Opinion
NO. 2011-CA-001771-MR NO. 2012-CA-001925-MR
03-14-2014
FURLONG DEVELOPMENT CO., LLC; and GORDON STACY APPELLANTS v. GEORGETOWN-SCOTT COUNTY PLANNING AND ZONING COMMISSION; EGT PROPERTIES, INC. and UNITED BANK & TRUST COMPANY, VERSAILLES KY. APPELLEES AND FURLONG DEVELOPMENT, LLC; and GORDON STACY APPELLANTS PLATTE RIVER INSURANCE CO.; EGT PROPERTIES, INC.; UNITED BANK & TRUST COMPANY, VERSAILLES, KY.; and GEORGETOWN-SCOTT COUNTY PLANNING AND ZONING COMMISSION APPELLEES
BRIEF FOR APPELLANTS: Jeffrey C. Rager Lexington, Kentucky BRIEF FOR APPELLEE GEORGETOWN-SCOTT COUNTY PLANNING AND ZONING COMMISSION: Charles M. Perkins Georgetown, Kentucky BRIEF FOR APPELLEES UNITED BANK & TRUST COMPANY AND EGT PROPERTIES, INC. Steven B. Loy Monica H. Braun Lexington, Kentucky
NOT TO BE PUBLISHED
APPEAL FROM SCOTT CIRCUIT COURT
HONORABLE ROBERT G. JOHNSON, JUDGE
ACTION NO. 11-CI-00111
OPINION
AFFIRMING
BEFORE: COMBS, LAMBERT, AND THOMPSON, JUDGES. COMBS, JUDGE: Furlong Development Company, L.L.C. (Furlong), and Gordon Stacy appeal an order of the Scott Circuit Court granting the motions for summary judgment filed by United Bank & Trust Company; EGT Properties, Inc.; and the Georgetown-Scott County Planning and Zoning Commission. Furlong and Stacy also appeal a subsequent order denying their motion for relief from the judgment.
Appellees contended that Furlong breached its agreement to construct infrastructure necessary for a real estate development project, thereby causing its surety (Platte River Insurance Company) to become liable to the planning commission for the full amount of its performance bonds. The court agreed and granted summary judgment in favor of the Appellees. A year later, the trial court rejected Furlong's contention that newly discovered evidence justified relief from the judgment.
On appeal, Furlong and Stacy argue: that summary judgment was improvidently granted since discovery had not yet been completed; that because the implied conditions of the agreement underlying the performance bonds were never met, the obligations of the surety were never triggered; and that they should have been permitted to pursue a claim against the bank and its real estate property manager for unjust enrichment. They also contend that the court abused its discretion by awarding attorneys' fees and costs to the bank and to EGT Properties. In a companion appeal, they argue that the trial court abused its discretion by failing to grant them relief from the summary judgment. After our review of the record and pertinent law, we affirm.
Furlong owned a 26-acre tract of real estate in Georgetown. At the height of the construction boom, Furlong proposed to develop that property into 90 single-family residential lots. The development was known as "The Enclave." United Bank &Trust Company provided the financing for the purchase and development of the property. Stacy personally guaranteed the loans.
In order to qualify for final approval of the proposed development and for the benefit and protection of the City of Georgetown, Furlong was required by the planning commission to provide a surety bond in an amount equal to 125% of the estimated cost of building certain infrastructure -- including sidewalks and road surfaces -- throughout the subdivision. Furlong acquired three performance bonds through Platte River Insurance Company. To secure the bonds, Furlong and Stacy expressly agreed to personally indemnify the surety against any losses.
When the housing market collapsed in 2008, Furlong was unable to meet its financial obligations and defaulted on the loan agreements. In talks with the bank, Furlong acknowledged that the fair market value of "The Enclave" was insufficient to cover the outstanding principal and interest that had accrued on its loans. Eventually, the bank agreed to accept Furlong's deed to the subject property in lieu of foreclosure. The bank directed Furlong to deed the property to EGT Properties, its real estate property management company. On April 1, 2008, the bank released Furlong and Stacy from their obligations under the various loan agreements.
Several months later, the bank corresponded with the planning commission. The bank indicated that the public improvements secured by Furlong's performance bonds had not been completed. The bank proposed that the planning commission claim the bonds so that the proceeds could be used to reimburse the bank (or any successor developer) for completion of the necessary public improvements.
Two weeks later, the planning commission advised Platte River Insurance Company that Furlong had abandoned its subdivision project without completing the required public improvements and had conveyed the property to the bank in lieu of foreclosure. The planning commission demanded payment of $148,287.50 -- the principal amount of the bonds.
On September 18, 2008, Platte River corresponded with Furlong and Stacy. Platte River reminded them that they had each agreed to indemnify the insurer for all losses and expenses, and it directed Furlong and Stacy to resolve the claim for the bonds. Pursuant to the parties' indemnity agreement, Platte River demanded that Furlong and Stacy post cash collateral in the amount of $150,000.00. Neither Furlong nor Stacy posted the collateral, and Platte River commenced a civil action against them in federal district court seeking relief pursuant to the parties' indemnity agreement. In its complaint, Platte River alleged that it expected to incur losses on the bonds in an amount of at least $150,000.00.
On February 5, 2010, Platte River corresponded with the bank, EGT Properties, and the planning commission. Platte River demanded that the planning commission rescind its claim to the bonds. According to Platte River, Furlong's obligation to install the public improvements at the development would not have arisen until 80% of the units planned for the subdivision had been constructed. Because no units had been constructed at "The Enclave," Platte River reasoned that Furlong's obligation had never actually ripened and that, therefore, Furlong could not have defaulted on its obligation. Platte River argued that the bonds were not subject to forfeiture since the obligation to construct the improvements had never actually materialized. Platte River also argued that the performance bonds could not be deeded or assigned. "The Surety chose to bond Furlong. It did not choose to bond EGT or the Bank." Platte River argued that if it were required to bear the burden of the public improvements, EGT Properties would "reap a benefit for which it did not pay."
On February 2, 2011, Furlong and Stacy filed the declaratory judgment action underlying this appeal. Platte River, EGT Properties, the bank, and the planning commission were named defendants. Furlong and Stacy alleged that the bank had released them and Platte River from liability on the bonds; that the bank would be unjustly enriched if the bonds were forfeited; that EGT Properties had become responsible to post its own bond once it became the owner of the development; and, finally, that the commission had acted outside its scope of authority by claiming the bonds before 80% of the development project had been completed.
The planning commission answered and denied the allegations. It asserted numerous defenses and asserted a counterclaim against Furlong and Stacy. The planning commission alleged that Furlong had defaulted on the requirements of the approval of the subdivision plat by abandoning the project. The planning commission also asserted a cross-claim against Platte River, alleging that Platte River was obligated to make the required public improvements at the development or forfeit the bonds.
Platte River answered the planning commission's cross-claim and reiterated the substance of its earlier correspondence; i.e., that Furlong's obligation to make the public improvements had ever matured; thus, it denied that the bonds were payable. Platte River also filed a counterclaim against Furlong and Stacy and its own cross-claim. In its counterclaim, Platte River reasserted its claim against Furlong and Stacy for indemnity. In its cross-claim against the planning commission, EGT Properties, and the Bank, Platte River requested a declaration of rights with respect to the bonds. It also sought to recover its costs, expenses, and attorneys' fees.
EGT Properties and the bank also answered the complaint of Furlong and Stacy and denied the allegations. After answering the cross-claim of Platte River, the bank and EGT Properties filed a motion for summary judgment with respect to the claims made by Furlong, Stacy, and Platte River.
The bank explained that it had made loans to Furlong totalling nearly 4.5 million dollars for the development of the property. It claimed that Furlong had used proceeds from the loans specifically to fund the premiums that Platte River required in order to secure the performance bonds at issue. The bank also contended that Furlong had taken draws on the loan proceeds in order to commence the very improvements that were, in fact, never completed. The bank and EGT Properties argued that the deed in lieu of foreclosure and the accompanying agreements expressly provided that Furlong and Stacy would remain liable for any third-party obligations. They also argued that the unjust enrichment claim must fail as a matter of law since the terms of the parties' contract clearly and unambiguously defined their respective obligations.
The planning commission also filed a motion for summary judgment. It explained that the performance bonds had been required to guarantee that the necessary public improvements would be completed even if the developer abandoned the project. It argued that Furlong and Stacy had not been relieved of their obligation to complete the infrastructure improvements and that since the project had not been completed as promised, Platte River was obligated to fulfill its obligation under the express terms of the bonds.
Furlong and Stacy resisted the motions and filed their written responses. Platte River also vigorously resisted the motions and filed a persuasive response. The bank, EGT Properties, and the planning commission filed extensive replies.
On August 29, 2011, the trial court granted summary judgment in favor of the bank, EGT Properties, and the planning commission. The circuit court determined that Platte River remained obligated to the commission under the circumstances and that there was no viable claim against the bank or EGT Properties for unjust enrichment. It concluded that the bank, EGT Properties, and the planning commission were entitled to judgment as a matter of law. The judgment was made final and appealable pursuant to the provisions of Kentucky Rule[s] of Civil Procedure (CR) 54.02. Platte River's counterclaim against Furlong and Stacy for indemnity remained unresolved.
On September 27, 2011, Furlong and Stacy filed a notice of appeal. The following day, an amended notice of appeal was filed. The notice indicated that Platte River would join the proceedings as a party-appellant. The notice was signed by the attorney for Furlong and Stacy, who represented that he now also acted as co-counsel for Platte River.
On October 6, 2011, the circuit court ordered Furlong and Stacy to reimburse the bank and EGT Properties for their attorneys' fees and costs. This order was also made final and appealable pursuant to the provisions of CR 54.02
On August 27, 2012, Furlong and Stacy filed a motion requesting relief from the judgment pursuant to the provisions of CR 60.02, citing newly discovered evidence. At issue were statements made by representatives of the bank and by the planning commission to David Thornton, the insurance agent involved in brokering the purchase of the bonds. Those statements allegedly indicated that the bank and the planning commission realized as early as May 12, 2008, that the bank needed to provide a surety of its own with respect to the required public improvements.
The bank and EGT Properties objected strenuously. They asserted that the same arguments had been made before the trial court, which had rejected them the year before. They claimed that these arguments were now being "repackaged" in the motion for relief. The court summarily denied the motion in an order entered on October 5, 2012.
On November 1, 2012, Furlong and Stacy filed their second notice of appeal. For the sake of judicial economy, the separate appeals were consolidated for our review on January 25, 2013.
Bond disputes of this nature have abounded since the collapse of the nation's housing market in 2008. As a result, issues similar to the ones presented in this proceeding are being considered in state and federal courts around the country. At different times and under various circumstances, courts in many jurisdictions have permitted municipalities to use bond proceeds to reimburse successor developers for completing necessary public improvements. However, this trend is not without exception.
The substantive issues presented by this bond dispute are not unique. However, our review of the merits of the appeal has been affected - indeed frustrated - by the numerous irregularities that have characterized these proceedings from the beginning. As an initial matter, we note that Furlong and Stacy declared expressly in the parties' indemnity agreement that Platte River would have the exclusive right "to decide, and determine whether any claim, demand, suit or judgment upon the Bond(s) shall be paid, settled, defended or appealed, and its determination shall be final, conclusive and binding." Pursuant to the parties' agreement, the sole exception to this provision would apply only if Furlong and/or Stacy deposited with Platte River cash or collateral sufficient to satisfy the surety. Nothing in the record indicates that Furlong or Stacy ever complied with Platte River's written demand to post the required cash or collateral. Thus, the decision of Furlong and Stacy to commence a declaratory judgment action appears to have violated the express terms of the parties' agreement.
Additionally, nothing in the record before us suggests that Platte River has an abiding interest in pursuing an appeal of the trial court's judgment. With the exception of the amended notice of appeal which purported to add it as a party-appellant, Platte River did not file a single paper with this court. Nor did it respond to the motion practice or submit a brief. The failure of Platte River to perfect its appeal may be explained by the outcome of its federal court proceedings against Furlong and Stacy or the existence of its pending counterclaim against them in Scott Circuit Court. We have no way of knowing. Nevertheless, under the circumstances, we do not conclude that Platte River intended to pursue an appeal of the judgment in favor of the planning commission. The demand of Platte River for indemnity is binding upon Furlong and upon Stacy in this matter, and they are not entitled to prosecute an appeal on behalf of Platte River. Consequently, we make no further comment upon the issues surrounding Platte River's discovery requests or the contention that its obligations were contingent upon substantial completion of the development by Furlong and Stacy.
Along with their claims against the planning commission, Furlong and Stacy asserted claims against the bank and EGT Properties for unjust enrichment. However, this issue is contingent upon Platte River's interest in this appeal, which alone appears to have standing to assert it. We conclude that the trial court did not err by granting summary judgment to the bank and EGT Properties with respect to these claims as asserted and pled.
We review a trial court's decision to grant summary judgment de novo. Blevins v. Moran, 12 S.W.3d 698 (Ky. App. 2000). The judgment should be granted only where the pleadings, the discovery, the admissions, the stipulations, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law. CR 56.03.
Furlong and Stacy argue that the bank's decision to contact the planning commission regarding the unfinished public improvements "created an unjust windfall" for the bank and for EGT Properties at their expense. Brief at 18. They contend that the entry of summary judgment denying their claim of unjust enrichment was erroneous as a matter of law. We disagree.
In order for a party to prevail under the theory of unjust enrichment, it must prove three elements: "(1) benefit conferred upon defendant at plaintiff's expense; (2) a resulting appreciation of benefit by defendant; and (3) inequitable retention of benefit without payment for its value." Jones v Sparks, 297 S.W.3d 73, 78 (Ky. App. 2009). To recapitulate, Furlong and Stacy claim that the bank's communication with the planning commission amounted to unjust enrichment. Their contention, however, is merely conclusory and fails to sustain their burden of proving their case. Moreover, unjust enrichment is not a viable claim where an express contract between the parties defines the circumstances under which an obligation may arise. Sparks Milling Co. v. Powell, 143 S.W.2d 75 (Ky. 1940).
Furlong's deed, given in lieu of foreclosure, provided that the bank would not be responsible for Furlong's obligations to third parties -- such as the planning commission or Platte River. Moreover, the surety's bond inured to the benefit of the planning commission alone -- not to the bank or to its property management company. Thus, the unjust enrichment claims asserted by Furlong and Stacy are foreclosed as a matter of law. The trial court did not err by granting summary judgment.
Finally, in their first appeal, Furlong and Stacy contend that the court abused its discretion by awarding attorneys' fees and costs to the bank and to EGT Properties. However, since their notices of appeal did not encompass the circuit court's orders entered following the summary judgment, we are without jurisdiction to consider their arguments. The failure to file a notice of appeal is mandatory and jurisdictional. United Tobacco Warehouse, Inc. v. Southern States Frankfort Cooperative, Inc., 737 S.W.2d 708 (Ky. App. 1987). We are precluded from considering this issue.
In their second appeal, Furlong and Stacy contend that the trial court abused its discretion by failing to grant them relief pursuant to the provisions of CR 60.02. They contend that newly discovered evidence warranted a setting aside of the court's summary judgment. We do not agree that Furlong and Stacy were entitled to the extraordinary relief they sought.
Nearly a year after entry of the trial court's summary judgment, Furlong and Stacy alleged that newly discovered information revealed that the bank and the planning commission were aware in 2008 that the performance bonds should have been released upon Furlong's transfer of the subdivision property to the bank. In support of this assertion, they submitted the affidavit of David Thornton, the insurance agent involved in brokering the purchase of the bonds at issue. In his affidavit, Mr. Thornton summarized the conversations that he had with a representative of the planning commission and with a representative of the bank. Following a hearing, the trial court denied the motion for relief.
CR 60.02 provides that a party may be relieved from a final judgment or order based on mistake, inadvertence, excusable neglect, newly discovered evidence, fraud, perjury, a void judgment, or any other reason of an extraordinary nature justifying relief. The rule is not intended merely as an additional opportunity to relitigate the issues. Instead, the newly discovered evidence must be of such decisive effect that it would, with reasonable certainty, change the outcome of the proceedings. Caldwell v. Commonwealth, 133 S.W.3d 445, 454 (Ky. 2004) (citing Foley v. Commonwealth, 55 S.W.3d 809 (Ky.2000)). The decision to grant a new trial on the basis of newly discovered evidence falls within the sole discretion of the trial court, and the standard of review is whether there has been an abuse of that discretion.
We reiterate that the motion for relief from the judgment was asserted by Furlong and Stacy alone. Platte River did not join in the motion, and it was designated as a party-appellee in the notice of appeal by Furlong and Stacy. Furlong and Stacy expressly agreed that Platte River alone would decide whether any claim upon the bonds would be paid, settled, defended, or appealed and that its determination would be binding upon them. Thus, their motion was not well grounded from its inception. The "newly discovered evidence" claimed by Furlong and Stacy failed to meet the rigid standards of CR 60.02. It was not material, and it would not have changed the outcome of the proceeding. The trial court did not abuse its discretion by denying the motion for relief.
We affirm the entry of summary judgment.
LAMBERT, JUDGE, CONCURS.
THOMPSON, JUDGE, DISSENTS AND FILES SEPARATE OPINION.
THOMPSON, JUDGE, DISSENTING: Respectfully, I dissent. Furlong Development Company argues United Bank & Trust Company breached its mutual release agreement by requesting Georgetown-Scott County Planning and Zoning Commission call the bonds and was unjustly enriched when the planning commission did so. Under the terms of the mutual release entered into between Furlong and the Bank, Furlong and Platt River Insurance Company were released by the bank from all liability on the bonds:
The Obligated Parties and Lender, each hereby for itself and its parents, subsidiaries, designees, affiliates, joint venturers, agents, partners, companies, sureties, heirs, successors, assigns, officers, directors, shareholders, members and any person acting on their behalf shall be deemed to have forever released, remised, discharged and acquitted the other, and its guarantors, parents, subsidiaries, designees, affiliates, joint venturers, agents, partners, companies, sureties, heirs, successors, assigns, officers, directors, shareholders, members and any other person acting on its behalf, from any and all suits, claims, costs, liabilities, damages, actions, bonds, expenses, accidents, injuries, attorneys' fees and any other claim or cause of action of every type or nature, whether now existing, whether known and unknown, whether liquidated or unliquidated, whether matured or unmatured, whether contingent or actual and whether it be for damages of any kind whether general, special or punitive in any action at law or equity that the releasing party may have or claim to have, arising out of, by reason of, in connection with, or in any way related to the Loan Documents and the Loans, except that the Obligated Parties are not released from any representation or warranty set forth in the Deeds and the Obligated Parties and Lender are not released from any covenant herein.(Emphasis added.)
Releases for consideration are intended to avoid unjust enrichment. Beech v. Deere & Co., 614 S.W.2d 254, 257 (Ky. App. 1981). The majority opinion fails to address the applicability of the mutual release between the bank and Furlong in determining the viability of Furlong's claim of unjust enrichment. I believe the construction of the mutual release is essential to the arguments advanced by Furlong and the bank breached this release when it requested the planning commission call the bonds, which would ultimately be paid to the bank.
The bank's letter to the planning commission states:
[W]e are writing to request that the Planning Commission call the bonds in order that the funds can be used to complete the improvements. Our proposal is that the proceeds of the bonds be placed in an escrow account and, as the work is complete and inspected by the City of Georgetown, the funds be released to the bank as reimbursement for construction and completion of the improvements. We believe that this is an appropriate course of action, particularly since such bonds are required by the Planning Commission for this very reason, that is, to ensure that the public improvements are completed if the developer is unable to do so.While I agree with the majority opinion that the bank did not assume any bond obligations for Furlong, I disagree that the surety bonds inured to the benefit of the planning commission alone when the bank requested the proceeds be placed in escrow for its benefit. The value of the property is enhanced by the bank as a subsequent developer being freed from the obligation of having to complete the final improvements guaranteed by the bonds. Therefore, I would reverse on this claim.
Additionally, I am not convinced these bonds were due prior to the construction of houses and the issuance of certificates of occupancy on 80% of the lots. While Furlong installed water, sewer and utility lines, graded the lots and constructed roads for the subdivision, no houses have yet been constructed. It is unclear if, or when, any houses will be constructed. Under the terms of the City of Georgetown's Ordinance No. 2003, Art. X, 1000, J: "Any proposed roadway to be dedicated to the City of Georgetown for maintenance can apply [the] final inch of asphalt surface after 80 percent of the lots that are served by the roadway has received Certificate of Occupancy." While Furlong's actions of assigning the property to the bank in lieu of foreclosure may be interpreted as an anticipatory breach, and liability established, it does not follow that the planning commission can accelerate a performance which is not yet due by forcing a current deposit of the bond. See Jordon v. Nickell, 253 S.W.2d 237, 239 (Ky. 1952); Fid. & Deposit Co. of Maryland v. Brown, 230 Ky. 534, 20 S.W.2d 284, 286 (1929).
Accordingly, I would reverse and remand. BRIEF FOR APPELLANTS: Jeffrey C. Rager
Lexington, Kentucky
BRIEF FOR APPELLEE
GEORGETOWN-SCOTT COUNTY
PLANNING AND ZONING
COMMISSION:
Charles M. Perkins
Georgetown, Kentucky
BRIEF FOR APPELLEES UNITED
BANK & TRUST COMPANY AND
EGT PROPERTIES, INC.
Steven B. Loy
Monica H. Braun
Lexington, Kentucky