Clem v. Christole, Inc., 53S04-9112-CV-950

• Decision Date: 04 December 1991
• Docket Number: No. 53S04-9112-CV-950,53S04-9112-CV-950
• Citation: 582 N.E.2d 780
• Court: Indiana Supreme Court
• Parties: Tim & Judy CLEM, et al., Appellants (Plaintiffs Below), v. CHRISTOLE, INC., Appellee (Defendants Below). James M. RICHARDS, et al., Appellants (Plaintiffs Below), v. HOPEWELL CENTER, INC., Appellee (Defendants Below).

Page 780

582 N.E.2d 780

Tim & Judy CLEM, et al., Appellants (Plaintiffs Below), v. CHRISTOLE, INC., Appellee (Defendants Below).

James M. RICHARDS, et al., Appellants (Plaintiffs Below), v. HOPEWELL CENTER, INC., Appellee (Defendants Below).

No. 53S04-9112-CV-950.

Supreme Court of Indiana.

Dec. 4, 1991.

Philip C. Hill, Len E. Bunger, Bloomington, for appellants Tim and Judy Clem, et al.

Michael R. Withers, Anderson, for appellants James M. Richards, et al.

Thomas N. Olvey, Schnorr Good & Olvey, Indianapolis, Gary J. Clendening, Harrell Clendening & Coyne, Bloomington, for appellee Christole, Inc.

Scott Webb, Anderson, for appellee Hopewell Center, Inc.

Linley E. Pearson, Atty. Gen., Brenda Franklin Rodeheffer, Indianapolis, for amicus curiae, Indiana Dept. of Mental Health and Community Residential Facilities Council.

Ernest M. Beal, Jr., Fort Wayne, for amicus curiae, Ass'n for Retarded Citizens of Indiana, Inc.

ON JOINT PETITION TO TRANSFER

DICKSON, Justice.

In this consolidated appeal, the plaintiffs-appellants, residential subdivision property owners, are appealing from grants of summary judgment permitting the defendants-appellees, developers of group homes for developmentally disabled persons, to operate such homes in the residents' subdivisions. The Court of Appeals reversed, finding that the statutory provisions purporting to invalidate certain subdivision restrictions were unconstitutional. Clem v. Christole, Inc. (1990), Ind.App., 548 N.E.2d 1180.

The appellees jointly petition for transfer, asserting that Ind.Code Sec. 16-13-21-14 (since repealed, effective January 1, 1992, Ind.Pub.L. No. 9-1991, Sec. 98) ¹ is a valid and constitutional exercise of the state's police power. Enacted in 1988, the statute provides:

(a) This section applies to each restriction, reservation, condition, exception, or covenant that is created before April 1, 1988, in any subdivision plat, deed, or other instrument of, or pertaining to, the transfer, sale, lease, or use of property.

(b) A restriction, reservation, condition, exception, or covenant in a subdivision plat, deed, or other instrument of, or pertaining to, the transfer, sale, lease, or use of property that would permit the residential use of property but prohibit the use of that property as a residential facility for developmentally disabled or mentally ill persons:

(1) on the ground that the residential facility is a business;

(2) on the ground that the persons residing in the residential facility are not related; or

(3) for any other reason;

is, to the extent of the prohibition, void as against the public policy of the state.

Ind.Code Sec. 16-13-21-14.

The decision of the Court of Appeals was based upon its conclusion that the statute constitutes a prohibited taking in violation of the Fifth and Fourteenth Amendments of the United States Constitution and Article 1, Section 21 of the Indiana Constitution. Clem, 548 N.E.2d 1180. A few months later, Judge Miller, who dissented in Clem, wrote for the majority in Minder v. Martin Luther Home Foundation (1990), Ind.App., 558 N.E.2d 833. Minder addressed the same question as Clem, but reached the opposite conclusion. Because of these conflicting decisions, we grant transfer.

In the first of the two consolidated cases, Defendant-Appellee Christole, Inc. (Christole), a not-for-profit corporation licensed and regulated by the Indiana Department of Mental Health, purchased a single-family residence in Fairwood Terrace Addition in Bloomington, Indiana, for use as a group home for the care of five unrelated developmentally disabled autistic children to be supervised by thirteen full and part-time staff members. Plaintiffs Tim and Judy Clem, along with other residents of Fairwood Terrace, sought injunctive relief alleging Christole was in violation of the restrictive covenants prohibiting the use of buildings "for business or commercial purposes of any kind," and providing that the one single-family dwelling allowed per lot "may be used for single-family or two family dwellings."

In the second consolidated case, Defendant-Appellee Hopewell Center, Inc. (Hopewell) purchased a single-family residence in Mustin Manor subdivision in Anderson, Indiana, for use as a facility for the developmentally disabled or mentally ill, which would house eight unrelated adult persons continuously and permanently supervised by a staff of one or more persons. The Plaintiff-Appellant James M. Richards and other owners of residential lots in Mustin Manor subdivision sought injunctive relief to prevent Hopewell from modifying the existing residential structure for such purposes, alleging that such use would violate the existing restrictive covenants. ²

In each of these two cases, the trial courts granted summary judgment for the defendant group home, applying Ind.Code Sec. 16-13-21-14(a) to prohibit the enforcement of restrictive covenants which prevent the operation of a residential facility for developmentally disabled persons.

While numerous issues are presented and argued by the parties, we find a single issue determinative: whether retroactive application of the statute violates the contract clause embodied in Article 1, Section 24 of the Indiana Constitution:

No ex post facto law, or law impairing the obligation of contracts, shall ever be passed.

Restrictive covenants are contract rights subject to the Indiana contract clause. Adult Group Properties, Ltd. v. Imler (1987), Ind.App., 505 N.E.2d 459. In Pulos v. James (1973), 261 Ind. 279, 302 N.E.2d 768, this court treated restrictive covenants as contracts, and stated:

Although the defendants correctly state that the Legislature may prohibit contracts that are against public policy, it, nevertheless, may not impair previously legal contracts after the rights thereunder have vested.

261 Ind. at 290, 302 N.E.2d at 775.

However, it has long been recognized that the prohibitions contained in the Indiana contract clause do not necessarily restrict the exercise of the State's power to protect the public health, safety, and general welfare. Finerty v. State ex rel. School City of Gary (1938), 213 Ind. 470, 12 N.E.2d 941 (public school corporation did not have vested contract right to receive county dog tax fund surplus collected pursuant to prior statute later amended to alter the distribution).

[T]he prohibition as to impairment of contract obligations does not extend to subjects affecting the health, safety or general welfare of the public.

Grand Trunk W. Ry. Co. v. City of South Bend (1910), 174 Ind. 203, 222, 91 N.E. 809 (ordinance granting right to construct and use railroad tracks across city streets may be repealed). Valid existing contracts cannot be impaired by future legislation "except in a proper exercise of the police power of the state." Bruck v. State ex rel. Money (1950), 228 Ind. 189, 198, 91 N.E.2d 349, 352 (statute imposing mandatory retirement upon existing permanent and indefinite teacher contracts contrary to contract clause and not valid as exercise of police power). The police power of the state is "the power inherent in a government to enact laws, within constitutional limits, to promote the order, safety, health, morals, and general welfare of society." Id.

Notwithstanding the general rule of construction favoring the interpretation of statutes as constitutional, Miller v. State (1987), Ind., 517 N.E.2d 64; Short v. Texaco, Inc. (1980), Ind., 406 N.E.2d 625, we cannot ignore the clear mandate of our state constitution limiting the power of legislation to impair the obligation of contracts. If the police power exception is construed too broadly, it would operate to eviscerate the constitutional protection. Virtually every legislative enactment could arguably be related to order, safety, health or welfare as a justification for legislative interference with pre-existing contractual rights and duties.

In determining whether legislation is violative of constitutional restraints the courts will confine themselves to the question, not of legislative policy, but of legislative power. The law must not be arbitrary, unreasonable or patently beyond the necessities of the case. The legislature may not under the guise of protecting public interests arbitrarily interfere with private business or impose unnecessary restrictions upon lawful occupations. If the law prohibits that which is harmless in itself, or if it is unreasonable and purely arbitrary, or requires that to be done which does not tend to promote the health, comfort, morality, safety or welfare of society, it is an unauthorized exercise of power.

Dep't of Financial Institutions v. Holt (1952), 231 Ind. 293, 301-02, 108 N.E.2d 629, 634. Legislation which does invade freedom of contract "can only be sustained as a valid exercise of the police power if it both relates to the claimed objective and employs means which are both reasonable and reasonably appropriate to secure such objective." Holt, 231 Ind. 293, 305, 108 N.E.2d 629, 635. In Kirtley v. State (1948), 227 Ind. 175, 181, 84 N.E.2d 712, 714, we stated:

If the law prohibits that which is harmless in itself, or requires that to be done which does not tend to promote the health, comfort, morality, safety or welfare of society, it will be an unauthorized exercise of power, and upon proper presentation it is the duty of the courts to declare such a law void.

In Wencke v. City of Indianapolis (1982), Ind.App., 429 N.E.2d 295, Judge Shields provides the following perspective:

A retrospective application of a statute to a contract entered into before the effective date of that statute can impair contractual obligations contrary to both the United States and Indiana Constitutions. There are, however, exceptions to the general rule. The prohibition against impairment of contracts is not an absolute one. The contract clause of either constitution does not restrict the exercise of the state's police power to protect the public health, safety,...