BENTLEY FUNDING v. SK & R GROUP

• Decision Date: 03 March 2005
• Docket Number: Record No. 041386.
• Citation: 269 Va. 315,609 S.E.2d 49
• Court: Virginia Supreme Court
• Parties: BENTLEY FUNDING GROUP, L.L.C., et al. v. SK & R GROUP, L.L.C.

609 S.E.2d 49

269 Va. 315

BENTLEY FUNDING GROUP, L.L.C., et al. v. SK & R GROUP, L.L.C.

Record No. 041386.

Supreme Court of Virginia.

March 3, 2005.

Robert J. Zelnick, Woodbridge (Szabo, Zelnick & Erickson, on brief), for appellants.

Thomas Moore Lawson, Front Royal (Todd D. Bunn; Lawson and Silek, on brief), for appellee.

Present: All the Justices.

AGEE, Justice.

Bentley Funding Group, L.L.C. ("Bentley") and Peter Denger appeal from a judgment of the Circuit Court of Prince William County in favor of SK & R Group, L.L.C. ("SK & R"). The judgment awarded SK & R the balance of certain erosion control escrow accounts ("the Escrows") posted with Prince William County, Virginia ("the County") on behalf of Bentley. For the reasons set forth below, we will reverse the judgment of the trial court.

I. BACKGROUND AND PRIOR PROCEEDINGS

Bentley acquired approximately 164 acres located in the County, which it undertook to develop as River Oaks. In March 1998, as a part of its efforts to develop River Oaks, Bentley entered into five Siltation and Erosion Control Agreements with the County ("the Agreements"). As required by the Agreements, Bentley caused cash Escrows to be posted with the County on March 16, 1998, in order to secure the performance of Bentley's obligations under the Agreements. Over the course of time, the County withdrew some amounts from the Escrows to perform erosion control work at River Oaks, leaving a balance of $349,334.82 in January 2001.

Denger, who owns a one-third membership interest in Bentley, provided the entire escrow amount from his personal funds to a trust account of Bentley's attorneys who transferred the funds to the County. Bentley and Denger had an unwritten agreement that the Escrows would be returned to Denger when released by the County.

On August 11, 2000, an involuntary Chapter 11 bankruptcy petition was filed in the United States Bankruptcy Court for the Eastern District of Virginia against Bentley. An order for relief was entered, but no trustee was appointed so the bankruptcy proceeded with Bentley as debtor in possession. As required by bankruptcy law, Bentley and its members filed various disclosures and schedules under penalty of perjury. The Escrows were not listed on any schedule as an asset of Bentley's bankruptcy estate. SK & R was a secured creditor of Bentley with a recorded deed of trust secured by the River Oaks real property.

On January 9, 2001, while Bentley's bankruptcy proceeding was pending, Bentley and SK & R entered into a contract whereby Bentley would transfer all of the River Oaks real property to SK & R ("the Contract") except for a 23 acre parcel zoned for commercial use. The Contract, which required the approval of the Bankruptcy Court, states in relevant part:

RECITALS

Seller is owner of that certain real property ... consisting of approximately 164 acres of land ... and all improvements thereon and appurtenances thereunto belonging, ... (the "Prince William Property"). The Prince William Property, ... consists of Parts 1 through 6.... Seller has agreed to sell to Purchaser all its right, title and interest in and to Parts 1, 3, 4, 5 and 6 of the Prince William Property....

CONTRACT

1. Property.... Seller hereby agrees to sell and Purchaser agrees to purchase Parts 1, 3, 4, 5 and 6 of the Prince William Property ... together with all improvements thereon and appurtenances thereunto belonging and together with all approvals, permits, development rights, all consents and renewals thereof relating thereto (the "Property") in accordance with the provisions and on the terms and conditions hereinafter set forth.

....

5. Settlement. (a) Possession of the Property shall be given to Purchaser by Seller at settlement.... Purchaser and Seller agree to execute such other documents at settlement as may be reasonably necessary or advisable to consummate the transaction contemplated hereby. At settlement, Seller shall also convey and assign to Purchaser all of Seller's interest in and to any and all warranties relating to the Property.

There is no mention of the Agreements or the Escrows in the Contract. Denger, in his individual capacity, was not a party to the Contract.

On January 30, 2001, the Bankruptcy Court entered an Order approving the Contract, which contained the following finding by the Court:

E. The terms of the Contract provide that [Bentley] will convey to SK & R or its designee approximately 141 acres of the River Oaks Property (such 141 acres, the "Property"), free and clear of all liens, interests, and encumbrances, it being the intent of the parties that SK & R receive title to all of [Bentley's] interest in the River Oaks Property except the nearly 23 acres that is zoned "B-1" for commercial use, all as more particularly described in the Contract;

At closing on February 9, 2001, Bentley delivered and SK & R accepted a General Warranty Deed ("the Deed") conveying to SK & R 140.7543 acres of River Oaks Property, "together with all improvements thereon and appurtenant rights thereunto belonging." The Deed contains no mention or reference to the Escrows. No assignment or other instrument was ever executed whereby Bentley or Denger assigned, transferred or otherwise conveyed the Escrows to SK & R. No assignment or similar instrument transferring the Escrows was requested by SK & R at settlement, or at any time thereafter.

On March 26, 2002, the County issued a check to Bentley in the amount of $21,164.57, refunding a portion of the Escrows. On April 4, 2002, SK & R notified the County that it claimed the Escrows. The County then filed an interpleader action to determine ownership of the Escrows naming Bentley and SK & R as defendants.¹

SK & R claimed ownership of the Escrows under the Contract as part of "all improvements thereon and appurtenances thereunto belonging and together with all approvals, permits, development rights, consents and renewals thereof relating thereto." SK & R also claimed the Escrows under the language of the Bankruptcy Court Order confirming the Contract which recited: "it [was] the intent of the parties that SK & R receive title to all [Bentley's] interest in the River Oaks Property."

Bentley and Denger denied SK & R had any interest in the Escrows. Bentley contended that the Escrows had been posted for the benefit of Bentley with funds belonging to Denger and that the Escrows should be paid to Denger or alternatively, released to Bentley. Similarly, Denger contended that he provided the funds for the Escrows, and they should be paid to him or alternatively, to Bentley.

While the interpleader action was pending in the trial court, SK & R filed a motion in the Bankruptcy Court to reopen Bentley's bankruptcy proceeding which had been closed after payment in full to all creditors. SK & R asked the Bankruptcy Court to clarify its Order confirming the Contract as to whether the Escrows were conveyed by the Contract. The Bankruptcy Court denied the motion.

Upon conclusion of a bench trial, the trial court ruled that SK & R owned the Escrows in its order of March 12, 2004 ("March 12th order"), which also incorporated the transcript of the bench ruling.² The trial court found, "it was the intent of the parties to transfer the entire project from Bentley Funding Group, L.L.C., to SK & R Group, L.L.C., including the erosion control escrows and agreements," and that the Escrows constituted a "development right" under the Contract. Accordingly, as all development rights were conveyed to SK & R under the Contract, SK & R owned the Escrows. Further, the trial court found that because Bentley never claimed the Escrows as an asset in the bankruptcy proceeding, Bentley could not now assert a claim. "The [Escrows] were not listed by [Bentley] as an asset in the bankruptcy proceedings and therefore, [Bentley] cannot now claim it as an asset."

The trial court also found "there is no evidence to support the allegation that Mr. Denger owned the escrows." The trial court opined that in as much as the Escrows were part of the development rights conveyed to SK & R, and that the conveyance as approved must be free and clear of all liens ... and it was specifically not the intention of the parties in entering into the Contract that any party, including Mr. Denger, was to have an interest in any portion of the assets which were to be conveyed in the Contract.

We awarded Bentley and Denger this appeal.

II. STANDARD OF REVIEW

Bentley and Denger assign error to the trial court's ruling in the nature of claim preclusion by judicial estoppel. While this Court has not had occasion to set out a standard of review for the application of judicial estoppel, the United States Court of Appeals for the Fourth Circuit, along with the majority of jurisdictions,³ reviews a trial court's application of judicial estoppel for an abuse of discretion. Jaffe v. Accredited Surety and Cas. Co., Inc., 294 F.3d 584, 595, n. 7 (4th Cir.2002). Because judicial estoppel is an equitable doctrine, "invoked in the discretion of the [trial] court," King v. Herbert J. Thomas Mem. Hosp., 159 F.3d 192, 196 (4th Cir.1998), we will also apply an abuse of discretion standard.

The parties agree that the Contract is not ambiguous, and the trial court so found: "I don't find this as [sic] ambiguous."

When the terms of the parties' documents are clear and unambiguous the interpretation of those terms presents a question of law.... Thus, on appeal, we are not bound by the trial court's resolution of these questions of law, and we are afforded the same opportunity as the trial court to consider the terms of the documents at issue.

Musselman v. The Glass Works, L.L.C., 260 Va. 342, 346, 533 S.E.2d 919, 921 (2000) (citations omitted). Therefore, we will review and interpret the provisions of the Contract without any deference to the trial court's conclusions.

III. ANALYSIS

Bentley and Denger make seven assignments of error to the trial court's judgment which may be...