DP2 Props. v. State

• Decision Date: 29 November 2021
• Docket Number: 82046-0-I
• Court: Washington Court of Appeals
• Parties: DP2 PROPERTIES, LLC, A WASHINGTON LIMITED LIABILITY COMPANY; GOLD MEDAL GROUP, LLC, A WASHINGTON LIMITED LIABILITY COMPANY; AND DENNIS PAVLINA, AN INDIVIDUAL, Appellants, v. STATE OF WASHINGTON, ACTING BY AND THROUGH ITS DEPARTMENT OF ECOLOGY, A STATE AGENCY, Respondents.

DP2 PROPERTIES, LLC, A WASHINGTON LIMITED LIABILITY COMPANY; GOLD MEDAL GROUP, LLC, A WASHINGTON LIMITED LIABILITY COMPANY; AND DENNIS PAVLINA, AN INDIVIDUAL, Appellants, v. STATE OF WASHINGTON, ACTING BY AND THROUGH ITS DEPARTMENT OF ECOLOGY, A STATE AGENCY, Respondents.

No. 82046-0-I

Court of Appeals of Washington, Division 1

November 29, 2021

UNPUBLISHED OPINION

Mann C.J.

Dennis Pavlina and his two single member LLCs, DP2 Properties, LLC (DP2); and Gold Medal Group, LLC (GMG) (collectively Pavlina)^[1] were required by a 2007 administrative order issued by the Department of Ecology (Ecology) to mitigate for wetland impacts caused by Pavlina's Battle Ground commercial development project. Pavlina appeals the trial court's order granting summary judgment and dismissing Pavlina's action for intentional interference with a business advantage or expectancy. Pavlina argues that the trial court erred in granting summary judgment because he offered sufficient evidence to establish a prima facie claim of tortious interference with a reasonable business expectancy. Because Pavlina failed to establish a reasonable business expectancy, summary judgment and dismissal were appropriate. We affirm.

FACTS

A party that fills wetlands for a development project must compensate for wetland loss through mitigation by restoring or preserving the ecological functions of other wetlands. RCW 90.48.020(3)(b); WAC 173-201A-020, -300 to -330. Ecology has jurisdiction over wetlands, including authorizing fill approving mitigation, and enforcement through administrative orders and penalties. RCW 90.48.020, .120; Pac. Topsoils Inc. v. Dep't of Ecology, 157 Wn.App. 629, 644, 238 P.3d 1201 (2010).

In early 2005, a dispute arose over the filling of several acres of wetlands during construction of the mixed-use development project Battle Ground Commerce, LLC (BGC) in Battle Ground Washington. GMG, a corporation solely owned by Pavlina undertook the project. After learning that GMG filled wetlands without authorization, but acknowledging that the development was important for the City of Battle Ground (City), Ecology began negotiations with Pavlina to implement mitigation measures for the filled wetlands.

In September 2005, negotiations between Ecology and Pavlina, BGC, and GMG, ended in an agreement (Agreement) that established a process for continuing to develop BGC while identifying and implementing mitigation. The final Agreement was assignable:

This Agreement is assignable and shall run with the land and be binding upon and inure to the benefit of the parties, their respective heirs, successors, assigns and transferees. This Agreement shall be recorded.

The Agreement also insulated Ecology from claims. Pavlina and GMG, their heirs, assigns, or other successors in interest agreed to:

Release and discharge [Ecology] and its officers, agents, employees, agencies and departments from all existing and future claims, damages and causes of action of any nature arising out of any decisions made by Ecology regarding [Battle Ground Commerce], including all claims for personal injuries, attorneys fees and costs to [Battle Ground Commerce], including those injuries and damages stated in the claims for damages previously filed (if any).

Pavlina did not record the Agreement.

Consistent with the Agreement, Pavlina submitted a wetland delineation report and mitigation plan to Ecology. On September 20, 2007, Ecology issued Administrative Order No. 5087 (Order) approving Pavlina's mitigation plan, authorizing impacts to 37.1 acres of wetlands on the BGC Property, and requiring that GMG undertake 44.7 acres of wetland mitigation to compensate for those impacts.^[2]

GMG was out of compliance with the Order over the next 8 years, including a failure to purchase 8 of the 44.7 acres of mitigation and to record a conservation covenant on the mitigation properties. Ecology sent Pavlina multiple warning letters to attempt to remedy the violations without formal enforcement, but to no success. On June 13, 2013, Ecology issued a $9, 000 penalty^[3] against GMG and Pavlina. Pavlina did not appeal the penalty, and paid in full.

In the interim, Pavlina and three of his other LLCs^[4] (Borrower LLCs) defaulted on their financial obligations for BGC. On April 29, 2014, Pavlina, his Borrower LLCs, and lender Regents Bank (Regents), executed a Settlement in Lieu of Deed Foreclosure (Settlement); neither GMG nor DP2 were party to the Settlement. In the Settlement, Pavlina and the Borrower LLCs conveyed to Regents the property and development rights associated with BGC. The Settlement stated:

The conveyance of the Deed in Lieu Properties to [Regents] according to the terms of this [Settlement] is an absolute conveyance of all of Pavlina's right, title, and interest in and to the Deed in Lieu Properties in fact as well as form and was not and is not now intended as a mortgage, trust conveyance, deed of trust, or security instrument of any kind, and the consideration for the conveyance is exactly as recited herein and Pavlina [and his Borrower LLCs] have no further interest (including rights of redemption) or claims in and to any of the Deed in Lieu Properties or to the rents, proceeds, and profits that may be derived therefrom, of any kind whatsoever.

In the Settlement, Pavlina represented that:

To Borrowers' and Guarantors' knowledge, there is not any contract, lease, or agreement, oral or written, or any amendment or supplement to any such contract or agreement, to which any of the Borrowers is a party that would be binding on Lender or any of the Deed in Lieu Properties after the Effective Date or that affects any of the any of the Deed in Lieu Properties.

Finally, Pavlina and the Borrower LLCs agreed that they "shall undertake no action that could result in a lien or other encumbrance being imposed on any of the [BGC properties]."

Meanwhile, Pavlina remained out of compliance with the Order. On September 16, 2014, Ecology sent Pavlina a warning letter contemplating a second penalty of $240, 000. On the week of October 6, 2014, Ecology met with Pavlina on the BGC site to discuss mitigation. During the visit, Pavlina suggested that he was not solely responsible for mitigation, because of the assignability provision of the Agreement. Ecology explained that the Agreement was to develop a mitigation plan, and that it was the Order that alone controlled. On October 31, 2014, Pavlina informed Ecology that he had acquired the remaining mitigation properties through DP2, another entity solely owned by Pavlina. Because of Pavlina's compliance, Ecology did not issue the second penalty.

On March 11, 2015, Pavlina informed Ecology that the City approved him to record a covenant on the BGC parcels. On March 16, 2015, Christine Wamsley from Robert Olson Construction called Perry Lund, Ecology's Section Manager for its Southwest Regional Office's Shoreland and Environmental Assistance Program. Wamsley informed Lund that she was calling on behalf of owners and prospective buyers of the BGC parcels in relation to mitigation requirements at the BGC site. Lund asked that Wamsley request the information through e-mail, so that he could route it through a public records officer. Lund sent Wamsley documents related to Pavlina's mitigation, and informed her that Ecology did not intend to hold any future landowners accountable for the mitigation; the mitigation was Pavlina's responsibility alone.

On March 18, 2015, Pavlina, through DP2, recorded a conservation covenant (Covenant) on the BGC parcels that he had conveyed to Regents as part of the Settlement. The Covenant required owners of BGC parcels to ensure that "wetland mitigation sites," remain undisturbed. The Covenant identified parcels as either "vested" or "unvested, "^[5] and stated that purchasers of "unvested" parcels must pay Pavlina for "mitigation rights," or "[acquire] mitigation rights elsewhere" before development. The relevant provision states:

This covenant only benefits the "Vested Parcels" as shown on Exhibit C, and any mitigation rights to the "Unvested Parcels", also identified on Exhibit C, are subject to the owners of those parcels reimbursing [Pavlina] for their pro rata assessment (using market rates) of these mitigation rights. Once owners of the Unvested Parcels have reimbursed [Pavlina] for their pro rata assessment of these mitigation rights, then such owner's parcels shall become vested in the mitigation rights approved by the Department of Ecology. If an owner of an Unvested Parcel acquires mitigation rights elsewhere, then such owner waives any mitigation rights as provided for herein.

Though the wetland impacts to BGC had taken place, the Covenant appeared to redirect mitigation costs or alternately, responsibilities, to subsequent owners of "unvested" parcels.

On April 2, 2015, Pavlina sent a copy of the Covenant to the City, asking that the City decline to issue development permits for the unvested BGC parcels unless new owners indicated that the parcels were clear of mitigation requirements. The City refused to enforce the Covenant, but told Pavlina that it would continue to discuss how to communicate Covenant information to prospective buyers.

In the week of April 13, 2015, Sam Crummett of the City contacted Rebecca Rothwell at Ecology, asking about the mitigation responsibilities on the BGC parcels. Ecology provided the City with a copy of the Order and informed them that Pavlina alone was responsible for the BGC mitigation, and that the mitigation did not transfer to later owners.

In early June 2015, after confirming the BGC mitigation obligations with Ecology and the City, Regents and other new owners of BGC demanded that Pavlina remove the Covenant. Pavlina assented to their...