Appeal from Superior Court of King County. Docket No: 94-2-14185-6. Date filed: 09/14/95. Judge signing: Hon. Charles W. Mertel.
Authored by Faye C. Kennedy. Concurring: Walter E. Webster, H. Joseph Coleman.
The opinion of the court was delivered by: Kennedy
KENNEDY, A.C.J. -- The trustees of the Estate of James Campbell appeal the dismissal of their complaint against Young Duck Choe and Jin Hse Choe for unlawful detainer of a portion of the Estate's property after the Choes' lease expired. The trustees contend that the trial court erred in finding that the Choes substantially complied with the parties' Settlement Agreement and Lease Amendment, which required the Choes to make certain improvements with respect to the delicatessen they operated in the leased premises. Because the Choes' failure to market the delicatessen in accord with the terms of the Settlement Agreement was a material breach and not merely a minor and relatively unimportant deviation from the terms of the parties' contract, we reverse and remand for entry of judgment in favor of the Estate and for an award of attorney fees in favor of the Estate for the proceedings below and for this appeal, in such sums as the trial court shall find to be reasonable.
The Estate of James Campbell owns the Skyline Tower office building, located in Bellevue's central business district. The Skyline Tower competes with several other Bellevue high-rise buildings for tenants among major companies and law firms in the area. Skyline Tower received the National Building of the Year award in 1991 from the Building Owners and Managers Association for its outstanding operation.
In 1983, The Upper Crust, Inc., leased a portion of the lobby space in the Skyline Tower for use as a delicatessen. The ten-year lease provided options to renew for two successive five-year terms. In 1991, two years before The Upper Crust's ten-year lease would have ended, The Upper Crust, with the trustees' consent, assigned its lease to the Choes, who planned to open the Skyline Deli in its place. The Choes paid $289,000 for the assignment of the lease and renewal options. Under the Lease Assignment Agreement, the Choes agreed to operate a first-class delicatessen and to use their best efforts to operate the Skyline Deli with standards of quality at least equivalent to those employed by The Upper Crust.
The Choes opened the Skyline Deli in May of 1991. From that time forward, the trustees received complaints from other building tenants about the food, service, and cleanliness at the Skyline Deli. In an effort to improve the Deli's performance and appeal, the Estate, at its own expense, hired a restaurant consultant, Mr. Doug Bamford, to review the Deli's operations. The Estate offered to pay half the cost of the improvements recommended by Mr. Bamford. The Choes declined to implement any of the suggested improvements.
In December 1993, the Choes notified the trustees that they intended to exercise their first option to renew the lease for an additional five years. The trustees responded in January 1994, stating that the Estate would accept the lease renewal only if the Choes agreed, in addition to paying an adjusted rent as agreed in the Lease Assignment Agreement, to prepare a business plan, acceptable to the Estate, outlining steps to be taken by the Choes to raise the quality of the Skyline Deli to first-class level. The Choes did not respond.
Less than a month later, the Seattle-King County Department of Public Health closed the Skyline Deli, after finding numerous health code violations. The Deli reopened the following morning, after an additional inspection revealed that all violations had been corrected.
Shortly after the Deli reopened, the trustees issued a notice of default to the Choes, claiming that they had failed to operate a first-class delicatessen with standards of quality equivalent to The Upper Crust; that the option to renew was not enforceable; that the Estate's offer to renew was revoked; and that the lease term would expire on April 6, 1994. The Choes refused to vacate the premises, contending that they were in compliance with the lease and that the lease extension option had been validly executed. The trustees filed suit for unlawful detainer, seeking to be restored to possession of the premises.
Trial was postponed to accommodate settlement negotiations, which resulted in the parties' October 1994 Settlement Agreement and Lease Amendment. In recognition of the fact that the Choes had originally agreed in the Lease Assignment Agreement to operate a first-class delicatessen during the lease term and any renewal periods, the Settlement Agreement provided that the lease would be extended for five years as long as the Choes complied with each and every one of the improvements to its operation referenced in a document referred to by the parties as the "Shain Memo," by or before January 31, 1995. The Shain Memo was appended to and incorporated into the Settlement Agreement. It was prepared by Arnold Shain, a restaurant consultant. By the terms of the Settlement Agreement, the Choes were required to hire Arnold Shain to supervise the Choes' implementation of improvements to the operation of the Deli. The Settlement Agreement provided that failure to substantially comply with the target dates for the individual improvements listed therein would be grounds for immediate termination of the lease. One of the improvements contained in the Shain Memo was a marketing program, estimated to cost the Choes $500 to $750 per month, during the four-month implementation period. By the terms of the Settlement Agreement, marketing was to begin November 7, 1994.
At the end of the four-month period for implementing improvements under the Settlement Agreement, the trustees evaluated the Skyline Deli and the Choes' improvements and determined that they had not substantially performed their obligations under the Agreement. The case proceeded to trial.
During the four-month implementation period, the trustees had reduced the Choes' rent by $715 per month to offset the cost of the Choes' anticipated expenditures on marketing during the implementation period. At trial, Mr. Shain testified that the Choes had not conducted any marketing during the implementation period. Jin Hse Choe testified that the Choes had distributed coupons to market the Skyline Deli sometime in 1994, but could not recall whether that had been during the implementation period. The trial Judge made an oral finding that "there was no showing before this court, aside from maybe potentially some verbal representations, that any sort of written marketing effort was made" by the Choes. Report of Proceedings of July 10, 1995, at 416. The Judge did not make a similar written finding. The court concluded that the Choes had substantially ...