Peyton Bldg., LLC v. Niko's Gourmet, Inc.

• Decision Date: 24 April 2014
• Docket Number: No. 30840–5–III.,30840–5–III.
• Citation: 180 Wash.App. 674,323 P.3d 629
• Parties: PEYTON BUILDING, LLC, a Washington Limited Liability Corporation, Respondent, v. NIKO'S GOURMET, INC., a Washington corporation; Laith and Abir Elaimy, a marital community, Appellants.
• Court: Washington Court of Appeals

180 Wash.App. 674

323 P.3d 629

PEYTON BUILDING, LLC, a Washington Limited Liability Corporation, Respondent,

v.NIKO'S GOURMET, INC., a Washington corporation; Laith and Abir Elaimy, a marital community, Appellants.

No. 30840–5–III.

Court of Appeals of Washington, Division 3.

April 24, 2014.

Joseph Paul Delay, Delay Curran Thompson Pontarolo & Walker, Spokane, WA, for Appellants.

Brad E. Smith, Ewing Anderson, P.S., Spokane, WA, for Respondent.

BROWN, J.

¶ 1 Tenant Niko's Gourmet Inc., and its personal guarantors Abir and Laith Elaimy, appeal the trial court's summary judgment granting breach of lease damages to Peyton Building, LLC. Peyton is the successor in interest to the leased property by a purchase agreement but is not an assignee of the lease or guarantee. Even so, the court enforced Niko's relevant lease obligations and the Elaimys' personal guarantee in Peyton's favor on summary judgment. Niko's and the Elaimys contend the court erred in rejecting their challenges to Peyton's standing and real party in interest status, and in deciding no genuine issue of material fact remains regarding the amount of Niko's default, and the amount, if any, to credit or pay Niko's for the value of personal property Peyton retained under its landlord's lien.

¶ 2 Considering Peyton's reversionary estate in the leased property, we conclude the trial court correctly acknowledged Peyton's status as de facto landlord. But because Peyton did not receive a contractual assignment of rights for the lease or guarantee, it may enforce solely those lease covenants running with the land. While Niko's relevant lease obligations run with the land, the Elaimys' personal guarantee does not. For this reason, we conclude the court erred by enforcing the guarantee in Peyton's favor on summary judgment. We decide genuine issues of material fact remain regarding both the amount of unpaid rent and the value of retained personal property. Therefore, the trial court erred in granting Peyton summary judgment on the rent default and landlord's lien amounts. Accordingly, we affirm in part, reverse in part, and remand for further proceedings.

FACTS

¶ 3 On May 20, 2002, Niko's signed a 10–year agreement leasing commercial property from Pacific Security Financial Inc. and promising to continuously occupy the premises while operating it as a restaurant. Niko's promised to pay escalating rent totaling, as relevant here, $7,933 monthly beginning in September 2010 and $8,171 monthly beginning in September 2011. Additionally, Niko's promised to pay a five percent late charge for rent due but unpaid by the fifth day of each month. In the same document, the Elaimys personally guaranteed to pay for Niko's default. Later, Peyton bought the building from Pacific Security.

¶ 4 Niko's did not pay the full $7,933 monthly rent in February 2011 and vacated the premises in March 2011. At the time, Niko's owed additional money to Washington Trust Bank and the Internal Revenue Service (IRS). As a secured creditor, Washington Trust held a security interest in Niko's “inventory, chattel paper, accounts, equipment, general intangibles, and fixtures.” Clerk's Papers (CP) at 60. As a priority lienholder, the IRS held a tax lien on all Niko's property, including “[f]ixtures, furnishings, and equipment.” CP at 63.

¶ 5 On March 11, 2011, Peyton sued Niko's for unlawful detainer. Ten days later, Peyton and Niko's signed a stipulated eviction order stating,

[Niko's] agrees to surrender the Property to [Peyton] together with all non-perishable inventory (specifically including all wine and other alcoholic beverages), restaurant equipment and trade fixtures. [Niko's] specifically recognizes [Peyton]'s claim to a lien on such inventory, equipment and fixtures pursuant to RCW 60.72.010. [Niko's] also acknowledges the security interest of Washington Trust ... in such property identified in this paragraph, and that [Peyton] and Washington Trust ... will be negotiating in the future over the disposition of such property. The IRS makes claim to this property as well.

CP at 54.

¶ 6 After negotiations, Peyton took some restaurant equipment and trade fixtures, which Niko's and the Elaimys later valued at $110,235, while Washington Trust took some inventory and the IRS relinquished its tax lien. Peyton relet the premises, including the equipment and fixtures, for rent beginning at $10,000 monthly in November 2011—a disputed start date for the replacement lease. Niko's and the Elaimys unsuccessfully requested Peyton credit or pay the value of the equipment and fixtures.

¶ 7 On May 20, 2011, Peyton sued Niko's and the Elaimys for breach of the lease and foreclosure of a landlord's lien in the equipment and fixtures. Peyton moved successfully for summary judgment totaling $104,558.08 plus costs. Niko's and the Elaimys appealed after moving unsuccessfully for reconsideration.

STANDARD OF REVIEW

¶ 8 We review a summary judgment order de novo, engaging in the same inquiry as the trial court. Highline Sch. Dist. No. 401 v. Port of Seattle, 87 Wash.2d 6, 15, 548 P.2d 1085 (1976); Mahoney v. Shinpoch, 107 Wash.2d 679, 683, 732 P.2d 510 (1987). Summary judgment is proper if the records on file with the trial court show “there is no genuine issue as to any material fact” and “the moving party is entitled to a judgment as a matter of law.” CR 56(c). A genuine issue is one upon which reasonable people may disagree; a material fact is one controlling the litigation's outcome. Morris v. McNicol, 83 Wash.2d 491, 494, 519 P.2d 7 (1974); Ranger Ins. Co. v. Pierce County, 164 Wash.2d 545, 552, 192 P.3d 886 (2008). We construe all evidence and reasonable inferences in the light most favorable to the nonmoving party. Barber v. Bankers Life & Cas. Co., 81 Wash.2d 140, 142, 500 P.2d 88 (1972); Wilson v. Steinbach, 98 Wash.2d 434, 437, 656 P.2d 1030 (1982). And, we consider solely evidence and issues the parties called to the trial court's attention. RAP 9.12.

¶ 9 Initially, the moving party bears the burden of proving no genuine issue of material fact exists. LaPlante v. State, 85 Wash.2d 154, 158, 531 P.2d 299 (1975). Then, the burden shifts and the nonmoving party must present admissible evidence showing a genuine issue of material fact exists. Young v. Key Pharms., Inc., 112 Wash.2d 216, 225, 770 P.2d 182 (1989); seeCR 56(e). The sections below address each contention separately.

ANALYSIS

A. Standing and Real Party in Interest

¶ 10 The issue is whether the trial court erred in summarily deciding Peyton had standing and was the real party in interest to enforce Niko's relevant lease obligations and the Elaimys' personal guarantee. Niko's and the Elaimys contend this decision is incorrect because Pacific Security did not assign the lease or guarantee to Peyton and the guarantee does not run with the land. We partly agree.

¶ 11 “The concepts of standing and CR 17(a) real party in interest are often interchanged by our courts. Standing refers to the demonstrated existence of ‘an injury to a legally protected right.’ ‘The real party in interest is the person who possesses the right sought to be enforced.’ ” ¹Riverview Cmty. Grp. v. Spencer & Livingston, 173 Wash.App. 568, 576, 295 P.3d 258 (footnote omitted) (citations omitted) (quoting Sprague v. Sysco Corp., 97 Wash.App. 169, 176 n. 2, 982 P.2d 1202 (1999)) (citing Philip A. Trautman, Joinder of Claims and Parties in Washington, 14 Gonz. L.Rev.. 103, 109 (1978)), review granted,178 Wash.2d 1009, 308 P.3d 643 (2013). “These issues, although analytically distinct, are intertwined....” Id. Therefore, we address these issues simultaneously.

¶ 12 Where a landlord conveys a reversionary estate in leased premises without contractually assigning rights under the lease, the grantee may enforce solely those lease covenants running with the land, or, more accurately, with the reversionary estate. 17 William B. Stoebuck & John W. Weaver, Washington Practice: Real Estate: Property Law § 6.68, at 428 (2d ed. 2004); 2 Wash. State Bar Ass'n,, Washington Real Property Deskbook § 17.11(2), at 17–68 (4th ed. 2009); Hiram H. Lesar, Landlord and Tenant, in 1 American Law of Property § 3.59, at 307, § 3.63, at 314 (A. James Casner ed., 1952); William B. Stoebuck, Running Covenants: An Analytical Primer, 52 Wash. L. Rev.. 861, 869 (1977); William B. Stoebuck, The Law Between Landlord and Tenant in Washington (pt. 2), 49 Wash. L. Rev.. 1013, 1054, 1059 (1974). The benefits of a lease covenant run with an estate if they touch and concern the estate. See Rodruck v. Sand Point Maint. Comm'n, 48 Wash.2d 565, 574, 295 P.2d 714 (1956); City of Seattle v. Fender, 42 Wash.2d 213, 218, 254 P.2d 470 (1953); Mullendore Theatres,Inc. v. Growth Realty Investors, Co., 39 Wash.App. 64, 65, 691 P.2d 970 (1984). The benefits of a lease covenant touch and concern an estate if they are connected with the use and enjoyment of the estate, being so related as to enhance the value of and confer a benefit upon the estate. See Rodruck, 48 Wash.2d at 575, 295 P.2d 714;Fender, 42 Wash.2d at 218, 254 P.2d 470;Mullendore Theatres, 39 Wash.App. at 66, 691 P.2d 970.

¶ 13 By selling the building, Pacific Security conveyed to Peyton a reversion in leased premises. Our record contains no evidence Pacific Security contractually assigned to Peyton any rights under the lease or guarantee. Thus, Peyton may enforce solely those lease covenants running with the reversion.

¶ 14 While the Elaimys' personal guarantee is technically a collateral agreement governed by contract law, see Wilson Court Ltd. P'ship v. Tony Maroni's, Inc., 134 Wash.2d 692, 699, 707, 952 P.2d 590 (1998); Robey v. Walton Lumber Co., 17 Wash.2d 242, 255, 135 P.2d 95 (1943), we may entertain their request to analyze it as a real covenant governed by property law because it was created in the conveyance of a leasehold, arguably concerned real property, and was not the subject of a contractual assignment of rights, see generally Hollis v....