Parker v. Hostetler

• Decision Date: 04 September 2015
• Docket Number: 3:07 CV 336
• Parties: LELAND PARKER, et al., Plaintiffs/, Counterclaim Defendants, v. RONALD L. HOSTETLER, et al., Defendants/Counterclaim Plaintiffs.
• Court: U.S. District Court — Northern District of Indiana

LELAND PARKER, et al., Plaintiffs/, Counterclaim Defendants, v. RONALD L. HOSTETLER, et al., Defendants/Counterclaim Plaintiffs.

3:07 CV 336

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF INDIANA SOUTH BEND DIVISION

September 4, 2015

OPINION AND ORDER

The plaintiffs/counterclaim defendants in this action are husband and wife Leland and Linda Parker, and a company owned and controlled by them, Lincoln Landmark Properties, Inc. (hereinafter "the Parkers"). The defendants are husband and wife Ronald and Gail Hostetler, and three companies wholly or partially owned and controlled by them, Hostetler Lawn & Landscaping, Inc., Gravel Lane, Inc., and Country Lane Development, LLC, (hereinafter, "the Hostetlers"). Linda Parker and Gail Hostetler are sisters, and the Parkers and the Hostetlers, as relatives sometimes do, went into business together in an endeavor to develop a large parcel of real estate into a residential subdivision. At first things went well, but when sales of lots slowed to a crawl, the partnership fractured, leading to this action, and to the parties' cross- motions for summary judgment.

The court provides a capsulized overview of the parties' claims and positions as a preface to the analysis that follows, and not as a statement of undisputed facts. The Parkers are residents of Arizona. As the Parkers see things, the Hostetlers—who areresidents of Indiana—proposed that the parties enter into a partnership to develop 109 acres of real estate located in Elkhart County, Indiana, into a residential subdivision called The Farm. The Parkers were to provide all of the money for the project-in terms that they characterize as loans—and the marketing and sales expertise. The Hostetlers were to perform/manage the manual labor and maintain the books. From the proceeds of lot sales the Parkers would be paid back their financial investment/loans, the Hostetlers repaid their equitable investment, and then profits would be split. Later the parties agreed to purchase an adjoining 37 acres of real estate to be developed as a subdivision called The Woods, under the same terms as for The Farm. The parties, and the court, will refer to the overall venture as "the Project," although in some cases the term "Project" may mean only The Farm or The Woods, with the lack of precision not of consequence to the discussion.

Slow sales caused financial stress, and the Hostetlers became concerned about their personal liability. To ease that concern, the Parkers agreed to the formation of a limited liability company by the Hostetlers, defendant/counter-plaintiff Country Lane Development LLC ("Country Lane"), to own, develop and sell lots in The Farm. Another limited liability company, Country Lane Development Group LLC ("Development Group") was formed by plaintiff Lincoln Landmark Properties, Inc. and defendant Gravel Lane, Inc. to do the same for The Woods. The cost of forming the two LLCs was paid from funds invested in the Project by the Parkers. Lincoln Landmark Properties and Gravel Lane (essentially, of course, the Parkers and the Hostetlers)agreed to appoint Gail Hostetler as manager of the Development Group. Trusts were also formed to hold title to the real estate. The Fisher Trust held title to The Farm, the Signature One Trust held title to The Woods, and Gail Hostetler was the trustee of both trusts.

According to the Parkers, after the two LLCs were formed, the Hostetlers cut of communications with them and took steps which thwarted sales and marketing of lots in the Project. The Parkers demanded books and records, parts of which were eventually provided. At that time the Parkers formed the opinion that the Hostetlers had misappropriated significant funds from the Project for their personal use, and filed the present suit. The second amended complaint, as supplemented, contains nine counts alleging conversion; deception; breach of fiduciary duty; breach of trust by trustee; breach of trust by co-beneficiary; a declaratory judgment with respect to terms of the trust; anticipatory breach of contract; a declaratory judgment regarding the validity of an amended assignment; and breach of contract. (DE #92.)

The Hostetlers agree with the broad strokes above that they partnered with the Parkers to develop the Project, but they disagree as to most particulars of the parties' business relationship and conduct. For example, they deny that the Parkers' funds were a loan to the Project or that the Parkers' funds (instead the funds should be considered Project funds, albeit invested by the Parkers) were used to form the limited liability companies Country Lane and Development Group, and they deny that it was them who cut off communications and took actions which stalled sales. As they see it, the mainreason the controversy between the parties developed was because plaintiff Leland Parker failed to create a written partnership agreement or to memorialize any terms of the parties' agreement in writing' causing confusion and uncertainty.

Furthermore, they feel The Farm's liquidity was damaged because the Parkers abandoned their responsibilities to the Project and took $250,000 from the Farm's line of credit to purchase, for the Parkers' own benefit, an apartment complex in Missouri. According to the Hostetlers, the present case results from Parkers' filing a false and malicious lawsuit to cover up their own misconduct.

In their counter-complaint, the Hostetlers request a request a declaratory judgment establishing the scope of the parties' relationship(s), that is, whether a partnership exists and what its terms are; a dissolution of whatever relationship exists and a winding up of its affairs; a declaration that certain agreements signed on November 29, 2005, are void and unenforceable, or reformation of those agreements; damages for the Parkers' breach of fiduciary duties; damages for breach of contract and monies had and received; damages for fraud; and indemnification.

The Parkers have moved for partial summary judgment, seeking judgment in their favor on some of their claims against the Hostetlers and on some of the Hostetlers' claims against them. The Hostetlers have filed a cross-motion for partial summary judgment doing the same. The motions are not true cross-motions for summary judgment because they do not each address all of the same issues, but there is a great deal of overlap.

Summary judgment is of course to be granted when "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). When considering the motion, the court must construe all of the evidence and the reasonable inferences to be drawn therefrom in the light most favorable to the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986); Laborers' Pension Fund v. RES Environmental Services, Inc., 377 F.3d 735, 737 (7th Cir. 2004). In a case involving cross-motions for summary judgment, that means that each party receives the benefit of all reasonable inferences drawn from the record when considering the opposing party's motion. See Tegtmeier v. Midwest Operating Engineers Pension Trust Fund, 390 F.3d 1040, 1045 (7th Cir. 2004); Hendricks-Robinson v. Excel Corp., 154 F.3d 685, 692 (7th Cir. 1998).

In the discussion that follows, the court addresses the Parkers' motion first, incorporating discussion of the Hostetlers' cross-motion where possible. Following that, the court addresses matters raised only in the Hostetlers' motion. Any facts mentioned are undisputed facts, unless it is clearly stated otherwise.

Issues Regarding the Agreements Executed November 29, 2005

The Parkers have moved for summary judgment on Count III of the Hostetlers' counterclaim seeking reformation of documents and agreements signed on November 29, 2005. The essential terms of those documents are not in dispute. Simply put, the documents did the following: 1) removed Leland Parker's IRA (the original source of funds put into the Project) as a co-beneficiary of the Fisher Trust and made RonHostetler the sole beneficiary of the Trust (specifically noting that the change was not intended to alter the original intent of the parties to split profits from The Farm 50/50) (DE #76-16); 2) characterized the funds that had been invested from Parker's IRA as a loan/revolving line of credit to the Fisher Trust and required payment of interest on those funds, at Parker's option, at either: i) a rate of 25% per annum, retroactive to May 7, 2003, the date retroactively affixed to the document, applicable to all funds transferred from Parker's IRA to the Trust from the retroactive date, or ii) 50% of the profit from all lots sold in The Farm, (DE #76-16; DE #76-17; DE #76-19 at ¶ 4); and 3) assigned all of Ron Hostetler's beneficial interest in the Trust to Leland Parker's IRA, ostensibly as collateral for the loan/revolving line of credit.¹ (DE #76-18; DE 76-19 at ¶ 5).

The Parkers' argument is short and simple: it is undisputed that neither of the Hostetlers read the agreements before signing them, and under Indiana principles of equity, a court will not grant reformation to a party who did not bother to read the agreement sought to be reformed. Gierhart v. Consolidated Rail Corporation-Conrail, 656 N.E.2d 285, 287 (Ind. Ct. App. 1995) ("equity should not intervene and courts shouldnot grant reformation where the complaining party failed to read the instrument, or, if he read it, failed to give heed to its plain terms."). It is undisputed that Ronald and Gail Hostetler both failed to read the agreements at issue. (R. Hostetler Dep. (DE #76-2) at 117:10-15, 138:9-19; Second Gail Hostetler Dep. (DE #76-2) at 69:12-70:2, 73:18-74:3.)

The Hostetlers' response² is that an overriding principle exists under Indiana law: reformation is available when there is a mistake by one party accompanied by fraud or inequitable conduct by the opponent. See Carr Development Group, LLC v. ...