Rose v. City of Burlington, No. S1480-03 CnC (Norton, J., Aug. 31, 2005)

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STATE OF VERMONT                                      SUPERIOR COURT
Chittenden County, ss.:                           Docket No. S1480-03 CnC



ROSE

v.

CITY OF BURLINGTON



                                   ENTRY

        This case is about ambiguity in contract language and whether it
arises in terms that reference federal regulations. The City of Burlington,
one party to a purchase and sale agreement, has moved for summary
judgment on Plaintiff Sellers’ cause of action for breach of contract. The
City argues there is no ambiguity as the clear language of the agreement
dictates the terms and intentions of the parties. Sellers disagree and point to
three clauses that they argue cannot be resolved without extrinsic evidence.
With such evidence, Sellers argue, a breach of contract becomes clear. By
mutual stipulation, Sellers have agreed to dismiss their other claim of
misrepresentation.

       Sellers owned a parcel of land in South Burlington near the
Burlington International Airport, which is owned and operated by the City
of Burlington. In 1998, the City approached Sellers about purchasing their
property for the airport’s expanding needs. Sellers, at first reluctant,
realized that through a negotiated sale they could obtain more beneficial
terms than through an eminent domain process. Sellers entered into
negotiations with the City, and in 2001, the parties signed a purchase and
sale agreement. The property was transferred soon thereafter, and Sellers
were paid 1.5 million dollars in return.

        Sellers’ breach of contract claim stems from provisions in the
agreement that addressed Sellers’ tax concerns and other expenses. As part
of their negotiations, Sellers stated their desire to re-invest the money in
another property to avoid the tax penalties from such a large sale. Under §
1031 of the Internal Revenue Code, Sellers’ proceeds would not be taxed if
they purchased a similar property within a year of the sale, thereby
“exchanging property” tax-free. As part of the agreement, the City agreed
to bear expenses that Sellers foresaw in this search and eventual purchase.
Sellers claim that this was memorialized in the contract and the City has
failed to fully perform. City argues that it has paid Sellers all of the money
that it was obliged to reimburse under the contract as federal regulations
limited the amount. At the heart of this dispute are three sections from the
parties’ agreement.

                                 Section 4
       Section 4. Purchase Price/Application/Deposit. Buyer agrees to
       purchase the said Premises and pay to the Seller the sum of One
       Million Four Hundred and Eighty One Thousand and 00/100
       Dollars ($1,481,000.00), (the “Purchase Price”), to be paid by
       check drawn from the City of Burlington funds at the time of
       delivery of the deed. . . .

               In addition thereto, Buyer agrees to pay and/or reimburse
       Seller at closing for all reasonable costs and expenses incurred by
       Seller in the sale of the Premises to Buyer, including, but not
       limited to, reasonable attorney’s fees for preparation and
       negotiation of this Agreement, preparation of Warranty Deed and
       Vermont Property Transfer Tax Return, and other closing
       documents, and attendance at closing, and accounting fees for
       accounting advice related to Seller’s sale of the Premises, the
       intention of the parties being that Buyer shall reimburse Seller for
       all reasonable professional fees and expenses incurred by Seller
       relative to sale of the Premises that are considered eligible under
       the Uniform Relocation Assistance and Real Property Acquisition
       Policy Act of 1970 (49 C.F.R. Part 24), as amended.

        This first section that Sellers cite begins with a recital of the
purchase price, goes on to explain the deposit amount, and established the
parties’ escrow arrangement; it then shifts to the issue of expenses. This
paragraph, quoted above in full, starts with a laundry list of what can be
dubbed “closing costs” that the City as Buyer “agrees to pay and/or
reimburse Seller.” The phrase “including, but not limited to,” at the
beginning of the list suggests that the items that follow are the minimum
expenses for which the City is obligated. The problem, according to
Sellers, comes at the end of the list with a statement that it is their intent
that the Sellers be reimbursed expenses to the extent allowed by 49 C.F.R.,
part 24. This section of the Code of Federal Regulations governs the
amounts that federal or state agencies can reimburse Sellers for property
acquired for Federal or federal-assisted projects. In particular, it contains a
section that requires the owner to be reimbursed for “recording fees,
transfer taxes, documentary stamps, evidence of title, boundary surveys,
legal descriptions of the real property, and similar expenses incidental to
conveying.” Expenses Incidental to Transfer of Title to the Agency, 49
C.F.R. § 24.106 (1989).

        Seller’s argument is that § 24.106 does not include all of the
expenses that the parties listed out in their agreement and that the two
sections must be read in opposition. This is not necessarily true. The court
favors a fair and reasonable construction of a contract over one that does
not. Trustees of Net Realty Holding Trust v. AVCO Fin. Serv. of Barre,
Inc., 147 Vt. 472, 476 (1986); see also Morrisseau v. Fayette, 164 Vt. 358,
366–67 (1995). Here the parties are clear that their intent is for the City to
pay and/or reimburse Seller for “all reasonable professional fees and
expenses incurred by Seller relative to sale of the Premises that are
considered eligible” under the federal regulations. The laundry list includes
some of these expenses and § 24.106 does not contradict or exclude them.
In fact, they easily fit into the category of allowable “similar expenses.”

        The real issue is that the federal regulations create a ceiling on
“eligible” expenses. Sellers would like to argue that they were unaware
that the inclusion of the federal regulation language would mean a limit to
what they would receive for closing costs, but the plain language of the
agreement makes clear that the federal regulation would govern, which
expenses would be “eligible” and thereby establish the amount Sellers
would receive. Murphy v. Stowe Club Highlands, 171 Vt. 144, 152–53
(2001); see also Quenneville v. Buttolph, 2003 VT 82, ¶ 15 (unspoken
intentions are not relevant to contract interpretation).
        While Sellers’ proffered interpretation of this section is possible, it is
neither reasonable nor preferable. Sellers were reimbursed for their closing
costs, albeit only to the extent that the expenses were eligible under §
24.106. But they were not categorically denied closing costs, and their
brief does not cite a particular closing cost from their laundry list that was
denied outright by the City or the FAA. Donnelly v. Guion, 467 F.2d 290,
293 (2d Cir. 1972) (“A summary judgment motion is intended to ‘smoke
out’ the facts so that the judge can decide if anything remains to be tried.”);
Travellers Ins. Co. v. Demarle, Inc. USA, 2005 VT 53, ¶ 9 (mem.).
Without proof of any breach of this particular section’s plain language,
Sellers’ argument about the monetary limits is not supported by the terms
of the contract. Therefore, the City is entitled to summary judgment on the
question of breach for Section 4.

                                   Section 6

       Section 6 Tax Free Exchange. The Seller anticipates exchanging
       the property at 3060 Williston Road for other property of a like
       kind within the meaning of Section 1031 of the Internal Revenue
       Code. The Buyer hereby acknowledges that it is the intent of the
       Seller to effect an IRC Section 1031 tax deferred exchange which
       will not delay the Closing. . .

               The Buyer agrees to reimburse the Seller for necessary and
       reasonable business expenses associated with acquiring the
       exchange property. These costs would include origination/loan
       application fees, purchase and acquisition fees, including
       reasonable consulting fees in connection with the tax free
       exchange, reasonable attorney’s fees, property transfer tax fees,
       title search fees, title insurance costs, mortgage preparation fees,
       and other reasonable closing costs, appraisal fees, credit check
       fees, agent fees related to the exchange process, and certain
       miscellaneous costs, including but not limited to reasonable travel
       expenses to locate an exchange property, the intent being that
       Sellers will be reimbursed consistent with the Uniform Relocation
       Assistance and Real Property Acquisition Policy Act of 1970 (49
       C.F.R. Part 24), as amended.

        This next section that Sellers cite for their breach of contract claim
deals directly with the Sellers’ desire to nullify the tax consequences of this
transaction. The section begins with a recitation of this aim, citing to the
specific section of the IRC that covers property exchanges. As in Section
4, this section then lists several reasonable business expenses that the City
agrees to reimburse. It also ends in a similar manner to Section 4 with the
clause that the parties intend Sellers to be reimbursed consistent with 49
C.F.R., part 24.

       Notwithstanding this superficial similarity, the two sections have
striking and critical differences. Section 6 has the limited purpose of
obligating the City to pay for certain expenses that the Sellers expect to
incur subsequent to the immediate land purchase. This intent is made clear
from the beginning of the section. At the time of the agreement, the City
was well aware that Sellers were seeking a comparable property to purchase
immediately and that any purchase agreement would have to include
provisions to reimburse them for these expenses. While this project went
beyond the immediate purpose of the agreement—to transfer Sellers’ land
to the City—it was a critical part of the agreement in the eyes of the Sellers,
and the City agreed to pay their reasonable expenses.

       As with Section 4, the City tried to limit its obligation by inserting
language that the terms of this obligation would be governed by 49 C.F.R.,
part 24. The problem is that these federal regulations do not explicitly deal
with such an individualized requirement. To the extent that they do, they
disallow such expenses. Ineligible Moving and Related Expenses, 49
C.F.R. § 24.305(i) (1989) (“A displaced person is not entitled to payment
for: . . . Expenses for searching for a replacement dwelling . . . .”). But
even this provision may not apply to Sellers as it is unclear from the
parties’ briefs whether or not Sellers qualify as “displaced persons” for the
purpose of reimbursement under § 24.304 or § 24.401. Definitions, 49
C.F.R. 21 24.2 (1989). If Sellers do not qualify as such, then even the
language of § 24.305 does not apple leaving the parties in a regulatory void.
It would be highly improbable that this was the parties intent, to create an
explicit benefit at the beginning of a sentence only to immediately revoke it
in the next clause.

        By arguing for a plain reading, the City is trying to force these
regulations to do something that they were simply not created to do. These
regulation were promulgated to create a fair, consistent, and equal policy
for federal agencies that purchase private property for federal projects.
Uniform Relocation Assistance and Real Property Acquisition Policy Act
of 1970, Pub. L. No. 91-64, 1970 U.S.C.C.A.N. (84 Stat. 1894) 2222; see
also id. at 5850 (legislative history); Purpose, 49 C.F.R. § 24.1 (1989). The
resulting statute and regulations act as minimum requirements and do not
necessarily deal with sophisticated land purchase transactions that parties
may independently bargain for in their dealings. The City’s insistence on
reading these regulations into Section 6 without further evidence is merely
pounding at a square peg over a round hole.

       The provisions of 49 C.F.R., part 24 and the agreement’s
individually listed expenses collide. There are more than one reasonable
interpretations that are equally valid. Sellers would argue that the
individual elements should control and the federal regulations should be
applied only to the extent that they agree with these terms, if at all. The
City argues the opposite, that the regulations should control and the
individual elements pushed aside. Neither interpretation is satisfactory as a
matter of law, and the circumstances of the contract do not offer any greater
clarification. The problem boils down to the insertion of federal regulations
after one party had drafted the language concerning the individual
expenses. The addition created a conflict, and the terms cancel each other
out. Since both are included in the final signed agreement, the parties’
intent is ambiguous and must be decided as a matter of law. Trustees of
Net Realty Holding Trust v. AVCO Fin. Serv. of Barre, Inc., 144 Vt. 243,
248 (1984). Summary judgment on Sellers’ claim of breach relating to the
terms of Section 6 of the agreement would be improper at this time.

       Section 10.      Relocation Assistance Benefits.      The Seller
       acknowledges that in addition to the Purchase Price, Seller and
       tenants may be eligible to receive from the Buyer residential and
       non-residential Relocation Assistance Benefits in accordance with
       the Federal Register, part II, United States Department of
       Transportation, 49 C.F.R. Part 24, Uniform Relocation Assistance
       and Real Property Acquisition Regulations for Federally Assisted
       Programs, dated March 2, 1989, and as said rules and regulations
       may be amended prior to the Closing Date.

       The final section that Sellers cite in their breach of contract claim is
Section 10. This section deals with the relocation assistance benefits that
49 C.F.R., part 24 offers to Sellers who are displaced as a result of a move.
This term of the contract does not promise anything beyond the application
of this section, which must apply anyway as this purchase was part of a
federally funded project through the FAA. Sellers do not cite to any
individual benefit in part 24 that they claim was not appropriately applied
to their benefit in this case.

        Instead, Sellers argue that Section 10 is further proof that the
citations of the federal regulations in Sections 4 and 6 are redundant. This
is not necessarily true. There are several benefits within part 24 that are not
covered in either Section 4 or 6. See, e.g., Payment for Actual Reasonable
Moving and Related Expenses—Non-residential Moves, 49 C.F.R. §
24.303 (1989). The inclusion of a general term promising the benefits of
part 24 is, therefore, not redundant or proof that the inclusion of such
language in Section 4 and 6 was. The only reasonable interpretation is that
the inclusion in each section was intended to create overlapping provisions
and provide clear proof of the parties’ intent to incorporate the provisions
of 49 C.F.R., part 24 in their final agreement. As such, Section 10 cannot,
as a matter of law, be a source of the breach that Sellers allege. Its meaning
and purpose are clear by the plain language of the Section.

       Based on the foregoing, the City’s motion for summary judgment is
Denied in so far as it concerns Seller’s claim of breach under Section 6 of
the parties’ agreement and is Granted for Seller’s claims under Sections 4
and 10 of their agreement.

       Dated at Burlington, Vermont________________, 2005.
________________________________
           Richard W. Norton, Judge
