Opinion
No. 31380-4-II
Filed: March 8, 2005 UNPUBLISHED OPINION
Appeal from Superior Court of Pierce County. Docket No: 02-2-08561-5. Judgment or order under review. Date filed: 01/09/2004. Judge signing: Hon. Vicki Hogan.
Counsel for Appellant(s), Eric S. Merrifield, Perkins Coie LLP, 1201 3rd Ave Ste 4800, Seattle, WA 98101-3099.
Patrick W. Ryan, Perkins Coie LLP, 1201 3rd Ave Ste 4800, Seattle, WA 98101-3099.
Mark William Schneider, Perkins Coie, 1201 3rd Ave Ste 4800, Seattle, WA 98101-3099.
Counsel for Respondent(s), Bertha Baranko Fitzer, Pierce Co Pros Ofc/Civil Div, 955 Tacoma Ave S Ste 301, Tacoma, WA 98402-2160.
Washington Shellfish, Inc. appeals from a partial summary judgment in favor of Pierce County concerning a lease agreement of tidelands located in Henderson Bay. We hold that the lease was not ultra vires and the County could enter into such a contract for the first five-year period. But we hold that the renewal clause that would have extended the contract for 30 years is prohibited by Pierce County ordinances requiring county council approval. But because of the severability clause in the contract, the renewal clause is stricken, leaving the initial five-year term viable. We reverse in part and remand the matter for trial on a genuine issue of material fact as to whether this lease for the five-year term was a gift of public funds.
FACTS
In late 2000, Washington Shellfish, Inc. (WSF) contacted Jan Wolcott, the director of the Pierce County Department of Parks and Recreation. WSF had an interest in leasing tidelands Pierce County (the County) owned. The company engaged in aquaculture and wanted to lease approximately 47 acres of submerged tidelands located in Henderson Bay at the Purdy Sand Spit Park located in Pierce County. The tidelands at issue are considered a public resource because they are one of a few places where the public can go to recreate and take shellfish for personal consumption.
The appellants in this case are Washington Shellfish, Inc., Seabed Harvesting, Inc., Family McRae, L.L.C. and Douglas McRae, however, in this opinion we refer to them collectively as Washington Shellfish, Inc. (WSF).
Wolcott asked WSF to send the County its proposed lease and other required documentation. WSF faxed its lease proposal and other documents to Wolcott.
Wolcott had his assistant determine the value of the land. She determined the value to be between $360 and $1,800. This price did not include a value for any natural resources on the property. After receiving the sample lease, Wolcott notified WSF that Pierce County required one of its attorneys to draft the lease to insure that the lease contained standard boilerplate provisions. Wolcott contacted Lloyd Fetterly, a deputy prosecuting attorney for Pierce County, who drafted the lease. Wolcott gave Fetterly all the documents that WSF submitted, including its proposed lease.
Fetterly drafted the lease. The contract amount of the lease was $2,500. Its general purpose was for shellfish propagation, including harvesting. Initially the term of the lease was for a five-year period with rights of renewal. WSF had the option of renewing the lease for another five-year period. The rights of renewal expired following the fifth consecutive renewal of the lease agreement. The rent on the tidelands was $360 per year. Each year the rent increased by seven percent. The contract also contained a severability option in paragraph 21. The parties agreed that if any term or condition was found invalid, the invalidity would not affect other terms and conditions of the contract.
Wolcott mailed the lease to WSF with a cover letter asking WSF to sign the documents. He stated in his letter that after he secured the approval of the Pierce County Executive, he would send a fully executed copy to WSF. Doug McRae, an employee with WSF, reviewed the lease terms, signed the documents, and delivered them to the parks department.
Wolcott circulated the lease to various Pierce County departments for approval after he signed the lease in January 2001. Fetterly next signed the lease. On January 23, Joe DeRosa from the Risk Management Department signed the lease. The following day, Dan Cagle, the director of Facilities Management, signed the lease. The last person to sign the lease was Patrick Kenney, the director of Budget and Finance, on February 15. The lease agreement does not contain the county executive's signature.
Eight months after WSF began its operations on the leased property, Pierce County began to question the validity of the lease. In October 2001, the new Pierce County Executive John Ladenburg asked the prosecuting attorney's office to research the validity of the lease. The prosecuting attorney's office concluded that the lease was invalid.
On June 14, 2002, Pierce County filed a complaint for declaratory relief declaring the lease null and void, for ejectment from county property, and for an order to cease and desist. The main issue in the complaint was that the lease was ultra vires and therefore void. WSF had harvested over 350,000 pounds of geoduck from the beginning of the lease agreement through December 31, 2002, for a total gross price of $2,401,931.
WSF filed an answer, affirmative defenses, and counterclaims on September 16, denying that the lease was ultra vires. It further asserted the court should estop the County from challenging the validity of the lease since it had approved the lease and accepted rental payments.
Pierce County amended its complaint on May 29, 2003, to add a new claim that WSF's harvesting of geoduck under the lease was an unconstitutional gift of public funds. Pierce County and WSF filed cross-motions for summary judgment on May 30.
In preparation for trial, the parties took several depositions. During his deposition, Pierce County Executive John Ladenburg discussed the process for approving contracts. He stated that the policy for approving contracts in January 2001, was for department directors to approve contracts under a certain amount. If a contract was over $50,000, it required his signature. When his administration took over, it changed the total contract amount from $50,000 to $250,000. Patrick Kenney, director of Budget and Finance, also testified in his deposition that the policy Pierce County Executive Ladenburg discussed was the County policy.
The trial court held a hearing on the motions on July 3, 2003. The trial court granted the County's motion in part, declaring the lease void. The trial court's decision focused on the length of the lease term and concluded the lease was ultra vires because the Pierce County Council had not approved the lease as Pierce County Code 2.110.140 required. The court also noted but failed to explain, that the leasehold property was `subject to the statutory criteria set forth in RCW 36.68, 36.34, 36.35 as well as Pierce County ordinance chapter 2.110.030.' Report of Proceedings at 58. The court did not consider whether the lease was an unconstitutional gift of public funds because it found the entire lease ultra vires due to the length of it.
WSF sought reconsideration on July 14, 2003. The trial court denied its motion.
I. Standard of Review
When reviewing an order of summary judgment, we engage in the same inquiry as the trial court. Citizens for Responsible Wildlife Mgmt. v. State, 149 Wn.2d 622, 630, 71 P.3d 644 (2003). We consider the facts and all reasonable inferences from the facts in the light most favorable to the nonmoving party. Right-Price Recreation, L.L.C. v. Connells Prairie Cmty. Council, 146 Wn.2d 370, 381, 46 P.3d 789 (2002), cert. denied sub. nom, Gain v. Wash. 540 U.S. 1149 (2004). Summary judgment is appropriate if no genuine issue of material fact exists and the moving party is entitled to a judgment as a matter of law. CR 56(c). We grant the motion only if, from all the evidence, reasonable persons could reach but one conclusion. Citizens for Responsible Wildlife Mgmt., 149 Wn.2d at 630-31.
II. Ultra Vires Doctrine
The ultra vires doctrine may render unauthorized contracts by government entities void. Noel v. Cole, 98 Wn.2d 375, 378, 655 P.2d 245 (1982), superseded by statute on other grounds by Snohomish County v. State, 69 Wn. App. 655, 850 P.2d 546 (1993), review denied, 123 Wn.2d 1003 (1994). An ultra vires contract is one done either without authority or in violation of existing statutes. Dykstra v. Skagit County, 97 Wn. App. 670, 677, 985 P.2d 424 (1999), review denied, 140 Wn.2d 1016 (2000). The rationale behind the ultra vires doctrine is `the protection of those unsuspecting individuals whom the entity represents.' Noel, 98 Wn.2d at 378. A contract that is ultra vires is generally void and unenforceable. See Noel, 98 Wn.2d at 378.
WSF argues that the trial court erred when it found the lease agreement void as ultra vires. It contends that, at most, the lease was procedurally flawed and therefore irregular. In order to resolve this issue, the court must determine if the County acted beyond its authority when it entered into the contract with WSF or if the contract violates existing statutes. Dykstra, 97 Wn. App. at 677. A finding of either would make the lease agreement ultra vires and thus void.
A. The Authority to Lease County Lands
Pierce County Code 2.110.070 provides that the county executive or one of his designees may lease county property. The standard procedure for approving contracts in 2001 was for the department head to enter into the contract. The county executive only had to sign off on the contract if the value of the contract was more than a stated amount. At the time that WSF contacted the County, the amount of a contract had to be less than $50,000 for the department head to authorize it. Contracts worth more than $50,000 needed the county executive's signature on them.
Although the County argues that Wolcott did not have the authority to enter into the contract, the evidence is contrary. Wolcott did not have the authority to bind the County to a contract of more than $50,000. But, at the time that he viewed the contract, the stated amount of the contract was $2,500. It was only after the County realized the profit WSF had earned on the leased property that it realized that the property was worth more than originally valued. Based on the contract amount at the time the parties entered the contract, Wolcott acted within his authority as a designee of the county executive when he bound the County to the lease agreement.
B. Existing Statutes
WSF's lease agreement is subject to several statutes. WSF asserts, however, that none of the statutes is applicable because the County opted out of the statutes when it enacted the Pierce County Code.
Chapter 36.34 RCW governs how a county is to manage county property. RCW 36.34.005 provides that a county may choose to adopt its own comprehensive procedures for managing county property. Where a county establishes its own procedures, it is exempt from the provisions in chapter 36.34 RCW. RCW 36.34.005. Pierce County enacted its own procedures for managing county property in 1983. As such, it was exempt from the guidelines listed in chapter 36.34 RCW. Therefore, the court could not find the lease void under that statute.
Chapter 36.68 RCW deals with the management of county owned park lands. RCW 36.68.010 states in part: `[a] county may lease or sell any park property, buildings or facilities surplus to its needs, or no longer suitable for park purposes: PROVIDED, That such park property shall be subject to the requirements and provisions of notice, hearing, bid or intergovernmental transfer as provided in chapter 36.34 RCW.' Because the County failed to follow these requirements, it contends that Wolcott acted without authority rendering the contract ultra vires.
The County's contention ignores established rules of statutory construction. RCW 1.12.028 states: `If a statute refers to another statute of this state, the reference includes any amendments to the referenced statute unless a contrary intent is clearly expressed.' The legislature enacted RCW 36.68.010 in 1963. At that time, chapter 36.34 RCW did not contain any language discussing an exemption. The legislature added the exemption language in 1973 to RCW 36.34.005. Thus, when the legislature amended chapter 36.34 RCW to provide the exemption, chapter 36.68 RCW incorporated that language. By exempting itself from chapter 36.34 RCW, the County also exempted itself from chapter 36.68 RCW.
The County asserted that it did not exempt itself from chapter 36.68 RCW because the county ordinance is silent as to leasing park property. Thus, the County asserts that notice, hearing, and bid were required before the County could enter into the lease. But, the County ordinance is contrary. It specifically refers to the lease of real property, which would include park property, and P.C.C. 2.110.100 states, in part, the following: `When Pierce County elects to dispose of real property by sale, lease, or exchange, the County shall advertise to the extent which it deems necessary to effect an advantageous sale.' Clerk's Papers (CP) at 442. Although there is not a specific reference to park property, there is a reference to any county real estate. And the requirement of notice and bid is clearly discretionary. The County's argument fails.
The final law at issue is chapter 2.110 of the Pierce County Code. PCC 2.110.140 discusses the County's authority to lease land. Under PCC 2.110.140(A), the Pierce County Executive has the power to lease county property. But PCC 2.110.070 provides that the Pierce County Executive or his designee is responsible for leasing County real property. While these two sections appear inconsistent, reading the entire code finds that PCC 2.110.070 refers to general powers of the county executive while PCC 2.110.140 discusses the specific procedure the county executive must follow in order to enter into a lease agreement.
Here, it does appear the lease is invalid because the agreement did not contain the county executive's signature. But, WSF presented evidence showing that it was common practice for a department not to obtain the county executive's signature on contracts less than $50,000. In his deposition, Pierce County Executive John Ladenburg stated that in January 2001, department heads directly approved contracts under a certain amount. Patrick Kenney, the Budget and Finance director, also stated that the value of the contract determined whether the county executive signed the contract. Hence, for this contract, the county executive delegated the department head as his designee as the county ordinance provided.
The lease agreement does not implicate any statutes nor any sections of the Pierce County Code previously discussed. The County listed the contract amount as $2,500. That price was well under the amount requiring the county executive's signature.
III. Lease Terms
WSF contends the trial court erred by voiding the entire contract instead of severing the offending terms from the lease agreement. We agree.
As a threshold matter, we must determine whether the lease is ambiguous, a question of law. Carlstrom v. Hanline, 98 Wn. App. 780, 784, 990 P.2d 986 (2000). We give the words in a contract their ordinary meaning. Fancher Cattle Co. v. Cascade Packing, Inc., 26 Wn. App. 407, 409, 613 P.2d 178, review denied, 94 Wn.2d 1012 (1980). In interpreting a contract, we construe the contract to reflect the parties' intent, but we do not make another or different contract for the parties under the guise of construction or interpretation. Corbray v. Stevenson, 98 Wn.2d 410, 415, 656 P.2d 473 (1982). A contract is ambiguous when `its terms are uncertain or when its terms are capable of being understood as having more than one meaning.' Mayer v. Pierce County Med. Bureau, Inc., 80 Wn. App. 416, 421, 909 P.2d 1323 (1995) (quoting Shafer v. Bd. of Trs. of Sandy Hook Yacht Club Estates, Inc., 76 Wn. App. 267, 275, 883 P.2d 1387 (1994), review denied, 127 Wn.2d 1003 (1995)). But a contract provision is not ambiguous merely because the parties suggest opposite meanings. McGary v. Westlake Investors, 99 Wn.2d 280, 285, 661 P.2d 971 (1983). Nor will we read an ambiguity into a contract if we can reasonably avoid doing so by reading the contract as a whole. McGary, 99 Wn.2d at 285.
The lease agreement is not ambiguous. It begins with an initial five-year period. At the end of that five-year period, WSF could renew the lease an additional five years. If WSF used all of its renewal options, the lease would run for 30 years. A lease of this length required approval by the Pierce County Council under PCC 2.110.140(A). PCC 2.110.140(A) states in part: `any lease for a period in excess of 25 years, including all rights of renewal, must be approved by ordinance of the Council.' CP at 444 (emphasis added). The Pierce County Council did not approve this lease. Thus, the lease agreement is ultra vires and void.
But the well-established rule of contracts is that where an agreement contains an illegal part, it can be separated from the legal part. Eugene McQuillin, The Law of Municipal Corporations, sec. 29.95, 11 (3rd ed. 1999). Washington courts have applied this rule to municipal and other types of contracts. In State v. Plaggemeier, 93 Wn. App. 472, 483, 969 P.2d 519, review denied, 137 Wn.2d 1036 (1999), this court reviewed the intent of the parties and found a portion of a mutual aid agreement severable from the rest of the agreement. A more recent case from Division One of this court involved Regence Blueshield, a health care service contractor, and Kruger, an orthopaedic surgeon provider, and a provider agreement that contained an agreement to arbitrate. Kruger Clinic Orthopaedics, LLC v. Regence Blueshield, 123 Wn. App. 355, 98 P.3d 66, 68 (2004). Division One held that the unenforceable provisions of the agreement could be severed and `the remainder of the arbitration provision enforced.' Kruger Clinic Orthopaedics, 98 P.3d at 75. The rule allowing for severability of contract provisions also applies to the present case.
Here, the lease agreement contains a severability option in paragraph 21. The provision at issue in the lease agreement is paragraph 6, which discusses the option of renewing the lease agreement. Since this portion is illegal under the Pierce County Code, we can sever it from the rest of the agreement. Thus, instead of invalidating the entire contract, the trial court should have severed the ultra vires portion.
IV. Gift of Public Funds
Alternatively, Pierce County argues that the lease agreement is void as a matter of law because it constitutes an unconstitutional gift of public funds. The public resource at issue in this case is the harvesting of shellfish and, particularly, geoduck from the lease property.
Article 8, section 7 of the Washington State Constitution prohibits a county from giving any money or property in aid of any company or corporation except for the poor and infirm. In determining whether a public expenditure is a gift under article 8, section 7, we focus on two factors: consideration and donative intent. City of Tacoma v. Taxpayers of City, 108 Wn.2d 679, 702, 743 P.2d 793 (1987). In order to show a violation of the constitutional prohibition against gifts, Pierce County must show that the lease amounts to `a transfer of property without consideration and with donative intent.' Gen. Tel. Co. v. City of Bothell, 105 Wn.2d 579, 588, 716 P.2d 879 (1986).
The general purpose of the lease was `for the use of shellfish propagation and harvesting and production.' CP at 8. This language clearly states that WSF could harvest shellfish, including geoduck. As stated above, Pierce County must prove both (1) lack of consideration and (2) presence of donative intent or grossly inadequate return in order to show that harvesting geoduck on the tidelands was an unconstitutional gift of public funds. The record is insufficient to do so.
Both the County and WSF knew that geoduck were present on the land when they contracted. But before entering into its lease with WSF, the County failed to inspect the land to determine the amount of harvestable geoduck. Instead, after seeing WSF's harvest, the County decided it had entered into a bad agreement with WSF. In a memorandum sent to Wolcott, a staff person with the parks department stated that a `provision allowing for maturity of shell fish might be appropriate in determining the lease amount.' CP at 221.
Courts use the donative intent or grossly inadequate return element to determine how closely to scrutinize the sufficiency of the consideration. Adams v. Univ. of Wash., 106 Wn.2d 312, 327, 722 P.2d 74 (1986). If there is no proof of donative intent or grossly inadequate return, the court does not inquire into the adequacy of consideration. Adams, 106 Wn.2d at 327.
Here, there is a patent, grossly inadequate return. There is evidence that the lease agreement did not adequately provide for the amount of natural resources on the land. The County failed to survey the property for natural resources before entering into the lease agreement. Thus, WSF received the land and the natural resources on it for less than what the land was truly worth. By December 2002, WSF had grossed over $2 million off the sale of harvested geoduck. In contrast, WSF paid the County $360 for the first year of the lease. After the first year, the rent increased 107 percent from the previous year.
Once a determination is made that a grossly inadequate return exists, the court then looks at the adequacy of consideration. Adams, 106 Wn.2d at 327. Evidence in the record confirms that Pierce County did not consider the value of the natural resources before entering into the agreement with WSF. Claudia Peters, in determining lease value, did not include any value for the natural resources on the property. It is clear that WSF received a great return from its goeduck harvest. As the trial court did not rule on this issue because it found the whole contract ultra vires, but did opine that there were genuine issues of material fact concerning whether there was a gift of public funds, we remand for trial on this issue of consideration. We do not address a remedy if the contract was in fact a gift and thus void.
Reversed in part, remanded for trial.
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.
HOUGHTON, P.J. and ARMSTRONG, J., Concur.