Hoffer v. State, No. 53549-3

CourtUnited States State Supreme Court of Washington
Writing for the CourtDURHAM; DORE; GOODLOE; PEARSON, C.J., and ANDERSEN
Parties, Blue Sky L. Rep. P 72,739 Arthur HOFFER, L.T. Samuels, Norman Benson, John Joseph, and Eugene L. Lentzner and Ann Lentzner, as Co-Trustees of the Eugene Lentzner and Ann Lentzner Living Trust, Individually and on Behalf of the Class of all Persons Similarly Situated, Appellants, v. STATE of Washington; Booth Gardner, Governor; Robert V. Graham, State Auditor; John Cherberg, President of the Washington State Senate; the Washington State Senate; R. Ted Bottiger, Majority Leader of the Washington State Senate; Wayne Ehler, Speaker of the House of Representatives; and the State House of Representatives, Respondents.
Decision Date12 May 1988
Docket NumberNo. 53549-3

Page 415

110 Wn.2d 415
755 P.2d 781, Blue Sky L. Rep. P 72,739
Arthur HOFFER, L.T. Samuels, Norman Benson, John Joseph, and
Eugene L. Lentzner and Ann Lentzner, as Co-Trustees of the
Eugene Lentzner and Ann Lentzner Living Trust, Individually
and on Behalf of the Class of all Persons Similarly
Situated, Appellants,
v.
STATE of Washington; Booth Gardner, Governor; Robert V.
Graham, State Auditor; John Cherberg, President of the
Washington State Senate; the Washington State Senate; R.
Ted Bottiger, Majority Leader of the Washington State
Senate; Wayne Ehler, Speaker of the House of
Representatives; and the State House of Representatives, Respondents.
No. 53549-3.
Supreme Court of Washington,
En Banc.
May 12, 1988.

[755 P.2d 783]

Page 416

McKay & Gaitan by Michael D. McKay, James E. Niemer, James R. Hennessey, Seattle, Berger & Steingut by Charles S. Webb, III, Stanley Steingut, Theodore S. Steingut, Lawrence A. Mandelker, New York City, (Hennings, Maltman, Weber & Reed, Douglass A. North, Seattle, Eckert, Seamans, Cherin & Mellott, Carol Porell Cocheres, Harrisburg, Pa., Cornelius J. Peck, Seattle, of counsel), for appellants.

Kenneth Eikenberry, Atty. Gen., James K. Pharris, Sr. Asst., Robert J. Fallis, Asst., Olympia, for respondents.

DURHAM, Justice.

This case, like others before it, arises out of the construction of nuclear power plants by the Washington Public Power Supply System (Supply System). Financing for these projects came from the sale of revenue bonds to the investing public. These bondholders have sued the State to recover the $7.5 billion that they have been unable to collect on their bonds after the Supply System defaulted.

Page 417

The bondholders' allegations focus primarily on the State Auditor's failure to inform them of weaknesses in their investments, such as the true extent of the Supply System's financial difficulties and the unconstitutionality of the bonds' security arrangement. The trial judge dismissed the bondholders' complaint under CR 12(b)(6) because of its failure to state claims upon which relief could be granted. We affirm the dismissal of the unjust enrichment claim, but we reverse the trial court as to each of the other claims.

In 1957, 18 Washington municipal corporations organized the Supply System to serve as a construction and financing vehicle for power-generating projects beyond the capacity of any single utility. In the 1970's, the Supply System undertook construction of five nuclear power plants. This case involves two such projects, WNP-4 and WNP-5. These projects were financed through a series of revenue bond sales. The revenue bonds were all embossed with a certificate from the State Auditor, which read as follows:

I DO HEREBY CERTIFY that I have examined the within Bond and certified copies of the resolutions authorizing the issuance thereof, and such additional information with respect thereto as is required by me, and that the within Bond has been registered in my office in accordance with the provisions of Section 54.24.070 of the Revised Code of Washington.

The security for WNP-4 and WNP-5 was provided by 88 "Participants", consisting of cities, utility districts and rural cooperatives from around the Northwest. Under the Participants' Agreement, the Supply System promised to sell, and the Participants promised to buy, blocks of energy capacity. The Participants also promised to unconditionally repay the Supply System for the costs of WNP-4 and WNP-5, including debt service, even if the plants never produced energy.

Between 1976 and 1980, as construction of the plants progressed, the Supply System issued annual reports containing the following letter from the State Auditor:

Page 419

To Whom it May Concern:

The Washington State Auditor's Division of Municipal Corporation conducts a continuous examination of all of the operations of the Washington Public Power Supply System, including each and every project. Reports are issued covering each fiscal year, and are public documents.

On every such examination, state law requires that inquiry shall be made as to the financial condition and resources of the Supply System, whether the Constitution[755 P.2d 784] and laws of the state, the resolutions and orders of the Supply System, and the requirements of the Division of Municipal Corporations have been properly complied with; and into the methods and accuracy of the accounts and reports.

Very truly yours,

ROBERT V. GRAHAM, State Auditor

Financial problems surrounding the construction of WNP-4 and WNP-5 worsened in the early 1980's. The last set of bonds was issued on March 17, 1981. Approximately two months later, the Supply System's management recommended that a moratorium be placed on construction of these plants. The Supply System eventually terminated these projects on January 22, 1982.

With the termination of WNP-4 and WNP-5, the bond obligations to the bondholders could no longer be repaid from revenue generated by the plants' operation. In the event of termination, the Participants' Agreement called for the Participants to begin making payments on the bonds' debt service 1 year after the date of termination. However, the majority of the Participants withheld payments at that time. The trustee for the bondholders thereupon instituted a declaratory action to determine that the Participants were liable for debt service under the Participants' Agreement. This court held that none of the Participants were obligated to pay, concluding that the Washington municipalities and public utility districts lacked authority to enter into the Agreement, Chemical Bank v. WPPSS, 99 Wash.2d 772, 666 P.2d 329 (1983), and we subsequently released the remaining Participants from liability under the doctrines of

Page 420

mutual mistake and commercial frustration. Chemical Bank v. WPPSS, 102 Wash.2d 874, 691 P.2d 524, cert. denied, 471 U.S. 1065, 105 S.Ct. 2140, 85 L.Ed.2d 497 (1984).

Thwarted in their attempts to hold the Participants to their obligations, the bondholders sought other avenues of recovery. In addition to the present case against the State, the bondholders also initiated Haberman v. WPPSS, in which they sued the Supply System, the Participants, and a number of professionals for alleged fraud and misrepresentations in the sale of the revenue bonds. We recently remanded Haberman for further proceedings in the trial court after holding that some of the plaintiff's claims had been erroneously dismissed under CR 12(b)(6). Haberman v. WPPSS, 109 Wash.2d 107, 178, 744 P.2d 1032 (1987).

Pursuing another avenue of recovery, the bondholders initiated the present case against the State of Washington. The bondholders alleged 12 separate causes of action against the State, all of which were dismissed by the trial judge under CR 12(b)(6) for failure to state claims upon which relief could be granted. The bondholders have not appealed the dismissal of three of these claims, 1 leaving the following nine claims before us:

(1)-(4) That the State Auditor negligently performed or failed to perform his statutory duties of auditing the Supply System and examining the bond resolutions;

(5) That the State Auditor's letter and his certification of the bonds both contained fraudulent misrepresentations;

(6) That these same writings contained negligent misrepresentations;

(7) That under The Securities Act of Washington (WSSA), RCW 21.20, the State is liable for the untrue statements in the Auditor's two writings and is secondarily liable for untrue statements made by the Supply System in connection with the bond sales;

Page 421

(8) That the State's participation in the Supply System's decision to terminate WNP-4 and WNP-5 constituted tortious interference with the contractual relations between the Supply System and the bondholders;

(9) That the State has been unjustly enriched at the expense of the bondholders.

[755 P.2d 785] STANDARD OF REVIEW

Under CR 12(b)(6), a complaint can be dismissed if it fails to state a claim upon which relief can be granted. Because a trial court's dismissal under this rule is a holding on a question of law, appellate review is de novo. Guillory v. County of Orange, 731 F.2d 1379, 1381 (9th Cir.1984).

Courts should dismiss a claim under CR 12(b)(6) only if " 'it appears beyond doubt that the plaintiff can prove no set of facts, consistent with the complaint, which would entitle the plaintiff to relief.' " Orwick v. Seattle, 103 Wash.2d 249, 254, 692 P.2d 793 (1984) (quoting Corrigal v. Ball & Dodd Funeral Home, Inc., 89 Wash.2d 959, 961, 577 P.2d 580 (1978)). Under this rule, a plaintiff's allegations are presumed to be true. Lawson v. State, 107 Wash.2d 444, 448, 730 P.2d 1308 (1986); Bowman v. John Doe Two, 104 Wash.2d 181, 183, 704 P.2d 140 (1985). Moreover, a court may consider hypothetical facts not part of the formal record. Halvorson v. Dahl, 89 Wash.2d 673, 675, 574 P.2d 1190 (1978). Therefore, a complaint survives a CR 12(b)(6) motion if any set of facts could exist that would justify recovery. Lawson, 107 Wash.2d at 448, 730 P.2d 1308; Bowman, 104 Wash.2d at 183, 704 P.2d 140.

As a practical matter, a complaint is likely to be dismissed under CR 12(b)(6) "only in the unusual case in which plaintiff includes allegations that show on the face of the complaint that there is some insuperable bar to relief." 5 C. Wright & A. Miller, Federal Practice § 1357, at 604 (1969). For the foregoing reasons, CR 12(b)(6) motions should be granted " 'sparingly and with care.' " Orwick, 103 Wash.2d at 254, 692 P.2d 793 (quoting 27 Federal Procedure Pleadings and Motions § 62:465 (1984)).

Furthermore, our task is to determine only if there is any possible set of facts for each claim under which recovery could be granted. In many instances the bondholders have alleged multiple theories under which they could recover under a single claim. Once we have determined that recovery for a single claim is possible under one theory or set of...

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167 practice notes
  • Mellon v. Reg'l Tr. Servs. Corp., No. 31570–3–III.
    • United States
    • Court of Appeals of Washington
    • July 17, 2014
    ...the FFA and neither state statute is federally preempted. We review CR 12(b)(6) dismissals de novo. Hoffer v. State, 110 Wash.2d 415, 421, 755 P.2d 781 (1988). And, we review preemption issues de novo. McCurry v. Chevy Chase Bank, FSB, 169 Wash.2d 96, 100, 233 P.3d 861 (2010). ¶ 12 A compla......
  • Mellon v. Reg'l Tr. Servs. Corp., No. 31570–3–III.
    • United States
    • Court of Appeals of Washington
    • July 17, 2014
    ...the FFA and neither state statute is federally preempted. We review CR 12(b)(6) dismissals de novo. Hoffer v. State, 110 Wash.2d 415, 421, 755 P.2d 781 (1988). And, we review preemption issues de novo. McCurry v. Chevy Chase Bank, FSB, 169 Wash.2d 96, 100, 233 P.3d 861 (2010).¶ 12 A complai......
  • Strong v. Terrell, No. 35967-7-II.
    • United States
    • Court of Appeals of Washington
    • November 12, 2008
    ...conduct caused the injury complained of in a direct sequence, unbroken by any independent cause. Hoffer v. State, 110 Wash.2d 415, 424, 755 P.2d 781 (1988) (quoting Alger v. Mukilteo, 107 Wash.2d 541, 545, 730 P.2d 1333 (1987)); Harvey, 124 Wash.App. at 819, 103 P.3d 836. ¶ 25 Finally, to e......
  • State ex rel. Public Disclosure Com'n v. 119 Vote No! Committee, No. 64332-6
    • United States
    • United States State Supreme Court of Washington
    • June 11, 1998
    ...court's dismissal under this rule is a holding on a question of law, appellate review is de novo." Hoffer v. State, 110 Wash.2d 415, 420, 755 P.2d 781 (1988). Likewise, the facial constitutionality of a statute is a question of law which requires de novo review. Timberline Air Serv. Inc. v.......
  • Request a trial to view additional results
167 cases
  • Mellon v. Reg'l Tr. Servs. Corp., No. 31570–3–III.
    • United States
    • Court of Appeals of Washington
    • July 17, 2014
    ...the FFA and neither state statute is federally preempted. We review CR 12(b)(6) dismissals de novo. Hoffer v. State, 110 Wash.2d 415, 421, 755 P.2d 781 (1988). And, we review preemption issues de novo. McCurry v. Chevy Chase Bank, FSB, 169 Wash.2d 96, 100, 233 P.3d 861 (2010). ¶ 12 A compla......
  • Mellon v. Reg'l Tr. Servs. Corp., No. 31570–3–III.
    • United States
    • Court of Appeals of Washington
    • July 17, 2014
    ...the FFA and neither state statute is federally preempted. We review CR 12(b)(6) dismissals de novo. Hoffer v. State, 110 Wash.2d 415, 421, 755 P.2d 781 (1988). And, we review preemption issues de novo. McCurry v. Chevy Chase Bank, FSB, 169 Wash.2d 96, 100, 233 P.3d 861 (2010).¶ 12 A complai......
  • Strong v. Terrell, No. 35967-7-II.
    • United States
    • Court of Appeals of Washington
    • November 12, 2008
    ...conduct caused the injury complained of in a direct sequence, unbroken by any independent cause. Hoffer v. State, 110 Wash.2d 415, 424, 755 P.2d 781 (1988) (quoting Alger v. Mukilteo, 107 Wash.2d 541, 545, 730 P.2d 1333 (1987)); Harvey, 124 Wash.App. at 819, 103 P.3d 836. ¶ 25 Finally, to e......
  • State ex rel. Public Disclosure Com'n v. 119 Vote No! Committee, No. 64332-6
    • United States
    • United States State Supreme Court of Washington
    • June 11, 1998
    ...court's dismissal under this rule is a holding on a question of law, appellate review is de novo." Hoffer v. State, 110 Wash.2d 415, 420, 755 P.2d 781 (1988). Likewise, the facial constitutionality of a statute is a question of law which requires de novo review. Timberline Air Serv. Inc. v.......
  • Request a trial to view additional results

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