Mukilteo Ret. Apartments, L.L.C. v. Mukilteo Investors L.P.

• Decision Date: 19 August 2013
• Docket Number: No. 69039–6–I.,69039–6–I.
• Citation: 310 P.3d 814,176 Wash. App. 244
• Parties: MUKILTEO RETIREMENT APARTMENTS, L.L.C., a Washington limited liability company, Respondent, v. MUKILTEO INVESTORS L.P., a Washington limited partnership; Campbell Homes Construction, Inc., a Washington corporation, Appellant.
• Court: Washington Court of Appeals

176 Wash.App. 244

310 P.3d 814

MUKILTEO RETIREMENT APARTMENTS, L.L.C., a Washington limited liability company, Respondent,

v.MUKILTEO INVESTORS L.P., a Washington limited partnership; Campbell Homes Construction, Inc., a Washington corporation, Appellant.

No. 69039–6–I.

Court of Appeals of Washington, Division 1.

Aug. 19, 2013.

John Arthur Bender Jr., Jerry H. Kindinger, Robert Richard King, Ryan Swanson & Cleveland PLLC, Seattle, WA, for Respondent.

James A. Perkins, Larson Berg & Perkins PLLC, Yakima, WA, Michael Barr King, Jason Wayne Anderson, Justin Price Wade, Carney Badley Spellman PS, Seattle, WA, for Appellant.

DWYER, J.

[176 Wash.App. 246]¶ 1 Rule of Appellate Procedure (RAP) 2.5(a)(2) permits an appellant to claim as error, for the first time on appeal, the “failure to establish facts upon which relief can be granted.” While functioning as an exception to the general rule that we do not consider new theories and arguments on appeal, the rule's applicability is limited to circumstances wherein the proof of particular facts at trial is required to sustain a claim. Where “relief can be granted” in the absence of such proof, RAP 2.5(a)(2) does not operate to permit a claimant to argue for the first time on appeal that particular facts were not established at trial.

¶ 2 In this case, Mukilteo Retirement Apartments LLC (MRA) filed a lawsuit for the specific performance of an option agreement that granted MRA the right to purchase a retirement facility from Mukilteo Investors Limited Partnership (MILP). In turn, MILP counterclaimed against MRA, contending that MRA had breached the option agreement by declining to accept MILP's proposed purchase price. Following a bench trial, the trial court determined that MILP had breached the option agreement. The court thereafter entered a decree of specific performance requiring MILP to sell the facility to MRA.

¶ 3 On appeal, MILP contends, for the first time in over three years of litigation, that the option agreement was unenforceable because the parties failed to reach mutual assent regarding a method for determining the facility's purchase price. The issue of the contract's enforceability, however, was neither raised within the pleadings of the parties nor litigated at trial by either implied or express consent. Accordingly, MRA was not required to introduce any evidence in order to prove the existence of an enforceable contract. Because, in such circumstances, RAP 2.5(a)(2) does not permit an appellant to raise the question of a contract's enforceability for the first time on appeal, MILP has failed to demonstrate an entitlement to appellate review of this issue. MILP's additional contentions are also without merit and, accordingly, we affirm the trial court in all respects.

I

¶ 4 In 1997, Ron Struthers and Duane Clark purchased undeveloped real property in the Harbor Pointe area of Mukilteo. They formed Mukilteo Retirement Apartments LLC for the purpose of developing the property into an independent living and assisted living facility for seniors. Over the course of the following year, Struthers and Clark secured the permits and obtained architectural plans necessary to construct the facility.

¶ 5 In the spring of 1999, Struthers and Clark realized they had insufficient funds to complete construction of the facility. Accordingly, they contacted Carl Campbell, whose construction company, Campbell Homes Construction Inc., was a leading builder of similar facilities in the Northwest. They discussed an arrangement in which Campbell Homes would purchase the property, build the facility, and then lease it back to MRA. Struthers and Clark told Campbell that such an agreement must also include an option for MRA to purchase the facility at a future date.

¶ 6 Mukilteo Investors Limited Partnership was formed as the legal entity to purchase, construct, and lease the facility back to MRA.¹ On October 21, 1999, following extensive negotiations, MILP agreed to purchasethe property and construct the facility. MRA signed a 20–year lease to staff and operate the facility, including responsibility for all upkeep and maintenance. The lease provided for annual increases in monthly rent beginning in the fifth year of occupancy.² Although MRA believed that these monthly rental payments exceeded market rents, it agreed to the lease terms in order to secure a contractual right to purchase the facility from MILP.

¶ 7 Accordingly, the parties entered into an option agreement, giving MRA the right to purchase the facility after eight years. The “facility” was defined as the real property, as improved, together with certain personal property. The parties agreed that the purchase price would reflect the highest of three pricing methods: (1) the “fair market value” of the facility on the date the option was exercised, (2) the “replacement cost” of the facility, or (3) the “prospective fair market value” set forth in an attached exhibit (Schedule D), reflecting a base price with annual increases of 3 percent. ³

¶ 8 The agreement specified that following MRA's exercise of the option, MILP and MRA would have 15 days to reach agreement regarding the “fair market value” of the facility. If no agreement could be reached within that time period, each party would then have five additional days to appoint a disinterested appraiser. Each appraiser would then have 30 days to appraise the facility's fair market value. In the event that only one appraiser was appointed or only one appraiser completed the appraisal within the 30–day period, that appraiser's determination of fair market value would be “final and binding upon the parties.”

¶ 9 By contrast, “replacement cost” was to be determined by an appraiser of MILP's choosing. MILP's selection of such an appraiser was to occur “pursuant to” the same paragraph setting forth the procedure for appointing an appraiser to determine “fair market value.” Replacement cost was to be “included in the appraiser's appraisal report on the Facility.”

¶ 10 The option agreement stipulated that MRA must exercise its option to purchase the facility during the period beginning on the “eighth (8th) anniversary of the commencement date of the Facility Lease Agreement” and ending on the “first day of the twelfth (12th) month” following that anniversary. The facility lease agreement stipulated that the lease term would commence upon the earlier of (1) “the issuance of a certificate of occupancy” or (2) MRA taking possession for the purpose of installing trade fixtures, personal property, and equipment for use in the operation of the facility.

¶ 11 MILP thereafter secured a loan and began construction. Following the completion of the facility, MRA took possession on or around June 1, 2000. A certificate of occupancy was issued by Snohomish County on June 15, 2000.

¶ 12 MRA hoped to exercise its option to purchase the facility as soon as possible. MRA believed that the commencement date for exercising the option was October 21, 2007—eight years from the date of execution of the lease agreement. Accordingly, on November 14, 2007, MRA sent notice to MILP that it was exercising its option to purchase the facility. MRA noted its willingness to negotiate a closing date but emphasized that time was of the essence. When MILP did not respond, MRA sent a second letter on December 9, 2007, asking MILP to confirm a purchase price of $16,024,643, the 2008 purchase price set forth by Schedule D. MRA explained that it was in the process of securing financing.

¶ 13 MILP replied by letter on December 28, 2007. The letter explained MILP's position that the earliest the option could be exercised was June 15, 2008, eight years after the date upon which the certificate of occupancy was issued. MILP invited MRA to send another notice at that time.

¶ 14 Nevertheless, on January 3, 2008, MILP retained an appraiser, James A. Brown and Associates, to provide an “analysis of the facility lease agreement and option agreement to determine the proper method of determining the option purchase price under the option agreement for the assets subject thereto.” MRA was not informed that James Brown had been retained; nor was MRA provided a copy of the report. Indeed, James Brown neither maintained a working file nor prepared a written report detailing its conclusions with respect to this project.

¶ 15 On February 21, 2008, MRA sent a draft purchase and sale agreement to MILP, inviting further negotiation or revision “regarding closing dates, etc.” ⁴ MILP responded to this letter on March 14, 2008, again rejecting MRA's attempt to exercise the option as premature.⁵

¶ 16 During this period, the ownership of MILP was being substantially restructured. Kris Campbell and Campbell Homes were divested of their interests in MILP, and Cimco Properties, a wholly-owned entity of Thomas Dye, became the new general partner. Keith Therrien and Les Powers, Campbell Homes' long-time attorneys, also obtained substantial ownership interests in MILP.

¶ 17 Struthers and Clark met with Dye several times during the spring and summer of 2008. They repeatedly noted MRA's desire to purchase the facility. Nevertheless, although Dye stated that he wished to be accommodating and acknowledged MRA's concerns over price, financing, and a closing date, he did not offer to sell the facility. Instead, Dye presented a proposal whereby MRA could obtain a 20 percent ownership interest in the facility.⁶ Struthers and Clark, however, had no interest in this arrangement.

¶ 18 On June 20, 2008, Dye persuaded Struthers and Clark to meet with him again. Once again, there was no offer from MILP to sell the facility outright to MRA. However, in this proposal, which assumed the facility's fair market value to be $16.75 million, MILP offered to convey a larger ownership interest to MRA. More importantly to Struthers and Clark, the proposal gave MRA the right to purchase the entire facility through a second option agreement. After...