Columbia Park Golf Course, Inc. v. City of Kennewick
160 Wash. App. 66 (2011)
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Rule of Law:
For the breach of a contract to negotiate, a plaintiff may recover expectation damages, measured by the value of the lost opportunity or asset, if the damages can be established with reasonable certainty and were a foreseeable consequence of the breach.
Facts:
- The City of Kennewick (City) entered into a 25-year sublease with Columbia Park Golf Course Inc. (Columbia) in 2000 for the operation and improvement of a golf course and driving range in a city-managed park.
- In 2005, Columbia proposed replacing the driving range with an RV park, and the parties signed a Development Option Agreement (DOA) granting Columbia the exclusive right to develop an RV park, shoreline improvements, and boat moorage within the park.
- While the DOA was in effect, the City began discussions with another developer, Tri-River Sports, for a competing project that also included an RV park and boat docks, and entered into a separate DOA with Tri-River in February 2006.
- In May 2006, the Kennewick city council approved Columbia's shoreline permit, which explicitly authorized the removal of the driving range for the construction of an RV park.
- In June 2006, the City's mayor and city manager informed Columbia's president that the approved RV park project was 'just not going to happen' in Columbia's existing leasehold.
- Following this announcement, the City displayed a scale model of the Tri-River Sports proposal in City Hall and attempted to negotiate a new, less desirable location for Columbia's RV park, but no agreement on new lease terms was ever reached.
- In January 2007, city staff recommended that the city council deny Columbia's request to extend its DOA, prompting Columbia to withdraw its request.
Procedural Posture:
- Columbia Park Golf Course Inc. filed suit against the City of Kennewick in Benton County Superior Court (a state trial court) in February 2007.
- The City removed the action to the United States District Court for the Eastern District of Washington.
- The federal district court dismissed Columbia's tort, federal, and restitution claims via summary judgment.
- Finding issues of fact remained on the contract claims, the federal court declined to exercise supplemental jurisdiction and remanded those claims back to the state trial court.
- The state trial court denied the City's subsequent motion for summary judgment on the contract claims.
- Following a 10-day trial, a jury returned a special verdict finding the City had breached the DOA and the covenant of good faith and fair dealing, and awarded Columbia $3 million in damages.
- The trial court denied the City's post-trial motion for judgment as a matter of law, a new trial, or remittitur.
- The City of Kennewick, as Appellant, appealed the judgment to the Washington Court of Appeals, Division Three, with Columbia Park Golf Course Inc. as the Appellee.
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Issue:
Does the breach of a development option agreement, considered a contract to negotiate, permit the recovery of expectation damages for the value of the lost development opportunity, rather than limiting recovery to reliance damages?
Opinions:
Majority - Siddoway, J.
Yes, the breach of a development option agreement permits the recovery of expectation damages. Standard contract principles apply, and Washington law does not require a special rule limiting recovery to reliance damages for breach of a contract to negotiate. If a plaintiff can prove with reasonable certainty that a final contract would have been formed but for the defendant's bad faith, the loss of the benefit of that contract is a foreseeable and recoverable consequence. Here, Columbia did not seek speculative lost future profits from a new business, but rather the market value of a 'lost asset'—its bundle of development rights (lease, permits, exclusivity) that was destroyed by the City's breach. This measure of damages is more susceptible to reliable proof, as it is based on what a willing buyer in the market would have paid for the opportunity at the time of the breach, a fact that can be established with reasonable certainty.
Dissenting - Korsmo, A.C. J.
No, a breach of a contract to negotiate should only permit the recovery of reliance damages. Awarding expectation damages in this context is overly speculative, especially for a new business venture, and conflicts with Washington's 'new business rule,' which generally prohibits claims for lost profits. Columbia's valuation of its 'lost asset' by capitalizing projected revenue is merely a disguised claim for lost profits. The DOA was a duty to negotiate, not a duty to agree, and holding the City liable for the full value of a potential final agreement it never made is improper. This approach creates a disincentive for parties to enter into useful preliminary agreements, as 'freedom not to contract should be protected as stringently as freedom to contract.'
Analysis:
This decision clarifies that preliminary agreements like contracts to negotiate are fully enforceable with standard contract remedies in Washington. By allowing expectation damages, the court provides robust protection for parties who invest resources in reliance on such agreements, particularly in complex development deals. The distinction between speculative 'lost profits' and a provable 'lost asset value' offers a pathway for plaintiffs to recover the full benefit of their bargain, even for new ventures. This holding strengthens the position of developers in negotiations with government entities and aligns Washington with a modern trend of enforcing preliminary agreements to their full extent.
