                                                                  FILED
                                                             Mar 13 2018, 5:25 am

                                                                  CLERK
                                                              Indiana Supreme Court
                                                                 Court of Appeals
                                                                   and Tax Court




ATTORNEYS FOR APPELLANTS                                  ATTORNEYS FOR APPELLEE
James Bopp, Jr.                                           Curtis T. Hill, Jr.
Courtney Turner Milbank                                   Attorney General
The Bopp Law Firm, PC
Terre Haute, Indiana                                      Frances Barrow
                                                          Andrea E. Rahman
                                                          Deputy Attorneys General
                                                          Indianapolis, Indiana

                                                          ATTORNEYS FOR AMICI CURIAE
                                                          THE INDIANA HEALTH CARE
                                                          ASSOCIATION, HOOSIER OWNERS
                                                          & PROVIDERS FOR THE ELDERLY,
                                                          AND LEADINGAGE INDIANA
                                                          Mark J. Crandley
                                                          Barnes & Thornburg, LLP
                                                          Indianapolis, Indiana

                                                          Randall R. Fearnow
                                                          Quarles & Brady, LLP
                                                          Indianapolis, Indiana


                                            IN THE
    COURT OF APPEALS OF INDIANA




Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018              Page 1 of 29
      Mainstreet Property Group,                                 March 13, 2018
      LLC; Mainstreet Realty, LLC;                               Court of Appeals Case No.
      and 7105 E SR 334, LLC,                                    29A02-1704-MI-871
      Appellants-Plaintiffs,                                     Appeal from the Hamilton Circuit
                                                                 Court
                 v.                                              The Honorable Paul A. Felix,
                                                                 Judge
      Pam Pontones, in her official                              Trial Court Cause No.
      capacity as Interim                                        29C01-1604-MI-3748
      Commissioner of the Indiana
      State Department of Health;[1]
      Terry Whitson, in his official
      capacity as Assistant
      Commissioner of the Indiana
      State Department of Health,
      Health Care Quality and
      Regulatory; and Matt Foster, in
      his official capacity as Director
      of the Indiana State Department
      of Health, Long Term Care
      Division,
      Appellees-Defendants



      Crone, Judge.


                                               Case Summary
[1]   Mainstreet Property Group, LLC (“Mainstreet Property Group”), Mainstreet

      Realty, LLC (“Mainstreet Realty”), and Mainstreet Asset Management, LLC

      (“Mainstreet Asset Management”) (collectively “Mainstreet”) are entities under



      1
          Kristina Box was appointed Commissioner of the Indiana State Department of Health in September 2017.

      Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018                      Page 2 of 29
      common control based in Carmel, Indiana. Mainstreet develops transitional

      care properties, which are classified and regulated as comprehensive care health

      facilities under Indiana law. In January 2015, a bill was introduced in the

      Indiana General Assembly for a moratorium (“Moratorium”) on the licensure

      of comprehensive care health facilities by the Indiana State Department of

      Health (“ISDH”). The bill contained an exception for projects for which

      complete construction design plans had been submitted to ISDH by March 1,

      2015. The March 1 deadline was added to the bill on March 9, at which point

      Mainstreet had nine ongoing projects for which they had not submitted the

      requisite plans. In four of those projects, Mainstreet Realty had executed

      contracts to purchase land, including from 7105 E SR 334, LLC, in Zionsville,

      but no real estate closings had been held. The bill became law in May 2015 and

      went into effect in July 2015. As a result of the Moratorium, Mainstreet Realty

      canceled all four contracts and did not execute purchase agreements or leases

      for the five remaining projects.


[2]   Mainstreet Property Group, Mainstreet Realty, and 7105 E SR 334 (collectively

      “Appellants”) filed a complaint for declaratory and injunctive relief against

      ISDH officials (“Appellees”), alleging that the Moratorium’s retroactive

      deadline violated Indiana’s vested rights doctrine as well as the contract and

      due process clauses of the United States and Indiana Constitutions. The trial

      court granted Appellees’ motion to dismiss the contract and due process clause

      claims and, after a hearing, entered judgment for Appellees on the vested rights

      claim.


      Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018   Page 3 of 29
[3]   Appellants now challenge the trial court’s rulings on the contract clause and

      vested rights claims. We hold that the Moratorium did not impair any

      contractual obligations or vested rights, and therefore we affirm.


                                     Facts and Procedural History2
[4]   Mainstreet Property Group, Mainstreet Realty, and Mainstreet Asset

      Management perform specific roles in the development of transitional care

      facilities, which are classified and regulated as comprehensive care health

      facilities under Indiana law.3 Mainstreet Asset Management’s employees

      manage the operations of both Mainstreet Realty, which acquires property for

      development, and Mainstreet Property, which develops the properties. 4

      Mainstreet Realty and Mainstreet Property pay Mainstreet Asset Management

      for services that it provides to them on each project. Mainstreet has a five-stage

      development process consisting of (1) market analysis and selection, (2) site




      2
          We heard oral argument on February 13, 2018. We thank the parties for their presentations.
      3
       Indiana Code Section 16-28-2.5-3 defines a comprehensive care health facility as “a health facility that
      provides: (1) nursing care; (2) room; (3) food; (4) laundry; (5) administration of medications; (6) special diets;
      and (7) treatments; and that may provide rehabilitative and restorative therapies under the order of an
      attending physician.”
      4
       According to Appellants’ complaint, Mainstreet Realty “is used as a holding company by Mainstreet
      Property Group.” Appellants’ App. Vol. 2 at 30.
               When a transitional care property is considered, [Mainstreet] Realty enters into a purchase
               agreement with a seller. [Mainstreet] Realty then holds the legal right to the property while
               additional steps of the development process are taken. Once all necessary steps are satisfied and
               the site is deemed usable, [Mainstreet] Realty transfers or assigns their rights to a wholly owned
               Mainstreet [Property Group] subsidiary.… [Mainstreet] Realty is bound by legal agreement to
               assign all rights it holds or acquires to the properties to be developed to Mainstreet [Property
               Group] or its wholly owned subsidiary.
      Id. (citation omitted).

      Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018                             Page 4 of 29
      selection, (3) due diligence, (4) entitlements and design, and (5) permits and

      land.


[5]   In January 2014, a bill was introduced in the General Assembly for a

      moratorium on ISDH’s licensure of comprehensive care health facilities until a

      certain statewide care bed occupancy level was reached, with an exception for

      facilities under development as of June 30, 2014. See Senate Bill 173 (2014).

      The relevant portions of the bill were slated to become effective July 1, 2014,

      but the bill did not become law.


[6]   In January 2015, another bill was introduced for a moratorium on ISDH’s

      licensure of comprehensive care health facilities, with limited exceptions,

      including for facilities “under development” as of July 1, 2015. Ind. Code § 16-

      28-2.5-6(b)(1); see Senate Bill 460 (2015) (currently Ind. Code ch. 16-28-2.5).5

      The bill defined “under development” in pertinent part as referring to a health

      facility license application that meets all the following:


              (A) Funding to construct the comprehensive care health facility
              has been secured and is actively being drawn upon or otherwise
              used to further and complete construction.

              (B) Zoning requirements have been met.




      5
       The Moratorium also applies to “[t]he certification of new or converted comprehensive care beds for
      participation in the state Medicaid program” unless the statewide care bed occupancy rate is more than
      ninety-five percent and to the “[t]ransfer between any comprehensive care facilities of licensed
      comprehensive care beds or comprehensive care bed certifications for participation in the state Medicaid
      program.” Ind. Code § 16-28-2.5-6(a). Appellants do not focus on these provisions in their briefs.

      Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018                         Page 5 of 29
               (C) Complete construction design plans for the comprehensive
               care health facility have been submitted to [ISDH] and the
               [Indiana Department of Homeland Security’s] division of fire
               and building safety not later than March 1, 2015. The construction
               design plans must be an accurate and true depiction of the
               comprehensive care health facility that the applicant intends to
               construct. However, the construction design plans may be
               modified to make technical changes, correct errors and
               omissions, or comply with zoning or other requirements from a
               governmental entity.

               (D) Active and ongoing construction activities progressing to
               completion of the project are occurring at the project site.


      Ind. Code § 16-28-2.5-5 (emphasis added). The March 1 deadline was added to

      the bill on March 9; thus, unlike the grandfather clause in Senate Bill 173, the

      grandfather clause in Senate Bill 460 was retroactive at its inception. The bill

      became law without the governor’s signature on May 12 and went into effect on

      July 2.6


[7]   On March 9, Mainstreet had nine projects in various stages of development for

      which it had not submitted the requisite plans by March 1. Between January 9

      and February 18, Mainstreet Realty had executed land purchase agreements for

      four of those projects – located in Zionsville, Jeffersonville, Fort Wayne, and

      New Haven7 – but no real estate closings had been held. For the five remaining



      6
       The Moratorium was originally set to expire on June 30, 2018; in 2017, it was extended to June 30, 2019.
      Ind. Code § 16-28-2.5-8.
      7
       According to the complaint, the Zionsville and Jeffersonville projects were in the permits and land phase of
      development, and the Fort Wayne and New Haven projects were in the entitlements and design phase.
      Appellants’ App. Vol. 2 at 44.

      Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018                         Page 6 of 29
      projects – located in Hobart, Warsaw, Gary, Evansville, and Muncie8 –

      Mainstreet Realty had not executed any purchase or lease agreements by March

      9. Mainstreet Realty had not selected land parcels for the Evansville and

      Muncie projects and had not issued a letter of intent to a landowner for the

      Gary project. Between March 17 and April 29, Mainstreet submitted

      construction design plans for the Zionsville, Jeffersonville, Fort Wayne, New

      Haven, Hobart, and Warsaw projects, but ISDH did not act on them. As a

      result of the Moratorium, Mainstreet Realty canceled the four existing purchase

      agreements and did not execute purchase or lease agreements for the five

      remaining projects.


[8]   In April 2016, Appellants filed a complaint for declaratory and injunctive relief

      against Appellees, alleging that the Moratorium violated Indiana’s vested rights

      doctrine with respect to Mainstreet Property Group9 and also violated the

      contract and due process clauses of the United States and Indiana

      Constitutions.10 Pursuant to Indiana Trial Rule 12(B)(6), Appellees filed a

      motion to dismiss the complaint for failure to state a claim upon which relief



      8
       According to the complaint, the Hobart and Warsaw projects were in the entitlements and design phase of
      development, and the Evansville, Gary, and Muncie projects were in the site selection phase. Appellants’
      App. Vol. 2 at 44.
      9
        See Appellants’ App. Vol. 2 at 49 (Appellants’ complaint, which refers to Mainstreet Property Group as
      Mainstreet: “Mainstreet’s rights were vested when they expended considerable resources to their substantial
      detriment relying in good faith on the law existing at the time their Projects began and/or on the original text
      of the legislators’ introduced bill. The Moratorium impairs those vested rights and should be declared
      inapplicable to the aforementioned Projects in Indiana.”). On appeal, Appellants refer to all three Mainstreet
      entities and 7105 E SR 334 as Mainstreet, whereas Appellees refer to Appellants as Mainstreet.
      10
        The contract clause claims appear to encompass all three Appellants, although only Mainstreet Realty and
      7105 E SR 334 were parties to any of the contracts at issue.

      Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018                           Page 7 of 29
      can be granted. The trial court summarily denied the motion as to the vested

      rights claim and granted it as to all other claims. The trial court consolidated

      the preliminary injunction hearing with a trial on the merits on the vested rights

      claim and entered judgment for Appellees, finding that Appellants had failed to

      establish “by a preponderance of the evidence that they acquired vested rights in

      any of the nine projects.” Appealed Order 2 at 13.11 Appellants now challenge

      the trial court’s rulings on the contract clause and vested rights claims.

      Additional facts will be provided below.


                                       Discussion and Decision

      Section 1 – Appellants failed to establish that the Moratorium
              impaired any of their contractual obligations.
[9]   Appellants contend that the trial court erred in granting Appellees’ motion to

      dismiss the contract clause claims for failure to state a claim upon which relief

      can be granted.12 Such motions test the legal sufficiency of the claim, not the

      facts supporting it. Kitchell v. Franklin, 997 N.E.2d 1020, 1025 (Ind. 2013).

      Therefore, we review the trial court’s ruling de novo. Id. We view the

      pleadings in the light most favorable to the nonmoving party, with every



      11
         Appellants included copies of exhibits in their appendix in contravention of the appellate rules. See Ind.
      Appellate Rules 50(F) (“Because the Transcript is transmitted to the Court on Appeal pursuant to Rule 12(B),
      parties should not reproduce any portion of the Transcript in the Appendix.”) and 2(K) (defining Transcript
      as “the transcript or transcripts of all or part of the proceedings in the trial court or Administrative Agency
      that any party has designated for inclusion in the Record on Appeal and any exhibits associated therewith.”)
      (emphasis added).
      12
        Appellants focus their arguments exclusively on Mainstreet Property Group and Mainstreet Realty and do
      not specifically address 7105 E SR 334’s situation. As stated above, Mainstreet Realty was the only
      Mainstreet entity that was a party to the contracts at issue.

      Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018                          Page 8 of 29
       reasonable inference construed in that party’s favor. Id. “If a complaint states a

       set of facts that, even if true, would not support the relief requested, we will

       affirm the dismissal. And we may affirm the grant of a motion to dismiss if it is

       sustainable on any theory.” McPeek v. McCardle, 888 N.E.2d 171, 174 (Ind.

       2008) (citation omitted).


[10]   Article I, Section 10 of the United States Constitution provides that no state

       shall pass any law impairing the obligations of contracts. Similarly, Article 1,

       Section 24 of the Indiana Constitution provides that no law impairing the

       obligation of contracts shall ever be passed. “[E]very statute stands before us

       clothed with the presumption of constitutionality until clearly overcome by a

       contrary showing.” Abernathy v. Gulden, 46 N.E.3d 489, 493 (Ind. Ct. Ap.

       2015). The party challenging the constitutionality of the statute bears the

       burden of making that showing, and all doubts are resolved against that party.

       Id.


[11]   “It long has been established that the Contract Clause limits the power of the

       States to modify their own contracts as well as to regulate those between private

       parties.” U.S. Tr. Co. of New York v. New Jersey, 431 U.S. 1, 17 (1977). “Yet the

       Contract Clause does not prohibit the States from repealing or amending

       statutes generally, or from enacting legislation with retroactive effects.” Id.

       The first inquiry in addressing a contract clause claim is “whether, and to what

       extent, the state law operated as a substantial impairment of a contractual

       relationship ….” Clem v. Christole, Inc., 582 N.E.2d 780, 783 (Ind. 1991) (citing

       Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 245 (1978), in addressing

       Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018   Page 9 of 29
Indiana constitutional claim). Appellants’ complaint is vague about the

contractual obligations allegedly impaired by the Moratorium, asserting only

that Mainstreet Realty was “prevented from continuing under the terms of [its]

contracts because of [its] subsequent inability to develop the land under the

Moratorium.” Appellants’ App. Vol. 2 at 53. But the Moratorium did not

prevent Mainstreet Realty from buying the land or prevent the various

landowners from selling it, which were the essential obligations of the contracts.

Mainstreet Realty’s contract with 7105 E SR 334 was the only contract attached

to Appellants’ complaint. There is no indication that the other contracts differ

in any material respect. That contract allowed Mainstreet Realty to terminate

the agreement and “immediately” receive its earnest money if it was satisfied

that it would not be able to obtain governmental approval of its proposed

development of the property for its intended use. Id. at 77. The trial court’s

order on Appellants’ vested rights claim indicates that is exactly what

happened. The contracts did not obligate the landowners to grant Mainstreet

Realty a license to develop a comprehensive care health facility; that obligation,

if any, lay with ISDH, which was not a party to the contracts. At most, then,

the Moratorium may have implicated Indiana’s vested rights doctrine, which

we address below. Because Appellants have failed to show that the

Moratorium impaired any of their contractual obligations, we affirm the trial

court’s dismissal of the contract clause claims and need not delve further into

Appellants’ argument.




Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018   Page 10 of 29
            Section 2 – Appellants failed to establish that Mainstreet
            Property Group had vested rights in any of the projects.
[12]   Appellants also contend that the trial court erred in concluding that they failed

       to establish that they had any vested rights in the nine projects at issue.13 The

       record indicates that the trial court asked the parties to submit proposed orders

       on its own motion. See Appellants’ App. Vol. 2 at 10 (chronological case

       summary entry for Feb. 13, 2017).


                When a trial court has entered specific findings on its own
                motion, the specific findings control only as to the issues they
                cover, and the general judgment controls as to the issues upon
                which the court has not made findings. The specific findings will
                not be set aside unless they are clearly erroneous and we will
                affirm the general judgment on any legal theory supported by the
                evidence. A finding is clearly erroneous when there are no facts
                or inferences drawn therefrom which support it. In reviewing the
                trial court’s findings, we neither reweigh the evidence nor judge
                the credibility of the witnesses.


       Hanson v. Spolnik, 685 N.E.2d 71, 76-77 (Ind. Ct. App. 1997) (citations omitted),

       trans. denied. Rather, we consider only the evidence and reasonable inferences

       drawn therefrom that support the judgment. Id. at 77. To the extent the issues

       raised are questions of law, we review them de novo and owe no deference to

       the trial court’s legal conclusions. Staggs v. Buxbaum, 60 N.E.3d 238, 245 (Ind.




       13
          As stated above, Appellants’ complaint specifically alleged that the Moratorium violated Indiana’s vested
       rights doctrine as to Mainstreet Property Group. Appellants’ App. Vol. 2 at 49. The trial court’s order and
       Appellants’ briefs do not differentiate among the Mainstreet entities, and Appellants make no specific
       arguments regarding 7105 E SR 334.

       Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018                        Page 11 of 29
       Ct. App. 2016), trans. denied. “Where, as here, the party who had the burden of

       proof at trial appeals, he appeals from a negative judgment and will prevail only

       if he establishes that the judgment is contrary to law.” Fowler v. Perry, 830

       N.E.2d 97, 102 (Ind. Ct. App. 2005). “A judgment is contrary to law when the

       evidence is without conflict and all reasonable inferences to be drawn from the

       evidence lead to only one conclusion, but the trial court reached a different

       conclusion.” Id.


[13]   A relatively recent line of cases exploring the contours of Indiana’s vested rights

       doctrine originates with our supreme court’s opinion in Metropolitan Development

       Commission of Marion County v. Pinnacle Media, LLC, 836 N.E.2d 422 (Ind. 2005)

       (“Pinnacle I”), clarified on reh’g, 846 N.E.2d 654 (Ind. 2006) (“Pinnacle II”), appeal

       after remand, Pinnacle Media, LLC v. Metropolitan Development Commission, 868

       N.E.2d 894 (Ind. Ct. App. 2007) (“Pinnacle III”), trans. denied. Pinnacle was

       informed by the City of Indianapolis that the City’s zoning ordinance did not

       cover interstate highway rights-of-way. Pinnacle leased land in those rights-of-

       way, applied for and received permits from the Indiana Department of

       Transportation (“INDOT”), and erected two billboards without seeking

       approval from the City. The City subsequently amended the zoning ordinance

       to encompass the rights-of-way and stopped Pinnacle from erecting a third

       billboard. Pinnacle sought a declaration that the amendment was inapplicable

       to ten planned billboards for which INDOT permit applications were pending

       when the amendment was proposed and passed. The trial court entered

       summary judgment in Pinnacle’s favor.

       Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018   Page 12 of 29
[14]   On appeal, our supreme court observed that the question of whether the

       billboards were subject to the zoning ordinance amendment “implicate[d] two

       disparate lines of Indiana cases[,]” both of which


               employ the term “vested rights” and generally stand for the
               proposition that a person’s “vested rights” are protected against
               retroactive application of a change in law. But each line takes a
               quite different approach to defining or determining when a
               “vested right” exists, and these approaches can lead to different
               results.


       Pinnacle I, 836 N.E.2d at 425. The court noted that,


               [a]s a general proposition, the courts have been willing to hold
               that the developer acquires a “vested right” such that a new
               ordinance does not apply retroactively if, but only if, the
               developer “(1) relying in good faith, (2) upon some act or
               omission of the government, (3) … has made substantial changes
               or otherwise committed himself to his substantial disadvantage
               prior to a zoning change.”


       Id. at 425-26 (quoting John J. Delaney & Emily J. Vaias, Recognizing Vested

       Development Rights as Protected Property in Fifth Amendment Due Process and Takings

       Claims, 49 WASH. U.J. URB. & CONTEMP. L. 27, 31-35 (1996)).


[15]   The court approved of a line of cases suggesting that “‘there can be no vested

       rights’ where ‘no work has been commenced, or where only preliminary work

       has been done without going ahead with the construction of the proposed

       building ….’” Id. at 428 (quoting Lutz v. New Albany City Plan Comm’n, 230 Ind.




       Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018    Page 13 of 29
       74, 81, 101 N.E.2d 187, 190 (1951)).14 The court then rejected a line of cases

       holding that merely filing a building permit “creates a vested right that cannot

       be overcome by a change in zoning law ….” Id. (overruling Knutson v. State ex

       rel. Seberger, 239 Ind. 656, 160 N.E.2d 200 (1959)).15 The court held that the

       zoning ordinance amendment was applicable to Pinnacle, noting that Pinnacle

       had not started construction before the amendment was proposed or enacted

       and did not receive the requisite INDOT permits to erect the billboards until

       after the amendment was enacted. Consequently, the court reversed and

       remanded with instructions to enter summary judgment for the City.


[16]   Pinnacle petitioned for rehearing. In response to the argument of Pinnacle’s

       amici that “the ‘mere filing’ for a permit … invokes the expenditure of a

       tremendous amount of time, effort and money” and that a property owner “is at

       the whim of the legislative or administrative body until such time as he actually

       starts construction[,]” the court clarified that


                the focus is on whether or not vested rights exist, not whether
                some filing has been made with a government agency, a filing
                that might be purely ministerial and represent no material
                expenditure of money, time, or effort. We acknowledge, as
                perhaps our original opinion should have, that vested rights may
                well accrue prior to the filing of certain applications. (We saw no



       14
         Lutz involved a nonconforming use, i.e., “a use of property that lawfully existed prior to the enactment of a
       zoning ordinance that continues after the ordinance’s effective date even though it does not comply with the
       ordinance’s restrictions.” Pinnacle I, 836 N.E.2d at 425.
       15
         The Knutson line of cases “trace[d] its origin in Indiana law to zoning law but … over the years [was]
       invoked more generally when a person [had] an application for a government permit pending at the time a
       law governing the granting of the permit [changed].” Pinnacle I, 836 N.E.2d at 426.

       Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018                         Page 14 of 29
               evidence of vested rights having accrued in the facts of this case
               and indeed it was Pinnacle’s position that under Indiana law
               “mere application for a permit … grant[s] an applicant a vested
               right to have its application construed in accordance with
               existing law.”) It is beyond the scope of this opinion, and unfair
               to future litigants, to respond to the hypothetical scenarios set
               forth in the amici brief, but we believe our original opinion
               establishes a basic framework for such analysis in future cases
               that will protect vested rights to the full extent the Constitution
               requires.


       Pinnacle II, 846 N.E.2d at 656-57 (citation omitted).


[17]   On remand, Pinnacle unsuccessfully sought to amend its complaint “to assert

       claims that it allege[d] did not exist prior to the Supreme Court’s decision in

       Pinnacle I.” Pinnacle III, 868 N.E.2d at 899. On appeal, Pinnacle argued that its

       amended complaint would “assert exceptions to the ‘new rule that an applicant

       for a building permit does not obtain a vested right unless and until construction

       is commenced.’” Id. at 900 (citation omitted). Another panel of this Court

       opined that Pinnacle


               misconstrues the holding in Pinnacle I. There is no bright-line
               rule that construction must have commenced in order to show a
               vested right.… [In Pinnacle II, our] Supreme Court reiterated that
               the existence of a vested right is fact-dependent, and the court
               noted that there is no evidence in the record to show a vested
               right in this case.


       Id. The court affirmed the denial of Pinnacle’s motion to amend on res judicata

       grounds, holding that



       Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018   Page 15 of 29
               the issues Pinnacle asserts in its proposed amended complaint
               seeking to establish that it had a vested right were, or could have
               been, determined in the original action. Our Supreme Court’s
               opinion in Lutz and its progeny have been in existence for more
               than fifty years. Pinnacle opted to rely on Knutson, but Pinnacle
               could have also made arguments based on Lutz. Pinnacle might
               well have presented evidence other than the permit application to
               show a vested right.


       Id. In a footnote to that paragraph, the court stated, “Expenses incurred before

       a permit application may typically include the costs associated with leases,

       options, and land purchases, as well as surveying, engineering, site planning,

       and rezoning.” Id. at n.1.


[18]   The Pinnacle cases resurfaced in City of New Haven v. Flying J, Inc., 912 N.E.2d

       420 (Ind. Ct. App. 2009), trans. denied. Flying J owned over seventeen acres of

       land in New Haven that it wanted to develop into a travel plaza with a service

       station. Flying J ultimately prevailed in litigation with the City’s board of

       zoning appeals (“BZA”) regarding whether its proposed uses for the land were

       permitted by the City’s zoning ordinance. During the litigation, the City

       amended the ordinance to restrict service stations to a maximum of two acres.

       Unaware of the amendment, Flying J submitted its development plan to the

       BZA, and the zoning director rejected it based on the amended ordinance. The

       BZA affirmed that decision, but the trial court ruled in Flying J’s favor.


[19]   On appeal, another panel of this Court addressed “whether the amended zoning

       ordinance is applicable to Flying J’s planned travel plaza” by analyzing the

       Pinnacle opinions. Id. at 424. The BZA argued that “because Flying J had not

       Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018   Page 16 of 29
       yet begun construction on its travel plaza, Flying J had no vested right to

       develop the travel plaza pursuant to the original zoning ordinance.” Id. at 425.

       The court replied, “If Pinnacle I were the only case we considered, we might

       well agree with the BZA that Flying J had no vested right because it had not yet

       begun construction on the travel plaza.” Id. In light of the subsequent

       decisions, however, the court


               read the Pinnacle cases to mean that, while construction definitely
               does establish a vested right, mere preliminary work, including
               filing of a building permit, does not. In situations falling between
               these two extremes, courts must engage in a fact-sensitive
               analysis to determine whether vested rights have accrued prior to
               application for a building permit or construction.


       Id. at 426.


[20]   Focusing on the aforementioned footnote in Pinnacle III, Flying J noted that it

       had spent over $4,000,000 “prior to the commencement of construction[,]”

       including over $3,700,000 to purchase the property, over $194,000 in legal fees,

       over $45,000 for engineering and surveying, and over $8600 in travel expenses.

       Id. The BZA challenged many of the expenditures, “especially the real estate

       purchase price, legal fees, and travel expenses, claiming that such are

       preliminary expenses inadequate to establish a vested right.” Id. The court

       replied,


               [E]ven were we to agree with the BZA’s argument regarding
               these particular expenses, Flying J’s other proved expenses,
               including tens of thousands of dollars on engineering and
               surveying, constitute more than mere “preliminary” work or
       Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018   Page 17 of 29
               expenses akin to merely applying for a building permit. Rather,
               these are the sort of expenses we referred to in Pinnacle III when
               we listed expenses that could give rise to a vested right. This is
               especially so in light of the status of the continuing litigation
               between the parties when the BZA amended the zoning
               ordinance at issue.


       Id. at 426-27 (citation to Pinnacle III omitted). In light of the fact-sensitive

       nature of a vested rights determination, the court gave deference to the trial

       court’s findings and affirmed its ruling that “the amendments to the zoning

       ordinances were subject to Flying J’s vested right in the property and that the

       amended zoning ordinance was not applicable to Flying J’s planned travel

       plaza.” Id. at 427.


[21]   This case differs from the Pinnacle and Flying J cases in two obvious respects.

       One, we are concerned here with a statute prohibiting state licensure of health

       care facilities, rather than a zoning ordinance terminating a nonconforming use;

       neither side argues that different or additional considerations should apply in

       our vested rights analysis, and we can think of none. Two, unlike the aggrieved

       parties in the Pinnacle and Flying J cases (and the relevant cases cited therein),

       neither Mainstreet Realty nor Mainstreet Property Group had a possessory

       interest in the properties when the Moratorium became effective.


[22]   Appellants argue that “[n]othing in Pinnacle or its progeny … stands for the

       proposition that a separate possessory interest sufficient to support a takings

       challenge is a prerequisite of vested rights.” Appellants’ Reply Br. at 29.

       Appellants quote from the law review article cited in Pinnacle I to press their

       Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018    Page 18 of 29
       point, without acknowledging that the article’s stated purpose is to

       “demonstrate that a landowner possessing vested development rights under state

       law has a property interest and reasonable expectations which are entitled to

       great weight when determining the viability of the landowner’s Fifth

       Amendment takings claim or substantive due process claim.” Delaney & Vaias

       at 28 (emphases added) (footnote omitted); see also id. at 31 (“Generally, the

       black-letter rule for acquisition of vested rights provides that a landowner will be

       protected when: (1) relying in good faith, (2) upon some act or omission of the

       government, (3) he has made substantial changes or otherwise committed

       himself to his substantial disadvantage prior to a zoning change.”) (emphasis

       added). Appellants also disregard the Pinnacle I court’s mention of the

       constitutional due process and takings clauses. See 836 N.E.2d at 425 (“In

       [situations involving a nonconforming use], it is often said that the landowner

       had a ‘vested right’ in the use of the property before the use became

       nonconforming, and because the right was vested, the government could not

       terminate it without implicating the Due Process or Takings Clauses of the

       Fifth Amendment of the federal constitution, applicable to the states through

       the Fourteenth Amendment.”) (emphasis added).


[23]   To be sure, isolated phrases in the Pinnacle and Flying J cases could be read to

       suggest that a party with no possessory interest in property may nevertheless

       acquire vested rights in its use or development by expending sufficient money,

       time, or effort. See Pinnacle II, 846 N.E.2d at 656 (“We acknowledge, as

       perhaps our original opinion should have, that vested rights may well accrue

       Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018   Page 19 of 29
       prior to the filing of certain applications.”); Pinnacle III, 868 N.E.2d at 900 n.1

       (“Expenses incurred before a permit application may typically include the costs

       associated with leases, options, and land purchases ….”); Flying J, 912 N.E.2d

       at 426 (agreeing for argument’s sake with BZA’s claim that real estate purchase

       expense is inadequate to establish a vested right). But we could find no Indiana

       case that specifically holds this, and Appellants have cited no cases from any

       jurisdiction for this proposition. Without definitive guidance from our supreme

       court, however, we decline to adopt a bright-line rule that a possessory interest

       in property is a prerequisite for acquiring vested rights to use or develop that

       property in a particular manner. At the very least, a possessory interest should

       be a significant factor in determining whether vested rights exist; the absence of

       a possessory interest may not necessarily be dispositive, but it would certainly

       militate toward a finding of no vested rights.


[24]   With the foregoing in mind, we consider the vested rights issue as addressed in

       the trial court’s judgment. The trial court referred to Mainstreet’s five-stage

       development process and found that most of the work in the market analysis

       and site selection phases (which had been reached in all nine projects) had been

       performed by Mainstreet entities. The court found that Mainstreet had

       submitted construction design plans to ISDH for five of the projects but had not

       begun construction on any of the projects. The court also found that only

       “[f]our projects had executed land contracts in place.” Appealed Order 2 at 4.

       Furthermore, the court found that Mainstreet had not established that it had

       lost any earnest money, that Mainstreet received no funds pursuant to any


       Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018   Page 20 of 29
       financing agreement, and that the legal expenses associated with canceling such

       agreements were incurred in-house.


[25]   The trial court made the following specific findings regarding Mainstreet’s

       alleged expenditures for certain projects and its reliance on governmental acts:


               34. Mainstreet contends that it spent $52,000 for each of the
               Evansville, Muncie and Gary projects.[16] However, these alleged
               expenditures are for “internal time, resources, expenditures, and
               the development fee….” The “development fee” is purportedly
               an “internal fee” paid by Mainstreet Property to Mainstreet Asset
               Management.

               35. Mainstreet did not have the land parcel selected for the
               Evansville project. No letter of intent was ever issued.

               36. No letter of intent was ever issued with respect to the Gary
               project. Plaintiffs did not obtain any financing with respect to the
               Gary project.

               37. Mainstreet did not have the land parcel selected for the
               Muncie project. No letter of intent was ever drafted. Mainstreet
               did not obtain any financing with respect to the Muncie project.

               38. Any “financing fee” listed on Exhibit 10 is paid by
               Mainstreet Property to Mainstreet Asset Management, which are
               under common control.

               39. Mainstreet relies on Exhibit 10 to show the substantial outlay
               [of] resources on developing these projects prior to the
               Moratorium going into effect. Exhibit 10 shows that Mainstreet



       16
        This figure comes from the deposition testimony of Mainstreet Asset Management Vice President of
       Development Douglas Pedersen, which was admitted as an exhibit at trial.

       Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018                   Page 21 of 29
         incurred and committed millions of dollars for each of the nine
         projects. The Exhibit shows the following total “expenditure” by
         Mainstreet for each project:

         a. Zionsville ---- $1,670,415
         b. Fort Wayne ---- $1,645,018
         c. Hobart ---- $1,693,435
         d. New Haven ---- $1,623,874
         e. Warsaw ---- $1,535,448
         f. Jeffersonville ---- $1,243,677

         40. However, those “commitments” listed in Exhibit 10 have not
         been paid by the Plaintiffs.[17]

         41. The “cost of preferred equity” listed in Exhibit 10 has been
         identified by Plaintiffs as “cost of equity investment return”
         rather than an outlay of funds.[18]

         42. Plaintiffs have not presented evidence of exactly how much
         was paid for the projects listed on Exhibit 10. This is a
         substantial void in the evidence. It appears that Mainstreet
         intended to confound the actual expenditure of funds to external
         service providers with funds that Mainstreet simply transfers
         back-and-forth between its own entities.

         43. When looking at the only column in Exhibit 10 that appears




17
  Pedersen testified that commitments are the balance of unpaid contractual obligations to third parties. Ex.
Vol. 3 at 106. For example, Exhibit 10 shows that Mainstreet Property Group incurred $822,385 in third-
party costs for the Zionsville project and had commitments totaling $330,578. Pedersen testified that he did
not know whether “any third parties [were] demanding that the commitments be paid with respect to the
Zionsville property[.]” Id. at 108.
18
  Pedersen testified that the cost of equity investment return is “estimated off 18 months of interest on the
equity from committed equity investors” and that Mainstreet Property Group was “still obligated to pay the
equity investors” despite that “construction never occurred with respect to the six properties listed” in finding
39. Ex. Vol. 3 at 148. According to Exhibit 10, the total cost of preferred equity for the six projects is
$2,850,608. Id. at 238.

Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018                           Page 22 of 29
         to show an actual expenditure of funds to external service
         providers, it appears that, at best, Mainstreet has only actually
         expended about 10% of what it claims it has incurred and
         committed.

         ….

         56. …. In the instant case, Plaintiffs had no property interest in
         any of the sites related to the projects and performed no material
         improvements or actions on the property.[19]

         57. Additionally, this court does not believe Plaintiffs cannot
         [sic] use “internal” costs, which are merely transfers under the
         “Mainstreet umbrella” to attempt to show the Court that they
         made material expenditures of money with respect to the
         projects.

         58. Moreover, any claim of a vested right must surmount the
         requirement that the developer relied in good faith on some
         action of the government.


         59. No action by the legislature created any such good faith
         reliance in this case. As a matter of fact, the Legislature had
         shown its intention a year earlier to create a moratorium on the
         development of health care facilities. The Moratorium had been
         proposed in 2014 and 2015, and Plaintiffs knew that the
         Moratorium bill was going through the legislature. While the
         Moratorium bill did not pass in 2014, it did pass in 2015.
         Mainstreet’s decision to push forward with additional projects
         while the Legislature was in the middle of deciding whether to
         prevent such projects is a business risk. There is nothing wrong
         with a business taking a risk; businesses should do that.



19
  We reject Appellants’ assertion that this conclusion “necessarily suggests that the trial court thinks that
construction must occur at the site for vested rights to accrue.” Appellants’ Br. at 62.

Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018                           Page 23 of 29
        However, when the risk does not pan out, they cannot then say
        they relied in “good faith” on the current status of the law.

        60. Providing comprehensive care services is a heavily regulated
        industry in which the participants are typically aware of proposed
        changes in the law before they occur.

        61. For two consecutive years, the proposed moratorium had
        been the subject of extensive debate within the comprehensive
        care industry and by the legislature, and Mainstreet even “spoke
        on the bill itself.”

        62. The Court believes that the issue of “good faith reliance” is a
        legal hurdle that Mainstreet cannot clear. In all the cases cited to
        the court regarding vested rights, such as the Pinnacle line,
        Knutson, Lutz, and Flying J, the one element that is different is
        that the developers had no reason to suspect the development of
        their project, whether it be billboards, a neighborhood, a gas
        station, or a fueling center, would be denied.

        ….

        67. Along with the court’s determination that the Plaintiffs have
        not met their burden regarding proving good faith reliance, the
        Court also believes that the facts do not show that Plaintiffs have
        made substantial changes or otherwise committed themselves to
        a substantial disadvantage prior to a zoning change.

        68. Based on the foregoing, Plaintiffs have not met their burden
        by a preponderance of the evidence that they acquired vested
        rights in any of the nine projects.


Id. at 6-13 (record citations omitted).




Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018   Page 24 of 29
[26]   Appellants first contend that the trial court misconstrued good faith reliance.

       According to Appellants,


               [r]elying in good faith means that a developer believes that the
               current state of the law permits the development and that the
               developer pursues the project on that belief. So in this case, good
               faith reliance would mean that at the time Mainstreet started and
               pursued a project, it believed that the current state of the law
               permitted them to complete that project. This, of course, was the
               case here.


       Appellants’ Br. at 52-53. Appellants argue that “Mainstreet expects the

       industry to be regulated, but it does not expect the industry to be regulated

       retroactively.” Id. at 54. They claim that, “[u]nder the trial court’s holding,

       Mainstreet should have immediately ceased all activity in the State of Indiana

       in 2014. But if businesses had to cease activity every time there was a proposed

       law or possible change, economic activity would come to a standstill.” Id. at

       55.


[27]   Appellants’ argument on this point is well taken. The proposed moratorium in

       Senate Bill 173 put Mainstreet on notice that the legislature was giving serious

       thought to capping the number of comprehensive care health facilities at the

       end of June 2014, six months after the bill was introduced. But once that bill

       failed to become law, it would have been unreasonable to expect Mainstreet to

       shelve its existing projects or avoid starting new projects until the next




       Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018     Page 25 of 29
       legislative session20 on the off chance that a similar moratorium would be

       proposed and successfully enacted. As it turned out, the Moratorium in Senate

       Bill 460 was significantly and unexpectedly different because it was retroactive

       at its inception on March 9, 2015, and therefore did not give Mainstreet (or

       anyone else) an opportunity to submit construction design plans for projects

       that were already in the pipeline. We agree with Appellants that businesses

       should “not be forced to anticipate an unforeseen subsequent change in the

       law.” Appellants’ Reply Br. at 31. Consequently, we disagree with the trial

       court’s conclusion that Mainstreet failed to establish that it relied in good faith

       on existing law.


[28]   Next, Appellants assert that the trial court erred in finding that they had not

       “presented evidence of exactly how much was paid for the [six] projects listed

       on Exhibit 10.” Appealed Order 2 at 7.21 They claim that the “expenditures

       include the exact items that were sufficient for rights to vest in City of New

       Haven, including, inter alia, surveying, geotechnical investigations, civil

       engineering services, structural engineering services, schematic designing.”

       Appellants’ Br. at 59. Unlike the detailed evidence presented by Flying J in City

       of New Haven, see 912 N.E.2d at 426 (list of thirteen separate costs), neither

       Exhibit 10 nor the supporting deposition testimony of Mainstreet Asset

       Management Vice President of Development Douglas Pedersen provided




       20
            We note that 2014 was an election year.
       21
            Pedersen testified that the expenditures for the Gary, Evansville, and Muncie projects were purely internal.

       Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018                           Page 26 of 29
       specifics regarding how much money was spent on each project for any of those

       items. Moreover, there was no evidence that Mainstreet would have to pay any

       of the almost $2,000,000 in outstanding contractual commitments to third

       parties, and the stated cost of preferred equity for each project did not include a

       breakdown of the investors’ principal (which did not come out of Mainstreet’s

       pocket) and the return on investment (if any).


[29]   Appellants also complain that the trial court erred “when it failed to consider

       the significant expenditures of money, time, and effort, made by Mainstreet

       itself.” Id. at 60.22 Pedersen testified generally about the stages of Mainstreet’s

       development process, but Appellants provided no detailed evidentiary basis

       (such as actual time spent or hourly rates) for the development and financing

       fees that were charged from one Mainstreet entity to another. We may not

       second-guess the trial court’s apparent belief that those fees were more of an

       accounting stratagem than an indication of actual expenditures of money, time,

       and effort. Moreover, Appellees point out that the foregoing precedent “[does]

       not say that internal costs may be considered in determining whether a

       developer’s expenses are of such an extent that it has a vested right in a

       project.” Appellees’ Br. at 53-54.




       22
          Appellants claim that “[t]he total combined internal expenditures for all of Mainstreet’s pending projects
       was $3,946,368.” Appellants’ Reply Br. at 9 (citing Appellants’ App. Vol. 3 at 187, 192, 195, 241-42). That
       total appears to be based on the development and financing fees for the six projects listed in Exhibit 10 and
       Pedersen’s testimony regarding the expenditures for the Gary, Evansville, and Muncie projects.

       Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018                         Page 27 of 29
[30]   In sum, Appellants’ evidence regarding the expenditure of money, time, and

       effort could be characterized as normal business efforts expended to investigate

       future business opportunities. “[T]he existence of a vested right is fact-

       dependent[,]” Pinnacle III, 868 N.E.2d at 900, and we must defer to the trial

       court’s factual findings on this issue. With respect to the Hobart, Warsaw,

       Gary, Evansville, and Muncie projects, Mainstreet Realty did not have a

       contractual interest, let alone a possessory interest, in any property. In light of

       all this, we cannot say that the trial court erred in finding that no vested right

       existed as to these projects.


[31]   The Zionsville, Jeffersonville, Fort Wayne, and New Haven projects present a

       closer call, in that they were further along in the development process, and

       Mainstreet Realty had executed land purchase agreements. But Mainstreet

       Realty had not acquired a possessory interest in the target properties,23 and the

       evidence regarding the expenditure of money, time, and effort on those projects

       could, as above, be characterized as the exploration of future business

       opportunities. Any commercial development project involves an element of

       financial risk, and we agree with the trial court’s assessment that “the facts do

       not show that [Appellants] have made substantial changes or otherwise

       committed themselves to a substantial disadvantage” so as to create a vested

       right. Appealed Order 2 at 12-13. Therefore, we affirm the trial court’s

       judgment for Appellees on Appellants’ vested rights claim.



       23
            As mentioned earlier, all earnest money for these contracts was returned to Mainstreet Realty.

       Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018                          Page 28 of 29
[32]   Affirmed.


       Robb, J., and Bradford, J., concur.




       Court of Appeals of Indiana | Opinion 29A02-1704-MI-871 | March 13, 2018   Page 29 of 29
