McLemore v. Hyundai Motor Mfg. Alabama, LLC

• Decision Date: 10 October 2008
• Docket Number: 1070516.,1070517.
• Parties: Price McLEMORE et al. v. HYUNDAI MOTOR MANUFACTURING ALABAMA, LLC, and the Industrial Development Board of the City of Montgomery. George E. Russell and Thomas E. Russell, as coexecutors and cotrustees of the will and testamentary trust of Ernest W. Russell; and Myrtis Russell v. Hyundai Motor Manufacturing Alabama, LLC, and the Industrial Development Board of the City of Montgomery.
• Court: Alabama Supreme Court

7 So.3d 318

Price McLEMORE et al. v. HYUNDAI MOTOR MANUFACTURING ALABAMA, LLC, and the Industrial Development Board of the City of Montgomery.

George E. Russell and Thomas E. Russell, as coexecutors and cotrustees of the will and testamentary trust of Ernest W. Russell; and Myrtis Russell v. Hyundai Motor Manufacturing Alabama, LLC, and the Industrial Development Board of the City of Montgomery.

1070516.

1070517.

Supreme Court of Alabama.

October 10, 2008.

Randy Myers and Frank H. Hawthorne, Jr., of Hawthorne & Myers, LLC, Montgomery, for appellants.

Robert E. Poundstone IV of Bradley Arant Rose & White, LLP, Montgomery; and Joseph B. Mays, Jr., and Marc James Ayers of Bradley Arant Rose & White, LLP, Birmingham, for appellee Hyundai Motor Manufacturing Alabama, LLC.

Thomas T. Gallion III and Constance C. Walker of Haskell Slaughter Young & Gallion, LLC, Montgomery; and Jesse P. Evans III of Haskell Slaughter Young & Rediker, LLC, Birmingham, for the appellee Industrial Development Board of the City of Montgomery.

STUART, Justice.

George E. Russell and Thomas E. Russell, as coexecutors and cotrustees of the will and testamentary trust of Earnest W. Russell, and Myrtis Russell ("the Russells"), and Price McLemore, Mary H. McLemore, John McInnis, Jr., Timothy N. McInnis, Charles R. McInnis, Williams S. Newell, and the Peoples Bank and Trust Company, as trustee for the Adaline Hooper Trust A and B ("the McLemore group"), sued the Industrial Development Board of the City of Montgomery ("the IDB") and Hyundai Motor Manufacturing Alabama, LLC ("Hyundai"), alleging breach of contract. Specifically, they alleged that the IDB, on behalf of Hyundai, exercised options to purchase their real property but failed to pay them in accordance with the most-favored-nation clause in the option agreements the same price per acre that was paid to another landowner. The trial court entered summary judgments for the IDB and Hyundai. We affirm in part, reverse in part, and remand.

Facts

In September 2001, various officials of the State of Alabama, the City of Montgomery ("the City"), the Montgomery County Commission ("the County"), the Montgomery Area Chamber of Commerce, and the Montgomery Water Works Board began making preparations to secure options to purchase property in the Montgomery area to create an incentive package in the hope that they could persuade Hyundai to build an industrial plant in the Montgomery area for the purpose of manufacturing and assembling motor vehicles. This intent is evidenced by a signed letter to Hyundai from the City, the County, and the IDB stating that they, "in partnership with the State," would commit to providing an industrial site to Hyundai at no cost. Although the funds to purchase the property were to be provided by the City and the County only, the option agreements on the property were acquired by the IDB, whose primary role in industrial projects is to "serve as the entity through which monies flow for the purchase of land for the ultimate use in industry."¹ B.M. Ahn, the Hyundai representative in charge of Hyundai's project to open a plant in the United States, testified during his deposition that one of the basic elements of an incentive package is "free land" offered to an automobile company as part of the incentive for the company to locate in a certain area. Ahn stated that Hyundai had no role in acquiring the options on the land.

The Russells owned approximately 328 acres of land in Montgomery County. In the fall of 2001, Reuben Thornton, the chairman of the IDB, entered into an option agreement on behalf of the IDB to purchase the Russells' property for an industrial project.² The agreement provided an option period of 120 days and stated:

"3. If Purchaser elects to exercise this Option the purchase price for the Property shall be determined as follows:

"Seller and Purchaser shall each, at its own cost and expense, secure a current appraisal of the Property. The purchase price shall be the average of the two appraisals provided, however, in no event shall the purchase price be less than $4,500 per acre and further provided that the purchase price shall in no event be less than the price per acre paid to any other landowner included in the project planned for the Property. The acreage shall be determined by a good and accurate survey provided by Purchaser.[³]

"....

"16. This Option constitutes the entire and complete agreement between the parties hereto and supersedes any prior oral or written agreements between the parties with respect to the Property. It is expressly agreed that there are no verbal understandings or agreements which in any way change the terms, covenants, and conditions herein set forth, and that no modification of this Option and no waiver of any of its terms and conditions shall be effective unless made in writing and duly executed by the parties hereto."

The Russells and the IDB amended the option agreement in February 2002 to provide:

"1. It is hereby agreed that the purchase price for the Property is Four Thousand Five Hundred and No/100 Dollars ($4,500.00) per acre. The exact number of acres to be determined by the survey provided by Purchaser.

"2. The option period is hereby extended for a period of 120 days from the Effective Date of the Option, which Effective Date is October 3, 2001. The expiration date of the Option, as extended, is now May 31, 2002.

"3. Except as amended hereby, the Option is in all other respects ratified and confirmed."

In February 2002, Thornton, on behalf of the IDB, entered into an option agreement with the McLemore group, who owned approximately 54 acres of land near the Russell property. The terms in the option agreement with the McLemore group are identical to the terms in the original option agreement between the Russells and the IDB.

The IDB also acquired four additional option agreements with landowners near the property belonging to the Russells and the McLemore group. During the acquisition process, the IDB approached Joy Shelton about an option to purchase her property; however, she refused to enter into an option agreement. The IDB decided that the Shelton property⁴ was not necessary for the incentive package. By mid-March 2002, the IDB determined that it was not going to designate any additional funds, other than the funds already committed, to this particular project. The State and the IDB sent the incentive package, including the proposed project site, to Hyundai for consideration.

On March 28, 2002, Ahn contacted Todd Strange, then the director of the Alabama Development Office. He stated that Hyundai had not decided whether to locate the plant in Montgomery or in Kentucky but that additional property would need to be acquired for the rail access Hyundai required if Montgomery was to be selected as the site for the Hyundai plant. Ahn informed Strange that he would need an answer by noon of the next day as to whether the property could be acquired. Strange met with various State, City, and County officials to discuss Hyundai's request. Recognizing that the City and the County would not provide additional funds to acquire more property and that the other option agreements contained most-favored-nation clauses, they decided to ask CSX Transportation, Inc., the rail company, to acquire the option to purchase the Shelton property. On March 29, 2002, Strange sent David Hemphill, an assistant vice president for CSX, the following letter via facsimile:

"Last evening, Thursday, March 28, 2002, at 6:05 p.m. Central Standard Time, I received a call from Mr. B.M. Ahn, President Hyundai Motor Company, U.S. from Seoul, Korea. He told me they were in the final stages of the decision and needed to make modifications to their Montgomery site layout because the CSX Railroad yard estimate had come in extremely high. In their (Hyundai's) redesign, he wanted to do parallel tracks running north and south on the eastern side of the property boundary. His engineers told him he would not have enough room unless [additional property was] obtained in the southeast corner of the quadrant. This property had been discussed a couple of months ago but we had been told as recently as two weeks ago that it would not be necessary. So accordingly, we did not pursue any options....

"As I indicated to you last night, our option agreements have a `most favored nation' clause where we agreed to pay no more for any one parcel than any of the other parcels. Accordingly, I assembled a working group of the local Chamber of Commerce executives, engineering expertise, Dave Echols[⁵] and myself. We decided the most appropriate course to follow would be to ask CSX to obtain a parcel for rail access to keep it outside the project agreement. As you know CSX's agreement with Hyundai is separate and this property in their view is for rail access only....

"....

"Dave, as you can appreciate there are a lot of details to be worked out, but the spirit and concept is for CSX to obtain the needed parcel for rail access and whatever the purchase price, CSX would be made whole in a manner we mutually agreed upon."

Also on March 29, 2002, Hemphill sent the following e-mail to Dave Echols:

"Regarding the [Shelton property] that will need to be purchased, you asked if CSX would be willing to buy this property for the State and Montgomery at approximately $8,000.00 an acre. There is no contract or option on the property currently and you estimate it will cost us approximately $750,000.00 which you are willing to refund to us in some fashion during the track construction phase. Randy Evans,[⁶] in principle agreed to this and I ask that you fax us a letter outlining exactly what you have in mind. The purpose of doing it this way rather than what you did in getting control of the other 1600 acres is to avoid paying the other landowners $8,000.00 an acre which would have a negative impact of $10,000,000.00 on the site cost. The railroad does not get...