Ellenburg Capital Corp. v. Sykes
DO NOT CITE. SEE RAP 10.4(h).
Court of Appeals Division II
State of Washington
Opinion Information Sheet
Docket Number: 22772-0-II
Title of Case: Ellenburg Capital Corp., et al, App.
v.
Albert Sykes, David Hamm, et al, Resp.
File Date: 04/16/1999
SOURCE OF APPEAL
----------------
Appeal from Superior Court of Pierce County
Docket No: 96-2-07725-4
Judgment or order under review
Date filed: 12/05/1997
Judge signing: Hon. Terry D. Sebring
JUDGES
------
Authored by Carroll C. Bridgewater
Concurring: J. Dean Morgan
Karen G. Seinfeld
COUNSEL OF RECORD
-----------------
Counsel for Appellant(s)
Thomas R. Merrick
Bullivant Houser Bailey Pendergrass & Hoffman
2400 Westlake Ofc Tower
1601 Fifth Avenue
Seattle, WA 98101-1618
R. D. Lindahl
Bullivant Houser Bailey
300 Pioneer Tower
888 SW 5th Ave Ste 300
Portland, OR 97204-2089
Robert J. Roche
Bullivant Houser Bailey Pendergrass & Hoffman
2400 Westlake Ofc Tower
1601 Fifth Avenue
Seattle, WA 98101-1618
Counsel for Respondent(s)
Hollis H. Barnett
Campbell Dille & Barnett
317 Meridian St S
Puyallup, WA 98371-5913
Charles K. Wiggins
Attorney At Law
241 Madison Ave N
Bainbridge Is, WA 98110
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION II
ALBERT C. SYKES, et al., No. 22772-0-II
Respondents,
v.
ELLENBURG CAPITAL CORPORATION, UNPUBLISHED OPINION
et al.,
Appellants. Filed:
BRIDGEWATER, J. - Ellenburg Capital Corporation, Diversified Partners,
Inc., Gerald D. Ellenburg, "Jane Doe" Ellenburg, and Ell-Cap/Diversified 49
(collectively "Sellers") appeal an order confirming a settlement agreement
and an order imposing CR 11 sanctions. A commissioner of this court
bifurcated Sellers' remaining appeal issues, principally involving the
trial court's grant of summary judgment in favor of plaintiffs Albert C.
Sykes, David Hamm, Jr., Rose Hamm, Stephen R. Sandberg and Mary L. Sandberg
(collectively "Purchasers"). We hold that the settlement between the
parties disposed of the right of appeal and we affirm the order confirming
settlement. We affirm the CR 11 sanctions because the Sellers' position
was for the purpose of delay, and we impose an award under RAP 18.9 for
compensatory damages and attorney's fees because this appeal is frivolous.
Sellers' appeal of the summary judgment is moot and is dismissed. We
affirm.
In 1994, Purchasers bought the Bowman Hilton mobile home park from the
Sellers for approximately $4,400,000. The mobile home park lies in a flood
zone adjacent to the Puyallup River. Two years after the sale, the
Puyallup River breached an up-river dike and flooded the mobile home park,
reducing its value to $1,200,000. Purchasers sued Sellers for
misrepresentation, based in part on the failure of Sellers to disclose a
1984 Army Corps of Engineers report specifically recommending that a new
dike be built between the mobile home park and the Puyallup River. Sellers
assert, both here and below, that Purchasers knew the mobile home park was
located in a flood zone and Purchasers were negligent in failing to make
further inquiries into the risks posed by flooding. Early in the
litigation, Purchasers obtained a pre-judgment writ of attachment against
another property owned by Sellers known as the Thunderbird mobile home
park.
Purchasers and Sellers cross-moved for summary judgment. The trial court
granted summary judgment against all but one of the defendants. The
remaining defendant, Ellenburg Capital Corporation, had declared
bankruptcy, staying any proceedings against it. (The bankruptcy stay was
eventually lifted.) After a hearing concerning damages, the trial court,
on December 5, 1997, entered judgment in favor of Purchasers for
$3,800,000.
On December 18, 1997, Purchasers' attorney (Barnett) sent a letter to
Sellers' attorney (Merrick) outlining a proposed settlement covering all
defendants. The letter stated in pertinent part:
Dear Mr. Merrick:
This is a follow up to our telephone conversation on December 17, 1997, in
reference to the pending action.
. . . .You next asked whether or not we were still interested in any
type of settlement or whether we would be pursuing our judgment. I advised
you that our earlier settlement figures were not on the table anymore,
however I would check with my clients and get back to you regarding their
position on settlement. After discussing this issue with my clients, we
have the following proposal which will be kept open until January 5, 1998,
at which time it would automatically be withdrawn:
1. Plaintiffs would proceed with a sheriff's sale and execution of the
judgment of the Thunderbird Mobile Home Park and would bid in $4,000,000.00
less the current amount owing to Pacific Mutual.
2. All four (4) Defendants would cooperate with the sheriff's sale and not
raise legal objections or encourage others to do so, including the filing
of any bankruptcies.
3. The current trial date for Ellenburg Capital Corporation set for April
1, 1998, would be continued, and four (4) months following the sheriff's
sale, if there had been no further legal contest of the execution including
any bankruptcy filings, Plaintiffs would then file a full satisfaction of
the judgment with the Pierce County Clerk, and dismiss the pending action
against Ellenburg Capital Corporation. During the interim, Plaintiffs
would defer any further execution proceedings, and discovery in reference
to Ellenburg Capital Corporation.{1}
Essentially, Purchasers proposed exchanging the Thunderbird mobile home for
a satisfaction of the judgment. The proposed settlement amounted to a
substantial discount of the judgment because the Sellers' net equity in
Thunderbird was about $2,500,000. On December 26, 1997, Sellers filed a
notice of appeal of the summary judgment orders. On December 31, Sellers
accepted the settlement proposed in Purchasers' December 18 letter. Merrick
wrote simply:
Dear Mr. Barnett:
The defendants hereby accept your clients' proposal/offer as set forth in
items 1 through 3 in your December 19, 1997 letter to me.
Sincerely, Thomas R. Merrick.
The attorneys agreed that Purchasers' attorney would prepare a more formal
settlement agreement. Barnett sent the formal settlement agreement to
Merrick on January 8, 1998. But, on the same day, Merrick sent a letter to
Barnett stating that there was no need for further documentation because
the attorneys' letters adequately documented the agreement.
Purchasers filed a motion to confirm the settlement agreement or in
the alternative to declare that there was no agreement. Sellers cross-
moved to confirm the settlement. Sellers requested that the court confirm
the settlement but order that Sellers could still pursue their appeal
because, Sellers argued, the settlement did not explicitly address Sellers'
right to appeal. The trial court held that there had been a settlement and
that a reasonable interpretation of the settlement was that it was an
overall settlement of the litigation. The court entered an order
confirming the settlement and entered findings of fact and conclusions of
law supporting its decision. At a later hearing, the court imposed CR 11
sanctions against the Sellers and entered findings of fact and conclusions
of law supporting its decision.
I. Settlement Agreement
This case turns on whether the parties reached a settlement agreement
disposing of the litigation or whether, as Sellers assert, the parties only
reached a partial settlement. Letters between attorneys may sufficiently
establish the existence of a settlement agreement.2
A. Standard of Review
The party moving to enforce a settlement agreement carries the burden of
proving that there is no genuine dispute over the existence and material
terms of the agreement. In re Marriage of Ferree, 71 Wn. App. 35, 41, 856
P.2d 706 (1993) (explaining why trial court should use the same analysis in
deciding a motion to enforce a settlement agreement as used in a motion for
summary judgment). The existence and material terms of an agreement are a
question of fact; but when reasonable minds can reach only one conclusion,
the material terms are not genuinely disputed. Ferree, 71 Wn. App. at 43
(citations omitted). Accordingly, when a trial court determines, after
reviewing the evidence permitted under CR 2A and RCW 2.44.010, that the
parties have reached a settlement agreement, we review that determination
de novo as we would review the grant of summary judgment. See Ferree, 71
Wn. App. at 41-44
B. Evidence of Settlement Agreement
In deciding whether the parties have reached a settlement agreement, the
trial court should consider evidence that would be available in summary
judgment hearings, e.g., writings signed by the parties or their attorneys;
affidavits or declarations conforming to summary judgment principles; or
statements made in open court or in front of the court clerk and entered
into the minutes. CR 2A; RCW 2.44.010; Bryant v. Palmer Coking Coal Co.,
67 Wn. App. 176, 179 (1992), 858 P.2d 1110 (1993) (as modified), review
denied, 120 Wn.2d 1027 (1993). In Ferree, this court articulated the
reasons for the rule: "{T}he purpose of CR 2A is to insure that
negotiations undertaken to avert or simplify trial do not propagate
additional disputes that then must be tried along with the original one."
71 Wn. App. at 41. The rule and the statute are designed to cut off
specious claims of settlement and to prevent satellite litigation.
A trial court has the discretion to hold an evidentiary hearing on any
motion under CR 43(e)(1).3 In the present case, the trial court held an
evidentiary hearing to determine whether the parties had reached a
settlement.4
C. Settlement Agreement Itself
Washington adheres to the "objective theory" of contracts, requiring the
court to examine the parties' objective manifestations rather than their
subjective intent. Max L. Wells Trust v. Grand Central Sauna & Hot Tub
Co., 62 Wn. App. 593, 602, 815 P.2d 284 (1991). Purchasers proposed a
settlement in Barnett's December 18 letter; the word "settlement" used in a
legal context without other pre-qualification, objectively suggests a final
resolution of a dispute.5 If Sellers accepted the settlement without
qualification but subjectively intended a "partial" or "interim" settlement
or some other meaning, they did so at their peril.
Under paragraph 2 of the terms of the agreement, Sellers were to cooperate
with the sheriff's sale "and not raise legal objections." The meaning of
this phrase could not be more clear. It is illogical that someone could
agree not to make objections, but reserve the right to appeal the very
judgment upon which the sheriff is relying. The prosecution of the appeal
is a "legal objection" to the sheriff's sale. Moreover, paragraph 3 of the
agreement discusses the obligation of the Purchasers filing a "full
satisfaction of the judgment . . . and dismiss the pending action against
Ellenburg Capital Corporation." This term simply does not make sense if
the Sellers were retaining the right to appeal. Sellers' position is
meritless.
Sellers suggest that agreeing to forego appeal was not an inherent term of
the December 18 settlement offer. To buttress this claim, Sellers point to
the fact that Purchasers' January 8 formal settlement agreement included
dismissal of the appeal as a term, but Purchasers' December 18 letter did
not. This argument ignores the obvious fact that as of December 18,
Sellers had not yet filed a notice of appeal. Thus, the absence of a term
addressing dismissal of the appeal is not conclusive proof that Purchasers'
offer to settle contemplated allowing Sellers to pursue an appeal.
Sellers' claim that only an "interim settlement" had been reached is
unreasonable from a practical standpoint as well. If the agreement were
only an "interim" one, allowing Sellers to appeal, the agreement would be
patently one-sided, with no benefit to Purchasers.6 Sellers claim that,
had an "interim" agreement not been reached, they could have posted a
supersedeas bond and "foreclosed any collection efforts" by Purchasers.
But, at the trial court level, Sellers conceded that they could not post a
supersedeas bond:
{Merrick}: The defendants do not have the ability to post a $3.8 million
bond, which is in all likelihood a cash bond, meaning we have to put up
$3.8 million in order to preserve or prevent execution on the judgment. My
clients cannot and will not do that.{7}
This undercuts the first half of Sellers' central argument that it would be
unfathomable to conclude that Sellers would agree to both (1) acquiesce in
the transfer to Purchasers of property worth millions of dollars and (2)
forfeit their appeal rights. To the contrary, judgment having been entered
against them and unable to post a bond, Sellers had no choice but to
acquiesce in the transfer of the Thunderbird mobile home park.
Sellers also assert that they never would have agreed to forfeit their
appeal rights because they would have prevailed on appeal of the summary
judgment. They suggest that the trial court's unusual grant of summary
judgment in favor of Purchasers was clearly erroneous and would be readily
overturned on appeal. We do not reach the issue of the trial court's grant
of summary judgment. But, for the sake of argument, even if we assumed
that the trial court erred in granting summary judgment, it would not
change this court's objective analysis of whether the offer and acceptance
constituted a binding contract. Secondarily, it is not "unfathomable" that
Sellers would want to settle, even if they believed they would prevail on
the appeal of the summary judgment ruling. If Sellers prevailed on appeal,
they might still lose the resulting bench trial on remand before the same
judge. Purchasers agreed to discount their judgment by approximately
$1,300,000. Sellers could have rationally decided to take advantage of the
significant compromise rather than risk the uncertainties of appeal and, if
the appeal were successful, the uncertainties of a bench trial after
remand. Settlement was not as irrational as Sellers suggest.
In summary, the trial court had decided the issues of liability and damages
for three of the four defendants. Purchasers proposed a post-judgment
"settlement" directed at achieving a total settlement of all claims against
all parties. If Sellers sought to appeal the adverse ruling on liability
and/or damages, Sellers should not have agreed to a "settlement" without
expressly reserving the right to appeal the summary judgment rulings.
Under Ferree, 71 Wn. App. at 45, the trial court was required to take the
evidence in a light most favorable to Sellers and then decide whether the
existence of the alleged settlement agreement was genuinely disputed (not
whether Sellers wanted to abide by it, but whether Sellers controverted its
existence or material terms in such a way that there was a genuine issue of
material fact. Purchasers succeeded and Sellers failed in their burdens.
In conclusion, the trial court was correct in confirming and enforcing the
final settlement between the parties. Additionally, Sellers' appeal of
summary judgment is dismissed as moot.
II. CR 11 Sanction
A. Standard of Review
An appellate court reviews the imposition of CR 11 sanctions for an abuse
of discretion. Physicians Ins. Exch. v. Fisons Corp., 122 Wn.2d 299, 338,
858 P.2d 1054 (1993) (citing, inter alia, Cooter & Gell v. Hartmarx Corp.,
496 U.S. 384, 403, 110 S. Ct. 2447, 110 L. Ed. 2d 359 (1990)).
The abuse of discretion standard again recognizes that deference is owed to
the judicial actor who is "better positioned than another to decide the
issue in question.". . . Further, the sanction rules are "designed to
confer wide latitude and discretion upon the trial judge to determine what
sanctions are proper in a given case and to 'reduce the reluctance of
courts to impose sanctions'. . . . If a review de novo was the proper
standard of review, it could thwart these purposes; it could also have a
chilling effect on the trial court's willingness to impose . . .
sanctions."
Physicians Ins. Exch., 122 Wn.2d at 339 (citations omitted). Accordingly,
an appellate court should give appropriate deference to a CR 11 award and
not lightly overturn a court's decision to sanction. Nevertheless, if the
trial court bases its decision on an erroneous interpretation of the rules,
it may abuse its discretion. "A trial court abuses its discretion when its
order is manifestly unreasonable or based on untenable grounds. A trial
court would necessarily abuse its discretion if it based its ruling on an
erroneous view of the law." Physicians Ins. Exch., 122 Wn.2d at 339
(citations omitted).
1. The CR 11 Sanction
As set forth above, reasonable minds would agree that there was no material
dispute over whether the parties had reached a binding settlement agreement
disposing of the litigation. CR 11 was designed to prevent baseless
filings. Bryant v. Joseph Tree, Inc., 119 Wn.2d 210, 829 P.2d 1099 (1992).
The rule requires an attorney to engage in an adequate pre-filing inquiry
to ensure that a position is "well grounded in fact and is warranted by
existing law, or a good faith argument for the extension, modification, or
reversal of existing law, and that it is not interposed for any improper
purpose, such as to harass or to cause unnecessary delay or needless
increase in the cost of litigation." CR 11.
Under CR 11, an attorney has "independent and affirmative duties" to
conduct a reasonable inquiry into both the facts and law supporting the
filing and to ensure that the filing is not interposed for the purposes of
delay, harassment, or increasing costs of litigation. Watson v. Maier, 64
Wn. App. 889, 896, 827 P.2d 311 (citing, inter alia, Miller v. Badgley, 51
Wn. App. 285, 300, 753 P.2d 530, review denied, 111 Wn.2d 1007 (1988)),
review denied, 120 Wn.2d 1015 (1992). The attorney's signature is the
attorney's certification that he or she has performed a reasonable pre-
filing inquiry. CR 11.
The trial court should impose sanctions if it concludes that the filing was
filed for an improper purpose such as to delay. CR 11. The trial court
specifically addressed this issue:
The court finds that the position of the Defendants was deceptive and not
taken in good faith . . .
. . . .
The court finds that the Defendants position regarding interpretation of
the settlement reached was taken for the additional purpose of causing
unnecessary delay in bringing to a conclusion the pending litigation
between the parties.
The court found that Sellers' filing, the cross-motion to confirm the
settlement, was interposed for the purpose of causing delay. When Sellers
unconditionally accepted the terms of settlement, but privately took the
position that they could still pursue their appeal, Sellers acted
unreasonably, spawning satellite litigation regarding the settlement. To
understand this pleading, the court set forth the backdrop of the
litigation: multiple bankruptcy filings, two of which were voluntarily
dismissed and one remanded in less than 30 days of its initial filing,
together with the litigation tactics attempting to delay the lawsuit in
Pierce County by restraining orders in Los Angeles Superior Court; and the
striking of the trial date against Ellenburg Capital Corporation after the
settlement was signed. This history of pleading provides the background of
the disingenuous action of the Sellers and supports the trial court's
findings that Sellers' objections to the settlement were taken for the
purpose of unnecessary delay.
Sellers gained advantage by delay. Interest on the judgment against
Sellers accrued at $1,250 per day or $456,000 per year. Sellers agreed to
a settlement that contemplated exchanging the Thunderbird mobile home park
for a satisfaction of judgment. The settlement did not provide for
interest but, instead, limited Sellers' obligation to their equity in
Thunderbird, equating to roughly $2,500,000. Thus, by disingenuously
contesting the settlement, Sellers gained time without the penalty of
losing interest on the judgment. The trial court's finding is supported by
substantial evidence.
II. RAP 18.9 Sanctions
Purchasers have also requested relief under RAP 18.9 for attorney's fees
and compensatory damages. RAP 18.9(a) authorizes the appellate court to
order sanctions against a party or an attorney who brings an appeal for the
purpose of delay. "In determining whether an appeal is brought for delay
under RAP 18.9(a), our primary inquiry is whether, when considering the
record as a whole, "it presents no debatable issues and is so devoid of
merit there is no reasonable possibility of reversal." Streater v. White,
26 Wn. App. 430, 434, 613 P.2d 187, review denied, 94 Wn.2d 1014 (1980);
Watson v. Maier, 64 Wn. App. 889, 901, 827 P.2d 311 (1992), review denied,
120 Wn.2d 1015, 844 P.2d 436 (1992).
We find nothing debatable in the appeal, and it appears to be filed solely
for the purpose of postponing the inevitable. There was no reasonable
possibility of reversal of the trial court's conclusion that a settlement
was reached between the parties. The filing of the appeal plainly breached
the terms of the settlement agreement. Further, the appeal has created a
cloud on the title of the Thunderbird, limiting the ability of the
Purchasers to deal with the asset as if they were the true owners. We hold
that the Sellers have violated RAP 18.9(a) and they should pay terms and
compensatory damages as may be determined by the trial court. We therefore
remand this issue to the trial court for a determination of compensatory
damages and attorney's fees on
appeal. The trial court may conduct an evidentiary hearing on either issue
unless reasonable minds could not differ.
Affirmed and remanded for orders consistent with this opinion.
A majority of the panel having determined that this opinion will not be
printed in the Washington Appellate Reports, but will be filed for public
record pursuant to RCW 2.06.040, it is so ordered.
Bridgewater, C.J.
We concur:
Morgan, J.
Seinfeld, J.
1 Clerk's Papers at 1249-50.
2 CR 2A provides:
No agreement or consent between parties or attorneys in respect to the
proceedings in a cause, the purport of which is disputed, will be regarded
by the court unless the same shall have been made and assented to in open
court on the record, or entered in the minutes, or unless the evidence
thereof shall be in writing and subscribed by the attorneys denying the
same.
(emphasis added). Similarly RCW 2.44.010 provides:
An attorney and counselor has authority:
(1) To bind his client in any of the proceedings in an action or special
proceeding by his agreement duly made, or entered upon the minutes of the
court; but the court shall disregard all agreements and stipulations in
relation to the conduct of, or any of the proceedings in, an action or
special proceeding unless such agreement or stipulation be made in open
court, or in presence of the clerk, and entered in the minutes by him, or
signed by the party against whom the same is alleged, or his attorney{.}
(emphasis added). In effect, both CR 2A and RCW 2.44.010 provide that by
signing a letter containing a settlement offer or acceptance, an attorney
may contractually bind his or her client.
3 CR 43(e)(1) provides:
When a motion is based on facts not appearing of record the court may hear
the matter on affidavits presented by the respective parties, but the court
may direct that the matter be heard wholly or partly on oral testimony or
depositions.
4 The trial court took the unusual step of swearing in the attorneys before
hearing argument on the motion to confirm the settlement.
5 One legal definition of settlement is "{t}o fix or resolve conclusively;
to make or arrange for final disposition." Black's Law Dictionary 1372
(6th ed. 1990).
6 Sellers suggest the following interpretation of the settlement: (1)
Purchasers agreed to discount their judgment substantially by accepting the
encumbered Thunderbird mobile home park at the Sheriff's sale; (2) Sellers
would then be free to pursue their appeal (in which Sellers would attempt
to reverse the judgment); and (3) presumably, if Sellers lost their appeal,
Purchasers would, nevertheless, receive no more than the Thunderbird mobile
home park, worth only 66 percent of the judgment. In essence, Sellers
suggest that the "interim agreement" merely provided that Sellers could
have their cake and eat it too.
7 Report of Proceedings (Feb. 13, 1998) at 21.