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Elway Company, LLP v. Champlain Capital Partners, L.P.

Court of Appeals of Indiana

October 26, 2018

Elway Company, LLP, Dale K. Elrod, Jeffrey L. Elrod, and Mary Ann Waymire, Appellants-Plaintiffs/Counterclaim Defendants,
Champlain Capital Partners, L.P., Appellee-Defendant/Counterclaim Plaintiff.

          Appeal from the Morgan Superior Court The Honorable Brian H. Williams, Judge Trial Court Cause No. 55D02-1105-CC-1032

          ATTORNEYS FOR APPELLANTS Richard A. Kempf Paul T. Deignan Thomas F. O'Gara TAFT STETTINIUS & HOLLISTER LLP Indianapolis, Indiana

          ATTORNEYS FOR APPELLEE Jenny R. Buchheit Eileen P.H. Moore Adam D. Zacher ICE MILLER LLP Indianapolis, Indiana

          BAILEY, JUDGE.

         Case Summary

         [¶1] Elway Company, LLP, ("Elway Company") and siblings Dale K. Elrod ("Dale"), Jeffrey L. Elrod ("Jeffrey"), and Mary Ann Waymire ("Mary Ann") (collectively and at times taken together with Elway Company, "the Elrod Plaintiffs") appeal a grant of summary judgment in favor of Champlain Capital Partners, L.P. ("Champlain") upon remand from an appeal of prior litigation related to eight construction projects ("the Bonded Projects") covered by a Bonding Collateral Agreement ("the Agreement") executed by the Elrod Plaintiffs and Safeco Surety ("Safeco"), now Liberty Mutual Insurance Company. We remand "to permit the introduction of evidence so that the trial court may consider and rule on whether the various projects from which bond claims arose … were completed within the scope of the meaning of completion as set forth by the Agreement." Champlain Capital Partners, L.P. v. Elway Co., LLP, 58 N.E.3d 180, 201 (Ind.Ct.App. 2016), trans. denied ("Champlain I").


         [¶2] The Elrod Plaintiffs present for our review three consolidated and restated issues:

I. Whether the law-of-the-case doctrine should be discarded under the circumstances of this case;
II. Whether the trial court improperly granted summary judgment upon its determination that all bonded projects were complete, thereby triggering the reimbursement provision of the Agreement; and
III. Whether prejudgment interest was properly awarded.[1]

         Facts and Procedural History

         [¶3] In 2004, Dale, Jeffrey, and Mary Ann were majority shareholders in the John K. Elrod Company ("JKE"), a business involved in construction of stadium seating and safety barriers. See Champlain I. In 2005, Champlain, a Delaware investment firm focused on small business acquisition and growth, acquired JKE in a leveraged buyout. The Elrod siblings were then minority shareholders.

         [¶4] Before and after the leveraged buyout, JKE obtained its performance, payment, and supply bonds from Safeco.[2] After the buyout, Safeco determined that it would no longer accept personal indemnities from a family member and instead demanded $3.5 million collateral in the form of an irrevocable letter of credit ("ILOC"). See id. The Elrod siblings agreed to loan $3.5 million to JKE from the proceeds of the sale of the business to Champlain. The ILOC was placed with Fifth Third Bank.

         [¶5] JKE's finances became unstable and Fifth Third Bank moved JKE's loans to a workout division in anticipation of foreclosing on the loans. See id. at 186. During July and August of 2006, the Elrod Plaintiffs, Champlain, JKE's lenders, and other minority shareholders in JKE negotiated a transaction to restructure JKE's finances. The Elrod Plaintiffs contributed several million dollars in capital to JKE, and Elway Corporation[3] acquired, with the Elrod funds, certain JKE assets, thereby contributing $4.7 million to JKE. Safeco released the $3.5 million ILOC, replaceable by a $3.5 million ILOC using capital from Champlain ("the Substitute LOC").

         [¶6] With JKE on more solid financial footing, its goal was to expand its business to include larger jobs. For this, JKE needed to increase its bonding limits with Safeco. To address the availability of collateral so that Safeco would increase JKE's bonding limits, the restructuring transaction included the Agreement. The Agreement required Champlain to provide the Substitute LOC in a value not to exceed $3.5 million and this had been done before the Agreement was executed. The Agreement also required the Elrod Plaintiffs to provide collateral not to exceed $3.5 million to Safeco, but the terms did not include a time limit. See id. at 186-87.

         [¶7] By mid-October of 2006, JKE's cash flow situation was dire, and it defaulted on lease payments to Elway Company. On October 16, 2006, Champlain, as the majority shareholder, placed JKE into liquidation bankruptcy proceedings. JKE ceased performance on the Bonded Projects. Consequently, Safeco acted to draw down the funds in the Substitute LOC. See id. at 188. Safeco placed the $3.5 million into a bank account to use for paying claims against bonds Safeco had issued on JKE's behalf. Safeco used all but $591, 023.98 of funds from the Substitute LOC to reimburse itself for claims against JKE bonds and pay expenses associated with bond claims and litigation. Eight construction project owners had potential bond claims: Michigan International Speedway ("MIS"), Darlington Raceway, Watkins Glen, Maine Township High School, Kewanee School, Rialto School, Speedway Bid, and Speedway Grandstand.

         [¶8] Champlain demanded reimbursement from the Elrod Plaintiffs for the Safeco draw-down of funds, but the Elrod Plaintiffs disputed the demands. On December 22, 2010, the Elrod Plaintiffs filed a declaratory judgment complaint, alleging that their obligations under the Agreement were limited to payments made from the Substitute LOC for defaults on only performance bonds. Champlain filed a counterclaim, alleging that the Elrod Plaintiffs had breached the terms of the Agreement by failing to post an additional $3.5 million in collateral and by withholding reimbursement for claims paid related to the Bonded Projects. In addition to alleging breach of contract, Champlain asserted claims of unjust enrichment and breach of an implied covenant of good faith and fair dealing.[4]

         [¶9] The parties filed cross-motions for summary judgment, and the trial court granted partial summary judgment to the Elrod Plaintiffs, concluding that the Agreement applied only to performance bonds and that an unjust enrichment claim could not proceed when the rights of the parties were controlled by a contract. Champlain requested reformation of the Agreement on grounds of scrivener error or mutual mistake, but the trial court declined to reform the Agreement.[5] A bench trial proceeded on the claims of breach of contract and breach of an implied covenant of good faith and fair dealing. On September 15, 2015, the trial court entered judgment entirely in favor of the Elrod Plaintiffs. See id. at 189. Champlain appealed.

         [¶10] On appeal, this Court first addressed the trial court's findings and conclusions related to the Elrod Plaintiffs' failure to post an additional $3.5 million in collateral. We "conclude[d] that the Agreement required that the Elrod Plaintiffs add to the bonding collateral only upon Safeco's demand" and "[t]he Agreement did not by its terms require the Elrod Plaintiffs to make $3.5 million available to Champlain or JKE." Id. at 194. Moreover, the Agreement did not "provide that Safeco's refusal to continue to underwrite JKE's bonds amounted to a reduction of collateral that would first inure to Champlain's benefit or otherwise require that the Elrod Plaintiffs replace the Substitute LOC with a $3.5 million contribution of their own." Id. As such, the trial court did not err when it found no breach on this basis.[6]

         [¶11] Turning to whether the Agreement established a reimbursement obligation on the part of the Elrod Plaintiffs, we quoted the relevant portion of the Agreement ("the Reimbursement Provision"):

Notwithstanding any documentation to the contrary setting forth the legal effect, rights, obligations, and priority of Safeco as against (i) Champlain under the Substitute LOC and (ii) [the Elrod Plaintiffs] under the Elrod/Elway Guaranty, but subject to section D.2 below, both Champlain and [the Elrod Plaintiffs] agree that they will share and incur ultimate liability and financial out-of-pocket exposure to Safeco on a pro rata and pari passu basis with respect to the $7 ...

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