Washington Potato Company v. J. R. Simplot Company
4:17-cv-05032
E.D. Wash.Oct 26, 2017Background
- Washington Potato Company (WPC) and J.R. Simplot Company (Simplot) were 50/50 members of Pasco Processing, governed by a 2013 Amended and Restated Operating Agreement (OA). WPC managed day-to-day operations.
- The OA required Board approval for certain capital contributions and set a deadlock procedure (Section 12.13) that, if unresolved by mediation, permitted an option to purchase the other member’s interest (Section 9.5) conditioned on a five-year supply agreement.
- In October 2016 WPC’s three board representatives executed a written consent approving a $6 million capital contribution ($3M each). Simplot’s three representatives did not attend or sign, and WPC asserted that a deadlock occurred.
- WPC sent a Deadlock Notice and requested mediation under the OA; JAMS proposed mediators, but Simplot refused to participate. After 45 days WPC exercised its option to buy Simplot’s interest and closed March 10, 2017. Simplot contests the buyout and initiated parallel litigation.
- The central dispute: whether a deadlock occurred under the OA and, if so, whether WPC validly exercised its option to purchase despite the OA’s condition requiring a five-year supply agreement (which Simplot did not execute).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did a deadlock occur under OA §12.13 over capital contributions? | WPC: Simplot’s failure to vote, sign the written consent, and attend the meeting created a Tie Vote/deadlock under §12.13. | Simplot: The facts raise disputes; WPC allegedly "manufactured" the deadlock and procedure was not properly followed. | Held: Deadlock occurred. WPC followed OA procedures; Simplot’s abstention/nonparticipation produced the deadlock. |
| Was WPC entitled to exercise purchase option under §9.5 after deadlock despite absence of five-year supply agreement? | WPC: Simplot prevented negotiation/mediation and failed to agree to a supply deal, invoking prevention/waiver and duty of good faith so WPC could exercise the option. | Simplot: Material facts exist about whether the condition precedent (five-year supply agreement) was satisfied or excused; WPC didn’t plead facts to show condition was met. | Held: Simplot’s refusal to negotiate/mediate frustrated the condition precedent and violated good faith; condition excused/waived. WPC validly exercised the option. |
| Is further discovery (Rule 56(d)) required before deciding summary judgment? | WPC: Not needed; dispute is contract interpretation based on the OA’s text and undisputed facts. | Simplot: Needs discovery on management, operations, and Tiegs’ credibility to oppose summary judgment. | Held: Denied. Court found those topics irrelevant to interpreting the OA and improper vehicles for summary judgment delay. |
| Are Plaintiff’s alternative remedies (specific performance) still live? | WPC: sought declaratory judgment and alternatively specific performance. | Simplot: sought damages and declaratory relief/counterclaims. | Held: Declaratory judgment granted that WPC owns 100% of Pasco Processing; specific performance claim dismissed as moot. |
Key Cases Cited
- Hearst Commc’ns, Inc. v. Seattle Times Co., 154 Wash. 2d 493 (Wash. 2005) (objective manifestation approach to contract interpretation)
- Anderson v. Liberty Lobby, 477 U.S. 242 (U.S. 1986) (standard for genuine dispute at summary judgment)
- Tolan v. Cotton, 134 S. Ct. 1861 (U.S. 2014) (court may not make credibility determinations at summary judgment)
- Rekhter v. Dep’t of Soc. & Health Servs., 180 Wash. 2d 102 (Wash. 2014) (implied duty of good faith and fair dealing in contract performance)
- Westerbeke Corp. v. Daihatsu Motor Co., 304 F.3d 200 (2d Cir. 2002) (duty to reasonably facilitate occurrence of a condition precedent)
- McDonald v. Wyant, 167 Wash. 49 (Wash. 1932) (prevention doctrine: one who prevents condition cannot take advantage of nonperformance)