Cooke Aquaculture Pacific, Llc., V. Dept. Natural Resource

CourtCourt of Appeals of Washington
DecidedDecember 14, 2021
Docket54564-1
StatusUnpublished

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Cooke Aquaculture Pacific, Llc., V. Dept. Natural Resource, (Wash. Ct. App. 2021).

Opinion

Filed Washington State Court of Appeals Division Two

December 14, 2021

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

DIVISION II COOKE AQUACULTURE PACIFIC, LLC, No. 54564-1-II

Appellant,

v.

WASHINGTON STATE DEPARTMENT OF UNPUBLISHED OPINION NATURAL RESOURCES, and HILARY FRANZ, the Washington Commissioner of Public Lands,

Respondent.

VELJACIC, J. — Cooke Pacific, LLC (Cooke) appeals the superior court’s order affirming

the Department of Natural Resources’ (DNR)1 termination of Cooke’s lease. The Commissioner

of DNR, Hillary Franz, terminated the lease based on Cooke’s default of its lease obligations.

Cooke asserts the superior court erred by applying the arbitrary and capricious standard of review,

rather than the de novo standard of review, to DNR’s decision to terminate the lease. It also asserts

the court erred by affirming the termination decision because a de novo review shows that the

termination was unlawful. Alternatively, Cooke asserts the court erred in finding that DNR’s

decision was not arbitrary and capricious.

We hold that the superior court properly applied the arbitrary and capricious standard of

review because DNR’s decision to terminate the lease was administrative, and that DNR’s decision

1 The respondents are the Commissioner of Public Lands, Hillary Franz (in her official capacity), and the Washington State DNR. Because Cooke’s allegations relate primarily to DNR’s decision regarding its lease, we refer to respondents collectively as “DNR” except where indicated otherwise. 54564-1-II

to terminate the lease was not arbitrary and capricious. Accordingly, we affirm the superior court’s

final order upholding DNR’s lease termination decision.

FACTS

I. BACKGROUND

Since 1984, several private companies have successively leased aquatic lands in Port

Angeles harbor from DNR for finfish aquaculture, which involved the use of floating net pen

structures. Cooke’s Port Angeles fish farm is used “for the net pen farming of Atlantic Salmon . .

. . This includes stocking, husbandry, harvesting, and other activities related to and in support of

this activity.” Administrative Record (AR) at 2447. The facility has two floating net pen structures

within the leasehold area. Cooke uses ancillary equipment within the lease area, to include a

floating wooden support raft, a feeding machine, generators, pumps, pressure washers, and air

compressors. The cage system is moored in place with 38 Danforth-style anchors, chains, and

lines. Tractor tires are used as fenders on the steel structure and come in contact with the water.

The facility also has a staff building located on the larger net pen structure.

In 2014, the United States Navy proposed constructing a pier and support facilities adjacent

to the Port Angeles net pen leasehold. While discussing its project with DNR, the Navy told DNR

that some of Cooke’s anchor and anchor lines were located outside of Cooke’s leasehold area.

Cooke denied that any of its anchors were outside of the leasehold area.

II. 2015 LEASE

Cooke applied to DNR to renew its lease at the Port Angeles location. Ultimately, the

parties signed the lease, and it became effective on October 1, 2015. It was set to expire on

September 30, 2025.

2 54564-1-II

A. Timely Rent

Section 4.1(a) of the lease provided that Cooke must pay DNR rent annually, with rent due

on or before the commencement date (October 1). Historically, Cooke had failed to timely pay its

rent on several occasions.

B. Good Condition and Required Improvements

Section 11.2(a) required Cooke to keep the property and improvements “in good order and

repair, in a clean, attractive, and safe condition.” AR at 2437.

Cooke was also required under the lease to make certain improvements to the property.

Section 7.1(a) of the lease defines “improvements” as “additions within, upon, or attached to the

land,” including “fill, structures, bulkheads, docks, pilings, or other fixtures.” AR at 2421. Section

7.2 defines “existing improvements” as including “thirty-eight (38) Danforth-style anchors.” AR

at 2421.

Exhibit B to the lease provided that Cooke was also required to “replace existing

unencapsulated floatation materials with encapsulated floatation materials” by December 1, 2016.

AR at 2447. This referred to certain floating Styrofoam near a wooden float on the leasehold.

Cooke was also required to ensure that all improvements, defined to include the anchors, were

located entirely on the property within the leasehold by October 1, 2016. As noted above, DNR

had been informed that Cooke placed anchors outside its leasehold.2

2 During lease negotiations, DNR staff wrote an internal memorandum requesting to enter into the new lease and described the issues, including issues with some of the anchoring system being located outside the lease area that Cooke was aware of. The memo stated, in relevant part: Additional obligations were added to Exhibit B. They pertain to . . . ensuring that all improvements are located on the Property. The improvements in question are anchoring systems that may be outside of the current lease area. AR at 498.

3 54564-1-II

C. Leasehold Boundaries

Relatedly, under section 1.2(a) of the lease, Exhibit A provided a legal description of the

property, which Cooke warranted was a true and accurate description of the lease boundaries:

(a) State leases to [Cooke] and [Cooke] leases from State the real property described in Exhibit A together with all the rights of State, if any, to improvements on and easements benefiting the Property, but subject to the exceptions and restrictions set forth in this Lease (collectively the “Property”).

AR at 2416.

D. Default and Event of Default

Section 14.1 of the lease defines “default” to include (1) the failure to pay rent when due

and (2) the failure to comply with any other provision of the lease.

The lease also provided remedies in the event that a party breached provisions in the lease.

Section 14.2(c) defines an “Event of Default”:

State may elect to deem a default by Tenant as an Event of Default if the default occurs within six (6) months after a default by Tenant for which State has provided notice and opportunity to cure and regardless of whether the first and subsequent defaults are of the same nature.

AR at 2439. If an event of default occurred, DNR had the remedies listed in section 14.3, which

included the option to terminate the lease.

III. COMPLIANCE, DNR’S INVESTIGATION, AND DNR’S TERMINATION OF THE LEASE

A. Confirmation of Compliance

On February 10, 2017, DNR asked Cooke to confirm that Cooke was in compliance with

the lease provisions. In particular, DNR inquired whether Cooke was in compliance with the

requirement that Cooke replace the unencapsulated flotation materials and ensure that all

improvements, which includes anchors, were located within the leasehold. Cooke responded three

days later and confirmed that it was in compliance. Cooke stated, “all the tires have been removed

4 54564-1-II

along with the wooden dock. The repairs were made to the concrete barge that sealed up the

broken areas and exposed Styrofoam. And all the improvements are located within the property.”

AR at 1468.

B.

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