Borton & Sons, Inc. v. Burbank Props., LLC
| Decision Date | 10 September 2020 |
| Docket Number | No. 97690-2,97690-2 |
| Citation | 196 Wash.2d 199,471 P.3d 871 |
| Court | Washington Supreme Court |
| Parties | BORTON & SONS, INC., Respondent, v. BURBANK PROPERTIES, LLC, Petitioner. |
Joel R. Comfort, Miller Mertens & Comfort PLLC, 1020 N. Center Pkwy. Ste. B, Kennewick, WA, 99336-7161, for Petitioner(s).
Mark Everett Fickes, John Jay Carroll, Halverson Northwest Law Group PC, Po Box 22550, Yakima, WA, 98907-2550, for Respondent(s).
¶ 1 This case concerns the granting of an equitable grace period to exercise an option to purchase contained in a lease agreement and whether valuable permanent improvements to the property are a necessary prerequisite. We hold that granting an equitable grace period is proper only when a lessee makes valuable improvements to property that would result in an inequitable forfeiture if the lessee is not given a grace period.
¶ 2 When a lessee does not timely exercise an option contained in a lease agreement, special circumstances may warrant granting them extra time to exercise the option. However, in this case, petitioner Burbank Properties LLC mailed its notice shortly after the deadline had passed, and the trial court awarded Burbank an equitable grace period to exercise the option on summary judgment where it was undisputed that no valuable permanent improvements were made. As explained below, Burbank could not be granted an equitable grace period as a matter of law.
¶ 3 In 2012, Burbank purchased 164 acres of agricultural land. Burbank's owner, Eric Rogers, farmed early season potatoes on the property, which required rotating the potato crop with grass seed or timothy hay every two to three years. When Rogers began to have financial troubles, his real estate broker devised a plan to sell the property below market rate and enter into a leaseback agreement containing an option to repurchase the land at the end of the lease.
¶ 4 In February 2016, Borton & Sons Inc. purchased the land for $1,550,000, subject to a three-year "Lease and Option Agreement" (Agreement). Per the Agreement, Burbank was required to exercise the purchase option by December 31, 2017 via registered or certified mail, and closing was to occur no later than December 31, 2018. The Agreement also contained a "time is of the essence" clause. During the lease period, Rogers continued to harvest potatoes and planted timothy hay, which is a two to three year crop.
¶ 5 Three days before the option was set to expire, Rogers drafted a "Notice of Exercise of Option to Purchase the Subject Property" (Notice). Rogers inadvertently failed to meet the December 31 deadline and mailed the Notice via regular mail on January 4, 2018. After receiving the Notice on January 8, 2018, Borton notified Burbank that it had failed to timely exercise the option and requested an acknowledgment that the option was terminated. In response, Burbank contended that the Notice was valid and enforceable and affirmed its intent to close the sale on December 31, 2018.
¶ 6 Shortly thereafter, Borton initiated a declaratory judgment action, and Burbank counterclaimed. Following argument on the parties’ cross motions for summary judgment, the trial court ruled that Burbank was entitled to an equitable grace period "based on the potential timothy hay loss and the loss in equity [of the property]." Verbatim Report of Proceedings (May 29, 2018) at 16. Borton unsuccessfully moved for reconsideration of the oral ruling.
¶ 7 In its order granting Burbank's summary judgment motion and denying Borton's, the trial court decreed that Burbank properly exercised the option, that Burbank was entitled to an equitable grace period to exercise the option, and that Burbank was entitled to purchase the property from Borton in accordance with the terms of the Agreement. In addition, the court awarded Burbank reasonable attorney fees and costs.
¶ 8 Borton appealed, and Division Three of the Court of Appeals reversed the trial court in a published, split opinion. Borton & Sons, Inc. v. Burbank Props., LLC , 9 Wash. App. 2d 599, 444 P.3d 1201 (2019). On the issue of the standard of review, the lead opinion held that a de novo review of the summary judgment order was correct, while the concurring opinion held that an abuse of discretion standard was proper. Id . at 605, 613, 444 P.3d 1201. The dissenting opinion opted to avoid the issue. Id . at 617, 444 P.3d 1201.
¶ 9 On the merits, the court held that an equitable grace period is available only when substantial improvements are made to the property such that the lessee would suffer an inequitable forfeiture if a grace period were not granted, and since Burbank made no such improvements, Burbank failed to demonstrate that it would suffer an inequitable forfeiture. Id . at 611, 444 P.3d 1201. The court thus concluded that as a matter of law, Burbank was not entitled to an equitable grace period.
¶ 10 Burbank filed a petition for review, which we granted. Borton & Sons, Inc. v. Burbank Props., LLC , 194 Wash.2d 1016, 455 P.3d 120 (2020).
A. What is the standard of review when reviewing whether an equitable grace period was properly granted on summary judgment?
B. Are valuable permanent improvements to property required before a trial court may grant an equitable grace period to exercise an option contained in a lease?
C. Did the trial court have discretion to grant Burbank an equitable grace period?
D. Is Burbank entitled to attorney fees and costs?
¶ 11 In this case, we are asked to decide whether an equitable grace period was properly granted on summary judgment. The Court of Appeals’ lead opinion reviewed the trial court's grant of the equitable grace period de novo, citing the standards of review for declaratory judgment actions and motions for summary judgment. Borton , 9 Wash. App. 2d at 605, 444 P.3d 1201. Meanwhile, the concurrence applied an abuse of discretion standard based on the principle that "the granting of equitable remedies is the province of trial courts, not appellate courts." Id . at 613, 444 P.3d 1201 (Lawrence-Berrey, C.J., concurring in part) (citing Keck v. Collins , 184 Wash.2d 358, 368, 357 P.3d 1080 (2015) ). This closely aligns with Burbank's contention that the abuse of discretion standard of review is proper "because the trial court has broad discretionary authority to fashion equitable remedies." Pet. for Review at 8. We hold that the lead opinion is correct and that the standard of review is de novo because the question presented is not how the trial court fashioned the equitable remedy, but whether the court had discretion to grant the lessee equitable relief as a matter of law.
¶ 12 As a general rule, we review summary judgment orders de novo and engage in the same analysis as the trial court. Keck , 184 Wash.2d at 370, 357 P.3d 1080 ; Crisostomo Vargas v. Inland Wash., LLC , 194 Wash.2d 720, 728, 452 P.3d 1205 (2019). Summary judgment is appropriate only when "there is no genuine issue as to any material fact and [ ] the moving party is entitled to a judgment as a matter of law." CR 56(c). Likewise, we review orders, judgments, and decrees pursuant to the Uniform Declaratory Judgments Act de novo. RCW 7.24.070 ; To-Ro Trade Shows v. Collins , 144 Wash.2d 403, 410, 27 P.3d 1149 (2001).
¶ 13 In contrast, we review the fashioning of equitable remedies for an abuse of discretion because trial courts have "broad discretionary power to fashion equitable remedies." In re Foreclosure of Liens , 123 Wash.2d 197, 204, 867 P.2d 605 (1994). Thus, the standard of review depends on the question presented, because "[w]hile the fashioning of the remedy may be reviewed for abuse of discretion, the question of whether equitable relief is appropriate is a question of law." Niemann v. Vaughn Cmty. Church , 154 Wash.2d 365, 374, 113 P.3d 463 (2005).
Id . Thus, we reviewed the equitable remedy de novo because our inquiry was whether equitable relief was appropriate as a matter of law and not whether the trial court properly exercised its discretion in fashioning the remedy.
¶ 15 By contrast, in Crafts , we applied the abuse of discretion standard when reviewing a trial court's summary judgment order to quitclaim an interest in land. 161 Wash.2d at 30, 162 P.3d 382. Burbank contends that Crafts supports its position but overlooks the fact that we reviewed the equitable remedy for abuse of discretion only after establishing that the party had a legal right to specific performance and that "[t]he trial court was well within its power to grant the Craftses’ request for specific performance." Id . at 25, 162 P.3d 382.
¶ 16 Burbank also asserts that Recreational Equipment, Inc. v. World Wrapps Northwest, Inc. supports applying an abuse of discretion standard. However, this case does not support Burbank's position. 165 Wash. App. 553, 266 P.3d 924 (2011). There, the court stated that "[b]ecause the trial court has broad...
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