Jayhawk Racing Properties, LLC, and Heartland Park Raceway, LLC, Appellants,
City of Topeka, Kansas, Appellee.
SYLLABUS BY THE COURT
rules of summary judgment are discussed and applied.
Cities are municipal corporations created by law. Thus,
cities can only exercise powers conferred by law.
Cities may purchase and hold real and personal property, and
make all contracts and do all other acts in relation to the
property and concerns of the city.
powers of the city are exercised by the governing body of the
Legislature has expressly given cities the power to acquire
certain property and to issue Sales Tax and Revenue (STAR)
Bonds for the financing of STAR bond projects.
Municipal corporations have dual capacities-governmental and
proprietary. In the governmental capacity, they serve as an
arm of the state and are sovereign. In the proprietary
capacity, they exercise powers as any corporation does.
procure what is needed for public improvements, cities
contract with those people and companies that sell what is
needed to do the job. When cities act in such a capacity,
their actions are proprietary and are governed by the same
legal rules that would govern a private corporate
deciding whether a city is carrying on a proprietary or
governmental function a court must consider whether the
activity is for the state as a whole or for a special local
benefit; whether the activity arises out of a statutory duty
or a privilege that has been granted to it; whether the
activity is normally done by private entities; and whether
the city's actions were commercial in nature.
details of financing public projects may, at times, be
proprietary and not governmental.
Issuing bonds is not necessarily a governmental function.
Issuing bonds under the permissive authority given to the
city by statute to finance the acquisition of real estate,
construction of a facility, and leasing of the facility to a
private for-profit business constitutes proprietary conduct.
Where general power is given to a city to manage and control
property, it has the power to create a contract concerning
such property that extends beyond the terms of the members of
the governing body of that city if such contract is
reasonable and not contrary to a public policy.
a contract entered into by a city's governing body
involves the exercise of the city's business or
proprietary powers, the contract may extend beyond the term
of the contracting governing body and is binding on successor
governing bodies if, at the time the contract was entered
into, it was fair and reasonable and necessary or
advantageous to the municipality. If the contract, however,
involves the legislative functions or governmental powers of
the city, the contract is not binding on successor boards or
covenant of good faith and fair dealing is implied in
Kansas Cash-Basis Law makes it unlawful for the governing
body of any municipality to create any indebtedness in excess
of the amount of funds actually on hand in the treasury of
such municipality at the time for such purpose unless
provision has been made for payment by the issuance of bonds.
Kansas Budget Law provides that creation of indebtedness more
than the budget is unlawful unless provision has been made
for payment by the issuance of bonds.
from Shawnee District Court; Teresa L. Watson, judge.
A. Weathers, Patricia E. Riley, and Cynthia J. Sheppeard, of
Goodell, Stratton, Edmonds & Palmer, LLC, of Topeka, for
V. Murray, Catherine P. Logan, and Mark A. Samsel, of Lathrop
Gage LLP, of Overland Park, for appellee.
Arnold-Burger, C.J., Hill and Buser, JJ.
lawsuit is an example of what can happen when a municipal
government changes directions. Jayhawk Racing Properties,
LLC, sued the City of Topeka for breach of contract when the
City failed to pay the company, as promised in their
contract, almost $2.4 million for its reversionary interest
in the land where Heartland Park Raceway is located. When the
City refused to issue bonds to pay for the sale, Jayhawk
Racing sued, and the City moved to dismiss the action. With
the agreement of the parties, the district court treated the
motion as one for summary judgment and granted the motion,
thus dismissing Jayhawk Racing's lawsuit.
reverse the court's dismissal, finding the court, in
granting summary judgment, ignored the fundamental purpose of
the contract-to purchase an interest in real estate. This is
a proprietary contract. Simply put, the City was buying all
interests in a racetrack. Instead, the district court, in a
carefully drafted opinion, improperly limited its view of the
contract to a contingency promise made by the City to issue
Sales Tax and Revenue (STAR) Bonds. Basically, in dismissing
the case, the court ruled the City's promise to finance
the purchase with this method of financing was beyond its
legal authority. In the court's view, this provision is
an illegal attempt by one council to bind future city
councils, thus making the entire contract unenforceable. But
actually, this contract was more than a promise to finance,
and that promise is not the purpose of the agreement. We hold
the City was not entitled to judgment as a matter of law. We
remand for further proceedings.
brief restatement of the oft-repeated rules of summary
judgment, we will review the cases that deal with contracts
made by local units of government and explore how the old
cases hold them to be unique under our law. Some are
enforceable, some are not. After that, we examine the
contract here and show how the district court, by limiting
its review to a contingency promise, mischaracterized this
agreement. We hold this is a proprietary contract and the
court erred when it ruled otherwise. The questions of good
faith and fair dealing and damages remain for future
proceedings in district court. We conclude by rejecting the
City's alternative arguments on the Cash-Basis Law and
the Budget Law.
parties agree on the facts.
Park is a multi-purpose motorsports facility in Topeka. In
2006, the City issued over $10 million in Sales Tax and
Revenue Bonds, known as STAR bonds, to fund improvements to
Heartland Park. These STAR bonds allow cities to finance the
development or redevelopment of major commercial,
entertainment, and tourism districts to stimulate economic
growth. When the City issued the STAR bonds, it owned
Heartland Park in fee simple for a term of years, subject to
Jayhawk Racing's reversionary interest. When the sales
tax revenue collected within the STAR bond district was not
satisfying the debt associated with Heartland Park, the City
became concerned. Thus, the City planned to expand the STAR
bond district and acquire Jayhawk Racing's reversionary
interest in the land.
"Memorandum of Understanding" and "workout
agreement" are pertinent.
2014, the City, Jayhawk Racing, Visit Topeka, Inc., and the
Kansas Department of Commerce entered into a Memorandum of
Understanding. At its beginning, the parties identified their
interests and their aims:
"Whereas, the parties have concluded that it is in the
best interest of the City of Topeka, and the State of Kansas
for the City to own both the fee simple interest in the
property and the reversionary interest owned by Jayhawk; and
accordingly the City desires to purchase from Jayhawk all
right, title and interest of Jayhawk . . . including the
reversionary interest, and Jayhawk desires to sell its
reversionary interest . . . .
"Whereas, in connection with the purchase of
Jayhawk's reversionary interest and cancellation of the
Management Agreement, the City will commence the process of
expanding the District, amend the project plan, seek approval
of the Secretary of Commerce for the issuance of the
additional Star Bonds and issue bonds sufficient to acquire
Jayhawk's reversionary interest and pay certain security
cannot ignore the purpose of this contract was the City's
intent to buy the racetrack. The Memorandum of Understanding
also listed details of price, method, and timing of payment
and a pledge of cooperation:
"3. Purchase Price. The City agrees to purchase
and Jayhawk agrees to sell its reversionary interest to the
City for the sum of $2, 392, 117.00 ('Purchase
Price') to be paid on the date of closing.
"4. Payment, Obligations of Parties. In
connection with the above proposed transaction the City
agrees to pay, as of the date of closing, the balance of the
indebtedness listed in Exhibit B, including principal and
interest and associated costs. . . .
"5. Date of Payment of Purchase Price. The City
agrees to pay Jayhawk the purchase price by February 1, 2015
or within 90 days of the approval by the Topeka City Council
of the Star Bond Project Plan. In the event of a protest
under the provisions of K.S.A. 12-17, 169, payment shall be
made within 60 days of the approval of the Plan by a majority
of the voters of the City of Topeka.
"8. Agreement Contingency. The parties
acknowledge that this Agreement is contingent on fulfillment
of the current contract between NHRA and Jayhawk and
increasing the size of the Star Bond district to include the
area shown on Exhibit 'C', the approval of the
Secretary of Commerce of the State of Kansas approving the
redevelopment project plan for the Heartland Park of Topeka
Major Motorsports complex and authorization by the City of
the issuance of Star Bonds in an amount equal to the
financial obligations set forth in this Agreement including
all costs associated therewith. It is estimated that
approximately $4.8M-$5.5M of Star Bonds will be issued to
cover the acquisition and associated costs of issuance.
"10. Parties Cooperation. The City and Jayhawk
agree that they will make commercially good faith reasonable
efforts to accomplish the objectives set forth in paragraph 8
of this Agreement in a cooperative manner and the City
further agrees to comply with the requirement of good faith
and fair dealing."
Memorandum of Understanding makes it clear that the
City's obligation to acquire Jayhawk Racing's
reversionary interest in Heartland Park depended on the
occurrence of several events, including the approval of the
STAR bond project plan by the Topeka City Council and the
Kansas Secretary of Commerce, and the City's issuance of
with the Memorandum of Understanding, the City, Jayhawk
Racing, CoreFirst Bank & Trust, and others entered into
what they called a "workout agreement." This
agreement acknowledged that Jayhawk Racing was in default on
some loans it had received from CoreFirst, and it required
Jayhawk Racing and the City to sign and then place in escrow
deeds conveying their interests in Heartland Park to
CoreFirst. In exchange, CoreFirst agreed not to collect the
loans or record the deeds until February 28, 2015-the
anticipated deadline for issuing the STAR bonds contemplated
in the Memorandum of Understanding, although the date could
be extended with CoreFirst's consent.
2014, the City Council approved both the Memorandum of
Understanding and the workout agreement. The City Council
passed Resolution No. 8637, which set a public hearing on the
City's proposal to amend the Heartland Park redevelopment
plan and to issue additional STAR bonds for the redevelopment
of Heartland Park.
City Council adopts an ...