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Nichols Holding, LLC v. Divine Capital Group, LLC

Court of Appeals of South Carolina

March 30, 2016

Nichols Holding, LLC and J. Wade Nichols, Respondents-Appellants,
v.
Divine Capital Group, LLC, John S. Divine, IV, Nathan Anderson, and Divine Dining Group, Inc., Appellants-Respondents

         Submitted December 29, 2015.

          Appeal From Horry County Steven H. John, Circuit Court Judge. Appellate Case No. 2014-000662.

         Emma Ruth Brittain, Leah Montgomery Cromer, and J. Jackson Thomas, of Thomas & Brittain, P.A., of Myrtle Beach, for Appellants-Respondents.

         Gene M. Connell Jr., of Kelaher, Connell & Connor, P.C., of Surfside Beach, for Respondents-Appellants.

         GEATHERS, J. SHORT and MCDONALD, JJ., concur.

          OPINION

Page 614

          GEATHERS, J.:

          In this breach of contract action, Appellants-Respondents, Divine Capital Group, LLC, John S. Divine, IV, Nathan Anderson, and Divine Dining Group, Inc. (collectively, Divine), and Respondents-Appellants, Nichols Holding, LLC and J. Wade Nichols (collectively, Nichols), seek review of the circuit court's order. Divine appeals that part of the order requiring Divine to pay impact fees to Georgetown County Water and Sewer District (the District) on behalf of Nichols. Nichols challenges that part of the order requiring Nichols to pay Divine's outstanding trade debt.[1]

         FACTS/PROCEDURAL HISTORY

         In March 2011, Nichols filed this breach of contract action against Divine to recover capital contributions made to Divine for the purpose of opening certain restaurants at The Market Commons in Myrtle Beach. Nichols also sought an accounting and the appointment of a receiver to run all of Divine's restaurant businesses. At the time, two related actions involving the parties were pending in circuit court.[2] On May 25, 2012, the circuit court ordered the establishment of a receivership over Divine's restaurant businesses and appointed Arlene Jaskot, CPA, as the receiver.

Page 615

          Meanwhile, the District sent yearly notices to Divine concerning the District's imposition of a " Demand Charge," in addition to regular water and sewer charges, on the accounts of two restaurants located on Parsonage Creek in Murrells Inlet, i.e., Bovine's Wood Fired Specialties (Bovine's) and Divine Fish House (collectively, the Restaurants). At least one of these notices was signed by the District's " Finance/Administration Director," John F. Buck.[3] The notices stated, in pertinent part:

In order to more equitably distribute costs associated with providing water and sewer service to commercial customers, the District put in place a " Demand Charge[." ] The " Demand Charge" is applicable only to those commercial customers [who] consistently exceed the water and sewer capacity assigned to them. The capacity assigned is determined by the number of water and/or sewer impact fees previously paid for at a specific service location. Impact fees are determined by the expected water and/or sewer demand required to service a particular commercial activity. The impact fees paid by our customers are used exclusively to pay for the expansion of the plant facilities, storage, and system improvements required [for] serving all users of the water and sewer system during peak demand periods. . . .
. . . . The " Demand Charge" is intended to (a) encourage water/sewer conservation, (b) provide capital funds necessary to expand facility capacity associated with excess demand, and (c) ensure fair and equitable rates and charges to all District customers. . . .
. . . .
You have the option of purchasing the additional capacity by paying the associated impact fees and eliminating or reducing the monthly Demand Charge(s). . . .
Payment of the Demand Charges shall not be considered as a credit toward the purchase of additional impact fees. A user demand analysis shall be performed each year providing the customer the opportunity to reduce consumption and/or to lower or eliminate the Demand Charge for the following year.
The District encourages you to review your usage records and consider any justification or methods to reduce the usage to the assigned capacities. . . .

(emphases added). Divine did not opt to pay impact fees to purchase additional water and sewer capacity; instead, Divine paid the monthly demand charges.

         By the spring of 2013, Nichols and Divine settled their litigation by executing (1) a Consent Order allowing for the entry of judgment in favor of Nichols against Divine in the amount of $8,642,370.70; (2) a " Settlement Agreement and Release in Full," in which Divine agreed to sell certain real estate and intellectual property to Nichols in exchange for Nichols' (a) assumption of certain debts of Divine, (b) execution of a satisfaction of judgment, and (c) request of the circuit court to terminate the receivership; and (3) an " Agreement of Purchase and Sale," covering Nichols' purchase of the real estate and intellectual property, which included Nichols' optional assumption of certain operating agreements for the Restaurants, and a marina adjacent to Divine Fish House. Specifically, the Agreement of Purchase and Sale required Nichols to pay Divine's " trade debt" that remained outstanding as of the date of the closing of the sale, which occurred on May 2-3, 2013. " Trade Debt" is defined in the Agreement of Purchase and Sale as follows:

[A]ll amounts outstanding for and from the operation of the Restaurants and Bars [that] are normal operating expenses of the Restaurants and Bars, and [that] are reasonably consistent with past operating expenses of the Restaurants and Bars. The Trade Debt includes the fee for administrative services provided to the Restaurants and Bars by Divine Dining Group, Inc. (" DDG" ); provided, however, that the administrative services fees of DDG shall not exceed DDG's actual cost and shall not exceed normal rates for fees of this kind in

Page 616

the greater Myrtle Beach, South Carolina market area. The Trade Debt shall not include, but specifically excludes, intercompany debt owed to Divine or companies owned by Divine other than the fees due to DDG for its administrative services for the Restaurants and Bars.

         The closing of the sale occurred on May 2-3, 2013. At this time, Divine presented Nichols with documentation of the outstanding trade debt. Also, at this time, the Restaurants' water and sewer accounts with the District did not show any past due charges; rather, the District had just issued a bill on May 2, 2013, the first day of the closing, and those charges were not due for payment until May 25, 2013.

         After the closing, Nichols' new restaurant manager, Ernest Edwards, attempted to change the name on the Restaurants' water and sewer accounts from " John S. Divine" to " the Nichols Holdings companies" but was informed that to change the ownership of the accounts, Nichols would have to pay impact fees in the approximate amount of $53,000. The District's Engineering Director, Tommie Kennedy, then sent a letter, dated June 17, 2013, to Nichol's counsel, explaining the District's policy for changes in ownership of water and sewer accounts as well as the history of the Restaurants' accounts. Kennedy stated, in pertinent part:

Before the request to transfer[, Divine] had received yearly notices that the account had gone over its allocated capacity of water and sewer. In the notice[, Divine had] the option of buying additional capacity or incurring a penalty. Every year that the usage was over its allowed capacity[, Divine] elected to pay the penalty in lieu of purchasing additional capacity.
According to District policy, change in ownership triggers a review of the account and requires that all additional capacity needed for the commercial business be purchased as if it were a new business opening up for the first time. During this review[,] staff used historical data from the account to calculate the capacity required for the business. . . .

(emphases added).

         Upon learning of the impact fees required to change ownership of the accounts, Nichols refused to pay Divine's outstanding trade debt. Hence, on June 5, 2013, Divine filed a motion to enforce the Settlement Agreement and the Agreement of Purchase and Sale (collectively, the Agreements), seeking an order compelling Nichols to pay the " trade creditor debt owed at the time of the closing" of the sale and to execute documents necessary to cancel Nichols' judgment against Divine. Several weeks later, Divine offered to allow Nichols to keep the Restaurants' water and sewer accounts in Divine's name so that Nichols would not be required to pay the impact fees.

         Divine then contacted Kennedy to inquire about the impact fees quoted to Edwards. Kennedy responded in a letter dated August 15, 2013, explaining the policy of reviewing accounts upon a change in ownership. In this letter, Kennedy also stated, " Any commercial account holder exceeding their purchased capacity should receive a letter every year notifying them of the overage. In the notice[,] the owner [sic] has the option of buying additional capacity or incurring a penalty." (emphases added). On September 12, 2013, Divine sent a letter to Kennedy, seeking information concerning the Restaurants' accounts and clarification of Kennedy's previous characterization of the demand charge as a " penalty."

         In his response, Kennedy characterized the purchase of additional capacity as an option and admitted (1) there was nothing in the District's Rates and Charges Resolution characterizing a demand charge as a penalty, (2) the District had no records of ever placing a " lien" or making an " assessment" on the Restaurants or the underlying property, and (3) prior to May 2013, when Nichols purchased the Restaurants from Divine, the District had no records showing that the District's engineering department had reviewed the Restaurants' accounts and required Divine to pay additional impact fees. Kennedy also stated, " If the referenced account is not transferred and no other changes are made[,] such as remodeling or building a new building[,] then the account can continue to be billed as it is today with a

Page 617

demand charge instead of paying the impact ...


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