MARVIN v. CITY BANK, 52854-8-I (Wash.App. 7-12-2004)

No. 52854-8-IThe Court of Appeals of Washington, Division One.
Filed: July 12, 2004 UNPUBLISHED OPINION

Appeal from Superior Court of Snohomish County. Docket No: 02-2-10877-4. Judgment or order under review. Date filed: 07/11/2003. Judge signing: Hon. Linda C Krese.

Counsel for Appellant(s), Marvin Behar (Appearing Pro Se), 15022 35th Avenue West Bldg., #2, Lynnwood, WA 98037.

James Jennings Jameson, Attorney at Law, 805 164th St. SE Ste 206, Mill Creek, WA 98012-6316.

Sarah Behar (Appearing Pro Se), 15022 35th Avenue West Bldg., #2, Lynnwood, WA 98037.

Counsel for Respondent(s), Karl F. Hausmann, Marsh Mundorf Pratt Sullivan et al PSC, 16504 9th Ave SE Ste 203, Mill Creek, WA 98012.

Jeffrey Emmett Pratt, Marsh Mundorf Pratt et al, 16504 9th Ave SE Ste 203, Mill Creek, WA 98012-6388.

AGID, J

Marvin Behar appeals a trial court decision granting summary judgment for City Bank. The trial court found that Behar’s claims that City Bank committed fraud and violated the Washington Consumer Protection Act (WCPA) were precluded by the doctrine of res judicata and barred by the statute of limitations. We affirm, concluding that res judicata applies because the claims here arise from the same facts, same evidence, and same transaction previously adjudicated.

FACTS
In April 1998, Marvin Behar sold Spec-Gard, a marketing company, to John Poppy for $670,000. Poppy paid Behar a $200,000 down payment, and Behar agreed to finance the remaining $470,000, taking a security interest in Spec-Gard’s equipment and inventory. The sale documents were dated April 1, 1998, and included a security agreement, an asset purchase and sale agreement, and UCC-1 financing statement. City Bank was not involved with the sale or the sale documents.

Within a few days of the sale, Poppy and his company, J.R. Marketing, borrowed $100,000 from City Bank.[1] The loan documents included a Commercial Security Agreement and a UCC-1 financing statement. The Commercial Security Agreement identified as collateral all `[i]nventory, [c]hattel [p]aper, [a]ccounts, [e]quipment and [g]eneral [i]ntangibles.’ As part of the loan, City Bank obtained from Behar a $50,000, one-year personal guaranty of Spec-Gard’s obligations to the bank. City Bank recorded its UCC-1 financing statement with the Department of Licensing (DOL) on April 7, 1998. Behar filed his UCC-1 financing statement with DOL on April 8, 1998.

Before Behar’s one-year personal guaranty expired, City Bank’s commercial loan officer contacted him to ask if he would extend his guaranty for another year. Behar refused. Noting that City Bank’s security interest had priority over all other secured creditors, City Bank extended the line-of-credit to Spec-Gard without Behar’s guaranty.

In November 2000, Poppy defaulted on his loans from Behar and City Bank. Behar sued in superior court to foreclose on Spec-Gard’s inventory and equipment. He named as defendants both Poppy and City Bank, the latter of which claimed it had priority over Behar’s secured interest. In this first lawsuit (Behar I), Behar filed a motion to determine priority interest. He asserted that his secured interest had priority over City Bank’s because (1) he had a purchase money secured interest and (2) he not only told the bank about his collateral interest in the equipment and inventory before City Bank gave Poppy the loan, which constitutes constructive notice, but the bank also agreed to take only the receivables and bank accounts as collateral for the $100,000 loan. The trial court ruled in favor of City Bank, concluding that because it perfected its interest before Behar, its interest in the inventory and equipment had priority. City Bank then foreclosed on Spec-Gard’s property.

Nearly two years after Behar I, Behar sued City Bank again (hereinafter Behar II), alleging it did not act in good faith, committed fraud, and breached the WCPA. City Bank moved for summary judgment, asserting Behar’s claims were barred by the statute of limitations and res judicata. The trial court granted City Bank’s motion. Behar appeals.

ANALYSIS I. Res Judicata
`Res judicata refers to the `preclusive effect of judgments, including the relitigation of claims and issues that were litigated, or might have been litigated, in a prior action.”[2] Res judicata applies to “every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at that time.”[3] There is no simple test to determine whether a matter should have been litigated in a prior proceeding. But in Kelly-Hansen v. Kelly-Hansen,[4] we listed several factors that a court must consider: (1) whether both proceedings arise out of the same facts, (2) whether the proceedings involve substantially the same evidence, and (3) whether the rights and interests established in the first proceeding would be impaired or destroyed by completing the second proceeding.[5] Other Washington cases provide two additional factors, including whether the parties are the same in both actions[6] and whether the two suits involve infringement of the same right.[7] There are limitations applying to res judicata. For example, `res judicata will not operate if a necessary fact was not in existence at the time of the prior proceeding,[8] or if evidence needed to establish a necessary fact would not have been admissible in the prior proceeding.’[9] And res judicata will not bar a claim that is independent and not required to be joined in the prior proceeding.[10] Whether res judicata bars an action is a question of law we review de novo.[11]

In this case, Behar argues that res judicata should not apply because the claims he asserted in the second lawsuit are not merely alternate theories of recovery but wholly different and independent claims. He also argues that he could not have brought the claims and sought damages in the first action because he could not afford to lose Spec-Gard’s existing goodwill and customer base by prolonging the proceedings. City Bank responds that because the claims could have been litigated in the first lawsuit, res judicata bars the second action. We agree with City Bank because the claims in this case satisfy each of the factors set forth in Kelly-Hansen and none of the limitations to res judicata apply here.

First, it is clear that Behar II arises out of the same facts as Behar I. The facts Behar presented in support of his motion to determine priority of security interests in Behar I are almost identical to the facts in his complaint for Behar II. Second, Behar II involves the same evidence presented in Behar I. Behar’s declaration in Behar II is almost identical to his declaration in Behar I, and the financing documents submitted as evidence are the same in both lawsuits. Third, the priority interest rights established in Behar I would be altered if Behar prevailed on his fraud and WCPA claims here. In Behar I, the trial court determined that City Bank’s interest in Spec-Gard’s inventory and equipment had priority over Behar’s interest in the collateral because City Bank perfected its interest before Behar. As a result, City Bank foreclosed on Spec-Gard’s inventory and equipment. If Behar prevailed in this second action, Behar would recover any damages he incurred when City Bank exercised its right as a priority interest holder, essentially destroying the priority interest rights established in Behar I. Fourth, Behar II involves essentially the same parties as the first lawsuit: Behar and Behar Marketing were the plaintiffs in the first lawsuit against Poppy and City Bank, and Behar and his wife are the plaintiffs in the second suit against City Bank. Finally, Behar II involves the same right as Behar I the right to take a priority interest in Spec-Gard’s inventory and equipment.

We reject Behar’s argument that res judicata does not apply because if he had brought the claims in Behar I, he risked losing any existing goodwill in the business and existing customers. Even if we accept his assertion as true, the argument is legally insufficient to prevent application of res judicata. And Behar does not show that any of the limitations to res judicata apply here. For example, there is no `necessary fact [that] was not in existence at the time of the prior proceedings.’[12] Rather, he concedes that he was aware of City Bank’s arguments and position on the priority issue before the Behar I hearing on the motion. Nor does Behar demonstrate that the evidence needed to establish a necessary fact would not have been admissible in the prior proceeding. Although the trial court concluded in Behar I that because Behar signed a notice of final agreement he could not elicit testimony about discussions he had with a City Bank representative to determine the priority issue, this evidence would have been admitted if Behar had joined his fraud and WCA claims in that lawsuit. And finally, Behar does not establish that his claims in Behar II are independent of those in Behar I. He does not cite any authority supporting his position on this issue. And, in fact, Washington cases suggest a claim is not independent when it arises from `the same facts, the same evidence, and the same transaction’ as the original claim,[13] and the right existed and could have been litigated in the original lawsuit.[14] Rather, the claims are merely different theories of recovery or alternate remedies that he could have litigated in the first cause of action.

Because the action is barred by res judicata, we need not reach the remaining issues. We affirm.

APPELWICK and COX, JJ., Concur.