William Newcomer, Resp/X-App V. Michael Cohen, Apps/X-Resps ( 2024 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
WILLIAM NEWCOMER, a married man
as his separate estate, No. 86612-5-I
Respondent/Cross Appellant, DIVISION ONE
v. UNPUBLISHED OPINION
ESTATE OF MICHAEL COHEN and
“JANE DOE” COHEN, husband and wife
and the marital community of the
composed; APEX PENTHOUSE
CONDOS, LLC, a Washington limited
liability company; and APEX
APARTMENTS I TIC, LLC, a Washington
limited liability company,
Appellants/Cross Respondents,
MC APEX, LLC, a Washington limited
liability company;
AMC FAMILY LLC, a Washington limited
liability company;
ECKSTEIN INVESTMENTS, LLC, a
Washington limited liability company;
ENTRUST NORTHWEST, LLC, a
Washington limited liability company;
RB&F PROPERTY MANAGEMENT, LLC,
a Washington limited liability company;
NEWCOMER APEX I TIC, LLC, a
Washington limited liability company;
BILL DONOHOE; 2009 NEWCOMER
FAMILY, L.L.C., a Washington limited
liability company;
BR NEWCOMER, LLC, a Washington
Limited Liability Company,
Defendants.
No. 86612-5-I/2
COBURN, J. — This is the third appeal between parties involved in a real estate
development project through multiple limited liability companies in Tacoma. Following a
bench trial for a breach of contract claim related to a promissory note, the court entered
a judgment in favor of William Newcomer, one of the project’s investors, and against the
estate of Michael Cohen, 1 Apex Penthouse Condos, LLC, and Apex Apartments I TIC,
LLC. But the court denied Newcomer’s request for attorney fees. We affirm the
judgment in favor of Newcomer, but reverse the court’s denial of his request for attorney
fees and remand for further proceedings.
FACTS
In 2004, Michael Cohen solicited William Newcomer to invest in the Apex
Apartments venture. Cohen, Newcomer, and a third initial investor, Kenneth Thomsen,
executed an operating agreement for Apex Apartments, LLC. 2 Apex Apartments, LLC
was established to construct two apartment buildings in Tacoma, Washington, with a
plan to either operate or sell the properties afterward. Each provided personal
guarantees to the construction lenders. Cohen, Newcomer, and Thomsen each held a
30 and 1/3 percent ownership stake in the project. Cohen managed the project.
Article 8 in the Apex Apartments, LLC agreement addresses contributions to the
company and capital accounts. The relevant sections under Article 8 are as follows:
8.1 Members Capital Contributions. Each member shall contribute
such amount as is set forth in attached Schedule 1 as such Member’s
share of the Members’ Initial Capital Contribution.
8.2 Additional Contributions. Each member shall be required to make
such additional Capital Contributions as shall be determined by the
1
The court in February 2021 granted Newcomer’s motion to substitute Cohen’s estate in
his place as a party after Cohen died.
2
Cohen signed as manager of MC Apex, LLC. Thomsen signed as manager of AMC,
Family, LLC.
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No. 86612-5-I/3
Manager from time to time to be reasonably necessary to meet the
expenses of the Company; provided, such additional Capital Contributions
shall not exceed 100% of each Member’s Initial Capital Contribution
except when approved by the written vote of 100% of the Members.
8.2.1 Before requiring additional Capital Contributions, a request to
borrow the amount required shall be simultaneously sent to all Members.
Such loans from Members shall bear interest at a rate of 12.00% per
annum or upon terms as otherwise provided by the request. . . . .
8.2.2 In the event that the interest of Members to make loans is not
sufficient to cover the amount requested, the Manager shall give written
notice to each Member of the amount of any required additional Capital
Contribution, and each Member shall pay to the Company such additional
Capital Contribution no later than thirty (30) days following the date such
notice is given. Nothing contained in this Section 8.2 is or shall be
deemed to be for the benefit of any Person other than the Members and
the Company, and no such Person shall under any circumstances have
any right to compel any actions or payments by the Members.
8.2.3 In the further event that a member is unable, unwilling, or for
whatever reason fails to pay such capital call by the 11th banking day after
the call for funds is communicated to that Member in writing, then the
following shall occur: the remaining Members shall have the right, but not
the obligation, to buy on a pro-rata basis, all of the Units and interest in the
Company held by the non-contributing Member. If less than all Members
elect to exercise their pro-rate right to purchase, the remaining Members
or any one of them may purchase the interest of the non-paying Member.
The purchase price shall be the value of the non-paying Member’s Capital
Account as recorded in the records of the Company, less the dollar
amount of the non-paying Member’s capital call which generated the
default. The intent is to penalize the non-paying Member and to
ameliorate the unanticipated additional cost to those Members who
comply with this Agreement. In the event that no member is willing to buy
the interest of the non-paying Member, then the Company will be
dissolved in accordance with the terms of Article 14.
Schedule 1 listed the “Initial Capital Contribution” for each of the three initial members to
be $800,000. 3 Newcomer contributed this amount in two installments.
3
Eckstein Investments, Entrust NW, LLC, and RB&F Property Management, LLC
became minority members of Apex Apartments, LLC. These entities did not provide any
personal guarantees, but did provide initial capital contributions of $100,000, respectively. Each
entity owned a 3 percent stake in the project.
3
No. 86612-5-I/4
As the project reached different phases, Cohen created multiple subordinate
LLCs, maintained managerial control over all Apex-related entities, and initiated multiple
capital calls (capital contributions from the investor LLC members). Apex Apartments,
LLC transferred Building A to Apex Apartments I TIC, LLC and Newcomer Apex I TIC,
LLC as tenants-in-common. To facilitate financing, Apex Apartments, LLC was
reorganized. Apex Apartments II, LLC was created as a new entity to construct and
manage Building B. While the names of the interest holders changed, their ownership
percentage in the overall project remained unmodified. The transfer of Building A from
Apex Apartments, LLC to Apex Apartments I TIC, LLC and Newcomer Apex I TIC, LLC
was classified in tax documents as a “mere change in identity,” with the transfer
involving moving ownership from one LLC to another with the same owner. After the
transfer of Building A, Newcomer no longer had an interest in Apex Apartments I TIC,
LLC. Newcomer’s entire interest in Apex Apartments, LLC was transferred to
Newcomer Apex I TIC, LLC. Newcomer’s interest remained at 30 and 1/3 percent
ownership in the overall project. The three other minority interest members held a 3
percent interest in Apex Apartments I TIC, LLC. Cohen, in his role as manager, clarified
that the reorganization into subordinate ownership entities did not alter the relative
percentage ownership of the members.
Cohen, acting in his capacity as manager, sought additional capital contributions.
Newcomer made a total of $1,509,547 in additional capital contributions over multiple
installments from 2006 through 2009. All capital contributions from Newcomer were
made via checks payable to Apex Apartments, LLC.
Due to deteriorating market conditions stemming from the housing market crash
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No. 86612-5-I/5
of 2008, the investment project faced increasing financial difficulties. In February 2010
Newcomer agreed to loan Apex Apartments II, LLC $200,000. Through this transaction,
Cohen executed a promissory note with Point Ruston, LLC as maker. Under the agreed
upon terms of the note, Point Ruston, LLC obliged to pay back Newcomer his $200,000
loan with 8 percent interest on or before May 10, 2010. However, the loan was not
repaid by the agreed deadline.
In 2010 Building B was converted into condominiums and eight condominiums
were transferred from Apex Apartments, LLC to Apex Penthouse Condos, LLC. In
October 2010, members of Apex Apartments II, LLC executed a second amended and
restated limited liability agreement. This newly modified agreement materially altered
the ownership percentages of the original members, 4 but the language related to capital
contributions, in Section 8 of the Apex Apartments LLC agreement, remained consistent
with all other previous agreements.
In November 2010, Newcomer extended an additional $600,000 loan to Cohen,
secured with a promissory note. The makers of this note are: 1) Apex Penthouse
Condos, LLC; 2) Apex Apartments I TIC, LLC; and 3) Michael A. Cohen personally.
The note includes a commitment to repay Newcomer $600,000 at a 20 percent interest
rate per annum, compounded monthly. The note’s due date was November 1, 2015.
Cohen utilized the $600,000 loan to settle the outstanding $200,000 loan owed to
4
The second amended Apex Apartments II, LLC agreement guaranteed a 35 percent
interest in the company to JLW Apex, LLC, Silver Cloud, Inc., and James L. Weymouth,
President. The original investors, Cohen, Newcomer, and Thomsen, collectively retained a 65
percent ownership interest in the company. Newcomer’s personal ownership interest in Apex
Apartments II, LLC, now held through the 2009 Newcomer Family Trust, LLC, was 19.72
percent. The remaining primary members and minority members had their ownership
percentage interests proportionally reduced.
5
No. 86612-5-I/6
Newcomer, which had accrued to $212,061.47 with interest.
By fall of 2013, Newcomer wanted out of the partnership and his investment
money returned. Newcomer v. Cohen, No. 48233-9-II, slip op. at 8 (Wash. Ct. App.
May 16, 2017) (Newcomer I) (unpublished),
https://www.courts.wa.gov/opinions/pdf/D2%2048233-9-
II%20Unpublished%20Opinion.pdf. He had learned Cohen, unlike himself, did not
make his initial capital contribution and applied a portion of the contribution as a “non-
cash” deferred management fee. Id. at 9. In January 2014 Newcomer sued Cohen
alleging he violated the Washington State Securities Act (WSSA). Id. at 9.
In April 2014, the entire Apex project was sold to KW Tacoma Apartments, LLC
for $26.5 million. 5 The sale proceeds were used to fully repay all construction-related
bank loans. This repayment also eliminated the personal guarantees made by
Newcomer, Cohen, and Thomsen, but these investors lost their contributions.
Newcomer v. Cohen, No. 50247-0-II, slip op. at 6 (Wash. Ct. App. Oct. 30, 2018)
(Newcomer II) (unpublished), https://www.courts.wa.gov/opinions/pdf/D2%2050247.0-
II%20Unpublished%20Opinion.pdf.
The proceeds were insufficient to cover the debt owed on Building A to the Bank
of America, leaving a shortfall of $1,653,679.23. To address this shortfall, Cohen and
Thomsen each loaned the entities of Building A about $824,000. Newcomer declined to
contribute to the resolution of this shortfall.
In February 2015 Cohen, as manager of the TIC entities and Apex Penthouse
5
Division Two described the sale occurring in April 2015, but the record and the trial
court’s unchallenged findings of fact in the instant case support that the sale occurred in April
2014. Newcomer I, slip op. at 10.
6
No. 86612-5-I/7
Condos, LLC, notified members of another capital call after first giving them the
opportunity to loan funds as required by the LLC agreements. Once no member loans
were provided, Cohen sent a letter in March 2015 requesting capital contributions from
the members.
In September 2015, a jury in Newcomer’s first suit found Cohen violated the
WSSA with respect to the sale of securities through four capital calls that Newcomer
responded to between March 2005 through December 2008. Newcomer I, slip op. at
12. The jury awarded Newcomer recessionary damages of $2,309,552, which equated
to the total amount in capital contributions he made to the Apex project. 6
In March 2016, Cohen unilaterally formulated and independently devised and
proposed to implement a “debt cancellation plan.” Under this plan the amount owed
under Newcomer’s promissory note for the $600,000 loan would offset what Cohen
asserted was Newcomer’s outstanding capital call obligation. Cohen notified Newcomer
that the debt from the promissory note had been paid in full by crediting his outstanding
capital call obligations in conjunction with the winding up of the Companies.
In January 2016 Newcomer sued Cohen, Apex Penthouse Condos, LLC, and
Apex Apartments I TIC, LLC (collectively Apex Entities) alleging breach of contract and
unjust enrichment under the promissory note for the $600,000 loan. Newcomer II, slip
op. at 7. This suit is the subject of the appeal in the instant case. Cohen and Apex
Entities asserted counterclaims, cross claims and third-party claims. 7 One of Cohen’s
counterclaims asserted that Newcomer was unjustly enriched when Cohen and
6
This court affirmed that judgment. Newcomer I, slip op. at 12.
7
The following third-party defendants were dismissed by stipulation: Eckstein
Investments, LLC; RB&F Property Management, LLC; William Donahoe; Entrust Northwest,
LLC; and AMC Family, LLC.
7
No. 86612-5-I/8
Thomsen loaned $824,000 to help clear a debt to Bank of America. The loan benefited
Newcomer, Cohen asserted, because it allowed for the sale of the project to proceed
and released Newcomer from his personal guarantee of the bank loan.
Cohen and Apex Entities also asserted setoff as an affirmative defense arguing
they had the right to cancel the debt secured by the promissory note in an amount
“equal to unpaid capital-call obligations” owed by Newcomer. After considering multiple
motions for partial summary judgment, the trial court ruled that Newcomer had no
liability to Cohen or Apex Entities because the LCC agreements were invalid. Cohen
and Apex Entities appealed and this court reversed the trial court’s order granting
summary judgment to Newcomer and remanded for further proceedings. Newcomer II,
slip op. at 28. On remand, the trial court held a bench trial in July 2022.
As to the promissory note, the court found in favor of Newcomer. Defendants
asserted that with the creation of each new entity, the initial contribution required for a
member to join the new entity is the value of the property transferred to that new entity
from Apex Apartments, LLC or any other predecessor entity. Defendants asserted this
reset the additional capital contribution requirement up to the value of that property
transfer, thereby increasing each member’s capital call obligation. The trial court found
nothing within the formation documents clarifying this valuation methodology, dismissing
this argument as one that lacked credibility.
The court found Newcomer’s initial payment of $800,000 was specified in
Schedule 1 of the Apex Apartments, LLC agreement, which provided that an additional
capital contribution could be required up to 100 percent of his original capital
contribution, which totaled $800,000. The court found that Newcomer paid far more
8
No. 86612-5-I/9
than 100 percent of his original capital contribution of $800,000.
The trial court also concluded that RCW 25.15.196(1)—the liability for
contribution statute under the Washington Limited Liability Company Act, chapter 25.15
RCW—does not modify or expand the terms of Article 8 in the LLC agreements. And
while LLCs may enforce provisions of their agreements during winding up/dissolution of
the entity, under the applicable LLC agreements in the instant case, Newcomer could
not be compelled to provide additional capital.
As to Cohen’s unjust enrichment claim against Newcomer, the court found
Newcomer was unjustly enriched. The court found that had the Apex property not sold
in April 2014, the property would likely have been foreclosed by the lenders. The
lenders would have enforced the personal guarantees of Newcomer, Cohen, and
Thomsen, causing them significant financial harm. Cohen and Thomsen had used
other properties, unrelated to the Apex project, as collateral for the loans. Per Section
6.8 of the LLC agreements, Newcomer and Thomsen were obligated to indemnify
Cohen and Thomsen. Newcomer benefited from the release of personal guarantee
without contributing to the cost. The court found it unfair for Newcomer to retain this
benefit without sharing in the associated costs. Consequently, the Court determined
that Newcomer had been unjustly enriched to some degree by payment made by Cohen
and Thomsen.
The court determined that Newcomer had been unjustly enriched by
$551,226.40, one third of the amount of the funds that were insufficient to resolve the
debt on Building A owed to the Bank of America. The court granted Cohen’s request to
use the amount to offset the amount owed on the promissory note. In addition, the
9
No. 86612-5-I/10
court, sua sponte, applied a reduced interest rate of 8 percent per annum, simple
interest instead of the rate agreed to in the promissory note because it “would be
inequitable for Newcomer to continue to benefit financially from exorbitant interest
rate.” 8 The court also found no violation of WSSA was committed in the formation and
funding of the LLCs formed subsequent to the Apex Apartments, LLC. The court also
denied Newcomer’s claim for unjust enrichment and concluded that all other claims and
defenses of the parties are either subsumed in the relief granted or denied. Finally, the
court concluded that because there was no prevailing party, no party was entitled to
attorney fees and costs.
Newcomer moved for reconsideration as to the issue of the reduced interest rate.
The court requested a response from defendants. After reviewing the motion, response
and Newcomer’s reply, the court determined that the promissory note is unambiguous
on its face and was negotiated between business sophisticated individuals in an arm’s
length transaction. The court then reversed itself and concluded that the court’s
equitable powers do not extend to making an interest rate adjustment on a commercial
loan with a written, fixed rate of interest. The court amended its findings of fact and
conclusions of law to delete the previous conclusion relating to the reduced interest rate
and amended its decision to reflect that the sum owed will bear interest at the rate of 20
percent, compounded monthly, until paid. The court ruled that defendants are jointly
and severally liable on the debt as makers on the note.
Defendants appeal the court’s rejection of its claim that they properly set-off the
8
The court’s initial findings of fact and conclusions of law are not in the record.
However, they were quoted in Apex Entities’ response to Newcomer’s motion for
reconsideration without objection.
10
No. 86612-5-I/11
promissory note debt against Newcomer’s capital call obligation, as well as the court’s
conclusion that it did not have authority to reduce the interest rate on the debt owed for
the promissory note. Newcomer appeals only as to the denial of its request for attorney
fees and costs under the promissory note.
DISCUSSION
Capital Contribution Requirement
We review a trial court’s decision following a bench trial by asking whether
substantial evidence supports the trial court’s findings of fact and whether those findings
support the trial court’s conclusions of law. Casterline v. Roberts, 168 Wn. App. 376,
381, 284 P.3d 743 (2012). 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). The application of the law to
the facts is a question of law that this court reviews de novo. Brundridge v. Fluor Fed.
Servs., Inc., 164 Wn.2d 432, 441, 191 P.3d 879 (2008). Consequently, we review the
trial court’s conclusions of law pertaining to contract interpretation de novo. See
Mitchell v. Wash. State Inst. of Pub. Pol’y, 153 Wn. App. 803, 814, 225 P.3d 280 (2009).
The primary objective in contract interpretation is to ascertain the mutual intent of
the parties at the time they executed the contract. Int’l Marine Underwriters v. ABCD
Marine, LLC, 179 Wn.2d 274, 282, 313 P.3d 395 (2013). Washington follows the
“objective manifestation theory” of contract interpretation, under which the focus is on
the reasonable meaning of the contract language to determine the parties’ intent.
Hearst Commc’ns, Inc. v. Seattle Times Co., 154 Wn.2d 493, 503, 115 P.3d 262 (2005).
And we assess the contract as a whole, interpreting particular language in the context of
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No. 86612-5-I/12
other contract provisions. See Weyerhaeuser Co. v. Com. Union Ins. Co., 142 Wn.2d
654, 669-70, 15 P.3d 115 (2000). “An interpretation which gives effect to all of the
words in a contract provision is favored over one which renders some of the language
meaningless or ineffective.” GMAC v. Everett Chevrolet, Inc., 179 Wn. App. 126, 135,
317 P.3d 1074 (2014).
Appellants challenge findings of fact 31 and 32, and conclusions of law 1 and 2.
We treat unchallenged findings of fact as verities on appeal. In re Estate of Jones, 152
Wn.2d 1, 8, 93 P.3d 147 (2004). All the challenged findings and conclusions relate to
the court’s rejection of defendants’ set-off argument. Appellants do not deny that the
language in Article 8 from the Apex Apartment LLC is consistent in all the relevant
subsequent LLC agreements. Nor do they dispute that Section 8.2 states “additional
Capital Contributions shall not exceed 100% of each Member’s Initial Capital
Contribution except when approved by the written vote of 100% of the Members.”
Section 8.1 provides that “[e]ach Member shall contribute such amount as is set forth in
attached Schedule 1 as such Member’s share of the Members’ Initial Capital
Contribution.” Schedule 1 plainly states that Newcomer’s “Initial Capital Contribution” is
$800,000, representing “30-1/3” percent unit interests.
Appellants argue, as they did before the trial court, that Newcomer made the
$800,000 contribution to Apex Apartments, LLC and $1,509.547 to Apex Apartments II,
LLC before Apex Penthouse Condos, LLC was even formed. Thus, they argue,
Newcomer did not contribute more than 100 percent of his initial capital contribution to
Apex Apartments I TIC, LLC and Apex Penthouse Condos, LLC. Appellants go on to
argue that the initial capital contribution to Newcomer Apex I TIC, LLC and to Apex
12
No. 86612-5-I/13
Penthouse Condos, LLC was the value of the property as testified to by their expert at
trial.
The plain language of the LLC agreements belies defendants’ assertions. The
initial contributions were identified when the project began with the creation of Apex
Apartments, LLC. That agreement proclaimed that the “business of the Company shall
be: to hold real property in Pierce County and develop apartments and/or
condominiums there on.” The “Schedule 1” attached to Apex Apartments I TIC, LLC
does not identify any “Initial Capital Contribution,” but identifies percentage of unit
interest for various members. This list is titled “Capital Contributions Member
Information.” The Apex Penthouse Condos, LLC agreement has a “Schedule 1”
attachment that also lists “Capital Contributions Member Information” identified by
percentage of unit interest for various members. It also does not have anything
identified as “Initial Capital Contribution.” These two lists identify how the membership
is distributed within that LLC, they do not require or identify a separate “initial capital
contribution.” As the trial court stated in finding of fact 24:
The record reflects no evidence of a stated contemporaneous market
value at the time the transfer occurred. To allow application of the fair
market value of the property transferred at the time the transfer took place
should have necessitated some quantification of property value
contemporaneous with the actual transfer. Defendants assert this resets
the members additional contribution requirement up to the value of that
property transfer, for the purpose of increasing a member’s capital call
obligation. This stepped-up valuation methodology is not detailed with any
clarity in the formation documents. This argument lacks credibility in light
of the whole of the evidence which, at the time of the transfers, does not
reflect the transferred property’s reevaluation as being the benchmark for
a member’s additional capital call.
We agree. Appellants fail to cite to anything in the language of the agreements that
support their argument. Because Newcomer had contributed more than 100 percent of
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No. 86612-5-I/14
his initial $800,000, the trial court was correct in finding that Newcomer could not be
“compelled to provide additional capital in a capital call.”
Even if we were to conclude that Newcomer had an obligation to respond to the
additional capital call and failed to do so, appellants cite to no authority that allows
Cohen to unilaterally choose to use the debt on the promissory note to set off the
outstanding capital obligations as a remedy for failure to contribute.
“A member is obligated to a limited liability company to perform any promise to
contribute cash or property or to perform services, even if the member is unable to
perform because of death, disability, or any other reason.” RCW 21.15.196(1)
(emphasis added). Under RCW 25.15.196(3),
[a] limited liability company agreement may provide that the interest of any
member who fails to make any contribution that the member is obligated
to make is subject to specified penalties for, or specified consequences of,
such failure. Such penalty or consequence may take the form of reducing
or eliminating the defaulting member’s proportionate interest in a limited
liability company, subordinating the member’s limited liability company
interest to that of nondefaulting members, a forced sale of the member’s
limited liability company interest, forfeiture of the member’s limited liability
company interest, the lending by other members of the amount necessary
to meet the member’s commitment, a fixing of the value of the member’s
limited liability company interest by appraisal or by formula and
redemption or sale of the member’s limited liability company interest at
such value, or other penalty or consequence.
In other words, an LLC is free to specify in the LLC agreement what the penalty
or consequence is for a member who fails to make any contribution. The agreements in
the instant case do not specify allowing the LLC manager to unilaterally choose to off-
set what is owed to the LLC by a separate debt. Moreover, Cohen fails to cite any
authority that supports allowing an LLC manager to off-set what is owed to the LLC with
the manager’s own personal outstanding debt. Where a party fails to cite to relevant
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No. 86612-5-I/15
authority, we generally presume that the party found none. State Constr., Inc. v. City of
Sammamish, 11 Wn. App. 2d 892, 906, 457 P.3d 1194 (2020) (citing Edmonds
Shopping Ctr. Assocs. v. City of Edmonds, 117 Wn. App. 344, 353, 71 P.3d 233(2003)).
We affirm the trial court’s conclusion that Cohen, as manager of the Apex
entities, could not compel Newcomer to provide additional capital in a capital call.
Interest Rate
Appellants contend that the trial court in exercising its broad equitable authority
can apply a reduced interest rate to the judgment because Newcomer had been unjustly
enriched.
The issue of a trial court’s legal authority is a question of law reviewed de novo.
Matter of W.W.S., 14 Wn. App. 2d 342, 367, 469 P.3d 1190 (2020). “Unjust enrichment
is the method of recovery for the value of the benefit retained absent any contractual
relationship because notions of fairness and justice require it.” Young v. Young, 164
Wn.2d 477, 484, 191 P.3d 1258 (2008).
Three elements must be established in order to sustain a claim based on
unjust enrichment: a benefit conferred upon the defendant by the plaintiff;
an appreciation or knowledge by the defendant of the benefit; and the
acceptance or retention by the defendant of the benefit under such
circumstances as to make it inequitable for the defendant to retain the
benefit without the payment of its value.
Bailie Commc’ns, Ltd. v. Trend Bus. Sys., Inc., 61 Wn. App. 151, 159-60, 810 P.2d 12(1991) (quoting BLACK’S LAW DICTIONARY 1535-36 (6th ed.1990)). “[T]he proper
measure of recovery under unjust enrichment is the market value of the services
rendered or the claimant's actual cost to render those services.” Young, 164 Wn.2d at
487 (explaining the difference between implied contract in law and implied contract in
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No. 86612-5-I/16
fact). In the instant case, Newcomer does not challenge the conclusion that he was
unjustly enriched and neither party challenges the court’s determination that the value of
the unjust enrichment is $551,225.40. Courts have broad discretion in fashioning an
equitable remedy, but they cannot overlook the focus of an unjust enrichment
calculation. Young, 164 Wn.2d at 489. Under unjust enrichment, “[t]he obligation to
repay the debt or disgorge the value of the received benefit focuses on the receiver of
the benefit, not on the provider of the benefit. See RESTATEMENT OF RESTITUTION:
QUASI CONTRACTS AND CONSTRUCTIVE TRUSTS § 155(1) (1937) (stating ‘the
measure of recovery for the benefit thus received is the value of what was received’).”
Id.
As to Newcomer’s breach of contract claim for the unpaid promissory note,
Newcomer’s prayer for relief was the amount of the unpaid loan, $600,000, plus interest
at the rate of 20 percent per annum compounded monthly from November 1, 2010
through the date of judgment. The interest rate Newcomer requested are the terms
agreed to in the promissory note. The cornerstone of contract law is that agreements
freely entered into by parties should be upheld and enforced as written, except where
legislation or well-established legal principles dictate otherwise. As commonly
recognized by courts across Washington state, “we are loathe to interfere with the rights
of parties to contract as they please between themselves . . .” Mgmt., Inc. v.
Schassberger, 39 Wn.2d 321, 326, 235 P.2d 293 (1951). It is not the role of the court to
enforce contracts so as to produce the most equitable result. The parties themselves
know best what motivations and considerations influenced their bargaining, and while
“[t]he bargain may be an unfortunate one for the delinquent party, . . . it is not the duty of
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No. 86612-5-I/17
courts of common law to relieve parties from the consequences of their own
improvidence . . . ” Reichenbach v. Sage, 13 Wash. 364, 368, 43 P. 354 (1896)
(quoting Dwinel v. Brown, 54 Me. 468, 470 (1867)). Therefore, “courts are not at liberty,
under the guise of reformation, to rewrite the parties’ agreement and foist upon the
parties a contract they never made.” Seattle Pro. Eng’g Emps. Ass’n v. Boeing Co., 139
Wn.2d 824, 833, 991 P.2d 1126 (2000).
As the trial court observed in its order on reconsideration, “[t]he promissory note
in issue is unambiguous on its face and was negotiated between business sophisticated
individuals in an arm’s length transaction.” Appellants do not challenge the validity of
the promissory note in any way. Neither party challenges the trial court offsetting
Newcomer’s award under the promissory note with the value of Newcomer’s benefit
from the unjust enrichment.
The only question before this court on this issue is whether a trial court can apply
a reduced interest rate than what the parties agreed to in the promissory note.
Appellants rely on marital dissolution cases, such as In re Marriage of Harrington, 85
Wn. App. 613, 631, 935 P.2d 1357 (1997). In Harrington, we held that a trial court has
the discretion to modify the “rate of interest on deferred payments under a property
distribution decree,” but a court abuses its discretion if it fixes an interest rate below the
statutory rate without setting forth adequate reasons for the reduction. Id. But a court
exercising its discretion in a dissolution proceeding is contextually distinct from applying
an interest rate from a negotiated contract when awarding damages under that contract.
The dissolution cases are inapposite.
We conclude that the trial court did not err when it concluded in its order on
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reconsideration that “the court’s equitable powers do not extend to making an interest
rate adjustment on a commercial loan with a written, fixed rate of interest.”
Denial of Attorney Fees
Newcomer contends the trial court abused its discretion in denying its request for
attorney fees and costs. We agree.
“Under Washington law, a trial court may grant attorney fees only if the request is
based on a statute, a contract, or a recognized ground in equity.” Gander v. Yeager,
167 Wn. App. 638, 645, 282 P.3d 1100 (2012). We apply a two-part review to awards
or denials of attorney fees: we review the legal basis for the award de novo, while we
review the amount of the award for abuse of discretion. Id. at 647. The trial court
abuses its discretion when its exercise of discretion is manifestly unreasonable or based
on untenable grounds or untenable reasons. Southwest Suburban Sewer Dist. v. Fish,
17 Wn. App. 2d 833, 838-39, 488 P.3d 839 (2021). “A discretionary decision rests on
‘untenable grounds’ or is based on ‘untenable reasons’ if the trial court relies on
unsupported facts or applies the wrong legal standard.” Mayer v. Sto Indus., Inc., 156
Wn.2d 677, 684, 132 P.3d 115 (2006).
In the instant case, the promissory note included a mandatory attorney fee
clause:
If any litigation or other proceeding is commenced by a party hereto to
enforce or interpret any provision of this Note, or to collect any amount
due hereunder, the prevailing party in such litigation or other proceeding
shall be entitled to receive, in addition to all other sums and relief, its
reasonable costs and attorney’s fees incurred both at and in preparation
for such trial or other proceeding and any appeal therefrom or review
thereof.
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“As a general rule, a prevailing party is one who receives an affirmative judgment in its
favor.” Cornish Coll. of the Arts v. 1000 Virginia Ltd. P’ship, 158 Wn. App. 203, 231,
242 P.3d 1 (2010).
Newcomer, citing the attorney fee provision in the promissory note, requested
attorney fees in the trial court. Apex Entities argued that Newcomer should be denied
attorney fees, but did not itself request attorney fees. Cohen generally requested to
“receive an award of its attorneys’ fees and costs in defending this action as may be
allowed by law.” He also requested attorney fees and costs under RCW 21.20.430, the
civil liabilities provision of the WSSA. Notably, Cohen does not appeal the trial court
denying him attorney fees. See Burgess v. Premier Corp., 727 F.2d 826, 839 (9th Cir.
1984) (“The purpose of the Washington Securities Act, RCW 21.20.430(1), is only ‘to
reimburse a purchaser for his actual out-of-pocket loss.’”) (quoting Garretson v. Red-Co,
Inc., 9 Wn. App. 923, 928, 516 P.2d 1039 (1973)).
It is undisputed that Newcomer is the prevailing party as to his breach of contract
claim related to the promissory note. Apex Entities did not request attorney fees and
Cohen did not present a basis for attorney fees under statute, contract, or a recognized
ground in equity. Accordingly, we reverse the denial of reasonable costs and attorney
fees to Newcomer as it relates to his breach of contract claim under the promissory
note, and remand for further proceedings consistent with this opinion.
Attorney Fees on Appeal
Both Newcomer and Cohen request attorney fees under RAP 18.1. 9 Pursuant to
RAP 18.1(a), a party has the right to recover reasonable attorney fees on appeal if
9
Apex Entities also requested attorney fees on appeal. Not only are they not the
prevailing party, they included only one sentence requesting attorney fees, without citing any
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No. 86612-5-I/20
applicable law grants the party the right to recover. Newcomer’s request for attorney
fees on appeal is based on the attorney fees clause of the promissory note. We
generally recognize a provision in a contract allowing attorney fees to include fees on
appeal as well as at trial. Edmundson v. Bank of Am., 194 Wn. App. 920, 932-33, 378
P.3d 272 (2016), abrogated on other grounds by Merritt v. USAA Fed. Sav. Bank, 1
Wn.3d 692, 532 P.3d 1024 (2023). Because Newcomer is the prevailing party on
appeal, we award Newcomer reasonable attorney fees and costs. Given we are
remanding for the trial court to consider Newcomer’s previous request for attorney fees
and costs at the trial level, we also direct the trial court to determine the same for this
appeal.
WE CONCUR:
authority for the request, and thus, did not comply with the mandatory requirements of RAP
18.1(b).
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