224 Westlake, LLC v. Engstrom Props., LLC

• Decision Date: 30 July 2012
• Docket Number: No. 66723–8–I.,66723–8–I.
• Citation: 281 P.3d 693,169 Wash.App. 700
• Parties: 224 WESTLAKE, LLC, a Washington limited liability company, Respondent/Cross–Appellant, v. ENGSTROM PROPERTIES, LLC, a Washington limited liability company, Appellant/Cross–Respondent.
• Court: Washington Court of Appeals

169 Wash.App. 700

281 P.3d 693

224 WESTLAKE, LLC, a Washington limited liability company, Respondent/Cross–Appellant,

v.ENGSTROM PROPERTIES, LLC, a Washington limited liability company, Appellant/Cross–Respondent.

No. 66723–8–I.

Court of Appeals of Washington,

Division 1.

July 30, 2012.

Sylvia Luppert, Reaugh Oettinger & Luppert PS, Seattle, WA, for Appellant.

Christopher I. Brain, Adrieene McEntee, Tousley Brain Stephens PLLC, Seattle, WA, for Respondent.

BECKER, J.

¶ 1 Engstrom Properties LLC entered into a real estate purchase option agreement that afforded the purchaser the right to perform environmental testing of the soil beneath the premises. The agreement provided that the final purchase closing date “shall be extended as is reasonably necessary to complete such ... permitted testing.” Substantial evidence supports the trial court's finding that Engstrom breached this mandatory provision, discharging the purchaser's obligation to close. We affirm the entry of judgment in favor of the purchaser. We remand, however, for recalculation of attorney fees. The record is inadequate to review whether the hours claimed were reasonable and the court relied on an improper basis for awarding fees above the lodestar amount.

FACTS

¶ 2 We first present the undisputed facts, drawn primarily from findings of fact entered by the trial court after a five-day bench trial beginning October 11, 2010. The controversy is rooted in an agreement for the purchase and sale of a building at 224 Westlake Avenue North in the South Lake Union district of Seattle. The building was the original Ernst Hardware store built in 1929. Investco Properties Development Corporation, a company formed by real estate investor Michael Corliss, expressed interest in purchasing the building from owner Engstrom Properties LLC. Investco intended to convert the building to residential apartment lofts with a restaurant or other retail on the ground level. Engstrom Properties is owned by Steve Engstrom, who signed the agreement and directed the litigation on behalf of his LLC.

¶ 3 In November 2006, the two companies entered into a “Real Estate Purchase Option Agreement,” exhibit 1 at trial. The agreement provided for a two-year option period, during which time Investco could evaluate the project's feasibility. Investco agreed to make quarterly payments of $75,000 during the option period, totaling $600,000. These payments would ultimately be factored into the $4.55 million purchase price if Investco decided to close.

¶ 4 Engstrom, for its part, promised in section 3.5 of the agreement to remove two decommissioned fuel storage tanks that were buried beneath the building and to clean up any hazardous materials in the surrounding soil to the extent required by current environmental regulations. Engstrom's completion of the cleanup was an express condition to Investco's obligation to close. Investco would be permitted to contract for its own independent soil testing to confirm the cleanup. Section 3.5 concluded with the requirement at issue in this case: “The parties further agree that the Closing Date shall be extended as is reasonably necessary to complete such tank removal, clean up and permitted testing.”

¶ 5 Investco made the first two option payments due under the agreement, totaling $150,000. In June 2007, without informing Engstrom, Investco executed a document assigning its rights under the agreement to 224 Westlake LLC, an entity created for purposes of carrying out Investco's plans to develop the property. Westlake was jointly owned by several LLCs. These were, in turn, owned by Michael Corliss, his children, and several individuals employed by or affiliated with Investco. Westlake project manager Charlie Laboda testified that Corliss was the primary decision maker guiding the Westlake project.

¶ 6 Westlake picked up where Investco left off. It repaid Investco for the first option payments and early project expenses, paid the remaining $450,000 in quarterly option payments,¹ and incurred additional project expenses that ultimately totaled upwards of $400,000.²

¶ 7 It was not until October of the following year that Engstrom learned of the assignment in a letter stating that Investco had assigned the agreement to Westlake and Westlake would be exercising the option to purchase the building. Engstrom did not raise any objection to the assignment or make any inquiries about Westlake.

¶ 8 Engstrom began removing the tanks and excavating contaminated soil in November 2008. Engstrom and Westlake both hired environmental consultants to test the soil. Westlake's consultants found contamination above state clean-up levels, while Engstrom's consultants did not. The record reflects that Westlake communicated its contamination findings to Steve Engstrom and his property manager on December 3, 2008.³ Engstrom's excavation company nevertheless repoured a concrete floor over the exposed soil on the following day.⁴

¶ 9 In January 2009, Westlake's consultants bored through the concrete for a second set of samples to confirm Engstrom's environmental report claiming the cleanup was complete. Westlake's consultants again found contamination above the state clean-up levels. Westlake wrote to Engstrom, demanding full cleanup per section 3.5 of the agreement.

¶ 10 Engstrom instead retained a second environmental consultancy firm. This firm issued a report recommending that Engstrom leave the contaminated soil in place. The firm reasoned that removal of the contamination would be cost-prohibitive and it did not pose any health or environmental threat, “as long as the concrete floor slab of the basement remains in place.” ⁵

¶ 11 Westlake refused this proposal in no uncertain terms and involved counsel in the matter. On February 9, 2009, Westlake wrote to Engstrom through counsel, demanding a full cleanup and seeking an extension of the swiftly advancing closing date to accommodate cleanup and a final round of testing. Engstrom did not respond. Westlake wrote again on February 20, 2009.

¶ 12 When Engstrom finally responded through counsel on February 23, 2009, he disclosed for the first time that he had carried out a second excavation. He declared the cleanup was now truly complete. Westlake had received no notice of this second excavation, which the record reflects began on February 9 and concluded with another repouring of the concrete floor.⁶

¶ 13 Evidence in the record establishes that Westlake took immediate action to schedule further testing after learning about the second excavation.⁷ Despite its swift response, however—and due in part to the special arrangements needed for drilling through concrete—Westlake was unable to schedule the testing until March 4, 2009, two days after the scheduled closing date.

¶ 14 Westlake again requested an extension of the closing date. Engstrom suggested an extension of 4 days—from Monday, March 2, to Friday, March 6, 2009. Westlake insisted 4 days was inadequate time to receive testing results and prepare for closing. Westlake proposed a 30–day extension from the date cleanup was confirmed. Engstrom declined, citing concerns that Westlake's real motives in seeking additional time were related to financial problems.

¶ 15 With this allegation, the dispute heightened. March 2, 2009, passed without an agreement to extend closing. Westlake cancelled its scheduled testing and threatened litigation for material breach if Engstrom refused to reasonably extend closing to accommodate its right to confirm the cleanup by independent testing. Engstrom did not agree to extend beyond March 6. On March 6, Steve Engstrom went to the escrow office to execute the closing documents. His counsel wrote to Westlake stating an expectation that Westlake would participate in closing, but Westlake refused, restating its belief that Engstrom had materially breached the agreement.

¶ 16 The record reflects that by March 19, Engstrom had put his property back on the market.⁸ On March 26, 2009, Westlake sued for damages for breach of contract.

¶ 17 Several months later, Engstrom moved for summary dismissal of the suit on the basis that Investco's June 2007 assignment of the agreement to Westlake was invalid. This motion was denied, and the matter proceeded to trial. Engstrom again argued at trial that the court should dismiss the case because Westlake was not a valid party to the agreement. The court disagreed. After a five-day bench trial, the court ruled in favor of Westlake on every issue. The court found Engstrom in material breach of the agreement and awarded Westlake substantial damages, prejudgment interest, and attorney fees and costs. This appeal followed.

VALIDITY OF ASSIGNMENT

¶ 18 Engstrom argues that Westlake's suit should have been dismissed for lack of standing because the June 2007 assignment from Investco to Westlake was invalid.

¶ 19 The agreement contained a term stating that it was not generally assignable without the other party's “prior written consent.” An exception to that provision allowed Investco to assign the agreement without Engstrom's consent if the assignee was an entity in which Investco owned a majority interest of at least 51 percent:

Assignment. This Agreement is not generally assignable by Purchaser or Seller without Seller's or Purchaser's prior written consent, which consent shall not be unreasonably withheld; provided, however, that Purchaser shall be able to assign this Agreement to a partnership or limited liability company in which Purchaser owns and continues to own through the Closing Date at least 51% of the ownership interests without the consent of Seller and upon written notice to Seller.

The record indicates that Steve Engstrom agreed to the exception based on his understanding that Corliss and his company, Investco, had a good reputation for closing transactions.

¶ 20 When Investco assigned the agreement to Westlake in June 2007, it did not seek Engstrom's prior consent. The assignment document...