Opinion
No. 63711-8-I.
Filed: February 28, 2011.
Appeal from a judgment of the Superior Court for Snohomish County, No. 07-2-02498-9, Michael T. Downes, J., entered May 28, 2009.
Affirmed by unpublished opinion per Spearman, J., concurred in by Becker and Ellington, JJ.
Craig Bernhart asserted various claims against Mariann Danard relating to joint business dealings. After a bench trial, the trial court found in favor of Danard. We hold the trial court's unchallenged findings of fact support its conclusions of law, and affirm.
FACTS
Craig Bernhart and Mariann Danard met in late 1999 when they were involved in the development of a condominium project called Emerald Gardens. Bernhart is a dentist, but is also a sophisticated real estate investor who has been involved in a number of business deals in construction, development, and equipment leasing. Danard is a real estate broker with lengthy commercial real estate experience. Bernhart and Danard engaged in many business dealings together.
In addition to their professional relationship, Bernhart and Danard began an intimate personal relationship that continued for approximately six years. At the same time, Bernhart was also in a relationship with Jane Papworth, with whom he resided along with their two children. During his relationship with Danard, Bernhart hid many of his business transactions from Papworth so that Papworth would be unaware of any potential property interests she might have in the event the relationship ended.
Throughout Bernhart's relationship with Danard, he benefited from her personal resources and ability to obtain commercial financing, regularly borrowing money from her. For example, in October 2002, Danard paid the IRS $53,000 on Bernhart's behalf. She also paid $59,000 toward Bernhart's obligation on an $83,000 promissory note.
One of the properties Bernhart owned in King County was referred to both as "Skyway" and "Tuscany" (hereinafter "Tuscany"). After Bernhart became delinquent on Tuscany's $325,000 mortgage, the lender, CityBank, started foreclosure proceedings. Bernhart sought Danard's help in preventing foreclosure and she agreed to purchase Tuscany for $455,000. Danard obtained a loan of $409,000 from North County Bank, which conditioned the loan on Danard depositing $95,000 into a construction account. The loan was arranged entirely by Danard, and she alone completed the application, provided financial information, and signed the loan documents. Bernhart provided no financial information, did not sign any of the loan documents, and had no contact with the lender.
On June 11, 2002, Bernhart deposited $130,000 (the difference between the amount owed on the mortgage and the purchase price) into Danard's account, which funds were then deposited with the closing agent. That same day, after a romantic encounter at Danard's home, Bernhart presented Danard with a handwritten memorandum (hereinafter "Tuscany memo") that read as follows:
`Craig Bernhart deposited $130,000 to account of Mariann Danard for closing of the Skyway property. This loan to be repaid immediately following closing and sale of Skyway to Mariann Danard which will be an LLC with Danard and Bernhart members. Sale of the property shall be for $650,000 with balance to Bernhart at sale of property when mutually agreed. Interest payments and all costs shall be equal. All profits shall be divided equally after expenses costs.'
Both Bernhart and Danard signed the memo.
Bernhart received a significant financial advantage from the Tuscany closing, including avoiding a second foreclosure on his financial record and payment of delinquent King County property taxes as well as other debts. In all, Bernhart received in cash and credit well over $160,000, and his $325,000 mortgage was paid.
Danard did not believe the Tuscany memo constituted a partnership agreement and the parties did not act as if they had formed a partnership. Nor did Danard intend to form the limited liability company (LLC) discussed in the Tuscany memo and, in fact, no such LLC was ever formed. The sole buyer on the purchase and sale agreement was Danard and the statutory warranty deed conveyed the property to Danard alone.
The trial court also rejected as not credible Bernhart's testimony that the parties intended to form an LCC or partnership and that his deposits into a "Tuscany bank account" were evidence of such intent. Instead, the trial court found credible Danard's testimony that Bernhart paid her $1500 per month because he owed her money. Regarding Bernhart's lack of credibility, the trial court found:
The facts which the Plaintiff relies upon are grounded in deceit and blatant attempts to hide the truth. This Court is not at all persuaded that his current version is the truth. One of the essential elements of a partnership is an agreement to share losses in addition to profits. There was no agreement amongst the parties to share losses. Sometime in 2006 Bernhart asked Danard to put something in writing as to who owned what in case something happened to Danard. In response to this request, Danard specifically asked Bernhart if he was willing to share in any losses that might result. Bernhart responded by saying that he was not willing to share in losses. There was, therefore, no agreement between the parties to share losses in addition to profits.
Bernhart also was involved in another real estate project called "Emerald Gardens." In order to fund this project, Bernhart obtained a loan from Covenant Mortgage. That loan was secured by Bernhart's dental office building, the Cedar Professional Center, (hereinafter "CPC"). The Emerald Gardens project did not go well. Bernhart defaulted on the loan and Covenant Mortgage began foreclosure proceedings. Bernhart negotiated a right of first refusal with Covenant Mortgage, entitling him to purchase the property in the event Covenant Mortgage received an offer to purchase from a third party. Bernhart received notice of an offer to purchase, but because he could not qualify for a loan himself, he approached Danard to assist in obtaining financing. Danard agreed, and together with Bernhart, she met her banker at Horizon Bank, Dennis Carlin. Carlin informed them Bernhart's credit was poor, and that it could not be considered in making the loan. Danard then supplied her own financial information to Carlin for the purpose of obtaining the loan, while Bernhart provided none. Danard and Bernhart advised Carlin that the purchase of the CPC would be via an LLC in which both parties would be members. Carlin told them that because of Bernhart's poor credit, Horizon would make the loan only if Danard had a controlling interest in the LLC.
Bernhart and Danard met with Edward Weigelt, Bernhart's attorney, for the purpose of forming the LLC. Weigelt drafted a proposed LLC agreement under which Danard was required to make a capital contribution of $250,000 and Bernhart would make a "contribution" of his right of first refusal to purchase CPC, which he valued at $150,000. On the first page of this LLC proposal, Weigelt handwrote "`rough draft not proofed yet for comments only.'" Danard told Weigelt and Bernhart she would be taking the draft to her attorney, William Foster, for his review. The parties knew that Foster's review of the proposed agreement was to be more than mere proofreading, and Bernhart understood that Foster would be reviewing it as independent counsel for Danard.
Danard objected to the terms of the proposed agreement, given she was the only party to contribute cash, and the only person who would be obligated on the loan obtained to acquire the building. Based on these objections, Foster completely rewrote the LLC agreement on Danard's behalf, removing the provision regarding Bernhart's "contribution" of his right of first refusal, and instead providing that Bernhart would contribute $100,000 in the form of a secured promissory note. Foster's office notified Bernhart that the documents were ready for signature. Bernhart went to Foster's office, and signed the LLC agreement, promissory note and security agreement, without reading any of them. Although Bernhart had ample opportunity to read and review the documents, he simply chose to sign them without reading them first. Neither Danard nor Foster made any misrepresentations about the documents to Bernhart before he signed them.
At some point, Bernhart and Danard's relationship ended. Bernhart alleged Danard refused to provide an accounting of assets and liabilities for various business activities they conducted through what Bernhart claimed was an informal "`umbrella partnership.'" He sued Danard and several of her business entities for fraud, conversion, breach of fiduciary duty, breach of duty of good faith and fair dealing, and violation of a regulation regarding property management.
Danard filed a third party complaint against Bernhart, CPC, and Papworth, for breach of various loan agreements; for judgment on several promissory notes relating to the loan agreements; and for a judicial determination as to Bernhart's interest in the business entities identified in the complaint. After a bench trial, the trial court dismissed all of Bernhart's claims with prejudice. The court also dismissed Danard's claims based on promissory notes, but found in favor of Danard as to all of the business entities, including a determination that Danard owned seventy-one percent of the membership units in the CPC, LLC. The court awarded Danard her reasonable attorney fees based on the prevailing party attorney fee clause in the CPC, LLC agreement. Bernhart appeals.
DISCUSSION Standard of Review
Bernhart challenged only one of the trial court's 53 findings of fact. As such, the 52 unchallenged findings are verities on appeal. State v. O'Neill, 148 Wn.2d 564, 571, 62 P.3d 489 (2003). We review the lone challenged finding for substantial evidence, defined as quantum of evidence sufficient to persuade a rational fair-minded person the premise is true. Sunnyside Valley Irr. Dist. v. Dickie, 149 Wn.2d 873, 879, 73 P.3d 369 (2003). Regarding the conclusions of law challenged by Bernhart, the only question we must resolve is whether they are supported by the findings of fact. Hegwine v. Longview Fibre Co., Inc., 132 Wn. App. 546, 555, 132 P.3d 789 (2006). For the reasons described below, we hold the trial court's conclusions are supported by its findings.
The Conclusions of Law are Supported by the Findings of Fact
The sole finding of fact challenged by Bernhart is finding 52, which discusses the CPC agreement between Bernhart and Danard. That finding reads as follows:
There was no failure on Danard's part to disclose any fact to Bernhart. While in the process of negotiating the terms of the operating agreement, Danard and Bernhart were operating at arms length, and were entitled to negotiate the terms of an agreement that best suited their respective interests.
The only portion of this paragraph that is truly a "finding of fact" is the statement that "While in the process of negotiating the terms of the operating agreement, Danard and Bernhart were operating at arms length[.]" This finding is amply supported by the record, which indicates Danard and Bernhart each had their own counsel representing them in drafting the CPC agreement.
To the extent the rest of the paragraph contains mislabeled conclusions of law, we treat those as conclusions of law on appeal, and address them in the paragraphs below. See Willener v. Sweeting, 107 Wn.2d 388, 394, 730 P.2d 45 (1986) (reviewing court treats mislabeled findings of fact as conclusions of law).
Bernhart challenges the trial court's conclusions of law 2, 3, 6, 7, 9, 10, 11, and 15. In relevant part, the conclusions challenged by Bernhart read as follows:
Bernhart also assigns error to conclusion of law 8, "[t]hat the Defendant has not violated any provision of WAC 308.124D-150" and conclusion of law 14, awarding attorney fees to Danard under the prevailing party fee clause of the CPC LLC agreement. Because he provides no argument or citation to authority regarding conclusion of law 8 the assignment of error is waived. RAP 10.3(a)(6); State v. Thomas, 150 Wn.2d 821, 874, 83 P.3d 970 (2004), abrogated on other grounds by Crawford v. Washington, 541 U.S. 36, 124 S.Ct. 1354, 158 L.Ed.2d 177 (2004). As to conclusion of law 14, regarding attorney fees, we address that issue separately below.
2. No partnership exists between the Plaintiff and Defendant with regard to the Skyway/Tuscany property, or any other parcel of real property as alleged in the Plaintiff's Complaint. . . .
3. That the Plaintiff has no right, title, claim or interest in or to any of the properties described in the preceding paragraph 2.
. . . .
6. That the Defendant has not breached any fiduciary duty to the Plaintiff, including, but not limited to, actions and/or omissions with regard to Cedar Professional Center, or the management of the real property owned by Cedar Professional Center, LLC.
7. That the Defendant has not breached any duty of good faith and fair dealing with regard to Cedar Professional Center, or the management of the real property owned by Cedar Professional Center, LLC.
. . . .
9. That the Defendant has not breached any contract with Cedar Professional Center, LLC, with regard to the management of the real property owned by Cedar Professional Center, LLC.
10. That the Plaintiff is not entitled to reformation of the Cedar Professional Center, LLC, operating agreement. That pursuant to the operating agreement executed by the Plaintiff and Defendant for Cedar Professional Center, LLC, the Defendant is the owner of 71% of the membership units in Cedar Professional Center, LLC, and the Defendant is the owner of 29% of the membership units in Cedar Professional Center, LLC.
11. The operating agreement executed by and between the Plaintiff and Defendant on the 4th day of December, 2002, for Cedar Professional Center, LLC, is hereby confirmed as the valid and enforceable operating agreement for the said limited liability company.
. . . .
15. Foster was not required to identify for Bernhart the specific changes that were made in the agreements. In fact, because Foster was representing Danard, and Bernhart was represented by independent counsel, Weigelt, it would have been a breach of Foster's obligation to his client to disclose anything to Bernhart. Furthermore, because Bernhart was represented by independent counsel, it would have been improper for Foster to engage in substantive communication with Bernhart.
These challenged conclusions can largely be divided into two broad categories: (1) conclusions regarding formation of and the parties' interests in an alleged "umbrella partnership;" and (2) conclusions regarding formation of and the parties' interest in the CPC, LLC.
Many of the challenged conclusions of law relate to Bernhart's argument that he and Danard conducted various business activities through an informal "umbrella partnership." Bernhart contends the trial court erred in finding no such partnership existed. We disagree. On this issue, the trial court concluded, "No partnership exists between the Plaintiff and Defendant with regard to the Skyway/Tuscany property, or any other parcel of real property as alleged in the Plaintiff's Complaint[.]" This conclusion is amply supported by the court's unchallenged findings, which include the following:
There was no agreement amongst the parties to share losses. Sometime in 2006, Bernhart asked Danard to put something in writing as to who owned what in case something happened to Danard. In response to this request, Danard specifically asked Bernhart if he was willing to share in any losses that might result. Bernhart responded by saying that he was not willing to share in losses. There was, therefore, no agreement between the parties to share losses in addition to profits.
Moreover, the trial court explicitly found that Bernhart's version of events was not credible: "The facts which the Plaintiff relies upon are grounded in deceit and blatant attempts to hide the truth. This Court is not at all persuaded that his current version is the truth." This court defers to the trier of fact regarding witness credibility, resolving conflicting testimony, and weighing the persuasiveness of the evidence. In re Detention of Broten, 130 Wn. App. 326, 334-35, 122 P.3d 942 (2005). In short, the trial court's conclusion that no "umbrella partnership" exists is amply supported by the unchallenged findings of fact. Bernhart also argues Danard breached fiduciary duties and duties of good faith and fair dealing with respect to this alleged "umbrella partnership." Given no such partnership existed, however, Danard did not owe any such duties to Bernhart, and the trial court correctly found in favor of Danard on the issue.
Bernhart next argues that Danard and her attorney, William Foster, violated fiduciary duties owed to him regarding the formation of the CPC, LLC and that the LLC agreement is either void or should be reformed such that it is consistent with Weigelt's original draft proposal. In particular, he contends that Danard and Foster had a duty to point out to him the specific changes made to Edward Weigelt's draft of the LLC proposal or, at minimum, advise him that the proposed changes had not been approved by Weigelt. In support of this position, Bernhart's relies upon Bohn v. Cody, 119 Wn.2d 357, 832 P.2d 71 (1992) and Hurlbert v. Gordon, 64 Wn. App. 386, 824 P.2d 1238 (1992). But neither case supports Bernhart's argument.
In Bohn the court merely held that under certain circumstances an attorney may be held liable for malpractice to a party the attorney never represented. Bohn, 119 Wn.2d at 365. In that case, there was evidence that the attorney knowingly made misleading statements to an unsophisticated, unrepresented couple that induced them to make a risky loan of their entire life savings which were eventually lost. The court stated "[u]nder the extreme facts of this case, we hold simply that an attorney should advise the unrepresented party to seek independent counsel before the attorney discusses the transaction with that party." Id. at 367. Here, the trial court found that neither Danard nor Foster made any misrepresentations about the documents before Bernhart signed them. In addition the trial court found, and Bernhart agreed, that he is a "sophisticated real estate investor." Bernhart was also represented by his own attorney throughout the parties' discussion of the proposal and at the time the documents were signed. Thus, Bohn is of no help to Bernhart.
Gordon, likewise, is of little assistance. In that case the court noted that "because an attorney's duty while acting as an escrow agent requires him to exercise strict impartiality between the parties, such attorney has a duty to inform the parties to the closing of the advisability of obtaining independent legal counsel." Gordon, 64 Wn. App. at 394 (citing, Bowers v. Transamerica Title Ins. Co., 100 Wn.2d 581, 675 P.2d 193 (1983). But here, there is no contention that Foster was acting in the capacity of an escrow agent. The trial court's unchallenged finding is that at all relevant times, Bernhart was represented by his own attorney and there was no basis upon which Bernhart could reasonably believe that Foster was representing him in any capacity or that Foster was acting in any capacity other than as counsel for Danard. Under these circumstances, Foster owed no duty of disclosure to Bernhart or to advise him Weigelt had not approved the documents.
Bernhart also relies on Gordon to argue that because he was represented by counsel it was improper for Foster to make the documents available directly to him instead of to his attorney. Bernhart contends that by doing so Foster failed to provide proper notice of the changes that had been made to the document. But the undisputed evidence is that Foster never dealt directly with Bernhart regarding the preparation or signing of the LLC documents. Bernhart's own testimony was that he and Foster never met regarding the preparation or signing of the documents. In addition, the trial court found that Bernhart had ample notice that the document had been changed. For example, Bernhart knew that Foster's review of the proposed agreement was to be more than mere proofreading; he understood that Foster would be reviewing it as independent counsel for Danard; and Foster's changes to the documents made them "noticeably different," both in format and in number, since Weigelt's draft consisted of only one document, the LLC agreement, while Foster's draft consisted of three separate documents including a promissory note and a security agreement. The trial court also found that Bernhart had ample opportunity to read and review Danard's revised agreement before signing it, but he simply chose not to. Moreover, Bernhart testified that during the two months between the date he signed the documents and closing, he again had ample time to review the documents and presumably discuss them with his lawyer, but did not.
The trial court's conclusions that Danard's LLC agreement was valid and enforceable, and that neither Foster nor Danard breached any duties relating to the agreement, are well supported by the unchallenged findings of fact.
Attorney Fees. Danard argues that we should award her fees and costs on appeal, based on the CPC LLC agreement, which provides for attorney fees to the party prevailing in a dispute about the agreement. We agree. The trial court awarded Danard attorney fees on this basis. Under RAP 18.1, we award attorney fees and costs to Danard as the prevailing party in an amount to be determined by a court commissioner.
Affirmed.
WE CONCUR: