Feature Realty, Inc. v. City of Spokane

In 1992, Mission Springs, Inc. and Feature Realty, Inc.
(collectively "Feature Realty") applied for and received permission
from the Spokane City Council to build an apartment
complex in Spokane, Washington. In 1995, Feature Realty
brought suit against the city in Spokane County Superior
Court, alleging the city wrongfully refused to issue a grading
permit in connection with the property development. The trial
court dismissed all claims on summary judgment, but the
Washington Supreme Court reversed and remanded. See Mission
Springs, Inc. v. City of Spokane, 134 Wash. 2d 947 (1998). The court held that Feature Realty had stated a cognizable
cause of action for wrongful interference in its property
rights, and that the members of the city council individually
were not immune from liability. Id. at 972. Feature Realty
was awarded appellate costs and attorney fees and the case
was remanded to the trial court for further proceedings.

On remand, Feature Realty and the Spokane City Council,
represented by the city attorney's office, conducted settlement
negotiations, and the parties reached a tentative settlement in
the fall of 1998. The proposed settlement called for the city
to pay Feature Realty's attorney fees, to refund certain permit
fees, to install a water system in the development, and to
forego future permit fees in excess of $1 million. The city also
agreed to issue necessary permits on an expedited basis, and
provided for the abandonment of certain public lands to the
developers. In exchange, Feature Realty agreed to dismiss the
claims made against the city council and individual members
of city government in the Missions Springs litigation.

A confidential memorandum reciting the terms of the proposed
settlement was presented to the city council on October
5, 1998. That day, the city council held a regular legislative
session that was open to the public, but the memorandum was
not presented at that meeting. Instead, the council members
adjourned to an executive session for approximately thirty
minutes for the express purpose of discussing whether or not
to approve the settlement, after which the city council reconvened
in regular (open) legislative session to discuss other
business. At the executive session, the confidential memorandum
summarizing the proposed settlement was distributed to
city council members. Discussion among city council members
regarding the terms of the agreement took place, and then
the city attorney asked the city council members if they
wanted to approve the settlement. While no actual vote took
place, an informal consensus was achieved by "going around
the table," whereupon each of the council members indicated their approval of the settlement. No city council member
objected to the terms of the proposed settlement.

On October 14, 1998 the parties signed the agreement.
Thereafter, Feature Realty dismissed with prejudice its lawsuit
against the city and the council members. Prior to dismissing
the suit, the Spokane County Superior Court judge
received assurances from the city attorney that he had the necessary
authority to enter into the agreement. In 2000, however,
a dispute arose regarding the extent of the city's
obligations under the settlement agreement to construct a
water system, and the parties entered into a separate arbitration
agreement as provided for in the settlement agreement.
The parties could not agree on an arbitrator, and in November
2000, Feature Realty petitioned the Spokane County Superior
Court to appoint an arbitrator. The city removed the case to
federal district court in December on the basis of diversity of
citizenship. See 28 U.S.C. § 1441; 28 U.S.C. § 1332.1

The city avers that during the course of the district court
proceedings, it realized for the first time that its approval of
the underlying settlement agreement violated Washington's
Open Public Meetings Act ("OPMA"). The city, together with
intervenor Spokane Research & Defense Fund ("SRDF"),
moved for summary judgment on the basis that the settlement
agreement was null and void pursuant to the OPMA. The district
court agreed, and granted summary judgment in favor of
the city.

Thereafter, Feature Realty filed a motion for relief from
judgment pursuant to Federal Rule of Civil Procedure
60(b)(2). Feature Realty contended that it had "newly discovered
evidence" that warranted relief. The district court denied
the motion on the basis that the evidence Feature Realty relied on was not newly discovered. Feature Realty timely appeals
the order granting summary judgment in favor of the city, and
the order denying the motion for relief from judgment.2

II.

Enacted in 1971, the OPMA is a comprehensive statute, the
purpose of which is to ensure that governmental actions take
place in public.3 The legislative declaration provides,

The legislature finds and declares that all public
commissions, boards, committees, departments, divisions,
offices, and all other public agencies of this
state and subdivisions thereof exist to aid in the conduct
of the people's business. It is the intent of this
chapter that their actions be taken openly and that
their deliberations be conducted openly.

The people of this state do not yield their sovereignty
to the agencies which serve them. The people,
in delegating authority, do not give their public servants
the right to decide what is good for the people
to know and what is not good for them to know. The people insist on remaining informed so that they may
retain control over the instruments they have created.

Wash. Rev. Code § 42.30.010.

[1] The rule is that "[a]ll meetings of the governing body
of a public agency shall be open and public and all persons
shall be permitted to attend any meeting of the governing
body of a public agency . . . ." Id. § 42.30.030. The statute
mandates a liberal construction. See id. § 42.30.910 ("The
purposes of [the OPMA] are hereby declared remedial and
shall be liberally construed.").

[2] There are nine enumerated exceptions to the general
rule that government agencies should conduct their business
in public, whereby government agencies are privileged under
the statute to meet in an executive session that is closed to the
public. The exception relevant here provides for closed-door
discussions with legal counsel, as follows,

Nothing contained in [the OPMA] may be construed
to prevent a governing body from holding an executive
session during a regular or special meeting . . . .
To discuss with legal counsel representing the
agency matters relating to agency enforcement
actions, or to discuss with legal counsel representing
the agency litigation or potential litigation to which
the agency, the governing body, or a member acting
in an official capacity is, or is likely to become, a
party, when public knowledge regarding the discussion
is likely to result in an adverse legal or financial
consequence to the agency.

Id. § 42.30.110(1)(i).

The Washington Supreme Court has stated that the liberal
rule of construction with respect to the general rule of openness
"implies a concomitant intent that its exceptions be narrowly confined." Miller v. City of Tacoma, 138 Wash. 2d 318,
324 (1999) (en banc) (quoting Mead Sch. Dist. No. 354 v.
Mead Educ. Ass'n, 85 Wash. 2d 140, 145 (1975)).

Since Feature Realty concedes that the OPMA applies to
the Spokane City Council,4 and that the council's decision to
approve the settlement took place in executive session,5 and
out of the public eye, the issue on appeal boils down to
whether or not the city council was entitled to approve the settlement
behind closed doors pursuant to the enumerated
exception for discussions with legal counsel.

At the outset, however, we are confronted with a dispute
over Washington case law, with the city relying on the Washington
Supreme Court's decision in Miller in support of its
contention that the city council's action was null and void,
and Feature Realty relying on a court of appeals decision,
Slaughter v. Snohomish Co. Fire Protection Dist. No. 20, 50
Wash. App. 733 (1988), in support of its contention that the
city council's action was valid.

In Miller, a candidate for a position on the Tacoma City
Planning Commission sued the city, alleging that the city
council's hiring decision, which took place in executive session,
violated the Act. 138 Wash. 2d at 320. The city contended
that it was entitled to act in executive session pursuant
to an exception for evaluation of qualifications of applicants
for public employment, Revised Code of Washington
§ 42.30.110(1)(g). Id. at 327. In considering whether the general
rule, or the exception to the general rule, applied, the
Supreme Court reasoned as follows,

Pursuant to [the] general rule the act requires all
"meetings" be open to the public unless one of the
act's exceptions applies. To analyze compliance with
the act in the present case, we must therefore consider
whether (1) the executive session falls within
the definition of "meeting" under the act, and (2), if
so, whether one of the act's exceptions applies.

Id. at 324-25.

A somewhat different mode of analysis was employed by
the court of appeals in Slaughter. In that case, a fire-fighter
brought suit against a fire district, contending that the closed
door decision to discharge him was unlawful because it violated
the OPMA. 50 Wash. App. at 736. Slaughter relied on
the second sentence of section 42.30.060(1), which provides
that "[a]ny action taken at meetings failing to comply with the
provisions of this subsection shall be null and void." The
intermediate court rejected that argument,

[T]hat sentence is clearly addressed to actions taken
at meetings which do not conform to the requirements
of RCW 42.30. It is the first sentence of RCW
42.30.060 which states which actions must be taken
at meetings open to the public. The issue for our
determination, then, is whether the . . . decision . . .
was an "ordinance, resolution, rule, regulation, order, or directive," within the meaning of RCW
42.30.060.

50 Wash. App. at 738.

The court noted that the terms at issue were left undefined,
and looked for guidance to Washington's administrative procedure
act, which defined a "rule" as "any agency, order,
directive, or regulation of general applicability." Id. (quoting
Wash. Rev. Code § 34.04.010(2)) (emphasis in original). The
court reasoned that "the terms used in RCW 42.30.060 denote
matters of some broad public import or ‘general applicability.'
" Id. It rejected the fire-fighter's argument that the OPMA
was violated because the decision to fire him was not a matter
of "public import or general applicability." Id. Relying on
Slaughter, Feature Realty argues that the decision whether to
settle a claim made against the city is not a matter of "public
import or general applicability" and so the OPMA was not
violated.

Slaughter is not on point. The Slaughter court did not
address the issue we are confronted with here - whether or
not the general rule of openness, or an exception to that general
rule, applies. In Miller the Washington Supreme Court
squarely confronted that issue. Furthermore, the Supreme
Court in Miller spoke in much broader terms with respect to
what constituted government action, and which of those
actions were required to take place in public. The Miller court
stated in unequivocal terms that "all meetings [of the governing
body] be open to the public unless one of the act's exceptions
applies." 138 Wash. 2d at 325 (emphasis added). The
Act itself defines a meeting of a governing body, with some
circularity, as "meetings at which action is taken." Wash.
Rev. Code § 42.30.020(4). Action in turn is defined as "the
transaction of official business of a public agency by a governing
body including but not limited to receipt of public testimony,
deliberations, discussions, considerations, reviews,
evaluations, and final actions." Id. § 42.30.020(3). Final action means "a collective positive or negative decision, or an
actual vote by a majority of the members of a governing body
when sitting as a body or entity, upon a motion, proposal, resolution,
order, or ordinance." Id. In other words, if "action"
or "final action" is taken, then it is a meeting, and under Miller,
it must be open to the public unless there is an exception
to the contrary.

[3] Finally, and most importantly, the Miller court
expressly distinguished Slaughter in this context. In Miller,
the city relied on Slaughter, as Feature Realty does here, to
argue that its decision was not one of "general applicability,"
and hence did not violate the OPMA. The Supreme Court
stated,

In . . . Slaughter . . . the Court of Appeals [did not]
consider[ ] exceptions to the act under RCW
§ 42.30.110, but rather RCW 42.30.060(1), a provision
of the act which requires an ‘ordinance, resolution,
rule, regulation, order or directive,' must be
adopted at a public meeting which has been scheduled
in accordance with the provisions of the act
. . . . Slaughter [does] not define ‘final action' under
the act . . . . [and] [t]he statutory definition of ‘final
action' must control.

138 Wash. 2d at 330. In short, Miller controls, not Slaughter.
As discussed previously, the two-part test is "whether (1) the
executive session falls within the definition of ‘meeting'
under the act, and (2), if so, whether one of the act's exceptions
applies." Id. at 325.

A.

[4] The executive session convened to consider the terms
of the proposed settlement was a meeting within the meaning
of the Act. At the meeting, the city attorney distributed a confidential
memorandum detailing the terms of the proposed settlement, and discussed the proposed settlement with the
council members. The council was then asked to approve of
the proposed settlement, and it did so unanimously by "going
around the table." Thus, "action" was taken within the meaning
of the Act. See Wash. Rev. Code § 42.30.020(3) (action
is "the transaction of official business of a public agency . . .
including . . . deliberations, discussions, considerations,
reviews, evaluations . . . ." ). Indeed, final action was taken,
since a "collective positive . . . decision" was made by the
council. Id.; see also Miller, 138 Wash. 2d at 331 (" ‘Final
action' as defined in [the Act] does not require a formal
motion: it can simply be an informal proposal resulting in a
positive or negative decision, or an actual vote."). Therefore,
under the OPMA, the meeting was required to be open to the
public unless an exception applies. See Miller, 138 Wash. 2d
at 325.

B.

[5] While a government agency may be entitled to convene
an executive session pursuant to a specific exception, "once
in executive session . . . [the government] is required to limit
its action in executive session to that authorized by the relevant
exception." Id. at 327. In other words, "only the action
explicitly specified by the exception may take place in executive
session." Id. (emphasis added). Unless the action is "explicitly
specified," it is "beyond the scope of the exception"
and violates the Act. Id. With respect to the specific exception
at issue here - the exception for discussions with legal
counsel - the Washington Supreme Court has held that it is
available when the relevant government actor "(1) discusses
with counsel (2) actual or potential litigation (3) where public
knowledge of the discussion is likely to cause adverse legal
or financial consequences." In re the Recall of Lakewood City
Council Members, 144 Wash. 2d 583, 586 (2001).

[6] Here, there is no dispute that the city council was entitled
to convene an executive session to discuss with its attorney the terms of the settlement, and to receive legal advice
with respect to that proposal. Id. at 586. What the city council
could not do was approve the settlement by way of a "collective
positive decision" in closed session. It is that action that
does not come within the terms of the exception because
"only the action explicitly specified by the exception" is privileged.
All other actions are "beyond the scope of the exception,"
and must take place in public. Miller, 138 Wash. 2d at
327.

Feature Realty points out that several of the enumerated
exceptions explicitly state that final action on a matter can
take place only in a public meeting. See, e.g., Wash. Rev.
Code § 42.30.110(1)(c) (exception to consider price at which
real estate will be offered when public knowledge would
decrease price, but final action must be taken in public meeting);
id. § 42.30.110(1)(g) (exception to evaluate qualifications
of employment applicant, but final action in hiring must
take place in public meeting); id. § 42.30.110(1)(h) (exception
to evaluate candidates for appointment to elective office, but
final action on candidacy must take place in public). On the
other hand, there are six exceptions, of which the exception
for discussions with legal counsel is one, which make no
mention of final action having to take place in public. This
omission on the part of the legislature, the argument goes,
must mean that final action in the executive session itself is
permissible.

While this is a clever textual argument, it runs straight into
the Washington Supreme Court's decision in Miller. "[O]nly
the action explicitly specified by the exception" is privileged.
All other actions are "beyond the scope of the exception," and
must take place in public. 138 Wash. 2d at 327. The "final
action" of approving the settlement is not "explicitly specified"
and so under Miller, Feature Realty's argument fails.

Nor does Lakewood dictate a different result, as Feature
Realty argues. In that case, all of the action that took place at the executive session fell within the express terms of the
exception for discussion with legal counsel. The Washington
Supreme Court took pains to point out that "no vote was
taken." 144 Wash. 2d at 476-77. In fact, the city council had
previously passed a resolution that conferred on the city manager
the authority to join in the lawsuit. The Supreme Court
held that because the council's "conduct fell within the exception
for attorney/client discussion and the [fact that] no vote
was taken, we find the council members took no prohibited
action in executive session." Id. In contrast, because the council
here took a "collective positive . . . decision" when it
approved the terms of the settlement, its conduct is "beyond
the scope of the exception," and must take place in public.

To be sure, there is some tension in the Act between the
rule that government action should generally take place in
public on the one hand, and the necessity for confidential
communications with counsel on the other. In interpreting
sunshine laws such as the one at issue here, courts across the
country have found different ways to resolve the competing
policy concerns. See Marion J. Radson & Elizabeth A. Waratuke,
The Attorney-Client and Work Product Privileges of
Government Entities, 30 Stetson L. Rev. 799, 809-16 (2001)
(discussing difficulties in reconciling state sunshine laws with
necessity for confidential communications with counsel).

[7] Fortunately, the Washington Supreme Court has
resolved those policy concerns and provided us with a clear
road map in this case. If the action is not "explicitly specified"
in the exception, then such action must take place in public,
or it is null and void. Miller, 138 Wash. 2d at 327. While
there is no suggestion the city council acted in bad faith when
it approved the settlement in executive session, the fact
remains it settled claims made against the city and the individual
members of the council personally, using hundreds of
thousands of dollars out of the public fisc to do so, as well as
agreeing to abandon certain publically-owned lands to the
developers. Its decision took place behind closed doors, with no opportunity for public comment. The statutory procedures
at issue here are essential to protect the interests of the public.
Cf. Nelson v. Pac. County, 36 Wash. App. 17, 24 (1983).
They were ignored, and the settlement agreement is therefore
null and void.6

III.

Feature Realty argues that even if the OPMA was violated
as an initial matter, the settlement agreement is nonetheless
valid because it was later ratified by the city council at a
meeting that was open to the public. It points out that subsequent
to the agreement's execution, the council approved the
payment of certain moneys due under the agreement, and
passed two ordinances abandoning public lands to the developers,
and both of these actions were taken in meetings open
to the public.

[8] These actions do not constitute ratification under Washington
law. The "well established rule" in Washington "is that
where a governing body takes an otherwise proper action later
invalidated for procedural reasons only, that body may retrace
its steps and remedy the defects by reenactment with the
proper formalities." Henry v. Oakville, 30 Wash. App. 240,
246 (1981). The actions taken by the city council - the
approval of the disbursement of certain funds and the alienation
of certain public lands - are a far cry from "retrac[ing]
its steps and remedy[ing] the defects by reenactment with the
proper formalities" required under Washington law. Id. We
reject Feature Realty's argument that the agreement was ratified.

IV.

Feature Realty's next argument is that if the agreement is
invalid due to the OPMA violation, the city should be equitably
estopped from asserting in these proceedings that the
agreement was invalid. Feature Realty relies on Finch v. Matthews,
74 Wash. 2d 161 (1968), for the proposition that the
city can and should be estopped from asserting that the agreement
is invalid in this case.7

The general rule is that "the doctrine of equitable estoppel
will not be applied against the public." Id. at 170. However,
a distinction is drawn between a total absence of power and
the irregular exercise of granted power, and in the latter case,
equitable estoppel can be applied. As explained in Finch, Equitable estoppel may be applied against the claim
of the municipality where the acts are within the
general powers granted to the municipality even
though such powers have been exercised in an irregular
and unauthorized manner, assuming that all of
the other elements of the doctrine are present . . . .

Id. at 171.

This distinction would seem to fit here - the city council
undoubtedly has the "general power" to settle claims made
against the city, see infra n. 4 (citing Spokane, Wa., Code
§§ 38, 115), that power was simply exercised in an "irregular
and unauthorized manner."

[9] However, the decision in Nelson makes it clear that equitable estoppel does not apply where the public's right to
have government deliberate in public is violated. In Nelson,
one of the issues the court addressed was whether the county
had followed the proper procedures in providing for the abandonment
of public lands. The court concluded that it had not,
because under Washington law, county lands could not be disposed
of without notice to the public and the opportunity for
public comment. See Nelson, 36 Wash. App. at 23-24 (citing
Wash. Rev. Code §§ 36.34.020-040 (providing for notice and
public hearing)). The court stated that these provisions of the
Washington code "demonstrate a strong legislative intent that
property held for the public use and benefit not be summarily
disposed of without giving the public affected a significant
opportunity to participate." Id. at 24.

The Nelson court distinguished Finch, and that distinction
is directly on point in this case, Finch . . . is likewise not controlling. There the court
upheld an exchange of a dedicated right of way for
a more desirable parcel nearby. It pointed out that
the County had not followed the statutory methods
for vacating and acquiring the properties, but held
the action to be merely an irregular and unauthorized
manner of exercising the broad powers granted to
counties to build and operate roads . . . . No expectations
were compromised by that transaction, and the
procedural protections were not necessary. The
opposite is true here. The statutory procedures were
necessary to protect the interests of respondents and
other members of the public in that area. They were
ignored and we will not sanction the alienation of
public property which exclude important safeguards.

Id. (emphasis added).

[10] The "important safeguards" inherent in Washington's
open government laws, which were "ignored" here, are of an obvious and vital character. Under such circumstances, it is
difficult to believe the Washington Supreme Court would tolerate
the application of equitable estoppel to essentially provide
an end-run around the state's sunshine laws. In short,
Nelson makes it clear that equitable estoppel does not lie
where the OPMA has been violated.

At this point the concerned reader might well ask what has
happened to the ancient equitable principle that no one should
profit from one's own wrong. See Restatement of Restitution
§ 3 (1937) ("A person is not permitted to profit by his own
wrong at the expense of another."). After all, it is the city that
is responsible for violating the public's rights, and yet it has
(successfully) set up that very violation as a defense to Feature
Realty's petition to arbitrate a dispute regarding the settlement
agreement - an agreement which the city itself
warranted that it had the right to enter into. There are two
responses to such concerns, however.

First and foremost, Feature Realty's claims against the city
must take a back seat to the public's right to open government
- the procedural violations at issue in this case are no mere
formality, and are essential to protect the interests of the
public - they cannot simply be ignored. The public's rights
here simply outweigh Feature Realty's. Second, the fact that
the specific equitable remedy of estoppel does not apply here
does not foreclose Feature Realty from seeking other forms of
equitable relief from the city and individual council members.
Indeed, the district court found that Feature Realty was entitled
to seek such relief, and as we previously pointed out, the
Mission Springs litigation in state court is underway, and a
trial is pending in Spokane County Superior Court on Feature
Realty's claims. See infra n. 2. In short, in holding that the
agreement is unenforceable and that equitable estoppel does
not apply, it is the rights of the public with which we are concerned;
we cannot and do not condone the actions of the city
here.

V.

Finally, Feature Realty argues the district court abused its
discretion in denying its motion for relief from judgment.

Feature Realty's motion for relief from judgment was based
on "surprise" and "newly discovered evidence."8 Specifically,
the evidence it relied on was the fact that the city attorney
assured the Spokane County Court judge it had the necessary
authority to enter into the settlement agreement before the
judge agreed to dismiss the Mission Springs litigation, and,
therefore, judicial estoppel should prevent it from taking a
directly contrary position in these proceedings. Feature Realty
argues that this is "newly discovered evidence" because its
new lawyers were not aware of the assurances made to the
Spokane County Court judge until eight days before judgment
was entered in federal district court. (Its former lawyers were
present when the city attorney made the assurances to the
Spokane County Superior Court judge.)

Relief from judgment on the basis of newly discovered evidence
is warranted if (1) the moving party can show the evidence
relied on in fact constitutes "newly discovered
evidence" within the meaning of Rule 60(b); (2) the moving
party exercised due diligence to discover this evidence; and
(3) the newly discovered evidence must be of "such magnitude
that production of it earlier would have been likely to
change the disposition of the case." Coastal Transfer Co. v.
Toyota Motor Sales, U.S.A., Inc., 833 F.2d 208, 211 (9th Cir.
1987).

Feature Realty's argument fails at the first hurdle, because the assurances the city attorney made to the state court judge
that Feature Realty relies on for its judicial estoppel argument
is not "newly discovered evidence." Feature Realty's former
lawyer knew of the assurances when they were made, in
October 1998, and that knowledge is properly attributable to
Feature Realty itself. See Busk v. Hoard, 65 Wash. 2d 126,
134-35 (1964) ("Knowledge or notice by or to the agent is
imputed to his principal; and the knowledge had by an agent
will, therefore, bind his principal . . . ." ). Even assuming
arguendo that Feature Realty had no notice of the assurances
made by the city attorney until their new lawyers became
aware of them, their new lawyers received that information
eight days before the entry of judgment. Evidence "in the possession
of the party before the judgment was rendered is not
newly discovered . . . ." See Coastal Transfer Co., 833 F.2d
at 212. The district court did not abuse its discretion in denying
the motion.

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