Facts: Petitioner Linda Eastwood filed suit against respondent Horse Harbor Foundation, Inc. and its directors in the Superior Court for Kitsap County after Horse Harbor Foundation failed to properly maintain property that it leased from Eastwood. The trial court found that Horse Harbor Foundation had committed waste in violation of a covenant in the lease requiring it to maintain the property and that its directors had been grossly negligent and therefore were individually liable. Upon appeal, the Washington Court of Appeals reversed the trial court’s finding that Horse Harbor Foundation had committed the tort of gross negligence and that its directors were consequently individually liable, holding that as Eastwood’s damages stemmed from a breach of the terms of the lease, the economic loss doctrine limited Eastwood to contract remedies. Eastwood appealed this decision to the Supreme Court of Washington.

Question(s): Is a lessor limited to contract remedies in cases in which a lessee breaches a lease covenant to maintain the property?

If not, may the directors of a corporation be held liable for permitting waste that rises to the level of gross negligence?

Conclusion: Justice Fairhurst’s opinion for the Court reversed the Washington Court of Appeals, concluding that the existence of a contractual relationship does not necessarily invoke the economic loss rule and that the rule does not bar recovery in tort when the alleged tort implicates a duty that arises independently of the terms of the contract. Thus, as Horse Harbor Foundation had a duty not to cause waste independent of the covenant in the lease requiring it to maintain the property, it could be held liable for the tort of waste. The Court also held that Horse Harbor Foundation’s directors could be held individually liable as the manner in which they permitted waste rose to the level of gross negligence.

Docket No. 81977-7 (from Court of Appeals Division II Case No. 34995-7)

Petitioner: Linda Eastwood d/b/a Double KK Farm

(Counsel: David P. Horton)

Respondent: Horse Harbor Foundation, Inc., et al.

(Counsel: Leslie Clay Terry, III)

Briefs:

Argument: Thursday, September 24, 2009 10:00am

[Source: TVW, http://tvw.org]

Decided: Thursday, November 4th, 2010

Prevailing Party: Linda Eastwood d/b/a Double KK Farm (Petitioner)

Vote: 9-0

Citation: Pending

Court: Madsen1 Court (2010-2011)

Madsen
(Concurs)

Johnson

Alexander

Sanders

Chambers
(Concurs)

Owens

Fairhurst
(Majority)

Johnson

Stephens