Ten Bridges, LLC v. Midas Mulligan, LLC

• Decision Date: 17 November 2022
• Docket Number: 21-35896,21-35921
• Parties: TEN BRIDGES, LLC, a foreign limited liability company, Plaintiff-Appellant, v. MIDAS MULLIGAN, LLC, a Washington limited liability company; et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

TEN BRIDGES, LLC, a foreign limited liability company, Plaintiff-Appellant,
v.
MIDAS MULLIGAN, LLC, a Washington limited liability company; et al., Defendants-Appellees.

Nos. 21-35896, 21-35921

United States Court of Appeals, Ninth Circuit

November 17, 2022

NOT FOR PUBLICATION

Argued and Submitted October 21, 2022 Seattle, Washington

Appeal from the United States District Court No. 2:19-cv-01237-JLR for the Western District of Washington James L. Robart, District Judge, Presiding

Before: R. NELSON, FORREST, and SUNG, Circuit Judges.

MEMORANDUM ^[*]

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Plaintiff-Appellant Ten Bridges, LLC ("Ten Bridges") appeals from the district court's order granting summary judgment and subsequent order granting fees to Defendant-Appellee Madrona Lisa, LLC ("Madrona Lisa") on its Washington Consumer Protection Act (WCPA) counterclaim, Washington Revised Code § 19.86.020. We review de novo the district court's determination of state law. Salve Regina Coll. v. Russell, 499 U.S. 225, 231 (1991). Whether Madrona Lisa sufficiently alleged the injury element of its WCPA claim is a mixed question of law and fact, see Pullman-Standard v. Swint, 456 U.S. 273, 289 n.19 (1982), which we review de novo because our inquiry is primarily legal, see United States v. Lang, 149 F.3d 1044, 1047 (9th Cir. 1998). We review the district court's decision to allow a party to file an amended pleading for abuse of discretion. See Metrophones Telecomms., Inc. v. Glob. Crossing Telecomms., Inc., 423 F.3d 1056, 1063 (9th Cir. 2005). We affirm the district court on all grounds.^[1]

1. We agree with the district court's conclusion that good faith is not a defense to Madrona Lisa's WCPA counterclaim.

2

A WCPA claim has five elements: (1) unfair or deceptive act or practice, (2) occurring in trade or commerce, (3) public interest impact, (4) injury to plaintiff in their business or property, and (5) causation. Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 719 P.2d 531, 535 (Wash. 1986). A claimant may establish the first element by showing that the alleged act is a per se unfair practice. Id. "A per se unfair trade practice exists when a statute which has been declared by the Legislature to constitute an unfair or deceptive act in trade or commerce has been violated." Id. If the alleged act is not a per se unfair practice, the claimant may alternatively establish the first element by showing that the alleged act is a de facto unfair practice, i.e., a practice that "has a capacity to deceive a substantial portion of the public." Id.

Madrona Lisa bases its WCPA counterclaim on Ten Bridges' violation of the Uniform Unclaimed Property Act (UUPA), Washington Revised Code § 63.29.350. Ten Bridges concedes that it violated the UUPA and that its UUPA violation is a per se unfair practice. See Wash. Rev. Code § 63.29.350(2). Ten Bridges only argues that it acted in good faith.^[2]

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Because the Washington Supreme Court has not addressed whether the good faith defense applies to a per se unfair practice, "we must predict as best we can" what it would hold. Pacheco v. United States, 220 F.3d 1126, 1131 (9th Cir. 2000). We predict that the court would find that the good faith defense does not apply in this context.

First, the Washington Supreme Court's reasoning in Perry v. Island Savings and Loan Association, 684 P.2d 1281, 1289-90 (Wash. 1984), indicates that it would not extend the good faith defense to a WCPA claim based on a per se unfair practice. In Perry, the plaintiff alleged that a savings and loan association attempted to enforce a due-on-sale clause "with full knowledge that the clause was unenforceable," and claimed that such conduct was a de facto unfair practice under the WCPA. Id. at 1289. The Washington Supreme Court explained that whether the alleged conduct was "unfair" under the WCPA depended on whether "the due-on-sale clause was, in fact, unenforceable," and found that the association attempted to enforce the due-on-sale clause in good faith under an arguable interpretation of existing law. Id. The court then reasoned that "[s]uch conduct in a single case attempting to determine the legal rights and responsibilities of both parties should not be considered 'unfair' in the context of the consumer protection law," and held that "acts or practices performed in good faith under an arguable interpretation of existing law do not constitute unfair conduct violative of the

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consumer protection law." Id. Importantly, the court then ruled out the claimant's alternative method for establishing the first element of its WCPA claim by noting that attempting to enforce a due-on-sale clause was not a per se unfair practice. Id. at 1290 n.9 ("Nor does the attempt to enforce the due-on-sale clause constitute a per se violation of the consumer protection law.").

In sum, the court in Perry needed to determine whether and under what circumstances a savings and loan association's enforcement of a due-on-sale clause was "unfair" because the legislature had not done so. The court's reasoning and footnote suggest that, if the legislature had declared such conduct to be per se unfair regardless of the actor's good faith, then that would have decided the issue and the association's good faith would have been irrelevant. Additionally, by considering whether the association's conduct was per se unfair even after finding that the association had acted in good faith, the court at least implied that good faith would not have been a defense if the conduct was per se unfair.

Second, section 19.86.920 of the WCPA supports our conclusion. It provides that the WCPA "shall not be construed . . . to authorize those acts or practices which unreasonably restrain trade or are unreasonable per se." The legislature has declared that "any violation of [the UUPA] is an unfair or deceptive act in trade or commerce and an unfair method of competition for the purpose of applying the [WCPA]." Wash. Rev. Code § 63.29.350(2). The legislature did not make bad faith

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an element of the UUPA violation at issue or a WCPA claim generally. Nor...