Fedway Marketplace W., LLC v. State
| Decision Date | 30 September 2014 |
| Docket Number | No. 44509–3–II.,44509–3–II. |
| Citation | 336 P.3d 615,183 Wash.App. 860 |
| Parties | FEDWAY MARKETPLACE WEST, LLC, a Washington limited liability company, and Garland & Market Investors, LLC, a Washington limited liability company, on behalf of themselves and all others similarly situated, Appellant, v. STATE of Washington, Respondent. |
| Court | Washington Court of Appeals |
Tyler B. Ellrodt, Anthony L. Rafel, Rafel Law Group PLLC, Seattle, WA, for Appellant.
Brian Faller, Washington State Attorney General's Office, Olympia, WA, for Respondent.
¶ 1 Fedway Marketplace West, LLC, and Garland & Market Investors, LLC, landlords of former state liquor store locations (Landlords), appeal the superior court's entry of a CR 12(c) judgment on the pleadings and dismissal of Landlords' complaints against the State of Washington for terminating its leases of Landlords' properties the State had used for selling liquor. After Initiative 1183 (I–1183) privatized the sale of liquor in Washington, the State's Liquor Control Board terminated its leases with the landlords of state-owned liquor store locations and auctioned the right to sell liquor at these locations to private retailers. Landlords argue that (1) the State deliberately misinterpreted I–1183, wrongfully terminated their leases, and illegally gave auction buyers the right to sell liquor within a one-mile radius of the Landlords' locations; (2) the superior court erred in striking Landlords' extrinsic evidence that the State acted in bad faith in deliberately misinterpreting I–1183 and terminating their leases; (3) the State breached the duty of good faith and fair dealing in terminating their leases; and (4) the State's termination of their leases violated the contract clauses1 and takings clauses2 of the federal and state constitutions.
¶ 2 The State responds that (1) its decision to permit auction buyers to sell liquor within a one-mile radius was irrelevant to the lease terminations, which I–1183 required; (2) Landlords failed to state a claim for a breach of the duty of good faith and fair dealing; (3) Landlords' extrinsic evidence was not admissible to interpret an unambiguous contract; and (4) the superior court properly dismissed Landlords' constitutional claims because, once the leases terminated, there could be no contract and no taking. We hold that, because I–1183 triggered the termination provision in the State's leases with Landlords, Landlords cannot state a claim against the State under their former leases. We affirm the superior court's dismissal of Landlords' complaints.
¶ 3 Fedway Marketplace West, LLC and Garland & Market Investors, LLC are former lessors of State liquor store locations. In 2007, Garland leased its Spokane premises to the State; in 2010, Fedway leased its Federal Way premises to the State. Each lease was for a 10–year term. Both leases included a termination clause (“Paragraph 3”), which provided that if a newly enacted law prevented either party from complying with the lease,3 then the lease would terminate and both parties would be released from all liability. As the leases required, Landlords made improvements according to the Liquor Control Board's specifications, and the State paid Landlords rent for using the premises to sell liquor.
¶ 4 On November 8, 2011, Washington voters approved Initiative 1183, which privatized the State-controlled system of liquor distribution and sale, effective December 8, 2011. I–1183, now codified as RCW 66.24.6204 , also directed the Liquor Control Board to cease all liquor sales no later than June 1, 2012, and to auction “the right at each state-owned store location of a spirits5 retail licensee to operate a liquor store upon the premises.” RCW 66.24.620(4)(c).
¶ 5 To implement I–1183, the State auctioned the rights to sell liquor at its 167 state-run liquor store locations. Each of the 128 successful bidders received the exclusive right to apply for a license to sell liquor at the store on which the bid had been placed. The State advised each bid winner (1) to secure a lease with the store's landlord; and (2) if unable to secure such a lease, to consider (a) re-selling the right to sell liquor at that location or (b) requesting “an alternative location within a one-mile radius of the existing location.” Clerk's Papers (CP) at 8. Before terminating its leases, the State sent its liquor store lessors, including Landlords, letters notifying them of the upcoming lease terminations. The State terminated its Fedway lease effective May 31, 2012, and its Garland lease effective July 31, 2012.6
¶ 6 Landlords brought a class action against the State, alleging that it had (1) anticipatorily repudiated and breached their liquor store lease contracts; (2) violated an implied covenant of good faith and fair dealing; (3) violated the state and federal contract clauses7 by engaging in legislative action that impaired the State's contractual obligations; and (4) violated the state and federal takings clauses8 by taking private property for public use without just compensation. The State moved for judgment on the pleadings under CR 12(c).
¶ 7 Landlords opposed the State's motion with extensive exhibits purporting to show that (1) the State knew its decision—to permit bid winners to sell liquor in alternative locations within a one-mile radius of the existing location—could violate I–1183 and would significantly erode Landlords' leverage in renegotiating lease agreements with bid winners; (2) the State did not require bid winners to accept assignment of the State's existing leases; (3) in February 2012, the State made a commitment to pay for unamortized improvements that Landlords had made to meet the Liquor Control Board's specifications; and (4) the State Department of Revenue failed to perform its duty under RCW 66.24.620 to develop rules and procedures “ ‘to address claims that [I–1183] unconstitutionally impairs any contract.’ ” CP at 116 (citation omitted). The superior court granted the State's motion to strike Landlords' exhibits, reasoning that it could not consider such extrinsic evidence to “interpret” unambiguous contract terms. Verbatim Report of Proceedings (VRP) at 32.
¶ 8 The superior court also (1) ruled that because I–1183 had forced the State to terminate its liquor store leases, the State did not improperly terminate its leases or breach a duty of good faith and fair dealing; (2) granted the State's motion for judgment on the pleadings; and (3) dismissed Landlords' complaint with prejudice. Landlords appeal.
¶ 9 Landlords appeal the superior court's dismissal of their complaint when it granted the State's CR 12(c) motion for judgment on the pleadings. They argue that the hypothetical facts in their complaint and the additional evidence they submitted stated a justiciable claim that the State deliberately misinterpreted I–1183 and that the State breached its lease obligations and anticipatorily repudiated its leases. The State responds that it fully complied with the leases and that lease provision Paragraph 3 gave the State the right to terminate the leases when the voters' initiative took away the State's previously exclusive right to sell liquor, thus preventing the State from carrying out the lease terms. We agree with the State.
¶ 10 We review de novo CR 12(c) dismissal rulings. P.E. Sys., LLC v. CPI Corp., 176 Wash.2d 198, 203, 289 P.3d 638 (2012). We examine the pleadings “to determine whether the claimant can prove any set of facts, consistent with the complaint, that would entitle the claimant to relief.” Parrilla v. King County, 138 Wash.App. 427, 431, 157 P.3d 879 (2007). On a CR 12(c) motion, the court presumes that the allegations asserted in the complaint are true. Tenore v. AT & T Wireless Servs., 136 Wash.2d 322, 330, 962 P.2d 104 (1998).
¶ 11 Here, both leases included identical termination provisions, which provided, in part:
[I]n the event that the enactment of any law or the decision of any court of competent jurisdiction shall prevent either party hereto from complying with or carrying out the terms of this Lease ... then this Lease shall terminate and the parties hereto shall be released from any and all liability for any damage or loss which may result from such inability to comply therewith.
CP at 22, 33 (emphasis added).
¶ 12 Codifying I–1183, RCW 66.24.620 expressly provided, in part: “ [The Liquor Control Board] must effect orderly closure of all state liquor stores no later than June 1, 2012, and must thereafter refrain from purchase, sale, or distribution of liquor.” RCW 66.24.620(2). This new law plainly prohibited the State from selling alcohol and, thus, prevented the State from “ complying with or carrying out”9 the “use”10 provision of its leases with Landlords. Regardless of whether the State permitted bid winners to choose alternate liquor store locations, or instead required bid winners to use the Landlords' original store locations bid upon,11 the State could not continue leasing Landlords' properties for the leases' contractual purpose of providing locations for the State to sell liquor.12
¶ 13 We hold that (1) I–1183 and its RCW 66.24.620 codification triggered the lease termination provisions; (2) under the leases' plain language, enactment of this new law made it impossible for the State to continue selling liquor at Landlords' premises; and (3) therefore, the State did not anticipatorily repudiate or breach its leases with Landlords.
¶ 14 Landlords also argue that in striking their extrinsic evidence—offered to show that the State had deliberately misinterpreted I–1183—the superior court erred because such evidence is admissible even when the court believes that contract terms are unambiguous. The State responds that none of Landlords' extrinsic evidence was relevant to prove the...
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