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Hellier Manor Apartments, Ltd. v. City of Pikeville

Court of Appeals of Kentucky

November 30, 2018

HELLIER MANOR APARTMENTS, LTD. APPELLANT
v.
CITY OF PIKEVILLE, KENTUCKY APPELLEE

          APPEAL FROM PIKE CIRCUIT COURT HONORABLE EDDY COLEMAN, JUDGE ACTION NO. 16-CI-00197

          BRIEF FOR APPELLANT: David C. Stratton Pikeville, Kentucky Michael P. Abate Louisville, Kentucky

          ORAL ARGUMENT FOR APPELLANT: Michael Abate Louisville, Kentucky

          BRIEF AND ORAL ARGUMENT FOR APPELLEE: Russell H. Davis, Jr. Pikeville, Kentucky

          BEFORE: JOHNSON, [1] D. LAMBERT, AND J. LAMBERT, JUDGES.

          OPINION

          JOHNSON, JUDGE

         Hellier Manor Apartments, Ltd., appeals a judgment of the Pike Circuit Court arising from an agreement under which the City of Pikeville provided Hellier with funds to construct an apartment complex containing 20% low-income residential housing. After reviewing the record in conjunction with the applicable legal authorities, we affirm that portion of the circuit court's judgment concerning repayment of the loan funds and reverse that portion of the judgment which improperly calculated the appropriate pre-judgment and post-judgment interest to be applied to the loan.

         BACKGROUND

         Because the underlying facts are not in dispute, the issues before us are purely questions of law and contract interpretation. On September 10, 1985, the City of Pikeville and the U.S. Department of Housing and Urban Development ("HUD") entered into a Housing Development Grant Agreement, a specialized type of grant designed to encourage the construction of low-income housing. HUD granted Pikeville $1, 430, 002.00 to disburse with the stipulation that the project be comprised of at least 20% low-income residents. The Grant Agreement specified that Hellier would receive the grant funds provided to Pikeville for construction of the project. The term of the loan to Hellier was twenty years, with HUD having the power to grant extensions beyond that period. Hellier subsequently obtained the $1, 430, 002.00, another $1, 500, 000.00 in bonds, and $347, 778.00 in private funds and constructed a 60-unit apartment complex, with 12 units designated for low-income occupants.

         The Grant Agreement defined what constituted a "substantive violation" and gave Pikeville specific instructions to follow in the event Hellier committed a substantive violation, stating, "the amount of [the] HDG [Housing Development Grant] to be repaid shall be reduced by ten percent (10%) for each full year in excess of 10 years that intervened between the beginning of the term of the Owner/Grantee Agreement and the Substantive Violation." However, Section 7.04(a) of the Grant Agreement states in pertinent part, "[Pikeville] may, at [Pikeville's] option, include provisions for repayment even when there is no Substantive Violation or debt forgiveness at the end of 20 years or such longer period as may be required by the Exhibit D of this Grant Agreement and shall be executed on behalf of [Hellier] by authorized individual(s)." Section 8.04(c) of the Grant Agreement states, in relevant part, "Except[ing]. . . Exhibit D of this Grant Agreement, Program Income received after completion of assisted activities shall be treated as miscellaneous revenue, and shall be used by [Pikeville] to support the construction, rehabilitation or operation of real property to be used primarily for low and moderate income residential purposes." There is no allegation that Hellier committed any substantive violations. Exhibit D(V)(B) of the Grant Agreement provides:

Repayment of the HDG loan shall be as follows: The annual payback of $105, 100 is predicated upon a 7% simple interest rate per year non-compoundable for a period of 20 years. Payment of this amount will be made after payment of operating expenses, debt service on the first mortgage, and no more than a twelve percent (12%) cash-on-cash return on [Hellier's] equity investment. Any unmet portion of the payment shall accrue and shall be payable at the time of Project sale or refinancing. Total repayment of the . . . HDG loan shall be $2, 102, 000.

         There was never any repayment under these terms as the income generated by the housing did not exceed the parameters outlined above.

         Pikeville entered an Owner/Grantee Agreement with Hellier on September 23, 1985, as required by the Grant Agreement. The Owner/Grantee Agreement states, in pertinent part,

WHEREAS, [Pikeville] and [Hellier], pursuant to the terms of the Grant Agreement, desire to enter into an Agreement providing for a grant by [Pikeville] to [Hellier] of an amount not to exceed $1, 430, 002.00, ...

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