CHARPENTIER v. R R RESORT, INC., 20613-1-III (Wash.App. 6-18-2002)

No. 20613-1-III.The Court of Appeals of Washington, Division Three. Panel Six.
Filed: June 18, 2002. DO NOT CITE. SEE RAP 10.4(h). UNPUBLISHED OPINION.

Appeal from Superior Court of Kittitas County, No. 012002298, Hon. Michael E. Cooper, October 16, 2001, Judgment or order under review.

Counsel for Appellant(s), Janet A. Irons, Attorney At Law, 2122 112th Ave NE, Suite A300, Bellevue, WA 98004.

Counsel for Respondent(s), Gary E. Lofland, Lofland Associates, 9 North 11th Ave., Yakima, WA 98902.

JOHN A. SCHULTHEIS, J.

Beverly Charpentier filed suit against R R Resort, Inc. for hostile work environment and related claims. R R is actually a limited liability company (LLC). After the running of the statute of limitations, R R moved to dismiss for failure to name the proper parties and Ms. Charpentier moved to amend the complaint. Finding that Ms. Charpentier had actual knowledge that R R was an LLC and that the mistake was not one of excusable neglect, the trial court granted the motion to dismiss and imposed sanctions for filing a frivolous lawsuit.

On appeal, Ms. Charpentier contends the trial court abused its discretion in denying her motion to amend the complaint. Specifically, she contends her mistake was not due to inexcusable neglect and that even a finding of inexcusable neglect does not mandate denial of a motion to amend. Because we find that the mistake was inexcusable and that the trial court had discretion to consider inexcusable mistake as a basis for denying the motion to amend the complaint, we affirm.

Facts
Ms. Charpentier was employed by R R from May 1997 through July 1998. On November 15, 1999, she filed a lawsuit naming `BEST R R RESORT, formerly known as R R RESORT, a Washington partnership composed of DOUG HUGHES, BILL HUGHES, DOUG RICH and ROGER HILES’ as defendants. Clerk’s Papers (CP) at 35, 83. In the complaint she alleged injury due to a hostile work environment, intentional or negligent infliction of emotional distress, and constructive termination. Later that month, R
R’s counsel, Gary Lofland, wrote to Ms. Charpentier’s counsel, Janet Irons, and informed her the suit named the wrong party. He explained that R R was an LLC, not a partnership, and he offered to accept service of an amended complaint. Ms. Irons did not respond and did not amend the complaint. Consequently, Mr. Lofland filed a CR 12 motion to dismiss for failure to name the correct party.[1] Ms. Irons did not respond to the motion and did not attend the hearing. On January 10, 2000, the trial court dismissed the suit without prejudice and awarded R R attorney fees and costs. The order of dismissal, which explained that R R is an LLC, was served on Ms. Irons at that time.

Nearly 18 months later, on June 15, 2001, Ms. Irons again filed a lawsuit on behalf of Ms. Charpentier against R R. In the new complaint, R R was alleged to be a Washington corporation and all but one of the other defendants were named as officers and directors of the corporation. Other than the change in the description of the defendants, the new complaint was essentially identical to the first complaint. Mr. Lofland filed a notice of appearance on July 5 on behalf of `R and R Resorts LLC.’ CP at 6. Although the notation on the upper left-hand corner of the notice indicates that a copy was sent to Ms. Irons by mail, she claims she did not receive it until months later. R R filed an answer on July 12 denying the allegations of the paragraphs naming R R as a corporation and the other defendants as officers and directors.

The statute of limitations for Ms. Charpentier’s lawsuit passed in late July 2001. RCW 4.16.080 (three-year limitation on general tort claims). On August 1, R R moved to dismiss for failure to name the proper parties. A week later, Ms. Irons faxed a proposed amended complaint to Mr. Lofland, but he refused to stipulate to the amendment. On August 10, she filed a memorandum in support of a motion to amend the complaint. After argument on both motions, the trial court denied the motion to amend and granted R R’s motion to dismiss. Ms. Charpentier’s motion for reconsideration was also denied. R R then moved for attorney fees and costs for defending against a frivolous lawsuit. Finding that Ms. Charpentier’s lawsuit was not well grounded in law or fact and that there was no showing of excusable neglect, the trial court declared the lawsuit frivolous and awarded attorney fees and costs to R R as a sanction. This appeal followed.

Inexcusable Neglect
Ms. Charpentier first challenges the trial court’s denial of her motion to amend the complaint. She contends the trial court abused its discretion when it applied the inexcusable neglect standard to a proposed amendment that only corrected the identity of the defendants already named. She also asserts that she gave good reason for her mistake and that the mistake did not prejudice R R.

Under CR 15(a), a party may amend a pleading once at any time before a responsive pleading is served; thereafter, a pleading may be amended only by leave of the court or by written consent from the adverse party. Leave to amend must be freely given `when justice so requires,’ CR 15(a), unless the amendment would result in prejudice to the nonmoving party. Kirkham v. Smith, 106 Wn. App. 177, 181, 23 P.3d 10 (2001). The trial court’s decision on a CR 15 motion will not be disturbed absent a clear showing of abuse of discretion. Wilson v. Horsley, 137 Wn.2d 500, 505, 974 P.2d 316 (1999). In determining whether an amendment would cause prejudice, the court should consider undue delay, unfair surprise, the introduction of remote issues, and possible jury confusion. Id. at 505-06; Kirkham, 106 Wn. App. at 181.

Although unstated in the record, the trial court probably did not dismiss Ms. Charpentier’s motion to amend the pleading on the basis of CR 15(a). Ms. Charpentier moved to amend her complaint after R R had filed an answer and had refused to consent to an amended complaint. R R did not argue that it was prejudiced by the proposed amendment, and clearly there would be no prejudice. The defendants had been served with the complaint and knew or should have known that Ms. Charpentier’s reference to R R as a corporation was a mistake. More likely, the trial court granted R R’s motion to dismiss because Ms. Charpentier’s proposed amendment of the pleading was untimely.

Because Ms. Charpentier’s motion was filed after the statute of limitations had run, any amended pleading would be untimely unless it related back to the date of the original pleading. CR 15(c). An amendment changing or adding a party will relate back if (1) the claim asserted in the amended pleading arose out of the conduct, transaction, or occurrence set out in the original pleading; (2) within the statute of limitations, the party added in the amendment received notice of the action and will not be prejudiced in maintaining a defense; and (3) within the statute of limitations, the party added knew or should have known that, but for a mistake, the action would have been brought against him or her. CR 15(c). Washington courts have added another requirement when a plaintiff attempts to add a defendant by amendment: `the moving party must also show that its failure to name the party was by excusable neglect.’ Bunko v. City of Puyallup Civil Serv. Comm’n, 95 Wn. App. 495, 500, 975 P.2d 1055 (1999) (citing Haberman v. Wash. Pub. Power Supply Sys., 109 Wn.2d 107, 174, 744 P.2d 1032, 750 P.2d 254 (1987)).

In Ms. Charpentier’s case, the amendment arose out of the same occurrence set forth in the original pleading, and the parties knew that, but for a mistake, they would have been named as members of R R Resort, a limited liability company. Clearly she satisfied the initial requirements of CR 15(c). Craig v. Ludy, 95 Wn. App. 715, 976 P.2d 1248
(1999).

The critical question is whether inexcusable neglect will bar relation back of an amendment that only changes the capacity or corrects the names of the defendants. Ms. Charpentier’s proposed amendment did not add a party, but merely attempted to correct a misnaming of the parties already served. In similar cases, most courts stress that amendments involving misnomers or changes in the capacity of the defendants should be liberally allowed `where justice requires.’ DeSantis v. Angelo Merlino Sons, Inc., 71 Wn.2d 222, 224, 427 P.2d 728 (1967) (amendment to change the name of the defendant from a proprietorship to a corporation). See also Ingram v. Kumar, 585 F.2d 566, 570-71 (2d Cir. 1978) (amendment based on a misnomer should be allowed if the defendants knew about the claim and that the plaintiff intended to assert it against them); Rylewicz v. Beaton Services, Ltd., 698 F. Supp. 1391, 1399
(N.D.Ill. 1988) (relation back generally allowed to correct a misnomer, e.g., when a partnership is erroneously sued as a corporation), aff’d, 888 F.2d 1175 (7th Cir. 1989); Beal v. City of Seattle, 134 Wn.2d 769, 783, 954 P.2d 237 (1998) (change in the description of the plaintiff); Craig, 95 Wn. App. at 719 (an amendment that merely changes the capacity of a party will relate back).

The purpose of CR 15(c) is to allow amendment of the pleadings provided the defendant has notice and is not prejudiced. Beal, 134 Wn.2d at 782. In Beal, a CR 17(a) case involving a proposed change in the capacity of the plaintiff,[2] the guardian ad litem for three children whose mother had been killed filed suit alleging he was the personal representative of the mother’s estate. He was not actually appointed personal representative until after the running of the statute of limitations. His motion to amend the complaint under CR 17(a) initially was granted and later denied because the failure to name the proper party as plaintiff was not an honest or understandable mistake (the standard under CR 17(a)). Id. at 775-76, 781. The Supreme Court reversed, applying the standards of CR 15(c) and holding that `[a]pplication of the `inexcusable neglect’ or `honest mistake’ standard to a change in representative capacity undermines the goals, as well as the literal language of the rules.’ Id. at 783. See also Hill v. Shelander, 924 F.2d 1370, 1376 n. 4 (7th Cir. 1991) (quoting 6 Wright and Miller, Federal Practice and Procedure § 1498, at 514: “An amendment by which plaintiff seeks to change the capacity in which defendant is being sued does not change the parties before the court and will relate back”).[3]

Generally, Washington courts have applied inexcusable neglect as a bar to CR 15(c) amendments only in those cases where the plaintiff seeks to join additional defendants. See Nepstad v. Beasley, 77 Wn. App. 459, 467, 892 P.2d 110 (1995). Nepstad notes in dicta that when a plaintiff seeks a substitution to correct the mistaken identity of the defendant, inexcusable neglect should not work as an absolute bar to amendment. Id. at 467-68. However, because the decision to grant or deny a CR 15(c) motion to amend is discretionary, the court may consider inexcusable neglect as an appropriate factor in such a case. Id. at 468.

Inexcusable neglect is found when there is no reason in the record for the initial failure to name the party. Haberman, 109 Wn.2d at 174. `If the parties are apparent, or are ascertainable upon reasonable investigation, the failure to name them will be held to be inexcusable.’ Id. Usually the neglect is charged to the party’s lawyer, who is responsible for researching and identifying all the parties and with verifying information that is available as a matter of public record. Nepstad, 77 Wn. App. at 467. The trial court here indicated in its findings and conclusions to support the order for sanctions that Ms. Charpentier and her attorney knew or should have known R R’s correct identity. Consequently, the court concluded, the failure to amend before the running of the statute of limitations was not excusable neglect. The record supports this conclusion.

During the first lawsuit, Mr. Lofland, R R’s counsel, informed Ms. Irons, Ms. Charpentier’s counsel, that R R was an LLC. He offered to accept service of an amended complaint at that time, but Ms. Irons never responded. She also did not respond to his motion to dismiss that first lawsuit, a motion that clearly indicated LLC was an LLC, not a partnership.

The order dismissing the first lawsuit states: `There is no partnership called R R Resorts; R R Resorts is a[n] LLC which has not been properly named or served.’ CP at 41. This order was sent to Ms. Irons. Apparently she received the order, because she knew to refile the complaint 18 months later, this time naming R R as a corporation. In its answer to this new complaint, R R generally denied the allegations in the paragraphs that referred to R R as a corporation and to the other defendants as officers and directors. Clearly substantial evidence supports a finding that Ms. Irons and Ms. Charpentier had notice that R
R was an LLC.

In explanation of her mistake, Ms. Irons asserts that her files on the first lawsuit were moved to an off-site storage space as inactive because Ms. Charpentier took an extended period to decide whether to pursue a second lawsuit. Consequently, Ms. Irons states, she did not have access to the documents showing R R is an LLC. On the contrary, Ms. Irons had access to these files but chose not to access them. Instead, she visited the Washington Secretary of State Corporations Division internet site to determine R R’s registered agent. Although it is confusing that R R’s registration information is contained in the state’s online corporations database, which refers to R R’s `State of Incorporation’ and `Date of Incorporation,’ the site also lists R R as `R R Resorts, L.L.C.’ CP at 26. Under `Category,’ the site indicates R R is a `limited liability regular.’ CP at 26. If Ms. Irons had researched the meaning of `LLC,’ she should have found chapter 25.15 RCW, which sets forth the specifications for limited liability companies. Instead, she assumed LLC meant limited liability corporation, and proceeded from there. Considering the notice she received in the first lawsuit, the information she obtained in her database search, and the availability of chapter 25.15 RCW, Ms. Irons had no justification for assuming R R was a corporation.

The failure to name R R as an LLC was inexcusable neglect. Because inexcusable neglect is a factor that may be considered in a CR 15(c) motion to dismiss, we cannot say that the trial court’s discretion was exercised on untenable grounds. Nepstad, 77 Wn. App. at 468. Accordingly, the trial court’s dismissal of the lawsuit did not constitute abuse of discretion and is affirmed.

Sanctions
Ms. Charpentier next contends the trial court erred in awarding R R attorney fees and costs based on CR 11 (sanctions if a pleading is not well grounded in fact and law) and RCW 4.84.185 (sanctions for filing a frivolous lawsuit). She asserts that her claims are not frivolous and that sanctions are not appropriate when a party is merely misidentified in good faith.

A trial court’s grant or denial of attorney fees under CR 11 or RCW 4.84.185 is reviewed for abuse of discretion. State ex rel. Quick-Ruben v. Verharen, 136 Wn.2d 888, 903, 969 P.2d 64 (1998); Kearney v. Kearney, 95 Wn. App. 405, 416, 974 P.2d 872 (1999). CR 11 permits a court to award attorney fees and costs against the litigant who acts in bad faith by filing pleadings for an improper purpose or by filing pleadings that are not grounded in fact or warranted by law. Wood v. Battle Ground Sch. Dist., 107 Wn. App. 550, 574, 27 P.3d 1208 (2001). Due to the potential chilling effect of CR 11 sanctions, the trial court must conclude that the pleadings clearly have no chance of success. Id. (citing In re Cooke, 93 Wn. App. 526, 529, 969 P.2d 127 (1999)). Similarly, fees are available under RCW 4.84.185 when an action is advanced without cause and can be deemed frivolous. Kearney, 95 Wn. App. at 416. A claim is frivolous when it cannot be supported by any rational argument on the facts or in the law. Smith v. Okanogan County, 100 Wn. App. 7, 24, 994 P.2d 857 (2000).

As the trial court found, Ms. Charpentier’s complaint was not grounded in fact because it did not properly identify the defendants.[4]
Whatever the merit of her allegations against R R under the law, her claims had no chance for success when she failed to take reasonable steps to assure she properly named the defendants. This court does not endorse automatic imposition of sanctions whenever a complaint is dismissed under CR 15(c). However, in this case the evidence that Ms. Charpentier had actual knowledge that R R was an LLC, and also made an insufficient effort to confirm its identity, supports the trial court’s decision to impose fees and costs under both CR 11 and RCW 4.84.185.

Attorney Fees on Appeal
Although attorney fees and costs were properly awarded by the trial court, they are not appropriate on appeal. RAP 18.9 allows this court to award compensatory damages when a party files a frivolous appeal. Kearney, 95 Wn. App. at 417. An appeal is frivolous when it presents no debatable issues and is so devoid of merit that there is no reasonable possibility of reversal. Id. However, an appeal is not frivolous just because all the appellant’s arguments are rejected. Goad v. Hambridge, 85 Wn. App. 98, 105, 931 P.2d 200 (1997). In determining whether an appeal is devoid of merit, we examine the record as a whole and resolve any doubts in favor of the appellant. Streater v. White, 26 Wn. App. 430, 434-35, 613 P.2d 187 (1980).

Ms. Charpentier’s appeal, while ultimately unsuccessful, raises at least one issue of merit: the role of the inexcusable neglect standard in deciding CR 15(c) issues involving the misnaming of a party. On the strength of that issue, we find that her appeal is not devoid of merit and deny R R’s request for attorney fees. Ms. Charpentier’s motion for attorney fees `for having presented this appeal to the Court’ is obviously without merit because it is unsupported by law or fact. Appellant’s Br. at 28.

Affirmed.

A majority of the panel has determined that this opinion will not be printed in the Washington Appellate Reports but it will be filed for public record pursuant to RCW 2.06.040.

WE CONCUR: SWEENEY, J. KURTZ, J.