Laybourn v. City of Wasilla

OPINION

J. INTRODUCTION

Property owners granted a utility casement to the Clty of Wasilla in exchange for the City's promise to build an access road across their property, subject to obtalmng permits and funding, The access road was not built, and the property owners sued the City, claiming that it fraudulently induced them- to sign the easement agreement, breached the agreement, and breached the covenant of good faith and fair dealing.

After trial the superior court made findings of fact and conclusions of law about the parties' negotiations, their reasonable expectations, the key provisions in the easement agreement, and the 'Clity's efforts to satisfy the agreement's conditions, and it ruled against the property owners on all their claims. The property owners appeal. The City cross-appeals, contending that the property owners' claimg should have been dismissed on statute of limitations grounds. | _

- We agree with the superior court's interpretation of the parties' agreement and find no clear error in its findings of fact, We therefore affiem its judgment in favor of the City and do not reach the issue raised in the City's cross-appeal.

18 FACTS AND PROCEEDINGS

A.: Facts

~ Bradley, < Alan, Douglas, and Diamond Laybourn own a piece of property south of the Parks Highway, between a subdivision on the east and the City of Wasilla's new multi-use sports complex on the west, The site of the sports complex had no preexisting infrastructure for water or sewer, so before construction the City approached the Laybourns in the fall of 2002 seeking a utility easement over the northern 60 feet of their property

. Archie Glddlngs, the Clty Engineer at the time, represented the City in negotiations with Bradley Laybourn, who represented the property owners. Giddings told Bradley that the City had limited options and that a utility easement through the Laybourns' property would be the most cost-effective one. In accordance with the City's usual practice, Giddings offered the Layboulns a waiver of the - sewer payrnent-ln-heu-of-assessment (PILA) fees or construction of a maintenance trail in exchange for the.. easement; the Laybourns rejected this initial offer, Countering, the Laybourns said they would allow the utility easement in exchange for both the PILA waiver and the City's construction of an access road that would run across the northern edge of their property, from South Mack Drive on the west (where the sports complex was being built) to their property's northeast corner. It was Giddings's view, however, that a road dead-ending in the Laybourns' property would serve no public purpose; he envisioned instead that the access road would continue east from the Layb-ourns' property to connect with Lake Lucille Drive (or Upper Road, a stub extending west from West Lake Lucille Drive), thus creating an alternate thoroughfare to the Parks Highway from the subdivisions near Lake Lucille.

Giddings and the Laybourns continued their negotiations in several meetings over the course of six months. Giddings then drafted the terms of a public utility easement *451 agreement, which the Laybourns signed on May 29, 2008. The agreement granted a public water and sewer easement to the City on the northern 60 feet of the Laybourns' property in exchange for the following consideration:

. 1) The City will not charge a sewer connection fee of sewer PILA (payment in-lieu of assessment) for future development on the grantor's property.

2) In 2008, the City will apply for a public use easement across parcel D2[ 1 ] in conjunction with a public use easement across parcel C2,[ 2 ] to provide access from Upper Road to South Mack Drive; and

In 2004, the City will apply for a wetlands permit to construct the access road that will include the dredging of fill material and <a delineation of wetlands on parcel C2; and

4) Upori approval of the public use easement and wetlands permit, the City will construct the access road in 2005, sub— ject to funding.

The City installed the water and sewer lines in the granted easement in the summer of 2008. Around the same time, as required by the agreement's second provision, the City applied for the public use easement necessary: for construction of the Upper Road extension and réceived conditional approval of it from the Matanuska-Susithaa Borough Platting Division. 3

Completing the conditions for final approval of the easement would have cost the City approximately $5,000, funds Giddings believed it imprudent to spend in the absence of a wetlands permit, The entire estimated cost of the Upper Road extension was approximately . $500,000. - The City's local sources of funding for all its.capital improvements City-wide-for water and sewer systems, roads, the airport, and buildings-aver'aged approximately $1.2 million in 2008 and subsequent years. Construction of . the sports complex was a $20 million project which the City financed in part with bonding of $14.7 million. To pay the debt service on the bonds, the Wasilla City Council raised the City sales tax by ordinance from 2.0% to 25%; proceeds from the tax increase were dedicated to that purpose. 4 The City therefore depended upon state and federal funding for many aspects of the sports complex project, including ballfields, paving, kitchen facilities, and water and sewer lines. Giddings testified that the City initially planned to pay $50,000 toward the Upper Road extension and look to the State for the remaining $450,000 of its estimated cost. The City included the Upper Road extension in its funding requests to the legislature in 2005 and again in 2006, but the legislature rejected the request both times.

The City did not apply for a wetlands permit in 2004, as required by the easement agreement's third provision. When Giddings began the application process toward the end of that year, he realized he would need someone with engmeenng expertise to delineate the wetlands as required for the apphcatlon s completion. This would require funding; in May 2006, therefore, Giddings asked the City Council to authorize a contract at an estimated cost of approximately $50,000 for the permitting and design of the Upper Road extension, to include the cost of the engineer;

At a City Council meeting, several citizens voiced their opposition to the Upper Road extension, and by a vote of five to one the Council denied Giddings's authorization request, In the face of this lack of public and *452 C1ty Council support, Giddings dropped the Upper Road extension from the list of capital projects for which the City sought funding from the State during the 2007 legislative session. The City never finished delineating the wetlands or applying for the wetlands permit.

B. Proceedings

The Laybourns filed suit against the City in 2011. In an amended complaint they asserted, among other things, that (1) the City made misrepresentations of fact and omitted facts it had a duty to disclose during the course of negotiations; (2) the Clty’s failure to apply for a wetlands permit and to construct the access road breached the terms of the agreement and the implied covenant of good faith and fair dealing; and (@@) the agreement should be 'rescinded because of the Laybourns' unilateral mistake, The Laybourns sought specific performance of the agreement (as they interpreted it) or, alternatively, rescission and damages, including punitive damages.

The City moved for partial summary judgment on the Laybourns' contract claims, arguing they were subject to a three-year: statute of limitations. 5 The superior court denied the motion, ruling that the claims were subject instead to the six-year limitations pemod for waste or trespass on real property. 6

The superior court then held a three-day bench trial. In written findings of fact and conclusions of law, the court rejected both the Laybourns' characterization of the parties' negotiations and their interpretation of the agreement's key provisions, The court found that the City made no misrepresentations and omitted no material facts it had a duty to disclose; it also concluded that the Laybourns' claims for breach of contract and breach of the implied covenant of good faith and fair dealing failed because the agreement expressly conditioned construction of the access road upon available funding and obtaining a wetlands permit, conditions that did not occur despite the City's. reasonable efforts. The court found for the City on all the Laybourns' claims and entered final judgment in the City's favor.

The Laybourns appeal the judgment against them,. claiming both clear errors of fact and mistakes of law. The City cross-appeals the denial of summary judgment on its statute of limitations defense.

III. v STANDARDS OF REVIEW

We review the superior court's interpretation of a contract de novo. 7 "When interpreting a contract, the goal 'is to give effect to the reasonable expectations of the parties' " 8 "Where the superior court considers extrinsic evidence in interpreting contract terms, ... we will review the superior court's factual determnamons for clear error," 9

Whether there has been a breach of contract or the covenant of good faith and fair dealing is a question of fact reviewed for clear error. 10 We review "findings of fact by the superior court on issues of misrepresentation under the clearly erroneous standard" 11 and "give particular deference to the supemor ' court's factual fmdlngs when ... they are based primarily on oral testimony, because the superior court, not this court, judges the credibility of witnesses and weighs conflicting evidence." 12 We will find *453 clear error only when "after a thorough review of the record, we come to a definite and firm conviction that a mistake has been made." 13 We review all factual findings "in the light most favorable to the prevailing party below." 14

We review for abuse of discretion a trial court's denial of rescission of a contract due to unilateral mistake. 15

IV. DISCUSSION

A. The Superior Court Did Not Clearly Err In Finding That The City Did Not Fraudulently Induce The Layb-ourns To Sign The Easement Agreement. j |

The Laybourns first contend that the superior court erred when it failed to find that the City fraudulently induced them to enter into the easement agreement by misrepresenting material facts and omitting facts it had a duty to disclose. We conclude that there was no error, To address the Layb-ourns' argument we turn first to the language of the parties' agreement.

1. The easement agreement was unambiguously conditional.

"A condition is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due." 16 Because conditions are disfavored, "[tlo be enforceable, a condition must be 'expressed in plain, unambiguous language or arise by clear implication.' " 17 The fourth provision of the parties' agreement says: "Upon approval of the public use easement and wetlands permit, the City will construct the access road in 2005, subject to funding." The superior court interpreted this language to mean that "[tlhe City's obligation to build a road was unambiguously conditioned upon available funding and permitting approval." The court concluded that the Laybourns' contrary interpretation "fails as a matter of common sense given the totality of the cireamstances involved in this project and the plain, everyday meaning of the key. provisions contained within the agreement." We agree with the superior court's reading of, the agreement.

The Laybourns argue 'that "subject to funding" is not a condition but instead is "meant to qualify the year the City is to construct the access road"-that is, it is a statement that the project will 'be done in 2005 if enough tax revenue has accumulated by then and that otherwise it will be done later, The Laybourns contend that if funding was meant to be a condition, it would have been listed at the béginning of the sentence with the other conditions: approval of the public use easement and the wetlands permit, The Laybourns say they minimized the importance of the'agreement's "subject to funding" language because they believed funding to be a "foregone cginclusion,” in that "the only contingency in [the] agreement was the passage of enough time to accumulate funding for the project from an increase in the City's sales tax."

A court's object in interpreting any contract term is to "give effect to the reasonable expectations of the parties." 18 The court "looks to the language of the disputed provision, the language of other provisions of the contract, relevant extrinsic evidence, and case law interpreting similar provisions." 19 *454 Extrinsic evidence may include "the nature of the business, the parties' negotiations, and the structure of the [algreement." 20

The language of the disputed provision supports the superior court's conclusion that it is an express condition, Considering the "ordinary, contemporary, common meaning" 21 of "subject to" used in a contract, we note that other courts have determined the phrase to be unambignous as imposing a condition precedent on a party's duty of performance. 22 Giddings's testimony supports a finding that the parties intended this common meaning. Addressing the Laybourns' perception that funding was a "foregone, conclusion," Giddings testified it would render the "subject to funding" provision meaningless. 23 He testified:

[In 2008 the City can't guarantee we can build a road. We don't have permits, we don't have funding. Without funding and permits-as it's pointed out earlier, you need all three of these things. If I have any two of these things, I can't build the road,. I can have all the money in the world and no [Army] Corps permit. I could have a [public use easement] and money and the Corps would say, no, there's some critical wetlands there.

Giddings testified that if the project had not been subject to funding-if it was dependent solely on the accumulation of sales tax revenues, which are "real predictable"-the agreement would have said that the project "won't be subject to funding-the funding will be ready on this date if it's [solely dependent on the] sales tax."

The Laybourns contend, however, that "it defies all common sense" to believe they would have agreed to an exchange in which the City's performance was completely contingent on events-funding and the approval of permits-that were ultimately beyond the City's 'eontrol. But the superior court found that they did agree to that exchange. It found that over the course of the six-month negotiation "there was considerable give and take regarding the consideration that the City would provide in exchange for the easement" and that "[the Laybourns enjoyed significant bargaining power over the City to influence the key terms placed into the utility {elasement document." These findings are not clearly erroneous and support the superti- or court's conclusion that the City's obligation to construct the access road was unambiguously conditional and that the parties should reasonably have understood it in that way.

2. The superior court did not clearly err in finding that the City did not misrepresent material facts or fail to disclose facts it had a duty to disclose.

The Laybourns contend that the City, through Giddings, made three misrepresentations: of material fact during the negotiations that induced them to enter into the easement agreement. They contend that the City misrepresented (1) the gcceess road's planned extent (Le., that it would not end on the Laybourns' property, as they thought, but rather would reach Lake Lucille Drive on *455 the east); 24 (2) the source of the funding (Me., that it was dependent on state legislative action rather than simply the accumulation of City sales tax revenues); and (8) the conditional nature of the agreement (Le., that the City's obligation to build the road depended on both permitting and funding, neither of which was guaranteed). They further contend that the City omitted the important facts that the project was subject to public notice and comment as well as further approvals

To prevail on their misrepresentation claim, the Laybourns were required to prove the existence of either an affirmative misrepresentation 25 or an omission where there was a duty to disclose. 26 The superior court found, however, that they failed to prove any misrepresentation of fact. As for the alleged omissions, the court concluded that "the City has no duty to disclose those facts that the Laybourns are expected to discover by ordinary inspection and inquiry," such as that City sales tax revenues were already dedicated by ordinance to pay debt service on the bonds and that the City had to look elsewhere for money to fund most of its capital proj jects.

The superior. court acknowledged that "tlhe testimony at trial described two very different perspectives of the same transaction." Since the findings as to the parties' stated positions during the negotiations depended on the eredibility of the participants, we defer to the superior court's resolution 'of conflicts in their testimony as to what was disclosed and what was not. 27 Evidence at trial supported the superior court's finding that there were no misrepresentations. About the length of the road, Cliddings testified that if it dead-ended in the Laybourng' property, thus benefitting only the Layb-ourns, the project "Iwouldn't] pass the straight-face test in Juneau, [or] at a council meeting"; he therefore "pitched [the project] to the Laybourns" as extending all the way to Lake Lucille Drive, prov1d1ng a bona fide public benefit because it operated "as a see-ondary outlet" from the neighborhoods to the Parks Highway, On the subject of permitting, although he acknowledged it was "possible" the Laybourns misinterpreted his "air of confidence" as meaning "this is a done deal," he testified that he would never have guaranteed a project unconditionally unless he "had the permits in hand and the funding," and in this case he had neither. As for funding, he testified there was "no time that we ever contemplated or communicated that we were going to put sales tax. in to fund this road." He testified that he told the Laybourns that the City would have to seek funding from other sources and "[he didn't] think [the Laybourns] had an issue with that." He testified that he "never got close to saying" that the construction of the road was "a done deal"; that he never guaranteed. the Layb-ourns that it was a "foregone conclusion" and that because any one of three steps-the public use easement, the wetlands permit, and the fundmg—could "derail the project," "the City was not: prepared to guarantee anything .in writing." <The superior court's finding that the City made no misrepresentations of material fact is thus supported by *456 CGiddings's testimony, which the superior court found credible, and the finding is not clearly erroneous.

We also reject the Laybourns argument that the City omitted material facts it had a duty to disclose. "The duty to disclose arises when facts are concealed or unlikely to be discovered because of the special relationship between the parties, the course of their dealings, or the nature of the fact itself." 28 The duty "is rarely imposed where the parties deal at arm's length and where the information is of the type which the buyer would be expected to discover by ordinary inspection and inquiry." 29 The parties to this case did not have a prior course of dealing. Nor did they have a special relationship; as the superior court found, they dealt at "arm's length" over a six-month period during which the Laybourns exercised "significant bargaining power." We also find no clear error in the superior court's determination that the information the Laybourns allege was omitted-largely having to do with the inner workings of local government and its sources of funding for capital projects 30 -was of a kind not uniquely available to the City but rather was "either spelled out in the agreement or matters of public record," and it thus was of the type that one "would be expected to discover by ordmary mspectmn and inquiry." 31

8. The superior court did not clearly err in finding that the Laybourns benefitted from the easement agreement. |

- Finally, we reject the Laybourns' argument that the easement agreement was so obviously one-sided they would not have agreed, to it absent fraud by the City. The superior court found that the Laybourns ben-efitted from the agreement regardless of whether the access road was built. They gave the City an easement with a fair market value of $2,900 and received in exchange a payment-in-lieu-of-assessment waiver with a potential value of $32,000, depending on how their property was subdivided. In addition, their property more than doubled in value between 2003 and 2018, leading the superior court to conclude that "(there is no question that the value of the [plroperty with prein-stalled water and sewer utility lines has ben-efitted the Laybourns." These findings of fact are not clearly erroncous. 32

- Having considered the language of the agreement and the superior court's findings of fact, we affirm the superior court's decision that the agreement was expressly condi *457 tional and its finding that the Laybourns were not fraudulently induced to sign it. 33

B. -The Superior Court Did Not Clearly "~Err In Finding: That The City Did - Not Breach The Easement Agreement Or The Imphed Covenant Of Good Faith And Fair Dealing.

"If [a] condition is not fulfilled, the right to enforce the contract does not come into existence." 34 The. superior court found that the City did not breach its agreement with the Laybourns because the "subject to funding" condition was not met. 35 The Laybourns challenge this finding for clear error; they contend that the C1ty did have funds to pay for the access road but simply chose to spend them elsewhere, and separately that the City's failure to apply for the wetlands permit 'in 2004 was also a breach regardless of the status of funding. But ample evidence in the record supports the supenor court's findings.

First, there is no- clear error in the superi- or court's finding that the City failed to acquire the necessary funding for the access road. The evidence showed that the City's usual capital budget could not accommodate a $500,000 project like the Upper Road extension; that the sports complex itself, financed by bonds, was underfunded by some $6 million; that the City sales-tax increase related to construction of the complex was dedicated by ordinance to debt service on the bonds; that the City was dependent on state and federal funding sources for. additional improvements; and that specific requests to the legislature to fund the Upper Road extension were unavailing.

The Laybourns also contend that the City had enough money available to construct the access road because it had a "reserve" fund of $378,000 left over from the sales-tax increase after construction 'of the sports complex had been fully paid for. The City admitted that the money in the reserve fund was intended to pay for future capital improvements to the complex. But not only is that amount still insufficient for construction of the access road (estimated to cost $500,000), Giddings also testified that using the reserve fund would still require approval by the City Council-which voted against funding the road, even to the limited extent of a $50,000 engineering contract to support the City's application for the wetlands permit.

As for the City's failure to apply for the wetlands permit, it is undisputed that the agreement required the City to do so in 2004 and, although it began the process, it ultimately did not complete it, But this failure caused no harm to the Laybourns; regardless of whether the City succeeded in the other steps for permitting and approval, the access road could never be built without funding.

The Laybourns also challenge the superior court's finding that the City did not breach the covenant of good faith and fair dealing because it took "affirmative steps" to satisfy the agreement's funding and permitting conditions. The covenant of good faith and fair dealing is included in all contracts in Alaska. 36 As the superior court *458 noted, "[tlo establish a claim for: breach of the covenant ...,; the Laybourns must prove that the City failed to effectuate the reasonable expectations of the parties." 37 "Where a duty of one party is subject to the occurrence of a condition, the additional duty of good faith and fair dealing .... may require ... refraining from conduct that will prevent or hinder the occurrence of that condition or .. taking affirmative steps to cause its occurrence." 38 A party asserting a breach of the covenant must prove that the other party failed to act in subjective good faith, "meaning that it cannot act to deprive the other party of the explicit benefits of the contract," or that it failed to act "in objective good faith, which consists of acting in a manner that a reasonable person would regard as fair." 39

The Laybourns contend that the City's inaction made it unlikely that thé "subject to funding" condition would ever be satisfied. They assert that Giddings expanded the project to make it more expensive and' compli'cated; that he waited three years after the agreement was signed before he made his first request for funds from the City Council; 'that the City selectively chose not to tap the sales tax reserve fund after the sports complex was completed; that the City ignored other possible state, borough, and. federal sources of project funds; and that in formulating funding requests to the legislature and the City Council, Giddings never explained to them the importance of the utility easement or how much money the Laybournas saved the City by agreemg to it. >

But we see no clear error in the superior court's finding that "[tlhe City took affirmative steps to cause the funding and permitting conditions to be satisfied." Lacking sufficient local resources, the City included the eapital project in two successive but unsue-cessful requests to the legislature. Although the Laybourns' counsel asked Giddings at trial about other sources .of federal, state, and borough funding that for one reason or another the City did not pursue, the Laybourns presented no evidence that any of these sources were likely enough to pay off that it would have been reasonable to pursue them. Giddings testified that he carried the wetlands permit application process as far as he could without expert support, then was stymied when the City Council, in the face of public opposition, declined to authorize the engmeermg contract necessary to complete it, And it was only when City Council and public opposition to the Upper Road extension became evident 'that Giddings dropped the capital project from the next year's funding request to the state legislature.

The evidence thus.shows that the City took reasonable affirmative steps to satisfy the conditions of the easement agreement, and it fails to show that there were other steps the Laybourns reasonably expected, We find no clear error in the superior court's decision that the City did not breach the covenant of good faith and fair dealing.

C The City's Contractual Obligatlons Were Not Indefinite. .

Finally, the Laybourns 'contend that the City breached the easement agreement by ultimately discontinuing efforts to seek finding; they argue that under the terms of the agreement and the partiés' reasonable expectations, the City's obligation to build the gecess road was and still is "ongoing." Although the superior court did not expressly address this argument, we assume it was implicitly rejected by the superior court's findings that the City discontinued its efforts in 2006 and yet did not breach the agreement or the covenant of good faith and fair deal-Hig. ~

The agreement states that "(upon approval of the public use easement and wetlands permit, the City will construct the access *459 road in 2005, subject to funding." The City's second funding request to the state legislature was in 2006, and that same year Gid-dings asked the City Council to fund the engineering contract in support of the wetlands permit application; these activities demonstrate the City's own understanding that its reasonable efforts extended past 2005. But the City's obligation was not of an unlimited duration.

As already noted, when the occurrence of a condition precedent "is within the sole control of a single party, most authorities require that party to take. 'reasonable' steps to obtain the occurrence of the condition." 40 Timing may be. spelled out in the contract but need not be, "Where no provision is made as to time of performance, a reasonable time is implied." 41 Thus, "[ilf performance must occur within a reagonable time, then conditions precedent, because they impose a duty to perform on obligees, must also occur within a reasonable time." 42 "Ordinarily, what constitutes a reasonable time is a question of fact for the trial court." 43 A reasonable time is "to be determined upon consideration of the. subject matter of the contract, what was contemplated at the time the contract was made, and other surrounding cireumstances." 44 These rules, taken together, in this case mean that although the City was required to make reasonable efforts to cause the conditions precedent to occur, it could cease its efforts after a reasonable time. 45

The agreement was signed in 2008 and referred to activities that the parties expected to be done in 2008, 2004, and 2005. Gid-dings testified that the inclusion of the year 2005 in the agreement as a target date was not "arbitrary" but rather was intended to reflect the two-year time frame that the City contemplated for projects of this type, accounting for the process of obtaining funding and the limits of political will, The City failed to satisfy the funding and permitting conditions by 2005 but, as noted, continued its efforts into 2006 before Giddings dropped the project in the- face of adverse. public comment and opposition from the City Council. Based on the superior court's findings, we see no clear error .in its implicit rejection of the Laybourng' argument that the City breached either the terms of the agreement or the covenant of good faith and fair dealing when it diséontinued its efforts after 2006.

v. CONCLUSION

We AFFIRM the superior court's Judgment in favor of the City. 46