Klein Griffith Props. Grp. v. Wash. State Dep't of Commerce

KLEIN GRIFFITH PROPERTIES GROUP, LLC, Plaintiff, v. WASHINGTON STATE DEPARTMENT OF COMMERCE, HANFORD AREA ECONOMIC INVESTMENT FUND, HANFORD AREA ECONOMIC INVESTMENT FUND ADVISORY COMMITTEE, CLIFTONLARSONALLEN LLP, JOLARR MANAGEMENT CONSULTING, LLC, Defendants.

No. 3:22-cv-05710-BJR

United States District Court, W.D. Washington, Tacoma

December 22, 2022

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS CLIFTONLARSONALLEN LLP'S AND JOLARR MANAGEMENT CONSULTING, LLC'S MOTION TO DISMISS PLAINTIFF'S COMPLAINT

Barbara Jacobs Rothstein U.S. District Court Judge

I. INTRODUCTION

Plaintiff Klein Griffith Properties Group, LLC (“Klein Griffith” or “Plaintiff”) brought this lawsuit against Defendants Washington State Department of Commerce, Hanford Area Economic Investment Fund, Hanford Area Economic Investment Fund Advisory Committee CliftonLarsonAllen LLP (“CLA”), and JoLarr Management Consulting, LLC (“JoLarr,” together with CLA, “Defendants”), asserting various claims arising from the denial of a loan application Plaintiff had submitted for a real estate development project. Presently before the Court are Defendants CLA's and JoLarr's motions to dismiss Plaintiff's Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Dkt. 9 (“CLA Mot.”); Dkt. 13 (“JoLarr Mot.”). Having reviewed the pleadings, the record of the case, and the relevant legal authorities, the Court GRANTS in part and DENIES in part the motions. The Court's reasoning is set forth below.

II. BACKGROUND^[1]

A. Factual Background

This case centers on a loan application that Klein Griffith, a real estate investment and development company, submitted to the Hanford Area Economic Investment Fund Advisory Committee (“HAEIFAC” or the “Committee”) for purposes of funding a commercial and residential project called “The Nineteen” in Kennewick, Washington. Compl. ¶ 1. HAEIFAC, which operates under the control of Washington's Department of Commerce, is an eleven-member committee that administers the Hanford Area Economic Investment Fund (“HAEIF”), which in turn provides funding for private and public projects in Benton and Franklin Counties. Id. ¶¶ 2-4. In April 2017, HAEIFAC entered into a consulting agreement with CliftonLarsonAllen LLP, pursuant to which CLA would, among other things, process and advise on loan applications and serve as a liaison between the Committee and prospective borrowers. Id. ¶¶ 5, 10; Declaration of Callie Castillo (“Castillo Decl.,” Dkt. 10), Ex. 1 at 24-27. HAEIFAC also entered into a consulting agreement with JoLarr Management Consulting, LLC in October 2017, pursuant to which JoLarr would, among other things, act as a liaison between HAEIFAC and prospective borrowers, coordinate Committee meetings, and prepare and post the required notices to those meetings. Compl. ¶¶ 6, 11; Declaration of Joel Comfort (“Comfort Decl.,” Dkt. 14), Ex. 1 at 2-4.

In February 2020, Klein Griffith submitted to HAEIFAC a loan application for purposes of developing The Nineteen on real property (the “Property”) Klein Griffith owned in downtown Kennewick. Compl. ¶¶ 14-15. Over the next year, Klein Griffith secured $9,700,000 in funding for the project from ICON Realty Capital (“ICON”), which conditioned that loan on Klein Griffith refraining from pledging the Property as collateral for any additional loan it might receive (e.g., from HAEIFAC) for The Nineteen. Id. ¶ 16. In March 2021, Plaintiff submitted to CLA and JoLarr an updated loan application packet disclosing the terms of ICON's loan, and certain private equity holdings that Klein Griffith was pledging as collateral for any loan extended by HAEIFAC. Id. ¶¶ 18-21. Plaintiff alleges that, based on that information, HAEIFAC's Loan Review Subcommittee (the “Subcommittee”) recommended that Klein Griffith be extended a loan, and then, in April 2021, the Committee voted to approve a loan in the amount of $1,100,000. Id. ¶¶ 23-24, 28-30.

Notwithstanding the Committee's approval, Klein Griffith's loan application began to face headwinds shortly thereafter. CLA raised questions about the sufficiency of the pledged loan collateral, and eventually sent to Klein Griffith, in June 2021, loan documents that designated the Property as collateral instead of Klein Griffith's private equity holdings. Compl. ¶¶ 37-41. In subsequent months, the Committee appointed three new members who, Plaintiff alleges, had undisclosed conflicts of interest that caused them to oppose the loan. Id. ¶ 50. The loan application began to unravel when, during a Committee meeting held in September 2021, the Committee's chair allegedly misstated that HAEIFAC's prior approval had not been based on the use of private equity holdings to secure the loan, leading the Committee to hold a vote disallowing the use of that collateral.^[2] Id. ¶¶ 54-59. Klein Griffith's loan application was consequently referred back to the Subcommittee, and during a meeting held in early October, the Subcommittee recommended that the loan be reduced to $345,000 and placed on the agenda for the next Committee meeting scheduled for October 25. Id. ¶¶ 65, 68.

The loan application saw its demise soon after Plaintiff informed CLA and JoLarr, on October 14, that it had managed to obtain ICON's consent to use the Property to secure the loan, thereby resolving the collateral issue. Compl. ¶ 69. In spite of that development, JoLarr notified CLA and the Committee immediately thereafter that a special meeting would be held on October 20 (the “Special Meeting”) to vote on decommitting the funds. Id. ¶ 71. In the subsequent days, CLA and JoLarr corresponded with the chairs of the Committee and the Subcommittee concerning the newly scheduled Special Meeting, and JoLarr sent to CLA a document it had prepared reflecting JoLarr's advice against the loan. Id. ¶¶ 73-74. When the Special Meeting finally took place, the Committee's chair refused to permit any discussion on the issue of loan collateral before calling a vote on whether to decommit the loan. Id. ¶¶ 79-82. Ultimately, the Committee voted to decommit. Id. ¶ 83. Plaintiff claims that the Special meeting was improperly organized and violated HAEIFAC's bylaws because, among other things, Klein Griffith and other Committee members had not been given adequate notice of the meeting^[3] and the vote to decommit the funds was not listed on the public agenda. Id. ¶¶ 75-82.

B. Procedural Background

Plaintiff filed this lawsuit on August 19, 2022, asserting various contract-based, tort, statutory, and constitutional claims arising from HAEIFAC's decommitment of the loan. Compl.

¶¶ 106-78. Plaintiff asserts claims against CLA and JoLarr, in particular, for (1) breach of contract (id. ¶¶ 119-33); (2) tortious interference (id. ¶¶ 150-58); (3) violation of the Washington's Consumer Protection Act (“CPA”), RCW § 19.86 (Compl. ¶¶ 159-64); (4) constitutional violations under 42 U.S.C. § 1983 (id. ¶¶ 165-71); and (5) civil conspiracy (id. ¶¶ 172-78). The case was removed to this Court on September 23, 2022. Dkt. 1. On September 30, 2022, CLA and JoLarr separately filed motions to dismiss the Complaint. Plaintiff opposed the motions in a single submission (Dkt. 19 (“Opp.”)), and CLA and JoLarr filed separate replies. Dkt. 20 (“CLA Rep.”); Dkt. 22 (“JoLarr Rep.”).

III. STANDARD OF REVIEW

A motion to dismiss for failure to state a claim under Rule 12(b)(6) is properly granted if the complaint does not “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The plaintiff must plead “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. “A complaint may fail to show a right to relief either by lacking a cognizable legal theory or by lacking sufficient facts alleged under a cognizable legal theory.” Woods v. U.S. Bank N.A., 831 F.3d 1159, 1162 (9th Cir. 2016). When considering a motion to dismiss under Rule 12(b)(6), courts must accept the factual allegations in the complaint as true and construe such allegations in the light most favorable to the plaintiff. Interpipe Contracting, Inc. v. Becerra, 898 F.3d 879, 88687 (9th Cir. 2018).

IV. DISCUSSION

A. Plaintiff's Claims for Breach of Contract

Plaintiff claims that CLA and JoLarr, through various actions they undertook with respect to Klein Griffith's loan application, breached their consulting agreements with HAEIFAC. Compl. ¶¶ 122-25, 130-22. While Plaintiff alleges that it was an intended third-party beneficiary to both agreements (id. ¶¶ 120-21; 128-29), Defendants contend that Plaintiff was not, and that Plaintiff therefore is not entitled to assert breach-of-contract claims based on those agreements. CLA Mot. at 4-6; JoLarr Mot. at 3. The Court agrees with Defendants.

“A third-party beneficiary contract exists when the contracting parties, at the time they enter into the contract, intend that the promisor will assume a direct obligation to the claimed beneficiary.” Warner v. Design & Build Homes, Inc., 128 Wash.App. 34, 43 (Wn. Ct. App. 2005). “[T]he critical question is whether the benefits flow directly from the contract or whether they are merely incidental, indirect, or consequential.” Kim v Moffett, 156 Wash.App. 689, 699 (Wn. Ct. App. 2010). Generally, “a party that benefits from a government contract is presumed to be an incidental beneficiary, and that presumption may not be overcome without showing a clear intent to the contrary.” Caltex Plastics, Inc. v. Lockheed Martin Corp., 824 F.3d 1156, 1160 (9th Cir. 2016) (citation and quotation marks omitted); see Hook v. State of Ariz., Dep't of Corr., 972 F.2d 1012, 1015 (...