Unpublished Disposition, 937 F.2d 614 (9th Cir. 1991)

MEMORANDUM^* 

This case arises out of a joint venture agreement between a landowner, plaintiff-appellee University City and a developer, defendant-appellant Price. The agreement contemplated the construction of a major mall on University City's land with the understanding that the mall could not be developed unless key anchor tenants were obtained for it. It was further understood that Price would endeavor to obtain leases with those tenants. In reliance upon this understanding, University City made no efforts to obtain the tenants. No anchor tenants were obtained for this contemplated mall, the mall was never constructed, and the tenants in question eventually signed leases to occupy a mall on other property which was developed by Price. This lawsuit followed.

University City filed this lawsuit against Price alleging that Price did not live up to its agreement to try to obtain tenants, that as a result of Price's breach of its obligations in this regard the mall was not constructed, and that University City was damaged in an amount representing the difference between the value of the undeveloped land and the value it would have had if the mall had been constructed. The complaint claimed entitlement to such damages based upon theories of breach of contract and breach of fiduciary duty under Washington law.

The case went to trial before the district court. In the pretrial statement, University City said it would prove that Price had a duty to pursue the tenants, that Price breached that duty, and that but for that breach the tenants would have signed leases and the mall would have been constructed on University City's land, giving that land a value in excess of $2 million. Price's essential position was that it would prove that it would have been futile to pursue the tenants for the University City mall because the tenants would have gone to the other site in any event.

The facts as found by the district court did not fully support either side. The district court found that Price did breach its obligation to pursue the tenants for the University City mall, but it was unable to find that the mall would in fact have been developed if Price had pursued the tenants for that site. Rather, the court found that there was only a one in four chance that the mall would have been constructed if Price had pursued the tenants for that site. It found that had the mall been developed, University City would have had a seventy percent interest in a project worth $2 million. Following the trial the court asked for supplemental briefs on the issues pertaining to calculation of damages. More specifically, the court asked for briefs on whether lost opportunity damages are recoverable under Washington law.

After receiving the supplemental briefs, the district court concluded that such damages were recoverable under Washington law, which recognizes section 348(3) of the Restatement (Second) of Contracts. See Harding v. Rock, 60 Wash. 2d 292, 373 P.2d 784 (1962). That Restatement section provides:

If a breach is of a promise conditioned on a fortuitous event and it is uncertain whether the event would have occurred had there been no breach, the injured party may recover damages based on the value of the conditional right at the time of the breach.

In Harding, the Washington Supreme Court applied that section in a case analogous to this one. Harding sued for a real estate commission and proved that the defendant's conduct had prevented any possibility that the sale could occur. He did not prove, however, that but for the defendant's conduct, the sale would have occurred. The court, holding that the defendant's conduct deprived the plaintiff only of the possibility of earning a commission, ordered that damage be computed according to the likelihood that the transaction would have been consummated had there been no wrongful conduct.

Applying the reasoning of the Washington Supreme Court to this case, the district court held that because Price's conduct in failing to pursue the tenants deprived University City of the possibility of developing the mall, damages should be calculated on the basis of the likelihood that the mall would have been developed if Price had pursued the tenants. The court had found that likelihood to be one in four; therefore, it awarded University City one-fourth of the value of the interest it would have had in the developed mall. We hold that the district court properly applied Washington law to its findings of fact, which are not clearly erroneous.

Price contends that the district court erred in treating the contractual agreement as a conditional agreement, pointing out that Price's commitment to pursue the tenants on behalf of the University City mall was not a conditional obligation. The contention is flawed because it ignores the overall nature of the agreement between University City and Price. That agreement was to develop a mall as joint venturers. The agreement was conditional because it depended upon obtaining leases for the mall. The development giving rise to a valuable mall was as conditional as the sale giving rise to the commission in Harding v. Rock, supra.

Price also contends that even if section 348 is recognized in Washington and would be applicable to these facts, the plaintiff is not entitled to damages under it because the plaintiff did not set forth such a theory at pretrial. In support of this claim Price cites Pierce County Hotel Employees and Restaurant Employees Health Trust v. Elks Lodge, B.P.O.E. No. 1450, 827 F.2d 1324 (9th Cir. 1987), where the court precluded the assertion of the equitable defenses of laches and estoppel because the defendant failed to include them in the pretrial order. University City correctly points out, however, that the formula by which relief is calculated need not be specifically set out in the pretrial order, and that the court has the authority to order whatever relief it deems appropriate under Fed. R. Civ. P. 54(c). See Arley v. United Pacific Ins. Co., 379 F.2d 183 (9th Cir. 1967), cert. denied, 390 U.S. 950, 88 S. Ct. 1039 (1968) (relief may be granted in a form other than that for which the party in question has asked).

University City has cross-appealed, claiming that the district court should have held that Price's conduct was a breach of fiduciary duty that resulted in eventual success of Price's other venture. In University City's view, the court should have imposed a constructive trust upon Price's profits from the other mall and ordered Price to disgorge its profits in that mall to University City. The district court, however, found that the plaintiff had failed to show that the development of that mall was the result of any violation of duty that Price owed to University City. The court did not find that Price enticed tenants away from University City. It found instead that Price's profits from the other mall development were a result of relationships that were independent of Price's relationship to University City. It also found that there was only a one in four chance that the tenants would have become University City tenants if Price had wooed them on University City's behalf. Given the district court's findings, which are not clearly erroneous, University City was not entitled to recover all of Price's profits from the other mall.

In awarding University City damages in the amount of $350,000, the district court reached a just result that was in accordance with applicable principles of Washington law. The judgment is AFFIRMED. University City is awarded costs on appeal.

AFFIRMED.

WILLIAM A. NORRIS, Judge, concurring in the judgment:

I am unable to agree with the majority that Restatement Sec. 348(3) applies to this case. The claimed breach here is that "Price did not live up to its agreement to try to obtain tenants." Disposition at 2. This promise was unconditional; it was not conditioned on a fortuitous event, the situation envisaged by Sec. 348(3), or on any other event. Rather, it was a straightforward promise to do something, which Price allegedly breached. Thus, Sec. 348(3) cannot possibly apply.

I agree, however, that Price should not be permitted to escape liability for damages because his breach destroyed whatever opportunity University City had for its project to succeed. Although this does not justify recovery under Sec. 348(3), the district court's damage award may and should be affirmed because a wrongdoer should not be permitted to profit from the uncertainty in the amount of damages created by his own wrongdoing. See Wenzler & Ward v. Sellen, 53 Wash. 2d 96, 330 P.2d 1068, 1069-70 (1958); see also Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251 (1946).