Soundbuilt Northwest Llc. v. Commonwealth Title Insurance ( 2017 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
SOUNDBUILT NORTHWEST, LLC, a )
Washington limited liability company
) No. 74128-4-1
and successor-in-interest to SOUND
) (consolidated with 75994-9-1)
BUILT HOMES, INC., )
) DIVISION ONE
Appellant, )
)
v. )
)
COMMONWEALTH LAND TITLE )
INSURANCE COMPANY, a Nebraska )
insurance company; and LAWYERS ) UNPUBLISHED OPINION
TITLE INSURANCE CORPORATION, )
a Nebraska insurance company, ) FILED: August 28, 2017
)
Respondents. )
)
BECKER, J. — Substantial evidence supports the jury's verdict that
Soundbuilt's breach was material and Commonwealth's was not. Soundbuilt has
not met its burden to prove that it is entitled to damages. As the prevailing party,
Commonwealth is entitled to attorney fees and costs under the settlement
agreement. We affirm.
FACTS
This case concerns a settlement agreement between appellant Soundbuilt
Northwest LLC and respondent Commonwealth Land Title Insurance Company.
The underlying facts are discussed in two previous appeals in the same matter:
No. 74128-4-1/2
Sound Built Homes, Inc. v. Dale Alan Land Dev. Co., noted at 137 Wn. App.
1055(2007), review denied, 163 Wn.2d 1009(2008), and Commonwealth Land
Title Ins. Co. v. Soundbuilt Nw. LLC, No. 68547-3-1 (Wash. Ct. App. May 28,
2013)(unpublished), http://www.courts.wa.gov/opinions/pdf/685473.pdf.
To summarize, in 2004, the Dale Alan Land Development Company
(DALD)and its principal, Greg Newhall, agreed to sell a 22-lot plat in Covington,
Washington, to Soundbuilt. Instead, they sold the property for a higher price to a
different land developer, Chelan Homes Inc. Soundbuilt sued DALD/Newhall for
repudiation of the purchase and sale agreement and recorded a lis pendens
against the property.
Chelan Homes obtained a title insurance policy from Commonwealth.
Due to the lis pendens, Commonwealth conditioned issuance of its title policy on
the entry of an indemnity agreement with DALD. DALD agreed to indemnify
Commonwealth and hold it harmless from any loss or liability arising out of the
policy. The indemnity agreement was signed in July 2004.
Chelan Homes built and sold 22 homes. Commonwealth agreed to insure
title on behalf of the purchasers. Then Soundbuilt prevailed on its repudiation
claim, and the trial court ordered specific performance of the purchase and sale
agreement. This court affirmed.
Soundbuilt sought to enforce the specific performance order against the
22 homeowners. Commonwealth intervened and filed a third party claim to
enforce the indemnity agreement against DALD/Newhall.
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No. 74128-4-1/3
Desiring to prevent enforcement of the specific performance order that
would cause the homeowners to lose their titles, Commonwealth entered into
settlement negotiations with Soundbuilt. The record reflects that Soundbuilt
made an initial settlement demand to Commonwealth of $8 million all cash in
exchange for Soundbuilt releasing its right to specific performance and the us
pendens.
The $8 million settlement demand was in excess of Commonwealth's title
policy limits, which initially were $2.53 million and were later increased to $5.83
million. Commonwealth was concerned that paying Soundbuilt $8 million would
undermine the indemnity claim in two ways. First, DALD/Newhall could argue
that Commonwealth settled as a volunteer and was not entitled to
indemnification. Second, DALD/Newhall could argue that the indemnification
obligation was limited to the policy limits.
Responding to these concerns, Soundbuilt proposed to share the risk with
Commonwealth in the indemnity litigation against DALD/Newhall. Soundbuilt
proposed that the $8 million be split into a $5 million immediate payment and a
$3 million payment contingent on Commonwealth getting a final judgment
enforcing the indemnity agreement. Commonwealth agreed.
Under the settlement agreement, Soundbuilt agreed to transfer to
Commonwealth the right, title, and interest of Soundbuilt in its specific
performance lawsuit, the original purchase and sale agreement between
Soundbuilt and DALD/Newhall, and the lis pendens filed by Soundbuilt. In this
manner, Commonwealth stepped into Soundbuilt's shoes in Soundbuilt's
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No. 74128-4-1/4
litigation with DALD/Newhall, while also maintaining its own indemnity claim
against DALD/Newhall. In return, Commonwealth immediately paid Soundbuilt
$5 million. Soundbuilt was entitled to receive an additional $3 million from
Commonwealth, contingent on judicial resolution of Commonwealth's right to
indemnity from DALD/Newhall. A key term of the settlement agreement made it
Commonwealth's responsibility to seek a final court ruling on the indemnity
obligation "as soon as reasonably possible."
Payment by DALD/Newhall under the indemnity agreement was not a sure
thing. Soundbuilt and Commonwealth knew that the result of the indemnity
litigation might be to establish DALD/Newhall's obligation to indemnify
Commonwealth completely, not at all if the indemnity was not effective, or
somewhere in between. They also understood that Commonwealth might not be
able to collect on any indemnity judgment it obtained against DALD/Newhall.
They agreed that if and when DALD/Newhall's liability for indemnifying
Commonwealth was legally established, Commonwealth would pay Soundbuilt
up to an additional $3 million, even if Commonwealth was unable to collect from
DALD/Newhall:
Contingency for Reduction in Balance Due. Commonwealth shall
seek a determination of the court that DALD and Greg Newhall are
obligated to indemnify Commonwealth for sums paid to SBH, and
that Commonwealth's payments to SBH were not made as a
volunteer. Such determination shall be sought by Commonwealth
as soon as reasonably possible after Commonwealth's payment of
the $5,000,000 described in Paragraph 5.2. In the event that DALD
and Newhalls are found to be liable to pay Commonwealth the full
$8,000,000 amount which Commonwealth has agreed to pay SBH,
SBH shall be entitled to the remaining $3,000,000 described in
Paragraph 5.1.
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No. 74128-4-1/5
In the event that the King County Superior Court fails to find
that DALD and Newhall are liable to Commonwealth for all sums
that Commonwealth has agreed to pay to SBH, and sets a lower
sum (or no sum)as the sum for which DALD and Newhall are liable
to Commonwealth, then the balance owed SBH shall be reduced so
that, when added to the $5,000,000 already paid to SBH,the total
shall equal the sum that the King County Superior Court determines
DALD and Newhall are obligated to pay to Commonwealth (but in
any event SBH shall be entitled under this Agreement to retain all
$5,000,000 paid).
In the event that DALD and Newhall's liability is later
increased on appeal, the principal balance due SBH shall likewise
be increased to conform with the appellate court's decision
increasing the sum that DALD and Newhall are obligated to pay to
Commonwealth on account of Commonwealth's payment to SBH;
however, in no event shall the appellate court decision increase the
principal balance of the additional sum above the $3,000,000.00
plus interest due SBH. In no event shall Commonwealth's
obligation to make payment to SBH be dependent upon
Commonwealth's ability to collect the sums adjudged to be due
from DALD or Newhall.
In keeping with its obligation to seek a court ruling "as soon as reasonably
possible," Commonwealth promptly moved for summary judgment on its
indemnity claim against DALD/Newhall and requested judgment for $8 million.
On November 18, 2008, the trial court issued a letter ruling granting
Commonwealth's motion. The court later entered a final judgment for the full $8
million plus prejudgment interest, attorney fees, and costs.
Progress toward Soundbuilt's objective of receiving an additional payment
from Commonwealth soon slowed when DALD/Newhall appealed the indemnity
judgment to this court and also filed for chapter 11 bankruptcy. On being
informed of the bankruptcy filing, this court stayed the appeal of the indemnity
judgment against DALD/Newhall on May 8, 2009.
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No. 74128-4-1/6
The bankruptcy case was converted to a chapter 7 proceeding because
DALD/Newhall lacked sufficient assets to reorganize out of bankruptcy. Control
of the bankruptcy case and the indemnity appeal shifted to the bankruptcy
trustee.
On July 6, 2010, David Kerruish, one of Soundbuilt's attorneys, wrote to
Jack Cullen, who represented Commonwealth's interests as a creditor in the
bankruptcy. Kerruish proposed that if Commonwealth would reduce its claim
from DALD/Newhall in the bankruptcy, Soundbuilt would reduce the amount
owed by Commonwealth under the settlement agreement. Otherwise, Kerruish
wrote, Commonwealth should "proceed to seek a final adjudication of the claims
against Newhall, consistent with the written settlement agreement." His letter
stated that "at some point the delay in pursuing the litigation becomes a breach
of the settlement agreement."
On July 13, 2010, Cullen responded that Commonwealth did not want to
settle. He represented, however, that in order to complete the indemnity appeal,
Commonwealth would move for relief from the bankruptcy stay.
Soundbuilt believed Commonwealth was delaying resolution of the
indemnity appeal to avoid having to make the contingent payment to Soundbuilt.
According to Soundbuilt's closing arguments, Commonwealth originally thought
Newhall had enough money to pay "every penny" of the indemnity obligation and
wanted to move forward quickly. But when Commonwealth found out Newhall
had no assets, Commonwealth "slowed, then stopped, and then actually started
blocking efforts to get the final, nonappealable order that it had agreed to get."
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No. 74128-4-1/7
Soundbuilt feared that this court would reverse the $8 million judgment on
the indemnity claim and remand it for trial, a further delay. And the ultimate
outcome after a trial might leave Commonwealth owing Soundbuilt less than the
full $3 million. Soundbuilt wanted to accelerate getting to a final court ruling that
would trigger a payment of $3 million. Soundbuilt explored with the bankruptcy
trustee a proposal to dismiss DALD/Newhall's indemnity appeal.
On September 9, 2010, the bankruptcy trustee agreed, subject to court
approval, to dismiss the indemnity appeal in exchange for Soundbuilt's promise
to pay the bankruptcy estate $225,000 of the additional $3 million payment
Soundbuilt hoped to receive from Commonwealth.
Cullen, meanwhile, delayed for several months before filing
Commonwealth's motion for relief from the bankruptcy stay on October 25, 2010.
The bankruptcy court granted relief from the stay in December. This court
entered an order on December 20, 2010, permitting the indemnity appeal to go
forward.
Commonwealth opposed permitting the bankruptcy trustee to withdraw the
indemnity appeal. As a creditor, Commonwealth objected that the trustee's
agreement with Soundbuilt was based on guesswork and assumptions and was
not economically sound. Over Commonwealth's objection, the bankruptcy court
gave its approval on December 23, 2011.
On January 13, 2012, the trustee moved this court to withdraw the
pending Newhall indemnity appeal. Oral argument had been heard two months
earlier, and the parties were awaiting this court's decision. The motion to
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No. 74128-4-1/8
withdraw was granted, and the appeal was dismissed on February 29, 2012.
This left in place the trial court's $8 million judgment against DALD/Newhall as
the final court determination of the indemnity litigation. From Soundbuilt's
perspective, it was time for Commonwealth to make the contingency payment of
$3 million.
Soundbuilt moved the trial court to enforce the settlement agreement.
Using summary judgment procedure, the trial court granted the motion and
ordered Commonwealth to pay Soundbuilt $3 million plus interest, attorney fees,
and costs. Commonwealth appealed. On May 28, 2013, this court found
genuine issues of fact concerning the proper interpretation of the settlement
agreement and reversed and remanded for trial.
At trial, each party accused the other of breach. The jury found that
Soundbuilt breached the settlement agreement on September 9, 2010. This was
the date Soundbuilt reached the agreement with the bankruptcy trustee to
dismiss Newhall's appeal. The jury found that Commonwealth breached the
settlement agreement on July 13, 2010. On that date, Cullen represented that
Commonwealth would move for relief from stay so that the indemnity appeal
could proceed, but he delayed several months before doing so. The jury found
that Soundbuilt's breach was material and Commonwealth's was not.
After the jury verdict, both parties sought judgment. On September 18,
2015, the court entered judgment for Commonwealth. "Commonwealth's
performance under the contingent payment term of the Settlement Agreement is
excused as of the date of Soundbuilt's material breach of the Settlement
8
No. 74128-4-1/9
Agreement on September 9, 2010, and Commonwealth does not owe Soundbuilt
any further amount under the Settlement Agreement." The trial court denied
Soundbuilt's request for damages.
Soundbuilt moved for reconsideration or a new trial under CR 59,
requesting damages and arguing that the jury's verdict was unsupported by
substantial evidence. The court denied Soundbuilt's motion. Soundbuilt
appeals.
COMMONWEALTH'S NONMATERIAL BREACH
Soundbuilt argues substantial evidence is lacking to support the jury's
finding that Commonwealth's breach—Cullen's delay in seeking permission to
move the indemnity appeal forward—was not material.
We review the record to determine whether there was sufficient evidence
to support the verdict. Millies v. LandAmerica Transnation, 185 Wn.2d 302, 316,
372 P.3d 111 (2016). There must be "no evidence or reasonable inference from
the evidence to justify the verdict or the decision." CR 59(a)(7). It is an abuse of
discretion to deny a motion for a new trial where the verdict is contrary to the
evidence. Millies, 185 Wn.2d at 316. However, where reasonable minds could
differ on the question, the court will not disturb the jury's verdict. Millies, 185
Wn.2d at 317.
We review the sufficiency of the evidence in light of the instructions given.
Millies, 185 Wn.2d at 313. When there is no objection to the jury instructions,
they become the law of the case. Millies, 185 Wn.2d at 313.
No. 74128-4-1/10
Without objection, the court instructed the jury on the definition of material
breach:
A "material breach" is a breach that is serious enough to
justify the other party in abandoning the contract. A "material
breach" is one that substantially defeats the purpose of the
contract, or relates to an essential element of the contract, and
deprives the injured party of a benefit that he or she reasonably
expected.
Instruction 9(emphasis added).
There was a delay of about three months from the day in July 2010 when
Cullen said he would move for relief from the bankruptcy stay until the day he
actually did so in October 2010. Cullen testified that he should have filed the
motion sooner but "got swamped" with other cases. It was during this delay, in
September 2010, that Soundbuilt reached an agreement with the trustee to
withdraw the appeal.
Soundbuilt contends the jury should have found that the delay rendered
Commonwealth's performance untimely. We disagree. Substantial evidence
supports the date of breach found by the jury. And the record does not compel a
finding that the three-month delay by Cullen was material. The indemnity appeal
had not yet been fully briefed. Soundbuilt does not show that accelerating the
indemnity appeal by three months would have discouraged Soundbuilt from its
effort to have the appeal withdrawn. The jury could find that Soundbuilt was
deprived of the right to a contingency payment by its own conduct in cutting off
the indemnity appeal prematurely, not by Commonwealth's delay.
Soundbuilt argues that because the settlement agreement has a "time is
of the essence" clause, Commonwealth's alleged breach by failure to timely
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No. 74128-4-1/11
perform is material as a matter of law. We are not persuaded. To make this
argument, Soundbuilt rephrases a holding from Cartozian & Sons, Inc. v.
Ostruske-Murphy, Inc., 64 Wn.2d 1, 5, 390 P.2d 548(1964). Noting that the
contract in that case did not have a "time is of the essence" provision, the court
held that the question whether a delay in performance was a material breach
depends on the surrounding circumstances. Soundbuilt cites no case holding
that the converse is true where a contract does have a "time is of the essence"
clause.
We conclude there was sufficient evidence for the jury to find that
Commonwealth's breach, a three-month delay, was not material.
SOUNDBUILT'S MATERIAL BREACH
Soundbuilt contends substantial evidence was lacking to support the
finding that its agreement with the trustee constituted a material breach. As
above, we review the sufficiency of the evidence in light of the instructions given.
Millies, 185 Wn.2d at 313.
In addition to the material breach instruction quoted above, the jury was
instructed that Commonwealth was excused from paying Soundbuilt the
contingent payment of up to $3 million if Commonwealth proved that Soundbuilt
interfered with or prevented Commonwealth from obtaining a final,
nonappealable order against DALD and Newhall:-'
If one party enters into a contract with another, there is an
implied agreement by each to do nothing that will hinder, prevent,
or interfere with the performance of the contract terms.
• •.
If Commonwealth proves by a preponderance of the
evidence that Soundbuilt interfered with or prevented
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No. 74128-4-1/12
Commonwealth from obtaining a final, non-appealable order
against DALD/Newhall as provided in the Settlement Agreement,
then Commonwealth was excused from performing its duty of
payment.
Instruction 11.
The jury was instructed to interpret the settlement agreement as to give
effect to the intent of the parties at the time they entered the agreement,
considering the apparent purpose of the contract and the facts and
circumstances surrounding the making of the agreement:
A contract is to be interpreted to give effect to the intent of
the parties at the time they entered the contract.
You are to take into consideration all the language used in
the contract, giving the words their ordinary meaning, unless the
parties intended a different meaning.
You are to determine the intent of the contracting parties by
viewing the contract as a whole, considering the subject matter and
apparent purpose of the contract, all the facts and circumstances
leading up to and surrounding the making of the contract, the
subsequent acts and conduct of the parties to the contract, and the
reasonableness of the respective interpretations offered by the
parties.
Instruction 8.
The settlement agreement stated in paragraph 5.3 that "Commonwealth
shall seek a determination of the court that DALD and Greg Newhall are
obligated to indemnify Commonwealth." The agreement provided in paragraph
5.4 that Soundbuilt's attorneys "shall be entitled to review, prior to filing, all
pleadings filed by Commonwealth related to the performance of" the settlement
agreement but that "this right of review is for informational purposes only, and
does not create any right of SBH's counsel to direct the litigation or edit the
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No. 74128-4-1/13
pleadings filed." A reasonable interpretation of these provisions is that
Commonwealth would control the indemnity litigation against DALD and Newhall.
A proposed term of the agreement would have returned the right to control
the indemnity litigation to Soundbuilt if Commonwealth materially defaulted on its
performance described in the settlement agreement. The jury heard evidence
that Commonwealth successfully negotiated to eliminate this provision. Thus,
the jury could readily conclude that Soundbuilt did not have the right to control
the indemnity litigation.
Cullen testified that he did not know Soundbuilt was making a deal with
the bankruptcy trustee and that he did not authorize Soundbuilt to do so. He said
Soundbuilt's unilateral negotiations were "directly contrary to what 1 understood
the rules to be" that Soundbuilt's attorney had laid out.
The attorneys who negotiated the settlement agreement on behalf of the
parties testified as to their interpretations of the settlement agreement. Chris
Brain, one of Commonwealth's attorneys, testified it was "axiomatic that if we had
the burden of going fOrward to get the judgment[against Newhall], that
Soundbuilt would not do anything to interfere with our ability to do that." He
stated that Soundbuilt had a "duty not to interfere with us" and was not "free to do
anything without our consent." Kerruish testified that there was no dispute that
Commonwealth had the right to direct the litigation against DALD and Newhall.
From this evidence, the jury could find that Soundbuilt's agreement with
the trustee breached the agreement by preventing Commonwealth from
performing its obligation to seek a final, nonappealable order against DALD and
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No. 74128-4-1/14
Newhall. The jury could find that Soundbuilt's breach was material in that it
deprived Commonwealth of a benefit that Commonwealth reasonably expected.
As a result of Soundbuilt's interference with the appeal, the trial court judgment
setting the indemnity obligation at the full $8 million was left standing, when it
might have been reduced or eliminated if the appeal had gone forward.
Commonwealth's payment to Soundbuilt under the contingent payment term of
the settlement agreement then would have been reduced or eliminated
accordingly.
We conclude there was sufficient evidence for the jury to find that causing
the indemnity appeal to be withdrawn was a material breach by Soundbuilt.
LOST PROFITS
Commonwealth argued in closing that the $8 million demanded by
Soundbuilt in the settlement agreement negotiations was unrelated to
Soundbuilt's lost profits: "Now, the $8 million that they [Soundbuilt] demanded,
and you heard about that demand, that had nothing to do with the amount of
money that Soundbuilt was out of pocket. It didn't pay anything on the deal that
fell through. It had nothing to do with their lost damages and their lost profits."
Soundbuilt objected to the argument but the court overruled the objection.
Soundbuilt describes the argument as "a naked appeal to the jury to
punish Soundbuilt for being greedy—an invitation to the jury to simply ignore the
parties' agreement."
To obtain a new trial for alleged misconduct of counsel, a party must
establish "(1) the conduct complained of is misconduct,(2) the misconduct is
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No. 74128-4-1/15
prejudicial,(3) the moving party objected to the misconduct at trial, and (4)the
misconduct was not cured by the court's instructions." Teter v. Deck, 174 Wn.2d
207, 226, 274 P.3d 336 (2012).
Soundbuilt has not established that Commonwealth's argument was
misconduct. Gary Racca, Soundbuilt's owner, testified without objection that he
did not actually pay for the 22-acre property and was not out of pocket any
money for purchasing it. And Soundbuilt does not explain how the argument was
prejudicial in the context of the entire record. The record included the settlement
agreement and numerous witnesses from both parties testifying in detail about
the circumstances leading up to the settlement agreement and the settlement
negotiations. We reject the argument that Commonwealth committed
misconduct in closing.
SOUNDBUILT'S DAMAGES
After the verdict, Soundbuilt asked the court for an award of $3 million in
expectation damages based on the jury's finding that Commonwealth was in
breach. The court ruled that Soundbuilt was not entitled to damages, attorney
fees, or costs. Soundbuilt assigns error to this ruling.
The burden of proving damages is on the party seeking them. 224
Westlake, LLC v. Engstrom Props., LLC, 169 Wn. App. 700, 729, 281 P.3d 693(2012). The general measure of damages for breach of contract is that the
injured party is entitled to (1) recover all damages that accrue naturally from the
breach and (2) be put into as good a pecuniary position as he would have had if
the contract had been performed. 224 Westlake, LLC, 169 Wn. App. at 729.
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No. 74128-4-1/16
Soundbuilt's agreement with the bankruptcy trustee, not Commonwealth's
delay, stopped the indemnity appeal and is the reason the parties will never know
how the appeal would have been resolved. Soundbuilt has not carried its burden
of proving it was damaged by Commonwealth's three-month delay in pursuing
the indemnity appeal.
Soundbuilt unpersuasively argues that the trial court's denial of damages
is inconsistent with the jury verdict. The jury's finding that Commonwealth
committed a nonmaterial breach does not imply a finding that Soundbuilt was
entitled to an award of damages. We find no error in the ruling denying damages
to Soundbuilt.
ATTORNEY FEES
The trial court awarded Commonwealth $1,175,689.00 in attorney fees
and $70,045.31 in -costs as the prevailing party in a contract action with a
provision for attorney fees to the prevailing party. Soundbuilt contends the court
erred in its determination that Commonwealth was a prevailing party because
when the jury determined that both parties breached the contract, neither party
prevailed.
A prevailing party has been defined as one who obtains judgment in its
favor, Seashore Villa Ass'n v. Hugglund Family Ltd. Partnership, 163 Wn. App.
531, 547, 260 P.3d 906 (2011), review denied, 173 Wn.2d 1036 (2012), and also
as one against whom no affirmative judgment is entered, Eagle Point
Condominium Owners Ass'n v. Coy, 102 Wn. App. 697, 706, 9 P.3d 898 (2000).
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No. 74128-4-1/17
Here, the trial court entered judgment in favor of Commonwealth. There was no
affirmative judgment entered against Commonwealth.
Sound built portrays this case as one in which there is no prevailing party
for the purpose of awarding attorney fees because both parties prevailed on
major issues. This case does not fall into that category because Soundbuilt was
not afforded any measure of relief. See generally Eagle Point Condo. Owners
Ass'n, 102 Wn. App. at 706-14. We affirm the award of attorney fees and costs
to Commonwealth.
As the prevailing party, Commonwealth is also entitled to attorney fees
and costs for this appeal, including those incurred in the now-consolidated
appeal from the award of attorney fees and costs below and the associated
supplemental briefing.
Affirmed.
WE CONCUR:
dv‘
Cf)
17