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;

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(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

‐22‐