IN THE SUPREME COURT OF THE STATE OF KANSAS
No. 97,486
GENESIS HEALTH CLUB, INC.,
GENESIS HEALTH CLUBS MANAGEMENT, LLC, and
STEVEN ENTERPRISES, LLC,
all d/b/a/ GENESIS HEALTH CLUBS,
Appellants,
v.
CITY OF WICHITA,
Appellee.
SYLLABUS BY THE COURT
1. When the facts are undisputed, appellate review of the district court's grant of summary judgment is de novo.
2. The interpretation of a statute is a question of law over which an appellate court exercises unlimited review.
3. The Industrial Revenue Bond Act, K.S.A. 12-1740 et seq., and amendments thereto, is complete and comprehensive and sets forth the legislative policy of the state, together with the procedure to be followed by cities in the issuance of industrial revenue bonds.
4. Under the facts of this case, a city's approval of a letter of intent to issue industrial revenue bonds and to grant ad valorem property tax abatements to an applicant is void because of the city's failure to comply with the requirement in K.S.A. 12-1749c of providing prior notice to the affected unified school district.
5. As a general rule, statutes are construed to avoid unreasonable results. There is a presumption that the legislature does not intend to enact useless or meaningless legislation.
6. If a municipal corporation enters into a contract it has no power to make, it is ultra vires and unenforceable and no further inquiry into the contract's validity is necessary.
7. Contracts which a municipal corporation is not permitted legally to enter into are not subject to ratification, and a city may not be estopped to deny the invalidity of a contract that is ultra vires in the sense that it is not within the power of the municipality to make. In other words, no ratification or estoppel can make lawful a municipal contract which is beyond the scope of the corporate powers, or which is not executed in compliance with mandatory conditions prescribed in the charter or statutes, or which is contrary to a declared policy adopted to protect the public.
8. One contracting with a municipal corporation is bound at his or her peril to know the authority of the municipal body with which he or she deals.
9. The fact that the other party to the contract has fully performed its part of the agreement, or has expended money in reliance of its validity, does not estop a city from asserting ultra vires, nor is a municipality estopped to aver its incapacity to make a contract because it received benefits under it. That is, a city or municipality cannot be made liable either on the theory of estoppel or implied contract, where it had no capacity to make the contract or where it was made in express violation of law.
10. Under the facts of this case, the plaintiffs could not maintain promissory estoppel as a cause of action against a city.
Appeal from Sedgwick district court, ERIC R. YOST, judge. Opinion filed March 28, 2008. Affirmed.
Ken M. Peterson, of Morris, Laing, Evans, Brock & Kennedy, Chartered, of Wichita, argued the cause, and Richard A. Kear, of the same firm, was with him on the briefs for appellants.
Arthur S. Chalmers, of Hite, Fanning & Honeyman, L.L.P., of Wichita, argued the cause, and Randy J. Troutt, of the same firm, and Gary Rebenstorf, Wichita City Attorney, were with him on the brief for appellee.
The opinion of the court was delivered by
NUSS, J.: Genesis Health Club, Inc., et al., (Genesis), sued the City of Wichita (City) for failure to issue Industrial Revenue Bonds (IRBs) and for failure to grant ad valorem property tax abatements pursuant to an alleged contract between these parties. Its causes of action were for breach of contract and promissory estoppel. The district court granted the City's motion for summary judgment, essentially holding that the City lacked the power to enter into such a contract. Genesis appeals, and the City cross-appeals. We transferred the case from the Court of Appeals pursuant to K.S.A. 20-3017.
The parties present a number of issues on appeal, which we reduce as follows:
1. Was the July 23, 2004, letter of intent a binding contract between the parties? No.
2. Even though no binding contract exists, does promissory estoppel nevertheless prevent the City from refusing to issue the IRBs and to grant ad valorem property tax abatements? No.
Accordingly, the judgment of the district court is affirmed, albeit for slightly different reasons.
FACTS
The parties take no real exceptions to the district court's "uncontroverted facts" contained in its Journal Entry of Judgment:
"1. Genesis Health Club, Inc., Genesis Health Club Management, LLC, and Steven Enterprises, L.L.C. are Kansas legal entities all doing business, in Kansas, as 'Genesis Health Clubs.'
"2. The City of Wichita, Kansas ('City') is a municipal corporation, a city of the First Class.
"3. On or about June 18, 2004, Genesis Health Club Management, LLC requested approval by the governing body of the City of a 'Letter of Intent' to issue Taxable Industrial Revenue Bonds (IRBs) in an amount not to exceed $11,850,000, to finance the cost of acquiring, constructing and equipping three health club facilities to be leased to Genesis Health Club Management, LLC. The location of three health club facilities were identified as (1) 'the core area of Wichita at either 3725 W. 13th or Riverside Tennis Center', (2) 'one in west Wichita at the northwest corner of 29th and Maize Road', and (3) 'its existing health club at 854 N. Socora.'
"4. On July 2, 2004, the Center for Economic Development and Business Research, W. Frank Barton School of Business, Wichita State University, faxed to Lisa Jones, of the City's staff, a 'state-required cost-benefit analysis' of the Initial Genesis Proposal. That analysis did not consider the impact on the Maize School District, USD 266. The language 'state required cost benefit analysis' is a statement by a lay person.
"5. Correspondence dated July 2, 2004 was mailed to the Sedgwick County Clerk and the Clerk of the Board of Education of Unified School District 259 [Wichita] by the City's staff, stating:
'This is to notify you pursuant to K.S.A. 12-1749c and K.S.A. 12-1749d, that at its regular meeting at 9:00 a.m. on July 13, 2004, at City Hall, 455 N. Main, Wichita, Kansas, the governing body of the City will consider for public discussion the issuance of [1] not to exceed $11,850,000 principal amount of Taxable Industrial Revenue Bonds under K.S.A. 12-1740 et seq., [2] as well as an accompanying ad valorem property tax exemption for the property purchased with the proceeds of said Bonds. The property to be purchased with the proceeds of said Bonds will be leased to Genesis Health Clubs Management, LLC, and will be located within the territorial boundaries of Sedgwick County, Kansas, and Unified School District No. 259, Wichita, Kansas.'
"6. The City caused to be published on July 6, 2004, in the Wichita Eagle, the following 'Notice of Public Hearing for Issuance of Taxable Industrial Revenue Bonds and Granting an Ad Valorem Tax Abatement':
'Public notice is hereby given that the governing body of the City of Wichita, Kansas, (the 'City'), will conduct a public hearing in connection with the proposed issuance by the City of Wichita, Kansas, of its Taxable Industrial Revenue Bonds, in an aggregate principal amount not to exceed $11,850,000 on Tuesday, July 13, 2004, or at such later time as shall be established by the governing body during said meeting, at City Hall, 455 N. Main, Wichita, Kansas 62702. Said Taxable Industrial Revenue Bonds are proposed to be issued by the City for the purpose of providing funds to acquire, construct, and equip three health club facilities, variously located at 3725 W. 13th, the corner of 29th and Maize Road, and 854 N. Socora, in the City of Wichita, Kansas (the 'Project').
'Said Taxable Industrial Revenue Bonds, which include an accompanying ad valorem property tax exemption, are proposed to be issued under authority of K.S.A. 12-1740 to 12-1749d, as amended.
'The City further intends to lease the Project to Genesis Health Clubs Management, a Limited Liability Corporation.
'A copy of this Notice, along with a copy of the letter of intent and the proposed ordinance authorizing the governing body of the City to issue such Taxable Industrial Revenue Bonds, is on file in the office of the City Clerk and is available for public inspection during normal business hours. In the event said taxable industrial revenue bonds are not ultimately issued for any reason, the City of Wichita, Kansas, shall not be deemed to have assumed or incurred any liability or obligation to Genesis Health Clubs or any other party by virtue of any proceedings or actions taken in connection therewith.
'All persons having an interest in this matter will be given an opportunity to be heard at the time and place specified.
'The governing body of the City will not adopt an Ordinance authorizing the issuance of such Taxable Industrial Revenue Bonds and thereby approving the accompanying tax abatement until the passage of seven (7) days from the date this Notice is published in the official city newspaper of the City of Wichita, Kansas and until said public hearing is conducted.'
"7. On or about July 12, 2004, Genesis Health Club Management, LLC revised its requested approval by the governing body of the City of a 'Letter of Intent' to issue Taxable Industrial Revenue Bonds (IRBs) in an amount not to exceed $11,850,000, to finance the cost of acquiring, constructing and equipping three health club facilities to be leased to Genesis Health Club Management, LLC. The three health club facilities were identified in the correspondence as (1) 'the core area of Wichita at 3725 W. 13th,' [deleting the former alternative of "Riverside Tennis Center"] (2) 'one in west Wichita at the northwest corner of 29th and Maize Road', and (3) 'its existing health club at 854 N. Socora.'
"8. On July 13, 2004, at the regularly scheduled governing body meeting, five members of the City Council of the City voted to: 'approve a one-year Letter of Intent to Genesis Health Clubs for Industrial Revenue Bonds in an amount not-to-exceed $11,850,000, subject to the Standard Letter of Intent Conditions, authorize staff to select a bond counsel based on competitive fee quotes; determine the amount of tax abatement to be 50% for five-years and Council wishes to approve bond-financed property for the initial five-year period plus a renewal and that there will be a payment in lieu of taxes on the difference on the 2003 payment on the taxes on the properly [sic] at West 13th Street and that the necessary signatures be authorized.'
"9. The City did not send the governing body of the Unified School District No. 266, Maize, Kansas written notice of either the Initial Genesis Proposal or the Revised Genesis Proposal [dated June 18 and July 12 respectively] until after the July 13 meeting described in the previous paragraph. However, on July 13, 2004, the health club facility that was to be located under both projects 'at the northwest corner of 29th and Maize Road' was within the territorial boundaries of Unified School District No. 266.
"10. The site for the health club facility to be located at the northwest corner of 29th and Maize Road was not within the territorial boundaries of the City, although it was located in Sedgwick County. However, the only written notice, which the City provided to Sedgwick County concerning either the Initial Genesis Proposal or the Revised Genesis Proposal before July 13, 2004, is that described in paragraph 5 above. Then, in May of 2005, the property in question was annexed by the City.
"11. A Letter of Intent with attached 'City of Wichita, Kansas Standard Letter of Intent Conditions', dated July 13, 2004, was provided by the City to Genesis [hereafter 'Letter of Intent.']. The letter provided, in part:
'In accordance with the action taken at its regular meeting held on July 13, 2004, the City Council of the City of Wichita, Kansas, hereby tenders its written intent to issue Industrial Revenue Bonds in an amount not-to-exceed $11,850,000. This intent to issue bonds will remain in effect for a one-year term, ending July 13, 2005.
'Pursuant to your application dated June 18, 2004, proceeds will be used to construct and equip two health club facilities, one in the core of Wichita at 3725 W. 13th, one in the northwest corner of 29th and Maize Road, and expand its existing health club at 854 N. Socora.
'In addition, the City Council approved a 50 % abatement on all bond-financed property for a term of five years, plus an additional five years subject to City Council review. The company will also make payment in lieu of taxes based on the 2003 value of the Genesis property located on West 13th Street.
'Please sign and return one original letter to the Department of Finance. You may retain the second original for your records. . . .'
"12. On or about July 26, 2004, Genesis' representative signed the Letter of Intent.
"13. On June 21, 2005, a motion at the City Council's regular meeting to extend the July 13, 2004 Letter of Intent's one year deadline failed. The Motion was requested by City Staff.
"14. Thereafter, Genesis requested the City to 'draft bond documents and put it on the City Council Agenda before July 13, 2005 (the expiration date of the Letter of Intent), [but] this did not occur and the City Council never even voted on whether to issue IRBs before the expiration of the Letter of Intent.'
"15. The City never passed an ordinance authorizing the issuance of revenue bonds.
"16. The notices sent out prior to the City entering into the Letter of Intent were incomplete as notice was not provided to Maize School District, within which one of the three tracts of land involved was located.
"17. K.S.A. §12-1749c provides, in part, that 'the city clerk . . . shall notify in writing the governing board of the unified school district within which the property proposed for exemption is located.'
"18. K.S.A. §12-1749d provides, in part, that 'Prior to issuing any revenue bonds . . . the governing body of the city . . . shall be required to: (a) Prepare an analysis of the costs and benefits of each exemption which shall include the effect of the exemption on state revenues . . . .'
"19. The 29th and Maize Street property was annexed by the City of Wichita in May 2005.
"20. That annexation eliminated the [original] need for approval of the bond issue by Sedgwick County.
"21. The City's website, on the economic development portion maintained by Alan Bell, states that a letter of intent regarding IRBs is a 'commitment to issue the IRBs subject to negotiated conditions.'
"22. The City's Policy Resolution on IRBs in effect in July 2004 states that bonds 'will be issued following proof of satisfaction of all conditions . . . and following approval of the bond documents . . . by the City Attorney's Office and approval by the City Council (through approval and publication of the bond ordinance).'
"23. All the conditions to the Letter of Intent were either met by plaintiffs, were inapplicable, or were not met because the City stopped drafting the documents and otherwise prevented performance.
"24. The City of Wichita completed a 'Request for Project [sales tax] Exemption Certificate' that lists a 'contract date' of July 13, 2004.
"25. The July 13, 2004 date shown as the 'contract date' on the Request comes directly from the Letter of Intent the City issued to Genesis.
"26. That Request was prepared by the City of Wichita and signed by Plaintiffs and the City.
"27. That Request states that 'This agreement shall be binding upon all parties hereto and any and all their successors.'
"28. That Request signed by plaintiffs and the City was then sent by the City to the State of Kansas.
"29. The State of Kansas issued the sales tax exemption certificate.
"30. The City Council addressed the matter during its regular meeting on December 7, 2004 and determined to 'reaffirm' the Letter of Intent by a 5 to 1 vote.
"31. Plaintiffs requested that the bond issuance be placed on the agenda in June 2005.
"32. The City Council was never provided with an analysis by their law department or staff regarding whether or not Genesis had complied with the conditions attached to the Letter of Intent.
"33. The City Council never held a meeting to determine whether Genesis had met conditions attached to the Letter of Intent.
"34. The City of Wichita has recognized in its Policy Resolution on IRBs that 'The City of Wichita is authorized by K.S.A. 12-1740 to 12-1749d inclusive, as amended, to issue industrial revenue bonds."
Following the district court's determination of uncontroverted facts, it set forth its conclusions of law as follows:
"There are no material facts that are controverted.
"The legal issue is did the City contractually bind itself to the issuance of approximately $11.8 million of industrial revenue bonds by approving, by resolution of the city council, the letter of intent dated July 13, 2004?
"No city can issue IRBs except through the auspices of the Economic Development Revenue Bonds Act, EDRBA. Under EDRBA, a city is required to do certain things before IRBs can be issued. Those requirements include, in part: notice of public hearings; the holding of the public hearings themselves; communication with other governmental entities; cost-benefit studies; and, ultimately, approval of a bond ordinance which must include all the details of the bond issuance. Those statutory requirements are in place for the benefit and protection of the public. The Kansas Supreme Court upheld the constitutionality of the EDRBA, at least in part, because of the protections that these requirements provide to the citizenry.
"But here it is being argued by Genesis that the City bound itself to the issuance of IRBs through the letter of intent that was approved before some of the requirements of EDRBA had been complied with. As the City points out, what Genesis is arguing is that the City's power to contract is unfettered by EDRBA's statutory requirements of notices, hearings, input from the public and other governmental entities, cost benefit studies, and factual findings, all of which must eventually culminate in passage of a bond ordinance.
"If the legislature intended that the City could become contractually bound to issue IRBs before those requirements are met, then why are those requirements part of the law? One rule of statutory construction is that it is presumed that the legislature does not enact provisions which have no purpose or meaning. By its language EDRBA does contemplate that certain of its requirements can be complied with after the approval of the letter of intent. But why would the legislature permit the cost-benefit analysis and approval by the county to take place after a letter of intent has been agreed to, if the letter of intent is meant to be the final word? Under such circumstances, such analyses and approvals would be superfluous.
"One aspect of this case that has troubled the Court from the outset is the question of reliance by Genesis. It is uncontroverted that Genesis has expended funds in the expectation of this IRB issuance. In reviewing the case law, it appears that the appellate courts have been confronted with such realities in the past, but the higher courts' rulings indicate to this Court that the making of expenditures in situations like this cannot breathe life into a nonexistent or illegal contract or ordinance. [Weil & Associates v. Urban Renewal Agency, 206 Kan. 405, 479 P.2d 875 (1971); Ford v. City of Hutchinson, 140 Kan. 307, 37 P.2d 39 (1934).] The appellate courts have ruled this way because of what is at stake as a matter of public policy. Genesis' position, sincerely held, if accepted, would create a mechanism by which meaningful review by the public and other governmental entities on IRB proposals could be circumvented.
"Genesis views itself in this case as making the government more accountable for its actions and the Court empathizes with Genesis in that regard. But if Genesis prevails and the precedent is set that the City can enter into a binding contract to issue IRBs before the requirements of EDRBA have been complied with, the great irony of this case will be that by attempting to increase the City's accountability to Genesis, we will be greatly lessening that city's accountability to the public. Because if the City discovers that the requirements of EDRBA can be evaded by simply entering into a letter of intent, the City will do that every time it feels the urge. And in so doing the City will be skirting the very procedural safeguards that made it possible for the Kansas Supreme Court to find EDRBA constitutional in the first place."
The district court essentially concluded that the City lacked the power to enter into such a contract:
"The bottom line is that a city lacks the power to issue IRBs without complying with EDRBA. And if a city lacks the power to issue those IRBs without complying with EDRBA, it certainly lacks the power to enter into a contract to do so.
"Therefore, the Court rules that, as a matter of law, with EDRBA's requirements not having been complied with in this instance, the letter of intent approved in July of 2004 is a nullity. Accordingly, summary judgment is granted to the City of Wichita against plaintiffs' claims."
Genesis then appealed on a number of bases. The City cross-appealed, alleging that
only for purposes of summary judgment had it failed to dispute Uncontroverted Fact No. 23. The City argued that if the case were remanded, it reserved the right to dispute the fact at that time.
ANALYSIS
Issue 1: The July 13, 2004, letter of intent was not a binding contract.
The parties' legal arguments
The parties make numerous arguments to support their conflicting positions. Genesis generally argues that it entered into an agreement with the City "in the form of a binding letter of intent" dated July 13, 2004. It contends the City then breached this contract by not issuing the IRBs and granting ad valorem property tax abatements even though Genesis had "spent more than $1 million in reliance on the promise and in fulfilling the conditions of the agreement." Under Genesis' interpretation of the district court opinion, the court assumed the existence of a contract for which Genesis had met all conditions but nevertheless refused to enforce the contract because the City was without the power and authority to enter into it.
Genesis also argues that some of the requirements of the Act were eventually met so their absence cannot excuse the City's failure to perform. It points out, for example, that the district court found that the need for county approval of the action under K.S.A. 12-1741a was eliminated when the county's property at 29th and Maize Road was annexed by the City in May 2005. Uncontroverted Facts Nos.10, 19, 20. Without a similar express finding by the district court, it nevertheless argues that the failure to notify the Maize School District was later corrected when the City's agent performed a corrected cost-benefit analysis. See, e.g., Uncontroverted Fact Nos. 4, 9, 16, 17. It also suggests that the requirement of notice to the school district is not of great importance: "Tellingly, the Act does not give a school district any ability to disapprove a letter of intent or bond issuance."
Genesis further argues that the purported statutory requirements are not restrictions on a city's ability to enter into contracts, and that the Act does not require the passage of an ordinance for a city to enter into a contract to issue IRBs or grant tax abatements. It contends that City passage of an ordinance is simply the "final administrative step." Genesis therefore asks this court to reverse the district court's ruling and remand for a trial on damages "for the City's admitted breach of the valid and enforceable contract."
The City responds that the July 13, 2004, letter of intent was never a contract between the parties. It argues that the district court simply "pretended" the parties entered into a contract for the City to issue IRBs and grant tax abatements for the purpose of making a decision on the City's motion for summary judgment, and that the true issue on appeal is whether the contract is enforceable.
The City further responds that it is not bound unless and until the council passes an ordinance authorizing issuance of the IRBs and granting of the tax abatements. It also argues that the failure to comply with other statutory requirements, e.g., failure to notify the Maize School District -- which "deficiencies were never corrected" -- nullifies the purported contract.
We need not analyze every one of these, and other detailed arguments, made by the parties. As explained below, the City's failure to fulfill a statutory requirement of timely notifying the Maize school district of potential tax abatements of property within the district's boundaries voids all subsequent City actions.
Discussion
The appellate standards for reviewing a district court's grant of summary judgment are well-known and are detailed in Warner v. Stover, 283 Kan. 453, 153 P.3d 1245 (2007). Highly summarized, the standards provide that genuine issues of material fact generally preclude summary judgment. Genesis initially claims that the district court erroneously granted summary judgment "despite the presence of disputed factual issues," but it has not controverted any of the facts determined by the district court. Moreover, while Genesis has included many additional "facts" in its brief, it has not established that these facts are material.
Here, because the material facts are undisputed, this court's review is unlimited. See Botkin v. Security State Bank, 281 Kan. 243, 130 P.3d 92 (2006) (when facts are undisputed, appellate review of the district court's grant of summary judgment is de novo). Additionally, as this court will be reviewing several statutes, the interpretation of a statute is a question of law over which we exercise unlimited review. See Schmidtlien Electric, Inc. v. Greathouse, 278 Kan. 810, 819, 104 P.3d 378 (2005).
We begin our analysis with a brief overview of the relevant statutes out of which this controversy arises. Genesis requested that the City issue the IRBs and grant the tax abatements under the Economic Development Revenue Bonds Act, K.S.A. 12-1740 through 12-1749d ("EDRBA" or "the Act"). The parties are correct that the City's power to issue IRBs and grant accompanying tax abatements is contingent upon compliance with the Act, as we have recognized that:
"The industrial revenue bond act, K.S.A. 12-1740, et seq., and amendments thereto, is complete and comprehensive and sets forth the legislative policy of the state, together with the procedure to be followed by cities in the issuance of industrial revenue bonds." (Emphasis added.) Rauh v. City of Hutchinson, 223 Kan. 514, Syl. ¶ 4, 575 P.2d 517 (1978).
Our analysis focuses on one of the Act's statutes, K.S.A. 12-1749c, which specifically establishes part of "the procedure to be followed by cities in the issuance of" IRBs and granting of ad valorem tax abatements:
"Prior to the approval of an inducement resolution or letter of intent which includes an agreement for ad valorem tax abatement for property to be financed by issuance of any industrial revenue bonds under K.S.A. 12-1740 through 12-1749a, and amendments thereto, the county or city clerk, as the case requires, shall notify in writing the governing board of the unified school district within which the property proposed for exemption is located." (Emphasis added.) K.S.A. 12-1749c.
The district court acknowledged K.S.A. 12-1749c. It found, without controversion by Genesis, that "[t]he City did not send the governing body of the Unified School District No. 266, Maize, Kansas written notice of either the Initial Genesis Proposal [dated June 18] or the Revised Genesis Proposal [dated July 12] until after the July 13 meeting" where "five members of the City Council of the City voted to: 'approve the one-year Letter of Intent to Genesis Health Clubs for Industrial Revenue Bonds.'" See Uncontroverted Fact Nos. 8-9.
The district court further found, without controversion by Genesis, that "[o]n July 13, 2004, the health club facility that was to be located under both projects [proposals dated June 18 and July 12] 'at the northwest corner of 29th and Maize Road' was within the territorial boundaries of Unified School District No. 266." Uncontroverted Fact No. 9. Without controversion by Genesis, the court reiterated that "[t]he notices sent out prior to the City entering into the Letter of Intent [on July 13] were incomplete as notice was not provided to Maize School District, within which one of the three tracts of land involved was located." Uncontroverted Fact No. 16.
The language of K.S.A. 12-1749c is clear: "Prior to the approval of [a] letter of intent . . . the city clerk . . . shall notify in writing." (Emphasis added.) Moreover, it is the only statute within the Act that requires any City action be taken prior to this particular event; all other required acts can be later. Contrast K.S.A. 12-1744a (at least 7 days prior to the issuance of any IRBs); K.S.A. 12-1744e (at least 7 days prior to adopting an ordinance authorizing the issuance of the IRBs); K.S.A. 12-1749d ("[p]rior to issuing any revenue bonds").
This particular notice requirement is likely imposed because school districts' financial well-being will be harmed by tax abatements of property within their boundaries. For years ad valorem property taxes have been a financing source for the districts. See K.S.A. 72-6431. In analogous areas of the law, local governmental failures to follow statutory procedures void their intended actions.
Just as the Rauh court held that the A