Stegall v. Little Johnson Associates, Ltd., 92-1218

• Decision Date: 21 June 1993
• Docket Number: No. 92-1218,92-1218
• Citation: 996 F.2d 1043
• Parties: Victor J. STEGALL, Plaintiff-Appellant, v. LITTLE JOHNSON ASSOCIATES, LTD., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1043

996 F.2d 1043

Victor J. STEGALL, Plaintiff-Appellant, v. LITTLE JOHNSON ASSOCIATES, LTD., et al., Defendants-Appellees.

No. 92-1218.

United States Court of Appeals, Tenth Circuit.

June 21, 1993.

Kenneth E. Hitchen, St. Marys, OH (William J. McIlwain, Colorado Springs, CO, with him on the brief), for plaintiff-appellant.

James L. Merrill (Lynne A. Wilkins Dixon, with him on the brief), of James L. Merrill, Attorneys at Law, Colorado Springs, CO, for defendants-appellees.

Before BALDOCK, WOOD, Jr., ^* and EBEL, Circuit Judges.

HARLINGTON WOOD, Jr., Senior Circuit Judge.

Plaintiffs sued Defendants for breach of contract and fraud concerning a real estate transaction. Following a bench trial, the district court entered judgment in favor of Defendants and dismissed the complaint. We affirm.

I.

Thunderstorms may well be to blame for this litigation. In the middle of the summer of 1986 thunderstorms hit Colorado Springs. These storms caused significant flooding in some areas and prompted the local authorities to consider developing a master plan for drainage control. This proved to be unfortunate timing for Victor Stegall, an Ohio doctor who planned to erect a residential community on undeveloped land near Colorado Springs.

Stegall's medical practice has enabled him to invest in residential and commercial real estate throughout the United States. In 1985 Stegall became interested in adding to his holdings by developing an area in El Paso County, just outside the Colorado Springs municipal limits. Specifically, Stegall was considering undeveloped land near Bradley Road.

In August 1985 Stegall purchased an area south of Bradley Road called the Bradley Ranch ("Ranch") from Bradley Associates, a California limited partnership. Certain partners of Bradley Associates are also partners in Little Johnson Associates, Ltd. ("LJA"), defendants in this action. Along with Cletis Tuttle, a builder from Ohio, and with help from some of the defendants, Stegall successfully developed the Ranch in 1985 and 1986. The El Paso County Commissioners approved a final plat for the Ranch on September 4, 1986.

Encouraged by progress on the Ranch, Stegall and Tuttle began looking for additional land in the region to develop. After considering various properties, the two partners settled on a sixty-five acre area immediately north of the Ranch known as the Little Johnson Reservoir ("Reservoir"). On March 12, 1986, Stegall and Tuttle contracted with LJA to purchase the land. LJA was a California limited partnership formed specifically to acquire and sell the Reservoir. LJA's general partners were Charles Muckenthaller, Mike Dillon, Russell Rutherford, George Jury and Associates, Inc., and High Plains Developer, Inc., whose president was Bill Weber. Rutherford was also the real estate broker for this deal.

The parties negotiated terms of the contract over a number of days. On the day the contract was to be signed the parties met at Rutherford's brokerage office. Before signing the contract, they bargained over final details. Rutherford took notes of these negotiations and the parties' agreements and using those notes typed the parties' terms onto a standard real estate contract form provided by the Colorado Board of Realtors. Three of those terms, relating to a drainage plan for the development, are at the core of this dispute.

In paragraph four of the form, which states "Price to include:", Rutherford typed in "Soil report--Master Drainage Plan--Survey by a registered land surveyor." Under paragraph nineteen of the form, entitled "Additional provisions," Rutherford recorded:

"1. The Purchaser(s) shall have until April 15, 1986 to examine the property, review soil tests and master drainage plan and being satisfied with the availability of waste water capacity in Security Water and Sanitation District. If at that time Purchaser(s) determines that the property is not satisfactory, the Purchaser(s) may void the contract by giving written notice to the Seller(s), and all earnest money deposits shall be returned to the Purchaser(s) and all parties shall be released from all obligations hereunder.

....

3. Purchaser(s) will be responsible for their share of the cost of construction of drainage facilities in a master drainage plan prepared by Wilson and Co. and accepted by El Paso County."

The contract called for Stegall and Tuttle to pay LJA $1,755,000 and to also assume an existing note and deed of trust in the amount of $840,000 payable to the Security Water District. August 20, 1986, was stipulated as the closing date but three additional agreements delayed the actual closing until December 29, 1986. The parties did not agree on two proposals Stegall introduced, one calling for the joint construction of a "detention pond as required by El Paso County" and the other dealing with a postponement of the closing.

Immediately after signing the contract in March, LJA began the formal process of seeking county approval for development of the Reservoir. LJA hired Wilson and Company to serve as design engineer for a drainage study and grading plan for the area. The company put forward a proposal for its services on March 12, 1986. On April 4, 1986, Wilson and LJA signed a contract that incorporated the company's March proposal. Two weeks later Wilson completed its "preliminary drainage study" and submitted it for review to the El Paso County Department of Transportation on April 18, 1986.

Wilson's plan was fairly simple; it suggested draining storm water from the area north of Bradley Road into a proposed detention pond just south of Bradley Road. Wilson estimated its drainage proposal would cost approximately $231,000. An engineer with the Department of Transportation reviewed Wilson's plan and returned it on May 9, 1986, with his comments. The engineer's remarks were technical and did not suggest the plan was unacceptable. Wilson incorporated the comments into a revised preliminary drainage study.

Tuttle hired Land Development Consultants, Inc. to represent Plaintiffs in zoning matters before the county and to generate and oversee a development plan. Pursuant to this contract, on September 18, 1986, Land Development Consultants filed a sketch plan for the Reservoir with the El Paso County Planning Commission for review and comment by all interested parties and agencies. The plan included the Wilson and Company's preliminary drainage study.

On November 18, 1986, the planning commission approved the sketch plan. A week later Rick O'Connor, a senior planner with El Paso County, wrote to Land Development Consultants advising the company it and Stegall would need to make some changes in the sketch plan before the county commissioners could consider it. None of the changes referred to the drainage plan. On December 29, 1986, Stegall, Tuttle, and Little Johnson Associates closed on their land sale contract.

Three weeks later the trouble began. On January 23, 1987, the head of the El Paso County Department of Transportation, Max Rothschild, met with Tuttle, representatives from the Wilson Company and Land Development Consultants, and with Norton Frank, a real estate broker from Ohio sent to represent Stegall. At the meeting Rothschild expressed concern about the drainage plan for the Reservoir development. Flooding caused by the thunderstorms of the preceding summer had convinced Rothschild that a broad master drainage plan was needed for the basin in which the Reservoir lay before the Reservoir could be developed.

Nevertheless, the El Paso County Commissioners approved the sketch plan for the Reservoir on January 29, 1987. Approval came after much discussion about the need for a master drainage plan. A few days later O'Connor again wrote to Land Development Consultants. The county's planner highlighted the commissioners' concern with drainage in the basin. Land Development Consultants then filed a preliminary plat and zoning report with the county on April 3, 1987. The county, in turn, sought comment from interested parties. Comment came from the Department of Transportation which specifically rejected the preliminary plat until a comprehensive master study for the basin could be completed.

Simons, Li and Associates, Inc. began the master study for the county on May 7, 1987. On November 12, 1987, the El Paso County Commissioners considered Stegall's petition for rezoning and preliminary plat. The commissioners approved the rezoning and plat but deferred final approval until completion of the master study. In April 1988 Simons, Li and Associates completed its study. The master plan called for water from the Reservoir and the surrounding basin to be drained west approximately one mile. The plan specifically ruled out Wilson's proposal to drain water into a detention pond south of Bradley Road.

The total cost of draining the basin pursuant to the master plan's scheme would be $7,883,256. Although Stegall would not be responsible for the entire bill, the master plan sharply raised the cost per acre of developing the Reservoir. Stegall elected not to continue development of the Reservoir and defaulted on his note to the Security Water District. The district then foreclosed on the property.

II.

On December 29, 1988, Stegall filed a complaint against Defendants in district court, basing jurisdiction on 28 U.S.C. § 1332. As presented to the court on March 30, 1992, Stegall alleged that under Colorado law Defendants had breached their contractual obligation to provide him with a master drainage plan accepted by El Paso County and had committed fraud by not revealing that a master drainage plan had not been prepared and accepted by the county.

Stegall asserted that under the contract LJA was required to provide him with a comprehensive drainage plan comparable to the one Simons, Li and Associates prepared for the county in 1988. Defendants argued the contract was ambiguous, Stegall knew he was not getting a comprehensive drainage...