HARRODSBURG INDUSTRIAL WAREHOUSING, INC., AND RILEY & PEAVLER, LLC v. MIGS, LLC AND HARRODSBURG/MERCER COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY
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RENDERED:
February 25, 2005; 2:00 p.m.
TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2003-CA-002544-MR
HARRODSBURG INDUSTRIAL WAREHOUSING, INC.,
AND RILEY & PEAVLER, LLC
APPELLANTS
APPEAL FROM MERCER CIRCUIT COURT
HONORABLE DARREN W. PECKLER, JUDGE
ACTION NO. 00-CI-00245
v.
MIGS, LLC AND HARRODSBURG/MERCER COUNTY
INDUSTRIAL DEVELOPMENT AUTHORITY
APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
SCHRODER, TAYLOR, AND VANMETER, JUDGES.
TAYLOR, JUDGE:
Harrodsburg Industrial Warehousing, Inc. and
Riley & Peavler, LLC (collectively referred to as Harrodsburg
Warehousing) bring this appeal from a December 21, 2000, summary
judgment of the Mercer Circuit Court dismissing Count IV of the
complaint and an October 30, 2003, judgment dismissing Counts II
and III of the complaint.1
1
We affirm.
Count I of the complaint, alleging abuse of process, was dismissed by the
circuit court by order dated December 27, 2000. No issues surrounding this
dismissal have been raised on appeal.
On July 5, 1999, Harrodsburg Warehousing entered into
a Real Estate Sale and Purchase Agreement (Purchase Agreement)
with Harrodsburg/Mercer County Industrial Development Authority
(Industrial Authority) for the purchase of a twenty-two acre
tract of land located within the Gene C. Royalty Industrial Park
(Industrial Park).
was $220,000.00.
The purchase price for the twenty-two acres
The Industrial Authority was required to
deliver fee-simple title to Harrodsburg Warehousing on or before
thirty days from the date of execution of the Purchase
Agreement.
Harrodsburg Warehousing sought to develop a
warehouse facility upon the property and intended to lease the
property to its customer, Bay West Paper Company (Bay West).
On July 21, 1999, MIGS, LLC (MIGS) filed Civil Action
No. 99-CI-00194 against the Industrial Authority.2
MIGS had
purchased property in the Industrial Park in March 1998.
MIGS
alleged the Industrial Authority represented to MIGS that no
other land in the Industrial Park would be sold for commercial
and/or industrial warehousing space.
MIGS also filed a Notice
of Lis Pendens upon the twenty-two acre tract on July 28, 1999.
As a result of the pending lawsuit against the
Industrial Authority and the filing of the Lis Pendens, the
2
Harrodsburg Industrial Warehousing, Inc. (Harrodsburg Warehousing)
unsuccessfully attempted to intervene in Civil Action No. 99-CI-00194. The
circuit court determined that Harrodsburg Warehousing had no right to
intervene, and this Court affirmed the decision in Appeal No. 2001-CA-001150MR.
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Industrial Authority and Harrodsburg Warehousing entered into an
Escrow Agreement on November 24, 1999.
Under the Escrow
Agreement, the Industrial Authority executed and delivered to
Harrodsburg Warehousing a general warranty deed conveying feesimple title to the twenty-two acre tract, and the purchase
price ($220,000.00) was deposited into an escrow account.
Harrodsburg Warehousing later recorded the deed of conveyance.
Eventually, MIGS prevailed in Civil Action No. 99-CI00194 against the Industrial Authority.
A jury determined that
the Industrial Authority had committed fraud.
Before the jury’s
verdict in favor of MIGS, the Industrial Authority and MIGS
entered into a partial settlement agreement.
Under this
agreement, MIGS and the Industrial Authority agreed that if MIGS
prevailed at trial its only remedy would be an injunction
forbidding “the use of real property held by the Industrial
Authority . . . for lease or sale, in any manner or form, of
industrial warehousing space for a period of fifteen (15) years
from the date of judgment.”
Since MIGS prevailed upon its fraud
claim, the circuit court entered an injunction on March 29,
2001, restricting the use of the property (including the twentytwo acre tract) in the Industrial Park in accordance with the
terms of the settlement agreement.
Harrodsburg Warehousing then filed the instant action
alleging, inter alia, breach of contract against the Industrial
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Authority and the torts of intentional interference with
existing and prospective contracts against MIGS.
On December
21, 2000, summary judgment was entered dismissing Harrodsburg
Warehousing’s claim for breach of contract (Count IV) against
the Industrial Authority.3
Later, on October 30, 2003, the
circuit court entered judgment dismissing Harrodsburg
Warehousing’s claims of intentional interference with existing
and prospective contractual relations (Counts II and III).
This
appeal follows.
Harrodsburg Warehousing initially argues the circuit
court erred by entering summary judgment dismissing its breach
of contract claim against the Industrial Authority.
Summary
judgment is proper where there exists no material issue of fact
and movant is entitled to judgment as a matter of law.
Steelvest, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d
476 (Ky. 1991).
We believe no material issue of fact exists and
resolution of this appeal thus centers upon questions of law.
Harrodsburg Warehousing specifically asserts the
Industrial Authority breached the Purchase Agreement by failing
to convey “[a]n unencumbered, good, marketable fee simple title,
free of lien.”
The Industrial Authority delivered to
Harrodsburg Warehousing a general warranty deed conveying feesimple title to the twenty-two acre tract.
3
Harrodsburg
This summary judgment was interlocutory as it did not include Ky. R. Civ. P.
54.02 language.
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Warehousing recorded the deed.
By accepting and recording the
deed, we believe the merger doctrine operates to extinguish the
Purchase Agreement.
It has been held “[u]nder the merger doctrine, upon
delivery and acceptance of a deed the deed extinguishes or
supercedes the provisions of the underlying contract for the
conveyance of the realty.”
832 (Ky.App. 2003).
Drees Co. v. Osburg, 144 S.W.3d 831,
Thus, the merger doctrine ordinarily
extinguishes the provisions of a purchase agreement for the sale
of real property upon acceptance of a deed conveying title to
said property.
The exceptions to the merger doctrine are fraud,
mistake, or contractual agreement clearly not intended to be
merged into the deed.
77 Am. Jur. 2d Vendor and Purchaser § 286
(1997).
Under the facts of the case, we conclude the Purchase
Agreement “merged” into the deed; hence, Harrodsburg Warehousing
is precluded from maintaining a breach of contract action under
the Purchase Agreement.
However, we do not believe the Escrow
Agreement merged into the deed.
The clear language of the
Escrow Agreement indicates that the parties intended this
agreement to survive the delivery and acceptance of the deed.
Additionally, we are of the opinion the Escrow Agreement
provided the sole contractual remedy to Harrodsburg Warehousing.
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It is axiomatic that interpretation of a contract is
an issue of law for the court.
474 (Ky.App. 1998).
See Cinelli v. Ward, 997 S.W.2d
Here, the Escrow Agreement was entered into
by the parties in response to MIGS’s institution of Civil Action
No. 99-CI-00194.
As evidenced by the Escrow Agreement, the
parties anticipated that the Industrial Authority might not be
capable of conveying the twenty-two acre tract free of
restriction and specifically provided Harrodsburg Warehousing a
remedy:
Purchaser, at its option, may record the
Deed prior to termination of this Escrow
Agreement. If within six months from the
date of this Escrow Agreement the Lis
Pendens is not removed by MIGS, LLC
voluntarily or by Order of the Mercer
Circuit Court which is final and nonappealable, and the Property is not
otherwise free and clear of all encumbrances
such that good and marketable fee simple
title, free of any liens and encumbrances,
can be conveyed by Seller to Purchaser as
required by the Purchase Agreement,
Purchaser, as its option, may terminate this
Escrow Agreement by written notice to all
parties to this Agreement. If this Escrow
Agreement is terminated by Purchaser,
Purchaser shall be entitled to the escrow
funds upon delivery of a deed to Seller
conveying all of the interest in the
Property previously conveyed by Seller to
Purchaser, free and clear of any liens or
encumbrances created by the Purchaser.
Since the restriction was not removed, we interpret
the Escrow Agreement as providing Harrodsburg Warehousing its
sole contractual remedy.
The Escrow Agreement specifically
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provides that if the restriction was not removed Harrodsburg
Warehousing had the right to “terminate” the agreement and be
refunded the entire purchase price.
It is patently obvious the
Escrow Agreement’s singular purpose was to address the
respective rights of the parties should the restriction not be
removed.
As to those rights, we must interpret the Escrow
Agreement as being paramount and as setting forth Harrodsburg
Warehousing’s sole contractual remedy in the event such
restriction was not removed.
In sum, we conclude the circuit court properly
granted summary judgment dismissing Harrodsburg Warehousing’s
claim for breach of the Purchase Agreement.
Harrodsburg Warehousing also asserts that the circuit
court committed error by entering judgment dismissing its claims
of intentional interference with an existing business contract
and with a prospective contractual relationship.
Specifically,
Harrodsburg Warehousing contends that MIGS improperly interfered
with its existing contractual relationship with the Industrial
Authority and with its prospective contractual relationship with
Bay West.
It must be noted that MIGS filed a motion to dismiss
and/or motion for summary judgment seeking to dismiss the claims
of intentional interference with an existing contractual
relationship and with a prospective contractual relationship.
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Therein, MIGS asserted that “the claims fail to state a cause of
action upon which relief may be granted or there is no genuine
issue of material fact, and defendants are entitled to judgment
as matter of law.”
MIGS attached to the motion a memorandum
which included exhibits that constituted matters outside the
pleadings.
Where matters outside the pleadings are considered
on a motion to dismiss for failure to state a claim, the motion
must be treated as one for summary judgment.
314 S.W.2d 518 (Ky. 1958).
Ferguson v. Oates,
Accordingly, we have treated the
judgment as a summary judgment and undertake a review in
accordance with the summary judgment standard of review.
The Restatement (Second) of Torts § 766 (1979)
correctly states the legal requirements to prevail upon a claim
of intentional interference with an existing contract:
One who intentionally and improperly
interferes with the performance of a
contract (except a contract to marry)
between another and a third person by
inducing or otherwise causing the third
person not to perform the contract, is
subject to liability to the other for the
pecuniary loss resulting to the other from
the failure of the third person to perform
the contract.
Id. (Emphasis added).
The Restatement (Second) of Torts § 766B
(1979) sets forth the elements necessary to establish a claim
for intentional interference with a prospective contractual
relation:
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One who intentionally and improperly
interferes with another’s prospective
contractual relation (except a contract to
marry) is subject to liability to the other
for the pecuniary harm resulting from loss
of the benefits of the relation, whether the
interference consists of
(a) inducing or otherwise causing a
third person not to enter into or
continue the prospective relation or
(b) preventing the other from
acquiring or continuing the prospective
relation.
Id. (Emphasis added).
The primary issue in this appeal centers upon whether
MIGS’s institution of Civil Action No. 99-CI-00194 against the
Industrial Authority constituted an “improper interference”
within the meaning of Restatement (Second) of Torts §§ 766 and
766B.
In determining whether “interference” should be
considered improper, we are guided by the factors of Restatement
(Second) of Torts § 767 (1979):
(a) the nature of the actor's conduct,
(b) the actor's motive,
(c) the interests of the other with which
the actor's conduct interferes,
(d) the interests sought to be advanced by
the actor,
(e) the social interests in protecting the
freedom of action of the actor and the
contractual interests of the other,
(f) the proximity or remoteness of the
actor's conduct to the interference and
(g) the relations between the parties.
In National Collegiate Athletic Ass’n v. Hornung, 754
S.W.2d 855 (Ky. 1988), our Supreme Court adopted the foregoing
sections of the Restatement as being reflective of prevailing
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law in Kentucky.
In so doing, the Supreme Court commented upon
the requirement of improper interference:
From these authorities, it is clear
that to prevail a party seeking recovery
must show malice or some significantly
wrongful conduct. In Prosser and Keeton on
Torts § 130 (W.P. Keeton ed. 5th ed. 1984),
this is stated as follows:
[T]he [interference] cases have
turned almost entirely upon the
defendant's motive or purpose, and
the means by which he has sought
to accomplish it....
[S]ome element of ill will is
seldom absent from intentional
interference; and if the defendant
has a legitimate interest to
protect, the addition of a spite
motive usually is not regarded as
sufficient to result in liability.
Hornung, 754 S.W.2d at 859.
To demonstrate improper interference, it was incumbent
upon Harrodsburg Warehousing to have asserted facts, which if
true, would show that MIGS acted maliciously or engaged in
wrongful conduct.
The institution or threatened institution of
a groundless lawsuit may, of course, satisfy such a requirement.
Obviously, a groundless lawsuit may have been initiated
maliciously and without good cause.
However, we hold that a
civil action completely and finally resolved in favor of a party
cannot be, as a matter of law, considered improper interference
with a plaintiff’s existing or prospective business relations
under Restatement (Second) of Torts §§ 766 and 766B.
Indeed, a
successful civil action can be neither malicious nor improper.
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Harrodsburg Warehousing cites this Court to Bourbon
County Joint Planning Comm’n v. Simpson, 799 S.W.2d 42 (Ky.App.
1990) in support of its argument.
In Simpson, the civil action
was not completely and finally resolved in appellee’s favor;
rather, the appeal was remanded for further proceedings.
Hence,
we view Simpson as distinguishable.
Accordingly, we hold that MIGS’s institution of Civil
Action No. 99-CI-00194 was not, as a matter of law, improper
interference with Harrodsburg Warehousing’s existing contract
with the Industrial Authority or with its prospective
contractual relations with Bay West.
We, thus, conclude that
summary judgment dismissing Counts II, III and IV of the
complaint was proper.
For the foregoing reasons, the summary judgment of the
Mercer Circuit Court is affirmed.
ALL CONCUR.
BRIEFS FOR APPELLANTS:
G. Cliff Stidham
Lynn C. Stidham
STIDHAM & ASSOCIATES, P.S.C.
Lexington, Kentucky
BRIEF AND ORAL ARGUMENT FOR
APPELLEE, MIGS, LLC:
Bradley S. Guthrie
Harrodsburg, Kentucky
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ORAL ARGUMENT FOR APPELLANTS:
Lynn C. Stidham
STIDHAM & ASSOCIATES, P.S.C.
Lexington, Kentucky
BRIEF AND ORAL ARGUMENT FOR
APPELLEE, HARRODSBURG/MERCER
COUNTY INDUSTRIAL DEVELOPMENT
AUTHORITY:
Spencer D. Noe
Bowles, Rice, McDavid, Graff &
Love, LLP
Lexington, Kentucky
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