Pac. 5000, L.L.C. v. Kitsap Bank
| Decision Date | 07 June 2022 |
| Docket Number | 55558-1-II |
| Citation | 511 P.3d 139 |
| Parties | PACIFIC 5000, L.L.C., a Washington Limited Liability Company; and Pacific 5000 LLC, a Washington Limited Liability Company; Respondent, v. KITSAP BANK, A Washington Bank Corporation; James Leon Davis, a.k.a. Jim Davis and Jane Doe Davis, husband and wife, and the marital community comprised thereof, Respondents |
| Court | Washington Court of Appeals |
Michael Barr King, Rory Drew Cosgrove, Carney Badley Spellman PS, 701 5th Ave. Ste. 3600, Seattle, WA, 98104-7010, Bradley S. Wolf, Bauman & Wolf, PLLC, P.O. Box 2095, Tacoma, WA, 98401-2095, for Appellant.
John Tony John, Carolyn Amanda Mount, Jesus Miguel Palomares, Brian William Esler, Miller Nash LLP, 2801 Alaskan Way Ste. 300, Seattle, WA, 98121-1128, for Respondent.
PUBLISHED OPINION
¶1 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.
¶2 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.
¶3 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 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.
¶4 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.
¶5 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.
¶6 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.
¶7 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.
¶8 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.
¶9 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.
¶10 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.
¶11 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.
¶12 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.
¶13 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 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.
¶14 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.
¶15 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.
¶16 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.
¶17 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.
¶18 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.
¶19 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.
¶20 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.
¶21 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.
¶22 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.
¶23 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.
¶24 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.
¶25 In November 2018, Dickinson sold the property he had purchased from Pacific for $1,075,000.
¶26 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.
¶27 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...
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