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Mainstreet Property Group, LLC v. Pontones

Court of Appeals of Indiana

March 13, 2018

Mainstreet Property Group, LLC; Mainstreet Realty, LLC; and 7105 E SR 334, LLC, Appellants-Plaintiffs,
v.
Pam Pontones, in her official capacity as Interim Commissioner of the Indiana State Department of Health;[1] Terry Whitson, in his official capacity as Assistant Commissioner of the Indiana State Department of Health, Health Care Quality and Regulatory; and Matt Foster, in his official capacity as Director of the Indiana State Department of Health, Long Term Care Division, Appellees-Defendants

         Appeal from the Hamilton Circuit Court Trial Court Cause No. 29C01-1604-MI-3748 The Honorable Paul A. Felix, Judge

          Attorneys for Appellants James Bopp, Jr. Courtney Turner Milbank The Bopp Law Firm, PC Terre Haute, Indiana

          Attorneys for Appellee Curtis T. Hill, Jr. Attorney General Frances Barrow Andrea E. Rahman Deputy Attorneys General Indianapolis, Indiana

          Attorneys for Amici Curiae The Indiana Health Care Association, Hoosier Owners & Providers for the Elderly, and LeadingAge Indiana Mark J. Crandley Barnes & Thornburg, LLP Indianapolis, Indiana Randall R. Fearnow Quarles & Brady, LLP Indianapolis, Indiana

          Crone, Judge.

         Case Summary

         [¶1] Mainstreet Property Group, LLC ("Mainstreet Property Group"), Mainstreet Realty, LLC ("Mainstreet Realty"), and Mainstreet Asset Management, LLC ("Mainstreet Asset Management") (collectively "Mainstreet") are entities under common control based in Carmel, Indiana. Mainstreet develops transitional care properties, which are classified and regulated as comprehensive care health facilities under Indiana law. In January 2015, a bill was introduced in the Indiana General Assembly for a moratorium ("Moratorium") on the licensure of comprehensive care health facilities by the Indiana State Department of Health ("ISDH"). The bill contained an exception for projects for which complete construction design plans had been submitted to ISDH by March 1, 2015. The March 1 deadline was added to the bill on March 9, at which point Mainstreet had nine ongoing projects for which they had not submitted the requisite plans. In four of those projects, Mainstreet Realty had executed contracts to purchase land, including from 7105 E SR 334, LLC, in Zionsville, but no real estate closings had been held. The bill became law in May 2015 and went into effect in July 2015. As a result of the Moratorium, Mainstreet Realty canceled all four contracts and did not execute purchase agreements or leases for the five remaining projects.

         [¶2] Mainstreet Property Group, Mainstreet Realty, and 7105 E SR 334 (collectively "Appellants") filed a complaint for declaratory and injunctive relief against ISDH officials ("Appellees"), alleging that the Moratorium's retroactive deadline violated Indiana's vested rights doctrine as well as the contract and due process clauses of the United States and Indiana Constitutions. The trial court granted Appellees' motion to dismiss the contract and due process clause claims and, after a hearing, entered judgment for Appellees on the vested rights claim.

         [¶3] Appellants now challenge the trial court's rulings on the contract clause and vested rights claims. We hold that the Moratorium did not impair any contractual obligations or vested rights, and therefore we affirm.

         Facts and Procedural History[2]

         [¶4] Mainstreet Property Group, Mainstreet Realty, and Mainstreet Asset Management perform specific roles in the development of transitional care facilities, which are classified and regulated as comprehensive care health facilities under Indiana law.[3] Mainstreet Asset Management's employees manage the operations of both Mainstreet Realty, which acquires property for development, and Mainstreet Property, which develops the properties.[4]Mainstreet Realty and Mainstreet Property pay Mainstreet Asset Management for services that it provides to them on each project. Mainstreet has a five-stage development process consisting of (1) market analysis and selection, (2) site selection, (3) due diligence, (4) entitlements and design, and (5) permits and land.

         [¶5] In January 2014, a bill was introduced in the General Assembly for a moratorium on ISDH's licensure of comprehensive care health facilities until a certain statewide care bed occupancy level was reached, with an exception for facilities under development as of June 30, 2014. See Senate Bill 173 (2014). The relevant portions of the bill were slated to become effective July 1, 2014, but the bill did not become law.

         [¶6] In January 2015, another bill was introduced for a moratorium on ISDH's licensure of comprehensive care health facilities, with limited exceptions, including for facilities "under development" as of July 1, 2015. Ind. Code § 16-28-2.5-6(b)(1); see Senate Bill 460 (2015) (currently Ind. Code ch. 16-28-2.5).[5]The bill defined "under development" in pertinent part as referring to a health facility license application that meets all the following:

(A) Funding to construct the comprehensive care health facility has been secured and is actively being drawn upon or otherwise used to further and complete construction.
(B) Zoning requirements have been met.
(C) Complete construction design plans for the comprehensive care health facility have been submitted to [ISDH] and the [Indiana Department of Homeland Security's] division of fire and building safety not later than March 1, 2015. The construction design plans must be an accurate and true depiction of the comprehensive care health facility that the applicant intends to construct. However, the construction design plans may be modified to make technical changes, correct errors and omissions, or comply with zoning or other requirements from a governmental entity.
(D) Active and ongoing construction activities progressing to completion of the project are occurring at the project site.

Ind. Code § 16-28-2.5-5 (emphasis added). The March 1 deadline was added to the bill on March 9; thus, unlike the grandfather clause in Senate Bill 173, the grandfather clause in Senate Bill 460 was retroactive at its inception. The bill became law without the governor's signature on May 12 and went into effect on July 2.[6]

         [¶7] On March 9, Mainstreet had nine projects in various stages of development for which it had not submitted the requisite plans by March 1. Between January 9 and February 18, Mainstreet Realty had executed land purchase agreements for four of those projects - located in Zionsville, Jeffersonville, Fort Wayne, and New Haven[7] - but no real estate closings had been held. For the five remaining projects - located in Hobart, Warsaw, Gary, Evansville, and Muncie[8] - Mainstreet Realty had not executed any purchase or lease agreements by March 9. Mainstreet Realty had not selected land parcels for the Evansville and Muncie projects and had not issued a letter of intent to a landowner for the Gary project. Between March 17 and April 29, Mainstreet submitted construction design plans for the Zionsville, Jeffersonville, Fort Wayne, New Haven, Hobart, and Warsaw projects, but ISDH did not act on them. As a result of the Moratorium, Mainstreet Realty canceled the four existing purchase agreements and did not execute purchase or lease agreements for the five remaining projects.

         [¶8] In April 2016, Appellants filed a complaint for declaratory and injunctive relief against Appellees, alleging that the Moratorium violated Indiana's vested rights doctrine with respect to Mainstreet Property Group[9] and also violated the contract and due process clauses of the United States and Indiana Constitutions.[10] Pursuant to Indiana Trial Rule 12(B)(6), Appellees filed a motion to dismiss the complaint for failure to state a claim upon which relief can be granted. The trial court summarily denied the motion as to the vested rights claim and granted it as to all other claims. The trial court consolidated the preliminary injunction hearing with a trial on the merits on the vested rights claim and entered judgment for Appellees, finding that Appellants had failed to establish "by a preponderance of the evidence that they acquired vested rights in any of the nine projects." Appealed Order 2 at 13.[11] Appellants now challenge the trial court's rulings on the contract clause and vested rights claims. Additional facts will be provided below.

         Discussion and Decision

         Section 1 - Appellants failed to establish that the Moratorium impaired any of their contractual obligations.

         [¶9] Appellants contend that the trial court erred in granting Appellees' motion to dismiss the contract clause claims for failure to state a claim upon which relief can be granted.[12] Such motions test the legal sufficiency of the claim, not the facts supporting it. Kitchell v. Franklin, 997 N.E.2d 1020, 1025 (Ind. 2013). Therefore, we review the trial court's ruling de novo. Id. We view the pleadings in the light most favorable to the nonmoving party, with every reasonable inference construed in that party's favor. Id. "If a complaint states a set of facts that, even if true, would not support the relief requested, we will affirm the dismissal. And we may affirm the grant of a motion to dismiss if it is sustainable on any theory." McPeek v. McCardle, 888 N.E.2d 171, 174 (Ind. 2008) (citation omitted).

         [¶10] Article I, Section 10 of the United States Constitution provides that no state shall pass any law impairing the obligations of contracts. Similarly, Article 1, Section 24 of the Indiana Constitution provides that no law impairing the obligation of contracts shall ever be passed. "[E]very statute stands before us clothed with the presumption of constitutionality until clearly overcome by a contrary showing." Abernathy v. Gulden, 46 N.E.3d 489, 493 (Ind. Ct. Ap. 2015). The party challenging the constitutionality of the statute bears the burden of making that showing, and all doubts are resolved against that party. Id.

         [¶11] "It long has been established that the Contract Clause limits the power of the States to modify their own contracts as well as to regulate those between private parties." U.S. Tr. Co. of New York v. New Jersey, 431 U.S. 1, 17 (1977). "Yet the Contract Clause does not prohibit the States from repealing or amending statutes generally, or from enacting legislation with retroactive effects." Id. The first inquiry in addressing a contract clause claim is "whether, and to what extent, the state law operated as a substantial impairment of a contractual relationship …." Clem v. Christole, Inc., 582 N.E.2d 780, 783 (Ind. 1991) (citing Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 245 (1978), in addressing Indiana constitutional claim). Appellants' complaint is vague about the contractual obligations allegedly impaired by the Moratorium, asserting only that Mainstreet Realty was "prevented from continuing under the terms of [its] contracts because of [its] subsequent inability to develop the land under the Moratorium." Appellants' App. Vol. 2 at 53. But the Moratorium did not prevent Mainstreet Realty from buying the land or prevent the various landowners from selling it, which were the essential obligations of the contracts. Mainstreet Realty's contract with 7105 E SR 334 was the only contract attached to Appellants' complaint. There is no indication that the other contracts differ in any material respect. That contract allowed Mainstreet Realty to terminate the agreement and "immediately" receive its earnest money if it was satisfied that it would not be able to obtain governmental approval of its proposed development of the property for its intended use. Id. at 77. The trial court's order on Appellants' vested rights claim indicates that is exactly what happened. The contracts did not obligate the landowners to grant Mainstreet Realty a license to develop a comprehensive care health facility; that obligation, if any, lay with ISDH, which was not a party to the contracts. At most, then, the Moratorium may have implicated Indiana's vested rights doctrine, which we address below. Because Appellants have failed to show that the Moratorium impaired any of their contractual obligations, we affirm the trial court's dismissal of the contract clause claims and need not delve further into Appellants' argument.

         Section 2 - Appellants failed to establish that Mainstreet Property Group had vested rights in any of the projects.

         [¶12] Appellants also contend that the trial court erred in concluding that they failed to establish that they had any vested rights in the nine projects at issue.[13] The record indicates that the trial court asked the parties to submit proposed orders on its own motion. See Appellants' App. Vol. 2 at 10 (chronological case summary entry for Feb. 13, 2017).

When a trial court has entered specific findings on its own motion, the specific findings control only as to the issues they cover, and the general judgment controls as to the issues upon which the court has not made findings. The specific findings will not be set aside unless they are clearly erroneous and we will affirm the general judgment on any legal theory supported by the evidence. A finding is clearly erroneous when there are no facts or inferences drawn therefrom which support it. In reviewing the trial court's findings, we neither reweigh the evidence nor judge the credibility of the witnesses.

Hanson v. Spolnik, 685 N.E.2d 71, 76-77 (Ind.Ct.App. 1997) (citations omitted), trans. denied. Rather, we consider only the evidence and reasonable inferences drawn therefrom that support the judgment. Id. at 77. To the extent the issues raised are questions of law, we review them de novo and owe no deference to the trial court's legal conclusions. Staggs v. Buxbaum, 60 N.E.3d 238, 245 (Ind.Ct.App. 2016), trans. denied. "Where, as here, the party who had the burden of proof at trial appeals, he appeals from a negative judgment and will prevail only if he establishes that the judgment is contrary to law." Fowler v. Perry, 830 N.E.2d 97, 102 (Ind.Ct.App. 2005). "A judgment is contrary to law when the evidence is without conflict and all reasonable inferences to be drawn from the evidence lead to only one conclusion, but the trial court reached a different conclusion." Id.

         [¶13] A relatively recent line of cases exploring the contours of Indiana's vested rights doctrine originates with our supreme court's opinion in Metropolitan Development Commission of Marion County v. Pinnacle Media, LLC, 836 N.E.2d 422 (Ind. 2005) ("Pinnacle I"), clarified on reh'g, 846 N.E.2d 654 (Ind. 2006) ("Pinnacle II"), appeal after remand, Pinnacle Media, LLC v. Metropolitan Development Commission, 868 N.E.2d 894 (Ind.Ct.App. 2007) ("Pinnacle III"), trans. denied. Pinnacle was informed by the City of Indianapolis that the City's zoning ordinance did not cover interstate highway rights-of-way. Pinnacle leased land in those rights-of-way, applied for and received permits from the Indiana Department of Transportation ("INDOT"), and erected two billboards without seeking approval from the City. The City subsequently amended the zoning ordinance to encompass the rights-of-way and stopped Pinnacle from erecting a third billboard. Pinnacle sought a declaration that the amendment was inapplicable to ten planned billboards for which INDOT permit applications were pending when the amendment was proposed and passed. The trial court entered summary judgment in Pinnacle's favor.

         [¶14] On appeal, our supreme court observed that the question of whether the billboards were subject to the zoning ordinance amendment "implicate[d] two disparate lines of Indiana cases[, ]" both of which

employ the term "vested rights" and generally stand for the proposition that a person's "vested rights" are protected against retroactive application of a change in law. But each line takes a quite different approach to defining or determining when a "vested right" exists, and these approaches can lead to different results.

Pinnacle I, 836 N.E.2d at 425. The court noted that,

[a]s a general proposition, the courts have been willing to hold that the developer acquires a "vested right" such that a new ordinance does not apply retroactively if, but only if, the developer "(1) relying in good faith, (2) upon some act or omission of the government, (3) … has made substantial changes or otherwise committed himself to his substantial disadvantage prior to a zoning change."

Id. at 425-26 (quoting John J. Delaney & Emily J. Vaias, Recognizing Vested Development Rights as Protected Property in Fifth Amendment Due Process and Takings Claims, 49 Wash. U.J. Urb. & Contemp. L. 27, 31-35 (1996)).

         [¶15] The court approved of a line of cases suggesting that "'there can be no vested rights' where 'no work has been commenced, or where only preliminary work has been done without going ahead with the construction of the proposed building ….'" Id. at 428 (quoting Lutz v. New Albany City Plan Comm'n, 230 Ind. 74, 81, 101 N.E.2d 187, 190 (1951)).[14] The court then rejected a line of cases holding that merely filing a building permit "creates a vested right that cannot be overcome by a change in zoning law …." Id. (overruling Knutson v. State ex rel. Seberger, 239 Ind. 656, 160 N.E.2d 200 (1959)).[15] The court held that the zoning ordinance amendment was applicable to Pinnacle, noting that Pinnacle had not started construction before the amendment was proposed or enacted and did ...


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