Court Opinion

ID: 4701541
Source: CourtListenerOpinion
Date Created: 2021-07-06 19:24:52.970859+00
Date Added: 2024-06-11T08:06:18.586962
License: Public Domain

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

 ZENITH GLOBAL SOLUTIONS, INC.,
 dba ZENITH CAPITAL, a Washington                  DIVISION ONE
 corporation,
                                                   No. 81490-7-I
                        Respondent,
                                                   UNPUBLISHED OPINION
                   v.

 LINDEN VILLAGE ASSISTED LIVING
 COMMUNITY, LLC, a Washington
 limited liability company,

                        Appellant.

       DWYER, J. — Linden Village Assisted Living Community, LLC appeals from

a judgment entered against it following a bench trial. The judgment resulted from

a finding that Linden had breached its contract with Zenith Global Solutions, Inc.

Linden contends that the trial court erred in awarding damages to Zenith because

Zenith also breached the contract at issue. Further, Linden avers that the trial

court erred by not awarding damages to Linden. Because Linden failed to prove

that (1) its nonperformance was excused, and (2) it suffered damages as a result

of Zenith’s breaches, we affirm the trial court.

                                          I

       In May 2013, Tribach Partners, LLC acquired a piece of real property at

13524 Linden Ave N., in Seattle, Washington. Christopher Chen, a governor of

Tribach, intended for the development of the property to be used to create an
No. 81490-7-I/2

opportunity for Chinese nationals to obtain legal permanent residency in the

United States through the EB-5 program, which allows foreign nationals to obtain

legal permanent residency by investing in American companies. See EB-5

Immigrant Investor Program, U.S. CITIZENSHIP & IMMIGR. SERVS.,

https://www.uscis.gov/working-in-the-united-states/permanent-workers/eb-5-

immigrant-investor-program [https://perma.cc/EEH6-VBNF].

       In October 2014, Chen, David Bovée of Zenith, and Stuart Brown of

Village Concepts, LLC signed a letter expressing their intent to put together a

team to construct an assisted living facility on the property utilizing EB-5 funding.

In 2015, Qiang “John” Tu, Bovée, and Chen formed Linden. Linden then

acquired the property.

       Zenith began providing Linden with project development reports (PDRs) in

November 2015. Linden and Zenith entered into a Development Services

Agreement (DSA), effective August 1, 2016, which detailed the relationship

between Linden and Zenith for developing the project. Bovée played a major

role in both organizations—he both served as general manager of Linden and

was the sole owner and president of Zenith. This dispute arises from the DSA.

       The DSA describes the services Zenith would provide as follows:

              2. Scope of Services. During the term of this Agreement,
       Developer shall provide its respective expertise, and undertake the
       performance of the development services reasonably requested by
       Owner from time to time with respect to the Property and Project,
       including the following:

                 (a) Oversight of the development of the Project at the
          Property and oversight and preparation of feasibility and market
          studies to determine the overall best use and senior housing
          mix for the Project;

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No. 81490-7-I/3

                 (b) Obtain all necessary entitlements for the Project and
         coordinate with all necessary governmental and similar officials
         and individuals;
                 (c) Obtain or cause to be obtained any and all required
         permits and licenses (to operate the Project as an assisted
         living or memory care facility or otherwise) from the City of
         Seattle and the State of Washington (or other governmental
         bodies or agencies), generally based on the plans (the “Project
         Plans”) for the Project which have been or will be submitted to
         the City of Seattle and, if required, to the State of Washington
         (and coordinate such submittal if not already accomplished);
                 (d) Provide Owner with bi-monthly reports as to the
         status of the development of the Project; and
                 (e) Such other developmental services (i) as are
         customarily provided by developers of projects similar to the
         Project and at locations similar to the Property or (ii) as Owner
         and Developer shall agree.

      In exchange, the agreement provided that Zenith was entitled to the

following compensation:

              5. Compensation. For services rendered pursuant to this
      Agreement, Owner shall pay the Developer a total development fee
      of five hundred thousand dollars ($500,000.00) (the “Development
      Fee”). The Development Fee shall be paid in the following
      installments:

                 (a) Owner shall pay Developer the sum of fifteen-
         thousand dollars ($15,000.00) per month beginning the month in
         which the Effective Date occurs and ending the month in which
         the construction phase begins, subject to a maximum of twelve
         (12) such monthly payments.
                 (b) Owner shall pay Developer the sum of seven-
         thousand five-hundred dollars ($7,500.00) per month beginning
         the first month following the month in which the construction
         phase of the Project begins and ending the month in which a
         certificate of occupancy is issued for the Project by the
         applicable governmental entity, subject to a maximum of sixteen
         (16) such monthly payments.
                 (c) Upon the issuance of a master use permit, Owner
         shall pay Developer the sum of fifty-thousand dollars
         ($50,000.00).

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No. 81490-7-I/4

                    (d) Upon the issuance of a HUD[1] commitment for a
             Section 232 loan, Owner shall pay Developer the sum of fifty-
             thousand dollars ($50,000.00).
                    (e) Upon the commencement of the construction phase
             of the Project, Owner shall pay Developer the sum of fifty-
             thousand dollars ($50,000.00).
                    (f) Upon the issuance of a certificate of occupancy,
             Owner shall pay Developer any then unpaid balance of the
             Development Fee.

       The DSA provided that Linden could terminate the agreement under

certain conditions:

       8. Term; Termination.

                     (a) The initial term of this Agreement shall commence on
             the Effective Date and end upon the issuance of a Certificate of
             Occupancy for the Project and payment of the Development
             Fees, subject to earlier termination as provided in this
             Agreement.
                     (b) Notwithstanding the term of this Agreement, this
             Agreement may be terminated (without cost or penalty to
             Owner) at any time by Owner for “cause” (as defined below).
             This Agreement shall terminate automatically with no notice
             required, upon (i) the sale of the Property or Project, (ii) if
             required by any lender pursuant to loan documents entered into
             by Owner, or (iii) upon foreclosure or transfer by deed-in-lieu of
             foreclosure to the exiting lender or a successor lender. For
             purposes hereof, the phrase “cause” means the occurrence of
             any one or more of the following:
                         (i) the gross negligence or willful, reckless or criminal
                 misconduct of Developer or any of its directors, officers,
                 employees, or agents in respect of the performance of
                 Developer’s duties hereunder, in which event Owner may
                 terminate this Agreement immediately upon notice to
                 Developer;
                         (ii) if Developer shall fail to comply with any provision
                 of this Agreement, and Developer shall fail either to (1) cure
                 such default within thirty (30) days after receipt of written
                 notice from Owner specifying the nature of the default, or (2)
                 commence to cure the default within thirty (30) days after
                 receipt of written notice from Owner specifying the nature of
                 the default if the default is of such a nature that it cannot

       1   United States Department of Housing and Urban Development (HUD).

                                              4
No. 81490-7-I/5

              reasonably be cured within thirty (30) days, and thereafter
              proceeds with due diligence to cure the default;
                       (iii) Developer terminates the services of the persons
              listed on Exhibit A hereto without Owner’s approval; or
                       (iv) any of the developing/permitting/financing, site
              work, or construction phases of the Project are not
              completed by the deadlines specified for each such phase
              on Exhibit B hereto and Owner notifies Developer of Owner’s
              termination of this Agreement as a result thereof within
              fifteen (15) days thereafter.
                   (c) This Agreement shall be terminable by Owner if any
          of the following events occur prior to the issuance of a
          Certificate of Occupancy for the Project:
                       (i) Developer notifies Owner that “hard costs” for the
              construction of the Project are expected to exceed nineteen
              million dollars ($19,000,000);
                       (ii) Owner’s application for a HUD Section 232 loan
              for the Project is denied; or
                       (iii) the Form I-526 immigrant petition filed with United
              States Citizenship and Immigration Services by any EB-5
              investor with respect to the Project is denied, provided that
              such denial is not related to such investor’s qualification as
              an EB-5 investor, including source of funds verification.

      On August 12, 2016, while Zenith was developing the project, Linden

submitted its Master Use Permit (MUP) application to the City of Seattle. In

December 2016, the City’s Design Review Board recommended approval with

minor changes.

      Zenith failed to provide PDRs for August and September of 2016, as

required by the DSA. Zenith resumed providing PDRs in October 2016.

      On November 16, 2016, a general contractor, Exxel Pacific, provided

Zenith with a construction cost budget, estimating costs of $19,989,143 to build

the project. Zenith’s general manager, Jason Higbee, testified that his

impression was that Exxel was not interested in working on a HUD project. The

estimate was not reported to Linden.

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No. 81490-7-I/6

       In March 2017, another general contractor, Halvorson, provided a cost

estimate of $28,313,027. This estimate was not provided to Linden. Bovée

testified that, by this time, Zenith had already determined that it would use a

different general contractor, Wright HD.

       In order to secure a HUD loan, Zenith recommended using a certain

vendor: CBRE. In February 2017, CBRE submitted a loan application. On

March 1, 2017, Bovée (on behalf of Zenith) requested a payment of $35,000 for

debt placement services associated with the HUD loan application. That same

day, Bovée (on behalf of Linden) wrote a check payable to Zenith in the amount

of $35,000. Initially, Bovée and Tu voted to approve the payment, with Chen

voting against it. Tu later changed his vote to “reject.”

       In mid-March, Linden instructed Zenith to return the $35,000 to Linden,

asserting that no agreement had been made with regard to milestone payments

for debt placement services. Zenith refused to return the funds until a new debt

placement agreement was reached, and stated that it would suspend its debt

placement efforts. About a week later, Bovée executed a contract entitled “Debt

Placement Agreement” between Linden and Zenith, on behalf of both Linden and

Zenith. At trial, Bovée claimed that he conducted negotiations for this agreement

with himself, as manager for Linden and as president of Zenith.

       In an attempt to recoup the $35,000, Linden did not make the monthly

payment of $15,000 in June or July 2017. As this dispute continued, Zenith

continued to provide Linden with PDRs. On July 14, 2017, Linden removed

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No. 81490-7-I/7

Bovée as general manger. On July 17, 2017, Zenith filed this lawsuit against

Linden alleging breach of contract.

        On July 27, 2017, the Seattle Department of Construction and Inspection

issued a Notice of Decision, conditionally granting the MUP application. The

notice indicated that the decision could be appealed until 5:00 p.m. on August 10,

2017.

        On the afternoon of August 10, hours before the appeal period ended,

Linden terminated the DSA with Zenith. Linden explained that it was terminating

the agreement because of the dispute over the $35,000, Zenith’s suspension of

debt placement efforts, and Zenith’s failure to report that hard costs were

expected to exceed $19 million dollars.

        Linden brought counterclaims of breach of contract when it filed its answer

to Zenith’s complaint. In both its original and amended answers, Linden pleaded

material breach by Zenith as an affirmative defense. Following a bench trial, the

trial court entered findings of fact and conclusions of law. The trial court

concluded that Linden breached the DSA both by withholding monthly payments

and by withholding the $50,000 MUP progress payment. It awarded $80,000 in

damages to Zenith. The trial court also concluded that Zenith breached the DSA

in multiple instances, most significantly by violating its duty of good faith when it

ceased its debt placement efforts. However, the trial court determined that

Linden failed to show that those breaches resulted in damages. Accordingly, the

trial court dismissed the counterclaims. The trial court did not enter findings as to

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No. 81490-7-I/8

the materiality of Zenith’s breaches. The trial court subsequently awarded Zenith

attorney fees and expenses.

       Linden appeals.

                                          II

                                          A

       When evaluating evidence in a bench trial, our review is limited to

determining whether the trial court’s factual findings are supported by substantial

evidence and whether those findings support the trial court’s conclusions of law.

Yorkston v. Whatcom County, 11 Wn. App. 2d 815, 831, 461 P.3d 392 (2020).

Substantial evidence is the “quantum of evidence sufficient to persuade a rational

fair-minded person the premise is true.” Sunnyside Valley Irrig. Dist. v. Dickie,

149 Wn.2d 873, 879, 73 P.3d 369 (2003). On review, the evidence and all

reasonable inferences therefrom must be viewed in the light most favorable to

the prevailing party. Korst v. McMahon, 136 Wn. App. 202, 206, 148 P.3d 1081

(2006). Although the trier of fact is free to believe or disbelieve any evidence

presented at trial, “[a]ppellate courts do not hear or weigh evidence, find facts, or

substitute their opinions for those of the trier-of-fact.” Quinn v. Cherry Lane Auto

Plaza, Inc., 153 Wn. App. 710, 717, 225 P.3d 266 (2009) (citing Thorndike v.

Hesperian Orchards, Inc., 54 Wn.2d 570, 572, 343 P.2d 183 (1959)). We review

questions of law de novo. Sunnyside Valley, 149 Wn.2d at 880.

                                          B

       Linden contends that the trial court erred by awarding damages to Zenith.

This is so, Linden asserts, because Zenith was already in breach of contract

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No. 81490-7-I/9

when Linden failed to perform its contractual obligations. Because Linden did not

prove that Zenith’s breaches were material, we disagree.

       A material breach can suspend the injured party’s contractual duties until

the breaching party cures the defect. See DC Farms, LLC v. Conagra Foods

Lamb Weston, Inc., 179 Wn. App. 205, 220-22, 317 P.3d 543 (2014). However,

material breach is an affirmative defense to a breach of contract claim. See

Wlasiuk v. Whirlpool Corp., 81 Wn. App. 163, 179, 914 P.2d 102, 932 P.2d 1266

(1996). Accordingly, it was Linden’s burden to demonstrate that Zenith’s

breaches were material and thus excused Linden’s nonperformance. Wlasiuk,

81 Wn. App. at 179. The trial court did not find that Zenith’s breaches of the DSA

were material. Therefore, Linden failed to meet its burden of proof, was not

entitled to relief in the trial court, and is not entitled to relief on appeal.

       To succeed in a breach of contract action, “the plaintiff must prove that a

valid agreement existed between the parties, the agreement was breached, and

the plaintiff was damaged.” Univ. of Wash. v. Gov’t Emps. Ins. Co., 200 Wn.

App. 455, 467, 404 P.3d 559 (2017); accord RESTATEMENT (SECOND) OF

CONTRACTS § 235 cmt. b (AM. LAW INST. 1979) (breach of contract).

       A breach of contract by one party “so material as to justify a refusal of the

other party to perform a contractual duty discharges that duty.” DC Farms, 179

Wn. App. at 220 (citing Jacks v. Blazer, 39 Wn.2d 277, 285-86, 235 P.2d 187

(1951)). However,

       a breach of a contractual duty by one party does not always
       discharge the duty of performance of the other party, even though
       the nonperformance or breach is “wilful.” As the term “breach” is
       used, a party who commits a breach is guilty of a wrong for which

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No. 81490-7-I/10

        some remedy is available. The remedy varies with the
        circumstances of each case. Being guilty of a wrong does not
        make the breaching party an outlaw or deprive the breaching party
        of all rights, even the rights created by the very contract that is
        broken.

13 SARAH HOWARD JENKINS, CORBIN ON CONTRACTS § 68.2, at 157-58 (rev. ed.

2003) (footnotes omitted).

        Whether a breach of contract is material and thus excuses further

performance by the other party is a question of fact. DC Farms, 179 Wn. App. at

221; 224 Westlake, LLC v. Engstrom Props., LLC, 169 Wn. App. 700, 724, 281

P.3d 693 (2012). Here, the trial court made no determination as to whether

Zenith’s breaches of the DSA were material.

        We have previously determined that a claim of material breach excusing

performance under a contract is an affirmative defense and, accordingly, the

burden of proof is on the defendant. Wlasiuk, 81 Wn. App. at 179. The absence

of a finding is presumptively a negative finding against the party with the burden

of proof. Taplett v. Khela, 60 Wn. App. 751, 759, 807 P.2d 885 (1991). Thus, we

must presume that the trial court was not persuaded that Linden proved that any

of Zenith’s breaches were material.2 Such a determination is supported by the

record. Indeed, there is no evidence in the record that Zenith’s breaches of the

DSA resulted in damages to Linden. Hence, when the evidence is viewed in the

light most favorable to Zenith, a rational fair-minded person could conclude that

         2 At oral argument, Linden’s counsel asserted that the DSA itself defined material

breaches in section 8(c). Section 8(c) allowed Linden to terminate the DSA under certain
conditions. The DSA does not indicate that those conditions automatically excused further
performance by Linden. Rather, it allowed Linden the option of terminating the agreement. Linden
did not avail itself of this opportunity. The text of section 8(c) did not require the trial court to make
a factual finding that Zenith’s breaches were material.

                                                   10
No. 81490-7-I/11

the breach was not material. See Sunnyside Valley, 149 Wn.2d at 879. The trial

court was, accordingly, entitled to determine that Linden failed to meet its burden

of proof.

         Linden argues otherwise. Citing Willener v. Sweeting, 107 Wn.2d 388,

394, 730 P.2d 45 (1986), Linden contends that Zenith, as the party claiming

nonperformance by Linden, “‘must establish as a matter of fact [its] own

performance.’”3

         But the cited authority does not support this proposition. In Willener,

neither the seller nor the purchaser of a piece of real property performed under

an earnest money agreement. 107 Wn.2d at 394. The vendor did not deposit in

escrow the documents required to convey title and the buyer did not deposit in

escrow funds equal to the sale price. Willener, 107 Wn.2d at 394. The Willener

court explained that the parties’ duties were concurrent conditions and, therefore,

the prospective purchaser—who had failed to perform without excuse—had no

right to bring an action for contract damages. Willener, 107 Wn.2d at 395-96;

accord Wallace Real Estate Inv., Inc. v. Groves, 124 Wn.2d 881, 897-98, 881

P.2d 1010 (1994) (letter constituting anticipatory breach by one party excused

performance by the other because parties are not required to perform useless

acts).

         A condition is “an event, not certain to occur, which must occur . . . before

performance under a contract becomes due.” RESTATEMENT § 224. Not all duties

created by contract are conditions. For example, the passage of time cannot

         3   Br. of Appellant at 36 (quoting Willener 107 Wn.2d at 394).

                                                   11
No. 81490-7-I/12

operate as a condition, because it is certain to occur, and conditions are only

events which are not certain to occur. RESTATEMENT § 224 cmt. b. Similarly, an

implied duty of good faith and fair dealing exists in every contract, Pierce v. Bill &

Melinda Gates Found., 15 Wn. App. 2d 419, 433, 475 P.3d 1011 (2020), review

denied, 197 Wn.2d 1006 (2021), but the manner in which a party engages (such

as “in good faith”) cannot logically be described as an event.

        Linden does not identify a condition, precedent or concurrent, that was not

met when its monthly payments were due. The only condition precedent for the

$50,000 progress payment was the issuance of the MUP, which the trial court

determined was inevitable by the time that Linden terminated the DSA. Instead,

Linden asserts that it was not obligated to perform because (1) Zenith’s breach

of its duty of good faith when it suspended its HUD loan efforts was material, (2)

Bovée breached his fiduciary duties as Linden’s manager,4 and (3) the quality of

Zenith’s PDRs were below the “first quality manner standard” required by the

DSA. These are not failures of conditions upon which Linden’s duty to perform

relied. Accordingly, Willener is inapplicable here. See Wlasiuk, 81 Wn. App at

179 (“The burden would have been on [plaintiff] to prove his performance under

the contract only if his performance were a condition precedent.”).

        Thus, the trial court did not err by awarding damages to Zenith, despite its

finding that Zenith had breached the DSA.

         4 Bovée is not a party to this lawsuit. Moreover, Linden did not make a claim of breach of

fiduciary duties in the trial court. We do not review a case on a different theory from that which
was raised and tried in the trial court. Nat’l Indem. Co. v. Smith-Gandy, Inc., 50 Wn.2d 124, 130,
309 P.2d 742 (1957).

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No. 81490-7-I/13

                                                  C

       Linden next avers that, even if damages were correctly awarded to Zenith,

the amount should have been offset by the $35,000 disputed payment that Zenith

collected from Linden. In support of this argument, Linden cites statutes—RCW

4.56.060 and RCW 4.56.070—that provide for setoffs in final judgments in

circumstances in which one party owes a debt to the other. However, here, the

trial court concluded that Zenith’s collection of the $35,000 payment for debt

collection services was not a breach of the DSA. The trial court did not find that

Zenith owes a debt of $35,000 to Linden. Under these circumstances, a $35,000

setoff was not required. Linden’s claim to the contrary fails.

                                                  III

       Linden next contends that the trial court erred by concluding that Linden

was not entitled to recover damages. Because the trial court’s conclusion was

supported by its factual findings, and those findings are supported by the record,

Linden’s claim of error fails.

       To prevail in a breach of contract action, a party must prove that a valid

agreement existed between the parties, the agreement was breached, and the

party was damaged. Univ. of Wash., 200 Wn. App. at 467; accord RESTATEMENT

§ 235 cmt. b (breach of contract). Here, the trial court concluded that Linden

failed to prove damages. This conclusion was based on its factual findings that

Linden did not proffer evidence that Zenith’s breaches of the DSA caused

damages, including damages for delay.5 Rather, Linden’s expert witness was

       5   See Findings of Fact 97, 98, and 99.

                                                  13
No. 81490-7-I/14

unable to pinpoint a reason for delays to the project beyond “general

mismanagement” by Zenith.

         Linden asserts that it suffered damages as a result of Zenith’s breach

because, after Linden terminated the DSA, another partner (Village Concepts)

withdrew from the project and because Zenith’s poor performance delayed the

project. However, Linden remains unable to point to any evidence in the record

that Zenith’s breaches of the DSA caused delays or other damages to Linden.

The trial court was entitled to conclude that Linden failed to meet its burden of

proof.

         Linden also contends—for the first time on appeal—that Zenith owed

Linden a fiduciary duty that it breached by accepting the $35,000 debt placement

payment authorized by Bovée. According to Linden, Zenith should thus be

required to disgorge the $35,000. As this claim was not raised in the trial court,

there is no trial court determination for us to review. We decline to review this

claim of error, raised for the first time on appeal. Nat’l Indem. Co., 50 Wn.2d at

130.6

                                                IV

         Finally, Linden contends that the trial court erred by awarding attorney

fees to Zenith. Because we affirm the trial court’s substantive determinations,

Zenith remains the prevailing party and was entitled to a fee award under the

DSA.

         6
         Linden avers that this fiduciary duty existed prior to the effective date of the DSA.
Regardless, the trial court’s conclusion that as a matter of law the “Standards of the Performance”
created by the DSA did not apply prior to the effective date of the DSA is correct.

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No. 81490-7-I/15

        The DSA provides:

               15. Attorneys’ Fees. Should it become necessary for either
        Party, because of a breach under this Agreement or any other
        reason, to place the enforcement of this Agreement or any part
        thereof in the hands of an attorney or to file suit upon same, it is
        agreed that the non-prevailing Party shall pay all costs and
        expenses, including reasonable attorney’s fees, incurred in
        connection therewith.

        Zenith was the prevailing party. Accordingly, the trial court did not err by

awarding attorney fees to Zenith.7

        Affirmed.

WE CONCUR:

        7 Both parties seek an award of attorney fees on appeal pursuant to RAP 18.1. Because

the DSA provides that the prevailing party is entitled to such an award, Zenith is entitled to an
award of fees on appeal. Upon a proper application, a commissioner of our court will enter an
appropriate award.

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