Felts Field Aviation, Inc. v. J.E.M. Investments, Inc., No. 22750-2-III (WA 3/3/2005), 22750-2-III
| Decision Date | 03 March 2005 |
| Docket Number | No. 22750-2-III,22750-2-III |
| Court | Washington Supreme Court |
| Parties | FELTS FIELD AVIATION, INC., a Washington corporation, Respondent, v. J.E.M. INVESTMENTS, INC., a corporation; FIRST PACIFIC CAPITAL, L.L.C., a limited liability company; and BUSINESS FINANCE CORPORATION, a corporation, Appellants. |
Appeal from Superior Court of Spokane County. Docket No: 02-2-05603-7. Judgment or order under review. Date filed: 01/12/2004. Judge signing: Hon. Robert D Austin.
Counsel for Appellant(s), Timothy James Giesa, Attorney at Law, 222 N Wall St Ste 410, Spokane, WA 99201-0834.
Counsel for Respondent(s), Francis J. Gebhardt, Feltman Gebhardt Greer Zeimantz PS, 421 W Riverside Ave Ste 1400, Spokane, WA 99201-0409.
After considering an allegedly non-conforming right of first refusal, the trial court decreed J.E.M. Investments, Inc. (JEM) must specifically perform its agreement with Felts Field Aviation (FFA) to sell a hangar and assign the underlying lease issued by the Spokane Airport Board (Board). JEM's successor, First Pacific Capital, L.L.C. and First Pacific's subsidiary Business Finance Corporation (collectively First Pacific) appeal, contending (1) material differences negated FFA's offer, (2) the refusal right did not survive FFA's earlier tax free exchange, (3) FFA failed to obtain Board assignment approval, (4) the Board was not joined as a necessary party, and (5) the decree improperly adjudicated rights and failed to do equity. We affirm.
Around 1980, FFA constructed a hangar, Building No. 32, on land it leased from the Board. Lease Paragraph XXVII provides that FFA, nor any assignee or successor of FFA, can `assign, sublet, transfer or encumber any of Lessee's rights in and to this Agreement, or to the fixed improvements, or any interest therein . . . without the prior written consent of the Board.' Ex. P-9 at 18.
In June 2000, FFA sold the hangar and assigned its lease interest to JEM. Paragraph 15 of the parties' purchase and sale agreement contains a right of first refusal, whereby JEM granted FFA a right to repurchase the hangar and leasehold interest if JEM received a bona fide offer. The contract clause requires FFA to make an offer `at the same price and on the same terms as contained in the bona fide offer received by J.E.M.' Clerk's Papers (CP) at 14.
FFA used 26 USC sec. 1031, to effect a tax deferred exchange, using Custom 1031, Inc. as a facilitator. The assignment of purchase and sale agreement between FFA and Custom 1031 states Custom 1031, `assumes all of such contractual rights under the Purchase and Sale Agreement for the subject property.' Ex. D-128. There is no mention of the right of first refusal FFA retained in its agreement with JEM.
In July 2000, the Pring Corporation loaned $385,000 to JEM. As part of the security for that loan, JEM granted a deed of trust, security agreement and assignment of rents to Pring for the hangar and lease. The Board approved these documents on November 21, 2001. Prior to making the loan, Pring had actual knowledge of FFA's right of first refusal.
The Pring loan was due in full on July 20, 2001, but due to JEM's financial problems, Pring extended the due date to August 15. JEM was still unable to pay the $65,000 balance on the loan. JEM's president, John R. Harwood, contacted First Pacific's president, Dane Armstrong, for assistance. On October 19, Mr. Armstrong, on behalf of Hand FPC Joint Venture (Hand FPC), an entity in which First Pacific was a 50 percent owner, signed an offer to purchase the hangar and acquire the Board lease from JEM. The offer stated that the purchase price was `$135,000' with JEM paying `a fee of $10,000 to First Pacific Capital, LLC at closing of sale.' CP at 15.
On October 22, Mr. Harwood telephoned Larry N. Schmedding, Jr., FFA's general manager and told him about the Hand FPC offer. Then, pursuant to FFA's right of first refusal in Paragraph 15 of the parties' purchase agreement, Mr. Harwood faxed the offer to Mr. Schmedding. That day, Mr. Harwood signed Hand FPC's offer.
Four days later, Mr. Schmedding exercised FFA's right of first refusal, sending Mr. Harwood a purchase offer for the hangar and lease. The terms of the offer were the same as Hand FPC's offer, except the $10,000 fee was to be paid to `Empire Lumber Company, Inc. at closing of sale.' CP at 16. FFA is a wholly owned subsidiary of Empire Lumber. Neither Empire Lumbar nor First Pacific is a licensed real estate broker. Mr. Schmedding inadvertently failed to sign the offer.
Before FFA's offer was received, JEM had already begun negotiations with First Pacific for it to purchase the remainder of the Pring loan in exchange for the deed of trust Pring held on the hangar and lease. On October 29, First Pacific paid Pring $72,738.31 and Pring assigned its deed of trust to First Pacific. Three days later, First Pacific loaned JEM $25,000 plus another $23,000 a week later. These loans were also secured by the deed of trust. Hand FPC withdrew its original offer to purchase the hanger and lease. Mr. Harwood testified he `probably' told Mr. Armstrong about FFA's right of first refusal during these negotiations, but he could not recall for certain. Report of Proceedings at 403.
On October 30, Mr. Harwood advised Mr. Schmedding by letter that JEM could not accept FFA's offer because it changed the condition relating to the $10,000. The letter did not mention the loan and deed of trust between JEM and First Pacific. Mr. Schmedding sent letters to Mr. Harwood on October 30, November 8, November 13, and November 14, in an effort to get JEM to accept FFA's offer, with no response.
In a November 2, 2001 letter, Mr. Armstrong advised Mr. Harwood that Hand FPC had withdrawn its offer to purchase. He stated to `obtain the airports {sic} approval and resolution to Felts Field Aviations questionable tactics will take substantially longer then we are willing to accept.' Ex. P-57. Mr. Harwood did not object.
JEM's financial problems continued and on January 10, 2002, it executed a deed in lieu of foreclosure to First Pacific. No Board approval was obtained for this transfer. In May, First Pacific assigned its beneficial interest in the deed of trust to its subsidiary, Business Finance Corporation, again without Board approval.
In September 2002, First Pacific notified JEM it was going to sell its interests in the hangar and lease. On September 13, FFA sued for specific performance and injunctive relief to allow it to exercise its right of first refusal and prevent First Pacific from selling the property. In exchange for FFA's promise not to pursue an injunction, First Pacific agreed not to sell the property. On December 13, First Pacific leased the hangar to the United States Immigration and Naturalization Service (INS) for five years beginning at $2,020.53 monthly. No Board approval was sought or obtained.
JEM became insolvent. It did not respond to FFA's complaint, so an order of default was entered against it on August 6, 2003, apparently after bankruptcy.
On January 12, 2004, the court entered findings of fact and conclusions of law and its judgment and decree for specific performance. It concluded FFA properly exercised its right of first refusal, its offer was identical to Hand FPC's, there was no assignment of FFA's right of first refusal to Custom 1031, the Board lease did not require FFA to obtain permission from the Board for the right of first refusal, and the Board was not a necessary party. Further, the court concluded since FFA delayed in bringing its suit until September 2002, First Pacific was not accountable to it for the fair rental value of the hangar's use from January 2002 to September 2002; however; for the period of September 13, 2002 to December 15, 2002, First Pacific was accountable to FFA for the fair rental value, which the court concluded was $2,020 per month or $6,163.69. This amount was offset against First Pacific's expenses.
In exchange for a quit claim deed and lease assignment from First Pacific, FFA was ordered to pay $125,000 plus expenses for a total of $129,652.92. Part of this amount went to Pat Richling and his attorney for a judgment obtained by Mr. Richling against JEM as garnishee on January 10, 2002.
This appeal followed.
The issue is whether the trial court erred in decreeing specific performance based on its conclusion that FFA properly exercised its right of first refusal. First Pacific contends FFA's offer materially varied from Hand FPC's offer.
A trial court's exercise of specific performance is reviewed for an abuse of discretion. Paris v. Allbaugh, 41 Wn. App. 717, 720, 704 P.2d 660 (1985). A trial court abuses its discretion when a ruling is manifestly unreasonable or exercised on untenable grounds or for untenable reasons. State ex rel. Carroll v. Junker, 79 Wn.2d 12, 26, 482 P.2d 775 (1971). We defer to a trial court's judgment in tailoring a decree which balances both parties' interests and reaches an equitable solution to the controversy. Eichorn v. Lunn, 63 Wn. App. 73, 80, 816 P.2d 1226 (1991).
To support its conclusion that FFA was entitled to specific performance the court found FFA `exercised that company's right of first refusal' ( of Fact 14) and JEM's `goal was to net $125,000.00 from the sale of the Hangar, after paying the $10,000.00 fee' ( of Fact 40). CP at 529, 536.
Where, as here, the trial court has weighed the evidence, appellate review is limited to determining whether the findings of fact are supported by substantial evidence and, if so, whether the findings support the conclusions of law and judgment. City of Tacoma v. State, 117 Wn.2d 348, 361, 816 P.2d 7 (1991). Evidence is substantial if, when viewed in the light most favorable to the prevailing party, it would persuade a rational person of the truth of the finding. Ino Ino, Inc. v. City of...
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