Camden Cnty. v. Lexon Ins. Co.

CAMDEN COUNTY, GEORGIA, Plaintiff, v. LEXON INSURANCE COMPANY, Defendant.

DOUGLAS PORCELLI, CENTHIA PORCELLI, STEPHEN AGNONE,

ENZO AGNONE, DAVID B. BISHOP, EVA BISHOP, RICHARD W. GARRISON,

BERYL K. GARRISON, DANIEL K. HARSHMAN, JATN FAMILY LIMITED,

RICHARD E. MUMFORD, SALLY MUMFORD, RICK SWISHER,

CINDY SWISHER, FRANCIS G. O'SUCH, VALERIE D. O'SUCH,

DOUGLAS WINDSOR, and JOANNE M. WINDSOR, Intervenors.

BPJS INVESTMENTS, LLC; GEORGE L. "BOOG" POTTER;

MIKE MARTINEZ; ROBERT STEVEN WILLIAMS, SR.;

and ROBERT STEVEN WILLIAMS, JR., Third-Party Defendants.

CV 214-20

United States District Court for the Southern District of Georgia Brunswick Division

September 1, 2015

ORDER

Before the Court is Defendant Lexon Insurance Company's Motion to Dismiss the Interveners' Complaint (Dkt. no. 68). The Intervenors own property in a failed subdivision located withinPlaintiff Camden County's boundaries. In overseeing the subdivision's development, Camden County had required the developer to post surety bonds to guarantee that necessary infrastructure could be installed if the developer failed to complete the project. Initially, Defendant Lexon Insurance Company provided these bonds. However, after the first developer went broke, Third-Party Defendants stepped in to develop the subdivision and proposed that Camden County release the Lexon bonds for alternative surety. Camden County agreed to the release. Unfortunately, the Third-Party Defendants were unable to complete the subdivision, and their surety was inadequate to cover the costs of the necessary infrastructure.

This case concerns what went wrong with the development and, particularly, the surety bonds. The various parties are pointing fingers in all directions. But this Order only concerns Intervenors' accusation that Camden County's release of the Lexon bonds and acceptance of alternative security is void as an ultra vires act. See Dkt. no. 58 ("Compl."). Defendant Lexon Insurance Company has moved to dismiss Intervenors' sole count under Rule 12(b)(6) for failure to state a claim. Dkt. no. 68. For its part, Camden County agrees with Lexon that Intervenors' Complaint should be dismissed. Dkt. no. 92. Because Camden County generally has authority to dispose of its property as it sees fit and no law specifically proscribes the County fromreleasing the surety bonds and accepting alternative security as it did here, Lexon's Motion to Dismiss (Dkt. no. 68) is GRANTED.

FACTUAL BACKGROUND

The Court draws these facts from the Intervenors' Complaint and accepts them as true in considering Lexon's Motion to Dismiss. See Am. United Life Ins. Co. v. Martinez, 480 F.3d 1043, 1057 (11th Cir. 2007).

The Intervenors hail from across the country—none are Camden County residents. Each of them, though, owns a lot in a subdivision in Camden County, Georgia, known as Bridge Pointe at Jekyll Sound. As property owners, Intervenors pay property taxes to Camden County. Compl. ¶¶ 1-11.

In 2005, a developer going by the name Bridge Point at Jekyll Sound, LLC, planned to develop the subdivision and began accepting lot reservation agreements from prospective lot purchasers. The then-applicable Camden County development ordinances required the developer to obtain surety bonds backing the installation of certain infrastructure in the development. On March 10, 2006, the developer provided eight subdivision bonds to Camden County underwritten by Defendant Lexon. The surety bonds totaled $16,412,467.50 and insured the complete development of necessary infrastructure such as the roadway, curb and gutter, storm sewer, removal of dirt material, lake excavation and construction, waste water disposal system,electrical and telephone conduit, and other improvements. The bonds identified the Camden County Joint Development Authority as the Obligee, and provided that the Surety, upon receipt of notice that the improvements have not been installed or completed, would complete the improvements or pay the Obligee up to the amount of the bonds for completion of the improvements. Id. at ¶¶ 20-24.

Around May and June of 2006, the developer began selling lots in the subdivision before completing the infrastructure improvements. By late 2008, the developer had sold some 398 residential lots in the subdivision, but had only completed a small part of the infrastructure improvements required by the development code and backed by the bonds. On October 30, 2008, the developer went bankrupt and stopped work on the subdivision. About 286 of the 697 lots remained unsold. Id. ¶¶ 26-31.

Intervenors allege that either Emerson Properties, LLC or Jekyll Sound Development Company, LLC, acquired property in the development from Bridge Point at Jekyll Sound, LLC's bankrupt estate for about $3,050,000. The land included 286 lots, a marsh parcel, and land that would be common areas or amenity locations in the subdivision. Id. ¶¶ 39-40. This land was later transferred to a new entity, Third-Party Defendant Bridge Point at Jekyll Sound Investments, LLC. Id. ¶¶ 43, 49.

Intervenors further allege that, around this time, Third-Party Defendant Steve Williams Jr. gave a presentation to the Camden County Board of Commissioners proposing that the board replace the current surety bonds on the subdivision. Third Party-Defendant Bridge Point at Jekyll Sound Investments would procure the new surety bonds. The Board agreed to this plan at a meeting on January 5, 2010, and Camden County executed a release in favor of Lexon that same day. However, at another meeting on February 16, 2010, Third-Party Defendant George "Boog" Potter, speaking on behalf of Bridge Point at Jekyll Sound LLC, told the board that the investment company had not been able to obtain new letters of credit, and proposed that Camden County accept deeds of trust on 243 lots in the subdivision as substitute collateral on the infrastructure improvements. The Board approved this proposal unanimously without discussion or presentation of any documentation. A few days later, Potter, as chief manager of Bridge Point at Jekyll Sound Investments, transferred a security deed on the 243 lots to Camden County. Id. ¶¶ 41-51.

Intervenors believe that there were several deficiencies in both the procedure and amount of the security deeds. For instance, Intervenors allege that Camden County never required or obtained a title examination for the Security Lots or otherwise determined how many lots Bridge Point at Jekyll Soundactually owned. Nor did it verify any title insurance policy in connection with the security lots. Id. ¶ 53.

Despite these measures taken to develop the subdivision, no further development work has occurred since February 19, 2010. To this day, the gates to the subdivision remain chained and locked by Camden County and Bridge Point at Jekyll Sound Investments, preventing the lot owners from entering the Subdivision. Camden County has not taken any formal action to collect any amounts payable under the released bonds or to require Lexon to complete the infrastructure improvements in the subdivision. Id. ¶¶ 58-64.

LEGAL STANDARD

When ruling on a motion to dismiss brought pursuant to Rule 12(b)(6), a district court must accept as true the facts as set forth in the complaint and draw all reasonable inferences in the plaintiff's favor. Randall v. Scott, 610 F.3d 701, 705 (11th Cir. 2010). Although a complaint need not contain detailed factual allegations, it must contain sufficient factual material "to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). At a minimum, a complaint should "contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory." Fin. Sec. Assurance, Inc. v. Stephens, Inc., 500 F.3d 1276, 1282-83 (11thCir. 2007) (per curiam) (quoting Roe v. Aware Woman Ctr. for Choice, Inc., 253 F.3d 678, 683 (11th Cir. 2001)).

DISCUSSION

All parties agree that Intervenors only have standing to bring this suit if Camden County's release of the Lexon bonds was ultra vires because Intervenors base their standing on their taxpayer status. A plaintiff challenging the actions of a local government based on his standing as a taxpayer must first show that the government's actions were ultra vires. Newsome v. City of Union Point, 291 S.E.2d 712, 715 (Ga. 1982). "For the action to be considered ultra vires, it must appear that the action taken was beyond the scope of the powers that have been expressly or impliedly conferred on the municipality." Id. The Court will thus examine the scope of Camden County's authority to determine if its release of the Lexon bonds and acceptance of alternative security were ultra vires acts.

I. An Overview of Camden County's Conferred Powers

Generally, two sources of authority demarcate Camden County's power to act under these circumstances: Georgia law, which Lexon and Camden County say grants Camden County the power to dispose of its property as it sees fit; and Camden County's Unified Development Code, the zoning ordinance which Intervenors argue Camden County is bound to follow.

County governments have constitutional and statutory grants of authority to dispose of and manage their property. Under the Georgia Constitution,

The governing authority of each county shall have legislative power to adopt clearly reasonable ordinances, resolutions, or regulations relating to its property, affairs, and local government for which no provision has been made by general law and which is not inconsistent with this Constitution or any local law applicable thereto.

Ga. Const. art. IX, § 2, ¶ I. And under Georgia statutory law, "[t]he governing authority of each county has original and exclusive jurisdiction over the following subject matters: (1) The directing and controlling of all the property of the county, according to law, as the governing authority deems expedient; . . ." Ga. Code Ann. § 36-5-22.1(a)(1). Camden County, then, has the general...