Parties to a Washington divorce may reach an agreement to resolve the issues in their case. A CR 2A agreement, named after Washington Superior Court Civil Rule 2A, can resolve a number of issues, including property distribution and debt allocation. CR 2A agreements may also include an alternative dispute resolution requirement.
A husband recently appealed an enforcement order, arguing the matter should have been resolved through the alternative dispute process set forth in the CR 2A agreement. According to the appeals court’s opinion, the parties got married in 1991. They separated in 2017 and the husband filed for divorce at the end of 2018. The marital estate was worth about $194 million. The parties entered into a CR 2A Agreement and Separation Contract that allocated some property and made financial management arrangements in August of 2019.
The agreement allocated a development project to the husband and allowed him to borrow up to $3 million from the wife with 6% interest. She could choose to either invest the loan into the project or make the loan part of the equalizing payment. If she chose not to invest in the project, the agreement required the husband to pay the equalizing payment with 7.5% interest from the date she notified him of that decision. The payment would be due within 12 months of entry of the divorce decree. If the payment was not paid timely, it would accrue 12% per annum interest.
The agreement also included an alternative dispute resolution (“ADR”) provision requiring the parties to informally negotiate any issues in connection with the interpretation or implementation of the agreement or omitted essential terms. If the issues could not be resolved through negotiation, the parties could submit them to mediation, and then to binding arbitration if mediation failed.
The divorce was final on March 23, 2020. The decree incorporated the agreement by reference and specifically required the parties to pay debts as provided in the agreement and to resolve issues through alternative dispute resolution.
The wife notified the husband she did not want to invest the equalizing payment in July 2020. He was required to make the payment by March 23, 2021, or interest would begin to accrue at 12%.
The wife moved to enforce the agreement to compel him to pay the equalizing payment and accrued interest in September 2021. The wife argued the default was not subject to the ADR provision because it was not based on interpretation, implementation, or the omission of an essential term.
The husband argued they had agreed to ADR because a public hearing or judgment could result in foreclosures of their marital assets. Section 2.5 of the agreement required the parties to cooperate with each other to maintain stability in their mortgaged property. He argued they both knew that he would likely be unable to make a cash payment within a year of the decree and had agreed to 12% interest as the remedy for a delay.
The trial court found enforcement of the equalizing payment was not subject to the ADR provision and granted the enforcement motion, issuing a judgment of more than $7.8 million against the husband. The trial court also awarded the wife attorney fees and costs.
The husband appealed, arguing the dispute was subject to the ADR provision and the trial court erred in granting the enforcement motion.
Pursuant to RCW 7.04A.060(2), the court determines if a particular controversy is subject to the parties’ arbitration agreement. Washington favors arbitration, and will resolve doubts regarding applicability of an arbitration agreement in favor of arbitration.
The wife argued that enforcement was not interpretation, implementation, or an omitted essential term and therefore was not subject to the ADR agreement.
The appeals court looked to the dictionary definition of “implementation” and concluded that the plain language of the agreement suggested the ADR provision applied to “any issue that would effectuate the terms of the Agreement.” Enforcement of the equalizing payment was therefore within the scope of “implementing” the agreement.
The appeals court also noted the dispute may involve interpretation or involve a missing essential term. The agreement provided for 12% interest, but it was unclear if there was any other mechanism for enforcement or remedy or if the interest could accrue indefinitely.
The wife argued the agreement specifically stated its terms were “enforceable in court,” so enforcement was “reserved for the court, and not subject to arbitration.” The appeals court rejected this argument, noting it would undermine the ADR provision because the parties had stipulated the entire agreement was enforceable in court. In considering the agreement as a whole, the appeals court concluded the parties had agreed the agreement was binding and enforceable in court for issues not subject to the ADR provision, but had agreed to resolve certain disputes through the progressive ADR process. The appeals court determined the ADR provision and Section 2.5 could be harmonized with the enforcement clause because the wife could reduce an arbitration award to a court judgment. The appeals court concluded, however, that she was required to follow the requirements of the ADR provision first.
The appeals court reversed and remanded the case, with instructions for the trial court to direct the parties to comply with the ADR provision. The appeals court also reversed the award of attorney fees to the wife and directed the superior court to award reasonable fees to the husband for opposing the motion to enforce and for the appeal.
Alternative dispute resolution can be a valuable tool in amicably resolving issues in a divorce. When agreeing to ADR, however, the parties should fully understood what types of disputes are required to go through the ADR process. If you are facing a divorce, a skilled Washington divorce attorney can advise you on whether a CR 2A agreement and an ADR provision may be appropriate in your case. Contact Blair & Kim, PLLC, at (206) 622-6562 to set up a consultation.