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TWO MILLION FOR BREACH OF CONTRACT
The Roche Harbor Resort consists of 2,400 acres,
approximately 8,000 feet of waterfront, a hotel, restaurant,
church, air strip, marina and assorted resort facilities on
the northwest corner of San Juan Island. The stockholders of
the corporation holding the Roche Harbor Resort contracted
to sell Roche Harbor to a purchaser for approximately $7
million. Sixteen days after the contract was signed, Sellers
received what they perceived to be a "better offer" for
purchase of a portion of the resort, elected to accept the
better offer and retain the remaining uplands, and breached
the contract to sell.
In subsequent action for breach of contract,
Plaintiff/purchaser's attorney confronted two problems: on
liability, the contract had only been signed by two of the
three shareholder groups, and on damages, how could buyer
show substantial damages for breach?
From pre-purchase negotiations, Plaintiff had learned of an
internal Shareholders Agreement, required by a lending
institution, which provided that any two of the three
shareholder groups could enter into a binding agreement to
sell the corporation's assets. Based on this Shareholder
Agreement and the contract signed by two of the three
shareholder groups, Plaintiff successfully obtained Summary
Judgment on Liability.
The Court having found a valid contract, Defendants then
demanded that damages be assessed by an arbitration panel
under an arbitration clause in the contract. The measure of
damages for breach of contract is the difference between the
contract price and the value of the contract performance had
the contract been performed. Eastlake Construction Co. v.
Hess, 102 Wn.2d 30, 686 P.2d 465 (1984).
Plaintiff's attorney was thus faced with proving the
Plaintiff suffered a loss when the $7.5 million contract was
breached in light of the fact that the resort had $5.5
million in debts, was losing $50,000 per month, and was
being threatened with foreclosure at the time the contract
was signed. Defendant's business valuation expert, Gary
Mettler of Business Valuation, Inc., testified that the
heavily indebted corporation was worth approximately what
purchaser had offered to pay for it and consequently no
damages flowed from the breach of the contract.
Plaintiff pointed out that if the contract had been
performed, the underlying real property would have been
obtained by purchasers. MAI appraiser, Charles Macaulay of
Everett, assessed the underlying property value at $9.8
million. Plaintiff's attorney then pieced together the
Defendant's patchwork of sales following the breach of
contract to demonstrate that between breach and arbitration
hearing, Defendants had sold portions of the property for
$4.5 million, $750,000 and $650,000, and had retained
portions of the property worth, at their own appraiser's
valuation, an additional $5 million. After two weeks of
testimony, the arbitration panel awarded Plaintiff's damages
in the total sum of $2,023,000 plus costs and attorneys fees
under the Arbitration Agreement. This was the largest
arbitration award ever entered in a case under the
jurisdiction of San Juan County Superior Court. The case was
tried by WSTLA member, Dean Brett of Bellingham's Brett & Coats, PLLC. |
