RIDGEWOOD DEVELOPMENT COMPANY, Respondent, v. STATE of Minnesota et al., Appellants.
No. 50732.
Supreme Court of Minnesota.
May 30, 1980.
288 N.W.2d 288
SHERAN, Chief Justice.
Our most recent decision in this area, Farmington Plumbing v. Fischer Sand, 281 N.W.2d 838 (Minn.1979), involved a different provision. In that case we re-examined our rule of construction and rejected the “fair construction” rule in favor of the majority position, stating that “[i]ndemnity agreements are to be strictly construed when the indemnitee * * * seeks to be indemnified for its own negligence. There must be an express provision in the contract to indemnify the indemnitee for liability occasioned by its own negligence; such an obligation will not be found by implication.” 281 N.W.2d 842. We expressly overruled Anstine, Jacobson, and Christy to the extent that they rejected the strict construction rule.
We now must determine whether the Associated General Contractors’ indemnity provision which we have enforced under the “fair construction” rule also meets the more stringent requirements of the “strict construction” rule.2 A review of the case law does not reveal any provision sufficiently similar to suggest a conclusion. The provision states that the subcontractor will “assume entire responsibility and liability for all damages” and will “indemnify and save harmless the Contractor * * * from all such claims including, without limiting the generality of the foregoing, claims for which the Contractor may be, or may be claimed to be, liable.” (Emphasis added.) This language necessarily includes claims of the contractor‘s negligence. We cannot agree that specific reference to “negligence” would more clearly express an indemnitor‘s obligation since then the question would arise whether the provision was limited to liability only for negligence. We hold that the provision considered as a whole clearly and unequivocally states the intent that the indemnitor is liable to the indemnitee for its negligence.
Hankee also argues that the Anstine requirement of a temporal and geographical or causal relationship between the subcontractor‘s work and the injury is lacking. We find no merit to the argument. Johnson‘s injury occurred while he was performing the work called for by the subcontract, thus a “but for” causal connection existed. That work was an essential part of the contractual duty owed by Hankee to McGough and McGough required the indemnity provision to cover performance of that duty. Hankee‘s choice to hire Acme did not result in Johnson‘s occupying a different position vis-a-vis McGough than a subcontractor‘s worker within the meaning of Anstine.
Affirmed.
Meagher, Geer, Markham, Anderson, Adamson, Flaskamp & Brennan, Minneapolis, for respondent.
SHERAN, Chief Justice.
At issue in this case is the effect of the 1979 amendment of
The Municipal Industrial Development Act, codified in
Only certain kinds of redevelopment projects can receive the benefit of this tax-exempt financing.
In 1979 the legislature, concerned about the recent uncontrolled proliferation of projects being financed through the issuance of tax-exempt municipal bonds, amended the Minnesota Industrial Development Act. 1979 Minn. Laws, ch. 306.1
Ridgewood Development Company, a general partnership, was organized on November 1, 1978 to develop an 180-acre tract for single and multiple family residential living by taking advantage of the financing provisions of the Minnesota Industrial Development Act. Five days later it paid $25,000 for an option to buy the land, and it sought and received from the Burnsville City Council preliminary approval of both its development project and its request that the project be financed with approximately $30 million of tax-exempt municipal revenue bonds. The city then applied to the Commissioner of Securities for approval of the Project, which was granted on November 24, 1978. In response, Ridgewood exercised its option on December 27, 1978 and entered a contract for deed for the purchase of the 180-acre tract for $1,719,798.2 On April 16, 1979, the Burnsville City Council approved the planned unit development proposal. Prior to commencing construction, however, Ridgewood still needed to obtain a development contract and individual building permits and to arrange for the city to sign the contract for the issuance of municipal industrial development revenue bonds.
Ridgewood filed this action on July 26, 1979, alleging that the enactment of Chapter 306 made it financially impossible for it to proceed with its project and seeking a declaratory judgment that Chapter 306 was inapplicable or that it was unconstitutional as applied. Ridgewood argued that since it had relied on the provisions of
This appeal raises the following issues for decision:
- Whether Ridgewood‘s reliance on the provisions of
Minn.Stat. ch. 474 (1978) was reasonable such that the State of Minnesota should be estopped from applying the provisions of the 1979 amendment to the Ridgewood Residential Development Project. - Whether Ridgewood acquired a vested right to complete its project with tax-exempt financing.
1. Until recently in Minnesota, the remedy of equitable estoppel was available against a governmental unit only if it were acting in a proprietary capacity. In Mesaba Aviation Div. v. County of Itasca, 258 N.W.2d 877 (Minn.1977), however, we rejected the governmental-proprietary distinction as a test of the circumstances under which the government could be estopped and held that, when a party raises a claim of equitable estoppel, “the equities of the circumstances must be examined and the government estopped if justice so requires, weighing in that determination the public interest frustrated by the estoppel.”
As a general rule, for equitable estoppel to lie, the plaintiff must demonstrate that the defendant, through his language or conduct, induced the plaintiff to rely, in good faith, on this language or conduct to his injury, detriment or prejudice. 3 J. Pomeroy, Equity Jurisprudence § 805, at 191-92 (5th ed. 1941); United States v. Georgia-Pacific Co., 421 F.2d 92, 96 (9th Cir. 1970); Tiffany, Inc. v. W.M.K. Transit Mix, Inc., 16 Ariz.App. 415, 493 P.2d 1220 (1972); Kojro v. Sikorski, 267 A.2d 603 (Del.Super.1970). Thus, before a court will examine the conduct of the party sought to be estopped, the seeker of the equitable remedy must demonstrate that he suffered some loss through his reasonable reliance on that conduct. As one commentator states the rule that is generally applied in land regulation cases:
A local government exercising its zoning powers will be estopped when a property owner, (1) relying in good faith (2) upon some act or omission of the government, (3) has made such a substantial change in position or incurred such extensive obligations and expenses that it would be highly inequitable and unjust to destroy the rights which he ostensibly had acquired.
Heeter, Zoning Estoppel: Application of the Principles of Equitable Estoppel and Vested Rights to Zoning Disputes, 1971 Urb.L.Ann. 63, 66 (emphasis added). Stated somewhat differently, before plaintiff can be said to have made a significant investment deserving of judicial protection in a land use case, he must demonstrate expenditures that are unique to the proposed project and would not be otherwise usable. Hawkinson v. County of Itasca, 304 Minn. 367, 372-73, 231 N.W.2d 279, 282 (1975); Spindler Realty Corp. v. Monning, 243 Cal.App.2d 255, 261, 53 Cal.Rptr. 7, 10, cert. denied, 385 U.S. 975, 87 S.Ct. 515, 17 L.Ed.2d 437 (1966); Clackamas County v. Holmes, 265 Or. 193, 198, 508 P.2d 190, 192 (1973). See generally Cunningham & Kremer, Vested Rights, Estoppel, and the Land Development Process, 29 Hastings L.J. 623, 714-29 (1978).
Both parties to this appeal agreed at oral argument that Ridgewood Development Company expended over $250,000 in preparing for the construction project. There is nothing in the record, however, that suggests that all of these preparatory expenses were incurred in reliance3 on
Were this the only error, we would remand to the trial court for a determination of this material issue of fact. Greaton v. Enich, 290 Minn. 74, 185 N.W.2d 876 (1971); Minneapolis-St. P. & S. Ste. M. R.R. v. St. Paul Mercury Indemnity Co., 268 Minn. 390, 406, 129 N.W.2d 777, 788 (1964). For the reasons delineated below, however, we hold that, under the circumstances of this case, equitable estoppel is an inappropriate remedy as a matter of law.
Although this issue is not directly addressed in the Minnesota cases, other jurisdictions generally require some fault by the government agency whose action is
[E]stoppel is available as a defense against the government if the government‘s wrongful conduct threatens to work a serious injustice and if the public‘s interest would not be unduly damaged by the imposition of estoppel. This proposition is true even if the government is acting in a capacity that has traditionally been described as sovereign (as distinguished from proprietary) although we may be more reluctant to estop the government when it is acting in this capacity.
United States v. Lazy FC Ranch, 481 F.2d 985, 989 (9th Cir. 1973) (citations omitted).
Under the test posited in Lazy FC Ranch, the court must first look for the government‘s wrongful conduct. Only if it is found to exist does the balancing begin. Here there is no wrongful governmental conduct; no governmental official has given improper advice. Instead, what is being challenged is merely a clarification of governmental policy toward the use of tax-exempt bond financing of housing developments. The actions of elected representatives taken to ensure that legislation is applied in conformity with its underlying purpose can hardly be characterized as “wrongful conduct.” Thus, the most important element of equitable estoppel is missing.
Moreover, a court‘s attempt to negate the application of legislation on other than constitutional grounds5 creates serious separation of powers problems. In Huntt v. Gov‘t of Virgin Islands, 382 F.2d 38 (3d Cir. 1967), the Court of Appeals held that the district court could not invade the jurisdiction of another department of government in matters of policy and that, although the legislature had already authorized the issuance of revenue bonds and the developer had expended more than $29,000 and substantial time in reliance on the legislative authorization, it could rescind its authorization when it later decided that the construction of this hotel would not promote the economic development of the Virgin Islands. In chastizing the district court‘s order of specific performance, the court noted:
We should think that a court of law and equity would hesitate to interfere in the performance by a legislative body of its political and policy decisions which, in the absence of evidence of taint or fraud, have as their primary, if not sole, objective, the general well-being of the community they are selected to represent. In our view, only the most compelling reasons and the clear necessity to avoid the most unconscionable results could, if at all, sustain the substitution by the court of its judgment for that which is committed to the discretion of the legislative organ.
For these reasons, we hold that the trial court erred as a matter of law in equitably estopping the state from applying the provisions of Chapter 306 to Ridgewood‘s residential development project.
Although the change in the law interfered with a reasonable expectation of profit by the developer, we believe that the doctrine of equitable estoppel, which, in the
2. Ridgewood also argues that through its substantial expenditures and actions taken pursuant to
The vested rights doctrine in Minnesota developed to deal not with public funding of private ventures but with state control over private development through the use of zoning provisions and building permits. See Hawkinson v. County of Itasca, 304 Minn. 367, 231 N.W.2d 279 (1975); State ex rel. Berndt v. Iten, 259 Minn. 77, 106 N.W.2d 366 (1960); Kiges v. City of St. Paul, 240 Minn. 522, 62 N.W.2d 363 (1953). Nevertheless, it and equitable estoppel are used by the courts here and elsewhere as alternative ways of resolving developer-government relations in the land use context. See generally Cunningham & Kremer, Vested Rights, Estoppel, and the Land Development Process, 29 Hastings L.J. 623 (1978). The major difference between the doctrines concerns the court‘s focus. While a court applying a theory of equitable estoppel investigates the loss to the developer if he is not permitted to finish his project, in vested rights analysis the court asks whether a developer has progressed sufficiently with his construction to acquire a vested right to complete it. Compare Sullivan v. Credit River Township, 299 Minn. 170, 217 N.W.2d 502 (1974) with Hawkinson v. County of Itasca, 304 Minn. 367, 231 N.W.2d 279 (1975).
The general rule in Minnesota is that a right becomes vested when it has “arisen upon a contract, or transaction in the nature of a contract, authorized by statute and liabilities under that right have been so far determined that nothing remains to be done by the party asserting it * * *.” Yaeger v. Delano Granite Works, 250 Minn. 303, 307, 84 N.W.2d 363, 366 (1957). Nevertheless, in zoning cases decided under this theory, we have held that the mere possession of a building permit, the incurring of some expense and the assumption of obligations preliminary to construction, such as excavation, create no vested right. Kiges v. City of St. Paul, 240 Minn. 522, 538, 62 N.W.2d 363, 373 (1953). Neither do expenditures associated with the acquisition of the property, the removal of trees, the grading of the land or excavation. Hawkinson v. County of Itasca, 304 Minn. 367, 374-77, 231 N.W.2d 279, 283-84 (1975).
Using this standard, it is clear that Ridgewood acquired no vested right to complete its development project under the pre-1979 law. The issuance of the municipal bonds had not been finalized, and there was no contract between Ridgewood and the state, an administrative subdivision or a municipality. The approval of the Burnsville City Council was merely preliminary, while the approval of the Commissioner of Securities carried with it only the implication that the proposed plan was consistent with the purposes of the Act. Because Ridgewood had no contract with anyone, had received no building permits and had not begun actual construction, under our past case law, the legislature could change the law without infringing on a vested right.
This case, however, should not really be analyzed under our zoning precedents. Zoning ordinance changes restrict the rights of a property owner, while the legislation at issue here accords to a select group a very special privilege. It has long been accepted that there are no vested rights in privileges
[I]t has always been held that the legislature may repeal laws authorizing municipal subscriptions to railways, though such laws were in existence at the time the railway was chartered, and may be supposed to have influenced the promoters and stockholders of the road in undertaking its construction. And, even if there has been a public vote in favor of such subscription, such vote does not itself form a contract with the railway company protected by the Constitution, the court holding that until the subscription is actually made the contract is unexecuted.
161 U.S. at 666, 16 S.Ct. at 710.
The legislature, as representative of the people of Minnesota, should certainly be able to “trim its sails” if it appears that an undertaking intended to benefit the public interest is being used for other purposes. Thus, a statute aimed at eliminating urban blight, providing housing for low income groups, or encouraging the construction of multiple housing where such housing is needed should not be used to permit low cost financing for developers engaged in the competitive business of erecting living accommodations for the affluent. Indeed, it is doubtful whether the legislature has controlling authority to permit public credit to be used for such a purpose. If it does, however, such authority is marginal, and, based on its experience with a particular law, the legislature should be able to eliminate the public subsidy of ventures so clearly private and profit-motivated as the one here involved, without being liable to private developers seeking to take advantage of the law‘s overly generous provisions.
Reversed.
TODD, J., took no part in the consideration or decision of this case.
KELLY, Justice (dissenting)
I respectfully dissent. Our decision in Mesaba Aviation Div. v. County of Itasca, 258 N.W.2d 877 (Minn.1977) contemplates the application of an estoppel remedy in this case. In Mesaba, we articulated a balancing test in which the hardships to the individual are balanced against the potential frustration of the public interest. Id. at 880. In my judgment, the equities of these circumstances tip the scale in favor of plaintiff, Ridgewood Development Company, and justice requires that the state be estopped from enforcing the provisions of Minnesota Laws 1979, Chapter 306 against it.
Plaintiff‘s uncontroverted affidavits establish that it incurred enormous obligations in reliance on
In short, plaintiff incurred such extensive obligations and expenses that it would be inequitable and unjust to apply the provisions of Minnesota Laws 1979, chapter 306 to it. Ridgewood Development Company‘s reliance expenses bear a marked similarity to the expenses incurred by the plaintiff in reliance on a county‘s approval of a certain site for use as a land fill in Sullivan v. Credit River Township, 299 Minn. 170, 217 N.W.2d 502 (1974). In that case, we held that the county was estopped from rescinding its approval of the site for use as a land fill even though the citizens were not notified of the meeting at which the approval was given. There the plaintiff expended $10,000 for engineering survey, attorney‘s fees and accountant‘s fees in addition to purchasing the land.
The majority makes much of the fact that plaintiff “has not demonstrated that there is no other way in which the land can be profitably used.” Even assuming that this is an essential element of estoppel, in the context of cross motions for summary judgment, it is not plaintiff‘s burden to conclusively “prove” this to be the case. Plaintiff alleged in uncontroverted affidavits that proceeding with the project is a financial impossibility without the availability of financing through industrial revenue bonds.
The inducement in this case lies in the project‘s approval, both preliminary and final, by Burnsville and the Commissioner of Securities. But for their approval, plaintiff would not have exercised the option and incurred the other expenses listed above.
There is no evidence in the record indicating that the plaintiff‘s project does not benefit the public interest. In fact, the evidence indicates that the project‘s financing pursuant to the provisions of
- Lower interest and rental rates to users of the housing;
- The inclusion of moderate and low priced housing will enable the City to meet the Metropolitan Council‘s goals for those types of housing;
- This proposal introduces new money into the housing market;
- Lower interest rates would allow our City to continue to grow through tight money markets;
- The continued growth of Burnsville is necessary to utilize already constructed utilities; and
- Reducing interest rates by 2%, which we understand is likely to result, is equivalent to reducing property taxes by one-half.
This method of financing will also assist the continual growth of Burnsville in a declining construction period, expand the tax base and assist the City in providing the adequate housing and employment required by our citizens.
There is absolutely no evidence that plaintiff‘s project was aimed at “erecting living accommodations for the affluent.” The only evidence as regards this rather peripheral point is directly to the contrary. See City Council finding No. 2. Furthermore, there is a dearth of evidence indicating that the purpose of
The proper focus of inquiry is whether this project serves a public purpose, not, as the majority indicates, whether the venture is incidentally serving a private and profit-motivated end. Cf. Port Authority of City of St. Paul v. Groppoli, 295 Minn. 1, 202 N.W.2d 371 (1972). The majority‘s dictum is not only unnecessary, but also misleading. Were it construed to be a correct statement of the law, projects such as the Minneapolis City Center, financed pursuant to the provisions of
Finally, it is not the province of this court to determine whether the legislature has been “overly generous” in its legislation. Our duty is to determine only whether such legislation is reasonable and within the bounds of the Constitution.
I would therefore affirm the judgment of the district court.
SCOTT, Justice (dissenting).
I join in the dissent of Mr. Justice Kelly.
YETKA, Justice (dissenting).
I join in the dissent of Mr. Justice Kelly and would add these comments of my own in support thereof.
The majority would suggest that there was no harm to the developer and no wrongful act to invoke estoppel. Yet, here the legislature passed a law to encourage residential construction. It is a fact known to everyone that today construction money for new homes is virtually non-existent. The legislature apparently amended the law because it wanted to prevent assistance for the construction of multiple housing for the affluent, yet it specifically allowed several projects similar to this one to proceed in other communities.
One could scarcely find a more deliberate act of discrimination and denial of equal protection. Moreover, there is no evidence that this project was for the affluent alone. Even if it were, presumably the people who would buy the new units would be leaving some existing units which would then go on the market. It is the dream of most Americans to own a new home as nice as they can afford—perhaps even beyond that—by giving up other wants and desires.
Here the legislature passed a statute to encourage the activity undertaken. A developer then acquired land and expended enormous sums of money in reliance on the law only to have the rug pulled out from under it just as the bonds were to be sold and the construction begun.
I believe there are grave constitutional questions with what the legislature did here; but if the trial court were affirmed, we would not need to decide those questions.
Nos. 50290, 50348.
Supreme Court of Minnesota.
May 30, 1980.