Fairhaven Land & Livestock Co., LLC v. Chuckanut Trails Water Association

FAIRHAVEN LAND & LIVESTOCK CO., LLC, STEPHEN BRISBANE and LAURA BRISBANE, husband and wife and the marital community thereof, Appellants, v. CHUCKANUT TRAILS WATER ASSOCIATION, a Washington nonprofit association, Respondent.

No. 60909-2-I

Court of Appeals of Washington, Division 1

February 23, 2009

UNPUBLISHED OPINION

Appelwick, J.

This is an appeal from a declaratory judgment. The trial court determined that a water association and a developer contracted for the assignment of a portion of a water permit that the water assigned was senior to the water retained under the permit, and that the developer's failure to file the assignment indicating this priority was a breach of contract. The trial court further determined that the water association had a right to establish its service area and properly denied the developer's request for service outside its service area. We affirm the order of the trial court on these contract issues and on the award of attorney fees under the contract. However, the trial court's decision lacks findings and conclusions demonstrating that it considered the provisions of the water association's articles of incorporation and bylaws related to the use of membership certificates on reasonably accessible lots. We remand for further consideration of whether the denial of the "will-serve" letters violated membership rights under the articles of incorporation and bylaws.

Facts

Appellants Stephen Brisbane, Laura Brisbane, and their business Fairhaven Land & Livestock Co., LLC (hereinafter collectively "Brisbane"), began to buy and develop land on Chuckanut Mountain in the 1980s for residential use. Residential lot development requires a water source and a water service provider approved by the Department of Health (DOH). Brisbane installed a water system infrastructure to service the proposed residential lots. In 1991, Brisbane obtained a groundwater use permit from the Department of Ecology (Ecology) to withdraw up to 48 gallons per minute (gpm). Brisbane created the Chuckanut Trails Water Association (CTWA), the respondent in this matter, to administer the water system.

Brisbane entered into an agreement with CTWA in 1991. At the time of the contract Brisbane controlled CTWA. The contract has two principal elements. First, Brisbane agreed to transfer to CTWA the right to 30 gpm of the 48 gpm permit, as well as the water system itself-including existing Wells 3 and 4, pump casing, storage tank, and other distribution facilities, in exchange for 42 memberships in the CTWA water system. The 42 memberships would allow Brisbane to develop, over time, 42 lots that could be served by CTWA's 30 gpm, using average consumption rates. The language of the contract provides:

1. Transfer of Water System. BRISBANE agrees to transfer to the ASSOCIATION the right to take 30 gallons per minute from wells identified in Ground Water Permit No G1-25020P, the well, pump and casing, the storage tank and distribution system constructed by BRISBANE . . .

2. Transfer of Shares. In consideration of the transfer of the water and water system to the ASSOCIATION by BRISBANE, ASSOCIATION hereby agrees to issue 42 membership certificates to BRISBANE.

The second part of contract concerned the potential additional capacity of the water system. If Brisbane could provide "additional water" to CTWA, it would provide him with additional water shares in consideration. The contract provided:

3.Future Capacity. The water system has potential additional capacity to serve residences exceeding the 42 services presently authorized and approved by the Department of Health. BRISBANE will continue to develop this additional capacity. In the event governmental approvals are obtained authorizing additional water services, the ASSOCIATION agrees to provide BRISBANE one (1) additional membership for each additional service developed . . .

Although the assignment of the 30 gpm portion was not completed by filing the appropriate form with Ecology, CTWA has used the water and the water system to service an increasing number of residences.^[1] In 1992, CTWA merged with the Chuckanut Crest Water Association (Crest). The merged water association, retaining the name CTWA, had a total of 72 memberships (Crest brought 30).

In 2000, as the membership of CTWA increased, it began to experience water shortages. According to the DOH, CTWA faced serious water shortage problems. In a September 2005 letter to the CTWA Board, the DOH stated that "no additional service connections should be allowed at this time because of the limited summertime capacity of the existing well sources." CTWA has since developed a new well (Well 5) with potential to supply all of CTWA's members with sufficient water. CTWA applied to Ecology to modify the 1991 permit so that the withdrawal of water from Well 5 would be authorized under the same permit. Ecology informed CTWA that Brisbane had never formally assigned the 30 gpm to CTWA. Ecology would not approve CTWA's permit amendment to use Well 5 until Brisbane transferred ownership of the water right to CTWA. CTWA requested that Brisbane complete the transfer, but Brisbane never did.

In the declaratory judgment and order, entered on December 7, 2007, the trial court found that Brisbane had breached the contract by failing to execute the assignment form. There is no disagreement over Brisbane's duty under the contract to complete the assignment. However, disagreement arose over language that Brisbane attempted to add to the certificate stating that he held the 18 gpm "in common" with CTWA's 30 gpm. The "in common" language implicated the first part of the contract, including whether CTWA's 30 gpm had seniority.^[2] CTWA contended that this language violated the 1991 agreement and that the permit should specify that the 30 gpm should be senior to Brisbane's remaining 18 gpm. In its declaratory judgment, the trial court mandated that Brisbane complete the assignment form, specifying the seniority of the 30 gpm being assigned, and file it with Ecology.

Further disagreement between the parties arose in February 2003, when Brisbane asked that CTWA provide "will-serve" letters^[3] for four lots on which he desired to use four of the original 42 membership certificates. CTWA refused. There is no dispute that CTWA has fulfilled its duty to give Brisbane all 42 memberships; the dispute is where Brisbane can use the last four of these certificates. The four lots for which CTWA refused to provide will-serve letters were located within the Patton Short Plat Lot B and the Brisbane Short Plat as of March 1991. In 1994, Brisbane reconfigured them into one large parcel called the Chuckanut Trails Lot Line Adjustment. Brisbane subsequently short-platted a portion of the Chuckanut Trails Lot Line Adjustment into nine lots that constitute North Chuckanut Estates (NCE). The four lots for which Brisbane sought will-serve letters are within NCE: lots 1, 2, 4, and 5.

The CTWA Board asserted that these four lots were outside the existing service area at the time Brisbane sought the will-serve letters, and therefore it had no obligation to provide will-serve letters. Brisbane countered that the lots were in the description of service area lots Brisbane originally submitted to the DOH with the ground water permit application. Brisbane also explained that when Crest and CTWA merged in 1992–1993, the DOH approved the list of lots of the newly merged CTWA, which included the four NCE lots. And, the service area map approved by the DOH in 1996 included the Brisbane Short Plat and Patton Lot B. By 1998, Brisbane had left the position of president and was no longer a board member of CTWA nor had any leadership role. In 2000, the CTWA Board revised the service area. The DOH approved the change. The parties dispute the role that CTWA has in establishing its service area, and therefore which service area controls whether these four lots are entitled to water service from CTWA.

Brisbane sued CTWA, in 2006, for declaratory relief to determine the parties' rights under the future capacity clause and Brisbane's rights under the contract to place his four memberships on the NCE lots. CTWA counterclaimed, asserting breach of contract, negligent misrepresentation, and unjust enrichment, and sought specific performance of Brisbane's duty to assign the 30 gpm to CTWA and to file it with Ecology.

Following the bench trial, in May and June of 2007, the court entered findings of fact and conclusions of law. In the declaratory judgment and order, the trial court ruled that: (1) Brisbane was in breach for not assigning the 30 gpm portion of the permit, (2) CTWA's 30 gpm is senior to the 18 gpm reserved by Brisbane, and (3) CTWA has authority to change its service area. To effectuate the finding that CTWA's 30 gpm portion is senior, the trial court ordered that Brisbane include the following language on the assignment form to be filed with Ecology: "The water right transferred by this assignment shall be senior to the remainder of the water right in Ground Water Permit No. G1-25020 P retained by Stephen W. Brisbane." Because CTWA had the right to set its service area, the trial court upheld the denial of the will-serve letters. The trial court denied the relief Brisbane sought. The trial court also awarded attorney fees to CTWA in the amount of $193, 325.14. Brisbane appeals.^[4]

ANALYSIS

I. Standard of Review

"When findings of fact and conclusions of law are entered following a bench trial, appellate review is limited to determining whether the findings are supported by substantial evidence and, if so, whether the findings support the trial court's conclusions of law and judgment. Evidence is substantial if it is sufficient to persuade a fair-minded person that the declared...