Federal judge dismisses most claims in lawsuit stemming from sewage leak

IL file photo

A federal judge has granted most of a property owners association’s motions for judgment and dismissed with prejudice multiple damage-related claims in a civil lawsuit stemming from a 2015 sewage leak caused by a faulty lift station.

Judge Jane Magnus-Stinson of the United States District Court for the Southern District of Indiana on Friday also denied in part three out of 14 motions for judgment filed by Castleton Corner Owners Association Inc. against claims filed by plaintiff Conroad Associates.

The judge also granted Conroad’s motion to dismiss the association’s counterclaim for malicious prosecution with prejudice in the lawsuit, but without prejudice if the claim is asserted in another lawsuit.

According to court records, Conroad owns property at a shopping center located at 5602 Castleton Corner Lane in Indianapolis.

Castleton Corners Owners Association owns and manages property located at the Castleton Corner Shopping Plaza and was formed to provide for the continuing maintenance and administration of various shopping centers and standalone buildings that make up Castleton Corner, including the Conroad property.

Between 2002 and 2005, a sanitary sewer lift station at the Castleton Corner plaza malfunctioned several times. The association was aware of the malfunctions, as well as other persistent problems with the lift station.

Then on Feb. 15, 2015, the lift station failed, causing a large amount of sewage to flood the Conroad property.

The flood forced Conroad’s tenant to cease business operations at the property and resulted in a termination of their lease. The Conroad property was heavily damaged and Conroad was required to undertake remediation measures.

After the sewage flood occurred, the lift station continued to have problems which have not been remedied and continue to affect the Conroad property, according to Magnus-Stinson’s order.

The association was administratively dissolved by the state in April 2005, but held four meetings during the period of administrative dissolution in 2005, 2015 and 2016, giving the appearance that the association was lawfully operating. Also, the association received a $54,000 loan from Arciterra Companies in February 2020 and continued to spend money between January and March 2020.

From 2005 to 2020, the association took numerous actions that did not constitute “wind-down” activities under Indiana law. No filings were made to reinstate the association until July 23, 2020.

Conroad alleged the association or its officers breached the association’s governing documents.

In December 2016, Conroad filed a lawsuit in Marion Superior Court against the association and McKinley Inc., the former owner of Castleton Corner. Conroad alleged that the association and McKinley were liable for damages to the Conroad property and asserted claims for negligence, breach of contract and breach of fiduciary duty.

The trial court entered judgment for Conroad on its breach of contract claim against the association and awarded it $213,288.70. But the trial court also found that Conroad had not sustained its burden of proof on any other claims.

The association appealed the trial court’s judgment to the Court of Appeals of Indiana and Conroad cross-appealed.

The Court of Appeals affirmed that the association had breached its contract for failing to maintain the lift station. But the COA also reversed the trial court’s calculation of damages and remanded for the trial court to award damages to Conroad in the amount of $49,656.

Then in April 2022, the appellate court affirmed the trial court’s May 2021 additional proceedings supplemental orders.

The Indiana Supreme Court granted transfer in September 2022. The following March, the Supreme Court affirmed the trial court’s order amending the damages award but determined the lower court lacked jurisdiction to issue two other orders because each interfered with the subject matter of a pending appeal. The Supreme Court reversed and remanded the two orders, calling them void.

Meanwhile, Conroad filed its federal lawsuit in April 2022, with the association answering in November 2022 and filing their motion for judgment on the pleadings.

In its second amended complaint, Conroad asserted 14 claims for breach of the association’s governing documents, fraud and breach of fiduciary duty.

The district court granted the association’s motion for judgment and dismissed with prejudice Conroad’s claims on counts 1-4 and 8-14 of the lawsuit.

Also, the court granted the association’s judgment motions and dismissed with prejudice counts 5- 7 to the extent those claims are asserted against the lawsuit’s individual defendants and to the extent those claims seek damages caused by the 2015 flood or the association’s failure to maintain the lift station prior to Dec. 29, 2020.

But the district court also denied in part the association’s judgment motions on counts 5-7 to the extent those claims are asserted against the association and seek damages for the association’s failure to maintain the lift station after Dec. 29, 2020, or for other actions unrelated to the flood or failure to maintain the lift station.

Finally, the district court denied in part the association’s motion for judgment to the extent the court found that it has personal jurisdiction over Crystal Scudder, the association’s secretary and a citizen of Arizona.

Magnus-Stinson wrote that, based on Indiana Code § 23-17-14-3, I.C. 23-17-4-4 and Brenner v. Powers, 584 N.E.2d 569 (Ind. Ct. App. 1992), Conroad does not have standing to seek the declaratory relief requested in Counts 1-3.

The district court also denied the association’s motion to dismiss the action under the abstention doctrine in Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976).

According to Magnus-Stinson, the association had argued that the federal lawsuit and the state court lawsuit were parallel because they arise out of the same facts and raise similar legal issues. The district court disagreed and denied the motion, finding abstention under the Colorado River doctrine is inappropriate.

As to the issue of breach-of-contract claims against individual defendants, because the governing documents are agreements between the association and its members, including Conroad, the individual defendants are not contracting parties with the documents, the judge wrote.

“Conroad thus can bring breach of contract claims against the Association but not against the Individual Defendants,” Magnus-Stinson wrote in granting the association’s motion and dismissing Counts 5, 6 and 7 against the individual defendants.

Thus, the only claims remaining from the lawsuit are Counts 5, 6 and 7, to the extent those claims seek damages for the association’s failure to maintain the lift station after Dec. 29, 2020, or for other actions unrelated to the flood or failure to maintain the lift station.

As to fraud claims brought by Conroad in Counts 8, 9, 10 and 13, Magnus-Stinson wrote that while Conroad specifically names three individual defendants, it does not allege what specific acts each individual took.

In a separate order also issued Friday, the district court also granted Conroad’s motion to dismiss the association’s counterclaim for malicious prosecution, dismissing it with prejudice to assert it as a counterclaim in the instant lawsuit but without prejudice to assert that claim in another lawsuit.

Because the lawsuit is ongoing, Magnus-Stinson wrote that the association did not satisfy the final element of a malicious prosecution claim: that the action was terminated in their favor.

“Ultimately, Defendants’ attempt to mix-and-match past and present actions to satisfy the elements of their malicious prosecution counterclaim is unavailing,” the judge concluded. “Defendants cannot show that the instant lawsuit was resolved in their favor because it is ongoing.”

The case is Conroad Associates, L.P. v. Castleton Corner Owners Association, Inc., et al.,1:22-cv-750.