Harris Family Limited Partnership v. Brighton Investment LLC , 150 Idaho 583 ( 2011 )

IN THE SUPREME COURT OF THE STATE OF IDAHO
Docket No. 36410
INDEPENDENT SCHOOL DISTRICT OF )
BOISE CITY, )
)
Plaintiff-Counterdefendant, )
) Boise, January 2011 Term
v. )
) 2011 Opinion No. 36
HARRIS FAMILY LIMITED )
PARTNERSHIP, an Idaho limited ) Filed: March 18, 2011
partnership, )
) Stephen Kenyon, Clerk
Defendant-Counterclaimant. )
-------------------------------------------------------- )
HARRIS FAMILY LIMITED )
PARTNERSHIP, an Idaho limited )
partnership, )
)
Third Party Plaintiff-Appellant, )
)
v. )
)
BRIGHTON INVESTMENT LLC, an Idaho )
limited liability company )
)
Third Party Defendant-Respondent, )
)
and )
)
STATE OF IDAHO, by and through the )
STATE BOARD OF EDUCATION acting as )
BOARD OF TRUSTEES OF BOISE STATE )
UNIVERSITY, )
)
Third Party Defendant. )
Appeal from the District Court of the Fourth Judicial District of the State of
Idaho, Ada County. Hon. Ronald J. Wilper, District Judge.
The district court orders dismissing the claims for breach of contract and breach
of the implied duty of good faith and fair dealing and granting summary judgment
on the unjust enrichment claim are affirmed.
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Greener Burke Shoemaker, P.A., Boise, for appellant. Richard Greener argued.
Givens Pursley, LLP, Boise, for respondent. David R. Lombardi argued.
_______________________________________________
HORTON, Justice
Brighton Investments, LLC (Brighton) purchased real property from the Harris Family
Limited Partnership (Harris). The parties’ purchase and sale agreement contained restrictive
covenants that ran with the land and limited the uses of the property. Several months later,
Brighton conveyed a portion of the real property to Boise State University (BSU), thereby
realizing a considerable profit. Brighton knew that BSU intended to swap it for property
belonging to the Boise Independent School District (School District) and that the School District
then intended to construct new junior high facilities thereon, in contravention of the restrictive
covenants.
After the School District received title to the property, Harris and the School District
stipulated to the School District’s condemnation of the restrictive covenants, and the School
District constructed the junior high school. Harris brought third party claims against Brighton,
including breach of contract, breach of implied duty of good faith and fair dealing, and unjust
enrichment. Pursuant to Idaho Rules of Civil Procedure 12(b)(6) and 12(g)(2), the district court
granted Brighton’s motion to dismiss the claims for breach of contract and breach of the implied
duty of good faith and fair dealing. It later granted Brighton’s motion for summary judgment on
the unjust enrichment claim. Harris timely appealed. We affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
Harris owns hundreds of acres of real property in east Boise that are part of its
comprehensive development, commonly known as the Harris Ranch project. On December 31,
2005, pursuant to a purchase and sale agreement, Harris sold Brighton approximately forty-four
acres of land for $100,000 per acre. The parties also entered into and recorded a memorandum
of agreement. The two documents contained virtually identical “post-closing obligations” (the
Restrictive Covenants or the Covenants) that stated in relevant part that 1) the Restrictive
Covenants were expressly intended to survive closing and “protect and enhance the value of the
Property and adjacent properties;” 2) the property Harris retained and the property Brighton
purchased were subject to existing governmental approvals; and 3) both parties would submit
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both initial and final development plans, consistent with nearby developments and existing
governmental approvals, to one another for approval. The purchase and sale agreement also
provided that in any action arising from a breach of the agreement, the prevailing party was
entitled to costs and reasonable attorney fees.
Around the time of the Harris-Brighton transaction, BSU wished to acquire from the
School District the property where the former East Junior High School was located in order to
permit future development of an athletic complex. The School District and BSU developed a
plan under which BSU would acquire land in the vicinity of the Harris Ranch project upon which
a new junior high school would be constructed. BSU would then transfer that land to the School
District in exchange for the former East Junior High campus. BSU and the School District
identified a suitable twenty-acre parcel owned by Harris and began negotiations. Harris offered
the parcel for approximately $5.0 million. However, Harris conditioned the sale on Boise City’s
approval of Harris’ comprehensive development, apparently for the purpose of obtaining the
School District’s support of the Harris Ranch development. BSU and the School District could
not guarantee the City’s approval of the project, and ended negotiations with Harris in October
2006 because the School District was running out of time to complete construction of the new
junior high school.
After the School District ended negotiations with Harris, its broker identified several
other properties suitable for the junior high school, including the property Brighton had acquired
from Harris. The School District and BSU approached Brighton about the availability of that
property. Brighton agreed to work with the School District and BSU after it was assured that
their negotiations with Harris were at a complete end. The parties entered into negotiations to
convey to BSU 21.54 acres (the Property) of the forty-four acres Brighton had purchased from
Harris. In a November 27, 2006 email, Brighton informed BSU and the School District that,
pursuant to the Restrictive Covenants, “the [P]roperty was anticipated to be residential
development . . . ” and development plans would require Harris’ approval. The School District
attempted to gain that approval, but Harris rejected its efforts. In early May 2007, Brighton
conveyed the Property to BSU. The Property was appraised at $6,100,000. BSU paid a purchase
price of $3,500,000, and Brighton was credited with a charitable donation for the difference
between the purchase price and the appraised value of the Property.
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On May 14, 2007, the School District exercised its power of eminent domain to condemn
the Restrictive Covenants, pursuant to I.C. § 7-701. On July 20, 2007, Harris filed a third party
complaint against Brighton, alleging breach of contract and breach of the implied duty of good
faith and fair dealing. In essence, Harris claimed that Brighton’s conveyance to BSU “with the
prior knowledge and intent” that the Property would eventually be used by the School District
for a non-residential use was a breach of the Restrictive Covenants, and that Brighton was
unjustly enriched when it enjoyed a significant profit on the sale to a public entity, thereby
effectively avoiding the Restrictive Covenants. The purchase and sale agreement, the
memorandum agreement, and the warranty deed conveying the Property from Harris to Brighton
were attached as exhibits to Harris’ third party complaint.
Harris and the School District subsequently stipulated that the School District’s taking of
the Restrictive Covenants was necessary to the School District’s legal use of the Property. On
July 26, 2007, the district court condemned the Covenants, stating that Harris “reserves and is
not waiving any other rights or claims [Harris] has asserted . . . .” Harris and the School District
later entered into a mutual release and settlement agreement that valued the Restrictive
Covenants at $175,000. The School District paid Harris severance damages in that amount.
On October 11, 2007, Brighton filed a motion to dismiss most of the counts in Harris’
third party complaint, pursuant to I.R.C.P. 12(b)(6) and 12(g)(2). The district court dismissed
Harris’ claims for breach of contract and breach of the implied duty of good faith and fair
dealing, stating that “knowledge of a likely breach in the future is not a breach that gives rise to a
cause of action,” and reasoning that the condemnation action had foreclosed all of Harris’ rights
to enforce the Restrictive Covenants. The court reasoned that since the purchase and sale
agreement did not limit the third parties to whom Brighton could sell the Property and since the
Covenants had been condemned and were thus no longer enforceable, Harris had failed to state
claims upon which relief could be granted.
Harris filed an amended third party complaint on December 27, 2007, which included an
additional claim against Brighton for unjust enrichment. This claim alleged that Harris bestowed
a benefit on Brighton when it sold the Property to Brighton for a discounted purchase price
because the Property was burdened by the Restrictive Covenants. Brighton filed a motion for
summary judgment dismissing that claim on June 13, 2008. An affidavit in support of Harris’
opposition to the motion contained an expert appraiser’s estimate that the Restrictive Covenants
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were valued at $2,250,000. Harris claimed that Brighton was unjustly enriched either in that
amount or by the increase in the Property’s market value that arose between Brighton’s purchase
and sale. The district court dismissed Harris’ unjust enrichment claim, reasoning that the record
demonstrated that Harris sold the Property to Brighton for its market value, not at a discounted
rate, and therefore Harris had not conferred any benefit upon Brighton.
Harris timely appealed the district court’s dismissal of its claims for breach of contract
and the implied covenant of good faith and fair dealing and the summary judgment order
dismissing its unjust enrichment claim. Both parties seek an award of attorney fees incurred in
connection with this appeal.
II. STANDARD OF REVIEW
The standards for reviewing a district court’s dismissal under Idaho Rule of Civil
Procedure 12(b)(6) and granting summary judgment are similar but not identical. Young v. City
of Ketchum, 137 Idaho 102, 104, 44 P.3d 1157, 1159 (2002). As to both, “the non-moving party
is entitled to have all inferences . . . viewed in his favor.” Id. However, a 12(b)(6) motion looks
only to the complaint to determine whether the plaintiff has stated a claim for relief. Id. Where
a claim for relief is stated, the complaint survives the motion to dismiss and the plaintiff is
entitled to offer evidence in support of its claim. Orthman v. Idaho Power Co., 126 Idaho 960,
962, 895 P.2d 561, 563 (1995). Summary judgment is proper when “the pleadings, depositions,
and admissions on file, together with the affidavits, if any, show that there is no genuine issue as
to any material fact and that the moving party is entitled to a judgment as a matter of law.”
I.R.C.P. 56(c).
III. ANALYSIS
A. The district court properly granted Brighton’s 12(b)(6) motion to dismiss Harris’
claims for breach of contract and breach of the implied covenant of good faith and fair
dealing.
The district court’s order dismissing Harris’ claims sounding in contract reasoned that
“Brighton did not breach its contract because, pursuant to the parties’ stipulation, the Court
ordered that Harris Ranch no longer owned any right to enforce the restrictive covenants against
the school site. Neither the purchase agreement nor its restrictive covenants limited Brighton’s
right to sell the land to a third party, including a party with condemnation authority. Therefore,
Harris Ranch did not state a claim for relief . . .” Harris asserts that the district court’s order
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condemning the Restrictive Covenants did not eliminate Harris’ breach of contract claims against
Brighton, and thus the court’s order granting Brighton’s 12(b)(6) motion to dismiss those claims
was error.
i. Although we infer that the Restrictive Covenants imposed a residential-use
restriction, Brighton did not breach that restriction.
We hold that the district court properly dismissed Harris’ claims because Brighton did
not breach the Restrictive Covenants.
a. For purposes of deciding the 12(b)(6) motion, we accept Harris’ allegation
that the Restrictive Covenants limited the Property to strictly residential uses.
In order to state a breach of contract claim capable of surviving a 12(b)(6) motion to
dismiss, Harris was required to allege that a contract between itself and Brighton existed, and
that while obligated thereby, Brighton engaged in conduct that violated that contract. The
parties’ briefing on appeal devotes substantial attention to whether the Restrictive Covenants in
fact limited the Property to solely residential uses. However, for purposes of deciding a 12(b)(6)
motion, “the only facts which a court may properly consider . . . are those appearing in the
complaint, supplemented by such facts as the court may properly judicially notice.” Taylor v.
McNichols, 149 Idaho ---, 243 P.3d 642, 649 (2010). Therefore, for our purposes only those
facts asserted in Harris’ third party complaint are relevant to the analysis. Harris asserted that
the parties agreed that the Property “was planned for single family residential development under
Governmental Approvals previously obtained, and as part of the overall Harris Ranch Master
Plan.” Harris also asserted that the Restrictive Covenants required the Property to be developed
consistently with existing governmental approvals “which, in pertinent part, limited and
restricted the development of the [Property] to single family residences.”
Therefore, for purposes of reviewing the district court’s dismissal, we assume the parties
intended the Covenants to impose a residential-use restriction on the Property.
b. No breach occurred while Brighton was burdened by the Restrictive
Covenants.
Harris asserts that Brighton’s conveyance to BSU “with the prior knowledge and intent”
that the Property would be put to a non-residential use was sufficient to breach the Restrictive
Covenants. However, as the district court stated, “knowledge of a likely breach in the future is
not a breach that gives rise to a cause of action” – especially if that breach will be committed by
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a third party. This is demonstrated by the fact that if Harris had attempted to sue Brighton at the
time it claims Brighton’s breach occurred – the date of Brighton’s conveyance to BSU – the
Property would not yet have been developed for non-residential use, and thus Harris’ claim
would have been dismissed as unripe. See Noh v. Cenarrusa, 137 Idaho 798, 801, 53 P.3d 1217,
1220 (2002) (the ripeness doctrine “requires a petitioner or plaintiff to prove 1) that the case
presents definite and concrete issues, 2) that a real and substantial controversy exists, and 3) that
there is a present need for adjudication.”).
Brighton’s ability and obligation to comply with the Restrictive Covenants terminated
when it conveyed its interest in the Property to BSU. The burdens imposed by restrictive
covenants run with the land, i.e., they may be enforced against one who purchases real property
with notice of the covenants. Shawver v. Huckleberry Estates, LLC, 140 Idaho 354, 365, 93 P.3d
685, 696 (2004). Since only a current owner may comply with restrictive covenants, either
voluntarily or pursuant to injunction, only a current owner may be liable for their breach. In the
present case, the obligation to comply with the Restrictive Covenants ran first to Brighton and
subsequently to BSU and then the School District. Brighton did not avoid its obligations under
the Restrictive Covenants. It conveyed the Property to a party that took on the burden of the
Covenants until they were properly condemned.
ii. The district court properly dismissed Harris’ implied duty of good faith and fair
dealing claim because Brighton was not bound by the Restrictive Covenants when the
Covenants were condemned.
Although breach of contract and breach of the implied duty of good faith and fair dealing
claims each consist of distinct elements, the district court did not engage in a separate analysis of
Harris’ claim for breach of the implied duty of good faith and fair dealing. Nonetheless, the
court’s dismissal was proper. The duty of good faith and fair dealing is implied in every
contract. Luzar v. Western Sur. Co., 107 Idaho 693, 696, 692 P.2d 337, 340 (1984). It “is an
objective determination of whether the parties have acted in good faith in terms of enforcing the
contractual provisions.” Jenkins v. Boise Cascade Corp., 141 Idaho 233, 243, 108 P.3d 380, 390
(2005). “An action by one party that violates, qualifies or significantly impairs any benefit or
right of the other party . . . violates the covenant.” Id.With respect to the Property, Brighton’s conduct while bound by the Restrictive
Covenants did not violate, qualify, or significantly impair Harris’ interest in the Covenants, and
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therefore the district court’s dismissal was proper. The Restrictive Covenants, and Harris’ ability
to enforce them by injunction, remained in force until the Covenants were condemned by order
of the district court. Even if the School District’s condemnation violated, qualified, or
significantly impaired the Covenants, such occurred after title to the Property vested in the
School District. Therefore, Brighton was no longer bound by the Covenants or liable for post-
conveyance breach of the implied duty of good faith and fair dealing.
B. The district court properly granted summary judgment on Harris’ unjust enrichment
claim because Harris did not confer any benefit to Brighton when it sold the Property to
Brighton.
Harris contends that Brighton was unjustly enriched, either in the amount of the
difference between Brighton’s purchase and sale price or the appraised value of the Restrictive
Covenants, because Brighton purchased the Property when its market value was diminished by
the Restrictive Covenants 1 but sold it to BSU virtually free of the Restrictive Covenants.
Brighton responds that Harris has no claim in unjust enrichment because Harris did not confer
any benefit upon Brighton that it was inequitable for Brighton to retain, and also because Harris’
$175,000 severance award was an adequate remedy at law. The district court held that Harris
sold the Property to Brighton at its market value, not at a rate discounted because of the burden
of the Restrictive Covenants, and that Harris therefore failed to prove that it conferred any
benefit upon Brighton.
“The measure of damages in a claim of unjust enrichment is the value of the benefit
bestowed upon the defendant which, in equity, would be unjust to retain without recompense to
the plaintiff. The measure of damages is not necessarily the value of the money, labor and
materials provided by the plaintiff to the defendant, but the amount of benefit the defendant
received which would be unjust for the defendant to retain.” Gillette v. Storm Circle Ranch, 101
Idaho 663, 666, 619 P.2d 1116, 1119 (1980). In the present case, Harris’ unjust enrichment
claim does not seek compensation for the value of the Restrictive Covenants, but rather the
benefit Brighton enjoyed by allegedly shedding the burden of the Covenants from the Property’s
market value by transferring the Property to BSU, knowing that BSU intended to transfer the
Property to the School District, which had the power of eminent domain. Thus, although Harris
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On appeal, Harris contends that Brighton got a bargain on the Property because the Restrictive Covenants reduced
the market value of the Property. However, this contention is contrary to language in the purchase and sale
agreement and in the memorandum of agreement stating that the Restrictive Covenants were agreed to “[i]n order to
protect and enhance the value of the Property and adjacent properties . . .”
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accepted $175,000 as just compensation from the School District for the value of the Restrictive
Covenants, Harris’ unjust enrichment claim is predicated upon a different alleged harm.
The prima facie case for unjust enrichment is “(1) a benefit conferred upon the defendant
by the plaintiff; (2) appreciation by the defendant of such benefit; and (3) acceptance of the
benefit under circumstances that would be inequitable for the defendant to retain the benefit
without payment to the plaintiff of the value thereof.” Aberdeen-Springfield Canal Co. v.
Peiper, 133 Idaho 82, 88, 982 P.2d 917, 923 (1999) (quoting Curtis v. Becker, 130 Idaho 378,
382, 941 P.2d 350, 354 (Ct. App. 1997)). Inequity exists if a transaction is inherently unfair.
King v. Lang, 136 Idaho 905, 910, 42 P.3d 698, 703 (2002). Yet the doctrine “does not operate
to rescue a party from the consequences of a bargain which turns out to be a bad one.” George v.
Tanner, 108 Idaho 40, 43, 696 P.2d 891, 894 (1985).
Harris has not shown that it conferred any benefit upon Brighton which it was inequitable
for Brighton to retain. The uncontroverted evidence establishes that Harris sold forty-four acres
of undeveloped property to Brighton at its fair market value. The parties’ purchase and sale
agreement did not place any conditions upon Brighton’s ability to divide and resell the property.
Indeed, it is evident that an investment company like Brighton was motivated by the prospect of
dividing the property and reselling it at a profit. Harris’ argument that Brighton’s eventual resale
of the Property to an entity vested with the power of eminent domain is a benefit conferred and
unjustly retained ignores the profit-driven nature of the parties’ transaction.
Nothing about Brighton’s transaction was inherently unfair. To the contrary, Brighton
refused to discuss conveyance of the Property to BSU and the School District until it was assured
that their negotiations with Harris were at an end. We are unwilling to accept Harris’ premise
that a party to a land transaction implicitly agrees not to convey that property to an entity
endowed with the power of eminent domain. Since unjust enrichment does not provide
compensation simply because one suffers the consequences of his own bad bargain, we find that
the district court properly granted Brighton’s motion for summary judgment dismissing Harris’
unjust enrichment claim.
C. As the prevailing party, Brighton is entitled to attorney fees and costs pursuant to the
purchase and sale agreement.
Brighton seeks an award of attorney fees incurred on appeal pursuant to the purchase and
sale agreement. Section 9.4 of that agreement provides, in pertinent part, as follows:
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In the event of any controversy, claim or action being filed or instituted
between Buyer and Seller to enforce the terms and conditions of this Agreement
arising from the breach of any provision hereof, the prevailing party shall be
entitled to receive from the other party all costs, damages, and expenses,
including reasonable attorney’s fees and costs through all levels of action,
incurred by the prevailing party.
As Brighton is the prevailing party in this appeal, we award attorney fees incurred in
connection with this appeal pursuant to the parties’ contract.
IV. CONCLUSION
We affirm the district court’s orders granting Brighton’s motions to dismiss and for
summary judgment, and award costs and attorney fees to Brighton as the prevailing party.
Chief Justice EISMANN and Justices BURDICK, J. JONES and W. JONES CONCUR.
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