Opinion
No. 34995-7-II.
April 22, 2008.
Appeal from a judgment of the Superior Court for Kitsap County, No. 04-2-01561-0, Theodore F. Spearman, J., entered May 19, 2006.
Reversed by unpublished opinion per Houghton, C.J., concurred in by Armstrong and Van Deren, JJ.
Horse Harbor Foundation, Inc. (HHF); Katherine and Michael Daling, HHF board members; and Maurice Allen Warren, HHF's manager, appeal the trial court's award of damages to Linda Eastwood based on their joint and several liability for damages arising from their gross negligence. We reverse.
FACTS
Eastwood has owned the Double KK Farm for more than 20 years. Double KK comprises approximately 14 acres and includes a large barn, many paddocks, outbuildings, horse shelters, turnout pastures, and a covered riding arena that includes stalls, an office, bathrooms, and a kitchen. The facility has been used as a breeding farm and commercial boarding facility and can house 20 horses if proper maintenance and management programs are used.
HHF, a nonprofit corporation, provides public education on horse care, cares for several abandoned and mistreated horses, and offers riding lessons, among other things. During the relevant period, Warren was the paid manager responsible for HHF's day-to-day affairs. Experienced in horse farm operations, he helped organize HHF and was responsible for the daily operations of HHF during the lease at issue here. The Dalings were HHF directors and officers during the relevant period. Under article III, section I of HHF's bylaws, the board of directors was responsible for managing HHF's affairs.
On October 1, 2003, HHF and Eastwood entered into a lease allowing HHF to occupy 10 acres of Double KK. HHF drafted the lease, which stated that HHF would "keep and maintain the leased premises and appurtenances in good and sanitary condition and repair" during the term of the lease. Ex. 101. Warren and the board of directors, including Katherine and Michael Daling, discussed the lease and "reviewed it together item by item" before entering into it. I Report of Proceedings (RP) at 43. Katherine Daling signed the lease, and she and Michael Daling participated in two meetings with Eastwood before the parties executed the lease. Eastwood set the rent below fair market value at $1,666.67 per month in exchange for HHF's agreement to maintain and repair the facility at its expense.
On June 25, 2004, Eastwood filed a complaint against HHF for unlawful detainer and alleging lease defaults due to lack of care of the premises. Almost a year later, HHF vacated the premises. After retaking possession and reviewing the premises, Eastwood shortly thereafter filed an amended complaint seeking, among other things, damages based on the Dalings' and Warren's individual liability.
After a bench trial, the trial court found "broad, persistent, and systemic failure" both in HHF's care of the Double KK facility and its horses. CP at 131 (FF 4). In turn, the trial court concluded that HHF breached its lease agreement by failing to properly maintain the leasehold.
The trial court decided that HHF employee Warren and HHF directors Michael and Katherine Daling committed gross negligence and were all individually liable for damages. The trial court allocated damages based on ordinary or gross negligence. With respect to damages caused by gross negligence, the trial court found all defendants jointly and severally liable for $32,850.66 in damages. The trial court also imposed joint and several liability against HHF, Warren, and the Dalings for $44,762.75 in attorney fees and $1,568.00 in costs.
The trial court denied their motion for reconsideration. They appeal.
ANALYSIS
Warren and the Dalings argue that the trial court erred in concluding that they committed gross negligence. The trial court imposed individual liability against Warren as an HHF agent or employee and imposed individual liability on the Dalings as directors under RCW 4.24.264. That statute only allows individual liability for discretionary decisionmaking of nonprofit directors and officers if the decision or lack thereof constitutes gross negligence. We reverse the trial court's imposition of individual liability on Warren and the Dalings because the statute does not apply here and the economic loss rule bars recovery.
According to RCW 4.24.264, "a member of the board of directors or an officer of any nonprofit corporation is not individually liable for any discretionary decision or failure to make a discretionary decision within his or her official capacity as director or officer unless the decision or failure to decide constitutes gross negligence."
We review questions of law, including statutory construction, de novo. City of Pasco v. Pub. Employment Relations Comm'n, 119 Wn.2d 504, 507, 833 P.2d 381 (1992). Our obligation is to give effect to legislative intent and where a statute uses plain language, the statute is not ambiguous. Regence Blueshield v. Office of Ins. Comm'r, 131 Wn. App 639, 646, 128 P.3d 640 (2006). When faced with an unambiguous statute, we derive the legislature's intent from the plain language alone. Waste Mgmt. of Seattle, Inc. v. Utils. Transp. Comm'n, 123 Wn.2d 621, 629, 869 P.2d 1034 (1994). Additionally, where the legislature prefaces an enactment with a statement of purpose, that declaration serves as an important guide in understanding legislative intent. Hartman v. Wash. State Game Comm'n, 85 Wn.2d 176, 179, 532 P.2d 614 (1975).
"[T]he purpose of the economic loss rule is to bar recovery for alleged breach of tort duties where a contractual relationship exists and the losses are economic losses. If the economic loss rule applies, the party will be held to contract remedies, regardless of how the plaintiff characterizes the claims." Alejandre v. Bull, 159 Wn.2d 674, 683, 153 P.3d 864 (2007). Here, the parties had a contractual relationship in the form of a lease agreement. Further, Eastwood based her claims against Warren and the Dalings on a contractual theory of recovery: she sought economic losses (in the form of the cost to repair her property) resulting from HHF's actions that led to damages and breach of the lease agreement. Thus, the economic loss rule applies in this case.
The trial court interpreted RCW 4.24.264 such that a nonprofit director or officer would be individually liable where a breach of contract rose to gross negligence. The trial court misconstrued the applicable law. In 1986, the legislature enacted RCW 4.24.264 as part of a larger purpose to make "general liability insurance" more affordable for, among others, nonprofit organizations, in the hope that the legislative reforms would "increase the availability and affordability of insurance." Laws of 1986, ch. 305, § 100. The legislature acted with an "intent . . . to reduce costs associated with the tort system." Laws of 1986, ch. 305, § 100 (emphasis added). Section 903 of the act created RCW 4.24.264. Thus, the legislature intended RCW 4.24.264 to address tort liability of nonprofit directors and officers, not contract liability. Because no exception to the economic loss rule applies here, the Dalings are not individually liable for damages to Eastwood under RCW 4.24.264 resulting from breach of contract.
Pertinent to this matter, in 1987, the legislature amended RCW 4.24.264 the next year to replace "civilly" with "individually" and replace the phrase "act or omission in the course and scope of" with "discretionary decision or failure to make a discretionary decision." Laws of 1987, ch. 212, § 1101.
Currently, Washington courts recognize only one possible exception to the economic loss rule. In Alejandre, 159 Wn.2d at 690 n. 6, our Supreme Court noted that other jurisdictions "recognize a broad exception to the economic loss rule that applies to intentional fraud." But the Alejandre court did not address whether the economic loss rule forecloses "fraudulent representation claims" because it resolved the issue before it on lack of substantial evidence of fraud. 159 Wn.2d at 690 n. 6.
As for Warren, the trial court found that agents and employees of nonprofit corporations may be liable for "misconduct which causes damage to persons or property." However true that may be for agents or employees under tort law, the economic loss rule also applies in these circumstances to bar individual liability for agents who may cause a principal's breach of contract. Nothing in the record indicates that Eastwood was unaware she was bargaining the terms of the lease with a nonprofit corporation; in fact the record clearly shows otherwise. "[W]hen an agent makes a contract on behalf of a disclosed or partially disclosed principal whom he has power to bind, he does not thereby become liable for his principal's nonperformance." Griffiths Sprague Stevedoring Co. v. Bayly, Martin Fay, Inc., 71 Wn.2d 679, 686, 430 P.2d 600 (1967). Eastwood cannot claim Warren is individually liable as an agent of HHF under these circumstances.
We reverse that portion of the trial court's ruling concluding Warren and the Dalings were jointly and severally liable as individuals for damages and attorney fees resulting from HHF's breach of the lease agreement.
ATTORNEY FEES
Eastwood seeks attorney fees on appeal. As she does not prevail under the contract on appeal, we decline to award attorney fees.
Reversed.
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.
ARMSTRONG, J., and VAN DEREN, J., concur.