Legal Services Corp. v. Client Centered Legal Services of Southwest Virginia, Inc.

UNPUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

LEGAL SERVICES CORPORATION, 
Plaintiff-Appellee,
v.
 No. 02-2068
CLIENT CENTERED LEGAL SERVICES OF
SOUTHWEST VIRGINIA, INCORPORATED,
Defendant-Appellant.

Appeal from the United States District Court
for the Western District of Virginia, at Abingdon.
James P. Jones, District Judge.
(CR-01-38-1)

Argued: September 23, 2003

Decided: October 22, 2003

Before LUTTIG, MICHAEL, and GREGORY, Circuit Judges.

Affirmed by unpublished per curiam opinion.

COUNSEL

ARGUED: Gerald L. Gray, GERALD GRAY LAW FIRM, Clint-
wood, Virginia, for Appellant. Francis Hewitt Casola, WOODS,
ROGERS & HAZLEGROVE, P.L.C., Roanoke, Virginia, for Appel-
lee. ON BRIEF: R. Lucas Hobbs, WOODS, ROGERS & HAZLE-
GROVE, P.L.C., Roanoke, Virginia, for Appellee.
2 LEGAL SERVICES v. CLIENT CENTERED LEGAL SERVICES
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

OPINION

PER CURIAM:

Client Centered Legal Services of Southwest Virginia, Inc.
("CCLS") appeals from an order of the district court granting sum-
mary judgment in favor of Legal Services Corporation ("LSC") and
ordering CCLS to hold certain real estate in constructive trust for the
benefit of LSC. Because CCLS contractually agreed to follow the
direction of LSC as to the "use or disposition" of all property pur-
chased with LSC funds when it applied for an LSC grant, we affirm.

I.

The instant dispute concerns the scope of LSC’s authority over the
disposition of certain real property purchased by CCLS with LSC
funds upon CCLS’s termination as a grantee of LSC.

From 1979 through 1982, CCLS, a non-profit corporation that pro-
vides legal services to low-income residents, received its funding
exclusively from LSC, a congressionally-created non-profit organiza-
tion that contracts with and distributes funds to legal aid programs,
such as CCLS. See 42 U.S.C. § 2996e(a)(1)(A) (1994). In its annual
grant applications to LSC during these years, CCLS was required to
agree to a series of conditions, known as grant assurances, regulating
its expenditure and use of LSC funds. Relevant to this case, paragraph
12 of the grant assurances provided that,

[i]f this grant is terminated before its expiration date, or if
applicant ceases to be a grantee of Legal Services Corpora-
tion after the expiration of this grant, applicant hereby gives
assurance that it will follow the Corporation’s directions
with respect to the use or disposition of fund balances,
records, and any equipment, supplies, or property purchased
with grant funds.
 LEGAL SERVICES v. CLIENT CENTERED LEGAL SERVICES 3
J.A. 262, 268, 280. Both before the district court, J.A. 540 n. 2, and
at oral argument, CCLS admitted that it agreed to these grant assur-
ances when it applied for an LSC grant.

In or about March 1982, CCLS became interested in purchasing,
with surplus funds from previous LSC grants, a two-acre property and
house in Castlewood, Virginia (the "Phillips property") for use as an
office. Before it could use LSC funds to purchase real estate, how-
ever, CCLS first needed to obtain the approval of LSC, which it did
in an April 15, 1982, letter from Marjorie McDiarmid, Regional
Director of LSC, to Hugh O’Donnell, Executive Director of CCLS.
According to the McDiarmid letter, LSC’s consent was "based upon
the documentation which [O’Donnell] supplied in compliance with
the ‘Procedures on the Purchase or Sale of Real Estate’ issued by
[LSC’s regional office] and in particular on" five documents relating
to the condition, purchase and future use of the property, "together
with [LSC’s] reliance upon the commitments made in [CCLS’s] cover
memo of April 2, 1982, [CCLS’s] Board resolution of April 7, 1980,
and the ‘Agreement As To Disposition of Property’ of April 19, 1982
[sic]1." J.A. 258.

These final three documents each contained provisions relating to
the disposition of the Phillips property. In the April 2, 1982, cover
memo, CCLS agreed "not to dispose of the new property without first
obtaining the approval of [LSC] as to the disposition of the property
and of the proceeds." J.A. 236. The April 7, 1980, Board resolution
provided that "in the event that CCLS cease[d] to be a grantee of
[LSC], the Board of Directors of CCLS hereby recognizes the para-
mount interest of [LSC] in all assets purchased with [LSC] funds and
agree[d] to seek prior advice and approval from [LSC] as to the sale,
transfer or other disposition of any such asset." J.A. 244. And, the
April 9, 1982, "Agreement As To Disposition of Property" stipulated
that CCLS "will not sell, encumber, or otherwise dispose of any inter-
est" in the Phillips property "without the advance written approval of
[LSC]." J.A. 245.
1
It appears that the "Agreement As To Disposition of Property" was
actually signed on April 9, 1982, before McDiarmid’s April 15, 1982 let-
ter, not, as McDiarmid’s letter states, on April 19, 1982. J.A. 245.
4 LEGAL SERVICES v. CLIENT CENTERED LEGAL SERVICES
Throughout the communications related to the Phillips property in
April 1982, neither the parties nor any of the documents referenced
by them in their written correspondence made reference to the obliga-
tions undertaken by CCLS in the grant assurances.

CCLS continued to receive grants from LSC without interruption
until December 31, 2000, when, as a result of a competitive bidding
process, LSC distributed its grant for the southwest Virginia area to
Southwest Virginia Legal Aid Society ("SVLAS"), a different legal
services provider, and CCLS ceased to be a grantee of LSC.2 A month
later, on February 5, 2001, LSC asserted its interest in the Phillips
property and directed CCLS to either transfer the property to LSC,
sell the property and return the proceeds to LSC, or buy the property
for fair market value from LSC. J.A. 308-A. When CCLS failed to
follow LSC’s direction, LSC ordered CCLS to vacate the property
and to transfer possession to SVLAS by March 16, 2001. J.A. 308.
CCLS again refused.

II.

On April 20, 2001, LSC brought suit against CCLS for breach of
contract and requested that the district court declare the rights of the
parties, place the Phillips property in constructive trust for the benefit
of LSC, and order CCLS to vacate and transfer the property as
directed by LSC. J.A. 10. On August 14, 2002, in response to cross
motions for summary judgment, the district court awarded summary
judgment to LSC and denied summary judgment to CCLS. Pursuant
to LSC’s request, the court placed the Phillips property in construc-
2
This competitive bidding process was the subject of a lawsuit by
CCLS against John Eidleman, an employee of LSC, in which CCLS
alleged that Eidleman conspired with SVLAS against CCLS in the grant
competition. This court dismissed CCLS’s suit because it had no juris-
diction to review the actions of LSC. See O’Donnell v. Eidleman, No.
00-1901 (4th Cir. June 25, 2001) (unpublished). CCLS now attempts to
use these same claims of impropriety in an "unclean hands" defense to
LSC’s contract claim. The district court rejected this defense based on its
finding that CCLS had not "presented any evidence to support its claim
that there was a conspiracy between the successful grantee and LSC to
undermine CCLS." J.A. 551. After a review of the record, we agree.
 LEGAL SERVICES v. CLIENT CENTERED LEGAL SERVICES 5
tive trust for LSC’s benefit. The district court based its order on the
plain language of paragraph 12 of the grant assurances, which pro-
vides that "if [CCLS] ceases to be a grantee . . . it will follow [LSC’s]
directions with respect to the use or disposition of property purchased
with grant funds." J.A. 548. It explained,

the contract covers the use of any and all grant money
received by CCLS, and by its plain language includes the
funds used to purchase the Phillips property. Thus CCLS is
bound by its contract and must follow LSC’s instructions
with respect to the use or disposition of the property, now
that it no longer enjoys grantee status.
Id. The district court rejected CCLS’s argument that the April 1982
letters and the documents mentioned therein superceded the obliga-
tions undertaken by CCLS in the grant assurances reasoning that "the
more general provision included in the grant assurances cannot be
trumped by the specific language of the transaction documents" when
the two do not conflict. J.A. 549-50. The district court also dismissed
CCLS’s affirmative defenses of unclean hands, the merger doctrine,
the statute of frauds and the rule against perpetuities, as not "viable."
J.A. 550-51.
III.
On appeal, CCLS again argues that the grant assurances do not
apply to the purchase of the Phillips property because they conflict
with the more specific contractual obligations undertaken by CCLS
as part of the April 1982 purchase. As it did before the district court,
however, CCLS fails to explain why LSC’s authority to direct the dis-
position of the Phillips property under the grant assurances would not
include, rather than conflict with, the narrower requirement of the
April 1982 documents that CCLS obtain LSC’s consent before it
takes any action that would affect the disposition of the property.
CCLS also reasserts its argument that the grant assurances have been
rendered invalid by the doctrine of unclean hands and the rule against
perpetuities.
Upon review of the parties’ briefs and their oral arguments, and
upon our consideration, it is hereby ordered that the judgment of the
district court is affirmed on the reasoning of that court.
AFFIRMED