Opinion
No. CS-01-0127-EFS
August 20, 2002
ORDER GRANTING IN PART AND DENYING IN PART THE CITY'S MOTION FOR LEAVE TO AMEND
On August 14, 2002, the Court heard argument on the City of Spokane's Motion to Amend, (Ct. Rec. 370). The Court also considered the City of Spokane's Motion to Strike Affidavit of Leslie R. Weatherhead, (Ct. Rec. 424). The parties were represented as set forth in the minutes of the hearing, (Ct. Rec. ___). Laurel Siddoway argued the Motion to Amend on Behalf of the City of Spokane. Ladd Leavens argued resisting the motion on behalf of Defendants River Park Square, L.L.C.; RPS II L.L.C.; Citizens Realty Company; and Lincoln Investment Company of Spokane ("the Developers"). This Order memorializes and supplements the oral rulings of the Court.
I. Standard for a Motion to Amend
Federal Rule of Civil Procedure 15(a) allows a party to "amend the party's pleadings [after a responsive pleading has been served] only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires." FED. R. CIV. P. 15(a). However, leave to amend may be denied when it would be futile, such as when the amended claims would be subject to dismissal. Steckman v. Hart-Brewing, Inc., 143 F.3d 1293, 1298 (9th Cir. 1998). In this light, the Developers opposition must be considered a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. In reviewing such a motion the Court accepts all allegations in the complaint as true and construes them in the light most favorable to the plaintiff. Integrated Res. Equity Corp. v. Founders Bank of Ariz., 74 F.3d 1246 (9th Cir. 1996). The Court will grant the motion if the Complaint states no facts which, if proven, would entitle the plaintiff to relief. Conley v. Gibson, 355 U.S. 41, 45-6 (1957); Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984).
II. The City of Spokane's Motion to Amend
The City of Spokane seeks to amend its Answer, Cross-Claim and Third Party Complaint in four ways: (1) to add and clarify its affirmative defenses, (2) to add allegations to its third-party complaint against Perkins Coie LLP and Roy and Ann Koegen, (3) to replead the prayer for relief in its mistake claim, and (4) to add claims for breach of fiduciary duty and misrepresentation against the Developers. No party has responded to the first request. Under the Local Rules, "[a] failure to file a memorandum of points and authorities . . . in opposition to any motion may be considered by the Court as consent on the part of the party failing to file such memorandum to the entry of an Order adverse to the party in default." LR 7.1(h)(5). Leave is therefore granted to amend the answer. Similarly, third-party Defendants Perkins Coie LLP and Roy and Ann Koegen have filed a written response agreeing not to oppose amendment of the City's claims against them. (Ct. Rec. 384.) Leave is also granted to amend the third-party complaint.
The Developers have objected to the other proposed amendments. The Developers have three broad objections to the proposed amendments: (1) they are barred by the preclusive effect of litigation before Spokane Superior Court Judge Murphy, (2) separation of powers prevents the City from seeking the prayed-for relief, and (3) on the merits, the City cannot as a matter of law state a claim.
First, the Developers argue that Judge Murphy's decision on the Developers' petition for a writ of mandamus has preclusive effect on this litigation. "To trigger the doctrine of res judicata, the earlier suit must have (1) involved the same `claim' or cause of action as the later suit, (2) reached a final judgment on the merits, and (3) involved identical parties or privies." Sidhu v. Flecto Co., Inc., 279 F.3d 896, 900 (9th Cir. 2002). Judge Murphy issued an order granting a writ of mandamus. (Ct. Rec. 387 Aff. of Christopher G. Varallo Ex. C.) Aside from that issue, everything else in the state case was stayed pending resolution of this case. (Ct. Rec. 412 Aff. of Leslie R. Weatherhead Ex. A. at 10.) In finding that mandamus relief was appropriate, Judge Murphy declined to address other issues: "The Court further finds that issues presented herein are issues of law, not issues of fact; and the defenses presented by the City and assertions of the plaintiff are proper for resolution on at trial on the merits of the case." (Ct. Rec. 387 Aff. of Christopher G. Varallo Ex. C, March 21, 2002, Memorandum Opinion at 11 ll. 12-14.) Judge Murphy has not entered a final judgment on the merits; therefore, one of the requirements for application of res judicata is not met. (See Ct. Rec. 387 Aff. of Christopher G. Varallo Ex. C.) On April 15, 2002, this Court refused to dismiss several of the City of Spokane's cross-claims against the Developers on the ground that Judge Murphy's decision precluded them: "Currently, this Court understands the state court to have limited its decision to the language of the Ordinance, holding that it imposes a mandatory duty on the City to make loans to the Authority, and decided no other issue." (Ct. Rec. 289 at 4 ll. 11-14.) Similarly, the issue decided by the state court was not the same claim or cause of action as is now presented, which rules out application of res judicata. Neither does Federal Rule of Civil Procedure 13(a)'s requirement of compulsory counterclaims bar the City since Judge Murphy limited the issues to be litigated in state court to the mandamus issue, staying all other issues.
The Court granted the motion to strike insofar as the affidavit states more than is necessary to lay a foundation for and authenticate the complete transcript of the March 15, 2002, hearing before Judge Murphy.
Second, the Developers oppose the City's amendment to its mistake claim because the Court does not have power to grant the requested relief of rescission. The City alleges "As a result of the parties' mutual mistake, or the City's unilateral mistake, the City is entitled to rescission of the contingent loan pledge provided by Ordinance C-31823, or to abatement of the purchase price and rent, or to damages in an amount to be proved at trial." (Ct. Rec. 370 Att. ¶ 2.53.) The City asks this Court to rescind a duly enacted ordinance. Neither the parties nor the Court have found authority for that action. Absent authority to order the Ordinance rescinded, the City's motion to amend its mistake claim must be denied as futile.
Finally, the City argues that the two proposed additional claims fail as a matter of law, and therefore amendment would be futile. Earlier, this Court dismissed the City's breach of fiduciary duty claim:
The existence of a fiduciary duty is a question of law. Miller v. U.S. Bank of Washington, 72 Wn. App. 416, 426 (1994). A fiduciary relationship exists where there is a relationship of confidence and trust that justifies one party to expect that his interests will be protected by the other party. Liebergesell v. Evans, 93 Wn.2d 881, 889-91 (1980). In the absence of such a duty, no heightened disclosure obligations exists. Tokarz v. Frontier Fed. Sav. Loan Assoc., 33 Wn. App. 456, 463-64 (1982).
Here, the City has alleged no facts supporting the existence of such a relationship. The City has alleged that heightened disclosure obligations existed because public monies were involved. (Ct. Rec. 6 at ¶ 2.53.) The Court has been unable to find support for this assertion in law. Unless some special relationship existed between the City and the Developers, no heightened duty to disclose existed. Tokarz, 33 Wn. App. at 463-64.
(Ct. Rec. 289 at 5-6.) The City of Spokane has repled this claim with additional facts which it believes adequately allege the existence of a duty to disclose.
The City alleges that the repeated characterizations of this transaction by the Developers as a "public/private partnership" impose greater duties of disclosure upon it. Neither the parties nor the Court have identified any authority supporting this position. Typically, "public-private partnership" is a slogan used to generate support for a project which involves expenditure of public monies in conjunction with private investment, such as the revitalization of an older commercial center for a city. While a public entity and a private entity may enter a legally enforceable relationship in a written agreement, which could impose fiduciary obligations on the parties, the City of Spokane and the Developers did not create such a relationship here.
However, it is possible for parties who label their dealings as a "public/private partnership" to conduct themselves in such a way as to create a quasi-fiduciary relationship with a duty to disclose all material facts. A quasi-fiduciary relationship creates a duty to disclose where (1) a special relationship of trust and confidence has been developed between the parties, (2) one party is relying upon the superior specialized knowledge and experience of the other, (3) a seller has knowledge of a material fact not easily discoverable by the buyer, or (4) a statutory duty to disclose exists. Colonial Imports, Inc. v. Carlton N.W., 121 Wn.2d 726, 732 (1993). This Court previously dismissed the City's claim that a relationship of trust and confidence existed. The new factual allegations do not change that conclusion. See Micro Enhancement Int'l, Inc. v. Coopers Lybrand, LLP, 110 Wn. App. 412, 435 (2002) (holding that the fact that one party trusted and had confidence in the other party was insufficient). In addition, the City has not pled a statutory duty to disclose.
The proposed claim alleges that "the Developers were experienced in the ownership and operation of an urban retail mall with adjacent paid parking and, . . . had exclusive dealings with the prospective retail tenants, including Nordstrom and AMC, about the terms on which retail patrons would use the parking garage." (Ct. Rec. 370 Att. ¶ 2.100.) Further, the City alleges "[the Developers represented] that they had done market research that established that the RPS mall would be `hot' and `exciting' and `knock your socks off,' and that such market research suggested that Walker's projections of parking revenue would be met." (Id. at ¶ 2.103.) Finally, the City alleges that it "was relying upon the Developers' superior knowledge in the area of retail development and their exclusive knowledge of the understandings and expectations of Nordstrom, AMC and other retailers about the terms on which their retail patrons would use the Parking Garage." (Id. at ¶ 2.111.)
The only Washington case interpreting superior knowledge, Hutson v. Wenatchee Federal Savings and Loan Association, 22 Wn. App. 91, 105 (1978), imposed a duty to disclose upon a lender when dealing with "unknowledgeable and uncounseled customers, members of the general lay public who rely on the lender's advice." Id.
While this rationale may be distinguishable here, as the City of Spokane is a sophisticated party represented by several attorneys throughout the Parking Garage transaction and not a member of the lay public, the Court cannot find that the allegations, if proven, would be legally insufficient. The City has identified specialized knowledge the Developers possessed and alleged that it relied on that knowledge. The Developer's principal argument, that the City could not have reasonably relied upon their statements due to its size, resources and in-house legal department, is a factual defense, appropriate for resolution at the summary judgment or trial stage rather than on the pleadings. Therefore, the Court finds that the City has adequately alleged the existence of a quasi-fiduciary duty to disclose, and leave to include the breach of quasi-fiduciary duty claim should be granted.
Alternatively, a duty to disclose can arise "where the facts are peculiarly within the knowledge of one person and could not be readily obtained by the other. . . . However, a party cannot be permitted to say that he was taken advantage of, if he had means of acquiring the information. . . ." Oates v. Taylor, 31 Wn.2d 898, 904 (1948). The City has alleged the necessary facts to support such a duty — "[the Developers had] exclusive dealings with the prospective retail tenants, including Nordstrom and AMC, about the terms on which retail patrons would use the parking garage." (Ct. Rec. 370 Att. ¶ 2.100.) Further, the City identifies three items the Developers failed to disclose that fit within those exclusive dealings: "AMC's expectations and/or perceived need for free or low-cost parking for its theater patrons, (5) . . . information concerning the unlikelihood of retailer or third party subsidization of a validation program, particularly at the parking volumes projected by Walker, and (6) . . . the nature of the dispute arising with AMC or the terms of its resolution." (Id. at ¶ 2.115.) Opposing this claim, the Developers argue that the City could easily have ascertained all these facts. Their assertion is a factual defense, appropriate for resolution at the summary judgment or trial stage rather than on the pleadings.
The Developers also oppose the City of Spokane's motion to add a misrepresentation claim because justifiable reliance is a necessary element. Again, the Developers argue that "[e]very fact alleged by the City as being justifiably relied upon could easily have been ascertained by it." (Ct. Rec. 386 at 10 ll. 10-11.) As before, this is a factual defense, not appropriately raised at this juncture. The Court finds that the City has adequately pled a claim for misrepresentation, and leave to amend is therefore granted. Accordingly,
IT IS HEREBY ORDERED:
1. Defendant City of Spokane's Motion to Amend, (Ct. Rec. 370), is GRANTED IN PART AND DENIED IN PART.
2. Defendant City of Spokane shall file an amended pleading, as permitted by this Order, within 30 days of this Order.
3. Defendant City of Spokane's Motion to Shorten Time for Hearing Motion to Strike Affidavit of Leslie R. Weatherhead, (Ct. Rec. 423), is GRANTED.
4. Defendant City of Spokane's Motion to Strike Affidavit of Leslie R. Weatherhead, (Ct. Rec. 424), is GRANTED IN PART AND DENIED IN PART.
IT IS SO ORDERED.
The District Court Executive is directed to enter this Order and to furnish copies to all counsel.