Flaherty v. BBR-Vision I, L.P.

Decision Date10 June 2013
Docket NumberNo. 49A05–1111–PL–569.,49A05–1111–PL–569.
CourtIndiana Appellate Court
PartiesFLAHERTY & COLLINS, INC., Appellant–Defendant, v. BBR–VISION I, L.P., and New Castle Realty, LLC, Appellees–Plaintiffs.

OPINION TEXT STARTS HERE

Michael E. Brown, John B. Drummy, Kightlinger & Gray, LLP, Indianapolis, IN, Crystal G. Rowe, Kightlinger & Gray, LLP, New Albany, IN, Attorneys for Appellant.

Thomas F. Bedsole, Maggie L. Smith, Frost Brown Todd LLC, Indianapolis, IN, Attorneys for Appellees.

OPINION

DARDEN, Senior Judge.

STATEMENT OF THE CASE

Flaherty & Collins, Inc. (F & C), appeals the trial court's denial of its motion for partial summary judgment and the grant of a motion for partial summary judgment filed by the plaintiffs BBR–Vision I, L.P. (BBR), and New Castle Realty, LLC (NCR).

We affirm in part, reverse in part, and remand for further proceedings.1

ISSUES

I. Whether the trial court erred as a matter of law in denying F & C's motion for partial summary judgment regarding the interpretation of an indemnification agreement;

II. Whether the trial court erred in denying F & C's motion for partial summary judgment regarding BBR's claims under the Indiana Crime Victims Relief Statute (“Crime Victims Statute) 2; and

III. Whether the trial court erred in denying F & C's motion for partial summary judgment regarding F & C's claim that NCR was not a proper party to this action;

FACTS AND PROCEDURAL HISTORY

BBR is a single-purpose entity formed by Theresa Bennett (T. Bennett), Dave Bennett (D. Bennett), and Duane Reindl (“Reindl”) to develop and own a New Castle apartment complex known as Autumn Oaks. BBR designated sixty-eight of Autumn Oaks' seventy-two apartments as qualified low-income units, thereby qualifying the units for low-income tax credits pursuant to Section 42 of the Internal Revenue Code (Section 42). The Indiana Housing Finance Authority (“IHFA”) monitors compliance with Section 42.

In order to accomplish its goal of acquiring tax credits, BBR entered into a partnership agreement with NCR. Under the agreement, BBR received net cash flow from Autumn Oaks, as well as the tax credits. NCR, as a general partner of BBR, received a portion of the tax credits from BBR, and it was responsible for the transferal of the credits to investors for income tax purposes.

On June 30, 1999, F & C and BBR entered into a management agreement that required F & C to manage Autumn Oaks as an independent contractor. Section 5 of the management agreement provided that F & C would hire a particular number of “on-site” employees, including a manager, whose job descriptions and salaries would be in accordance with the management plan approved by BBR. Appellant's App. pp. 26–27. Section 6(d) of the management agreement provided that F & C would rent units to low-income households pursuant to the “Partnership Agreement” 3 and Section 42. Id. at 27. Section 6(d) also provided that F & C would obtain all income certifications required by Section 42, BBR, and regulatory agreements involving IHFA. Section 12 of the management agreement included similar reciprocal indemnification provisions pertaining to the actions of both F & C and BBR.4

At some point, F & C hired Shannon Huse (“Huse”) to be the Autumn Oaks site manager. As the site manager, Huse was required to ensure that Autumn Oaks' tenants met Section 42 household income requirements by, among other things, obtaining income-verification statements directly from the prospective tenant'semployer and verifying the information contained therein.

In September of 2000, Huse rented Unit 216, a low-income unit, to the Johnsons. The income-verification statement faxed to Huse by Mr. Johnson's employer reported Mr. Johnson's hourly wage as $16.785, placing the Johnsons' annual income “well above the qualifying limit” under Section 42. Id. at 181. However, in 2001 F & C deduced that Huse had changed the income-verification statement to report Mr. Johnson's hourly wage as $10.785, placing the Johnsons' annual income within the qualifying limit under Section 42.

F & C also employed Kelly Higginbotham (“Higginbotham”) as its compliance director. As the compliance director, Higginbotham was responsible for ensuring “that the households [units] that were going into the project were qualified at the income levels that were required” by Section 42. Id. at 108. She would ensure compliance by reviewing tenant applications and income-verification statements. Id. She would also review the tenants' annual recertification applications to ensure that the tenants continued to meet income and asset requirements set forth by the Internal Revenue Code, and she “processed all annual reporting information for the state,” as required under the management agreement. Id. In preparing the annual report, Higginbotham would enter data regarding the tenants' income and assets into a computer program maintained by IHFA. This data was necessary for annual re-certification of the tenants' eligibility.

In late September of 2001, Mr. Johnson's employer provided an annual recertification statement that listed his hourly wage as $17.73. On or about October 2, 2001, Higginbotham, who was reviewing Mr. Johnson's recertification materials, was surprised by the significant pay raise. Higginbotham instructed Holly Hudson (“Hudson”), Huse's replacement as onsite manager,5 to contact Mr. Johnson's employer. The employer informed Hudson that Johnson's hourly wage in September of 2000 was $16.785, not $10.785. The employer had retained a copy of the September 2000 income-verification statement and faxed a copy to Hudson.

According to a timeline provided by Higginbotham to F & C executives and included as part of the designated evidence, Higginbotham contacted an IHFA representative on October 2, 2001, to ask for guidance concerning a hypothetical compliance problem. On the same day, Higginbotham wrote a note to F & C executives informing them of the compliance problem and of the IHFA's recommendation. Among other things, Higginbotham stated that the IHFA representative had recommended that F & C must move the Johnsons out of Unit 216 and move in qualified tenants. In addition, the representative had recommended that the parties “consult a qualified tax credit accountant and/or attorney” and make adjustments to their tax credit claims. Id. at 405.

The timeline provides that on October 3, 2001, F & C's president, Jerry Collins (Collins), held a meeting with Higginbotham and F & C executives, including vice president Ray Hauser (“Hauser”). At a subsequent October 8, 2001 meeting, F & C executives directed Higginbotham to go to Autumn Oaks and review the original documents; which she did on the next day. Upon reviewing the documents, Higginbotham determined that Huse's change to the 2000 income-verification statement would have been undetectablewithout the information provided by the employer in late September, 2001.

Hudson and Higginbotham scheduled an October 15, 2001 meeting with the Johnsons. At that meeting, they informed the Johnsons about the compliance issue and told them that they must vacate Unit 216.

The timeline further provides that on November 5, 2001, Collins and Hauser met with BBR's representatives, D. Bennett and Reindl, and “notified them of the situation with the Johnson household.” Id. at 386. After the meeting, BBR's representatives requested that Elizabeth Moreland Consulting (“Moreland Consulting”) review the situation and provide an advisory letter to BBR. The concern of all parties at the time was that BBR and its members could lose tax credits if the Internal Revenue Service conducted an audit and demanded a recapture.

On or about December 20, 2001, Moreland Consulting sent a letter to Collins in which it outlined its “recommendations for correcting the noncompliance in [the Johnsons'] unit.” Id. at 181. Moreland Consulting noted that it had recommended that the Johnsons be notified that they could not remain in the unit; however, as of the date of the letter, the Johnsons had not vacated their unit. Moreland Consulting advised:

Due to this noncompliance, Unit 216 should be considered “at risk” for the period of the Johnson's [sic] occupancy. Should this noncompliance be discovered during a monitoring review by the State Monitoring Agency, the noncompliance must be reported to the Internal Revenue Service (IRS) via Form 8823. State Monitoring Agencies are required to monitor each Housing Credit project once every three years. During these monitoring reviews, a minimum of 20% of the resident files must be reviewed and their corresponding units physically inspected. It is my understanding that [sic] Johnson household was not the original resident of Unit 216, so the noncompliance, if discovered, will not affect the original qualified basis of the building.

Id. at 182.

In January of 2002, Hudson discovered problems with the income-verification statements of three additional tenants. In a conversation with Reindl, Hudson informed him of three additional residents that did not meet the income requirements and that it appeared “that these residents' initial income verification forms as provided by their employers had been altered by [Huse] and that these residents appeared to have earned too much income at the time of their initial move-in to meet the income guidelines for [Autumn Oaks].” Id. at 207. Hudson also informed Reindl that Higginbotham had asked her to destroy the re-certification paperwork for these three residents; a claim that Higginbotham unequivocally denied in her deposition. Hudson informed Reindl that she had removed paperwork from a single file. Reindl instructed Hudson not to destroy or remove any more of the documents from the on-site files and requested that Hudson send copies of the available documents to him.

On or about January 30, 2002, BBR terminated F & C as its Autumn Oaks manager and replaced F & C with Valenti–Held Property Management, Inc. (“Valenti”). Valenti's contract became...

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