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Genesis Health Club, Inc. v. City of Wichita

March 28, 2008

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.



Appeal from Sedgwick district court, ERIC R. YOST, judge.

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.

The opinion of the court was delivered by: Nuss, J.

Affirmed.

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. ...


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