Loxley South, LLC v. Western Express, Inc. et al
Order re: 74 MOTION for Partial Summary Judgment filed by Loxley South, LLC. Summary judgment is GRANTED in favor of Loxley South as to Western's counterclaim for rescission. Since rescission has not been ordered, the parties shall remain in the position they were in before filing this action. Signed by Judge Kristi K. DuBose on 6/21/2011. copies to parties. (sdb)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
LOXLEY SOUTH, L.L.C.,
WESTERN EXPRESS, INC.,
CIVIL ACTION NO. 10-0024-KD-N
This action is before the Court on the motion for partial summary judgment filed by
plaintiff Loxley South, L.L.C. (Loxley South) as to defendant Western Express, Inc.’s (Western)
counterclaim for rescission (doc. 74). Oral argument was held May 26, 2011 and present were
Allan R. Chason, counsel for Loxley South, and George R. Irvine III and John Bradford Boyd
Hicks, counsel for Western. After oral argument, the Court ordered additional briefing and the
parties have now provided the Court with their respective trial briefs (docs. 102, 103). After
review of the evidence of record, the trial briefs, and consideration of the issues addressed at oral
argument, the Court finds that there is sufficient evidence before the Court to reach a decision on
Loxley South’s remaining issue on motion for partial summary judgment and that trial is not
necessary. Accordingly, upon consideration of the foregoing, and for the reasons set forth
herein, Loxley South’s motion for partial summary judgment as to Western’s counterclaim for
rescission is GRANTED.
A more extensive procedural background and findings of fact were set forth in the order
on summary judgment (doc. 98). Also, this Court is sitting in diversity and therefore applies the
In the counterclaim, Western claims as follows:2
13. The acts of Plaintiff, Loxley South, L.L.C., in negotiating for and
contracting for the sale of the property described in the contract prior to the
recordation of the subdivision plat and executing a deed to Wise was an illegal
act; void and of no force and effect.
14. Plaintiff in Counterclaim is entitled to rescind the sale and recover all
sums paid in connection with, and as a consequence of the contract, and in its
efforts to construct the road.
15. Plaintiff in Counterclaim offers to do equity by returning the property
to Defendant in Counterclaim for restitution of the sums paid.
WHEREFORE, after all due proceedings, Plaintiff in Counterclaim,
Western Express, Inc., demands judgment in its favor and against Defendant in
Counterclaim, Loxley South, L.L.C., for rescission of the contract and restitution
and disgorgement of all sums received by Loxley South, L.L.C. and for all other
just, general and equitable relief.
(doc. 51, p. 8).
On Loxley South’s motion for partial summary judgment, this Court determined that the
Agreement between Loxley South and Western was void and unenforceable because the
Agreement was made in violation of the subdivision regulation statutes of the State of Alabama,
specifically, Ala. Code § 11-52-33, and the Subdivision Regulations of the Town of Loxley (doc.
98). After finding that the Agreement was void, the Court held open the issue of whether
substantive law of the forum state, Alabama. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct.
817, 823 (1938). “In applying state law, this court ‘must decide the case the way it appears the
state's highest court would.’ " Rose v. General Motors Corp., 323 F.Supp.2d 1244, 1247 (N.D.
Ala. 2004) (quoting Ernie Haire Ford, Inc. v. Ford Motor Co., 260 F.3d 1285, 1290 (11th Cir.
Western also counterclaimed that the Agreement was void for fraud and was due to be
rescinded (doc. 41, p. 8, ¶ 12, incorporating by reference, ¶¶ 10-11). The Court granted
summary judgment in favor of Loxley South as to Western’s counterclaim for fraud (doc. 98). In
Western’s trial brief, it acknowledges that it does not seek to rescind on basis of fraud (doc. 15).
Western could recover all sums paid for the Property, recover all sums paid to prepare to
construct the road, and transfer the Property back to Loxley South. (doc. 98, p. 10)3 The
evidence indicates that Western and Wayne Wise expended a total of approximately $1 million
including the purchase price ($736,855.45) and cost of improvements to the Property and
engineering in preparation of construction of Business Park Drive (doc. 102-1, doc. 103, p. 2 n.1,
Loxley South calculates the total amount expended as $920,295.78).
The Court has held that the Agreement is void because it was made in violation of the
Alabama subdivision regulation statutes. In Drinkard v. Embalmers Supply Co., 244 Ala. 619,
621, 14 So.2d 585, 587 (1943), the court held that where a contract was void “there is no
occasion for a rescission; there is nothing to rescind.” Moreover, in Bankers & Shippers Ins. Co.
of New York v. Blackwell, 255 Ala. 360, 366, 51 So.2d 498, 502 (1951) the court stated that
“‘contracts specially prohibited by law, or the enforcement of which violated a law, or the
making of which violated the law ... [are] void and nonenforceable ...’ ”(quoting Ellis v. Batson,
177 Ala. 313, 317, 58 So. 193, 194 (1912)). Accordingly, there is no agreement to rescind (or
enforce) in this case.
Western argues that it falls within an exception to this lack of a remedy because its
conduct was not inequitable or as culpable as Loxley South, thus they were not in pari delicto.4
Loxley South states in its trial brief that the issue of whether the Agreement was not
void because of the application of an exemption in the Loxley Subdivision Regulations for tracts
of property larger than five acres had not been resolved (doc. 103, p. 14). However, the Court
previously found this argument unpersuasive. (doc. 98, p. 9).
The Court notes that Western argues that Loxley South has waived any argument that
the parties were in pari delicto because it was not specifically plead as an affirmative defense.
Loxley South responds that it plead the affirmative defenses of estoppel and waiver and unclean
hands and thus, sufficiently put Western on notice that equitable affirmative defenses would be
Western also points out that the penal provisions of the subdivision statutes are directed toward
the owner as the seller of the property and not the buyer, that Loxley South is a sophisticated real
estate company while Western is not, and that there was “at least some level of deception” in
Loxley South’s letter of November 7, 2006.
Loxley South responds that Western does not have clean hands and engaged in
inequitable conduct because it too participated in the illegal Agreement, even though the statute
may be worded in terms of enforcing the penalties against the owner. Loxley South also argues
that Western is a sophisticated business entity which routinely deals with real property issues and
participated in the Agreement on advice of counsel, and therefore the parties are “equally at
fault” and hence in pari delicto.
“The general principle underlying the doctrine of in pari delicto is that if two equally
guilty parties enter into an illegal or void contract neither party may obtain relief in the courts.”
Crown Castle USA, Inc. v. Howell Engineering and Surveying, Inc., 981 So.2d 400, 410
(Ala.Civ.App. 2005) (reversed on other grounds Ex parte Howell Engineering and Surveying,
Inc., 981 So. 2d 413 (Ala. 2006)) (citing Robinson v. Boohaker, Schillaci & Co., P.C., 767 So.2d
1092, 1094 (Ala. 2000) citing Thompson v. Wiik, Reimer & Sweet, 391 So.2d 1016 (Ala. 1980)).
Moreover, although an exception exists where one party to a void contract is not equally guilty
with the other, the exception “should be applied only in limited circumstances.” Thompson, 391
So.2d at 1020. In Thompson, the court explained that “[t]he cases of this character exist
generally where the party asking to be relieved from the effect of an illegal agreement was
raised. The Court finds that the affirmative defense of in pari delicto was not waived. While
differing, the doctrines of unclean hands and in pari delicto both anticipate some proof of
inequitable conduct or culpable conduct as does equitable estoppel.
induced to enter into the same by means of fraud; here he is not regarded as being in pari delicto
with the other party, and the court may relieve him. The same is held where the complaining
party has entered into the illegal contract through the duress or undue influence of the other.” Id.,
at 1020-1021 (quoting 17 C.J.S. Contracts § 274, p. 119 (1963)).
Although Western raised a counterclaim alleging fraud based on the letter of November
2006, the Court has granted summary judgment in favor of Loxley South on that counterclaim.
Also, there is no element of undue influence or duress. Instead the parties to the Agreement are
both sophisticated business entities. Moreover, there is no evidence that either party knew that
entering into the Agreement would violate the Alabama subdivision control statutes. Lucky Jacks
Entertainment Center, LLC v. Jopat Bldg. Corp, 32 So.3d 565, 569 (Ala. 2009) (addressing a
lease for the purpose of operating an illegal video gaming center) (“‘When both parties, acting
under a mistake of law, make a contract which the law forbids, then the principals are not liable
thereunder .... It is a mistake of law, known in law, yet probably unknown in fact, to the parties
to the contract at the time of its execution.’”) (quoting Walker v. Southern Trucking Corp., 283
Ala. 551, 553-554, 219 So.2d 379, 381 (1969)). Therefore, the exception does not apply to
Additionally, rescission is usually reserved for cases involving executory contracts. See
Cross v. Maxwell, 263 Ala. 509, 513, 83 So.2d 211, 214-215 (Ala. 1955) (“It is generally held
that the cancellation of an executed contract is an exertion of the most extraordinary power of a
court of equity, which will not be exercised except in a clear case and on strong and convincing
evidence.”) (citation omitted); see Spurlock v. Spurlock, 364 So.2d 1149, 1150 (Ala. 1978)
(cancellation of a lease). As explained in Ex parte Ramsay, 829 So.2d 146, 155 (Ala. 2002), “[a]
contract is executory if neither party has fully performed his obligation to the other party.” The
Court finds that the Agreement was not executory because the evidence is that Loxley South had
fully performed its obligations under the Agreement by granting the real property to Wise (at the
request of Western). Only Western has not fully performed since it has not built the road as
agreed in Paragraph 5. Thus, in addition to the finding that the Agreement is void and that there
is nothing to rescind, the equitable remedy of rescission of the Agreement would not be available
to Western based on the evidence before the Court.5
Accordingly, for the reasons set forth herein, summary judgment is GRANTED in favor
of Loxley South as to Western’s counterclaim for rescission. Since rescission has not been
ordered, the parties shall remain in the position they were in before filing this action.
Final judgment shall be entered by separate document as required by Rule 58 of the
Federal Rules of Civil Procedure.
DONE and ORDERED this 21st day of June, 2011.
s / Kristi K DuBose
KRISTI K. DuBOSE
UNITED STATES DISTRICT JUDGE
Although the court in Kilgore Development, Inc. v. Woodland Place, LLC, 47 So. 3rd
267 (Ala. Civ. App. 2009), allowed rescission and ordered that the earnest money deposit should
be returned to the buyer, that case is distinguishable. The money was held by an escrow agent.
The land purchase agreement in Kilgore was executory because no deed was executed to
complete the purchase of land and no consideration paid to the seller. Therefore, the court was
put in the position of deciding who should receive the money since the agreement was void and
not held by either the purchaser or the seller.
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