Ins. Co. v. Northwest Titled Co. LLC, 2013 27 10 Case 3:22-cv-05108-BJR Document 72 Filed 09/27/23 Page 11 of 20 1 WL 4157656, *6 (W.D. Wash June 23, 2023). As applicable here, if the writing was made before 2 the statutory period expired, to toll the statute of limitations, the writing must “expressly promise 3 to pay the obligation, or acknowledge it as an existing debt.” Griffin v. Lear, 212 P. 271, 275 4 (Wash. 1923). In addition, “[t]he acknowledgment must be so clear that a promise to pay must 5 6 necessarily be implied.” Bank of Montreal v. Guse, 98 P. 1127, 1129 (Wash. 1909), see also 7 Matson v. Weidenkopf, 3 P.3d 805, 809 (Wash. App. Ct. 2000) (“When an acknowledgment is 8 made before the running of the statute of limitations, we infer a promise to pay unless the writing 9 expresses a contrary intention.”). 10 11 Optimis claims that Plaintiffs acknowledged their obligation to repay the debt evidenced by the Note on four occasions: (1) Garlock deposition testimony dated February 28, 2018, (2) a 12 13 14 July 3, 2018 email written by Jennings, (3) an April 3, 2019 email written by Garlock, and (4) a June 15, 2019 email written by Jennings. Each of these pre-dates the expiration of the six-year 15 statute of limitations; thus, Optimis argues, they tolled the limitations period. The Court addresses 16 each alleged acknowledgment below. 17 18 19 a. Garlock’s February 28, 2018 deposition testimony Optimis quotes a short excerpt from a 2018 deposition of Garlock that was taken in the litigation between Optimis and Morelli and the former owners of another physical therapy 20 21 business, as well as Optimis’ former directors and CFO. Optimis alleges that Garlock 22 acknowledged the debt during this deposition. This argument carries no weight. The deposition 23 testimony fails to satisfy the signed writing required by RCW 4.16.280. In re Tragopan 24 Properties, 263 P.3d at 620 (holding that bankruptcy deposition testimony does not qualify as a 25 written acknowledgment under RCW 4.16.280). Optimis concedes the same in its reply brief in 26 support of its motion for summary judgment. Dkt. No. 54 at 13 fn. 5. 27 11 Case 3:22-cv-05108-BJR Document 72 Filed 09/27/23 Page 12 of 20 1 2 3 b. Jennings’ July 3, 2018 Email Next, Optimis cites to a July 3, 2018 email that Jennings wrote to Paul Price, Optimis’ lawyer at the time. The email, in its entirety states: 4 Good morning, Paul5 6 7 8 9 10 11 12 13 14 15 I have forwarded my correspondence with Kristy Willet at Heritage Bank. Apparently, there is a curtailment fee associated with the first note paid in 2013, I believe that needs paid to remove it from our reports. I will do this today. As to the second note, now held by Optimis, I would ask that its collateral be held by both Pat and my Optimis or OSI stock, exercised when there is a liquidity event and our homes removed as collateral. I think this makes the most sense and best represents the intention of our original agreements. Secondly, with respect to our outstanding convertible notes and your hesitancy to ‘guarantee’ fully funding both the principle and outstanding interest payments with monies received in the Lateral closing; I have serious concerns that other mouths needing be fed will dilute the opportunity for our retirement accounts to be made whole again. Because I am closer to retiring than not, I trust you can appreciate my expectation that within this closing that our hard earned retirement accounts be returned whole. Paul, thank-you for your consideration and attention to these important items. 16 17 18 Dkt. No. 44-10 at 2. The Court concludes that this email does not constitute a sufficient acknowledgment of debt for RCW 4.16.280 purposes. Again, as stated above, in order to satisfy 19 RCW 4.16.280, the acknowledgment must either “expressly promise to pay or acknowledge that 20 the obligation exists” and “[i]f the writing contains the latter, it must express a clear admission of 21 the debt” and “not indicate an intention not to pay.” Fetty v. Wenger, 36 P.3d 1123, 1125 (Wash. 22 App. Ct. 2001); see also Guse, 98 P. at 1129 (“The acknowledgment must be so clear that a 23 promise to pay must necessarily be implied”). The foregoing email does not contain an express 24 25 promise to pay the debt evidenced by the Note. Thus, in order to satisfy RCW 4.16.280, the email 26 must “express a clear admission of the debt.” The email does not contain such an admission. At 27 most, it references that Optimis holds some collateral with respect to “the second note” but this 12 Case 3:22-cv-05108-BJR Document 72 Filed 09/27/23 Page 13 of 20 1 reference in no way acknowledges that Optimis rightfully holds that collateral. This email is in 2 sharp contrast to other writings that Washington courts have found to be sufficient to 3 acknowledge a debt for purposes of RCW 4.16.280. See e.g. Fetty, 36 P.3d at 1126 (letter 4 requesting an itemized bill for services and stating that recipient would be “paid for expenses and 5 6 [] time spent” was a sufficient acknowledgment to toll the limitations period); Griffin, 212 P. at 7 274 (letter stating “I can only promise to pay the $1,600 with interest in some future time. You 8 will never lose through me.” constituted “a definite, distinct, and positive recognition” of debt, 9 tolling the statute of limitations). Moreover, the email references Optimis’ obligation to make 10 Plaintiffs’ retirement accounts “whole”, thus contradicting any suggestion that Plaintiffs are in 11 debt to Optimis. Matson, 3 P.3d at 809 (“When an acknowledgment is made before the running of 12 13 14 15 16 17 18 19 20 21 22 the statute of limitations, we infer a promise to pay unless the writing expresses a contrary intention.”) (emphasis added). c. Garlock’s April 3, 2019 Email Optimis also cites to an email that Garlock wrote to Optimis’ attorney on April 3, 2019. The email states in relevant part: MVP is in your (OPTIMIS) hands now and frankly for the past many years. I had been a good steward during that rocky process and during my transition out of ownership since February of 2008. Upon my last day in 2017 I have been patiently waiting for the convertible note to be paid, and the Lien on my home to be released so that I can move forward. You and others at OPTIMIS have reassured me many times that capital was coming and that these items would be resolved. Also, as a shareholder I remain optimistic that a liquidation event is coming thus bring value to our shares. Do you have any updates on these items? 23 Dkt. No. 44-11 at 2. Nothing in this email suggests that Plaintiffs are in anyway obligated to pay 24 25 the Note or implies a promise to pay. To the contrary, the email states that Optimis has a financial 26 obligation to Plaintiffs that it has not yet performed. The April 3, 2019 email is not an 27 acknowledgment of debt for purposes of RCW 4.16.280. 13 Case 3:22-cv-05108-BJR Document 72 Filed 09/27/23 Page 14 of 20 1 2 3 d. Jennings’ June 15, 2019 Email Optimis cites to an email Jennings wrote on June 15, 2019 that Optimis claims “unequivocally indicates [Jennings’] intent to pay” the debt. The relevant part of the email states: 4 5 6 7 2) Mike and Pat old business. This August it will be 4 years that Optimis has held liens on our homes and defaulted on the 1 year convertible notes. Can this be resolved immediately. If collateral is what the board requires, both Pat and I agree using our nearly 450k of earned Optimis shares should suffice. As to the convertible notes (340k MJ, 150k PG), what is the path forward here to repayment of principle/interest? 8 Dkt. No. 45-2 at 2. In its motion, Optimis argues that Jennings acknowledged the debt Plaintiffs 9 10 owed when he “offered, on behalf of himself and Garlock, the shares he and Garlock held in an 11 effort to fulfill their obligations.” Dkt. No. 43 at 17. Optimis cites to a Washington appellate 12 decision in which a debtor secured a promissory note with a deed of trust on certain property, but 13 later asked the creditor if he could secure the note by giving him a deed of trust on a different 14 15 piece of property. The creditor agreed and the Appellate Court determined that the statute of limitations restarted at the time of the deed swap. Jewell, 876 P.2d at 474. In reaching its decision, 16 17 18 the Appellate Court stated that “giving or substituting collateral security” can constitute an acknowledgment that restarts the statute of limitations. Id. Jewell is readily distinguishable from 19 the instant case. First, unlike in the instant case, in Jewell there was no question that the debtor 20 owed the obligation at the time that he swapped the deeds of trust. Second, in Jewell there was no 21 ambiguity as to why the debtor offered the deed of trust. Here, on the other hand, Jennings 22 references Optimis’ default and again requests repayment thereby confusing the purpose of the 23 email. The inclusion of the demand for repayment, by itself, rebuts any inference of a promise to 24 25 pay. See Guse, 98 P. at 1129 (“The acknowledgment must be so clear that a promise to pay must 26 necessarily be implied”); Matson, 3 P.3d at 809 (“When an acknowledgment is made before the 27 running of the statute of limitations, we infer a promise to pay unless the writing expresses a 14 Case 3:22-cv-05108-BJR Document 72 Filed 09/27/23 Page 15 of 20 1 contrary intention.”) (emphasis added). Thus, the Court concludes that the June 15, 2019 email 2 was insufficient to restart the applicable six-year statute of limitations. 3 4 Whether Plaintiffs Waived Their Right to Avoid Their Obligation to Satisfy the Debt 5 Optimis argues that even if this Court determines that the Note is unenforceable because 6 7 3. the statute of limitations has expired, Plaintiffs waived their right to assert that defense. In making this argument, Optimis relies on the Borrower Approval that Plaintiffs signed as part of the Loan 8 Purchase Agreement between Optimis and Heritage Bank that states in relevant part: “Borrowers 9 10 hereby acknowledge that they have no defense, …claim or demand of any kind …that can be 11 asserted to reduce or eliminate all or any part of such borrower’s liability to pay the note 12 obligation.” Dkt. 45-1 at 8. Optimis claims that the foregoing prohibits Plaintiffs from asserting 13 the statute of limitations defense now. 14 15 Optimis is mistaken. The Borrower Approval is simply a representation regarding Plaintiffs’ rights at the time that they signed the document on August 15, 2015; it did not waive 16 17 18 prospective defenses. Id. (“Borrowers hereby acknowledge that they have no defense…”) (emphasis added). As stated above, Plaintiffs concede that by signing the Borrower Approval, 19 they acknowledged the debt, thereby restarting the statute of limitations. Thus, on August 15, 20 2015, they did not have a statute of limitations defense. However, the Borrower Approval did not 21 waive any future defenses that may arise after the signing, such as the expiration of the limitations 22 period six years later. What is more, under Washington law, “[a]n agreement to waive the statute 23 of limitations must … be for a definite time.” Taplett v. Khela, 807 P.2d 885, 889 (Wash. App. 24 25 Ct. 1991); J.A. Campbell Co. v. Holsum Banking Co., 130 P.2d 333, 340 (Wash. 1942). Thus, 26 even if the Borrower Approval purported to waive future defenses, it would be invalid under 27 Washington law because it does not contain a time limitation. 15 Case 3:22-cv-05108-BJR Document 72 Filed 09/27/23 Page 16 of 20 1 2 3 For the foregoing reasons, the Court concludes that the applicable statute of limitation to enforce the Note is six years, the limitations period has expired, and Plaintiffs did not waive their right to assert the statute of limitations as a defense. Therefore, Plaintiffs are entitled to summary 4 judgment on their quiet title claim and on Optimis’ counterclaim to enforce the Note, for 5 6 7 attorneys’ fees under the fee-shifting provision of the Note, and for breach of the Loan Purchase Agreement. 8 8 B. 9 Plaintiffs also move for summary judgment on Optimis’ counterclaims for (1) breach of 10 the duty of good faith and fair dealing, (2) unjust enrichment, and (3) breach of fiduciary duties. 11 Optimis’ Remaining Counterclaims 1. The Duty of Good Faith and Fair Dealing 12 Optimis alleges that Plaintiffs “violated the implied and statutory duties of good faith and 13 14 fair dealing” when they “failed to satisfy the Note and instead brought suit against [Optimis] to 15 quiet title to their properties in order to circumvent their obligations under the Note.” Dkt. No. 14, 16 Counterclaims at ¶¶ 77 and 80. Because this Court has already concluded that enforcement of the 17 Note is barred by the statute of limitations and Plaintiffs are not barred from asserting such 18 defense, Plaintiffs are entitled to summary judgment on this counterclaim. 19 2. Unjust Enrichment 20 Optimis argues that Plaintiffs were enriched by its purchase of the Note and that the 21 22 circumstances of the purchase make it unjust for Plaintiffs to retain that benefit. Id. at ¶¶ 86 and 23 91. A three-year statute of limitations applies to claims for unjust enrichment and begins to run 24 when a party has the right to apply to the court for relief. Eckert v. Skagit Corp., 538 P.2d 1239, 25 26 27 8 Because the Borrower Approval did not waive Plaintiffs’ right to assert a statute of limitations defense to the Note, Optimis’ counterclaim alleging that Plaintiffs breach the Loan Purchase Agreement by asserting said defense in this lawsuit also necessarily fails as a matter of law. 16 Case 3:22-cv-05108-BJR Document 72 Filed 09/27/23 Page 17 of 20 1 1240-41 (Wash. Ct. App. 1978). A party acquires the right to apply for relief when they can 2 establish each element of the action. Deegan v. Windermere Real Estate/Ctr.-Isle, 391 P.3d 582, 3 591 (Wash. App. Ct. 2017). An unjust enrichment claim has three elements: “(1) the [Plaintiffs] 4 receive[] a benefit, (2) the received benefit is at [Optimis’] expense, and (3) the circumstances 5 6 make it unjust for [Plaintiffs] to retain the benefit with no payment.” Young v. Young, 191 P.3d 7 1258, 1262 (Wash. 2008). Thus, even assuming that the parties’ agreement regarding Optimis’ 8 purchase of the Note is as Optimis alleges—i.e., that the debt evidenced by the Note was 9 Plaintiffs’ debt, that Optimis acquired the Note with its own funds, and that Plaintiffs remained 10 responsible for the debt after Optimis acquired it—each element of an unjust enrichment claim 11 would be established, and the three-year limitations period on the claim began to run on August 12 13 14 15 16 17 18 19 17, 2015, the date that Optimis purchased the Note. Optimis filed its counterclaim for unjust enrichment on March 25, 2022, long after the limitations period expired. Plaintiffs are entitled to summary judgment on this counterclaim. 3. Fiduciary Duty As stated above, in 2016, Optimis and its CEO, Alan Morelli, sued the former owners of a business it acquired, as well as several of Optimis’ former directors and its former CFO. The lawsuit was in Delaware and sought damages and equitable relief for an alleged conspiracy that 20 21 involved theories including breach of contract and breach of loyalty. OptimisCorp v. Waite, 2016 22 WL 2585871 (Del. April 25, 2016). The litigation was contentious, the trial court imposed 23 sanctions on Optimis for witness tampering, and Optimis was largely unsuccessful in the lawsuit. 24 Garlock and Jennings were not parties to the lawsuit but were witnesses, and Optimis retained 25 counsel to represent them. With the breach of fiduciary duty counterclaim in this lawsuit, Optimis 26 now alleges many of the same conspiracy claims against Plaintiffs that it alleged against the 27 17 Case 3:22-cv-05108-BJR Document 72 Filed 09/27/23 Page 18 of 20 1 defendants in Waite. For instance, Optimis alleges that Plaintiffs (1) were involved in a “scheme 2 to take over Optimis”, (2) that they “accepted money [in return] for voting in favor of [an] 3 amendment to the Shareholder Agreement” that removed Morelli as CEO of Optimis, (3) that 4 they “took steps to compete with MVP before they left MVP, including (a) encouraging MVP 5 6 employees to leave for [a] competitor, (b) diverting patients to the competition, (c) failing to 7 effectively run MVP, leading to the closure of MVP’s most profitable clinic, (d) taking MVP 8 equipment before leaving MVP, and (4) that they conspired with MVP’s landlords to provide 9 inflated proposed renewal lease rate MVP could not accept.” Dkt. No. 49 at 26, fn. 11. 10 11 Optimis supports the foregoing allegations with a declaration from Alan Morelli in which he alleges that starting in 2012, Plaintiffs “were recruited to participate in a scheme to take control 12 13 14 of Optimis” from him. Dkt. No. 51 at ¶ 8. He further alleges that he knows “all about [Plaintiffs’] involvement because they were interviewed and/or deposed in connection” with the Delaware 15 lawsuit in February 2018 and the declaration attaches five exhibits that were exhibits to Garlock’s 16 deposition in February 2018. Id. at ¶¶ 8-9. In other words, Optimis concedes that it was aware of 17 Plaintiffs’ alleged participation in the alleged scheme to wrest control of Optimis from Morelli no 18 19 later than February 2018. Optimis filed the fiduciary duty counterclaim in March 2022, over a year after the three-year statute of limitation for such claims expired. Kazman v. Land Title Co., 20 21 2014 WL 128061, *6 (W.D. Wash. January 13, 2014) (“In Washington, the statute of limitations 22 on a claim for breach of fiduciary duty is three years.”); In re American Intern. Group, Inc., 965 23 A.2d 763, 812 (Del. Ch. 2009) (“For a breach of fiduciary duty or fraud claim, the statute of 24 limitations is three years.”). Thus, these claims are time-barred. 25 26 As for the remaining allegations, which Optimis groups together and labels “[Plaintiffs’] Involvement in the Scheme to Bankrupt MVP”, Optimis relies on the following evidence: (1) 27 18 Case 3:22-cv-05108-BJR Document 72 Filed 09/27/23 Page 19 of 20 1 Nancy Jennings deposition testimony in which she states that her husband now operates his own 2 physical therapy business called “MVP Physical Therapy”; (2) Morelli’s declaration in which he: 3 (a) accuses Garlock of working for a competitor, (b) accuses both Plaintiffs of “diverting MVP 4 assets” to a competitor, and (c) accuses both Plaintiffs of stealing AstroTurf and treadmills (Dkt. 5 6 No. 51 at ¶¶ 12-15); and (3) a July 7, 2019 email exchange between several Optimis managers 7 (Dkt. No. 51, Ex. 6). The Court has reviewed the documents and concludes that they do not create 8 a genuine issue of material fact as to whether Plaintiffs breached their fiduciary duties. As an 9 initial matter, the fact that Jennings is currently working at another physical therapy office called 10 11 “MVP Physical Therapy” in no way suggests that Plaintiffs attempted to sabotage MVP before they left the company. Likewise, the July 7, 2019 email exchange does not provide evidence for 12 13 14 the same. While the authors gripe about Plaintiffs, they provide no evidence of actual wrongdoing. Instead, the email contradicts Optimis’ allegations. Dkt. No. 51, Ex. 6 at 4 15 (suggesting that the lease was not renewed due to late payments rather than a scheme concocted 16 by Plaintiffs (“Cristina was concerned that our late payment history would come back to get us 17 and appears that it has in this case.”); Ex. 6 at 2 (stating that employees’ decisions to leave 18 19 Optimis were “mostly centered around bonus payments, etc.” as opposed to Plaintiffs luring them away to a competitor). Lastly, Morelli’s declaration relating to the alleged “scheme to bankrupt 20 21 MVP” is a series of self-serving statements that are not supported by evidence in the record and, 22 as such, is insufficient to create a issue of material fact. Hansen v. United States, 7 F.3d 137, 138 23 (9th Cir. 1993) (“When the nonmoving party relies only on its own affidavits to oppose summary 24 judgment, it cannot rely on conclusory allegations unsupported by factual data to create an issue 25 of material fact.”). Thus, Plaintiffs are entitled to summary judgment on Optimis’ breach of 26 fiduciary duty counterclaim. 27 19 Case 3:22-cv-05108-BJR Document 72 Filed 09/27/23 Page 20 of 20 1 C. 2 In March 2023, Plaintiffs requested this Court’s permission to file an amended complaint 3 Indemnity Agreement to include a request for declaratory judgment that an indemnity agreement they entered into with 4 Optimis after the Loan Purchase Agreement was executed is unenforceable. Dkt. No. 29. The 5 6 parties filed the instant motions before this Court resolved the motion to amend. Anticipating that 7 the Court would allow the amendment, Plaintiffs also moved for summary judgment on the 8 indemnity agreement claim; however, Defendant failed to respond to this argument. Therefore, 9 the Court will allow additional briefing on this issue before resolving the claim. 10 11 V. CONCLUSION For the foregoing reasons, the Court HEREBY: 12 13 14 15 (1) GRANTS judgment pursuant to RCW 7.28.300 quieting title on Garlock’s residence located at 3120 Soundview Dr. W, University Place, Washington and Jennings’ residence located at 1732 Prospect Street, Tacoma, Washington; 16 (2) GRANTS summary judgment to Plaintiffs on all of Optimis’ counterclaims; 17 (3) DENIES Defendants’ motion for partial summary judgment; and 18 19 (4) ORDERS Defendant to file a responsive brief, limited to seven (7) pages, regarding the indemnity issue on or before October 13, 2023 and Plaintiffs to file a reply brief, 20 21 22 limited to five (5) pages, on or before October 27, 2023. Dated this 27th day of September 2023. 23 A 24 Barbara Jacobs Rothstein U.S. District Court Judge 25 26 27 20
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