Altoona First Sav. Bank v. Twp. of Logan

• Decision Date: 22 December 2021
• Docket Number: 346 C.D. 2020
• Citation: 268 A.3d 1138
• Parties: ALTOONA FIRST SAVINGS BANK, a Pennsylvania Chartered Mutual Savings Bank v. The TOWNSHIP OF LOGAN, a political subdivision of the Commonwealth of Pennsylvania, Richard E. Himes and Mary C. Himes Appeal of: Township of Logan
• Court: Pennsylvania Commonwealth Court

268 A.3d 1138

ALTOONA FIRST SAVINGS BANK, a Pennsylvania Chartered Mutual Savings Bank

v.The TOWNSHIP OF LOGAN, a political subdivision of the Commonwealth of Pennsylvania, Richard E. Himes and Mary C. Himes

Appeal of: Township of Logan

No. 346 C.D. 2020

Commonwealth Court of Pennsylvania.

Argued May 12, 2021

Decided December 22, 2021

Louis C. Long, Pittsburgh, for Appellant.

Norman D. Callan, Altoona, for Appellee Altoona First Savings Bank.

BEFORE: HONORABLE P. KEVIN BROBSON, President Judge, HONORABLE RENÉE COHN JUBELIRER, Judge, HONORABLE MARY HANNAH LEAVITT, Judge, HONORABLE PATRICIA A. McCULLOUGH, Judge, HONORABLE CHRISTINE FIZZANO CANNON, Judge, HONORABLE ELLEN CEISLER, Judge, HONORABLE J. ANDREW CROMPTON, Judge

OPINION BY JUDGE FIZZANO CANNON

The Township of Logan (Township) appeals by permission from an interlocutory order of the Court of Common Pleas of Blair County (trial court). The trial court granted partial summary judgment in favor of Altoona First Savings Bank (Bank) in the Bank's declaratory judgment action against the Township and Richard E. Himes and Mary C. Himes (Developers). The trial court concluded the Bank is not obligated to complete development infrastructure at its own cost on property it acquired at a sheriff's sale pursuant to a mortgage foreclosure against that property, which was formerly owned by Developers. Upon review, we vacate the summary judgment order and remand this matter to the trial court for further proceedings.

I. Background

In August 2006, Developers obtained approval from the Township for an 82-lot real estate development project known as Phase II of Castle Farms (Project). Reproduced Record (R.R.) 27a-28a. The Township's approval of the Project was subject to terms and conditions memorialized in a recorded Developers Agreement, as later amended. See R.R. 14a-42a. The Developers Agreement provided that the "Agreement and all of its terms and conditions shall extend to and be binding upon the parties hereto and upon their respective heirs, executors, administrators, successors and assigns." R.R. 41a. The Developers Agreement also provided that any ambiguity found within it would be construed in favor of the Township. Id.

The Developers Agreement required Developers to obtain a performance bond to guarantee completion of infrastructure for the Project, including roads, curbs, storm water management facilities, erosion control, sanitary sewers, and fire suppression tanks. R.R. 29a-40a. Developers obtained a performance bond for infrastructure costs in the amount of $2,313,604 from Commonwealth Insurance Company (Insurer). R.R. 71a.

After the Township approved the Project in August 2006, the Bank loaned Developers $2,250,000 secured by a promissory note and a mortgage. R.R. 157a-58a & 160a-66a. The property subject to the mortgage included the real property to be developed in the Project, as well as other real property. R.R. 165a.

At the time the Bank made the loan, the subdivision plan had been approved and the Developers Agreement executed, and the Bank relied on the approved subdivision plan and the executed Developers Agreement in extending financing. R.R. 8a. Further, the mortgage instrument expressly described the collateral as including, in part, property with a metes and bounds description that was preceded by a declaration that the parcel was "known as Castle Farms Subdivision, Phase II ..." and followed by a statement that the parcel was "intend[ed] to be described in accordance with a certain Plan of Survey done by Innovative Consulting Group, Inc., under date of May 6, 2005, and intend[ed] to be the entire portion of the premises known as Castle Farms Subdivision Phase II." R.R. 168a & 170a.

Developers subsequently defaulted on the loan, and the Bank filed an action in foreclosure in July 2008. R.R. 152a-55a. In January 2009, Insurer suggested Developers were in default on their obligations under the performance bond. See R.R. 50a. In February 2009, the Bank's counsel sent a demand letter to the Township, taking the position that Developers’ default under the terms of the performance bond was also a default under the Developers Agreement. R.R. 50a. The Bank's counsel asserted the Township was obligated under the Developers Agreement to proceed against Insurer on the performance bond, and that the Township's failure to "acquire ... those funds needful or necessary in order to effectuate completion of the roadway, and ... immediately thereafter proceed with installation and construction of the said roadway" diminished the value of the property subject to the mortgage. R.R. 50a-51a. Demanding that the Township proceed with a claim against the performance bond, the Bank's counsel stated the "anticipated completion of the roadway was a factor in the Bank making a commercial loan to [Developers] in connection with the completion of that [P]roject. The Bank fully relied upon the viability and enforceability of the Developer[ ]s Agreement." Id .

In May 2009, at a sheriff's sale in execution on its mortgage foreclosure, the Bank obtained title to the property subject to the mortgage, including the property approved for the Project. R.R. 99a-105a.

The record does not reflect any claim by the Bank or the Township against Insurer under the performance bond.¹ In March 2014, this Court entered an Order of Liquidation against Insurer. R.R. 80a. Pursuant to that order, all surety bonds under which Insurer had any obligations remained in force for not more than 30 days after entry of the order. R.R. 83a.

In subsequent discussions between the Township and the Bank, the Township asserted that the Bank, by purchasing the property at the sheriff's sale, had succeeded to Developers’ obligations relating to the Project under the Developers Agreement and was required either to complete the infrastructure for the Project or obtain a new performance bond to guarantee the cost of such infrastructure. R.R. 53a & 56a-57a. The Bank, however, took the position that although it acquired title to the real property, it was not the Project's "developer" and was neither a party to nor bound by the Developers Agreement. See, e.g. , R.R. 10a-11a & 56a.

The Township offered to release the Bank from all obligations and conditions of the Township's land development approval for the Project as reflected in the Developers Agreement, provided the Bank met certain conditions, including presentation of a new land development plan eliminating Phases 2B and 2C from the approved development, along with consents from all the lot owners of Phase 2A to release their rights concerning completion of infrastructure pertaining to Phases 2B and 2C. R.R. 56a. The record does not indicate that the parties ever reached an agreement.

The Bank commenced a declaratory judgment action against the Township and Developers, seeking declarations that the Bank is not a "developer" or "applicant" as defined by Section 107 of the Pennsylvania Municipalities Planning Code (MPC),² 53 P.S. § 10107 ; that the Bank is neither a party to nor bound by the Developers Agreement as a successor or assignee; that the Township's failure to file a claim against the performance bond makes the Township liable for the costs of completing the infrastructure; and that Developers are liable for the infrastructure costs. R.R. 6a-13a.

The Bank and the Township filed cross-motions for partial summary judgment. R.R. 142a-51a. By order dated February 13, 2020, the trial court granted partial summary judgment in favor of the Bank, finding (1) the Bank is not an applicant or developer, as defined by the MPC, based on its purchase of the property in a judicial foreclosure proceeding, and (2) the Bank is not a party or successor to, and not an assignee of, the Developers Agreement.³ R.R. 228a. The parties did not raise in their cross-motions for summary judgment the question of whether the Township was liable for the costs of completing the infrastructure due to its failure to proceed against the performance bond. See R.R. 142a-50a. Therefore, the trial court's partial summary judgment decision did not address that question, and it is not before us on appeal.

On March 9, 2020, on motion of the Township, the trial court amended its previous order to provide that its interlocutory order involves controlling questions of law as to which there is a substantial basis for difference of opinion, that an immediate appeal may materially advance the ultimate termination of this matter and is in the public interest. R.R. 237a-38a. By order dated June 11, 2020, this Court granted the Township's petition for an immediate interlocutory appeal. See R.R. 5a.

II. Issues

On appeal,⁴ as in the trial court, the primary legal dispute between the Bank and the Township concerns whether the Bank, by purchasing the real property securing its mortgage at the sheriff's sale, stepped into Developers’ shoes and became responsible for the infrastructure required on the Project under the Developers Agreement. The Township asserts two arguments on appeal. First, the Township contends the Bank is an applicant because it is a successor to the landowner and/or a successor to the developer within the meaning of the MPC. See Br. of Township at 12-27; Reply Br. at 5-7. Therefore, the Township contends the Bank is bound by law to comply with the statutory infrastructure requirements. Id. Second, the Township reasons that the Bank has availed itself of the advantages of the approved subdivision for the Project by marketing the Project as a development and by selling a number of the individual lots, and in so doing, the Bank has become bound as a successor to the Developers Agreement and is responsible for the associated infrastructure. See Br. of Township at 27-29; Reply Br. at 2.

In response, the Bank argues that in purchasing the property at the sheriff's sale, it did not intend to act as a developer regarding the Project, but instead was merely trying to recoup its losses on the loan secured by the...