Empire Realty Investments Inc v. US Affordable Housing LLC
Filing
27
OPINION AND ORDER: GRANTING 12 MOTION for Judgment on the Pleadings by Defendant US Affordable Housing LLC and DENYING 26 MOTION for Hearing re 12 MOTION for Judgment on the Pleadings by Defendant US Affordable Housing LLC. This case remains pending as to Defendant's counterclaims. Signed by Judge Rudy Lozano on 5/19/2015. (lhc)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF INDIANA
FORT WAYNE DIVISION
EMPIRE REALTY INVESTMENTS, INC.
)
)
)
)
)
)
)
)
)
Plaintiff,
vs.
U.S. AFFORDABLE HOUSING, LLC,
Defendant.
NO. 1:14-cv-380
OPINION AND ORDER
This
matter
is
before
the
Court
on
(1)
the
Motion
for
Judgment on the Pleadings filed by Defendant U.S. Affordable
Housing, LLC, on December 26, 2014 (DE# 12), and (2) the Request
for Oral Argument on Motion for Judgment on the Pleadings filed
by Defendant on February 20, 2015 (DE# 26).
For the reasons set
forth below, Defendant’s Motion for Judgment on the Pleadings
(DE# 12) is GRANTED, and Defendant’s Request for Oral Argument
on Motion for Judgment on the Pleadings (DE# 26) is DENIED.
This case remains pending as to Defendant’s counterclaims.
BACKGROUND
In November 2014, Plaintiff Empire Realty Investments, Inc.
(“Empire”) filed a complaint against Defendant U.S. Affordable
Housing, LLC (“USAH”) in Indiana state court.
(“Compl.”).)
Attached to the Complaint was an Agreement of Sale
executed by Empire and USAH.
(DE# 4 at 13-57 (“Agreement”).)
‐1‐
(DE# 4 at 1-12
In December 2014, USAH removed the case to federal court and
filed its Answer, Affirmative Defenses and Counterclaims.
1, 10.)
(DE##
USAH then filed the instant Motion for Judgment on the
Pleadings.
(DE# 12.)
Empire filed its Answer and Affirmative
Defenses to USAH’s Counterclaims in January 2015.
(DE# 19.)
The parties have fully briefed the instant motion, and USAH
requests oral argument.
(DE## 22, 25, 26.)
FACTS
The Court accepts as true, as it must when considering a
motion
for
judgment
on
the
pleadings,
alleged in Empire’s Complaint.
the
following
facts
Forseth v. Village of Sussex,
199 F.3d 363, 368 (7th Cir. 2000).
On or about July 9, 2014, Empire and USAH entered into an
Agreement of Sale (“Agreement”), pursuant to which USAH agreed
to sell and Empire agreed to purchase certain real estate for
$3,425,000.
(Compl. ¶¶ 4, 9; Agreement § 2.)
The real estate
is located at 407 North Gatewood Drive, City of Marion, County
of Grant, Indiana, and includes a 220-unit apartment complex
known as Eagle Chase (“Property”).
(Compl. ¶¶ 3, 8.)
The Agreement includes several provisions at issue in this
case.
Section 4 of the Agreement contemplates a period during
which
Empire
was
entitled
to
investigate
(“Investigation Period”), and states in part:
‐2‐
the
Property
A. Investigation.
Commencing on the Agreement Date,
[Empire] . . . shall have the right to enter upon
the Property to conduct or cause to be conducted
upon the Property . . . other physical examinations
of the Property as [Empire] may deem necessary, and
[Empire] may otherwise do that which, in the opinion
of [Empire], is necessary for [Empire] to satisfy
itself with regard to the physical condition of the
Property and all other aspects of the Property. . .
.
B. Right to Terminate in Investigation Period. . . .
If [Empire] determines that it is not satisfied for
any reason, or no reason, in its sole discretion,
with the results of its investigations, or the
status of any other condition of or relating to the
Property, whether known or unknown on the Agreement
Date, and notifies [USAH] in writing of its election
to terminate this Agreement, the Initial Deposit
shall be returned to [Empire] and this Agreement
shall, without any further action by [Empire] or
[USAH], become null and void, and all of the parties
to this Agreement shall be released from any and all
further obligation or liability thereunder.
(Agreement § 4.)
Section
9(A)
of
the
Agreement
provides
several
representations and warranties of USAH:
A. Representations and Warranties of [USAH]. In order
to induce [Empire] to enter into this Agreement and
purchase the Property, and with full knowledge that
[Empire] is relying thereon, [USAH] hereby warrants
and represents to [Empire] as follows. . . .
(5)
Condemnation.
There are no condemnation
proceedings pending or proposed with regard
to the Property.
(6)
Notice of Violations.
[USAH] has not
received any written notices of violations
of any applicable ordinances, regulations,
or other laws with respect to the Real
Property which are uncorrected [as] of the
Agreement Date (the “Violation Notices”).
‐3‐
If any Violation Notices are received by
[USAH] after the Agreement Date and prior to
the Closing, [USAH] shall pay the cost of
complying with such Violation Notices.
In
addition, on or before Closing, [USAH] shall
deliver
any
applicable
certificate
of
occupancy or use and occupancy permit to
[Empire] and make any repairs required by
the applicable municipality for the issuance
of same.
(Agreement § 9(A).)
Section
10
of
the
Agreement
addresses
the
conditions
precedent to Empire’s obligation to purchase the Property, and
Empire’s options if the conditions precedent are not satisfied
on the closing date:
A. Conditions Precedent. The obligation of [Empire] to
complete the purchase of the Property from [USAH] in
accordance with this Agreement is subject to
satisfaction of each of the following conditions
(the “Conditions Precedent”), any of which may be
waived in whole or in part by [Empire] on or prior
to the Closing Date. . . .
(1)
[USAH’s]
Representations
and
Warranties.
Each of the representations and warranties
of [USAH] contained in this Agreement shall
be true and correct.
(2)
Compliance with Covenants.
[USAH] shall
have performed and complied with all of the
terms, conditions and covenants required by
this Agreement to be performed and complied
with prior to or on the Closing Date.
. . .
B. [Empire’s] Rights If Conditions Precedent Are Not
Satisfied.
If, on the Closing Date, all of the
Conditions Precedent to [Empire’s] obligations which
are set forth in this Agreement have not been
satisfied, [Empire’s] sole and exclusive option
‐4‐
shall be to elect to either (1) waive such of those
conditions as are unsatisfied; or (2) terminate this
Agreement and receive a refund of the Deposit,
whereupon this Agreement shall, without any further
action by [USAH or Empire], become null and void,
and all of the parties shall be released from any
and all further obligation or liability thereunder.
(Agreement § 10.)
Section 16(B) of the Agreement addresses the consequences
of a default by USAH:
B. [USAH’s] Default.
If [USAH] defaults in the
performance of any of its obligations hereunder,
[Empire] shall have the right to either (i)
terminate this Agreement and receive a refund of the
Deposit, and [USAH] shall reimburse [Empire] for all
reasonable,
out-of-pocket
costs
and
expenses
incurred by [Empire] in connection with this
Agreement, including its due diligence costs and
costs to complete closing, however in no event shall
[USAH’s] liability exceed Fifty Thousand Dollars and
[USAH] shall not be liable for circumstances of
default beyond the control of [USAH], which shall
include but not be limited to the amount of the fire
and casualty insurance deductible, or (ii) seek
specific
performance
of
[USAH’s]
obligations
hereunder, such remedies being [Empire’s] sole legal
and equitable remedies.
(Agreement § 16(B).)
The Agreement is governed, interpreted and
construed in accordance with the laws of the State of Indiana.
(Agreement § 18(C).)
The closing date was to take place sixty
days after the end of the Investigation Period, or December 19,
2014 (“Closing Date”).
(Agreement § 6; Compl. ¶ 39 n.1 (Empire
“assumes a Closing Date of December 19, 2014.”).)
After
the
parties
entered
into
the
Agreement,
Empire
learned of uncured violations of public ordinances, regulations
‐5‐
and other laws with respect to the Property, in violation of the
representations and warranties made by USAH.
The
violations
allegedly
uninhabitable
apartment
public
and
health
included:
units
safety
(Compl. ¶ 11.)
several
resulting
regulations;
uninhabited
from
twenty
and
violations
complaints
of
that
Eagle Chase tenants had recently filed with the Grant County
Health
Department
violations
According
found
to
(“Grant
by
a
Empire,
County”);
Grant
these
and
County
nineteen
health
(See
inspector.
constitute
violations
code
id.)
of
various
public ordinances, regulations, and other statutory and common
laws with respect to the Property.
Empire
these
maintains
alleged
complying
with
that
violations,
the
(Id. ¶ 12.)
USAH
but
Violation
received
refused
Notices
Section 9(A)(6) of the Agreement.
to
written
pay
within
notices
the
of
of
meaning
the
cost
of
(Id. ¶¶ 13, 14.)
Empire
asserts that USAH has been non-responsive to several complaints,
misled Grant County inspectors as to the status of abatement and
remediation efforts, and “willfully and purposefully interfered”
with efforts by Empire, Grant County, and the City of Marion
Building
Department
(“Marion”)
to
investigate
potential
additional violations and to determine whether the enumerated
violations had been addressed.
(Id. ¶¶ 15, 16.)
According to
Empire, Grant County and/or Marion have proposed condemnation
proceedings,
within
the
meaning
‐6‐
of
Section
9(A)(5)
of
the
Agreement.
(Id. ¶ 19.)
For these reasons, Empire claims that
it is exceptionally unlikely that USAH will be able to deliver
applicable
certificates
of
occupancy
or
use
permits within the meaning of Section 9(A)(6).
and
occupancy
(Id. ¶ 20.)
Empire claims that it demanded that USAH cure the alleged
violations,
9(A)(6).1
in
accordance
(Id. ¶ 21.)
reasons:
(1)
Empire
with
its
obligations
under
Section
USAH allegedly refused to do so for three
should
have
been
fully
aware
of
the
Property’s condition before entering the Agreement; (2) USAH’s
obligations under the Agreement consist only of “maintaining the
Property in the ordinary course of [its] business . . . and
present practices”; and (3) Empire caused the Violation Notices
by
unnecessarily
Marion.
and
tortuously
(Id. ¶¶ 22, 24-26.)
involving
Grant
County
and
Empire refutes these reasons, and
claims that they are frivolous, unreasonable, groundless, and
made in bad faith.
(Id. ¶¶ 23-26.)
Empire filed the Complaint against USAH on November 12,
2014, several weeks before the Closing Date.
asserts
a
claim
for
specific
performance
The Complaint
and
equitable
compensation (Count I), and a claim of bad faith (Count II).
(Id. ¶¶ 27-42.)
1
Empire admits that it never elected to terminate the Agreement.
(DE# 19 at 6 (Empire’s Answer to USAH’s Countercl. ¶ 24).)
‐7‐
DISCUSSION
Motion for Judgment on the Pleadings
Once a complaint and answer have been filed, a party may
file a motion for judgment on the pleadings pursuant to Federal
Rule of Civil Procedure 12(c).
Moss v. Martin, 473 F.3d 694,
698 (7th Cir. 2007) (citation omitted).
The court will grant a
Rule 12(c) motion “[o]nly when it appears beyond a doubt that
the plaintiff cannot prove any facts to support a claim for
relief
and
material
the
issues
omitted).
“A
moving
of
Rule
party
fact
to
12(c)
demonstrates
be
that
motion
resolved.”
is
governed
there
Id.
by
are
no
(citations
the
same
standards as a motion to dismiss for failure to state a claim
under Rule 12(b)(6).”
Lodholtz v. York Risk Servs. Grp., Inc.,
778 F.3d 635, 639 (7th Cir. 2015).
Thus, in ruling on a Rule
12(c) motion, the court must accept as true all well-pleaded
allegations, viewing them in the light most favorable to the
non-moving party, and accept as true all reasonable inferences
to be drawn from the allegations.
See R.J. Corman Derailment
Servs., LLC v. Int'l Union of Operating Eng'rs, Local Union 150,
AFL-CIO, 335 F.3d 643, 647 (7th Cir. 2003); Forseth, 199 F.3d at
368.
A court may rule on a judgment on the pleadings under Rule
12(c) based upon a review of the pleadings alone, which include
the complaint, the answer, and any written instruments attached
as exhibits.
See Fed. R. Civ. P. 10(c) (“A copy of a written
‐8‐
instrument that is an exhibit to a pleading is a part of the
pleading for all purposes.”); N. Ind. Gun & Outdoor Shows, Inc.
v. City of S. Bend, 163 F.3d 449, 452–53 (7th Cir. 1998).
Count I:
Specific Performance and Equitable Compensation
USAH’s
Rule
interpretation,
12(c)
motion
specifically,
raises
what
an
issue
remedies
are
of
contract
available
to
Empire for USAH’s alleged failure to satisfy its representations
and warranties under the Agreement.
Agreement.
(Agreement § 18(c).)
Indiana law governs the
When interpreting a contract,
Indiana courts “begin with the plain language of the contract,
reading it in context and, whenever possible, construing it so
as
to
render
each
word,
phrase,
and
unambiguous, and harmonious with the whole.”
term
meaningful,
CitiMortgage, Inc.
v. Barabas, 975 N.E.2d 805, 813 (Ind. 2012).
The goal is to
determine the parties’ intent at the time that they made the
agreement.
Id.
If the terms of the contract are clear and
unambiguous, then the contract is binding on the parties and the
court need only apply the terms of the contract.
Trustcorp
Mortg. Co. v. Metro Mortg. Co., 867 N.E.2d 203, 212 (Ind. Ct.
App.
2007).
“When
interpreting
control over general terms.”
a
contract,
specific
terms
Burkhart Advert., Inc. v. City of
Fort Wayne, 918 N.E.2d 628, 634 (Ind. Ct. App. 2009) (citation
omitted).
‐9‐
Here, USAH represented and warranted that it “shall pay the
cost of complying with [] Violation Notices” it received after
the
date
of
the
Agreement.
(Agreement
§
9(A)(6).)
USAH
concedes - for the purpose of this motion only – that this
representation and warranty was not accurate.
(See Compl. ¶¶
11-14 (alleging USAH received Violation Notices, and failed to
pay the cost to cure them).)
This representation and warranty
constitutes a Condition Precedent to the sale of the Property
under Section 10(A) of the Agreement.
(Agreement § 10(A)(1).)
USAH relies upon Section 10(B) of the Agreement to argue
that Empire’s specific performance claim cannot stand.
Section
10(B)
of
provides
that
“[i]f,
on
the
Closing
Date,
all
the
Conditions Precedent to [Empire’s] obligations . . . have not
been satisfied, [Empire’s] sole and exclusive option shall be to
elect
to
either
unsatisfied;
or
(1)
(2)
waive
such
terminate
this
refund of the Deposit. . . .”
added).)
Because
USAH’s
of
those
conditions
Agreement
and
as
are
receive
a
(Agreement § 10(B) (emphasis
alleged
failure
to
satisfy
its
representations and warranties is a Condition Precedent, USAH
argues that Empire’s sole remedy is to waive the condition, or
terminate the Agreement and receive its deposit.
USAH relies on Duckwall v. Rees, 86 N.E.2d 460 (Ind. Ct.
App. 1949), to argue that specific performance is not available
as an alternative remedy where a contract specifies the return
‐10‐
of the deposit as a remedy.
In Duckwall, a contract for the
purchase and sale of land provided for liquidated damages and
repayment
of
breach.
The
the
down-payment
court
held
in
that,
the
based
event
on
of
the
the
seller’s
terms
of
the
contract, the buyer’s right to payment was intended to be a
substitute for specific performance.
See id. at 462; see also
Metro Holdings One, LLC v. Flynn Creek Partner, LLC, 25 N.E.3d
141, 164 (Ind. Ct. App. 2014) (courts “will not invalidate a
remedy for which the parties have contracted.”).
Empire does
not contest the applicability of Duckwall to this case.
Empire claims that it is entitled to specific performance
based on Section 16(B) of the Agreement.
(See Compl. ¶ 29.)
Section 16(B) states that if USAH “defaults in the performance
of any of its obligations hereunder, [Empire] shall have the
right
to
either
(i)
terminate
this
Agreement
and
receive
a
refund of the Deposit [and reimbursement of certain costs and
expenses],
or
(ii)
seek
specific
performance
of
[USAH’s]
obligations hereunder, such remedies being [Empire’s] sole legal
and equitable remedies.”
(Agreement § 16(B) (emphasis added).)
Empire seeks specific performance of the sale of the Property,
as well as equitable compensation for USAH’s representation and
‐11‐
warranty that USAH “shall pay the cost of complying with [the]
Violation Notices.”2 (Id. § 9(A)(6).)
Empire admits that “under Section 10(B) of the Agreement,
[it]
is
prohibited
from
alleging
unsatisfied
Conditions
Precedent ‘on the Closing Date’ in a last minute attempt to
renegotiate
the
Purchase
Price
or
other
aspects
of
the
Agreement.”
(DE# 22 at 11; see also id. at 2 (asserting Section
10(B) prevents Empire from “showing up on the Closing Date” and
alleging unsatisfied Conditions Precedent).)
Section
10(B)
does
not
apply
here
because
Empire argues that
the
provision
is
limited to USAH’s failure to satisfy the Conditions Precedent
“on the Closing Date,” and not at any other time.
In contrast,
no provision limits the timing of the application of Section
16(B).
Because Empire filed its Complaint before the Closing
Date, Empire insists that Section 16(B), rather than Section
10(B), applies.
2
The equitable compensation portion of Empire’s claim is based on
its estimate that the cost of curing the Violation Notices is no
less than $300,000.
(Compl. ¶¶ 37-39.)
USAH asserts that the
$300,000 is a request for money damages.
While the Court need
not resolve this issue here, it notes that “as part of a
specific performance decree, a trial court may award equitable
compensation to adjust the equities of the parties.”
UFG, LLC
v. Southwest Corp., 848 N.E.2d 353, 365 (Ind. Ct. App. 2006)
(citations omitted); see Bohlin v. Jungbauer, 615 N.E.2d 438,
439 (Ind. Ct. App. 1993) (equitable compensation “equalizes any
losses occasioned by the delay” in the contract’s performance,
and “is considered an accounting between the parties, rather an
assessment of damages.”).
‐12‐
USAH
rejects
Empire’s
interpretation
of
Section
10(B),
arguing that where “both parties acknowledge that a Condition
Precedent is not satisfied and will not be satisfied by the time
of the Closing Date, nothing in Section 10(B) prohibits Empire
from electing its exclusive remedy prior to the Closing Date.”
(DE# 25 at 4.)
USAH points to Section 10(A), which provides
that Conditions Precedent “may be waived . . . by [Empire] on or
prior
to
the
added).)
Closing
Date.”
(Agreement
§
10(A)
(emphasis
USAH asserts that this language is consistent with an
interpretation of Section 10(B) that permits Empire to elect its
“sole and exclusive” remedy prior to the Closing Date.
USAH
also maintains that Empire’s filing of the Complaint a few weeks
prior
to
the
Closing
Date
was
a
“last
minute
attempt”
to
renegotiate the purchase price, which Empire concedes Section
10(B) was structured to avoid.
In construing the Agreement, the Court presumes that all
provisions
were
included
for
a
purpose,
and
if
possible,
reconciles seemingly conflicting provisions to give effect to
all provisions.
Magee v. Garry–Magee, 833 N.E.2d 1083, 1092
(Ind. Ct. App. 2005) (citation omitted).
an
interpretation
of
the
Agreement
that
The Court must accept
harmonizes
all
the
various parts so that no provision is deemed to conflict with,
to be repugnant to, or to neutralize any other provision.
When
a
contract
contains
general
‐13‐
and
specific
Id.
provisions
relating to the same subject, the specific provision controls.
Id.
The Court may not “write a new contract for the parties or
supply missing terms under the guise of construing a contract.
Where the subjective intent of the parties is at odds, the text
controls.
If necessary, the text of a disputed provision may be
understood
corners
by
of
reference
the
to
other
document.”
provisions
Claire’s
within
the
Boutiques,
four
Inc.
v.
Brownsburg Station Partners LLC, 997 N.E.2d 1093, 1098 (Ind. Ct.
App. 2013) (citations omitted).
Section
remedies
in
10(B)
the
sets
forth
specific
Empire’s
circumstance
“sole
of
and
USAH’s
satisfy Conditions Precedent on the Closing Date.
Section
16(B)
is
more
general,
applying
to
exclusive”
failure
to
In contrast,
defaults
performance of “any of [USAH’s] obligations hereunder.”
in
the
Because
“specific terms control over general terms,” where Section 10(B)
applies, it controls over Section 16(B).
Ryan v. Lawyers Title
Ins. Corp., 959 N.E.2d 870, 875 (Ind. Ct. App. 2011).3
3
Empire asserts that applying Section 10(B) here “renders Section
16(B) meaningless.”
(DE# 22 at 11.)
But “where one provision
is general enough to include the specific situation to which the
other is confined, the specific provision will be deemed to
qualify the more general one, that is, to state an exception to
it.” Aeroground, Inc. v. CenterPoint Properties Trust, 738 F.3d
810, 816 (7th Cir. 2013) (citations omitted); see, e.g., Magee,
833 N.E.2d at 1093 (specific provision indicating that parties
are to file joint tax return prevails over general provision
regarding waiver of interest and preservation of parties’
separate property).
‐14‐
The Agreement does not specifically address whether Section
10(B) applies if both parties acknowledge, prior to the Closing
Date, that the Condition Precedent will not be satisfied on the
Closing Date.
However, Section 10(A) allows Empire to waive a
Condition
Precedent
that
parties
the
prior
to
intended
the
that
Closing
Empire
Date,
could
demonstrating
make
decisions
regarding failed Conditions Precedent prior to the Closing Date.
Section 10(A) also provides that USAH has until the Closing Date
to satisfy the Conditions Precedent.
(See Agreement § 10(A)(2)
(USAH “shall have performed and complied with all of the terms,
conditions
and
covenants
required
by
this
Agreement
to
be
performed and complied with prior to or on the Closing Date.”
(emphasis added)).)
When
Empire
filed
its
Complaint
in
November
2014,
it
expected that USAH would not satisfy the Conditions Precedent by
the Closing Date.
Thus, its specific performance claim is based
on USAH’s alleged anticipatory breach of the Agreement.
(See
also DE# 19 at 19 (asserting Empire’s affirmative defense of
anticipatory breach/repudiation).)
Empire acknowledges that if
it had waited until the Closing Date to claim that USAH failed
to
satisfy
the
Conditions
Precedent,
Empire
limited to the remedies in Section 10(B).
would
have
been
Because the Agreement
terms provide that (1) USAH is not obligated to satisfy its
Conditions Precedent until the Closing Date, and (2) Empire has
‐15‐
a specific and limited remedy under Section 10(B) for USAH’s
failure to satisfy those conditions once they are due, the Court
finds
that
Section
10(B)
applies
here.
To
allow
Empire
to
assert its specific performance claim would be to place Empire
in a better position than it would have been at the time when
USAH’s performance on the Agreement was due.4
Empire
argues
representations
meaningless.
if
USAH
that
and
applying
warranties
in
The Court disagrees.
fails
to
satisfy
its
Section
10(B)
renders
the
Section
9(A)
illusory
and
Section 10(B) provides that
representations
and
warranties
under Section 9(A) on the Closing Date, USAH risks Empire’s
termination of the Agreement and the loss of Empire’s deposit.
Empire
accepted
Agreement.
43,
49
these
remedies
when
it
entered
into
the
See Dexter Axle Co. v. Baan USA, Inc., 833 N.E.2d
(Ind.
Ct.
App.
2005)
(“Indiana
courts
recognize
the
principle that parties are free to enter into contracts and,
indeed, presume that contracts represent the freely bargained
agreement
of
the
parties.”).
These
remedies
are
equally
applicable whether Empire filed its Complaint on or before the
Closing Date.
Other provisions in the Agreement provide these
4
While the Court was unable to locate relevant Indiana case law
on this issue, Illinois courts have held that “the remedies for
an anticipatory breach cannot be greater than the remedies that
would be available to the non-breaching party at the time the
breaching party’s performance was due.”
Pope ex rel. Pope v.
Economy Fire & Cas. Co., 779 N.E.2d 461, 468 (Ill. Ct. App.
2002).
‐16‐
same
remedies
for
uncorrected
defects
or
Empire’s
dissatisfaction with the Property’s condition before the Closing
Date.
(See Agreement § 4(B) (Empire may terminate the Agreement
and receive a refund of its deposit if it “is not satisfied for
any
reason,
results
of
or
no
its
reason,
in
its
sole
or
the
investigations,
discretion,
status
of
with
any
the
other
condition of or relating to the Property”); see also Agreement
§§ 5(A), 13, 14 (allowing Empire to terminate the Agreement and
receive
a
refund
of
its
deposit
based
on
uncorrected
objections, fire, casualty, and condemnation).)
title
While Empire
now finds its remedies under Section 10(B) to be insufficient,
nothing in its pleadings indicates that the parties did not
freely bargain for these terms when they entered the Agreement.
For the reasons set forth above, USAH’s motion for judgment
on the pleadings as to Count I is GRANTED.
Count II:
Bad Faith Claim
Count II of the Complaint seeks compensatory and punitive
damages,
asserting
that
USAH
engaged
in
bad
negotiation and performance of the Agreement.
42.)
faith
in
the
(Compl. ¶¶ 40-
USAH argues that this claim should be dismissed because
Indiana law does not recognize a duty of good faith in the
context of an arm’s length transaction.
See Allen v. Great Am.
Reserve Ins. Co., 766 N.E.2d 1157, 1162 (Ind. 2002) (Indiana
‐17‐
does not imply a duty of good faith in every contract).
“Bad
faith breach of a contract will not support punitive damages
unless there is a ‘special relationship’ between the parties . .
. to support imposition of a tort duty.”
Andrews v. Mor/Ryde
Int'l, Inc., 10 N.E.3d 502, 505 (Ind. 2014).
USAH maintains that Empire and USAH are unrelated parties
that engaged in an arm’s length transaction.
See Wilson v.
Lincoln Fed. Sav. Bank, 790 N.E.2d 1042, 1046–47 (Ind. Ct. App.
2003) (“a business or arm’s length contractual relationship does
not give rise to a fiduciary relationship”).
Empire’s complaint
does not allege any fiduciary relationship between Empire and
USAH.
By its silence, Empire concedes that the transaction at
issue was an arm’s length transaction, and that USAH owed no
fiduciary duty to Empire.
Because Empire does not allege any
special relationship with USAH, its bad faith claim cannot be
based on the breach of contract claim.
Instead, Empire relies upon Indiana Code section 34-52-1-1
as the basis for its claim for attorney’s fees.
Section 34-52-
1-1, entitled “General recovery rule,” provides in part:
Sec. 1. . . . (b) In any civil action, the court may
award attorney’s fees as part of the cost to the
prevailing party, if the court finds that either
party:
(1)
brought the action or defense on a claim or
defense that is frivolous, unreasonable, or
groundless;
‐18‐
(2)
(3)
Ind.
continued to litigate the action or defense
after the party’s claim or defense clearly
became
frivolous,
unreasonable,
or
groundless; or
litigated the action in bad faith.
Code
§
34-52-1-1.
Empire
asserts
that
the
Complaint
alleges facts sufficient to establish a prima facie case that
some
of
USAH’s
defenses
are
frivolous,
unreasonable
or
groundless, or otherwise in bad faith within the meaning of
Section 34-52-1-1(b).
USAH
breached
its
Empire points to its allegations that
representations
and
warranties
under
the
Agreement by failing to cure the Violation Notices of public
ordinances,
regulations
and
other
laws
with
respect
to
the
Property; misled Grant County inspectors as to the status of its
remediation efforts; willfully and purposefully interfered with
investigations of violations by Grant County, Marion and Empire;
threatened Eagle Chase tenants so that they would not cooperate
with
Grant
search
County’s
warrants
concerning
the
for
investigation;
the
condition
of
caused
Property;
the
Marion
withheld
Property
from
to
obtain
information
Empire;
and
knowingly and willingly misrepresented the Property’s condition
to Empire.
(See Compl. ¶¶ 10-11, 15-18, 24.)
USAH argues that Section 34-52-1-1 is irrelevant because
the statute only applies during a civil action, not to positions
taken prior to litigation.
(DE# 13 at 5 n.1.)
‐19‐
The plain
language
of
Section
34-52-1-1(b)
“[i]n any civil action.”
addresses
parties’
conduct
Here, Empire relies upon conduct that
allegedly occurred prior filing its Complaint.
None of the
alleged conduct supports a conclusion that the litigation itself
is frivolous, unreasonable, and in bad faith, especially given
the fact that Empire bought this lawsuit against USAH.
See Ind.
High Sch. Athletic Ass'n, Inc. v. Schafer, 913 N.E.2d 789, 795
(Ind. Ct. App. 2009) (reversing attorney fee award against IHSAA
where
no
statements
prior
to
litigation
could
support
a
conclusion the litigation itself was frivolous, unreasonable,
and in bad faith, and where lawsuit had been brought against
IHSAA).
Thus, the Court finds that Section 34-52-1-1 does not
support Empire’s bad faith claim.5
USAH argues that Empire’s punitive damages claim should be
dismissed because punitive damages are not available for breach
of
contract
claims.
Both
parties
cite
Dahlin
v.
Amoco
Oil
Corp., 567 N.E.2d 806 (Ind. Ct. App. 1991), for the proposition
that “[t]o recover punitive damages in a breach of contract
case, the plaintiff is required to prove by clear and convincing
evidence that the defendant’s actions in breaching the contract
were accompanied by . . . fraud, gross negligence, or oppressive
5
The Court notes that a party is not required to file a claim for
attorney fees pursuant to Section 34–52–1–1 prior to final
adjudication.
See Davidson v. Boone Cty., 745 N.E.2d 895, 900
(Ind. Ct. App. 2001).
‐20‐
conduct.”
Id. at 810.
After Dahlin, the Supreme Court of
Indiana held that “in order to recover punitive damages in a
lawsuit founded upon a breach of contract, the plaintiff must
plead and prove the existence of an independent tort of the kind
for which Indiana law recognizes that punitive damages may be
awarded.”
Miller Brewing Co. v. Best Beers of Bloomington,
Inc., 608 N.E.2d 975, 984 (Ind. 1993) (emphasis added);
see
Epperly v. Johnson, 734 N.E.2d 1066, 1073 (Ind. Ct. App. 2000)
(while
“[b]reaches
of
contract
will
almost
invariably
be
regarded by the complaining party as oppressive, if not outright
fraudulent,” the claimant must nonetheless prove the independent
tort to recover punitive damages).
Thus, Empire must establish
an independent tort in order to recover punitive damages.
Empire
relies
upon
the
same
allegations
supporting
its
claim for attorney’s fees to assert that the Complaint alleges
facts establishing “a prima facie case that USAH acted in a
manner
that
amounts
to
fraud,
oppressive conduct” under Dahlin.
¶¶ 10-11, 15-18, 24).)
gross
negligence,
and/or
(DE# 22 at 13 (citing Compl.
These allegations do not plead a tort
independent from Empire’s alleged breach of contract claim, as
required under Miller.
Therefore, USAH’s motion for judgment on
the pleadings as to Count II is GRANTED.
‐21‐
Request for Oral Argument on Motion for Judgment on the
Pleadings
USAH requests that the Court hear oral argument on its
motion for judgment on the pleadings.
The Court has discretion
to grant or deny a request for oral argument on a motion.
N.D.
Ind.
oral
L.R.
7-5(c)(1).
Because
the
Court
does
not
find
argument necessary to rule on USAH’s motion for judgment on the
pleadings, USAH’s request for oral argument is DENIED.
CONCLUSION
For the reasons set forth above, Defendant USAH’s Motion
for
Judgment
Request
for
on
the
Oral
Pleadings
Argument
(DE#
on
Pleadings (DE# 26) is DENIED.
12)
Motion
is
GRANTED,
and
its
for
Judgment
on
the
This case remains pending as to
Defendant’s counterclaims.
DATED:
May 19, 2015
/s/ RUDY LOZANO, Judge
United States District Court
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