285
Argued and submitted February 25, reversed and remanded June 15, 2022
WAVE FORM SYSTEMS, INC.,
an Oregon domestic corporation and
Wave Form Lithotripsy, LLC,
a Washington limited liability corporation,
Plaintiffs-Appellants,
v.
Russell HANSCOM,
an individual,
Defendant-Respondent.
Multnomah County Circuit Court
19CV36515; A174367
514 P3d 126
This action arises out of allegedly unfair competition among medical contractors. Defendant Hanscom started Bedrock Lithotripsy, LLC, to provide medical
equipment and services to area hospitals, and is its managing member. He started
it with two of plaintiffs’ then-employees with the intention of competing with
plaintiffs, two affiliated entities that provide the same services. Plaintiffs previously sued Bedrock and its two former employees in connection with that conduct
and, when it proposed amending the complaint to join Hanscom, Bedrock stated
in an email that it would object. After that case was tried to completion, plaintiffs
brought this action. The trial court granted summary judgment to Hanscom on
the ground that he was in privity with Bedrock, such that the doctrine of claim
preclusion barred this subsequent action against Hanscom. Plaintiffs appealed.
Held: The Court of Appeals found that Hanscom was in privity with Bedrock
in the first action but that there was a factual dispute as to whether Bedrock,
in effect, waived Hanscom’s ability to assert the doctrine of claim preclusion by
objecting to joining him in that action. The trial court therefore erred in granting
summary judgment.
Reversed and remanded.
Eric J. Neiman, Judge pro tempore.
J. Kurt Kraemer argued the cause for appellants. Also
on the opening brief were Katie Jo Johnson and McEwen
Gisvold LLP. Also on the reply brief was Tyler J. Bellis.
Keith A. Pitt argued the cause for respondent. Also on
the brief was Slinde Nelson.
Before James, Presiding Judge, and Lagesen, Chief Judge,
and Joyce, Judge.
286 Wave Form Systems, Inc. v. Hanscom
LAGESEN, C. J.
Reversed and remanded.
Cite as 320 Or App 285 (2022) 287
LAGESEN, C. J.
This action for intentional interference with economic relations and contract arises out of competition—
alleged to be unfair—in the field of lithotripsy, which involves
the use of shockwaves to break up kidney stones. Defendant
Hanscom started Bedrock Lithotripsy, LLC, to provide lithotripsy equipment and services to area hospitals, and is
its managing member. He started it with the intention of
competing with plaintiffs Wave Form Systems, Inc. (WFS),
and Wave Form Lithotripsy, LLC, (WFL) (collectively, Wave
Form), two affiliated entities that provide the same services.
Defendant, in fact, started Bedrock with two WFL employees,
McComber and Hill, and successfully negotiated contracts
with Providence, which had been Wave Form’s customer.
Wave Form previously sued Bedrock, McOmber, and Hill
in connection with that conduct and, when it proposed
amending the complaint to join Hanscom, Bedrock stated
in an email that it would object. After that case was tried to
completion, Wave Form brought this action. The trial court
granted summary judgment to Hanscom on the ground
that he was in privity with Bedrock, such that the doctrine
of claim preclusion barred this subsequent action against
Hanscom. We reverse, concluding that Bedrock’s statement
that it would object to the amendment of the complaint creates a factual dispute as to whether the defense of claim
preclusion has been waived.
We review a trial court’s grant of summary judgment for errors of law and will affirm if there are no genuine
issues as to any material fact and the moving party is entitled to judgment as a matter of law. Foundation of Human
Understanding v. Masters, 313 Or App 119, 123-24,
496 P3d
684 (2021). We view the facts in the light most favorable to
the nonmoving party and draw all reasonable inferences
therefrom in that party’s favor.
Id. at 124.
As noted, this case relates to a prior case brough by
Wave Form against Bedrock, McOmber, and Hill. Hanscom,
McComber, and Hill formed Bedrock in June 2017 as a
Washington limited liability company, listing Hanscom
as a “governing” person and the “registered agent” with
the Washington Department of Revenue and Secretary of
288 Wave Form Systems, Inc. v. Hanscom
State’s office. McOmber and Hill were employed by WFL
until August 17, and August 23, 2017, respectively. A few
weeks after Bedrock’s formation, and while McOmber and
Hill were still employed by WFL, Hanscom emailed two of
plaintiffs’ customers, apprising them of the formation of a
new business that would compete with plaintiffs. At least
one customer immediately began reducing its business with
Wave Form and, in September 2017, terminated its contract
with plaintiffs and signed a new contract with Bedrock.
That contract was signed by Hanscom as Chief Executive
Officer.
Wave Form sued Bedrock, McOmber, and Hill the
next month. Wave Form ultimately asserted claims for
(1) unfair competition against McOmber, Hill, and Bedrock,
(2) breach of confidential relationship against McOmber and
Hill, (3) breach of duty of loyalty against McOmber and Hill,
(4) violation of the Uniform Trade Secrets Act against all
defendants, (5) a declaratory judgment for injunctive relief
against all defendants, and (6) breach of employment agreement against McOmber and Hill.
In the course of the case, Wave Form learned about
Hanscom’s role in forming Bedrock. Hanscom had never
been employed by plaintiffs but he allegedly benefited from
the insider knowledge of his associates, McOmber and Hill,
as the three planned and formed Bedrock. After discovering Hanscom’s role, Wave Form proposed amending the
complaint to add claims against Hanscom and sent a proposed first amended complaint to the lawyer for Bedrock,
McComber, and Hill. That proposed amended complaint,
among other things, added Hanscom as a defendant and
alleged additional claims of intentional interference with
economic relations and defamation against him. In the email
that accompanied the proposed amended complaint, Wave
Form’s lawyer noted that “[t]he claims against Mr. Hanscom
seem best suited for inclusion in this case, but we could also
bring those in a separate lawsuit if you object and the court
agrees that they are not sufficiently related to the claims
and factual allegations in this case.” Counsel for Bedrock,
McOmber, and Hill objected to adding Hanscom to the case,
responding:
Cite as 320 Or App 285 (2022) 289
“I have not been engaged by Russ Hanscom individually, and I don’t know who his counsel will be. I cannot
speak to what he would or would not allow in his individual
capacity.
“On behalf of Bedrock, [McOmber, and Hill], we will not
agree to any of these amendments. These additional claims
are frivolous (like the prior ones) and the delay in trying
to amend claims is unacceptable. … As presented, this
amendment would prejudice the defendants, and we will
object.”
In response, Wave Form requested to contact Hanscom
directly to seek his input, noting that it was likely that
“he’s well aware of the issues in this case and [that] it would
be more economic[al] for the court and the parties to have
those claims tried at the same time since the factual issues
overlap. But if he’s going to request a set over of the trial
date upon being joined, then that may influence whether or
not we sue him separately.”
Ultimately, Wave Form did not attempt seek to add
Hanscom to the case and it was tried to a jury. The jury
found in Wave Form’s favor, in part, but awarded a fraction
of the recovery that had been sought.1
Six months later, Wave Form filed the current
case. Hanscom filed a motion for summary judgment on the
ground of claim preclusion. He argued that Wave Form “previously/fully litigated these same transactions, occurrences
and/or damages/remedies to final adjudication/judgment -
against Bedrock Lithotripsy, LLC,” and that he was in privity with Bedrock because he was an agent and indemnitee.
He also sought an award of attorney’s fees. The trial court
agreed with Hanscom and granted the motion.
At issue on appeal is whether the trial court erred
in concluding that the undisputed facts demonstrate as a
matter of law that claim preclusion bars Wave Form’s action
1
The jury found Bedrock liable for a total of $60,000 damages ($50,000
of which was punitive) for willfully or maliciously misappropriating plaintiffs’
trade secrets. The jury also found that Hill was not liable for any damages and
McOmber was liable for a total of $10,000 damages ($6,250 punitive) for maliciously breaching a confidential relationship with plaintiffs and maliciously misappropriating trade secrets.
290 Wave Form Systems, Inc. v. Hanscom
against Hanscom. At its core, the doctrine of claim preclusion bars a party from pursuing a claim that could have
been brought in a prior action arising out of the same factual transaction. Under the circumstances present here, to
establish claim preclusion, Hanscom was required to show:
(1) that Wave Form prosecuted an action through to a final,
binding judgment; (2) that this second action is based on
the same factual transaction that was at issue in the first,
(3) that the remedy sought in the second action is additional
or alternative to the one sought earlier, (4) that the claim in
the second action is of such a nature that it could have been
joined in the first action, and, (5) that, because Hanscom
was not made a party to the prior action, that Hanscom
was in privity with a party to the prior case. Bloomfield v.
Weakland, 339 Or 504, 510-11,
123 P3d 275 (2005).
On appeal, Wave Form focuses its argument on
the privity element, contending that the trial court erred
in determining that Hanscom was in privity with Bedrock
so as to allow him to assert the defense of claim preclusion.
Alternatively, Wave Form argues that even if Hanscom is
in privity with Bedrock, there is, at a minimum, a dispute
of fact as to whether Bedrock, in effect, waived Hanscom’s
ability to assert the doctrine of claim preclusion by objecting
to joining him in the previous action. We agree with the latter argument.
As both parties acknowledge, in evaluating whether
a judgment against a corporate entity should be afforded
preclusive effect as to an officer, director, or shareholder, we
have looked to the Restatement (Second) of Judgments § 59
(1982). Eagle-Air Estates Homeowners Assn., Inc. v. Haphey,
272 Or App 651, 661-63,
354 P3d 766 (2015), rev den,
359
Or 166 (2016); Ditton v. Bowerman,
117 Or App 483, 487,
844 P2d 919 (1992), rev den,
316 Or 527 (1993). That section
explains that a judgment against a corporate entity ordinarily will not give rise to either claim or issue preclusion
against an officer, director, or shareholder except in certain
specified circumstances:
“Except as stated in this Section, a judgment in an action to
which a corporation is a party has no preclusive effects on a
person who is an officer, director, stockholder, or member of
Cite as
320 Or App 285 (2022) 291
a non-stock corporation, nor does a judgment in an action
involving a party who is an officer, director, stockholder, or
member of a non-stock corporation have preclusive effects
on the corporation itself.
“(1) If a relationship exists between a corporation and
an officer, director, stockholder, or member of a non-stock
corporation, such as that of principal and agent, indemnitee and indemnitor, or successor in interest to property,
from which preclusive effects follow under rules governing
that relationship, the judgment has preclusive effects in
accordance with those rules.
“(2) The judgment in an action to which the corporation is a party is binding under the rules of res judicata in
a subsequent action by its stockholders or members suing
derivatively in behalf of the corporation, and the judgment
in a derivative action by its stockholders or members is
binding on the corporation.”
Restatement (Second) of Judgments § 59 (1982).
In this instance, Hanscom argues, and the trial
court determined, that he was in privity with Bedrock,
both because Hanscom was acting as Bedrock’s agent when
engaging in the conduct underlying Wave Form’s complaint
against Bedrock and because Bedrock’s operating agreement and Washington law both make Bedrock Hanscom’s
indemnitor on Wave Form’s claims. We agree. By its terms,
the complaint alleges that Hanscom interfered with Wave
Form’s economic and contractual interests by engaging in
conduct on behalf of Bedrock, in order to negotiate contracts between Bedrock and Wave Form’s customers. And
Bedrock’s operating agreement requires Bedrock to indemnify Hanscom “in connection with or resulting from any
claim, action, or demand against a Member, the Company
or any of their agents that arise out of or in any way relate
to the Company, its properties, business, or affairs.” That
is, as pleaded, Wave Form’s action seeks to hold Hanscom
liable for conduct taken on behalf of Bedrock, and for which,
the undisputed facts reflect, Bedrock would have an indemnification obligation. That is sufficient to establish that
Hanscom is in privity with Bedrock for purposes of the doctrine of claim preclusion, thereby permitting Hanscom to
292 Wave Form Systems, Inc. v. Hanscom
assert that the prior judgment involving Bedrock should be
given claim-preclusive effect in this proceeding.
That is not the end of the story. Also relying on the
Restatement, specifically, Restatement section 26(1)(a), we
have recognized that, by acquiescing in split litigation, a
party waives the ability to assert the defense of claim preclusion. Aguirre v. Albertson’s, 201 Or App 31, 47-51,
117 P3d
1012 (2005). Section 26(1)(a) provides that a prior action
does not extinguish a basis for a second action against a
defendant where “[t]he parties have agreed in terms or in
effect that the plaintiff may split his claim, or the defendant
has acquiesced therein[.]” Restatement § 26. In Aguirre, we
relied on that section of the Restatement to conclude that
a final federal court judgment should not be given claim-preclusive effect in a state court proceeding, where the state
and federal matters were pending simultaneously and the
defendant raised no objection to the split proceeding. Id. at 51.
We reasoned that the rule embodied in the Restatement
“avoids abuses,” noting that other courts have observed that
a contrary rule, allowing a litigant to delay objecting to
separate proceedings that otherwise could be joined, would
encourage inappropriate tactical maneuvers. Id.
Here, the summary judgment evidence, when viewed
in the light most favorable to Wave Form, the nonmoving
party, would allow for a finding that the defense of claim
preclusion has been waived by acquiescence. A factfinder
could find that Bedrock, with whom Hanscom is in privity,
objected to adding Hanscom to the first case because of the
delay it would cause in the first case, thereby acquiescing to
a separate proceeding against Hanscom.
Hanscom offers two primary arguments against this
conclusion. We are not persuaded by either.
First, Hanscom asserts that the waiver rule embraced
by Aguirre only applies in the context of simultaneous proceedings and does not apply in the context of sequential
proceedings. Hanscom is correct that Aguirre addressed
parallel proceedings and also is correct that we stated that
the waiver rule “is implicated when a plaintiff pursues multiple actions involving the same claim simultaneously, as
Cite as 320 Or App 285 (2022) 293
opposed to sequentially.” Aguirre,
201 Or App at 49. But, the
Restatement itself explains that the rule is broad enough to
apply in the context of sequential proceedings. Restatement
section 26 comment a explains that the main purpose of
the rule against claim splitting “is to protect the defendant
from being harassed by repetitive actions based on the same
claim. The rule is thus not applicable where the defendant
consents, in express words or otherwise, to the splitting
of the claim.” Restatement § 26 comment a. The ultimate
question is whether the defendant by “words or otherwise”
consented to or acquiesced in the claims being pursued in
separate actions, simultaneous or sequential.
Second, Hanscom asserts that there is no basis to
conclude that he, as distinct from Bedrock, consented to or
acquiesced in the separate actions, so as to deprive him of
the ability to assert the defense of claim preclusion. The
flaw in that argument is that Hanscom was not a defendant
in the first case. Because Hanscom was not a defendant in
the first case, he can assert the defense of claim preclusion
in this case only by virtue of the fact that he is in privity
with Bedrock. And parties in privity are essentially different sides of the same record: “[P]rivity ‘is merely a word
used to say that the relationship between one who is a party
on the record and another is close enough to include the
other within res judicata.’ ” Bloomfield, 339 Or at 511 (quoting Wolff v. Du Puis,
233 Or 317, 321,
378 P2d 707 (1963)).
Treating Hanscom and Bedrock as having a close enough
relationship to permit Hanscom to assert claim preclusion
because of Bedrock’s involvement in the first case necessarily means that Bedrock’s objection to joining Hanscom in
the first case must be attributed to Hanscom in this one.
To conclude otherwise would be inequitable where, as here,
Hanscom’s ability to assert the doctrine of claim preclusion flows directly from his relationship with Bedrock. See
Bloomfield,
339 Or at 511 (explaining that “claim preclusion
will not operate to bar [the plaintiffs’] claims in the present
action unless it is fundamentally fair to do so”).
In sum, although the trial court correctly concluded
that Hanscom’s relationship with Bedrock was close enough
to allow Hanscom to assert the defense of claim preclusion,
294 Wave Form Systems, Inc. v. Hanscom
a reasonable factfinder could conclude that, under the circumstances present here, Bedrock’s objection to adding
Hanscom to the prior proceeding waived Hanscom’s ability
to assert the defense of claim preclusion based on his relationship with Bedrock. For that reason, the trial court erred
in granting summary judgment.
Reversed and remanded.
