Elbridge and Debra Stuart Family Foundation v. Camp Korey

Filing 17

ORDER by Judge Richard A Jones; The Court DENIES Camp Korey's 7 Motion to Dismiss. (TF)

HONORABLE RICHARD A. JONES

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

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ELBRIDGE AND DEBRA STUART
FAMILY FOUNDATION,

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Plaintiff,

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Case No. C16-1365-RAJ
ORDER

v.
CAMP KOREY,

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Defendant.

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I.

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INTRODUCTION

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This matter comes before the Court on Defendant Camp Korey’s Motion to

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Dismiss. Dkt. # 7. For the reasons that follow, the Court DENIES Camp Korey’s

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motion.
II. BACKGROUND

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The Court recites the facts as Plaintiff Elbridge and Debra Stuart Family

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Foundation (the “Stuart Foundation”) alleges them in its complaint, suggesting no

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opinion as to whether those allegations will prove true. The Court cites the numbered

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paragraphs of the complaint using paragraph (¶) symbols.

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In 2009, Elbridge H. Stuart III, whose great-grandfather founded the Carnation

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Milk Company, established the Stuart Foundation with inheritance funds after his father

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passed away. ¶¶ 6, 10. Stuart was on the board of directors at Camp Korey, a non-profit

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organization that operates camps for seriously-ill children in Washington. ¶ 7. At the

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ORDER – 1

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time, Camp Korey owned a parcel of land in Carnation, Washington upon which the
Carnation Milk Company originally had been located (“Carnation Farms”). ¶ 8. Camp
Korey, however, was in financial distress. ¶ 9. As a solution, the Stuart Foundation
formed Carnation Farms, LLC, which purchased Carnation Farms and then leased it back
to Camp Korey. ¶¶ 11-12. The lease was for a period of up to thirty years and the annual
rent was $1.00. ¶ 12.
In 2012, Ann Stuart Lucas, Stuart’s aunt and fellow board member, informed
Camp Korey that she intended to create an endowment called the Elbridge and Evelyn
Stuart Endowment for Camp Korey (the “Stuart Endowment” or “endowment
agreement”). ¶ 13. Her first contribution to the endowment was $30,000. Id. A month
later, Lucas notified Camp Korey that it would not receive disbursements from the
endowment until the corpus reached $1,000,000 and that “should Camp Korey at
Carnation Farms cease to exist, I require that the endowment corpus be given to the
[Stuart Foundation].” ¶ 14. Over the following years, Lucas donated or raised nearly
$1,000,000 for the Stuart Endowment. ¶ 16. By accepting and depositing these
donations into a bank account designated for the endowment, Camp Korey accepted and
agreed to the two restrictions imposed by Lucas on the endowment. ¶ 17. When raising
money, Lucas relied on Camp Korey’s acceptance of these restrictions by discussing
them with donors, most of whom were members of the Stuart family who intended for
their donations to benefit charitable activities at Carnation Farms. ¶ 18.
In 2016, Stuart resigned from the board of Camp Korey. ¶ 20. Days later,
Carnation Farms, LLC notified Camp Korey that it was in default of several lease
provisions. ¶ 21. Following a second notice of default, Camp Korey agreed to vacate
Carnation Farms no later than September 30, 2016. ¶ 22.
As a consequence of Camp Korey’s departure from Carnation Farms, the Stuart
Foundation demanded that Camp Korey forfeit the Stuart Endowment in accordance with
Lucas’ restrictions. ¶ 23. Camp Korey refused. Id.
ORDER – 2

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On August 29, 2016, the Stuart Foundation filed the instant complaint alleging
claims for breach of contract, ¶¶ 24-27, and declaratory relief, ¶¶ 28-29. Camp Korey
now moves to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6).
Dkt. # 7. The Stuart Foundation opposes the motion. Dkt. # 13.
III. LEGAL STANDARD

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Federal Rule of Civil Procedure 12(b)(6) permits the Court to dismiss a complaint
for failure to state a claim. The rule requires the Court to assume the truth of the
complaint’s factual allegations and credit all reasonable inferences arising from those
allegations. Sanders v. Brown, 504 F.3d 903, 910 (9th Cir. 2007). The Court “need not
accept as true conclusory allegations that are contradicted by documents referred to in the
complaint.” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir.
2008). The plaintiff must point to factual allegations that “state a claim to relief that is
plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 568 (2007).
In deciding whether a complaint states a claim for relief, the Court may consider
“documents incorporated into the complaint by reference, and matters of which a court
may take judicial notice.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322
(2007). A document incorporated by reference may be relied upon “if the plaintiff refers
extensively to the document or the document forms the basis of the plaintiff’s claim.”
United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). “Documents not physically
attached to the complaint may be considered only if (1) their authenticity is not contested
and (2) the complaint necessarily relies on them.” F.D.I.C. v. Clementz, No. C13-737MJP, 2013 WL 6212166, at *1 (W.D. Wash. Nov. 27, 2013) (citing Branch v. Tunnell, 14
F.3d 449, 454 (9th Cir. 1994), overruled on other grounds by Galbraith v. Cty. of Santa
Clara, 307 F.3d 1119 (9th Cir. 2002)).
IV. DISCUSSION

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Camp Korey moves to dismiss the Stuart Foundation’s claims on the basis that
they are barred by the statute of frauds and based on an unreasonable interpretation of the
ORDER – 3

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endowment agreement. Dkt. # 7 at 6-12. For support, Camp Korey submits four
documents that it contends are incorporated by reference into the complaint: (1) the letter
from Ann Stuart Lucas to Camp Korey describing the Stuart Endowment, Dkt. # 9 at 5;
(2) the grant document memorializing Lucas’ initial $30,000 donation, id. at 7; (3) the
notification from Lucas imposing restrictions on the endowment, id. at 9-10; and (4) the
thirty-year lease between Carnation Farms, LLC and Camp Korey, id. at 12-39. As the
authenticity of these four documents is uncontested and the complaint relies upon them,
the Court finds it appropriate to consider them in resolving the instant motion. See
Branch, 14 F.3d at 454.
A.

“Cease to Exist” Provision of the Endowment Agreement

Camp Korey contends that the Stuart Foundation’s interpretation of the
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endowment agreement is unreasonable. According to Camp Korey, the provision
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requiring it to forfeit the endowment would be triggered only if it were to cease to exist
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as a corporate entity, not if it merely departed from Carnation Farms.
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“The touchstone of contract interpretation is the parties’ intent.” Tanner Elec. Co15
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op. v. Puget Sound Power & Light Co., 911 P.2d 1301, 1310 (Wash. 1996). “In
Washington, the intent of the parties to a particular agreement may be discovered not
only from the actual language of the agreement but also from ‘viewing the contract as a
whole, the subject matter and objective of the contract, all the circumstances surrounding
the making of the contract, the subsequent acts and conduct of the parties to the contract,
and the reasonableness of respective interpretations advocated by the parties.’” Id.
(quoting Scott Galvanizing, Inc. v. Nw. EnviroServices, Inc., 844 P.2d 428 (Wash. 1993)).
“If a contract has two or more reasonable meanings when viewed in context, a question
of fact is presented.” Bort v. Parker, 42 P.3d 980, 988 (Wash. Ct. App. 2002). In such
instances, a contractual dispute cannot be resolved on a motion to dismiss. See SARCO,
LLC v. Union Pac. R. Co., 765 F.3d 999, 1008 (9th Cir. 2014).
Here, in crafting the alleged endowment agreement, Ann Stuart Lucas required:

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ORDER – 4

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“Should Camp Korey at Carnation Farm[s] cease to exist, I require that the endowment
corpus be given to the Elbridge and Deborah Stuart Family Foundation.” Dkt. # 9 at 9.
This provision is ambiguous because it is susceptible to two reasonable meanings.
The first, as maintained by the Stuart Foundation, is that “cease to exist” refers to Camp
Korey’s residence at Carnation Farms. As alleged in the complaint, Carnation Farms
bore a special significance to members of the Stuart family, many of whom
“affirmatively desired that their restricted gifts always be used to support charitable
activities at Carnation Farms.” ¶ 18. The second, as maintained by Camp Korey, is that
“cease to exist” refers to the organizational dissolution of Camp Korey. This is
reasonable because the term, “Camp Korey at Carnation Farm[s],” is used in several
places to refer to Camp Korey as an entity and not as a geographical designation. See,
e.g., Dkt. # 9 at 7 (“Grant Recipient: Camp Korey at Carnation Farm[s]”). Because there
are two reasonable meanings of the “cease to exist” provision, an issue of fact exists as to
which meaning controls. Camp Korey’s motion to dismiss is denied on this basis.
B.

Camp Korey contends that the statute of frauds applies to the endowment
agreement and requires the dismissal of the Stuart Foundation’s complaint. Camp Korey
did not sign Lucas’ notification setting for the “cease to exist” provision. Dkt. # 9 at 910. Because it did not sign the notification, Camp Korey maintains the “cease to exist”
provision is invalid under the statute of frauds.
The statute of frauds applies to “[e]very agreement that by its terms is not to be
performed in one year from the making thereof.” RCW 19.36.010. “Under the statute of
frauds, such contracts are unenforceable unless they are set forth in writing and signed by
the party to be bound.” Steadman v. Green Tree Servicing, LLC, No. C14-0854JLR,
2015 WL 2085565, at *7 (W.D. Wash. May 5, 2015) (citing Family Med. Bldg., Inc. v.
State, Dep’t of Soc. & Health Servs., 702 P.2d 459, 461 (Wash. 1985)). “In Washington,
the test for applying the statute of frauds is whether a contract ‘cannot be performed

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Statute of Frauds

ORDER – 5

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within one year from its making.’” Id. at *8 (quoting Winslow v. Mell, 295 P.2d 319, 322
(Wash. 1956) (emphasis added). This test requires an examination of “the surrounding
circumstances to ascertain the terms of the contract and to determine whether, by those
terms, the contract must of necessity require more than one year to perform.” Winslow,
295 P.2d at 322.
But the one-year provision of the statute of frauds does not apply where the
contract is for an indefinite term. Sargent v. Drew-English, Inc., 12 Wash. 2d 320, 328,
121 P.2d 373, 377 (1942) (“The contract was not only made for an indefinite length of
time, but was terminable at will. Consequently, it could have been . . . terminated within
the duration of a year at the will of either party. We have held that in such cases the
statute does not apply.”); Purdy Mobile Homes, Inc. v. Champion Home Builders Co.,
523 F. Supp. 56, 63 (E.D. Wash. 1981) (“Since, in this case, the oral contract was for an
indefinite period of time and . . . it was terminable at will, the Statute of Frauds does not
apply.”); 25 Wash. Prac., Contract Law and Practice § 3:9 (3d ed.) (“Generally, the oneyear provision of the statute does not apply to a contract made for an indefinite length of
time”).
Here, the alleged endowment agreement provides that Camp Korey would receive
distributions from the endowment for an unspecified period, except that it would be
required to forfeit the endowment corpus to the Stuart Foundation “[s]hould Camp Korey
at Carnation Farm[s] cease to exist.” Dkt. # 9 at 9. As noted above, it is reasonable to
interpret the “cease to exist” provision as a contingency that would be triggered in the
event of Camp Korey’s departure from Carnation Farms.
The statute of frauds does not apply because the endowment agreement was for an
indefinite period. The agreement does not specify any finite term and, as alleged by the
Stuart Foundation, Camp Korey was required to return the endowment funds at any point

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ORDER – 6

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it elected to depart from Carnation Farms. 1 In opposition, Camp Korey maintains that the
agreement was permanent because Washington law presumes endowments to be “of
permanent duration.” Dkt. # 7 (citing RCW 24.55.025(3)(a)). But Camp Korey omits
key language from this statute. The full provision, in relevant part, is as follows: “Terms
in a gift instrument designating a gift as an endowment . . . (a) Create an endowment fund
of permanent duration unless other language in the gift instrument limits the duration or
purpose of the fund.” RCW 24.55.025(3). Plainly, the presumption of permanent
duration is overcome in instances where there is language limiting the duration of an
endowment. That is the case here, as the receipt of endowment funds was contingent
upon Camp Korey’s presence at Carnation Farms, the end of which was indefinite. 2
Camp Korey’s motion to dismiss under the statute of frauds is denied.
V. CONCLUSION

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For the reasons stated above, the Court DENIES Camp Korey’s Motion to
Dismiss. Dkt. # 7.
DATED this 27th day of January, 2017.

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A

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The Honorable Richard A. Jones
United States District Judge

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Camp Korey relies on its separate thirty-year lease agreement to attach a finite duration
to the endowment agreement. But the lease, which was formed more than two years prior to the
endowment, is a completely separate contract that does not dictate the duration of the
endowment agreement.
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Camp Korey contends that the duration of the endowment is not limited by the “cease to
exist” provision. Dkt. # 15 at 14-15. In Camp Korey’s view, all that happens if the provision is
triggered is a transfer of the endowment corpus to the Stuart Foundation. Id. at 15 (“In other
words, this language purports to transfer the endowment . . ., it does not end the endowment.”)
(emphasis in original). This position, however, is irreconcilable with Camp Korey’s contention
that, by taking the endowment, the Stuart Foundation would “frustrate the express purpose of the
endowment, which was to benefit Camp Korey.” Id. (emphasis in original). Surely, the “cease
to exist” provision limits the endowment within the meaning of RCW 24.55.025(3).

ORDER – 7