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Broad Ripple Property Group, LLC v. City of Indianapolis

Court of Appeals of Indiana

October 18, 2017

Broad Ripple Property Group, LLC, Appellant-Defendant,
City of Indianapolis, Appellee-Plaintiff

         Appeal from the Marion Superior Court Trial Court Cause No. 49D04-1509-OV-31862 The Honorable Cynthia J. Ayers, Judge.

          Attorney for Appellant Tony H. Abbott Indianapolis, Indiana

          Attorneys for Appellee Donald E. Morgan Melissa Hayden Kramer Indianapolis, Indiana

          Altice, Judge.

         Case Summary

         [¶1] Broad Ripple Property Group (BRPG) leased space in commercial real estate at 5306 N. Keystone Avenue (the Property) in Indianapolis to Weihong Tan Kreiter, an individual doing business as Sunrise Therapy Spa (Tenant). From that location, Tenant operated an unlicensed massage establishment in violation of the Revised Code of the Consolidated City of Indianapolis and Marion County (Revised Code) § 912-2. BRPG had no knowledge that a license was required for such use of the Property and was unaware of any illegal or illicit activity occurring on the Property.

         [¶2] Two undercover IMPD officers made separate visits to Tenant's unlicensed massage establishment and were offered genital touching in violation of Revised Code § 912-6(f). IMPD subsequently shut down Tenant's business and notified BRPG, who in turn promptly terminated Tenant's lease.

         [¶3] The City of Indianapolis (the City) filed a complaint against BRPG for damages and injunctive relief, alleging violations of Revised Code §§ 912-2 and 912-6(f). With respect to damages, the City sought an award of compensatory damages, punitive damages, and fines against BRPG. Shortly after the complaint was filed, the City and BRPG entered into an agreed preliminary injunction to ensure that the Property would not be used during the pending litigation as a massage establishment without a valid license and would not be used for illicit purposes. The parties then filed competing motions for summary judgment, and the trial court granted summary judgment in favor of the City on all counts.

         [¶4] BRPG appeals from the entry of summary judgment and argues that it was entitled to summary judgment. The City has filed a motion to dismiss the appeal, arguing that the issue is moot. Thus, we are presented in this appeal with the following issues:

1) Should we dismiss the appeal as moot?
2) Is BRPG, as owner/lessor of the Property, liable under the Revised Code for Tenant's operation of an unlicensed massage establishment?

         [¶5] We reverse and remand.[1]

         Facts & Procedural History

         [¶6] The facts are not in dispute. On November 8, 2014, BRPG entered into a commercial lease agreement with Tenant, with an understanding that Tenant intended to operate a "therapy and spa business" at the Property. Appellant's Appendix Vol. 2 at 202-03. Tenant was prohibited by the terms of the lease agreement from using the Property for any other purpose without prior written consent. BRPG was unaware that a license would be required for use of the Property as a massage establishment and did not require Tenant to produce a license prior to entering into the lease agreement.[2] The lease agreement, however, required Tenant to comply with all rules, regulations, and laws in its use and occupancy of the premises. Aside from $1300 monthly rental payments, BRPG did not receive financial benefits from Tenant's business. Further, BRPG did not exercise control over Tenant's day-to-day operations and its only business relationship with Tenant was as landlord-tenant.

         [¶7] Tenant proceeded to operate an unlicensed massage establishment at the Property. On September 11, 2015, IMPD began to conduct an undercover investigation of Tenant's business activities and operations at the Property. The investigation revealed that patrons were being offered genital touching in exchange for additional compensation. Thereafter, the City shut down Tenant's unlicensed massage establishment. BRPG was unaware of any illicit activity occurring on the Property or of Tenant's lack of a required license to operate the massage establishment. Upon learning of Tenant's violations, BRPG promptly terminated the lease agreement.

         [¶8] On September 25, 2015, the City filed the instant action against BRPG. The complaint alleged the violation of two ordinances regulating massage establishments - Revised Code §§ 912-2 and 912-6(f). Specifically, the City alleged, among other things, that BRPG was "actively operating, conducting, maintaining, and/or allowing a massage establishment at the [Property] without a valid license therefor from the licensing administrator in violation of Section 912-2 of the Revised Code." Appellant's Appendix Vol. 2 at 14. The City also alleged that BRPG was "allowing, promoting, maintaining, conducting, managing, operating and facilitating acts that require the touching of a patron's genitals in violation of Section 912-6(f) of the Revised Code." Id. at 16. As a result of these alleged violations, the City sought preliminary and permanent injunctive relief and damages, including fines, compensatory damages, and punitive damages. The day that the complaint was filed, the trial court entered a temporary restraining order and set the cause for a preliminary injunction hearing for October 7, 2015.

         [¶9] In lieu of the hearing, the parties submitted an agreed preliminary injunction to the court, which enjoined BRPG and its tenants, while the cause was pending, from allowing the operation of an unlicensed massage establishment and from knowingly allowing activities that involve the touching of a patron's genitals or any other illegal activity at the Property. The parties also requested that the matter be set for a pre-trial status hearing, at which they would notify the court regarding the status of the litigation, discovery efforts, early dispute resolution discussions, and the need for a formal case management order and trial setting. The trial court accepted the agreement and held a pretrial conference on December 7, 2015. Shortly thereafter, trial was set for June 24, 2016, and later continued on the court's own motion to July 13, 2016.

         [¶10] On April 19, 2016, the City filed a motion for summary judgment. It argued that as the property owner BRPG was responsible for the violations of the Revised Code that occurred on the Property. BRPG filed a competing motion for summary judgment on May 2, 2016, arguing that because it did not have any ownership interest in or control over Tenant's business, BRPG did not, as a matter of law, directly or indirectly operate, conduct, or maintain a massage establishment without a license.[3] BRPG indicated in its summary judgment filings that while it did not oppose the temporary restraining order becoming permanent, it did oppose any finding that it had violated the ordinances as alleged in the complaint, as well as the assessment of damages or fines.

         [¶11] A brief summary judgment hearing was held on June 27, 2016, at which a joint stipulation of facts was submitted and arguments were made by the parties. On August 1, 2016, the court granted summary judgment in favor of the City on all claims. In its order, however, the court did not set a hearing regarding damages and fines that were requested in Count II of the complaint, nor did it set out the terms of the permanent injunction. BRPG sought clarification from the trial court regarding the finality of the order. As a result, the trial court entered an amended order on August 3, 2016, finding "no just reason for delay", entering judgment in favor of the City on all counts of the complaint, and indicating that the order "constitutes a final ...

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