LDS Dev., LLC v. City of Eugene

280 Or.App. 611

382 P.3d 576

LDS Development, LLC, substituted in place of Stonecrest Properties, LLC, Plaintiff–Appellant,

v. City of Eugene; Developers Surety and Indemnity Company; and The Real Estate Development Group, LLC, Defendants–Respondents,andEugene Water & Electric Board, Defendant.

A158294

Court of Appeals of Oregon.

Argued and submitted April 11, 2016.

August 31, 2016

Christopher P. Koback, Portland, argued the cause for appellant. With him on the briefs was Hathaway Koback Connors LLP.

Anne C. Davies argued the cause for respondent City of Eugene. On the brief were Jerome Lidz and Glenn Klein.

Thomas M. Christ, Portland, argued the cause for respondent Developers Surety and Indemnity Company. With him on the brief were Julie A. Smith and Cosgrave Vergeer Kester LLP; and Jonathan W. Monson and Cable Huston LLP.

No appearance for respondent The Real Estate Development Group, LLC.

Before Armstrong, Presiding Judge, and Hadlock, Chief Judge, and Shorr, Judge.

SHORR, J.

This action arises from a to-date failed housing development in Eugene. Although it involves multiple parties, it primarily relates to the question of whether two of the parties have an obligation to construct certain public infrastructure improvements outlined in the agreement authorizing the subdivision and development of the property. Under that agreement, which we refer to throughout this opinion as the development agreement, the original developer agreed to install water supply infrastructure and a sewer system, and posted a bond securing that obligation. Years after the original developer withdrew from the project without completing those improvements, plaintiff LDS Development, LLC (LDS) purchased the property. LDS then joined this action as a substituted plaintiff,¹ alleging that the City of Eugene was obligated to complete the improvements or enforce the bond securing the original developer's obligation. The city brought two counterclaims, one for declaratory relief and the other for breach of contract, asserting in each that LDS was obligated under the agreement to complete the improvements as successor to the original developer. The trial court granted summary judgment in favor of the city on all of the claims and counterclaims.

LDS now appeals the trial court's judgment granting summary judgment in favor of defendant City of Eugene against LDS's claims and granting summary judgment to the city on its counterclaims against LDS. In the first and second assignments of error, LDS argues that the trial court erred in granting the city's motion for summary judgment, which dismissed LDS's first and second claims against the city. Those claims both allege that the city was required either to complete the improvements or call in the bond. LDS's third assignment of error pertains to the grant of summary judgment in favor of the city's two counterclaims against LDS. LDS argues that the trial court erred in concluding that it was successor to the original developer's responsibilities and obligations under the development agreement.²

We conclude, as to the first and second assignments of error, that the trial court did not err in granting summary judgment against LDS's first and second claims. The city does not have any contractual or statutory obligation to construct the infrastructure improvements at issue in these circumstances.³ We further conclude, with respect to the third assignment of error, that the trial court erred in granting summary judgment in favor of the city's counterclaims. As explained below, those rulings were based on the erroneous premise that LDS is contractually bound under the development agreement. Because LDS is neither a party nor an assignee to the development agreement, LDS has no contractual obligation under it. And, because the city's counterclaims do not allege that the obligation to construct the improvements is a covenant running with the land or an equitable servitude (as opposed to a personal contractual obligation), we do not address or decide those issues. Accordingly, we reverse and remand as to the grant of summary judgment on the city's first and second counterclaims.⁴

We review a trial court's grant of summary judgment to determine whether there are any genuine issues of material fact and whether the moving party is entitled to judgment as a matter of law, and, in so doing, we view the facts in the light most favorable to the nonmoving party. ORCP 47 C; Jones v. General Motors Corp. , 325 Or. 404, 420, 939 P.2d 608 (1997). We state the underlying facts, which are undisputed, in accordance with that standard.

This is one of four appeals arising from litigation over the unfinished Moon Mountain subdivision development in Eugene. We relate only the historical and procedural facts that are relevant to this particular appeal. The Real Estate Development Group, LLC (REDG) was the original Moon Mountain developer. REDG entered into a development agreement with the city that authorized the subdivision of the original large parcel into 102 smaller residential lots, with spaces dedicated for roads and other public improvements.

Several aspects of the development agreement are significant. The only parties to the agreement were the city and REDG. The agreement required REDG to complete certain infrastructure improvements in two phases, with phase 1 pertaining to one area of the development and phase 2 pertaining to another, with phase 2 to be developed after the completion of phase 1. Relatedly, the agreement required REDG to post a bond in an amount equal to the estimated cost of completing the phase 2 water and sewer improvements as a condition to final approval of the project. The agreement did not, however, expressly impose any affirmative obligation on the city to complete the improvements. In addition, the agreement provided that “[t]here is no intent on the City's part to bestow a benefit on individual third parties,” and that the city has “sole and unfettered discretion” to seek damages or specific performance in the event of a breach by REDG. It included a provision stating that the prevailing party in any suit or action brought under it was entitled to attorney fees. Finally, a “successor interest” clause provided that the agreement was “binding upon heirs, executors, administrators, and assigns of both parties and is a condition and covenant running with the land.”

As required under the development agreement, REDG obtained a bond for over a million dollars securing its obligation to complete the phase 2 improvements. Developers Surety and Indemnity Company (DSIC) issued the bond. Under its terms, the bond would become void once REDG constructed the improvements free of defects. Otherwise, the bond would “remain in full force and effect” and DSIC would be “held and firmly bound unto the City of Eugene as [o]bligee.”

REDG completed work on phase 1 of the development, but, due to financial difficulties, abandoned the project shortly after starting work on phase 2. In lieu of foreclosure, REDG transferred its interest in the development to Umpqua Bank.

Stonecrest Properties, LLC, later acquired the subdivision from the bank. Stonecrest filed this action, which LDS later joined, alleging various claims against multiple defendants, including the city and DSIC.⁵ Among other things, the operative complaint alleged that, under various statutes and regulations and the development agreement, the city was required to enforce DSIC's bond or to complete the phase 2 infrastructure improvements itself.⁶ Based on those allegations, LDS sought a declaration to that effect in its first claim for relief and sought specific performance of the obligation to construct the improvements in its second claim for relief.

The city's answer denied that it had any legal or contractual obligation to complete the improvements. In addition, the city asserted two counterclaims, the content of which is particularly important to our analysis of the third assignment of error.

The city's first counterclaim sought a declaration that, “to the extent the Improvements are required to be completed, [LDS] obligated itself to complete the Improvements as successor to REDG's responsibilities and obligations under the Development Agreement.” The city's second counterclaim, for breach of contract, alleged that LDS was “successor in interest to REDG's responsibilities and obligations under the Development Agreement” and had breached the agreement by failing to correct hazards created by improper construction activity. The city sought attorney fees for both counterclaims, invoking the attorney fee provision in the development agreement. Finally, in its prayer, the city requested that the trial court enter a judgment:

“1. in favor of the City and against [LDS] on the City's First Counterclaim declaring that [LDS] is the successor in interest to REDG's responsibilities and obligations under the Development Agreement, that [LDS] is responsible for completing all of the Improvements, and that the City is entitled to its reasonable attorney fees, costs and disbursements;

“2. in favor of the City and against [LDS] on the City's Second Counterclaim awarding the City its reasonable damages resulting from [LDS's] breach of the Development Agreement in an amount not to exceed $50,000 plus an award of reasonable attorney fees, costs and disbursements.”

The city moved for summary judgment against LDS's first and second claims. It argued that LDS “can't require the city to exercise its discretion to call the bond” or to build the improvements itself, contending that “just because something is platted doesn't mean that the city then has the obligation to go back and build improvements.” In addition, the city pointed out the potentially drastic implications of LDS's claims:

“[E]ssentially what [LDS] wants this Court to do is any time something is platted and dedicated, which has to occur under our laws before they can go out and build it, and that developer then goes bankrupt

...