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Court of Appeals Division I
State of Washington

Opinion Information Sheet

			

     IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
                                      DIVISION ONE

DAVID W. MAYERS, JR.,                       )       No. 66612-6-I
                                            )
                      Appellant,            )
                                            )
              v.                            )
                                            ) 
JOHN GRAHAME BELL; and                      )
YOUNG deNORMANDIE, P.C.,                    )       UNPUBLISHED OPINION
a Washington professional corporation, )
                                            )
                      Respondents.          )       FILED: April 16, 2012
                                            )

       Ellington, J.  --  Legal proceedings are not a shell game, and money received 

from a client by a law firm cannot be both refundable and nonrefundable.  When the 

firm of Young deNormandie and its client John Grahame Bell responded to a writ of 

garnishment by characterizing Bell's fee deposit as a "nonrefundable litigation retainer"

earned on receipt and "not subject to garnishment," they were estopped from later 

claiming the money actually belonged to Bell all along.

       We reverse summary judgment dismissing the judgment creditor's action for 

fraudulent transfer and remand for trial.

                                            FACTS

       On December 11, 2008, David Mayers obtained a $60,000 default judgment 
against John Grahame Bell for legal malpractice.1

       In January 2009, attorney John Young, a shareholder in the law firm Young  

No. 66612-6-I/2

deNormandie, P.C. (YdN), received payment for work on the Exxon Valdez litigation, 

which occurred before the formation of YdN.  John Grahame Bell had worked for Young 

on that litigation.  Young deposited the payment to YdN's trust account and set aside 

$36,795 as Bell's share of the fees.  Bell requested that Young keep the funds in the 

firm's trust account because he wanted to hire the firm to represent him in proceedings 

to set aside the Mayers default judgment.

       On January 26, 2009, YdN wrote Bell and formally agreed to represent him in 

connection with the Mayers lawsuit and in any related action Bell might wish to bring 

against Mayers and others.  The letter expressly conditioned representation upon Bell's 

payment of a $36,000 retainer against which YdN "will bill our fees as they are 

incurred," but also insisted "that the retainer be deemed earned upon receipt,"
refundable only with court approved withdrawal of representation.2  The agreement 

letter concluded "Upon receipt of a countersigned copy of this letter, we will transfer 

$36,000 of the funds that we are holding in our trust account for you to our general 
account and will immediately start to work on your case."3 The space above Bell's 

countersignature contained language expressly accepting YdN's conditions and asking 
YdN to transfer the money to the YdN "general account" as "an earned retainer."4

       Mayers learned that Bell had money in YdN's trust account.  In July 2009, he 

served a writ of garnishment.  In its answer, YdN made the following representation:

       1 According to Mayers, Judge William Downing struck Bell's answer and entered 
a default judgment as a sanction for "repeated and persistent disregard for the rules of 
the court." Br. of Appellant at 6.

       2 Clerk's Papers at 24.

       3 Id.

       4 Id.

                                               2 

No. 66612-6-I/3

              On July 23, 2009, the date Young deNormandie, P.C. received the 
       writ, Young deNormandie held $33,123.32 in its trust account as a non-
       refundable litigation retainer for the benefit of J. Grahame Bell.  Mr. Bell 
       paid these funds pursuant to a written fee agreement with Young 
       deNormandie which states that the funds were immediately earned and 
       non-refundable.  Relying upon the [Washington State Bar Association's]
       [i]nformal [o]pinions: 1610 & 1838[,] Young deNormandie believes these 
       funds are not subject to garnishment.[5]

       Bell responded to the writ in the same fashion, stating that he had accepted 

YdN's terms, had agreed to provide a nonrefundable retainer, and had instructed YdN 
to "place my retainer into its general account as earned retainer."6 He stated, "It is my 

belief that these funds are no longer mine, but the earned income of Young 

deNormandie.  These funds are not subject of the garnishment filed by Plaintiff, David 
W. Mayer."7

       Neither Bell nor YdN disclosed the language providing that the firm would "bill 

our fees as they are incurred," or that any unused fees would be refundable upon 
termination of the representation and court approval of withdrawal.8

       In response to these representations, Mayers filed this action in August alleging 

Bell and YDN violated the Uniform Fraudulent Transfer Act (UFTA), chapter 19.40 RCW.  

Mayers then released the garnishment.  The UFTA suit alleged that Bell transferred the 

funds to YdN without consideration of reasonably equivalent value and with actual intent 

to hinder, delay, or defraud Bell's creditors.

       Bell hired YdN to represent him in the UFTA lawsuit.  YdN represented itself as 

       5 Clerk's Papers at 38.  We discuss these opinions infra.

       6 Clerk's Papers at 73.

       7 Id.

       8 Clerk's Papers at 24.  There is no indication YdN or Bell provided Mayer with a 
copy of the retainer letter itself.

                                               3 

No. 66612-6-I/4

well.  Discovery disclosed that in fact, YdN never entered an appearance for Bell on the 

Mayers case and did only a small amount of work, apparently concluding there was no 

basis for a challenge to the judgment or for claims against Mayers.  For this work, the 

firm paid itself $3,672 from Bell's "retainer."  

       Notwithstanding the fee agreement and the representations in its answer to the 

writ, YdN never transferred Bell's funds to its general account, and Bell retained control 

over the funds.  On five occasions between September and December 

2009 -- subsequent to his affidavit disclaiming any interest in the money -- Bell directed 
YdN to make distributions from these funds to himself, his son, and "Monte Vista."9 The 

cumulative amount of these distributions was $20,086.

       In responding to the UFTA action, defendants reversed field.  They claimed that 

"Bell always retained ownership" of the funds and "YdN did not perform any services for 
Bell and thus never acquired an ownership interest in the funds."10 YdN stated that 

"after further research in the matter, YdN concedes that Bell's funds held in the trust 

account were subject to garnishment," and acknowledged that its prior representation 
to the contrary was "incorrect."11 The defendants thus denied that any transfer 

occurred, and now describe Mayers' release of the garnishment as "a poor tactical 
decision."12

       YdN also revealed it no longer held any funds for Bell because after the 

       9 Clerk's Papers at 132.  Bell testified he has a trailer in Monte Vista.

       10 Clerk's Papers at 13, 15.  The firm did bill Bell for services, so this is a curious 
assertion.
       11 Clerk's Papers at 17.

       12 Br. of Resp't at 17.

                                               4 

No. 66612-6-I/5

garnishment was released, "Bell used the money to pay YdN to defend him on Mayers'

fraudulent transfer claim. . . . YdN's fees in this matter have exceeded the $33,123.32 
YdN held in trust for Bell and the entire amount has been paid to YdN."13

       YdN moved for summary judgment on the UFTA claim, arguing that Mayers 

could not establish that "Bell transferred ownership of the funds or placed them outside 
the reach of his creditors."14 Mayers objected, arguing that RPC 4.1 prohibits attorneys 

from making false statements of law or fact, that his reliance on those statements was 

reasonable and appropriate, and that defendants should be estopped from abandoning 

representations upon which he reasonably relied.
       The court granted YdN's motion for summary judgment.15 Mayers appeals.  The 

usual standard for review on summary judgment applies.16

                                        DISCUSSION

                                           Transfer

       To prevail on his UFTA action, Mayers must show either that Bell transferred 

assets to YdN with actual intent to hinder Mayers' ability to collect his judgment, or that 
Bell transferred the money for less than reasonably equivalent value while insolvent.17  

       13 Clerk's Papers at 79. This representation does not account for the 
distributions of more than $20,000 to Bell, his son, and Monte Vista.
       14 Clerk's Papers at 11. YdN also argued the absence of a transfer rendered 
Mayers' complaint frivolous, and requested attorney fees.
       15 The record does not disclose the court's reasoning.

       16 This court reviews summary judgment de novo.  Vallandigham v. Clover Park 
Sch. Dist. No. 400, 154 Wn.2d 16, 26, 109 P.3d 805 (2005).  Summary judgment is 
affirmed when there is no genuine issue of material fact and the moving party is entitled 
to a judgment as a matter of law.  Id.; CR 56(c).  All facts and reasonable inferences 
are considered in the light most favorable to the nonmoving party, and summary 
judgment is appropriate only if, from all the evidence, reasonable persons could reach 
but one conclusion.  Id.
       17 RCW 19.40.041(a)(1), .051(a).

                                               5 

No. 66612-6-I/6

       Thus, the first question is whether any transfer occurred.  Defendants argued

that "[n]otwithstanding the terms of the [f]ee [a]greement, Bell actually gave YdN an 

'advance fee deposit.' Because the funds stayed in YdN's trust account, they were 
subject to garnishment and were not beyond the reach of Bell's creditors."18

       Mayers contends defendants are estopped from denying that a transfer 

occurred.  We agree.

       Equitable estoppel requires proof of "(1) an admission, statement or act 

inconsistent with a claim later asserted; (2) reasonable reliance on that admission, 

statement or act by the other party; and (3) injury to the relying party if the court permits 
the first party to contradict or repudiate the admission, statement or act."19 Equitable 

estoppel does not apply where "the representations relied upon are questions of law 
rather than questions of fact."20

                                   Inconsistent Statements

       In answer to the writ, both YdN and Bell described the fee agreement.  YdN 

stated that Bell paid "a non-refundable litigation retainer . . . pursuant to a written fee 

agreement . . . which states that the funds were immediately earned and non-
refundable."21 Bell stated he had paid a nonrefundable retainer and had directed that it 

be placed in the firm's general account.  These assertions about the agreement are 

factual.  They are also incomplete, and plainly inconsistent with the later revelation that 

       18 Br. of Resp't at 8.

       19 Dep't of Ecology v. Theodoratus, 135 Wn.2d 582, 599-600, 957 P.2d 1241 
(1998).
       20 Concerned Land Owners of Union Hill v. King County, 64 Wn. App. 768, 777-
78, 827 P.2d 1017 (1992).
       21 Clerk's Papers at 38.

                                               6 

No. 66612-6-I/7

the agreement also provided for billing against the retainer as fees are earned, which is 

a refundable advance fee deposit.

                        Legal Opinions Versus Factual Statements

       In its answer to the garnishment, YdN stated that it held funds in its trust account

"as a non-refundable litigation retainer" which was "immediately earned and non-

refundable," and that "[r]elying upon" two Washington State Bar Association (WSBA) 
advisory opinions, YdN "believes these funds are not subject to garnishment." 22 YdN 

now argues that when Mayers released the garnishment, he did so in reliance upon 

their interpretation of WSBA opinions, which is a legal matter not subject to estoppel.

       We see no merit in this argument.  Advisory Opinion 1610 simply states that 
client funds cannot be paid to client creditors without client authorization.23 It has no 

relevance here.

       Advisory Opinion 1838clarifies the difference between a nonrefundable retainer,

which is not deposited to the client trust account, and an "advance fee deposit" against 
which fees will be billed, which is deposited in trust.24

       The argument seems to be that because nonrefundable funds should not be 

       22 Clerk's Papers at 38.

       23 Washington State Bar Association, Advisory Opinion 1610: Duty to Disburse 
Client Funds to Creditors After Client Withdraws Authorization (1995) ("it would be a 
violation . . . to distribute the trust funds to the creditors over the objection of your 
clients).
       24 Washington State Bar Association, Advisory Opinion 1838: Handling 
Nonrefundable Flat Fee Payments (1998) ("If the flat fee is a retainer paid to secure the 
availability of the lawyer, the fee is considered earned at the time of receipt and is not 
deposited into the trust account.  A nonrefundable fee paid pursuant to a fee 
agreement is a retainer and that nature is negated by . . . circumstances . . . in which 
the firm would refund the fee if the client requested a refund to change lawyers after 
only a small amount of work was done on the client's behalf.  No portion of the 
nonrefundable fee should be placed in the trust account.").

                                               7 

No. 66612-6-I/8

held in trust, Mayers should have realized the retainer was refundable.  But Bell's 

sworn answer to the garnishment stated he had instructed YdN to "place my retainer 
into its general account as earned retainer."25 Which account actually held the funds 

was thus neither clear nor determinative.  Reference to the WSBA opinions did not 

convert the factual statements to statements of opinion.

       The language of the agreement is a matter of fact, not law, and Mayers'

information came from the sworn statements of YdN and Bell.  Mayers did not know 

their descriptions omitted key provisions.  There is nothing to suggest that Mayers 

"relied" on their legal opinions.

                                    Reasonable Reliance

       "Reasonableness is founded on the notion that the party claiming estoppel did 
not know the true facts and had no means of discovering them."26 Mayers had no 

reason to disbelieve sworn statements of fact made by officers of the court in legal 

proceedings.  His reliance was reasonable.

                                  Injury to the Relying Party

       Any funds Mayers might have reached through the garnishment process have 
been depleted.  Bell is otherwise insolvent,27 so Mayers has lost his opportunity to 

collect his judgment.

       The elements of estoppel are established.  Bell and YdN may not now assert 

       25 Clerk's Papers at 73.

       26 Laymon v. Dep't of Nat. Res., 99 Wn. App. 518, 527, 994 P.2d 232 (2000).

       27 Bell testified his only assets include "[t]he trailer in Monte Vista, the car, a few 
computers, a bunch of books, three television sets, just household goods.  I own no 
real estate.  I have no bank accounts.  I have no other assets; didn't then, don't now.  I 
did have an expectancy, which was, of course, as you well know, some funds that 
would be forthcoming from the Exxon Valdez litigation." Clerk's Papers at 130.

                                               8 

No. 66612-6-I/9

there was no transfer of the funds from Bell to YdN.

                                      Evidence of Fraud

       The UFTA recognizes both constructively fraudulent transfers and those entered 

into with actual intent to hinder, delay, or defraud creditors.  Mayers alleges both 

theories.  A plaintiff must demonstrate intent to defraud by "clear and satisfactory proof"
and constructive fraud by "substantial evidence."28 The question is whether the 

evidence raises questions of fact precluding summary judgment.

       YdN and Bell first contend that "a fraudulent transfer does not occur unless the 
asset is placed beyond the creditor's reach."29 On its surface this is just another 

argument that no transfer occurred.  Bell and YdN are estopped from taking this 

position.

       Further, "[t]he key to deciding if property was placed beyond the creditor's reach 
is whether the creditor was harmed by the fraudulent conveyance."30 The sworn 

statements of Bell and YdN effectively put the funds out of Mayer's reach.

                                         Actual Intent

       As to intent to hinder, delay or defraud a creditor, the UFTA enumerates several 

nonexclusive factors, the so-called "badges of fraud," which include whether the debtor 

retained control of the property after the transfer, whether the transfer was of 

substantially all the debtor's assets, and whether the debtor was then insolvent or 

       28 Clearwater v. Skyline Const. Co., Inc., 67 Wn. App. 305, 321, 835 P.2d 257 
(1992).
       29 Br. of Resp't at 13 (quoting Deyon Mgmt., Ltd v. Previs, 47 Wn. App. 341, 347, 
735 P.2d 79 (1987)).
       30 Deyong Mgmt., 47 Wn. App. at 350.

                                               9 

No. 66612-6-I/10

became so shortly thereafter.31

       Based on the badges of fraud, the record establishes that Bell's intent is a 
question of fact.  Bell retained control of the property;32 the true nature of the transfer 

was misdescribed in court documents; the transfer occurred just weeks after Mayers 
obtained a $60,000 judgment against Bell;33 the transfer constituted all of Bell's liquid 

assets;34 and Bell was insolvent at the time of the transfer.35 Further, Bell ostensibly 

paid YdN $36,000 to look into ways to avoid the Mayers judgment , a task for which 

YdN actually billed only $3,672, strongly suggesting that Bell did not receive 
consideration of reasonably equivalent value at the time of the transfer.36

       Numerous questions of fact exist about Bell's intent, and summary judgment was 
improper.37

       31 These "badges of fraud" include:  "(1) The transfer or obligation was to an 
insider; (2) The debtor retained possession or control of the property transferred after 
the transfer; (3) The transfer or obligation was disclosed or concealed; (4) Before the 
transfer was made or obligation was incurred, the debtor had been sued or threatened 
with suit; (5) The transfer was of substantially all the debtor's assets; (6) The debtor 
absconded; (7) The debtor removed or concealed assets; (8) The value of the 
consideration received by the debtor was reasonably equivalent to the value of the 
asset transferred or the amount of the obligation incurred; (9) The debtor was insolvent 
or became insolvent shortly after the transfer was made or the obligation was incurred; 
(10) The transfer occurred shortly before or shortly after a substantial debt was 
incurred; and (11) The debtor transferred the essential assets of the business to a 
lienor who transferred the assets to an insider of the debtor." RCW 19.40.041(b).
       32 See RCW 19.40.041(b)(2).

       33 See RCW 19.40.041(b)(4), (10).

       34 See RCW 19.40.041(b)(5).

       35 See RCW 19.40.041(b)(9).

       36 See RCW 19.40.041(b)(8).  

       37 See Sedwick v. Gwinn, 73 Wn. App. 879, 887, 873 P.2d 528 (1994) ("in cases 
where the debtor denies that his or her intent was to defraud, the issue cannot be 
conclusively determined by the trier of fact until it has heard the testimony and 
assessed the witnesses' credibility"); S.H.C. v. Sheng-Yen Lu, 113 Wn. App. 511, 517, 
54 P.3d 174 (2002) (factual issues may be decided on summary judgment "when 
reasonable minds could reach but one conclusion regarding the material facts").

                                              10 

No. 66612-6-I/11

                                     Constructive Fraud

       Constructively fraudulent transfers are those in which the debtor does not 

receive a "reasonably equivalent value" in exchange and the debtor was insolvent at 
the time of the transfer or became insolvent as a result of the transfer,38 or under other 

circumstances not relevant here.39 It is undisputed that Bell was insolvent at the time of 

the transaction, so here the question is whether he received consideration of 

reasonably equivalent value for the $36,000 transfer.

       The UFTA provides:

       Value is given for a transfer or an obligation if, in exchange for the 
       transfer or obligation, property is transferred or an antecedent debt is 
       secured or satisfied, but value does not include an unperformed promise 
       made otherwise than in the ordinary course of the promisor's business to 
       furnish support to the debtor or another person.[40]

       Bell and YdN contend their fee agreement constitutes an unperformed promise 

made in the ordinary course of the promisor's business to furnish support to Bell.  

Again, given the scope of work for which Bell engaged YdN, i.e., to "have prepared for 
me paperwork that would have that judgment cancelled,"41 it is far from clear that Bell 

received consideration of reasonably equivalent value, especially given that Bell did 

not hire YdN until after the time for any appeal had expired.

       Mayers also argues there was no consideration of reasonably equivalent value 

       38 RCW 19.40.051(a).

       39 Under RCW 19.40.041(a)(2), constructive fraudulent transfers also occur 
when the debtor makes a transfer without receiving a reasonably equivalent value and 
(1) the debtor engages or is about to engage in a transaction for which his or her 
remaining assets are unreasonably small, or (2) the debtor intended to incur or should 
have believed that he or she would incur, debts beyond his or her ability to pay as they 
became due.
       40 RCW 19.40.031(a).

       41 Clerk's Papers at 134.

                                              11 

No. 66612-6-I/12

because YdN's efforts to "cancel" the judgment had no conceivable utility to the 

creditor, Mayers.  "'Value' is to be determined in light of the purpose of the [a]ct to 

protect a debtor's estate from being depleted to the prejudice of the debtor's unsecured 

creditors.  Consideration having no utility from a creditor's viewpoint does not satisfy 
the statutory definition."42

       YdN and Bell argue that the "viewpoint of the creditor" is that of any creditor, 

rather than Mayers alone.  "Under Mayers's theory, Bell's payments to other creditors 
(e.g., landlord, grocery store, utility company) would be fraudulent transfers."43

       Bell and YdN provide no authority for this proposition, which effectively prefers 

creditors at the debtor's whim.  The only authority of which we are aware is directly to 

the contrary.  In Clearwater v. Skyline Construction Co., Inc., the president of a 

corporation conveyed company-owned real property to herself while anticipating a 
judgment against the company that it would be unable to pay.44 The president gave no 

consideration for the property, but argued there was reasonably equivalent value in her 
repayment of the promissory note held by her lender.45 This court held that because 

repayment of the note "benefited [the debtor's] lender, but was of no benefit to the 

[UFTA plaintiff] . . . [it] did not constitute adequate consideration under the UFTA as a 
matter of law."46

       Whether Bell made a constructively fraudulent transfer is also a question of fact.

       42 Clearwater v. Skyline Const. Co. , 67 Wn. App. 305, 322-23, 835 P.2d 257 
(1992) (quoting Uniform Fraudulent Transfer Act, § 3 comment, 7A U.L.A. 650 (1984)).
       43 Br. of Resp't at 6.

       44 67 Wn. App. 305, 322, 835 P.2d 257 (1992).

       45 Id.

       46 Id. at 323.

                                              12 

No. 66612-6-I/13

       Summary judgment was not appropriate.  We hold that as a matter of law 

defendants are estopped from denying that a transfer occurred, and we reverse and 

remand for trial.

WE CONCUR:

                                              13