Financial Assistance, Inc. v. Byron Slack

imuoy 10 ah s:33
IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON
FINANCIAL ASSISTANCE, INC., No. 72361-8-1
a Washington Corporation,
DIVISION ONE
Appellant,
BYRON SLACK, MICHAEL BUCKNER UNPUBLISHED OPINION
and MAUREEN BUCKNER, and the
marital community composed of
MICAHEL BUCKNER and
MAUREEN BUCKNER,
Respondents. FILED: November 10, 2014
Spearman, C.J. — Financial Assistance, a collections agency and
assignee under a commercial lease, filed suit to recover back rent from Byron
Slack. The trial court denied Financial Assistance's claims and granted an award
of attorney fees and costs to Slack. Finding no error, we affirm the judgment.
FACTS
In the spring of 2004, Michael and Maureen Buckner approached the
Hazel Dell Development Company (Hazel Dell) and its principal, Milton Brown,
about leasing a commercial space in Vancouver, Washington. Clerk's Papers
(CP) at 65. The Buckners negotiated the lease with Hazel Dell's property
manager, John Steiger. As a condition to entering the lease, Hazel Dell required
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the Buckners to provide an additional signer as security for payment. The
Buckners approached their associate, Byron Slack, who agreed to co-sign the
lease. The Buckners and Slack signed the lease on April 30, 2004. See, Exhibit
(Ex.)1.
The lease identified the "Lessee" as "Byron C. Slack and Michael and
Maurine Buckner, Husband and wife, all jointly and severally...without regard to
number or gender." Ex. 1 at 1. Paragraph 3 established a finite lease term of "one
(1) year (plus such additional days, if necessary, so that the termination date will
be the last day in the last calendar month of the lease term) which lease term
shall begin on the 5th day of May, 2004." Ex. 1 at 1. Paragraph 5, Minimum
Rental, set forth the amount and terms under which "Lessee" was obligated to pay
rent under the lease. Ex. 1 at 1-2. Paragraph 41, Holding Over, provided in
relevant part: "In the event the Lessee for any reason shall hold over after the
expiration of this Lease, such holding over shall not be deemed to operate as a
renewal or extension of this Lease, but shall only create a tenancy from month-to-
month based upon the same terms and conditions contained in this Lease
Ex. 1 at 12.
During the course of the lease, the Buckners made timely rental payments
and, when the lease expired in May 2005, they were current in their rent
obligation. Upon termination of the lease and, as provided by the holdover
provision, the Buckners retained possession of the property and began a month-
to-month tenancy. It is undisputed that Slack was neither in possession of the
property nor did he pay rent during the holdover tenancy. Neither the Buckners,
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who had lost contact with Slack, nor Hazel Dell informed Slack that the Buckners
had held over. As month-to-month tenants, the Buckners had difficulty paying the
rent and by January 2007 had accumulated $4,893.75 in overdue rent. Hazel
Dell claimed it mailed notices of past due rent to Slack at the contact address
Slack provided in the lease. However, in an unchallenged finding, the trial court
concluded that Slack did not receive any notice of the arrearages and was
unaware of them.
In January 2007, Hazel Dell asked the Buckners to sign a promissory note
for their then-outstanding rent obligation. The promissory note contained a
signature block for Slack. The Buckners never presented the promissory note to
Slack for signature and, instead, forged his signature on the note before
providing it to Hazel Dell. After conveying the promissory note, the Buckners'
inability to make the rent payments continued. In August 2007, they terminated
the tenancy and vacated the property.
Subsequently, Hazel Dell attempted to collect the amounts owed on the
promissory note and the additional rent arrearages from the Buckners, but was
unable to locate them. On July 28, 2009, Hazel Dell assigned its right to the
delinquent rent payments, which totaled $8,709.12, to Financial Assistance for
collection.
In October 2009, Financial Assistance filed suit against Slack and the
Buckners to recover the outstanding obligation under the lease.1 Financial
1Although the Buckners were named in the complaint, they were never served and it
does not appear that Financial Assistance actually sought recovery from them.
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No. 72361-8-1/4
Assistance did not seek recovery under the forged promissory note. On June 24,
2013, a one-day bench trial was held before Clark County Superior Court Judge
David E. Gregerson.
Before the trial began, Judge Gregerson informed the parties that
approximately ten years earlier, before he became a judge, he represented Hazel
Dell's principal, Milton Brown, in an action to enforce a commercial lease. VRP at
4. The judge also told the parties that his involvement in the prior litigation would
not affect his judgment in the present case, stating: "[i]t doesn't make a difference
from my standpoint, but I didn't want the parties to go forward unless they were
made aware of that even though [Brown is] not the actual named party since he
was the assignor." Verbatim Report of Proceeding (VRP) at 4. The judge allowed
the parties time off the record to confer with counsel regarding this disclosure.
Financial Assistance's attorney was permitted a recess of over forty minutes to
contact its client and its witnesses to inquire into any potential conflict of interest
between Judge Gregerson and Financial Assistance or bias arising from the
judge's prior involvement in litigation with Brown. When proceedings reconvened,
neither Financial Assistance nor Slack objected to Judge Gregerson presiding
over the case.
At trial, Slack and Steiger testified about the circumstances surrounding
the lease signing, including the one year term and Hazell Dell's requirement that
the Buckners provide a co-signer. Financial Assistance also submitted a ledger
purporting to track the Buckners' arrearages. See, Ex. 3. The trial court admitted
the document, but did not find it credible because it was missing a page and was
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No. 72361-8-1/5
not corroborated by testimony or evidence regarding the accounting methods or
accuracy of the document.
At the end of the trial, the court concluded that Financial Assistance had
no legal or equitable basis to recover the claimed arrearages from Slack. The
court reasoned:
When the landlord continued to accept rent from only the Buckners,
communicated only with the Buckners, and apparently tried to work
out a concession on arrearages (the promissory note) in an effort to
keep them as tenants, it did so without a written contract securing
the continued security of Mr. Slack's prospective legal liability. ... If
plaintiff's position were taken to its logical conclusion Mr. Slack
would be exposed to infinite perpetual liability with no cutoff.
CP at 53-54. Additionally, citing the infirmities with Financial Assistance's ledger,
the only evidence offered on the issue of damages, the trial court also concluded
that Financial Assistance failed to meet its burden of establishing damages by a
preponderance of the evidence. The trial court entered judgment in favor of Slack
and awarded him attorney fees and costs pursuant to a prevailing party attorney
fee provision in the lease. Financial Assistance appeals.
DISCUSSION
Slack's Liability on the Month to Month Tenancy
This case involves a dispute over the legal effect of a holdover provision in
a commercial lease agreement. Financial Assistance contends that, pursuant to
the holdover provision, Slack is jointly and severally liable with the Buckners for
arrearages in the rent accrued during the month-to-month tenancy from June
2005 to August 2007. Slack argues that, notwithstanding the holdover provision,
he was liable only during the one-year term provided for in the lease. He
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No. 72361-8-1/6
contends that when the lease expired, his obligations thereunder were
discharged. We agree with Slack.
The interpretation of an unambiguous lease is a question of law reviewed
de novo. Duvall Highlands, LLC v. Elwell. 104 Wn. App. 763, 771 n.18, 19 P.3d
1051 (2001) (citing Carlstrom v. Hanline. 98 Wn. App. 780, 785, 990 P.2d 986(2000).
It is well established in Washington that a fixed term tenancy expires
automatically at the end of the term upon which the parties agree. Our legislature
has codified this rule at RCW 59.04.030, which provides: "In all cases where
premises are rented for a specified time, by express or implied contract, the
tenancy shall be deemed terminated at the end of such specified time."
If a tenant holds over after the expiration of a fixed term lease and pays
rent that is accepted by the landlord, a periodic tenancy results based on the
frequency of rental payments. Worthington v. Moreland Motor Truck Co., 140
Wash. 528, 532, 250 P. 30, (1926). This periodic tenancy is regarded as a new
tenancy, separate from the preceding fixed-term tenancy. Lowman v. Russell,
133 Wash. 10, 11-12, 233 P.9 (1925). However, some of the provisions of the
lease may carry over to the periodic tenancy ifthe parties manifest an intent that
they do so. See e.g., Whitney v. Hahn, 18 Wn.2d 198, 200-05, 138 P.2d 669(1943); Marsh-Mclennan Bldq.. Inc. v. Clapp, 96 Wn. App. 636, 644, 980 P.2d
311 (1999).
Our Supreme Court applied these rules in Lowman. In that case, an
unlawful detainer action, the appellant tenant had occupied the leased premises
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No. 72361-8-1/7
under a five year written lease, with rent payable monthly, jd. at 11. Upon
expiration of the five year lease term, the tenant remained in possession of the
property for five months and continued paying rent monthly, as before, which the
landlord accepted. Id. In the sixth month, the landlord provided notice to the
tenant to vacate the premises or face liability for unlawful detainer. Id. The tenant
argued that the landlord's action constituted unlawful eviction because, in his
view, his continuance in possession and payment of rent, which the landlord had
accepted, created a new five year tenancy governed by the original lease
agreement. Id. The Court disagreed, explaining:
At... the end of the five-year term ... not only the term ended but
the tenancy itself, that is, the relation of landlord and tenant
between the parties, ceased. Thereafter the relation between the
parties with reference to the occupancy of the premises was fixed
by their conduct as it occurred from month to month. The fact that
appellant continued in possession and paid a monthly rental on
demand in the same amount as the monthly rental theretofore paid
during the five years did not create a new term for five years....
Id. at 11-12. The Court held that the only remaining relationship between the
parties was a month to month tenancy, governed by their conduct, i.e., the
monthly tender and acceptance of the agreed rent. jd.
We reached a similar conclusion in Carlstrom, 98 Wn. App. at 786-87, in
which a tenant alleged violation of a just cause eviction ordinance, retaliatory
eviction and constructive wrongful eviction. Jd. As in Lowman, the tenant argued
that he was entitled, pursuant to a written, fixed term lease, to continued
possession of the leased premises at the time of his eviction. Id. We disagreed,
noting that the written lease agreement expressly provided for a six month lease
No. 72361-8-1/8
term, and explaining that the tenancy had terminated automatically at the end of
that period. Id. at 787. The landlord was within his rights to evict the tenant after
expiration of the six month period. Id.
The parties to the periodic tenancy are defined by possession of the
premises and the tender and acceptance of rent, not a prior written agreement.
Worthington is instructive on this point. In that case, the defendant, who was not
initially party to the lease agreement, took possession of a property when the
rightful lessees vacated prior to the expiration of their written lease term. 140
Wash, at 531-32. After the lease term expired, the defendant held over and
continued to pay rent, which the landlord accepted. Id. at 532. In consideration of
these acts of possession, payment, and acceptance of rent, the Court concluded
that the relation between the landlord and defendant after the formal lease
expired was a month to month tenancy. Id.
In this case, the written lease agreement expressly defined a term from
May 5, 2004 to May 31, 2005. It also provided that holding over "shall not be
deemed to operate as a renewal or extension ofthis Lease,..." Ex. 1 at 12. This
language created a fixed-term lease, which terminated automatically on the
expiration ofthe term. The parties' obligations under the lease, including Slack's
joint and several liability with the Buckners, were discharged on May 31, 2005.
It is undisputed that the Buckners commenced a month to month tenancy
when the fixed term tenancy expired. They maintained possession of the
property and paid rent, which was accepted by Hazel Dell. This tenancy lasted
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No. 72361-8-1/9
from June of 2005 to August of 2007. It is undisputed that Slack was neither in
possession during this time, nor paying rent.
Financial Assistance contends that, under the holdover provision of the
lease, Slack's joint and several liability with the Buckners continued in perpetuity
for as long as any of the three co-lessees possessed the premises. However, this
interpretation of the contract language plainly conflicts with Washington law. As
previously discussed, the parties' liability under the initial lease agreement
terminated when the lease term ended-May 31, 2005. The holdover provision
expressly disclaimed that holding over constituted a renewal or extension of this
obligation. Nor did it create the month-to-month tenancy or define the parties
thereto. The holdover provision merely manifested an intent to define the terms
and conditions if a holdover occurred. But the terms and conditions are only
binding on a party who undertakes to establish a month-to-month tenancy by
maintaining possession and by paying or accepting rent.
Here, there is no question but that the only parties to engage in the
conduct necessary to create a month to month tenancy are the Buckners and
Hazell Dell. There is no evidence that Slack undertook any act that would bind
him as a lessee under the month to month tenancy. He never possessed the
premises, paid rent, or otherwise availed himself ofthe premises during the
Buckners' month to month tenancy. He had no involvement or communication
with the Buckners, his purported co-lessees, for the duration of the month to
month tenancy. Nor did he have any contact with Hazel Dell, his purported
No. 72361-8-1/10
landlord, who accepted rent payments exclusively from the Buckners and worked
only with the Buckners to cure rent arrearages.
We conclude that Slack was not party to the Buckners' month to month
tenancy and, therefore, had no contractual obligation to pay rent during this
tenancy.2
Judicial Bias
Financial Assistance also argues that the trial court's dismissal of
its claims was motivated by bias on the part of the trial judge, which arose
from the judge's allegedly contentious attorney-client relationship with
Milton Brown, the principal of Hazel Dell, Financial Assistance's assignor.
We conclude that Financial Assistance has waived this argument.
A litigant who proceeds to trial without objection knowing of a
reason for potential disqualification of the judge waives the objection and
cannot challenge the court's qualifications on appeal. State v. Perala, 132
Wn. App. 98, 113, 130 P.3d 852; see also Williams & Mauseth Ins.
Brokers. Inc. v. Chappie, 11 Wn. App. 623, 626, 524 P.2d 431 (1974) (a
litigant "may not, after learning of grounds for disqualification, proceed with
the trial until the court rules adversely to him and then claim the judge is
2The trial court dismissed Financial Assistance's claims on the grounds that: (1) even if
Slack was contractually liable as a co-lessee for the rent arrearages that arose during this period,
under the circumstances of this case, equity demanded relief from this obligation; and (2)
Financial Assistance failed to establish its claimed damages by preponderance of the evidence.
Because we find Slack had no liability in this case, we need not consider whether he was entitled
to equitable relief. Ourdecision also renders moot any claimed error relating to Financial
Assistance's proof of damages. See, Kimball v. Otis Elevator Co., 89 Wn. App. 169, 175, 947
P.2d 1275 (1997) (where defendant is found not liable error relating to damages will be
harmless).
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No. 72361-8-1/11
disqualified") (citing State ex rel LeFebvre v. Clifford. 65 Wash. 313, 118
P. 40(1911)).
In this case, the trial judge disclosed his relationship to Financial
Assistance's assignor before trial and gave the parties and their attorneys
nearly an hour to consider any potential conflicts of interest or bias arising
from this relationship. At the close of the recess, Financial Assistance
offered no objection to the judge's continuing to preside over the trial. On
appeal, Financial Assistance contends that the judge's disclosure was
incomplete because he "neglected to disclose the details of the
relationship and more specifically, the negative aspects of it." Brief of
Appellant at 11. But other than the judge's disclosure, which is
memorialized in the verbatim report of proceedings, the record is entirely
devoid of any evidence bearing on the nature and quality of the
relationship between the trial judge and Financial Assistance's principal.
Thus, we decline to consider this characterization of the relationship. We
conclude that Financial Assistance waived any challenge to the trial
court's alleged bias when it proceeded to trial without objection after the
trial judge's disclosure.
Attorney Fees
Slack requests an award of reasonable attorney fees and costs on
appeal pursuant to RAP 18.1 and paragraph 47, Attorney's Fees, of the
lease, which provides in relevant part: "[i]f either party commences action
... in connection with this lease, the prevailing party shall be entitled to
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No. 72361-8-1/12
have and recover from the losing party reasonable attorney's fees ...
including cost of appeal." Ex. 1 at 12. Because Slack is the prevailing
party on appeal, we grant his request for an award of attorney fees,
subject to compliance with the requirements of RAP 18.1(d).
Affirmed.
)jfW£Yw^ AVI
WE CONCUR:
Mfe*f, y .
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