United States District Court, W.D. Washington, Seattle
Honorable Richard A. Jones United States District Judge
matter comes before the Court on appellant, New Investments
Inc.'s (“New Investments”) appeal from the
Bankruptcy Court's final judgment entered on August 26,
2016. Dkts. 1, 17, 18. Appellee, Altanatural Corporation
(“Altanatural”), filed a brief in opposition,
Dkt. 21, and New Investments filed a reply, Dkt. 22.
Investments filed for Chapter 11 bankruptcy and subsequently
entered into a purchase agreement with Altanatural for the
sale of its main asset --a hotel located in Kirkland,
Washington (the “Property”). The deed for the
sale of the Property did not identify a parking easement (the
“Easement”) granting the use of 14 parking spaces
to a neighboring condominium complex. Altanatural did not
discover the Easement until after closing. In addition, after
closing, New Investment continued to occupy two guest rooms
and storage space at the hotel, purportedly without consent
Investments appeals the final judgment of the Bankruptcy
Court, arguing that the Bankruptcy Court erred in: (1)
calculating damages due to the easement; (2) justifying
suspension of performance; (3) interpreting the promissory
note and applying the equitable doctrine of recoupment; and
(4) applying the waiver/estoppel defense with respect to New
Investments' occupation of various guest rooms and
Court affirms the Bankruptcy Court's decision. First,
after concluding that there was a reasonable certainty as to
the fact of damages, the Bankruptcy Court set the damages due
to the Easement at $350, 000, which was within the range of
admissible evidence. Second, because New Investments'
actions constituted a material breach, Altanatural was
justified in suspending interest payments under the
Promissory Note. Third, Altanatural was entitled to recoup
the judgment against the principal balance of the Promissory
Note, as the language waiving offset did not include claims
that fell within the equitable remedy of recoupment. And
finally, the Bankruptcy Court properly rejected New
Investments waiver and estoppel defenses, and correctly found
that New Investments did not have a right to occupy the hotel
property after November 2014.
most part, New Investments has not challenged on appeal the
Bankruptcy Court's findings, so the Court draws the
factual recitation from the Bankruptcy Court's findings
of facts and conclusions of law entered on May 6, 2016 and
oral ruling entered on August 18, 2016. Dkt. 18, DR 32
(findings of fact and conclusion of law); DR 44 (oral
ruling). On February 4, 2013, New Investments filed a
voluntary petition for Chapter 11 bankruptcy. Bankruptcy Case
No. 13-bk-10948, Dkt. 1 at 1. New Investments' primary
asset was real property including a hotel and restaurant,
located at 12233 Totem Lake Way, Kirkland, Washington 98034
(the “Property”). Id.
September 12, 2013, New Investments and Altanatural entered
into Purchase and Sale Agreement and three separate addendums
(the “PSA”), in which Altanatural agreed to
purchase the Property from New Investments for $6, 325,
228.00. Dkt. 18, DR 32 at FF No. 1. Altanatural paid $3, 000,
000 of the purchase price as a down payment, and the
remaining $3, 325, 228.00 in a promissory note (the
“Promissory Note”) executed in favor of New
Investments, which was secured by a deed of trust against the
Property. Dkt. 18, DR 32 at FF No. 2.
required New Investments to: (1) deliver a Special Warranty
Deed (“Special Warranty Deed”) to Altanatural
conveying the Property with only those encumbrances permitted
by the Special Warranty Deed and (2) deliver quiet possession
of the Property and clear, marketable title at closing. Dkt.
18, DR 32 at FF Nos. 2, 3. The parties closed the sale on
October 4, 2013 and the PSA was incorporated into New
Investments' Second Amended Plan of Reorganization. Dkt.
18, DR 32 at FF No. 3.
Special Warranty Deed did not identify a parking easement
(the “Easement”) that New Investments had granted
to a neighboring condominium complex, Chelsea Court II, LLC.
Dkt. 18, DR 32 at FF No. 6. The Easement granted exclusive
use of 14 parking spots on the Property. Dkt. 18, DR 32 at FF
Nos. 6-7. In the spring of 2014, Altanatural learned of the
Easement. Dkt. 18, DR 32 at FF No. 6.
parties agreed that New Investments' President, Shabnam
Aziz, would train and assist Altanatural following the
closing, and that she could occupy guest room 227 at the
Property. Dkt. 18, DR 32 at FF No. 4. Altanatural did not
give express consent for New Investments to occupy any other
rooms. Id. Following the closing, New Investments
and members of the Aziz family that owned New Investments
continued to occupy ten storage rooms and guest rooms 153,
154, 227 and 228 at the Property. Dkt. 18, DR 32 at FF No. 5.
several months until November 2014, the parties worked to
resolve these issues. During this time, Dr. William Xiong,
Executive Vice President of Altanatural, agreed to New
Investments' use of the occupied storage rooms, offices,
and guest rooms. Dkt. 18, DR 32 at FF No. 9. On November 13,
2014, Altanatural delivered a letter to New Investments and
its counsel, demanding that New Investments pay for its use
of the rooms, honor its warranties of title and indemnify
Altanatural or otherwise have the Easement removed as
encumbrance. Dkt. 18, DR 32 at FF No. 10.
New Investments failed to address the defaults, Altanatural
suspended its payments under the Promissory Note and withheld
interest payments for November and December and the December
31, 2014 balloon payment. Dkt. 18, DR 32 at FF No. 11. Until
that point Altanatural had made monthly interest payments on
the Promissory Note, totaling over $180, 000. Dkt. 18, DR 32
at FF No. 8. The parties negotiated a settlement for several
months, and in March 2015 reached an agreement (the
“Settlement Agreement”) on the material terms of
a resolution: a balloon payment of $2, 990, 000.00 (reduced
from $3, 325, 228.00) from Altanatural to New Investments;
allocation of the payment in a manner proposed by New
Investments; and a right for New Investments to use the hotel
rooms on the Property through December 31, 2015. Dkt. 18, DR
32 at FF No. 17. However, the Bankruptcy Court determined
that the Settlement Agreement was not enforceable, and
therefore it was not approved. Dkt. 18, DR 32 at FF No. 18;
DR 44 at 4.
November 2014 and December 2015, storage rooms 1-7, 9, and 10
contained items that were associated with the hotel and/or
were not occupied. Dkt. 18, DR 32 at FF No. 18. Storage room
8 was occupied for 377 days and contained non-hotel items.
Dkt. 18, DR 32 at FF No. 19. Guest rooms 153, 154, and 156
were not occupied, and it is unclear whether the two offices
were occupied in a manner that would preclude use by
Altanatural. Id. From November 2014 to October 2015,
Shabnam Aziz occupied guest room 288, and her parents,
Sheraly Aziz and Zeri Aziz, occupied guest room 227. Dkt. 18,
DR 32 at FF No. 20.
23, 2015, Altanatural filed an adversary proceeding against
New Investments. Adversary Case No. 15-ap-01188, Dkt. 1. On
August 20, 2015, Altanatural moved for partial summary
judgment, claiming a breach of warranty on the Special
Warranty Deed and the PSA. Dkt. 18, DR 2. On October 8, 2015,
the Bankruptcy Court held oral arguments on Altanatural's
motion for partial summary judgment. Dkt. 18, DR 41. On
November 12, 2015, the Bankruptcy Court entered an order
granting Altanatural's motion in part, leaving the issue
of damages for trial. Dkt. 18, DR 14.
was held on March 10 and 11, 2016. Dkt. 18, DR 42. On May 6,
2016, the Bankruptcy Court entered findings of fact and
conclusions of law following trial. Dkt. 18, DR 32. On July
21, 2016 the Bankruptcy Court held a subsequent hearing to
set the judgment amount and the parties submitted additional
briefing. Dkt. 18, DR 43. On August 18, 2016, the Bankruptcy
Court made an oral ruling that it incorporated into its
findings of fact and conclusions of law. Dkt. 18, DR 44. The
Bankruptcy Court then entered a judgment against New
Investments in the principal amount of $415, 848.00 that
would be recouped against the remaining payments due under
the Promissory Note. Dkt. 18, DR 44 at 21. The Bankruptcy
Court stayed enforcement of the judgment pending the appeal,
but set aside $230, 000 to pay the judgment and any fees and
costs that Altanatural accrued. Dkt. 18, DR 49.
Investments promptly appealed. Dkt. 1.
courts have jurisdiction to hear appeals from a final
judgment and order in a bankruptcy proceeding. See
28 U.S.C. § 158(a)(1). A district court reviews the
bankruptcy court's conclusions of law de novo and reviews
determinations of fact for clear error. See In
re Crow Winthrop Operating P'ship, 241 F.3d 1121,
1123 (9th Cir. 2001) (citing In re Video Depot,
Ltd., 127 F.3d 1195, 1197 (9th Cir. 1997)).
issues raised on appeal are limited to those addressed below.
Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir. 1999)
(“[A]n appellate court will not consider issues not
properly raised before the [trial] court.”); Alaska
Airlines, Inc. v. United Airlines, Inc., 948 F.2d 536,
546 n. 15 (9th Cir. 1991) (“[A]n appellate court will
not reverse a district court on the basis of a theory that
was not raised below.”). The court can affirm the
bankruptcy court's ruling on any basis supported by the
record. See, e.g., Dittman v. California,
191 F.3d 1020, 1027 n.3 (9th Cir. 1999).
Calculation of ...