Okatie River v. Southeastern Site Prep

• Decision Date: 06 January 2003
• Docket Number: No. 3582.,3582.
• Citation: 577 S.E.2d 468,353 S.C. 327
• Court: South Carolina Court of Appeals
• Parties: OKATIE RIVER, L.L.C., Respondent, v. SOUTHEASTERN SITE PREP, L.L.C., Appellant.

353 S.C. 327

577 S.E.2d 468

OKATIE RIVER, L.L.C., Respondent, v. SOUTHEASTERN SITE PREP, L.L.C., Appellant.

No. 3582.

Court of Appeals of South Carolina.

Heard December 10, 2002.

Decided January 6, 2003.

G. Richardson Wieters, of Hilton Head Island, for appellant.

Frank H. Clabaugh, of Hilton Head Island, for respondent.

ANDERSON, J.

Southeastern Site Prep, LLC (Southeastern) appeals the circuit court's order awarding Okatie River, LLC (Okatie) $85,000 plus interest. We affirm.

FACTS/PROCEDURAL BACKGROUND

Incorporated on December 18, 1996, Okatie was formed for the purpose of acquiring and developing a 927-acre plot of land known as Indigo Plantation in Beaufort County. Richard Covelli (Covelli) was named managing member of Okatie, and G. Duane Deline and Sam Mollet were the principal shareholders. Okatie did not own Indigo Plantation, but it had an option to purchase the property. Okatie obtained the proper zoning to develop the property. However, by January 1997, a lawsuit was filed by a third party which halted all development. During the pendency of the lawsuit, Okatie did not take any steps to develop Indigo Plantation. After the resolution of the lawsuit in December 1997, Okatie determined that it would not develop Indigo Plantation, and it did not exercise its option to purchase. The sole purpose for organizing Okatie no longer existed. Consequentially, Okatie closed its office and dismissed Covelli on December 18, 1997.

While development was on hold at Indigo Plantation, Covelli contacted Thomas Viljac and Steve DeSimone about forming another limited liability company for the purpose of performing site development construction at various developments. On February 25, 1997, articles of organization were filed to create Southeastern. The articles named Covelli as the manager. Covelli participated in discussions to develop an operating agreement for Southeastern and attempted to negotiate an ownership interest in it. The parties could not agree on the operating agreement or on Covelli's percentage of ownership, and they decided that Covelli would not have an active management role. During these discussions, Covelli transferred $85,000 of Okatie's funds to Southeastern as "start up funds." Covelli wrote Southeastern a check for $70,000 on March 14, 1997 and another check for $15,000 on August 26, 1997. Covelli gave Southeastern an additional $15,000 from non-Okatie sources. Southeastern's 1997 tax returns referred to the total $100,000, including the $85,000 from Okatie, as an obligation or loan. Okatie's principals, Mollet and Deline, did not become aware of the $85,000 transferred to Southeastern until January 1998, when they were wrapping up the business of Okatie. Mollet and Deline contacted DeSimone for the return of the money, and he initially indicated that he thought the money belonged to Covelli. If Covelli did not own the money, DeSimone said Southeastern would return it to Okatie. Viljac and DeSimone later asserted that the money was given to them to secure a discount on work to be performed at Indigo Plantation and refused to return the funds.

When Southeastern filed its 1998 tax return, it again noted that it had an obligation of $100,000. However, Southeastern's accountant made the following notation regarding the tax return:

The $100,000 "Covelli loan" is comprised of the following:

15,000.00 Advanced by Rich Covelli personally 85,000.00 Advanced by a partnership which Rich Covelli was formerly a member which was formed for the purpose of developing____.

Nor [sic] formal documentation exists for these advances. Per Thomas Viljac and Steve Dessimone [sic], these funds were non-refundable advances to be used to offset future costs associated with the partnership's development. Subsequently, the option to develop ____ expired and the partnership has been dissolved. Thomas Viljac has been verbally notified by an attorney representing the partnership concerning repayment of the $100,000. This is as far as it has gone. [Southeastern's] attorney has represented that there is a possible claim to these funds, despite Thomas's position that they are non-refundable. Consequently, we have left the liability on the books as of 12/31/98.

In February 1998, Viljac executed an affidavit concerning his transactions with Covelli. In his affidavit, Viljac stated that Southeastern contracted successfully with Indian Hills, another property development company managed by Covelli, to perform site development. Southeastern performed the work and submitted invoices for work performed.¹ Viljac contended that Covelli gave him funds from Okatie to cover start-up costs, and their understanding was that Okatie would be paid back "solely through a reduced price on any work to be performed at Okatie when it was developed." Viljac also declared:

I further understand that our company's internal financial statements at one point may have reflected the Okatie advances as "capital contributions" by Mr. Covelli. This was a misnomer. In 1997, we changed our accounting software to a new package offered by Peachtree Software which we were still learning, and the internal financial statements are inaccurate. [Southeastern] currently treats the advances as loans from Mr. Covelli on behalf of Okatie.

(emphasis added).

Okatie filed a complaint against Southeastern in June 1999. Okatie alleged the $85,000 was "either loaned to, and/or advanced to Southeastern by Covelli, without the knowledge or consent of Okatie's shareholders." The complaint acknowledged that Southeastern variously referred to the money as a loan or as an advance payment for work to be done at Indigo Plantation. Okatie sought return of the funds and interest. The parties stipulated that the sum of $85,000 was in fact a loan. At issue in the instant case are the terms, conditions, and obligations of repayment.

At trial, Okatie called Viljac as an adverse witness. He denied that Covelli had any managing authority over Southeastern. Viljac maintained that his oral agreement with Covelli was that Okatie would advance Southeastern $85,000 in exchange for Southeastern agreeing to perform site preparation construction at a reduced cost at the Indigo Plantation development, if Okatie decided to give the work to Southeastern. Following Okatie's decision not to develop Indigo Plantation, Viljac believed Southeastern was not obligated to return the money, stating:

We refuse to refund that money dollar for dollar due to the fact that the agreement between us and Mr. Covelli who controlled that property. The money was to be repaid for a reduction in construction costs on that project. Whether it was to happen tomorrow, a week from tomorrow, 20,000 years from tomorrow, that was the agreement with our company and Mr. Covelli.

Viljac admitted that he called the money a "loan" from Okatie in his previous affidavit.

Viljac attested that Southeastern could have avoided paying back the money by not bidding competitively on work at Indigo Plantation. According to Viljac, the agreement only applied to site preparation work performed on the Indigo Plantation property; therefore, Southeastern would not perform site preparation work for Okatie on another project at a reduced rate pursuant to their agreement. Viljac admitted the agreement with Covelli to perform site construction at a reduced rate did not have a time limit for performance and did not define how the reduced rate would be determined.

Deline averred that although Covelli had authority to enter into a contract for the purchase of the Indigo Plantation property and to get zoning changes, he was not authorized by Okatie to begin negotiations for site construction. Because Okatie did not own Indigo Plantation and the development was on hold pending the outcome of the lawsuit, Deline found no need for Okatie to contract with Southeastern for site preparation. After reviewing Okatie's accounts, Deline discovered that Covelli misappropriated nearly $800,000 in Okatie funds. Okatie filed a lawsuit against Covelli for return of the funds.

Southeastern called Covelli to testify. He avowed there was a specific agreement with Southeastern for Okatie to pay $85,000 as an advancement to Southeastern for future site preparation at Indigo Plantation at a reduced rate. However, he admitted that Southeastern was not really bound by the agreement to perform any actual work. Covelli's 1999 affidavit professed that the $85,000 was "not conditioned upon performance of the horizontal construction by [Southeastern], nor was it a loan, nor did [Southeastern] agree to repay the money in the event that the work was not performed or not requested."

The circuit court found the testimony presented in support of Southeastern was not credible. Referring to the documents submitted by Southeastern, including Viljac's affidavit and the tax returns, the court concluded Southeastern treated the $85,000 as a loan. The court treated the money as a loan and determined the money was a loan payable on demand as a result of there not being a due date. The court further found that even if a contract existed with the terms Southeastern proposed, the contract would be unenforceable on the basis that it was unconscionable and "illusionary." The court held that Okatie was entitled to a judgment of $85,000 plus prejudgment interest, and ruled Southeastern would be unjustly enriched if it did not pay Okatie the judgment.

STANDARD OF REVIEW

This case concerns an action for money had and received. "The action is at law for money had and received but it is well-settled that equitable principles govern." Town of Bennettsville v. Bledsoe, 226 S.C. 214, 218, 84 S.E.2d 554, 556 (1954); accord McDonald's Corp. v. Moore, 237 F.Supp. 874, 877 (W.D.S.C.1965)

. In an action at law, tried without a jury, the appellate court standard of review extends only to the correction of errors of law. Barnacle Broad., Inc. v. Baker Broad., Inc., 343 S.C. 140, 146, 538...