IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON DIVISION ONE
MD INJURY CARE P.S., a Washington No. 87218-4-I professional service corporation,
Appellant,
v. UNPUBLISHED OPINION
CENTIOLI & BIESOLD LLC, a Washington limited liability company,
Respondent.
BOWMAN, A.C.J. — MD Injury Care PS (MD) appeals the trial court’s order
dismissing its breach of contract claim against Centioli & Biesold LLC (Centioli).
It argues the trial court erred by ruling that the implied duty of good faith and fair
dealing did not apply to Centioli’s exercise of discretion in approving proposed
signage under its commercial lease. Because the implied duty of good faith
applied to Centioli’s exercise of discretion and a reasonable juror could infer from
the undisputed evidence that Centioli did not act in good faith, we reverse and
remand for further proceedings.
FACTS
Centioli owns and manages Genesee Plaza, a retail shopping center in
Seattle. Centioli leases units within the plaza to various commercial tenants. In
2000, Centioli executed a lease with Walgreen Co. (Walgreens). The lease
contained an exclusivity provision providing that except for Walgreens, “no
portion” of Genesse Plaza’s commercial space would be used for “the operation No. 87218-4-I/2
of a medical diagnostic lab and/or the provision of treatment services.” The lease
was set to expire on August 31, 2021, but it contained an option to extend
through December 2030 with an option notice date of February 28, 2021.
In March 2019, MD asked Centioli to lease commercial space in Genesee
Plaza. MD specializes in medical evaluation and treatment for patients injured in
motor vehicle accidents. MD operated several clinics under different names,
including “MD Injury Care” in Renton and “Auto Injury Urgent Care” in Federal
Way. MD used Auto Injury Urgent Care for the Federal Way clinic because
unlike the Renton clinic, it relied more on foot traffic than medical referrals, and
MD believed that the descriptive and attention-grabbing name attracted more
patients.
Before agreeing to execute a lease with MD, Centioli contacted Walgreens
to seek its consent. Walgreens at first rejected the idea because of a concern
that MD’s business may conflict with its own in-store medical clinic. But after
several months of communication, Centioli ultimately secured Walgreens’
consent. Centioli asked Walgreens whether “any conditions” were tied to its
consent for MD’s use, and Walgreens imposed none. Walgreens assured
Centioli that “this is a successful Walgreens location that we anticipate to operate
long-term.”
In November 2019, MD and Centioli executed a lease. The lease
identified MD’s trade name as “MD Injury Care.” It called for MD to begin paying
monthly rent on February 1, 2020 and required MD to keep the premises open
for business “during the entire term” of the lease. And the exclusivity provisions
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in Walgreens’ lease influenced the terms of MD’s lease. Section 1.1.4 of MD’s
lease specified that MD could operate as a “[s]pecialty musculoskeletal injury
clinic, including physical and massage therapy,” but nothing more. Further,
under section 9.5 of the lease, MD agreed to comply with any existing covenant,
including the exclusivity clause in Walgreens’ lease.
Section 28 of the lease governed MD’s signage. It provided that MD must
“erect one sign on the front of the Premises no later than the date Tenant opens
for business, in accordance with a design to be prepared by Tenant and
approved in writing by Landlord.” And MD could not install a sign without
Centioli’s written approval. Finally, section 28 provided that “[i]n the event
Tenant shall install a sign which does not meet the Landlord’s sign criteria,
Landlord may notify the Tenant in writing about the non-conformities of the
signage” and have it removed at MD’s expense. The lease did not define
“Landlord’s sign criteria.”
In January 2020, MD proposed a sign to Centioli for approval. The sign
identified the clinic as Auto Injury Urgent Care. MD chose to use that name
because like the Federal Way clinic, it intended to rely on foot traffic to attract
clients. Centioli expressed concern about the sign. It e-mailed MD, saying:
I think the change from MD Injury Care to Auto Injury Urgent Care may be problematic. As you know, it took months to obtain Walgreens’ approval of MD Injury Care, which is also the Trade Name in the Lease. Accordingly, I think any departure from that name would need to be vetted, and I’m concerned that the use of Urgent Care (as opposed to Injury Care) may infringe on Walgreens’ business, which currently includes an onsite Swedish Express Care.
MD did not respond to Centioli’s e-mail.
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Rent commenced under the lease on February 1, 2020, but MD did not
open for business. Over the following months, Centioli repeatedly asked MD to
confirm that it would use signage bearing its approved trade name and to provide
an update on its plan to open for business. In March 2020, both parties tried to
reach a consensus on the signage issue, including discussing it by phone. But in
June 2020, Centioli again told MD that its signage needed to use the trade name
approved by Walgreens, saying:
As a follow-up to our call, the operation needs to match that which is named in the Lease and approved by Walgreens. If you choose to advertise additional services, the Landlord makes no representation or warranty that it will be acceptable to Walgreens, and you agree to indemnify the Landlord for any damages that may result.
In response, MD argued that Walgreens’ exclusivity clause restricted only
MD’s permitted use of the space. And no part of the lease required MD to
operate under its trade name. MD also emphasized that Centioli’s refusal to
approve its proposed sign created “hesitancy of uncertainty[,] limiting [its]
initiation of starting operations.” Still, Centioli maintained its position, stating that
it would “defer to Walgreens’ opinion” on the propriety of MD’s proposed signage
and that MD agreed to assume the risk of not using its trade name as it appeared
in the lease.
On September 16, 2020, Walgreens notified Centioli that it intended to
exercise the extension on its lease and wanted to discuss specific terms. It told
Centioli that “time is of the essence,” as the option notice deadline was February
2021.
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In November 2020, Centioli notified MD that it breached the lease by
failing to open and carry on business during the term of the lease, which
commenced on February 1, 2020. It told MD that it would charge additional rent
“equal to 1/30th of the Monthly Base Rent” for each day MD is in breach.1
Centioli sent MD e-mails in January and February, reminding it of the breach.
In June 2021, four months later, MD responded that the “only” delay in
opening was because of staff shortages caused by the COVID-19 pandemic and
that it would open “as soon as [it] can.” Around that time, MD installed two signs
on its storefront facing Walgreens, identifying the clinic as Auto Injury Urgent
Care. But MD did not open the clinic at that time because it wanted to first gauge
Walgreens’ response to the signage. Walgreens did not object.
After seeing the signs, Centioli again instructed MD to use its approved
trade name. MD refused and insisted on operating as Auto Injury Urgent Care.
Centioli again told MD that it had no approval to operate under that name and
that its noncompliance could result in legal repercussions. MD proposed the
parties arrange a meeting with Walgreens to resolve the dispute. But Centioli
refused, asserting that MD must “operate within the parameters of our Lease,
which required third-party consent and is restricted thereby.” And Centioli
refused to otherwise contact Walgreens to ask its opinion about the sign.
In July 2023, Centioli’s attorney sent MD a “Demand for Lease
Compliance and Payment of Arrearage.” The demand notified MD it had
1 Under section 31 of the lease, in the event MD did not timely open for business,
Centioli had the right to “collect not only the Monthly Base Rent herein provided, but additional rent at the rate of one-thirtieth (1/30) of the Monthly Base Rent herein provided for each and every day that Tenant shall fail to conduct its business.”
5 No. 87218-4-I/6
breached the lease under section 31 by not opening and owed $165,022.37,
consisting mostly of unpaid additional rent and default interest. Centioli gave MD
10 days to contact it and arrange for payment in full or face an unlawful detainer
action. MD disputed the breach, arguing it could not open for business because
of Centioli’s “unreasonable restrictions” on signage. MD demanded Centioli
remove the restrictions and pay damages and reserved the right to sue. Centioli
then initiated an unlawful detainer action but dismissed it in September 2023
when MD surrendered the property.2
In August 2023, MD sued Centioli for breach of contract. MD alleged that
Centioli’s unreasonable refusal to approve its proposed signage violated the
implied duty of good faith and fair dealing. MD asked for damages and attorney
fees. Centioli counterclaimed, alleging that MD breached the lease by failing to
timely open and operate its clinic. Centioli also asked for damages, including
“past due rent and other charges.”
Both parties moved for summary judgment. MD asked the court to grant
partial summary judgment in its favor, finding that Centioli breached its implied
duty of good faith and fair dealing and that section 31 of the lease amounted to
an “unenforceable [ ] unlawful penalty.” Centioli asked the court to find that the
implied duty does not apply to the lease provision governing signage and dismiss
MD’s lawsuit. Centioli also asked for attorney fees and costs and a judgment for
$89,778.19, consisting of unpaid rent, unpaid triple-net amounts, late fees, and
interest.
2 Centioli’s unlawful detainer action is not at issue in this appeal.
6 No. 87218-4-I/7
In July 2024, the trial court granted Centioli’s motion for summary
judgment, dismissed MD’s breach of contract claim with prejudice, and entered
judgment for Centioli for $89,778.19 in unpaid rent. The court denied MD’s
motion for partial summary judgment. Centioli then moved to voluntarily dismiss
any remaining claims, and the court granted its motion without prejudice. Finally,
Centioli moved for attorney fees and costs under the lease. The court granted
the motion and awarded Centioli $108,775.94 in attorney fees and costs.
MD appeals.
ANALYSIS
MD argues the trial court erred by dismissing its breach of contract claim
at summary judgment and awarding attorney fees and costs to Centioli without
first segregating fees for abandoned claims. Centioli also asks for appellate
attorney fees and costs. We address each argument in turn.
1. Summary Judgment
We review a grant of summary judgment de novo, engaging in the same
inquiry as the trial court. Kelley v. Tonda, 198 Wn. App. 303, 310, 393 P.3d 824
(2017). Summary judgment is proper only if there are no genuine issues of
material fact and the moving party is entitled to judgement as a matter of law.
CR 56(c); Vasquez v. Hawthorne, 145 Wn.2d 103, 106, 33 P.3d 735 (2001).
A defendant moving for summary judgement can challenge whether the
plaintiff can produce competent evidence to support the essential elements of its
claim. Boyer v. Morimoto, 10 Wn. App. 2d 506, 519, 449 P.3d 285 (2019). The
plaintiff must then provide sufficient evidence to support those elements. Young
7 No. 87218-4-I/8
v. Key Pharms., Inc., 112 Wn.2d 216, 225, 770 P.2d 182 (1989). The plaintiff
may not rely on the allegations in their pleadings. Id. Rather, the plaintiff must
respond with evidence setting forth specific facts to show that there is a genuine
issue for trial. Id. at 225-26. We consider all facts submitted and draw all
reasonable inferences therefrom in a light most favorable to the nonmoving party.
Ellis v. City of Seattle, 142 Wn.2d 450, 458, 13 P.3d 1065 (2000).
The trial court should grant summary judgment when the undisputed
material facts show that “reasonable persons could reach but one conclusion.”
Vasquez, 145 Wn.2d at 106. But summary judgment is improper if those facts
can support reasonable but conflicting inferences. Southside Tabernacle v.
Pentecostal Church of God, 32 Wn. App. 814, 821, 650 P.2d 231 (1982).
We interpret the terms of a contract de novo. Viking Bank v. Firgrove
Commons 3, LLC, 183 Wn. App. 706, 712, 334 P.3d 116 (2014). In doing so, we
try to determine the parties’ intent by focusing on the objective manifestations of
the contract rather than on the unexpressed subjective intent of the parties.
Hearst Commc’ns, Inc. v. Seattle Times Co., 154 Wn.2d 493, 503, 115 P.3d 262
(2005). “Clear and unambiguous contracts are enforced as written.” Grey v.
Leach, 158 Wn. App. 837, 850, 244 P.3d 970 (2010).
A party alleging breach of contract must show that the contract creates a
duty, that the defendant breached that duty, and that the breach proximately
harmed the claimant. Nw. Indep. Forest Mfrs. v. Dep’t of Lab. & Indus., 78 Wn.
App. 707, 712, 899 P.2d 6 (1995). Every contract carries an implied duty of good
faith and fair dealing. Badgett v. Sec. State Bank, 116 Wn.2d 563, 569, 807 P.2d
8 No. 87218-4-I/9
356 (1991). Generally, this requires mutual cooperation so that each party “may
obtain the full benefit of performance.” Id. Parties to a contract must maintain
“ ‘faithfulness to an agreed common purpose and consistency with the justified
expectations of the other party.’ ” Edmonson v. Popchoi, 172 Wn.2d 272, 280,
256 P.3d 1223 (2011) (quoting RESTATEMENT (SECOND) OF CONTRACTS § 205 cmt.
a (AM. LAW INST. 1981)).
The implied duty of good faith and fair dealing does not impose a “free-
floating obligation of good faith on the parties.” Rekhter v. Dep’t of Soc. & Health
Servs., 180 Wn.2d 102, 113, 323 P.3d 1036 (2014). Instead, the duty arises
when one party has discretionary authority to determine a future contract term.
Id. at 113. The duty does not apply when a contract gives one party
unconditional authority to determine a term. Id. at 119-20. And the duty does not
add or contradict express contract terms. Id. at 113.
In Rekhter, the Department of Social and Health Services (DSHS)
contracted with individual care providers to deliver essential services to its
clients. 180 Wn.2d at 108. But the contracts gave DSHS the discretion to pay
care providers for “authorized hours,” a term to be defined by DSHS after the
contracts were finalized. Id. at 112. DSHS later created a rule that reduced
authorized hours, and the care providers sued, alleging breach of the implied
duty of good faith and fair dealing. Id. at 108-10. Our Supreme Court concluded
that the implied duty of good faith applied to DSHS’ definition of the contract
term. Id. at 112. It reasoned that the contract gave DSHS discretion over future
terms, leaving DSHS with “a specific contractual obligation to determine and pay
9 No. 87218-4-I/10
providers for hours authorized in the service plans.” Id. at 113. This left DSHS
with the discretion to set a future contract term—the quantity of hours and types
of services for which providers will be compensated. Id. at 113-14. And the trial
court properly instructed the jury that DSHS violated that duty if it exercised its
discretion “ ‘in a manner that prevented the provider from attaining his or her
reasonable expectations under the contract.’ ” Id. at 119.
Here, section 28 of the lease prohibited MD from erecting a sign without
Centioli’s approval. And under the lease, Centioli was to decide whether to
approve the signage by applying the “Landlord’s sign criteria.” But the lease did
not define the “sign criteria.” So, the lease left Centioli with a specific contractual
obligation after the lease was executed—to determine the “sign criteria” and
apply it to MD’s proposed signage. And, like DSHS’ definition of “authorized
hours” in Rekhter, Centioli’s exercise of discretion in defining the sign criteria
could prevent MD from attaining its reasonable expectations under the lease.
Because the lease required MD to “erect one sign on the front of the Premises
not later than the date [MD] opens for business,” Centioli’s refusal to approve a
sign could force MD to breach the lease. As a result, the implied duty of good
faith and fair dealing applied to Centioli’s exercise of discretion in defining the
sign criteria.
Citing Johnson v. Yousoofian, 84 Wn. App. 755, 930 P.2d 921 (1996),
Centioli argues that the duty of good faith did not apply to its exercise of
discretion because the lease left it with unconditional authority to withhold
approval of a sign. We disagree.
10 No. 87218-4-I/11
In Johnson, the parties executed a commercial lease. 84 Wn. App. at
756. The lease’s assignment clause gave the landlord the right of first refusal,
providing, “ ‘Lessee shall not . . . assign this lease or any part thereof without the
written consent of the Lessor.’ ” Id. at 756-57.3 The lessees sought the lessor’s
approval for assignment, but he refused. Id. at 758. The lessees sued, arguing
that the lessor’s refusal without any reasonable explanation violated the implied
duty of good faith and fair dealing. Id. at 758-59. We rejected that argument,
concluding that the plain language of the lease imposed no obligation on the
landlord “to consent to any assignment sought by the lessees.” Id. at 762. And
“[i]f there is no contractional duty, there is nothing that must be performed in
good faith.” Id.4
This case is not like Johnson. Here, section 28 of the lease imposed a
specific contractual duty on Centioli to apply the “Landlord’s sign criteria” to MD’s
proposed signage and ultimately approve or disapprove it. But it left the
interpretation of the term “sign criteria” to Centioli’s future discretion. And, unlike
the right-of-first refusal provision at issue in Johnson, the sign approval provision
3 Alteration in original.
4 We note that Johnson adheres to an old common-law view that a landlord may
arbitrarily or unreasonably refuse to consent in right-of-first refusal cases. See Dick Broad. Co. v. Oak Ridge FM, Inc., 395 S.W.3d 653, 665-66 (Tenn. 2013). The “ ‘modern’ ” position imposes an implied duty of good faith and fair dealing to such an exercise of discretion. Id. As of 2013, states adopting the “modern” approach include Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Idaho, Illinois, Louisiana, Maryland, Nebraska, New Mexico, Ohio, Oregon, and Utah. Id. at 666 n.21. Even in states that still follow the common law rule, such as Vermont, the landlord’s ability to arbitrarily or unreasonably withhold consent is limited to right-of-first refusal cases. See Century Partners, LP v. Lesser Goldsmith Enters., Ltd., 184 Vt. 215, 224-25, 958 A.2d 627 (2008) (Vermont Supreme Court holding that the duty of good faith applies where the exercise of a landlord’s discretion could effectively force a tenant into continued breach of the lease).
11 No. 87218-4-I/12
in MD’s lease was essential to its ability to obtain the full enjoyment and benefit
of the lease. Because approval was necessary for MD to open for business, the
lease implied that Centioli’s written approval would not be unreasonably withheld.
The record also shows that MD presented sufficient evidence from which
a juror could infer that Centioli did not exercise good faith and fair dealing when
refusing to approve its signage. Centioli offered several reasons for refusing to
approve MD’s signage. It first told MD that “the use of Urgent Care (as opposed
to Injury Care) may infringe on Walgreens’ business” in violation of Walgreens’
exclusive use clause. Centioli also claimed that MD’s “operation needs to match
[its trade name] in the Lease.” And it expressed concern that any issue with
signage may affect Walgreens’ decision whether to exercise its lease renewal
option.
But Centioli produced no evidence showing that Walgreens ever required
MD to use its trade name on MD’s exterior sign or in advertising. And Centioli’s
restrictive covenant with Walgreens merely refers to “use” and not “name.”
Likewise, nothing in MD’s lease required it to use its trade name on signage.
When MD pointed this out, Centioli claimed that it would defer to Walgreens’
opinion. But Centioli later admitted it never reached out to Walgreens to ask its
opinion on MD’s proposed signage. And in June 2021, Centioli again refused to
seek Walgreens’ opinion on the signage. Centioli explained that it did not want to
contact Walgreens because Walgreens’ lease was about to renew, and it “did not
want to give [Walgreens] any reason to not continue their tenancy.” But the
12 No. 87218-4-I/13
option date for Walgreens to renew its lease had passed on February 28, 2021,
so the question of Walgreens’ renewal had been resolved.5
Viewing the evidence in a light most favorable to MD, a juror could infer
that Centioli’s reasons for refusing to approve MD’s signage was pretextual,
forcing MD to breach the lease and incur additional rent and costs.
Finally, Centioli argues that even if the trial court erred by granting
summary judgment based on the implied duty of good faith, MD’s lawsuit must be
dismissed for failure to provide Centioli sufficient notice of its breach. We
disagree.
Under section 22 of the lease, MD must provide Centioli with a written
default notice 30 days before MD can initiate any legal action. Centioli claimed
that MD failed to provide such notice. But the record shows that on July 10,
2023, MD sent Centioli a default notice, titled “Demand for Paid Rent, Signage,
Tenant Improvements, Loss of Business Profit.” In the notice, MD alleged
Centioli “unreasonably restricted [its] storefront signage [and] online advertising,”
causing MD to be unable to open. MD further asserted it was “legally entitled to
seek expectation damages, consequential damages, and either the re[s]cission
of the Lease or the Landlord’s compliance with the Lease for the remaining term.”
And more than 30 days passed before MD sued Centioli on August 23.6
5 We also note that MD installed two signs on its storefront facing Walgreens,
identifying the clinic as Auto Injury Urgent Care, and Walgreens did not object to the signage. 6 Centioli also argues on appeal that MD cannot show that its refusal to approve
signage caused MD’s failure to open for business. But Centioli did not challenge causation below, so we do not address the issue for the first time on appeal. See RAP 2.5(a).
13 No. 87218-4-I/14
We reverse the trial court’s order dismissing MD’s lawsuit at summary
judgment and remand for further proceedings.7
2. Attorney Fees in the Trial Court
MD argues the trial court abused its discretion by awarding Centioli
attorney fees and costs under the lease agreement without properly segregating
time spent working on its abandoned claim for additional rent or explaining why
segregation is not possible. Although we reverse summary judgment dismissal,
we take the opportunity to address MD’s argument.
We review the reasonableness of a trial court’s fee award for abuse of
discretion. Ethridge v. Hwang, 105 Wn. App. 447, 460, 20 P.2d 958 (2001). A
trial judge has broad discretion to determine the reasonableness of an award,
and we will not reverse the award unless the court manifestly abused its
discretion. Id. Still, “the record must show a tenable basis for the award.”
Loeffelholz v. Citizens for Leaders with Ethics & Accountability Now, 119 Wn.
App. 665, 690, 82 P.3d 1199 (2004).
When a party is authorized to recover attorney fees for only some claims,
the award must “ ‘reflect a segregation of the time spent on issues for which fees
are authorized from time spent on other issues.’ ” Loeffelholz, 119 Wn. App. at
690 (quoting Mayer v. City of Seattle, 102 Wn. App. 66, 79-80, 10 P.3d 408
(2000)). This is required even if the claims overlap or are interrelated. Id. But if
the trial court finds the claims are so related that no reasonable segregation is
possible, it need not segregate attorney fees. Id. at 691.
7 MD does not challenge the trial court’s ruling that it breached the lease for
failure to timely open for business, so we do not address it here.
14 No. 87218-4-I/15
Here, the trial court did not engage in a segregation analysis. But it is
unclear whether Centioli sought to recover additional rent at summary judgment.
In its counterclaim, Centioli sought damages for MD’s “past due rent and other
charges.” And it sought only unpaid rent, triple net amounts, and interest in its
motion for summary judgment. Still, the trial court ruled at summary judgment
that “there is a genuine dispute as to material fact” whether MD owes additional
rent under section 31 of the lease for not opening its business. The trial court
should have made a clear record supporting its fee award and decision not to
segregate the claims.
In any event, because we reverse its order dismissing MD’s breach of
contract claim, we also reverse the court’s fee award pending final resolution of
the lawsuits.
3. Attorney Fees on Appeal
Centioli requests attorney fees and costs on appeal under the lease as the
prevailing party of the lawsuits. Under RAP 18.1(a), we may award attorney fees
on appeal if “applicable law grants to a party the right to recover reasonable
attorney fees or expenses.”
Centioli requests fees under section 34.13 of the lease, which provides:
[T]he prevailing party in [a lawsuit] shall, in addition to all other payments required herein, receive from the other, all the costs incurred by the prevailing party including arbitration costs and reasonable attorneys’ fees and such costs and reasonable attorneys’ fees which the prevailing party incurred on any appeal.
“In general, a prevailing party is one who receives an affirmative judgment
in [its] favor.” Riss v. Angel, 131 Wn.2d 612, 633, 934 P.2d 669 (1997). If
15 No. 87218-4-I/16
neither party fully prevails, the court should award fees to the “substantially
prevailing” party, determined by how much relief each side obtains. Id.
Because we reverse the trial court’s order dismissing MD’s lawsuit and
remand for further proceedings, neither party has yet prevailed. We authorize
the trial court to award appropriate attorney fees and costs after the lawsuits are
resolved. See RAP 18.1(i) (“The appellate court may direct that the amount of
fees and expenses be determined by the trial court after remand.”).
We reverse the trial court’s order dismissing MD’s lawsuit at summary
judgment, reverse the award of attorney fees and costs to Centioli, and reserve
the determination of awarding appellate fees and costs for the trial court. We
WE CONCUR: