Thurston v. Block United

2021 UT App 80THE UTAH COURT OF APPEALS
WRIGHT W. THURSTON, ET AL., 1
Appellants,
v.
BLOCK UNITED LLC, ET AL.,
Appellees.
Opinion
No. 20200258-CA
Filed July 22, 2021
Fourth District Court, Provo Department
The Honorable Christine S. Johnson
No. 190400207
B. Ray Zoll, Chad C. Shattuck, and Jared W. Moss,
Attorneys for Appellants
Evan S. Strassberg and Steven J. Joffee,
Attorneys for Appellee
JUDGE DAVID N. MORTENSEN authored this Opinion, in which
JUDGES MICHELE M. CHRISTIANSEN FORSTER and RYAN M. HARRIS
concurred.
MORTENSEN, Judge:
¶1 Within days of the filing of the underlying lawsuit,
Wright W. Thurston and Block United LLC (Block United) 2
1. The parties on appeal include other parties whose names we
have not listed here but who appear on the notice of appeal or
have otherwise entered appearances in this court.
2. The named appellants and appellees in this case are
numerous. For ease of reference, we refer to the appellants
collectively through reference to Thurston, and we refer to the
(continued…)
Thurston v. Block United
entered into a settlement agreement resolving the lawsuit. Block
United quickly held up its end of the deal, which included
transferring money and other assets to Thurston. Thurston,
however, refused to comply with his principal obligation—
signing and filing papers to dismiss the lawsuit—apparently out
of belief that certain individuals made material
misrepresentations during settlement negotiations. Nearly six
months after the settlement agreement was reached, Thurston
filed an amended complaint with the aim of adding causes of
action for these alleged misrepresentations. Days after the
amended complaint was filed, Block United filed a motion to
enforce the settlement agreement.
¶2 The district court granted Block United’s motion to
enforce the settlement agreement, finding that the settlement
agreement was binding and that Thurston had waived any right
to rescind the agreement regardless of any alleged fraudulent
misrepresentations. In granting the motion to enforce, the
district court dismissed the amended complaint in its entirety
with prejudice. Thurston appeals. We affirm.
BACKGROUND
¶3 Thurston formed Block United in April 2017. Block
United was a manager-managed LLC, and Thurston was one of
the company’s two managers. By July 2018, Thurston and the
other manager were deadlocked on Block United’s management
(…continued)
appellees collectively through reference to Block United. In
addition, two different lawsuits were filed below which were
eventually consolidated. In this opinion, we refer to the
underlying cases, complaints, and the like in the singular, as the
distinction between the two cases and their filings are
immaterial to the resolution of this appeal.
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and operation, which ultimately led to Thurston withdrawing
from daily participation in the company.
¶4 Thurston later filed the underlying lawsuit in early
February 2019. As a general matter, Thurston alleged that after
he had withdrawn from daily participation, Block United
concealed material information about its functions and costs,
misstated accounting records, converted its assets to other
companies, and engaged in defamatory conduct. The complaint
included claims for breach of contract, conversion, breach of
fiduciary duties, and dissolution of the LLC, among others.
¶5 On February 20, 2019, the parties reached a settlement
agreement during formal mediation. And like any other garden-
variety settlement agreement, the crux of the agreement was that
Block United would pay Thurston specified sums of money and
other assets in exchange for Thurston agreeing to sign and file
dismissal papers and to release Block United from liability. Block
United substantially complied with its obligations under the
settlement agreement within a few weeks, including transferring
to Thurston all the money and assets specified.
¶6 Thurston, however, continually declined to sign the
required dismissal and release papers. Initially, Thurston
appeared to premise his delay on being too busy to review the
dismissal papers or on assertions that he otherwise needed more
or updated information from Block United. But in June 2019,
Thurston asserted that Block United “made several
misrepresentations during settlement” about its liabilities, assets,
and ongoing business obligations, which purportedly “induced
[Thurston] into settlement.” And in response to Block United
threatening to file a motion to enforce the settlement agreement,
Thurston stated his belief that, based on these alleged
misrepresentations, any such motion would be “meritless and
result in costly litigation.” He asserted, instead, that their
“collective efforts [we]re better spent resolving the outstanding
20200258-CA 3 2021 UT App 80Thurston v. Block United
issues.” 3 Thurston thus asked Block United to engage in a
second round of mediation to deal with the “outstanding
issues,” to which Block United agreed. This second round of
mediation was scheduled for August 22, 2019.
¶7 But on August 19, 2019, Thurston instead filed an
amended complaint 4 and canceled the mediation. The aim of this
amended complaint was to include new claims seeking redress
for the fraudulent misrepresentations allegedly made during the
mediation. As to these additional claims, the amended complaint
reads:
107. Further, [Block United] made material
misrepresentations regarding the accounting, taxes,
liabilities, use of [Block United] proceeds to invest
in other companies or for [Block United’s] personal
benefit, filing of unlawful lien by [a third party]
against [Block United]-owned real estate, and
[Block United’s] intent to no longer operate any
blockchain mining facility in the mediation held
with [Thurston].
108. [Thurston] relied on [Block United’s]
misrepresentations in entering into a conditional
settlement agreement in mediation, and [Block
United] knew [its] representations were false and
have not corrected such misrepresentations.
3. Those “outstanding issues” ran the gamut: from asking Block
United to provide corrected tax returns, to asking the “Block
United team” to “admit in writing” that they lied to customers
and “misuse[d]” their funds.
4. The amended complaint was timely. Block United stipulated
to several extensions of the deadline to amend pleadings, which
Thurston stated were necessary to “allow” him to “hopefully
finalize settlement.”
20200258-CA 4 2021 UT App 80Thurston v. Block United
109. [Thurston] request[s] the Court to declare
the conditional settlement agreement void or
voidable, and to award damages against [Block
United], plus attorneys’ fees and costs.
¶8 On August 30, 2019, Block United filed a motion to
enforce the settlement agreement. In its motion, Block United
simply asserted that the settlement agreement was binding and
that it had tendered and Thurston had “accepted all the
consideration and performance” due under the settlement
agreement, but that Thurston nevertheless refused to live up to
his side of the agreement and sign the dismissal papers. Block
United thus requested that the court enforce the settlement
agreement.
¶9 Thurston responded by arguing that the settlement
agreement should be rescinded on the ground that Block United
“fraudulently procured” the agreement based on various “false
representations and omissions during mediation.” (Cleaned up.)
Thurston then went on to detail numerous instances of these
alleged fraudulent misrepresentations. As one example,
Thurston alleged that Block United understated its liabilities
because, during the mediation, Block United stated that it had
not paid Rocky Mountain Power for only two months leading up
to the February 2019 mediation, but Thurston “later learned”
that Block United “failed to pay Rocky Mountain Power since
August 2018 and had an unpaid balance of more than
$1,190,189.37 as of the date of mediation.”
¶10 In reply, Block United argued that the settlement
agreement should be enforced irrespective of any of Thurston’s
arguments to the contrary because Thurston had waived the
right to rescind the agreement by retaining the money and assets
he had received under the agreement. In addition, Block United
went on to explain that “even if the [c]ourt were to consider the
merits” of Thurston’s arguments, they should be rejected
because the “allegations of fraud [were] baseless and, in many
cases, demonstrably false.” Among other things, Block United
20200258-CA 5 2021 UT App 80Thurston v. Block United
asserted that Thurston “allege[d] that the [settlement agreement]
should be invalidated because [Block United] allegedly did not
disclose certain liabilities to [him] before the mediation when, in
fact, the very documents [Thurston] use[d] to support [his]
assertions were produced to [him] before the mediation.” Block
United then proceeded to refute each allegation, and in many
instances showed that the relevant documents were in fact
provided to Thurston in advance of the mediation. As just one
example, Block United demonstrated that a Rocky Mountain
Power invoice reflecting “the exact amount that [Thurston] now
contend[s] [Block United] concealed” was in fact provided in
advance of the mediation.
¶11 Subsequently, the court held oral arguments on the
motion. There, the court asked Thurston why, if his intention
was to rescind the settlement agreement, he had “kept all the
money . . . paid as part of” that same agreement. Thurston
answered that, “unless the court order[ed] otherwise,” his
intention was to keep the proceeds he received under the
settlement agreement because it “was never [Block United’s] in
the first place” and was instead “always [his].” The court then
discussed the holdings of several cases that, it explained, reflect
the notion that “an aggrieved party can’t have his cake and eat it
too. He has to decide if he wants to set aside the contract as void
and then return the benefits or if he wants to accept those
benefits and sue.” And because Thurston had retained the
proceeds received under the settlement agreement, the court
determined that he had waived the right to rescind the
agreement. In response to this ruling, Thurston remarked,
Point of record, Your Honor? . . . To be clear, Your
Honor, there is [an] amended complaint[] . . .
which, I think goes exactly with the case law that
the Court just cited with respect to keeping the
proceeds and going after damages. Our amended
complaint[] cite[s] exactly that allegation. . . . [We]
have kept the proceeds and are seeking damages.
And [we are] enforcing that right to sue here.
20200258-CA 6 2021 UT App 80Thurston v. Block United
That’s the only reason we ask the Court to void is
when they brought the motion to enforce. We have
to oppose it. But we have never waived our
complaints. So I just want to, I don’t know if that’ll
persuade Your Honor?
¶12 The court responded that it “appreciate[d] the . . . point,”
but did not “find it terribly persuasive” because there was not “a
basis for fraud in the first place given that the documents that
were submitted in the reply brief indicate[d] . . . that all of that
information was put forward as part of the mediation.” The
court specifically referenced the Rocky Mountain Power invoice
and remarked, “I could go through the rest of the allegations
here, but the exhibits in the reply brief are really the same. . . .
There’s amounts given that are claimed to be examples of fraud
and yet the amounts correspond to documents that were
submitted to [Thurston] as part of the mediation.” Therefore, in
granting the motion to enforce, the court dismissed with
prejudice “all claims” asserted in the amended complaint.
Thurston appeals.
ISSUE AND STANDARD OF REVIEW
¶13 Thurston contends that the district court erred by
enforcing the settlement agreement. We review the district
court’s enforcement of the settlement agreement for abuse of
discretion. McKelvey v. Hamilton, 2009 UT App 126, ¶ 17, 211
P.3d 390. 5
5. Thurston also argues that the district court erred “by failing to
hold an evidentiary hearing.” But he never requested an
evidentiary hearing below, instead only “request[ing] a hearing
for oral argument on th[e] motion.” (Emphasis added.) Thurston
thus failed to preserve the issue and has “not argued that the
plain error doctrine or any other exception to the preservation
(continued…)
20200258-CA 7 2021 UT App 80Thurston v. Block United
ANALYSIS
¶14 Thurston challenges the district court’s order on two
related grounds. First, he argues that the district court erred in
concluding that he waived his right to rescind the settlement
agreement by keeping the proceeds received thereunder.
Second, he argues that, even if the district court did not err in
concluding that he waived the right to rescind the settlement
agreement, it still erred by dismissing the new claims pleaded in
the amended complaint because these claims can “exist even
with the settlement agreement in place.”
¶15 “It is quite well established that a settlement agreement
may be summarily enforced by motion in the court of the
original action.” Tracy-Collins Bank & Trust Co. v. Travelstead, 592
P.2d 605, 607 (Utah 1979). However, the “power to enter a
judgment enforcing a settlement agreement” is contingent on the
agreement constituting “an enforceable contract.” Badger v.
MacGillivray, 2016 UT App 109, ¶ 2, 374 P.3d 1053 (cleaned up).
So, “basic contract principles affect the determination of when a
settlement agreement should be so enforced.” ACC Cap. Corp. v.
Ace West Foam Inc., 2018 UT App 36, ¶ 12, 420 P.3d 44 (cleaned
up).
¶16 And under Utah contract law, a party who has been
induced to enter a contract by fraudulent misrepresentations has
two options: (1) it may elect to rescind the contract or (2) it may
affirm the contract. See Dugan v. Jones, 615 P.2d 1239, 1247 (Utah
1980), superseded on other grounds by rule as recognized in Arnold v.
Curtis, 846 P.2d 1307 (Utah 1993); see also Brown v. Richards, 840
P.2d 143, 150 (Utah Ct. App. 1992) (noting the availability of
these same two options). In either instance, the defrauded party
may recover damages associated with the fraud. See Ong Int’l
(…continued)
rule applies.” In re Koller, 2018 UT App 27, ¶ 14, 424 P.3d 926. As
a result, we do not further address this issue.
20200258-CA 8 2021 UT App 80Thurston v. Block United
(U.S.A.) Inc. v. 11th Avenue Corp., 850 P.2d 447, 457 (Utah 1993)
(explaining that “monetary and punitive damages” are
compensable rescissionary damages); Conder v. A.L. Williams
& Assocs., 739 P.2d 634, 639 (Utah Ct. App. 1987) (explaining that
a party who affirms the contract may sue for damages thereon).
¶17 However, a party waives the option of rescission if it fails
to “move promptly and with all reasonable diligence to
disaffirm the contract upon discovery of the fraud.” See Taylor v.
Moore, 51 P.2d 222, 226 (Utah 1935); see also Continental Ins. Co. v.
Kingston, 2005 UT App 233, ¶¶ 9, 11, 114 P.3d 1158 (noting that
the defrauded party waives the right to rescind if “from action or
inaction” its “course of conduct demonstrates that it intended to
relinquish that right” (cleaned up)); Ockey v. Lehmer, 2008 UT 37,
¶ 31, 189 P.3d 51 (“Ockey’s failure to object to the 1994
conveyance constitutes ratification—either consciously or
through willful ignorance—of the actions taken on his behalf.”).
The rationale is grounded in the notion that “[t]he party
deceived is not allowed to go on deriving all possible benefit
from the transaction, and then claim to be relieved from his own
obligations by seeking its rescission.” Taylor, 51 P.2d at 227
(cleaned up); see also Ockey, 2008 UT 37, ¶ 32 (“It is well
established in our case law that an individual cannot go along
with a contract for the purpose of enjoying benefits . . . only to
later claim a right to rescind . . . .” (cleaned up)).
¶18 Here, the district court concluded that Thurston waived
the option to rescind the settlement agreement because he
retained the proceeds received under that agreement. And to
this very point, we have repeatedly explained that a party who
fails to promptly return proceeds received under a contract
waives the right to rescind that contract. See Perry v. Woodall, 438
P.2d 813, 815 (Utah 1968) (“If he continues to treat the property
as his own the right of rescission is gone, and the party will be
held bound by the contract.”); Taylor, 51 P.2d at 227 (“If the party
defrauded continues to receive benefits under the contract after
he has become aware of the fraud . . . he will be deemed to have
affirmed the contract and waived his right to rescind.” (cleaned
20200258-CA 9 2021 UT App 80Thurston v. Block United
up)); cf. Kingston, 2005 UT App 233, ¶ 16 (“[W]hen an insurer
accepts premiums after discovering facts that would justify
rescission of the policy, numerous courts have precluded the
insurer from later denying coverage.”).
¶19 Thurston tacitly acknowledges the district court’s
rationale and supporting authority, asserting that “[m]aintaining
possession of the property may constitute a waiver of the right to
rescind the contract.” (Emphasis added.) Nevertheless, he argues
that the district court “overlooked” other evidence in the record
tending to show his “intent” to pursue rescission. Specifically,
Thurston refers to the various post-settlement correspondence to
Block United in which he referenced fraudulent
misrepresentations, along with his eventual filing of the
amended complaint and its request for rescission, and asserts
that these facts demonstrated his intent to rescind the agreement.
¶20 We are not persuaded by Thurston’s attempt to simply
gloss over our case law and the district court’s resultant ruling
that, because he retained the proceeds under the settlement
agreement, he waived his right to rescind it. Both below and on
appeal, there was no dispute that Thurston retained the
settlement proceeds, and our case law is clear that this supports
a determination of waiver. Moreover, the same evidence to
which Thurston otherwise refers further supports the district
court’s determination. For example, even in his June
communications, Thurston was still representing that his
intention was to “finalize settlement.” See supra note 4; see also
Frailey v. McGarry, 211 P.2d 840, 845 (Utah 1949) (“[T]he party is
entitled to a reasonable time in which to decide upon the course
he will take. But this does not mean that he will be indulged in a
vacillating or hesitating course of conduct . . . .”). Likewise,
waiting nearly six months to file an amended complaint further
supported the district court’s ruling. See Frailey, 211 P.2d at 845
(“For almost a year plaintiff [vacillated] between reliance on the
contract, obtaining a modified contract, abandonment of the
contract and finally rescission.”). We therefore conclude that the
20200258-CA 10 2021 UT App 80Thurston v. Block United
court did not abuse its discretion in determining that Thurston
had waived his right to rescind the settlement agreement.
¶21 And this leads us to Thurston’s other argument, which
relates to a defrauded party’s option to affirm the contract. He
maintains that, even if the district court did not err by enforcing
the settlement agreement, it nevertheless erred by dismissing the
case outright. Specifically, he asserts that the fraud claims added
in the amended complaint “evidenced” his “intent” to affirm the
settlement agreement and sue for damages thereon, and thus
these claims should not have been dismissed.
¶22 We disagree. While a claim pleaded to affirm the
settlement agreement and recover damages thereon would
presumptively survive the enforcement of the agreement, the
fraud claims pleaded in the amended complaint do not take this
form. See Utah R. Civ. P. 8(a) (directing that “[a]n original claim .
. . must contain a short and plain . . . demand for judgment for
specified relief,” including any relief requested “in the
alternative”). 6 In the amended complaint, Thurston specifically
asked only for the court to “declare the conditional settlement
agreement void or voidable, and to award damages” on that
basis. As pleaded, “even under Utah’s liberal notice pleading
requirements,” this fails to provide fair notice that Thurston was
alternatively requesting that the settlement agreement be
affirmed, or fair notice of any theory of damages that might
result from affirming the settlement agreement. See Asael Farr
& Sons Co. v. Truck Ins. Exch., 2008 UT App 315, ¶ 17, 193 P.3d
6. We “may choose to affirm the judgment of the district court on
any legal ground or theory apparent on the record.” Pentalon
Constr., Inc. v. Rymark Props., LLC, 2015 UT App 29, ¶ 25, 344
P.3d 180. And given that Thurston’s argument quite literally
relies on the allegations as pleaded in the amended complaint,
and Block United has argued the pleading deficiencies on
appeal, the ground for our ruling is indeed apparent in the
record.
20200258-CA 11 2021 UT App 80Thurston v. Block United
650 (cleaned up). So, no claims pleaded should have survived
the enforcement of the settlement agreement and, therefore, the
district court did not err by dismissing the case outright in its
order granting the motion to enforce. 7
CONCLUSION
¶23 We affirm the district court’s enforcement of the
settlement agreement and dismissal of the amended complaint
in its entirety. We remand for the limited purpose of calculating
Block United’s reasonable attorney fees incurred on appeal.
7. Block United also requests costs and attorney fees incurred on
appeal. The settlement agreement provides, “The parties agree
that in any dispute arising out of or relating in any respect to the
final settlement agreement, the prevailing party shall be entitled
to attorney’s fees.” Because Block United has prevailed on
appeal, we grant the request for reasonable attorney fees
incurred on appeal.
20200258-CA 12 2021 UT App 80