Largest Arbitration Award In San Juan County History
The Roche Harbor Resort consists of 2,400 acres, approximately 8,000 feet of waterfront, a hotel, restaurant, church, air strip, marina and assorted resort facilities on the northwest corner of San Juan Island. The stockholders of the corporation holding the Roche Harbor Resort contracted to sell Roche Harbor to a purchaser for approximately $7 million. Sixteen days after the contract was signed, Sellers received what they perceived to be a “better offer” for purchase of a portion of the resort, elected to accept the better offer and retain the remaining uplands, and breached the contract to sell.
In subsequent action for breach of contract, Plaintiff/purchaser’s attorney confronted two problems: on liability, the contract had only been signed by two of the three shareholder groups, and on damages, how could buyer show substantial damages for breach?
From pre-purchase negotiations, Plaintiff had learned of an internal Shareholders Agreement, required by a lending institution, which provided that any two of the three shareholder groups could enter into a binding agreement to sell the corporation’s assets. Based on this Shareholder Agreement and the contract signed by two of the three shareholder groups, Plaintiff successfully obtained Summary Judgment on Liability.
The Court having found a valid contract, Defendants then demanded that damages be assessed by an arbitration panel under an arbitration clause in the contract. The measure of damages for breach of contract is the difference between the contract price and the value of the contract performance had the contract been performed. Eastlake Construction Co. v. Hess, 102 Wn.2d 30, 686 P.2d 465 (1984).
Plaintiff’s attorney was thus faced with proving the Plaintiff suffered a loss when the $7.5 million contract was breached in light of the fact that the resort had $5.5 million in debts, was losing $50,000 per month, and was being threatened with foreclosure at the time the contract was signed. Defendant’s business valuation expert, Gary Mettler of Business Valuation, Inc., testified that the heavily indebted corporation was worth approximately what purchaser had offered to pay for it and consequently no damages flowed from the breach of the contract.
Plaintiff pointed out that if the contract had been performed, the underlying real property would have been obtained by purchasers. MAI appraiser, Charles Macaulay of Everett, assessed the underlying property value at $9.8 million. Plaintiff’s attorney then pieced together the Defendant’s patchwork of sales following the breach of contract to demonstrate that between breach and arbitration hearing, Defendants had sold portions of the property for $4.5 million, $750,000 and $650,000, and had retained portions of the property worth, at their own appraiser’s valuation, an additional $5 million. After two weeks of testimony, the arbitration panel awarded Plaintiff’s damages in the total sum of $2,023,000 plus costs and attorneys fees under the Arbitration Agreement. This was the largest arbitration award ever entered in a case under the jurisdiction of San Juan County Superior Court. The case was tried by Dean Brett of Brett Murphy.
