Hometown Station, Inc. v. Jimmy Jessey (mem. dec.) ( 2018 )

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.
Court of Appeals of Indiana | Memorandum Decision 32A01-1707-PL-1548 | February 2, 2018 Page 10 of 10