Opinion
No. 60909-2-I.
February 23, 2009.
Appeal from a judgment of the Superior Court for Whatcom County, No. 06-2-01503-3, David M. Grant, J. Pro Tem., entered October 30, 2007.
Affirmed in part and remanded by unpublished opinion per Appelwick, J., concurred in by Grosse and Agid, JJ.
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. 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).
Neither party has a perfected water right. Perfection occurs when a permit holder puts the water to beneficial use, at which point Ecology will issue a superseding water right. 23 Butler King, Washington Practice: Environmental Law and Practice § 8.10 at 292, § 8.13, at 295, § 8.28, at 309-10, § 8.29, at 310 (2d 2007)
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. 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.
In the event of water shortage, priority of appropriators is determined by priority date, which is the date the appropriator filed the permit with Ecology. Seniority is determined by the priority date: an appropriator with an earlier priority date is senior to an appropriator with a more recent priority date. Development of water by a junior appropriator cannot impair the rights of a senior appropriator. RCW 90.03.010.
Further disagreement between the parties arose in February 2003, when Brisbane asked that CTWA provide "will-serve" letters 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.
A will-serve letter is a written commitment from the purveyor that it will provide a water service connection for the lot being developed.
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.
Neither the denial of relief on the issue of future capacity nor the amount of the attorney fee award is challenged.
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 premise is true." Sunnyside Valley Irr. Dist. v. Dickie, 111 Wn. App. 209, 214, 43 P.3d 1277 (2002) (citation omitted), aff'd, 149 Wn.2d 873, 73 P.3d 369 (2003). A trial court's findings of fact are accepted as verities on appeal where no error is assigned to any finding. Dumas v. Gagner, 137 Wn.2d 268, 280, 971 P.2d 17 (1999). The brief must contain argument contesting the findings. State v. Goodman, 150 Wn.2d 774, 782, 83 P.3d 410 (2004).
The goal of contract interpretation is to determine the parties' mutual intent. Berg v. Hudesman, 115 Wn.2d 657, 663, 801 P.2d 222 (1990). The court determines intent by "'viewing the contract as a whole, the subject matter and objective of the contract, all the circumstances surrounding the making of the contract, the subsequent acts and conduct of the parties to the contract, and the reasonableness of respective interpretations advocated by the parties.'" Scott Galvanizing, Inc. v. Nw. EnviroServices, Inc., 120 Wn.2d 573, 580-81, 844 P.2d 428 (1993) (quoting Berg v. Hudesman, 115 Wn.2d 657, 667, 801 P.2d 222 (1990)). A court should consider the parties' objective manifestations of intent expressed in the contract itself, not the parties' unexpressed subjective intentions. BNC Mortgage, Inc. v. Tax Pros, Inc., 111 Wn. App. 238, 249-50, 46 P.3d 812 (2002).
Under the parol evidence rule, Washington courts may consult extrinsic evidence of the circumstances under which the contract was made to aid interpretation, but not to show a party's unilateral intent, intent independent of the contract, or to contradict or modify the contract as it was written. Hollis v. Garwall, Inc., 137 Wn.2d 683, 695, 974 P.2d 836 (1999). An appellate court cannot rewrite a contract to force a bargain that the parties never made. Denaxas v. Sandstone Ct. of Bellevue, LLC, 148 Wn.2d 654, 670, 63 P.3d 125 (2003).
When interpretation depends on factual determinations such as the credibility of extrinsic evidence or a choice among reasonable inferences to be drawn from extrinsic evidence, we review for substantial evidence. Berg, 115 Wn.2d at 668. Otherwise contract interpretation is a question of law, which we review de novo. Berg, 115 Wn.2d at 668; Stouffer Knight v. Cont'l Cas. Co., 96 Wn. App. 741, 749, 982 P.2d 105 (1999).
When a court's interpretation of a contract relies on interpretation of statutes and administrative regulations, the statutes and regulations are reviewed de novo. Quality Food Ctrs. v. Mary Jewell T, LLC, 134 Wn. App. 814, 817, 142 P.3d 206 (2006).
II. Seniority of the Assigned Water
The trial court found that Brisbane intended to give seniority to CTWA's 30 gpm portion of the water permit. The court reached this finding through testimony about the parties' intent and through an interpretation of the contract, which necessitated a concurrent application of Washington's water law allocation and priority scheme.
Brisbane assigns error to findings of fact 11, 34-40, and conclusions of law 6-9 and 12, all of which pertain to the court's finding that CTWA's 30 gpm is senior to Brisbane's 18 gpm. Finding of fact 34 stated that "[t]he language of the 1991 agreement states repeatedly that the rights Brisbane reserved could be triggered only if Brisbane could develop 'additional' water — beyond the 30 gpm he was to transfer to CTWA initially. . . . The unambiguous import of this language in the 1991 agreement is that CTWA's water comes first." Finding of fact 35 stated that ". . . Brisbane understood that he has no rights to the first 30 gpm and that he has no rights to additional shares under Paragraph 3 unless there was more water available than the original 30 gpm . . ." He assigns error to finding of fact 37, the court's interpretation of "additional." He also assigns error to finding of fact 38, which states that the "clear import of the 1991 Agreement was to give first priority to the first 42 certificate holders based on the 30 gpm Brisbane was required to convey to CTWA at the outset."
Brisbane asserts that the trial court rewrote the contract to change the parties' respective priorities under the water permit by ordering Brisbane to complete the assignment of the 30 gpm with a condition that the 30 gpm have seniority over his 18 gpm. Brisbane argues that the language in the contract that discusses the transfer of a portion of the permit incorporates the co-equal priority under RCW 90.03.010 and 90.03.340, because "[i]t is the general rule that parties are presumed to contract with reference to existing statutes, and a statute which affects the subject matter of a contract is incorporated into and becomes a part thereof." Wagner v. Wagner, 95 Wn.2d 94, 98, 621 P.2d 1279 (1980) (citations omitted). Brisbane contends that the trial court disregarded RCW 90.03.340's co-equal priority scheme by finding that CTWA's 30 gpm portion was senior when both parties' rights are based upon the same permit. Because the contract expressly addressed a transfer of the portion of the permit, but did not expressly state that the 30 gpm would be senior, Brisbane contends that the trial court violated the parol evidence rule by adding a term to a fully integrated contract (that CTWA's 30 gpm right is senior). See DePhillips v. Zolt Constr. Co., 136 Wn.2d 26, 32, 959 P.2d 1104 (1998).
CTWA argues that the requirement that Brisbane obtain governmental approvals in order to be entitled to additional memberships only has the intended effect of protecting CTWA's water if the 30 gpm is senior to the remaining 18 gpm.
Brisbane contends that the court's order that Brisbane complete the assignment making CTWA's 30 gpm senior as a condition of the permit will put Ecology in the position of having to adjudicate a private contract. Additionally, Brisbane contends that the only priority date that Ecology or the Pollution Control Hearings Board (PCHB) could consider would be the statutory priority date, which is the date the water permit issued, not a priority created as a condition of assignment.
Brisbane argues that the contract language did not give seniority to CTWA's water; specifically, he argues that the future capacity clause demonstrates that CTWA's water is not senior. He argues that it shows he was authorized and required to develop CTWA's water services subject only to two express conditions: governmental approval and bearing the full cost of development. He argues that this, in turn, shows that the protection he intended for CTWA members is that the DOH and Ecology would have to approve any additional water services that he developed — regardless of whether they were for holders of the original 42 memberships or newer memberships. Brisbane contends that the seniority of CTWA's 30 gpm is not necessary to protect the initial 42 memberships.
We find these arguments unpersuasive. The plain language of the contract demonstrates the parties' intent that the 30 gpm have seniority. The various references to "additional water" and "additional capacity" only make sense if they are understood to mean water over and above the assigned 30 gpm. Brisbane's right to additional membership certificates is only triggered if CTWA is able to withdraw 30 gpm as provided for in the "Transfer of Water System" provision and if Brisbane develops additional water.
The plain language argument is supported by Brisbane's own testimony. Brisbane testified that he drafted the agreement so that in the event he developed additional water, he could convey it to CTWA and obtain additional water shares in return. Brisbane agreed on cross examination that "[CTWA] get[s] the first 30 and that [his] rights under paragraph 3 require [him] to find water in excess of the 30 gallons that [he] w[as] to convey to [CTWA] under paragraphs 1 and 2 of the agreement." Brisbane testified that he thought that the governmental approvals requirement would be a guard against impairment of CTWA's 30 gpm. He also conceded that he would be obligated to sign any document that Ecology would need to carry out the intent of the agreement. When asked about his understanding of the provision specifying that he would bring "additional water," the following exchange resulted:
Q. Well, let's talk about what it means to bring additional water, okay. Additional water means, you agree water beyond the 30 gallons a minute that you were supposed to be conveying to the Association back in '91, right? It has to be in addition to that?
A. Yes, absolutely.
Q. Okay. And that means water in excess of the amount that the, than that 30 gallons a minute that goes first to the Association for its 42 members, right?
A. That water is not mine. That water is [t]he Association's. That's part of the water system all ready [sic].
Q. Okay.
A. It's not my intention to impair that water at all.
Q. So we have first dibs on that; is that right?
A. You own that water.
Q. Right. And if [you] try to develop additional water, you can't do it in a way that impairs our water, right?
A. Mr. Bricklin, I can't do that by state regulation.
Opposing counsel asked Brisbane about his understanding of "additional capacity": "And so to trigger paragraph 3, to be able to say there is some additional capacity that I've developed, don't you have to get that capacity up above 27 to 30 gallons a minute?" Brisbane agreed.
The plain language of the contract demonstrates that CTWA's 30 gpm portion is senior. However, even if we were to find that the language of the contract was ambiguous, looking to the recitals would lead us to the same conclusion. A court may look to contract recitals to interpret the meaning of a contract only when and if the operative portion of the agreement is ambiguous. Brackett v. Schafer, 41 Wn.2d 828, 834, 252 P.2d 294 (1953). Contract recital 3 provides:
Subject to the terms and conditions of this Agreement, BRISBANE has agreed to transfer a portion of his water right and the water system which he has developed to the ASSOCIATION in exchange for membership certificates in the ASSOCIATION and the opportunity to acquire future membership certificates in the event additional water can be provided to the ASSOCIATION permitting the service of additional homes.
(emphasis added). Recital 3 suggests that the second possibility — that CTWA's water has priority — is the correct outcome under the contract. Additional water has a plain meaning. It would not be additional if it reduced the 30 gpm he transferred under the contract to CTWA.
If Brisbane's 18 gpm were co-equal with CTWA's, Brisbane could obtain government approval to withdraw water even if it resulted in insufficient water to satisfy CTWA's 30 gpm of the permit. Mr. Dunn from Ecology testified that if the parties are co-equal under the permit, Brisbane could develop a replacement well or drill a new well within the area covered by the 1987 permit (the same "quarter-quarter" section) and claim the 1987 priority date. Under RCW 90.44.100(1), a permit holder "may, without losing the holder's priority of right, construct wells or other means of withdrawal at a new location in substitution for or in addition to those at the original location. . . ." As long as the wells are at the location of the original well or wells, an amendment to the permit is not required. RCW 90.44.100(3). A party must simply submit a showing of compliance to Ecology. "'[L]ocation of the original well or wells' is the area described as the point of withdrawal in the original public notice. . . ." RCW 90.44.100(4). Here, the description provided in the permit was a "quarter-quarter" designation, so unless CTWA's water is senior, any well or replacement well that Brisbane could develop would benefit from the 1987 priority date as long as it was in the same quarter-quarter (a large area).
The DOH does not regulate seniority.
However, if CTWA's 30 gpm is senior, CTWA is protected, because further development of water by a junior appropriator cannot impair the rights of a senior appropriator. RCW 90.03.010. Mr. Dunn also testified that, under RCW 90.44.100, if a permit holder is not changing the point of withdrawal, (i.e., in the same quarter-quarter section), the permit holder must show that the new well is not adversely impacting someone with a senior right. If a permit holder wants to move the point of withdrawal outside of the quarter-quarter section, the permit holder may not withdraw under that original permit — there is no benefit of the original seniority. Instead, Ecology will issue a new permit and all existing rights are protected.
Because equal priority arises from a common permit absent some other priority established by the parties, Brisbane could draw 18 gpm from the water source even if it reduced the ability of CTWA to draw 30 gpm. Under the terms of the contract, Brisbane could then tender the new well to CTWA in exchange for additional memberships. Brisbane would be buying new memberships from CTWA without providing net new water. He would in effect be buying new memberships from CTWA with its own water. This would render the original promised assignment of 30 gpm illusory. A court must examine the contract as a whole and not adopt an interpretation that renders a term absurd or meaningless. Spectrum Glass Co. v. Pub. Util. Dist. No. 1 of Snohomish County, 129 Wn. App. 303, 312, 119 P.3d 854 (2005).
Mr. Dunn testified that parties who have water rights under the same permit may override the statutory priority scheme articulated in RCW 90.03.340 (that priority date relates back to permit date), through a contract:
Q. So there is no priority between different owners of a single water permit; is that correct?
A. There's not, unless it's specified by the separate owners.
The trial court's findings of fact 34, 35, 37, and 38 are supported by substantial evidence.
Brisbane next assigns error to the court's finding of fact 36, which states that: ". . . CTWA is entitled to the first 30 gpm is supported by another document executed by Mr. Brisbane. In an easement Brisbane executed in 2003, he described the 1991 agreement with CTWA as one in which he 'transferred 30 gallons per minute . . . reserving to himself the right to take water from the property in excess of that amount.'" (citation omitted) (emphasis omitted).
The easement states: "Grantor's predecessor, Stephen W. Brisbane, in a December 1991 agreement transferred 30 gallons per minute as authorized by Ground Water Permit No. G1-25020P to Chuckanut Trails Water Association ("CTWA") reserving to himself the right to take water from the property in excess of that amount." Brisbane's deposition testimony and trial testimony established that the language in the easement was a proper characterization of the intent of the 1991 agreement. Although Brisbane stated that it was not a, "full characterization of the agreement," he conceded that "[t]his [the language of the easement] is an accurate statement of what the intent of the 1991 agreement was. And I think that the intent — this statement here is within the intent of what, of what the 1991 agreement is." The trial court's finding of fact 36 is supported by substantial evidence.
Brisbane also assigns error to the court's finding of fact 11, that Brisbane was effectively contracting with himself in the 1991 agreement. The trial court found that his representation of both sides of the deal provides context for construing it. Brisbane controlled CTWA at the time of agreement; he was the sole owner of CTWA at that time. Substantial evidence supports the court's finding that Brisbane was contracting with himself. This fact is properly part of the context of the contract.
Brisbane also contends that the trial court's order that Brisbane complete the assignment by including language making CTWA's 30 gpm senior as a condition of the permit will put Ecology in the position of having to adjudicate a private contract. Brisbane correctly asserts that neither Ecology nor the PCHB has jurisdiction to adjudicate or enforce private contract rights. Rettkowski v. Dep't of Ecology, 122 Wn.2d 219, 228-29, 858 P.2d 232 (1993). However, the trial court does, and it determined that CTWA's water was senior and ordered that the assignment documents indicate that seniority. Ecology has nothing to adjudicate. Ecology has only to recognize the trial court's adjudication that CTWA's 30 gpm portion of the permit is senior. Brisbane's argument is not well taken.
Buck v. Dep't of Ecology, No. 06-018, 2006 WL 2330265, at *3 (PCHB Aug. 3, 2006), explains how private contracts interface with Ecology regulations: "Although such a contract may establish the rights and obligations between the two parties who sign it, it does not affect Ecology's obligations related to the permit, which can only be done through the procedures provided in state law." The PCHB went on to further explain that "[n]either the Legislature's statutory grant of authority, nor the Board's regulations pertaining to jurisdiction, give it any authority to hear private contract disputes or to apply their provisions to Ecology." Buck, 2006 WL 2330265, at *3 n. 1. See also Ingram v. Dep't of Ecology, No. 06-016, 2006 WL 2816812, at *7 (PCHB Sept. 26, 2006) ("The rights under a lease or contract are not protected as existing rights under the water codes. If Ingram believes that a breach of the lease has occurred, this is an action separate from the issuance of the water permit and may be pursued in superior court.").
Consistent with Ecology's advice, CTWA did not initiate a proceeding before PCHB or Ecology to force Brisbane to honor his contractual obligations. The sole adjudication of the rights of the parties occurred through CTWA's counterclaims in the declaratory action.
The trial court's conclusions of law establishing that CTWA's 30 gpm is senior to Brisbane's 18 gpm (specifically, conclusions of law 8 and 12) are supported by the findings of fact and the law. We affirm the trial court's determination that the parties intended CTWA's water to be senior to the water Brisbane retained.
III. Breach of Contract
Brisbane assigns error to the trial court's conclusion of law 10; that he has not fully performed his obligations under the 1991 Agreement, because he has not delivered to CTWA a signed transfer of the 30 gpm as required by the agreement.
RCW 90.03.310 allows for assignment: "[a]ny permit to appropriate water may be assigned subject to the conditions of the permit." The assignment is not valid until it is recorded with Ecology. RCW 90.03.310. Brisbane conceded that he would be obligated to sign any document that Ecology would need to carry out the intent of the agreement. Brisbane delivered three assignment forms to CTWA, but each of them were deficient or unsatisfactory in some way: one did not have Brisbane's signature; one included the "in common" language that potentially conflicted with the 1991 agreement; the last one failed to reflect a division of the annual flow; none reflected the seniority of CTWA's 30 gpm portion. Although there is dispute about the substantive conditions of the permit, nevertheless Brisbane has not filed the assignment form with Ecology.
Brisbane argues that the failure of CTWA to grant the will-serve letters should excuse his performance. But the contract does not contain any reference to will-serve letters. The contract contained no conditions precedent to Brisbane's duty to assign the 30 gpm portion of the permit, which would excuse nonperformance. It is undisputed that CTWA provided the 42 water certificates it was obligated to provide to Brisbane. CTWA has fully performed; Brisbane has not. We affirm the trial court's finding that Brisbane breached the contract.
IV. CTWA's Denial of the Will-Serve Letters
The four membership certificates at issue are some of the original 42 certificates that CTWA provided to Brisbane as agreed under the contract. A dispute arose over whether Brisbane was entitled to use the last four of his membership certificates on lots outside of CTWA's current service area.
A. Authority to Determine Service Area
Brisbane assigns error to the court's findings of fact 25, 26, 27, 28, 30, and 32, as well as conclusion of law 11, in which it determined that CTWA had authority to establish the service area for its water system. The trial court found that "CTWA, as the owner of the water system, has the authority to establish the service area for its water system. A third party cannot change or force a change in the service area." The trial court also found that the 2001 service area map controlled, because it was the accepted service area at the time Brisbane requested service for his four NCE lots. The NCE lots were outside of the 2001 service area.
Brisbane contends that these findings by the trial court improperly change the clear terms of the contract by giving CTWA the unilateral power to refuse to expand its service area. Brisbane also contends that the trial court erred in ruling that CTWA's service area determined where he could use his four remaining original memberships.
The DOH regulates public water systems like CTWA. The regulations provide the uniform process for purveyors to demonstrate the integrity of the water system and maintain compliance with relevant laws. WAC 246.290.100. WAC 246.290.010 defines service area as:
[T]he specific area or areas a water system currently serves or plans to provide water service. This may be comprised of the existing service area, retail service area, future service area, and include areas where water is provided to other public water systems.
WAC 246.290.010 defines "existing service area" as, "a specific area within which direct service or retail service connections to customers of a public water system are currently available." A "service area" is part of water system plan subject to review and approval by the DOH pursuant to WAC 246-290-100(4) and WAC 246-290-100(9). Specifically, it mandates that the water system plan shall designate the service area and have service area maps. WAC 246-290-100(4)(iv).
If a water purveyor wants to change a water system, such as a modification of service area, it must submit a project report to the DOH detailing the project description and reasons for the change. WAC 246.290.110(2). Before the DOH will approve a water system plan update, the purveyor must, "[o]btain the approval of the water system plan from the purveyor's governing body or elected governing board." WAC 246-290-100(8). Contrary to Brisbane's characterization of the trial court's finding as giving CTWA the legal authority to definitively set its service area, the trial court properly found that CTWA's governing body had the authority to set its service area, subject to the DOH approval. The DOH approved the changes that CTWA made to the service area in 2001.
Mr. Thielemann, a regional engineer for the DOH drinking water program in Whatcom County, testified that a water association can initiate expansion or contraction of a service area. In either instance, the water association would redefine the service area and present it to the DOH, along with professional documentation that the water association had the source capacity, water rights, pumping capacity, and the hydraulic capacity storage distribution to serve the new area and maintain adequate pressure.
Mr. Thielemann also explained the overlapping jurisdictions of the DOH and Ecology, in that a water association deals with the DOH regarding the system capacity and water quality, and Ecology regarding water rights (how much water can be taken from the ground). Before 2003, Ecology regulated the area of use under the water permit or water right. In 2003, the DOH began to regulate water associations' place of use through service area; now, the DOH-approved service area controls, as long as Ecology is satisfied that there is sufficient water.
The service area map adopted by CTWA in 2001 was in effect when Brisbane sought the contested will-serve letters in February 2003. Brisbane's NCE lots were outside of that service area. The trial court's factual findings are supported by substantial evidence. The conclusion that CTWA had the authority to determine service area is supported by the findings of fact and by the law.
Nonetheless, Brisbane asserts that the 1991 agreement gave him agency authority to set the service area. He argues that because the contract does not explicitly reserve the right to set the service area to CTWA, and because the future capacity clause states that "BRISBANE will continue to develop this additional capacity," the only logical conclusion is that he is the one with the authority to obtain government approvals (i.e., service area). Brisbane raised this agency argument in a motion for reconsideration, which the trial court denied. CTWA did not respond to the agency issue, because it had not been argued at trial, and believed it was not preserved on appeal.
Although Brisbane included the argument in his appellate brief, it is not well developed.
As argued, agency authority to expand the service area and to request that the DOH accept the expansion only relates to the future capacity clause. The record does not establish that Brisbane has developed any additional water that would trigger the future capacity clause and enable him to request additional memberships. The agency issue is not properly before us.
Brisbane asserts that the trial court's order that CTWA has authority to change the service area collaterally and adversely affects his entitlement to more membership certificates under the "future capacity" clause of the 1991 agreement. The order states: "CTWA has the authority under State law to change its service area. There is nothing in the 1991 Agreement that gives Brisbane any right to limit CTWA's authority in that regard." As CTWA concedes, this language could be construed to apply to a separate issue: whether Brisbane's future capacity rights under the second part of the agreement can be limited by CTWA's delineation of its service area.
The trial court correctly found that "Brisbane's reserved rights in Paragraph 3 can be triggered only if he develops 'additional' water — above and beyond CTWA's 30 gpm." Any argument that Brisbane makes regarding future capacity is not ripe, because Brisbane has not yet provided additional water. An issue founded on a hypothetical factual situation should not be reviewed. Port of Seattle v. Wash. Util. Transp. Comm'n, 92 Wn.2d 789, 806, 597 P.2d 383 (1979). Therefore, the trial court's order must be limited to Brisbane's rights under the first part of the agreement — where the remaining four original memberships can be placed — not to future capacity.
B. Membership Rights Under the Articles of Incorporation and Bylaws
Although CTWA has authority to determine its service area under the DOH regulations, Brisbane asserts that his right to use his four CTWA membership certificates must be governed by "reasonable accessibility," a standard articulated in the articles of incorporation and the bylaws.
Brisbane raised this issue in a motion for reconsideration and addresses it in his opening brief. The trial court denied Brisbane's motions to file supplemental briefing and re-open testimony. After oral ruling, Brisbane moved for reconsideration and to re-open trial for admission of additional exhibits. The court denied these motions, believing that the evidence already before the court was adequate to resolve the dispute. The articles of incorporation and bylaws were admitted as exhibits in the trial.
New issues may be raised for the first time in a motion for reconsideration, thereby preserving them for review, only where they are not dependent upon new facts and are closely related to and part of the original theory. Reitz v. Knight, 62 Wn. App. 575, 581 n. 4, 814 P.2d 1212 (1991) (citing Newcomer v. Masini, 45 Wn. App. 284, 287, 724 P.2d 1122 (1986)).
Brisbane points to the language in CTWA's bylaws and articles of incorporation; both specify that as long as memberships have "reasonable accessibility", CTWA must provide service. Neither speaks of service area.
CTWA argues that Brisbane has waived his ability to argue the reasonable accessibility standard because he did not present it at trial, but rather in a motion for reconsideration. CTWA argues that neither party presented sufficient evidence of the reasonable accessibility standard at trial because it was not related to the issue of whether the agreement itself — not the bylaws or articles of incorporation — provided Brisbane the right to use his membership certificates on the four NCE lots.
While the record lacks discussion of reasonable accessibility, the trial court's findings of fact 32 could be interpreted as binding on this issue:
Exhibit 35 controls the service area question. Brisbane's four memberships could not be transferred to the four lots in question because each was predominantly or totally outside the service area. CTWA was correct in refusing to make the transfer requested by Brisbane. Membership transfers (past or future) must be to lots within the service area as it exists at the time of the request for transfer.
Although the court entered this as a finding of fact, we find that it contains both findings of fact and conclusions of law. An appellate court is not bound by a trial court's designation of factual findings or legal conclusions, and therefore a finding of fact that is really a legal conclusion will be treated as a legal conclusion, subject to de novo review. Robel v. Roundup Corp., 103 Wn. App. 75, 85, 10 P.3d 1104 (2000), aff'd in part, rev'd in part on other grounds, 148 Wn.2d 35, 59 P.3d 611 (2002).
The trial court's legal conclusion that CTWA correctly refused to provide will-serve letters is problematic. It is unclear if the trial court arrived at this conclusion because it believed that service area regulations trumped the reasonable accessibility provision of the articles of incorporation and bylaws as a matter of law, or whether it had even considered Brisbane's argument at all. If the argument was considered, the trial court neither defined a member's rights under CTWA's articles of incorporation and bylaws, nor considered whether CTWA had prevented Brisbane from enjoying these membership rights. The trial court did not address (1) whether Brisbane's four NCE lots were reasonably accessible to the CTWA system, (2) whether CTWA was obliged to issue will-serve letters to Brisbane for any lots that were reasonably accessible, or (3) whether CTWA was obliged to seek DOH approval of a new service area that would encompass the four NCE lots (if reasonably accessible). We remand for further consideration of whether the will-serve letters were properly denied based on the articles of incorporation and bylaws in effect at the time of Brisbane's request for will-serve letters.
V. Duty of Good Faith
Brisbane assigns error to the court's finding of fact 42; that CTWA's actions, challenged by Brisbane, were a good faith effort to respond to water shortage concerns in a manner consistent with the terms of the 1991 agreement.
Parties to a contract have a duty to perform in good faith and to cooperate with each other so that they each obtain the full benefit of performance. Badgett v. Sec. State Bank, 116 Wn.2d 563, 569-70, 807 P.2d 356 (1991). The implied duty "arises only in connection with terms agreed to by the parties," and "requires only that the parties perform in good faith the obligations imposed by their agreement." Id. at 569. Circumstances showing breach of the duty of good faith include, "evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party's performance." Restatement (Second) of Contracts § 205(d) (1981).
Brisbane contends that CTWA breached its duty of good faith by imposing and acting upon a no growth policy. This included refusing to provide service on the four NCE lots, redrawing the service area map, refusing to provide will-serve letters, demanding that Brisbane transfer all of his rights in the water (not just the 30 gpm that Brisbane initially agreed to transfer), and excluding Patton Short Plat Lot B from the service area. CTWA contends that its efforts to change the service area were born out of a duty to protect its members' rights from infringement by Brisbane in the face of water shortages.
Regarding Patton Short Plat Lot B, CTWA contends that it was removed from the service area in 2007, because it was outside the original area specified by Ecology in the water permit in 1987. Although the DOH had approved the list including Patton Short Plat Lot B in 1991, at that time Ecology actually had authority over CTWA's area of use and Patton Short Plat Lot B was not included. In 1996, when the DOH, not Ecology, had begun to regulate area of use, Brisbane had submitted to the DOH a request that Patton Short Plat Lot B be included in the service area. The request was approved.
Since 2000, CTWA has faced water shortages. The shortage had not been fully resolved at the commencement of this litigation. Mr. Thielemann, the regional engineer for the DOH drinking water program in Whatcom County, testified that without the new well CTWA had drilled, but could not use because of the disagreement over assignment of the water permit, CTWA's system was, "in danger of failing and in danger of failing to meet basic human needs." Mr. Thielemann also testified that, because the production of Well 4 was declining CTWA was facing, "a big real time problem and they were looking at their options." The shortages caused the DOH to impose a prohibition on new construction on undeveloped lots in CTWA.
There is substantial evidence showing that the water shortages to which CTWA had to respond were significant, motivating CTWA to revise its service area. As long as CTWA's actions are lawful and do not violate a duty under the contract, there is no breach of good faith. As established above, CTWA has the authority to change the service area. Nothing in the contract limited CTWA's right to change its service area. Substantial evidence supports the trial court's finding that CTWA did not breach the duty of good faith.
VI. Attorney Fees
The contract provides that "[i]n the event either Buyer or Seller shall institute suit to enforce any rights hereunder, the successful party shall be entitled to court costs and reasonable attorney's fees against the losing party." Pursuant to RAP 18.1 and the attorney fees clause in the contract, CTWA argues that the trial court correctly awarded attorney fees to it.
CTWA is the prevailing party on the question of seniority, breach of contract, service area, and good faith claims. These issues flow from the contract, and CTWA is entitled to attorney fees on appeal relative to these issues. The issue of denial of the will-serve letters under the articles of incorporation and bylaws is not a contract issue. No fees will be awarded to either party relative to this issue.
We affirm the trial court's declaratory judgment and order as to issues under the contract and the award of attorney's fees. We remand for further consideration of whether the denial of the will-serve letters for unused memberships in CTWA's water system violated the reasonable accessibility provision of the articles of incorporation and bylaws in effect when Brisbane initially requested the will-serve letters.
WE CONCUR.