Nw. Wholesale, Inc. v. Pac Organic Fruit, LLC

Washington orchardists Harold and Shirley Ostenson (collectively Ostenson) and California organic fruit broker Greg Holzman (d/b/a Greg Holzman, Inc. (GHI)) formed Pac Organic Fruit LLC (Pac-O) in 1998. The business operated from 1998 through 2004 but collapsed in 2005. During 2005, Pac-O defaulted on its operating line of credit and lease payments, Holzman fired Ostenson, and the bank foreclosed on the packing facility. Thereafter, Holzman, acting as Pac-O's agent, executed a demand promissory note in favor of GHI and transferred Pac-O' s assets to GHI to satisfy the note. In early 2007, Ostenson filed a voluntary chapter 11 bankruptcy petition. Later that year, a creditor of Pac-O, Northwest Wholesale Inc., filed this action against Pac-O, Ostenson, and GHI, alleging a fraudulent conveyance from Pac-O to GHI. Ostenson filed cross claims and/or third party claims against Pac-O, Holzman, GHI, and Total Organic LLC (another Holzman company). Ostenson claimed Holzman and his companies (collectively Holzman defendants or HDs) were as a derivative action on behalf of Pac-O. The trial court dismissed Northwest Wholesale's claims following a settlement. Thereafter, the only remaining claims were Ostenson's responsive claims against Pac-O (seven counts) and his derivative claim (count VIII) against HDs. The trial court: (1) rejected Ostenson's contention that HDs had waived a CR 41 motion by putting on evidence; (2) rejected Ostenson's contention that HDs had consented to the derivative action in the stipulation in Ostenson's bankruptcy proceeding; and (3) ruled that Ostenson relinquished membership in Pac-O with his bankruptcy filing. Ostenson moved for reconsideration, arguing for the first time that federal bankruptcy law preempted the Washington Limited Liability Company Act (WALLCA, chapter 25.15 RCW) regarding dissociation of LLC members upon filing bankruptcy. The trial court denied Ostenson's motion. Ostenson appealed, and Division Three affirmed. Upon review, the Supreme Court held that the dissociation provision found in RCW 25.15. 13 0(1)(d) was not preempted by federal bankruptcy law and affirmed the dismissal of the former LLC member's derivative claim under the facts of this case. View "Nw. Wholesale, Inc. v. Pac Organic Fruit, LLC" on Justia Law