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In re Estate of Hayes

Court of Appeals of Washington, Division 3

January 27, 2015

In the Matter of the Estate of Elma L. Hayes . James L. Hayes, Appellant
v.
Jerry D. Hayes, Respondent

Oral Argument September 11, 2014

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Appeal from Lincoln County Superior Court. Docket No: 12-4-00018-1. Judge signing: Honorable John F Strohmaier. Judgment or order under review. Date filed: 08/06/2013.

Robert P. Hailey (of Randall Danskin PS ), for appellant.

C. Matthew Andersen (of Winston & Cashatt, Lawyers ), for respondent.

Authored by George B. Fearing. Concurring: Kevin M. Korsmo, Robert E. Lawrence-Berrey.

OPINION

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George B. Fearing, J.

[185 Wn.App. 574] [¶1] Brothers James and Jerry Hayes dispute the meaning of their mother Elma Hayes' will. James Hayes signed a favorable lease with his mother to farm the family's land. When she died, Elma devised in her will discrete portions of the leased farmland to each of her four children. The dispute requires a ruling as to whether Elma intended to partition the lease into four separate agreements when she partitioned the farmland in her will. James contends she did, such that the lease covering his quarter share of property was extinguished when he became both the landlord and tenant, and, in turn, he could sell his land free of the favorable lease. In turn, James claims the lease continues to encumber his three siblings' leases such that they may not sell their parcels free of the lease favorable to him.

[¶2] Jerry Hayes argues the lease remained one agreement covering the entire four quarters in the aggregate even after the four siblings inherited their parcels under their mother's will. If Jerry is correct, James' subsequent sale of his parcel violated the antialienation clause in the lease, thereby terminating the lease. Jerry Hayes' interests align with the brothers' other two siblings, John Hayes and Patricia Elder.

[¶3] The trial court, after discerning the intent of Elma Hayes and noting the favorable terms of the farm lease to the tenant, agreed with Jerry Hayes. In addition to arguing the merits of the dispute on appeal, James Hayes contends the trial court exceeded its jurisdiction, incorrectly excluded testimony, erroneously took judicial notice of rental rates for Lincoln County farmland, and suffered from bias caused [185 Wn.App. 575] by his upbringing on a farm and former representation as a lawyer of grower clients. We affirm.

FACTS

[¶4] Lloyd and Elma Hayes, husband and wife, farmed 1,225 acres near Hartline, Washington. The couple raised four children, James, John, Patricia, and Jerry.

[¶5] In March 1991, Lloyd Hayes died. In that crop year, the farm suffered its third crop failure in five years. In 1992, the farm suffered another bad year such that the farm had accrued $123,000 of debt. The yoke of this financial burden led matriarch Elma Hayes to convene a family meeting.

[¶6] In 1992, James, Patricia, and John met with their mother at the farm home to discuss retirement of the significant debt. Jerry, who lived out of state, did not attend the conference but told his family that he would concur in any decision. James proposed selling the farm. Elma, however, preferred that one of the three boys work the farm and assume the debt. John declined. Jerry later expressed no interest in undertaking farming operations. James reluctantly accepted farm responsibilities and its debt.

[¶7] As an incentive to work the farm and pay the debt, Elma Hayes leased the 1,225 acres to James for five dollars an acre for 25 years. James accepted the lease because it provided him a decent living until he retired at age 65 and afforded him 25 years to service the debt.

[¶8] Jerry Hayes describes the farm lease as a " sweetheart deal." Clerk's Papers (CP) at 317. A tenant usually pays rent for dryland wheat property in eastern Grant County under a crop share arrangement. The landlord receives one-third of the crop, shares one-third of certain expenses, and pays all property taxes. Jerry calculated the return that the landlord would have received under a crop share basis and concluded that his brother James paid one-fifth of the market rate as rent for the Hartline farmland. Through [185 Wn.App. 576] 2012, James saved $480,000 in rent under the favorable lease, which is four times the debt he assumed on the farm. Mother Elma Hayes also gifted James $50,000 to $100,000 worth of farm equipment.

[¶9] Jerry Hayes also calculated that a landlord under the typical crop share lease would roughly net $15,000 every two years

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on the Hayes' farmland, as compared to $3,000 the landlord receives under the 1993 lease. James recognized this imbalance in a July 26, 2012 e-mail message to Jerry in which he demanded that Jerry pay him to retire the lease at a higher market rate for rent. James wrote:

You are invited to buy out my interest in the lease of your land for the going market price established days ago when the Isaaks bought out my lease for 52,500/crop x 3 years or a total price of $157,500.

CP at 324.

[¶10] Before preparation of the 1993 farm lease, Elma Hayes expressed an intent to keep the family farm as one unit with James as sole tenant and her other three children as co-landlords with herself. In accordance with this intent, attorney Kenneth Carpenter drafted a lease naming Elma, John, and Jerry Hayes and Patricia Elder as co-landlords. At trial, Carpenter testified the co-landlordship arrangement matched Elma Hayes' 1990 will, which kept the farm in one unit rather than dividing the farmland into separate parcels for each child. Carpenter, however, did not draft Elma's 1990 will.

[¶11] After Kenneth Carpenter's draft of the 1993 farm lease, Elma Hayes informed Carpenter that she questioned designating her other children as co-landlords. Carpenter advised Elma to be the only landlord signing the lease.

[¶12] On December 22, 1993, Elma and James Hayes signed the farm lease respectively as sole landlord and tenant. John, Jerry, and Patricia did not sign the lease, although the lease contained signature lines for them. The lease entitled James to all crop revenue and any crop [185 Wn.App. 577] subsidies from the United States government. James agreed to pay Elma Hayes $6,125 annually and to pay two loans. Four important paragraphs of the lease read:

10. Indulgence not a waiver. Any indulgence in the breach of any term, condition, or covenant of this Lease by the Landlord shall not constitute a waiver nor consent to a continuation or subsequent breach thereof.
11. Attorneys Fees, Law and Venue. In the event of a breach by any party of any of the terms and conditions of this Lease, the prevailing party shall be entitled to reasonable attorney's fees and court costs against the other party. This lease is made in accordance with, and shall be interpreted and governed by, the laws of the State of Washington. If any action or other proceedings shall be brought on or in connection with this Lease, the venue of such action shall be in Grant County.
... .
13. No Other Agreements. It is understood that this Lease cancels all other agreements, written or oral, entered into or agreed upon by and between the Landlord and the Tenant.
14. Binding Effect-Assignments-Personal to Tenant. This Lease shall be binding upon the heirs, personal representatives, and assigns of the Landlord herein. It is understood that this Lease is personal to the Named Tenant, and no assignment or subletting or transfer by operation of law by the Tenant will be recognized, without the written consent of the Landlord. In the event the Tenant cannot personally perform the terms, conditions, and covenants required herein upon the Tenant, then this Lease will terminate immediately.

CP at 21-22.

[¶13] After execution of the farm lease, Elma Hayes told her attorney Kenneth Carpenter that retaining the farm as one unit after her death was not a good idea. Carpenter, at Elma's request, prepared deeds to convey to each child a partial interest in separate portions of the farmland. In 2003, Elma asked Carpenter to prepare a new will to effectuate her plan to give each child complete ownership and control over a distinct parcel of farmland. The farmland [185 Wn.App. 578] was already conveniently separated into four detached parcels.

[¶14] Elma Hayes signed her last will and testament on January 28, 2003. The will reads, in pertinent part:

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ARTICLE V
Specific Bequests
l. I hereby give, devise and bequeath to my son, JERRY D. HAYES, the following real property:
All of Section 6, Township 25 North, Range 30 E.W.M., South of right-of-way and East of Hartline, Grant County, Washington, Parcel No. 18-1791-000.
2. I hereby give, devise and bequeath to my son, JAMES L. HAYES, the following real property:
The South Half (S ½ ) of Section 17, Township 25 North, Range 30 E.W.M., Grant County, Washington, Parcel No. 18-1827-000.
3. I hereby give, devise and bequeath to my son, JOHN D. HAYES, the following real property:
The East Half (E ½ ) of Section 18, Township 25 North, Range 30 E.W.M., Grant County, Washington, Parcel No. 18-1828-000.
4. I hereby give, devise and bequeath to my daughter, PATRICIA A. ELDER, the following real property:
The West Half (W ½ ) of Section 20, Township 25 North, Range 30 E.W.M., Grant County, Washington, Parcel No. 18-1833-000.
ARTICLE VI
Distribution of Residue
I hereby give, devise and bequeath all of the rest, residue and remainder of my property of every kind, nature and description, wheresoever located or situated unto JAMES L. HAYES, JOHN D. HAYES, JERRY D. HAYES, and PATRICIA A. ELDER, as their sole and separate property.

CP at 200-01.

[185 Wn.App. 579] [¶15] Elma Hayes died in February 2012. James Hayes and Patricia Elder serve as copersonal representatives of Elma's probate estate. With attorney Kenneth Carpenter's assistance, James and Patricia created an inventory of Elma's assets. The inventory lists the farm property, but not Elma's landlord interest under the 1993 farm lease. On June 18, 2012, James and Patricia distributed the farm parcels in accordance with Elma's 2003 will. The personal representatives did not expressly distribute the landlord's interest in the lease.

[¶16] In July 2012, the four Hayes children met. According to Jerry Hayes, he received the least valuable land, while his brother James Hayes received the most valuable land. Because of this imbalance, the family agreed, at the meeting, that they would collectively bargain as a single unit with any prospective buyer of the land. The siblings wished to use a buyer's desire for the best land as leverage to achieve a higher land price for siblings who inherited less desirable land. The four rejected a pending offer from Isaak Land Inc., which owned neighboring property, to purchase all 1,225 acres of the family farm. Patricia, John, and Jerry wished James to continue farming the land, in part because James insisted on being paid to cancel the lease to free the land for sale.

[¶17] On August 3, 2012, two weeks after the family meeting, James Hayes sold his parcel to Isaak Land for $575,000. In the contract, James warranted that he had " full power and right to sell and convey the property ... free and clear of all liens, encumbrances, and defects." CP at 341.

[¶18] Jerry Hayes contends James Hayes' sale of the latter's parcel cancels the entire farm lease. Accordingly, Jerry sent his brother James an e-mail message informing James that they should enter a new lease more representative of the market rate. James disagreed that his sale terminated the lease on his siblings' three parcels and offered Jerry the opportunity to purchase the tenant's interest in the lease for $157,500. James warned Jerry that [185 Wn.App. 580] he intended to farm his siblings' three parcels for those years remaining in the 25-year lease. James wrote:

Dear Landlord.
You are invited to buyout my interest in the lease of your land for the going market price established days ago when the Isaaks bought out my lease for 52,500/crop x 3 years or a total price of $157,500. You

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may then extend your 30/70 offer to any tenant you can find in the area. This offer last [sic] for 30 days.

CP at 315.

[¶19] Jerry Hayes calculated that if he and his other two siblings accepted James' offer they each would receive less than $100,000 in inheritance. James, in turn, with the buyout of the lease from his three siblings and the purchase price from Isaak Land, would inherit over $1,000,000. Because Jerry could no longer sell his less favorable land with James' more favorable land, Jerry estimated that his land decreased in value by $50,000 to $150,000.

[¶20] On October 30, 2012, Jerry sent James formal notice of termination of the lease on Jerry's parcel. James politely responded to his brother, " Jerry you are full of crap ... I categorically reject your termination ... . See you in court." CP at 326 (alteration in original).

PROCEDURE

[¶21] In February 2013, Jerry Hayes filed an unlawful detainer action against his brother James in Grant County Superior Court. The action seeks to evict James from Jerry's land. The record from that case is not before this court.

[¶22] James Hayes filed this separate Lincoln County action, a petition under the Trust and Estate Dispute Resolution Act (TEDRA), ch. 11.96A RCW, for a declaration of rights. In his TEDRA petition, James sought a court declaration that his mother intended to partition the 1993 farm lease into four disconnected leases based on the four [185 Wn.App. 581] parcels. He asked the trial court to find four separate leases, under which he is the tenant and the sole landlord is the one sibling who owns that parcel. In support of his petition, James Hayes filed declarations from himself and attorney Kenneth Carpenter.

[¶23] Jerry Hayes responded to the TEDRA petition by asserting a variety of counterclaims not relevant to this appeal and moved the superior court to strike his brother's and Kenneth Carpenter's declarations. Jerry contended Carpenter's declarations violated the attorney-client privilege. Jerry argued James' declaration violated Washington's dead man's statute.

[¶24] The court scheduled a hearing for June 20, 2013 to resolve the TEDRA petition. In his prehearing memorandum of law, James Hayes identified two primary factual issues the court should determine at the hearing:

1. Whether it was the intention of the decedent, Elma L. Hayes, to partition the 1993 Farm Lease into four separate leases, each such partitioned lease applicable to a single parcel of real property, and each such partitioned lease with a single Beneficiary as landlord, consistent with Article V of decedent's Last Will and Testament dated January 28, 2003 (as opposed to an intention to grant undivided interests in the 1993 Farm Lease, as tenants-in-common); and
2. Whether it was the intention of decedent, Elma L. Hayes, to preclude each Beneficiary from enforcing the covenants set forth in the 1993 Farm Lease, to the extent that those covenants do not apply directly to the parcel of real property bequeathed to that Beneficiary (as opposed to an intention to grant each Beneficiary the right to enforce such covenants as they may apply to parcels of real property bequeathed to other Beneficiaries).

CP at 139-40.

[¶25] At the TEDRA hearing, the parties disputed the scope of the issues for the trial court to resolve. The trial court knew of the unlawful detainer action pending before the Grant County Superior Court. Thus, the court asked the [185 Wn.App. 582] parties how he could avoid issuing a ruling that interfered with the unlawful detainer action. The parties' respective answers evolved during the hearing. James Hayes initially identified the issues before the trial court as Elma Hayes' intention with respect to her devise of the real property and the farm lease. The trial court restated James' answer in order to isolate the crux of the disputed question: " The question is when [James] sold this property to the Isaacs [sic], did this ... unlawful transfer void the lease." Report of Proceedings (RP) at 34. Jerry Hayes objected,

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" [T]hat's the issue before [the Grant County Superior Court]." RP at 34. Jerry characterized the issue before the trial court as whether the lease remains in the estate and whether there are four separate leases.

[¶26] The trial court understandably expressed concern that two judges were presiding over the same dispute. James Hayes attempted to clarify his request as being one to distribute the lease in accordance with his mother's intent of devising a separate lease for each child. James stated, " The issue is, was there an intent for [James] to forfeit his right to farm the leases of--sorry, farm the property of Patricia, John, and Jerry. Did Elma intend him to forfeit his right to farm those properties just because he sold his property." RP at 43. After trial court comments unfavorable to his position, James further refined the scope of his request:

[W]e didn't ask you, Your Honor, to decide whether or not Mr. Hayes violated the lease. Okay? That's not before you. The issue before you is, one, for issuance of a declaration acknowledging and recognizing the intention of the decedent Elma L. Hayes, to partition the [1993] farm lease into four separate leases, each sub partitioned lease applicable to a single parcel of real property and each sub partitioned lease with a single beneficiary or landlord consistent with Article V, with decedent's last will and testament dated January 28th, 2003. ... And then for issuance of a further declaration acknowledging and recognizing the intention of the decedent, Elma L. Hayes, to preclude each beneficiary from enforcing the covenants set forth in the [185 Wn.App. 583] 1993 farm lease to the extent that those covenants do not apply directly to the parcel of the real property bequeathed to that beneficiary.
... .
Once we have those declarations, then [the Grant County Superior Court] can use the intent of the testatrix in order to decide what to do ...

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