City of Hailey v. Old Cutters, Inc et al

Filing 25

MEMORANDUM DECISION AND ORDER. The Bankruptcy Court's December 31, 2012 opinion is AFFIRMED in its entirety. Signed by Judge Edward J. Lodge. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (jp)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

In Re:
Case No. 1:13-CV-00057-EJL
OLD CUTTERS, INC.,
Debtor.
________________________________
CITY OF HAILEY, an Idaho municipal
corporation,
Appellant,
v.
OLD CUTTERS, INC., an Idaho
corporation,
Appellee,
And
MOUNTAIN WEST BANK, an Idaho
Banking corporation,
Appellee/Cross-Appellant.

MEMORANDUM DECISION AND ORDER - 1

MEMORANDUM DECISION AND
ORDER

Appellant City of Hailey (“Hailey”) appeals the Memorandum Decision,
Order and Judgment (Dkt. 1-1) entered by the United States Bankruptcy Court for
the District of Idaho in Adversary Proceeding No. 11-8105. Hailey suggests the
Bankruptcy Court erred when it invalidated the annexation fees and community
housing provisions imposed by Hailey in connection with the annexation of property
owned by the chapter 11 debtor, Old Cutters, Inc. (“Old Cutters”). Cross-Appellant
Mountain West Bank (“MWB”), Old Cutters’ principal creditor, agrees with the
Bankruptcy Court’s ruling with respect to the annexation fees and community
housing provisions, but appeals the Court’s finding that the description of the real
property in the relevant annexation agreement satisfied the requirements of the
Idaho statute of frauds.
Having reviewed and considered all the briefing of the parties, the court
concludes that oral argument is not necessary to resolve the appeals. See Fed. R.
Civ. Proc. 78; Willis v. Pacific Maritime Ass’n, 244 F.3d 675, 684 n. 2 (9th Cir.
2001). For the reasons set forth below, the court affirms the order of the
Bankruptcy Court.
BACKGROUND
By now, the facts of this case are well known to the parties and the
Bankruptcy Court. Here, the Court briefly summarizes the relevant facts, relying

MEMORANDUM DECISION AND ORDER - 2

on the Bankruptcy Court’s Memorandum of Decision and the parties’ briefing on
appeal.
Acquisition of the Property
In 2003 and 2005, Old Cutters purchased and assembled a tract of real
property in Blaine County, Idaho (the “Property”) that was contiguous to Hailey’s
city boundaries. Old Cutters acquired the Property with the intent to subdivide and
develop it as a residential planned unit development. The total purchase price of
the Property was $6.2 million, and Old Cutters’ acquisition was financed through
cash contributions from its principal, John Campbell (“Campbell”) and his
company, together with a $4.4 million bank loan made to Old Cutters.
When Old Cutters purchased it, the Property was located in Blaine County.
In connection with its development planning, Old Cutters investigated various
options for providing water and sewer services to the project. One option was to
develop the Property in Blaine County. This option would require Old Cutters to
construct a pocket sewage treatment plant for new housing and would require
subdivision approval by Blaine County. A second option was to seek annexation of
the Property into Hailey so the development could access city water and sewer
services.

This option would require Hailey to process and approve Old Cutters’

annexation application.

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The Annexation Agreement and Fee
Old Cutters, acting through Campbell, approached representatives for both
Hailey and Blaine County to explore the aforementioned options. Blaine County
Commissioner Sarah Michael informed Campbell that the County had a backlog of
subdivision applications and estimated approval from the County would take more
than a year. By contrast, Hailey city councilmember Rick Davis (“Davis”)
informed Campbell that Hailey could process the annexation application more
quickly than the time required to obtain the authorization to develop the Property in
Blaine County. The proposed short time frame to have the Property annexed was
essential to Old Cutters’ plans because it needed to begin selling lots as quickly as
possible to pay off the loan it had obtained to purchase the Property.
Davis also advised Campbell that a fiscal study had been prepared in 2001 by
consultant Tischler & Associates (“Tischler Study”) that had been used by Hailey in
connection with the recent annexation of a development property known as Airport
West. The Tischler Study had analyzed and computed potential costs to Hailey
resulting from the proposed annexation, and, based on its conclusions, made
recommendations to Hailey concerning the amount it should impose on a

MEMORANDUM DECISION AND ORDER - 4

developer for annexation fees to offset the resulting actual costs to be incurred
by Hailey in incorporating the new development.
Old Cutters reviewed the Tischler Study and estimated that, if the Property
were to be annexed, the annexation fee it should expect to pay Hailey would be
approximately $350,000. Hailey suggests the Tischler Study was intended for use
relative to only the proposed Airport West annexation. Old Cutters counters that
the Tischler Study expressly stated that it could be used for all future annexations.
However, regardless of whether or not Old Cutters should have relied upon the
Tischler Study in estimating the amount of annexation fees it would sustain, the
Bankruptcy Court determined, and the evidence suggests, that Old Cutters assumed
Hailey would fix the amount Old Cutters would be required to pay for an annexation
fee based on the information in the Tischler Study.1
Old Cutters submitted its annexation application to Hailey in August 2003.
The first public hearing before the Hailey city council concerning Old Cutters’
annexation application occurred in November 2003. No decision was made about
the application at that time, and the hearing was continued repeatedly to dates in

1 In connection with the Airport West annexation, Hailey required Airport West
developers to pay the exact amount of the annexation fees recommended by the Tischler
Study. Further, the Tischler Study model was also used in at least two annexations
subsequent to the Airport West annexation. (See Adversary Proceeding 11-8105,
Deposition of Heather Dawson (“Dawson Dep.”), Dkt. 50-2, 16:2-21.)

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January, February, and March, 2004. During a meeting held on March 8, 2004, the
Hailey city council decided that, in considering Old Cutters’ application, it would
not use the Tischler Study to determine the annexation fee to charge Old Cutters, and
would instead seek completion of a new fiscal study. Hailey ultimately employed
Management Partners (“MP”) to conduct the new study.2
Hailey has taken inconsistent positions regarding the purposes of the MP
study. On one hand, Heather Dawson (“Dawson”), Hailey’s Clerk and Treasurer,
testified that the MP Report was intended to determine Hailey’s actual costs of
annexation. (Adversary Proceeding 11-8105, Dawson Dep., Dkt. 50-2,
42:18-43:1.) However, Dawson also testified that the MP Report was not about
what Old Cutters would cost Hailey, but rather set a baseline fee below which Hailey
could not go and be fiscally responsible. (Id., 44:8-45:1.) Notably, Dawson
admitted that MP was not engaged to ascertain an equitable allocation of costs.
(Id., 44:15-45:1.)
MP eventually submitted an initial draft of its study in October 2005.
Having collected and analyzed a number of factors, the draft study recommended

2 Old Cutters contends Hailey decided to engage MP for a new annexation fee study,
while Hailey argues Old Cutters offered to pay for the MP study, and that Old Cutters
suggested MP could do a new study faster and cheaper than Tischler. Which party was
responsible for commissioning the MP study is immaterial to resolution of this appeal.

MEMORANDUM DECISION AND ORDER - 6

that Old Cutters be charged $788,000 as an annexation fee for the Property.3 The
draft study arrived at this figure by not only referring to the direct costs to Hailey
resulting from the annexation, but by also including in the calculation a share of
Hailey’s projected budget deficiencies, future capital expenditures, and other costs
not directly associated with the annexation of the Property.4
Before submitting its final report, MP spoke with Dawson and Hailey Public

3 MP calculated its fee by adding together three separate components:
(1) A five-year cost of Old Cutters’ proportional share of Hailey’s perceived
annual service level deficiencies (i.e., the annual cost it would require to bring
Hailey’s service level up to a higher level);
(2) A proportional share of the value of Hailey’s current capital assets; and
(3) A proportional share of the cost of future capital assets that Hailey would like to
build.
(Dkt. 12-7, p. 57.)
4 Hailey implies the Bankruptcy Court erred in finding the initial $788,000 estimate
exceeded the actual costs to Hailey in annexing the Property, and cites to deposition
testimony of Dawson and Hailey city councilmember Martha Burke (“Burke”) in support.
However, the Bankruptcy Court considered conflicting testimony of both Dawson and
Burke, and particularly Dawson’s agreement in her deposition that the initial
recommended fee was “far in excess of what the City’s actual costs are as a result of
annexing Old Cutters” when finding the $788,000 fee exceeded Hailey’s actual costs of
annexation. (See, e.g., Adversary Proceeding No. 11-8105, Dawson Dep. Dkt. 50-2,
44:23-25; 45:1-6; 71: 8-12.) Moreover, the draft study itself explicitly accounted for more
than just Hailey’s actual costs, as it included calculation of Old Cutters’ proportional share
of Hailey’s “wish list” of capital improvements, many of which have never been made.
(Id., 45:11-17; 62:5-19; 64: 1-8.) As further discussed, infra, the Court finds there was
substantial evidence in the record to support the Bankruptcy Court’s conclusion that
Hailey’s actual costs of annexation were less than $788,000.
MEMORANDUM DECISION AND ORDER - 7

Works Director Tom Hellen regarding various capital assets or capital projects
omitted from the draft study. MP further revised and submitted a final report in
November 2005 to incorporate such projects. The revised MP report recommended
the annexation fee be increased, this time to $1,875,920. This amount was derived
by expanding the scope of annexation costs further to include a variety of additional
future municipal capital projects that Hailey hoped to be able to undertake, as well as
to include other factors beyond the actual costs of annexing the Property.5
Still not satisfied with the annexation fee, Hailey again requested that the MP
report be adjusted. In December 2005, the MP concluded that $2,056,427 was an
appropriate annexation fee for the Property. MP arrived at this figure by adding
another $6 million worth of Hailey’s desired capital assets to the report. Old
Cutters’ management was perplexed by this process and frustrated with the delays
involved in Hailey’s consideration of its application and repeated increases in the
recommended annexation fees. Upon receiving MP’s various recommendations,
Old Cutters objected to the methodology utilized by the company, and repeatedly
complained to both MP and Hailey about the repeated increases in the recommended
annexation fee. Although Old Cutters strongly disputed the validity of the methods

5 For instance, the recommended fee in the revised November 2005 MP Report was
augmented first by increasing the expected population of Old Cutters, which was achieved
by not including any expectation for infill population growth. Hailey has admitted the
omission of infill population growth was a mistake. (Id.; 57:23-58:14.)
MEMORANDUM DECISION AND ORDER - 8

utilized and the conclusions reached by MP, Old Cutters, through its attorney,
eventually sent a letter to Hailey on January 6, 2006 offering to pay a $2,000,000
annexation fee. Old Cutters’ offer was rejected by Hailey.
Another public hearing on Old Cutters’ application was held on January 9,
2006. At that meeting, presumably based on her own analysis, Dawson
recommended that the city council reject the latest MP recommended annexation
fee, and suggested that, instead, the annexation fee negotiations between Hailey and
Old Cutters start at not less than $3,000,000.6 Hailey city council members agreed
that $3,000,000 should be the starting point for further negotiations with Old
Cutters.
After more meetings and negotiations between representatives for Old Cutters
and Hailey, the parties eventually settled on $3,787,500 as the amount of the
annexation fee to be paid by Old Cutters to Hailey. On April 6, 2006, Hailey and
Old Cutters executed an Annexation, Services and Development Agreement
(“Annexation Agreement”). As to the annexation fees, the Annexation Agreement
included the following provision:

6 Hailey implies this amount was based on more than Dawson’s analysis, and cites to
deposition testimony of city councilmember Burke in support. (Dkt. 8, pp. 17-18.)
However, the cited testimony does not provide any factual support for the $3,000,000
baseline Hailey determined was appropriate, and instead states only Burke’s belief that an
annexation must provide a positive benefit to the community, as the risk of simply breaking
even would provide too great a risk to approve an annexation. (Id.)
MEMORANDUM DECISION AND ORDER - 9

The Parties acknowledge and agree that the annexation fee described in this
Paragraph 4 are [sic] fair and equitable and that the annexation fees have been
agreed upon as consideration for the City providing essential governmental
and utility services to the Property and to mitigate the impact on the City of
annexation and development of the Property.
(Adversary Proceeding No. 11-8105, Annexation Agreement, Dkt. 1-1, at ¶ 4.f.)
The Annexation Agreement required Old Cutters to pay the annexation fee in
installments beginning sixty days after the final plat for the subdivision was
recorded. Id. Then, each year after recordation up to year four, or when a certain
percentage of the lots were sold, the agreement called for a payment by Old Cutters
of $875,125. Id. To secure Old Cutters’ obligation to pay the annexation fees, the
Annexation Agreement granted Hailey a lien on the “Market Rate Lots” proposed to
be developed in the Property. Id.
The Annexation Agreement also included a severance clause in a paragraph
labeled “PARTIAL INVALIDITY.” It stated:
In the event that any provision of this Agreement is deemed to be invalid by
reason of the operation of any law, or by reason of the interpretation placed
thereon by any court or other governmental body, this Agreement shall be
construed as not containing such provision and the invalidity of such
provision shall not affect the validity of any other provision hereof, and any
and all other provisions hereof which otherwise are lawful and valid shall
remain in full force and effect.
Id., at ¶ 23.
On April 10, 2006, Hailey adopted Hailey Ordinance Number 939, which

MEMORANDUM DECISION AND ORDER - 10

officially annexed the Property into the city. The Annexation Agreement was
initially recorded in the county recorder’s office on April 27, 2006.
To finance Old Cutters’ development of the Property, Old Cutters sought and
obtained $12,000,000 in credit from MWB in December 2006.7 To secure this
loan, Old Cutters granted a mortgage on the Property in favor of MWB, which was
recorded on December 4, 2006. (Adversary Proceeding No. 11-8106, Mortgage,
Dkt. 1-2.) The loan amount was eventually increased to $13,133,000 in 2008, and
MWB’s mortgage against the Property was modified accordingly. Id.
As development of the Property proceeded, Old Cutters paid Hailey a total of
$1,317,000 in annexation fees through four payments: $287,000 after the final plat
for the subdivision was recorded; $930,000 in March 2009; and later, two $50,000
payments upon the sale of two lots. Relying upon the Annexation Agreement,
Hailey contends the balance of $2,470,500 is due on the annexation fee, and claims
this balance is secured by a first-position lien against the Property in Hailey’s favor.
Community Housing Requirements
In December 2005, before the Annexation Agreement was reached, Hailey
adopted what it called an “Inclusionary Community Housing Ordinance” (“ICH

7 After the filing of this case, MWB was acquired through merger by Glacier Bank, a
Montana banking corporation. MWB continues as a division and assumed business name
of Glacier Bank. The parties and this Court accordingly use the identification “MWB” for
clarity and consistency.
MEMORANDUM DECISION AND ORDER - 11

Ordinance”). According to the ICH Ordinance, all new residential developments of
five lots or more were required to dedicate at least twenty percent of the total lots to
affordable housing. Old Cutters intended to develop up to a total of 149 residential
units on the Property, and the parties documented how Old Cutters planned to meet
the requirements of the ICH Ordinance in the Annexation Agreement. The
Annexation Agreement committed Old Cutters to develop twenty-five community
housing units, and also provided that:
COMMUNITY HOUSING ORDINANCE. [Old Cutters] hereby waives
any right it may have to assert that the City’s Community Housing Ordinance
is invalid in whole or in part as it applies to the Subdivision [contemplated by
the Annexation Agreement].
(Adversary Proceeding No. 11-8105, Annexation Agreement, Dkt. 1-1, at ¶ 11).
Presumably motivated by the adverse decisions of two state district courts
holding that similar community housing ordinances were invalid, Hailey repealed
the ICH Ordinance in 2010. However, although Old Cutters requested it do so,
Hailey refused to amend the Annexation Agreement to release Old Cutters from the
community housing requirements in the Annexation Agreement, citing the
aforementioned waiver provision. Hailey did, however, agree to remove a similar
community housing requirement it had imposed for development of a different
subdivision known as Sweetwater. (Adversary Proceeding 11-8105, Deposition of
Don Keirn (“Keirn Dep.”), Dkt. 50-3, 65:11-23.)
MEMORANDUM DECISION AND ORDER - 12

Procedural History
The recession impacted Old Cutters’ ability to sell lots, and, as a result, its
ability to pay real property taxes, the balance due on the Annexation Agreement, and
the MWB loan. Old Cutters’ financial difficulties caused it to file a petition for
relief under chapter 11 on August 1, 2011. (Bankruptcy Case No. 11-41261, Dkt.
1.) In the bankruptcy proceeding, Old Cutters cited to the delays and costs it
incurred in the annexation process, and its corresponding inability to take advantage
of a favorable real estate market proceeding the recession, as the primary reasons for
the bankruptcy filing. (Id., Dkt. 100, p. 7.)
Other than Blaine County’s claims for unpaid real estate taxes, only three
parties asserted creditor claims in Old Cutters’ bankruptcy case. Old Cutters
Investment, LLC, filed an unsecured claim for $8,314,446.00, arising out of a “real
estate sale.” (Id., Claim No. 1-1.) MWB filed a claim for $9,227,327.29, secured
by the Property. (Id., Claim No. 2-1.) And Hailey filed a claim for $2,579,855.64
based on the Annexation Agreement, secured by the “Market Rate Lots.” (Id.,
Claim No. 3-1.) Shortly after Hailey filed its proof of claim, Old Cutters
commenced an adversary proceeding against Hailey. (Adversary Proceeding No.
11-8105, Dkt. 1.) In its complaint, Old Cutters sought a declaratory judgment
determining that “the annexation fee that continues to be demanded by [Hailey] is

MEMORANDUM DECISION AND ORDER - 13

unlawful, that [Old Cutters] does not owe any additional annexation fees to [Hailey],
and that [Hailey] be permanently enjoined from enforcing the Annexation
Agreement’s community housing requirements against Old Cutters.” (Id.)
MWB commenced an adversary proceeding against Hailey a few days after
Old Cutters filed its complaint. (Adversary Proceeding No. 11-8106, Dkt. 1.) In
its complaint, MWB sought a determination that Hailey’s claimed lien in the
Property is invalid. (Id.) MWB also objected to the allowance of Hailey’s proof
of claim, echoing many of the arguments made in the Old Cutters complaint,
including that the annexation fee exceeded Hailey’s powers and was otherwise
“illegal.” (Id., pp. 4-5)
On October 10, 2012, Old Cutters filed a motion for summary judgment.
(Adversary Proceeding No. 11-8105, Dkt. 50.) In its motion, Old Cutters asked the
Bankruptcy Court to declare that, in imposing the annexation fee and community
housing requirements, Hailey exceeded its legislative powers, and that those
provisions of the Annexation Agreement were unenforceable. On the same day,
MWB filed a motion for summary judgment. (Id., Dkt. 52.)

8

In its motion for

8 Old Cutters and MWB filed separate complaints against Hailey. At a March 2012,
joint pre-trial conference, the Bankruptcy Court granted a motion by MWB to consolidate
Old Cutters, Inc. v. City of Hailey (Adversary Proceeding No. 11-8105) and Mountain
West Bank v. City of Hailey (Adversary Proceeding No. 11-8106). For clarity and
convenience, the Bankruptcy Court directed the continued use of a dual caption and that all
future pleadings be filed only in Adversary Proceeding No. 11-8105.
MEMORANDUM DECISION AND ORDER - 14

summary judgment, MWB sought a declaration from the Court that the Annexation
Agreement did not create an enforceable lien on the Property under the Idaho statute
of frauds and mortgage statutes. MWB also joined Old Cutters’ arguments
challenging both the annexation fee and the community housing requirements in the
Annexation Agreement as unenforceable.
Hailey also filed a cross-motion for summary judgment on October 10, 2012.
(Id., Dkt. 57.) Hailey sought a judgment declaring that the Annexation Agreement
created an enforceable lien in the Property, and that the Annexation Agreement fee
and housing requirement provisions of the parties’ contract were valid and
enforceable.
The Bankruptcy Court conducted a hearing on the summary judgment
motions on November 20, 2011. On December 31, 2012, the Bankruptcy Court
issued its decision granting summary judgment as to Counts I and II of Old Cutters’
complaint. Specifically, the Court concluded that the annexation fee and
community housing provisions of the Annexation Agreement were unenforceable.
Given such findings, the Court also granted MWB’s motion to the extent it requested
summary judgment disallowing Hailey’s proof of claim in the bankruptcy case.
However, the Court denied MWB’s request that the Court declare Hailey’s lien
unenforceable under the Idaho statute of frauds and mortgage statutes, and granted

MEMORANDUM DECISION AND ORDER - 15

Hailey’s motion for judgment with respect to this issue.9
Hailey filed a Notice of Appeal with this Court on February 4, 2013. (Dkt.
1.) In its appeal brief, Hailey challenges the Bankruptcy Court’s conclusion that
Hailey was without statutory authority to impose the annexation fees and
community housing requirements in the Annexation Agreement, and challenges the
Court’s finding that the annexation fee already imposed by Hailey exceeded the
actual costs Hailey incurred in annexing the Property. Hailey also contends the
Bankruptcy Court erred in determining that Old Cutters’ claims regarding the fees
and housing requirements were justiciable. Finally, Hailey assigns error to the
Bankruptcy Court’s finding that Old Cutters was not barred by estoppel from
asserting its claim that the annexation fee and community housing requirements
were unenforceable.
MWB filed a cross-appeal on April 3, 2013. (Dkt. 11.) Although MWB’s
appeal brief primarily argues the Bankruptcy Court was correct to disallow Hailey’s
proof of claim because the annexation fee was unenforceable and because the
annexation fee already paid by Old Cutters exceeded Hailey’s actual costs of
annexation, MWB also appeals the Bankruptcy Court’s finding that the description
9 Although Hailey’s motion for summary judgment as to MWB was granted in part with
respect to creation of a lien, the Court held the lien was ultimately unenforceable because
Hailey did not have a valid claim to collect any further amounts from Old Cutters under the
Annexation Agreement given the illegality of the fee.
MEMORANDUM DECISION AND ORDER - 16

of the Property in the Annexation Agreement satisfied Idaho’s statute of frauds.
(Dkt. 13.)
The parties submitted briefing and the appeal and cross-appeal became ripe
for review on January 16, 2014.
STANDARD OF REVIEW10
When reviewing a bankruptcy court’s decision, “‘a district court functions as
[an] appellate court and applies the standard of review generally applied in federal
court appeals.’” In re Crystal Properties, Ltd., 268 F.3d 743, 755 (9th Cir.2001)
(quoting In re Webb, 954 F.2d 1102, 1103-04 (5th Cir.1992)). “A district court
reviews a bankruptcy court’s conclusions of law and interpretation of the
Bankruptcy Code de novo.” In re Orange County Nursery, Inc., 439 B.R. 144, 148
(C.D.Cal. 2010). Factual findings are reviewed for clear error, and the court must
accept the bankruptcy court’s factual findings “unless, upon review, the court is left
with the definite and firm conviction that a mistake has been committed by the
bankruptcy judge.” In re Greene, 583 F.3d 614, 618 (9th Cir. 2009); see Fed.R.
Bankr.P. 8013 (“Findings of fact, whether based on oral or documentary evidence,
shall not be set aside unless clearly erroneous, and due regard shall be given to the
opportunity of the bankruptcy court to judge the credibility of the witnesses.”).
10 The Court has jurisdiction over Hailey and MWB’s appeals pursuant to 28 U.S.C. §
158(a).
MEMORANDUM DECISION AND ORDER - 17

Hailey’s appeal is based on purported errors in both the Bankruptcy Court’s
conclusions of law and findings of fact. Both the de novo and clearly erroneous
standards of review thus apply. Specifically, the de novo standard is applicable to
Hailey’s assertions of error regarding the Bankruptcy Court’s interpretation of Idaho
law with respect to the validity and reviewability of the annexation fee. However,
the clearly erroneous standard applies to the Bankruptcy Court’s determination that
the annexation fee already paid by Old Cutters exceeded Hailey’s costs of
annexation. The de novo standard of review applies to MWB’s appeal of the
Bankruptcy Court’s ruling with respect to the Idaho statute of frauds.
When reviewing a grant or denial of summary judgment in an adversary
proceeding, the “the familiar summary judgment standard established in Federal
Rule of Civil Procedure 56 applies.” In re Garcia, 465 B.R. 181, 186 (Bankr.D.
Idaho 2011); see also Fed.R.Bankr.P. 7056 (incorporating Civil Rule 56). Civil
Rule 56 provides that “[t]he court shall grant summary judgment if the movant
shows that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. Proc. 56(a). “[T]he mere
existence of some alleged factual dispute between the parties will not defeat an
otherwise properly supported motion for summary judgment[.]” Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). Instead, there must be a genuine

MEMORANDUM DECISION AND ORDER - 18

dispute about a material fact that could affect the case’s outcome. Id., at 248.
When parties file cross-motions for summary judgment, the court will consider each
motion on its own merits, but may consider the entirety of the evidence submitted by
each party, regardless of which party submitted such evidence. Fair Housing
Council of Riverside Cnty., Inc. v. Riverside Two, 249 F.3d 1132, 1136-37 (9th Cir.
2001).
ANALYSIS
In its appeal brief, Hailey assigns error to four aspects of the Bankruptcy
Court’s decision. First, Hailey contends the Bankruptcy Court erred in concluding
that Hailey did not have the statutory authority to charge the annexation fees and
impose the community housing provision it contracted for in the Annexation
Agreement. Second, Hailey suggests the Bankruptcy Court improperly reviewed
the annexation fee and community housing requirements, as the Annexation
Agreement was an integral part of the Hailey city council’s legislative decision to
annex the Old Cutters’ Property. As such, Hailey suggests Old Cutters’ claims
regarding the terms of the agreement were not justiciable. Third, Hailey argues the
Bankruptcy Court erred by failing to apply the doctrines of quasi- and equitable
estoppel to Old Cutters’ claim that the annexation fee and community housing
provisions were unenforceable. Finally, Hailey maintains the Bankruptcy Court

MEMORANDUM DECISION AND ORDER - 19

erred when it determined that the annexation fee already paid by Old Cutters
exceeded the actual costs incurred by Hailey in annexing the Property.
MWB appeals only the Bankruptcy Court’s determination that the description
of the Property used in the Annexation Agreement satisfied the Idaho statute of
frauds, but suggests the Bankruptcy Court’s decision should be affirmed with
respect to each of the purported errors raised by Hailey. Old Cutters solely
responds to Hailey’s challenges and does not address MWB’s appeal. As the
majority of the briefing by each of the parties is devoted to Hailey’s argument, the
Court will turn first to Hailey’s appeal.
1.

Reviewability of the Annexation Agreement11

Hailey contends the Bankruptcy Court erred when it determined Old Cutters’
claims regarding the annexation fee and community housing provisions were
justiciable and subject to judicial deliberation. Before this Court reaches the issue
of whether the annexation fee and community housing provisions were ultra vires, it
must thus first consider whether the Bankruptcy Court had the authority to review

11 Hailey raised other challenges regarding the justiciability of Old Cutters’ complaint in
its cross-motion for summary judgment, including that Old Cutters’ challenge to the terms
of the Annexation Agreement was barred by the applicable statute of limitations and by the
Idaho Supreme Court’s decision in Steele v. City of Shelley (In re City of Shelley), 255 P.3d
1175 (Idaho 2011). (Dkt. 1-1, pp. 32-37, 39.) The Court will not address such issues
here as Hailey does not raise them on appeal. Gardner v. Stager, 103 F.3d 886, 887 n. 2
(9th Cir. 1996) (issues not raised on appeal are considered abandoned).
MEMORANDUM DECISION AND ORDER - 20

what Hailey characterizes as legislative decisions by the city council.
The complaints of Old Cutters and MWB were both in the form of declaratory
judgment actions.12 A prerequisite to a declaratory judgment action is an actual or
justiciable controversy. Harris v. Cassia Cnty., 681 P.2d 988, 991 (Idaho 1984).
Justiciability is generally divided into subcategories: advisory opinions, feigned and
collusive cases, standing, ripeness, mootness, political questions, and administrative
questions. Miles v. Idaho Power Co., 778 P.2d 757, 761 (Idaho 1989) (citing 13
Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction § 3529 (2d
ed. 1984)). Hailey contends the Bankruptcy Court erred in concluding Old Cutters’
claims were justiciable because Hailey’s decisions regarding whether to annex the
Property were legislative acts, not subject to judicial review under the political
question doctrine, and because Old Cutters’ claims are moot under Wylie v. State of
Idaho, Idaho Transportation Board, 253 P.3d 700 (Idaho 2011) (“Wylie v. State” or
“Wylie”).
a. Political Question
Hailey argues the Annexation Agreement was an integral part of the Hailey
city council’s legislative decision to annex the Property and, in making this decision,
12 In its brief, MWB joins Old Cutters’ arguments challenging the legality of the
annexation fee and housing requirements in the Annexation Agreement, and opposing
Hailey’s arguments with respect to justiciability and estoppel. For simplicity, the Court
will refer to both Old Cutters and MWB’s claims with respect to the aforementioned issues
as “Old Cutters’ claims.”
MEMORANDUM DECISION AND ORDER - 21

Hailey exercised total discretion not subject to judicial review. (Dkt. 8, p. 38.)
Therefore, Hailey contends the Bankruptcy Court erred in reviewing the Annexation
Agreement and in finding Old Cutters’ claims presented a justiciable controversy.
(Id.) In support of this argument, Hailey highlights the multitude of factors it
considered when deciding whether to annex the Property. (Id., pp. 39-41, 43; see
also Dkt. 15, pp. 16-17.) Hailey cites such factors in order to illustrate that the
decision of whether to annex a property requires a municipality to utilize significant
discretion, which, as a legislative decision, the municipality is alone empowered to
exercise.
Under the political question doctrine, the question is whether a court, “by
entertaining review of a particular matter, would be substituting its judgment for that
of another coordinate branch of government, when the matter was one properly
entrusted to that other branch.” Miles, 778 P.2d at 761 (citations omitted). As the
Bankruptcy Court explained, Old Cutters’ complaint did not require the court to
substitute its judgment for that of Hailey with respect to Hailey’s decision to annex
the Property. (Dkt. 1-1, p. 37) (stating, “Old Cutters is not asking this Court to
second-guess the decision of Hailey’s city council in annexing the Property, as
embodied in the ordinance implementing the annexation of the Property.”) Indeed,
both Old Cutters and MWB agree with Hailey’s decision to annex the Property, and

MEMORANDUM DECISION AND ORDER - 22

do not challenge the validity of the annexation ordinance. (Dkt. 12, p. 47; Dkt. 13,
p. 24.) While Hailey’s decision to annex the Property involved “an initial policy
determination of a kind clearly for nonjudicial discretion,” the question before the
Bankruptcy Court was not whether the annexation decision was wise policy. Baker
v. Carr, 369 U.S. 186, 217 (1962).

Rather, the question was whether Hailey had

statutory authority to impose the fee and housing provisions it required as a
condition to annexation.
In the adversary proceeding, Old Cutters alleged Hailey acted without
statutory authority by requiring Old Cutters to agree to the aforementioned
provisions as a condition to annexation. As the Bankruptcy Court correctly noted,
“‘[p]assing on the constitutionality of statutory enactments, even enactments with
political overtones, is a fundamental responsibility of the judiciary, and has been so
since Marbury v. Madison, 5 U.S. 137 (1813).’” (Dkt. 1-1, p. 36) (quoting Miles,
778 P.2d at 768). Rather than seeking review of Hailey’s decision to annex the
Property, Old Cutters instead sought a determination as to whether the conditions to
annexation Hailey imposed in the Annexation Agreement were enforceable. The
Bankruptcy Court had the authority to consider this issue under Idaho Code §
10-1202, which provides:
Any person interested under a deed, will, written contract or other writings
constituting a contract or any oral contract, or whose rights, status or other
MEMORANDUM DECISION AND ORDER - 23

legal relations are affected by a statute, municipal ordinance, contract or
franchise, may have determined any question of construction or validity
arising under the instrument, statute, ordinance, contract or franchise and
obtain a declaration of rights, status or other legal relations thereunder.
I.C. § 10-1202.
The Bankruptcy Court was therefore not precluded from reviewing the annexation
fee and community housing obligations Hailey required as a condition to
annexation.
Hailey argues Idaho Code § 50-222 does not provide any limitation on the
terms and conditions a municipal corporation may negotiate and agree to in the
annexation decision-making process, and notes courts are “bound to respect the
reasonable exercise by the legislature of powers expressly delegated to it by the
constitution of this state, and in the absence of other constitutional offense cannot
interfere with it.” (Dkt. 8, pp. 41-42) (quoting In re SRBA Case No. 39576, 912
P.2d 614, 623 (Idaho 1995)). However, municipalities do not enjoy unfettered
power to act in the absence of an express statutory limitation. Instead, “[m]unicipal
corporations in Idaho may exercise only those powers granted to them by the state
Constitution or the legislature.” Alpert v. Boise Water Corp., 795 P.2d 298, 304
(Idaho 1990) (emphasis added) (citations omitted); Alliance for Property Rights and
Fiscal Responsibility v. City of Idaho Falls, 742 F.3d 1100, 1102 (9th Cir. 2013)
(“‘Idaho has long recognized the proposition that a municipal corporation, as a
MEMORANDUM DECISION AND ORDER - 24

creature of the state, possesses and exercises only those powers either expressly or
impliedly granted to it.’”) (quoting Caesar v. State, 610 P.2d 517, 519 (Idaho
1980)).

As will be discussed further, infra, the Bankruptcy Court correctly

determined Hailey was without statutory authority to impose the community
housing provision and to collect sums in excess of the costs reasonably related to the
annexation itself. Because Hailey did not have the power to collect the annexation
fee and impose the community housing provisions it required of Old Cutters, the
Bankruptcy Court did not improperly interfere with a legislative decision when it
invalidated such portions of the Annexation Agreement.
Hailey also challenges the Bankruptcy Court’s finding that Old Cutters’
claims were justiciable because they were directed at the Annexation Agreement and
not the annexation ordinance. Hailey maintains the ordinance and the agreement
were “inextricably bound up in the political decision making process which is
beyond the reach of judicial review.” (Dkt. 8, p. 43.) Again, however, Old Cutters
did not seek judicial review of Hailey’s political decision to annex the Property, as
embodied in the annexation ordinance. A petition for judicial review represents an
appeal of a decision made by a governing body. Chavez v. Canyon Cnty., 271 P.3d
695, 700 (Idaho 2012) (citing Carter v. State, Department of Health & Welfare, 652
P.2d 649, 650 (Idaho 1982)). By contrast, a declaratory judgment action attacks the

MEMORANDUM DECISION AND ORDER - 25

authority of the governing body. Chavez, 271 P.3d at 700. In finding Hailey acted
without statutory authority when it imposed community housing obligations and
required Old Cutters to pay more than Hailey’s actual costs of annexation, the
Bankruptcy Court did not substitute its judgment for that of Hailey’s city council,
and instead appropriately interpreted and applied the law. Miles, 778 P.2d at 762
(while advisability of agreement between State of Idaho and Idaho Power Company
was not a proper subject for judicial review, the court was not precluded from
reviewing the constitutionality of the agreement).
b. Mootness
Hailey suggests the Bankruptcy Court erred in failing to find Old Cutters’
claims were moot under Wylie v. State, 253 P.3d 700 (Idaho 2011) because such
claims were based upon an unambiguous contract. As mentioned, the Bankruptcy
Court determined it had the authority to declare the rights of the parties to an
annexation agreement under Idaho Code § 10-1202. An important limitation upon
courts’ jurisdiction under I.C. § 10-1202 is that “a declaratory judgment can only be
rendered in a case where an actual or justiciable controversy exists.” Wylie, 253
P.3d at 705. A justiciable controversy is:
distinguished from a difference or dispute of a hypothetical or abstract
character; from one that is academic or moot. The controversy must be
definite and concrete, touching the legal relations of the parties having
adverse legal interests. It must be a real and substantial controversy
MEMORANDUM DECISION AND ORDER - 26

admitting of specific relief through a decree of a conclusive character, as
distinguished from an opinion advising what the law would be upon a
hypothetical state of facts.
Idaho Schools for Equal Educ. Opportunity v. Idaho State Bd. of Educ., 912 P.2d
644, 649-50 (Idaho 1996) (quotation and citations omitted).
Given the justiciable controversy criteria, courts may not rule on declaratory
judgment actions which present questions that are moot or abstract. Id., at 650. A
declaratory judgment action is moot “where the judgment, if granted, would have no
effect either directly or collaterally on the plaintiff, the plaintiff would be unable to
obtain further relief based on the judgment and no other relief is sought in the
action.” Id.
In Wylie v. State, 253 P.3d 700 (Idaho 2011), plaintiff filed a declaratory
judgment action seeking a declaration that the Idaho Transportation Department
(“ITD”) had exclusive jurisdiction to control access from the plaintiff’s property to
the highway, and declaring a city ordinance controlling access void on state
preemption grounds. In 2005, the City of Meridian had passed an ordinance
regulating development along state highways within its boundaries. The ITD
collaborated with Meridian in drafting the ordinance. The ordinance contained a
provision stating, “[n]o new approaches directly accessing a state highway shall be
allowed.” Id., at 702.

MEMORANDUM DECISION AND ORDER - 27

Subsequently, plaintiff’s predecessor in interest purchased ten acres of real
property located outside of the then existing Meridian city limits. In conjunction
with the annexation, zoning, and approval of the Property, Meridian entered into a
Development Agreement with plaintiff’s predecessor in interest. The Development
Agreement, among other things, included an unambiguous commitment by the
property owner against any access onto or off of Chinden Boulevard (a state
highway). Plaintiff subsequently purchased the property and applied for a variance
from Meridian to obtain access from the state highway to the property. Meridian
denied the variance request based on the ordinance, the Development Agreement,
and a letter from ITD stating that, under its regulations, the proposed access was not
approved. Plaintiff also applied to ITD for an encroachment permit to access to the
state highway from the property; ITD denied the encroachment permit request and
plaintiff appealed.
Plaintiff filed a declaratory judgment action requesting that the court declare
ITD had exclusive jurisdiction to control access from plaintiff’s property to the state
highway and that the ordinance was void. On summary judgment, the district court
found in favor of the city because notwithstanding the provisions of the ordinance,
the Development Agreement contained an unambiguous commitment by plaintiff’s
predecessor in interest not to seek direct access to the state highway. Id., at 704.

MEMORANDUM DECISION AND ORDER - 28

In affirming the district court, the Idaho Supreme Court held “there is no justiciable
controversy with regard to [plaintiff’s] claims because the [Development
Agreement] unambiguously provides that his property will not have direct access to
[the state highway].” Id., at 706. The Court further explained “since the
[Development Agreement] unambiguously restricts the ability of [plaintiff’s]
property to have direct access to [the state highway], there is simply no justiciable
issue based on the Agreement. Any claim [plaintiff] may have had under the
Agreement is moot[.]” Id.
Hailey suggests Old Cutters “is in precisely the same position” as plaintiff in
Wylie, and argues the Bankruptcy Court should have determined Old Cutters’ claims
were similarly moot because Old Cutters voluntarily entered into an unambiguous
agreement regarding the annexation fees and community housing provisions with
Hailey. (Dkt. 8, p. 45.) Although the holding in Wylie appears applicable to this
case, the portions of the Wylie opinion Hailey omits are also on point. Specifically,
in considering plaintiff’s claim that the ordinance was ultra vires because it usurped
the exclusive authority of ITD to control access to a state highway, the Wylie court
significantly noted:
[Plaintiff’s] claims are not confined to those arising under the [Development
Agreement]. The main thrust of his complaint is that the Ordinance is
invalid, either because it is preempted by state law or an ultra vires act of the
City. These claims are not rendered nonjusticiable by virtue of the
MEMORANDUM DECISION AND ORDER - 29

Agreement. Although there is a provision in the Agreement requiring
compliance by the developer with all city ordinances, that does not
necessarily preclude Wylie from challenging, and obtaining a court ruling
upon, the validity of the Ordinance. However, his claims regarding the
Ordinance are equally without merit. There is no question that ITD is vested
with the authority to designate state highways as ‘controlled-access facilities
and regulate, restrict or prohibit access to those highways.’ Nevertheless, a
municipality has the authority to create specific development standards
regarding roadways, rights-of way, grades, alignments and intersections
under the Local Land Use Planning Act.
Id., at 707 (emphasis added) (quoting I.C. § 40-310(9)).
In this case, unlike in Wylie, there was a question of whether Hailey was
vested with the authority to impose the annexation fees and community housing
provisions. As such, resolution of this issue was not rendered nonjusticiable by
virtue of the Annexation Agreement, and the Bankruptcy Court was correct to rule
on the validity of Hailey’s imposition of such terms. As Old Cutters notes, it
appears the Wylie Court did not consider the issue of whether a city can enforce an
otherwise illegal requirement contained in a permit or license simply by requiring
the applicant to sign a contract agreeing to the illegal condition. (Dkt. 12, p. 50.)
Instead, because Wylie involved a valid ordinance, it appears the effect of invalid
ordinance was not further explored. However, the Idaho Supreme Court did
address the issue of whether a city may contractually attach quid pro quo conditions
to its legislative decisions in Black v. Young, 834 P.2d 304, 308 (Idaho 1992), and
determined such conditions are ultra vires. The Bankruptcy Court’s ruling in this
MEMORANDUM DECISION AND ORDER - 30

case is thus distinguishable from Wylie and, as will be further discussed, is
consistent with the Idaho Supreme Court’s ruling in Black.
Further, the court in Wylie found plaintiff’s claims were moot because
highway access would still be unavailable to plaintiff even if the court invalidated
the ordinance, as ITD had also denied plaintiff’s application for an encroachment
permit. Thus, plaintiff’s desired highway access would be precluded regardless of
the Wylie court’s ruling. Wylie, 253 P.3d at 708. Such circumstances illustrated
plaintiff’s claims were moot because “the judgment, if granted, would have no effect
either directly or collaterally on the plaintiff.” Idaho School for Equal Education
Opportunity, 912 P.2d at 650. By contrast, the Bankruptcy Court’s ruling with
respect to the validity of the annexation fees directly affected the outcome of Old
Cutters’ claims, and the Court’s ruling gave both Old Cutters and MWB the relief
sought. By invalidating Old Cutters’ obligation to pay additional annexation fees
to Hailey, the Bankruptcy Court’s ruling disallowed Hailey’s secured claim and
rendered MWB a first-position secured creditor. As such, the Court correctly found
Old Cutters claims were not moot, and were justiciable.
2.

Statutory Authority for the annexation fee

The crux of Hailey’s appeal is its challenge to the Bankruptcy Court’s finding
that Hailey did not have statutory authority to contract for annexation fees that

MEMORANDUM DECISION AND ORDER - 31

exceeded the “actual costs” of annexation. In its appeal brief, Hailey maintains it
had implied authority under Idaho Code § 50-222, and express authority under Idaho
Code § 50-301, to impose such fees.13
a. Idaho Code § 50-222
Idaho Code § 50-222(2) provides:
(2) General authority. Cities have the authority to annex land into a city
upon compliance with the procedures required in this section. In any
annexation proceeding, all potions of highways lying wholly or partially
within an area to be annexed shall be included within the area annexed unless
expressly agreed between the annexing city and the governing board of the
highway agency providing road maintenance at the time of annexation.
Provided further, that said city council shall not have the power to declare
such land, lots or blocks a part of said city if they will be connected to such
city only by a shoestring or strip of land which comprises a railroad or
highway right-of-way.
I.C. § 50-222(2).
As there was no issue of “shoestring” or “strip of land” annexation in this
case, Hailey maintains the annexation of the Property was clearly within the
authority granted to all Idaho municipalities by I.C. § 50-222(2). However, the
13 Hailey also argued below that it had authority under its general police powers to
negotiate and contract for the annexation fee. (Dkt. 1-1, pp. 52-53; see also Adversary
Proceeding 11-8105, Hailey’s Motion for Summary Judgment, Dkt. 68, p. 19.) However,
on appeal, Hailey maintains the “Annexation Agreement fees have nothing to do with the
police power,” and that Hailey “does not and could not rely on its police powers as
authority for the Annexation Agreement.” (Dkt. 15, pp. 10-11.) Hailey has accordingly
narrowed the issue to whether it was empowered by I.C. §§50-222 and 50-301 to negotiate
and contract for an annexation fee in excess of actual costs. As the Bankruptcy Court
noted, the aforementioned issue appears to be one of first impression. (Dkt. 1-1, p. 53.)

MEMORANDUM DECISION AND ORDER - 32

appellees do not dispute, and the Bankruptcy Court did not find, that Hailey was
without statutory authority to annex the Property under I.C. § 50-222(2). As
previously discussed, supra, the Bankruptcy Court did not review Hailey’s decision
to annex the Property, but instead considered whether Hailey had the authority to
impose the annexation fee and community housing provisions it required as a
condition to annexation.14
Hailey contends the plain language of I.C. § 50-222, when read as a whole,
“necessarily grants to cities the implied power to enter contracts regarding
annexation without reference to ‘the actual costs of annexation incurred.’” (Dkt. 8,
p. 29.) However, as the Bankruptcy Court noted, I. C. § 50-222 is silent as to
whether a city may enter into a contractual annexation with a landowner.
Assuming a city may do so, the statute is also mum about what terms and
performance a city may require from the owner of annexed land within such
agreement. (Dkt. 1-1, p. 54.)
Under Idaho law, municipalities have three sources of power and no others:

next describes the various classes or categories of annexation: A, B, and
C. (Dkt. 8, p. 25.) The parties agree that annexation of the Property was a
Category A (consensual) annexation. Hailey’s reference to the annexation plan
requirements for Category B and C annexations is irrelevant because Category A
annexations do not require an annexation plan. See, I.C. § 50-222(3)(a)(i-iii). 
14

    Hailey

MEMORANDUM DECISION AND ORDER - 33

1. Powers granted in express words; 2. Powers fairly implied in or
incident to those powers expressly granted; and 3. Powers essential to the
accomplishment of the declared objects and purposes of the corporation.
Black v. Young, 834 P.2d 304, 310 (Idaho 1992) (citing O’Bryant v. City of Idaho
Falls, 303 P.2d 672, 674-75 (Idaho 1956)). If a municipality attempts to exercise a
power that has not been expressly granted, granted by implication, or is essential to
the accomplishment of a purpose of the corporation, the municipality’s action is an
ultra vires act. Id.
Idaho Code § 50-222 recites the “Legislative Intent” upon which the statute
was founded, providing:
The legislature hereby declares and determines that it is the policy of the state
of Idaho that cities of the state should be able to annex lands which are
reasonably necessary to assure the orderly development of Idaho’s cities in
order to allow efficient and economically viable provision of tax-supported
and fee-supported municipal services, to enable the orderly development of
private lands which benefit from the cost-effective availability of municipal
services in urbanizing areas and to equitably allocate the costs of public
services in management of development on the urban fringe.
I.C. § 50-222(1).
Given this legislative intent, the Bankruptcy Court determined Idaho cities
have the essential power to contract for annexation and to charge an annexation fee
if such fee is necessary to “equitably allocate the costs of public services in
management of development on the urban fringe.” (Dkt. 1-1, p. 60-61.) However,
nothing in this phrase or in any other provision of I.C. §50-222 can be read to
MEMORANDUM DECISION AND ORDER - 34

empower a city to charge more than an amount necessary to equitably allocate the
costs of public services. See, e.g., Arel v. T & L Enterprises, Inc., 189 P.3d 1149,
1152 (Idaho 2008) (in determining legislative intent, the court first looks to the
literal language of the statute and interprets statutes according to their plain, express
meaning); City of Grangeville v. Haskin, 777 P.2d 1208, 1211 (Idaho 1989) (“If
there is a fair, reasonable, substantial doubt as to the existence of a [municipal]
power, the doubt must be resolved against the city.”) (citation omitted). Hailey
cites no authority to support the proposition that the power to agree to a voluntary
annexation implies the power to require a landowner to pay any fee a city can extract
as a condition to the annexation, regardless of whether such fee is in any way tied to
the costs of the annexation itself. The absence of any authority for Hailey’s
position gives rise to a “fair, reasonable, substantial doubt” that this power can be
implied from I.C. § 50-222. City of Grangeville, 777 P.2d at 1211.
Contrary to Hailey’s claims, there is no express nor implied grant of authority
under Idaho Code § 50-222 that would authorize a city to charge any annexation fee
it can extract from a developer. If the Idaho state legislature intended such a result,
it could have put express language in the statute authorizing cities to charge any
negotiated fee. Alliance for Property Rights and Fiscal Responsibility v. City of
Idaho Falls, 742 F.3d 1100, 1107 (9th Cir. 2013). The only reference that supports

MEMORANDUM DECISION AND ORDER - 35

an annexation fee in I.C. § 50-222 is instead the equitable allocation of costs
language. Hailey was authorized under I.C. § 50-222 to condition annexation of the
Property upon payment by Old Cutters of its equitable share of the costs to be
incurred by Hailey in annexing the Property to the extent such payment was
essential to accomplishing the annexation. However, fairly construed, there is
nothing in this grant of power that authorized Hailey to condition annexation of the
Property upon payment by Old Cutters of more than its equitable share of the costs
to be incurred by Hailey in annexing the Property.
b. Black v. Young
In Black v. Young, 834 P.2d 304 (Idaho 1992), the Idaho Supreme Court was
asked to determine whether the city of Ketchum was authorized under Idaho Code §
50-311to impose contractual conditions not expressly provided for in the statute on
property owners as a condition to granting the property owners’ petition to vacate an
alley. The legislature enacted I.C. § 50-311 as the method for municipal
corporations to follow when vacating an alley. This statute empowers municipal
corporations to “vacate [any alley] whenever deemed expedient for the public good .
. . [provided that] the right of way, easements and franchise rights of any lot owner
or public utility shall not be impaired thereby.” I.C. § 50-311.15 Importantly, the

15 The relevant text of I.C. §50-311 provides:
MEMORANDUM DECISION AND ORDER - 36

statute did not empower the city to impose any conditions upon the vacation of the
alley except those relating to rights of way, easements, etc.
Plaintiffs in Black asked Ketchum to approve their application to vacate an
alley, and offered to pay $5,000 and to transfer a log cabin and salvageable material
from the property to be vacated to Ketchum in exchange. Black, 834 P.2d at 306.
The Ketchum city council rejected plaintiffs’ offer, and instead required that, in
addition, plaintiffs obtain a building permit, obtain a commitment for a $2.5 million
construction loan, and agree that the ordinance documenting the vacation agreement
would grant Ketchum a right of reversion if a certificate of occupancy was not
timely issued for the motel plaintiffs proposed to build. Plaintiffs accepted these
terms and signed a written agreement incorporating them. Plaintiffs also signed an
estoppel affidavit stating that the conditions imposed by Ketchum and the ordinance
were acceptable, and which purportedly waived any right to thereafter challenge the
agreement. Id. at 307. However, plaintiffs thereafter filed a complaint against the
mayor and members of the Ketchum city council, maintaining the agreement they
Cities are empowered to: create, open, widen or extend any street, avenue, alley or
lane, annul, vacate or discontinue the same whenever deemed expedient for the
public good; to take private property for such purposes when deemed
necessary…provided, however, that in all cases the city shall make adequate
compensation therefor to the person or persons whose property shall be taken or
injured thereby. The taking of property shall be as provided in title 7, chapter 7,
Idaho Code. The amount of damages resulting from the vacation of any street,
avenue, alley or lane shall be determined, under such terms and conditions as may
be provided by the city council…
MEMORANDUM DECISION AND ORDER - 37

had signed was unenforceable because, in entering the contract, Ketchum had acted
outside of the powers granted to the city by I.C. § 50-311. The district court held
that since all of the target terms had been set forth in the contract, which clearly
evidenced the intent of the parties, plaintiffs were bound by their agreement. Id. at
308.
On appeal, the Idaho Supreme Court reversed. In invalidating the ordinance
and agreement, the court observed that “[t]he two conditions that the City of
Ketchum imposed upon vacation of the alley, as well as the right of reversion should
a certificate of occupancy not be issued, are not expressly granted powers, fairly
implied powers from the clear language of Idaho Code § 50-311, nor are they
powers essential to the vacation of the alley.” Id. Instead, the only condition that
Idaho Code § 50-311 allows upon a finding of expedience for the public good is that
the vacation cannot impair “the right of way, easements and franchise rights of any
lot owner or public utility.” Id. (quoting I.C. § 50-311). Thus, the additional
conditions Ketchum required plaintiffs to agree to amounted to ultra vires acts by
the city, and were unenforceable.
The Bankruptcy Court determined Black was controlling, and concluded that,
in requiring Old Cutters to pay a fee unquestionably in excess of that required to
equitably allocate costs, Hailey engaged in an ultra vires act. As a result, the Court

MEMORANDUM DECISION AND ORDER - 38

held that despite Old Cutters’ agreement, Hailey could not enforce that provision of
the Annexation Agreement, and was not entitled to recover any additional fees from
Old Cutters. (Dkt. 1-1, p. 58.)
On appeal, Hailey argues the Bankruptcy Court’s reliance on Black was
misplaced, and suggests the sole question at issue in Black was whether I.C. §
50-311 empowered Idaho municipal corporations to impose conditions on the
vacation of alleys. (Dkt. 8, pp. 34-35.) Hailey suggests Black
“[o]bviously…speaks to the meaning of I.C. 50-311 and says nothing whatever
about the meaning of I.C. 50-222. The statutes are radically different in almost
every relevant aspect.” (Id., p. 34.) The holding in Black is less limited than
Hailey implies. Black did not simply provide that cities may not impose conditions
on the vacation of alleys beyond those authorized under I.C. § 50-311, but instead
more broadly explored the boundaries of a city’s power when the legislature has
enacted a statute to provide a city with the authority to act with regard to a specific
topic. Black is applicable to this case because, just as Ketchum imposed conditions
to vacation of the alley beyond those authorized for vacating alleys under I.C. §
50-311 in Black, Hailey here required conditions to annexation beyond those
authorized under I.C. § 50-222. Under Black, an attempt by a municipal
corporation to exercise powers that have not been expressly granted, granted by

MEMORANDUM DECISION AND ORDER - 39

implication, or which are not essential to the purpose of the statute, represents an
ultra vires act. The Court affirms the Bankruptcy Court’s holding that Hailey’s
imposition of an annexation fee unquestionably in excess of an equitable allocation
of costs was not authorized under I.C. § 50-222, and was ultra vires.
The Black case is also relevant to another aspect of Hailey’s appeal.
Specifically, Hailey maintains in a Class A annexation, “an equitable allocation of
costs of public services is whatever the parties agree to,” and that the “voluntary
execution of the annexation agreement by Old Cutters created a binding agreement
that no court, including the Bankruptcy court, may void, alter or amend.” (Dkt. 15,
pp. 13, 15.) As mentioned, plaintiffs in Black had also agreed to the conditions to
vacation of the alley imposed by the city, and had signed an estoppel affidavit which
provided the conditions were acceptable to and would not be challenged by them.
The Idaho Supreme Court significantly rejected Ketchum’s attempt to use this
contract as a basis for upholding the conditions Ketchum had imposed. As Justice
Bistline explained in his concurring opinion:
Nothing in I.C. § 50-311 states, suggests, or even intimates that a city is
entitled to any quid pro quo for performing its statutory duty on being
requested by a property owner to vacate an alley, or a street for that matter.
The law is the same throughout the state of Idaho. A city is not allowed to
profit from performing any of its statutory legislative functions. Nor should
any city official do so. Nevertheless, it is abundantly evident here that some
of the council members were openly negative towards granting the Blacks a
vacation of the alley unless the city obtained something in return. The
MEMORANDUM DECISION AND ORDER - 40

Blacks full-well seeing how the wind blew, made the ‘contributions.’
Id. at 314 (emphasis in original).
As the Bankruptcy Court explained, while “private parties enjoy near
unfettered flexibility in negotiating contract terms, the Idaho Legislature and court
decisions demand that cities have a statutory basis for their conduct in this context.”
(Dkt. 1-1, p. 61.) Hailey’s reliance on Old Cutters’ agreement to pay the
annexation fee is thus unpersuasive. Even assuming the annexation fee was freely
negotiated, and consent voluntary, this precise theory was advanced by Ketchum
and expressly rejected by the Idaho Supreme Court in Black. 834 P.2d at 310.
Moreover, the facts “here suggest that Old Cutters’ consent to pay the annexation
fee, fixed after years of study, posturing, and calculating by the city, may have been
compelled by practical and financial necessities that arose during the nearly
three-year process of annexation of the Property, and in light of the changing
economy, Old Cutters need[ed] to get some lots sold.” (Dkt. 1-1, pp. 61-62.) If,
after three years of protracted negotiations and continuously rising fee proposals,
Old Cutters had rejected Hailey’s final annexation fee demand, it would have been
forced to essentially start over and attempt to wade through the Blaine County
subdivision application process. Given Old Cutters’ financial condition at the time
and need to sell lots in order to pay its loan, starting over may not have been an

MEMORANDUM DECISION AND ORDER - 41

option. It is thus unclear whether Old Cutters’ actually voluntarily consented, or
was in fact financially compelled to consent, to the Annexation Agreement. Under
these circumstances, the Court respectfully disagrees with Hailey’s suggestion that
the annexation fee was equitable simply because the parties agreed to it.
Finally, Hailey claims the Bankruptcy Court ignored an important element of
the Black decision because in Black, plaintiff wanted the Court to declare the
conditions imposed on the alley vacation invalid while keeping the vacation of the
alley intact. (Dkt. 8, p. 35.) However, the Black court remanded to the trial court
to determine if other factors regarding the “public good” requirement of I.C. §
50-311 supported vacation of the alley, factors independent from the conditions the
court found Ketchum had illegally imposed. Black, 834 P.2d at 311. Hailey
maintains the Bankruptcy Court erred in invalidating the annexation fee and
community housing provisions without sending the annexation decision back to the
city council, and suggests the Bankruptcy Court also erred by striking down
conditions to the annexation while keeping the annexation itself intact. (Dkt. 8, pp.
35-36.)
In remanding to the trial court, the Black court noted “we are unable to
discern, from this record, whether there was some independent basis for the public
good requirement. For this reason, we reverse the judgment of the district court and

MEMORANDUM DECISION AND ORDER - 42

remand the case to the trial court to determine if other factors existed or were
considered regarding the public good requirement of I.C. § 50-311.” Black, 834
P.2d at 311. Unlike in Black, the record before the Bankruptcy Court established
that Hailey made the findings necessary to determine that the annexation of the
Property was in the interests of the city. As city council member Burke testified:
Q: My question was, what factors do you believe argued against not
annexing the property?
A:

Being able to reach a financial agreement.

Q:

Is that it?

A:

That’s what I can answer right now, yes.

Q:

So if you took the financial aspect out of it, you believed this was a

good project to be developed in the City?
A:

I did like the project, yes.

(Adversary Proceeding No. 11-8105, Burke Dep., Dkt. 50-2, 176:1-9.)
The factual findings made by Hailey in connection with issuing the ordinance
to annex the Property also establish that Hailey believed the annexation was in the
public’s best interest because, among other reasons, it would protect the health,
safety and welfare of the citizens of Hailey, represented an orderly extension of the
city’s boundaries, and was harmonious and in accordance with the specific goals and

MEMORANDUM DECISION AND ORDER - 43

policies of the applicable components of Hailey’s comprehensive plan. (Adversary
Proceeding No. 11-8105, Hailey Ordinance No. 939, Dkt. 50-4, pp. 66-80.) There
is no reason to remand the annexation ordinance to the city council in light of the
evidence establishing the Hailey city council has already determined annexing the
Property met the requirements of I.C. §50-222(1).
Moreover, Hailey has already received $1.3 million in annexation fees from
Old Cutters even though Hailey admits the costs of annexation were less than
$788,000. Old Cutters thus does not seek to “have its cake and eat it too.” (Dkt. 8,
p. 35.) Old Cutters has more than paid for its equitable allocation of costs, and the
Bankruptcy Court’s decision invalidating fees above and beyond this allocation did
not relieve Old Cutters from any enforceable obligations.16
c. Idaho Code § 50-301
Hailey also argues it had the authority to impose the annexation fee and
community housing provisions under the express language of Idaho Code § 50-301.
I.C. § 50-301 provides:
Cities governed by this act shall be bodies corporate and politic; may sue and
be sued; contract and be contracted with; accept grants-in-aid and gifts of
property, both real and personal, in the name of the city; acquire, hold, lease,
and convey property, real and personal; have a common seal, which they may
change and alter at pleasure; may erect buildings or structures of any kind,
16 As the Bankruptcy Court noted, “Old Cutters has never suggested that it is entitled to a
refund of any amounts previously paid to Hailey on account of the annexation fee, and to
be clear, the Court does not conclude that a refund is required.” (Dkt. 1-1, p. 66 n. 22.)
MEMORANDUM DECISION AND ORDER - 44

needful for the uses or purposes of the city; and exercise all powers and
perform all functions of local self-government in city affairs as are not
specifically prohibited by or in conflict with the general laws or the
constitution of the state of Idaho.
I.C. § 50-301.
Although Hailey is empowered to contract and be contracted with under this
provision, it may not enter into contracts that are “in conflict with the general laws or
the constitution of the state of Idaho.” Id. The Bankruptcy Court determined that
imposition of a fee that exceeded Hailey’s costs resulting from the annexation
conflicted with the general laws of Idaho because, as in Black, the conditions were
not authorized by the more specific, implementing legislation. (Dkt. 1-1, p. 65.)
Hailey claims this ruling was in error because the Annexation Statute, I.C. §
50-222, does not conflict with I.C. § 50-301. However, as the court held in Black, a
city cannot contract for provisions it is not statutorily authorized to impose. As the
Bankruptcy Court held, I.C. § 50-222 only authorizes annexation fees to the extent
such fees are necessary to equitably allocate costs. Hailey cannot expand this
limited authority through its general authority to contract. Allied Bail Bonds, Inc. v.
County of Kootenai, 258 P.3d 340, 348 (Idaho 2011) (board of county
commissioners could not expand its statutory authority by contractually creating
duties it was not statutorily authorized to create). If I.C. § 50-301 permitted a city
to contract for any conditions it wanted without specific authority for imposing such
MEMORANDUM DECISION AND ORDER - 45

conditions in another statute, a city’s power would be endless. And, again, given
the circumstances surrounding Old Cutters’ eventual agreement to pay the
annexation fee, such agreement does not, as Hailey suggests, establish that the
annexation fee was equitable.17 (See, e.g., Dkt. 15, p. 13) (“In the final
analysis…an equitable allocation of costs of public services is whatever the parties
agree to.”). Because the authority to impose annexation fees in excess of an
equitable allocation of costs is not authorized under I.C. § 50-222, Hailey cannot
rely upon I.C. § 50-301 as authority for the imposition of such fees.
d. Community Housing Provision
The Court also affirms the Bankruptcy Court’s holding with respect to the
community housing provisions in the Annexation Agreement. Just as was the case
with the excessive annexation fee, I.C. § 50-222 contains no express provisions and
grants no implied authority to Hailey to require Old Cutters to construct a specific
number of community housing units in its development as a condition to annexation.
Nor is the community housing provision authorized under I.C. § 50-301.

Further,

Old Cutters’ agreement with the community housing provision, like its agreement
with the annexation fee, does not alter the Court’s conclusion that such provisions

17 The weakness in Hailey’s claim that the annexation fee was equitable simply because
Old Cutters agreed to it is further underscored by Hailey’s failure to ever provide
evidentiary support for the $3.8 million fee, and given its admission that Hailey’s costs in
annexing the Property were less than $788,000.
MEMORANDUM DECISION AND ORDER - 46

were ultra vires and unenforceable.

As the Court held in Black, a city is not

allowed to expect or demand any quid pro quo conditions for performing its
statutory duty, even if the conditions are put into a contract between the parties.
e. Buckskin Properties v. Valley County
Hailey suggests the Idaho Supreme Court’s recent decision in Buckskin
Properties, Inc. v. Valley County (“Buckskin”) 300 P.3d 18 (Idaho 2013) “should put
to rest all of appellees claims regarding the annexation agreement in this litigation.”
(Dkt. 15, p. 14.)

In Buckskin, a land developer voluntarily entered into a capital

contribution agreement with Valley County to pay certain fees to mitigate the impact
of the development on certain county assets and services. Specifically, Buckskin
“agreed to participate in the cost of mitigating [impacts on public services and
infrastructure reasonably attributable to the development] by contributing its
proportionate fair share of the cost of the needed improvements identified in [the
capital contribution agreement.]” Id., at 20-21. The capital contribution
agreement also required Buckskin to pay road improvement costs for future phases
of the development and required the County to segregate Buckskin’s contributions
and apply them only to road improvement projects agreed upon by the parties. Id.,
at 21.

MEMORANDUM DECISION AND ORDER - 47

Although Buckskin paid the negotiated mitigation fee for several phases of
the development project, no portion of the mitigation costs for phases 4-6 of the
project was ever paid. Buckskin also ultimately filed a complaint against the
County, seeking a declaratory ruling that the County’s practice of requiring
developers to enter into capital contribution agreements constituted an illegal impact
fee and also seeking reimbursement of the money paid for phases 2 and 3 of the
development.18

The County moved for summary judgment on a number of

grounds, including that Buckskin’s lawsuit was barred by the four-year limitations
period in I.C. § 5-224. The district court ultimately granted the County’s motion
but denied its requests for attorney fees. Buckskin appealed the district court’s
dismissal of its claims and the County cross-appealed the denial of its fee request.
On review, among other issues, the Idaho Supreme Court considered whether
a governing board may lawfully make an agreement with a land developer for the
funding and construction of new infrastructure. Much like Old Cutters, Buckskin
contended it was required against its will to pay for road improvements in the
vicinity of its proposed development as a condition of gaining the County’s approval
of its plans. Buckskin argued this was a condition unlawfully imposed upon it and

18 The term “Road Development Agreement” was used interchangeably with “capital
contribution agreement” in the Buckskin opinion. Id., at 21, n. 1. For clarity, the Court
here uses only the term “capital contribution agreement.”

MEMORANDUM DECISION AND ORDER - 48

that the payment requirement constituted an unlawful development impact fee. Id.,
at 22.
The Idaho Supreme Court determined that a developer and a governing board
can legally enter into a voluntary agreement to fund capital improvements to be
made by the governmental entity that facilitate the developer’s development plans.
Id., at 25. The Bankruptcy Court in this case similarly found that Hailey and Old
Cutters could agree to an annexation fee that represented an equitable allocation of
costs, as Hailey was authorized to contract for such an amount under I.C. § 50-222.
However, while the Buckskin court found the agreement between the developer and
the County was enforceable, the Bankruptcy Court invalidated the Annexation
Agreement to the extent the annexation fee exceeded Hailey’s equitable allocation
of costs. Several key distinctions in the facts illustrate how these holdings are
concurrent.
First, in Buckskin, the contribution the parties agreed to was the amount
specifically required to mitigate the impacts of the development on roads and
bridges in the County. Id., at 23. Pursuant to the County’s capital improvement
program, Buckskin was required to pay for the roadway capacity the development
would use. Id. The Idaho Supreme Court held the County was entitled to contract
for such an amount. Here the Bankruptcy Court similarly determined Hailey could

MEMORANDUM DECISION AND ORDER - 49

contract for an annexation fee that would compensate Hailey for the actual costs
resulting from the annexation of the Property, as such fee may be required to
equitably allocate the costs of annexation. However, the Bankruptcy Court held
Hailey could not condition annexation of the Property upon payment by Old Cutters
of significantly more than its equitable share of the costs to be incurred by Hailey in
annexing the Property. (Dkt. 1-1, pp. 58-59.) The Buckskin court’s finding that
the County could contract for an amount required to mitigate the impact of the
development on county roads and highways is thus consistent with the Bankruptcy
Court’s finding that Hailey could contract for an amount required to equitably
allocate costs.
Second, the Buckskin court determined a developer and the county could
voluntarily enter into an agreement to fund and construct capital improvements that
would facilitate the developer’s development plans. Buckskin, 300 P.3d at 23.
Here, the initial and subsequent MP fee proposals also purported to include Old
Cutters’ proportional share of the cost of future capital assets that Hailey would like
to build. (See, supra, text accompanying notes 3,4.) However, the record in
Buckskin established that the County had made the improvements contemplated in
the capital contribution agreement, that such improvements would not have been
made but for the agreement, and that such improvements actually benefitted

MEMORANDUM DECISION AND ORDER - 50

Buckskin and the residents of the development. Here, the record instead establishes
that many, if not all, of the capital improvements contemplated under the
Annexation Agreement have never been made, and, even if such improvements have
been made, Hailey made no effort to tie such improvements to Old Cutters’ use of
them. (Id.) Indeed, even if Hailey had made the improvements, such
improvements would have otherwise been paid for through ad valorem property tax
paid for by all city residents, including Old Cutters residents. (Dawson Dep.,
Adversary Proceeding 11-8105, Dkt. 50-2, 51:9-52:14.) As such, Old Cutters (or
its residents) would be responsible for paying twice for the same capital
improvements—once through the annexation fee and again at the time such
improvements were constructed. (Id.) Given this, the fee imposed in this case is
significantly different from that at issue in Buckskin. The Bankruptcy Court’s
holding did not preclude Hailey from entering into an agreement requiring the
developer to shoulder a proportionate share of the costs of new public facilities.
Instead, the holding precluded Hailey from requiring the developer to shoulder
significantly more than its proportionate share of such costs, and from attempting to
impose a fee that was undisputedly unrelated to the impact the Old Cutters’
development had on Hailey. This holding is consistent with the Idaho Supreme
Court’s analysis in Buckskin.

MEMORANDUM DECISION AND ORDER - 51

A third and final important distinction between this case and Buckskin is that
the Buckskin court specifically considered whether the payment agreement was truly
voluntary, and determined there was no evidence to suggest Buckskin
communicated any objection to the County about the terms of the capital
contribution agreement. Buckskin, 300 P. 3d at 24. The court noted:
There is no evidence in the record indicating that Buckskin was strong-armed
into signing the [capital contribution agreement]; that it voiced any objection
to anyone, at any time, to making the payment required…or that it did not, as
the County avers, benefit from the agreement by virtue of the road
improvements facilitated by its payments.
Id.
By contrast, as previously discussed, here there was evidence that Old Cutters
felt forced to sign the Annexation Agreement given the lengthy delay of the
annexation process and its need to sell lots, that Old Cutters repeatedly voiced its
objections to Hailey regarding the continuously rising annexation fee,19 and that Old
Cutters did not, in fact, benefit from the agreement because the capital
improvements that would allegedly be facilitated by the annexation fee were never
made. Unlike in Buckskin, there was evidence here to suggest the payment
agreement was not truly voluntary. Under these circumstances, the Bankruptcy
Court’s holding is not inconsistent with Buckskin.

19 See, e.g., infra, text accompanying note 20.
MEMORANDUM DECISION AND ORDER - 52

4.

Estoppel

Hailey argues the Bankruptcy Court should have found Old Cutters’ claims
were precluded from review under the doctrine of equitable estoppel under
Alexander v. Trustee of the Village of Middleton, 452 P.2d 50 (Idaho 1969)
(“Alexander”) and by the doctrine of quasi-estoppel under Terrazas v. Blaine
County, 207 P.3d 169, 176 n. 3 (2009) (“Terrazas”). Hailey suggests the
Bankruptcy Court erroneously determined estoppel was inapplicable because it
found the annexation fees and community housing obligations were ultra vires acts.
Hailey also argues that even if the Bankruptcy Court’s decision on the ultra vires
was correct, quasi-estoppel would still apply. (Dkt. 8, pp. 45-46.)
Hailey mischaracterizes the Bankruptcy Court’s holding. The Court did not
determine equitable estoppel was inapplicable because the annexation fee and
community housing requirements were ultra vires. Instead, with respect to
equitable estoppel, the Bankruptcy Court held Hailey had offered no undisputed
facts to establish any of the elements of equitable estoppel, and that Hailey’s reliance
on Alexander was misplaced. (Dkt. 1-1, pp. 45-48.)
The elements of equitable estoppel are:
(1) a false representation or concealment of a material fact with actual or
constructive knowledge of the truth; (2) that the party asserting estoppel
did not know or could not discover the truth; (3) that the false
representation or concealment was made with the intent that it be relied
MEMORANDUM DECISION AND ORDER - 53

upon; and (4) that the person to whom the representation was made, or
from whom the facts were concealed, relied and acted upon the
representation or concealment to his prejudice.
Ogden v. Griffith, 236 P.3d 1249, 1255 (Idaho 2010) (quoting J.R. Simplot Co. v.
Chemetics Int’l, Inc., 887 P.2d 1039, 1041 (Idaho 1994)). As the Bankruptcy Court
correctly found, Hailey did not offer, and has not offered on appeal, any facts to
establish Old Cutters falsely represented or concealed any material fact. Without
this element, Hailey cannot establish any of the other requisite elements of equitable
estoppel.
The Bankruptcy Court also appropriately determined the Idaho Supreme
Court’s decision in Alexander is distinguishable. In Alexander, various landowners
challenged, two years after the fact, an ordinance annexing their property to the city
of Middleton. 452 P.2d at 51. The Alexander court noted that although the city
had failed to adhere to Idaho’s annexation statute as it existed at that time, the city
was nevertheless entitled to judgment on the basis of equitable estoppel. Id. at 54.
In so holding, the Alexander court explained that while other landowners whose
property was proposed for annexation had protested and had their lands excluded
from the annexation ordinance, plaintiffs had failed to ever contest the ordinance
although they “had adequate notice of the intent to enact the ordinance and of the
actual enactment of the ordinance” and although they “were aware that their land

MEMORANDUM DECISION AND ORDER - 54

would be included within the area to be annexed.” Id. Unlike the landowners in
Alexander, Old Cutters repeatedly questioned Hailey’s authority to impose an
annexation fee in excess of actual costs, and protested Hailey’s attempt to do so.20
Also unlike the landowners in Alexander, Old Cutters did not attempt to challenge
the ordinance for the first time several years after it had passed, and without
providing any indication prior to enactment that it disagreed with Hailey’s approach.
More importantly, Alexander is also distinguishable because it involved a
challenge to the validity of the ordinance annexing property, but did not contest the
city’s ability to require conditions, such as an annexation fee, as a prerequisite to
annexation. As previously discussed, neither Old Cutters nor MWB challenged

20 For example, in a January 6, 2006 letter to Hailey city attorney Ned Williams, counsel
for Old Cutters re-stated Old Cutters’ continuing opposition to the annexation fee, stating
Old Cutters:
[does] not believe it is appropriate to include the cost of future capital improvements
in the annexation fee calculation. None of the improvements are required due to
[Old Cutters] annexation request-they are apparently proposed for future
construction whether or not this annexation is approved. Almost all of the money
to fund these projects will come from bond issues, future taxes or grants. In each
case, the Old Cutters property will be assessed its fair share of these costs together
with other properties within the City if and when the projects get built. The Old
Cutters property should not have to pay for the same thing twice.
(Adversary Proceeding No. 11-8105, Dkt. 50-8, p. 62; see also Id., Dawson Dep., Dkt.
50-2: 82: 1-5 (“Q: What do you remember John Campbell saying about the annexation
fee? A: In the early discussions I remember strong objections to the fees from John
Campbell and from Jim Speck.”); 82:21-24 (“Q: Do you remember anything else about
anything John Campbell said about the annexation fee? A: I just remember him
objecting to them quite stringently.”)).
MEMORANDUM DECISION AND ORDER - 55

Hailey’s decision to annex the Property, and the Bankruptcy Court did not review
the annexation decision itself. Instead, the Bankruptcy Court considered whether
Hailey had the authority to impose the provisions it required as a condition to
annexation. Alexander is thus distinguishable and the Bankruptcy Court correctly
concluded Hailey failed to establish the elements of equitable estoppel.
Hailey also challenges the Bankruptcy Court’s finding with respect to
quasi-estoppel. The doctrine of quasi-estoppel applies when:
(1) the offending party took a different position than his or her original
position, and (2) either (a) the offending party gained an advantage or caused
a disadvantage to the other party; (b) the other party was induced to change
positions; or (c) it would be unconscionable to permit the offending party to
maintain an inconsistent position from one he or she has already derived a
benefit or acquiesced in.
Terrazas, 207 P.3d at 176 (citing Allen v. Reynolds, 186 P.3d 663, 668 (Idaho
2008)). Hailey argues quasi-estoppel applies to the facts of this case because Old
Cutters agreed to the annexation fee in the Annexation Agreement, which included a
provision that the annexation fees were “fair and equitable to mitigate the impact on
the City of annexation and development of the Property.” (Dkt. 15, p. 18.) Hailey
suggests Old Cutters obtained the advantage of annexation as a result of the
aforementioned representation, that the Hailey city council would not have agreed to
the annexation without Old Cutters’ promise that it would pay the annexation fee,
and that it would be unconscionable to now allow Old Cutters to enjoy the benefits
MEMORANDUM DECISION AND ORDER - 56

of the annexation without requiring payment of the unsettled portions of the
annexation fee. (Id.; see also Dkt. 8, p. 46.)
As the Bankruptcy Court noted, Hailey has not established “that it would be
unconscionable to allow Old Cutters to challenge the Annexation Agreement
provisions if they violate Idaho state law or the United States Constitution.” (Dkt.
1-1, p. 48.) Indeed, it cannot be considered unconscionable to allow a party to seek
relief from a city that has exceeded its authorized powers. Deer Creek Highway
Dist. v. Doumecq Highway Dist., 218 P. 371, 373 (Idaho 1923) (“An estoppel can
never be invoked in aid of contract which is expressly prohibited by a constitutional
or statutory provision.”) Further, Hailey was aware that Old Cutters disagreed with
Hailey’s calculation of the annexation fee, and knowingly risked that Old Cutters
may later challenge Hailey’s methods in setting the fee. (Dkt. 1-1, p. 49.) And,
Old Cutters has already paid substantially more than the $788,000 fee Hailey has
confirmed exceeded the actual costs of annexation. Old Cutters is thus not
attempting to enjoy the benefit of annexation without paying its equitable share of
costs. “Quasi-estoppel is designed to prevent a party from reaping an
unconscionable advantage, or from imposing an unconscionable disadvantage upon
another, by changing positions.” Lunders v. Estate of Snyder, 963 P.2d 372, 378
(Idaho 1998). Old Cutters has not gained an unconscionable advantage, as it has

MEMORANDUM DECISION AND ORDER - 57

already paid substantially more than its share of an equitable allocation of costs, and
Hailey has not been unconscionably disadvantaged, as it has received an amount
undisputedly greater than its costs of annexation. Finally, as the Bankruptcy Court
noted, equity may only be invoked by a non-offending party. Precision Instrument
Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806, 815 (1945). Because Hailey’s
conduct in imposing the fee was illegal under Idaho law, equitable principals,
including quasi-estoppel, did not bar Old Cutters’ claims.21
5. Hailey’s actual costs of annexation
Hailey claims the Bankruptcy Court erred when it determined that the
$1,317,000 already paid by Old Cutters exceeded the actual costs incurred by Hailey
in annexing the Property. Hailey suggests the evidence relied upon by the
Bankruptcy Court did not support this finding. The Bankruptcy Court’s ruling on
this issue, a question of fact, is subject to the clearly erroneous standard of review.
In re Antonie, 447 B.R. 610, 612 (D. Idaho 2011). Under this standard, if the
bankruptcy court’s account of the evidence is plausible in light of the record viewed
in its entirety, this Court may not reverse the bankruptcy court’s factual findings
even if it would have weighed the evidence differently. 9E Am. Jur. 2d Bankruptcy
§ 3797 (2d ed. 2014). Further, the “clearly erroneous rule applies most strongly to
21 Hailey’s argument that quasi-estoppel would still apply even if the Bankruptcy Court’s
decision on ultra vires was correct, is thus inaccurate. Hailey cannot invoke equity to
justify illegal conduct. Id.
MEMORANDUM DECISION AND ORDER - 58

matters on which conflicting testimony has been presented, where the bankruptcy
judge has been required to assess the credibility of the witnesses.” Id.
This Court finds there was ample evidence in the record to support the
Bankruptcy Court’s holding that the $1,317,000 already paid by Old Cutters’
exceeded Hailey’s actual costs. In fact, Hailey admitted many times that its actual
costs were less than the $788,000 initially recommended in the draft MP Report.
For instance, during her deposition, Dawson offered the following testimony:
Q:

I’m just trying to understand, because if this [MP Report] is trying to

assess what the actual costs are to the City, it seems to me that asking for a
five-year, one-time payment of a portion of the service deficiency is going
beyond what Cutters would actually cost the City in terms of provision of
services. Would you agree with that?
A:

Once again, I don’t think this study is about what Cutters would cost

the City. I think this study is about what the fiscal responsible [sic] action of
the City Council is. It’s not about Cutters’ costs. It’s about—it’s not about
the cost of the development of Cutters. It’s about the fiscal minimum that the
City has to look at in order to accommodate that development in the future.
Q:

So you agree, then, that the [MP] study is going beyond what the actual

cost to the City caused by Cutters?

MEMORANDUM DECISION AND ORDER - 59

A:

Yes.

(Adversary Proceeding No. 11-8105, Dawson Dep., Dkt. 50-2, p. 44:8-45:1.)
Q:

So then just going to the conclusion on page 22… in conclusion

Management Partners recommended that, ‘Cutters make a one-time
contribution of $788,188 as the annexation fee.’ Right?
A:

Yes.

Q:

And again, this $788,000 goes beyond what the actual cost to the City

as a result of having Cutters annexed would be. Right?
A:

Right.

(Id., 53:23-54:6.)
Q:

You acknowledged that the report provides a recommended fee that is

far in excess of what the City’s actual costs are as a result of annexing Cutters.
Right?
A:

Yes. We talked about that.

(Id., 71:8-12.)
Hailey argues in its Reply Brief that Dawson’s testimony does not constitute
an admission, favorable or unfavorable, by the City of Hailey and claims “[n]o
statement attributable to Ms. Dawson has any significance whatever to this case.”
(Dkt. 15, pp. 19-20.) However, as Hailey city council members Keirn and Burke

MEMORANDUM DECISION AND ORDER - 60

both testified, Dawson was responsible for performing Hailey’s annexation fee
analysis. (Adversary Proceeding No. 11-8105, Keirn Dep., Dkt. 50-3, 76:17-77:25;
Burke Dep., Dkt. 50-2, 127:25-129:24.)

Keirn also confirmed that Dawson was

the city council’s source for information on city fiscal issues. (Keirn Dep., Dkt.
50-2, 12:16-23.) Burke similarly stated that she did not do any independent
calculations of the cost of annexing Old Cutters to the city, and that she instead
relied entirely on Dawson’s recommendation with respect to calculating the
appropriate annexation fee. (Burke Dep., Dkt. 50-2, 118:5-25.)
Moreover, the only evidence Hailey points to in support of its contention that
the Bankruptcy Court erred in finding its costs were less than $788,000 is the
testimony of Burke, who stated that, in her experience, residential developments do
not pay for themselves, that the annexation fee represents an amount that will cause
“no negative impact at the time of annexation, if that annexation goes forward,” and
that an annexation “must provide a positive benefit to the community,” as annexing
“with the hope of breaking even is too big a risk” for the city council to take.22 (Dkt.

22 Hailey also claims, for the first time in its Reply Brief, that the actual cost analysis
never took into account the cost of providing irrigation water to the Old Cutters’ project
and that the Bankruptcy Court relieved Old Cutters of the cost of providing irrigation water
to its own project. (Dkt. 15, pp. 20-21.) As Hailey failed to raise this issue in its opening
brief, the Court need not address it here. In re Rains, 428 F.3d 893, 902 (9th Cir. 2005);
see also Coleman v. Quaker Oats Co., 232 F.3d 1271, 1289 n. 4 (9th Cir. 2000) (“issues
cannot be raised for the first time in a reply brief.”) (citation omitted).

MEMORANDUM DECISION AND ORDER - 61

8, pp. 47-48.) However, Hailey offers no evidence to suggest the $788,000
originally proposed by the MP study was less than an amount that would cause “no
negative impact,” nor that Hailey would simply break even if the fee were set at
$788,000, nor any evidentiary justification for the $3.8 million fee Hailey ultimately
imposed.23 Hailey had the opportunity to provide evidentiary support for the
additional fees sought during the adversary proceeding. Hailey failed to do so and,
in light of Dawson’s testimony that the city’s costs of annexation were less than
$788,000, this Court cannot find the Bankruptcy Court committed clear error when
it determined the $1,317,000 already paid by Old Cutters exceeded Hailey’s costs in
annexing the Property.
Finally, Hailey claims that the Bankruptcy Court never pointed to the
provisions in I.C. § 50-222 that contained an “actual direct, cost test,” that the Court
seemed to create the “actual, direct cost test out of whole cloth and then chide the
city council for not using it in the negotiations with Old Cutters regarding the
annexation agreement,” and that the Court never set forth a formula for calculating
“actual, direct costs.” (Dkt. 8, p. 47.) However, the Bankruptcy Court did not
establish a new formula or “actual, direct costs” test, but instead relied upon the draft
MP report figure Hailey itself commissioned, and upon Hailey’s testimony that the
23 As the Bankruptcy Court noted, Burke and other members of the city council who
approved the final annexation fee either professed ignorance or could not remember the
basis for selecting the $3.8 million fee amount. (Dkt. 1-1, p. 60 n. 19.)
MEMORANDUM DECISION AND ORDER - 62

amount calculated by the report, $788,000, far exceeded Hailey’s costs of
annexation.24 The Court also interpreted the language of I.C. § 50-222 to determine
whether Hailey had statutory authority to condition annexation on payment of a fee
significantly greater than that required to cover the costs of annexation. Again, I.C.
§ 50-222 requires a city to “equitably allocate the costs of public services in
management of development on the urban fringe.” In its appeal brief, Hailey
provides no evidence whatsoever to establish the city ever attempted to tie the $3.8
million fee to an equitable allocation of Hailey’s costs.
In sum, the Bankruptcy Court was careful not to establish a precise fee or set a
maximum amount that would meet the aforementioned standard. (See, e.g.,
Adversary Proceeding No. 11-8105, Summary Judgment Hearing Transcript, Dkt.
110, 35:13-24.) The Bankruptcy Court instead appropriately determined, in light of
the undisputed evidence that Hailey’s costs were less than $788,000, the fact that
Old Cutters had already paid Hailey $1,317,000 in fees, and given Hailey’s failure to
provide evidentiary support for the more than $2 million in additional fees sought,
that the $3.8 million annexation fee was unquestionably in excess of that required to
equitably allocate costs, and, as such, was unenforceable.

24 In fact the draft MP report specifically included more than Hailey’s actual costs, such
as Old Cutters’ share of capital improvement projects that have never been made. See,
supra, text accompanying notes 3 and 4.
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6. Idaho’s statute of frauds
MWB appeals the Bankruptcy Court’s holding that the property description in
the Annexation Agreement was sufficient to satisfy Idaho’s statute of frauds.
Under the terms of the Annexation Agreement, Hailey’s lien attached to the “Market
Rate Lots,” but not to the entire Property. MWB suggests the Annexation
Agreement did not effectively identify which specific proportions of the Property
are subject to Hailey’s claimed lien. Thus, MWB argues that the provisions of the
Annexation Agreement purporting to create “a lien on the Market Rate Lots” does
not satisfy Idaho’s statute of frauds because it does not sufficiently describe the
property to which it was attached.
The Idaho statute of frauds renders an agreement for the sale of real property
invalid unless the agreement or some note or memorandum thereof is in writing and
subscribed by the party charged or by his lawful agent. I.C. §§ 9-503, 9-505(4).
Agreements for the sale of real property that fail to comply with the statute of frauds
are unenforceable both in an action at law for damages and in a suit in equity for
specific performance. Hoffman v. S V Co., Inc., 628 P.2d 218, 221 (Idaho 1981)
(citing 72 Am.Jur.2d Statute of Frauds § 285 (1974); 73 Am.Jur.2d Statute of Frauds
§ 513 (1974)).

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To satisfy the statute of frauds, an agreement for the sale of real property must
not only be in writing and subscribed by the party to be charged, but the writing must
also contain a description of the property, either in terms or by reference, so that the
property can be identified without resort to parol evidence. Garner v. Bartschi, 80
P.3d 1031, 1036 (Idaho 2003). However, a contract that references “‘any record or
external or extrinsic description from which a complete description could be had’
sufficiently describes the real property for purposes of the statute of frauds.” Ray v.
Frasure, 200 P.3d 1174, 1178 (Idaho 2009) (quoting Allen v. Kitchen, 100 P. 1052,
1055 (Idaho 1909).
MWB and Hailey agree that, for a property description to be sufficient under
the statute of frauds, the quantity, identity, or boundaries of the property must be
determinable from the face of the contract or by reference to extrinsic evidence to
which the contract specifically refers. (Dkt. 13, p. 30); (Dkt. 17, p. 6.) Notably,
the Bankruptcy Court also applied this standard. (Dkt. 1-1, p. 24) (“‘A description
contained in a deed will be sufficient so long as [the] quantity, identity or boundaries
of [the] property can be determined from the face of the instrument, or by reference
to extrinsic evidence to which it refers.’” ) (quoting Ray v. Frasure, 200 P.3d 1174,
1178 (Idaho 2008)).

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The Bankruptcy Court determined the term “Market Rate Lots” was
sufficiently defined in the Annexation Agreement and in extrinsic evidence
referenced in the Annexation Agreement so as to identify the quantity, identity or
boundaries of the property. Specifically, the Annexation Agreement provided,
“[t]he term ‘Market Rate Lots’ for the purposes of installment payments…shall
mean only the one hundred eight (108) market rate single family and duplex lots.
The four (4) townhouse lots, three (3) community housing development lots and Lot
73 are not included in this calculation.” (Annexation Agreement, Dkt. 8-2, p. 24,
¶4.b.) The Court also relied upon Exhibit 1, which contained a metes and bounds
description of the entire parcel comprising the Property, and Exhibit 2, a map
showing the proposed lots within the Property in sequential order from Lot 1 to Lot
116, to find the quantity, identity or boundaries of “Market Rate Lots” could be
adequately determined. (Dkt. 1-1, pp. 26-27.)
In so holding, the Bankruptcy Court relied upon Gugino v. Kastera, LLC (In
re Ricks) (“Ricks”), 433 B.R. 806 (Bankr. D. Idaho 2010). MWB faults the
Bankruptcy Court for relying on one of its own decisions as the basis of its ruling,
and by not giving credence to Idaho Supreme Court decisions, such as Ray v.
Frasure (“Frasure”), 200 P.3d 1174, 1178 (Idaho 2009). (Dkt. 13, pp. 34-36.) In
Frasure, the Idaho Supreme Court determined reference to a physical address alone

MEMORANDUM DECISION AND ORDER - 66

was not a sufficient description of the property for purposes of the statute of frauds,
as the physical address provided no indication of the quantity, identity, or
boundaries of the real property. 200 P.3d at 1179. In Ricks, the Bankruptcy Court
concluded that a “hybrid” agreement calling not only for the purchase and sale of
land, but which also included a commitment to provide the personal services needed
to develop the property, satisfied the statute of frauds when it described the unplatted
land to be transferred and developed as, “all the lots in the first phase of Spur
Ranch…consisting of 14 lots south of Flint Drive and 30 lots north of Flint Drive.”
433 B.R. at 814. While this description had been challenged as violative of the
statute of frauds, the Ricks court rejected the contention because, in the contract:
[The parties] did not stop at inclusion of a physical address for the property, as
did the parties in Frasure; rather they provided the existing legal description
of the entire property, and identified a specific amount of completed lots that
were to be developed and sold…indeed since the [] property had not yet been
finally platted, they had no choice but to rely upon the legal description of the
whole property supplemented by other informal identifying information.
Id. at 820-21. The Ricks court concluded that the real estate agreement satisfied the
statute of frauds and was enforceable, noting that “defects like those in the Frasure
contract are not present in the [agreement].” Id. at 821.

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The Bankruptcy Court here determined that unlike a simple physical address,
as that involved in Frasure, here the Annexation Agreement and its exhibits
adequately described the location, quantity, and exterior boundaries of the Property.
(Dkt. 1-1, p. 26.) The Annexation Agreement defined “Market Rate Lots,” as
described above, and the Exhibits provided the metes and bounds description of the
external boundaries of the properties and the 116 potential lots to be developed at a
later date. (Id.) While Exhibits 1 and 2 identified the entire Property, and not just
the “Market Rate Lots,” this was the best property description available at the time.
At the time the Annexation Agreement was executed, no final subdivision plat had
been approved or recorded. The Bankruptcy Court determined that, as in Ricks, “as
nearly as they could do so at the time of executing the contract, and given the
undeveloped state of the Property, the parties here identified the ‘precise quantity of
building lots and the exact outer boundaries of the project.’” (Id.) (quoting Ricks,
433 B.R. at 820). The Bankruptcy Court concluded, on this record, “the property
description in the parties’ agreement [was] sufficient to satisfy Idaho’s statute of
frauds and the requirements of Frasure.” (Id., p. 27.) Therefore, any lien created
by the parties in Hailey’s favor in the Annexation Agreement [was] not invalid for
violation of the statute of fraud or mortgage statute.” Id.

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The Court agrees with the Bankruptcy Court’s holding. As the Bankruptcy
Court explained, Ricks and Frasure are consistent, and the Annexation Agreement,
along with its exhibits, satisfied Idaho’s statute of frauds by describing, as exactly as
possible at the time, the “quantity, identity or boundaries” of the property to which
the lien attached. (Dkt. 1-1, p. 28.) MWB claims the agreement at issue in Ricks,
“a hybrid agreement” was a significant distinguishing factor, and that here the
Annexation Agreement was not a hybrid. However, as Hailey notes, this argument
ignores that, at the time the Annexation Agreement was executed, no final
subdivision plat had been approved or recorded. Even so, Exhibit 2 depicted each
of the lots to be developed, platted and built upon and showed their location within
the development property.25 As was the case in Ricks, the Bankruptcy Court
determined the parties identified the property as sufficiently as was possible given
the early stages of the development. Like the parties in Ricks, here Hailey and Old
Cutters provided the existing legal description of the entire property, and identified a
specific amount of completed lots that were to be secured by Hailey’s lien within

25 Hailey attached an enlarged copy of Exhibit 2 to its Opposition to MWB’s
cross-appeal, and argued this more legible purported version of Exhibit 2 clearly identified
the encumbered lots. MWB vehemently protests Hailey’s reliance on the enlarged map,
as the enlarged map was not a part of the record below, was not authenticated, and may not
even be valid. The Court has not relied upon nor otherwise considered the enlarged map
in reaching its conclusion with respect to the statute of frauds.
MEMORANDUM DECISION AND ORDER - 69

each portion of that parcel.26 Ricks, 433 B.R. at 820.
In conclusion, the Court finds the description of “Market Rate Lots” was
sufficient in the Annexation Agreement and exhibits referenced in the agreement to
satisfy the statute of frauds. The Court accordingly affirms the Bankruptcy Court’s
finding that Hailey’s lien on the Property is valid under the Idaho statutes.27
However, because this Court also affirms the Bankruptcy Court’s holding that
Hailey does not hold an enforceable claim to collect any further amounts from Old
Cutters under the Annexation Agreement, Hailey’s lien is ultimately unenforceable.

26 Further, as Hailey suggests, the Annexation Agreement:
did not contemplate or in any way involve the sale, conveyance or transfer of real
property by Old Cutters to [Hailey] but did, however, address a myriad of issues
including construction of infrastructure, location of streets, development of park
land, construction of community housing, payment of annexation fees, etc.
(Dkt. 17, p. 20.)
Therefore, the Annexation Agreement was also, like the agreement at issue in Ricks,
a sort of hybrid arrangement.

27 Given this finding, this Court, like the Bankruptcy Court, declines to address Hailey’s
estoppel argument with respect to MWB.
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ORDER
For the foregoing reasons, the Bankruptcy Court’s December 31, 2012
opinion is AFFIRMED in its entirety.
DATED: March 31, 2014

_________________________
Edward J. Lodge
United States District Judge

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