Stonecrest Props., LLC v. City of Eugene

• Decision Date: 31 August 2016
• Docket Number: A156010
• Citation: 382 P.3d 539,280 Or.App. 550
• Parties: Stonecrest Properties, LLC, Plaintiff–Appellant, v. City of Eugene; Eugene Water & Electric Board; and The Real Estate Development Group, LLC, Defendants, and Developers Surety and Indemnity Company, Defendant–Respondent.
• Court: Oregon Court of Appeals

280 Or.App. 550

382 P.3d 539

Stonecrest Properties, LLC, Plaintiff–Appellant,

v. City of Eugene; Eugene Water & Electric Board; and The Real Estate Development Group, LLC, Defendants,andDevelopers Surety and Indemnity Company, Defendant–Respondent.

A156010

Court of Appeals of Oregon.

Argued and submitted May 20, 2015.

August 31, 2016

Charles R. Markley, Portland, argued the cause for appellant. With him on the briefs were Sanford R. Landress and Green & Markley, P.C.

Thomas M. Christ, Portland, argued the cause for respondent. With him on the brief were Julie A. Smith and Cosgrave Vergeer Kester, LLP, and Jonathan W. Monson and Cable Huston LLP.

Before Ortega, Presiding Judge, and Garrett, Judge, and Haselton, Senior Judge.

GARRETT, J.

This is the second of two cases decided this date arising out of the unfinished Moon Mountain housing development in the City of Eugene. At issue is an agreement entered into by the original developer and the city to make certain improvements to the subdivision, along with a corresponding performance bond issued by defendant Developers Surety and Indemnity Company (DSIC) to ensure performance under that agreement. The main point of contention in this case is whether a successive developer, plaintiff Stonecrest Properties, LLC, has standing as a third-party beneficiary to enforce the bond against DSIC. For the reasons that follow, we conclude that Stonecrest is, at most, an incidental beneficiary and, therefore, lacks standing to enforce the bond. Accordingly, we affirm.

In light of the extensive background discussion in LDS Development, LLC v. City of Eugene (A158294) , 280 Or. App. 611, 382 P.3d 576 (Aug. 31, 2016), we restate the facts only to the extent necessary to aid in the resolution of this appeal. In 2007, the city entered into a development agreement with the Real Estate Development Group, LLC (REDG), the original Moon Mountain developer, in which REDG promised to make certain public infrastructure improvements to the property in exchange for development approval from the city. In accordance with the Eugene Code (EC),¹ the agreement obligated REDG to post a bond in an amount sufficient to cover the estimated costs of installing the improvements. The development agreement states that “[t]here is no intent on the City's part to bestow a benefit on individual third parties but rather to protect the public interest by obtaining compliance with the laws, ordinances, resolutions, rules, and regulations governing the development of real property within the city.” The agreement also provides that, in the event of a breach, “the City, within its sole and unfettered discretion, may determine to seek damages from [REDG] for the breach.” Finally, the development agreement includes a provision for an award of attorney fees to the prevailing party in any suit or action brought upon the agreement.

REDG obtained a bond from DSIC in the amount of $1,063,880 to secure its obligations under the development agreement. The bond listed REDG as principal, DSIC as surety, and the city as obligee, and provided that it would become “void” if REDG installed the improvements as specified in the agreement. Otherwise, the bond would “remain in full force and effect” and DSIC would be “held and firmly bound unto the City of Eugene as [o]bligee.”

Due to financial difficulties, REDG failed to perform its obligations under the development agreement and transferred its interest in the subdivision to Umpqua Bank by a deed in lieu of foreclosure. Stonecrest acquired the subdivision from the bank and filed the underlying action alleging a number of claims against multiple entities, including DSIC. Two of those claims are pertinent to this appeal.

As part of its first claim for relief, Stonecrest sought a declaratory judgment against the city that, under various statutes, regulations, and the development agreement, the city was obligated to either enforce the bond against DSIC or construct the unfinished improvements itself.

In its fifth claim for relief, Stonecrest sought a declaration that the bond issued by DSIC is “valid and effective” and that Stonecrest is entitled to enforce the bond to complete the unfinished improvements. Relying on Vale Dean Canyon Homeowners Assoc. v. Dean , 100 Or.App. 158, 785 P.2d 772 (1990), Stonecrest asserted that it had standing to enforce the development agreement and bond as a third-party beneficiary. DSIC responded that Stonecrest lacked standing to enforce the bond as a third-party beneficiary or, alternatively, that the duty to make the improvements is a covenant that runs with the land, which passed to Stonecrest when it acquired the property. DSIC also asserted two counterclaims against Stonecrest; one for a declaration that DSIC had no obligation to Stonecrest under the bond, and another for attorney fees under ORS 742.061(1).²

The parties cross-moved for partial summary judgment on Stonecrest's fifth claim for relief. DSIC also moved for summary judgment on its counterclaims. The trial court ruled in DSIC's favor on all, explaining:

“The Bond in this case is a mechanism issued by a separate entity to assure performance by REDG. The Bond is a contract which has neither reach nor impact beyond the parties to the Bond agreement: the City, REDG, and DSIC. It is separate and distinct from the agreement between REDG and the City, which is the agreement that actually concerns the public improvements Stonecrest claims it was intended to benefit from. * * * In this case, DSIC was bound only to the City as an obligee. Granting standing to Stonecrest would subject DSIC to the unforeseen liability of paying a Bond that its only obligee, the City, has not enforced. Vale Dean Canyon may give Stonecrest third-party standing with regard to a possible breach of the Agreement, but does not require DSIC to pay out the Bond principal.

“The Court does not reach the other issue raised by DSIC in its motion of who, at this juncture, retains the obligation to complete the improvements because the issue of standing is dispositive.”

DSIC also moved for summary judgment on Stonecrest's first claim for relief—a claim that, as noted above, Stonecrest made against the city, not DSIC. DSIC argued that, although it was not named in that claim, it was nevertheless entitled to summary judgment because the claim was partially premised on arguments raised in Stonecrest's fifth claim for relief against it. Noting the unusual posture of DSIC's motion, the trial court granted summary judgment on Stonecrest's first claim to the extent that it “implicated” DSIC:

“DSIC fails to present authority indicating that any party other than the party against whom a claim is asserted may seek summary judgment [under ORCP 47 B]. The Court therefore sees no reason to dismiss Stonecrest's first claim in its entirety.

“However, Stonecrest's first claim for relief presents a compound declaration, which, in part, clearly implicates DSIC's rights and obligations regarding the bond. In particular, Stonecrest asks for a declaration which states that (1) “the City is in breach of its duties” under the law and under the development agreement, (2) the City must complete the improvements, and (3) that the City must enforce the Bond. * * * This third point is, in effect, another claim against DSIC requiring them to pay out the Bond principal.

“* * * Accordingly, DSIC is entitled to summary judgment as to the first claim to the extent that DSIC is implicated in the declaration sought in that claim. DSIC's cross motion for partial summary judgment on Stonecrest's first claim is GRANTED only to the extent that the first claim seeks a declaration that establishes the validity of the bond or seeks its enforcement against DSIC. The first claim remains as alleged against the remaining defendants vis-à -vis the obligation, if any, of the City to complete the improvements.”

After additional briefing and argument regarding attorney fees, the court entered a limited judgment and money award against Stonecrest, awarding DSIC $130,746.06 in attorney fees.

On appeal, Stonecrest raises several interrelated assignments of error. First, Stonecrest challenges the trial court's rulings with respect to its fifth claim for relief. Stonecrest contends that the trial court erred when it concluded that the bond is “separate and distinct” from the development agreement that it secures. According to Stonecrest, that error is significant because Stonecrest is a third-party donee beneficiary under the development agreement and, because the development agreement and the bond must be construed as one, Stonecrest therefore has standing to enforce the bond. Stonecrest relies on Vale Dean Canyon, where we held that a group of homeowners had standing to enforce an agreement entered into by the developer and county after the developer failed to construct the improvements guaranteed by that agreement. 100 Or.App. at 162–63, 785 P.2d 772.

Stonecrest also assigns error to the trial court's grant of DSIC's motion for summary judgment as to Stonecrest's first claim of relief against the city. Stonecrest points out that DSIC was not named in that claim, and that, under ORCP 47 B, only a “party against whom a claim, counterclaim, or cross-claim is asserted or a declaratory judgment is sought” may seek summary judgment. Finally, Stonecrest assigns error to the trial court's award of attorney fees to DSIC under ORS 742.061(1). Stonecrest argues both that DSIC was not entitled to fees under that statute, and that the fees awarded were unreasonably high.

In reviewing a trial court's grant of summary judgment, “we view the evidence and all reasonable inferences that may be drawn from the evidence in the light most favorable to * * * the party opposing the motion.” Jones v. General Motors Corp. , 325 Or. 404, 408, 939 P.2d 608 (1997). Summary judgment is appropriate only where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. ORCP 47 C...