* Tang Real Estate Investments, Appellant's V. Escrow Service's Of Washington Et Al Respondents

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IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
TANG REAL ESTATE INVESTMENTS,
CORP.,
Appellant,
v.
ESCROW SERVICES OF WASHINGTON,
a Washington limited liability company;
AURORA LYNN RIVERA, individually; and
the marital community of AURORA LYNN
REVERA and JOHN DOE, KIAVI
FUNDING, INC., a Delaware limited
liability company; SELECT PORTFOLIO
SERVICING, INC., a Utah corporation;
and CITIBANK, N.A. a subsidiary of
CITIGROUP, INC. as trustee of COLT
2022-2 TRUST, a Delaware corporation,
Respondents.
No. 84620-5-I
DIVISION ONE
PUBLISHED OPINION
FELDMAN, J. — Tang Real Estate Investments (Tang) appeals the dismissal
of its claims against Kiavi Funding Inc. (Kiavi), Newrez LLC d/b/a Shellpoint
Mortgage Servicing (Newrez), Select Portfolio Servicing, Inc. (Select Portfolio),
and Citibank, N.A., as trustee of the Colt-2022-2 Trust (Citibank), each of which
was 	involved—as 	a 	lender, 	assignee, 	or 	loan 	servicer—in 	two 	refinancing
transactions wherein the designated escrow agent absconded with the escrow
funds before all of the escrow conditions were satisfied. The trial court dismissed
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Tang’s claims against these entities because it concluded that Tang bore the risk
of loss at the time of the escrow agent’s defalcation of the escrow funds. Because
the trial court failed to correctly apply controlling case law, we reverse.
I
Tang assigns error to the trial court’s dismissal of its claims against Kiavi,
Newrez, Select Portfolio, and Citibank under CR 12(b)(6). The following statement
of facts therefore accepts as true the allegations of the complaint. 	See, e.g.,
Gorman v. City of Woodinville, 160 Wn. App. 759, 762, 249 P.3d 1040 (2011).1
We confine our discussion of the facts to matters alleged in the complaint, even
though the parties’ appellate briefing provided more detailed descriptions of the
transactions at issue.
Tang is a real estate development company primarily doing business in King
County and Snohomish County. At issue here are refinancing transactions for two
of Tang’s properties: one at 8329 44th Avenue South in Seattle and the other at
3226 102nd Place Southeast in Everett. 	Tang had preexisting loans for these
properties from Level Capital (a party not involved in this appeal) and Kiavi,
respectively.
Tang attempted to refinance both of these preexisting loans with new loans
from Kiavi. 	For both transactions, Escrow Services of Washington (ESW) was
selected for closing and escrow services including the “facilitation, holding, and
exchange of funds and documents.” Especially relevant here, ESW “was to make
1 For purposes of this appeal, the operative complaint is Tang’s First Amended Complaint
for Breach of Contract, Professional Negligence, Violations of the Washington Consumer
Protection Act, Chapter 19.86 RCW, and Declaratory Judgment, which is referred to herein as the
“complaint.”
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all necessary payments to satisfy all existing liens” as a condition precedent to
closing on the new loans with Kiavi. 	Tang’s complaint further alleges that ESW
“did not complete and failed to follow the detailed closing instructions of Kiavi
regarding the 8329 44th Avenue South loan and the 3226 102nd Place SE loan.”
Instead, according to the complaint, “Upon information and belief, [Aurora Lynn
Rivera (Rivera), ESW’s sole escrow agent,] has utilized the funds held in trust with
[ESW] for her personal benefit and interest.”
After Rivera and ESW failed to follow the closing and escrow instructions,
the note on one property and the loan servicing operations for both loans were
transferred. 	For the 8329 44th Avenue South loan, Kiavi transferred the loan
servicing operations to Newrez, which then transferred the operations to Select
Portfolio. 	Tang further alleges that Select Portfolio provides loan servicing
operations for this loan for Citibank, which is “the current owner of the note.” For
the 3226 102nd Place SE loan, Kiavi transferred the loan servicing operations to
Newrez. 	Newrez, Select Portfolio, and Citibank are referred to herein as the
“successor financial respondents.”
Tang initially sued only ESW and Rivera. It then amended its complaint to
add claims against Kiavi, Newrez, Select Portfolio, and Citibank. 	The complaint
alleges claims against these four parties for breach of contract, professional
negligence, and declaratory relief. 	Each of these claims is premised on the
assertion that Kiavi and the successor financial respondents—and not Tang—bore
the risk of loss of the escrow funds at the time Rivera absconded with the funds.
Kiavi and the successor financial respondents filed motions to dismiss
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Tang’s claims under CR 12(b)(6). 	A central thrust of these motions is that Tang
bore the risk of loss of the escrow funds at the time Rivera absconded with the
funds because, among other reasons, Tang selected ESW to provide escrow
services. The trial court agreed with Kiavi and the successor financial respondents
that Tang’s claims against them were “legally insufficient” and granted their
motions to dismiss. 	Tang filed a motion for reconsideration, which the trial court
denied. This timely appeal followed.2
II
Preliminarily, we address the proper scope of review. 	This analysis is
required here because the trial court’s order granting Kiavi’s and the successor
financial respondents’ motions to dismiss is not designated in or attached to the
notice of appeal in accordance with RAP 5.3(a). 	Instead, Tang designated and
attached the trial court’s subsequent order denying its motion for reconsideration
Nonetheless, we may properly review the trial court’s dismissal order under RAP
2.4(b), which states:
The appellate court will review a trial court order or ruling not
designated in the notice, including an appealable order, if (1) the
order or ruling prejudicially affects the decision designated in the
notice, and (2) the order is entered, or the ruling is made, before the
appellate court accepts review.
2 The trial court did not dismiss Tang’s claims against ESW and Rivera, neither of which
filed a motion seeking such relief. 	Rivera subsequently filed a petition for voluntary chapter 7
bankruptcy in the United States Bankruptcy Court for the Western District of Washington, which
automatically stays Tang’s claims against Rivera. It is unclear whether this stay also extends to
ESW, at least to the extent that ESW may be responsible for Rivera’s malfeasance. In any event,
the trial court’s dismissal order did not resolve all claims against all parties. Because the trial court
had not entered the necessary findings and conclusions to enter a final judgment under CR 54(b)
and RAP 2.2(d), Tang’s notice of appeal was treated as a notice of discretionary review, which our
commissioner granted.
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Given the similarity between Tang’s arguments in response to the motions to
dismiss and its arguments in its motion for reconsideration, the “prejudicially
affects” requirement is satisfied here. 	We may therefore review the trial court’s
dismissal order under RAP 2.4(b).
The trial court dismissed Tang’s claims under CR 12(b)(6). 	“Dismissal
under CR 12(b)(6) is appropriate in those cases where the plaintiff cannot prove
any set of facts consistent with the complaint that would entitle the plaintiff to relief.”
Jackson v. Quality Loan Service Corp., 186 Wn. App. 838, 843, 347 P.3d 487
(2015). “The plaintiff’s allegations and any reasonable inferences are accepted as
true.” Gorman, 160 Wn. App. at 762. However, the complaint’s legal conclusions
are not required to be accepted as true. 	Jackson, 186 Wn. App. at 843 (quoting
Gorman v. Garlock, 155 Wn.2d 198, 215, 118 P.3d 311 (2005)). 	“If a plaintiff’s
claim remains legally insufficient even under his or her proffered hypothetical facts,
dismissal pursuant to CR 12(b)(6) is appropriate.” Id. at 843-44. This court reviews
an order granting a motion to dismiss under CR 12(b)(6) de novo. Id. at 843.
Where, as here, escrow funds are embezzled prior to the closing of the
escrow, the controlling legal principles are set forth in a trio of cases: Lechner v.
Halling, 35 Wn.2d 903, 216 P.2d 179 (1950), Lieb v. Webster, 30 Wn.2d 43, 190
P.2d 701 (1948), and Angell v. Ingram, 35 Wn.2d 582, 213 P.2d 944 (1950). Our
Supreme Court aptly summarized those legal principles in Lechner:
[T]he rule to be applied in this type of case was laid down by this
court in Lieb v. Webster, 30 Wash.2d 43, 190 P.2d 701. It was
recently reiterated in Angell v. Ingram, Wash., 213 P.2d 944. In those
cases, we held that, when an escrow agent absconds with money he
is holding in his capacity as depositary, the loss must fall upon the
person as whose agent he is holding the money at the time. Both
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cases turned chiefly upon the circumstance that, in each of them, the
terms of the escrow instructions given by the purchasers to the
depositary 	had 	not 	been 	complied 	with 	at 	the 	time 	the 	latter
absconded with the funds he was holding. Applying the rule, as
above stated, we held that he was still holding the money as the
agent of the purchasers, and that, as between them and the sellers,
they, the purchasers, must stand the loss.
Lechner, 35 Wn.2d at 909-10. Although our Supreme Court decided these cases
several decades ago, they remain good law.
The trial court here failed to properly apply Lechner, Lieb, and Angell when
it granted Kiavi’s motion to dismiss. In its complaint, Tang alleged that ESW “failed
to 	satisfy 	Kiavi’s 	detailed 	prerequisites 	for 	closing,” 	“failed 	to 	satisfy 	other
necessary conditions precedent,” “did not complete and failed to follow the detailed
closing instructions of Kiavi regarding the 8329 44th Avenue South loan and the
3226 102nd Place SE loan,” and other similar allegations. Given these allegations,
which we accept as true for purposes of deciding whether the trial court erred in
granting Kiavi’s motion to dismiss, ESW had not yet completed the applicable
escrow instructions—which included satisfying the preexisting loans—and was
therefore holding the escrow funds as an agent of Kiavi at the time Rivera
absconded with the funds. It necessarily follows, under Lechner, Lieb, and Angell,
that Kiavi must bear the risk of loss. The trial court thus erred in dismissing Tang’s
claims against Kiavi.
The trial court also erred in dismissing Tang’s claims against the successor
financial respondents. Our Supreme Court’s opinion in Dahlhjelm Garages, Inc. v.
Mercantile Ins. Co. of America, 149 Wash. 184, 270 P. 434 (1928), is controlling
on this point. 	The court in Dahlhjelm held that where an assignee of a contract
exacts and accepts payments under the contract, they thereby “assume[] the
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corresponding 	duty 	to 	perform 	the 	conditions 	the 	contract 	imposed 	as 	a
consideration for their payment.” 	Id. at 190. 	Here, according to the complaint,
Citibank is “the current owner of the note” for the 8329 44th Avenue South property
and Newrez and Select Portfolio are responsible for loan servicing operations for
one or both of the properties. 	It can therefore be hypothesized—as CR 12(b)(6)
permits—that the successor financial respondents accepted payments under the
new loans relating to the two properties and thereby assumed the risk of loss of
the escrow funds under Lechner, Lieb, and Angell.3
Notwithstanding the above analysis, Kiavi argues—and the trial court
agreed that Lechner, Lieb, and Angell “are distinguishable because they involve
conventional, two-party escrow transactions involving buyers and sellers of real
property. Here . . . there is only one party to the escrow transaction—[Tang], who
sought to refinance its prior mortgage loans.” 	The fatal flaw in this argument is
that Lechner, Lieb, and Angell do not distinguish between buyers and sellers, on
the one hand, and borrowers and lenders, on the other. Instead, the rule set forth
in Lechner, Lieb, and Angell is properly applied to financial transactions involving
3 Though it was suggested at oral argument that Tang did not assert such hypothetical
facts below (Tang Real Estate Investments v. Escrow Services of Washington, et ano, No. 84620-
5-I (March 12, 2024), at 15 min., 13 sec. through 16 min., 50 sec.), our case law clearly holds that
in determining whether a trial court erred in granting a motion to dismiss under CR 12(b)(6) “a court
may consider a hypothetical situation asserted by the complaining party, not part of the formal
record, including facts alleged for the first time on appellate review of a dismissal under the rule.”
Bravo v. Dolsen Companies, 125 Wn.2d 745, 750, 888 P.2d 147 (1995). Our Supreme Court has
explained that “Neither prejudice nor unfairness is deemed to flow from this rule, because the
inquiry on a CR 12(b)(6) motion is whether any facts which would support a valid claim can be
conceived.” 	Id. 	Similarly, while it is conceivable that the applicable assignment and servicing
contracts could potentially preclude assignee liability under Dahlhjelm, those contracts are not part
of the trial court record and we must therefore accept as true Tang’s allegations and “proffered
hypothetical facts” that the successor financial respondents accepted payments under the new
loans relating to the two properties and could, therefore, be subject to liability, along with Tang, for
the loss of escrow funds under Lechner, Lieb, and Angell. 	These allegations and proffered
hypothetical facts, as noted, are sufficient to preclude dismissal under CR 12(b)(6).
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two innocent parties where an escrow agent embezzles funds in “those unfortunate
cases in which one party or the other must sustain a heavy loss by reason of their
misplaced confidence in a third party.” 	Lieb, 30 Wn.2d at 50. 	In Schrock v.
Gillingham 36 Wn.2d 419, 421, 219 P.2d 92 (1950), which involved similar
circumstances, our Supreme Court likewise recognized that the purchaser there
was liable “not because he was the purchaser but because he had executed
escrow instructions directing the third party not to deliver the money to the seller
until certain conditions had been performed by the seller.” The Supreme Court’s
analysis in these cases is broad enough to encompass the refinancing transactions
at issue here.
Nor is there any compelling reason to treat the refinancing transactions at
issue here differently from the transactions at issue in Lechner, Lieb, and Angell
where, in all such cases, an escrow agent embezzles funds prior to closing. Thus,
in Ward Cook, Inc. v. Davenport, 243 Or. 301, 308-09, 413 P.2d 387 (1966), the
Oregon Supreme Court remarked: 	“This case is different from any cited by the
parties or that we have been able to find in that in addition to a buyer and seller of
property, a lender of money was a party to the escrow. We assume, however, that
the basic principles above stated apply.” Significantly, neither Kiavi nor Tang has
cited a case to the contrary, so we may properly assume that no such case exists.
See Seattle Bulk Shipping, Inc. v. Dep’t of Labor & Indus., 25 Wn. App. 2d 762,
778, 524 P.3d 733 (2023) (“Where no authorities are cited in support of a
proposition, we are not required to search out authorities but may assume that
counsel, after a diligent search, has found none.”). For these reasons, we reject
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Kiavi’s and the successor financial respondents’ argument that Lechner, Lieb, and
Angell are not controlling here.
Next, Kiavi and the successor financial respondents argue that Tang must
bear the risk of loss because it selected ESW and entrusted it with the escrow
funds, which enabled it to perpetrate the wrong at issue. 	Angell is controlling on
this point. 	In Angell, Ingram agreed to purchase Angell’s residence, and Angell
then hired Webster, an escrow agent, to facilitate the sale of the property. 	35
Wn.2d at 586. Although Angell selected and retained Webster, our Supreme Court
held that the risk of loss rested with Ingram because Webster held the escrow
funds as Ingram’s agent when he absconded with the money. Id. at 586. As Angell
confirms, Tang’s selection of ESW to provide escrow services for the refinancing
transactions at issue here is immaterial to our analysis.4
Lastly, because we hold the trial court erred in granting the motions to
dismiss, we need not address Tang’s further argument that the trial court abused
its discretion when it dismissed Tang’s claims without granting leave to amend the
complaint to add claims for unjust enrichment and contract rescission. 	See Alim
v. City of Seattle, 14 Wn. App. 2d 838, 844, n.3, 474 P.3d 589 (2020) (“Because
we reverse the trial court’s order dismissing this action, we do not reach these
4 Newrez additionally argues that it “should not bear any liability for the Escrow Defendants’
defalcation/absconding of the escrow funds because its role is too attenuated.” The current record,
consisting solely of the complaint, does not support Newrez’s argument. Nor is there any allegation
or reason to conclude that Tang “knew of, consented to, or approved of” ESW’s and/or Rivera’s
malfeasance, which would preclude application of the legal principle set forth in Lechner, Lieb, and
Angell. See Angell, 35 Wn.2d at 586. Here too, we express no opinion as to whether these or any
other arguments might succeed if and when supported by admissible evidence in subsequent
motion practice or at trial.
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issues and leave it to the parties and the trial court to address any properly noted
motion to amend the complaint.”).
Reversed.
WE CONCUR:
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