Ruling for Madison County upheld in inmate housing lease dispute

The Indiana Court of Appeals has affirmed a ruling for Madison County in a lease dispute with a property manager that housed county inmates before the county backed out of the agreement years early.

After entering a four-year lease with Happy Valley LLC to house minimum security jail detainees at a property Happy Valley managed, the Madison County Board of Commissioners backed out two years early. Madison County had purchased its own property to house the detainees and ultimately moved them to the new location before the lease ended.

The county paid its rent for the days that detainees were housed at the Happy Valley facility but stopped paying any additional rent thereafter. It argued it could back out pursuant to a provision of the lease agreement regarding funds availability. Relatedly, the Madison County Council deleted future payments under the Happy Valley lease from the county’s projected budget.

The county sent a letter informing Happy Valley that the lease was being terminated for unavailable funds to support the rent, but Happy Valley, prompting Happy Valley to sue. Madison County then sought a declaration of the leases’ termination and Happy Valley filed a counterclaim seeking entitlement to unpaid rent and judicial review of the funding decision under Indiana Code Section 5-22-19-2.

After concluding Happy Valley had failed to file a timely Notice of Tort Claim, the trial court found it was clear the county council had refused to appropriate funding for the lease in Happy Valley LLC v. Madison County Board of Commissioners, et al.,18A-CC-2581.

Happy Valley appealed, alleging that Madison County violated the Purchasing Act and the Open Door Law, while the county denied any statutory violation and maintained that the lease was properly canceled. The Indiana Court of Appeals agreed with the latter, first finding the relied upon section of the lease to be a nullity, and that the lease itself was “in-artfully drafted.” Regardless, the appellate court concluded the findings had evidentiary support.

“The trial court ultimately concluded that the Council had made a determination, as a matter of public record, that additional payments under the Lease would not be made. The response to the budgetary request, albeit minimalist, made plain the Council’s funding decision: consistent with Indiana Code Section 5-22-17-5, ‘funds are not appropriated or otherwise available to support continuation of [contract] performance,’” Judge L. Mark Bailey wrote for the panel.

It further rejected Happy Valley’s argument that the county could not obtain declaratory relief because it had sabotaged its own contract and failed to comply with the good faith requirement of I.C. Section 5-22- 3-1.

“In short, there is ample evidence that economic reality as opposed to personal animus against (property owner Max) Howard or Happy Valley motivated the funding decision made by the Council,” Bailey wrote. “The trial court did not clearly err in so finding. And – lacking funding – a party simply cannot enforce a provision of a contract that is contrary to law.