Opinion
Nos. 57437-0-I; 56104-9-I.
September 22, 2008.
Appeals from a judgment of the Superior Court for King County, No. 05-2-08876-1, Brian D. Gain, J., entered December 2, 2005.
UNPUBLISHED OPINION
This case involves the failure of a business venture and the ensuing litigation among four investors of Funsters Grand Casino, Inc., to recover financial losses. They challenge a number of trial court rulings. First, Kingen and Switzer assign error to the trial court's summary judgment dismissal of their contribution and indemnity claims against Merlino and Harkey for unpaid taxes and employee wages. Second, Harkey assigns error to the trial court's failure to reform a contract involving his personal guarantee on a bank loan. Third, Kingen assigns error to the judgment entered against him in favor of Merlino involving a stock pledge under a settlement agreement. Fourth, Harkey assigns error to the trial court's denial of his requests for joinder in Merlino's unjust enrichment and misrepresentation claims against Kingen. Fifth, Harkey assigns error to the trial court's summary judgment dismissal of his unjust enrichment and misrepresentation claims against Kingen based on res judicata. Because the basis for the trial court's summary judgment dismissal of Kingen and Switzer's contribution and indemnity claims is unclear, we remand to the trial court to address these claims. As to the remaining contentions, we find no error and affirm.
The investors are Gerald and Kathryn Kingen (Kingen), Scott and Sheri Switzer (Switzer), Paul and Cheryl Merlino (Merlino), and Jimmy and Brigitte Harkey (Harkey).
BACKGROUND
In 1998, Kingen and Switzer formed "Life's A Gamble, LLC" (LAG) for the purpose of acquiring a casino. In 2000, they purchased Charlie Mac's, a cardroom north of Sea-Tac airport. They planned to close Charlie Mac's for major renovations and reopen under a new name — Funsters Grand Casino. In May 2000, LAG agreed to purchase 49 percent of the shares of Club Zeus, Ltd. (the operator of Charlie Mac's), along with an option to purchase the remaining 51 percent.
A third owner, Scott Doll, left the business prior to the litigation.
Kingen estimated that the total cost to purchase and renovate the business would be $4.5 million. At Kingen's request, Merlino agreed to invest in LAG. In October 2000, Kingen, Switzer, and Merlino obtained a $3.5 million loan from Asia Europe Americas Bank (AEA Bank). The three investors personally guaranteed the AEA Bank loan. They also invested a total of $1 million in capital. At that point, Kingen owned 45 percent of LAG, Merlino owned 45 percent, and Switzer owned 10 percent.
In October 2000, the renovations began. But by March 2001, the investors realized that they needed an additional $2 million to complete the renovations. Kingen and Switzer prepared a business plan in an effort to attract $1 million to $1.5 million of new capital. Harkey learned about the proposal and, in April 2001, agreed to invest $1.25 million in exchange for a 31 percent interest in the business. In June 2001, Kingen, Switzer, Merlino, and Harkey borrowed an additional $1 million from AEA Bank. The personal guarantee for this loan, which was signed by all four investors, included the preexisting $3.5 million AEA Bank loan that Kingen, Switzer, and Merlino obtained before Harkey became an investor.
When it was time to close on the purchase of Club Zeus stock, Kingen and Switzer learned that LAG could not purchase Club Zeus stock without invalidating Club Zeus's subchapter S status and losing its gambling license. Accordingly, the four LAG members purchased the stock of Club Zeus and changed its name to "Funsters Grand Casinos, Inc." They signed a written agreement providing that the distribution of Funsters stock was given in exchange for the members' assumption of debt obligations to AEA Bank.
Prior to opening, Kingen and Switzer formed "Life's A Gamble Management, LLC" (LAG Management) and through it entered into a management agreement with Funsters. This comprehensive agreement provided that LAG Management would develop, manage, maintain, and operate all aspects of Funsters' operations. In exchange, Funsters would pay a management fee to LAG Management.
Funsters opened in August 2001. But it quickly became insolvent despite substantial cash and loan contributions by its four investors. In addition, a dispute over approximately $1.3 million in unpaid invoices arose in late 2001 involving Funsters, its general contractor Duren Hewitt, and Duren Hewitt's subcontractors. The Duren Hewitt debt was not personally guaranteed by any of the investors; rather, it was a debt of Funsters. Duren Hewitt sued Funsters in early 2002, and AEA Bank threatened to "call" its $4.5 million loans and proceed individually against the investors on their personal guarantees if the lawsuit was not promptly resolved.
Consequently, on April 25, 2002, Kingen settled with Duren Hewitt. LAG agreed to pay a total of $819,079 in exchange for Duren Hewitt's agreement to dismiss its claims and negotiate a reduction of amounts owed to its subcontractors. The agreement also required that the payments be made in two installments — an initial payment of $500,000 to be made within seven days and a deferred payment of $319,079 to be made within sixty days. To secure the deferred payment, the agreement required that within seven days, Kingen would deliver to an escrow holder 40,000 shares of his stock in Red Robin, Inc., and a stipulated judgment against himself in the amount of $319,079. The agreement further provided that if LAG/Funsters failed to make the second payment or if Red Robin did not conduct an initial public offering of its stock within 60 days, Duren Hewitt could proceed on Kingen's stipulated judgment.
This settlement agreement was negotiated by Switzer, but signed by Kingen.
In accordance with the Duren Hewitt settlement agreement, Merlino and Harkey each wrote a check for $250,000 to Funsters to satisfy the initial $500,000 payment.
Kingen delivered the stipulated judgment to Duren Hewitt, but failed to deliver his Red Robin stock as required by the settlement agreement because he was bound by two restrictions. Under an S-1 registration statement filed with the Securities and Exchange Commission (SEC) on April 26, 2002, Kingen's Red Robin stock could not be freely sold or pledged while the initial public offering (IPO) was pending. And under an August 9, 2001 amended and restated shareholders agreement, Kingen could not sell or pledge his Red Robin stock without first offering it to the corporation or the other shareholders.
This shareholder agreement was incorporated as an exhibit into the SEC form S-1 registration statement. A Red Robin corporate paralegal explained this restriction to Kingen in a letter dated March 6, 2002. Ex. 265.
Funsters in turn wrote checks for $500,000 to Duren Hewitt to satisfy the first required payment under the settlement agreement. But because Funsters' bank account was overdrawn, the checks were returned for insufficient funds. As a consequence, Duren Hewitt repudiated the settlement agreement and Kingen refused to make his $319,079 payment when it came due.
Duren Hewitt eventually assigned the settlement agreement to one of its subcontractors, who obtained a principal judgment against Kingen personally for $319,079, plus interest. See N. Star Elec. v. Kingen, noted at 130 Wn. App. 1054 (2005), review denied, 158 Wn.2d 1015 (2006).
Funsters ultimately filed for chapter 11 bankruptcy protection in September 2002. Funsters obtained bankruptcy court approval to obtain debtor-in-possession (DIP) financing up to $400,000. Kingen, Switzer, and Merlino agreed that Merlino would provide DIP financing and Kingen and Switzer would reimburse Merlino on a pro rata basis. But in April 2003, under chapter 7 liquidation, the bankruptcy court seized Funsters' cash and liquid assets. Funsters owed approximately $1.5 million in unpaid federal and state taxes and approximately $120,000 in employee wages, along with penalties, interest, and attorney fees pursuant to RCW 49.52.050 and .070.
Funsters' employees commenced a class action lawsuit for unpaid wages against Kingen and Switzer. In Morgan v. Kingen, 141 Wn. App. 143, 169 P.3d 487 (2007), we held that Kingen and Switzer were personally liable for the unpaid wages.
In August 2002, prior to the bankruptcy proceedings, AEA Bank sued LAG and its four investor-guarantors. Merlino, Kingen, and Harkey made separate arrangements to settle the AEA Bank claims. The investors also resolved Funsters' remaining guaranteed obligations. Kingen, Switzer, Merlino, and Harkey, codefendants in the AEA litigation, then began to litigate the claims against each other arising out of their ownership and financing of the failed business.
Numerous cross claims regarding overpayment of Funsters' debts and obligations that are not relevant to this appeal have been omitted from discussion.
Several months before trial, in July 2004, the court granted Merlino's motion for leave to amend his answer to assert cross claims against Kingen and Switzer. Merlino alleged that he loaned $250,000 to Funsters on Kingen's express promise to fund the Duren Hewitt settlement agreement with Red Robin stock, that he was damaged and Kingen was unjustly enriched, and that he would not have made the loan but for Kingen's representations.
Prior to trial, the trial court dismissed on summary judgment Kingen and Switzer's contribution and indemnity claims against Merlino and Harkey for unpaid federal and state taxes, employee wages, and management fees claimed by LAG against Funsters under the management agreement. After a bench trial on the investors' remaining claims, the trial court (1) ruled against Harkey on his fraud and negligent misrepresentation claims against Kingen and Switzer relating to his personal guarantee on the $3.5 million AEA Bank loan and (2) ruled in Merlino's favor on his claims for unjust enrichment, fraudulent inducement, and negligent misrepresentation against Kingen involving the Duren Hewitt settlement.
On March 10, 2005, Harkey filed a new lawsuit against Kingen, asserting an identical claim for unjust enrichment involving the Duren Hewitt settlement. The trial court dismissed this claim on summary judgment, ruling that it was barred by res judicata.
Because the facts in both cases arise from the same dispute and involve a common issue, these cases were linked for oral argument, and we have consolidated them for purposes of this opinion.
This appeal ensued.
DISCUSSION
Contribution and Indemnity Claims
Kingen and Switzer argue that the trial court erred by dismissing their contribution and indemnity claims against Merlino and Harkey for unpaid federal and state taxes and employee wages. They contend that the court's letter opinion commenting on the merits is inconsistent with its ruling on ripeness and jurisdiction.
Kingen and Switzer also sought contribution for unpaid management fees owed to LAG Management by Funsters. But their opening brief is silent regarding the management fee. Therefore, they have abandoned this issue on appeal. State v. Wood, 89 Wn.2d 97, 99, 569 P.2d 1148 (1977).
Merlino and Harkey's briefs below and on appeal fail to address this contention.
The November 16, 2004 omnibus summary judgment order on appeal includes dismissal of Kingen and Switzer's contribution and indemnity claim for unpaid taxes and wages. But in analyzing the assignment of error, we are faced with the court's comments in its October 21, 2004 letter opinion and subsequent order on reconsideration. The summary judgment order does not make clear whether the tax and wage claims were dismissed based on ripeness, jurisdiction, or some other grounds.
Before the court entered summary judgment, in a lengthy letter opinion to counsel the court set forth its reasoning and rulings on summary judgment.
For example, the letter opinion comments on the merits of the contribution claim for state and federal taxes.
Generally, liability does not attach to shareholders such as Merlinos and Harkeys for such debts. With respect to the federal payroll taxes claim, Merlinos and Harkeys are not "responsible persons" willfully failing to pay these taxes, in part because they did not have check writing authority and therefore no ability to pay the taxes. Under federal law, because the taxes have not been paid by Kingen and Switzer, the issue of contribution cannot be raised at this point. Merlino's and Harkey's motions are granted.
With respect to the state taxes, under the management agreement, LAG Management, LLC had sole management authority to pay "all operating bills of the Enterprise from the Gross Receipts of the Enterprise when they became due" and in addition, had the "exclusive right and obligation to develop, manage, operate, and maintain [Funsters] during the term of the Management Agreement[.]" In addition, the Merlinos and Harkeys did not have check writing authority and therefore could not be said to have willfully fail[ed] to pay under the reasoning of the Ellerman case. Kingen and Switzer have not paid the taxes and if their claim is based on contribution as Mr. Van Siclen asserts, it is not yet ripe. Merlino's and Harkey's motions are granted.[]
Clerk's Papers (CP) at 1165 (emphasis added).
Yet the court's comments on the merits are inconsistent with the court's conclusion that the contribution claims for federal and state taxes are not ripe.
In addition, after the court entered summary judgment dismissing the federal tax claim, on reconsideration, it concluded that it lacked jurisdiction to determine whether Merlino and Harkey are "responsible persons" with liability for tax obligations under the federal tax code, 26 U.S.C. section 6672. But this ruling is inconsistent with the court's decision that the federal tax claim for contribution is not ripe because Kingen and Switzer have not paid it.
Finally, the summary judgment order dismissed Kingen and Switzer's wage claim on the merits. But this ruling is inconsistent with the court's comment in its letter opinion that Kingen and Switzer's contribution claims for federal and state taxes are not ripe because they have not been paid by Kingen and Switzer. Like the taxes, if Kingen and Switzer have not paid the wages, the question of contribution is not ripe. See Pietz v. Indermuehle, 89 Wn. App. 503, 509, 949 P.2d 449 (1998).
Merlino argued on summary judgment that Kingen and Switzer's contribution and indemnity claims for taxes and wages are not ripe until paid.
Because we cannot determine on this record the critical question of whether our review is a decision on the merits or another decision, we remand to the trial court to address Kingen and Switzer's contribution and indemnity claims.
Contract Reformation
Harkey argues that he is entitled to contract reformation for the $3.5 million personal loan guarantee he signed for AEA Bank. His complaint did not allege a claim for contract reformation, but he did request reformation in his trial brief. A party is entitled to contract reformation if (1) the parties made a mutual mistake or (2) one party is mistaken and the other party engaged in fraud or inequitable conduct. Wash. Mut. Sav. Bank v. Hedreen, 125 Wn.2d 521, 525, 886 P.2d 1121 (1994). Below, the trial court questioned how the doctrine could apply to Harkey's claim against his co-investors
Funsters obtained two loans through AEA Bank — the first was in the amount of $3.5 million and the second was in the amount of $1 million. In connection with the second transaction, all four investors executed personal guarantees covering not only the $1 million loan, but all of Funsters' preexisting and future debt to AEA Bank. Harkey acknowledges his personal liability on the $1 million loan but not on the preexisting $3.5 million loan obtained by Kingen, Switzer, and Merlino.
when they were not parties to the contract between Harkey and the bank. Harkey responded that Switzer was acting as an agent for the bank when he obtained Harkey's signature on the personal guarantee. The trial court expressly rejected this argument, concluding, "By picking up documents, obtaining signatures, and returning documents to the bank in furtherance of a venture's interest, Switzer did not become an agent of the banking institution with respect to his co-borrowers." Harkey did not assign error to this conclusion or address it in his briefing. We will not review issues that are not raised by an assignment of error or are not supported by argument and citation to authority. McKee v. Am. Home Prods. Corp., 113 Wn.2d 701, 705, 782 P.2d 1045 (1989).
Harkey claimed that the commercial guarantee he entered into with AEA Bank should be reformed based on his unilateral mistake. But sometime before trial, Harkey settled with the bank and its claim to enforce the commercial guarantee was dismissed.
Conclusion of Law 2. The trial court's January 25, 2005 memorandum of decision setting forth the court's reasoning on Harkey's reformation claim was incorporated in the court's March 24, 2005 findings of fact and conclusions of law.
Harkey's briefing is instead focused on his assertion that the trial court "concluded that [he] was not entitled to contract reformation . . . because he failed to carefully read the documents presented to him by Switzer prior to signing them." Harkey's Response Br. at 29. But contrary to Harkey's assertion, the record shows that the trial court made no such conclusion. And Harkey offers no citation to the record to support this assertion as required by RAP 10.3(a)(5).
We therefore do not address Harkey's argument that his reformation claim was tried by implied consent of the parties under CR 15(b).
Merlino's Claims on the Duren Hewitt Settlement
Kingen argues that the trial court erred in entering judgment against him on Merlino's claim for fraudulent misrepresentation, negligent misrepresentation, and unjust enrichment involving the Duren Hewitt settlement. Conversely, Merlino argues that the trial court's findings are supported by substantial evidence.
Kingen also argues that Merlino failed to plead the fraud claim with particularity as required by CR 9(b). It is true that Merlino originally alleged only unjust enrichment with respect to the Duren Hewitt claim and that he recharacterized it as a claim for fraud and negligent misrepresentation for the first time in his trial brief. But Kingen did not raise this issue below. We decline to address it now. RAP 2.5(a).
When the trial court has weighed the evidence, we review the trial court's factual findings for substantial evidence to support them. We must then determine whether the findings support the conclusions of law and judgment. Brin v. Stutzman, 89 Wn. App. 809, 824, 951 P.2d 291 (1998). Substantial evidence is evidence sufficient to persuade a fair-minded person of the truth of the declared premise. Id. (quoting Cowiche Canyon Conservancy v. Bosley, 118 Wn.2d 801, 819, 828 P.2d 549 (1992)). There is a presumption in favor of the trial court's findings, and the party claiming error has the burden of showing that a finding of fact is not supported by substantial evidence. Fisher Props., Inc. v. Arden-Mayfair, Inc., 115 Wn.2d 364, 369, 798 P.2d 799 (1990). This court defers to the trier of fact for purposes of resolving conflicting testimony and evaluating the persuasiveness of the evidence and credibility of the witnesses. Boeing Co. v. Heidy, 147 Wn.2d 78, 87, 51 P.3d 793 (2002). "[I]n determining the sufficiency of the evidence to support a finding of fraud or misrepresentation, we need only consider the evidence most favorable to the prevailing party." Bland v. Mentor, 63 Wn.2d 150, 155, 385 P.2d 727 (1963). Conclusions of law are reviewed de novo. Veith v. Xterra Wetsuits, L.L.C., 144 Wn. App. 362, 366, 183 P.3d 334 (2008).
Fraud Claim. To prevail on a fraud claim, the plaintiff must prove each of nine elements: (1) a misrepresentation of existing fact; (2) its materiality; (3) its falsity; (4) the speaker's knowledge of its falsity; (5), the speaker's intent that it be acted on by the recipient; (6) the recipient's ignorance of its falsity; (7) the recipient's reliance on its truth; (8) the recipient's right to rely on it; and (9) proximately resulting damage. Beckendorf v. Beckendorf, 76 Wn.2d 457, 462, 457 P.2d 603 (1969). Each element must be proved by clear, cogent, and convincing evidence, meaning that the ultimate facts must be shown to be "`highly probable.'" Douglas Nw, Inc. v. Bill O'Brien Sons Constr. Inc., 64 Wn. App. 661, 678, 828 P.2d 565 (1992).
The trial court found that the following facts, among many others, were established regarding Merlino's Duren Hewitt claim.
Findings of fact 42, 57, 60, and 63 are unchallenged by Kingen and are therefore verities on appeal. Moreman v. Butcher, 126 Wn.2d 36, 39, 891 P.2d 725 (1995).
42. The Settlement Agreement dated April 25, 2002 required that within seven (7) days thereof LAG/Funsters would pay $500,000 to Duren Hewitt and Kingen would deliver 40,000 shares of Red Robin stock to an escrow holder in order to secure a $319,079 deferred payment to Duren Hewitt.
. . . .
46. Kingen never delivered the promised Red Robin stock, and thus Kingen and Switzer's shares of LAG/Funsters' obligation were never paid.
. . . .
48. LAG/Funsters' attempt at settlement failed
due to Kingen's failure to pledge the Red Robin stock. Duren Hewitt pursued litigation to resolve the matter.
. . . .
53. As of April 25, 2002, Kingen's stock was restricted from any transfer, including a pledge or assignment. Kingen either knew this and failed to disclose this to the Merlinos, or he should have known this and had a duty to disclose this to the Merlinos.
54. When Mr. Kingen participated in proposing the settlement agreement through Mr. Switzer and through the March 31st memo and when he signed the Duren Hewitt Settlement Agreement, Mr. Kingen represented that he was willing and able to fund his share of the settlement agreement with his pledge of 40,000 shares of Red Robin stock, both through the negotiating efforts of Mr. Switzer and by his signatures on the settlement agreement. This constituted a misrepresentation of an existing fact.
. . . .
56. The Merlinos would not have loaned additional sums to LAG/Funsters unless they believed that Funsters was a "break even" and would shortly be in a position to repay the loan.
57. The Merlinos would not have loaned additional sums to LAG/Funsters for use in partial payment of the Duren Hewitt debt unless they believed that Kingen would pledge the Red Robin stock to secure the payment of the remainder of the debt.
. . . .
59. Kingen knew that Merlinos would not advance funds to LAG/Funsters without a concomitant advance from him to pledge and place in escrow 40,000 shares of Red Robin stock to Duren Hewitt.
60. The Merlinos depended on Kingen and Switzer for information regarding the day to day management and financial affairs of Funsters.
. . . .
62. From May 2002 through at Least August 2002, Kingen and Switzer did not inform the Merlinos that the attempt at settlement with Duren Hewitt had failed.
63. With regard to his promised pledge of Red Robin stock to secure payment to Duren Hewitt, Kingen either did not attempt before May 2, 2002 to obtain the consent of Red Robin to the pledge of stock to Duren Hewitt or if he tried to do this and was rebuffed, he failed to disclose the refusal of Red Robin to agree to the pledge to the Merlinos.
All of these facts are supported by substantial evidence in the record, and the trial court's conclusions of law on this issue are supported by its findings.
The trial court concluded that Kingen and Switzer knowingly misrepresented existing facts to induce Merlino to loan $250,000 towards the Duren Hewitt obligation, that Merlino did not know the statements were false, that the misrepresentation was material, and that Merlino was entitled to and did rely on the misrepresentation in deciding to make the loan.
First, Kingen argues that Merlino failed to prove that Kingen's intent in entering the settlement agreement was to defraud his partners, because Kingen believed he could fulfill the settlement agreement by pledging alternate collateral and because Duren Hewitt knew the stock was restricted by the IPO. Whether Kingen believed he could fulfill the agreement without pledging his stock is irrelevant. The issue is whether Kingen intended Merlino to act on his promise to pledge his stock. The trial court's findings of fact establish that he did. These findings are amply supported by substantial evidence in the record.
In any case, the trial court also found that Switzer told Duren Hewitt that the IPO and lock-up restrictions would not apply to Kingen.
Second, Kingen argues that Merlino failed to show his ignorance of the falsity of the claim, pointing to evidence that Merlino may have heard about the IPO restrictions. Kingen attempts to refute the court's findings with evidence and testimony that was rejected by the trial court. But during the trial, "[t]he trial court heard and saw the witnesses, and was thus afforded an opportunity, which is not possessed by this court, to determine the credibility of the witnesses." Garofalo v. Commellini, 169 Wash. 704, 705, 13 P.2d 497 (1932). The trial court's credibility determinations and its resolution of the truth from conflicting evidence will not be disturbed on appeal. Id. (credibility); DuPont v. Dep't of Labor Indus., 46 Wn. App. 471, 479, 730 P. 1345 (1986) (resolving truth from conflicting evidence).
Third, Kingen argues that Merlino has failed to prove damages because there was no evidence of a causal connection between Kingen's failure to pledge his stock, the failure of the Duren Hewitt settlement, and Merlino's loss. Merlino loaned $250,000 towards a debt for which he was not personally liable. There is substantial evidence in the record to support the court's finding that Kingen's failure to pledge his stock was causally related to the failed settlement and Merlino's loss.
Negligent Misrepresentation. The trial court also concluded that Merlino was entitled to a $250,000 judgment based on negligent misrepresentation. "To establish negligent misrepresentation, a plaintiff must show by clear, cogent, and convincing evidence that the defendant negligently supplied false information the defendant knew, or should have known, would guide the plaintiff in making a business decision, and that the plaintiff justifiably relied on the false information." Baddeley v. Seek, 138 Wn. App. 333, 339, 156 P.3d 959 (2007). Justifiable reliance means reliance that is reasonable under the surrounding circumstances. Lawyers Title Ins. Corp. v. Baik, 147 Wn.2d 536, 551, 55 P.3d 619 (2002). The plaintiff must also show that the false information was the proximate cause of the claimed damage. Id.
Kingen argues that Merlino failed to meet his burden of proving negligent misrepresentation because there is no evidence to support the court's finding that Merlino did not know the stock was restricted. As discussed above, the findings of fact are supported by substantial evidence in the record and the trial court's conclusions of law, and as with the fraud claim, are supported by its findings. Waiver. Kingen also argues that the trial court erred in concluding that Merlino did not waive his Duren Hewitt claims. Waiver is the intentional or voluntary relinquishment of a known right. Singer Credit Corp. v. Mercer Island Masonry, Inc., 13 Wn. App. 877, 885, 538 P.2d 544 (1975). "Waiver of the right to damages has been found `when a party claiming to have been defrauded, enters after discovery of the fraud into new arrangements or engagements concerning the subject matter of the contract claimed to have been procured by fraud. . . .'" Johnson v. Brado, 56 Wn. App. 163, 167-68, 783 P.2d 92 (1989) (quoting Owen v. Matz, 68 Wn.2d 374, 376-77, 413 P.2d 368 (1966)). Kingen contends that Merlino knew all the material facts giving rise to the claims as early as mid-2002 but failed to bring them until July 2004. Kingen also asserts that Merlino waived the claim by continuing to provide financial support to Funsters, including DIP financing in September 2002. The trial court found that Merlino continued to provide financial support to Funsters because he hoped to salvage the venture and that he did not learn about the Red Robin shareholder agreement until shortly before trial. It then concluded that Merlino did not waive his claims related to the Duren Hewitt settlement. These findings of fact are supported by substantial evidence in the record, and the trial court's conclusion of law as to this issue is supported by its findings.
Because we conclude on Merlino's fraud and negligent misrepresentation claims that the findings of fact are amply supported by substantial evidence and the trial court's conclusions of law are supported by its findings, we do not need to address Merlino's unjust enrichment claim.
Memorandum of Opinion at 13-15.
Conclusion of Law 17.
Harkey's Claims on the Duren Hewitt Settlement.
Harkey, who with Merlino also paid $250,000 towards the Duren Hewitt settlement, assigns error to the trial court's denial of his requests at trial to join in Merlino's claim against Kingen for unjust enrichment, fraud, and negligent misrepresentation. He also argues that the trial court abused its discretion by granting Kingen and Switzer's motion to bar newly asserted claims, including "[t]he Harkeys' claims for unjust enrichment relating to the Duren-Hewitt settlement." According to Harkey, this order prevented him from amending his pleadings under CR 15(a) to add a claim for unjust enrichment or fraud that are identical to the claims Merlino prevailed on at trial against Kingen involving the Duren Hewitt settlement.
CR 15(a) provides, "[A] party may amend his pleading only by leave of court . . . and leave shall be freely given when justice so requires."
We disagree. There is no evidence in the record, and Harkey points to none, that he sought leave to amend his pleadings to add any claim relating to the Duren Hewitt settlement, either before or after the court issued its November 16, 2004 order barring newly asserted claims. And the court entered this order only after Harkey's counsel submitted a November 8, 2006 declaration stating that he did not intend to assert any claim against Kingen and Switzer involving the Duren Hewitt settlement.
It should also be noted that Harkeys do not maintain any claim against Kingens and Switzers for their failure to pay the Duren Hewitt obligation on which Duren Hewitt has secured a judgment against Kingens and Switzers which said judgment is currently on appeal. Harkeys seek only relief under their constructive trust theory pertaining to the FF E and its subsequent sale to the owners of Stars Casino, LLC for $750,000.[]
CP at 5119 (emphasis added).
In addition, sometime in November 2004, Harkey and Merlino obtained the Red Robin form S-1 registration statement and the amended and restated shareholders agreement, both of which prohibited Kingen from freely transferring his stock. On November 22, 2004, Harkey commented in his trial brief that he was bringing fraudulent inducement and negligent misrepresentation claims against Kingen and Switzer involving the Duren Hewitt settlement. But Harkey thereafter made no effort to amend his pleadings or prosecute those claims at trial — even after Red Robin general counsel John Grant testified on the second day of trial that Red Robin had specifically advised Kingen of the stock transfer restrictions prior to the date of the Duren Hewitt settlement.
It was not until the second lawsuit on this claim that Harkey's counsel explained in a declaration, "[The fraud and negligent misrepresentation claims] inclusion in our trial brief was an oversight in simply not removing it from the briefing that we had previously done and presenting it to the court." CP at 309.
At this point in the trial, Harkey could have but did not seek leave to amend his complaint to assert claims for fraud or negligent misrepresentation based on his claim of newly discovered evidence. Instead, Harkey told the court that he did not intend to move to amend the pleadings to conform to the evidence at the end of trial — even though he unquestionably had actual knowledge of facts necessary to bring a fraud claim. Moreover, Harkey failed to provide a single citation to the report of proceedings that would establish his claim on appeal that below he made repeated oral requests to join in Merlino's Duren Hewitt settlement claims or amend his pleadings to add the Duren Hewitt settlement claims. At oral argument on appeal when asked to clarify this discrepancy, Harkey's counsel admitted that he had not moved to amend the pleadings. Not surprisingly, the court's final findings of fact and conclusions of law did not address Harkey's Duren Hewitt settlement claims. And Harkey did not raise this issue in his posttrial motion for reconsideration. For these reasons, his CR 15(a) claim is meritless.
Harkey argues that his decision not to oppose the motion to bar newly asserted claims does not demonstrate that he waived his fraud claim, because at that time, he did not have the "smoking gun" he needed to prove fraud. We reject Harkey's characterization of Grant's December 2 testimony as a "smoking gun." The registration statement and shareholder agreement signed by Kingen and obtained by Harkey in November 2004 provided ample evidence necessary to assert that claim, just as Merlino did. And Harkey's November 22 trial brief in which he stated, "The Harkeys join the Merlinos in their claims against Kingen and Switzer for fraudulent inducement and/or negligent misrepresentation . . ." regarding the Duren Hewitt settlement further belies this contention. CP at 4034.
We have searched the record, and there is no such corroboration. We will not consider allegations of fact without support in the record. Voicelink Data Servs., Inc. v. Datapulse, Inc., 86 Wn. App. 613, 619, 937 P.2d 1158 (1997).
For the first time in his reply brief, Harkey contends that he is entitled to judgment under CR 15(b) because all elements of his fraud and unjust enrichment claims were proven at trial and included in the court's memorandum of decision. We reject this claim because there is no evidence in the record that Harkey asked the trial court for relief under CR 15(b) at any time before or after judgment. Indeed, when Kingen's counsel voiced concern that Harkey might attempt to do so, Harkey expressly stated that he would not. We decline to address this argument. RAP 2.5(a); RAP 10.3(c); Cowiche Canyon, 118 Wn.2d at 809.
Harkey's counsel asserts that he unsuccessfully asked the trial court to enter judgment in his favor following its finding in favor of Merlino. But there is no appealable ruling or any other evidence in the record to corroborate this claim apart from statements of counsel submitted in Harkey's second lawsuit. Assertions of counsel, without more, do not constitute competent evidence. Voicelink, 86 Wn. App. at 619.
Even if we were to reach the merits, it is clear that the claim was not tried with Kingen's express or implied consent as required by CR 15(b).
We also conclude that Harkey waived his right to assert the unjust enrichment, fraud, and negligent misrepresentation claims. "Waiver is the intentional abandonment or relinquishment of a known right. It must be shown by unequivocal acts or conduct showing an intent to waive, and the conduct must also be inconsistent with any intention other than to waive." Mid-Town Ltd. Partnership v. Preston, 69 Wn. App. 227, 233, 848 P.2d 1268 (1993). "It may result from an express agreement or be inferred from circumstances indicating an intent to waive." Bowman v. Webster, 44 Wn.2d 667, 669, 269 P.2d 960 (1954).
Harkey conclusively waived these claims by (1) expressly stating that he would not bring an unjust enrichment claim or any claims regarding the Duren Hewitt settlement, (2) submitting a trial brief that included claims for fraud and negligent misrepresentation but later abandoning those claims by stating that he would not seek leave to amend his pleadings to conform with the evidence at trial, (3) failing to prosecute his case at trial on the Duren Hewitt settlement against Kingen, (4) failing to move for leave to join at trial Merlino's Duren Hewitt settlement claims against Kingen, (5) failing to move for leave to amend his pleadings to add the Duren Hewitt settlement claims, and (6) failing to challenge the court's rulings regarding the Duren Hewitt settlement in his posttrial motion for reconsideration. These unequivocal statements and conduct are consistent with Harkey's intent to waive the claims against Kingen on the Duren Hewitt settlement.
Harkey's Second Appeal
Harkey argues that the trial court abused its discretion by granting summary judgment dismissal to Kingen and Switzer based on its determination that his claims regarding the Duren Hewitt settlement were barred by res judicata. Although the trial court's decision was based on principles of res judicata, we do not need to analyze those arguments because for all of the reasons discussed above, we hold that the doctrine of waiver precludes Harkey from bringing unjust enrichment, fraud, and negligent misrepresentation claims in a second lawsuit.
Harkey's complaint alleged the identical unjust enrichment claim that Merlino had successfully prosecuted in the AEA Bank litigation.
Harkey relies primarily on Krikava v. Webber, 43 Wn. App. 217, 716 P.2d 916 (1986) for the proposition that res judicata has no preclusive effect on cross claims that were not brought in the previous litigation. But Krikava is based on materially dissimilar factual circumstances and did not present the issue of waiver.
Conclusion
In sum, because the trial court's summary judgment order is unclear, we remand to the trial court with instructions to address Kingen and Switzer's contribution and indemnity claims. We affirm the trial court on all remaining claims.