Opinion
No. 35694-5-II.
February 26, 2008.
Appeal from a judgment of the Superior Court for Grays Harbor County, No. 06-2-00234-9, F. Mark McCauley, J., entered November 13, 2006.
Affirmed by unpublished opinion per Penoyar, J., concurred in by Bridgewater and Hunt, JJ.
Wesley and Rose Newbury (Newbury) began forfeiture proceedings on a real estate contract between themselves (as successors-in-interest to the original seller) and Labco, Inc. Under the contract, Labco was to pay monthly payments for 10 years between the time of sale (March 1993) and April 2003, when it would make a final lump sum payment. Instead, Labco continued with its monthly payments, and Newbury filed a notice of intent to forfeit. Labco's attorney allegedly failed to keep it informed of the proceedings, and Labco ultimately missed every statutory time limit to oppose the forfeiture. The trial court granted summary judgment to Newbury and held the contract forfeit. Labco filed motions to reconsider and/or set aside the judgment, arguing that the gross negligence of its attorney justified such relief. The trial court denied these motions, and Labco now appeals. Because the trial court did not abuse its discretion in denying Labco's motions or in declining to use its equitable powers to grant Labco relief, we affirm.
The parties identify Wesley and Rose Newbury inclusively as "Newbury" in their briefs, which we have continued here.
FACTS
In March 1993, Labco entered into a real estate contract with the estate of Harry Loomis, agreeing to purchase two parcels of land in Grays Harbor County. Under the contract, Labco agreed to pay $75,000 as a down payment and an additional $1,500 per month until April 2003, when it would pay the entire balance due (including 8% annual interest). The parties agreed to a total sale price of $262,500.
Labco failed to make the lump sum payment in April 2003 and instead continued paying Newbury (as successors to the seller's interest) the $1,500 monthly installments until December 2004. At that time, according to a declaration by Bill Bennett, Labco's manager, Labco requested an accounting from Newbury stating the balance due on the contract. Newbury did not supply such an accounting; Labco then halted monthly payments between January and April 2005, when it paid Newbury an amount equivalent to those four monthly installments. However as of May 2005, Newbury ordered the bank to stop accepting payments from Labco and ultimately, Labco made no more payments on the account after April 2005.
Newbury filed a notice of intent to forfeit the contract in April 2005; Labco responded by requesting and obtaining a temporary order restraining the recording of a declaration of forfeiture due to a dispute between the parties regarding the amount due under the contract. The court dismissed Labco's restraining order in November 2005, permitting Newbury to proceed with a new contract forfeiture action.
Newbury filed a second notice of intent to forfeit that same month, which required Labco to (1) pay a total balance of $160,191.85 (including both the balance on the loan amount and Newbury's fees for filing the notice), and (2) provide proof of payment of insurance. If Labco failed to comply with or contest these requirements by March 1, 2006, the notice stated that Newbury would forfeit the contract.
It is worth noting a discrepancy between the first notice of intent to forfeit and the second — in the first, Newbury claimed that Labco was both delinquent on payments and on real estate taxes, but in the second Newbury dropped the tax issue and instead claimed that Labco had not provided proof of insurance on the property. Labco refuted the taxes claim and was able to present proof of insurance before its motion for reconsideration was heard in November 2006.
Labco filed a complaint for restraint of the forfeiture on February 28, 2006, contesting the amount owed on the contract (claiming it was instead approximately "$128,000.00") and requesting a permanent injunction preventing forfeiture and an order determining the balance owed on the contract. Clerk's Papers (CP) at 2. Despite the complaint, the declaration of forfeiture was recorded with the County Auditor on March 2, 2006.
Newbury filed a motion for summary judgment in June 2006, arguing that (1) Labco had failed to file a summons and complaint before the declaration of forfeiture was recorded, and (2) Labco had not failed to commence an action to set aside the forfeiture within 60 days of its recording, as required under RCW 61.30.140(2). Labco responded with a motion to pay the balance due under the contract into the court registry and set aside or restrain the declaration of forfeiture. Bennett signed a declaration at that time stating that he, as Labco's manager, was ready to deposit $128,000 plus interest (the amount he believed was owed under the contract) into the registry of the court.
Following a hearing, the trial court issued a letter ruling granting summary judgment to Newbury on October 5, 2006. Because the parties disagreed about the wording of the order, it was not filed until November 13, 2006. In the order, the trial court found that (1) Labco received the notice of intent to forfeit and failed to cure the defaults set out therein; (2) Labco failed to request temporary orders or obtain injunctive relief before the declaration of forfeiture was recorded; and (3) Labco did not commence an action to set aside the forfeiture within the statutory time period. Therefore, the trial court found that no genuine issue of material fact existed as to Labco's claims against Newbury, and it granted Newbury's motion for summary judgment.
Labco then filed a motion for reconsideration on October 20, 2006, arguing that the amount of recovery was in error, evidence did not justify the verdict, and substantial justice had not been done. Between filing the motion and arguing it, Labco switched counsel, replacing William Morgan with J. Michael Morgan and David Cullen. Michael Morgan argued Labco's reconsideration motions, stressing that substantial justice had not been done under CR 59, and requesting relief from judgment under CR 60(b)(1), (9), and (11).
CR 59(a) permits a court to vacate a verdict and grant a new trial for any of the following causes:
(1) Irregularity in the proceedings of the court, jury or adverse party, or any order of the court, or abuse of discretion, by which such party was prevented from having a fair trial;
. . .
(6) Error in the assessment of the amount of recovery whether too large or too small, when the action is upon a contract, or for the injury or detention of property;
(7) That there is no evidence or reasonable inference from the evidence to justify the verdict or the decision, or that it is contrary to law;
. . .
(9) That substantial justice has not been done.
A court may relieve a party from a final judgment for any of the following reasons under CR 60(b):
(I) Mistakes, inadvertence, surprise, excusable neglect or irregularity in obtaining a judgment or order;
. . .
(9) Unavoidable casualty or misfortune preventing the party from prosecuting or defending;
. . .
(II) Any other reason justifying relief from the operation of the judgment.
Labco's central argument to support relief from judgment was the gross negligence of its original attorney (William Morgan). To support this argument, Labco filed a declaration from Bill Bennett stating that, after receiving Newbury's estimate of the amount owed during the original suit (in July 2005), he directed his attorney to take "whatever steps [] necessary" to pay the full contract balance into the court's registry. CP at 102. According to Bennett, "Labco, Inc. [was] now, and always ha[d] been, ready, willing, and able to pay the full contract balance." CP at 102. However, he stated that William Morgan did not forward copies of any pleadings and did not keep Labco apprised of the suit's progress. Bennett did not know that a hearing occurred on the original motion to enjoin forfeiture, and he was never informed that the trial court dismissed the original suit and restraining order. Bennett did receive the second notice of intent to forfeit, but he remained under the impression that the original suit was still active. He stated that he would have tendered the funds due under the contract into the court's registry had William Morgan ever informed him that it was necessary.
Bennett's declaration concluded by detailing the business that Labco operates on the property: a general store with annual gross revenues of approximately $200,000. He estimated the fair market value of the property at about $1.2 million and the current value of the store's inventory at $1 million; he also urged the trial court to avoid the windfall that would result from forfeiting the contract over such a relatively small disputed amount.
The court denied Labco's motions, stating that it could not "summarily find gross negligence," although "[o]bviously there may be a potential claim." RP at 54. Labco's appeal followed.
ANALYSIS
I. Motion for Reconsideration under CR 59
Labco argues that the trial court erred in denying its motion for reconsideration. According to Labco, the trial court's actions "amounted to `error in the assessment in the amount of recovery' and demonstrate a lack of `evidence or reasonable inference from the evidence to justify the verdict or the decision, or that it is contrary to law.'" Appellant's Br. at 11 (citing CR 59(a)(6), (7)). It also contends that substantial justice was not done, citing CR 59(a)(9).
Newbury responds that the trial court was correct to deny Labco's motion because it was filed after the CR 59 10-day window. Apparently, Newbury claims that Labco should have filed within 10 days of receiving the letter ruling; however, as the trial court did not enter its order until November 13, 2006, Labco's motion (filed on October 20, 2006) was timely. CP at CR 59 sets out several reasons why a court may grant a party's motion for reconsideration. We review such a decision for abuse of discretion — "that is, discretion manifestly unreasonable, or exercised on untenable grounds, or for untenable reasons." Aluminum Co. of Am. v. Aetna Cas. Sur. Co., 140 Wn.2d 517, 537, 998 P.2d 856 (2000) (quoting State ex rel. Carroll v. Junker, 79 Wn.2d 12, 26, 482 P.2d 775 (1971)).
Newbury's alternate argument, that the court "would have" denied the motion for reconsideration "even if [it] had the discretion to hear [it]," is misplaced. Resp't's Br. at 27. The trial court both heard and denied the motion.
Here, Labco set forth three possible reasons for the trial court to reconsider its grant of summary judgment to Newbury: (1) error in the assessment of the amount of recovery, (2) lack of evidence to justify the decision, and (3) that substantial justice had not been done. Additionally, Labco asserts three ways in which the trial court erred by not using its equitable powers at the CR 59 hearing: first, by not allowing Labco to pay the amount owed into the court registry; second, by not allowing Labco to amend its pleadings to include a motion to set aside the forfeiture; and third, by not allowing Labco to amend its pleadings to include a request for an order allowing public sale of the property in lieu of forfeiture. We review the application of equity for an abuse of discretion. Willener v. Sweeting, 107 Wn.2d 388, 397, 730 P.2d 45 (1986); Mendez v. Palm Harbor Homes, Inc., 111 Wn. App. 446, 460, 45 P.3d 594 (2002). Thus, the standard by which we review a trial court decision is the same for both CR 59 rulings and applications of equitable powers.
At the hearing on the motion for reconsideration, the court stressed that it had given Labco the opportunity to argue the contract amount during the second forfeiture action. Additionally, the record contains sufficient evidence to establish that Newbury filed a notice of intent to forfeit, that Labco failed to cure, and that Labco failed to make any attempt to set aside the forfeiture after it was recorded with the county. The court also carefully considered how the outcome would affect each of the parties, noting finally the basis of the dispute: that the balance was due on the contract in 2003, and it was not paid.
Each of the remedies Labco sought at the reconsideration hearing was available to it earlier in the process. Labco had nearly four months between receiving Newbury's notice of intent to forfeit and the required cure date in which to pay the disputed amount into the court's registry, obtain another injunction, or request a public sale in lieu of forfeiture. See RCW 61.30.110-120. It also had 60 days after the forfeiture was recorded in which to commence an action to set aside the forfeiture. RCW 61.30.140. Thus, the Real Estate Contract Forfeiture Act provided several plain, adequate, simple and speedy remedies for Labco, none of which Labco timely pursued. See Galladora v. Richter, 52 Wn. App. 778, 786-87, 764 P.2d 647 (1988).
Based on the record, it was not manifestly unreasonable for the trial court to disagree with Labco and deny its motion for reconsideration. Nor was it manifestly unreasonable for the court to refuse Labco's requests for equitable relief, as Labco had ample opportunity to act and did not do so. The trial court did not abuse its discretion, and we uphold its denial of Labco's CR 59 motion.
II. Motion for Relief from Summary Judgment under CR 60(b)(11)
Labco argues next that the trial court erred by not properly considering its motion for relief from summary judgment under CR 60(b), based on its attorney's failure to properly file Labco's motion for payment of funds into the court registry. According to Labco, its attorney surrendered a substantial right when he signed the order dismissing Labco's original suit in 2005, and the attorney's overall gross negligence constituted "extraordinary circumstances" justifying relief from judgment under CR 60(b)(11). Appellant's Br. at 13-14. In response, Newbury refutes that an attorney's negligence, however gross, may be used as a basis for relief from judgment.
Newbury also argues that Labco did not comply with the rule's procedural requirements — specifically, Newbury claims that Labco failed to serve the CR 60 motion, affidavit, and order to show cause upon Newbury. Labco responds that it was not required to obtain a show cause order or personally serve Newbury because (1) the court already had jurisdiction over Newbury, and (2) Newbury's attorney had adequate notice and a full opportunity to respond. Failure to strictly follow the service requirements of CR 60 does not raise a jurisdictional issue where the opposing party had adequate notice and was not prejudiced. Lindgren v. Lindgren, 58 Wn. App. 588, 594, 794 P.2d 526 (1990). Here, Newbury appeared and fully argued the motion. No prejudice resulted; Newbury's argument is without merit.
Under CR 60(b), a court may vacate a final judgment for reasons such as excusable neglect, unavoidable casualty or misfortune preventing the party from prosecuting or defending, or any other reason justifying relief from the judgment. CR 60(b)(1), (9), (11). CR 60(b)(11) should only be applied to "situations involving extraordinary circumstances not covered by any other section of the rule." In re Marriage of Flannagan, 42 Wn. App. 214, 221, 709 P.2d 1247 (1985) (quoting State v. Keller, 32 Wn. App. 135, 140, 647 P.2d 35 (1982)). We review a trial court's CR 60(b) decision for abuse of discretion. See Barr v. MacGugan, 119 Wn. App. 43, 46, 78 P.3d 660 (2003); Luckett v. Boeing Co., 98 Wn. App. 307, 309, 989 P.2d 1144 (1999). A court abuses its discretion when its decision is based on untenable grounds or reasoning. Luckett, 98 Wn. App. at 309-10.
Traditionally, the incompetence or neglect of a party's own attorney is not sufficient grounds for relief from a judgment in a civil action. Haller v. Wallis, 89 Wn.2d 539, 547, 573 P.2d 1302 (1978).; Lane v. Brown Haley, 81 Wn. App. 102, 107, 912 P.2d 1040 (1996). Because the client is presumed to have voluntarily chosen the lawyer as his representative and agent, he ordinarily cannot later avoid accountability for negligent acts or omissions of his counsel. Cmty. Dental Services v. Tani, 282 F.3d 1164, 1168 (9th Cir. 2002) (citing Link v. Wabash R.R. Co., 370 U.S. 626, 633-34, 82 S. Ct. 1386, 8 L. Ed. 2d 734 (1962)). However, the Ninth Circuit has held that where the client can demonstrate gross negligence on the part of his counsel, that may be grounds to set aside a judgment under Fed.R.Civ.P. 60(b)(6), the federal "catchall" counterpart to CR 60(b)(11). Tani, 282 F.3d at 1169-70. The Tani court reasoned that "[w]hen an attorney is grossly negligent . . . the judicial system loses credibility as well as the appearance of fairness, if the result is that an innocent party is forced to suffer drastic consequences." Tani, 282 F.3d at 1170.
Washington courts have yet to expressly adopt the Tani rule. The Washington rule holds that vacation of a judgment is warranted when an attorney surrenders a "substantial right" of his client through unauthorized stipulations or compromises. Graves v. P. J. Taggares Co., 94 Wn.2d 298, 303-04, 616 P.2d 1223 (1980). Division One examined the issue further in Barr, 119 Wn. App. at 45, where a plaintiff's attorney failed to comply with several discovery requests and show cause orders, resulting in dismissal of her lawsuit with prejudice. The plaintiff learned through a third party that her suit had been dismissed and that her attorney was suffering from severe clinical depression; she then hired new counsel who successfully filed a motion to vacate the dismissal. Barr, 119 Wn. App at 45.
The Barr court upheld the trial court, expressly stating that it was not considering whether gross negligence constituted valid grounds to vacate a judgment under CR 60(b)(11), but rather whether the attorney's mental illness could constitute such grounds. Barr, 119 Wn. App. at 48. The court noted that its most pertinent point was that "there is no basis for attributing the attorney's `acts' to the client when the agency relationship has disintegrated to the point where as a practical matter there is no representation." Barr, 119 Wn. App. at 48.
Here, Labco emphasized that the court's decision should be based on the failure of the agency relationship between attorney and client, rather than an appropriate standard of care. As evidence, Labco relied on Bennett's declaration describing the degree to which he was kept in the dark regarding the proceedings. Labco also submitted a bank statement at the hearing showing that Labco had $125,656.86 in its account as of the day William Morgan agreed to dismiss the first suit and abandon the temporary injunction against Newbury. Labco requested an evidentiary hearing so that the court could take testimony regarding the breakdown of the relationship between Labco and William Morgan. Finally, Labco offered to pay all money owed on the contract into the court registry that day if the court would relieve it from summary judgment.
The trial court declined Labco's request, stating that there was no evidence of mental illness, and it was hesitant to issue a decision stating that William Morgan was grossly negligent based on the record before it. As stated above, we review this decision for abuse of discretion.
The trial court was correct that no mental illness was alleged until the CR 60 motion and that Labco could not claim, as in Barr, that ". . . as a practical matter there [was] no representation." Barr, 119 Wn. App. at 48. In fact, Labco's counsel filed a motion for reconsideration for Labco as late as October 20, 2006.
Despite this, Labco argues its attorney's gross negligence and urges us to adopt the standard in Tani, 282 F.3d at 1170, that an attorney's gross negligence supports a CR 60 motion. Like the Barr court, we decline to decide whether Washington courts should adopt the Tani standard. We do so because even if Tani applied, there is sufficient evidence in the record to support the trial court's ruling. These parties had been before the court on this matter for nearly a year and a half when the court heard Labco's CR 60 motion. In two forfeiture proceedings, Newbury had strictly followed the steps required under the law to forfeit Labco's interest in the contract, the balloon payment was two years overdue, and, though there was a dispute about the amount owed, Labco had never tendered any amount. Even if counsel were grossly negligent, this background is sufficient justification for the trial court to decline Labco's CR 60 motion.
Labco is correct that it would have been within the trial court's discretion to consider its motions as timely or permit amendment of the pleadings. However, it was also within the trial court's discretion to adhere to the statutory requirements and decline to use its equitable powers. Because it was not unreasonable for the court to act as it did, we affirm the trial court's denial of Labco's CR 60 motion.
III. Forfeiture Clause in the Contract
Next, Labco argues that the clause in the parties' contract delineating forfeiture (paragraph 20(c)) constitutes a liquidated damages clause and argues that the forfeiture should be set aside as an unenforceable penalty. Newbury responds that the enforceability of paragraph 20(c) is not before us on appeal, as it was not raised before the trial court. In response, Labco contends this argument raises no new issues or arguments on appeal but instead further illustrates Labco's claim that the forfeiture and resulting windfall to Newbury was inequitable.
Paragraph 20(c) applies if the buyer does not perform any term of the Contract. If the buyer does not perform, the seller may:
(c) Forfeit Buyer's Interest. Forfeit this Contract pursuant to Ch. 61.30 RCW, as it is presently enacted and may hereafter be amended. The effect of such forfeiture includes: (i) all right, title and interest in the property of the Buyer and all persons claiming through the Buyer shall be terminated; (ii) the Buyer's rights under the Contract shall be cancelled; (iii) all sums previously paid under the Contract shall belong to and be retained by the Seller or other person to whom paid and entitled thereto; (iv) all improvements made to and unharvested crops on the property shall belong to the Seller; and (v) Buyer shall be required to surrender possession of the property, improvements, and unharvested crops to the Seller 10 days after the forfeiture.
CP at 6.
Generally, we may refuse to review any claim of error not raised at the trial court. RAP 2.5(a). If an issue raised for the first time on appeal is "arguably related" to issues raised in the trial court, however we may exercise our discretion to consider newly-articulated theories for the first time on appeal. Lunsford v. Saberhagen Holdings, Inc., 139 Wn. App. 334, 338, 160 P.3d 1089 (2007) (quoting State Farm Mut. Auto. Ins. Co. v. Amirpanahi, 50 Wn. App. 869, 751 P.2d 329 (1988)).
In Lunsford, the reviewing court examined an argument based on retroactivity of a statute when the argument was mentioned in the parties' first appeal and was argued before the trial court on remand. 139 Wn. App. at 339. Similarly, the State Farm court reviewed an argument fully briefed to the trial court but further fleshed out in the party's appellate brief. 50 Wn. App. at 872 n. 1. Conversely, Labco never mentioned any argument regarding the enforceability of the forfeiture term or any other term of the contract in any of its arguments before the trial court. While the contract itself was before the court as evidence of the agreement between the parties, Labco merely disputed the amount owed under the contract, not its enforceability.
Even if we were to hold that the forfeiture term operates as a liquidated damages clause (and no Washington court has addressed the issue), liquidated damages clauses are favored in Washington and will be upheld so long as the sums involved do not amount to a penalty or are not otherwise unlawful. Watson v. Ingram, 124 Wn.2d 845, 850, 881 P.2d 247 (1994) (citing Ashley v. Lance, 80 Wn.2d 274, 280, 493 P.2d 1242 (1972)). Liquidated damages clauses are enforceable if (1) the amount fixed is a reasonable forecast of just compensation for the harm caused by the breach, and (2) the harm must be such that it is incapable or very difficult of ascertainment. Walter Implement, Inc. v. Focht, 107 Wn.2d 553, 559, 730 P.2d 1340 (1987) (citing Mgmt., Inc. v. Schassberger, 39 Wn.2d 321, 327-28, 235 P.2d 293 (1951)). "The central inquiry is whether the specified liquidated damages were reasonable at the time of contract formation." Watson, 124 Wn.2d at 853.
Here, at the time of contract formation, the parties agreed that the property was worth $262,500. Labco paid $75,000 as a down payment and was to pay $187,500 over time. It would have been exceedingly difficult for the parties to ascertain what harm would occur in the event of a breach, given that (1) the parties would not know when the breach occurred, and therefore would not know how much Labco had already paid at the time, and (2) the value of real estate changes significantly and unpredictably over time. "The greater the prospective difficulty of estimating possible damages, the greater the range of reasonableness used in assessing a liquidated damages provision." Watson, 124 Wn.2d at 853 (citing 3 E. Allan Farnsworth, Contracts § 12.18, at 288-89 (1990) (prospective difficulty of estimating possible damages should be a factor to be weighed in assessing whether liquidated damages provision is reasonable); Restatement (Second) of Contracts § 356 cmt. b, at 157 (1981) (the greater the difficulty of establishing the amount of loss, the easier it is to show a liquidated damages provision is reasonable)).
Labco is correct that it would have been within the trial court's discretion to consider its motions as timely or permit amendment of the pleadings. However, it was also within the trial court's discretion to adhere to the statutory requirements and decline to use its equitable powers. Because it was reasonable for the court to act as it did, we affirm the trial court.
IV. Attorney Fees
Newbury requests attorney fees on appeal under the terms of the real estate contract and RAP 18.1. The contract provides: "The prevailing party in any suit instituted arising out of this Contract and in any forfeiture proceedings arising out of this Contract shall be entitled to receive reasonable attorneys' fees and costs incurred in such suit or proceedings." CP at 7.
Under this term, Newbury was awarded attorney fees at the trial court. Where such fees are allowable at trial, the prevailing party may recover fees on appeal as well. Landberg v. Carlson, 108 Wn. App. 749, 758, 33 P.3d 406 (2001), Therefore, Newbury is entitled to its attorney fees incurred in preparing for appeal as well.
We affirm.
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, P.J. and HUNT, J., concur.