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Happy Valley LLC v. Madison County Board of Commissioners

Court of Appeals of Indiana

September 18, 2019

Happy Valley LLC, Appellant-Defendant/Counterclaim Plaintiff,
Madison County Board of Commissioners, et al., Appellees-Plaintiffs/Counterclaim Defendants.

          Appeal from the Hamilton Superior Court The Honorable Steven R. Nation, Judge Trial Court Cause No. 29D01-1710-CC-9988

          ATTORNEYS FOR APPELLANT Kevin S. Smith Church, Church, Hittle & Antrim Fishers, Indiana Theodore F. Smith, Jr. Theodore F. Smith, Jr., P.C. Anderson, Indiana

          ATTORNEYS FOR APPELLEES Jonathan W. Hughes Kristina K. Wheeler Christina M. Bruno Bryan H. Babb Bose McKinney & Evans LLP Indianapolis, Indiana

          BAILEY, JUDGE.

         Case Summary

         [¶1] In order to provide housing for minimum security jail detainees, the Madison County Board of Commissioners ("the Commissioners") executed a four-year lease ("the Lease") to occupy property owned by Max Howard ("Howard") and managed by Happy Valley, LLC ("Happy Valley"). The Madison County Attorney notified Howard in writing that the Lease was to be terminated two years early, pursuant to Section 6 of the Lease, a provision regarding funds availability. The Commissioners and the Madison County Community Corrections Advisory Board (at times, collectively referred to as "Madison County") sought a declaratory judgment that the Lease was effectively cancelled. Happy Valley counterclaimed for unpaid rent, and requested judicial review as an aggrieved party under the Indiana Public Purchasing Act, Indiana Code Section 5-22-1-0.1 et seq. ("the Purchasing Act"). The trial court issued a declaratory judgment in favor of Madison County. Happy Valley appeals, presenting a single, consolidated issue: whether the declaratory judgment is contrary to law.[1] We affirm.

         Facts and Procedural History

         [¶2] Beginning in 1999, Happy Valley leased to Madison County one building to serve as the Madison County Work Release Center and a second building to house minimum security detainees. The final lease for the minimum security facility was executed on December 23, 2014, for a four-year term, with monthly rent of $18,400.00. By this time, the Commissioners had voted to purchase real estate located on Jackson Street in Anderson, to be remodeled to use for a work release facility. In 2015, a feasibility study suggested there would be significant cost efficiency if the project was expanded to include housing for minimum security detainees. Madison County decided to proceed with the recommended dual facility expansion.

         [¶3] On September 22, 2016, the Executive Director of the Madison County Community Corrections Justice Center ("the Executive Director") presented to the Madison County Council ("the Council") an estimated 2017 budget for incarceration alternatives. The Director had included a budget line item for rent pursuant to the Lease; however, the Council "zeroed it out." (Tr. Vol. II, pg. 171.)

         [¶4] Commissioner John Richwine directed the Madison County Attorney to notify Howard of that budgetary action. On September 30, 2016, the attorney drafted a letter addressed to Howard, as the registered agent for Happy Valley, providing in relevant part:

Please let this letter serve as notice that Madison County will be terminating the Real Estate lease it entered into with Happy Valley, LLC on or around December 23, 2014 as, pursuant to section 6 of that lease, the Commissioners of Madison County have determined that funds are not available to support the continued performance of the lease.

(App. Vol. II, pg. 63.) On December 19, 2016, Howard drafted a letter to Madison County stating in part: "Happy Valley LLC does not accept the cancellation of the December 23, 2014 lease." Id. at 65.

         [¶5] Madison County continued to house detainees at Happy Valley's facility until late 2016. After December of 2016, Madison County made no additional payments pursuant to the Lease. On December 22, 2016, Madison County filed a declaratory judgment complaint naming Happy Valley as the defendant. Madison County sought a declaration that the Lease was cancelled pursuant to the September 30, 2016 attorney letter.

         [¶6] On February 15, 2017, the Commissioners passed a Resolution to confirm that funds had not been appropriated for the Lease or, alternatively, to cure any defect for alleged non-compliance with the Indiana Open Door Law, Indiana Code Section 5-14-1.5-1 et seq. Specifically, the Resolution included language that "owing to the purchase of a new Madison County Community Correction Center, that funds are neither appropriated nor available for the continued performance of the Real Estate Lease with Happy Valley, LLC executed on December 23, 2014." Id. at 88. Madison County then filed an amended complaint, seeking a declaration that the Lease was cancelled pursuant to either the attorney letter or the Resolution.[2]

         [¶7] On March 2, 2017, Happy Valley filed a counterclaim. Happy Valley, claiming entitlement to unpaid rent, requested judicial review of the funding decision under Indiana Code Section 5-22-19-2.[3] Happy Valley articulated as affirmative defenses: (1) Madison County was not entitled to cancellation of the Lease because it had not acted in good faith as required by Indiana Code Section 5-22-3-1; (2) preconditions of cancellation (specific request to the Council for funding and a written determination) were not met; and (3) the September 30, 2016 letter was non-compliant with the Open Door Law. Madison County responded to the counterclaim and raised as affirmative defenses: estoppel, unclean hands, failure to state a claim upon which relief could be granted, and frivolity.

         [¶8] The trial court conducted a two-day hearing on April 11 and 12, 2018. On September 27, 2018, the trial court issued its Findings of Fact, Conclusions, and Judgment, finding in favor of Madison County. The court concluded that a public meeting was not necessary to cancel the Lease or authorize the September 30, 2016 letter (an administrative act) and accordingly, there was no violation of the Open Door Law. The trial court treated the affirmative defense of failure to act in good faith as a free-standing tort claim and observed that Happy Valley had failed to file a timely Notice of Tort Claim. The court found this omission to be fatal to Happy Valley's defensive claim of bad faith.[4]Observing that the Council and Commissioners are ...

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