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IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

COMMONWEALTH LAND TITLE INSURANCE COMPANY, a Nebraska insurance company; and LAWYERS TITLE INSURANCE CORPORATION, a Nebraska insurance company, Appellants,

v. SOUNDBUILT NORTHWEST LLC, Respondent. NO. 68547-3-1 DIVISION ONE

UNPUBLISHED OPINION FILED: May 28, 2013



### Lau, J. —This case involves a breach ofsettlementclaim.1 Afterourdecision in Sound Built Homes, Inc. v. Dale Alan Land Development Co., noted at 137 Wn. App. 1055, 2007 WL 959942, Soundbuilt Northwest LLC and Commonwealth Land Title 

### Insurance Company entered into a settlement agreementthat required Commonwealth 

### to pay Soundbuiltan additional sum after seeking indemnity from a third party. Frustrated by perceived delays, Soundbuilt moved to enforce the settlement agreement 

### 1There is no question over the settlement's validity, existence, ormaterial terms. Indeed, the trial court approved the reasonableness of the settlement agreement on Soundbuilt's motion.68547-3-1/2 through CR 56 summaryjudgment procedure. The trial court granted summary judgment and entered judgment against Commonwealth for $4,031,409.77, including attorney fees, costs, and interest. Because material fact issues remain as to whether Commonwealth breached the settlement agreement when itallegedly failed to perform according to its terms and because the motion procedure here prevented Commonwealth from asserting claims and defenses, we reverse and remand for trial and further proceedings consistent with this opinion. The trial court is also instructed to vacate the March 16, 2012 judgment. We reverse the fees and costs award to Soundbuilt and award appeal fees and costs to Commonwealth, subject to compliance
with RAP 18.1. FACTS2 In 2004, the Dale Alan Land Development Company (DALD) and its principal, 

### Greg Newhall, agreed to sell certain property in Covington, Washington, to Soundbuilt Northwest LLC. Instead, it sold the property to a different land developer, Chelan Homes Inc., for an increased price. Soundbuilt sued DALD for repudiation of the 

### purchase and sale agreement and recorded a lispendens againstthe property. As part of the DALD/Chelan transaction, Chelan obtained a title insurance policy from 

### Commonwealth. Due to the lispendens, Commonwealth conditioned issuance of its 

### title policy on the entry of an indemnity agreement with DALD. Under this agreement, 

### DALD agreed to indemnify Commonwealth and hold it harmless from any loss orliability 

### arising out ofthe policy. Chelanbuilt and sold 22 homes. Commonwealth agreed to 2The underlying facts ofthiscase are discussed in Sound Built, noted at 137 Wn. App. 1055. We repeat only the facts necessary to resolve this appeal.68547-3-1/3 

### insure title onbehalfofthe purchasers.3 Soundbuilt prevailed onits repudiation claim, and the trial court ordered specific performance ofthe purchase and sale agreement (PSA). We affirmed DALD's appeal ofthe specific performance order. When Soundbuilt sought to enforce the specific performance order against the 22 homeowners, Commonwealth intervened. To prevent enforcement ofthe specific performance order, Commonwealth entered into a settlement agreement with Soundbuilt in July 2008. Underthe agreement, Commonwealth immediately paid Soundbuilt $5 million to resolve Soundbuilt's claims. In exchange for this payment, Soundbuilt agreed to transfer to Commonwealth "the right, title, and interest" of Soundbuilt inthe present specific performance lawsuit, the original property PSA, and the lis pendens filed by Soundbuilt. The agreement also required Commonwealth to obtain a court rulingthat DALD/Newhall were obligated under the indemnity agreement to indemnify Commonwealth for all settlement funds it paid to Soundbuilt under the settlement 

### agreement. The settlement agreement also contained a "Contingent PaymentTerm." This term required Commonwealth to pay Soundbuilt up to an additional $3 million 

### depending on the indemnity litigation outcome with DALD/Newhall. IfCommonwealth obtained an indemnityjudgment against DALD/Newhall for $5 million or less, Commonwealth would owe no additional amounts to Soundbuilt. Payment of any 

### additional sums was expressly conditioned on entry of a "final, non-appealable order of 

### theWashington courts (including orders ofdismissal)" against DALD/Newhall. The 

### settlement agreement alsoobligated Commonwealth to "useits bestreasonable efforts 3The policies were issued byTransnation Title InsuranceCompany, a Commonwealth affiliate. In this opinion, we refer to Transnation as Commonwealth. -3-68547-3-1/4
to avoid continuance [of] any ofthe proceedings, either before the trial court or on appeal, needed to obtain a final, non-appealable order.
.. ." The parties also agreed, "Time is ofthe essence in the performance ofthe obligations set forth in the agreement." In accordance with the settlement agreement's assignment provision, the trial court entered an agreed order substituting Commonwealth as plaintiff inplace of 

### Soundbuilt in the presentspecific performance suitagainstDALD.4 The case caption

was also amended to reflect this substitution of parties. The substitution order 

### expressly provided that Soundbuilt's interest in the ongoing specific performance lawsuit
was limited to obtaining a reasonableness determination on the settlement agreement. The settlement agreement's assignment provision transferred all rights in this lawsuit to 

### Commonwealth.5 Commonwealth moved successfully for summaryjudgmenton its indemnity claimagainst DALD/Newhall, requesting judgment for $8 million. This amount included the original $5 million paymentto Soundbuilt discussed above and the 

### additional $3 million available to pay Soundbuilt under the settlement agreement's 

### contingent payment term. The trial court determined that DALD/Newhall was obligated 

### to payCommonwealth the full $8 million indemnity amount, plusadditional attorney fees
and costs. 

### 4Following entry of the substitution order, the case caption indicated that 

### Commonwealth was a plaintiffin the mainclaim against DALD (formerly Soundbuilt's 

### specific performance suit) and a third party plaintiffin itsindemnity claim against DALD/Newhall. Both claims were captioned under King County Superior Court No. 04-2-09599-9 KNT. 

### 5Underthe settlement agreement, Soundbuilt retained limited rights to (1) collect an additional $3 million from Commonwealth, (2) collect additional money fromthree 

### existingjudgments, and (3) review Commonwealth's prefiling pleadings. -4-68547-3-1/5
Newhall declared bankruptcy before the court entered its final order on DALD/Newhall's liability to Commonwealth. The bankruptcy court granted Commonwealth relieffrom the automatic bankruptcy stay to allow for entry of a final judgment on the summaryjudgment order. The trial court entered a finaljudgment against DALD/Newhall for $8 million, plus prejudgment interest, attorney fees, and costs. Newhall appealed the summaryjudgment orderto this court. Meanwhile, the bankruptcy trustee and Soundbuilt reached an agreement. Inexchange for obtaining the right to dismiss the appeal, Soundbuilt agreed to assign to the bankruptcy estate the first $225,000 ofthe $3 millionpayment Soundbuilt expected to receive from Commonwealth under the settlement agreement. As a creditor in the Newhall bankruptcy estate, Commonwealth objected to this agreement on the basis that the trustee failed to give proper notice to creditors and failed to demonstrate the 

### agreement's compliance with certain bankruptcy rules. In May2011, the bankruptcy court approved the agreement over Commonwealth's objection. After the United States District Court granted Commonwealth's motion for an 

### emergency stay, Soundbuilt and the trustee agreed to terminate their agreement. 

### Frustrated bydelays it attributed to Commonwealth, Soundbuilt moved the trial court to enforce the settlement agreement with Commonwealth through a summaryjudgment 

### procedure. Soundbuilt's summary judgment motion argued that Commonwealth's tactics in the bankruptcy proceedings breached its implied duty to use best efforts to 

### seek indemnity. Soundbuiltrequested the court to award it $3 million, plus attorney fees, costs, and accrued interest against Commonwealth. The trial court denied68547-3-1/6
Soundbuilt's motion without prejudice to renew it, citing the pendency ofthe Newhall indemnity appeal. Soundbuilt renewed its motion to enforce the settlement agreement through summaryjudgment procedure. Itargued that Commonwealth breached both the 

### express terms of the settlement agreement and the implied covenant of good faith and fair dealing by deliberately engaging in dilatory conduct: Commonwealth's conduct here is clearly in breach of its obligations under the Commonwealth/[Soundbuilt] Agreement, including the impliedcovenant of 

### good faith and fair dealing. Commonwealth's express undertaking was to expeditiously seek a resolution of the Newhall Appeal establishing Newhall's 

### liability to Commonwealth under the indemnity. Commonwealth's conduct, in effect, precludes the occurrence of the condition to performance of the final payment obligation to [Soundbuilt].... Commonwealth should not be allowed to assert its obligation to pay is not mature when it is affirmatively acting to block or 

### prevent the occurrence of the condition whichwould trigger itsobligation to pay. Soundbuilt argued that "the only effective remedy available to [Soundbuilt] is for this Court, which found the Commonwealth/[Soundbuilt] Agreement to be reasonable in the 

### first place, to enforce Commonwealth's immediate payment to [Soundbuilt] in the amount of $3 million, plus accrued interest, late fees, attorney's fees and costs." Soundbuilt relied on Inre Marriage ofFerree, 71 Wn. App. 35, 856 P.2d 706 (1993), a


### case construing CR2A, to argue that "[settlements may be enforcedin thisaction
.. . and determined by a procedure akin to summary judgment." Soundbuilt and the trustee reached a revised agreement similar in its terms to 

### their original proposed agreement. Thebankruptcy court approved therevised 

### agreementoverCommonwealth's objection. Following entry oftheapproval order, the trustee moved under RAP 18.2 to withdraw the pending Newhall indemnity appeal. We 

### granted the motion in a subsequent notation ruling.
-6-68547-3-1/7
Before our mandate was issued on the Newhall appeal, the court granted Soundbuilt's summaryjudgment motion, finding "no genuine issue ofmaterial fact that 

### Commonwealth has breached the terms of the [Soundbuilt]/Commonwealth Agreement

as a matter of law . . . ." Itexplained: [Soundbuilt].
. . became entitled to full payment ofthe balance ofthe sums due [Soundbuilt] under the terms ofthe Commonwealth/[Soundbuilt] Agreement on May 6, 2011, when the United States Bankruptcy Court approved the Trustee/[Soundbuilt] Agreement. Commonwealth's efforts to prevent the implementation ofthe Trustee/[Soundbuilt] Agreement were undertaken inbad faith, and are a breach ofthe Commonwealth/[Soundbuilt] Agreement. The court ordered Commonwealth to pay Soundbuilt $3 million, plus interest, attorney fees, and costs. Itthen entered a $4,031,409.77 finaljudgment against Commonwealth. We issued our mandate inthe Newhall appeal approximately two months later. Commonwealth appeals.
ANALYSIS Commonwealth argues that the trial court deprived it of an opportunity to litigate related claims and defenses by resolving nonparty Soundbuilt's breach of settlement 

### claim through a CR2A motion toenforce.6 Commonwealth alsodisputes thecourt's liabilityand damages ruling. Soundbuilt responds that common local practice and controlling authority support the motion procedure applied here. We first address Commonwealth's liabilityand damages claim. Although styled in name only as a motion to enforce settlement, neither party disputes that the motion



### 6"No agreement or consentbetween parties orattorneys in respect to the proceedings in a cause, the purport of which is disputed, will be regarded bythe court unless the same shall have been made and assented to in open court on the record, or entered in the minutes, or unless the evidence thereof shall be in writing and subscribed by the attorneys denying the same." CR 2A. -7-68547-3-1/8



### was a summaryjudgment motion governed by CR 56. InFerree, 71 Wn. App. at 43, a
case defining the contours of CR 2A, Division Two of this court explained: When a moving party relies on affidavits or declarations to show that a 

### settlement agreement is not genuinely disputed, the governingprinciples should be the same as those that apply in summaryjudgment proceedings. Insummary 

### judgmentproceedings, the issue is whether a genuine dispute offactexists. CR 56(c), (e). When a motion is made to enforce a settlement agreement on grounds that its existence and material terms are not genuinely disputed, the issue is also 

### whether a genuine dispute of fact exists. Because the issue is the same, the governing rules should be the same. 

### This reasoning is confirmed by the fact that summaryjudgment 

### procedures are routinely applied to most agreements when the issue is whether a genuine dispute of fact exists. 

### We review an order granting summary judgment de novo. Jones v. Allstate Ins. Co., 146 Wn.2d 291, 300, 45 P.3d 1068 (2002). We will affirm the trial court if, viewing the facts and reasonable inferences in the light most favorable to the nonmovingparty, 

### wedetermine that nogenuine issues ofmaterial fact remain and the moving party is 

### entitled tojudgmentas a matter oflaw. Jones, 146Wn.2d at300-01; CR 56(c). "The moving party has theburden ofshowing that there is nogenuine issue as to any materialfact." IndoorBillboard/Wash., Inc. v. Integra Telecom ofWash., Inc., 162 Wn.2d 59, 70, 170 P.3d 10 (2007). 

### "There isin every contract animplied duty ofgood faith and fair dealing
. .. [that] 

### obligates the parties to cooperatewith each othersothateach may obtain thefull benefitofperformance." Badoettv. Sec. State Bank, 116Wn.2d 563, 569, 807 P.2d 

### 356 (1991). This duty "arises only in connection with terms agreed to bythe parties" and does not "'injectsubstantiveterms into the parties' contract.'" Badqett, 116Wn.2d 

## at569 (quoting Barrettv. WeyerhaeuserCo. Severance Pay Plan, 40Wn. App. 630, 636 n.6, 700 P.2d 338 (1985)). OurSupreme Court has "consistently held there is no
-8-68547-3-1/9 'free-floating' duty of good faith and fair dealing that is unattached to an existing contract." Keystone Land & Dev. Co. v. Xerox Corp., 152 Wn.2d 171, 177, 94 P.3d 945 (2004). "Whether a party has breached a contract is a question of fact." Frank Coluccio Constr. Co. v. King County, 136 Wn. App. 751, 762, 150 P.3d 1147 (2007). "More generally, though, good faith is evaluated by an examination ofthe circumstances surrounding its application and the context in which it is asserted. Consequently, the determination ofgood faith and fair dealing is an issue for the trier of fact." 25 David K. DeWolf, KellerW. Allen, & Darlene B. Caruso, Washington Practice; Contract Law and Practice: § 5.12, at 92 (2012-13 Supp.). Soundbuilt argued that Commonwealth breached its duty to seek indemnity from DALD/Newhall "as soon as reasonably possible" and to use "best reasonable efforts to avoid continuance [of] any of the proceedings . . . ." "Commonwealth is deliberately 

### acting against its own interests as a creditor of the Newhall Bankruptcy Estate inorder to further its interests as a debtor to [Soundbuilt] under the Commonwealth/[Soundbuilt] 

### Agreement. The result is delay fordelay's sake." Soundbuilt also argued that Commonwealth breached the implied duty ofgood faith and fair dealing. Itargued, 

### "Commonwealth's opposition to the approval of the Trustee/[Soundbuilt] Agreement can 

### only be viewed as a mechanismfor avoiding ordelaying performance of itsobligations under the [Settlement] Agreement and, therefore, bad faith." Soundbuilt submitted the declarations of its attorneys, Paul Brain, and David Kerruish, and exhibits to support these assertions. 

### Commonwealth filed two opposition briefs and the response declaration of 

### bankruptcy attorney Jack Cullen, who represented Commonwealth in the Newhall
-9-68547-3-1/10 bankruptcy proceedings. Cullen's declaration, viewed inthe lightmost favorable to Commonwealth, raises genuine fact issues regarding Soundbuilt's claim that Commonwealth engaged in bad-faith tactics designed to "actively thwartfj" Soundbuilt's attempts to collect its conditional $3 million payment. Cullen's declaration provides a procedural history and summary of Commonwealth's actions inthe bankruptcy proceedings and includes the entire 

### bankruptcy docket. Cullen specifically addressed Soundbuilt's intentional delay claims. For example, he testified in part, "[l]n each and every instance where this matter was 

### delayed or a continuance was requested, the request came from the Trustee's attorneys, not Commonwealth." 

### Second, significant delays were also occasioned by the Trustee's 

### "cleaningup" of the bankruptcyestate to address the legitimate concerns of Commonwealth regarding the proposed settlementwith Sound Built and whether that settlement may or may not have been in the best interest of creditors. Commonwealth's concerns were found meritorious on appeal to the United States District Court. The Trustee's actions in responding to Commonwealth's 

### objections made clear that the Trustee also conceded the merits ofthese concerns, and only after they were raised did the trustee do the worknecessary to resolve the financial analysis of the settlementto the creditors of the bankruptcy estate. 

### Third, itwas not until the last claim orderwas entered that the economics 

### of the proposed Sound Buil[t] settlement become clear, leaving only a few 

### remaining issues to be heard at the Decemberevidentiary hearing (ahearing that Commonwealth did not request). Those issues included the merits of a 

### transaction whereby Sound Built did notagree to pay the Trustee any money to 

### dismiss the appeal, but instead agreed only to pay the estate money ifand only if Sound Built received money from Commonwealth pursuant to the settlement. 

### These matters were resolved by the bankruptcy court, and Commonwealth has not appealed those findings. 

### He also testified that (1) Commonwealth sought relieffrom the automatic stay 

### and successfully obtained afinaljudgmentagainstDALD/Newhall onCommonwealth's 

### indemnity claim, (2) the trusteedelayed approval oftherevised Soundbuilt/Trustee
-10-68547-3-1/11 agreement by requesting an evidentiary hearing, (3) the bankruptcy court held an evidentiary hearing on its own initiative, and (4) Commonwealth did not appeal the bankruptcy court's December 2011 order approving the revised Soundbuilt/Trustee agreement. Our de novo review ofthe summaryjudgment record demonstrates the existence 

### ofgenuine material fact issues on whether Commonwealth's actions in the Newhall bankruptcy proceeding breached the settlement agreement and its duty of good faith and fair dealing. Cullen's declaration testimony and the bankruptcy docket setforth specific facts that sufficiently rebut and conflict withSoundbuilt's contentions that Commonwealth breached the settlement agreement and acted in bad faith through 

### purposeful delays tofurther itsown financial interest. We conclude the trial court erred when it granted, as a matter oflaw, summary judgmentin Soundbuilt's favor on its breach ofsettlement claim.7 We reverse and remand for trial. We next address Commonwealth's claim that the motion procedure here 

### impaired itsright tofully litigate and defend against Soundbuilt's breach claim. While CR2A contemplates the use of summary judgment procedure in appropriatecases, the rule is not a substitute for trial where, as here, there is a legitimate breach ofcontract 

### dispute. On the motion procedure, the trial court commented: 

### Ithink itwas actually a smart move on [Soundbuilt's] part to make thismotion [to 

### enforce] right now ratherthan have to gothrough a lawsuittodetermine whether or not there's a breach ofcontract and then file a summaryjudgment motion and 

### everything else. Idon't—I don'tcriticize that. Ithink, quite frankly, strategically it was an excellent move. 

### 7 The trial court's order granting summary judgment stated in part: 

### "Commonwealth's efforts to preventimplementation of the Trustee/SBNWAgreement were undertaken in bad faith and are a breach of the Commonwealth/SBH Agreement." -11-68547-3-1/12
Verbatim Report of Proceedings (VRP) (June 29, 2011) at 23. Soundbuilt cites no authority that precludes a party against whom a breach of contract claim is alleged from asserting claims and defenses. Indeed, there can be no legitimate dispute that ifSoundbuilt had commenced an independent breach action, Commonwealth would be entitled to answer the complaint, plead counterclaims and 

### defenses, conductdiscovery, anddemand trial byjury.8 Weconclude thetrial court erred when itsummarily determined that Commonwealth was in breach ofthe 

### settlementagreementwithoutfull consideration ofits potential claims and defenses.9 On remand, the trial court is instructed to grant Commonwealth leave to assert claims and defenses.10 ATTORNEY FEES ON APPEAL Both parties request attorney fees under RAP 18.1, which authorizes an award 

### where "applicable lawgrants to a party the right to recover reasonable attorney fees or 

### 8During summaryjudgment argumentbelow, Soundbuilt's trial counsel asked the trial court, "I know the first thing my client is going to ask me is whether or not we're 

### precluded from initiating a separate action for breach of contract." The court responded, "No, not at all." VRP (June 29, 2011) at 22. 

### 9Thetrial court's summarydetermination that Commonwealth was in breach of the settlement agreement was also questionable because Soundbuilt was not a party in the case and had no pending claims when itfiled the summaryjudgment motion. As discussed above, Soundbuilt assigned all of its rights inthe case to Commonwealth, with certain limited exceptions. As a practical consequence of trial court error, 

### Commonwealth could not plead claims and defenses against nonparty Soundbuilt. 

### CR 25(c) provides in part: "In case of any transfer of interest, the action may be 

### continued by or against the original party unless the court upon motion directs the 

### person to whom the interest is transferred to be substituted in the action orjoined with the original party." 

### 10We express noopinion on the merits ofCommonwealth's proposedclaims and defenses. We do note, however, that Commonwealth's alleged claims and defenses arise from the same core facts as Soundbuilt's breach claim.
-12-68547-3-1/13
expenses on review . . . ." RAP 18.1. As applicable law, the parties cite a fee provision 

### in the settlement agreement that states, "In the event a party takes action to enforce any of the terms of this Agreement, including action in the United States Bankruptcy Court, the prevailing party shall be awarded its costs, litigation expenses and reasonable attorney's fees." As the prevailing party on appeal, Commonwealth is awarded reasonable attorney fees, costs, and litigation expenses on appeal, subject to compliance with RAP 18.1. CONCLUSION11 For the reasons discussed above, we reverse the trial court's summaryjudgment order and the fees and costs award to Soundbuilt with instructions to vacate the March 16, 2012judgment. We remand for trial and further proceedings consistent with this opinion and award fees and costs to Commonwealth under RAP 18.1. 

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WE CONCUR: 

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11 We do notaddress the broader question of whether CR 2A's summary procedure applies to resolve a breach ofsettlement claim. -13-