Overlake Farms B.l.k. Iii Llc, App. v. Bellevue-overlake Farm, Llc, Resp. , 196 Wash. App. 929 ( 2016 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
OVERLAKE FARMS B.L.K. Ill, LLC, a
Washington limited liability company, No. 73408-3-1
Appellant, DIVISION ONE
CD
v. PUBLISHED OPINION or i i
126 Wash. App. 222, 224-25, 108 P.3d 147 (2005).
The purposes of the doctrine include to "'avoid inconsistency, duplicity, and . . .
6 RP (Mar. 13, 2015) at 31. In their written motion, the Kapelas argued that the referees'
decision put them "at the mercy of the minority interest-holding" Sferras. CP at 826.
No. 73408-3-1 / 6
waste of time.'" Cunningham, 126 Wash. App. at 225 (alteration in original) (internal
quotation marks omitted) (quoting Johnson v. Si-Cor, Inc., 107 Wash. App. 902, 906,
28P.3d832(2001)).
The main factors for the court to consider are "(1) whether 'a party's later
position' is 'clearly inconsistent with its earlier position'; (2) whether 'judicial
acceptance of an inconsistent position in a later proceeding would create the
perception that either the first or the second court was misled'; and (3) 'whether
the party seeking to assert an inconsistent position would derive an unfair
advantage or impose an unfair detriment on the opposing party if not estopped.'"
Arkisonv. Ethan Allen, Inc.. 160 Wash. 2d 535, 538-39, 160 P.3d 13 (2007) (internal
quotation marks omitted) (quoting New Hampshire v. Maine, 532 U.S. 742, 750-
51, 121 S. Ct. 1808, 149 L. Ed. 2d 968 (2001). The inconsistent positions "must
be diametrically opposed to one another." Kellar v. Estate of Kellar, 172 Wn. App.
562,581,291 P.3d 906 (2012).
Here, the Kapelas currently argue that, under RCW 7.52.130, the court
cannot order a partition by sale unless a partition in kind would cause great
prejudice to the owners, plural. Below, they acquiesced in both the trial court's
and the Sferras' view that the statute required partition by sale ifthe Sferras could
prove that they would suffer great prejudice from a partition in kind.
These competing interpretations of the statute are not diametrically
opposed. For example, the Kapelas' main argument at trial was that the trial court
had to order a partition in kind because it would not cause either party great
prejudice. That argument fits within both interpretations.
No. 73408-3-1 / 7
Additionally, it is not clear that the Kapelas took the position that great
prejudice to the owners meant great prejudice to the Sferras, let alone mislead the
trial court about their position. Both parties started by describing the question of
great prejudice as whether partition in kind would cause "great prejudice to both
parties."7 They discussed "great prejudice" in terms of reduction to the aggregate
value of the properties. In their trial brief, the Kapelas claimed that, "ifthe [pjroperty
were partitioned . . ., the combined value of the two partitioned parcels would
actually exceed the value of the unsegregated [pjroperty."8 The Sferras claimed
that any partition would "result in a material loss of value" to both parcels.9
The Sferras were the first to narrow the question to whether a partition in
kind would cause great prejudice to them. When addressing the role of owelty,
they stated, "But owelty cannot be used to short circuit the required initial inquiry
into whether partition in kind of the [pjroperty would cause 'great prejudice' to the
Defendants."™ The Sferras applied the same reasoning in their closing argument
at trial.11 The trial court also phrased the question narrowly in its summary
decision, noting that the "primary consideration is the measure of economic loss
to the party objecting to partition."12
7 CP at 8.
8 CP at 19-20.
9 CP at 39.
10 CP at 47 (emphasis added).
11 "There is clearly a material economic harm from the cost of $1.35 million to put in a
sewer for one-fourth of the property." Report of Proceedings (RP) (Feb. 27, 2013) at 107.
"And the sewer is clearly great prejudiceto the one-quarter owner." RP (Feb. 27, 2013) at
109.
12 CP at 195.
No. 73408-3-1 / 8
In their proposed findings of fact and conclusions of law, and proposed
order appointing referees, the Kapelas framed the question of "great prejudice" as
whether the Sferras would suffer great prejudice.13 But this was after both the
Sferras and the trial court had already framed the question that way. It does not
appear that the Kapelas attempted to mislead the trial court. Overall, the factors
weigh against applying judicial estoppel. Accordingly, we consider the merits of
the Kapelas' argument.
Statutory Requirement for Partition by Sale
The Kapelas argue that the trial court erred by misinterpreting the statute to
allow a partition by sale upon a showing that a partition in kind would cause great
prejudice to just one of the owners. The Sferras counter that this interpretation
contradicts the equitable purpose of the statute and would produce "nonsensical
results."14 The statute does require a showing of prejudice to all the owners. The
trial court abused its discretion by ordering a sale without that showing.
We review a trial court's partition decisions for an abuse of discretion.
Friend v. Friend. 92 Wash. App. 799, 803, 964 P.2d 1219 (1998). The trial court
abuses its discretion if it bases its ruling on "an erroneous view of the law." Wash.
State Physicians Ins. Exch. & Ass'n v. Fisons Corp., 122 Wash. 2d 299, 339, 858
13 Conclusion of Law 6: "Defendant did not meet its burden of proof to convince the Court
that it is not possible to carve out an equitable partition without material pecuniary loss to
Defendant—i.e., such that the relative value of the share would be materially less than the
sum Defendant would realize from a one-fourth share of the proceeds of a sale of the
whole." CP at 234 (emphasis added); Order Regarding Appointment of Referees: "[T]he
Referees shall submit a report . . . stating that, under the provisions of RCW 7.52.130,
partition cannot be made without great prejudice to one or both [pjarties." CP at 241
(emphasis added).
14 Br. of Resp't Bellevue-Overlake Farm, LLC at 48.
8
No. 73408-3-1 / 9
P.2d 1054 (1993). In order to determine whether the trial court erred in this case,
this court must conduct a de novo analysis of the statute authorizing partition by
sale. Lake v. Woodcreek Homeowners Ass'n, 169 Wash. 2d 516, 526, 243 P.3d 1283
(2010).
Statutory analysis begins with the statute's plain meaning. Lake, 169 Wash. 2d
at 526. This court determines plain meaning "'from the ordinary meaning of the
language at issue, the context of the statute in which that provision is found, related
provisions, and the statutory scheme as a whole.'" Lake, 169 Wash. 2d at 526
(quoting State v. Engel, 166 Wash. 2d 572, 578, 210 P.3d 1007 (2009)).
Here, the trial court ordered a sale of the property under the authority
granted to it by RCW 7.52.130. It authorizes a trial court to order a partition by
sale when there is great prejudice to the owners, plural:
Ifthe referees report to the court that the property, of which partition
shall have been decreed, or any separate portion thereof is so
situated that a partition thereof cannot be made without great
prejudice to the owners, and the court is satisfied that such report is
correct, it may thereupon by an order direct the referees to sell the
property.
RCW 7.52.130 (emphasis added). Other sections of the partition chapter that
contemplate a sale of the property also use the plural "owners." See RCW
7.52.010, .080. By contrast, the section of the chapter that authorizes owelty
distinguishes between owners:
When it appears that partition cannot be made equal between the
parties according to their respective rights, without prejudice to the
rights and interests of some of them, the court may adjudge
compensation to be made by one party to another on account of the
inequality of partition.
RCW 7.52.440 (emphasis added).
No. 73408-3-1/10
Thus, there are two kinds of prejudice, but only one kind forces a partition
by sale. First, there is great prejudice to both parties, meaning that a partition in
kind would reduce the value of the whole property. As the Kapelas have argued,
this type of prejudice occurs when the value of the partitioned parcels would be
materially less than the value of the undivided property. Second, there is prejudice
to one party but not the other. In the first case, the court should order a partition
by sale. In the second, the court should order a partition in kind and order the party
who receives a disproportionately high value to compensate the other.
Washington courts have followed this approach. In Hegewald v. Neal, the
trial court ordered a partition by sale when the referees reported that a partition in
kind would "destroy the usefulness of the property." 20 Wash. App. 517, 522-23, 582
P.2d 529 (1978) (emphasis omitted). The court noted that the aggregate value of
partitioned parcels would be less than ifthe land were sold as a unit. Hegewald,
20 Wash. App. at 526. The Court of Appeals upheld the decision because the
property would have lost one third of its value if partitioned in kind. Hegewald. 20
Wash. App. at 526-27.
Washington's Supreme Court affirmed an order of partition by sale when an
entire property was covered with one building. Huston v. Swanstrom, 168 Wash.
627,628-30,13P.2d 17(1932). The court also noted that a mortgage encumbered
the entire property and that, if partitioned, "each tract would remain subject to the
entire incumbrance." Huston. 168 Wash, at 631.
Even when the court orders partition in kind, as it did in Williamson
Investment Co. v. Williamson, it bases its decision on the value of the property if
10
No. 73408-3-1 /11
sold as a whole, compared to the aggregate value of the parcels. 96 Wash. 529,
537-39, 165 P. 385 (1917). There, the court set out the test for great prejudice to
the owners as "'whether the value of the share of each in case of a partition would
be materially less than his share of the money equivalent that could probably be
obtained for the whole.'" Williamson. 96 Wash. at 536 (emphasis added) (quoting
Idema v. Comstock. 131 Wis. 16, 110 N.W. 786 (1907)).
Washington's strong policy in favor of partitions in kind supports the
Kapelas' interpretation. See, e.g.., Friend, 92 Wash. App. at 803 ("Partition in kind is
favored wherever practicable."); Williamson, 96 Wash, at 535 ("The power to
convert real estate into money against the will of the owner, is an extraordinary
and dangerous power, and ought never to be exercised unless the necessity
therefor is clearly established.'") (quoting Vesper v. Farnsworth, 40 Wis. 357, 362
(1876)).
The Sferras argue that partition by sale is appropriate whenever a physical
partition cannot be done equitably. They argue that Hegewald supports their
position because there the court could have avoided prejudice to the majority
tenant by awarding that tenant a parcel containing all the hot springs. Thus, the
court ordered a partition by sale even though a partition in kind would prejudice
only one of the owners. This argument ignores the finding in that case that the hot
springs were "an unusual amenity" with "substantial value if used in connection
with the rest of the land, but not otherwise." Hegewald, 20 Wash. App. at 519. It is
impossible to tell from the case whether dividing the minority tenant's one-fifth of
the land would impact "the rest of the land" enough to diminish the hot springs
11
No. 73408-3-1/12
value. Hegewald. 20 Wash. App. at 519. Instead, the trial court and Court of Appeals
properly found great prejudice to the owners based on the referees' finding that a
partition in kind would "destroy the usefulness of the property." Hegewald, 20 Wn.
App. at 523 (emphasis omitted). We reject the Sferras' interpretation of Hegewald.
The Sferras also rely on several out of state cases where a partition for sale
was ordered when prejudicewas not shown to all parties. They are not persuasive.
The Sferras cite Georgian v. Harrington and Sung v. Grover, but the statutes
governing partition by sale in those cases are too dissimilar to Washington's to
support the Sferras' position. 990 So. 2d 813, 816 (Miss. Ct. App. 2008); No.
CV020815521S, 2003 WL1962830, at*3 (Conn. Super. Ct. Mar. 27,2003).15 Both
allow partition by sale under much broader circumstances than Washington does.
In the two cases the Sferras cite with statutes similar to Washington's, the
parties seeking a partition in kind sought to carve out for themselves the most
valuable portion of the land. Haogertv v. Nobles. 244 Or. 428, 431-34, 419 P.2d 9
(1966) (a cotenant with a one eighth undivided share of a 680-acre farm sought to
set apart the 85 acres that contained the dwellings and otherfarm buildings, "'the
heart'" of the farm, for himself); Keen v. Campbell, 249 S.W.3d 927, 929-30 (2008)
(a cotenant with a onefifth undivided share ofa 41 -acre farm sought to have seven
or eight acres ofthe more valuable farmland set aside for himself).
In both cases, it is reasonable to assume that partitioning the property in the
15 Georgian relies on Mississippi Code Annotated § 11-21-11 (Rev. 2004), which allows a
partition by sale whenever it would "'better promote the interest of all parties than a
partition in kind.'" 990 So. 2d at 816. Sung relies on Connecticut General Statutes § 52-
500, which also allows the sale of the property when it will "better promote the interests of
the owners." 2003 WL 1962830, at *3 n.8.
12
No. 73408-3-1/13
way suggested by the minority cotenants would have greatly diminished the value
of the majority cotenants' parcels. We cannot tell whether that would have meant
that the aggregate value of the parcels would have been materially less than the
value of the whole property. Also, neither case discusses what role owelty could
have played. These cases are not persuasive enough to dictate a broader
interpretation of Washington's partition by sale statute.
In short, RCW 7.52.130 requires a showing of great prejudice to the owners,
plural, before the court may order a sale. Here, the trial court adopted the referees'
conclusion "that a partition-in-kind would cause great prejudice to the one-fourth
owner."16 It did not evaluate how the need for a sewer extension would impact the
value of the entire property or the value of the Kapelas' property.17 This was an
error. The trial court, and the referees, should have determined whether
partitioning the property would create two parcels whose aggregate value was
materially less than the value of the whole property.
We remand to the trial court to consider the facts under the correct legal
standard and take any further action necessary to achieve an equitable result. But
we reach the Kapelas' remaining arguments to a limited extent because they are
likely to recur on remand.
Sewer Extension
The Kapelas argue that the court abused its discretion by considering the
impact of the need for sewer once it had determined that the property is physically
16 CP at 1008.
17 The Sferras concede in their brief that the court did not make any findings about
prejudice to the Kapelas.
13
No. 73408-3-1 /14
capable of division. This was not error.
As discussed above, the test for when a partition in kind causes great
prejudice is "'whether the value of the share of each in case of a partition would be
materially less than his share of the money equivalent that could probably be
obtained for the whole.'" Williamson. 96 Wash, at 536 (quoting Idema, 131 Wis.
at 16). The "value of a piece of property is its fair market value: 'Fair market value
has been defined as the price [that] a well-informed buyer would pay to a well-
informed seller, where neither is obliged to enter into the transaction.'" Carson v.
Willstadter, 65 Wash. App. 880, 884, 830 P.2d 676 (1992) (internal quotation marks
omitted) (quoting State v. Sherrill, 13 Wash. App. 250, 255, 534 P.2d 598 (1975)).
"[F]air market value necessarily takes into consideration present uses and
speculativefuture uses." Carson. 65 Wash. App. at 886. Awell-informed buyer may
consider the development potential of the property. Carson, 65 Wash. App. at 884-
86 (in that case, the development depended on whether the parcel could be
subdivided and whether a sewer district would serve the area in the future).
Here, extending the sewer line to the property would cost approximately
$1.4 million. The possibility of having to pay over a million dollars in order to
develop land might impact a well-informed buyer's valuation of the property. The
trial court did not abuse its discretion by considering the needs of future
developers.
The Kapelas also argue that, even assuming the need for a sewer extension
is a proper consideration, the trial court erred by relying on the referees'
speculation that a sewer extension would be necessary. We reject this argument
14
No. 73408-3-1/15
because the referees' finding was supported by facts, not mere speculation.
"A presumption exists in favor of trial court's findings of fact [in partition
action], and the party claiming error has the burden of showing findings are not
supported by substantial evidence." Carson, 65 Wash. App. at 883.
The referees concluded that the sewer extension would be necessary for
two reasons. First, they did not believe that the city of Bellevue would allow the
parties to develop the land with an on-site septic system instead of a sewer.
Second, they believed that on-site septic systems were incompatible with high-end
residential development. The Kapelas do not challenge the referees' basis for the
second reason:
[T]he use of on-site septic systems is inconsistent with high-end,
large lot development as would be proposed with development of the
[property. On-site systems can interfere with an owner's desire to
locate patios, sports courts, pools, and other site amenities typically
associated with this type of development. Furthermore, on-site
disposal of domestic sewage may be perceived as inconsistent with
the high-end nature of any proposed development.1181
Regardless of whether the referees' conclusion that the city of Bellevue
would require a variance is correct, it was appropriate for the referees to determine
that a sewer extension would be necessary to develop the property according to
its highest and best use. And it was not an abuse of discretion for the trial court to
rely on that determination.
Eguitable Power to Impose a Covenant
The Kapelas argue that the trial court abused its discretion by relying on the
parties' inability to cooperate as a basis for refusing to impose a detailed covenant
18 CP at 933.
15
No. 73408-3-1/16
for future development of the sewer. They also argue that the trial court's decision
not to impose the covenant was an abdication of its equitable powers, and thus,
an abuse of discretion. We reject both of these arguments and hold that the
decision whether to impose the covenant was within the trial court's discretion.
Partition "'contemplates an absolute severance of the individual interests of
each joint owner, and, after partition, each has the right to enjoy his estate without
supervision, let, or hindrance from the other. Unless this can be accomplished,
then the joint estate ought to be sold, and the proceeds divided.'" Hegewald, 20
Wash. App. at 523 (quoting Brown v. Cooper. 98 Iowa 444,454, 67 N.W. 378 (1896)).
In Hegewald. one reason that the court found that a partition in kind was not
feasible was because it would have required retaining the hot springs in common,
assessing the costs of improvements to the owners proportionately, and then
distributing the waters and charging for them on a monthly basis. 20 Wash. App. at
523.
Here, the covenant, as drafted by the referees, required both parties to
place funds for sewerdevelopment into an escrow account, and then contemplated
the parties working together on developing the sewer line over years. While the
covenant would not require the permanent entanglement described in Hegewald,
it would still require substantial cooperation in the future. The referees concluded
thatthe parties had difficulty cooperating and that"[predicating a solution on such
cooperation would only place [the trial court] in the position of having to police a
difficult process of partition and land development over a long period of time."19
CP at 947.
16
No. 73408-3-1/17
Because of the nature of the proposed covenant, the parties' ability to cooperate
was a proper consideration.
The Kapelas cite several out-of-state cases in which an appellate court
reversed a trial court's decision when the trial court relied on adversarial parties'
disagreements or hostility. These cases are not persuasive because none of them
involve a decision to force the parties to cooperate in the future. Myers v. Myers,
176 W. Va. 326, 329, 342 S.E.2d 294 (1986) (partition of two parcels); Brown v.
Brown. 402 S.C. 202, 209, 740 S.E.2d 507 (S.C. Ct. App. 2013) (partition of two
parcels); Dewrell v. Lawrence, 58 P.3d 223, 227 (Okla. Civ. App. 2002) (amount
and propriety of owelty in partition action); In re Estate of McKillip, 284 Neb. 367,
378, 820 N.W.2d 868 (2012) (partition).
We also reject the Kapelas' argument that the trial court abdicated its
equitable powers. The record demonstrates that the trial court and the referees
considered the propriety and effectiveness of ordering the development covenant
sought by the Kapelas and decided against it.
The Sferras, on the other hand, argue that, once the trial court determined
that they would suffer great prejudice, it lacked the authority to impose a
development covenant. The Sferras' position is inconsistent with the broad scope
of the court's equitable power.
It is well established that the trial court has "great flexibility in fashioning
relief" in partition proceedings. Cummings v. Anderson, 94 Wash. 2d 135, 143, 614
P.2d 1283 (1980). "[A] court in the exercise of its equitable powers may fashion
remedies to address the particular facts of each case, even if the partition statute
17
No. 73408-3-1/18
does not strictly provide for such a remedy." Kelsev v. Kelsev. 179 Wash. App. 360,
369, 317 P.3d 1096, review denied. 180 Wash. 2d 1017, 327 P.3d 54, cert, denied.
135 S. Ct. 451, 190 L. Ed. 2d 330 (2014).
As just explained, the trial court did not abuse its discretion by failing to
impose a development covenant. But it has the power to impose one. On remand,
the trial court may consider whether a development covenant would be appropriate
and what the terms of that covenant might be.
We reverse and remand for further proceedings consistent with this opinion.
-T^c/Klur A^O"
WE CONCUR:
Cok.^-
18