Gables at Sterling Vill. Homeowners Ass'n, Inc. v. Castlewood-Sterling Vill. I, LLC , 417 P.3d 95 ( 2018 )

This opinion is subject to revision before final
publication in the Pacific Reporter
2018 UT 04
IN THE
SUPREME COURT OF THE STATE OF UTAH
GABLES AT STERLING VILLAGE HOMEOWNERS ASSOCIATION, INC.
Appellant and Cross-Appellee,
v.
CASTLEWOOD-STERLINGVILLAGE I, LLC., 1
Appellees and Cross-Appellants.
No. 20160100
Filed February 9, 2018
On Direct Appeal
Third District, Salt Lake
The Honorable Judge Elizabeth A. Hruby-Mills
No. 100901740
Attorneys:
A. Richard Vial, Edward W. McBride, Jr., Jeffery J. Owens,
David A. Cox, Salt Lake City, for appellants and cross-appellees
Heinz J. Mahler, Shane T. Peterson, and Smith D. Monson,
Salt Lake City, for appellees and cross-appellants Castlewood-
Sterling Village I, LLC, Castlewood Development LLC, Castlewood
Development, Inc., Castlewood Builders, LLC, Richard L. Harris,
and Jeffrey A. Duke
Other Parties to the Proceeding:
Joseph E. Minnock, Anna Nelson, Salt Lake City, for
Lamoreaux Construction Corporation
Albert W. Gray, Michael W. Wright, Sandy, for
B.A. Critchfield Construction, LLC
_____________________________________________________________
1Other parties to this appeal are JEFFERY A. DUKE; DARREN
MANSELL; DAN LYBBERT; CASTLEWOOD DEVELOPMENT, LLC;
CASTLEWOOD DEVELOPMENT, INC.; CASTLEWOOD BUILDERS, LLC;
RICHARD L. HARRIS; and JOHN DOES 1–30.
GABLES v. CASTLEWOOD-STERLING
Opinion of the Court
Susan Black Dunn, Wayne L. Black, Salt Lake City, for
Beus Roofing, Inc.
Elisabeth M. McComber, Douglas P. Farr, Salt Lake City, for
R&JL Siding and Management, LLC
JUSTICE PEARCE authored the opinion of the Court, in which
CHIEF JUSTICE DURRANT, ASSOCIATE CHIEF JUSTICE LEE,
JUSTICE HIMONAS, and JUDGE BROWN joined.
Due to her retirement, JUSTICE DURHAM did not participate herein;
and DISTRICT COURT JUDGE JENNIFER A. BROWN sat.
JUSTICE PETERSEN became a member of the Court on
November 17, 2017, after oral argument in this matter,
and accordingly did not participate.
JUSTICE PEARCE, opinion of the Court:
INTRODUCTION
¶ 1 Sometime after the property developer who built the Gables
at Sterling Village turned that planned unit development over to The
Gables at Sterling Village Homeowner’s Association (the
Association), property owners began to notice problems. Concrete
was cracking and buckling. Decks became unsafe to walk on. Stucco
began peeling off of the units and stones fell off of pillars. The
Association filed this action against the developer, the builders, and
their principals alleging, among other things, breaches of fiduciary
duty and of the implied warranty of habitability. The property
developer asserted a counterclaim for indemnification. The district
court granted summary judgment against the Association, reasoning
that the Association lacked contractual privity with the property
developer. The district court later granted the property developer’s
motion for directed verdict on the Association’s claim for breach of
fiduciary duty. None of the Association’s claims survived summary
judgment or directed verdict. The property developer filed a post-
trial motion for indemnification of attorney fees, which the district
court granted.
¶ 2 The Association appealed and the property developer cross-
appealed. Because we affirm that the district court did not err by
granting summary judgment and directed verdict, we do not reach
the merits of the property developer’s cross-appeal. We conclude,
however, that the developer should have tried his indemnification
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Opinion of the Court
claim rather than raise it by post-trial motion, and we therefore
vacate the district court’s award of attorney fees. We award the
property developer its costs on appeal under rule 34 of the Utah
Rules of Appellate Procedure.
BACKGROUND
¶ 3 Jeffrey A. Duke owned and operated several business
entities—Castlewood-Sterling Village I, LLC, Castlewood
Development, LLC (collectively, Developer), and Castlewood
Builders, LLC. Through these entities, Duke developed the Gables at
Sterling Village, a planned unit development comprised of seventy-
eight residential units in fifteen buildings. Once construction was
complete, Developer drafted and recorded the Declaration of
Covenants, Conditions, and Restrictions of the Gables (the
Declaration).
¶ 4 Under the Declaration, Developer retained control of the
Association until a certain number 2 of units had been sold. At that
_____________________________________________________________
2 We use the term “certain number” as a stand-in for the
Declaration’s formula to calculate when turnover would occur:
Class A Members shall be all owners other than
[Developer] until the Class B membership ceases. Class
A members shall be entitled to one (1) vote for each
Living Unit or Lot (if no Living Unit is located thereon)
owned. The vote appurtenant to each Unit shall have a
permanent character and shall not be altered without
the unanimous written consent of all Owners
expressed in a duly recorded amendment to this
Declaration. The vote appurtenant to each Unit may
not be divided between multiple Owners of such Unit
or between matters which require the vote of the
Owners. . . . The Class Member shall be entitled to
three (3) votes for each Living Unit or Lot (if no Living
Unit is located thereon) owned. The Class B
Membership shall automatically cease and be
converted to a Class A membership on the first to occur
of the following events: (a) When the total number of
votes held by all Class A Members equals the total
number of votes held by the Class B Member; or (b)
The expiration of Seven (7) years after the date on
(continued . . .)
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GABLES v. CASTLEWOOD-STERLING
Opinion of the Court
point, Developer turned control of the Association over to its
members.
¶ 5 The Declaration gave the Association responsibility for
maintaining the common areas and certain parts of the living units:
The Association shall maintain, repair, and replace all
landscaping and improvements in the Common
Areas . . . . The Association shall provide exterior
maintenance of the Living Units including but not
limited to painting, repair, replacement and care of
roofs, gutters, downspouts, and exterior building
surfaces.
¶ 6 To fulfill its obligation, the Declaration authorized the
Association to levy assessments on its members. Additionally, the
Declaration gave the Association the authority to use assessment
funds to “establish[] and fund[] a reserve to cover major repair or
replacement of improvements within the Common Areas.”
Developer also drafted and recorded the Association’s Articles of
Incorporation (the Articles). The Articles contained an
indemnification provision that provided for indemnification of
board members and officers under certain circumstances:
The Corporation shall indemnify any and all of its
officers or members of the Board of Trustees, or former
officers or members of the Board of Trustees, or any
person who may have actually and necessarily
incurred by them in connection with the defense of any
action, suit or proceeding in which they or any of them
are made parties, or a party, by reason of being or
having been members of the Board of Trustees or
officers of the Corporation, except in relation to matters
as to which any member of the Board of Trustees or
officer or former officer or member of the Board of
Trustees or person shall be adjudged in such action,
suit or proceeding to be liable for negligence or
misconduct in the performance of duty.
which this Declaration is filed for record in the office of
the County Recorder of Salt Lake County, Utah.
Developer is the Class B Member.
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Opinion of the Court
¶ 7 Developer turned over control of the Association to its
members in 2008. At this point, the Association had $16,581 in its
reserve account. After turnover, the Association retained an expert to
conduct a reserve study to determine whether Developer had
adequately funded the reserve account before handing the
Association the reins. The reserve study indicated that by 2009, the
reserve account’s ideal balance would have been roughly $45,000.
But the expert also concluded that the $16,581 starting balance
“indicate[d] a fair reserve fund position.”
¶ 8 Shortly after the Association took control, a multitude of
construction defects manifested themselves, apparently caused by
water intrusion into the structural components of the living units.
The Association retained a construction expert, who estimated the
total cost of repair for the defects in the common areas and exterior
surfaces of the units to be about $4,600,000. Over the next several
years, the Association levied assessments on its members and paid
for various repairs at the Gables with money from the Association’s
operating and reserve accounts.
¶ 9 In 2010, the Association sued Developer, alleging, among
other things, breach of fiduciary duties, breach of contract, breach of
express and implied warranties, and joint-venture liability between
Developer and Duke. Developer raised a counterclaim for
indemnification, arguing that the Articles of Incorporation entitled it
to indemnification.
¶ 10 In 2011, Developer filed a third-party complaint against
several of the subcontractors, including B.A. Critchfield
Construction, LLC (Critchfield), Beus Roofing, Inc. (Beus), and R&JL
Siding and Management, LLC (R&JL), alleging breach of contract,
negligence, and indemnity. 3
¶ 11 This matter was heavily litigated with each party filing
several pre- and post-trial motions. Three of those motions are
relevant to this appeal: Critchfield’s motions for summary judgment
against the Association and Developer; Developer’s motion for a
directed verdict; and Developer’s post-trial motion for
indemnification of attorney fees.
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3For ease of reference, this opinion refers to Critchfield, R&JL,
and Beus as Third-Party Defendants unless referring to an argument
made by one of the three parties individually.
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Opinion of the Court
Motions for Summary Judgment
¶ 12 Critchfield moved for summary judgment against the
Association, asserting that the Association lacked privity of contract
with the Developer and that the Association could not prove a prima
facie case of breach of implied warranty. R&JL joined in the motion.
Critchfield and Beus moved for summary judgment against
Developer on the same or similar grounds.
¶ 13 In response, the Association argued that the Declaration
created privity of contract. Two months after filing its opposition to
Critchfield’s motion for summary judgment, the Association moved
for leave to file a supplemental brief. In its proposed supplemental
brief, the Association asserted for the first time that the Real Estate
Purchase Contracts (REPC) and warranty deeds also created privity
of contract between the Association and Developer. The district
court denied the Association’s motion.
¶ 14 The district court granted Critchfield’s motion against the
Association and Developer. The district court concluded that the
Declaration did not establish privity with Developer, noting that
“nothing in the Declaration . . . speaks to whether [the Association]
has the right to sue third parties for damages to the ‘Living Units’ on
behalf of the homeowners.” 4
¶ 15 The Association filed a motion for reconsideration, which
the district court found was “largely comprised of a recitation of the
identical facts, exhibits and legal analysis” that the district court
addressed in its original ruling on the motion for summary
judgment. The Association also argued that the district court erred in
denying its motion for leave to file a supplemental argument. The
district court denied the Association’s motion to reconsider.
¶ 16 The district court explained that “[t]he parties were given
the appropriate opportunity to file dispositive motions and raise any
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4 The district court also concluded that the Association had failed
to establish two elements of a prima facie case of breach of implied
warranty: (1) that the units containing the alleged latent defects were
owned by the original homeowners and (2) that the latent defects
created a question of safety or made the house unfit for human
habitation. The district court granted Beus’s motion for summary
judgment against the Developer, thereby dismissing the third-party
defendants from the lawsuit.
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Opinion of the Court
issues or objections to those motions” and the Association sought to
supplement its opposition “well after briefing in this matter was
complete.” The court concluded that “it would be inequitable to
allow [the Association] a ‘second bite at the apple’ to defeat
summary judgment based solely on its failure to include a legal
argument in support of its Opposition where the underlying facts
and law were known at the time of filing the initial Opposition.” The
district court also explained that consideration of the Association’s
additional briefing “would not change the Court’s ruling,” because
the REPC did not “indicate any intent by the contracting parties
to . . . confer third-party beneficiary status” on the Association.
Motion for Directed Verdict
¶ 17 The Association presented its breach of fiduciary duty
claims against Developer at trial. Duke, the Gables’ property
manager, the Association’s president, several construction experts,
an architectural expert, and a former Association board member
testified. At the conclusion of the Association’s case, Developer
moved for directed verdict on several grounds. The district court
granted Developer’s motion, concluding that the Association needed
expert testimony to establish the standard of care Developer owed to
the Association. As the Association had failed to forward any
evidence to establish the standard of care, the district court
dismissed the Association’s claims against Developer with prejudice.
Motion for Indemnification
¶ 18 Duke, as the owner and operator of the various Developer
entities, filed a post-trial motion seeking indemnification from the
Association of his defense costs and attorney fees. Duke asserted that
the Association’s Articles required the Association to indemnify him
for attorney fees and costs because the court determined that he was
not liable for negligence or misconduct in the performance of his
duty as a member of the board of the Association. The Association
argued that Duke’s duties stemmed from his role as developer and
not as a member of the Association’s board, and was therefore not
entitled to indemnification. The Association also argued that because
“the attorneys’ fees and costs are themselves part of the merits of
[Duke’s] contractual indemnification claim,” Duke needed to have
raised his indemnification claim at trial. The district court granted
Duke’s motion, concluding that the indemnification’s language
provides for the indemnification of “any and all of its officers or
members of the Board of Trustees, or former officers or members of
the Board of Trustees.” The district court reasoned that because
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Opinion of the Court
Duke is a former trustee of the Association, he is entitled to
indemnification. The district court awarded attorney fees and costs
to Duke.
¶ 19 The Association appealed. Developer cross-appealed.
ISSUES AND STANDARDS OF REVIEW
¶ 20 The Association raises three issues on appeal. 5 First, the
Association argues that the district court erred when it granted
Critchfield’s motion for summary judgment. We review “a summary
judgment for correctness, giving no deference to the trial court’s
decision.” Bahr v. Imus, 2011 UT 19, ¶ 15, 250 P.3d 56.
¶ 21 Second, the Association contends that the district court
erred when it granted Developer’s motion for directed verdict. “This
[c]ourt’s standard of review of a directed verdict is the same as that
imposed upon a trial court.” Merino v. Albertsons, Inc., 1999 UT 14,
¶ 3, 975 P.2d 467 (alteration in original) (citation omitted). “A trial
court is justified in granting a directed verdict only if, examining all
evidence in a light most favorable to the non-moving party, there is
no competent evidence that would support a verdict in the non-
moving party’s favor.” Id. “A motion for directed verdict can be
granted only when the moving party is entitled to judgment as a
matter of law.” Id. (internal quotation marks omitted).
¶ 22 Third, the Association posits that the district court erred
when it granted Duke’s motion for indemnification of his defense
costs and attorney fees. “Whether a party may recover attorney fees
in an action is a question of law that we review for correctness.” Ault
v. Holden, 2002 UT 33, ¶ 46, 44 P.3d 781.
ANALYSIS
I. Motion for Summary Judgment
¶ 23 The Association contends that the district court erred in
two ways when it granted Critchfield’s motion for summary
judgment. The Association first argues that the district court erred
_____________________________________________________________
5 Developer raises three issues on cross-appeal, all relating to
motions in limine regarding the measure of damages, evidence
admitted at trial, and joint-venture liability. Because we affirm the
district court’s decision to grant summary judgment in favor of the
Third-Party Defendants and Developer’s motion for directed verdict,
we need not reach the issues Developer raises in its cross-appeal.
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Opinion of the Court
when it concluded that the Association lacked privity of contract
with Developer. The Association asserts that it “enjoys privity of
contract with [Developer] through the Declaration and as a third-
party beneficiary to the Real Estate Purchase Contracts . . . and deeds
between [Developer] and the homeowners.” The Association also
argues that public policy demands that this Court find that it has
privity of contract with Developer.6
¶ 24 “[I]n every contract for the sale of a new residence, a
vendor in the business of building or selling such residences makes
an implied warranty to the vendee that the residence is constructed
in a workmanlike manner and fit for habitation.” Davencourt at
Pilgrims Landing Homeowners Ass’n v. Davencourt at Pilgrims Landing,
LC, 2009 UT 65, ¶ 55, 221 P.3d 234. To establish a breach of the
implied warranty, a plaintiff must show: “(1) the purchase of a new
residence from a defendant builder-vendor/developer-vendor;
(2) the residence contained a latent defect; (3) the defect manifested
itself after purchase; (4) the defect was caused by improper design,
material, or workmanship; and (5) the defect created a question of
safety or made the house unfit for human habitation.” Id. ¶ 60.
¶ 25 In addition to the five elements of a prima facie case for
breach of the implied warranty, a plaintiff must also show privity of
contract with the developer. Id. ¶ 63. This requirement stems from
Utah code section 78B-4-513, which provides that “an action for
defective design or construction may be brought only by a person in
privity of contract with the original contractor, architect, engineer, or
the real estate developer.” UTAH CODE § 78B-4-513(4); see also
Davencourt, 2009 UT 65, ¶ 57. However, nothing in section 78B-4-513
“precludes a person from assigning a right under a contract to
another person, including to a subsequent owner or a homeowners
association.” UTAH CODE § 78B-4-513(6).
¶ 26 The question before us asks whether the Association can
establish privity of contract with Developer. The Association argues
that the Declaration, the REPC, the warranty deeds, and public
policy could all be used as a basis to establish privity of contract. We
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6 The Association further argues that the district court erred in
concluding that the Association’s expert report was insufficient to
establish a question of safety or habitability. Because we conclude
that the Association cannot establish privity of contract, we need not
reach the Association’s argument regarding the expert report.
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Opinion of the Court
hold that the Association has not demonstrated privity of contract,
but that holding is in part dictated by the Association’s failure to
timely raise its REPC/warranty deeds argument below and its
failure to challenge directly the district court’s decision to not
address the untimely argument.
A. The REPC and Warranty Deeds
¶ 27 The Association argues the REPC and warranty deeds
establish privity of contract between it and Developer. In essence,
the Association claims it is an intended third-party beneficiary and
that status gives rise to privity. Developer argues that the
Association failed to properly preserve an argument based upon the
REPC and warranty deeds. 7 As previously noted, the Association
first raised these arguments in a proposed supplemental brief in
opposition to Critchfield’s motion for summary judgment. The
district court denied the Association’s motion to file a supplemental
brief and did not consider the arguments contained in that brief. The
Association later filed a motion to reconsider the district court’s
_____________________________________________________________
7 Critchfield also argues that we should dismiss the appeal of the
grant of summary judgment in its favor because the appeal is moot.
As Critchfield correctly points out, the Association never asserted a
cause of action against Third-Party Defendants. Rather, the
Association argued that their claim against Developer for breach of
implied warranty “pass[ed] through” to Third-Party Defendants.
When Critchfield filed a motion for summary judgment against the
Association, it simultaneously filed a motion for summary judgment
against Developer and relied on the same privity argument in both
motions. The district court granted both motions in one order.
Developer did not appeal the grant of summary judgment on its
claims against Third-Party Defendants. Critchfield argues that
because Developer did not appeal the order granting summary
judgment, and Developer was the only party that asserted a direct
claim against Third-Party Defendants, reversing the court’s grant of
summary judgment would create “no practical effect or change in
the circumstances” with respect to Third-Party Defendants. We
agree that because of this posture, no relief we could grant would
result in revived claims against Third-Party Defendants. We review
the district court’s grant of summary judgment in favor of
Critchfield only as it relates to the claims between the Association
and Developer.
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order granting Critchfield’s motion for summary judgment and
argued that the district court erred in declining to consider the
Association’s supplemental argument.
¶ 28 The district court denied the Association’s motion to
reconsider and explained:
The parties were given the appropriate opportunity to
file dispositive motions and raise any issues or
objections to those motions . . . . [The Association] filed
their initial Opposition on October 11, 2013. It was not
until over two months later, on December 18, 2013, that
[the Association] sought to supplement its Opposition,
well after briefing in this matter was complete and after
the Motion was set for hearing. To allow additional
briefing at that date was not, as [the Association]
suggests, a routine matter with no impact on the
parties. Consideration of the new legal theory
expounded by [the Association], and allowing the
other parties sufficient time to respond thereto would
have delayed resolution of the majority of the
dispositive motions . . . . Additionally, the court finds
that it would be inequitable to allow [the Association] a
“second bite at the apple” to defeat summary judgment
based solely on its failure to include a legal argument
in support of its Opposition where the underlying facts
and law were known at the time of filing the initial
Opposition.
¶ 29 The district court then briefly addressed the merits of the
Association’s REPC and warranty deeds argument and explained
that “consideration of [the Association’s] additional briefing in
support of its Opposition would not change the Court’s ruling.”
¶ 30 On appeal, the Association argues that it is a third-party
beneficiary to the REPCs and warranty deeds and that “[i]n granting
Critchfield’s motion for summary judgment, the trial court failed to
recognize privity in this regard and should be reversed.” The
Association skips a step, however, by jumping straight to the merits
of the argument. The district court declined to consider the
Association’s arguments on summary judgment because they were
untimely. The Association must attack that decision before it can
level up to the merits.
¶ 31 The district court denied the Association’s motion for
supplemental briefing. Although the court did not explain its
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Opinion of the Court
reasoning at the time, in its order denying the Association’s motion
to reconsider, the court explained that it denied the Association’s
motion for supplemental briefing because the motion was untimely
and “the underlying facts and law were known at the time” the
Association filed its initial opposition. This is the type of decision we
leave to the discretion of the district court. See, e.g., Harvey v. Ute
Indian Tribe of Uintah and Ouray Reservation, 2017 UT 75, ¶ 14,
— P.3d — (“We review a district court’s denial of a motion to
supplement a pleading for abuse of discretion.”). The Association
has not even attempted to explain how the district court may have
abused its discretion in concluding (1) that its supplemental
argument was untimely, and (2) that the underlying facts and law
were known to the Association at the time it filed its initial
opposition.
¶ 32 Nor does the Association assail the motion to reconsider.
Indeed, the Association disregards the district court’s order denying
the motion to reconsider. And again, we review the “denial of a
motion to reconsider summary judgment under rule 60(b) of the
Utah Rules of Civil Procedure for abuse of discretion.” Lund v. Hall,
938 P.2d 285, 287 (Utah 1997). “[P]ostjudgment motions to reconsider
are not recognized anywhere in either the Utah Rules of Appellate
Procedure or the Utah Rules of Civil Procedure.” Gillet v. Price, 2006
UT 24, ¶ 6, 135 P.3d 861. Accordingly, district courts are under no
obligation to consider motions for reconsideration, and a movant has
an especially large burden to show that the district court abused its
discretion. Cf. Tschaggeny v. Milbank Ins. Co., 2007 UT 37, ¶ 15, 163
P.3d 615 (“Because trial courts are under no obligation to consider
motions for reconsideration, any decision to address or not to
address the merits of such a motion is highly discretionary.”). The
district court’s ruling may be overturned only if the movant can
show that “there is no reasonable basis for the decision.” Id. ¶ 16
(citation omitted).
¶ 33 If the Association wanted this court to address the merits of
its third-party beneficiary argument, then it needed to demonstrate
that the district court either abused its discretion in not permitting
the supplemental briefing that contained the REPC and warranty
deeds argument or that the district court abused its discretion in
denying the Association’s motion to reconsider. The Association
failed to do either. Thus, we decline to address the merits of their
REPC and warranty deeds argument. We accordingly limit our
analysis to the issue that was before the district court when it
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granted summary judgment: that the Declaration creates privity
between the Association and Developer.
B. The Declaration of Covenants, Conditions, and Restrictions
¶ 34 The Association argues that the Declaration establishes
privity of contract because the Association “received the right (and
obligation) to maintain certain common property and accept all
owners as members.”
¶ 35 Although it is unclear, the Association appears to argue
that the Declaration contains an assignment of the homeowners’
claims to the Association. 8 The Association cites section 6.1 of the
Declaration:
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8 The Association also argues that it is a “successor in interest to
the Developers vis-à-vis the common property” because “when
[Developer] recorded the Declaration, they severed property rights,
conveying some to the Association, and some to the Unit
purchasers.” The Association then references the “right (and
obligation) to maintain certain common property.” It is unclear
whether this argument relates to the argument that the Declaration
assigned claims to the Association, which is the argument that the
Association made below, appears to renew on appeal, and that we
analyze above. The Association’s brief may also be read to say that it
was granted ownership of the common areas and that it enjoys
privity of contract for that reason. To the extent the Association
argues that its privity with Developer arises from ownership of the
common areas, its argument is unpreserved and inadequately
briefed.
Generally, we will not consider an issue unless it has been
preserved for appeal. Patterson v. Patterson, 2011 UT 68, ¶ 12, 266
P.3d 828. An issue has been preserved for appeal “when it has been
‘presented to the district court in such a way that the court has an
opportunity to rule on [it].’” Id. (alteration in original) (citation
omitted). The Association did not assert this argument below. Nor
does the Association assert that an exception to our preservation rule
applies. See State v. Griffin, 2016 UT 33, ¶ 20, 384 P.3d 186 (“To raise a
claim for the first time on appeal, a party must demonstrate that one
of the exceptions to our preservation rules apply.”). Additionally,
this argument consists of three sentences in its opening brief.
“[Appellate] courts are ‘not a depository in which [a party] may
dump the burden of argument and research.’” 2010-1 RADC/CADC
(continued . . .)
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The Association shall provide exterior maintenance of
the Living Units including but not limited to painting,
repair, replacement and care of roofs, gutters,
downspouts, and exterior building surfaces.
In its opposition to Critchfield’s motion for summary judgment, the
Association argued that its claims “derive from the duty imposed
upon it by the Declaration drafted and recorded by the Developer,”
and quoted section 6.1 of the Declaration. The Association argued
that section 6.1 “grants [it] broad authority to act on behalf of owners
in relation to action taken related to damage to association property,
expressly the exterior maintenance of the Living Units.” The
Association does not quote section 6.1 in its opening brief, but does
mention its “right (and obligation) to maintain certain common
property,” and later quotes section 6.1 in its reply brief. Therefore,
we assume that the Association’s argument on appeal mirrors their
argument below: that section 6.1 of the Declaration is an assignment
of the homeowners’ claims against Developer.
¶ 36 Utah law requires privity of contract to assert a claim for a
breach of the implied warranty of workmanlike manner and
habitability. Utah Code section 78B-4-513 provides that “an action
Venture, LLC v. Dos Lagos, LLC, 2017 UT 29, ¶ 32, 408 P.3d 313
(second alteration in original) (citation omitted).
Further, it is unclear which defects, if any, can be found in the
common areas. The Association submitted a roughly 1,000-page
exhibit to support its memorandum in opposition to Critchfield’s
motion for summary judgment. Perhaps somewhere in that tome,
the Association’s expert identified a defect in the common areas.
This uncertainty highlights a major problem with the way the
Association approached summary judgment. To comply with rule 56
of the Utah Rules of Civil Procedure, a party must “do more than
attach evidence and hope the district judge [will] appreciate its
significance.” Stitchting Mayflower Mountain Fonds v. United Park City
Mines Co., 2017 UT 42, ¶ 42, -- P.3d -- (emphasis omitted). Rather, a
party must “analyze the evidence to show that it created a genuine
issue for trial.” Id. (emphasis omitted). The Association failed to do
this below, and failed to do so on appeal. To the extent there is
something in the expert report suggesting that there is a defect to be
found in the common areas, the Association waived it before the
district court by failing to comply with rule 56.
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for defective design or construction may be brought only by a person
in privity of contract with the original contractor, architect, engineer,
or the real estate developer,” but that “[n]othing in this section
precludes a person from assigning a right under a contract to
another person, including to a subsequent owner or a homeowners
association.” UTAH CODE § 78B-4-513(4), (6). As noted above, the
Association appears to contend that section 6.1 of the Declaration
assigns the homeowners’ right to sue to the Association.
¶ 37 “Restrictive covenants are a ‘method of effectuating private
residential developmental schemes’ and give property owners in
such developments the right to enforce those covenants against
others in the development.” Fort Pierce Indus. Park Phases II, III & IV
Owners Ass’n. v. Shakespeare, 2016 UT 28, ¶ 19, 379 P.3d 1218 (citation
omitted). “[I]nterpretation of [restrictive] covenants is governed by
the same rules of construction as those used to interpret contracts.”
Id. (second alteration in original) (citation omitted). Accordingly, we
“interpret the provisions of the Declaration as we would a contract.
If the Declaration is not ambiguous, we interpret it according to its
plain language.” View Condo. Owners Ass’n v. MSICO, L.L.C., 2005 UT
91, ¶ 21, 127 P.3d 697 (citation omitted). Further, “restrictive
covenants ‘should be interpreted to give effect to the intention of the
parties ascertained from the language used in the instrument, or the
circumstances surrounding creation of the servitude, and to carry
out the purpose for which it was created.’” Fort Pierce, 2016 UT 28,
¶ 19 (quoting RESTATEMENT (THIRD) OF PROPERTY: SERVITUDES § 4.1(1)
(AM. LAW INST. 2000)).
¶ 38 “It is essential to an assignment of a right that the obligee
manifest an intention to transfer the right to another person without
further action or manifestation of intention by the obligee.”
RESTATEMENT (SECOND) OF CONTRACTS § 324 (AM. LAW INST. 1981).
“Generally, the elements of an effective assignment include a
sufficient description of the subject matter to render it capable of
identification, and delivery of the subject matter, with the intent to
make an immediate and complete transfer of all right, title, and
interest in and to the subject matter to the assignee.” 29 WILLISTON
ON CONTRACTS § 74:3 (4th ed. 1990) (footnotes omitted). Typical
words associated with an assignment include “assumes,” “assigns,”
“transfers,” or “conveys.” See Hansen v. Green River Grp., 748 P.2d
1102, 1104 (Utah Ct. App. 1988) (noting that a contractual provision
lacking the words “assumes,” “assigns,” “transfers,” or “conveys”
did not constitute an assignment of a party’s rights under a contract).
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¶ 39 A recent case before this court highlights the type of
language that can assign claims. In Tomlinson v. Douglas Knight
Construction, Inc., 2017 UT 56, --P.3d--, the developer assigned its
claims against the construction company to the homeowner. Id. ¶ 7.
The assignment provided that the developer transferred to the
homeowner “all . . . right title and interest in and to any and all
rights, claims, causes of action, choses in action, rights to payment,
and judgments of any kind that [the developer] ha[d] asserted . . . or
may otherwise assert” against the builder. Id. (second omission in
original). Although we ultimately determined that the assignment
did not cover the claims that the homeowner brought against the
builder, the language of that assignment is illustrative. See id. ¶ 21.
¶ 40 In contrast, here, the Declaration states that the Association
“shall provide exterior maintenance of the Living Units.” The plain
language of section 6.1 does not assign the homeowners’ claims
against Developer to the Association. The language “shall provide
exterior maintenance” does not manifest the intent of the
homeowner to transfer their right to pursue claims against
Developer to the Association. See RESTATEMENT (SECOND) OF
CONTRACTS § 324. Nor does the language “shall provide exterior
maintenance” actually describe the subject matter of the purported
assignment: the right to pursue claims against Developer.
¶ 41 Tellingly, section 6.1 does not contain language such as
“assumes,” “assigns,” “transfers,” or “conveys”—language
traditionally indicative of assignment. See Hansen, 748 P.2d at 1104.
That is not to say that an assignment must always contain precise,
formulaic language. But the language must, at the very least,
manifest a homeowner’s intent to transfer her right to pursue claims.
Accordingly, although we conclude that the statute does not require
precise language of assignment, we nonetheless recognize that the
statute contemplates an assignment that expresses some intent to
actually assign a claim.
C. Public Policy
¶ 42 The Association also argues that public policy favors
finding privity. The Association cites Davencourt for the proposition
that “the scope of the implied warranty should be construed broadly
to comport with . . . public policy considerations,” and argues that
this language indicates that “privity cannot be arbitrarily used to
restrict the application of [the] implied warranty or other contract-
based claims.” Although we may favor a broad construction of the
implied warranty, we cannot use public policy to rewrite an
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inconvenient statute. Section 78B-4-513 requires contractual privity
between the party bringing an action for defective design or
construction and “the original contractor, architect, engineer, or the
real estate developer” or an assignment of the homeowner’s right
under the contract. And in Davencourt, we made it clear that privity
of contract is required to bring a claim for breach of the implied
warranty in accord with section 78B-4-513. See Davencourt, 2009 UT
65, ¶ 57 & n.13.
¶ 43 The Association raises a compelling argument that our
current statutory scheme presents a challenge for homeowners
associations attempting to represent their members’ interests. 9
Unfortunately, we cannot use public policy to rewrite an explicit
statutory requirement. This is especially true where the legislature
appears to have built in some protection against the result the
Association fears; the statute recognizes that a homeowner can
assign her claims to a homeowners association. See UTAH CODE
§ 78B-4-513(6). At oral argument, the Association detailed a number
of reasons why an assignment may not be not a practical solution to
the problem—but that is an argument better made to the legislature
_____________________________________________________________
9 The Association argues that the statute creates the potential for a
homeowners association to be left in an unjust and untenable
circumstance at turnover. The Association contends that
homeowners associations generally have a duty to maintain and
repair common areas but cannot fulfill that duty if a developer fails
to construct the development in a workmanlike manner and then
fails to adequately fund the reserve account. The Association avers
that because homeowners associations typically cannot assess units
over a specified amount they are left with insufficient funds to carry
out their duties, and no avenue to raise those funds. To add insult to
injury, an association may have no avenue of recourse against the
developer, because, the Association argues, the developer drafts an
association’s organizational documents and may structure them to
prevent the association from having the privity it needs to pursue
legal claims against the developer. Thus, says the Association, the
party most responsible for the faulty construction can insulate itself
from liability. Because the Utah Code establishes the privity
requirement that underpins the Association’s complaint, its
arguments are better directed to the legislature. See UTAH CODE
§ 78B-4-513(4).
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to which our constitution has assigned the responsibility of
amending and improving statutes.
¶ 44 Because the plain language of section 6.1 does not
constitute an assignment of the homeowners’ rights, the Association
cannot maintain an action against Developer for breach of the
implied warranty of workmanlike manner and habitability.
Therefore, we need not reach the Association’s second argument that
the district court erred in concluding that the Association’s expert
report was insufficient to establish a question of safety or
habitability. We conclude that the district court did not err in
granting Critchfield’s motion for summary judgment.
II. Motion for Directed Verdict
¶ 45 The Association next contends that the district court erred
in granting Developer’s motion for directed verdict. The Association
argues that “the trial court erred in ruling that expert testimony is
required to establish a standard of care for developers for purposes
of Davencourt limited fiduciary duty claims.” The Association argues
that because Davencourt defined a developer’s limited fiduciary duty,
the question of whether a developer breached its Davencourt duties is
within a jury’s common knowledge. Developer counters that expert
testimony is required to establish the standard of care for a
developer upholding the Davencourt limited fiduciary duties.
¶ 46 This court has not previously examined when expert
testimony is required to establish the standard of care in actions
claiming breaches of the fiduciary duties Davencourt recognized. We
have, however, examined the issue of when expert testimony is
required to establish the standard of care in negligence claims. We
conclude that our general framework for analyzing the necessity of
expert testimony in negligence claims applies in the breach of
fiduciary duty context. We begin with a discussion of the
background of the Davencourt limited fiduciary duties, examine our
framework for determining the necessity of expert testimony to
establish the standard of care in negligence cases, and conclude with
an application of that framework to the facts of this case.
A. Davencourt Limited Fiduciary Duties
¶ 47 The Association claims that Developer breached several of
the limited fiduciary duties established in Davencourt at Pilgrims
Landing Homeowners Association v. Davencourt at Pilgrims Landing, LC,
2009 UT 65, 221 P.3d 234. Generally, the economic loss rule prohibits
tort claims for purely economic loss. Id. ¶ 18. “The economic loss rule
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is a judicially created doctrine that marks the fundamental boundary
between contract law, which protects expectancy interests created
through agreement between the parties, and tort law, which protects
individuals and their property from physical harm by imposing a
duty of reasonable care.” Id. (citation omitted). The economic loss
rule prohibits the recovery of economic losses unless a plaintiff has
suffered physical property damage or bodily injury. Id.
¶ 48 “Where the economic loss rule is at issue, the ‘initial
inquiry’ becomes ‘whether a duty exists independent of any
contractual obligations between the parties.’” Id. ¶ 27 (citation
omitted). “If we find that an independent duty exists under the law,
‘the economic loss rule does not bar a tort claim because the claim is
based on a recognized independent duty of care and thus does not
fall within the scope of the rule.’” Id. (citation omitted).
¶ 49 In Davencourt, this court recognized several limited
fiduciary duties that a property developer owes when the developer
establishes and initially controls a homeowners association. Id. ¶ 36.
Until a developer relinquishes control of a homeowners association
to its members, the developer owes the following duties to the
association and its members:
(1) to use reasonable care and prudence in managing
and maintaining the common property;
(2) to establish a sound fiscal basis for the association
by imposing and collecting assessments and
establishing reserves for the maintenance and
replacement of common property;
(3) to disclose the amount by which the developer is
providing or subsidizing services that the
association is or will be obligated to provide;
(4) to maintain records and to account for the financial
affairs of the association from its inception;
(5) to comply with and enforce the terms of the
governing documents, including design controls,
land-use restrictions, and the payment of
assessments;
(6) to disclose all material facts and circumstances
affecting the condition of the property that the
association is responsible for maintaining; and
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(7) to disclose all material facts and circumstances
affecting the financial condition of the association,
including the interest of the developer and the
developer’s affiliates in any contract, lease, or other
agreement entered into by the association.
Id. (emphases omitted) (quoting RESTATEMENT (THIRD) OF PROPERTY:
SERVITUDES § 6.20 (AM. LAW INST. 2000)).
¶ 50 However, “[g]iven the developer’s self-interest, ‘[t]he
developer cannot be expected to act solely in the interests for the
association and the homeowners. Conflicts of interest are inherent in
the developer’s role while it retains control of the association.’” Id.
¶ 37 (second alteration in original) (quoting RESTATEMENT (THIRD) OF
PROPERTY: SERVITUDES § 6.20 cmt. a (AM. LAW INST. 2000)).
Accordingly, “[w]hile the developer thus should not be a fiduciary in
the broadest sense, . . . the developer’s control in [a] nonprofit
association requires certain interests of the members and the
association be protected” which is “achieved by the limited fiduciary
duty.” Id.
¶ 51 When this court adopted the limited fiduciary duty in
Davencourt, we recognized that it “constitute[d] a newly-recognized
independent duty of care” that stems from a “special relationship”
between a developer and an association or its members. Id. ¶ 38. The
relationship is akin to relationships such as “attorney-client
relationship[s], physician-patient relationship[s], or insurer-insured
relationship[s],” which also “automatically trigger[] independent
duties of care.” Id. (citation omitted). And “because a limited
fiduciary duty constitutes an independent duty of care, tort claims
brought under this duty fall outside the scope of the economic loss
rule.” Id.
¶ 52 Breach of fiduciary duty claims generally require proof of
four elements: the existence of a fiduciary relationship (such as
attorney-client, physician-patient, or insurer-insured); breach of the
fiduciary duty; causation, both actual and proximate; and damages.
See Christensen & Jensen, P.C. v. Barrett & Daines, 2008 UT 64, ¶ 23,
194 P.3d 931 (breach of fiduciary duty in the context of an attorney-
client relationship); see also Regions Bank v. Lowrey, 101 So. 3d 210, 219
(Ala. 2012) (in the context of a trustee-beneficiary relationship, a
claimant must show the existence of a fiduciary duty, the breach of
the duty, and damages); Neade v. Portes, 739 N.E.2d 496, 502 (Ill.
2000) (same, in the context of a physician-patient relationship);
Baptist Physicians Lexington, Inc. v. New Lexington Clinic, P.S.C., 436
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S.W.3d 189, 193 (Ky. 2013) (same, in the context of a board of
directors-corporation relationship).
¶ 53 Although the fiduciary duty a developer in control of a
homeowners association owes to the association and its members is
limited in nature, Davencourt, 2009 UT 65, ¶¶ 37–38, the elements of a
breach of that fiduciary duty are nonetheless the same. Accordingly,
to establish a claim of breach of limited fiduciary duty, a plaintiff
must prove: (1) the existence of a developer-association or
developer-member relationship; (2) breach of the developer’s limited
fiduciary duty; (3) causation, both actual and proximate; and
(4) damages. Cf. Christensen & Jensen, 2008 UT 64, ¶ 23.
¶ 54 The central issue on the motion for directed verdict focused
on the appropriate standard of care. The district court granted
Developer’s motion for directed verdict because the Association
failed to “establish[] what the standard of care is for a developer
when managing a homeowners association.”
B. Standard of Care
¶ 55 To understand better the standard of care owed in a breach
of fiduciary duty case, it is helpful to look to our negligence case law.
The essential elements of a negligence claim incorporate virtually the
same requirements as a breach of fiduciary duty claim: “(1) a duty of
reasonable care owed by the defendant to plaintiff; (2) a breach of
that duty; (3) the causation, both actually and proximately, of injury;
and (4) the suffering of damages by the plaintiff.” Williams v. Melby,
699 P.2d 723, 726 (Utah 1985). Cf. Christensen & Jensen, 2008 UT 64,
¶ 23 (stating that in the context of legal malpractice, the elements of a
negligence claim and a breach of fiduciary duty claim “are
substantially the same”).
¶ 56 As the Supreme Court of Colorado noted, “[b]reach of
fiduciary duty claims are in some, but not all, contexts basically
negligence claims incorporating particularized and enhanced duty of
care concepts often requiring the plaintiff to establish the identical
elements that must be established by a plaintiff in negligence
actions.” Martinez v. Badis, 842 P.2d 245, 251–52 (Colo. 1992) (en
banc). The difference between a negligence claim and a breach of
fiduciary duty claim therefore lies mainly in the type of duty owed.
In a negligence claim, a plaintiff must show “a duty of reasonable
care owed by the defendant to [the] plaintiff.” Williams, 699 P.2d at
726. In a breach of fiduciary duty claim, the plaintiff must
demonstrate the existence of a fiduciary relationship between the
plaintiff and the defendant, Christensen & Jensen, 2008 UT 64, ¶ 23,
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which gives rise to a “particularized and enhanced duty of care,”
Martinez, 842 P.2d at 252. See Duty, BLACK’S LAW DICTIONARY, (10th
ed. 2014) (defining fiduciary duty as “[a] duty of utmost good faith,
trust, confidence, and candor owed by a fiduciary (such as an agent
or a trustee) to the beneficiary”). Thus, a plaintiff must establish the
relevant standard of care to prove a breach of fiduciary duty.
¶ 57 To determine the relevant standard of care in negligence
cases, “the essential question is the care that a reasonable person
would undertake in the defendant’s circumstances . . . .” Graves v.
N. E. Servs., Inc., 2015 UT 28, ¶ 37, 345 P.3d 619. “The standard of
care in a negligence action is generally a question of fact for the
jury.” Id. “The jury’s determination, moreover, is a matter for the
commonsense assessment of a lay juror—not expert testimony. This
follows logically from the premise of the standard of care in tort.”
And, “[b]ecause the essential question is the care that a reasonable
person would undertake in the defendant’s circumstances, we
generally leave it to jurors—as ordinary persons representing a
particular community—to make that judgment.” Id. In other words,
in a typical negligence case we ask a jury of reasonable people to
draw upon their collective expertise to conclude how a reasonable
person would have acted in that circumstance.
¶ 58 Our case law recognizes a limited exception to this general
rule. Expert testimony is generally required in medical malpractice
actions because “unlike the run-of-the-mill negligence case, ‘most
medical malpractice cases depend upon knowledge of the scientific
effect of medicine,’ a matter ‘not within the common knowledge of
the lay juror.’” Id. ¶ 38 (citation omitted). But, “where a ‘medical
procedure is so common or the outcome so affronts our notions of
medical propriety’ that scientific knowledge is not necessary, ‘the
plaintiff can rely on the common knowledge and understanding of
laymen to establish this element.’” Id. ¶ 39 (citation omitted).
¶ 59 “Ultimately, then, the question of the need for expert
testimony turns on the nature of the standard to be addressed by the
jury.” Id. ¶ 40. “Questions of ordinary negligence are properly
determined by the lay juror without the need for expert testimony.
Where the standard implicates scientific matters beyond the capacity
of an ordinary juror, however, expert testimony may be required.”
Id. For example, in Newman v. Sonneberg, 2003 UT App 401, 81 P.3d
808, the court of appeals held that expert testimony was required to
establish the elements of patient abandonment. Id. ¶ 16. Because the
duty not to abandon care of a patient arises only after treatment or
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services have been provided, and “most lay people do not possess
the necessary expertise to accurately determine whether [a doctor’s]
actions constitute[] mere diagnosis or signif[y] the beginning of
treatment,” expert testimony is required to establish the standard of
care. Id. ¶¶ 13–15. But no expert is needed when a needle left inside
the patient or a drill bit lost down a patient’s throat constitutes the
alleged negligence. See Nixdorf v. Hicken, 612 P.2d 348, 353 (Utah
1980) (holding that expert testimony is not required when a doctor
left a needle inside of a patient during surgery); Kim v. Anderson, 610
P.2d 1270, 1270–71 (Utah 1980) (holding that expert testimony is not
required when a dentist lost a drill bit down a patient’s throat).
¶ 60 This general framework lends itself to the breach of
fiduciary duty arena. Fiduciary duties may sometimes, but will not
always, implicate the type of technical matters that would lie beyond
the capacity of an ordinary juror. This means that expert testimony
will be required in the breach of fiduciary duty context to explain
standard of care and breach issues where the average person has
little understanding of the duties owed by particular trades or
professions. This testimony may be unnecessary, however, if the
professional task is so common or the alleged breach is so egregious
that specialized knowledge is not required to conclude that the
conduct fell below the applicable standard of care, whatever that
standard might be. Accordingly, the question of whether expert
testimony is required will necessarily occur on a case by case basis,
much as it does in the medical malpractice arena.
¶ 61 Applying this principle to one of the Davencourt duties
illuminates this distinction. Davencourt recognized a duty to
“disclose all material facts and circumstances affecting the condition
of the property that the association is responsible for maintaining.”
2009 UT 65, ¶ 36 (emphasis omitted) (citation omitted). If the alleged
breach were to center on a claim that the developer possessed a
report that detailed that homes in the planned unit development had
been framed with rotting lumber and that the developer could
anticipate structures collapsing within a short period of time, the
plaintiff would not need an expert to tell the jury that such
information would be material to the homeowners association. This
is because we trust that a jury can understand why that information
would need to be disclosed. If, on the other hand, the allegation were
to center on a failure to disclose a technical defect with the type of
wiring used in a development, the jury may need an expert to
explain why a reasonable developer would have a duty to disclose
that information.
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C. The Association’s Breach of Fiduciary Duty Claim
¶ 62 The Association’s breach of fiduciary duty claim focused on
two of the limited duties Davencourt established: (1) “to establish a
sound fiscal basis for the association by imposing and collecting
assessments and establishing reserves for the maintenance and
replacement of common property;” and (2) “to disclose all material
facts and circumstances affecting the condition of the property that
the association is responsible for maintaining.” 2009 UT 65, ¶ 36
(emphasis omitted) (citation omitted). The district court concluded
that these duties “fall precisely within the realm of ‘specialized
knowledge’ which is specific to a trade or profession [and] must be
established by a witness within the specific profession.” On the facts
of this case, we agree. This case presents the type of duty and breach
issues where the average person has little understanding of the
duties owed by particular trades or professions. In this case, expert
testimony was required to establish the appropriate standard of care.
¶ 63 The average person likely has little understanding of what
a property developer must do to “establish a sound fiscal basis” for a
homeowners association. Davencourt, 2009 UT 65, ¶ 36 (emphasis
omitted) (citation omitted). The Association did not present evidence
demonstrating the industry standard for a developer who initially
manages the finances of a homeowners association. At trial, the
Association only presented evidence about its own financial affairs.
The Gables’ property manager testified about the Association’s
initial budget, the financial state of the Association during the years
he managed the property, and several of the necessary repairs. The
property manager did not testify about how much money an
association’s reserve fund typically contains at the time of turnover
or how much involvement developers typically have in establishing
an initial budget—both questions that may be relevant to
demonstrating the standard of care a developer owes in establishing
a sound fiscal basis for a homeowners association.
¶ 64 In fact, the only evidence presented about the financial state
of the reserve account at turnover indicated that it was adequately
funded compared to industry standards. At trial, the Gables’
property manager testified that the initial budget “was based on
building a reserve at a rate sufficient for proper construction.” He
explained that the set rate was “comparable to the industry
average.” And the reserve study the Association commissioned after
turnover indicated that the starting reserve account balance at the
time of turnover “indicate[d] a fair reserve fund position.”
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¶ 65 The Association did present evidence illustrating the
financial state of the reserve account following turnover. But this
evidence does not demonstrate conduct so egregious that a lay
person would be able to determine whether or not a breach occurred
without the assistance of expert testimony. Cf. Graves, 2015 UT 28,
¶ 39 (“[W]here a ‘medical procedure is so common or the outcome so
affronts our notions of medical propriety’” expert testimony is
unnecessary. (citation omitted)). The property manager explained
that “financially, it [had] been difficult . . . to operate the association
in a positive, long-term maintenance fashion because . . . all the
expenses [were] going to fix emergencies [and] take care of safety
issues.” And he explained that due to the construction defects, the
Association did not have “the funds to take care of the basic needs”
of the Association because they were “responding continually to
some new emergency that arises.”
¶ 66 Although we can envision a scenario where the financial
state of a homeowners association is so dire that a breach can be
found without the assistance of expert testimony, we are not
presented with that scenario here. The Association presented
evidence that operating the Association had been
“financially . . . difficult” due to the alleged deficiencies in the
reserve account. But the Association also presented evidence that
suggested the Association’s reserve account “indicate[d] a fair
reserve fund position,” and that the monthly contribution from
homeowners to the reserve account was “comparable to the industry
average.” Because the Association presented conflicting evidence
about its financial state, this evidence did not demonstrate conduct
so egregious that a lay person would be able to determine whether
or not a breach occurred without the assistance of expert testimony.
¶ 67 Rather than focus on the industry standard pertaining to
establishing a sound fiscal basis, the Association argues that “[t]he
only expert testimony that would be relevant or helpful to the jury
on the question of whether [Developer] established a sound fiscal
basis for the Association is expert testimony on the scope and cost of
necessary repairs so that the jury could compare that scope and cost
with the amounts that were set aside into reserves at the initial
established assessment level.” At trial, the Association offered expert
testimony that the cost of the repairs would be approximately
$4,600,000. This argument mischaracterizes the limited fiduciary
duty established in Davencourt. A developer owes a duty to
“establish a sound fiscal basis for the association by imposing and
collecting assessments and establishing reserves for the maintenance
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Opinion of the Court
and replacement of common property.” Davencourt, 2009 UT 65, ¶ 36
(emphasis omitted) (citation omitted).
¶ 68 Establishing a “sound fiscal basis” does not necessarily
include raising nearly $5,000,000 in funds prior to turnover of the
homeowners association. See id. As Developer points out, the
Association’s argument “implicitly requires a jury to accept that a
‘sound fiscal basis’ includes reserves sufficient to fund the repair of
nearly $5 million in alleged latent defects.” Although the cost of
repairs that the Association was responsible for may well be relevant
to determining whether Developer left the Association with a sound
fiscal basis, the cost of repairs does not necessarily establish that
premise. 10 That is precisely why the Association needed an expert: to
opine on what a reasonable developer, knowing what Developer
knew or should have known here, would have left in reserve before
turning the development over to the Association.
¶ 69 Similarly, the Association argues—albeit briefly—that
expert testimony was unnecessary to establish the standard of care a
developer must uphold to “disclose all material facts and
circumstances affecting the condition of the property that the
association is responsible for maintaining.” Id. (emphasis omitted)
(citation omitted). Its argument occupies one paragraph:
[U]nder Davencourt, the developer is required to
disclose all material facts and circumstances affecting
_____________________________________________________________
10 The Association argues that “[i]t is a simple task for the jury
to . . . apply the facts to the law as instructed by the court and
compare [the damages] figure with the amounts in the Association’s
reserve account.” But the evidence the Association presented
demonstrated that the initial reserve balance was adequate assuming
no construction defects manifested themselves. The evidence also
demonstrated that the reserve balance was insufficient to cover the
expenses of repairing the construction defects. As noted, this
evidence relates to the question of breach. However, the jury would
not have been able to answer the question of breach without first
understanding the appropriate standard of care by which to judge
Developer’s conduct. The Association did not explain to the jury
why the amount of money in the reserve account at the time of
turnover was insufficient compared to industry standards because
the Association never demonstrated what the industry standards
were.
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the condition of the property that the association is
responsible for maintaining. Either the developer
disclosed all of the facts and circumstances or it did
not. There is no gray area, and expert testimony should
not be required to establish that the developer failed to
disclose all material facts and circumstances.
¶ 70 The Association fails to detail what facts and circumstances
it claims Developer knew of that it did not disclose. As such, it is
difficult to assess precisely whether a jury could have understood
the fact or circumstance to be material without the aid of an expert.
The Davencourt duty requires disclosure of material facts and
circumstances. And, as with the “sound fiscal basis,” we can
envision some facts and circumstances that a jury would be able to
understand are material and should be disclosed without the benefit
of expert testimony and some that it would not. Stated differently,
Davencourt imposes a duty to disclose “all material facts and
circumstances” and sometimes an expert will be needed to help the
jury understand what is and is not material. Id. (emphasis omitted)
(citation omitted).
¶ 71 Examining all the evidence in a light most favorable to the
Association, we conclude that there was no competent evidence that
would support a verdict in the Association’s favor because the
Association failed to establish the relevant standard of care for
establishing a sound fiscal basis and failed to articulate the material
facts that Developer was required to disclose. See Merino v.
Albertsons, Inc., 1999 UT 14, ¶ 3, 975 P.2d 467 (“A trial court is
justified in granting a directed verdict only if, examining all evidence
in a light most favorable to the non-moving party, there is no
competent evidence that would support a verdict in the non-moving
party’s favor.”). The facts of this case present the type of duty and
breach issues where the average person has little understanding of
the standard of care owed by particular trades or professions, and
expert testimony was required to establish the relevant standard of
care for Developer’s duty to establish a sound fiscal basis. Because
Developer was entitled to judgment as a matter of law, the district
court correctly granted Developer’s motion for a directed verdict.11
_____________________________________________________________
11The Association also argues that any opinion offered by an
expert witness would be objectionable as a legal conclusion on the
ultimate issue under rule 704 of the Utah Rules of Evidence.
(continued . . .)
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III. Motion for Indemnification
¶ 72 Finally, the Association contends that the district court
erred in ruling that Duke was entitled to indemnification. The
Association argues that the indemnification claim was a cause of
action that should have been tried to the jury, not asserted by post-
trial motion. 12 Duke frames his motion for indemnification as a
motion for attorney fees and argues that “there is no issue of
entitlement to attorney fees to submit to the jury.”
¶ 73 We have recognized that motions for attorney fees, when
based in contract or on a statutory right to attorney fees, may be
properly raised in a post-trial motion. In Meadowbrook, LLC v. Flower,
we established a “narrowly tailored” rule that “a prevailing party
that files a motion for attorney fees before signed entry of final
judgment or order does not waive its claim to such fees, unless
otherwise provided by statute or unless it fails to comply with the
court’s order to address the issue at a specific time.” 959 P.2d 115,
Developer responds that “[e]xpert testimony . . . is required to
establish the standard similarly situated developers must uphold.”
Developer argues that “[t]he proffered [expert] testimony [would not
be] a legal conclusion; rather, it informs the trier of fact with regard
to the standard a reasonable developer is required to uphold under
similar circumstances.” Developer is correct. As we have explained
above, expert testimony was required to establish the appropriate
standard of care associated with the Davencourt duties. Although we
can see that an expert could cross the line into territory that Utah
Rule of Evidence 704 places out of bounds, we cannot assume that an
expert necessarily would. The expert testimony contemplated by the
district court pertained only to the standard of care, and accordingly
would not automatically constitute a legal opinion on the ultimate
issue under Utah Rule of Evidence 704. The proper objection would
be to the specific opinion the expert rendered and not to all
testimony on the topic of the standard of care.
12 The Association also argues that the indemnification clause
found in the Articles does not apply in this case because
[Developer’s] independent fiduciary duty is distinct from a
corporate fiduciary duty and that the indemnification clause should
not be enforced as a matter of public policy. Because we conclude
that the indemnification claim was an abandoned counterclaim, we
need not address the Association’s alternative arguments.
28
Cite as: 2018 UT 04
Opinion of the Court
119–20 (Utah 1998). In the prevailing party attorney fee context, this
rule is logical because “in most instances, requiring all parties to
present evidence of attorney fees to a jury before resting their cases
would contravene judicial economy. Where a contract or statute
provides for attorney fees to the prevailing party, a party does not
even become entitled to such fees until the jury has determined
which party has prevailed in the case.” Id. at 117. Additionally, “the
determination of reasonable attorney fees is an issue generally left to
the sound discretion of the trial court, not the jury.” Id.
¶ 74 The policies we relied upon in Meadowbrook to craft a
“narrowly tailored” exception to the general rule illustrate why after
trial was not the appropriate time for Duke to seek indemnification.
Id. at 119. First, no statute or contract between Duke and the
Association formed the basis of Duke’s attorney fees claim. Rather,
he argued that a provision of the Articles, a governing document
ancillary to the underlying cause of action, entitled him to
indemnification. 13
¶ 75 Nor does the second policy consideration in Meadowbrook
resonate here, because although “the determination of reasonable
attorney fees is an issue generally left to the sound discretion of the
trial court,” that was not the only determination to be made in this
case. Id. at 117. “[T]he issue of attorney fees is generally ancillary to
the underlying action,” and accordingly “a trial court’s decision
regarding the award of such fees normally requires an inquiry
separate from the main cause of action to be proved at trial—‘an
inquiry that cannot even commence until one party has
“prevailed.”’” Id. at 118 (quoting White v. N.H. Dep’t of Emp’t Sec., 455
U.S. 445, 452 (1982)). In a prevailing party scenario, the validity of
the contract or applicability of the statute has already been
determined at trial. But in a case based on an indemnity provision in
a document other than the contract at the heart of the litigation, there
may be other arguments to consider.
_____________________________________________________________
13On these facts, Duke’s claim resembles a prevailing party claim
because the Association and Duke were the parties before the district
court. But it is not difficult to imagine a situation where an
individual homeowner brings the claim against the developer. In
such a case, the developer would undoubtedly need to assert a cause
of action against the homeowners association to obtain
indemnification.
29
GABLES v. CASTLEWOOD-STERLING
Opinion of the Court
¶ 76 Here, Duke’s counterclaim was predicated on the theory
that indemnification was an item of consequential damages flowing
from the Association’s breach of fiduciary duty claim. Accordingly,
before the district court could determine reasonable attorney fees,
Duke still needed to prove that he was entitled to the fees in the first
place. Cf. Canyon Country Store v. Bracey, 781 P.2d 414, 419–20 (Utah
1989) (holding that when the recovery of attorney fees is predicated
on a theory that the fees are an item of consequential damages
flowing from a breach of contract, the issue may be properly
submitted to a jury as part of a party’s case-in-chief). A post-trial
motion is not the appropriate vehicle to litigate a claim for fees not
based upon a statute or prevailing party attorney fees clause.
¶ 77 Duke asserted a “cause of action for indemnification” in his
answer to the Association’s complaint. Developer “pray[ed] for
judgment against the Association . . . [f]or the costs associated with
defending themselves in this action and attorney’s fees incurred
herein.” Duke made no mention of the indemnification claim at the
pretrial conference, nor in the proposed jury instructions. By failing
to pursue his counterclaim against the Association at trial, Duke
waived his counterclaim for indemnification. Cf. Barnard v.
Wassermann, 855 P.2d 243, 247–48 (Utah 1993) (holding that failure to
pursue objections to an order in the district court amounted to
waiver of a claim raised by plaintiff). The district court improperly
addressed his claim for indemnification in a post-trial motion for
attorney fees. Our narrow holding in Meadowbrook does not apply to
this claim for indemnity arising out of the Articles. Accordingly, we
reverse the district court’s award of indemnification of attorney fees
and remand for proceedings consistent with this portion of the
opinion.
CONCLUSION
¶ 78 We conclude that the plain language of the Declaration
does not constitute an assignment of the homeowners’ rights and
therefore the Association cannot maintain an action against
Developer for breach of the implied warranty of workmanlike
manner and habitability. Accordingly, we hold that the district court
correctly granted summary judgment in favor of Critchfield. We next
conclude that the facts of this case present the type of duty and
breach issues where the average person has little understanding of
the duties owed by particular trades or professions, and expert
testimony was required to establish the relevant standard of care.
Accordingly, Developer was entitled to judgment as a matter of law,
30
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Opinion of the Court
and we hold that the district court correctly granted Developer’s
motion for a directed verdict. Finally, we conclude that the district
court improperly addressed Duke’s indemnification claim in a post-
trial motion for attorney fees and accordingly erred when it granted
Duke’s motion for attorney fees. We reverse the district court’s
award for indemnification of attorney fees and remand. Duke
requests costs on appeal. Because we affirm the district court’s grant
of summary judgment and the directed verdict in favor of
Developer, we award Duke his costs on appeal. See UTAH R. APP. P.
34(a).
31