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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.
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