The Roche Harbor Resort consists of 2,400 acres, 8,000 feet of waterfront, a hotel, restaurant, church, air strip, marina, and other resort facilities on the northwest corner of San Juan Island in Washington State. The stockholders of the corporation holding the Roche Harbor Resort signed a contract to sell it to a buyer for approximately $7 million. 16 days after the contract was signed, the sellers received what they decided was a better offer for the 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 the subsequent action for breach of contract, the plaintiff/purchaser's attorney Dean Brett confronted two primary problems: on liability, the contract had only been signed by two of the three shareholder groups, and on damages, how could the plaintiff show substantial damages for breach of contract?
From pre-purchase negotiations, the plaintiff had learned of an internal Shareholders Agreement 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, Dean Brett successfully obtained Summary Judgment on Liability, which means that the court ruled that no factual issues remain to be tried related to liability and therefore the cause of action was decided upon without trial.
Since the Court found that this was a valid contract, the defendants then demanded that damages be assessed by an arbitration panel under an arbitration clause in the contract. The plaintiff's attorney was therefore tasked with proving that 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.
The defendant's business valuation expert testified that the heavily indebted corporation was worth approximately what purchaser had offered to pay for it, and consequently no damages resulted from the breach of the contract. Brett Murphy attorney Dean Brett pointed out that if the contract had been performed, the underlying real property would have been obtained by purchasers. An appraiser assessed the underlying property value at $9.8 million. Dean Brett then pieced together the defendant's string of subsequent sales following the breach of contract to demonstrate that between breach and arbitration hearing, the defendants had sold portions of the property for $4.5 million, $750,000, and $650,000, and had retained portions of the property worth an additional $5 million.
After two weeks of testimony, the arbitration panel awarded the plaintiff 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.
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