Hometown Station, Inc. v. Jimmy Jessey (mem. dec.)

• Court: Indiana Court of Appeals
• Decided: February 2, 2018
• Docket: 32A01-1707-PL-1548
• Status: Published

Opinion

MEMORANDUM DECISION FILED Pursuant to Ind. Appellate Rule 65(D), Feb 02 2018, 5:22 am this Memorandum Decision shall not be CLERK regarded as precedent or cited before any Indiana Supreme Court Court of Appeals court except for the purpose of establishing and Tax Court

the defense of res judicata, collateral estoppel, or the law of the case.

ATTORNEY FOR APPELLANT ATTORNEYS FOR APPELLEE Fred L. Cline Nathaniel Lee Oliver & Cline, LLP Robert E. Feagley, II Danville, Indiana Lee Cossell Crowley, LLP Indianapolis, Indiana

IN THE COURT OF APPEALS OF INDIANA

Hometown Station, Inc., et al., February 2, 2018 Appellants-Plaintiffs, Court of Appeals Case No. 32A01-1707-PL-1548 v. Appeal from the Hendricks Circuit Court Jimmy Jessey, The Honorable Daniel F. Zielinski, Appellee-Defendant. Judge Trial Court Cause No. 32C01-1605-PL-61

Riley, Judge.

Court of Appeals of Indiana | Memorandum Decision 32A01-1707-PL-1548 | February 2, 2018 Page 1 of 10 STATEMENT OF THE CASE [1] Appellants-Plaintiffs, Hometown Station, Inc. and CE Hughes Enterprises,

LLC (collectively, the Business), appeal the trial court’s judgment in favor of

Appellee-Defendant, Jimmy Jessey (Jessey), on a breach of contract claim.

[2] We affirm.

ISSUE [3] The Business raises two issues on appeal, one of which we find dispositive and

restate as: Whether the trial court erroneously concluded that Jessey did not

breach his obligations under a contract entered into with the Business.

FACTS AND PROCEDURAL HISTORY [4] In 2015, Christopher Edward Hughes was the owner of both Hometown

Station, Inc. and CE Hughes Enterprises, LLC, which together comprised the

Business. The Business owned and operated a gas station/convenience store

located at 5871 Liberty Parkway in Clayton, Hendricks County, Indiana. On

August 18, 2015, the Business and Jessey entered into an Asset Purchase

Agreement (APA), pursuant to which Jessey agreed to purchase substantially

all of the assets of the Business (i.e., the gas station, real estate, contracts,

intellectual property, etc.) for a price of $1,600,000.

[5] The terms of the APA specified that Jessey,

[w]ithin fifteen (15) days of this [APA], . . . shall obtain a Commitment for Title Insurance . . . and legible instruments

Court of Appeals of Indiana | Memorandum Decision 32A01-1707-PL-1548 | February 2, 2018 Page 2 of 10 affecting the Real Estate and recited as exceptions in the Commitment. If [Jessey] has an objection to items disclosed in such Commitment or the survey provided herein, [Jessey] shall make written objections to [the Business] within fifteen (15) days after the delivery of the Commitment. [The Business] shall have fifteen (15) days from the date such objections are disclosed to cure the same. If the objections are not satisfied within such time period, [Jessey] may in [his] sole discretion (a) terminate this [APA] and Escrow Agent shall return the Earnest Money to [Jessey], (b) grant [the Business] an extension of time to cure the objection, or (c) waive the unsatisfied objections and close the transaction.

(Appellant’s App. Vol. II, p. 17). Furthermore, the consummation of the

transaction was subject to Jessey

securing a general financing commitment from a financial institution or any other party, upon commercially reasonable terms, within one hundred twenty (120) days of the execution of this [APA]. [Jessey] shall exert due diligence in pursuing, applying for and obtaining such a commitment. In the event that [Jessey] does not obtain a financing commitment within one hundred twenty (120) days of the execution of this [APA], [Jessey] may receive an extension of sixty (60) days upon payment to [the Business] of an additional non-refundable payment of Ten Thousand Dollars ($10,000.00), which payment shall be applied to the Purchase Price at Closing.

(Appellant’s App. Vol. II, p. 22). Thus, Jessey had until approximately

December 16, 2015, to obtain commercially reasonable financing, and the APA

specified that the deal would close five days thereafter.

Court of Appeals of Indiana | Memorandum Decision 32A01-1707-PL-1548 | February 2, 2018 Page 3 of 10 [6] In accordance with the APA, Jessey applied for a Commitment for Title

Insurance from Fidelity National Title Insurance Company. The title search

revealed that in May of 2015, the Business’s lender had commenced foreclosure

proceedings against the gas station and property. The Business had entered into

a forbearance arrangement with its lender and was anticipating that the

proceeds of the sale would cover its debt and cancel out the foreclosure action.

Nevertheless, the Business did not disclose the pending foreclosure to Jessey

during negotiations.

[7] Jessey forwarded a copy of the APA and the title survey to a financial broker,

Raj Tulshan (Tulshan) of Hudson and Capital in New York, with whom he had

worked on numerous occasions in the past to finance his various business

developments. However, due to the pending foreclosure, Jessey’s request for

financing “was shot down at the beginning.” (Tr. Vol. II, p. 65). Although

Jessey never submitted any written objections to the Business, he subsequently

informed the Business in person that he would be unable to complete the

purchase due to the pending foreclosure. Yet, the Business and Jessey

discussed the possibility of refinancing in order “to get rid of this problem,” so

negotiations remained ongoing. (Tr. Vol. II, p. 75). Although the Business did

refinance its loans in January of 2016, as a result of which the foreclosure action

was dismissed, the APA was never revived. In April of 2016, the Business

agreed to sell its business to another buyer for the price of $1,300,000, which

was finalized on May 10, 2016.

Court of Appeals of Indiana | Memorandum Decision 32A01-1707-PL-1548 | February 2, 2018 Page 4 of 10 [8] On May 26, 2016, the Business filed a Complaint, alleging that Jessey had

breached the APA by failing to exert due diligence in pursuing, applying for,

and obtaining a financing commitment. The Business sought at least $300,000

in damages, along with prejudgment interest, court costs, attorney fees, and all

other appropriate relief. On April 25, 2017, the trial court conducted a bench

trial. On June 9, 2017, the trial court issued Findings of Fact and Conclusions

of Law and entered judgment in favor of Jessey. Specifically, the trial court

determined that “Jessey was unable to purchase [the Business’s assets] due to

his inability to secure financing, and that he was unable to obtain financing due

to the undisclosed mortgage foreclosures, which hampers commercial real

estate transaction.” (Appellant’s App. Vol. II, p. 9).

[9] The Business now appeals. Additional facts will be provided as necessary.

DISCUSSION AND DECISION I. Standard of Review

[10] Pursuant to the Business’s request, the trial court entered specific findings of

fact and conclusions thereon, thus triggering a review under Indiana Trial Rule

52(A): our court “shall not set aside the findings or judgment unless clearly

erroneous, and due regard shall be given to the opportunity of the trial court to

judge the credibility of the witnesses.” In applying this two-tiered standard of

review, we consider “whether the evidence supports the findings and then

whether the findings support the judgment.” L.H. Controls, Inc. v. Custom

Conveyor, Inc., 974 N.E.2d 1031, 1041 (Ind. Ct. App. 2012). In determining

whether a finding or judgment is clearly erroneous, we neither reweigh Court of Appeals of Indiana | Memorandum Decision 32A01-1707-PL-1548 | February 2, 2018 Page 5 of 10 evidence nor reassess the credibility of witnesses. Id. Instead, we view the

evidence in a light most favorable to the judgment and “defer to the trial court’s

factual findings if they are supported by the evidence and any legitimate

inferences therefrom.” Id. However, we review a trial court’s legal conclusions

de novo. Id. In addition, a judgment will be found to be clearly erroneous “if

the trial court has applied the wrong legal standard to properly found facts.” Id.

at 1042.

II. Breach of the APA

[11] The Business claims that Jessey breached the APA because he did not exercise

due diligence in obtaining financing. “The elements of a breach of contract

claim are the existence of a contract, the defendant’s breach, and damages to

the plaintiff.” WESCO Distribution, Inc. v. ArcelorMittal Ind. Harbor LLC, 23

N.E.3d 682, 695 (Ind. Ct. App. 2014), trans. dismissed. “The construction of a

contract and an action for its breach are matters of judicial determination.”

Niezer v. Todd Realty, Inc., 913 N.E.2d 211, 215 (Ind. Ct. App. 2009). Thus, in

general, construction of a written contract is a matter of law and is reviewed de

novo. Id. When construing a contract, “unambiguous contractual language is

conclusive upon the parties and the courts.” Id. However, where a contract is

ambiguous, “its meaning is determined by extrinsic evidence and its

construction is a matter for the fact-finder.” Id. A court “should attempt to

determine the parties’ intent at the time the contract was made” by reading the

contract as a whole and relying on “the language used to express their rights

and duties.” Id. “The court will make every attempt to construe the contractual

Court of Appeals of Indiana | Memorandum Decision 32A01-1707-PL-1548 | February 2, 2018 Page 6 of 10 language such that no words, phrases, or terms are rendered ineffective or

meaningless.” Id. at 216. Rather, a contract should be interpreted such that the

provisions harmonize rather than conflict. Id.

[12] In this case, the closing of the sale of the Business’s assets was contingent upon

Jessey “[s]ecuring a general financing commitment . . . upon commercially

reasonable terms[] within one hundred twenty (120) days” of executing the

APA. (Appellant’s App. Vol. II, p. 22). Jessey was contractually obligated to

“exert due diligence in pursuing, applying for and obtaining such a [financing]

commitment.” (Appellant’s App. Vol. II, p. 22). Relying on dictionary

definitions for “due diligence,” the Business now asserts that Jessey “exerted no

‘continual effort’ to gain financing,” but instead “only spoke to one financing

broker who had his information on file, and there was no evidence that that

broker ever contacted even a single lender. And Jessey never received any

written denial for financing.” (Appellant’s Br. p. 9). Furthermore, the Business

insists that the evidence does not support a finding that the pending foreclosure

impeded Jessey’s ability to obtain financing.

[13] On the other hand, Jessey points out that the APA, “written by [the Business’s]

attorney[,] is silent with regard to the definition of the due diligence required by

[Jessey].” (Appellee’s Br. p. 10). Jessey also argues that the Business’s

argument that he “was required to make a ‘continual effort’ to obtain financing

. . . fails to address at what point [Jessey] would be excused from further

attempts to obtain financing.” (Appellee’s Br. p. 10). Notwithstanding the fact

“that [the Business] did not have clear title to transfer the asset due to the

Court of Appeals of Indiana | Memorandum Decision 32A01-1707-PL-1548 | February 2, 2018 Page 7 of 10 pending foreclosure,” Jessey argues that the evidence established that he

engaged in the due diligence reasonably expected by the parties at the time of

contracting. (Appellee’s Br. p. 10).

[14] Where terms are not defined in the contract at issue, our courts have previously

“turn[ed] to sources that reflect the ordinary meaning of the term at the time the

contract was executed.” Reuille v. E.E. Brandenberger Const., Inc., 888 N.E.2d

770, 771 (Ind. 2008). In this case, at the time of execution, Black’s Law

Dictionary defined the term “due diligence” as “[t]he diligence reasonably

expected from, and ordinarily exercised by, a person who seeks to satisfy a legal

requirement or to discharge an obligation.” BLACK’S LAW DICTIONARY 553

(10th ed. 2014). “Diligence” is more specifically defined as “[c]onstant

application to one’s business or duty; persevering effort to accomplish

something undertaken. . . . The attention and care required from a person in a

given situation; care; heedfulness.” BLACK’S LAW DICTIONARY 552-53 (10th

ed. 2014).

[15] The trial court concluded that “Jessey exercised due diligence in [the pursuit of]

obtaining a financial commitment.” (Appellant’s App. Vol. II, p. 9). We agree.

As the trial court found, Jessey contacted Tulshan, a financial broker whom

Jessey had utilized since 2011, and “forwarded to [Tulshan] the [APA] and title

commitment in an attempt to obtain financing for the property.” (Appellant’s

App. Vol. II, p. 9). During the bench trial, Jessey testified that Tulshan

maintains a file with all of Jessey’s updated financial information and that

Tulshan applied for financing on Jessey’s behalf with “about nine different

Court of Appeals of Indiana | Memorandum Decision 32A01-1707-PL-1548 | February 2, 2018 Page 8 of 10 banks.” (Tr. Vol. II, p. 66). Jessey stated that financing was denied because of

the pending foreclosure. Furthermore, the trial court accorded special credit to

Jessey’s testimony based on Jessey’s substantial experience in buying and

selling convenience stores. Specifically, Jessey

has owned and operated numerous convenience stores, gas stations, and commercial businesses since the late 1980’s and was familiar with the loan process of banks and/or financial institutions denying financing if the business had a foreclosure filed against it, since the business was deemed a high risk, and therefore, banks and financing companies would deny the application due to foreclosure.

(Appellant’s App. Vol. II, p. 9).

[16] The evidence clearly establishes that Jessey was not going to be able to obtain

typical, “commercially reasonable” financing while a foreclosure was pending

against the assets subject to the sale. (Appellant’s App. Vol. II, p. 22). By the

time the Business refinanced and the foreclosure case was dismissed, the

timeframe for closing the deal had expired. While Jessey acknowledged that

special financing conditions may have been available under certain criteria for

purchasing “a failing business,” the fact remains that the Business did not

disclose the pending foreclosure to Jessey, and no provision for obtaining

special financing in the event of such an occurrence was included in the APA.

(Tr. Vol. II, p. 75). Jessey pursued financing in the same manner that he did for

his prior successful transactions: he contacted a financial broker who contacted

lenders on his behalf. We therefore agree with the trial court that Jessey

Court of Appeals of Indiana | Memorandum Decision 32A01-1707-PL-1548 | February 2, 2018 Page 9 of 10 exercised the required care under the situation for seeking financing and did not

breach the APA. 1

CONCLUSION [17] Based on the foregoing, we conclude that the trial court correctly found that

Jessey did not breach the APA because he exercised due diligence in pursuing

financing to purchase the Business’s assets.

[18] Affirmed.

[19] Baker, J. and Brown, J. concur

1 Based on our determination that Jessey did not breach the APA due to a lack of diligence, we need not consider the Business’s additional argument that the trial court erroneously concluded that, even in the event of a breach, the Business failed to mitigate its damages. Nor do we address Jessey’s assertions that any breach on his part would be excused by a breach of the Business’s duty of good faith and fair dealing and constructive fraud.

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