Moses Land Grow, LLC v. Brickstone Holdings, LLC
| Decision Date | 27 September 2021 |
| Docket Number | 81603-9-I |
| Court | Washington Court of Appeals |
| Parties | MOSES LAND GROW, LLC, a Washington Limited Liability Company Respondent, v. BRICKSTONE HOLDINGS, LLC, a Washington Limited Liability Company; MICHAEL SCOTT FLADSETH and JANE DOE FLADSETH, husband and wife, and their marital community, Appellant. |
UNPUBLISHED OPINION
Michael Fladseth appeals a judgment entered against him in favor of his former joint venture partner, Moses Land Grow, LLC (MLG). He contends material issues of fact precluded summary judgment on MLG's claims of breach of contract and misrepresentation. He also argues the trial court miscalculated the judgment amount. We disagree and affirm.
In March 2017, Fladseth and MLG formed Brickstone Holdings, LLC (Brickstone), a joint venture engaged in the business of purchasing and developing real property located at 10843 1st Avenue South in Seattle. They signed an operating agreement under which Fladseth agreed to act as manager of Brickstone and to make an initial capital contribution of "one half (1/2) of the $550, 000 purchase price and related costs." Fladseth agreed to serve without compensation. MLG agreed to make, as its initial capital contribution "half (1/2) of the $550, 000 purchase price and related costs by wire transfer to escrow for closing and additional development costs thereafter." If either member failed to make their initial capital contribution within ten days from the effective date of the operating agreement, the defaulting member's interest would terminate.
As manager, Fladseth was given the authority to make "all decisions concerning the operation and management of the Company's business," including executing loans and encumbrances of the company and its assets. But on the same day the parties executed the operating agreement, they also executed a corporate resolution that provided that "[a]ny single expense in excess of $20, 000 . . . shall be approved by a majority of the members before it is executed by the manager."
It is undisputed that MLG made its initial capital contribution of $275, 000 to fund its 50 percent share of the property purchase. MLG subsequently discovered that Fladseth never made a cash capital contribution. Instead, in late April 2017, Fladseth, on behalf of Brickstone, obtained a loan of $297, 840 from a lender named Eastside Funding, LLC (Eastside) and used the loan proceeds to fund his share of the purchase price. Fladseth also executed an "Unconditional Guaranty of Payment and Performance," purportedly on behalf of MLG, in which he committed MLG to repaying the Eastside promissory note. MLG's representative, Julinda Juniarty, testified that Fladseth was never a manager, member, or agent of MLG and had no authority to execute any loan guaranty on its behalf. Fladseth did not dispute this evidence.
At the same time Fladseth signed the loan documents for the purchase of the property, he entered into a separate construction loan agreement with Eastside, under the terms of which Eastside agreed to lend Brickstone $154, 500.00 to finance its development and construction expenses. He executed a "Construction Promissory Note," agreeing to pay off the balance of the note by September 16, 2017. And Fladseth executed a "Construction Deed of Trust, Security Agreement and Fixture Filing," pledging the property as collateral for the loan.
The purchase closed on or about April 21, 2017. Juniarty testified that before the sale closed, Fladseth showed her what purported to be an estimated settlement statement for the property and this statement did not reflect the fact that Brickstone had taken out any loans to fund the acquisition.
When MLG discovered that Fladseth had used loan proceeds to fund his share of the purchase price and that Fladseth had signed a guaranty in MLG's name, Juniarty demanded that Fladseth be personally responsible for the loan. On May 1, 2017 Fladseth signed a document entitled "Brickstone Holdings LLC Resolution re: Fladseth Loan Responsibility" (the May 1 Promissory Note) in which he acknowledged his personal responsibility for the loan he had taken out in Brickstone's name. The document further provided:
M. Scott Fladseth agrees that this resolution, both in concert with the Operating Agreement and as a free standing instrument, shall serve as a binding contract, agreement, and promissory note reflecting his responsibility for the 1st Street project loan as set forth above subject to full enforcement under the Laws of the State of Washington.
In October 2017, Fladseth took out a new loan for $280, 000 doing so this time in his name personally and in the name of Brickstone, from a new lender, Kevin Downey. He executed a new promissory note and agreed to repay it with interest at a rate of 12 percent by August 19, 2018. Fladseth also executed, on behalf of Brickstone, a deed of trust, again pledging the property as collateral for the loan. Fladseth used the proceeds from this loan to pay off the Eastside construction loan of $154, 500.
There is no evidence in the record that Fladseth incurred any costs to renovate any portion of the property. According to Fladseth, he immediately began looking for buyers for the warehouse. He testified that Juniarty was anxious to sell the property and wanted him to find a buyer quickly. Although Fladseth secured a few offers, each fell through.
In July 2018, MLG initiated litigation against Fladseth and Brickstone, alleging that Fladseth had not made a capital contribution as required by the operating agreement, that Fladseth had taken out loans in Brickstone's name and encumbered the property without MLG's knowledge or consent, and that Fladseth had misappropriated rental income. MLG alleged claims of breach of fiduciary duty, fraud or misrepresentation, fraudulent concealment, breach of contract, and conversion, and sought an accounting from Fladseth, an injunction removing him as manager of the company, and a dissolution of Brickstone.
On October 8, 2018, Fladseth executed a purchase and sale agreement with a buyer named Todd Bell for the price of $930 000, subject to financing and a 45-day feasibility study. On October 22, 2018, the court appointed a custodial receiver to take over management of Brickstone. The receiver took over negotiations relating to the ultimate sale to Bell. On December 14, 2018, the court approved the sale of the property to Bell. Although the revised purchase and sale agreement is not in the record, the excise tax affidavit shows the final purchase price was of $900, 000.
As directed by the trial court, the receiver used the proceeds of the sale to pay off the debts Fladseth had caused Brickstone to incur. After paying off the company's loans, the closing costs, taxes, and sales commissions, the net proceeds of the sale were $101, 154.49. As required by the order authorizing the sale, the receiver deposited those proceeds with the registry of the King County Superior Court.
MLG moved for summary judgment on two of its claims, breach of contract and misrepresentation. It sought $397, 905.83 in damages from Fladseth. It also filed a motion to have the net sales proceeds on deposit with the court distributed to MLG to offset Fladseth's debt.
In November 2019, the trial court granted MLG's motions, finding Fladseth liable for breach of contract and misrepresentation. It awarded MLG $397, 905.83, to be offset by the amount disbursed to MLG from the remaining sale proceeds. The court subsequently awarded MLG attorney fees of $39, 694, and costs of $2, 163.32, based on a provision in the operating agreement. It entered final judgment against Fladseth after MLG voluntarily withdrew all remaining claims.
Fladseth appeals the judgment against him.
Fladseth argues the trial court erred in granting summary judgment because there are questions of fact as to whether he breached the operating agreement or misrepresented his capital contribution and whether he caused MLG to incur any damages. We disagree.
Summary judgment is appropriate when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. CR 56(c); Messenger v. Whitemarsh 13 Wn.App. 2d 206, 210, 462 P.3d 861 (2020). "A genuine issue of material fact exists when reasonable minds could differ on the facts controlling the outcome of the litigation." Messenger, 13 Wn.App. 2d at 210 (quoting Dowler v. Clover Park Sch. Dist. No. 400, 172 Wn.2d 471, 484, 258 P.3d 676 (2011)).
If the moving party satisfies its initial burden of showing no issues of fact exist, the burden shifts to the nonmoving party to bring forth specific facts to rebut the moving party's contentions. Elcon Constr., Inc. v. E. Wash. Univ., 174 Wn.2d 157, 169, 273 P.3d 965 (2012). Although all facts and reasonable inferences must be interpreted in the light most favorable to the nonmoving party, Messenger, 13 Wn.App. 2d at 210, "[t]he nonmoving party may not rely on speculation, argumentative assertions, 'or in having its affidavits considered at face value; for after the moving party submits adequate affidavits, the nonmoving party must set forth specific facts that sufficiently rebut the moving party's contentions and disclose that a genuine issue as to a material fact exists.'" Becker v. Wash. State Univ., 165 Wn.App. 235, 245-46, 266 P.3d 893 (2011) (quoting Seven Gables Corp. v. MGM/UA Entm't Co., 106 Wn.2d 1, 13, 721 P.2d 1 (1986)).
We review rulings on summary judgment de novo. Messenger, 13 Wn.App. 2d at 210.
Fladseth first argues that the trial court erred in granting summary judgment because there are issues of fact as to whether he breached the operating agreement. MLG argued below that Fladseth breached the operating...
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