Donner v. Nicklaus

FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS February 19, 2015
Elisabeth A. Shumaker
TENTH CIRCUIT Clerk of Court
E. JEFFREY DONNER; JUDEE M.
DONNER,
Plaintiffs - Appellants,
v. No. 13-4057
JACK NICKLAUS; JACK
NICKLAUS GOLF CLUB, LLC,
Defendants - Appellees.
Appeal from the United States District Court
for the District of Utah
(D.C. No. 2:11-CV-00489-CW)
Justin T. Toth, Ray Quinney & Nebeker P.C., Salt Lake City, Utah
(Greggory J. Savage, Ray Quinney & Nebeker P.C., Salt Lake City, Utah,
with him on the brief) for Plaintiffs-Appellants E. Jeffrey Donner and
Judee M. Donner.
Alan Bradshaw, Manning Curtis Bradshaw & Bednar LLC, Salt Lake City,
Utah (Brent V. Manning and Aaron C. Garrett, Manning Curtis Bradshaw &
Bednar LLC, Salt Lake City, Utah, and Patrick A. Shea, Patrick A. Shea,
P.C., Salt Lake City, Utah, and Jacque M. Ramos, J. Ramos Law Firm
P.L.L.C., Salt Lake City, Utah, with him on the brief) for Defendants-
Appellees Jack Nicklaus, and Jack Nicklaus Golf Club, LLC.
Before BRISCOE, Chief Judge, KELLY, and BACHARACH, Circuit
Judges.
BACHARACH, Circuit Judge.
This appeal grew out of a plan to build a luxurious golf course and
development. The golf course would be designed by legendary golfer Jack
Nicklaus, who would have a house in the development and serve as a
member. Mr. Nicklaus joined the developer to solicit investors, lending his
name in exchange for millions of dollars.
Mr. Nicklaus’s participation allegedly led a married couple (Jeffrey
and Judee Donner) to invest $1.5 million in the development. But, plans
went awry: The developer’s parent company went bankrupt, and the
developer was not able to build the golf course or development. The
Donners settled with the developer’s parent company in its bankruptcy
proceedings and sued Jack Nicklaus and Jack Nicklaus Golf Club, LLC for
intentional misrepresentation, negligent misrepresentation, and violation of
the Interstate Land Sales Full Disclosure Act, 15 U.S.C. §§ 1701-20
(2006). The district court dismissed the action, holding in the alternative:
1. The complaint failed to state a valid claim for relief.
2. The defendants were entitled to summary judgment because the
Donners elected their remedies by entering into a settlement
agreement with other parties.
On appeal, we must decide five issues:
1. Timeliness of Claims. The defendants argue that the tort
claims are untimely under state law. But, the defendants
waived this argument in district court by waiting to raise the
argument in their reply brief. Because the defendants have
waived the timeliness argument, we will not consider it.
2
2. Interstate Land Sales Full Disclosure Act. The district court
dismissed the claims under the Interstate Land Sales Full
Disclosure Act because the Donners’ purchase of a charter
membership did not concern a “lot.” We agree, concluding that
the alleged misrepresentations did not involve a specific,
identifiable tract. In the absence of a “lot” (as this term is used
in the statute), we affirm the dismissal of the statutory claims.
3. Claims Involving Intentional Misrepresentation. The district
court concluded that the Donners have not adequately alleged
claims involving intentional misrepresentation. We conclude
that the Donners have adequately alleged misrepresentation of
Mr. Nicklaus’s membership status; thus, we reverse the
dismissal of this claim. But, the Donners have not adequately
alleged the remaining claims of intentional misrepresentation.
Those claims were properly dismissed.
4. Claims Involving Negligent Misrepresentation (Economic
Loss Doctrine). The defendants argue that the negligent
misrepresentation claims are barred by the economic loss
doctrine. We agree. The charter membership agreement covers
the subject matter of the dispute, and the Donners have not
alleged the factual basis for a duty outside of that agreement.
As a result, we uphold dismissal of the negligent
misrepresentation claims.
5. Election of Remedies. In an alternative ruling, the district
court granted summary judgment to the defendants on the
ground that the Donners had elected their remedies through
their settlement agreement with the developer’s parent
company. We disagree with the district court because the
settlement agreement did not include the defendants and the
Donners neither affirmed nor repudiated a contract. Thus, we
reverse the summary judgment ruling.
I. The Donners’ Investment
To address these issues, we must understand what the Donners
allegedly read and relied on when they paid $1.5 million.
3
A. The Mount Holly Club
In 2002, a group formed, calling itself “Mount Holly Club L.L.C.,”
and set out to develop an exclusive private ski and golf resort in Utah. The
club’s showcase would be a golf course designed by legendary golfer Jack
Nicklaus.
B. Jack Nicklaus’s Anticipated Role in the Development
Beginning in 2006, the developer worked with Mr. Nicklaus to
develop the golf course and market the club.
As part of this effort, the developer entered into a contract with Mr.
Nicklaus’s golf-course design company: The design company agreed to
build the golf course, and the developer obtained the right to use the
Nicklaus brand 1 and promote Mr. Nicklaus’s involvement. With this right,
the developer issued Mr. Nicklaus an “honorary Founder Membership” in
the club.
Shortly thereafter, the developer expanded its relationship with Mr.
Nicklaus by entering into a licensing agreement with another company of
his, Nicklaus Golf. The licensing agreement allowed the developer to use
the Nicklaus brand to advertise and promote membership in the golf club
and the development.
1
The Nicklaus brand includes certain trademark rights in the name and
phrase “Jack Nicklaus Golf Club™” and its Golden Bear™ logo. Aplt.
App. at 69.
4
C. Marketing Materials
Following execution of the agreements, the developer joined Mr.
Nicklaus and Nicklaus Golf to market the new venture. These marketing
efforts included a press release and a brochure.
1. The Press Release
The press release was issued by the developer and Nicklaus
Golf. This document highlighted Mr. Nicklaus’s involvement and
included a quotation by Mr. Nicklaus, reflecting his enthusiastic
decision to become a “founding charter member”: “When I walked
Mt. Holly Club, I was so captured by its potential [that] I thought
through all 18 holes. In fact, I have been so impressed with the club
and its management team that I became a founding charter member.”
Aplt. App. at 88 (emphasis added).
2. The Brochure
After issuing the press release, the developer and the defendants
created a full-color marketing brochure entitled: “Mt. Holly Club and Jack
Nicklaus Invite You to Become a Charter Member.” Id. at 105-07.
Immediately below this invitation was a quotation from Mr. Nicklaus:
Mt. Holly Club enjoys the ideal alpine setting. I knew from my
first visit there that we had been given a canvas on which to
design a truly spectacular golf course. I am so impressed with
the Mt. Holly Club and its management team that I became a
founding charter member. I look forward to seeing you there.
5
Id. at 107 (emphasis added). Immediately following that statement, the
brochure stated that “Charter Memberships can be acquired for [a] $1.5
million entry fee.” Id. (emphasis in original omitted).
D. The Charter Membership Agreement
The Donners allegedly saw the press release and brochure and
decided to buy a charter membership. For this charter membership, the
Donners paid $1.5 million and signed a charter membership agreement.
Under this agreement, the developer issued the Donners an estate lot
certificate. The certificate could eventually be redeemed for an estate lot
when it became available.
E. The Filing of Bankruptcy and the Settlement Agreement
The developer’s parent company filed bankruptcy. With the filing of
bankruptcy, the Donners settled with the parent company, obtaining a lot
near the ski area and the right to trade that property for a lot in the
development once it is platted. And, if the golf club and ski area are
eventually developed, the Donners would be entitled to memberships.
F. The Donners’ Lawsuit
The Donners sued Mr. Nicklaus and Nicklaus Golf for intentional
misrepresentation, negligent misrepresentation, and violation of the
Interstate Land Sales Full Disclosure Act.
6
The central claim is that Mr. Nicklaus induced purchase of a charter
membership through material misrepresentations and omissions in the
marketing materials.
The district court concluded that
● the Donners had failed to state plausible tort claims,
● the Donners were not entitled to relief under the Interstate
Land Sales Full Disclosure Act, and
● the Donners could not recover damages because they had
already elected other remedies through settlement.
With these conclusions, the court alternatively dismissed the action under
Fed. R. Civ. P. 12(b)(6) and granted summary judgment to the defendants
under Fed. R. Civ. P. 56. This appeal followed.
II. Consideration of the Motion to Dismiss
We uphold the dismissal except on the claim involving intentional
misrepresentation of Mr. Nicklaus’s membership status.
A. Standard of Review
To survive a motion to dismiss, a complaint must contain enough
factual matter to state a plausible claim. Slater v. A.G. Edwards & Sons,
Inc., 719 F.3d 1190, 1196 (10th Cir. 2013). We engage in de novo review
of the dismissal. Sutton v. Utah State Sch. for Deaf and Blind, 173 F.3d
1226, 1236 (10th Cir. 1999).
7
B. Timeliness
The defendants argue that the tort claims are untimely under Utah
Code Ann. § 78B-2-305(3) (2011), which provides that “[a]n action may be
brought within three years . . . for relief on the ground of fraud or
mistake.” This argument has been waived.
In district court, the defendants raised the timeliness argument for
the first time in a reply brief. That was too late because the District of
Utah does not allow parties to assert new arguments in a reply brief. See
Rios-Madrigal v. United States, Nos. 2:08-cv-257 CW, 2:05-cr-691, 2010
WL 918087, at *3 (D. Utah Mar. 9, 2010) (“Because this argument was
raised for the first time in Rios’ reply brief, the argument is waived.”); see
also DUCiv R 7-1 (stating that reply memoranda “must be limited to
rebuttal of matters raised in the memorandum opposing the motion”). In
light of the waiver, we will not consider the defendants’ argument on
timeliness.
C. Claims Under the Interstate Land Sales Full Disclosure Act
The Donners also argue that the district court erroneously dismissed
their claims under the Interstate Land Sales Full Disclosure Act, 15 U.S.C.
§ 1701 et seq. (2006). According to the Donners, they bought a lot based
on Mr. Nicklaus’s fraudulent representations. We reject this argument: The
statute addresses misrepresentations concerning the sale of a “lot,” and Mr.
8
Nicklaus’s alleged misrepresentations did not involve a “lot.” 15 U.S.C.
§ 1703(a)(2) (2006).
The district court drew a similar conclusion, 2 and we engage in
de novo review. United States v. Porter, 745 F.3d 1035, 1040 (10th
Cir. 2014).
We conduct this review based on the events described in the
amended complaint. There, the Donners allege that when they bought a
charter membership, they were promised an estate lot certificate rather
than a specific parcel of land. The Donners could redeem the certificate for
a specific parcel once the land was platted and available lots were
designated. But, the certificate did not refer to a specific parcel. To the
contrary, the certificate imposed three limitations on a purchase:
1. The Donners could redeem the certificate within a certain
time period; if the Donners chose not to “select and purchase”
an available lot within that period, the certificate would expire.
2. The Donners’ right to select an available lot for purchase was
subject to the prior right (if any) of other charter members.
2
The district court also concluded that
● the Donners had not sufficiently alleged any
misrepresentations or omissions, and
● the defendants had not qualified as “developers or agents”
under the statute.
We need not address these conclusions because we conclude that the
Donners’ purchase did not involve a “lot.”
9
3. If the Donners chose to redeem the certificate and to buy an
available lot, the purchase would be “effected pursuant to a real
estate purchase contract containing customary terms and
conditions.”
Aplt. App. at 231, 236-37.
Because the development was never completed, no lots were platted
for the Donners to purchase. Thus, the Donners never had an opportunity to
redeem their certificate.
The resulting issue is whether the Donners’ allegations fit the statute.
The statute prohibits misrepresentation “with respect to the sale . . . or
offer to sell . . . any lot” that does not fall within an exemption. Interstate
Land Sales Full Disclosure Act, 15 U.S.C. § 1703(a)(2) (2006). The parties
disagree about whether the alleged misrepresentations pertain to a “lot.”
The term is undefined in the statute, 15 U.S.C. § 1701 et seq. (2006).
Winter v. Hollingsworth Props., Inc., 777 F.2d 1444, 1447 (11th Cir.
1985). In the absence of a statutory definition, the scope is ambiguous.
One can reasonably interpret the statutory reference to a “lot” to mean a
specifically defined parcel of land. 3 But, one could also reasonably
3
This interpretation of the term “lot” is consistent with the definition
of local officials in the pertinent county (Beaver). Beaver County’s zoning
ordinances defined the term “lot” as
A parcel . . . of land . . . by metes and bounds and held or
intended to be held in separate lease or ownership; or a unit of
land shown as a lot or parcel on a recorded subdivision map; or
a unit of land shown on a plat used in the lease or sale or offer
10
interpret the statute to refer to any piece of land, whether specifically
defined or not. Thus, the Donners do not question the ambiguity of the
statute.
Instead, the Donners rely on a regulation adopted by the agency
administering the statute (the Consumer Financial Protection Bureau). This
agency interpreted the term “lot” to mean “any portion, piece, division,
unit, or undivided interest in land . . . if the interest include[d] the right to
the exclusive use of a specific portion of the land.” 12 C.F.R. § 1010.1(b)
(2007). The Donners do not question the validity of this regulatory
definition. See Chevron, U.S.A. v. Nat. Res. Def. Council, 467 U.S. 837,
842-44 (1984). Instead, they rely on this definition.
The resulting issue is whether the Donners were promised something
that fit the agency’s definition of a “lot.” This definition contains a string
of three prepositional phrases:
of lease or sale of land resulting from the division of a larger
tract into two (2) or more smaller units.
Zoning Ordinances of Beaver County § 10.02.060(85) (Apr. 1993). The
county’s subdivision ordinances provided a similar definition of “lot”:
[A] parcel of real property with a separate and distance number
or other designation shown on a plat or a parcel of real
property delineated on an approved map of a record of survey,
split or sub-parceling map as filed in the office of the County
Recorder and intended as a unit for building development or
transfer of ownership.
Beaver County Subdivision Ordinance ch. 10(14) (1996).
11
● “to the exclusive use”
● “of a specific portion” and
● “of the land.”
The first phrase (“to the exclusive use”) narrows the statute to cover
representations about a unit of land available for the plaintiff’s exclusive
use. The following two prepositional phrases serve to define that unit of
land.
The phrase “of the land” is clear. This phrase refers either to the
development as a whole or to some larger area.
The regulation defines “lot” based on a “specific portion” of the
land. Thus, the term “lot” must refer to a specific portion of the
development or some larger area.
With this regulatory definition of “lot,” the statute cannot be
stretched to cover the defendants’ alleged misrepresentations. Those
misrepresentations concerned what the Donners would eventually receive
for their investment, but did not refer to a “specific portion” of land that
would be subject to the Donners’ exclusive use. Thus, even if the Donners’
allegations were true, they would not fit the regulatory definition of the
statutory term “lot.” 4
4
The record on appeal contains a proposed plat among the Donners’
settlement documents. This document does not affect our analysis. When
the Donners invested $1.5 million, they acknowledged that they would
receive only an estate lot certificate. Aplt. App. at 37. This certificate does
12
We are guided not only by the regulatory definition, but also by the
larger statutory context. See In re BDT Farms, Inc., 21 F.3d 1019, 1021
(10th Cir. 1994) (examining “the larger statutory context” to interpret the
statute). The statutory prohibition is phrased in the present tense, covering
misrepresentations or omissions with respect to a “lot” already in
existence, not one to be designated later. Thus, a misrepresentation or
omission falls under the statute only if it involves exclusive use of a
specific, identifiable portion of land.
The Donners’ claim does not involve a specific portion of land that
was identifiable at the time of the alleged misrepresentations. In their
opening brief, the Donners argue that they could select their “lot” “once
the final resort [was] finalized.” Plaintiffs’ Opening Br. at 51-52. This
argument is self-defeating: The promise could not involve a specific
portion of the land if it could not have been selected until a future event
took place (finalization of the plat).
The portion of land would presumably be identifiable later, when the
plat was finalized. But, we know from other parts of the statute that it
applies only when the portion of land is identifiable at the time of the
misrepresentations. For example, the statute exempts subdivisions
containing fewer than 25 “lots.” 15 U.S.C. § 1702(a)(1) (2006). Under the
not constitute a legal title to a specific lot within the development.
Therefore, no one could have identified the Donners’ eventual lot at the
time of the alleged misrepresentations.
13
Donners’ interpretation, no one could determine whether the exemption
applies until the development is eventually platted. If the plat ultimately
contains fewer than 25 identifiable parcels (“lots”), Mr. Nicklaus’s
representations could be exempt from the statute. If the plat ultimately
contains 25 or more identifiable parcels, Mr. Nicklaus’s representations
would not be exempt. One can apply the exemptions only by being able to
count the lots in the subdivision at the time of the representation. See
Bodansky v. Fifth on Park Condo, LLC, 635 F.3d 75, 83 (2d Cir. 2011)
(holding that a different exemption in the statute, one covering 100 or
more “lots,” is based on the number of lots existing when the contract is
signed); Nahigian v. Juno-Loudon, LLC, 677 F.3d 579, 587-89 (4th Cir.
2012) (holding that the 100-lot exemption does not include future sales of
lots); Nickell v. Beau View of Biloxi, L.L.C., 636 F.3d 752, 756-57 (5th
Cir. 2011) (holding that the 100-lot exemption is based on the number of
lots existing when the contract is signed).
Against the backdrop of the regulatory definition and statutory
context, the Donners argue that their claim fits the statute’s broad remedial
purpose. But, “Congress did not . . . intend that [the Interstate Land Sales
Full Disclosure Act] regulate all sales of real property.” Long v. Merrifield
Town Ctr. L.P., 611 F.3d 240, 245 (4th Cir. 2010). Thus, to determine
which types of real property Congress intended to cover, we assume “that
the legislative purpose is expressed by the ordinary meaning of the words
14
used.” Richards v. United States, 369 U.S. 1, 9 (1962). Applying the
ordinary meaning of the words and the larger statutory context, we
conclude that the alleged misrepresentations did not pertain to a “lot.” That
is true even if Congress had broad remedial objectives.
We hold that the Donners have not stated a valid claim under the
Interstate Land Sales Full Disclosure Act. Given this holding, we affirm
the dismissal of the statutory claims.
D. Claims Involving Intentional Misrepresentation Under
State Law
In the amended complaint, the Donners assert that Mr. Nicklaus and
Nicklaus Golf made three false statements:
1. Mr. Nicklaus is a “charter member” of Mount Holly and, as a
charter member, paid the $1.5 million purchase price for that
membership.
2. Mount Holly was an existing facility that had development
approval and would continue to achieve certain development
benchmarks.
3. The developer had the authority to convey legal title when the
Donners bought a charter membership.
The Donners also allege a failure to disclose that one of the developer’s
executives was a convicted felon.
We conclude that the Donners have adequately alleged intentional
misrepresentation of Mr. Nicklaus’s membership status. Thus, we reverse
the dismissal of that claim. But, we affirm the dismissal of the remaining
claims of intentional misrepresentation.
15
1. Elements of the Claims Involving Intentional
Misrepresentation
A misrepresentation claim involves
● a representation about a material fact
● that was false
● that the defendant knew was false or recklessly made without
enough knowledge
● to induce another party to act
● and the other party acted in reasonable reliance and
without knowing of the falsity
● to that party’s injury.
Utah v. Apotex Corp., 282 P.3d 66, 80 (Utah 2012).
2. Mr. Nicklaus’s Membership Status
The Donners allege that Mr. Nicklaus falsely represented that he was
a charter member by stating: “I have been so impressed with the club and
its management team that I became a founding charter member.” Aplt. App.
at 25. This representation allegedly influenced the Donners, who claim
they spent $1.5 million for a charter membership in part because they
believed Mr. Nicklaus had also paid $1.5 million for the same type of
membership.
We conclude that the Donners have adequately alleged that
Mr. Nicklaus misrepresented that he was a charter member. At this stage of
16
the proceedings, we look only to the amended complaint, and the Donners
have adequately pleaded:
● Mr. Nicklaus represented that he was a charter member of
Mount Holly.
● By stating he was a “charter member,” Mr. Nicklaus implied
that he had paid the $1.5 million purchase price for that
membership.
● Mr. Nicklaus’s representation was false because he was not a
charter member and had not paid $1.5 million.
● The Donners reasonably relied on the representation by
purchasing a charter membership.
a. Charter Membership
The Donners have adequately pleaded that Mr. Nicklaus held himself
out as a charter member.
In the brochure attached to the amended complaint, Mr. Nicklaus
states that he is a “charter member” immediately between (1) inviting the
Donners to “become a charter member” and (2) explaining how the
Donners can acquire a “charter membership.” Aplt. App. at 105-07. 5
5
Mr. Nicklaus also says in the press release that he is a charter
member. Aplt. App. at 88.
17
In this context, the Donners have plausibly alleged that Mr. Nicklaus held
himself out as a charter member.
The defendants argue that Mr. Nicklaus’s statement constitutes an
opinion, which cannot serve as the basis for a claim of intentional
misrepresentation. This argument is based on the first half of the statement
(that Mr. Nicklaus was impressed with the Mount Holly Club and its
18
management team). The defendants contend that Mr. Nicklaus’s
“impression” involves an opinion rather than a fact.
The defendants are correct about Mr. Nicklaus’s impressions. See
Berkeley Bank for Coops. v. Meibos, 607 P.2d 798, 805 (Utah 1980). But
Mr. Nicklaus stated more than his impressions; he stated that he was so
impressed that he became a “charter member.” And Mr. Nicklaus’s
declaration of a “charter membership” is a representation of present fact
that goes beyond his opinion.
b. $1.5 Million Purchase Price
The Donners also allege that Mr. Nicklaus implied that he had paid
the $1.5 million price for a charter membership.
The marketing brochure states:
1. A charter membership costs $1.5 million.
2. Mr. Nicklaus was a charter member.
Aplt. App. at 107. Thus, a fact-finder could reasonably infer that Mr.
Nicklaus was implying that he had paid the $1.5 million purchase price for
his charter membership.
c. False Representation
The Donners have also adequately pleaded that the representation
was false because Mr. Nicklaus was not a charter member.
The defendants argue that Mr. Nicklaus’s statement is true because
he was an “honorary founding member” of Mount Holly. But, a fact-finder
19
could reasonably distinguish between Mr. Nicklaus’s honorary status as a
“founding member” and a charter membership. The brochure describes a
charter membership based on the $1.5 million purchase price.
Mr. Nicklaus’s “founding membership” was “honorary,” meaning he paid
nothing. Though “charter membership” and “founding membership” may
ordinarily be synonymous, the price difference (free versus $1.5 million)
could have struck the Donners as significant.
The Donners allege in the amended complaint that they were induced
to act by Mr. Nicklaus’s willingness to pay $1.5 million for his charter
membership. It was the purchase price, rather than the title of the
membership, that allegedly influenced the Donners. Thus, the Donners
have adequately pleaded falsity of the representation regarding
Mr. Nicklaus’s payment of the purchase price.
d. Reasonable Reliance
The Donners have also adequately alleged reasonable reliance on
Mr. Nicklaus’s representation.
To determine whether reliance is reasonable, courts consider the
facts. Robinson v. Tripco Inv., Inc., 21 P.3d 219, 224-25 (Utah Ct. App.
2000). The Donners allege that they reasonably relied on Mr. Nicklaus’s
representation based on his use of the term “charter member” and his
reputation for honesty and integrity. These allegations present a plausible
basis for reasonable reliance.
20
The defendants contend that the reliance cannot be reasonable
because:
● the Donners were sophisticated purchasers and
● the charter membership agreement would have clarified any
false representations.
First, we reject the defendants’ argument involving the Donners’
sophistication. In Utah, plaintiffs may accept representations without
investigation unless “‘facts should make it apparent . . . that [they are]
being deceived.’” Robinson, 21 P.3d at 225 (quoting Conder v. A.L.
Williams & Assocs., 739 P.2d 634, 638 (Utah Ct. App. 1987)).
The reasonableness of the reliance involves a fact question. In the
amended complaint, the Donners did not include any facts that would have
made their reliance unreasonable, regardless of their sophistication. In
these circumstances, the Donners’ pleading of reasonable reliance is
sufficient notwithstanding their alleged sophistication.
Second, the defendants argue that
● the charter membership agreement would have clarified any
false representations, and
● a party “cannot reasonably continue to rely on [initially-
received false information] once true and corrected information
is furnished to him.”
Mikkelson v. Quail Valley Realty, 641 P.2d 124, 126 (Utah 1982). This
argument is invalid. The agreement did not say, one way or the other,
whether Mr. Nicklaus was a charter member.
21
The agreement did say that the Donners would not rely on
representations by a “Company representative.” Aplt. App. at 232. But,
this provision does not apply to the defendants. The membership agreement
defines “Company” as “Mount Holly Club, LLC,” not Mr. Nicklaus or
Nicklaus Golf. Id. at 231.
We conclude that the Donners have adequately alleged reasonable
reliance notwithstanding their sophistication or the terms of the charter
membership agreement. Thus, we reverse the dismissal of the claim
involving intentional misrepresentation of Mr. Nicklaus’s membership
status.
3. Remaining Claims of Intentional Misrepresentation
But, the Donners have not adequately alleged any other basis for
liability involving an intentional misrepresentation.
a. Progress of the Mount Holly Development
The Donners allege that the defendants falsely represented that the
Mount Holly development had already been approved and would continue
to achieve certain benchmarks. This allegation is not plausible given the
express terms of the charter membership agreement and the associate
program contract.
The charter membership agreement states that
● “at the present time[,] none of the Club facilities are
completed” and
22
● “the substantial majority of the Resort has not yet been
developed.”
Aplt. App. at 232. Thus, when the Donners signed the agreement, they
should have realized that the facilities were not fully developed.
The associate program contract states that
● the defendants “make no representations concerning the . . .
completeness” or “date of completion” of the Club facilities
and
● “no claim shall be made by any member . . . related to the
foregoing.”
Id. at 253. Thus, when the Donners signed the associate program contract,
they should have realized that the defendants were not representing
completion of the facilities by any specific date.
Given the express terms of these agreements, the Donners have not
adequately pleaded reasonable reliance on statements concerning the
development’s progress.
b. Legal Title to the Property
The Donners also complain that Mr. Nicklaus did not tell the truth
when he said in the marketing materials that a buyer would receive an
“estate lot.” The Donners regard this representation as false because “no
title to an Estate Lot could [have been] conveyed at that time.” Id. at 39,
¶ 102(d).
Even viewing these allegations favorably to the Donners, we
conclude a fact-finder could not infer reasonable reliance. The problem is
23
that the charter membership agreement and accompanying certificate make
clear that a charter membership does not include conveyance of property.
For example, the charter membership agreement states that the Donners
would receive an “Estate Lot Certificate” that could be redeemed to buy
“any available lot” “pursuant to a real estate purchase contract containing
customary terms and conditions.” Id. at 236. With this written explanation,
no reader could have justifiably expected immediate delivery of title to a
lot.
c. Criminal History of an Executive for the Developer
The Donners also allege that the defendants failed to disclose the
criminal history of an executive for the developer. This allegation is also
not plausible.
To survive the motion to dismiss on this claim, the Donners had to
adequately allege a factual basis to infer that Mr. Nicklaus and Nicklaus
Golf owed a duty to disclose this information. Shah v. Intermountain
Healthcare, Inc., 314 P.3d 1079, 1085 (Utah Ct. App. 2013).
The Donners have not adequately alleged such a duty. As we explain
below, the parties’ relationship is attenuated, and the Donners have not
alleged a basis for a fiduciary duty or an obligation arising out of a statute
or license. See Yazd v. Woodside Homes Corp., 143 P.3d 283, 287 (Utah
2006) (“A person who possesses important, even vital, information of
interest to another has no legal duty to communicate the information where
24
no relationship between the parties exists.”). Because the Donners have not
adequately alleged such a duty, we conclude this claim is not plausible.
E. Claims Involving Negligent Misrepresentation Under State
Law (Economic Loss Doctrine)
On the claims involving negligent misrepresentation, the defendants
invoke the economic loss doctrine. We conclude that this doctrine
precludes recovery for negligent misrepresentation.
Under the economic loss doctrine, a plaintiff cannot ordinarily
recover economic damages for negligence when the subject matter is
covered by a contract. Reighard v. Yates, 285 P.3d 1168, 1176 (Utah
2012). But, the economic loss doctrine does not apply when the tortfeasor
incurs a duty outside of any contract. Davencourt at Pilgrims Landing
Homeowners Ass’n v. Davencourt at Pilgrims Landing, LC, 221 P.3d 234,
246-47 (Utah 2009).
The general rule applies: The charter membership agreement covers
the subject matter of the Donners’ dispute; thus, that agreement provides
the “exclusive means of obtaining economic recovery.” Reighard, 285 P.3d
at 1176. And, the Donners have not adequately alleged that Mr. Nicklaus or
Nicklaus Golf incurred a duty outside of a contract.
25
1. General Rule (Subject Matter of the Dispute)
We first ask whether the charter membership agreement covers the
subject matter of the dispute. If so, the general rule would preclude
liability for negligent misrepresentation. See id. 6
We conclude that the agreement covers the subject matter of the
Donners’ dispute with Mr. Nicklaus and Nicklaus Golf. The Donners’
alleged damages relate to whether they received the benefit of their bargain
under the charter membership agreement. As a result, that agreement
provides the “exclusive means of obtaining economic recovery.” Id.
2. Exception (Existence of a Duty Outside of any Contract)
We next ask whether Mr. Nicklaus or Nicklaus Golf incurred a duty
outside of the charter membership agreement. If so, the doctrine would not
apply because the Donners’ claims would be based on a duty independent
of any contract. See Hermansen v. Tasulis, 48 P.3d 235, 240 (Utah 2002).
We conclude that the Donners have not adequately alleged such a duty.
The existence of a duty entails a question of law. Yazd v. Woodside
Homes Corp., 143 P.3d 283, 286 (Utah 2006). To determine whether a duty
arises outside of a contract, we analyze the nature of the parties’
relationship. See id. In general, the more attenuated the relationship, the
less likely a duty exists. Id.
6
The general rule would apply notwithstanding the absence of privity
of contract between the Donners and the defendants. See West v. Inter-
Financial, Inc., 139 P.3d 1059, 1063 (Utah Ct. App. 2006).
26
Even under the Donners’ allegations, the parties’ relationship is
attenuated: The Donners have no contractual relationship with the
defendants and never dealt directly with them. In the absence of a direct
relationship, Utah courts have recognized an independent duty only when
the defendant has incurred a fiduciary duty or an obligation to deal fairly
and honestly under a statute or license. See Hermansen v. Tasulis, 48 P.3d
235, 240-41 (Utah 2002) (real estate agents); West v. Inter-Financial, Inc.,
139 P.3d 1059, 1065 (Utah Ct. App. 2006) (real estate appraisers); see also
Milliner v. Elmer Fox & Co., 529 P.2d 806, 808 (Utah 1974) (stating that
an accountant can incur liability to a non-contracting third party when the
accountant knew that his work would be relied on by a party to extend
credit or assume certain obligations); Davencourt at Pilgrims Landing
Homeowners Ass’n v. Davencourt at Pilgrims Landing, LC, 221 P.3d 234,
246-47 (Utah 2009) (recognizing a developer’s limited fiduciary duty).
The Donners have not alleged a basis for a fiduciary duty or an
obligation arising out of a statute or license. Instead, the Donners have
alleged that Mr. Nicklaus is known for his integrity and trustworthiness.
Though the Donners allegedly trusted Mr. Nicklaus based on these
qualities, there was no relationship between the Donners and Mr. Nicklaus
or Nicklaus Golf. In the absence of any relationship, Mr. Nicklaus and
Nicklaus Golf had no independent duty to the Donners. See Yazd v.
Woodside Homes Corp., 143 P.3d 283, 287 (Utah 2006) (“A person who
27
possesses important, even vital, information of interest to another has no
legal duty to communicate the information where no relationship between
the parties exists.”); see also Davencourt at Pilgrims Landing Homeowners
Ass’n v. Davencourt at Pilgrims Landing, LC., 221 P.3d 234, 245 (Utah
2009) (“Knowledge and expertise alone do not establish an independent
duty; privity or a direct relationship is also required.”).
The parties’ relationship is attenuated, and Mr. Nicklaus and
Nicklaus Golf have no obligations growing out of a fiduciary duty, statute,
or license. In these circumstances, we conclude that neither Mr. Nicklaus
nor Nicklaus Golf has incurred a duty outside the charter membership
agreement.
The Donners argue that Mr. Nicklaus and Nicklaus Golf incurred an
independent duty based on
● conduct preceding the contract and
● the Interstate Land Sales Full Disclosure Act.
We reject both arguments. The first argument is invalid under Utah law;
and, as discussed above, the Interstate Land Sales Full Disclosure Act does
not apply.
Utah courts have not confined the economic loss doctrine to
wrongdoing taking place after entry into a contract. This sort of limitation
would make little sense: The doctrine is designed to allow parties “to
allocate risk by contract.” West v. Inter-Financial, Inc., 139 P.3d 1059,
28
1064 (Utah Ct. App. 2006). The parties can use a contract to allocate risks
that may arise pre- or post-formation. As a result, we must apply the
economic loss doctrine to conduct regardless of whether it preceded or
post-dated the contract. See Gibbons v. Hidden Meadow, LLC., 524 F.
App’x 451, 453 (10th Cir. 2013) (unpublished) (applying Utah law)
(holding that the economic loss doctrine precluded a claim involving “pre
contractual disclosures” when no independent source existed for a duty); 7
accord Holden Farms, Inc. v. Hog Slat, Inc., 347 F.3d 1055, 1063 (8th Cir.
2003) (“We know of no reason why the economic loss doctrine in Iowa
would not cover pre-contract-formation negligent-misrepresentation
claims.”).
The Donners rely on Price-Orem Inv. Co. v. Rollins, Brown &
Gunnell, Inc., 713 P.2d 55, 59 (Utah 1986), and Worldwide Mach., Inc. v.
Wall Mach., Inc., No. 2:06CV130DS, 2006 WL 2666411 (D. Utah 2006)
(unpublished). Reliance on these opinions is misguided.
In Price-Orem, a property owner hired a contractor, and the
contractor entered into a contract with a surveyor. The surveyor erred in
marking the property boundary, and the owner sued the surveyor for
negligent misrepresentation. See Price-Orem, 713 P.2d at 56-57.
7
Gibbons is persuasive, but not precedential. See 10th Cir. R. 32.1(a).
29
On appeal, the surveyor argued that the contractor was an
indispensable party because the only parties to the surveying contract (the
second contract) were the contractor and the surveyor. See id. at 59. The
Utah Supreme Court rejected this argument, holding that privity of contract
was not necessary for liability based on negligent misrepresentation. Id.
In reaching this holding, the court never mentioned the economic loss
doctrine. See id., passim. That is not surprising: None of the parties had
mentioned the economic loss doctrine in their appeal briefs, and it would
be another decade before the economic loss doctrine gained recognition in
Utah outside of product liability cases. See West v. Inter-Financial, Inc.,
139 P.3d 1059, 1061 (Utah Ct. App. 2006) (“Outside of a products liability
context, Utah first applied the economic loss rule in American Towers
Owners Ass’n v. CCI Mech[.], Inc., 930 P.2d 1182 (Utah 1996).”).
Because privity was unnecessary for liability, the Utah Supreme
Court never had to address the effect of the contract between the owner
30
and the contractor (the first contract). Instead, the court noted that the
owner’s claim did not depend on rights under the separate contract between
the contractor and the surveyor. Price-Orem, 713 P.2d at 59.
Likewise, the Donners’ claim does not depend on rights under any
contracts between the developer and Mr. Nicklaus or Nicklaus Golf. No
one suggests otherwise, for the Donners’ claim of negligent
misrepresentation involves the inability to obtain the benefits of their own
contract with the developer.
The circumstances in Price-Orem were similar. There, the owner’s
claim involved an inability to obtain the benefit of its contract with the
contractor. But, the state supreme court had not yet recognized the
economic loss doctrine outside of products liability cases; the parties did
not mention the doctrine in the appeal; and the Utah Supreme Court never
referred to the doctrine. Thus, Price-Orem has no bearing on the
defendants’ invocation of the economic loss doctrine.
We are also unpersuaded by Worldwide Mach. There, a federal
district court stated that the economic loss doctrine does not apply when a
party is fraudulently induced to enter a contract. Worldwide Mach., Inc. v.
Wall Mach., Inc., No. 2:06CV130DS, 2006 WL 2666411, at *4-5 (D. Utah
2006) (unpublished). For this conclusion, the district court relied on two
cases:
● Grynberg v. Questar Pipeline Co., 70 P.3d 1 (Utah 2003), and
31
● United Int’l Holdings, Inc. v. Wharf Ltd., 210 F.3d 1207 (10th
Cir. 2000).
In Grynberg, the court applied Wyoming’s version of the economic
loss doctrine, not Utah’s. Grynberg v. Questar Pipeline Co., 70 P.3d 1, 10-
14 (Utah 2003). As a result, Grynberg does not shed light on Utah law. See
BC Technical, Inc. v. Ensil Int’l Corp., 464 F. App’x 689, 699 n.16 (10th
Cir. 2012) (unpublished) (“Grynberg is not relevant because it interprets
Wyoming law rather than Utah law.”).
The federal district court also relied on United Int’l Holdings, which
applied Colorado’s version of the economic loss doctrine. United Int’l
Holdings, Inc. v. Wharf Ltd., 210 F.3d 1207, 1226-27 (10th Cir. 2000).
But, the Utah Supreme Court has noted its disagreement with aspects of
Colorado’s version of the rule:
[T]he Association contends that we abandoned the economic
loss rule as set forth in American Towers and expressly adopted
Colorado’s interpretation. We have not. Although we have
agreed with Colorado regarding the independent duty analysis,
we have not abandoned our own line of cases interpreting and
applying the economic loss rule. Nor do we wholly adopt all of
the independent duties recognized by Colorado.
Davencourt at Pilgrims Landing Homeowners Ass’n v. Davencourt at
Pilgrims Landing, LC, 221 P.3d 234, 248 (Utah 2009).
32
The Utah Supreme Court has never recognized an exception for
claims of fraudulent inducement, and we do not regard the federal district
court’s unreported decision in Worldwide Mach as persuasive. 8
We must apply the doctrine here, rejecting the Donners’ reliance on
pre-contract misrepresentations and the Interstate Land Sales Full
Disclosure Act. Under the economic loss doctrine, the defendants cannot
incur liability for negligent misrepresentation because the Donners’ claim
involves the benefit of their bargain under the charter membership
agreement. 9
III. Consideration of the Motion for Summary Judgment (Election of
Remedies)
In an alternative ruling, the district court granted summary judgment
to the defendants on all claims. The court did so on the ground that the
Donners had elected their remedies against the defendants through the
settlement agreement. This ruling was erroneous.
8
The Donners also cite MP Nexlevel, LLC v. Codale Elec. Supply,
Inc., No. 2:08-CV-0727CW, 2010 WL 1687985 (D. Utah 2010)
(unpublished), for the proposition that the economic loss doctrine does not
apply to pre-contract misrepresentations. There, the district judge (who
also issued the decision we are reviewing) stated that the economic loss
doctrine does not apply to pre-contract misrepresentations, but gave no
authority for this conclusion. MP Nexlevel, 2010 WL 1687985, at *4. The
Utah Supreme Court has never recognized an exception for pre-contract
misrepresentations.
9
The economic loss doctrine does not affect the claims involving
intentional misrepresentation. See SME Indus., Inc. v. Thompson, Ventulett,
Stainback & Assocs., Inc., 28 P.3d 669, 680 n.8 (Utah 2001).
33
In considering the ruling on summary judgment, we view the
evidence in the light most favorable to the Donners. Lenox MacLaren
Surgical Corp. v. Medtronic, Inc., 762 F.3d 1114, 1118 (10th Cir. 2014).
Viewing the evidence in this manner, we can uphold the summary judgment
ruling only if there is no genuine dispute over a material fact and the
defendants establish their right to judgment as a matter of law. Kovnat v.
Xanterra Parks & Resorts, 770 F.3d 949, 954 (10th Cir. 2014). Because
election of remedies involves an affirmative defense, the defendants’
burden is intensified. See Kuhl v. Hayes, 212 F.2d 37, 39 (10th Cir. 1954)
(“An election of remedies is an affirmative defense.”); Pelt v. Utah, 539
F.3d 1271, 1280 (10th Cir. 2008) (“[I]f the moving party has the burden of
proof, a more stringent summary judgment standard applies.”). This
standard requires the defendants to “establish, as a matter of law, all
essential elements of the issue before the nonmoving party can be
obligated to bring forward any specific facts alleged to rebut the movant’s
case.” Pelt, 539 F.3d at 1280.
The doctrine of election of remedies precludes a party from obtaining
redress for an injury through two wholly inconsistent remedies. See Cook
v. Covey-Ballard Motor Co., 253 P. 196, 200 (Utah 1927) (stating that a
party cannot pursue two remedies that are “so inconsistent that the
assertion of one involves a negation or repudiation of the other”). The
34
burden of proving an inconsistency lies with Mr. Nicklaus and Nicklaus
Golf. Kuhl, 212 F.2d at 39.
They argue that the Donners are seeking inconsistent remedies
involving both affirmance and repudiation of the charter membership
agreement. We disagree. Mr. Nicklaus and Nicklaus Golf have not shown
either an affirmation or a repudiation of the agreement.
In settling a bankruptcy claim against the developer’s parent
company, the Donners agreed to accept a lot, with certain amenities, if the
development was ever completed. The lot was acquired through settlement
against a bankrupt debtor, not through a judgment based on a successful
contract claim. The defendants have not proven that this settlement
involves affirmation of a contract or that the Donners were made whole by
obtaining the lot in an undeveloped tract.
Nor have the defendants proven the Donners’ disaffirmance of the
contract. In settling with other entities and seeking damages from Mr.
Nicklaus and Nicklaus Golf, the Donners are merely trying to recoup their
losses from separate parties under separate causes of action.
We addressed a similar issue in Sade v. N. Nat. Gas Co., 483 F.2d
230, 234 (10th Cir. 1973), where we applied Oklahoma’s doctrine of
election of remedies. After a catastrophic injury, the claimant settled with
Northern Natural Gas Co., releasing Northern but not its employees. See
id. at 232. The claimant then sued Northern’s employees, who successfully
35
defended by arguing that they were released through the settlement with
Northern. See id. at 232-33. The claimant sued Northern for fraud. See id.
at 233. Northern invoked the election-of-remedies doctrine, arguing that
the claimant was seeking to affirm the settlement agreement after
disaffirming the settlement agreement in state court. See id. at 234. We
rejected this argument, in part because the claimant had never
“disaffirmed” the settlement agreement:
In the first place, we disagree with Northern’s initial
premise that in instituting the [state court] action, [the
claimant] disaffirmed the . . . settlement. Rather, as we see it,
in instituting the [state court] proceeding it was [the
claimant’s] position that the [settlement] agreement was valid
and binding, but that it did not cover Northern’s employees, but
only Northern itself. In this regard, as earlier noted, the release
made no mention of Northern’s employees, and, according to
[the claimant], Northern’s attorneys repeatedly assured him
that the release did not preclude him from suing Northern’s
employees. Hence, we fail to see just how [the claimant] was
disaffirming the release when he sued Northern’s employees.
Id. at 234-35.
Similarly, the Donners did not disaffirm the charter membership
agreement by suing Mr. Nicklaus or Nicklaus Golf. Like the claimant in
Sade, the Donners did not believe they had been made whole when they
settled with the developer. Thus, the Donners―like the claimant in
Sade―sued other parties for fraudulently inducing entry into the contract.
Like the panel in Sade, we do not regard this fraud action as
“disaffirmance” of the contract.
36
The contract was not “affirmed” through receipt of a lot worth less
than $1.5 million or “repudiated” through the assertion of tort claims. In
these circumstances, the election-of-remedies doctrine does not apply. See
Angelos v. First Interstate Bank of Utah, 671 P.2d 772, 778 (Utah 1983)
(concluding that “[t]he doctrine of election of remedies is inapplicable . . .
because [the claimant] is not seeking or obtaining ‘double redress for a
single wrong’”). Because the election-of-remedies doctrine is inapplicable,
the district court erred in granting summary judgment to Mr. Nicklaus and
Nicklaus Golf.
Because the Donners are not precluded from pursuing tort remedies,
we reverse the award of summary judgment.
IV. Conclusion
In conclusion, we reverse (1) the dismissal of the claim involving
intentional misrepresentation of Mr. Nicklaus’s membership status, and (2)
the award of summary judgment to Mr. Nicklaus and Nicklaus Golf.
Accordingly, we remand to the district court for further proceedings on the
Donners’ claim relating to intentional misrepresentation of Mr. Nicklaus’s
membership status. But, we affirm the dismissal on the claims involving
(1) violation of the Interstate Land Sales Full Disclosure Act, (2)
intentional misrepresentations or omissions involving progress of the
development, availability of legal title, and failure to disclose an
executive’s criminal history, and (3) negligent misrepresentation.
37