Mike Kreidler, Respondent V. Statewide General Insurance And Marcel Matar, Appellants (Majority)

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FILED COURT OF APPEALS DIVISION II 2O 1 ri JUL 22 1' 1 Ti; BY IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON DIVISION II No. 44745 -2 -II MIKE KREIDLER, INSURANCE COMMISSIONER, as Receiver for Cascade National Insurance Company, Respondent, v. PART PUBLISHED OPINION CASCADE NATIONAL INSURANCE COMPANY, Defendant, STATEWIDE GENERAL INSURANCE AGENCY, INC., and MARCEL MATAR, Appellants. JOHANSON, C. J. executive officer ( CEO), Statewide General Insurance Agency, Inc. ( Statewide) and its chief Marcel Matar, appeal from the entry of summary judgment in favor of Insurance Commissioner Mike Kreidler ( Commissioner) Insurance Company ( Cascade). as receiver for Cascade National In the published portion of this opinion we address Statewide and Matar' s argument that the amount due to the Commissioner was overstated because the Commissioner failed to credit Statewide for certain set -offs and relied on a contractual formula that was imposed without Statewide' s knowledge, as well as their argument that the 21 No. 44745 -2 -II Commissioner' lacked foundation.' s expert witness Because Statewide and Matar' s claims are without merit, we affirm the trial court' s grant of summary judgment. FACTS I. CASCADE AND STATEWIDE Cascade was a Washington insurance company. In 1999, Cascade designated a California insurance company, Statewide, to act as its general agent for the purpose of issuing Cascade auto insurance integrated " General 2004, respectively. policies Agency in California. The arrangement was established in three fully executed in February 1999, January 2004, and May Agreement[ s]" 2 Under Cascade and Statewide' s agreement, Statewide would collect premiums on the Cascade insurance policies it sold, deduct a provisional commission for itself, and then deposit the balance collected, into fees trust a premium earned, and Statewide would report its estimates of premiums account. commissions due to Cascade. Then, every year Cascade would determine the actual commissions due to Statewide based on the ratio of premiums earned to losses and loss adjustments ( loss ratio). The difference between the preliminary commissions and the actual commissions would be paid within 45 days of demand and any deficits or surpluses would not be carried over to the next year. From the beginning of their business relationship, Statewide held all premiums in a fiduciary capacity on behalf of Cascade. Clerk' s Papers ( CP) at 79, 395 ( "[ I]t shall be 1 In the unpublished portion of this opinion we address and reject the argument that Matar should not be held personally liable because his personal guarantee of payment lacked consideration or was obtained by fraud. 2 The substance of these written instruments is largely the same and we discuss the differences only where they are relevant. 2 No. 44745 -2 -II conclusively presumed that [ Statewide] is a fiduciary of [Cascade] with respect to trust funds. "); 475 ( " All premiums are separate account, and in CP at a the property fiduciary of [ Cascade] capacity as and shall be held trustee for [ Cascade]. "). by [ Statewide], in a Furthermore, certain employees of Statewide were required to personally guarantee payment under the agreement.3 Statewide' CEO Matar s signed a personal guarantee in 1999 and again in May 2004. Finally, Statewide expressly waived any " counterclaim, cross -claim, or set -off' in any action by Cascade to recover trust funds. CP at 79, 395. Cascade and Statewide had a turbulent relationship, marked ( in Statewide' s view) by alleged malfeasance. commissions In 2003, Cascade that Cascade alleged and Statewide Statewide had owed. a dispute over $ 230, 000 in unpaid Cascade threatened to prohibit Statewide from selling Cascade insurance if Statewide failed to repay the $ 230, 000. Accordingly, in December 2003, Cascade and Statewide entered into a settlement agreement that stipulated that Statewide owed Cascade $ 230, 000 in unpaid earned premiums through 2003, and provided for Statewide to pay the $ 230, 000 settlement agreement accounting against an disclaimed installment basis CP time the settlement at 514 ( Agency, capitalization omitted). agreement was out of commissions earned. The further financial claims regarding premium any " Statewide General Insurance December 31, 2003." same also on signed, Inc. for the period of Feb 1, 1999 to Indeed, the record shows that at the Cascade forgave $ 339, 659. 35 of Statewide' s debt. 3 See CP at 396, 533 ( "[ Statewide] shall cause any of its employees or other representatives who Statewide' s] account( s) containing trust funds to are signatories on, or who otherwise control, [ execute and deliver to [ Cascade] Statewide] is a guarantee of payment of limited the trust funds. "); CP at 488 ( " If liability company, the shareholder( s) or member( s), as the case may be, signing below agree to guarantee the payment of all sums due [ Cascade] under this Agreement and any successors hereto. "). a corporation or a 3 No. 44745 -2 -II In January 2004, Cascade withdrew $272, 763. 20 from the premium trust account, but it did not credit the money against Statewide' s promissory note. Rather, Cascade continued to take installment the on payments November 2004, Cascade note reducing its by withdrew $ 205, commission payments to Statewide. In 893. 38 from a different premium trust account, but it did not credit the money against Statewide' s account balance. Statewide further alleges that Cascade altered the loss ratio mechanics of their agreement without Statewide' s knowledge. for their then existing In February 2004, Cascade sent Statewide replacement pages written agreement that to purported correct errors. In reality, the new language decreased the loss ratio bonus and increased the loss ratio penalty on Statewide' s Not realizing that the replacement pages would change the nature of the commissions. agreement, Matar signed off on the change. The parties reexecuted the amended contract in May 2004. Between January 2004 and March 2005, Statewide complied in full with its contract with Cascade. Statewide reported $ 3. 9 million in premiums, and after deducting its commission, paid Cascade $ 3. 2 million through the Commissioner took receivership December 2005, Statewide 90, 000. asserts premium of trust account. Cascade, Statewide' reported $ s In April 2005, one month before the stance changed. Between April and 1. 3 million in gross premiums, but it only paid Cascade Statewide admits that it withheld more commissions than was otherwise owed, but it that it did so in order to " balance the ledgers." Br. of Appellant at 17. II. CASCADE RECEIVERSHIP In 2005, May the Commissioner took receivership of Cascade and commenced rehabilitation proceedings. all of Cascade' s assets, Under the receivership order, the Commissioner took possession of contracts, and rights of action. 4 The order also required anyone in No. 44745 -2 -II possession of assets belonging to Cascade to deliver and surrender those assets to the Commissioner. The order further conditioned any offsets of assets, records, funds, or deposits of or to Cascade belonging on the express approval of the Commissioner. In addition, the order enjoined any actions or claims against Cascade outside of the statutory receivership process. Finally, the order authorized the Commissioner to pursue all claims against third parties on Cascade' s behalf. Later that year, the Commissioner filed an order of liquidation, which the superior court approved in November 2005. based Cascade' on s alleged Statewide timely filed with the Commissioner six proofs of claim breach of the May 2004 The Commissioner denied all agreement. six claims. The superior court approved the denial and Statewide did not appeal. III. PROCEDURAL HISTORY In 2007, the Commissioner filed a claim against Statewide 941, 879 in improperly withheld premiums. and Matar to recover 4 The Commissioner moved for summary judgment in 2012. The Commissioner declared that she arrived presented at expert the $ 941, 879 accountant figure by Barbara Huang' s testimony. subtracting $ 131, 533. 13 Huang of permitted deductions from the $ 1, 073, 411. 68 that Statewide had collected from policyholders between April and presented access to analysis December 2005, according to its their own expert, complete was Jennifer Sims' financial data." unreliable because ( 1) CP s, at own production testimony. 446. Sims reports. admitted Statewide and Matar that she " did not have Nevertheless, Sims testified that Huang' s she had not taken into consideration Cascade' s 2004 4 The Commissioner also requested $ 27, 037.25 in past due payments under the 2003 settlement agreement, but he later dismissed this claim. 5 No. 44745 -2 -II withdrawal of $205, the $ 230, 000 it 893. 38 from the trust account, ( to repay in the 2003 promised 2) Statewide did not actually owe Cascade settlement agreement, ( 3) Cascade' s receivable analysis improperly allocated a negative commission to Statewide, and ( 4) that the new loss ratio provision was flawed. Sims declared that Statewide may at the most owe Cascade $ 44, 580. 55. The superior court granted summary judgment to the Commissioner on the basis that the amounts allegedly owed to Statewide could not be set off under either Statewide' s contract or receivership law. Statewide and Matar timely appealed. ANALYSIS Statewide and Matar do error. of mathematical result figure is agreed unreliable: ( 1) to pay $ 230, 000, account without not assert that the Commissioner' Rather, Statewide and Matar s assert claim four for $ 941, 879 was the reasons the $ 941, 879 the settlement agreement from December 2003, by which Statewide was unenforceable; ( crediting Statewide' s 2) Cascade withdrew $ 272, 763. 20 from the trust balance; ( 3) Cascade withdrew $205, 893. 38 from the trust account without crediting Statewide' s balance; and ( 4) Cascade changed the loss ratio formula.in May 2004 without consideration. In Statewide and Matar' s view, if we apply the proper loss ratio and we offset the aforementioned amounts against the premiums that Statewide withheld from Cascade, "[ t] he balance of the mutual debts and credits between Statewide and Cascade is no more than $ 44, 580. 55." Br. of Appellant at 25 ( citing CP at 444 -55). Furthermore, Statewide and Matar argue that the Commissioner' s calculations are unreliable because his expert, Huang, lacked personal knowledge of the accounting prior to 2004. The Commissioner argues that the credits and debts described above are irrelevant because they could not be set off against the amount Statewide withheld between April and December of 2005. The Commissioner further argues that the change to the contractual loss 6 No. 44745 -2 -II ratio is irrelevant because Statewide and Matar do not show how the new language affected the due, amount and Commissioner is receipts, under debts alleged Huang' s testimony correct both was supported by Statewide' s own reporting. The Statewide was the fiduciary of Cascade with respect to all premium statute and the terms and credits against of the agency agreement. the funds it held deduct the $ 230, 000, the $ 272, 763. 20, or as a the $ 205, 893. fiduciary. Statewide could not set off As such, Statewide could not 38 from the amount it owed to Cascade, and knowledge of prior debts and credits was not required to qualify Huang as an expert. Finally, Statewide and Matar failed to plead the loss ratio as a material issue. I. BACKGROUND: RECEIVERSHIPS AND SET -OFFS Before applying the specific controlling legal principles to the facts of this case, we provide brief background a insolvent on insurance regulation. 5 or certain statutory conditions are met, company. RCW 48. 99. 020( 1). When an insurance company becomes the Commissioner may take receivership of the The comprehensive statutory framework described in chs. 48. 31 and 48. 99 RCW controls insurance receiverships. The receiver is empowered to take control and possession of all assets and rights of action of an insurance company and to bring claims on behalf of RCW 48. 31. 040, . 060, . 131( 2). The receiver may choose to rehabilitate to liquidate it. RCW 48. 31. 040, . 050. Should the receiver opt to liquidate the the company. the company company, or no action may be commenced against the insurance company or the receiver. RCW of claim" to the receiver. RCW 48. 31. 131. Any potential 48. 31. 310. The receiver determines whether the claim is valid, subject to confirmation by the superior court. creditor must RCW 48. 31. 145. timely present a " proof[] Those claims that are valid are then paid out according to a 5 See RCW 48. 31. 030. 7 No. 44745 -2 -II defined priority statutorily - scheme. RCW 48. 31. 280. The priority classes described in the statute are strictly applied and may not be circumvented " through the use of equitable remedies." RCW 48. 31. 280. Even if a creditor does not have priority to recover from the insolvent company, it may be able to set off mutual debts used in many mutual states' debts against to be " or mutual credits" The " the balance. is its debts to the company debts to the RCW 48. 31. 290( 1) allows set off' such that the payor will only be responsible for or mutual credits" insurance creditor. See, codes. test e. g., derives from federal bankruptcy FLA. STAT. § 631. 281( 1); law6 and . N.Y. INS. LAW § 7427; CAL. INS. CODE § 1031. II. STANDARD OF REVIEW Summary judgment is proper where there is no genuine issue as to any material fact and the moving party is entitled to judgment Wn.2d 251, 261, 138 P. 3d 943 ( 2006). as a. matter of law. City of Sequim v. Malkasian, 157 If reasonable minds can differ on facts controlling the outcome of the litigation, then there is a genuine issue of material fact and summary judgment is improper. Ranger Ins. Co. v. Pierce County, 164 Wn.2d 545, 552, 192 P. 3d 886 ( 2008). We review a motion for summary judgment de novo and construe all facts and reasonable inferences in the light most favorable to the nonmoving party. Dowler v. Clover Park Sch. Dist. No. 400, 172 Wn.2d 471, 485, 258 P. 3d 676 ( 2011); 658, 663, 958 P. 2d 301 ( 1998). apparently 6 But if the issue at bar requires the weighing of " competing, competent evidence," Bankruptcy Act of 1898, ch. see also Folsom v. Burger King, 135 Wn.2d then summary judgment is improper and we will reverse and 541, § 68( a), 30 Stat. 544, 565 ( " In all cases of mutual debts or mutual credits between the estate of a bankrupt and a creditor the account shall be stated and one debt shall be set off against the other, and the balance only shall be by Bankruptcy Reform Act of 1978, Pub. L. 95 -598, 92 Stat. 2683. 8 allowed or paid. "), repealed No. 44745 -2 -II remand for a trial to resolve Larson v. Nelson, 118 Wn. App. 797, 810, 77 the factual issues. P. 3d 671 ( 2003). III. OFFSETS AND MUTUALITY Statewide and Matar argue that the Statewide was entitled to Commissioner' s claim is overstated because set off several asserted debts owed by Cascade to Statewide: $ 230, 000 that Cascade charged to Statewide' s account pursuant to an unenforceable agreement, as well as 272, 763. 20 205, 893. 38 that Cascade withdrew from the trust account without crediting and $ Statewide. The Commissioner argues that these amounts could not be set off against the amount that Statewide improperly withheld between April and December of 2005, as a matter of law. We agree with the Commissioner and affirm the superior court. RCW 48. 31. 290( 1) allows only " mutual debts or mutual credits" to be set off against an insurer in receivership. Where no Washington authority defines this phrase in the insurance insolvency context, we look to the common law of other states with similar provisions, as well as federal bankruptcy law, for Health Servs., St. John Med. Ctr. v. State ex rel. Dep' t of Social & guidance,. 110 Wn. App. 51, 60, 38 P. 3d 383 ( citing State v. Compton, 13 Wn. App. 863, 865, 538 P. 2d 861 ( 1975); Garamendi v. Exec. Life Ins. Co., 17 Cal. App. 4th 504, 515, 21 Cal. Rptr. 2d 578 ( 1993)), review denied, 146 Wn.2d 1023 ( 2002). In the same App. bankruptcy right. ' law, debts are " mutual" only if they Allied Sheet Metal Fabricators, Inc. v. are "` between the same parties and in Peoples Nat' l Bank of Wash., 10 Wn. 530, 537, 518 P. 2d 734 ( quoting 10 AM. JUR. 2D BANKS § 666 ( 1963)), review denied, 83 Wn.2d 1013, cert. denied, 419 U. S. 967 ( 1974). This means that no offset is allowed if the bankrupt and the claimant stand in different capacities to one another, such as when the debt arises from a fiduciary duty or in the nature of a 9 trust." In re Drexel Burnham Lambert Grp., No. 44745 -2 -II Inc., 113 B. R. 830, 847 ( Banks. S. D.N.Y. 1990); S. Ct. 113, 78 L. Ed. 229 ( 1933); 1960); In re see also Dakin v. Bayly, 290 U.S. 143, 146, 54 Fore Improvement Corp. v. Selig, 278 F.2d 143, 145 ( 2d Cir. Westchester Structures, Inc., 181 B. R. 730, 739 ( Bankr. S. D.N.Y. 1995); In re Mastroeni, 57 B. R. 191, 193 ( Bankr. S. D.N.Y. 1986). his beneficiary' risk against the 2d Cir. 1927), s promise he takes the assets entrusted risk of his to him. Topas denied, 274 U. S. 754. cert. v. This is because " when a trustee accepts insolvency," and the trustee cannot secure this John MacGregor Grant, Inc., 18 F. 2d 724, 726 A trustee who did so would run afoul of " the fundamental principle that a fiduciary may never deal for his own profit with the subject -matter of his trust." Morris v. Windsor Trust Co., 213 N.Y. 27, 32, 106 N.E. 753 ( 1914) ( citing Britton v. Ferrin, 171 N.Y. 235, 63 N.E. 954 ( 1902)). The same principles apply to insurance law. In most cases, an insurance agent will not be allowed to set off amounts owing to its parent insurer against premiums that it holds for the insurer in a fiduciary capacity. See, e. g., 476 -77, 154 P. 2d 377 ( 1944); Harnett N.Y.S. 2d 242 ( 1977); In N.Y. S. 2d 303 ( 1940). and F. trustee beneficiary Supp. re Garrison v. v. Edward Brown & Sons, 25 Cal. 2d 473, Nat' l Motorcycle Plan, Inc., 59 A.D.2d 870, 399 New York Title & Mortg. Co. ( Series Q -1), 260 A.D. 729, 730, 23 The courts distinguish between creditor debtor relationships on one hand relationships on the other. See Hershey v. Kennedy & Ely Ins., Inc., 294 554, 557 -58 ( S. D. Fla. 1967), aff'd, 405 F. 2d 888 ( 5th Cir. 1968); Bohlinger v. Ward & Co., 34 N.J. Super. 583, 588, 113 A.2d 38 ( 1955); United Ben. Fire Ins. Co. v. Earl, 186 Neb. 175, 178, 181 N.W.2d 841 ( 1970). This distinction is important because when an insurance agent holds premiums on behalf of its parent insurer, it holds those premiums " not ... as an offset to a debt owing but rather as a trust fund for the benefit of its insurer or, as here, the successor in interest, the liquidator." 10 No. 44745 -2 -II Bohlinger v. That is, the insurance agent is Zanger, 306 N.Y. 228, 234, 117 N.E. 2d 338 ( 1954). not a creditor of the insurer, but a curator of money that already belongs to the insurer by virtue of the fiduciary relationship. " Where a premium due to an insurance company is paid by a policy holder to an authorized agent of the company, the payment is deemed in the law to have been made to the company whether the it to the company agent remits or not." Bohlinger, 34 N.J. Super. at 591. At all times in Cascade and Statewide' s relationship, Statewide held all premiums it collected in a fiduciary capacity for the benefit of Cascade. The parties agreed from the very inception of the agency agreement that Statewide would hold all premiums in a fiduciary capacity for Cascade' Statewide] is are a the property s benefit. fiduciary CP at 79, 395 ( "[ of [ Cascade] of [ Cascade] with respect and shall be held I] t shall be conclusively presumed that to trust funds. "); CP by [ at 475 ( " All premiums Statewide], in a separate account, and in a fiduciary capacity as trustee for [ Cascade]. "). But even if these contractual provisions did not apply, Statewide was presumed a fiduciary by statute. RCW 48. 17. 480( 3) states that any insurance agent who receives funds which belong to or should be paid to another person as a result of or in connection with an insurance transaction is deemed to have the state where All funds Statewide received by operated, any person has received the funds in a fiduciary an equivalent provision. acting as a licensee under capacity." California, See CAL. INS. CODE § this chapter ... 1733 as premium or return premium on or under any policy of insurance or undertaking of bail, are received and held by that person in his or her fiduciary capacity. "). 11 No. 44745 -2 -II As Cascade' s fiduciary, Statewide was obligated to manage all premium receipts for the benefit Cascade. of Outside of deducting the commission provided for by its agency agreement, Statewide was not at liberty to dispose of the premiums for its own benefit, not even to make up for amounts that Cascade had allegedly taken from it (or failed to credit) in the past. The statute provides only one way for a party to recover amounts owed to it by an insolvent insurer: through the proof of claims amounts Cascade allegedly owed Bohlinger As v. it would " Allowing Statewide to set off the sanction a preference at the expense of other circumventing the statutory scheme for distribution of receivership policyholders and creditors," assets. RCW 48. 31. 280, . 310( 1). process. Ward & Co., 20 N.J. 331, 336, 120 A.2d 1 ( 1956). a matter of law, neither the $ 230, 000 that Cascade allegedly bullied Statewide into paying nor the $ 272, 763. 20 and $ 205, 893. 38 that Cascade allegedly withdrew and then failed to credit may be offset against the premiums that Statewide improperly withheld. These claims did not raise a genuine issue of material fact. IV. EXPERT FOUNDATION We now turn to Huang and the propriety of relying on her financial analysis. Statewide and Matar argue that the Commissioner' s expert, Huang, lacked the foundation to testify about the amount Statewide owed because she lacked personal knowledge regarding Statewide' s balances prior to 2004 or regarding the control and operation of premium trust accounts. The Commissioner argues that Huang did not need to know about Statewide' s dealings with Cascade prior to 2004 to determine how much Statewide owed as a result of its improper withholding 7 Statewide argues that some of the premium receipts were not trust funds because they were held in Cascade' a separate account. s agent as payment This argument for Cascade is not policies. capacity for Cascade. 12 well taken. The premiums were paid to By statute, they had to be held in a fiduciary No. 44745 -2 -II between April and We agree with the Commissioner and affirm the superior December 2005. court. As described above, Statewide had no right to withhold premiums in order to make up for amounts Cascade had taken from it in the past. Therefore, the dealings between the parties prior to 2004 were not relevant. The trial court has wide discretion in ruling on the admissibility of expert testimony. State v. Fagundes, 26 Wn. App. 477, 483, 614 P. 2d 198, 625 P. 2d 179, review denied, 94 Wn.2d ER 702 1014 ( 1980). permits testimony by a qualified expert where " scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue." In order to determine the amount Statewide. improperly withheld between April and December 2005, only two pieces of information were required: the amount of money Statewide collected during that time and the amount of money Statewide was entitled to hold back as both Huang had commission. pieces of information: she calculated the amount of money Statewide collected from Statewide' s own monthly production reports, and she calculated the proper amount conduct by of deductions from " the General Agency Agreement and the past course of Statewide." CP at 427. Huang' s testimony was not mere speculation, but was properly based on facts " made known to the expert" prior to the hearing. ER 703. Similarly, Statewide and Matar' s argument that Huang did not know about the control and operation of premium where about at Huang the " trust accounts testifies that 'she control of the was " not premium trust is unavailing. in charge Statewide and Matar cite to the record of premium account when it accounting" and did not know was under the control of Cascade." CP 667. As Matar himself declares, the trust account was under the exclusive control of Cascade until only 2004. Huang' s lack of knowledge about the operation of the premium trust account 13 No. 44745 -2 -II then to the time goes prior Huang' s lack of knowledge about the parties' dealings to 2004. before 2004 is not relevant to the amount Statewide owed for April through December 2005. The trial court did not abuse its discretion by admitting and relying on Huang' s testimony. V. LOSS RATIO Statewide and Matar next argue that Cascade changed the loss ratio in .its agency agreement without Statewide' s knowledge, and that applying the original loss ratio described in the January 2004 contract would have shown that Statewide owed the Commissioner less money than the Commissioner claimed. The trial court disagreed, holding that to the extent the new loss ratio affected the amounts owing for 2004, it was not relevant to the amount of Statewide' s improper withholdings between April and December 2005. The trial court' s decision is justified by the aforementioned law barring offsets by a fiduciary. Under the plain terms of Statewide and Cascade' s agreement, any adjustments based on the loss ratio were payable on demand and would not carry over between years. Statewide did not demand a loss ratio adjustment for 2004 and, in any event, could not unilaterally claim such an adjustment under either the contract or offset law. That is, the legal principle that a fiduciary cannot offset against amounts held in trust precludes the 2004 loss ratio adjustments from being a material fact on the issue of whether Statewide' s April ,hrough December 2005 withholdings were justified. t To the extent the new loss ratio affected the amounts owing for 2005, the alteration to the loss ratio provision could ratio adjustment for 2005, have been material as required by the case. But Statewide failed to demand a loss agreement. As a fiduciary of Cascade, Statewide to the was not entitled to use self - elp remedies to recoup amounts it believed it was owed under the h contract. Furthermore, as the trial court points out, Statewide' s failure to make a timely demand for its 2005 adjustment indicates that either the new loss ratio did not make a difference or 14 No. 44745 -2 -II Statewide was not diligent in reviewing the Commissioner' s demand. To date, Statewide has not offered any pleadings as to how the disputed loss ratio provision would actually affect the April through December 2005 net premiums. That is, even if the validity of the new loss ratio was an issue of fact, Statewide and Matar failed to show how it was material. We affirm. A majority of the panel having determined that only the foregoing portion of this opinion will be printed in the Washington Appellate Reports and that the remainder shall be filed for public record in accordance with RCW 2. 06. 040, it is so ordered. VI. PERSONAL LIABILITY Statewide and Matar argue that Matar is not liable for the Commissioner' s claim because his personal guarantee was obtained without consideration or, in the alternative, by fraud. The Commissioner argues that Statewide and Matar waived these arguments by failing to raise them during the summary judgment proceeding. The Commissioner is Matar unreasonably correct failed to bring the issue to the trial court' s attention. Under RAP 2. 5( a), time on appeal. v. See also appellate courts will generally not consider issues raised for the first State v. McDonald, 138 Wn.2d 680, 691, 981 P. 2d 443 ( 1999); Hoflin Ocean Shores, 121 Wn.2d 113, 130 -31, 847 P. 2d 428 ( 1993); State v. Scott, 110 Wn.2d 682, As the Commissioner points out, Matar did not raise the issue of 685, 757 P. 2d 492 ( 1988). personal liability in his pleadings on summary judgment nor at oral argument. Statewide and Matar do not dispute this, but instead argue that parts of the record pointed to the possibility of fraud or lack of consideration. Statewide and Matar argue that "[ t]he Trial Court Judge is obligated to review all of the evidence and consider all of the issues raised by the courts have even been known to make decisions based on the court' s independent evidence legal analysis even when the basis for the court' s ruling was not a basis argued for by any of the 15 No. 44745 -2 -II parties involved." issues sua sponte. Reply See, Br. e. g., of Appellant State at 10. But courts are not generally required to raise Watkins, 71 Wn. v. App. 164, 172 -73, 857 P. 2d 300 ( 1993) ( no duty to hold a competency hearing where parties do not challenge competency of witnesses at trial). an 2. 5 Matar provides no authority for his novel theory that RAP 2. 5( a) does not apply so long as issue could and shift have been the burden raised on of the developing evidence presented. legal arguments Such a rule would undermine RAP from the parties to the court. We reject Matar' s argument. Statewide and Matar also contend that Matar' s arguments concerning personal liability should not be barred because the Commissioner failed to establish facts upon which relief can be granted. akin The requirement to "' establish to the language "` failure to facts upon which relief can state a claim. "' be granted ' Roberson v. Perez, 156 Wn.2d 33, 40, 123 P. 3d 844 ( 2005) ( citing 1 WASHINGTON COURT RULES ANNOTATED RAP 2. 5 2004)). is a lenient one, cmt. ( a) at 640 ( 2d ed. The Commissioner introduced Matar' s personal guarantee of payment of the trust funds certainly, a fact upon which relief could be granted. that the Commissioner failed to state a claim. We affirm. We concur: 16 Statewide and Matar cannot show

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