In re Feature Realty Litigation

• Decision Date: 13 December 2006
• Docket Number: No. CV-05-333 AAM.,CV-05-333 AAM.
• Citation: 468 F.Supp.2d 1287
• Parties: In re FEATURE REALTY LITIGATION.
• Court: U.S. District Court — District of Washington

468 F.Supp.2d 1287

In re FEATURE REALTY LITIGATION.

No. CV-05-333 AAM.

United States District Court, E.D. Washington.

December 13, 2006.

Jeffrey P. Downer, Michael Alexander Patterson, Lee Smart Cook Martin & Patterson PS, C. Blaine Morley, C. Blaine Morley Law Office, Portland, OR, Franklin D. Cordell, Gordon Murray Tilden LLP, Seattle, WA.

Genesis Insurance Company, Pro se.

James R. Murray, Gordon Murray Tilden LLP, Seattle, WA, for Defendant Feature Realty Inc., A Nevada Corporation.

ORDER DENYING USF & G'S MOTION FOR SUMMARY JUDGMENT RE: NO COVERAGE FOR TORTIOUS INTERFERENCE

McDONALD, Senior District Judge.

BEFORE THE COURT is Defendant United States Fidelity & Guaranty Company's ("USF & G") Motion for Summary Judgment Re: No Coverage for Tortious Interference (Ct.Rec.61). The motion was noted without oral argument and is ripe for review. The Court has considered all pleadings, including the supplemental memoranda submitted upon request of the Court. The Court concludes the motion must be denied.

I. STATEMENT OF FACTS

A. Procedural History

The present insurance coverage dispute stems from litigation which began over ten years ago. Feature Realty, Inc. (Feature) is the owner and developer of a Planned Unit Development (PUD) formerly known as the Mission Spring PUD, currently known as the Canyon Bluffs PUD. In July 1995, Feature filed a cause of action (No. 95-2-03773-3) in Spokane County Superior Court against the City of Spokane (City) and various city employees alleging the City had wrongfully withheld a grading permit related to the PUD application. Following a decision by the Washington State Supreme Court in Mission Springs v. City of Spokane, 134 Wash.2d 947, 954 P.2d 250 (1998), a settlement was eventually reached in October 1998. Ct. Rec. 1, Ex. A [Stipulated Settlement Agreement] in 03-CV-063-JLQ. The stated purpose of the 1998 settlement agreement was in part "to establish the right of the Developer(s) to fully and completely develop the Canyon Bluffs Planned Unit Development ..." Id. at 8. The agreement not only resolved all claims, but provided a framework for future issues related to the development. Id. The City, however, repudiated the 1998 settlement agreement on the basis that it had not been approved in an open public meeting.

As a result, in November 2000, Feature filed another cause of action (No. 00-2-06812-8) in Spokane County Superior Court seeking to enforce the settlement agreement. This action was subsequently removed to federal district court in December 2000. See Ct. Rec. 1 in 00-C444-AAM. Feature petitioned to remand and on August 30, 2001, this Court entered an order denying the petition and ultimately ruled the City had violated the Open Public Meetings Act (OPMA), rendering the 1998 settlement agreement null and void. Ct. Rec. 132 in 00-CV-444-AAM. Final judgment was entered on October 30, 2001. Ct. Rec. 147 in 00-CV-444-AAM. The Ninth Circuit Court of Appeals affirmed that decision. Feature Realty, Inc. v. City of Spokane, 331 F.3d 1082 (9th Cir.2003). Feature then moved to reopen the Spokane County Superior Court action it had filed in July 1995 and the Spokane County Superior Court granted the motion.

In January 2003, Feature filed another action (No. 03-2-00670-4) in Spokane County Superior Court against the City, alleging the City had improperly delayed approval of a plat amendment for the Canyon Bluffs PUD. The City removed the action to federal court (CV-03-063-JLQ) and on May 6, 2003, the Honorable Justin L. Quackenbush denied Feature's motion to remand because federal question jurisdiction existed by virtue of a 42 U.S.C. § 1983 claim asserted by Feature. Judge Quackenbush later granted Feature's motion to file a "Second Amended Complaint" which dropped the § 1983 claim and deprived the Court of federal question jurisdiction. The action was then remanded to Spokane County Superior Court.

Following remand, Feature's 2003 action (No. 03-2-00670-4) was consolidated with its 1995 action (No. 95-2-03773-3). Feature filed a "Third Amended Complaint" in October 2003 alleging three causes of action against the City: one under 42 U.S.C. § 1983, one under RCW 64.40, and one under the common law tort theory of intentional interference with business expectancy. Following several mediations and months of negotiations, the parties stipulated to a settlement agreement signed April 18, 2005 (the 2005 settlement) and agreed to the entry of judgment resolving the cases (see further discussion below).

Following the 2005 settlement, Feature filed motions in Spokane County Superior Court to determine the reasonableness of the covenant judgment amount; for entry of judgment against the City; to dismiss individuals named as defendants in 03-2-00670-4; and for leave to amend the complaint to name two of the City's insurers, Genesis Insurance Company (Genesis) and USF & G, as additional defendants and plead four causes of action against them including equitable indemnity, recovery under the Consumer Protection Act, breach of insurance contracts, and bad faith in handling the insurance claims. These motions were served on Genesis and USF & G, along with a proposed judgment against the City and a proposed "Fourth Amended Complaint" which would add Genesis and USF & G as defendants. A hearing was held on June 10, 2005 in Spokane County Superior Court at which counsel for USF & G and Genesis appeared, although USF & G and Genesis were denied leave to formally intervene in the matter. The court found the covenant judgment reasonable, entered judgment against the City, and granted Feature leave to Me the "Fourth Amended Complaint" which sought to collect on the judgment.

The aforementioned "Fourth Amended Complaint" was then removed to this court as CV-05-222-AAM based on diversity of citizenship. Previous to this removal, and indeed previous to the Spokane County Superior Court granting Feature leave to file the "Fourth Amended Complaint," both USF & G and Genesis filed declaratory judgment actions in this Court (CV-05-165-AAM filed by USF & G on June 1, 2005; CV-05-168-AAM filed by Genesis on June 2, 2005), seeking declarations that they were not obligated to pay anything to the defendants under the terms of their respective insurance policies with the City of Spokane. Cause numbers 05-165, 05-168 and 05-222 were consolidated under a single case number (05-333).¹

On March 7, 2006, this Court granted partial summary judgment to USF & G, declaring USF & G's insurance policy did not cover Feature's RCW 64.40 claim which had been settled with the City. The Court denied that portion of USF & G's motion relating to the claim for intentional interference with business expectancy, finding that Washington public policy and the USF & G insurance policy at issue did not preclude Feature from seeking recovery on that claim.

B. The Underlying Action against the City

The following is a brief summary of the allegations made by Feature in its underlying lawsuit against the City of Spokane which eventually settled in 2005. In planning the development of the Canyon Bluffs development project, Feature sought to convert several previously planned multi-family lots into single family lots. Cordell Decl., Ct. Rec. 80, Ex. A [Third Amended Complaint]. This change required revising the previously approved 1992 PUD plat/plan which, in turn, required the City's approval. Feature could not obtain the construction permits necessary to commence construction on the Canyon Bluffs project until a final plat was approved.

The revision of the plat was a concept alleged by Feature to have been contemplated during the negotiation of the 1998 settlement agreement. Id. The 1998 settlement agreement had provided that upon written request, the City would "immediately issue all permits and all necessary approvals required for Phase I of the [Canyon Bluffs] P.U.D. . . ." Ct. Rec. 1, Ex. A[Stipulated Settlement Agreement] at 9 in 03-CV-063-JLQ. In addition, the agreement provided a procedure for expediting the permitting process and indicated that "time is of the essence in this Agreement." Id. at 15. With these terms in mind, on May 19, 1999, Feature (through project engineer Taylor Engineering) lodged with the City's Planning Department an amended plat/plan for the Phase I development of the Canyon Bluffs PUD, along with an engineers' certification. Id. By May 2000, the City had neither approved nor rejected the plat/plan amendment. Feature claimed that upon inquiry to the City regarding the status of the amendment, the City advised Feature that it could not locate the May 1999 submission. Patterson Decl., Ct. Rec. 65, Ex. 17[Declaration of Mark Aronson in Support of Motion to Determine Reasonableness of Covenant Judgment] at 95. Feature alleged that in June 2000, the City nevertheless advised that it would not process the PUD/plat amendment pursuant to the terms of the 1998 settlement agreement. Instead of viewing the submission as an amendment of the earlier approved plat, the City believed it should be viewed as a new plat application, requiring a public hearing for approval and further impact studies. Id. at 99. On October 3, 2000, Feature filed a formal application for the plat amendment. After a public hearing in May 2001, the final plat for the Canyon Bluffs project was not approved and recorded until December 30, 2002. USF & G Statement of Material Fact, Ct. Rec 63 at ¶ 19.

Feature's "Third Amended Complaint" against the City (filed in Spokane County Superior Court Cause No. 03-2-00670-4) alleged that City officials had intentionally stalled work on Feature's application and unlawfully delayed the processing of the application. Cordell Decl., Ct. Rec. 80, Ex. A [Third Amended Complaint]. Feature alleged the City had committed the tort of interference with a business expectancy and violated 42 U.S.C § 1983 and RCW 64.40. Id. At the reasonableness hearing following the 2005 settlement, Feature explained...