James Yoo v. Velicahn, Inc. ( 2021 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
JAMES YOO, ) No. 80910-5-I
)
Appellant, ) DIVISION ONE
)
v. ) UNPUBLISHED OPINION
)
VELICAHN INC. d/b/a KUSHMAN’S, a )
Washington corporation, and GENE )
KULINOVSKY, an individual, )
)
Respondent. )
)
HAZELRIGG, J. — James Yoo and Velicahn, Inc. entered into an option
agreement which granted Yoo the right to purchase an ownership interest in
Velicahn’s cannabis license, contingent upon Yoo’s vetting and approval by the
Washington State Liquor and Cannabis Board (WSLCB). Both parties took steps
toward completion of the transaction and Velicahn initiated the application with the
WSLCB to add Yoo to the license. However, Yoo failed to timely submit his portion
of the necessary information to the WSLCB, which resulted in administrative
closure of the application. After Velicahn declined Yoo’s request to resubmit, Yoo
filed suit in Snohomish County Superior Court. The trial court granted Velicahn’s
CR 12(c) motion for judgment on the pleadings and dismissed the case. Yoo
appeals the dismissal and subsequent award of costs and fees to Velicahn. We
agree that the trial court erred in granting Velicahn’s CR 12(c) motion and reverse.
Citations and pinpoint citations are based on the Westlaw online version of the cited material.
No. 80910-5-I/2
FACTS
James Yoo owns the premises in which Velicahn Inc. operated one of its
retail cannabis stores pursuant to a lease between the parties. On July 6, 2016,
Velicahn and Yoo entered into an agreement by which Velicahn granted to Yoo
the option to purchase a 15% ownership interest in its cannabis license for
$10,000, subject to his vetting and approval by the Washington State Liquor and
Cannabis Board (WSLCB). The option remained open for a one-year period
following the date the WSLCB issued the retail cannabis license to Velicahn.
Based on the date of issuance of the license, the option expired June 4, 2017. The
option purchase agreement (OPA)1 also provided that any ownership interest Yoo
obtained in the license would terminate automatically if Velicahn moved its
business or license from the premises owned by Yoo for any reason. Upon
termination of the ownership interest by any such move from the premises,
distributions of profit generated by the store, if any, constituted payment for capital
contributions made by Yoo.
Yoo gave Velicahn notice within the one year period that he intended to
exercise the option. In October 2018, Velicahn initiated the necessary application
to the WSLCB to have Yoo added to the license and submitted the required
supporting documentation for which it was responsible. Yoo claims he became ill
and was unable to timely submit his portion of the required information to the
1
The parties, and the document itself, alternately refer to the agreement as the option
purchase agreement (OPA) and License Purchase Agreement (LPA).
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No. 80910-5-I/3
WSLCB. Yoo’s inaction resulted in failure to meet the WSLCB filing timeframe and
the application was administratively closed in November 2018.
Yoo demanded that Velicahn permit him another opportunity to exercise the
option and resubmit the application to WSLCB. In May 2019, Velicahn informed
Yoo that it would not do so and that the option had expired due to Yoo’s failure to
timely exercise it. Yoo sued Velicahn under theories of breach of contract and
estoppel, seeking a declaratory judgment, specific performance, and damages for
the period during which he was not on the license. Velicahn soon filed its answer
and a motion for judgment on the pleadings. The trial court granted Velicahn’s
motion after oral argument and dismissed Yoo’s claims with prejudice and without
leave to amend. The trial court also awarded Velicahn $24,811.00 in costs and
attorney fees as the prevailing party pursuant to Section 7 of the OPA. Yoo now
appeals.
ANALYSIS
Yoo’s primary argument is that the trial court erred in granting Velicahn’s
CR 12(c) motion for judgment on the pleadings. Washington courts treat a CR
12(c) motion for judgment on the pleadings identically to a CR 12(b)(6) motion for
failure to state a claim. P.E. Sys., LLC v. CPI Corp., 176 Wn.2d 198, 203, 289
P.3d 638 (2012). “Like a CR 12(b)(6) motion, the purpose is to determine if a
plaintiff can prove any set of facts that would justify relief.” Id. Appellate courts
review a CR 12(c) dismissal de novo. Deegan v. Windermere Real Estate/Center-
Isle, Inc., 197 Wn. App. 875, 884, 391 P.3d 582 (2017). Dismissal pursuant to CR
12(c) “is appropriate only if ‘it appears beyond a doubt that the plaintiff can prove
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no set of facts, consistent with the complaint, which would entitle the plaintiff to
relief.’” M.H. v. Corp. of Catholic Archbishop of Seattle, 162 Wn. App. 183, 189,
252 P.3d 914 (2011) (internal quotation marks omitted) (quoting Haberman v.
Wash. Pub. Power Supply Sys., 109 Wn.2d 107, 120, 744 P.2d 1032 (1987)).
“Accordingly, we must take the facts alleged in the complaint, as well as
hypothetical facts, in the light most favorable to the nonmoving party.” Id.Here, the trial court erred in dismissing Yoo’s action because his complaint
provided sufficient allegations and facts, both actual and hypothetical, to survive
Velicahn’s CR 12(c) motion. Viewed with the lens that all facts, including those
that are purely hypothetical, weigh in Yoo’s favor, the following allegations in his
complaint address the breach of the contract claim generally:
2.11 Accordingly, Yoo tendered Kulinovsky a cashier’s check
in the amount of $15,000.00 and, Pursuant to the License Purchase
Agreement, the parties began working together in October 2018 to
submit a Change of Governing People application to the WSLCB for
Yoo to be approved as a true party in interest in Kushman’s Mukilteo.
2.12 After beginning the application process with the WSLCB,
Yoo became ill and was unable to immediately return his portion of
the paperwork by the deadline set by the WSLCB, which caused the
WSLCB to withdraw Velicahn d/b/a Kushman’s Mukilteo’s
application to have Yoo approved as a true party in interest in
Kushman’s Mukilteo in November of 2018, subject to a refiling.
2.13 Yoo has demanded that Kulinovsky and Velicahn
resubmit a Change of Governing People form to initiate the
application process for the approval of Yoo as a true party in interest
in Kushman’s Mukilteo and has also notified Kulinovsky and Velicahn
that Yoo remains prepared to perform under the Purchase Option.
2.14 Kulinovsky and Velicahn have refused to provide the
necessary paperwork or otherwise resubmit a Change of Governing
People application to the WSLCB for Yoo to be approved as a true
party in interest in Kushman’s Mukilteo.
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While these assertions may not have been developed enough to survive other
sorts of pretrial dismissal motions, such as summary judgment, the claims provide
a framework upon which hypothetical facts could rest that is sufficient for Yoo’s
cause of action to survive the low threshold of a CR 12(c) challenge.
Because of the procedural posture of this appeal, we must distinguish
between the hypothetical and actual facts considered. The actual facts are that
the parties agreed to be bound by the OPA, Yoo timely exercised the option, Yoo
tendered payment of $15,000 to Velicahn, the parties began the application
process with the WSLCB, the WSLCB withdrew the application because Yoo failed
to timely submit his portion of the required paperwork, and Velicahn refused to
resubmit the application.2 Velicahn did not admit Yoo’s assertion in his complaint
that his delay was due to illness. Yoo did not include dates or other details about
his illness or when he first approached Velicahn to request resubmission of the
application. In his breach of contract claim, Yoo expressly avers that Velicahn
breached the implied duty of good faith and fair dealing by refusing to resubmit the
application to the WSLCB. An implied duty of good faith and fair dealing exists in
every contract. Badgett v. Sec. State Bank, 116 Wn.2d 563, 569, 807 P.2d 356(1991).
The seriousness and duration of Yoo’s purported illness and the timing of
his request to Velicahn to resubmit the WSLCB application are unclear from the
2 In briefing to the trial court and on appeal, both parties agreed that the option was
exercised. At oral argument, Yoo maintained his position that he exercised the option and Velicahn
clarified that its position is that Yoo provided timely notice of intent to exercise. This contradicts its
answer to the complaint expressly admitting that Yoo exercised the purchase option prior to the
expiration date in the agreement.
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pleadings. However, questions of fact are resolved in favor of the non-moving
party in a CR 12(c) motion. The purpose of a CR 12(c) motion is to determine if a
plaintiff can prove any set of facts that would justify relief. See P.E. Sys., 176
Wn.2d at 203. All factual allegations in the complaint are taken as true. Nw.
Animal Rights Network v. State, 158 Wn. App. 237, 241, 242 P.3d 891 (2010).
With this methodology in mind, this court can hypothesize facts that could
exist within the framework of those actual facts contained in the pleadings which
would support a claim that Velicahn breached its duty of good faith and fair dealing.
In its written opposition to Velicahn’s motion, Yoo asserted that it was Velicahn
who had delayed the application process until October 2018 and “dragged its feet”
in that phase of the process, but does not allege Velicahn refused to participate in
the WSLCB application process until after the administrative closure of the first
attempt.
If Yoo had been seriously ill or hospitalized such that his failure to complete
his portion of the application process was outside of his control and if he
immediately contacted Velicahn to request resubmission after he recovered, such
hypothetical facts could support a finding that Velicahn breached an implied duty
of good faith and fair dealing. There is nothing in the record before us to suggest
that the trial court considered such a hypothetical fact pattern.3 Assuming as we
must that the facts contained in Yoo’s complaint are true, and providing all
3 There was no report of proceedings designated in the record on appeal. The clerk’s
papers contain a notice from the Snohomish County Superior Court Clerk’s Office indicating that
oral argument on the motion was not recorded electronically nor by a court reporter.
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hypothetical facts in his favor, Yoo has met the low threshold set out in CR 12(c).
As such, we reverse the dismissal of his suit and remand for further proceedings.4
Both Yoo and Velicahn request an award of fees on appeal based on the
plain language of section 7(a) of the OPA and under RAP 18.1. Because Yoo
prevails as to the improper dismissal of his suit, we award him reasonable attorney
fees upon compliance with RAP 18.1(d).
Reversed and remanded.
WE CONCUR:
Because our ruling on the substantive issue results in reversal, we need not reach Yoo’s
4
assignment of error as to the trial court’s award of costs and attorney fees to Velicahn.
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