Pacific 5000, L.l.c., V. Kitsap Bank

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NOTICE: SLIP OPINION (not the court’s final written decision)

June 7, 2022

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

Respondent,

Respondents,

MAXA, J. – Pacific 5000, LLC (Pacific) appeals the trial court’s dismissal of its lawsuit

against Kitsap Bank and James Davis under CR 12(b)(6) and the imposition of CR 11 sanctions

based on a finding that the lawsuit was baseless.

In its complaint filed in 2020, Pacific alleged that Kitsap Bank’s predecessor, Fife

Commercial Bank (FCB), and Davis, FCB’s president, conspired with Carl Haglund to engineer

a complicated scheme that forced Pacific to sell commercial property Pacific owned for below its

market value. Pacific asserted claims for violation of the Consumer Protection Act (CPA),

chapter 19.86 RCW, and conspiracy in restraint of trade.

Pacific previously had filed a lawsuit against Haglund, asserting various causes of action

including CPA violations and conspiracy in restraint of trade. In 2017, Pacific obtained a

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judgment against Haglund for $313,447, which was the equity that Pacific had in the subject

property in May 2015 when Haglund’s malfeasance began. That amount was trebled to

$940,341 under the statutory trespass statute and under the CPA provision prohibiting a

conspiracy in restraint of trade. Haglund subsequently satisfied the judgment.

The trial court in the Haglund lawsuit found that Pacific’s property was worth $575,000

on May 2015. But in November 2018 the property sold for $1,075,000. Pacific now seeks to

recover from Kitsap Bank and Davis the property’s appreciation in value above the $313,447

previously recovered.

We hold that (1) the judgment in the Haglund lawsuit and Haglund’s satisfaction of that

judgment precludes Pacific from claiming additional damages from Kitsap Bank and Davis

based on postjudgment appreciation of property value, and (2) Pacific cannot recover the same

treble damages from Kitsap Bank and Davis that it already recovered from Haglund. However,

we hold that the trial court erred in imposing CR 11 sanctions against Pacific because Pacific’s

claims were not baseless.

Accordingly, we affirm the trial court’s dismissal of Pacific’s complaint against Kitsap

Bank and Davis, but we reverse the trial court’s imposition of CR 11 sanctions against Pacific.

FACTS

Background

Because this case was dismissed under CR 12(b)(6), the background facts are recited as

alleged in Pacific’s complaint. Most of the same facts are contained in the findings of fact

entered in the Haglund lawsuit, which was incorporated by reference and attached as an exhibit

to the complaint.

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In 2002, Pacific owned an 11-unit apartment building in Tacoma. To finance the

building, Pacific took out a loan with FCB that was secured by a deed of trust against the

property. Pacific’s owner and manager, George Humphrey, personally guaranteed the loan.

In 2012, Pacific had to remove its tenants and renovate after a break-in occurred. After

repairs were done, Pacific chose not to re-lease the building pending further developments.

Pacific continued to make its monthly payments against the loan during and after repairs. By

June 2015, the total balance on the loan was $232,476.64.

In May 2015, FCB entered into an agreement with Kitsap Bank in which FCB would be

acquired through a merger. Davis, FCB’s president, had millions of dollars riding on a

successful merger. Because of the merger, FCB was anxious to get any nonconforming loans off

its books, which included Pacific’s non-income producing property. Davis contacted another

FCB borrower, Haglund, about acquiring the bank’s note and deed of trust.

On May 20, Haglund entered the property without permission from Humphrey,

ostensibly as part of his due diligence before acquiring the note and deed of trust. When FCB

learned of the trespass, it implicitly encouraged Haglund to trespass again at his own risk.

Haglund trespassed on the property a second time during the week of May 25. He

sabotaged the building’s electrical system by cutting holes in the ceiling of each room and

severing electrical conduits and by damaging several electrical panels. He also cut holes in the

dry wall between apartment units so he could gain access to other units and commit widespread

damage. Even though FCB was aware that Haglund had entered the property a second time, it

did not inform Humphrey of Haglund’s trespass.

On June 3, Haglund entered into an agreement with FCB to acquire Pacific’s note and

deed of trust for $232,476.64. Haglund made a payment of $50,000 and FCB financed the rest

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of the transaction. And FCB retained power to collect on the note and to foreclose on the deed of

trust. Davis informed Humphrey that FCB had sold the note to Haglund, but he did not tell him

that FCB remained a secured party.

After acquiring the note, Haglund met with Humphrey to discuss his interest in buying

the building. Humphrey offered to sell the property in exchange for a cash payment of $70,000,

assumption of tax liability, and satisfaction of the existing debt even though the building was

worth substantially more.

Haglund arranged a walkthrough of the building with Humphrey. At this time Humphrey

discovered the damage done to his electrical system and walls, and Haglund acted surprised at

the damage. Haglund used this damage to negotiate the price down by $20,000. The parties

orally agreed on a deal for Pacific to sell the property for $50,000, assumption of tax liability,

and satisfaction of the existing debt, and Humphrey agreed to give Haglund immediate

possession.

Humphrey and Haglund interacted with each other consistent with an agreement in place

and Humphrey stopped making payments on the loan. In September, Haglund told Humphrey he

was having second thoughts and was facing pressure from FCB to get the loan paid off. But this

was untrue, and FCB said nothing to correct the misrepresentation. For two months, Haglund

attempted to back out of the deal. Haglund impliedly threatened to put the property into

foreclosure.

In January 2016, Haglund issued a notice of default, the first step leading to a foreclosure.

A notice of foreclosure and a notice of trustee’s sale were issued in February, scheduling the

trustee’s sale for May.

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Before the scheduled trustee sale, Haglund attempted to convince a prospective buyer not

to bid and then offered the prospective buyer consideration if he would not bid. At the scheduled

trustee sale, several prospective bidders appeared. Haglund disparaged the condition the

property and actively discouraged people from bidding. He also falsely stated that there was

litigation pending against the property. Davis and FCB’s legal counsel were present and

witnessed Haglund’s comments without stopping him. Haglund then postponed the trustee’s sale

over the objections of a bidder.

In the aftermath of the foreclosure process, in June 2016 Pacific sold the property to an

investor named Daniel Dickinson under business compulsion. Davis and FCB participated in

this coerced transaction, even though they were aware of the chilled bidding process that caused

the coercion.

Haglund Lawsuit

In April 2016, Pacific had filed a lawsuit against Haglund. After a bench trial, the trial

court found Haglund liable under multiple theories, including statutory trespass, violation of the

CPA, and conspiracy in the restraint of trade.

The trial court found nine different unfair and deceptive practices in which Haglund

violated the CPA. The court also found there was a conspiracy in restraint of trade between

Haglund and FCB based on FCB’s conduct throughout this process.

The trial court heard considerable evidence on the value of the property. The court found

that the value of the property was $575,000 in June 2015 and $650,000 in May 2016. The court

determined that the measure of damages was Pacific’s loss of its equity in the property because

of Haglund’s conduct. The court found that Pacific’s equity as of May 2015, when the first act

of malfeasance occurred, was $313,447.21.

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The trial court decided that Pacific was entitled to treble damages both under the statutory

trespass statute, RCW 4.24.630, and because of Haglund’s conspiracy in restraint of trade under

RCW 19.86.090. The court awarded treble damages in the amount of $940,341.63. The trial

court also awarded Pacific its attorney fees and costs.

In March 2018, Pacific’s attorney filed a satisfaction of judgment, stating that Haglund

had fully paid the amount of the judgment entered against him.

In November 2018, Dickinson sold the property he had purchased from Pacific for

$1,075,000.

Kitsap Bank/Davis Lawsuit

In 2020, Pacific filed a lawsuit against Kitsap Bank (as successor to FCB) and Davis.

The substantive allegations in the complaint mostly tracked the trial court’s findings of fact and

conclusions of law in the Haglund lawsuit. The complaint alleged causes of action for violation

of the CPA based on multiple unfair and deceptive acts and conspiracy in restraint of trade.

Pacific sought treble damages under RCW 19.86.090 for the restraint of claim trade.

Kitsap Bank and Davis filed a motion to dismiss under CR 12(b)(6) and for CR 11

sanctions. They argued that Pacific already had obtained full recovery for any damages through

Haglund’s satisfaction of judgment in the prior lawsuit and could not receive double recovery.

Regarding CR 11, Kitsap Bank and Davis claimed that Pacific’s complaint had no legal or

factual basis because the law was clear that a plaintiff could not obtain double recovery for the

same injury.

In opposition, Pacific argued that based on the November 2018 sale, its actual loss of

equity was over $840,000. This amount was far more than the $313,447 in compensatory

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damages awarded in the Haglund lawsuit, and Pacific claimed that the law allowed recovery of

the additional amounts from Kitsap Bank and Davis.

The trial court granted Kitsap Bank and Davis’s motion to dismiss Pacific’s complaint.

The court also concluded that the complaint violated CR 11, and ordered both Pacific and

Pacific’s attorney to pay Kitsap Bank and Davis’s attorney fees.

Pacific appeals the trial court’s CR 12(b)(6) dismissal of its complaint and the imposition

of CR 11 sanctions.

ANALYSIS

A. CR 12(b)(6) STANDARD

We review de novo a trial court’s ruling on a CR 12(b)(6) motion to dismiss. Wash.

Trucking Ass’ns v. Emp’t Sec. Dep’t, 188 Wn.2d 198, 207, 393 P.3d 761 (2017). Dismissal is

appropriate where it appears beyond doubt that a plaintiff will be unable to prove any set of facts

that would justify recovery. Id. We assume the truth of the allegations in the plaintiff’s

complaint and may consider hypothetical facts not included in the record. Id.

Under CR 12(b)(6), the trial court generally can consider only the allegations contained

in the complaint and cannot look beyond the face of the pleadings. Jackson v. Quality Loan

Serv. Corp., 186 Wn. App. 838, 844, 347 P.3d 487 (2015). However, a trial court can consider

certain types of outside information on a CR 12(b)(6) motion, including: (1) documents

specifically referenced in the complaint; and (2) through judicial notice, public documents if

their authenticity cannot reasonably be disputed. Id.

Here, we rely on the allegations in Pacific’s complaint and the attached trial court’s

findings of fact and conclusions of law, which the complaint expressly incorporated. And the

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satisfaction of judgment and the documents showing the November 2018 sale of the property are

public documents whose authenticity cannot reasonably be disputed.

B. RECOVERY OF DAMAGES ABOVE SATISFIED JUDGMENT AGAINST JOINT TORTFEASOR

Pacific argues that even though it obtained a judgment against Haglund and that

judgment has been satisfied, it can maintain an action against Kitsap Bank and Davis to recover

additional damages that could not have been claimed in the Haglund lawsuit. We disagree.

1. Legal Principles

The fact that an injured party has obtained a money judgment against one tortfeasor does

not preclude that party from maintaining an action against a separate tortfeasor. Babcock v.

State, 116 Wn.2d 596, 621, 809 P.2d 143 (1991); Marshall v. Estate of Chapman, 31 Wn.2d 137,

146, 195 P.2d 656 (1948). “A judgment against one person liable for a loss does not terminate a

claim that the injured party may have against another person who may be liable therefor.”

RESTATEMENT (SECOND) OF JUDGMENTS § 49 (AM. LAW INST. 1982).

However, one liable person’s payment of some or all of the judgment amount eliminates

any other person’s liability for the amount paid. RESTATEMENT (SECOND) OF JUDGMENTS

§ 50(2); RESTATEMENT (SECOND) OF TORTS § 885(3) (AM. LAW INST. 1979). The Restatement

(Second) of Judgments § 50(2) states, “Any consideration received by the judgment creditor in

payment of the judgment debtor’s obligation discharges, to the extent of the amount of value

received, the liability to the judgment creditor of all other persons liable for the loss.” In other

words, “[a] payment by one person liable for a loss reduces pro tanto the amount that the injured

person is entitled to receive from other persons liable for the loss.” Id., cmt. c.

These Restatement rules are consistent with the “one satisfaction” rule applied by

Washington courts. Marshall, 31 Wn.2d at 146; Larson v. Hodge, 100 Wash. 419, 424, 171 P.

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251 (1918). The rules also are consistent with the basic principle of tort damages that there can

be no double recovery for the same injury. Eagle Point Condo. Owners Ass’n. v. Coy, 102 Wn.

App. 697, 702, 9 P.3d 898 (2000).

2. Analysis

Here, Pacific obtained a judgment against Haglund for compensatory damages in the

amount of $313,447. And Haglund paid that judgment amount in full. Therefore, under the

general rules stated above, Pacific has no claim against Kitsap Bank and Davis for the

compensatory damages awarded in the Haglund lawsuit. Pacific does not argue otherwise,

agreeing that Kitsap Bank and Davis would be entitled to an offset for the amount of the

Haglund judgment.

Instead, Pacific argues that it can maintain an action against Kitsap Bank and Davis

because the Haglund judgment did not encompass all of its damages and therefore did not

provide full compensation for its loss. The Haglund judgment amount was based on the property

value in May 2015 of $575,000. But the property sold in November 2018 for $1,075,000, which

represented its true market value at that time. Pacific claims that it is entitled to recover

additional lost appreciation damages based on the 2018 market value, which could not have been

claimed in the Haglund lawsuit.

However, under the Restatement (Second) of Judgments, a party is precluded from

obtaining a judgment for damages in an action against one tortfeasor, having that judgment

satisfied, and then attempting to recover additional damages in an action against a second

tortfeasor. Comment d to § 50 states,

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(Emphasis added.) Comment a to § 49 contains the same rule: “[A] claimant may not relitigate

issues determined adversely to him in a prior action against another adversary, including issues

relating to the damage he has sustained. See § 29.”

We agree with and adopt these statements. By litigating its claim against Haglund to

judgment, Pacific established the ceiling for the amount of its damages. And because Pacific

could not recover more than that judgment amount, satisfaction of the judgment necessarily

extinguished its claim against all other tortfeasors.

Section 29 of the Restatement (Second) of Judgments, the section referenced in comment

d to § 50 and comment a to § 49, states, “A party precluded from relitigating an issue with an

opposing party . . . is also precluded from doing so with another person.” This provision is based

on the principle of collateral estoppel, which generally precludes a party from relitigating an

issue when a prior adjudication of that issue ended in a final judgment. See Weaver v. City of

Everett, 194 Wn.2d 464, 473-74, 450 P.3d 177 (2019). Section 29 reflects “offensive” or

“nonmutual” collateral estoppel, where a person who was a not a party to the prior adjudication

can apply collateral estoppel. Washington law similarly allows a nonparty to the prior litigation

to rely on collateral estoppel. Hadley v. Maxwell, 144 Wn.2d 306, 311, 27 P.3d 600 (2001); see

also State v. Mullin-Coston, 152 Wn.2d 107, 113-14, 95 P.3d 321 (2004).

Pacific does not dispute that it would be precluded by collateral estoppel from relitigating

the issue of damages with Haglund. Therefore, under the language of § 29, Pacific also is

precluded from relitigating the issue of damages with Kitsap Bank and Davis.

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Pacific suggests that it can recover additional damages because the trial court in the

Haglund lawsuit awarded damages based solely on trespass. Pacific references comment c to

§ 50, which states that “[i]f the losses recoverable against two obligors are not the same, the

payment from the first does not discharge the obligation of the other.” The implication is that the

trial court’s trespass damages are different than the damages Pacific now is claiming under the

CPA and for restraint of trade. However, there is no question that the trial court awarded

damages for Haglund’s CPA violations and restraint of trade in addition to trespass. And the

court trebled Pacific’s damages under the CPA as well as under the trespass statute.

Similarly, Pacific suggests that appreciation damages it now claims were not incorporated

into the trial court’s damages award in the Haglund lawsuit. But the court did award

appreciation damages, which it referred to as the loss of equity. Pacific notes that the damages

award was based on the property’s value in May 2015, and its current claim is based on the

property’s value in November 2018. But the type of damages is the same. The only difference

between what the trial court awarded and what Pacific now claims is the different market values

of the property at different times.

Finally, Pacific argues in supplemental briefing that application of collateral estoppel

principles is inappropriate here because its recovery of the appreciation damages it now claims

was not actually or necessarily decided in the Haglund lawsuit. See Schibel v. Eymann, 189

Wn.2d 93, 99, 399 P.3d 1129 (2017) (“Collateral estoppel precludes only those issues that were

actually litigated and necessary to the final determination in the earlier proceeding.”) But

Pacific’s focus is too narrow. There is no question that the total amount of Pacific’s damages

caused by the conduct of Haglund, Kitsap Bank, and Davis was actually decided in the Haglund

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litigation. The trial court’s damages determination is binding on Pacific, and precludes Pacific

from attempting to recover additional damages from Haglund or from any other liable entity.1

We hold that Pacific cannot maintain an action against Kitsap Bank and Davis to recover

compensatory damages above the amount the trial court awarded in the Haglund lawsuit.

C. RECOVERY OF TREBLE DAMAGES AWARDED AGAINST JOINT TORTFEASOR

Pacific argues that even if it could not recover additional compensatory damages, it was

entitled to recover the amount of treble damages awarded in the Haglund lawsuit if it could prove

that Kitsap Bank and Davis violated the CPA. We disagree.

It is undisputed that Haglund has fully satisfied the treble damages the trial court awarded

in the Haglund lawsuit. The one satisfaction rule directly applies to preclude Pacific from

recovering that same amount from Kitsap Bank and Davis. Marshall, 31 Wn.2d at 146;

RESTATEMENT (SECOND) OF JUDGMENTS § 50(2).

However, Pacific argues that we should follow cases in other jurisdictions and adopt an

exception to the one satisfaction rule for punitive damages. Pacific claims that treble damages

authorized under the CPA are akin to punitive damages.

The language of the CPA does not support such an exception. RCW 19.86.090 states that

if a person proves a CPA violation, “the court may, in its discretion, increase the award of

damages up to an amount not to exceed three times the actual damages sustained.” The statute

allows the court to increase the plaintiff’s damage award, not to impose a punitive assessment

against one or more defendants. Nothing in this language suggests that a CPA plaintiff can

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recover the same treble damages from multiple tortfeasors. And allowing multiple recoveries

would mean that the amount of the award would exceed three times the actual damages

sustained, contrary to the statutory limitation.

In addition, no Washington case has adopted the exception to the one satisfaction rule

that Pacific proposes. Pacific cites Fife Portal, LLC v. CenturyLink, Inc., No. 52415-5-II, slip

op. at 13 (Wash. Ct. App. Aug. 11, 2020) (unpublished),

https://www.courts.wa.gov/opinions/pdf/D2 52415-5-II Unpublished Opinion.pdf, review

denied, 196 Wn.2d 1043 (2021), for the proposition that this court impliedly recognized the

punitive damages exception to the one satisfaction rule. But in Fife Portal, this court merely

declined to consider the plaintiff’s argument that the one satisfaction rule did not apply to treble

damages because the defendant could not be held liable for treble damages. Id. The court did

not imply that the plaintiff’s argument had merit.

Pacific relies on cases in other jurisdictions that allow recovery of the same punitive

damages from multiple tortfeasors. However, unlike other states, Washington prohibits punitive

damages as a matter of public policy unless expressly allowed by statute. Dailey v. N. Coast Life

Ins. Co., 129 Wn.2d 572, 574-75, 919 P.2d 589 (1996). Therefore, Washington public policy

favors a narrow rather than an expansive interpretation of the RCW 19.86.090 treble damages

provision.

We hold that Pacific cannot maintain an action against Kitsap Bank and Davis for the

treble damages the trial court awarded in the Haglund lawsuit.

D. IMPOSITION OF CR 11 SANCTIONS

Pacific argues that the trial court erred in imposing CR 11 sanctions. We agree.

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Under CR 11, a trial court can sanction a party and/or the party’s attorney if, among other

things, a pleading is not “warranted by existing law or a good faith argument for the extension,

modification, or reversal or existing law or the establishment of new law.” As reflected in the

rule, a complaint is not baseless if it is warranted by existing law or reflects a good faith

argument for extending or changing the law. Jones v. A.M., 13 Wn. App. 2d 760, 767-68, 466

P.3d 1107 (2020).

Here, Pacific’s complaint was not baseless or frivolous. Although we have adopted and

applied provisions of the Restatement (Second) of Judgments that foreclose Pacific’s claim for

additional damages, no prior Washington cases have addressed these provisions. And no

Washington court has addressed whether a plaintiff can recover the same treble damages

awarded against one tortfeasor from a different joint tortfeasor. Pacific’s positions on both

issues represented a good faith argument for changing the law in this specific factual context.

Therefore, we hold that the trial court abused its discretion in imposing CR 11 sanctions.

CONCLUSION

We affirm the trial court’s CR 12(b)(6) dismissal of Pacific’s complaint against Kitsap

Bank and Davis, but we reverse the trial court’s imposition of CR 11 sanctions.

Pacific 5000, L.l.c., V. Kitsap Bank

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

FACTS

ANALYSIS

B. RECOVERY OF DAMAGES ABOVE SATISFIED JUDGMENT AGAINST JOINT TORTFEASOR

C. RECOVERY OF TREBLE DAMAGES AWARDED AGAINST JOINT TORTFEASOR

D. IMPOSITION OF CR 11 SANCTIONS

CONCLUSION

GLASGOW, C.J.

VELJACIC, J.