Broad Ripple Property Group, LLC v. City of Indianapolis

FILED
Oct 18 2017, 10:56 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEY FOR APPELLANT ATTORNEYS FOR APPELLEE
Tony H. Abbott Donald E. Morgan
Indianapolis, Indiana Melissa Hayden Kramer
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Broad Ripple Property Group, October 18, 2017
LLC, Court of Appeals Case No.
Appellant-Defendant, 49A04-1608-OV-1773
Appeal from the Marion Superior
v. Court
The Honorable Cynthia J. Ayers,
City of Indianapolis, Judge
Appellee-Plaintiff Trial Court Cause No.
49D04-1509-OV-31862
Altice, Judge.
Case Summary
[1] Broad Ripple Property Group (BRPG) leased space in commercial real estate at
5306 N. Keystone Avenue (the Property) in Indianapolis to Weihong Tan
Kreiter, an individual doing business as Sunrise Therapy Spa (Tenant). From
that location, Tenant operated an unlicensed massage establishment in
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violation of the Revised Code of the Consolidated City of Indianapolis and
Marion County (Revised Code) § 912-2. BRPG had no knowledge that a
license was required for such use of the Property and was unaware of any illegal
or illicit activity occurring on the Property.
[2] Two undercover IMPD officers made separate visits to Tenant’s unlicensed
massage establishment and were offered genital touching in violation of
Revised Code § 912-6(f). IMPD subsequently shut down Tenant’s business and
notified BRPG, who in turn promptly terminated Tenant’s lease.
[3] The City of Indianapolis (the City) filed a complaint against BRPG for damages
and injunctive relief, alleging violations of Revised Code §§ 912-2 and 912-6(f).
With respect to damages, the City sought an award of compensatory damages,
punitive damages, and fines against BRPG. Shortly after the complaint was
filed, the City and BRPG entered into an agreed preliminary injunction to
ensure that the Property would not be used during the pending litigation as a
massage establishment without a valid license and would not be used for illicit
purposes. The parties then filed competing motions for summary judgment,
and the trial court granted summary judgment in favor of the City on all counts.
[4] BRPG appeals from the entry of summary judgment and argues that it was
entitled to summary judgment. The City has filed a motion to dismiss the
appeal, arguing that the issue is moot. Thus, we are presented in this appeal
with the following issues:
1) Should we dismiss the appeal as moot?
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2) Is BRPG, as owner/lessor of the Property, liable under the
Revised Code for Tenant’s operation of an unlicensed massage
establishment?
[5] We reverse and remand.1
Facts & Procedural History
[6] The facts are not in dispute. On November 8, 2014, BRPG entered into a
commercial lease agreement with Tenant, with an understanding that Tenant
intended to operate a “therapy and spa business” at the Property. Appellant’s
Appendix Vol. 2 at 202-03. Tenant was prohibited by the terms of the lease
agreement from using the Property for any other purpose without prior written
consent. BRPG was unaware that a license would be required for use of the
Property as a massage establishment and did not require Tenant to produce a
license prior to entering into the lease agreement.2 The lease agreement,
however, required Tenant to comply with all rules, regulations, and laws in its
use and occupancy of the premises. Aside from $1300 monthly rental
payments, BRPG did not receive financial benefits from Tenant’s business.
Further, BRPG did not exercise control over Tenant’s day-to-day operations
and its only business relationship with Tenant was as landlord-tenant.
1
Oral argument was held in Indianapolis on September 26, 2017. We commend counsel for both parties for
the quality of their written and oral advocacy.
2
BRPG never required its commercial tenants to present verification or copies of licenses and/or permits
needed to operate businesses or commercial enterprises on properties owned by BRPG.
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[7] Tenant proceeded to operate an unlicensed massage establishment at the
Property. On September 11, 2015, IMPD began to conduct an undercover
investigation of Tenant’s business activities and operations at the Property. The
investigation revealed that patrons were being offered genital touching in
exchange for additional compensation. Thereafter, the City shut down
Tenant’s unlicensed massage establishment. BRPG was unaware of any illicit
activity occurring on the Property or of Tenant’s lack of a required license to
operate the massage establishment. Upon learning of Tenant’s violations,
BRPG promptly terminated the lease agreement.
[8] On September 25, 2015, the City filed the instant action against BRPG. The
complaint alleged the violation of two ordinances regulating massage
establishments – Revised Code §§ 912-2 and 912-6(f). Specifically, the City
alleged, among other things, that BRPG was “actively operating, conducting,
maintaining, and/or allowing a massage establishment at the [Property]
without a valid license therefor from the licensing administrator in violation of
Section 912-2 of the Revised Code.” Appellant’s Appendix Vol. 2 at 14. The City
also alleged that BRPG was “allowing, promoting, maintaining, conducting,
managing, operating and facilitating acts that require the touching of a patron’s
genitals in violation of Section 912-6(f) of the Revised Code.” Id. at 16. As a
result of these alleged violations, the City sought preliminary and permanent
injunctive relief and damages, including fines, compensatory damages, and
punitive damages. The day that the complaint was filed, the trial court entered
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a temporary restraining order and set the cause for a preliminary injunction
hearing for October 7, 2015.
[9] In lieu of the hearing, the parties submitted an agreed preliminary injunction to
the court, which enjoined BRPG and its tenants, while the cause was pending,
from allowing the operation of an unlicensed massage establishment and from
knowingly allowing activities that involve the touching of a patron’s genitals or
any other illegal activity at the Property. The parties also requested that the
matter be set for a pre-trial status hearing, at which they would notify the court
regarding the status of the litigation, discovery efforts, early dispute resolution
discussions, and the need for a formal case management order and trial setting.
The trial court accepted the agreement and held a pretrial conference on
December 7, 2015. Shortly thereafter, trial was set for June 24, 2016, and later
continued on the court’s own motion to July 13, 2016.
[10] On April 19, 2016, the City filed a motion for summary judgment. It argued
that as the property owner BRPG was responsible for the violations of the
Revised Code that occurred on the Property. BRPG filed a competing motion
for summary judgment on May 2, 2016, arguing that because it did not have
any ownership interest in or control over Tenant’s business, BRPG did not, as a
matter of law, directly or indirectly operate, conduct, or maintain a massage
establishment without a license.3 BRPG indicated in its summary judgment
3
In support of its motion for summary judgment, BRPG designated the affidavit of Richard Trimpe, an
expert in the commercial real estate industry in Indiana. Trimpe indicated that it was not common practice
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filings that while it did not oppose the temporary restraining order becoming
permanent, it did oppose any finding that it had violated the ordinances as
alleged in the complaint, as well as the assessment of damages or fines.
[11] A brief summary judgment hearing was held on June 27, 2016, at which a joint
stipulation of facts was submitted and arguments were made by the parties. On
August 1, 2016, the court granted summary judgment in favor of the City on all
claims. In its order, however, the court did not set a hearing regarding damages
and fines that were requested in Count II of the complaint, nor did it set out the
terms of the permanent injunction. BRPG sought clarification from the trial
court regarding the finality of the order. As a result, the trial court entered an
amended order on August 3, 2016, finding “no just reason for delay”, entering
judgment in favor of the City on all counts of the complaint, and indicating that
the order “constitutes a final judgment in the case.” Appellant’s Appendix Vol. 2
at 8-9. Accordingly, BRPG initiated this appeal. BRPG contends that it, rather
than the City, is entitled to summary judgment.
Discussion
1. Mootness
[12] The City has filed a motion to dismiss the appeal as moot. It asserts that even
though the trial court entered judgment for the City, the court awarded no
for a commercial landlord to verify that a prospective or existing lessee has obtained or renewed the
governmental licenses, permits, and approvals related to the lessee’s business.
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damages nor did it convert the preliminary injunction into a permanent
injunction. Accordingly, the City contends that this court is unable to provide
effective relief on appeal. See Larkin v. State, 43 N.E.3d 1281, 1286 (Ind. Ct.
App. 2015) (an issue will be deemed moot when we are unable to provide
effective relief).
[13] The City’s position is tenuous. The trial court expressly granted summary
judgment in favor of the City on all counts of the complaint. The complaint
sought a permanent injunction against BRPG, as well as fines, compensatory
damages, and punitive damages. Indeed, the City was not satisfied with the
agreed preliminary injunction and continued to pursue the matter.
[14] After the trial court issued its summary judgment order in favor of the City on
all counts, the amount of damages remained undetermined. Thus, the August
1, 2016 order was not in fact final. See Georgos v. Jackson, 790 N.E.2d 448, 451
(Ind. 2003) (observing that a final judgment disposes of all issues as to all
parties and leaves nothing for future determination). We remind the City that
“[a] judgment that fails to determine damages is not final.” Id. at 452.
[15] The trial court’s use of the magic language of Ind. Trial Rules 54(B) and 56(C)
in its amended order had the effect of making the otherwise interlocutory order
final and appealable.4 See Georgos, 790 N.E.2d at 452 (the requirement that a
4
The trial court’s amended order provided in relevant part: “there being no just reason for delay, judgment is
entered for [the City] on its Motion for Summary Judgment on all Counts of the Complaint.” Appellant’s
Appendix Vol. 2 at 8-9.
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court use the “magic language of the rule” is “intended to provide a bright line
so there is no mistaking whether an interim order is or is not appealable”);
Martin v. Amoco Oil Co., 696 N.E.2d 383, 385 (Ind. 1998) (“A judgment or order
as to less than all of the issues…in an action may become final only by meeting
the requirements of T.R. 54(B)”). The issue(s) not resolved by the judgment,
however, remains ripe for determination by the trial court. In other words,
BRPG remained subject, at a minimum, to a hearing on damages and fines.
Because we are able to provide effective relief in this case, the issue presented in
BRPG’s appeal is not moot.
2. Summary Judgment
Standard of Review
[16] We review summary judgment de novo and apply the same standard as the trial
court. Hughley v. State, 15 N.E.3d 1000, 1003 (Ind. 2014). Summary judgment
is appropriate where the designated evidence establishes that there is no genuine
issue as to any material fact and that the moving party is entitled to judgment as
a matter of law. Id. It is a desirable tool to allow courts to dispose of cases,
like the instant case, where only legal issues exist. Id.
[17] The facts in this case are undisputed and our consideration of this appeal entails
the interpretation of provisions of the Revised Code. When construing
ordinances, we apply the rules applicable to statutory construction. City of
Indianapolis v. Campbell, 792 N.E.2d 620, 624 (Ind. Ct. App. 2003). The
primary rule of statutory construction is to ascertain and give effect to the intent
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of the drafters. FLM, LLC v. Metro. Dev. Comm’n of Marion Cty., 76 N.E.3d 952,
957 (Ind. Ct. App. 2017), trans. denied. The best evidence of that intent is the
language of the ordinance, and all words must be given their plain and ordinary
meaning unless otherwise indicated by the ordinance. Id. We will attempt to
harmonize statutory provisions, but when they necessarily conflict, the specific
provision takes priority over the general provision. See Robinson v. Wroblewski,
704 N.E.2d 467, 475 (Ind. 1998); Medical Disposal Servs., Inc. v. Ind. Dep’t of
Envtl. Mgmt., 669 N.E.2d 1054, 1059 (Ind. Ct. App. 1996) (“[w]hen one statute
covers a particular subject in general terms and another statute covers the same
subject in a more detailed or specific manner, then we first attempt to
harmonize the statutes, but if the statutes are irreconcilably conflicting the more
detailed statute prevails”), trans. denied.
[18] The City’s complaint alleged the violation of the following two ordinances
under the umbrella of Title IV, Chapter 912 of the Revised Code, which
specifically regulates massage establishments.5
Sec. 912-2. – License required.
It is unlawful for a person or firm to operate, conduct or maintain
a massage establishment in the city without first having obtained
a license therefor from the license administrator.
5
Title IV includes specific registration, permitting, and licensing provisions for a variety of other businesses,
some of which include adult entertainment (Chapter 807), alarm businesses (Chapter 811), amusement
machine locations (Chapter 831), kennel/pet shop/stables (Chapter 836), ticket brokers (Chapter 841),
contractors/skilled trades (Chapter 875), and tobacco businesses (Chapter 988).
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Sec. 912-6. – Operation
***
(f) No person in a massage establishment shall initiate or solicit,
verbally or nonverbally, sexual activity with a client.
[19] At oral argument, the City candidly conceded that there was no basis for
holding BRPG liable for Tenant’s violation of § 912-6. The City has also
acknowledged that when read in isolation § 912-2 “does not lead inexorably to
the conclusion that a commercial landlord is liable when its tenant operates an
unlicensed massage business.” Appellee’s Brief at 10. The City asserts, however,
that when § 912-2 is read in harmony with § 801-301(a), it becomes clear that
property owners such as BRPG are liable for violations occurring on their
property.
[20] The general licensing provisions of Title IV are set out in Chapter 801 of the
Revised Code. Section 801-102 indicates that the “provisions of this chapter
shall apply to all businesses that are required under the following chapters of
this title to be licensed by the license administrator”. Additionally, the City
directs us to two other general provisions:
Sec. 801-101. – Purpose of Title IV of the Code.
It is the purpose of Title IV of the Code to license certain
businesses for the protection of the public welfare. The
provisions of this title should be liberally construed to that end.
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Sec. 801-301 – License required; evidence of doing business;
applicability to nonresidents.
(a) It shall be unlawful for a person, either directly or indirectly,
to conduct or maintain any business or premises for which a
license is required by this Code, unless a valid license has
been obtained therefor from the license administrator and kept
in effect at all times….
[21] The City argues that § 801-301 extends liability to a property owner even where
the owner’s only connection to the unlicensed business is as landlord and the
owner has no knowledge of its tenant’s violations of the licensing ordinances.
Specifically, the City contends that the undisputed facts establish that BRPG
indirectly maintained Tenant’s business6 and directly maintained the premises.
Thus, according to the City, BRPG is liable for the violations of § 912-2.
[22] We reject the City’s overly-broad interpretation of the relevant ordinances and
agree with BRPG that the City’s proposed interpretation and application of the
ordinances essentially make a commercial landlord strictly liable for its tenant’s
violation of the various licensing ordinances. Nothing in Title IV requires a
property owner to verify that applicable permits and licenses have been
obtained before leasing property to a regulated business. Moreover, the City’s
interpretation would require a commercial landlord, big or small, to constantly
6
With respect to indirectly maintaining Tenant’s business, the City notes that the lease agreement required
Tenant to keep the business open during normal business hours and not cease operations without express
written consent of BRPG. Further, the agreement provided the Property would be used solely by Tenant for
the operation of Tenant’s therapy and spa business.
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monitor its tenants to ensure that all permits and licenses are kept current. As
Trimpe’s expert affidavit indicates, the custom within the local commercial
leasing industry is that tenants are required by the lease terms (as in this case) to
comply with all laws and regulations for the operation of their businesses but
that landlords do not verify or monitor tenant’s business permits and licenses.
[23] In the instant case, BRPG did not “operate, conduct, or maintain a massage
establishment” within the common and ordinary meaning of those words.
Indeed, the undisputed facts establish that BRPG was not in a business
relationship with Tenant, except that of landlord. BRPG had no knowledge of
the ordinance violations being committed by Tenant.7 Moreover, the duty to
apply for the license was clearly Tenant’s, not BRPG’s. Recognizing these
realities, the City asks us to interpret § 912-2 in light of § 801-301.
[24] We do not find that these two provisions are in conflict with one another. Like
§ 912-2, § 801-301(a) speaks in terms of “conduct” or “maintain” the business
or premises for which a license is required (i.e., the massage establishment).
Unlike § 912-2, the provision references “directly or indirectly” conducting or
maintaining but that addition cannot reasonably be read to impose liability on a
commercial landlord with no financial ties to the regulated business.8
7
Even if Tenant’s actions rose to the level of a nuisance, BRPG would be liable under the common law only
if it had actual knowledge. See Neal v. Cure, 937 N.E.2d 1227, 1232-33 (Ind. Ct. App. 2010), trans. denied.
8
Revised Code § 801-102 (b) defines “financial interest” to mean:
(1) Any of the legal rights of ownership or beneficial interest in the profits of a business; or
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[25] The purpose of Title IV of the Revised Code is to “license certain businesses for
the protection of the public welfare.” Revised Code § 801-101. Further, the
general provisions regarding licenses found in Chapter 801 “apply to all
businesses that are required under the following chapters of this title to be
licensed”. Revised Code § 801-102(a) (emphasis supplied). Section 801-102
defines “business” to include “any kind of vocation, occupation, profession,
enterprise or any kind of activity (together with any equipment, vehicles or
other personal property, and any premises used therein) that is conducted,
directly or indirectly in the city.” The same provision defines “premises” as “all
real estate (including structures and fixtures affixed thereto) used in a business,
together with all equipment, vehicles and other personal property used in that
business.”
[26] Following the purpose, applicability, and definitional provisions (Article I),
Chapter 801 then sets out detailed licensing procedures (Article II) and licensing
requirements and conditions (Article III). The focus throughout is on the
licensee9 and the business being regulated. As set out above, one of these many
provisions makes it “unlawful for a person, either directly or indirectly, to
(2) Any portion of the legal rights of ownership in any partnership, corporation or other legal
entity having any portion of such rights or beneficial interest; equal to or greater than five
(5) percent of the whole. “Financial interest” includes, but is not limited to, the interest
held by stockholders and officers of corporations or similar business entities.
9
Revised Code § 801-304 provides that whenever an agent or employee of a licensee “commits an act or
omission in violation of the provisions of this Code, the act or omission shall be deemed to be that of the
license, and the licensee shall be subject to the same penalties and enforcement actions as if the act or
omission had been committed personally by the licensee.”
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conduct or maintain any business or premises for which a license is required by
this Code, unless a valid license has been obtained…and kept in effect at all
times”. Revised Code § 801-803(a). We cannot agree with the City that this
one provision clearly subjects commercial landlords such as BRPG to liability
for licensing violations committed by their tenants, and when read in context
with the entire regulatory scheme, the unreasonableness of the City’s
interpretation is apparent.
[27] Accordingly, we conclude that the trial court erred in granting summary
judgment in favor of the City and in denying BRPG’s motion for summary
judgment. The trial court is directed on remand to enter summary judgment in
favor of BRPG.
[28] Judgment reversed and remanded with instructions.
Kirsch, J. and Mathias, J., concur.
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