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A lawsuit stemming from property damages allegedly caused by a faulty drainage system will continue in part after the Court of Appeals of Indiana partially affirmed and reversed summary judgment awards to the different parties.
Chief Judge Robert Altice wrote the opinion Tuesday in Elpers Bros. Construction & Supply, Inc., et al. v. Deane L. Smith, II, M.D., et al., 23A-PL-437.
The case dates back to 2006, when Elpers Bros. Construction & Supply Inc. and Elpers Development Inc. purchased land in Evansville for the development of a subdivision. Elpers Construction subcontracted with Sitecon Inc. to design and construct the neighborhood’s drainage system.
In 2007, Paul Elpers, as president of Elpers Construction, sighed a “Notice of Intent to Construct a Water Main Extension” as the “responsible person.”
Also in 2007, Deane and Lori Smith purchased a lot in the subdivision and hired Elpers Construction to build their home. The Smiths’ lot was on a lake, which Elpers Construction said could be used recreationally and as a retention pond.
In 2008, the subdivision’s homeowners association was incorporated.
Meanwhile, during construction of the Smiths’ home, Paul Elpers recommended that the Smiths buy a geothermal heating and cooling system. A heating company had previously refused to install a geothermal unit on the Smiths’ lot because the lake was not deep enough, but Elpers did not share that information with the couple.
Thus, the Smiths moved forward with the installation of the geothermal unit.
The unit worked without issue until 2015, when the Smiths began to notice “soil and mud runoff,” erosion and silt buildup on the lake. Their yard also flooded when it stormed, washing debris into the yard.
It was ultimately determined that the coils in the geothermal unit were damaged because of the silt buildup.
The Smiths hired Morley and Associates to review Sitecon’s drainage plans. That review identified 11 deficiencies in the plan and construction that contributed to the erosion and buildup.
Also, Morley determined that the geothermal unit was damaged and would have to be reconstructed, with a price tag of nearly $240,000.
Finally, Morley discovered that necessary permits from the U.S. Army Corps of Engineers and the Indiana Department of Environmental Management had not been obtained.
In December 2017, the Smiths filed a complaint against Elpers Construction, Elpers Development and the HOA, alleging the lake was no longer usable, their geothermal system was damaged and would have to be fixed, and the defendants had failed to act in accordance with the various agreements or to remediate the continuing damage to the Smiths’ property. They also alleged negligent design, construction and maintenance against the builders, and negligent maintenance against the HOA.
Later, after the geothermal unit was replaced, the Smiths amended their complaint to add counts of breach of contract and fraud against Elpers Construction, and a count attempting to pierce the HOA’s corporate veil.
The parties filed motions for summary judgment.
The Vanderburgh Circuit Court ultimately granted partial summary judgment to the Smiths, finding that Elpers Construction had a non-delegable duty to properly design and build the subdivision’s drainage. The Smiths’ other requests for summary judgment were denied.
Further, the trial court denied the HOA’s request for summary judgment on the argument that it was the builders’ “alter ego,” but granted the HOA’s other summary judgment requests.
The HOA’s motion for interlocutory appeal was granted, and the Court of Appeals affirmed in part and reversed in part.
First addressing whether Elpers Construction had a non-delegable duty to the Smiths, the COA affirmed the trial court’s ruling on that issue.
The appellate court looked to Bartholomew County v. Johnson, 995 N.E.2d 666 (Ind. Ct. App. 2013), and Shand Mining, Inc. v. Clay County Bd. of Commissioners, 671 N.E.2d 477 (1996), trans. denied, in reaching that conclusion.
“The holdings in Johnson and Shand Mining were premised on well-settled Indiana law that a principal cannot avoid liability for the negligence of its agent if the principal is by law or contract charged with performing the specific duty,” Altice wrote.
The COA also pointed to Indiana Code §§ 36-9-27-69.5 and 36-7-4-702 as well as a local Vanderburgh County ordinance in holding that “Elpers Construction cannot delegate the duty to properly design and construct the drainage system for the Subdivision with impunity because it is a duty specifically imposed upon it by law.”
“If Elpers Construction were permitted to prevail, its roles and responsibilities would be significantly reduced, which is contrary to the express terms of the statutes and ordinance that require conformity with the drainage code,” Altice wrote. “We therefore conclude that the trial court properly granted partial summary judgment to the Smiths on their claim that Elpers Construction owed a non-delegable duty to properly design and construct the Subdivision’s drainage system.”
However, as to the HOA “alter ego” argument, the Court of Appeals partially reversed.
“Inasmuch as the alter ego theory is not an independent cause of action, the remedy of piercing the corporate veil would be futile, and the HOA must necessarily be dismissed as a named party,” Altice wrote. “We therefore conclude that the trial court erred in only partially granting the HOA’s motion for summary judgment.”
Likewise, the trial court erred in denying Elpers Development’s motion for summary judgment on the Smiths’ negligence claim.
“Here, while the Smiths alleged that Elpers Development was negligent because its construction of other residences in the Subdivision may have contributed to the erosion and sediment buildup in the lake, there was no contract or relationship between the Smiths and Elpers Development,” Altice wrote. “The designated evidence establishes that Elpers Development did not construct the Smiths’ residence, it had no role in developing the Subdivision’s drainage system, and it did not participate in the lake’s construction. It is also undisputed that Elpers Development’s alleged negligence did not pose a risk of personal injury to the Smiths.”
But as for the fraud claim against Elpers Construction, the COA concluded, “The Smiths alleged in their complaint that they relied on Paul’s misrepresentations to their detriment that resulted in damage to their unit because of the faulty design and construction of the retention pond. These allegations are sufficient to satisfy the required specificity for fraud. We therefore conclude that the trial court properly denied Elpers’ Construction’s motion for summary judgment on the fraud claim.”
The case was remanded for further proceedings.
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