Win-Win v. Dutson , 2021 UT App 18 ( 2021 )

2021 UT App 18THE UTAH COURT OF APPEALS
WIN-WIN INVESTMENTS LLC,
Appellant,
v.
BERNHARD DUTSON AND AZORA DUTSON,
Appellees.
Opinion
No. 20190332-CA
Filed February 19, 2021
Third District Court, Salt Lake Department
The Honorable Andrew H. Stone
No. 170903317
T. Jake Hinkins , Kurt W. Laird, and Renee L.H.
Blocher, Attorneys for Appellant
Daniel L. Day, Attorney for Appellee
JUDGE DIANA HAGEN authored this Opinion, in which
JUDGES MICHELE M. CHRISTIANSEN FORSTER and JILL M. POHLMAN
concurred.
HAGEN, Judge:
¶1 This landlord-tenant case began as an action by the lessee,
Win-Win Investments LLC, against the lessors, Bernhard and
Azora Dutson, alleging that the Dutsons improperly terminated
the lease and failed to recognize Win-Win’s option to purchase
the property. The Dutsons brought a counterclaim, alleging that
Win-Win had breached the lease agreement by failing to
maintain the premises. After the district court dismissed Win-
Win’s claims at trial, Win-Win attempted to defend against the
Dutsons’ counterclaim for damages by asserting that it had
assigned the lease to a third party. The district court ruled that
the assignment defense had not been adequately pleaded and
denied Win-Win’s request to amend its pleadings to conform to
Win-Win v. Dutson
the evidence. Win-Win appeals that ruling as well as the final
judgment awarding damages on the Dutsons’ breach of contract
counterclaim. We conclude that the district court correctly ruled
that Win-Win’s affirmative defense had not been pleaded.
Moreover, we conclude that the court appropriately denied Win-
Win’s motion to amend its pleadings after finding that the
assignment issue had not been tried by implied consent. Finally,
we conclude sufficient evidence supports the court’s damages
award. Accordingly, we affirm.
BACKGROUND
¶2 The Dutsons owned a house in Riverton, Utah (the
Property) that they agreed to lease to Win-Win. In February
2015, the parties entered into a written lease agreement (the
Lease) with an option for Win-Win to purchase the Property for
$350,000. Joseph White owned both Win-Win and its sister
company, Foundation for Family Life of Utah (the Foundation).
Win-Win subleased the Property to the Foundation.
¶3 In exchange for the purchase option, Win-Win agreed,
upon execution of the Lease, to place $1,000 in escrow as earnest
money to be credited against the purchase price. The Lease
provided that Win-Win could exercise the option “at any time
during the lease period upon notice to the Lessor in writing by
certified mail or email.” The Lease had an initial term of one year
but was renewable annually for four years by written notice.
Win-Win never deposited the required $1,000 earnest money
into escrow.
¶4 Although Win-Win renewed the Lease in January 2016, it
did not renew it at any point thereafter. In April 2017, over a
month after the lease term expired, the Dutsons sent a notice to
Win-Win inquiring whether Win-Win intended to renew the
Lease. After getting no response, the Dutsons sent Win-Win a
notice to vacate.
20190332-CA 2 2021 UT App 18Win-Win v. Dutson
¶5 Win-Win then filed a complaint against the Dutsons
alleging several causes of action, all of which related to Win-
Win’s contention that the Dutsons unilaterally cancelled the
Lease and failed “to recognize Win-Win’s right to purchase” the
Property. The Dutsons counterclaimed, alleging that Win-Win
had breached the Lease by failing “to maintain the premises in
the same or improved condition, order and repair as the
premises were at the commencement of the term of the Lease.”
They also sought a judgment declaring that “Win-Win never
acquired an option to purchase the premises” because it had
failed to deposited the $1,000 into escrow and that it “forfeited
the right to an additional consecutive term to lease the premises”
by failing to renew the lease in 2017.
¶6 The district court held a bench trial. At the close of Win-
Win’s case-in-chief, the Dutsons moved to dismiss Win-Win’s
claims. The court granted the Dutsons’ motion to dismiss,
concluding that “under the Lease, if Win-Win intended to
exercise the option, Win-Win was required to do so during the
lease period.” However, “[b]y no later than March 1, 2017, the
Lease had expired because Win-Win failed to give timely notice
of renewal for an additional one-year term. At no point prior
thereto did Win-Win attempt to exercise the option by tendering
payment of the purchase price.” Thus, only the Dutsons’
counterclaim for breach of contract remained in dispute.
¶7 The Dutsons offered testimony from three witnesses to
prove that Win-Win had failed to maintain the Property as
required by the Lease. Mr. Dutson testified regarding the
condition of the Property both before Win-Win took possession
of the Property and after the Lease was terminated. An expert
witness testified about his inspection of the Property and the
calculated costs of repairing the damage he observed. Finally,
the Dutsons’ son, who had periodically visited the Property
before and during Win-Win’s tenancy, testified regarding the
condition of the Property. In its defense, Win-Win called Mr.
White, its owner, who asserted for the first time that Win-Win
had not merely sublet the Property to the Foundation but had
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assigned to the Foundation its entire interest in the Lease. The
Dutsons did not object to this testimony.
¶8 Relying on Mr. White’s testimony, Win-Win argued for
the first time in post-trial briefing that it had assigned its entire
leasehold interest to the Foundation, and thus could not be held
liable for damages done to the Property. The Dutsons objected,
arguing that Win-Win had not pleaded an assignment defense
and that the Dutsons had not consented to try it. In response,
Win-Win maintained that it had pleaded assignment in its
answer to the counterclaim when it stated:
Defendant’s claims are barred by the doctrines of
laches, waiver, estoppel, unclean hands and any
other defense available under Utah Rule of Civil
Procedure 8(c), including, but not limited to,
accord and satisfaction, failure of consideration,
fraud, illegality, laches, release and statute of
limitations.
(Emphasis added.) Win-Win asserted that the term “release”
encompassed its claim of assignment. In the alternative, Win-
Win argued that it had presented evidence on assignment
during the bench trial, and therefore moved to amend the
pleadings to conform to the evidence pursuant to rule 15(b) of
the Utah Rules of Civil Procedure.
¶9 The court ruled that Win-Win had not pleaded
assignment as an affirmative defense in its answer to the
Dutsons’ breach of contract claim. Specifically, the court noted
that pleading “release” as a defense was not specific enough to
give the Dutsons notice as to Win-Win’s assignment theory.
Further, the court denied Win-Win’s request to amend the
pleadings, finding that it would be “clearly prejudicial” and
“plainly unfair” to the Dutsons to allow an amendment because
they had no notice of the assignment theory.
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¶10 The court awarded the Dutsons $146,065.05, the total
amount of damages calculated by their expert. It noted that,
pursuant to the Lease, “Win-Win accepted the premises in good
condition and agreed to repair existing damages.” As a result,
Win-Win was “obligated to repair or be liable for all damage to
the Property beyond reasonable wear and tear.” The court
viewed hundreds of photographs of the Property and found that
the damage depicted went “well beyond reasonable wear and
tear.” It concluded that the Dutsons had presented “credible and
exhaustive testimony of damages” amounting to $146,065.05.
The court also awarded attorney fees pursuant to the Lease’s
attorney fee provision and entered a final order and judgment.
ISSUES AND STANDARDS OF REVIEW
¶11 Win-Win now appeals, challenging the district court’s
rulings on the Dutsons’ counterclaim. 1 First, it argues that it
adequately pleaded assignment as an affirmative defense under
Utah Rule of Civil Procedure 8(c). “We review the [district]
court’s findings of fact for clear error and its conclusions of law
for correctness.” Hart v. Salt Lake County Comm’n, 945 P.2d 125,
132 (Utah Ct. App. 1997). “We review the district court’s
interpretation and application of the rules of civil procedure for
correctness and will reverse only if the appellant shows error
that was substantial and prejudicial.” Conner v. Department of
Com., 2019 UT App 91, ¶ 15, 443 P.3d 1250 (cleaned up).
¶12 In the alternative, Win-Win contends that the district
court erred in denying its request to amend its pleadings to
1. In briefing, Win-Win also challenged the district court’s
dismissal of its claims. However, at oral argument, Win-Win
acknowledged that its claims were inconsistent with its
contention that the Lease had been assigned to the Foundation,
and it abandoned any challenge to the district court’s dismissal
of its claims.
20190332-CA 5 2021 UT App 18Win-Win v. Dutson
conform to the evidence. We review the district court’s
interpretation of rule 15(b) of the Utah Rules of Civil Procedure
for correctness, but because its “determination of whether the
issues were tried with all parties’ implied consent is highly fact
intensive, we grant the [district] court a fairly broad measure of
discretion in making that determination under a given set of
facts.” Pilot v. Hill, 2019 UT 10, ¶ 9, 437 P.3d 362 (cleaned up). In
other words, whether the Dutsons impliedly consented to trying
an unpleaded defense “is a fact-intensive mixed question of law
and fact entitling the [district] court’s decision to broad
deference.” See id.
¶13 Finally, Win-Win challenges the district court’s award of
damages. Win-Win argues that the evidence presented at trial
was insufficient to support the award of $146,065.05. “When
reviewing a bench trial for sufficiency of the evidence, we must
sustain the [district] court’s judgment unless it is against the
clear weight of the evidence, or if we otherwise reach a definite
and firm conviction that a mistake has been made.” Koehler v.
Allen, 2020 UT App 73, ¶ 13, 466 P.3d 738 (cleaned up).
ANALYSIS
I. Assignment
¶14 Win-Win contends that the district court should have
reached the merits of its defense that it assigned the Lease to the
Foundation and thus was not liable for any damages to the
Property. Win-Win argues that the court should have reached
this issue either because it was adequately pleaded in its answer
or because it was tried by implied consent. We analyze each
argument in turn.
A. Adequacy of Pleading
¶15 Win-Win argues that the district court erred when it ruled
that Win-Win had not pleaded assignment as an affirmative
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defense to the Dutsons’ breach of contract claim. Rule 8(c) of the
Utah Rules of Civil Procedure provides that a party “shall set
forth affirmatively in a responsive pleading . . . any other matter
constituting an avoidance or affirmative defense.” “Normally, a
party waives all defenses not raised in a responsive pleading,
such as an answer or reply.” Mack v. Utah State Dep’t of Com.,
2009 UT 47, ¶ 14, 221 P.3d 194; see also Utah R. Civ. P. 12(h) (“A
party waives all defenses and objections not presented either by
motion or by answer or reply . . . .”).
¶16 Here, the court determined that although Win-Win
asserted a “grab-bag defense in its answer to the counterclaim
that suggest[ed] ‘release’ as a defense,” the language was
“simply not enough to give notice of Win-Win’s theory.” We
agree. Utah’s liberal pleading requirements “require that
pleadings ‘be construed to do substantial justice.’” Conner v.
Department of Com., 2019 UT App 91, ¶ 37, 443 P.3d 1250 (quoting
Utah R. Civ. P. 8(f)). A pleading must at least give fair notice to
the opposing party as to the nature of the claim or defense. See
Fishbaugh v. Utah Power & Light, 969 P.2d 403, 406 (Utah 1998).
Win-Win never used the term “assignment,” nor did it use any
other similar language to put the Dutsons on notice of Win-
Win’s theory that the Lease had been assigned to the
Foundation. Therefore, the district court correctly concluded that
Win-Win had not pleaded assignment in its answer.
B. Implied Consent
¶17 Win-Win argues that even if its defense of assignment
was not adequately pleaded in its answer, the issue was tried by
implied consent, and the court should have allowed Win-Win to
amend its pleadings. Rule 15(b) of the Utah Rules of Civil
Procedure “specifically governs amendments to pleadings
during and after trial.” Pilot v. Hill, 2018 UT App 105, ¶ 9, 427
P.3d 508, aff'd, 2019 UT 10, 437 P.3d 362. “Rule 15(b) has two
parts, one mandatory and one discretionary.” Hill v. Estate of
Allred, 2009 UT 28, ¶ 47, 216 P.3d 929. On appeal, Win-Win
argues that the mandatory provision of rule 15(b)(1) applies and
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that the district court had no discretion to deny its motion to
amend.
¶18 Under rule 15(b)(1), “if an issue is fully tried and the
opposing party had a fair opportunity to defend,” the district
court must “decide the issue and deem the pleadings amended
even if the issue was not originally pleaded.” Berg v. Berg, 2012
UT App 142, ¶ 4, 278 P.3d 1071 (cleaned up). The relevant
portion of the rule reads as follows:
When an issue not raised in the pleadings is tried
by the parties’ express or implied consent, it must
be treated in all respects as if raised in the
pleadings. A party may move—at any time, even
after judgment—to amend the pleadings to
conform them to the evidence and to raise an
unpleaded issue.
Utah R. Civ. P. 15(b)(1).
¶19 Win-Win argues that its assignment defense was tried by
implied consent when the Dutsons did not contemporaneously
object to Mr. White’s testimony that Win-Win had assigned the
Lease to the Foundation. As a result, Win-Win argues, relief was
mandatory and the district court had no discretion to deny its
motion to amend the pleadings under rule 15(b)(1).
¶20 Although an unpleaded issue “must” be treated as if
raised in the pleadings if the issue was tried by consent, the
determination of whether the issue was tried by consent “is
highly fact intensive” and the district court has a “fairly broad
measure of discretion in making that determination.” Pilot v.
Hill, 2019 UT 10, ¶ 9, 437 P.3d 362 (cleaned up). In determining
whether an unpleaded issue has been tried by implied consent,
the court must consider whether the opposing party had
“adequate notice” of the issue “and an opportunity to meet it.”
Colman v. Colman, 743 P.2d 782, 785 (Utah Ct. App. 1987); see also
Estate of Allred, 2009 UT 28, ¶ 48 (explaining that “the test for
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determining whether pleadings should be deemed amended
under Utah R. Civ. P. 15(b) is whether the opposing party had a
fair opportunity to defend and whether it could offer additional
evidence if the case were retried on a different theory” (cleaned
up). “Implied consent to try an issue may be found where one
party raises an issue material to the other party’s case or where
evidence is introduced without objection, and where it appears
that the parties understood the evidence . . . to be aimed at the
unpleaded issue.” Berg, 2012 UT App 142, ¶ 5 (cleaned up).
¶21 Here, the district court did not err in determining that the
issue had not been tried by implied consent where the Dutsons
did not have notice or opportunity to meet the assignment
defense. First, the Dutsons lacked notice. As the court noted, the
assignment theory was “not mentioned in the initial disclosures”
and was “clearly inconsistent with the initial disclosures
offered.” It did not “appear in the statement of the case” or the
“answer to the counterclaim” and Win-Win’s deposition
testimony was “fundamentally inconsistent with the theory that
an assignment was accomplished.” Further, Win-Win’s trial brief
“clearly continue[d] to assert rights under the lease,
fundamentally inconsistent with” the assignment theory.
¶22 Moreover, the Dutsons did not have a fair opportunity to
defend against this theory. This is not a case where the Dutsons
“actively defended against” the unpleaded issue “despite any
vagueness in the pleadings.” Cf. Guss v. Cheryl, Inc., 2010 UT
App 249, ¶¶ 14–18, 240 P.3d 1142 (affirming the district court’s
finding of implied consent where the opposing party “actively
participated in a trial that focused in a significant way on” an
unpleaded issue). To the contrary, the Dutsons had no notice of
the assignment theory until after they had concluded their case-
in-chief on the counterclaim. Win-Win’s position throughout the
trial was that a lease existed between itself and the Dutsons, and
it continually asserted its rights arising out of the Lease. It was
not until the final minutes of the trial, after the court had denied
Win-Win’s motion for a directed verdict, that Win-Win called
Mr. White to testify that Win-Win had assigned the Lease to the
20190332-CA 9 2021 UT App 18Win-Win v. Dutson
Foundation. Whether the Dutsons would have understood that
this unexpected testimony was “aimed at the unpleaded issue”
of assignment is a highly fact-intensive question. See Berg, 2012
UT App 142, ¶ 5. Under this set of facts, the district court
reasonably concluded that the Dutsons’ failure to
contemporaneously object did not amount to implied consent to
try the assignment defense. Therefore, the court appropriately
denied Win-Win’s motion to amend.
II. Damages
¶23 Win-Win challenges the district court’s award of damages
on the Dutsons’ counterclaim, arguing that there was insufficient
evidence to support the court’s award. 2 Specifically, it argues
that the Dutsons’ damages were speculative because Mr. Dutson
“could not testify as to when the damages were incurred” and
“admitted that he could not recall what damages existed prior to
Win-Win signing the lease.” Win-Win further argues that neither
the expert witness nor the Dutsons’ son could testify as to when
2. Win-Win also argues that the award was improper because
the Dutsons “did not provide an actual computation of damages
during fact discovery, but merely stated broad and unsupported
amounts” and did not properly supplement their disclosures.
Although the court initially capped the Dutsons’ damages at
$60,000 based on their initial disclosure, it later reversed that
ruling. In so doing, the court determined that the initial
inaccurate estimate was made in good faith based on the
information available to the Dutsons at the time and was
harmless where the Dutsons supplemented that disclosure with
Mr. Dutson’s deposition and expert testimony in time for Win-
Win to meet that evidence. See Utah R. Civ. P. 26(d)(4). Win-Win
has not challenged that ruling. Because that unchallenged ruling
permitted the Dutsons to offer evidence of damages in excess of
$60,000, we fail to see how the belated disclosure is relevant to
Win-Win’s sufficiency of the evidence claim.
20190332-CA 10 2021 UT App 18Win-Win v. Dutson
any of the damage occurred or whether such damage occurred
while Win-Win was in possession of the Property.
¶24 We must sustain the district court’s judgment “unless it is
against the clear weight of the evidence, or if we otherwise reach
a definite and firm conviction that a mistake has been made.”
Koehler v. Allen, 2020 UT App 73, ¶ 13, 466 P.3d 738 (cleaned up).
Here, the evidence supports the damages the district court
awarded. The court received hundreds of photographs
documenting damage to the Property as well as unrebutted
expert testimony calculating the cost of repairing or replacing
those damaged items. Although the expert inspected the
Property in April 2017 and could not speak to when the damage
occurred, the Dutsons offered sufficient evidence to support the
court’s conclusion that Win-Win was responsible for that
damage. Both Mr. Dutson and his son testified that the damage
to the Property occurred after Win-Win took occupancy. Mr.
Dutson, who had owned the Property since 2006, testified that
he had visited the Property “three to four times a month” prior
to Win-Win’s tenancy and was familiar with the condition of the
Property. While on the stand, Mr. Dutson viewed photographs
of the Property he had taken in 2017 and testified that the
damage seen in the photographs did not exist before March
2015, when Win-Win’s tenancy began. The Dutsons’ son also
testified that he had visited the Property both before and after
the Lease had been signed and described the condition of the
Property during his various visits. He noted that during a visit in
2014, “everything looked fairly normal” to him. But when he
visited the Property after the Lease had been signed, he noticed
damage to the Property.
¶25 The only evidence of pre-existing damage to the Property
was limited to items that Win-Win was contractually obligated
to repair. The Lease specifically noted “the current disrepair of
some of the bathrooms, laundry facilities, and a few other areas
of the home,” and provided that Win-Win “agrees to conduct
those repairs and remodeling at [its] expense without credit
from” the Dutsons. Although the Dutsons were responsible for
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structural repairs exceeding $500 or “for other major repairs
(e.g., roof, water heater, etc.),” the Dutsons did not seek damages
for repairs of that nature. The Lease also required Win-Win to
“examine the [Property] and prepare a list of those items
damaged at the commencement of the leasehold period,” but
Win-Win never did so. 3 This evidence further supports an
inference that any pre-existing damage was limited to those
items for which Win-Win expressly assumed responsibility.
¶26 The Dutsons proved by a preponderance of the evidence
that the claimed damages either occurred after Win-Win took
possession of the Property or were pre-existing items that Win-
Win agreed to repair at its own expense. Therefore, the court’s
award of damages was not against the clear weight of the
evidence.
III. Attorney Fees on Appeal
¶27 The Dutsons request an award of the attorney fees
incurred in defending this appeal based on the Lease’s attorney
fees provision. “When a party who received attorney fees below
prevails on appeal, the party is also entitled to fees reasonably
incurred on appeal.” Telegraph Tower LLC v. Century Mortg. LLC,
3. Win-Win points out that, under Utah Code section 57-22-4,
before entering into the Lease, the Dutsons were required to
provide Win-Win a written inventory of the Property’s
condition, furnish a form for Win-Win to document the
condition of the Property, and provide Win-Win with the
opportunity to conduct a walkthrough inspection of the
Property. Win-Win seems to suggest that the Dutsons’ failure to
comply with this provision might be “used to mitigate damages
claimed by a landlord against a tenant,” but does not cite any
authority for that proposition or explain how it would be
applied in this case. As a result, we do not address this point. See
Utah R. App. P. 24(a)(8) (explaining that a party “must explain,
with reasoned analysis . . . why [it] should prevail on appeal”).
20190332-CA 12 2021 UT App 18Win-Win v. Dutson
2016 UT App 102, ¶ 52, 376 P.3d 333 (cleaned up). Because the
district court awarded the Dutsons attorney fees, they are
entitled to fees as the prevailing party on appeal.
CONCLUSION
¶28 We conclude that the district court correctly ruled that
Win-Win did not plead assignment as an affirmative defense in
its answer and that it was not entitled to amend its answer after
trial because the assignment issue had not been tried by implied
consent. We also conclude that there was sufficient evidence to
support the damages the court awarded. We further award the
Dutsons the attorney fees they reasonably incurred on appeal.
Therefore, we affirm and remand to the district court to calculate
the amount of such attorney fees.
20190332-CA 13 2021 UT App 18