Court Opinion

ID: 4766100
Source: CourtListenerOpinion
Date Created: 2021-08-16 20:32:01.717201+00
Date Added: 2024-06-11T08:09:15.688320
License: Public Domain

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

 THE EVERETT CLINIC, PLLC, a                         No. 81684-5-I
 Washington limited liability company,
                                                     DIVISION ONE
                      Respondent,
                                                     UNPUBLISHED OPINION
               v.

 PREMERA, a Washington corporation,
 and PREMERAFIRST, INC., a
 Washington corporation,

                      Appellants.

 PREMERA, a Washington corporation,
 and PREMERAFIRST, INC., a
 Washington corporation,

                      Appellants,

               v.

 THE EVERETT CLINIC, PLLC;
 EASTSIDE FAMILY MEDICINE
 CLINIC, P.S.,

                      Respondents.

      APPELWICK, J. — Premera appeals from orders granting defendants EFMC’s

and TEC’s CR 12(b)(6) motions to dismiss. It asserts the trial court erred in

dismissing its complaint for breach of contract requesting declaratory relief. It

further asserts the trial court erred in awarding attorney fees and costs. We

 Citations and pin cites are based on the Westlaw online version of the cited material.
No. 81684-5-I/2

reverse the dismissal of Case II, vacate the award of attorney fees, and remand

for further proceedings consistent with this opinion.

                                      FACTS

       The dispute at issue involves four parties and three agreements. Premera

and its affiliate, PremeraFirst, Inc., (collectively “Premera”), provide health care

coverage and related services in Washington. Premera negotiates contracts with

health care providers to provide services to its health plan enrollees. The Everett

Clinic, PLLC (TEC) is a physician group operating multiple sites in Snohomish and

King Counties. TEC and Premera entered into an agreement under which TEC

provides services to Premera enrollees and Premera reimburses TEC at agreed

upon rates (TEC Agreement).

       Premera also had an agreement (EFMC Agreement) with a single site group

practice, Eastside Family Medicine Clinic, PC (EFMC). Premera reimbursed TEC

under the TEC Agreement at a higher rate than it reimbursed EFMC under the

EFMC Agreement.

       In December 2018, TEC purchased certain assets from EFMC (TEC-EFMC

Asset Sale Agreement), including its medical clinic site lease (Bellevue clinic).

TEC also hired physicians and other employees of EFMC.

       After the asset sale, TEC and Premera disagreed over the rate that Premera

was required to reimburse TEC for Bellevue clinic services: the TEC Agreement

rate or the EFMC Agreement rate.

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No. 81684-5-I/3

       A. Case I: TEC Complaint

       In September 2019, TEC filed a complaint against Premera for breach of

the TEC Agreement (Case I). It did not include EFMC as a defendant. It sought

declaratory relief to enforce the terms of the TEC Agreement for services provided

at the Bellevue clinic.

       In its answer, Premera asserted four counterclaims: (1) breach of the TEC

Agreement by TEC, (2) breach of the EFMC Agreement by EFMC, (3) tortious

interference with the EFMC Agreement by TEC and the doctors who previously

owned EFMC (Doctors), and (4) violation of Washington’s Consumer Protection

Act, RCW 19.86.020, against TEC. As an affirmative defense, it asserted that TEC

is bound by the EFMC Agreement under the successor liability doctrine. It did not

assert its second counterclaim against TEC, the opposing party to its suit.

       EFMC filed a motion to dismiss Premera’s claims against EFMC and the

Doctors. EFMC argued the Doctors could not have tortiously interfered with their

own contract. It further argued that the breach of contract counterclaim against

EFMC should have been pleaded as a counterclaim against an opposing party and

EFMC should have been added as a third party to that counterclaim. The trial

court granted its motion. It dismissed the breach of contract claim against EFMC,

dismissing EFMC from the case, without prejudice. It dismissed the Doctors with

prejudice.

       Before the counterclaims were dismissed, Premera moved to amend its

complaints twice. Its first motion to amend sought to add TEC and the Doctors to

its counterclaim against EFMC for breach of the EFMC contract. The trial court

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No. 81684-5-I/4

denied the motion without prejudice. Its second motion sought to add a claim

against TEC for breach of the EFMC Agreement. The trial court denied the second

motion and awarded TEC its attorney fees and costs associated with the motion.

       B. Case II: Premera Complaint

       Premera subsequently initiated a separate suit against EFMC for breach of

the EFMC Agreement and TEC for breach of the EFMC and TEC Agreements

under a successor liability theory (Case II). It alleged that pursuant to the TEC-

EFMC Asset Sale Agreement, TEC acquired EFMC’s business operations and

those operations continued largely the same as before the transaction. It argued

the Asset Sales Agreement was a de facto merger or consolidation and that the

current Bellevue clinic is a mere continuation of EFMC. Further, it argued the

parties structured TEC’s acquisition of EFMC as a transfer of assets, rather than

as a merger, for the fraudulent purpose of escaping EFMC’s contractual

obligations to Premera.

       The complaint sought a declaratory judgment that “the EFMC Agreement

continues in full force and effect” and “TEC has breached the TEC Agreement and

the EFMC Agreement.”

       Premera moved to consolidate the two cases. The trial court consolidated

the two lawsuits, but the cases retained their separate identities. TEC then moved

to dismiss Premera’s claims in Case II, enforce the trial court’s prior orders in Case

I, and for sanctions. EFMC also moved to dismiss Premera’s claims in Case II.

The trial court granted their motions. TEC moved for an award of its attorney fees

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No. 81684-5-I/5

and costs incurred in Case II. The trial court granted the motion, awarding TEC’s

requested fees and costs, finding Premera initiated the lawsuit in bad faith.

       Premera appeals.

                                   DISCUSSION

       Premera asserts that the trial court erred in granting the defendants’ CR

12(b)(6) motions to dismiss. It argues the court further erred in awarding TEC

attorney fees.

   I. Motion to Dismiss

       A trial court's ruling on a motion to dismiss for failure to state a claim upon

which relief can be granted under CR 12(b)(6) is a question of law and is reviewed

de novo by an appellate court. Cutler v. Phillips Petroleum Co., 124 Wn.2d 749,

755, 881 P.2d 216 (1994). Courts should dismiss a claim under CR 12(b)(6) only

if it appears beyond a reasonable doubt that no facts exist that would justify

recovery. Id. In making this determination, a court must consider hypothetical

facts proffered by the plaintiff. Gorman v. Garlock, Inc., 155 Wn.2d 198, 214, 118

P.3d 311 (2005). “[A]ny hypothetical situation conceivably raised by the complaint

defeats a CR 12(b)(6) motion if it is legally sufficient to support [the] plaintiff's

claim.” Id. (first alteration in original) (quoting Bravo v. Dolsen Cos., 125 Wn.2d

745, 750, 888 P.2d 147 (1995)).

       Premera’s complaint sought to resolve the rights of the parties under the

three agreements. It requested a declaration that the EFMC Agreement was “in

full force and effect.” It also sought a declaration that “TEC has breached the TEC

Agreement and the EFMC Agreement.” TEC and EFMC disagree with Premera

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No. 81684-5-I/6

over whether the TEC Agreement or the EFMC Agreement governs the

reimbursement rate for services provided at the Bellevue clinic. This may depend

upon whether the existence or contents of the TEC-EFMC Asset Sales Agreement

means that TEC is a successor to EFMC.

       To obtain declaratory relief, a party must satisfy certain threshold

requirements. Bloome v. Haverly, 154 Wn. App. 129, 140, 225 P.3d 330 (2010).

One such threshold requirement is the existence of a justiciable controversy

between the parties. Id. A justiciable controversy is (1) an actual, present, and

existing dispute, or the mature seeds of one, as distinguished from a possible,

dormant, hypothetical, speculative, or moot disagreement, (2) between parties

having genuine and opposing interests, (3) which involves interests that must be

direct and substantial, rather than potential, theoretical, abstract, or academic, and

(4) a judicial determination of which will be final and conclusive. Id. at 140-41. It

is clear that here a justiciable controversy exists. A judicial determination of the

legal effects of the agreement would provide a conclusive answer to the question

presented by the controversy.

       The Uniform Declaratory Judgment Act (UDJA) provides that a “contract

may be construed either before or after there has been a breach thereof.”1 RCW

       1Premera does not mention the UDJA in its complaint. It first invokes it at
the hearing on the motions to dismiss, stating,
      [L]et me be clear about the declaratory judgment claim. When
      somebody receives a bill that says you owe this money, at that point
      it is absolutely black letter law that that claim is ripe for disposition
      under the [UDJA]. There is a justiciable controversy for you to decide.
Declaratory judgment actions are governed by the UDJA, which provides that a
person interested under a written contract “may have determined any question of

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No. 81684-5-I/7

7.24.030. But, EFMC argues that declaratory relief in the form of a declaration of

rights under the contract is not available under Jacobsen v. King County Medical

Service Corp., because Premera alleged an existing breach. See 23 Wn.2d 324,

327, 160 P.2d 1019 (1945) (holding declaratory judgment may not be invoked

where alleged breach occurred; redress by action for breach of contract was

sufficient). But, Jacobsen and its line of cases have not been good law since the

Ronken v. Board of County Commissioners of Snohomish County, 89 Wn.2d 304,

310, 572 P.2d 1 (1977), decision in 1977.2 The availability of declaratory relief is

controlled by CR 57, which provides in part that “[t]he existence of another

adequate remedy does not preclude a judgment for declaratory relief in cases

where it is appropriate.”

       Here, declaratory relief is appropriate. There are clearly questions of law

about the respective contracts that bear on the outcome and that could be resolved

by a declaration of rights. A declaration of rights could prevent a breach and

damages, or it could determine there was no breach. It could also determine

whether there was successor liability, depending upon resolution of certain factual

issues.

construction or validity arising under” the contract and “obtain a declaration of
rights, status, or other legal regulations thereunder.” RCW 7.24.020.
        2 See Ronken, 89 Wn.2d at 310 (holding Reeder and those cases following

it no longer control on the issue of whether declaratory relief is available after the
adoption of CR 57); Reeder v. King County, 57 Wn.2d 563, 564, 358 P.2d 810
(1961) (relying on Jacobsen for assertion that a plaintiff is not entitled to
declaratory relief if a completely adequate remedy is available); New Cingular
Wireless PCS, LLC v. City of Clyde Hill, 185 Wn.2d 594, 605, 374 P.3d 151 (2016)
(agreeing that the bar in Reeder was changed by CR 57) (citing Ronken, 89 Wn.2d
at 310).

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No. 81684-5-I/8

       TEC argued in opposition to Premera’s efforts to amend its answer in Case

I that TEC could not have successor liability until after a breach by EFMC was

determined and that successor liability could not be created only transferred.

Washington adheres to the general rule that a corporation purchasing the assets

of another corporation does not become liable for the debts and liabilities of the

selling corporation. Cambridge Townhomes, LLC v. Pac. Star Roofing, Inc., 166

Wn.2d 475, 481-82, 209 P.3d 863 (2009). The trial court appears to have relied

on that general rule. But, an exception to this rule may exist on one of four

grounds: (1) there is an express or implied agreement for the purchaser to assume

liability; “‘(2) the purchase is a de facto merger or consolidation; (3) the purchaser

is a mere continuation of the seller; or (4) the transfer of assets is for the fraudulent

purpose of escaping liability.’” Id. at 482 (quoting Hall v. Armstrong Cork, Inc., 103

Wn.2d 258, 262, 692 P.2d 787 (1984)). The complaint appears to raise questions

of fact as to whether exceptions 2, 3, and 4 apply. Dismissal under this argument

was at odds with the case law.

       The trial court stated that Premera did not “prove” breach and damages.

But, Premera did not have to “prove” breach or damages to survive a CR 12(b)(6)

motion to dismiss. It had to allege only legally sufficient hypothetical facts to

support its claim. Gorman, 155 Wn.2d at 214. Here, it cannot be said beyond a

reasonable doubt that no facts exist that would justify recovery. See Cutler, 124

Wn.2d at 755. The complaint does not fail to state a claim on which relief can be

based.

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No. 81684-5-I/9

      It is true that, where the action is one for damages only, there being involved

no property or personal rights having value in themselves, a failure to prove

substantial damages is a failure to prove the substance of the issue, and warrants

a judgment of dismissal. Ketchum v. Albertson Bulb Gardens, Inc., 142 Wash.

134, 139, 252 P. 523 (1927); see also Jacob's Meadow Owners Ass’n v. Plateau

44 II, LLC, 139 Wn. App. 743, 754, 162 P.3d 1153 (2007). But, Premera sought

declaratory relief, not damages. As a general rule, every breach of contract gives

rise to a cause of action, even when the aggrieved party has not suffered any

actual damage. Jacob's Meadow, 139 Wn. App. at 754. And, it was clear that the

damages Premera sought to avoid incurring were the payment of higher

reimbursement rates than those for which it had contracted.

      Here, the record is clear that Premera was trying to get all the parties and

contracts in the same proceeding. Its efforts to do so in Case I were unsuccessful.

It filed its complaint, then promptly moved to consolidate it with Case I so they

would be tried together. Premera was able to so move because Case I was still

pending.   And, because the claims against TEC in Case II are merely an

enumeration of what Premera undertook to prove in Case I through its affirmative

defense, no new burden was placed on TEC as a result.3 The result is that any

      3  TEC brought its motion to dismiss the same day the cases were
consolidated. It did not oppose Premera’s motion to consolidate. There was no
separate litigation that necessitated filing the motion to dismiss and expending in
excess of $50,000 bringing that motion.

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No. 81684-5-I/10

concerns over claim splitting or harms from claim splitting were obviated when the

case was consolidated.4

       These arguments did not merit dismissal under CR 12(b)(6). Dismissal on

12(b)(6) grounds was error. We reverse the dismissal as to both parties.

   II. Attorney Fees Below

       Next, Premera argues the trial court erred in granting TEC’s motion for

attorney fees and costs. The grant of attorney fees against Premera was based

on a finding of bad faith in filing its complaint.

       A trial court has the authority to impose sanctions, including attorney fees,

under its inherent equitable powers to manage its own proceedings. State v.

Gassman, 175 Wn.2d 208, 210-11, 283 P.2d 1113 (2012). Its inherent authority

to sanction litigation conduct is properly invoked upon a finding of bad faith. State

v. S.H., 102 Wn. App. 468, 475, 8 P.3d 1058 (2000). Decisions on sanctions are

reviewed for abuse of discretion. Gassman, 175 Wn.2d at 210.

       Because the dismissal on CR 12(b)(6) grounds was error, awarding fees on

litigating the dismissal was an abuse of the court’s discretion. We vacate the award

of fees to TEC.

       4 “Filing two separate lawsuits based on the same event—claim splitting—
is precluded in Washington.” Landry v. Luscher, 95 Wn. App. 779, 780, 976 P.2d
1274 (1999). Res judicata bars such claim splitting if the claims are based upon
the same cause of action. Ensley v. Pitcher, 152 Wn. App. 891, 899, 222 P.3d 99
(2009). The threshold requirement of res judicata is a valid and final judgment on
the merits in a prior suit. Id.

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No. 81684-5-I/11

   III. Attorney Fees On Appeal

       Finally, TEC requests attorney fees and costs on appeal on several

grounds.   Reasonable attorney fees are recoverable on appeal if allowed by

statute, rule, or contract and properly requested under RAP 18.1.             In re

Guardianship of Wells, 150 Wn. App. 491, 503, 208 P.3d 1126 (2009). TEC

contends that it is entitled to costs under RAP 14.2 if it substantially prevails on

appeal. TEC further asserts that it is entitled to an attorney fee award under RAP

18.9 and RCW 4.84.185 because Premera filed a frivolous appeal. An appeal is

frivolous if there are no debatable issues on which reasonable minds can differ

and it is so totally devoid of merit that there was no reasonable possibility of

reversal. In re Recall of City of Concrete Mayor Robin Feetham, 149 Wn.2d 860,

872, 72 P.3d 741 (2003).

       Premera’s appeal was not frivolous and TEC has not substantially prevailed

on appeal. Accordingly, we decline to award TEC attorney fees and costs on

appeal.

       We reverse the dismissal of Case II, vacate the award of attorney fees, and

remand for further proceedings consistent with this opinion.

WE CONCUR:

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