Greater Boise Auditorium Dist. v. Frazier
| Decision Date | 15 October 2015 |
| Docket Number | No. 43074.,43074. |
| Citation | 159 Idaho 266,360 P.3d 275 |
| Court | Idaho Supreme Court |
| Parties | In the Matter of GREATER BOISE AUDITORIUM DISTRICT, Petitioner–Appellant, v. David R. FRAZIER, Respondent. |
Givens Pursley, LLP, Boise and Hawley Troxell Ennis & Hawley, LLP, Boise, attorneys for appellant. Christopher H. Meyer argued.
Runft & Steele Law Offices PLLC, Boise, attorneys for respondent. John L. Runft argued.
Appellant, the Greater Boise Auditorium District (the "District") filed a petition for judicial confirmation, pursuant to Idaho Code section 7–1304, asking the district court for a determination that a lease the District intended to enter into did not violate the Constitution's Article VIII, section 3 clause prohibiting a municipal body, without voter approval, from incurring indebtedness or liabilities greater than it has funds to pay for in the fiscal year. Respondent, David R. Frazier (Frazier), a Boise resident and property owner, objected to the requested judicial confirmation, and appeared in the case to contest it. The lease was one part of a complex agreement by which the District intended to own a new facility being constructed. The District asserts that the lease in question does not subject it to any long-term liabilities. Frazier argues that both the lease and the overall agreement unconstitutionally subject the District to liabilities greater than it has funds to pay for in the fiscal year. The district court denied the Petition for Judicial Confirmation and the District appeals. Frazier seeks attorneys' fees on appeal. We reverse the district court's denial of the District's request for judicial confirmation and hold that the agreements into which it entered satisfy Article VIII, section 3 of the Constitution.
The District is a governmental subdivision that is organized under Idaho Code section 67–4901 and operates in Boise. The District currently operates the Boise Centre, a convention center in Downtown Boise. The District seeks to expand operations by acquiring a new facility (hereinafter the Centre Facility) being constructed near the Boise Centre. But the District, as a governmental subdivision, is subject to Article VIII, section 3 of the Idaho Constitution. That section provides in pertinent part:
No county, city, board of education, or school district, or other subdivision of the state, shall incur any indebtedness, or liability, in any manner, or for any purpose, exceeding in that year, the income and revenue provided for it for such year, without the assent of two-thirds of the qualified electors thereof voting at an election to be held for that purpose ... Any indebtedness or liability incurred contrary to this provision shall be void....
IDAHO CONST. art. VIII, § 3.1 Believing it would not subject itself to the Constitution's super-majority vote requirement, the District entered into a series of agreements with multiple parties, none of which were put up for vote. The District's overall plan was succinctly summarized by the district court:
The District and [the developer] will enter [an agreement] for the construction and sale of the new facilities. The District will immediately (or very shortly) thereafter, assign all of its interest in the new facilities to [a third party] who has the power to obtain financing through Wells Fargo, a commercial lender, and issue a promissory note and deed of trust to secure financing. Once the new facilities are completed, the [third party] will then lease the new facilities back to the District, utilizing the annual lease payments to pay the principal and interest due on the promissory note.
Through this plan, the District hoped to obtain ownership of the Centre Facility without ever incurring an indebtedness or liability that would subject it to Article VIII, section 3 and thus require a vote.
The Centre Facility is being constructed by K.C. Gardner Company, L.C. (Gardner), a limited liability company from Utah. The third party, who was to accept the assignment and then lease the Centre Facility to the District, was the Urban Renewal Agency of Boise City (the "Agency"). The Agency, also known as the Capital City Development Corporation, is an urban renewal agency under Idaho Code Title 50, chapters 20 and 29. Because the Agency is not a governmental subdivision, it is not subject to Article VIII, section 3 of the Constitution and could therefore obtain financing without a vote. However, the Agency's financing was conditioned on judicial confirmation of the lease. The Agency thus would not accept the assignment of the District's right and obligation to purchase the Centre Facility without confirmation that the proposed agreement was legally proper. To that end, on June 11, 2014, the District filed its first petition for judicial confirmation of the proposed lease. In that case, Ada County Case no. CV–OT–2014–11320, the district court judge determined that the lease violated Article VIII, section 3 of the Constitution because it exposed the District to liabilities beyond what it could afford in the fiscal year. Some of the liabilities over which the court expressed concern were certain indemnity guarantees and assumption of damages resulting from environmental law violations. Id. The District then requested time to provide notice for and file a motion for reconsideration.
But no motion for reconsideration was ever filed. Rather, the District attempted to address the district court's concerns by modifying the agreements with the Agency and with Gardner. On November 20, 2014, the District and Gardner entered a contract titled the "Amended and Restated Master Development Agreement Between Greater Boise Auditorium District and KC Gardner Company, L.C." (hereinafter "MDA"). The MDA generally sets out what the parties intend to do, and how they intend to do it. Despite being a general statement of intent, the MDA also contains mandatory language:
2.2 Purchase and Sale Agreement. Gardner and the District shall execute and enter into a Purchase and Sale Agreement (the "PSA") for the Centre Facilities provided that Gardner shall sell to the District and the District shall purchase from Gardner the Centre Facilities. The PSA shall be substantially in the form attached hereto as Exhibit "D". The PSA shall include the right to purchase therein provided to the Capital City Development Corporation.
This language binds the District to purchase the Centre Facility, regardless of whether it is able to secure assignment of its obligation to the Agency. The District asserts that it currently has sufficient funds set aside to pay the full purchase price of the Centre Facilities in case it is not able to successfully assign its obligation to the Agency. The actual instrument selling the Centre Facility to the District is called the Purchase and Sale Agreement (hereinafter "PSA").
Following the MDA, the District entered an agreement with the Agency, under which the District would assign to the Agency its right and obligation to purchase the Centre Facility. The agreement is called the Amended and Restated Development Agreement (hereinafter "RDA"). Under the RDA, the Agency would obtain financing from Wells Fargo to purchase the Centre Facility from the District. The Agency would be responsible for the financing note. The Agency would then lease the Centre Facility back to the District under what is called the Centre Lease. The payments under the Centre Lease would cover the principal and interest payments on the note secured by the Agency to finance the purchase. Once the note becomes fully satisfied, the District has the option to purchase the Center Facility for $10 plus any of the Agency's fees or expenses then unpaid. This option to purchase is exercisable in the District's sole discretion, and does not obligate the District to purchase the Centre Facility from the Agency. If the District ever has the capital on hand before the note is fully satisfied, it may also elect to pay the full amount due on the note and thereby purchase the Centre Facility. The Centre Lease provides a term beginning on its effective date and terminating on November 15, 2015. It is then renewable for a total of twenty-four consecutive one-year terms in the sole discretion of the District. This makes the lease a non-appropriation lease, allowing the District to back out of the contract at any time the District does not appropriate money for the lease for the upcoming year.
Unlike the previous lease, the Centre Lease omits the indemnities and environmental liabilities that concerned the district court when reviewing the first petition. Further, the Centre Lease provides for a "Lease Contingency Fund," which contains $350,000 of funds the District has on hand, and which would provide the sole remedy for damages or fees arising from any potential negligence from the District. Another section of the Centre Lease limits the District's liability in the event of default to no more than whatever rent is due for the current term of the lease (thus never exceeding one year's rent). This section of the Centre Lease also purports to limit (to the same terms) the remedies of the Agency's financier against the District.
The District asserts that this form means there is no risk of any unconstitutional liability. If it does not have the funds to continue the lease in a particular year, it can simply elect not to renew the lease without penalty and walk away. It further asserts that the damage limitation clause as well Lease Contingency Fund mean that the Centre Lease cannot subject it to any long term liabilities.
Similar to the agreement that was the subject of the first petition, under the RDA's terms, the Agency would not obtain financing and thus not accept assignment of the District's obligation and requirement to purchase the Centre Facility without legal approval of the...
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