Fedway Marketplace West Llc, V State Of Wa

COURT OF APPEALS II
DIVISION
20 i tt SEP 30 AM 9: 06
IN THE COURT OF APPEALS OF THE STATE. Q (
, S GTON
W.
DIVISION II 1,3Y
ti 1- '
FEDWAY MARKETPLACE WEST, LLC, a No. 44509 -3 - II
limited liability company,
Washington and
GARLAND & MARKET INVESTORS, LLC,
a Washington limitedliability company, on
behalf of themselves and all others similarly
situated,
Appellant,
v.
STATE OF WASHINGTON, PUBLISHED OPINION
Respondent.
HUNT, J. — Fedway Marketplace West, LLC, and Garland & Market Investors, LLC,
landlords of former state liquor store locations ( Landlords), appeal the superior court' s entry of a
CR 12( c) judgment on the pleadings and dismissal of Landlords' complaints against the State of
Washington for terminating its leases of Landlords' properties the State had used for selling liquor.
After Initiative 1183 ( I -1183) privatized the sale of liquor in Washington, the State' s Liquor
Control Board terminated its leases with the landlords of state -owned liquor store locations and
auctioned the right to sell liquor at these locations to private retailers. Landlords argue that ( 1) the
State deliberately misinterpreted I -1183, wrongfully terminated their leases, and illegally gave
auction buyers the right to sell liquor mile radius of
within a one - the Landlords' locations; ( 2) the
superior court erred in striking Landlords' extrinsic evidence that the State acted in bad faith in
deliberately misinterpreting I -1183 and terminating their leases; ( 3) the State breached the duty of
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good faith and fair dealing in terminating their leases; and (4) the State' s termination of their leases
violated the contract clauses' and takings clauses2 of the federal and state constitutions.
The State responds that ( 1) its decision to permit auction buyers to sell liquor within a one -
mile radius was irrelevant to the lease terminations, which I -1183 required; ( 2) Landlords failed to
state a claim for a breach of the duty of good faith and fair dealing; ( 3) Landlords' extrinsic
evidence was not admissible to interpret an unambiguous contract; and ( 4) the superior court
properly dismissed Landlords' constitutional claims because, once the leases terminated, there
could be no contract and no taking.. We hold that, because I -1183 triggered the termination
provision in the State' s leases with Landlords, Landlords cannot state a claim against the State
under their former leases. We affirm the superior court' s dismissal of Landlords' complaints.
FACTS
I. LEASES
Fedway Marketplace West, LLC and Garland & Market Investors, LLC are former lessors
of State liquor store locations. In 2007, Garland leased its Spokane premises to the State; in 2010,
Fedway leased its Federal Way premises to the State. Each lease was for a 10 -year term. Both
leases included a termination clause ( " Paragraph 3 "), which provided that if a newly enacted law
prevented either party from complying with the lease,3 then the lease would terminate and both
I WASH. CONST. art. I, § 23; and U. S. CONST. art I, § 10.
2
WASH. CONST. art. I, § 16; and U.S. CONST. amend. V.
3
Both leases included a " use" The premises shall be occupied by the
provision that stated: "
Washington State Liquor Control Board and used solely for the purposes of selling alcoholic
beverages and lottery products. The Board shall and may peaceably and quietly have, hold and
enjoy the premises for these purposes." CP at 21 -22, 32 ( emphasis added).
2
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parties would be released from all liability. As the leases required, Landlords made improvements
according to the Liquor Control Board' s specifications, and the State paid Landlords rent for using
the premises to sell liquor.
On November 8, 2011, Washington voters approved Initiative 1183, which privatized the
State -
controlled system of liquor distribution and sale, effective December 8, 2011. I -1183, now
codified as RCW 66. 24. 6204, also directed the Liquor Control Board to cease all liquor sales no
later than June 1, 2012, and to auction " the right at each state -owned store location of a spirits[ 5]
retail licensee to operate a liquor store upon the premises." RCW 66. 24. 620( 4)( c).
To implement I -1183, the State auctioned the rights to sell liquor at its 167 state -run liquor
store locations. Each of the 128 successful bidders received the exclusive right to apply for a
license to sell liquor at the store on which the bid had been placed. The State advised each bid
winner ( 1) to secure a lease with the store' s landlord; and ( 2) if unable to secure such a lease, to
consider ( a) re- selling the right to sell liquor at that location or ( b) requesting " an alternative
location within a one -mile radius of the existing location." Clerk' s Papers ( CP) at 8. Before
terminating its leases, the State sent its liquor store lessors, including Landlords, letters notifying
them of the upcoming lease terminations. The State terminated its Fedway lease effective May
4
LAws of 2012, ch. 2, § 102.
5 "`
Spirits' means any beverage which contains alcohol obtained by distillation, except flavored
malt beverages, but including wines exceeding twenty -four percent of alcohol by volume." RCW
66. 04. 010( 41).
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31, 2012, and its Garland lease effective July 31, 2012.6
II. PROCEDURE
Landlords brought a class action against the State, alleging that it had ( 1) anticipatorily
repudiated and breached their liquor store lease contracts; ( 2) violated an implied covenant of good
faith and fair dealing; ( 3) violated the state and federal contract clauses' by engaging in legislative
action that impaired the State' s contractual obligations; and ( 4) violated the state and federal
takings
clauses8
by taking private property for public use without just compensation. The State
moved for judgment on the pleadings under CR 12( c).
Landlords opposed the State' s motion with extensive exhibits purporting to show that ( 1)
the State knew its decision —to permit bid winners to sell liquor in alternative locations within a
one -mile radius of the existing location —could violate I -1183 and would significantly erode
Landlords' leverage in renegotiating lease agreements with bid winners; ( 2) the State did not
require bid winners to accept assignment of the State' s existing leases; ( 3) in February 2012, the
State made a commitment to pay for unamortized improvements that Landlords had made to meet
the Liquor Control Board' s specifications; and ( 4) the State Department of Revenue failed to
perform its duty under RCW 66. 24. 620 to develop rules and procedures "` to address claims that
6 After the State terminated its lease, Fedway entered into a 12 -month lease with the bid winner
for its Federal Way location at a rent that was $ 3, 832 less per month than the State had been paying.
Two monthslater, Fedway' s new tenant defaulted and ceased operating. The bid winner for
Garland' s Spokane store location did not enter into a lease with Garland; Garland found no tenant
to lease its store space and received no rental income.
WASH. CONST. art. I, § 23, and U. S. CONST. art I, § 10, respectively.
8
WASH. CONST. art. I, § 16, and U.S. CONST. amend. V, respectively.
4
No. 44509 -3 -II
I -1183] unconstitutionally impairs any contract. "' CP at 116 ( citation omitted). The superior
court granted the State' s motion to strike Landlords' exhibits, reasoning that it could not consider
such extrinsic evidence to " interpret" unambiguous contract terms. Verbatim Report of
Proceedings ( VRP) at 32.
The superior court also ( 1) ruled that because I -1183 had forced the State to terminate its
liquor store leases, the State did not improperly terminate its leases or breach a duty of good faith
and fair dealing; ( 2) granted the State' s motion for judgment on the pleadings; and ( 3) dismissed
Landlords' complaint with prejudice. Landlords appeal.
ANALYSIS
I. ANTICIPATORY REPUDIATION AND BREACH OF CONTRACT
Landlords appeal the superior court' s dismissal of their complaint when it granted the
State' s CR 12( c) motion for judgment on the pleadings. They argue that the hypothetical facts in
their complaint and the additional evidence they submitted stated a justiciable claim that the State
deliberately misinterpreted I -1183 and that the State breached its lease obligations and
anticipatorily repudiated its leases. The State responds that it fully complied with the leases and
that lease provision Paragraph 3 gave the State the right to terminate the leases when the voters'
initiative took away the State' s previously exclusive right to sell liquor, thus preventing the State
from carrying out the lease terms. We agree with the State.
A. Standard of Review
We review de novo CR 12( c) dismissal rulings. P.E. Sys., LLC v. CPI Corp., 176 Wn.2d
198, 203, 289 P. 3d 638 ( 2012). We examine the pleadings " to determine whether the claimant can
prove any set of facts, consistent with the complaint, that would entitle the claimant to relief."
5
No. 44509 -3 - II
Parrilla v. King County, 138 Wn. App. 427, 431, 157 P. 3d 879 ( 2007). On a CR 12( c) motion,
the court presumes that the allegations asserted in the complaint are true. Tenore v. AT & Wireless
T
Servs., 136 Wn.2d 322, 330, 962 P. 2d 104 ( 1998).
B. Unambiguous Lease Termination Provision
Here, both leases included identical termination provisions, which provided, in part:
I] n the event that the enactment of any law or the decision of any court of
competent jurisdiction shall prevent either party hereto from complying with or
carrying out the terms of this Lease ... then this Lease shall terminate and the
parties hereto shall be released from any and all liability for any damage or loss
which may result from such inability to comply therewith.
CP at 22, 33 ( emphasis added).
Codifying I- 1183, RCW 66. 24. 620 expressly provided, in. part: "[ The Liquor Control
Board] must effect orderly closure of all state liquor stores no later than June 1, 2012, and must
thereafter refrain from purchase, sale, or distribution of liquor." RCW 66. 24. 620( 2). This new
law plainly prohibited the State from selling alcohol and, thus, prevented the State from
9 10
complying with or carrying out " the " use " provision of its leases with Landlords. Regardless
of whether the State permitted bid winners to choose alternate liquor store locations, or instead
required bid winners to use the Landlords' original store locations bid upon, 11 the State could not
9CPat22, 33.
I° CP at 21 -22, 32.
11 See Landlords' argument that the State understood that I -1183 did not expressly permit the
Liquor Control Board to expand potential liquor sale locations to within a one -mile radius of the
former state liquor stores and, thus, deliberately misinterpreted the initiative in implementing a
Relocation Policy" that conflicted with the law. Br. of Appellant at 24.
6
No. 44509 - - II
3
continue leasing Landlords' properties for the leases' contractual purpose of providing locations
for the State to sell liquor. 12
We hold that ( 1) I -1183 and its RCW 66. 24. 620 codification triggered the lease termination
provisions; ( 2) under the leases' plain language, enactment of this new law made it impossible for
the State to continue selling liquor at Landlords' premises; and ( 3) therefore, the State did not
anticipatorily repudiate or breach its leases with Landlords.
C. Striking Landlords' Extrinsic Evidence
Landlords also argue that in striking their extrinsic evidence —offered to show that the
State had deliberately misinterpreted I- 1183 — the superior court erred because such evidence is
admissible even when the court believes that contract terms are unambiguous. The State responds
that none of Landlords' extrinsic evidence was relevant to prove the meaning of any specific term
in the leases. We agree with the State and hold that the superior court properly excluded the
evidence.
12 Landlords argue that the State could have assigned its rights to sell liquor under the leases
because neither I -1183 nor the leases precluded the State' s assigning its lease obligations to the
bid winners, thereby avoiding lease terminations. This argument fails: Although the leases refer
to Landlords " and assigns," there is no corresponding lease provision granting the State assignment
rights. CP at 21, 31. Moreover, at the time the parties entered into these leases, the law gave the
State the exclusive right to import and to sell liquor and, thus, there was no possibility that the
State could assign this exclusive right to another. Former WAC 314 -36 -020 ( 2011); former RCW
66. 16. 010, . 040 ( 2011). See Colorado Structures, Inc. v. Ins. Co. of the West, 161 Wn.2d 577,
588, 167 P. 3d 1125 ( 2007) ( courts construe contracts as a whole to effectuate all of the contract' s
provisions, so as not to render words superfluous); see also Dep' t ofEcology v. Tiger Oil Corp.,
166 Wn. App. 720, 762, 271 P. 3d 331 ( 2012) ( We " avoid ` a strained or forced construction ' of
contract provisions " and avoid interpretations ` leading to absurd results. ") ( quoting Eurick v.
Pemco Ins. Co., 108 Wn.2d 338, 341, 738 P. 2d 251 ( 1987)).
7
No. 44509 -341
1. Standard of review
We review de novo all trial court rulings, including evidentiary rulings, made in
conjunction with a summary judgment dismissal order. See Cornish Coll. of the Arts v. 1000
Virginia Ltd. P' ship, 158 Wn. App. 203, 215, 242 P. 3d 1 ( 2010) ( citing Folsom v. Burger King,.
135 Wn.2d 658, 663, 958 P. 2d 301 ( 1998)), review denied, 171 Wn.2d 1014 ( 2011). On a CR
12( c) motion, the court " may consider hypothetical facts not included in the record." Tenore, 136
Wn.2d at 330. When reviewing judgments on the pleadings under CR 12( c),
Washington follows the objective manifestation test for contracts." ... Mutual
assent to definite terms is normally a question of fact for the fact finder. ... But a
question of fact may be determined as a matter of law if reasonable minds could
not differ.
P.E. Sys., 176 Wn.2d at 207 ( internal citations omitted) ( quoting Keystone Land & Dev. Co. v.
13
Xerox Corp., 152 Wn.2d 171, 177, 94 P. 3d 945 ( 2004)).
To interpret a contract, we must determine the parties' intent, for which we apply the
context rule. "' Roats v. Blakely Island Maint. Comm' n, Inc., 169 Wn. App. 263, 274, 279 P. 3d
943 ( 2012) ( quoting Shafer v. Bd. of Trs. of Sandy Hook Yacht Club Estates, 76 Wn. App. 267,
275, 883 P. 2d 1387 ( 1994)). This context rule allows a court, when "` viewing the contract as a
whole, to consider extrinsic evidence, such as the circumstances leading to the execution of the
contract, the subsequent conduct of the parties and the reasonableness of the parties' respective
13 See also Spradlin Rock Prods., Inc. v. Pub. Util. Dist. No. 1 ofGrays Harbor County., 164 Wn.
App. 641, 654 -55, 266 P. 3d 229 ( 2011) ( "[ S] ummary judgment on an issue of contract
interpretation is proper where ` the parties' written contract, viewed in light of the parties' other
objective manifestations, has only one reasonable meaning.") ( quoting Hall v. Custom Craft
Fixtures, Inc., 87 Wn. App. 1, 9, 937 P. 2d 1143 ( 1997)).
8
No. 44509 -3 -II
interpretations. "' Roats, 169 Wn. App. at 274 ( quoting Shafer, 76 Wn. App. at 275). This rule
applies " even when the disputed provision is unambiguous." Id.14
But our consideration of " surrounding circumstances and other extrinsic evidence" is
limited "` to determin[ ing] the meaning of specific words and terms used' and not to ` show an
intention independent of the instrument' or to ` vary, contradict or modify the written word.'"
Hearst Commc' ns, Inc. v. Seattle Times Co., 154 Wn.2d 493, 503, 115 P. 3d 262 ( 2005) ( quoting
Hollis v. Garwall, Inc., 137 Wn.2d 683, 695, 974 P. 2d 836 ( 1999)). See also ER 402 ( "Evidence
which is not relevant is not admissible. ").
2. Extrinsic evidence irrelevant
Here, the superior court could admit Landlords' extrinsic evidence only if it would help
the court "` to determine the meaning of specific words and terms used ' in the leases. Hearst, 154
Wn.2d at 503 ( quoting Hollis, 137 Wn.2d at 696). Landlords argue that, in addition to the context
for the parties' understanding of I- 1183' s requirements, the evidence showed ( 1) the State " had
been discussing and making contingency plans for privatization for five years before I -1183 was
14
The Washington Supreme Court first adopted the "` context rule ' in Berg v. Hudesman:
The Berg Court] recognized that intent of the contracting parties cannot be
interpreted without examining the context surrounding an instrument' s execution.
If relevant for determining mutual intent, extrinsic evidence may include ( 1) the
subject matter and objective of the contract, ( 2) all the circumstances surrounding
the making of the contract, ( 3) the subsequent acts and conduct of the parties, and
4) the reasonableness of respective interpretations urged by the parties.
Hearst Commc' ns,Seattle Times Co., 154 Wn. 2d 493, 502, 115 P. 3d 262 ( 2005) ( citing
Inc. v.
Berg v. Hudesman, 115 Wn.2d 657, 667, 801 P. 2d 222 ( 1990)). But later, in Hearst, the Supreme
Court ( 1) cautioned that its Berg holding may have been " misunderstood as it implicates the
admission of parol and extrinsic evidence "; and ( 2) expressly " acknowledge[ d] that Washington
continues to follow the objective manifestation theory of contracts." Hearst, 154 Wn.2d at 503.
9
No. 44509 -3 - II
15; (
adopted," yet the State had " made no provision for privatization in the leases" 2) after I -1183
was adopted, the State acknowledged in internal agency documents that introducing a Relocation
Policy "' could be interpreted as violating the intent of I- 1183' 16; and ( 3) the State considered but
rejected the idea of assigning leases to bid winners, which Landlords contend would not have
prevent[ ed] "' the State from "' complying with or carrying out "' the lease terms. Br. of Appellant
at 44 ( quoting CP at 22, 33). Landlords' reasoning fails.
Neither the State' s potential privatization contingency plan nor its intent in implementing
a Relocation Policy is relevant to the meaning of any lease terms; nor are the State' s interpretations
of I -1183 or its alleged assignment rights under the leases relevant to understanding any lease
terms. Because the extrinsic evidence at issue did not "` determine the meaning of specific words
and terms used ' in the leases, it was not relevant for the superior court' s consideration. Hearst,
154 Wn.2d at 503 ( quoting Hollis, 137 Wn.2d at 696). We hold, therefore, that the superior court
properly granted the State' s motion to strike this extrinsic evidence.
II. DUTY OF GOOD FAITH AND FAIR DEALING
Landlords further argue that, even if the State could terminate their leases based on I- 1183' s
asset disposal requirements, the manner in which the State accomplished these lease terminations
breached its duty of good faith and fair dealing. The State responds that a party breaches the duty
of good faith and fair dealing only when performing a specific contract term; thus, the State did
not breach such duty when it had fully performed under the leases until the point that the new law
triggered the leases' termination provision. We agree with the State.
is Br. of Appellant at 40.
16 Br. of Appellant at 41 ( quoting CP at 361).
10
No. 44509 -3 -II
The duty of good faith and fair dealing " does not inject substantive terms into the contract;
rather, ` it requires only that the parties perform in good faith the obligations imposed by their
agreement ' and "' arises only in connection with the ... underlying ' contract. GMAC v. Everett
Chevrolet, Inc., 179 Wn. App. 126, 149 -50, 317 P. 3d 1074 ( 2014) ( emphasis added) ( quoting
Badgett v. Sec. State Bank, 116 Wn.2d 563, 569, 807 P. 2d 356 ( 1991)), petition for review filed,
No. 90366 - ( Wash. June 12, 2014).
2 Having already held that the State did not breach its leases,
we further hold that it did not breach its duty of good faith and fair dealing when I -1183 provided
the State with no alternative but to cease liquor sales, to terminate its leases with Landlords, and
17
to auction to private parties the right to sell liquor at the Landlords' locations. See RCW
66. 24. 620( 2).
III. CONSTITUTIONAL CLAIMS
Last, Landlords argue that the superior court committed legal error in dismissing their
contracts clause and takings clause claims. They contend that ( 1) I -1183 did not require the State
to terminate its leases; and ( 2) thus, the State' s lease terminations " impaired" its contracts with.
Landlords, which constituted an unconstitutional taking of private property without just
compensation. Br. of Appellant at 8. The State responds that it neither impaired a contract nor
took private property without just compensation because the leases terminated by their own terms
when enactment of the new law rendered the State unable to perform: By operation of law the
State could no longer sell liquor on the Landlords' properties, or anywhere else; and, consequently,
17 Again, as we have already remarked, termination of the leases was the State' s only option
because the lease terms ( 1) expressly provided that the Landlords' properties could be used only
to sell alcoholic beverages and lottery products, and ( 2) did not provide for the Liquor Control
Board to assign the leases.
11
No. 44509 -3 -II
there was no longer a contract to impair. Again, we agree with the State and we affirm the superior
court' s dismissal of Landlords' constitutional claims.
A. Contracts Clause Claims
Both state and federal constitutions prohibit legislatures from enacting laws that impair
existing contractual obligations. WASH. CONST. art. I, § 23; U.S. CONST. art I, § 10. " It is
fundamental' that this prohibition against impairing contracts reaches any form of legislative
action, including direct action by the people through the initiative process." Pierce County v. State,
159 Wn.2d 16, 27 -28, 148 P. 3d 1002 ( 2006) ( quoting Ruano v. Spellman, 81 Wn.2d 820, 825, 505
P. 2d 447 ( 1973)). In determining whether legislation unconstitutionally impairs an existing
contractual obligation, our threshold inquiry is "` whether the state law has, in fact, operated as a
substantial impairment of a contractual relationship. ' Optimer Int' l., Inc. v. RP Bellevue, LLC,
151 Wn. App. 954, 965, 214 P. 3d 954 ( 2009) ( quoting Margola Assocs. v. City of Seattle, 121
Wn.2d 625, 653, 854 P. 2d 23 ( 1993)), aff'd, 170 Wn.2d 768, 246 P. 3d 785 ( 2011).
An `impairment is substantial if the complaining party relied on the supplanted part of the
contract, and contracting parties are generally deemed to have relied on existing state law
pertaining to interpretation and enforcement. ' Optimer, 151 Wn. App. at 965 -66 ( quoting
Margola, 121 Wn.2d at 653). A "`contract is impaired by a statute which alters its terms, imposes
new conditions or lessens its value. ' Optimer, 151 Wn. App. at 966 ( quoting Caritas Servs., Inc.
v. Dep' t of Soc. & Health Servs., 123 Wn.2d 391, 404, 869 P. 2d 28 ( 1994)). But this prohibition
against contract impairment "` is not an absolute one, ' and we do not read it "' with literal
exactness. ' Optimer, 151 Wn. App. at 965 ( quoting Tyrpak v. Daniels, 124 Wn.2d 146, 151, 874
P. 2d 1374 ( 1994)). Moreover, " legislation does not unconstitutionally impair contractual
12
No. 44509 -3 -II
obligations where the legislation constitutes an exercise of the police power in advancing a
legitimate public purpose." Optimer, 151 Wn. App. at 966 ( citing Birkenwald Distrib. Co. v.
Heublein, Inc., 55 Wn. App. 1, 9, 776 P. 2d 721 ( 1989)).
Here, both parties were sophisticated, understood the lease terms, and acknowledged by
the leases' express termination provision that a change in the law might prevent compliance with
18
the contracts or terminate the leases. By including Paragraph 3 as their remedy for lease
termination, the parties anticipated that a change in the law could prevent either party from
complying with or carrying out "19 the lease terms, and they " intended the prescribed remedy as
the sole remedy for the condition." United Glass Workers ' Local No. 188 v. Seitz, 65 Wn.2d 640,
642, 399 P. 2d 74 ( 1965); Rainier Nat' l Bank v. Wells, 65 Wn. App. 893, 899, 829 P. 2d 11681992). Thus, in exercising this lease termination provision ( after the law was passed prohibiting
the State from continuing to sell liquor), the State did not impair the contracts because the parties'
rights and expectations remained the same as before the new law was passed.
The superior court correctly ruled that the " leases ceased to exist once [ the] termination
18 Neither party disputes the validity of Paragraph 3' s lease termination provision.
19CPat22, 33.
13
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provision was triggered." VRP at 44. We hold that the superior court properly dismissed
Landlords' contracts clause claims.
B. Takings Clause Claims
The takings clause of the Fifth Amendment to the United States Constitution protects
individuals against uncompensated takings of private property by both the federal and state
governments. U. S. CONST. amend. V. Article I, section 16 of the Washington Constitution
similarly provides, " No private property shall be taken or damaged for public or private use without
just compensation having been first made."
In addressing Landlords' takings challenges to the State' s implementation of I -1183, we
begin with two threshold questions:
First, whether the regulation destroys or derogates any fundamental attribute of
property ownership, including the right to possess, to exclude others, to dispose of
property, or to make some economically viable use of the property. If the
landowner claims less than a " physical invasion" or a " total taking" and if a
fundamental attribute of ownership is not otherwise implicated, we proceed to the
second question. That question is whether the challenged regulation safeguards the
public interest in health, safety, the environment, or the fiscal integrity of an area
or whether the regulation " seeks less to prevent a harm than to impose on those
regulated the requirement of providing an affirmative public benefit."
Edmonds Shopping Ctr. Assocs. v. City ofEdmonds, 117 Wn. App. 344, 362, 71 P. 3d 233 ( 2003)
footnotes and citations omitted) ( quoting Guimont v. Clarke, 121 Wn.2d 586, 603, 854 P.2d 114
No. 44509 -3 -II
20
1993)).
Landlords argue that an agency regulation, such as the Liquor Control Board' s adopting
the Relocation Policy, " may constitute a taking ` if it goes beyond preventing a public harm [ to]
actually enhance ... a publicly owned right in property.'" Br. of Appellant at 48 ( some alterations
in original) ( internal quotation marks omitted) ( quoting Sintra, Inc., v. City ofSeattle, 119 Wn.2d
1, 14, 829 P. 2d 765 ( 1992)). Landlords further argue that, by implementing the Relocation Policy,
the [ Liquor Control Board] enhanced public ownership of the liquor rights the [ Board] was selling
by public auction by diminishing the property rights of state store landlords. [ Landlords] should
have been permitted to pursue their proper remedies: either invalidation of I -1183 or just
compensation." Bt. of Appellant at 48. These arguments fail.
Returning to the two threshold questions set out in Edmonds Shopping Ctr., 117 Wn. App.
at 362, we first note that Landlords do not allege any State action that destroyed or diminished any
fundamental attribute of property ownership. On the contrary, the record shows that Landlords
retained these fundamental property rights attributes: the rights to possess and to dispose of their
properties, to exclude others, and to make some economically viable use of their properties.
Guimont, 121 Wn.2d at 595. We next address the second threshold question— whether the
20 We engage in additional analysis only if, in answering these two threshold questions, we
determine either that the regulation ( 1) infringes on a fundamental attribute of ownership; or ( 2)
goes beyond safeguarding the public interest in health, safety, the environment or the fiscal
integrity of an area and instead imposes on those being regulated the requirement of providing an
affirmative public benefit. Guimont, 121 Wn.2d at 603; Edmonds Shopping Ctr. Assocs., 117 Wn.
App. at 362. Such additional analysis would require us to answer two more questions: " First,
whether the regulation advances a legitimate state interest ";
and second, using a balancing test,
whether " the state interest in the regulation is outweighed by its adverse economic impact to the
landowner ... , the extent the regulation interferes with investment -
backed expectations, and the
character of the government action." Edmonds Shopping Ctr., 117 Wn. App. at 362 -63 ( citing
Guimont, 121 Wn.2d at 604).
15
No. 44509 -3 - II
challenged action seeks less to prevent a public harm than to provide an affirmative benefit to the
public agency. Edmonds Shopping Ctr., 117 Wn. App. at 362. Although the exclusivity of the
right to sell liquor, which the State auctioned to private bidders, may increase the value of this
right, the legislature' s purpose for such exclusivity is to prevent proliferation of private liquor
stores. This purpose lies at the heart of the State' s police power and is directed at preventing a
public harm. See Edmonds Shopping Ctr., 117 Wn. App. at 362; State v. Audley, 77 Wn. App.
897, 901, 894 P. 2d 1359 ( 1995). Answering these Edmonds Shopping Ctr threshold inquiries in
the affirmative, we hold that the State' s actions did not constitute a taking; thus, further analysis
is not required.
We hold that the State did not commit an unconstitutional taking by exercising the lease
termination provision when enactment of the new law prohibiting the State from selling liquor
rendered it unable to perform under the leases.
We affirm.
Hunt, J.
16