                                                                                    COURT OF APPEALS          II




                                                                                           DIVISION

                                                                                   20 i tt SEP 30        AM 9: 06
    IN THE COURT OF APPEALS OF THE                                         STATE. Q (
                                                                                  ,                  S             GTON
                                                                                           W.
                                                        DIVISION II                 1,3Y
                                                                                                    ti 1- '
FEDWAY MARKETPLACE WEST, LLC, a                                                       No. 44509 -3 - II
         limited liability company,
Washington                                                   and

GARLAND & MARKET INVESTORS, LLC,
a   Washington limitedliability company, on
behalf of themselves and all others similarly
situated,



                                             Appellant,


          v.




 STATE OF WASHINGTON,                                                            PUBLISHED OPINION


                                             Respondent.


       HUNT, J. —         Fedway         Marketplace West, LLC, and Garland &                Market Investors, LLC,


landlords   of   former   state   liquor      store   locations ( Landlords), appeal the superior court' s entry of a


CR 12( c) judgment on the pleadings and dismissal of Landlords' complaints against the State of


Washington for terminating its leases of Landlords' properties the State had used for selling liquor.

After Initiative 1183 ( I -1183) privatized the sale of liquor in Washington, the State' s Liquor


Control Board terminated its leases with the landlords of state -owned liquor store locations and

auctioned the right to sell liquor at these locations to private retailers. Landlords argue that ( 1) the


State deliberately misinterpreted I -1183, wrongfully terminated their leases, and illegally gave

auction   buyers   the   right   to   sell   liquor                mile radius of
                                                      within a one -                the Landlords' locations; ( 2) the



superior court erred in striking Landlords' extrinsic evidence that the State acted in bad faith in

deliberately     misinterpreting I -1183          and   terminating   their leases; ( 3) the State breached the       duty   of
No. 44509 -3 -II



good faith and fair dealing in terminating their leases; and (4) the State' s termination of their leases

violated the contract clauses' and takings clauses2 of the federal and state constitutions.

         The State responds that ( 1) its decision to permit auction buyers to sell liquor within a one -


mile radius was      irrelevant to the lease terminations,                 which   I -1183    required; ( 2)    Landlords failed to


state   a claim    for   a   breach    of   the    duty   of good      faith    and   fair   dealing; (   3) Landlords' extrinsic


evidence was not admissible to interpret an unambiguous contract; and ( 4) the superior court


properly dismissed Landlords' constitutional claims because, once the leases terminated, there

could   be    no   contract      and no     taking.. We hold that, because I -1183 triggered the termination

provision in the State' s leases with Landlords, Landlords cannot state a claim against the State


under their former leases. We affirm the superior court' s dismissal of Landlords' complaints.

                                                                FACTS


                                                             I. LEASES


         Fedway Marketplace                West, LLC      and   Garland & Market Investors, LLC are former lessors


of State liquor store locations. In 2007, Garland leased its Spokane premises to the State; in 2010,


Fedway       leased its Federal        Way       premises   to the State.        Each lease     was   for   a   10 -year term. Both


leases included a termination               clause ( " Paragraph        3 "),   which provided that if a newly enacted law

prevented either party from complying with the lease,3 then the lease would terminate and both



I WASH. CONST.           art.   I, § 23;   and   U. S. CONST.    art    I, § 10.

2
    WASH. CONST.         art.   I, § 16; and U.S. CONST. amend. V.

3
    Both leases included           a " use"           The premises shall be occupied by the
                                                 provision   that   stated: "

Washington State Liquor Control Board and used solely for the purposes of selling alcoholic
beverages and lottery products. The Board shall and may peaceably and quietly have, hold and
enjoy the     premises       for these     purposes."     CP at 21 -22, 32 ( emphasis added).


                                                                    2
No. 44509 -3 - II



parties would be released from all liability. As the leases required, Landlords made improvements

according to the Liquor Control Board' s specifications, and the State paid Landlords rent for using

the premises to sell liquor.


          On November 8, 2011, Washington voters approved Initiative 1183, which privatized the


State -
      controlled       system of      liquor distribution          and sale, effective      December 8, 2011.           I -1183, now


codified as RCW 66. 24. 6204, also directed the Liquor Control Board to cease all liquor sales no

later than June 1, 2012, and to auction " the right at each state -owned store location of a spirits[ 5]

retail   licensee to    operate a     liquor      store upon     the   premises."    RCW 66. 24. 620( 4)( c).


          To implement I -1183, the State auctioned the rights to sell liquor at its 167 state -run liquor

store    locations.     Each of the 128 successful bidders received the exclusive right to apply for a

license to    sell   liquor    at   the   store on which        the bid      had been   placed.         The State advised each bid


winner ( 1) to secure a lease with the store' s landlord; and ( 2) if unable to secure such a lease, to

consider ( a)    re-   selling the        right   to   sell   liquor   at   that location   or (   b) requesting "     an alternative




location    within a one -mile radius of                 the existing location."         Clerk'     s   Papers ( CP)   at   8.   Before


terminating its leases, the State sent its liquor store lessors, including Landlords, letters notifying

them of the upcoming lease terminations. The State terminated its Fedway lease effective May




4
    LAws   of   2012,   ch.   2, § 102.

5 "`
       Spirits' means any beverage which contains alcohol obtained by distillation, except flavored
malt     beverages, but       including wines          exceeding twenty -four        percent of alcohol         by volume."       RCW
66. 04. 010( 41).
No. 44509 -3 - II



31, 2012, and its Garland lease effective July 31, 2012.6
                                                          II. PROCEDURE


          Landlords brought a class action against the State, alleging that it had ( 1) anticipatorily

repudiated and        breached their liquor          store   lease   contracts; ( 2)   violated an implied covenant of good


faith   and   fair   dealing; ( 3) violated the state and federal contract clauses' by engaging in legislative

action that impaired the State' s contractual obligations; and ( 4) violated the state and federal

takings
          clauses8




                           by taking      private   property for     public use without         just   compensation.   The State


moved for judgment on the pleadings under CR 12( c).


          Landlords opposed the State' s motion with extensive exhibits purporting to show that ( 1)

the State knew         its decision —to permit bid winners to sell liquor in alternative locations within a


one -mile      radius      of   the existing       location —could        violate I -1183 and would significantly erode

Landlords' leverage in renegotiating lease                      agreements         with   bid   winners; (   2) the State did not


require   bid       winners     to accept assignment of the State'             s   existing leases; (   3) in February 2012, the

State made a commitment to pay for unamortized improvements that Landlords had made to meet

the Liquor Control Board' s specifications; and ( 4) the State Department of Revenue failed to

perform       its   duty   under    RCW 66. 24. 620 to         develop     rules and procedures "`        to address claims that




6 After the State terminated its lease, Fedway entered into a 12 -month lease with the bid winner
for its Federal Way location at a rent that was $ 3, 832 less per month than the State had been paying.
Two     monthslater, Fedway' s new tenant defaulted and ceased operating. The bid winner for
Garland' s Spokane store location did not enter into a lease with Garland; Garland found no tenant
to lease its store space and received no rental income.


    WASH. CONST.           art.   I, § 23,   and   U. S. CONST.   art   I, §   10, respectively.

8
    WASH. CONST.           art.   I, §   16, and U.S. CONST. amend. V, respectively.



                                                                      4
No. 44509 -3 -II



 I -1183] unconstitutionally impairs any             contract. "'   CP   at   116 (   citation omitted).    The superior


court granted the State' s motion to strike Landlords' exhibits, reasoning that it could not consider

such    extrinsic    evidence      to " interpret"    unambiguous        contract      terms.     Verbatim Report of


Proceedings ( VRP) at 32.


         The superior court also ( 1) ruled that because I -1183 had forced the State to terminate its


liquor store leases, the State did not improperly terminate its leases or breach a duty of good faith

and   fair   dealing; ( 2) granted the State' s motion for judgment on the pleadings; and ( 3) dismissed

Landlords' complaint with prejudice. Landlords appeal.


                                                       ANALYSIS


                           I. ANTICIPATORY REPUDIATION AND BREACH OF CONTRACT


         Landlords appeal the superior court' s dismissal of their complaint when it granted the


State' s CR 12( c) motion for judgment on the pleadings. They argue that the hypothetical facts in

their complaint and the additional evidence they submitted stated a justiciable claim that the State

deliberately misinterpreted I -1183 and that the State breached its lease obligations and

anticipatorily     repudiated     its leases.   The State responds that it fully complied with the leases and

that lease provision Paragraph 3 gave the State the right to terminate the leases when the voters'


initiative took away the State' s previously exclusive right to sell liquor, thus preventing the State

from carrying out the lease terms. We agree with the State.

                                                A. Standard of Review


             We   review   de   novo   CR 12( c) dismissal   rulings.    P.E. Sys., LLC      v.   CPI   Corp.,   176 Wn.2d


198, 203, 289 P. 3d 638 ( 2012). We examine the pleadings " to determine whether the claimant can


prove any set of facts, consistent with the complaint, that would entitle the claimant to relief."



                                                             5
No. 44509 -3 - II



Parrilla   v.   King County,   138 Wn.         App.    427, 431, 157 P. 3d 879 ( 2007).                  On a CR 12( c) motion,


the court presumes that the allegations asserted in the complaint are true. Tenore v. AT & Wireless
                                                                                          T

Servs., 136 Wn.2d 322, 330, 962 P. 2d 104 ( 1998).


                               B. Unambiguous Lease Termination Provision


        Here, both leases included identical termination provisions, which provided, in part:


         I] n the event that the enactment of any law or the decision of any court of
        competent jurisdiction shall prevent either party hereto from complying with or
        carrying     out   the terms    of   this Lease ...              then this Lease shall terminate and the
        parties hereto shall be released from any and all liability for any damage or loss
        which may result from such inability to comply therewith.

CP at 22, 33 ( emphasis added).


        Codifying I- 1183,       RCW 66. 24. 620 expressly                    provided,      in. part:   "[   The Liquor Control


Board] must effect orderly closure of all state liquor stores no later than June 1, 2012, and must

thereafter refrain    from   purchase, sale, or          distribution        of   liquor."   RCW 66. 24. 620( 2).      This new


law plainly prohibited the State from selling alcohol and, thus, prevented the State from
                                           9                   10
 complying       with or   carrying   out "    the "   use "        provision of    its leases   with     Landlords. Regardless


of whether the State permitted bid winners to choose alternate liquor store locations, or instead

required bid winners to use the Landlords' original store locations bid upon, 11 the State could not




9CPat22, 33.

I° CP at 21 -22, 32.

 11 See Landlords' argument that the State understood that I -1183 did not expressly permit the
Liquor Control Board to expand potential liquor sale locations to within a one -mile radius of the
former state liquor stores and, thus, deliberately misinterpreted the initiative in implementing a
 Relocation Policy" that conflicted with the law. Br. of Appellant at 24.




                                                                     6
No. 44509 - - II
          3



continue leasing Landlords' properties for the leases' contractual purpose of providing locations

for the State to sell liquor. 12

          We hold that ( 1) I -1183 and its RCW 66. 24. 620 codification triggered the lease termination

provisions; (   2) under the leases' plain language, enactment of this new law made it impossible for


the State to continue selling liquor at Landlords' premises; and ( 3) therefore, the State did not

anticipatorily repudiate or breach its leases with Landlords.

                                     C. Striking Landlords' Extrinsic Evidence

          Landlords     also argue      that in striking their        extrinsic   evidence —offered     to show that the


State had    deliberately       misinterpreted    I- 1183 — the superior court erred because such evidence is


admissible even when the court believes that contract terms are unambiguous. The State responds


that none of Landlords' extrinsic evidence was relevant to prove the meaning of any specific term

in the leases.       We agree with the State and hold that the superior court properly excluded the

evidence.




12 Landlords argue that the State could have assigned its rights to sell liquor under the leases
because neither I -1183 nor the leases precluded the State' s assigning its lease obligations to the
bid   winners,   thereby avoiding lease         terminations.        This   argument   fails: Although the leases refer
to Landlords " and      assigns,"     there is no corresponding lease provision granting the State assignment
rights.   CP   at   21, 31.   Moreover, at the time the parties entered into these leases, the law gave the
State the exclusive right to import and to sell liquor and, thus, there was no possibility that the
State   could assign     this   exclusive right   to   another.      Former WAC 314 -36 -020 ( 2011); former RCW
66. 16. 010, . 040 ( 2011).         See Colorado Structures, Inc. v. Ins. Co. of the West, 161 Wn.2d 577,
588, 167 P. 3d 1125 ( 2007) ( courts construe contracts as a whole to effectuate all of the contract' s
provisions, so as not         to   render words superfluous);         see also Dep' t ofEcology v. Tiger Oil Corp.,
 166 Wn.    App.     720, 762, 271 P. 3d 331 ( 2012) ( We "            avoid ` a strained or   forced   construction '   of

contract    provisions "      and    avoid   interpretations `    leading    to absurd results. ") (   quoting Eurick v.
Pemco Ins. Co., 108 Wn.2d 338, 341, 738 P. 2d 251 ( 1987)).




                                                                 7
No. 44509 -341



                                                    1.    Standard of review


          We   review      de    novo     all    trial    court   rulings,   including         evidentiary      rulings,   made in


conjunction with a         summary judgment dismissal                   order.     See Cornish Coll. of the Arts v. 1000

Virginia Ltd. P' ship, 158 Wn.             App.    203, 215, 242 P. 3d 1 ( 2010) (             citing Folsom v. Burger King,.

135 Wn.2d 658, 663, 958 P. 2d 301 ( 1998)),                       review   denied, 171 Wn.2d 1014 ( 2011).                 On a CR


12( c)   motion,   the   court " may consider         hypothetical facts         not   included in the    record."    Tenore, 136


Wn.2d at 330. When reviewing judgments on the pleadings under CR 12( c),

           Washington follows the               objective manifestation            test for   contracts." ...      Mutual
          assent   to definite terms is normally            a question of        fact for the fact finder. ...       But a

          question of fact may be determined as a matter of law if reasonable minds could
          not differ.


P.E. Sys., 176 Wn.2d            at   207 ( internal      citations omitted) (       quoting Keystone Land & Dev. Co. v.

                                                                              13
Xerox    Corp.,    152 Wn.2d 171, 177, 94 P. 3d 945 ( 2004)).


          To interpret a contract, we must determine the parties' intent, for which we apply the

  context rule. "'       Roats   v.   Blakely    Island Maint. Comm'          n,    Inc.,   169 Wn. App. 263, 274, 279 P. 3d

943 ( 2012) (     quoting Shafer v. Bd. of Trs. of Sandy Hook Yacht Club Estates, 76 Wn. App. 267,

275, 883 P. 2d 1387 ( 1994)).             This    context rule allows a court, when "`               viewing the contract as a

whole, to consider extrinsic evidence, such as the circumstances leading to the execution of the

contract, the subsequent conduct of the parties and the reasonableness of the parties' respective




13 See also Spradlin Rock Prods., Inc. v. Pub. Util. Dist. No. 1 ofGrays Harbor County., 164 Wn.
App. 641, 654 -55, 266 P. 3d 229 ( 2011) ( "[ S] ummary judgment on an issue of contract
interpretation is proper where ` the parties' written contract, viewed in light of the parties' other
objective    manifestations,          has only     one reasonable          meaning.") (        quoting Hall v. Custom Craft
Fixtures, Inc., 87 Wn. App. 1, 9, 937 P. 2d 1143 ( 1997)).




                                                                    8
No. 44509 -3 -II



interpretations. "'       Roats, 169 Wn.              App.   at   274 ( quoting Shafer, 76 Wn.             App.   at   275).   This rule


applies " even when           the    disputed     provision       is   unambiguous."       Id.14

          But    our    consideration          of "   surrounding          circumstances      and    other   extrinsic    evidence"   is


limited "` to        determin[ ing] the meaning of specific words and terms used' and not to ` show an

intention independent of the instrument' or to ` vary, contradict or modify the written word.'"

Hearst Commc' ns, Inc.               v.   Seattle Times Co., 154 Wn.2d 493, 503, 115 P. 3d 262 ( 2005) ( quoting


Hollis   v.    Garwall, Inc., 137 Wn.2d 683, 695, 974 P. 2d 836 ( 1999)).                            See   also   ER 402 ( "Evidence


which is not relevant is not admissible. ").


                                                  2. Extrinsic evidence irrelevant


          Here, the superior court could admit Landlords' extrinsic evidence only if it would help

the   court "` to     determine the meaning            of specific words and            terms used '    in the leases. Hearst, 154


Wn.2d     at   503 ( quoting Hollis, 137 Wn.2d                at       696). Landlords argue that, in addition to the context


for the parties' understanding of I- 1183' s requirements, the evidence showed ( 1) the State " had

been discussing and making contingency plans for privatization for five years before I -1183 was



14
     The Washington Supreme Court first                      adopted       the "`   context rule '   in Berg v. Hudesman:
              The Berg Court] recognized that intent of the contracting parties cannot be
          interpreted without examining the context surrounding an instrument' s execution.
          If relevant for determining mutual intent, extrinsic evidence may include ( 1) the
          subject matter and objective of                  the contract, ( 2)         all the circumstances surrounding
          the making          of   the    contract, ( 3)   the subsequent acts and conduct of the parties, and
              4) the reasonableness of respective interpretations urged by the parties.
Hearst Commc'           ns,Seattle Times Co., 154 Wn. 2d 493, 502, 115 P. 3d 262 ( 2005) ( citing
                              Inc.   v.

Berg v.    Hudesman, 115 Wn.2d 657, 667, 801 P. 2d 222 ( 1990)). But later, in Hearst, the Supreme
Court ( 1)      cautioned that its Berg holding may have been " misunderstood as it implicates the
admission of parol and extrinsic evidence ";    and ( 2) expressly " acknowledge[ d] that Washington
continues       to   follow the      objective manifestation              theory    of contracts."   Hearst, 154 Wn.2d at 503.




                                                                           9
No. 44509 -3 - II


                                                                                                           15; (
adopted," yet         the State had "     made no provision     for    privatization      in the leases"           2) after I -1183


was adopted, the State acknowledged in internal agency documents that introducing a Relocation

Policy "'    could     be interpreted     as   violating the intent   of   I- 1183'   16; and ( 3) the State considered but

rejected the idea of assigning leases to bid winners, which Landlords contend would not have

     prevent[ ed] "'   the State   from "' complying      with or    carrying    out "'   the lease terms. Br. of Appellant


at   44 ( quoting CP      at   22, 33).   Landlords' reasoning fails.

           Neither the State' s potential privatization contingency plan nor its intent in implementing

a Relocation Policy is relevant to the meaning of any lease terms; nor are the State' s interpretations

of I -1183 or its alleged assignment rights under the leases relevant to understanding any lease

terms. Because the             extrinsic evidence at     issue did    not "`   determine the meaning of specific words

and     terms   used '    in the leases, it was not relevant for the superior court' s consideration. Hearst,


154 Wn.2d        at   503 ( quoting Hollis, 137 Wn.2d         at   696). We hold, therefore, that the superior court


properly granted the State' s motion to strike this extrinsic evidence.

                                     II. DUTY OF GOOD FAITH AND FAIR DEALING


           Landlords further argue that, even if the State could terminate their leases based on I- 1183' s


asset disposal requirements, the manner in which the State accomplished these lease terminations


breached its duty of good faith and fair dealing. The State responds that a party breaches the duty

of good faith and fair dealing only when performing a specific contract term; thus, the State did

not breach such duty when it had fully performed under the leases until the point that the new law

triggered the leases' termination provision. We agree with the State.




is Br. of Appellant at 40.

16 Br. of Appellant at 41 ( quoting CP at 361).

                                                               10
No. 44509 -3 -II



         The duty of good faith and fair dealing " does not inject substantive terms into the contract;

rather, `   it requires only that the parties perform in good faith the obligations imposed by their

agreement '        and "' arises     only in      connection with          the ...        underlying '   contract. GMAC v. Everett


Chevrolet, Inc., 179 Wn.              App.     126, 149 -50, 317 P. 3d 1074 ( 2014) (                    emphasis   added) (   quoting


Badgett     v.   Sec. State Bank, 116 Wn.2d 563, 569, 807 P. 2d 356 ( 1991)), petition for review filed,


No. 90366 - ( Wash. June 12, 2014).
          2                                                 Having already held that the State did not breach its leases,

we further hold that it did not breach its duty of good faith and fair dealing when I -1183 provided

the State with no alternative but to cease liquor sales, to terminate its leases with Landlords, and

                                                                                                                         17
to   auction     to   private     parties   the    right      to   sell   liquor     at   the Landlords'    locations.        See RCW


66. 24. 620( 2).


                                                  III. CONSTITUTIONAL CLAIMS


            Last, Landlords argue that the superior court committed legal error in dismissing their

contracts clause and takings clause claims. They contend that ( 1) I -1183 did not require the State

to terminate its leases; and ( 2) thus, the State' s lease terminations " impaired" its contracts with.

Landlords,        which constituted an unconstitutional taking of private property without just

compensation.          Br.   of   Appellant       at   8.    The State responds that it neither impaired a contract nor


took private property without just compensation because the leases terminated by their own terms

when enactment of            the   new      law   rendered         the State unable to          perform:   By operation of law the

State could no longer sell liquor on the Landlords' properties, or anywhere else; and, consequently,




17 Again, as we have already remarked, termination of the leases was the State' s only option
because the lease terms ( 1) expressly provided that the Landlords' properties could be used only
to sell alcoholic beverages and lottery products, and ( 2) did not provide for the Liquor Control
Board to assign the leases.



                                                                          11
No. 44509 -3 -II



there was no longer a contract to impair. Again, we agree with the State and we affirm the superior


court' s dismissal of Landlords' constitutional claims.


                                               A. Contracts Clause Claims


          Both state and federal constitutions prohibit legislatures from enacting laws that impair

existing   contractual     obligations.        WASH. CONST.          art.   I, § 23; U.S. CONST.          art    I, § 10. "   It is


 fundamental' that this prohibition against impairing contracts reaches any form of legislative

action,   including   direct   action    by the people through the          initiative   process."   Pierce County v. State,

159 Wn.2d 16, 27 -28, 148 P. 3d 1002 ( 2006) ( quoting                 Ruano v. Spellman, 81 Wn.2d 820, 825, 505

P. 2d 447 ( 1973)).        In determining whether legislation unconstitutionally impairs an existing

contractual obligation, our         threshold       inquiry   is "` whether the state law has, in fact, operated as a


substantial    impairment        of a contractual      relationship. '       Optimer Int' l., Inc. v. RP Bellevue, LLC,


151 Wn.     App.   954, 965, 214 P. 3d 954 ( 2009) (             quoting Margola Assocs. v. City of Seattle, 121

Wn.2d 625, 653, 854 P. 2d 23 ( 1993)),                aff'd, 170 Wn.2d 768, 246 P. 3d 785 ( 2011).

           An `impairment is substantial if the complaining party relied on the supplanted part of the

contract, and contracting parties are generally deemed to have relied on existing state law

pertaining to interpretation             and   enforcement. '        Optimer, 151 Wn.              App.   at    965 -66 ( quoting


Margola, 121 Wn.2d          at   653).    A "`contract     is impaired by a statute which alters its terms, imposes

new conditions or       lessens its      value. '     Optimer, 151 Wn. App. at 966 ( quoting Caritas Servs., Inc.

v.   Dep' t of Soc. &    Health Servs., 123 Wn.2d 391, 404, 869 P. 2d 28 ( 1994)).                        But this prohibition


against    contract     impairment "` is        not   an   absolute one, '       and     we   do   not   read   it "' with literal


exactness. '    Optimer, 151 Wn. App. at 965 ( quoting Tyrpak v. Daniels, 124 Wn.2d 146, 151, 874

P. 2d    1374 ( 1994)).          Moreover, "        legislation does not unconstitutionally impair contractual



                                                                12
No. 44509 -3 -II



obligations where the legislation constitutes an exercise of the police power in advancing a

legitimate      public purpose."    Optimer, 151 Wn. App. at 966 ( citing Birkenwald Distrib. Co. v.

Heublein, Inc.,     55 Wn. App. 1, 9, 776 P. 2d 721 ( 1989)).

          Here, both parties were sophisticated, understood the lease terms, and acknowledged by

the leases' express termination provision that a change in the law might prevent compliance with

                                                    18
the   contracts    or   terminate the     leases.        By including Paragraph 3 as their remedy for lease

termination, the parties anticipated that a change in the law could prevent either party from

 complying with or carrying out "19 the lease terms, and they " intended the prescribed remedy as
the   sole   remedy for the   condition."     United Glass Workers ' Local No. 188 v. Seitz, 65 Wn.2d 640,

642, 399 P. 2d 74 ( 1965);       Rainier Nat' l Bank v. Wells, 65 Wn. App. 893, 899, 829 P. 2d 1168

 1992).       Thus, in exercising this lease termination provision ( after the law was passed prohibiting

the State from continuing to       sell   liquor), the State did not impair the contracts because the parties'


rights and expectations remained the same as before the new law was passed.


             The superior court correctly ruled that the " leases ceased to exist once [ the] termination




 18 Neither party disputes the validity of Paragraph 3' s lease termination provision.

 19CPat22, 33.


                                                              13
No. 44509 -3 -II



provision    was   triggered."    VRP   at   44.   We hold that the superior court properly dismissed

Landlords' contracts clause claims.


                                         B. Takings Clause Claims


       The takings clause of the Fifth Amendment to the United States Constitution protects


individuals against uncompensated takings of private property by both the federal and state

governments.       U. S. CONST.    amend.    V.    Article I, section 16 of the Washington Constitution


similarly provides,   "   No private property shall be taken or damaged for public or private use without

just compensation having been first made."

       In addressing Landlords' takings challenges to the State' s implementation of I -1183, we

begin with two threshold questions:

       First, whether the regulation destroys or derogates any fundamental attribute of
       property ownership, including the right to possess, to exclude others, to dispose of
       property, or to make some economically viable               use   of    the     property.   If the
       landowner claims less than a " physical invasion"            or   a "   total   taking" and if a
        fundamental attribute of ownership is not otherwise implicated, we proceed to the
        second question. That question is whether the challenged regulation safeguards the
        public interest in health, safety, the environment, or the fiscal integrity of an area
        or whether the regulation " seeks less to prevent a harm than to impose on those
        regulated the requirement of providing an affirmative public benefit."

Edmonds Shopping Ctr. Assocs. v. City ofEdmonds, 117 Wn. App. 344, 362, 71 P. 3d 233 ( 2003)

 footnotes   and citations omitted) (   quoting Guimont v. Clarke, 121 Wn.2d 586, 603, 854 P.2d 1




                                                        14
No. 44509 -3 -II


             20
 1993)).


           Landlords argue that an agency regulation, such as the Liquor Control Board' s adopting

the Relocation         Policy, " may constitute a taking ` if it goes beyond preventing a public harm [ to]

actually     enhance ...       a   publicly      owned right   in property.'"       Br. of Appellant at 48 ( some alterations

in   original) ( internal quotation marks omitted) (                 quoting Sintra, Inc., v. City ofSeattle, 119 Wn.2d

1, 14, 829 P. 2d 765 ( 1992)).              Landlords further argue that, by implementing the Relocation Policy,

 the [ Liquor Control Board] enhanced public ownership of the liquor rights the [ Board] was selling

by   public auction         by diminishing         the property     rights of state store     landlords. [ Landlords] should


have been         permitted        to    pursue    their   proper   remedies:        either invalidation of I -1183 or just


compensation."             Bt. of Appellant at 48. These arguments fail.


           Returning to the two threshold questions set out in Edmonds Shopping Ctr., 117 Wn. App.

at 362, we first note that Landlords do not allege any State action that destroyed or diminished any

fundamental          attribute of        property ownership.        On the contrary, the record shows that Landlords

retained these fundamental property rights attributes: the rights to possess and to dispose of their

properties, to exclude others, and to make some economically viable use of their properties.

Guimont, 121 Wn.2d                  at    595.    We   next   address       the   second   threshold    question—   whether the




20 We engage in additional analysis only if, in answering these two threshold questions, we
determine either that the regulation ( 1) infringes on a fundamental attribute of ownership; or ( 2)
goes beyond safeguarding the public interest in health, safety, the environment or the fiscal
integrity of an area and instead imposes on those being regulated the requirement of providing an
affirmative public benefit. Guimont, 121 Wn.2d at 603; Edmonds Shopping Ctr. Assocs., 117 Wn.
App.    at    362.    Such    additional analysis would require us                  to   answer   two   more questions: "   First,
whether       the    regulation advances a           legitimate     state   interest ";
                                                               and second, using a balancing test,
whether " the state interest in the regulation is outweighed by its adverse economic impact to the
landowner ... ,            the extent the regulation interferes with investment -
                                                                                backed expectations, and the
character of         the   government action."             Edmonds     Shopping      Ctr.,   117 Wn. App. at 362 -63 ( citing
Guimont, 121 Wn.2d at 604).



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challenged action seeks less to prevent a public harm than to provide an affirmative benefit to the


public    agency. Edmonds   Shopping   Ctr., 117 Wn.      App.   at   362.   Although the exclusivity of the

right to sell liquor, which the State auctioned to private bidders, may increase the value of this

right, the legislature' s purpose for such exclusivity is to prevent proliferation of private liquor

stores.   This purpose lies at the heart of the State' s police power and is directed at preventing a

public    harm. See Edmonds    Shopping   Ctr.,   117 Wn. App. at 362; State v. Audley, 77 Wn. App.

897, 901, 894 P. 2d 1359 ( 1995).   Answering these Edmonds Shopping Ctr threshold inquiries in

the affirmative, we hold that the State' s actions did not constitute a taking; thus, further analysis

is not required.


          We hold that the State did not commit an unconstitutional taking by exercising the lease

termination provision when enactment of the new law prohibiting the State from selling liquor

rendered it unable to perform under the leases.


          We affirm.




                                                          Hunt, J.




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