IQUiifOI-" APPEALS OiV STATE OF V'ASHIKGTQ-; 2013 MAY -6 AH 9: 36

INTHE COURT OF APPEALS OF THE STATE OF WASHINGTON DIVISION ONE
BERSCHAUER PHILLIPS CONSTRUCTION COMPANY, a Washington corporation, Appellant,

v. MUTUAL OF ENUMCLAW INSURANCE COMPANY, an insurance company, Respondent. No. 68259-8-1

UNPUBLISHED OPINION FILED: May 6, 2013



### Verellen, J. —Berschauer Phillips Construction Company (BP) appeals from the superior court order granting summaryjudgment dismissing its "direct action" claim against Mutual ofEnumclaw Insurance Company (MOE). BP obtained a default judgment against an insured of MOE, unsuccessfully soughtto recoverfrom MOE on a "chose in action" theory inThurston County, and also filed this direct action lawsuit against MOE in King County. BP assigns errorto the superior court's determination that 

### this direct action lawsuit was barred bythe claim-splitting doctrine ofresjudicata. BP could have and should have raised its direct action claim against MOE in its previous lawsuit, which involved the identical subject matter and claim, included the same parties acting inthe same capacities, and resulted in a finaljudgment in favor of MOE. BecauseNo. 68259-8-1/2 the superior court correctly determined that resjudicata barred BP's subsequent lawsuit against MOE, dismissal was proper. We affirm.
FACTS In 2002, BP subcontracted with Concrete Sciences Services of Seattle (CSS) to stain concrete floors at Redmond Junior High School. The concrete floor did not properly absorb the stain. Atthe time, CSS, a Minnesota limited liability corporation (LLC), was insured under a comprehensive general liabilityinsurance policy issued by MOE. In 2003, following completion ofthe project, CSS filed articles oftermination, dissolving the Minnesota LLC. In 2004, BP filed a lawsuit against CSS in King County seeking to recover damages for defective workmanship. CSS did not appear, and BP obtained a $318,611.97 defaultjudgment. BP informed MOE ofthe defaultjudgment and demanded 

### payment. MOE moved to vacate the defaultjudgment. The superior court denied the 

### motion as untimely. This courtaffirmed (Appeal 1).1 In 2008, BP filed a lawsuit against MOE inThurston County, alleging ithad 

### "attached all available choses in action" CSS had against MOE.2 BP assertedclaims of negligence, breach ofcontract, bad faith, and breach ofWashington's Consumer Protection Act, ch. 19.86 RCW. In December 2009, BP obtained writs of execution from 

### King County Superior Court, directing the Thurston County sheriff to levy on CSS's



### 1Berschauer Phillips Constr. Co. v. Concrete Sci. Servs. of Seattle, LLC, No. 58912-1-1, slip op. at 6 (Wash. Ct. App. July 30, 2007). 2Berschauer Phillips Constr. Co. v. Concrete Sci. Servs. of Seattle, LLC, noted 

### at 160 Wn. App. 1039,2011 WL 1107228, at *1. In fact, BP neverfully executed on any ofthe claims itpurported to have attached.No. 68259-8-1/3
claims against MOE. The King County court granted MOE's motion to quash on the grounds that CSS had no property on which to execute, and any property was not 

### property capable ofexecution becauseitwas"too uncertain."3 BP appealed; this court affirmed (Appeal 2).4 While Appeal 2 was pending, MOE moved for summaryjudgment in the Thurston County action. BP moved for a stay. The Thurston County court ordered a stay while awaiting this court's decision in Appeal 2. MOEthen sought discretionary review by this court ofthe Thurston County court's stay order. This court granted review and determined that: CSS was the real party in interest, not BP; the trial court lacked authority to stay the case; and BP had no 

### standing at thetime itfiled theaction, nor at thetime the staywasissued (Appeal 3).5 The mandate issued August 5, 2011.



### 3ldat2. 4Id. at *3. This courtheld that the alleged "choses in action" were "anything but certain," as itwas not established that "CSS could come into ownership of such claims 

### accruing subsequent to its termination." id. Accordingly, "it is not clearthat CSS owns property upon which BPCC, as CSS'sjudgment creditor, can execute." Id. 5 Berschauer Phillips Constr. Co. v. Mutual of Enumclaw Ins. Co., noted at 162 Wn. App. 1029, 2011 WL 2519849, at *3. Although this court also recited that the trial 

### court "lacked subject matterjurisdiction to hearthe case," the basis for the opinion was lack ofstanding. ]d Standing is a common law doctrine that prohibits a litigantfrom 

### raising another's legal right. Grant County FireProt. Dist. No. 5 v. Cityof Moses Lake, 150 Wn.2d 791, 802, 83 P.3d 419 (2004). We have recently and repeatedly held that a dismissal based on a lack of standing does not deprive a court ofsubject matter 

### jurisdiction. See, e.g.. Trinity Universal Ins. Co. ofKansas v. Ohio Cas. Ins. Co., No. 67832-9-I, 2013 WL 1164071, at *5 (Wash. Ct. App. Mar. 18, 2013) (standing is not a 

### matter ofsubject matterjurisdiction); Ullerv v. Fulleton. 162 Wn. App. 596, 604-05, 256 P.3d 406. review denied. 173Wn.2d 1003 (2011) (same).No. 68259-8-1/4
After the mandate issued, BP and MOE stipulated to an order ofdismissal ofthe 

### Thurston County lawsuit, "with prejudice."6 Thedismissal orderstates, "[W]ith the dismissal ofthe claims against Mutual of Enumclaw all claims of all parties in this 

### lawsuit areresolved andthis orderconstitutes finaljudgment in this matter."7 Inthe meantime, BP filed this new lawsuit against MOE in King County. Inthe complaint, BP recited that: CSS was insured by MOE; BP had a defaultjudgment against CSS; and BP "has standing to proceed against MOE on a direct action" to 

### collectthejudgment.8 BP asserted thatit had recently discovered boilerplate language in MOE insurance policies ofthe type issued to CSS. According to BP, the CSS policy likely included the provision that "[a] person or organization may sue us to recover on an agreed settlement or on a finaljudgment against an insured obtained after an actual trial."9 MOE moved for summary dismissal, arguing that BP's direct action claims were barred under the doctrines of res judicata and collateral estoppel. The trial court concluded that BP's lawsuit was barred by resjudicata, and granted MOE's motion for summaryjudgment. BP appeals.



### 6Clerk's Papers at 193. 7kL 

### 8Clerk's Papers at 2. 9Appellant's Br. at 8. BPprovided the superior court a copy of an unspecified MOE policy that contained the boilerplate provision.No. 68259-8-1/5

DISCUSSION BP asserts that the trial court erred in dismissing its claims, arguing that res judicata does not bar its present lawsuit against MOE. We disagree. 

### Resjudicata is an issue oflaw, subjectto de novo review onappeal.10 Theparty raising res judicata must demonstrate that the action involves the same subject matter, 

### cause ofaction, persons orparties, andquality of persons as a prioradjudication.11 Res judicata applies both to points upon which the previous court was required to pronounce a judgment, and to every point "which the parties, exercising reasonable 

### diligence, might havebroughtforward at thetime."12 Thepublic policy favoring prevention of claim splitting applies to a party seeking to recover from an insurer based


### onvarious theories ofrecovery.13 Where, as here, the insured has not made an assignment of its claim against its insurerto an injured third party, a third party damaged by actions ofthe insured has



### 10 Martin v. Wilbert. 162Wn. App. 90, 94, 253 P.3d 108, review denied. 173 Wn.2d 1002 (2011). 

### 11 Williams v. Leone &Keeble. Inc.. 171 Wn.2d 726, 730, 254 P.3d 818 (2011). Resjudicata also requires that the priorjudgment be final. Leiia v. Materne Bros.. Inc., 34 Wn. App. 825, 827, 664 P.2d 527 (1983). Here, thejudgment inthe priorThurston County lawsuit, a dismissal "with prejudice" stipulated by agreement of both parties, was final for purposes ofresjudicata. Dismissal of an action "with prejudice" is a final judgment on merits of a controversy. Banchero v. City Council of City ofSeattle, 2 Wn. App. 519, 525, 468 P.2d 724 (1970). 

### 12 Sanwick v. Puaet Sound Title Ins. Co., 70 Wn.2d 438, 441, 423 P.2d 624 (1967) (internal quotation marks omitted) (quoting Currier v. Perry, 181 Wash. 565, 569, 44P.2d184(1935)). 

### 13 See Schoeman v. New YorkLife Ins. Co.. 106 Wn.2d 855, 859, 726 P.2d 1 

### (1986) ("Ifa matter has been litigated orthere has been an opportunity to litigate on the matter in a former action, the party-plaintiff should not be permitted to relitigate that issue.").No. 68259-8-1/6 

### options torecoverfrom the insurer.14 Where the loss iscovered by the liability policy, the insurer's most fundamental obligation to its insured is the duty to indemnify the 

### insured by paying thethird party.15 Understanding BP's theories of liability in each relevant lawsuit is critical to the application of res judicata in this appeal. BP's Thurston County lawsuit was based on its right to execute on its defaultjudgment against CSS by levying on the choses in action held by CSS against MOE. BP contends that its subsequent King County lawsuit

was based on its "direct" right to proceed against MOE, premised on a "boilerplate" no

### action provision it suspects isin thepolicy issued by MOE toCSS.16 The no-action

14 Forexample, it iswell recognized that an injured third partywho has obtained a judgment against an insured can execute on thatjudgmentto levy on the choses in action held by the insured against its insurer. See 7A Lee R. Russ &Thomas F. Segalla, Couch on Insurance 3d §§ 104:5, at 104-17 (third party may execute on 

### judgment against insured), 104:14, at 104-30 (injured party may execute on insured's cause of action and purchase itat a sheriffs sale). 

### Inmost states, includingWashington, a third party may proceed directlyagainst the insurer under the state's garnishment statute on the theory that the duty to indemnify 

### is a debt owed by the insurer to its insured. See AtlanticCasualty Ins. Co. v Oregon Mutual Ins. Co.. 137 Wn. App. 296, 304-05, 153 P.3d 211 (2007) ("An insurance 

### company's obligation under a liability policy is subjectto garnishment. The theory behind this is that as soon as the garnishing creditor established the insured's liability, the insurance company was obligated to pay and, therefore, it is an assetthat can be attached in a garnishment action. In the garnishment action, the garnishee insurance 

### company ... is enitled to raise any defense it had against its policyholderagainstthe 

### garnishingcreditor." (citationsomitted)); Trinity Universal Ins. Co. v.Willrich, 13 Wn.2d 263, 271,124 P.2d 950 (1942) ("[l]f [the injured third parties] recoverjudgment against 

### [the insured], they will have the rightto compel [the insurer] to pay thatjudgment."); Thomas V. Harris, Washington Insurance Law, Third Edition § 10.01, at 10-1 (2010) 

### ("A garnishment is a derivative process that allows ajudgmentcreditor to collect the judgment by attaching the insurance 'debt* owed by an insurer to its insured."). 15 In some instances, the circumstances may support additional claims independent of or collateral to the duty to indemnify, such as claims of bad faith or breach of a duty to defend. 

### 16A contractprovision establishing such a rightto sue is generally valid, although some courts hold that such a rightexists only if it is clearly expressed in the contract.No. 68259-8-1/7 

### provision BP seeks to rely on purportedly states, in relevant part, that "[a] person or organization may sue us to recover on an agreed settlement or on a finaljudgment 

### against an insured obtained after an actual trial."17 BP's efforts to distinguish between the subject matter and cause of action at issue ineach ofthe two relevant lawsuits are not persuasive. Consideration of four 

### factors provide an analytical tool fordetermining whethertwo causes of action are 

### identical forpurposes of res judicata: "(1) [w]hether rights or interests established in the priorjudgment would be destroyed or impaired by prosecution of the second action; (2) whether substantially the same evidence is presented in the two actions; (3)whether the two suits involve infringement ofthe same right; and (4) whether the two suits arise



### See 7A Russ &Segalla, supra, §§ 104:20, 104:21, at 104-40. Washington cases allude to the concept of a "direct action" bythe third party against the insured, although some no-action provisions expressly limitthe right to situations where the insured has reached an agreed settlementwith the injured third party, or the third party has obtained a judgment against the insured after trial on the merits. See Rones v. Safeco Ins. Co. of Am.. 60 Wn. App. 496, 502-03, 804 P.2d 649 (1991) (where third-party plaintifffailed to meet the "no action" clause requirements, "the 'no action' clause is a complete defense" against the plaintiffs third-party claim). On appeal, BP mentions a third-party beneficiary theory, but does not argue that it is a third-party beneficiary and cites no Washington cases adopting this rationale for a "direct action." Courts in otherjurisdictions have applied a "third-party beneficiary" label as the basis for a direct action theory. See, e.g., Malmgren v. Sw. Auto. Ins. Co., 201 Cal. 29, 255 P. 512 (1927). Commentators, however, recognize that general and casual use ofthat label does not reflect a genuine third-party beneficiary contract theory. "The use ofthe label 'third-party beneficiary' can itselfcause confusion, since traditional concepts ofthird-party beneficiary status include certain distinct rights under the contract. In the direct action context, the label should be restricted to cases where the rights ofthe beneficiary are limited to the rights ofthe insured." 7A Russ &Segalla, supra, §104:42, at 104-66. 

### 17Appellant's Br. at 8. Even assuming that such a provision existsin CSS's MOE policy, it appears BP has not met the conditions precedent to any "direct" right to action under the provision because the defaultjudgment against CSS was not an agreed settlement or a judgment obtained after an actual trial.No. 68259-8-1/8 

### out of the same transactional nucleus offacts."18 The central issues in both ofBP's lawsuits are the same: whether CSS is liable for a loss covered by the MOE policy, and whether MOE had a duty under its policy to indemnify CSS. Both the Thurston County and KingCounty lawsuits depended entirely upon MOE's underlying duty to indemnify CSS. At oral argument, counsel for BP asserted some other duty is owed by the insurer
to the third-party claimant. But BP provides no authority for this proposition, and we have found none. Moreover, the evidence necessary to each lawsuit is also the same. In both lawsuits, BP would need evidence that it held a defaultjudgment against CSS, that the MOE policy covered the specific losses, and that CSS met its obligations under 

### thepolicy.19 Neither lawsuit isindependentofthis same nucleus offacts, and therights at issuein both lawsuits arefundamentally the same.20

18 Kuhlman v. Thomas. 78Wn. App. 115, 122, 897 P.2d 365 (1995) (alteration in original) (internal quotation marks omitted) (quoting Rains v. State, 100 Wn.2d 660, 664, 674 P.2d 165 (1983)). It is not necessary that all four be present to bar the claim. Id. ("there is no specific test for determining identity of causes of action"); Rains, 100 Wn.2d at 663-64; Hadlevv. Cowan. 60 Wn. App. 433, 441, 804 P.2d 1271 (1991) ("In determining whetherthere is identity ofcauses ofaction, resjudicata, unlike collateral estoppel, applies to what might or should have been litigated as well as what was litigated. InWashington a number oftests for the identity ofcauses ofaction have been used.... '[I]dentity ofcauses ofaction cannot be determined precisely by mechanistic application of a simple test.'") (internal quotation marks omitted) (quoting Abramson v. University of Hawaii. 594 F.2d 202, 206 (9th Cir.1979)); see also Philip A. Trautman, Claimand Issue Preclusion in CivilLitigation in Washington, 60 Wash. L.Rev. 805, 816 (1985) (citing Rains. 100Wn.2d at 664). 

### 19 It is true that the Thurston County lawsuit would require proofofthe additional fact that BP had executed on the "choses in action" and held the rights of CSS, the insured, to be indemnified on the loss. See generally 14A Karl B. Tegland, Washington Practice: Civil Procedure § 35.26, at 527 (2d ed. 2009). 

### 20 Rights established byajudgmentin an action against an insurance company based on a "chose of action" could be destroyed or impaired by a second direct action 

### againstthe same insurer because both actions depend entirely on the same duty of the insurer to indemnify its insured.No. 68259-8-1/9 

### BP concedes that the identical persons or parties were present in both lawsuits, but argues that itwas actingin a different capacity or"quality" in the lawsuits. The quality ofpersons or parties is relevant in situations where the parties to twolawsuits 

### are the same, butone or the other acts in a different capacity in thetwo proceedings.21 The circumstances of this case do not support BP's argument that itacted in a different capacity orquality in the two lawsuits. BP acted in its own capacity against MOE and sought to advance and protect its own interests in both lawsuits. These considerations support the application of resjudicata inthese circumstances. 

### BP's arguments that application of res judicata results in injustice are not persuasive. BP fails to adequately explain why it could not have discovered the 

### "boilerplate" MOE policy language priortofiling the Thurston County lawsuit by reviewing MOE's standard policies, the same method itused in this case. 

### Moreover, BP mistakenly contends that this court's determination in a previous appeal (Appeal 2) precluded BPfrom maintaining a garnishment action against MOE. This court concluded that BP failed to meet its burden ofdemonstrating that CSS actually had acquired a property interest against MOE, not that CSS's right or interest 

### did notexist.22 Had BP met its burden by establishing thatCSS, aterminated Minnesota LLC, could have come into ownership of a claim against MOE, it could have pursued garnishment or execution on CSS's chose in action.



### 21 See, e.g.. Flessherv. Carstens Packing Co.. 96 Wash. 505, 165Pac. 397 (1917) (father sued as guardian ad litem for his daughter based on injuries to her, and then later sued to recover expenses he incurred providing medical care ofthe child). 

### 22 Berschauer Phillips Const. Co. v. Concrete Sci. Servs. ofSeattle. LLC, noted at 160 Wn. App. 1039, 2011 WL 1107228, at*3.No. 68259-8-1/10 

### Finally, BPasserts that MOE "waived" its ability to assertthe defense of res 

### judicata in the King County proceeding because it was aware ofthe King County lawsuit at the timeit stipulated to the dismissalwith prejudice of the Thurston County lawsuit. 

### BP relies upon but misreads Karlberg v. Often.23 The defense ofresjudicata can be waived ifthe defendant is aware ofa second suit for the same cause ofaction and 

### purposefully acquiesces to claim splitting—forexample, byfailing to raise an objection 

## in eitheraction.24 Here, on the same day thattheThurston Countycourtenteredthe stipulated dismissal with prejudice, MOE's counsel advised BP that MOE would file a 

### motion to dismiss the King County action, stating, "I believe the law is clear that BP may 

### not split its claims into multiple lawsuits."25 MOE did notacquiescetoclaim splitting. Karlberg is distinguishable and MOE did not waive the defense of res judicata.
Affirmed.

WE CONCUR: 

# CvK J

. ^J^f

23167 Wn. App. 522, 532, 280 P.3d 1123 (2012) (no waiverwhere "Karlberg's second suit came afterjudgment was granted in the first cases"). 

### 24 The illustration ofwaiver in the restatement sectioncited in Karlberg is where, after a collision, A sues B for personal injuries in one action and for property damage in a second action and "B does not make known in either action his objection (usually called 'other action pending') to A's maintaining two actions on parts of the same claim." Restatement (Second) ofJudgments § 26(1 )(a), at 235 (1982). 

### 25 Clerk's Papers at204.

10