TJ Landco, llc v. Harley C. Douglass, Inc. ( 2015 )

FILED
MAR 5,2015
In the Office of the Clerk of Court
W A State Court of Appeals, Division III
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION THREE
TJ LANDCO, LLC, a Washington Limited )
Liability Company, ) No. 31992-0-111
) Consolidated with
Respondent, ) No. 32208-4-111
)
v. )
)
HARLEY C. DOUGLASS, INC., a ) PUBLISHED OPINION
Washington Corporation; SECURE SELF )
STORAGE, LLC, a Washington Limited )
Liability Company; HARLEY C. )
DOUGLASS and JANE DOE DOUGLASS, )
husband and wife, and the marital community )
comprised thereof; and JOHN DOE )
PARTNERSHIP, )
)
Appellant. )
KORSMO, J. - This appeal arises from the modification of the provisions of a
contract governing payment and interest. Concluding that the trial court adopted a
reasonable construction of the contract at the bench trial, we affirm the interest rate
rulings and remand for an additional hearing ofthe question of the attorney fee award for
work performed by law students.
FACTS
The subject of the contract was land near the southwest borders of the city of
Spokane. Respondent TJ Landco LLC (Landco) agreed in February 2004, to sell the 94
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acre parcel of land to appellant Harley C. Douglass, Inc. (Douglass) for $3.6 million. The
seller was required to obtain preliminary plat approval from the city of Spokane and
obtain the city's agreement to extend water and sewer by the end of2005.
The parties used a standard real estate purchase and sale agreement form. An
addendum to that form included the following language concerning the purchase price
and interest:
1) Purchase price of3.6 Million Dollars ($3,600,000.00) to be paid as
follows:
A) Two Million Dollars ($2,000,000.00) as down payment due at closing
B) The balance of One Million Six Hundred Thousand Dollars will be paid
in annual installments of $250,000.00 per year plus interest until paid in
full.
C) The unpaid balance will carry and [sic] interest rate of 6% per annum.
D) The first annual payment will begin exactly 2 years from the date of
closing.
E) Purchaser and Seller agree that the interest rate for the first two years of
this transaction will carry the minimum Federal Rate allowable. At the end
of the first two years the interest rate will be 6% per annum until balance is
paid in full.
F) ....
G) Deed releases will be prepared on a per acre basis on the remaining
balance of land and executed according to the installment payment schedule
noted above.
Clerk's Papers (CP) at 49.
Three of the provisions mentioned interest, and two of them gave competing
commands concerning the rate to be charged. Subsequent developments were to make
the situation more complicated.
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The preliminary plat approval was received October 9,2006, and the sale closed
thereafter. Tod Lasley, the owner of Landco, met on December 22, 2006, with Harley
Douglass, the owner of Douglass. The two men agreed that at that point Douglass owed
Landco $1,114,558.19. Douglass paid $114,558.19 at that time. On a balance sheet
accounting for payments made and balance owing on the land sale, the men added two
separate handwritten notes. Each was dated December 22, 2006, and signed by both
men. The first stated:
1,000,000.00 Balance,
Payment of200,000.00 per year for 5 years at zero interest.
The remaining note:
#889
Based on 371 Lots
Ifless credit will be given out of 1,000,000.00
CP at 68.
The parties treated these writings as a modification of the original contract.
Douglass made a single payment of $200,000 on March 4,2008, but did not make any
additional payments thereafter. He later contended that Landco had not fulfilled all of its
obligations under the contract and that only 304 of the anticipated 371 lots would be
approved. Douglass sold the land to his parents for $500,000 without developing it.
Landco filed suit in February 2010, contending that Douglass had breached the
contract. Douglass defended on the basis that he was entitled to an offset due to the
limited number of lots approved and, thus, no further moneys were owing. The case
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proceeded to a four day bench trial in the Spokane County Superior Court. In addition to
the questions of breach and offset, the parties hotly contested the interest rate governing
any judgment as well as appropriate attorney fees.
The trial court concluded that Douglass had breached the contract and that he had
failed on his counterclaim for an offset. The court awarded Landco the remaining
$800,000 on the contract, plus prejudgment interest at 12 percent and postjudgment
interest at 12 percent. Detailed findings in support of the bench verdict were entered.
Douglass promptly appealed to this court.
After hearing, the trial court awarded Landco its attorney fees and costs, including
$24,514.16 for work done by law student "legal interns." The court denied Landco's
request for fees for work performed by paralegals. Douglass appealed from the fee
award. This court consolidated the two appeals and subsequently heard oral argument.
ANALYSIS
Douglass challenges the prejudgment and postjudgment interest rates, as well as
the fees awarded for the work performed by the law students. Both parties seek attorney
fees on appeal under the contract. We initially address the two interest rate arguments as
one issue before turning to the two attorney fee contentions.
Interest Rate
Douglass contends that the zero percent interest rate in the modification provision
governs both the prejudgment and postjudgment interest rates, thus making the court's
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judgment in error. Landco contends that the parties did not contract for a rate to govern
in the event of a breach of the contract, requiring the court to apply the statutory
provisions that currently provide for 12 percent interest. No party contends that the six
percent rate initially provided by the contract is still in force. 1 Because the same
operative facts control the outcome, we consider the two arguments together even though
different statutes govern the two situations.
Prejudgment interest is governed by RCW 19.52.010. 2 As relevant here, the
statute states in part:
(1) Every loan or forbearance of money, goods, or thing in action shall bear
interest at the rate of twelve percent per annum where no different rate is
agreed to in writing between the parties ....
The governing statute for postjudgment interest is found in RCW 4.56.110. 3 The
relevant provisions relate:
Interest on judgments shall accrue as follows:
(1) Judgments founded on written contracts, providing for the payment of
interest until paid at a specified rate, shall bear interest at the rate specified in
the contracts: PROVIDED, That said interest rate is set forth in the judgment.
Both parties agreed at oral argument that the six percent figure was inapplicable
I
and neither side argued for it in their respective briefing.
2 This statute had its genesis in the LAWS OF 1854, p. 380 § 1, but much of the
current language was enacted by LAWS OF 1895, c. 136.
3 This statute, too, draws much of its current language from the LAWS OF 1895,
c.136.
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(4) Except as provided under subsections (1), (2), and (3) of this section,
judgments shall bear interest from the date of entry at the maximum rate
permitted under RCW 19.52.020 on the date of entry thereof.
RCW 4.56.110(1), (4). RCW 19.52.020(1) provides interest at the higher figure of either
12 percent or the average treasury bill rate plus four percent.
Appellate courts review awards of prejudgment interest for abuse of discretion.
Scoccolo Constr., Inc. v. Renton, 158 Wash. 2d 506, 519,145 P.3d 371 (2006). A party is
entitled to prejudgment interest on liquidated claims 4 to compensate them for loss of use
on money that is wrongfully withheld by another party. Mall Tool Co. v. Far West
Equip. Co., 45 Wash. 2d 158, 169,273 P.2d 652 (1954); see also Architectural Woods, Inc.
v. State, 92 Wn.2d 521,598 P.2d 1372 (1979) (discussing the purpose of prejudgment
interest in applying the standard to a judgment against the State). Trial courts may
exercise discretion in the amount of the award, but must give a reasonable explanation in
equity for any deviance from the standard rate. See Dave Johnson Ins. Inc. v. Wright,
167 Wash. App. 758, 776 n.10, 275 P.3d 339 (2012).
Postjudgment interest is mandatory due to RCW 4.56.110. Womack v. Von
Rardon, 133 Wash. App. 254, 264, 135 P.3d 542 (2006); Rufer v. Abbott Lab., 154 Wn.2d
530,551-53,114 P.3d 1182 (2005). Consequently, awards of postjudgment interest are
matters oflaw that are reviewed de novo. Sintra, Inc. v. Seattle, 96 Wash. App. 757, 980
P.2d 796 (1999).
4 There is no dispute here that the claims are liquidated.
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When a party breaches an obligation to pay a liquidated debt, a new forbearance is
created. Kahl v. Ablan, 160 Wash. 201,206,294 Pac. 1010 (1931) (citing cases). The
creation ofthe new forbearance triggers application of the prejudgment interest statute.
RCW 19.52.010(1) ("Every loan or forbearances of money ... shall bear interest.").
Accord, Smith v. Olympic Bank, 103 Wn.2d 418,425,693 P.2d 92 (1985) ("The rate of
prejudgment interest is governed by RCW 19.52.010."); Thomas v. Ruddell Lease-Sales,
Inc., 43 Wash. App. 208, 216, 716 P.2d 911 (1986) ("RCW 19.52.010, governing
prejudgment interest, provided for a rate."). 5 Thus, the trial court here correctly
recognized that prejudgment interest was required when the payment obligation was
breached. The only question was whether the statutory interest rate, or some contract
rate, applied.
Douglass argues for the zero percent rate governing the payments expected over
the five year period, while Landco contends that the statutory rate applies because the
5 Some courts wrongly cite to the postjudgment interest statute, RCW 4.56.110, as
the basis for an award of prejudgment interest due to dicta in Mahler v. Szucs, 135 Wn.2d
398,429,957 P.2d 632 (1998) (impliedly overruled on other grounds by Matsyuk v. State
Farm Fire & Cas. Co., 173 Wash. 2d 643, 272 P.3d 802 (2012)), where the court stated that
prejudgment interest was allowed at the statutory judgment interest rate even while
rejecting the claim for prejudgment interest. See, e.g., Stevens v. Brink's Home Sec., Inc.,
162 Wn.2d 42,51,169 P.3d 473 (2007); Unigard Ins. Co. v. Mut. a/Enumclaw Ins. Co.,
160 Wash. App. 912, 250 P.3d 121 (2011); Palermo at Lakeland, LLC v. Bonney Lake, 147
Wash. App. 64, 87-89, 193 P.3d 168 (2008). Although in many instances the same interest
rate will apply under either statute, we believe it is inaccurate to rely upon the
postjudgment interest rate statute for calculation of prejudgment interest.
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parties did not address the possibility of a new forbearance being created due to a breach
of the modified payment schedule. The trial court agreed with Landco, and so do we.
Although Landco agreed to forego interest during the five year payment period set
out in the modification, it also expected to receive $200,000 each December during that
time frame. The modification did not include an agreement by Landco that it would
accept zero percent interest on each outstanding $200,000 installment if it went unpaid
when due. Instead, each missing installment created a new forbearance of $200,000. The
contract did not address a new forbearance resulting from breach of the contract. 6
Accordingly, RCW 19.52.010(1) governs and mandates interest at 12 percent on each
forbearance. 7
In sum, we affirm the court's award of prejudgment interest calculated from the
time each installment became due. Each missing payment created a new forbearance. In
6 It is not a new concept that parties can contractually account for interest in case
of the possibility of breach. Chief Justice Taney long ago observed: "The contract being
entirely silent as to interest, if the notes should not be punctually paid, the creditor is
entitled to interest after that time by operation of law, and not by any provision in the
contract." Brewster v. Wakefield, 63 U.S. 118, 127, 16 L. Ed. 301 (1859).
7 Douglass additionally challenged the date from which prejudgment interest
began. The trial court charged interest on each installment of $200,000 from the date on
which the installment was due. Douglass asserts that the court should have charged
interest on the entire sum from December 22, 2011, the date on which the balance was to
have been paid in full. However, prejudgment interest is appropriate from the date upon
which the liquidated claims were created. See, e.g., Winkenwerder v. Knox, 51 Wn.2d
582,320 P.2d 304 (1958). The trial court concluded that a new debt became owing each
time a payment was missed. The decision to begin interest at that time was correct.
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the absence of a contract provision addressing a new forbearance, the statutory rate of 12
percent was appropriate. RCW 19.52.010(1).
Douglass also argues that the zero percent contract rate applies to postjudgment
interest rather than the "default" 12 percent rate established by RCW 4.56.110(4) in
conjunction with RCW 19.52.020. A contractual rate of interest was not available under
the plain language of the statute.
As noted previously, the opening clause ofRCW 4.56.110(1) states in part:
"Judgments founded on written contracts, providing for the payment of interest until paid
at a specified rate, shall bear interest at the rate specified in the contracts."8 (emphasis
added). The language "until paid" is a term of art. Our cases have long distinguished
between agreements to pay interest at maturity and agreements to pay interest "until
paid." E.g., Bank v. Doherty, 42 Wash. 317, 329-30, 84 P. 872 (1906).9 The quoted
8 The parties have not argued, and hence we do not address, whether an agreement
to pay zero interest is in fact an agreement "providing for the payment of interest" under
this statute. That question will await another day. We will assume for purposes of this
opinion only that zero percent interest is a contract "providing for the payment of
interest" under the statute.
9 "If the parties had intended the note in question to draw interest at the rate of two
per cent per month after maturity, it would have been an easy matter to have placed such
intention beyond doubt by simply adding the words 'until paid' after the words 'two per
cent per month.' They did not do so, and we must, therefore, conclude that the contract
contained all of the agreement, and that the parties intended to let the law fix the rate of
interest after maturity, if the note should not be paid when it became due." Bank, 42
Wash. at 330.
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statutory language was enacted by the LAWS OF 1895, ch. 136 § 4, and has not varied
from that time.
While the original agreement called for six percent interest "until paid," the
modification did not It called for zero percent interest over a five year period. Hence,
the language of the statute precludes applying the zero percent contract rate to the
judgment in this case.
Recognizing the problem, Douglass argues that the "until paid" language
originally used in the contract still applied to the modified payment obligation. In other
words, Douglass contends that zero percent language of the modification merely
substituted in for the six percent language of the existing contract provision. For several
reasons, we are not persuaded.
First, the parties both agreed at oral argument that the six percent provision was
inapplicable. If that is correct, and we believe that it is, the modification must have
supplanted the original payment terms or else the six percent provision would have
revived after the five year zero interest period expired. More importantly, in light of the
fact that the modified payment provision totally changed the amount of the outstanding
debt and its repayment terms, and the second modification allowed for credit if fewer
than expected lots were permitted, it would be impossible to read the 2006 changes to the
contract in harmony with the original terms. Part of the consideration for the zero percent
interest provision was the fact that Douglass advanced payments before it needed to in
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order to assist Landco. If these actions were intended as only a temporary change to the
contract, the parties could easily have said that all other payment-related provisions
continued in force or would be revived in the event payments were not made. It did not.
The only fair reading of these terms is that they supplanted the existing payment
and interest schedule. The total debt was reduced to $1,000,000 and a schedule
implemented to pay that sum in five annual payments with no additional interest. At the
end of the period the contract would be fulfilled. The parties did not contemplate that
there would be need to revive any prior contract terms or further modifY the agreement.
As modified, the contract did not provide "for the payment of interest until paid."
RCW 4.56.110(1). Accordingly, there was no contractual interest rate that governed the
judgment award. The trial court correctly applied the "default" 12 percent interest
provided by RCW 4.56.ll0(4) and RCW 19.52.020(1).
The trial court correctly calculated both the prejudgment and postjudgment interest
awards. There was no error.
Attorney Fees for Legal Interns
Douglass also appeals from the trial court's attorney fees award for the service of
law student "legal interns." The record is insufficient to decide this issue and we remand
for further hearing.
Attorney fee awards are reviewed for abuse of discretion. Boeing Co. v.
Sierracin Corp., 108 Wash. 2d 38, 65, 738 P .2d 665 (1987). Discretion is abused when it is
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exercised on untenable grounds or for untenable reasons. State ex reI. Carroll v. Junker,
79 Wn.2d 12,26,482 P.2d 775 (1971). Discretion also is abused ifit is exercised
contrary to law. State v. Rundquist, 79 Wash. App. 786, 793,905 P.2d 922 (1995). We
also note that trial courts, not appellate courts, find facts. Thorndike v. Hesperian
Orchards, Inc., 54 Wash. 2d 570, 575, 343 P.2d 183 (1959); Quinn v. Cherry Lane Auto
Plaza, Inc., 153 Wash. App. 710, 717, 225 P.3d 266 (2009). Accordingly, this court
reviews the trial court's factual determinations for sufficiency rather than make our own
credibility determinations. Cherry Lane, 153 Wash. App. at 717.
In Absher Construction Co. v. Kent School District No. 415, 79 Wash. App. 841,
905 P.2d 1229 (1995), this court set forth six criteria for determining whether services
performed by nonlawyers was compensable under an attorney fee award. Those criteria:
(1) the services performed by the nonlawyer personnel must be legal in
nature;
(2) the performance of these services must be supervised by an attorney;
(3) the qualifications of the person performing the services must be
specified in the request for fees in sufficient detail to demonstrate that the
person is qualified by virtue of education, training, or work experience to
perform substantive legal work;
(4) the nature of the services performed must be specified in the request for
fees in order to allow the reviewing court to determine that the services
performed were legal rather than clerical;
(5) as with attorney time, the amount of time expended must be set forth
and must be reasonable; and
(6) the amount charged must reflect reasonable community standards for
charges by that category of personnel.
Id. at 845.
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The trial court considered these criteria in awarding the fees for the law students'
work and in denying the request for fees for the paralegal's work. The trial court ruled
that the fees for "research, editing and other administrative functions" performed by
"legal interns" "are allowable." CP at 927. Douglass argues that the first three criteria
were not satisfied by the record submitted to the trial judge.
We disagree with Douglass as to the first two criteria. Landco submitted billing
records to meet its Absher burden with respect to fees sought for the activities of its
attorneys, paralegals, and law students. The records were detailed enough to allow
Douglass to present substantial detailed argument, orally and in writing, in opposition to
portions of the fee request for the attorneys. Douglass successfully used the information
provided to convince the trial court to trim several areas of the fee requested by the
attorneys because it was duplicative of other work or related to failed motions. Douglass
also was able to use the records to convince the judge that the paralegal fee request was
inadequate. Accordingly, we conclude that the billing records adequately conveyed that
the law students were performing legal services.
The second Absher criterion is whether the nonlawyers were supervised by an
attorney. The billing records adequately satisfied that criterion here, although a direct
statement by the supervising attorney would have been more helpful. The record does
reflect that the research performed by the law students was incorporated into memoranda
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and other legal decision-making by the attorneys. This showed that the students were
supervised.
However, we agree in part that the third Absher factor was not necessarily
satisfied. That criterion requires proof that the nonlawyer was "qualified by virtue of
education, training or work experience to perform substantive legal work." Absher, 79
Wash. App. at 845. Other than identifying the students as "legal interns" who were full-
time students at the Gonzaga University School of Law, there is scant evidence
concerning the qualifications of these students. Douglass quite properly points out that a
student beginning her law school experience does not demonstrate requisite training and
education just from the fact of full-time attendance at school.
The trial court did find, and Landco did argue, that the students were "legal
interns." APR 9 sets forth a process by which law students, among others, can engage in
a limited law practice as "Licensed Legal Interns" under the supervision of an
experienced attorney. APR 9(a). A law student must demonstrate the requisite
educational success to qualify as a licensed legal intern, typically by completing at least
two years of law school. APR 9(b). An experienced attorney must supervise the intern,
and the Washington State Bar Association is authorized to conduct background
investigations similar to those required of applicants to the bar. APR 9(c), (d). We have
no hesitation in holding that a licensed legal intern satisfies the third Absher criterion.
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Landco did not put forth evidence that its students possessed an APR 9 license.
However, for decades these students colloquially have been referred to as "Rule Nines"
or "legal interns." If Landco and the trial court were using that same short-hand
designation for these licensed legal interns, then the evidence did support the fee award.
We thus remand this portion of the case to the trial court to make that determination.
We do not suggest that only licensed legal interns possess the requisite education
or training to satisfy the third Absher criterion. There are multiple methods of proving
that a non-licensed law student is qualified by education or experience. However,
Landco put on no other proof on this point and now can sustain the trial court's ruling
only if its "legal interns" were licensed legal interns per APR 9.
We remand for hearing on the status of the "legal interns" whom the trial court
awarded attorney fees. IfLandco presents evidence that they were licensed in accord
with APR 9, the trial court should make such a finding and affirm its earlier award. If
not, the trial court should strike the fee award.
Attorney Fees on Appeal
Both sides seek attorney fees on appeal in accordance with the contract. See RCW
4.84.330; Hill v. Cox, 110 Wash. App. 394, 411~12, 41 P.3d 495 (2002). Attorney fees are
available on appeal where granted by applicable law. RAP 18.1. The prevailing party is
awarded fees under the statute. RCW 4.84.330.
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Landco prevailed in the original appeal from the judgment concerning the interest
awards. It is entitled to its fees in that appeal provided that it timely complies with RAP
lS.l(d). Our commissioner will consider a timely request. RAP 18.1(f).
The second appeal, concerning the attorney fee award, presents a muddled picture.
Landco did not prevail in that action and is not entitled to its fees for that portion of this
consolidated appeal. It is unclear at this time whether Douglass will prevail or not. If
Douglass prevails on remand by obtaining any relief on the fee award related to the law
students, then it is entitled to its fees on appeal related to this issue. We direct the trial
judge to determine that request. RAP IS.1 (i). Whichever party prevails on remand
would be entitled to its fees for its efforts in the trial court.
Accordingly, the judgment is affirmed and the matter remanded for hearing on the
award of attorney fees relating to the law students.
WE CONCUR:
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