Elpers Bros. Constr. & Supply, Inc. v. Smith

230 N.E.3d 920

ELPERS BROS. CONSTRUCTION & SUPPLY, INC., et al., Appellants-Defendants

v.Deane L. SMITH, II, M.D., et al., Appellees-Plaintiffs

Court of Appeals Case No. 23A-PL-437

Court of Appeals of Indiana.

Filed February 27, 2024

Appeal from the Vanderburgh Circuit Court, The Honorable David D. Kiely, Judge, Trial Court Cause No. 82C01-1712-PL-6198

Attorneys for Appellants: Alyssa C.B. Cochran, Crystal G. Rowe, Van T. Willis, New Albany, Indiana, Reed Schmitt, Derrick McDowell, Evansville, Indiana

Attorneys for Appellees: David L. Jones, Craig R. Emig, Evansville, Indiana

Altice, Chief Judge.

Case Summary

[1] The parties are before us once again, as we previously addressed issues unrelated to those presented in the instant appeal.¹ Here, Elpers Bros. Construction & Supply, Inc. (Elpers Construction), Elpers Development, Inc. (Elpers Development) (collectively, the Builders), and Stonegate Estates Subdivision Homeowners’ Association, Inc. (the HOA), appeal the grant of partial summary judgment in favor of Deane L. Smith and Lori A. Smith (collectively, the Smiths). Elpers Construction claims that the trial court erred in determining that it owed the Smiths a non-delegable duty as a matter of law to properly design and construct a drainage system in their neighborhood. Elpers Construction further contends that the trial court erred in denying its motion for summary judgment as to the Smiths’ fraud claim. The HOA claims that the trial court erred in not granting its request for summary judgment regarding the Smiths’ claim that the HOA operated as the Builders’ "alter ego," and Elpers Development maintains that its summary judgment motion should have been granted on the Smiths’ negligence claim.

[2] We affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.

Facts and Procedural History

[3] In 2006, the Builders² purchased real estate in Evansville that they subsequently divided into a sixteen-lot neighborhood (the Subdivision). Elpers Construc- tion delegated portions of the Subdivision’s design and construction to various independent subcontractors, including Sitecon, Inc. (Sitecon), a certified engineering firm. Elpers Construction contracted with Sitecon to design and construct the neighborhood drainage system because it did not have the expertise and engineers on its staff to perform the work.

[4] Sitecon’s design included a lake on Lot 1 in the Subdivision to catch storm water runoff that would be released into a downstream waterway. Before Sitecon could commence construction, a proposed drainage report had to be approved by the Vanderburgh County Drainage Board (the Board).³ The County Surveyor reviewed Sitecon’s drainage plans and recommended approval, which the Board ultimately granted in December 2006. Sitecon then recorded the Subdivision plat and commenced construction of the drainage system. Sitecon staked off the perimeter for the lake. No one from Elpers Construction discussed the size of the lake with Sitecon, nor did Elpers Construction oversee or manage its construction. When the lake was completed, Sitecon re-measured it to ensure that it had been constructed according to plan. The County Engineer’s office conducted several inspections during construction to ensure that the drainage system was properly installed.

[5] In January 2007, Paul Elpers, as president of Elpers Construction, signed the "Notice of Intent to Construct a Water Main Extension," State Form 49008, as the "responsible person":

19. Certifications:

Responsible Person

I certify that I have reviewed and understand the applicability requirements of this rule and that the water main proposed with the submission of this NOI meets the applicability and eligibility requirements of this rule. I also certify that the design and construction of this project will be performed under my direction or supervision to assure conformance with 327 I.A.C. 8-3.5 and will meet all local rules or laws, regulations and ordinances. The information submitted is, to the best of my knowledge and belief, true, accurate, and complete. I am aware that there are significant penalties for submitting false information, including the possibility of fine and imprisonment.

/s/ Paul A. Elpers 01-25-07

Appellants' Appendix Vol. 3 at 43-45. (Emphasis added).

[6] An amended drainage plan that Elpers Construction submitted to Vanderburgh County provided in part:

THE CONTRACTOR SHALL COMPLY WITH ALL LOCAL, STATE AND FEDERAL CODES, ORDINANCES, RULES, REGULATIONS, ORDERS AND OTHER LEGAL REQUIREMENTS OF MUNICIPAL AUTHORITIES WHICH BEAR ON THE PERFORMANCE OF THE WORK.

Id. at 41-42.

[7] The Smiths purchased Lot 1 in the Subdivision on May 2, 2007, and hired Elpers Construction to build their residence. Lot 1 included the lake, and Elpers Construction represented to the Smiths that while they could use the lake for recreational purposes, it would also serve as a retention pond for the Subdivision. Thus, the lake was subject to an easement for drainage of surface and storm water from other lots.

[8] The construction contract between the Smiths and Elpers Construction provided that Elpers Construction would obtain all necessary permits and licenses and comply with all laws and ordinances during the construction process. At some point, Elpers Construction represented to the Smiths that it had received "all necessary approvals from governmental agencies." Appellants’ Appendix Vol. 8 at 21.

[9] In June 2007, the Builders recorded Conditions, Reservations, Restrictions, and Protective Covenants for the Subdivision (collectively, the Restrictions). In accordance with the Restrictions, the HOA was incorporated on July 16, 2008. The four owners of Elpers Construction served as the HOA’s Board of Directors during the Subdivision’s development, and they retained complete control of the HOA, The HOA was responsible for monitoring and paying various expenses of the Subdivision, including the electric bill for operating the fountain in the lake, maintaining the streetlights, and providing general maintenance in common areas.

[10] The HOA did not adopt any corporate bylaws or adopt an annual budget; nor did it prepare or record minutes of any Board of Directors’ meetings. On the other hand, the HOA opened a bank account that was maintained separately from the Builders’ accounts. The HOA deposited the association dues into that account, and it paid the HOA’s expenses from that account. The HOA also had its own federal tax identification number that it used when filing tax returns.

[11] At some point during construction of the Smiths’ residence, Paul Elpers recommended to the Smiths that they purchase a geothermal heating and cooling system. Paul had them look at a unit similar to one that was installed in another residence that Elpers Construction had built. Paul was aware that a heating company he had previously consulted refused to install a geothermal unit on the Smiths’ property because the lake lacked sufficient depth. Paul, however, did not advise the Smiths about that determination.

[12] After the Smiths met with Paul, they selected Beuligmann Heating and Air (Beuligmann) to install a geothermal system. Elpers Construction contracted with Beuligmann for the sale and installation of the unit, including coils that were to be placed in the lake. Elpers Construction invoiced the Smiths for the system, with an additional ten percent general contractor’s fee.

[13] From 2009 until sometime in 2015, the system operated with no problems. At some point, however, the Smiths noticed "soil and mud runoff," erosion, and silt buildup at one end of the lake. Appellants’ Appendix Vol. 2 at 41. The excessive silt formed a sandbar that protruded from the surface of the lake. The Smiths also observed that their yard flooded when it stormed, and that debris would wash into their yard. The geothermal system functioned less efficiently, and the Smiths believed that was due to drainage issues in the Subdivision and deteriorating lake conditions. It was determined that the coils in the geothermal unit had been damaged because of the silt buildup.

[14] The Smiths engaged an engineering firm, Morley and Associates (Morley), to review Sitecon’s drainage plans. Morley’s report identified eleven deficiencies in the plan and construction that contributed to the erosion and buildup. More precisely, one of Morley’s engineers noticed an error in the drainage calculation for the size of the culvert that ran under the street in front of the Smiths’ lot. The engineer determined that the wrong precipitation value was used, thus affecting water flow into the lake. Those errors meant that storm water was more likely to cover the road, cause debris to back up in the system, and result in flooding to the Smiths’ yard. It was determined that the geothermal system was damaged and had to "be reconstructed with dredging of the lake," along with "remedial measures to prevent the lake from refilling with dirt and silt." Id. at 42. The estimated remediation cost amounted to nearly $240,000.

[15] Morley’s engineers also discovered that the necessary permits from the U.S. Army Corps of Engineers and the Indiana Department of Environmental Management (IDEM) had not been obtained. IDEM sent the Smiths a letter sometime in 2019, indicating that Elpers Construction had failed to obtain the required authorization for the lake on their property. An inspection revealed multiple violations of environmental statutes, rules, and regulations, including improper placement of instream structures and the failure to obtain authorization for discharge of fill material. The Smiths were also informed that a required permit had not been obtained in accordance with the Clean Water Act (the Act), and that several violations of the Act had been committed in constructing the drainage system.

[16] On December 12, 2017, the Smiths filed a complaint against the Builders and the HOA. The complaint alleged that the lake...