Mapleturn Utilities, Inc. v. Foxcliff South Associates, Inc.

• Decision Date: 20 November 1996
• Docket Number: No. 55A04-9603-CV-107,55A04-9603-CV-107
• Parties: MAPLETURN UTILITIES, INC., Appellant (Defendant and Counter-Plaintiff), v. FOXCLIFF SOUTH ASSOCIATES, INC., Appellee (Plaintiff and Counter-Defendant).
• Court: Indiana Appellate Court

Page 5

673 N.E.2d 5

MAPLETURN UTILITIES, INC., Appellant (Defendant and Counter-Plaintiff), v. FOXCLIFF SOUTH ASSOCIATES, INC., Appellee (Plaintiff and Counter-Defendant).

No. 55A04-9603-CV-107.

Court of Appeals of Indiana.

Nov. 20, 1996.

Rehearing Denied Jan. 16, 1997.

Thomas R. Ruge, Todd A. Richardson, and Pamela H. Sherwood, Lewis & Kappes, Indianapolis, for Appellant.

Stephen A. Oliver, Boren & Oliver, Martinsville and Ronald Tedrow, Indianapolis, for Appellee.

OPINION

DARDEN, Judge.

STATEMENT OF THE CASE

Mapleturn Utilities, Inc. appeals the summary judgment granted Foxcliff South Associates, Inc. (FSA) on FSA's complaint for breach of contract.

We reverse and remand.

FACTS

In the early 1980's, a private utility company, Summit City Utilities, Inc., provided water and sewer services to an area north of Martinsville which we will refer to as Foxcliff North. Subsequently, an area south was platted and proposed for development by Foxcliff South, Inc., which later filed bankruptcy. Its primary lender, Merchants National Bank and Trust Co. of Indianapolis, took over the project in the name of a wholly owned subsidiary, Newcorp, Inc. As one of its actions to develop the southern subdivision, which we will refer to as Foxcliff South, Newcorp entered into an agreement with Summit and its president and sole shareholder, John Fewell. According to this 1985 agreement, Summit would provide water and sewer service to residents of Foxcliff South, and Newcorp would provide financing for the expansion of Summit's system through its parent, Merchants.

The 1985 agreement specified that Newcorp was responsible for designing the expansion and selecting contractors; further, Newcorp would "advance such amounts reasonably necessary to complete construction." (R. 457-58). In order for Newcorp "to recoup" funds loaned to Summit for its work on Foxcliff South, the agreement provided that a portion of the connection fee paid by a lot purchaser would be remitted to Newcorp. (R. 460). The agreement also required Summit to seek the necessary approval of the state regulatory authority for "the indebtedness to be incurred hereunder," (R. 461), and Summit did so. Finally, the agreement gave Newcorp "the right to assign and transfer" all of its rights thereunder to a designated successor developer. (R. 462).

During 1986, area residents experienced multiple problems with Summit, and in July the association representing Foxcliff North petitioned the regulatory authority to revoke Summit's authority and to refund certain overcharges. By 1987, numerous court proceedings were also pending against Summit and Fewell. By late summer of 1987, the various parties had negotiated a solution to the problem of how water and sewer services would be provided to the area in the future. An agreement between Summit, Fewell, Newcorp, Merchants, and the association of Foxcliff North residents ("Summit-to-Newcorp agreement") provided that Newcorp would purchase for $397,500 ¹ the assets of Summit and Fewell, which would be warranted and conveyed "free and clear of all liens and encumbrances except for those ... set forth" in the 1985 agreement, and the 1985 agreement was attached thereto. (R. 892). This Summit-to-Newcorp agreement specifically contemplated application to the regulatory authority for approval of a transfer of the utility's property and operating rights "to a not-for-profit corporation to be formed," (R. 897), and stated that "Newcorp is merely acting as the agent for a not-for-profit corporation to be formed for the purpose of purchasing the Property and providing sewer and water" services to the Foxcliff area. (R. 898). The agreement bears only the date of 1987 but appears to have been signed shortly before September 11, 1987.

Another agreement, dated August 7, 1987, between Merchants, Newcorp, the association of Foxcliff North residents, and an association of Foxcliff South residents ("Mapleturn agreement"), stated that a not-for-profit corporation would be formed "for the purpose of purchasing the assets" and operating rights of Summit and providing sewer and water service to Foxcliff residents. (R. 928). Merchants would make a term loan in the amount of $417,500 and provide a $100,000 credit line (which could be converted to a term loan after one year) to this corporation, and the corporation would pay $387,500 to Newcorp for its "quitclaim [to] all its right, title and interest" and $30,000 to the association of Foxcliff North in settlement of its lawsuit against the utility.

The residents of both Foxcliff areas then formed a not-for-profit corporation called Mapleturn Utilities, Inc. On September 11 1987, Mapleturn filed a petition ² with the Indiana Utility Regulatory Commission (IURC) stating that it had been "organized for the purpose of purchasing the assets" and operating authority of Summit "and for the purpose of providing sewage disposal and water utility services" to Foxcliff residents. (R. 883). The petition said that "certain agreements for the sale and transfer of Summit City's assets and operating rights" had been entered into "[f]or the purpose of resolving various disputes between" Summit City, Fewell, Newcorp, Merchants, and the resident associations. (R. 884). These agreements (the Summit-to-Newcorp agreement, with its 1985 agreement attachment, and the Mapleturn agreement) were attached as exhibits. Continuing, the petition recited that

Newcorp, as agent of Mapleturn, will purchase all of the assets, including the CTA, ³ of Summit City and will immediately transfer the assets and CTA to Mapleturn. Thereafter, Mapleturn will render sewage disposal and water utility services in place of the services currently provided....

(R. 885). The petition specified that "capitol [sic] from Merchants" would finance the purchase of assets and operating rights by Mapleturn, and a further line of credit would be provided by the bank "to make improvements to the system." Id. Accordingly, the petition prayed the IURC

approve the sale and transfer to Mapleturn of Summit City's assets and property; approve the sale and ... issue a certificate of authority empowering Mapleturn to incur indebtedness for the purposes stated herein....

(R. 886).

On January 6, 1988, the IURC issued an order on Mapleturn's petition "to effect a sale and transfer of [Summit's] assets and operating rights" pursuant to "settlement agreements between the parties," whereby "Newcorp, as agent of Mapleturn, proposes to purchase all of the assets, including the CTA, of [Summit] and will immediately thereafter transfer the assets and CTA to Mapleturn." (R. 556, 557). The IURC found "Mapleturn was organized for the express purpose of purchasing the assets, including ... operating rights currently owned by [Summit] and for the express purpose of providing sewage disposal and water utility services" to the area served by Summit and, pursuant to its later findings, "possess[ed] the financial ability to commence and maintain its proposed services." (R. 561). Accordingly, the IURC approved the sale of Summit assets to Mapleturn and authorized Mapleturn to provide water and sewer services. Further, after reviewing the terms of the Merchants loan and line of credit, the IURC found "the proposed financing to be in the public interest" and authorized same. (R. 563-4).

On February 1, 1988, Summit transferred its personal property by a bill of sale, which itemized the assets by reference to a section of the Summit-to-Newcorp agreement and warranted the property "free and clear of any and all liens, security agreements, encumbrances, claims, demands, and charges of every kind and character whatsoever." (R. 399). That same day, Summit also conveyed its real estate to Newcorp by warranty deed, "subject to easements, rights-of-way and restrictions of record." (R. 414).

On February 1, 1988, Newcorp transferred to Mapleturn by assignment the same Summit personal property transferred in the bill of sale. Newcorp then quitclaimed the Summit real estate to Mapleturn.

Over the next several years, Mapleturn operated the utility and charged the "full tariff rate" approved by the IURC when a new customer connected to its system. (R. 1045). No portion of the connection fees was remitted to Newcorp, nor did Newcorp declare Mapleturn in default under the 1985 agreement.

Newcorp developed various amenities (a clubhouse, pool and tennis courts complex and a nine-hole golf course) in the Foxcliff South subdivision, and about forty lots were connected to the system between 1988 and 1992. However, lot sales stalled, and Newcorp placed 194 lots at auction on April 15 1992. The auction materials indicated the property's aggregate retail value to be $3,352,500, or about $17,281 per lot. On the day of the auction, "Peak Management & Acquisition, Inc. and/or assigns," by Ronald Tedrow, president, agreed to purchase 184.5 lots for $250,000, or $1,355 per lot. (R. 605). The agreement provided that "any rebate due from Public Service--PSI--shall go to Purchaser." Id. The purchase agreement was assigned by Peak to Foxcliff South, Associates, Inc. (FSA), and the lots were conveyed from Newcorp to FSA by warranty deed on May 4, 1992.

On February 5, 1993, FSA, by its president Ronald Tedrow, entered into another purchase agreement with Newcorp whereby it would buy eighty acres of undeveloped land in Foxcliff South for $500 per acre. This agreement specified the sale would "include all of Sellers's interest in ... any utility rebates which may be made involving the Premises." (R. 607).

Shortly after the second sale to FSA, counsel for Newcorp wrote letters to four utilities servicing Foxcliff South--including Mapleturn--stating FSA had thereby "succeeded to all rights to utility rebates to which Newcorp, Inc., as developer, may have been entitled at present or in the future." (R. 628-31). On October 22, 1993, an agreement between FSA and Newcorp stated that "to clarify and correct...