Cabela's Wholesale Inc. v. Hawks Prairie Investment LLC

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FILED
FOR THE NINTH CIRCUIT
JUL 27 2016
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
CABELA’S WHOLESALE INC, No. 14-35157
Plaintiff - Appellant, D.C. No. 3:11-cv-05973-RBL
v.
MEMORANDUM*
HAWKS PRAIRIE INVESTMENT LLC,
Defendant - Appellee.
Appeal from the United States District Court
for the Western District of Washington
Ronald B. Leighton, District Judge,
Presiding
Argued and Submitted July 5, 2016
Seattle, Washington
Before: KLEINFELD, TASHIMA, and M. SMITH, Circuit Judges.
Cabela’s Wholesale Inc. appeals the district court’s grant of summary
judgment for Hawks Prairie Investment LLC on its counterclaim for breach of
contract. We have jurisdiction pursuant to 28 U.S.C. § 1291. We affirm.
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
In 2005, Hawks Prairie bought the Lacey Gateway Property, 240 acres of
land in Lacey, Washington, for commercial development. It secured Cabela’s as
an anchor tenant for Lacey Gateway in 2006, by providing Cabela’s with 27 acres
of land for ten dollars and $5 million payable when Cabela’s opened a 165,000
square foot store within one year of closing on the real estate.
Hawks Prairie and Cabela’s agreed that Cabela’s would continue to operate
its Lacey store for at least 12 years, and that for 5 years after its Lacey store
opened, Cabela’s would not open another store within 12 designated counties in
Western Washington. Hawks Prairie agreed to start construction on 1,000,000
square-feet of commercial development within 10 years, with 6- and 8-year
milestone requirements, and a “commercially reasonable, best efforts” goal for the
first 4 years.
Paragraph 6 of the agreement provided that if Cabela’s breached the 12-year
operating requirement, Hawks Prairie had the right to a refund of the $5 million,
and either (1) the then-fair market value of the 27 acres, or (2) a sixty-day option to
purchase the 27 acres and improvement at fair market value, minus the then-fair
market value of the 27 acres. Paragraph 8 provided that if Cabela’s opened another
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store within the 12 counties of Western Washington within 5 years, Hawks Prairie
was entitled to an injunction and consequential damages (not at issue in this case),
refund of the $5 million, and “the right to terminate and repossess the real property
as set forth above in Paragraph 6.”
Cabela’s completed the Lacey Cabela’s within one year as promised, in
November 2007. During the next four years, Hawks Prairie did not break ground
on any of the other Lacey Gateway Property. In August 2010, Hawks Prairie filed
for Chapter 11 bankruptcy to stave off a foreclosure sale by its primary lender,
HomeStreet Bank. The contract does not have a bankruptcy clause.
Hawks Prairie’s reorganization plan was approved in June 2011, and
Cabela’s filed this declaratory judgment action in November 2011, seeking a
declaration that the restriction on opening another store in the 12-county region
was not enforceable because Hawks Prairie had repudiated the contract by not
further developing the property near its store. In Cabela’s complaint, Cabela’s said
that it was ready to open another store in Western Washington in September 2012,
three months before the expiration of the 12-county restriction.
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Meanwhile, Hawks Prairie and its lender, HomeStreet, reached a settlement
agreement in which Hawks Prairie agreed to sell the Lacey Gateway Property to
HomeStreet, transferring all rights, title, and interest in the property to HomeStreet,
except the Cabela’s contract, which was reserved to Hawks Prairie for purposes of
litigating this matter. The bankruptcy court approved the settlement agreement and
the sale on April 18, 2012, and the bill of sale was signed by both parties on April
25. On April 19, before the bill of sale to the bank was executed, Cabela’s opened
a store in Tulalip, Washington. Tulalip is in the 12-county Western Washington
region, and the store was opened before the five-year bar expired.
Hawks Prairie amended its answer in this case, asserting a counterclaim for
breach of the 12-county restriction, seeking refund of the $5 million it had paid
Cabela’s, and seeking payment of the then-fair market value of the 27 acres it had
conveyed to Cabela’s. The district court granted summary judgment for Hawks
Prairie, and entered a final amended judgment amount of $15,685,066.39 against
Cabela’s. That amount consisted of refund of the $5 million, the fair market value
of the 27 acres, which a jury determined was $8,624,541.66, and attorney’s fees
and costs.
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1. The 12-county restriction was a contractual right enforceable by Hawks
Prairie as an original party to the contract. See Dickson v. Kates, 133 P.3d 498,
503 (Wash. Ct. App. 2006); see also 17 William B. Stoebuck & John W. Weaver,
Washington Practice Series § 3.2 (2d ed. 2016) (“If one of the original parties
seeks to enforce the covenant against the other original party, there is no ‘running’
involved, since neither party is a successor to himself. . . . Enforcement between
the original parties is a matter of the law of contract . . . .”). The contract created
the rights between Hawks Prairie and Cabela’s, and Hawks Prairie expressly
retained the contract after the sale of the Lacey Gateway Property to HomeStreet
during bankruptcy. The agreements about whether the geographic restriction is a
covenant running with the land does not matter in these facts.
2. The 12-county restriction was not an unreasonable restraint on trade,
because it did not violate public policy. See Colby v. McLaughlin, 310 P.2d 527,
529 (Wash. 1957). The 12-county building restriction did not create a monopoly
or enhance prices, id., and it did not violate Washington’s Consumer Protection
Act, as either a per se unreasonable restraint or by resulting in an “actual injury to
competition.” See Murray Pub. Co. v. Malmquist, 832 P.2d 493, 497 (Wash. Ct.
App. 1992).
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3. Hawks Prairie never “distinctly” or “unequivocally” indicated that it would
not or could not perform its own construction obligations, so it did not repudiate
the contract before Cabela’s concededly breached the 12-county restriction on
April 19, 2012. In order for repudiation to occur, one party to a bilateral contract
must “either expressly or impliedly repudiate[] the contract prior to the time for
performance,” either by “a positive statement or action . . . indicating distinctly and
unequivocally that he either will not or cannot substantially perform any of his
contractual obligations.” Lovric v. Dunatov, 567 P.2d 678, 682 (Wash. Ct. App.
1977) (internal citations and quotation marks omitted).
Though Hawks Prairie had not developed any of the Lacey Gateway
Property prior to filing for bankruptcy, less than four years had elapsed for its own
construction obligations, and it still had over six years to meet its target. Cabela’s
emphasizes that it had not broken ground on any other development, but it had not
promised to do so. It did not repudiate the 6-, 8-, and 10-year milestones. When
Hawks Prairie filed for Chapter 11 bankruptcy, it did not mention the Cabela’s
contract as an executory contract, presumptively letting it ride through its
bankruptcy. See Smith v. Hill, 317 F.2d 539, 542 n.6 (9th Cir. 1963). This was
not a breach of the contract as a matter of bankruptcy law. Even if the sale to
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HomeStreet could have constituted a repudiation, which is neither clear nor
unequivocal, Cabela’s breached the 12-county restriction six days before the sale to
HomeStreet closed. Because Hawks Prairie did not repudiate, Cabela’s
performance was not excused, cf. Turner v. Gunderson, 807 P.2d 370, 375 (Wash.
Ct. App. 1991), and it breached the contract when the Tulalip Cabela’s opened on
April 19, 2012, before the five-year restriction ended.
4. As a result of Cabela’s breach of the 12-county restriction, Hawks Prairie
was entitled to damages. Paragraph 8 provided Hawks Prairie “the right to
terminate and repossess the real property as set forth above in Paragraph 6” in the
event Cabela’s breached the 12-county restriction. The phrase “terminate and
repossess” by itself, without context, is confusing, since it suggests ending a
leasehold or perhaps foreclosing on a security interest, neither of which Hawks
Prairie had. Paragraph 6, though, provides the context, and paragraph 8 says to
proceed according to paragraph 6. Paragraph 8 is clear and straightforward: if
Cabela’s opens another store in the 12-county region within 5 years, then Hawks
Prairie gets its $5 million back, and at its election, either the value of the land it
conveyed to Cabela’s for $10, or it may buy back the land for the value only of the
improvements.
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5. The refund of Hawks Prairie’s $5 million payment to Cabela’s is enforceable
as liquidated damages. Washington courts regularly enforce such damages
provisions, particularly where they are “fairly and understandingly entered into by
experienced, equal parties with a view to just compensation for the anticipated
loss.” Walter Implement, Inc. v. Focht, 730 P.2d 1340, 1343 (Wash. 1987).
Cabela’s is an “experienced businessman,” see Wallace Real Estate Inv., Inc. v.
Groves, 881 P.2d 1010, 1019 (Wash. 1994), and it explicitly included the $5
million repayment as damages for breach of two obligations in the contract,
including the 12-county restriction. Cf. Watson v. Ingram, 851 P.2d 761, 765
(Wash. Ct. App. 1993) (“[T]he fact that Watson never objected to the terms of the
agreement indicates that he did not find [the liquidated-damages provision] to be
an unreasonable estimate of Ingram’s potential loss if a breach occurred.”).
Moreover, the impact of Cabela’s breach of the 12-county restriction was
inherently hard to ascertain. See Mgmt., Inc. v. Schassberger, 235 P.2d 293, 297
(Wash. 1951) (noting there was “no question” that the harm caused by breaching a
contract not to compete was very difficult to ascertain). Had the market thirsted
for more development, the only Cabela’s in the region would have been a bigger
draw than one of two or more, but the economic value of the draw would be very
difficult to determine.
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AFFIRMED.
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