Bad Ass Coffee v. Royal Aloha , 2020 UT App 122 ( 2020 )

2020 UT App 122THE UTAH COURT OF APPEALS
BAD ASS COFFEE COMPANY OF HAWAII INC.,
Appellant and Cross-appellee,
v.
ROYAL ALOHA INTERNATIONAL LLC
AND FRANCOUNSEL GROUP LLC,
Appellees and Cross-appellants.
Opinion
No. 20190181-CA
Filed August 20, 2020
Third District Court, Salt Lake Department
The Honorable Barry G. Lawrence
No. 130906130
Blake T. Ostler, Attorney for Appellant
and Cross-appellee
Joshua R. Furman, Amy F. Sorenson, and Tanya N.
Lewis, Attorneys for Appellees and Cross-appellants
JUDGE JILL M. POHLMAN authored this Opinion, in which
JUDGES GREGORY K. ORME and DIANA HAGEN concurred.
POHLMAN, Judge:
¶1 Following negotiations in 2011, Bad Ass Coffee Company
of Hawaii Inc. (BACH) and FranCounsel Group LLC
(FranCounsel) entered into an operating agreement (the
Operating Agreement) to form Royal Aloha International LLC
(Royal) as well as a license agreement (the License Agreement)
for the purpose of developing BACH’s international presence.
The parties’ relationship eventually deteriorated, and litigation
ensued. After the completion of two phases of trial adjudicating
BACH’s claims related to both agreements and FranCounsel and
Royal’s counterclaims, BACH now appeals several of the district
court’s rulings regarding the validity of the agreements and the
Bad Ass Coffee v. Royal Aloha
supportability of the jury’s damages verdict in FranCounsel’s
favor. For their part, Royal and FranCounsel cross-appeal the
district court’s denial of their request for attorney fees and costs
under both agreements. We affirm.
BACKGROUND 1
¶2 In 2011, BACH was looking to develop an international
presence for its established coffee business. BACH—through its
former president and director, Harold Hill—approached
FranCounsel, an international franchise consultancy for help
with that effort. Eventually, BACH and FranCounsel—through
its owner, Bachir Mihoubi—agreed to form Royal, a new entity,
to pursue BACH’s international expansion.
¶3 Hill, on behalf of himself and BACH, and Mihoubi, on
behalf of FranCounsel, executed the Operating Agreement for
Royal. The Operating Agreement divided Royal’s membership
interests between BACH, FranCounsel, and Hill. Specifically, the
Operating Agreement provided Hill a 25% personal membership
interest, BACH a 25% interest, and FranCounsel the remaining
50% interest.
1. This case proceeded in two phases—a bench trial followed by
a jury trial. “On appeal from a bench trial, we view the evidence
in a light most favorable to the trial court’s findings, and
therefore recite the facts consistent with that standard.” Wood v.
Salt Lake City Corp., 2016 UT App 112, ¶ 1 n.2, 374 P.3d 1080(cleaned up). Similarly, “in reviewing a jury verdict, we view the
evidence in the light most favorable to it, and recite the facts
accordingly. We present conflicting evidence only to the extent
necessary to understand the issues raised on appeal.” CDC
Restoration & Constr. LC v. Tradesmen Contractors LLC, 2016 UT
App 43, n.1, 369 P.3d 452 (cleaned up).
20190181-CA 2 2020 UT App 122Bad Ass Coffee v. Royal Aloha
¶4 As relevant to the issues raised on appeal, the Operating
Agreement provided that FranCounsel’s initial capital
contribution would be “its time for the day-to-day management
and the international franchise development,” which had a “fair
market value of approximately $500,000.00.” It also included an
indemnification provision for its members.
¶5 Following Royal’s formation and the execution of the
Operating Agreement, Hill and Mihoubi, on behalf of BACH
and Royal respectively, executed the License Agreement. The
agreement provided Royal rights to use and exploit BACH’s
franchise system, in exchange for which BACH received a 25%
interest in Royal.
¶6 In 2013, BACH filed suit against FranCounsel and Royal
(collectively, Appellees), alleging that through the Operating
Agreement and the License Agreement, Appellees conspired to
defraud BACH of the value of its international franchising
rights. On this basis, BACH sought a declaration from the
district court that the Operating Agreement and the License
Agreement were void and unenforceable, estopping Appellees
from asserting the validity of both agreements. In response,
Appellees asserted several counterclaims against BACH,
including breach of contract claims arising out of the License
Agreement and the Operating Agreement.
¶7 The case was tried in two phases. The first phase was
tried to the bench, where the district court adjudicated all
BACH’s claims in Appellees’ favor. In particular, the court
rejected BACH’s arguments that Hill lacked authority to enter
into the agreements on BACH’s behalf and that Mihoubi had a
duty to further investigate Hill’s authority before entering into
the agreements. Thus, the court ruled that the Operating
Agreement and the License Agreement were valid and
enforceable.
¶8 In the second phase, and following various rulings, only
FranCounsel’s breach of contract claim regarding the Operating
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Agreement was tried to the jury. The jury was asked to
determine whether BACH had breached the Operating
Agreement and, if so, to set the amount of damages.
¶9 Regarding the amount of damages, in its initial
disclosures FranCounsel claimed $2,000,000 in damages for lost
profits, $500,000 for the reasonable value of its marketing and
promotion work, and $500,000 for its lost capital investment in
Royal. However, the only damages theory FranCounsel was
allowed to present to the jury was one based on the $500,000
in-kind capital contribution identified in the Operating
Agreement. 2
¶10 The jury found that BACH had breached the Operating
Agreement and awarded FranCounsel $100,000 in damages.
BACH then filed a motion for judgment notwithstanding the
verdict (the JNOV), arguing that the jury’s damages award was
not supported by the evidence. The district court denied the
motion, reasoning that BACH had “failed to meet its burden of
demonstrating” entitlement to relief.
¶11 Following the phase-two jury trial, Appellees filed a
motion for attorney fees. Appellees cited provisions in both the
Operating Agreement and the License Agreement, claiming that
such provisions entitled them to recover all attorney fees they
incurred in both phases of the case. 3 The court disagreed,
2. FranCounsel voluntarily withdrew its claims for damages
based on lost profits before trial. The district court also
concluded before trial that FranCounsel had failed to
demonstrate that the claim for $500,000 based on the
“Reasonable Value of marketing and promotion work” was
viable.
3. Appellees also requested bad-faith attorney fees under Utah
Code section 78B-5-825. The court denied Appellees’ request, but
Appellees do not seek review of that decision on appeal.
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concluding that the cited provisions did not provide a basis for
an attorney fees award. Accordingly, the court denied Appellees’
request for fees. 4
¶12 BACH appeals the district court’s resolution of its claims
in the first phase of this case, challenging the court’s ruling
regarding Hill’s authority to enter into the Operating
Agreement 5 and Mihoubi’s alleged duty to have investigated
such authority. BACH also appeals a range of decisions related
to the damages awarded, including the court’s denial of the
JNOV. Appellees cross-appeal the court’s denial of their request
for attorney fees.
ISSUES AND STANDARDS OF REVIEW
¶13 BACH challenges the district court’s ruling, following the
phase-one bench trial, that the Operating Agreement is valid and
enforceable. On appeal from a bench trial, “we review the court’s
legal conclusions for correction of error,” and “we will not
disturb the court’s findings of fact unless they are clearly
4. The court granted in part Appellees’ associated request under
rule 54 of the Utah Rules of Civil Procedure for certain
deposition and transcript costs but denied recoupment for copy
costs. On appeal, Appellees generally contend that they are
entitled to all their costs, but they do not specifically address the
court’s denial of their copy costs. Accordingly, we do not
address the district court’s denial of Appellees’ copy costs under
rule 54.
5. Although the court ultimately determined that Hill had
authority to enter into both the License Agreement and the
Operating Agreement on BACH’s behalf, BACH appears to
appeal the court’s conclusions only with respect to Hill’s
authority for the Operating Agreement. We therefore similarly
limit our analysis.
20190181-CA 5 2020 UT App 122Bad Ass Coffee v. Royal Aloha
erroneous.” Hale v. Big H Constr. Inc., 2012 UT App 283, ¶ 13, 288
P.3d 1046 (cleaned up); see also VT Holdings LLC v. My Investing
Place LLC, 2019 UT App 37, ¶ 17, 440 P.3d 767 (“On appeal from
a bench trial, we review the findings of fact for clear error and
give due regard to the district court’s opportunity to judge the
credibility of the witnesses.” (cleaned up)).
¶14 BACH also challenges the damages award on three
grounds. First, BACH claims that the district court erred by
allowing FranCounsel’s breach of contract claim to be tried
because FranCounsel did not comply with the damages
disclosure requirement under rule 26 of the Utah Rules of Civil
Procedure. We review a district court’s discovery decisions,
including decisions about discovery sanctions, for abuse of
discretion. Bodell Constr. Co. v. Robbins, 2009 UT 52, ¶ 16, 215 P.3d
933; see also Thurston v. Workers Comp. Fund, 2003 UT App 438,
¶ 11, 83 P.3d 391 (“Generally, the trial court is granted broad
latitude in handling discovery matters, and we will not find
abuse of discretion absent an erroneous conclusion of law or
where there is no evidentiary basis for the trial court’s rulings.”
(cleaned up)). 6
¶15 Second, BACH argues that the court erred by allowing,
through a summary judgment ruling, FranCounsel’s damages to
be based on the value of its capital contribution to Royal.
Summary judgment is appropriate “if the moving party shows
that there is no genuine dispute as to any material fact and the
moving party is entitled to judgment as a matter of law.” Utah R.
Civ. P. 56(a). We “review a district court’s legal conclusions and
ultimate grant or denial of summary judgment for correctness,
viewing the facts and all reasonable inferences drawn therefrom
in the light most favorable to the nonmoving party.” Penunuri v.
6. Although this rule 26 discovery issue was raised in the context
of a motion for summary judgment, given the nature of the
challenge, both parties agree that this issue should be reviewed
under an abuse of discretion standard.
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Sundance Partners Ltd., 2017 UT 54, ¶ 14, 423 P.3d 1150 (cleaned
up).
¶16 Finally, BACH challenges the sufficiency of the evidence
supporting the damages award, arguing that the court erred by
denying the JNOV and that there was no basis in the evidence to
support the fact of damages or the amount. “On a motion for
judgment notwithstanding the verdict, we will reverse the trial
court’s ruling only if, viewing the evidence in the light most
favorable to the prevailing party, we conclude that the evidence
is insufficient to support the verdict.” Pinney v. Carrera, 2019 UT
App 12, ¶ 33, 438 P.3d 902 (cleaned up), aff’d, 2020 UT 43.
¶17 In their cross-appeal, Appellees challenge the district
court’s denial of their request for attorney fees. “Whether
attorney fees are recoverable is a question of law, which we
review for correctness.” Fisher v. Davidhizar, 2018 UT App 153,
¶ 9, 436 P.3d 123 (cleaned up).
ANALYSIS
I. BACH’s Appeal
A. The Enforceability of the Operating Agreement
¶18 BACH asks that we reverse the district court’s conclusion
that the Operating Agreement is valid and enforceable. Citing
Mihoubi’s purported knowledge about the circumstances
surrounding the corporate opportunity Hill acquired through
the Operating Agreement—a 25% interest in Royal—BACH
claims that the court erred in concluding that Hill had the
apparent authority to bind BACH to the agreement. BACH asks
us to hold that the court erred in determining that Mihoubi had
no obligation to further investigate Hill’s authority to enter into
the Operating Agreement in light of Mihoubi’s alleged
knowledge that Hill was personally benefiting from the
transaction.
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¶19 “Under agency law, an agent cannot make its principal
responsible for the agent’s actions unless the agent is acting
pursuant to either actual or apparent authority.” Hussein v. UBS
Bank USA, 2019 UT App 100, ¶ 30, 446 P.3d 96 (cleaned up).
“Apparent authority exists where the conduct of the principal
causes a third party to reasonably believe that someone has
authority to act on the principal’s behalf, and the third party
relies on this appearance of authority and will suffer loss if an
agency relationship is not found.” Zions Gate R.V. Resort LLC v.
Oliphant, 2014 UT App 98, ¶ 11, 326 P.3d 118 (cleaned up); see
also Burdick v. Horner Townsend & Kent Inc., 2015 UT 8, ¶ 22, 345
P.3d 531 (“The authority of an agent is not ‘apparent’ merely
because it looks so to the person with whom he deals, but rather
it is the principal who must cause third parties to believe that the
agent is clothed with apparent authority.” (cleaned up)); Grazer
v. Jones, 2012 UT 58, ¶ 11, 289 P.3d 437 (“Where the principal
does something to support a third party’s reasonable belief that
the agent has the authority to act, that agent is vested with
apparent authority to bind the principal.”).
¶20 Importantly, “a belief that results solely from the
statements or other conduct of the agent, unsupported by any
manifestations traceable to the principal, does not create
apparent authority.” Burdick, 2015 UT 8, ¶ 22 (cleaned up); see
also Bergdorf v. Salmon Elec. Contractors Inc., 2019 UT App 128,
¶ 20, 447 P.3d 1265 (“[A]pparent authority cannot be premised
on the manifestations of the purported agent.”); Hussein, 2019
UT App 100, ¶ 35 (“Apparent authority can be inferred only
from the acts and conduct of the principal.” (cleaned up)). And
“knowledge of an agent’s lack of authority defeats a claim for
apparent authority.” Zions Gate R.V. Resort, 2014 UT App 98, ¶ 11
(cleaned up).
¶21 Additionally, a district court’s apparent authority
determination is entitled to significant deference. As our
supreme court has explained, such determinations are “mixed
question[s] of law and fact of an extremely fact-sensitive nature,”
and we therefore owe them “significant deference” because of
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the “vast array and mix of facts” that can create apparent
authority in the eyes of a third party. Glew v. Ohio Sav. Bank, 2007
UT 56, ¶ 19, 181 P.3d 791. This is so because apparent authority
determinations are not made in a vacuum; they do not “lend
[themselves] to consistent resolution by a uniform body of
appellate precedent,” as the “particular facts and
circumstances . . . are likely to be so complex and varying that no
rule adequately addressing the relevance of all these facts can be
spelled out.” See In re adoption of Baby B., 2012 UT 35, ¶¶ 42–43,
308 P.3d 382 (cleaned up).
¶22 Here, the district court concluded that “Mihoubi
reasonably and justifiably relied on Mr. Hill’s apparent
authority” “to enter into the Operating Agreement.” To support
this conclusion, the court determined that Mihoubi’s reasonable
reliance on Hill’s authority was supported by various indicia of
authority vis-à-vis BACH, the principal, and Mihoubi, the third
party, including: “Hill’s position as president, director,
shareholder, and the ‘face’ of BACH”; “[t]he Corporate
Resolution signed by [BACH’s current director and only other
board member] and provided by BACH to Mr. Mihoubi”; “[t]he
fact that BACH had already made a provision for Mr. Hill or [the
other board member with Hill] to receive a personal interest in
the transactions with FranCounsel,” which testimony suggested
“was not unusual for BACH”; and a “provision in the draft
agreement prepared by BACH’s attorneys” that also showed
“that an arrangement where a principal of BACH received a
personal interest in a BACH transaction is typical of how BACH
operated.”
¶23 Significantly, the court also expressly determined that
Mihoubi had no knowledge of any facts surrounding Hill’s
conflict of interest and self-dealing to draw into question Hill’s
authority to enter into the Operating Agreement on BACH’s
behalf. Rather, the court determined that the “appearance of a
conflict of interest in the transaction [did] not change Mr. Hill’s
authority,” finding that the evidence BACH offered about the
formation of the Operating Agreement did not demonstrate a
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“change in circumstances that would have impacted Mr. Hill’s
authority to negotiate for BACH.”
¶24 It further found that Mihoubi’s “conduct towards BACH
on behalf of FranCounsel and Royal was at arms’ length and
shows only a reasonable, business-like approach to the
transactions”; that Hill’s “unauthorized conduct . . . was only the
result of BACH’s lack of corporate formalities, diligence, and
oversight,” and did “not implicate Mr. Mihoubi, FranCounsel, or
Royal”; and that, given the indicia of Hill’s authority to act on
behalf of BACH, “Mihoubi was not required to do more,” such
as further investigate the “business relationship” between Hill
and BACH.
¶25 BACH does not challenge these (and other) factual
findings supporting the court’s ultimate determination that
Mihoubi reasonably relied on Hill’s apparent authority in
entering into the Operating Agreement. Indeed, while BACH
makes numerous statements to the effect that Mihoubi “knew”
about Hill’s self-dealing, it makes no attempt to demonstrate that
the court’s findings to the contrary were clearly erroneous.
Instead, BACH asks us to hold, based on its assertions that
Mihoubi “knew” about Hill’s “conflicting interest” and
self-dealing in proposing to take a 25% interest in Royal, that the
district court erred when it concluded that Mihoubi had no
obligation to further investigate Hill’s authority to enter into the
transaction on BACH’s behalf. We are not persuaded.
¶26 To begin with, the obligation determination BACH urges
us to make in this case is premised on its own characterization of
the facts surrounding Mihoubi’s knowledge of Hill’s conflicting
interest. But because BACH has not challenged the court’s
clearly contrary findings on those issues, we are unable to accept
the factual premise underlying its request. See Glew, 2007 UT 56,
¶ 18 (explaining that, where the district court “act[s] as the
fact-finder in [a] bench trial” and makes findings to support its
apparent authority conclusions, “[w]e will not disturb the court’s
findings of fact unless they are clearly erroneous”); R.B. v. L.B.,
20190181-CA 10 2020 UT App 122Bad Ass Coffee v. Royal Aloha
2014 UT App 270, ¶ 26, 339 P.3d 137 (explaining that an
appellant “bears the heavy burden of demonstrating that [a]
finding is clearly erroneous”). See generally Grimm v. DxNA LLC,
2018 UT App 115, ¶¶ 15–17, 427 P.3d 571 (rejecting the
appellant’s clear error argument where the appellant did “not
discuss the evidence supporting [the court’s] findings but
instead focuse[d] on the evidence most favorable to its
position”).
¶27 Moreover, BACH has not otherwise persuaded us that
reversal is appropriate under the significantly deferential
standard of review we are obliged to apply to the district court’s
apparent authority determination. See Glew, 2007 UT 56, ¶ 19.
BACH has not shown—given the particular variety of facts and
circumstances found by the court that BACH authorized Hill to
enter into the Operating Agreement on its behalf and that
Mihoubi had no knowledge of facts drawing Hill’s authority into
question—that the court erred when it applied those (and other
salient) facts and circumstances to conclude that Hill had
apparent authority and that Mihoubi had no obligation to
further investigate Hill’s authority in the manner BACH urges. 7
While BACH cites authority for the general proposition that an
agent cannot bind a principal in circumstances where the third
party knows the agent lacks authority, BACH cites no authority
with circumstances comparable to the unique circumstances
here. And BACH does not otherwise provide a cognizable legal
basis from which we could make the determination it seeks
about Mihoubi’s obligation to further investigate Hill’s
authority.
7. For example, BACH suggests that we hold Mihoubi was
required to investigate whether BACH’s board had voted to
approve Hill’s interest in the Operating Agreement. But in doing
so, BACH overlooks the fact-intensive nature of this inquiry and
the combination of facts on which the district court relied to
conclude that Mihoubi’s reliance was reasonable under all the
circumstances. See supra ¶¶ 21–25.
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¶28 For these reasons, BACH has not demonstrated that the
district court erred in concluding that Hill had apparent
authority to enter into the Operating Agreement on BACH’s
behalf. 8
B. The Damages Decisions
¶29 BACH raises several challenges to various aspects of the
district court’s damages decisions. As set out above, during
phase two of the case, the jury heard FranCounsel’s claim for
breach of the Operating Agreement. The jury found that BACH
had breached the agreement and awarded $100,000 in damages.
BACH then filed the JNOV, arguing that the evidence was
insufficient to support the damages award, which the court
denied.
¶30 On appeal, BACH raises three challenges to the verdict
and the district court’s resolution of the damages issue. First,
BACH claims that the court erred by allowing FranCounsel’s
breach of contract claim to be tried because FranCounsel did not
comply with the requirement under rule 26 of the Utah Rules of
Civil Procedure to disclose a calculation of its damages in its
initial disclosures or supplemental discovery. Second, BACH
argues that the court erred by allowing FranCounsel’s damages
to be based on the value of its capital contribution to Royal
8. BACH also challenges the district court’s alternative
conclusion that Hill had actual authority to enter into the
Operating Agreement on behalf of BACH. However, as with the
court’s apparent authority conclusion, BACH has not persuaded
us that the court’s actual authority conclusion was wrong. In any
event, we have affirmed the court’s apparent authority
determination, and affirmance on that issue is sufficient to
uphold the enforceability of the Operating Agreement. See Grazer
v. Jones, 2012 UT 58, ¶¶ 9–13, 289 P.3d 437 (explaining that an
agent may bind a principal to a transaction through either actual
or apparent authority).
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because under applicable law, BACH, as a member of Royal, is
not liable to reimburse FranCounsel, another member of Royal,
for its capital contribution. Finally, BACH challenges the
sufficiency of the evidence supporting the damages award,
arguing that the court erred by denying the JNOV and that there
was no basis in the evidence to support the fact of damages or
the amount. We address each issue below, ultimately affirming
the district court’s damages decisions and the verdict. 9
1. Disclosure of Damages Under Rule 26
¶31 BACH first argues that the district court erred in allowing
FranCounsel’s breach of the Operating Agreement claim to be
tried because FranCounsel failed to adequately disclose its
damages under rule 26 of the Utah Rules of Civil Procedure.
BACH contends that the damages FranCounsel identified in its
initial disclosures were “incomplete” where it “merely
9. BACH also challenges the district court’s decision to instruct
the jury that FranCounsel “may recover the value of the services
it provided” in reliance on the promises encapsulated in the
Operating Agreement, arguing that the instruction was
improper because the court excluded evidence of the actual
value of services offered by FranCounsel. We review a court’s
jury instruction decision for correctness, and we will “affirm
when the instructions taken as a whole fairly instruct the jury on
the law applicable to the case.” Paulos v. Covenant Transport Inc.,
2004 UT App 35, ¶ 10, 86 P.3d 752 (cleaned up). Here, we discern
no error in the court’s decision to so instruct the jury. During
trial, FranCounsel argued that it had fully performed under the
Operating Agreement by providing services toward achieving
international franchising and that due to BACH’s breach of the
Operating Agreement, it was entitled to the value of its own
performance—which the parties contractually agreed had a
value of $500,000. The court therefore did not err in instructing
the jury that FranCounsel could recover the value of services it
provided in reliance on the Operating Agreement.
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provid[ed] a round figure of $500,000 . . . , without a
computation as to how it arrived at this value,” as representative
of the in-kind contribution of its services. In this respect, BACH
asserts that FranCounsel did not disclose “how that value was
calculated, derived or that it related [to] any work actually
performed.”
¶32 Rule 26 of the Utah Rules of Civil Procedure, which
governs disclosures during discovery, requires a party, “without
waiting for a discovery request,” to serve certain initial
disclosures on the other parties. Utah R. Civ. P. 26(a)(1). A
“computation of any damages claimed and a copy of all
discoverable documents or evidentiary material on which such
computation is based, including materials about the nature and
extent of injuries suffered,” is one of the required disclosures. Id.R. 26(a)(1)(C). In this respect, this court has explained that “even
if a plaintiff cannot complete its computation of damages before
future events take place, the fact of damages and the method for
calculating the amount of damages must be apparent in initial
disclosures.” Williams v. Anderson, 2017 UT App 91, ¶ 18, 400
P.3d 1071 (cleaned up).
¶33 In its counterclaims, FranCounsel alleged that BACH had
breached the Operating Agreement and that, as a result of
BACH’s breach, FranCounsel had lost the value of its capital
contribution. In its initial disclosures, FranCounsel identified, as
an element of its damages, “Lost capital investment in Royal:
$500,000.” BACH moved for summary judgment on
FranCounsel’s counterclaims, arguing that it had failed to,
among other things, provide “any calculation of damages.”
FranCounsel opposed the motion, arguing that the parties
contractually agreed to the value of its in-kind contribution at
$500,000, that FranCounsel claimed this amount in its initial
disclosures, and that the Operating Agreement had “been
produced in discovery and authenticated in depositions.”
FranCounsel pointed out that “BACH and FranCounsel freely
contracted for [the $500,000 figure] based on their own
negotiations and experience” and that “[s]ince the value of
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FranCounsel’s services is stipulated to be $500,000, the contract
itself is adequate evidence of damages.” Accordingly,
FranCounsel contended that it was “not required to establish
some kind of formal calculation for the stipulated value of its
services in the Operating Agreement because BACH . . . already
agreed to that amount.”
¶34 The court denied BACH’s motion on the issue of whether
FranCounsel adequately disclosed its damages, concluding that
BACH had not demonstrated that it was entitled to judgment as
a matter of law. Noting that FranCounsel “never supplemented”
its initial disclosure on the computation of damages or
“designated any expert to support” its theories of damages,
following additional briefing, the court determined that
FranCounsel’s only “possible remedy is that stated within the
four corners of the Operating Agreement—i.e., return of its
expressly stated $500,000 capital contribution.” Because the
parties contractually agreed to $500,000 as the value of
FranCounsel’s in-kind contribution, the court concluded that
FranCounsel was not required to make further disclosures to
support a damages theory based on that value.
¶35 On appeal, BACH relies heavily on this court’s decision in
Sleepy Holdings LLC v. Mountain West Title, 2016 UT App 62, 370
P.3d 963, to support its argument of error. In that case, we
affirmed the district court’s conclusion that Sleepy Holdings’
initial damages disclosures were inadequate under rule 26. 10 Id.¶¶ 16–18. Among other things, although Sleepy Holdings
described a lost sale in its complaint, it did not “identify the
failed sale as damages” or further “offer a computation or
method of calculating the damages,” as required by rule 26. Id.
¶ 17. It also “did not supplement its disclosures within the
discovery period.” Id. ¶ 18. BACH argues that like the appellant
10. Sleepy Holdings applies an earlier version of the discovery
rules, but the applicable disclosure requirement has not
changed.
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in Sleepy Holdings, FranCounsel failed to comply with rule 26
when it merely disclosed the “perfectly round number of
$500,000” as damages and did not supplement that disclosure.
¶36 However, our decision in Sleepy Holdings is factually
distinguishable from the present case. While FranCounsel did
not supplement its initial disclosures, unlike the appellant in
Sleepy Holdings, FranCounsel identified the lost capital
contribution consisting of in-kind services as damages in its
counterclaim and in its initial disclosures, and it provided the
Operating Agreement itself as a basis for damages early in the
litigation.
¶37 Moreover, the $500,000 damages figure required no
computation. FranCounsel’s theory was that the figure
represented the entire value of its in-kind contribution to the
parties’ venture as agreed to by the parties in the Operating
Agreement. Cf. Williams, 2017 UT App 91, ¶¶ 17–22 (concluding
that a damages disclosure, where the claim to damages was to be
based on a “fixed percentage” of the price paid for the business
at issue, was sufficient under rule 26’s computation of damages
requirement (cleaned up)). Because FranCounsel purported to
seek that full amount as damages for breach of the Operating
Agreement, no further disclosure was needed. Accordingly, the
district court did not abuse its discretion by concluding that
FranCounsel’s damages disclosures were sufficient under rule
26’s damages disclosure requirement.
2. Return of FranCounsel’s Capital Contribution
¶38 BACH next contends that the district court erred in
rejecting its argument that, as a matter of law, BACH could not
be liable to FranCounsel for the value of its capital contribution
under the breach of contract theory FranCounsel advanced.
Characterizing FranCounsel’s damages theory as a request for a
return or reimbursement of its capital contribution to Royal,
BACH asserts that, as a member of Royal, it cannot be liable to
FranCounsel for the reimbursement of FranCounsel’s in-kind
20190181-CA 16 2020 UT App 122Bad Ass Coffee v. Royal Aloha
contribution to Royal. Rather, BACH contends that FranCounsel
could seek return or reimbursement of its capital contribution
only from Royal itself, not from a member of Royal.
¶39 In the district court’s partial denial of BACH’s summary
judgment motion on FranCounsel’s’ counterclaims, the court
ruled that FranCounsel’s “claim relating to the value of its
in-kind contribution . . . survives [the] Motion, but only to the
extent [FranCounsel] may rely upon the contractually
agreed-upon figure of $500,000 as its damages,” noting that
“[t]he issue will need to be fully briefed before that claim may
proceed to trial.” Accordingly, the court ordered the parties to
“separately brief” before trial “the proper measure of damages
on [FranCounsel’s] claims and whether it may rely on [the
Operating Agreement’s contribution] provision or was required
to make a more detailed showing.”
¶40 Following that briefing, the court ruled that FranCounsel
could measure its damages according to “the value of its stated
capital contribution” as provided in the Operating Agreement.
As to whether FranCounsel was legally barred from recovering
the capital contribution, the court found BACH’s argument that
“one member of a limited liability company was not required to
reimburse another for a debt obligation or other liability of the
LLC” unavailing. (Cleaned up.) Noting that BACH appeared to
be arguing that one member of an LLC cannot be personally
liable to reimburse another member’s capital contribution and
that the Operating Agreement precluded such reimbursement,
the court concluded that FranCounsel was “not seeking
reimbursement of the capital contribution, per se.” Rather, the
court explained that FranCounsel sought “its damages
associated with BACH’s alleged breach,” which the court
concluded could be based on and measured by the agreed-upon
value of its performance as stated in the Operating Agreement.
¶41 BACH has not persuaded us that the court’s ruling in
allowing FranCounsel to proceed to trial on a damages theory
based on the value of its capital contribution to Royal was in
20190181-CA 17 2020 UT App 122Bad Ass Coffee v. Royal Aloha
error. The court determined that FranCounsel was not seeking
reimbursement of its capital contribution from BACH, but rather
damages based on the services it provided in reliance on the
Operating Agreement, as measured by the contribution value
stated in the agreement itself. BACH does not acknowledge or
address this determination, and it does not explain how the
court’s decision to allow the damages theory to go forward was
wrong, given this determination. Instead, BACH argues this
issue on appeal as though FranCounsel was indeed seeking
reimbursement or return of its capital contribution from BACH
as opposed to merely relying on the agreed value of
FranCounsel’s performance as set forth in the Operating
Agreement to measure the damages flowing from BACH’s
breach.
¶42 Furthermore, our review of the record suggests that, as
the district court determined, FranCounsel was not seeking
reimbursement of its capital contribution from BACH. Rather,
FranCounsel sought the value of the work it performed in
developing BACH’s product, and it relied on the contribution
provision in the Operating Agreement as evidence of that value.
¶43 For example, in its trial brief regarding damages,
FranCounsel explained that it sought the value of its capital
contribution to Royal as damages for BACH’s breach, which it
claimed represented the value of services it provided in the
venture. Likewise, at trial, FranCounsel argued to the jury that it
was seeking to recover from BACH the value of its work and
services, performed in reliance on the Operating Agreement, to
develop BACH’s brand internationally—an amount it argued
the parties themselves valued in the Operating Agreement as
$500,000.
¶44 In this respect, the authority on which BACH relies to
argue for error on this ground is not persuasive. BACH cites case
law, statutes, and various Operating Agreement provisions to
argue that BACH cannot be liable to FranCounsel for the return
of its capital contribution. But such authority does not address
20190181-CA 18 2020 UT App 122Bad Ass Coffee v. Royal Aloha
the actual issue decided by the district court—whether
FranCounsel could rely on the agreed-upon value of its services,
as provided in the Operating Agreement, to measure and prove
the damages it suffered due to BACH’s breach of the Operating
Agreement. Accordingly, we are not persuaded that reversal on
this issue is appropriate.
3. The Sufficiency of the Evidence Supporting the Award
¶45 BACH also claims that the damages verdict cannot be
sustained on the evidence. Contending that there was no basis in
the evidence supporting the fact or amount of the $100,000 in
damages awarded to FranCounsel for reliance on the Operating
Agreement, BACH asserts that the court erred by failing to grant
the JNOV. 11
¶46 Following the jury trial, BACH filed the JNOV, arguing,
as it does on appeal, that the damages award was the product of
speculation and that there was insufficient evidence supporting
the fact or the amount of the $100,000 award. The district court
denied the motion because it concluded that BACH had “failed
to meet its burden of demonstrating that insufficient evidence
supported the verdict.” Specifically, the court noted that the
judgment notwithstanding the verdict standard required BACH
11. As it did in the JNOV, BACH makes a number of arguments
regarding the damages verdict and the lack of evidence
supporting it. For example, BACH argues on appeal that there
was no rational basis in the evidence to support the award, no
evidence of the fact of damages, and no evidence of the amount
of damages. However, having included these arguments in the
JNOV, the operative ruling on appeal addressing these
arguments and the sufficiency of the evidence supporting the
jury’s damages award is the court’s denial of the JNOV.
Accordingly, we address and resolve all BACH’s sufficiency
arguments through our analysis of the district court’s JNOV
ruling.
20190181-CA 19 2020 UT App 122Bad Ass Coffee v. Royal Aloha
to show that there was “no competent evidence” to support the
verdict, taking into account “all reasonable inferences in a light
most favorable to the nonmoving party.” (Cleaned up.) The
court then stated that BACH failed to meet this burden—that it
failed to cite the record presented to the jury, to acknowledge the
evidence potentially supporting the jury’s verdict, or to explain
how, despite the evidence presented, the jury could not have
reached the verdict it did.
¶47 A district court “may grant a JNOV motion only if there is
no basis in the evidence, including reasonable inferences which
could be drawn therefrom, to support the jury’s determination.”
ASC Utah Inc. v. Wolf Mountain Resorts LC, 2013 UT 24, ¶ 18, 309
P.3d 201 (cleaned up); DeBry v. Cascade Enters., 879 P.2d 1353,
1359 (Utah 1994) (“A directed verdict and a judgment n.o.v. are
justified only if, after looking at the evidence and all reasonable
inferences in a light most favorable to the nonmoving party, the
trial court concludes that there is no competent evidence which
would support a verdict in his favor. A motion should be denied
if reasonable persons could reach differing conclusions on the
issue in controversy.” (cleaned up)). Our review on appeal is
similar: “On a motion for judgment notwithstanding the verdict,
we will reverse the trial court’s ruling only if, viewing the
evidence in the light most favorable to the prevailing party, we
conclude that the evidence is insufficient to support the verdict.”
Pinney v. Carrera, 2019 UT App 12, ¶ 33, 438 P.3d 902 (cleaned
up), aff’d, 2020 UT 43.
¶48 Here, BACH does not acknowledge the district court’s
reasoning in the JNOV denial, nor does it attempt to explain why
the court was wrong in ruling that BACH failed to carry its
burden to show it was entitled to have the verdict set aside.
BACH cannot persuade us that reversal is appropriate without
acknowledging the district court’s decision and dealing with its
reasoning. See, e.g., Living Rivers v. Executive Dir. of the Utah Dep’t
of Envtl. Quality, 2017 UT 64, ¶¶ 41–43, 50–51, 417 P.3d 57(discussing that an appellant’s burden requires “timely”
explaining to the appellate court why the lower tribunal was
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wrong, and declining to reach the “important questions”
implicated in the case because of the appellant’s failure to do so);
Federated Cap. Corp. v. Shaw, 2018 UT App 120, ¶ 20, 428 P.3d 12(explaining that an appellant who “does not meaningfully
engage with the district court’s reasoning” necessarily “falls
short of demonstrating any error on the part of the district
court”); Duchesne Land LC v. Division of Consumer Prot., 2011 UT
App 153, ¶ 8, 257 P.3d 441 (“Because [the appellants] have not
addressed the actual basis for the district court’s ruling, they
have failed to persuade us that the district court’s ruling
constituted error . . . .”); Golden Meadows Props. LC v. Strand, 2010
UT App 257, ¶ 17, 241 P.3d 375 (explaining that when a party
“fails to attack the district court’s reasons” for a decision, the
party “cannot demonstrate that the district court erred” with
respect to that decision). Stated another way, to persuade us that
reversal of the JNOV denial is appropriate, BACH must at least
persuade us that the court was wrong in its assessment of
BACH’s briefing failures for the original motion. BACH has not
done so. Accordingly, we cannot set aside the jury’s verdict on
this basis.
II. The Cross-Appeal
¶49 In their cross-appeal, Appellees argue that the
district court erred by denying their request for approximately
$230,000 in attorney fees. “In Utah, attorney fees are
awardable only if authorized by statute or by contract.” Federated
Cap. Corp. v. Haner, 2015 UT App 132, ¶ 11, 351 P.3d 816 (cleaned
up).
¶50 Appellees moved for an award of attorney fees, arguing
to the district court that both the Operating Agreement and the
License Agreement contained provisions entitling them to their
requested fees. More specifically, Appellees pointed to an
indemnification provision in each agreement that they claimed
required an award of attorney fees. The Operating Agreement
contained a provision entitled “Indemnification by Member,”
which provides,
20190181-CA 21 2020 UT App 122Bad Ass Coffee v. Royal Aloha
Any Member who is in violation of this Operating
Agreement agrees to indemnify and hold the
Company and the Other Members harmless from
all costs and expenses, including reasonable
attorneys’ fees . . . and court costs, incurred by the
Company and/or Other Members as a result of the
violation of this Operating Agreement. The
Company shall fund the indemnification
obligations provided herein in such a manner and
to such extent as the Members may from time to
time deem proper.
Appellees argued that they were entitled to fees under this
provision because BACH was a member of Royal as defined by
this provision and a jury in phase two of the case had found in
their favor, determining that BACH had violated the Operating
Agreement.
¶51 Similarly, Appellees pointed to the Indemnification
provision in the License Agreement as the contractual basis for
an award of attorney fees. It provides,
Licensor . . . agrees to indemnify and hold harmless
the Licensee and its members, directors, officers,
employees, affiliates, agents and assigns from and
against any and all claims, suits, damages, attorney
fees, cost, expenses and losses of Licensee directly
or indirectly, as a result of, or based upon or
arising from any inaccuracy in or breach or
nonperformance of any of the representations,
warranties, covenants or agreements made by
Licensor in or pursuant to this Agreement
(whether or not of a material nature) and/or
damages or liability resulting from or arising out of
a claim that Licensee’s use of the Licensed Mark
infringes the trademark rights of any third party.
However, Licensor shall not be liable to indemnify
20190181-CA 22 2020 UT App 122Bad Ass Coffee v. Royal Aloha
the Licensee if the claims, suits, damages, attorney
fees, cost, expenses and losses are caused by
Licensee’s gross negligence or willful misconduct
or by Licensee’s material breach of this Agreement.
Appellees argued that they were entitled to attorney fees under
this provision because a “central issue” in BACH’s complaint
was Hill’s lack of authority to execute the License Agreement,
which was resolved in Appellees’ favor during phase one of the
case, pointing to another provision in the agreement
representing and warranting that Hill had authorization to
execute and enter into the agreement on BACH’s behalf. 12 On
this basis, Appellees contended that BACH’s complaint was
“based upon” or arose from a representation and warranty in the
License Agreement, thus triggering the indemnification clause’s
provision for attorney fees.
¶52 The district court denied Appellees’ request for attorney
fees, concluding that neither agreement had fees provisions
entitling Appellees to their requested fees. Noting that
contractual fees are available “only in strict accordance with the
terms of the contract,” the court determined that there was
“nothing in either the Operating Agreement or the License
Agreement that indicates a meeting of the minds whereby
12. The authorization provision Appellees cited provides,
Harold J. Hill as President/CEO, has full corporate,
power and authority and has taken all corporate
actions and has obtained all necessary approvals or
authorizations from any other third party and
government authority to represent BACH and to
execute and perform this Agreement, which will
not constitute or result in a violation of any
enforceable and effective laws or former
agreements.
20190181-CA 23 2020 UT App 122Bad Ass Coffee v. Royal Aloha
BACH agreed to pay the fees and costs in the event of a dispute
with [Royal] or FranCounsel.” (Cleaned up.)
¶53 Regarding the Operating Agreement, the court focused on
the second sentence of the indemnification provision, which
provides that Royal would fund the indemnification obligations,
concluding that the plain language demonstrated that only
Royal would be liable for fees, not a member such as a BACH.
For the License Agreement, the court first determined that the
plain language of the provision “does not clearly reflect an
agreement for fees between the parties.” The court next focused
on the language stating that indemnification applied to “any
inaccuracy in or breach or nonperformance of” the License
Agreement, determining that “that issue has never been
determined by this Court, and was never presented to the jury.”
The court noted that during the phase-one bench trial, the court
merely held that the License Agreement was enforceable but did
not determine whether a breach of that agreement occurred. And
in the second phase, the jury determined only that the Operating
Agreement had been violated, not that the License Agreement
had. The court further determined that, to the extent the two
provisions at issue were indemnification provisions, Appellees
“never ever asserted an indemnification claim” and were
thereby barred from asserting one post-trial.
¶54 In their opening brief, Appellees summarily contend,
without reference to the record or to relevant authority, that the
district court erred in its interpretation of the indemnification
provisions. And to support their contention, Appellees, by their
own admission, duplicate for us the briefing from their motion
before the district court. Appellees do not attempt to address the
district court’s decision and reasoning until their reply brief.
Even then, much of Appellees’ argument focuses on disproving
BACH’s arguments in opposition, not the court’s reasoning and
decision.
¶55 We therefore cannot grant Appellees the relief they seek.
The district court denied Appellees’ motion in a well-reasoned,
20190181-CA 24 2020 UT App 122Bad Ass Coffee v. Royal Aloha
written ruling. Appellees, by their own admission, did not
address the district court’s reasoning and explain why it was
wrong in their opening brief. Rather, in their opening brief,
Appellees essentially argued the merits of their request for
attorney fees as though the district court had not considered the
issue. But appeals are not do-overs. They are opportunities to
correct error. See State v. Thornton, 2017 UT 9, ¶ 49, 391 P.3d 1016(“American courts have long followed the writ of error approach
to appellate review. Under this framework, the appellate court
does not review the trial record in a search for an idealized
paradigm of justice. We ask only whether the trial court
committed a reversible error in resolving a question presented
for its determination.” (cleaned up)). And Appellees cannot
persuade us that the district court erred without addressing the
district court’s decision on its own terms. See, e.g., Living Rivers v.
Executive Dir. of the Utah Dep’t of Envtl. Quality, 2017 UT 64,
¶¶ 41–43, 50–51, 417 P.3d 57; Federated Cap. Corp. v. Shaw, 2018
UT App 120, ¶ 20, 428 P.3d 12 (explaining that an appellant who
“does not meaningfully engage with the district court’s
reasoning” necessarily “falls short of demonstrating any error on
the part of the district court”). 13
13. And this failure is not saved by Appellees’ belated attempt to
grapple with the district court’s reasoning in their reply brief,
especially because the timing of the attempt rendered BACH
unable to respond to these new arguments. See Allen v. Friel, 2008
UT 56, ¶ 8, 194 P.3d 903 (stating that issues not raised in the
opening brief are considered waived, and explaining that a reply
brief is limited to addressing matters raised in the opposing brief
due to “considerations of fairness,” because “[i]f new issues
could be raised in a reply brief, the appellee would have no
opportunity to respond to those arguments”); Martin v.
Kristensen, 2019 UT App 127, ¶ 61, 450 P.3d 66 (explaining that
the “failure to engage with the court’s reasoning until the reply
brief is fatal”), cert. granted, 456 P.3d 386 (Utah 2019); Bahnmaier
v. Northern Utah Healthcare Corp., 2017 UT App 105, ¶ 11 n.2, 402
(continued…)
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CONCLUSION
¶56 Regarding BACH’s appeal, we affirm the district court’s
conclusion that the Operating Agreement was valid and
enforceable. We likewise affirm the various challenged
determinations regarding damages. As to Appellees’
cross-appeal, we affirm the district court’s decision not to award
attorney fees.
(…continued)
P.3d 796 (stating that because the appellant “made no attempt to
challenge the district court’s reasoning for rejecting” one of her
claims “in her opening brief [on appeal], . . . we do not address
the court’s ruling in that regard”).
20190181-CA 26 2020 UT App 122