Arlington Management v. Urology Clinic

2021 UT App 72THE UTAH COURT OF APPEALS
ARLINGTON MANAGEMENT ASSOCIATES, INC.,
Appellant,
v.
UROLOGY CLINIC OF UTAH VALLEY, LLC,
Appellee.
Opinion
No. 20190503-CA
Filed July 9, 2021
Fourth District Court, Provo Department
The Honorable Thomas Low
No. 160401231
R. Stephen Marshall and Kevin Paulsen,
Attorneys for Appellant
Rodney R. Parker and Todd E. Zenger,
Attorneys for Appellee
JUDGE DIANA HAGEN authored this Opinion, in which
JUDGES JILL M. POHLMAN and RYAN M. HARRIS concurred.
HAGEN, Judge:
¶1 Arlington Management Associates Inc. (Arlington)
appeals the district court’s order granting summary judgment to
Urology Clinic of Utah Valley LLC (the Clinic). Arlington sued
for breach of contract, alleging that the Clinic had failed to pay
for management services that Arlington had provided pursuant
to the parties’ written management agreement (the Management
Agreement). The Clinic moved for summary judgment, in part,
because Arlington had failed to withdraw its compensation from
the Clinic’s operating account on a monthly basis as
contemplated by the contract. In response, Arlington claimed
that the Clinic had modified the contract by asking Arlington not
to withdraw its monthly compensation and promising to pay “at
Arlington Management v. Urology Clinic
a later date.” Accepting these facts as true for purposes of the
motion, the district court ruled that the Clinic was nonetheless
entitled to judgment for two reasons: (1) Arlington was the first
to breach the contract by failing to either pay itself monthly or
reserve the payment as contemplated by the Management
Agreement, and (2) the Clinic’s promise to pay at a later date
was not specific enough to be enforced. Arlington now appeals
the district court’s order granting summary judgment to the
Clinic.
¶2 Arlington also appeals the district court’s denial of its
cross-motion for partial summary judgment. The court denied
that motion “for the same reasons that [the Clinic’s] motion for
summary judgment [was] granted” and because there were
“several disputes of material fact.”
¶3 Because issues of material fact precluded the district court
from granting either the Clinic’s or Arlington’s motion for
summary judgment, we vacate the district court’s order and
remand for further proceedings consistent with this opinion.
BACKGROUND
¶4 The Clinic and Arlington entered into the Management
Agreement in 2009. At that time, the Clinic’s executive manager,
Dr. Stewart Landau, and Arlington’s president, Rebecca Landau,
were married. Dr. Landau signed the agreement on behalf of the
Clinic, 1 and Ms. Landau signed the agreement on behalf of
Arlington. Under the agreement, Arlington would provide the
1. In opposition to Arlington’s cross-motion for partial summary
judgment, the Clinic disputed whether Dr. Landau had authority
to enter into the Management Agreement on behalf of the Clinic.
But for purposes of its own motion for summary judgment, the
Clinic assumed the existence of a contract between itself and
Arlington.
20190503-CA 2 2021 UT App 72Arlington Management v. Urology Clinic
Clinic with management services in exchange for monthly
payments of $10,000. Relevant to this appeal, the agreement
contained the following provisions:
Section 6.3 Expenditures. [The Clinic] shall
establish a separate bank account (the “[O]perating
Account”) for the Practice, on which [Arlington]
or its designated employee(s) shall have
exclusive signature authority. The funds in the
Operating Account shall be, and shall remain at all
times, [the Clinic’s] property. Within twenty (20)
working days after the end of each month,
[Arlington] shall submit to [the Clinic] an
accounting of the expenditures for the previous
calendar month. From the Operating Account,
[Arlington] shall pay or reserve each month the
following items:
(a) Operating Expenses. All operating expenses of
the Practice including, but not limited to, all
amounts for salaries and wages, employee fringe
benefits, payroll taxes, supplies, materials, repairs,
maintenance, all utility charges, real property taxes
and assessments on the Practice and insurance and
bond premiums with respect to the operations of
the Practice.
(b) Management Fees. All management fees owed to
[Arlington] pursuant to this Agreement.
....
Section 12.2 Unpaid Sums. On termination of this
Agreement, [the Clinic] promptly shall pay to
[Arlington] any unpaid sums due under this
Agreement, prorated through the effective date of
such termination.
20190503-CA 3 2021 UT App 72Arlington Management v. Urology Clinic
¶5 For the first four months after signing the Management
Agreement, Arlington paid itself $10,000 per month from
the operating account. Thereafter, Arlington stopped
withdrawing its compensation from the operating account but
accrued the Clinic’s obligation to Arlington on the Clinic’s
accounting records each month. Thus, after the first four months,
Arlington did not receive any payment from the Clinic. Years
later, the Clinic terminated the agreement but refused to pay
Arlington for the months Arlington received no payment for its
services. Arlington then filed suit against the Clinic for breach of
contract, alleging that Arlington was entitled to the remaining
payments.
¶6 The Clinic moved for summary judgment on the grounds
that Arlington had caused its own damages by not withdrawing
its monthly payment, failed to mitigate damages by not
reserving the funds, and waived the Clinic’s obligation to pay
Arlington for its services. In opposition to the Clinic’s motion,
Arlington argued that the parties had orally modified the terms
of the Management Agreement. In support, it submitted a
declaration from Ms. Landau swearing that Dr. Landau, on
behalf of the Clinic, had “approached [her] and requested that
Arlington not withdraw its monthly compensation” but
promised that “Arlington would receive full compensation for
its provision of management services at a later date.” For
purposes of the motion only, the Clinic did not contest these
facts but argued that the oral modification failed as a matter
of law.
¶7 After filing its opposition, Arlington filed its own
motion for partial summary judgment on its breach of
contract claim. The Clinic opposed the motion, arguing
that Arlington had no right to enforce the agreement because
it was the first to breach. Specifically, the Clinic argued
that Arlington had failed to provide exclusive management
services to the Clinic as required by the Management
Agreement.
20190503-CA 4 2021 UT App 72Arlington Management v. Urology Clinic
¶8 The district court granted the Clinic’s motion for
summary judgment, concluding that the asserted oral
modification “lacked enforceable terms regarding the time for
payment to Arlington” and therefore could not operate to
modify the Management Agreement. It also concluded that
Arlington had “breached the agreement first” when it failed to
“pay itself as directed to do within the agreement” and “failed to
set aside money to pay itself later.” Based on these conclusions,
the court determined that “[a]s the party that breached first,
Arlington [could not] sue for enforcement of the very term it
breached.” The court denied Arlington’s motion for partial
summary judgment for the same reasons but also ruled, in the
alternative, that “several disputes of material fact would have
prevented the court from granting [Arlington’s] motion for
summary judgment, including the issue of whether Arlington
actually did perform its duties under the Management
Agreement.” The court then dismissed Arlington’s complaint in
its entirety and entered final judgment in favor of the Clinic.
ISSUES AND STANDARD OF REVIEW
¶9 Arlington appeals the district court’s ruling granting
summary judgment in favor of the Clinic and denying
Arlington’s motion for partial summary judgment on its breach
of contract claim. In reviewing a district court’s summary
judgment ruling, we review its “legal conclusions and ultimate
grant or denial of summary judgment for correctness.” Cochegrus
v. Herriman City, 2020 UT 14, ¶ 14, 462 P.3d 357 (cleaned up). We
review “the facts and all reasonable inferences in a light most
favorable to the party opposing the motion.” Rusk v. Harstad,
2017 UT App 27, ¶ 3, 393 P.3d 341 (per curiam) (cleaned up).
ANALYSIS
¶10 Neither party is entitled to summary judgment in this
case. “Summary judgment is only appropriate ‘if the moving
20190503-CA 5 2021 UT App 72Arlington Management v. Urology Clinic
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.’” Arnold v. Grigsby, 2018 UT 14, ¶ 8, 417 P.3d 606 (quoting
Utah R. Civ. P. 56(a)). Accordingly, the “district court must deny
a motion for summary judgment if it finds that there is a genuine
issue of material fact that bears on its legal determination or if it
finds, as a matter of law based on the undisputed facts, that the
moving party is not entitled to a legal ruling in its favor.”
Normandeau v. Hanson Equip. Inc., 2009 UT 44, ¶ 9, 215 P.3d 152.
To determine whether a genuine factual dispute exists, we ask
“whether reasonable jurors, properly instructed, would be able
to come to only one conclusion, or if they might come to
different conclusions, thereby making summary judgment
inappropriate.” Cochegrus, 2020 UT 14, ¶ 14 (cleaned up).
¶11 The district court granted the Clinic’s motion for
summary judgment and denied Arlington’s cross-motion for
partial summary judgment. We first address the Clinic’s motion
for summary judgment and reverse the court’s determination
that the Clinic was entitled to judgment as a matter of law. We
then address the court’s denial of Arlington’s cross-motion and
affirm the court’s ruling that genuine issues of material fact
precluded summary judgment on Arlington’s breach of contract
claim.
I. The Clinic’s Motion for Summary Judgment
¶12 Arlington argues that the district court erred in granting
the Clinic’s motion for summary judgment. For purposes of the
motion, the court assumed that the oral modification occurred
but concluded that the Clinic was nonetheless entitled to
judgment as a matter of law for two reasons relevant to this
appeal. First, the court ruled that Arlington breached the
Management Agreement by failing to either pay itself or set
aside the amount owed on a monthly basis and that Arlington’s
first breach excused the Clinic’s non-performance. Second, the
court concluded that, even if the alleged oral modification of the
20190503-CA 6 2021 UT App 72Arlington Management v. Urology Clinic
agreement excused Arlington from making monthly
withdrawals, the terms of that modified agreement were not
specific enough to be enforceable. 2 We disagree with the court’s
reasoning on both points.
¶13 First, the Clinic is not entitled to judgment as a matter of
law based on the first breach rule. “Under the first breach rule[,]
a party first guilty of a substantial or material breach of contract
. . . can neither insist on performance by the other party nor
maintain an action against the other party for a subsequent
failure to perform.” CCD, LC v. Millsap, 2005 UT 42, ¶ 29, 116
P.3d 366 (cleaned up). But whether “a party performed under a
contract or breached a contract is a question of fact.” iDrive
Logistics LLC v. IntegraCore LLC, 2018 UT App 40, ¶ 43, 424 P.3d
2. The district court also appears to have partially based its
ruling on Arlington’s failure to allege facts relating to the oral
modification in its complaint. Specifically, the court stated that
Arlington’s complaint “alleges the Management Agreement as
the sole basis for [its] claims; there is no allegation of a separate
oral agreement or oral terms that amend the Management
Agreement.” Arlington’s breach of contract claim was based on
the Clinic’s promise in the Management Agreement to pay
Arlington $10,000 per month for its services. The oral
modification to delay those payments did not become relevant
until the Clinic argued that, by failing to pay itself as required in
the Management Agreement, Arlington had caused its own
damages, failed to mitigate its damages, or waived its right to be
paid. But Arlington had no obligation to plead facts as “an
anticipatory response to an expected affirmative defense.” See
Bright v. Sorensen, 2020 UT 18, ¶ 38, 463 P.3d 626. In any event,
the Clinic assumes that “the trial court did not base its summary
judgment on that skeptical view” of Arlington’s complaint, and
does not advance it as an alternative basis for affirmance on
appeal.
20190503-CA 7 2021 UT App 72Arlington Management v. Urology Clinic
970. And whether such a breach is material is also a question of
fact. See Cross v. Olsen, 2013 UT App 135, ¶ 29, 303 P.3d 1030.
¶14 The district court ruled that the Clinic was excused from
performing under the Management Agreement because
Arlington had breached its duty under Section 6.3(b) to either
“pay or reserve each month . . . [a]ll management fees owed to”
Arlington. It was undisputed, for purposes of summary
judgment only, that Arlington agreed to the Clinic’s request that
it “not withdraw its monthly compensation” from the operating
account in exchange for a promise that it would be paid at a later
date. It was also undisputed that Arlington did not withdraw its
compensation from the Clinic’s operating account but accrued
the Clinic’s obligation to Arlington on the Clinic’s accounting
records each month. Based on these limited undisputed facts, we
cannot conclude that the Clinic is entitled to judgment as a
matter of law.
¶15 As an initial matter, there are genuine issues of material
fact as to whether the oral modification excused Arlington’s
failure to pay itself or, at a minimum, to withdraw the funds
necessary to cover an eventual payment. A reasonable jury
might conclude, as the district court did, that Arlington had a
duty to reserve funds that was not modified by the oral
agreement. But a reasonable jury could also conclude that the
parties intended that by forgoing payment, Arlington would
leave the funds in the operating account for the Clinic’s use.
¶16 Even if the factfinder were to conclude at trial that
Arlington did breach Section 6.3 by failing to either pay itself or
reserve funds, a question of fact remains as to whether that
breach was material. Arlington argues that the alleged breach
“was at most a technical breach, not a material one” that excused
the Clinic’s performance because it “only affected the timing of
payment” and did not go “to the main purpose or object of the
parties in entering into the agreement.” Under the first breach
rule, only a material breach that “goes to the heart of the contract
20190503-CA 8 2021 UT App 72Arlington Management v. Urology Clinic
itself” will justify nonperformance by the other party. See Cross,
2013 UT App 135, ¶ 28. Materiality “turns on a number of
factors” and should “ordinarily be resolved by the fact finder.”
Id. ¶¶ 28–29. “Summary judgment is appropriate on such factual
questions when they fall on either end of a factual continuum:
when there could be no reasonable difference of opinion, or
when the facts are so tenuous, vague, or insufficiently
established that determining the factual issue becomes
completely speculative.” Id. ¶ 29 (cleaned up). Here, the district
court did not address the materiality requirement. Without such
an analysis examining the “issue through the lens of the
foregoing standards,” the district court “erred in granting
summary judgment on the factual question of material breach.”
See id. ¶ 30.3
¶17 Second, we disagree with the district court’s conclusion
that the asserted oral modification, as described by Ms. Landau,
was too non-specific to be enforceable. “It is well-settled law that
the parties to a contract may, by mutual consent, alter all or any
portion of that contract by agreeing upon a modification thereof.”
Rapp v. Mountain States Tel. & Tel. Co., 606 P.2d 1189, 1191 (Utah
1980) (emphasis added). The parties acknowledge that a contract
may be modified by an oral agreement even if, as in this case, the
contract says it can be modified only in writing. See, e.g., R.T.
Nielson Co. v. Cook, 2002 UT 11, ¶ 13 n.4, 40 P.3d 1119. The
modified terms “govern the rights and obligations of the parties
under the contract, and any pre-modification contractual rights
3. We do not mean to suggest that materiality is the only factual
issue that remains unresolved. For instance, there may be
questions of fact as to whether the Clinic is equitably estopped
from raising the first breach rule as a defense. See State Dep't of
Hum. Servs. ex rel. Parker v. Irizarry, 945 P.2d 676, 678 (Utah 1997)
(stating that “the issue of whether equitable estoppel has been
proven is a classic mixed question of fact and law”).
20190503-CA 9 2021 UT App 72Arlington Management v. Urology Clinic
which conflict with the terms of the contract as modified must be
deemed waived or excused.” Rapp, 606 P.2d at 1191.
¶18 For purposes of the Clinic’s motion for summary
judgment, the district court accepted as true that the Clinic asked
Arlington to “not withdraw its monthly compensation” as
required by Section 6.3 of the Management Agreement but that
the Clinic still promised that “Arlington would receive full
compensation for its provision of management services at a later
date.” However, the court ruled that the oral modification was
unenforceable because it “lacked enforceable terms regarding
the time for payment to Arlington.” We disagree.
¶19 A modification can affect “the provisions which were
discussed [as part of the modification], but not [the] provisions
which were ignored.” See Mann v. American W. Life Ins. Co., 586
P.2d 461, 464 (Utah 1978). The limited facts on the record at the
summary judgment stage do not establish, as a matter of law,
that the parties’ alleged oral modification altered or otherwise
addressed Section 12.2 of the Management Agreement. That
provision states, “On termination of this Agreement, [the Clinic]
promptly shall pay to [Arlington] any unpaid sums due under
this Agreement, prorated through the effective date of such
termination.” Although the “later date” for payment was not
specified in the oral modification, Section 12.2 of the
Management Agreement provided a backstop, indicating that
the Clinic could not postpone its payment obligation beyond the
date of termination. Whether the oral modification waived or
excused Section 12.2 cannot be determined on this summary
judgment record.
¶20 Even setting Section 12.2 aside, a reasonable time frame
for repayment may be implied. “An implied reasonable time
limit is as much a part of the agreement as those terms that are
expressed, and it has long been recognized that if a contract fails
to specify a time of performance the law implies that it shall be
done within a reasonable time under the circumstances.”
20190503-CA 10 2021 UT App 72Arlington Management v. Urology Clinic
NetDictation LLC v. Rice, 2019 UT App 198, ¶ 27, 455 P.3d 625(cleaned up). As such, failure to specify a time for repayment at a
later date did not render the oral modification unenforceable as a
matter of law. Therefore, we vacate the entry of summary
judgment in the Clinic’s favor.
II. Arlington’s Motion for Summary Judgment
¶21 Having persuaded us that the district court erred in
granting the Clinic’s motion for summary judgment, Arlington
urges us to go one step further and reverse the court’s denial of
Arlington’s cross-motion for summary judgment on its breach of
contract claim. The district court principally denied Arlington’s
motion “for the same reasons that [the Clinic’s] motion for
summary judgment was granted.” But the court also ruled, in
the alternative, that there were “several disputes of material fact
that would have prevented the court from granting [Arlington’s]
motion for summary judgment, including the issue of whether
Arlington actually did perform its duties under the Management
Agreement.”
¶22 We agree with the district court that questions of material
fact preclude summary judgment on Arlington’s contract claim.
In addition to those disputed facts already identified in Part I of
this opinion, the parties dispute whether Arlington performed
its duties under the Management Agreement, a necessary
element of Arlington’s breach of contract claim. See Carmichael v.
Higginson, 2017 UT App 139, ¶ 10 n.5, 402 P.3d 146 (listing
elements of a breach of contract claim, including “performance
by the party seeking recovery” (cleaned up)). Ms. Landau’s
declaration broadly asserted that Arlington had “timely
performed all obligations and duties that it was required to
perform under the Management Agreement.” As further factual
support for this assertion, Arlington pointed to Ms. Landau’s
deposition testimony that Arlington provided services
“regarding lots of financial aspect[s] of insurance and
employees, etc.,” and that Arlington “was also involved in
20190503-CA 11 2021 UT App 72Arlington Management v. Urology Clinic
communications with [the Clinic’s] billing professionals and ‘a
myriad of things.’” In opposing Arlington’s motion, the Clinic
disputed that Arlington had performed the “promised services
in Articles 2, 3, 4, 5, and 6” of the Management Agreement and
offered Dr. Landau’s declaration that Arlington had failed to
“regularly attend[] or participate[] in the [Clinic’s]
administrative meetings,” that he personally provided oversight
on accounting matters “many times,” and that he and others
performed the management duties that Arlington had agreed to
exclusively provide.
¶23 Arlington argues that the Clinic did not set forth specific
facts demonstrating a genuine dispute for trial because it “failed
to cite a single instance where Arlington failed to perform as
anticipated under the [Management] Agreement.” But the facts
set forth by the Clinic were at least as specific as the evidence
offered by Arlington, the moving party who would bear the
burden of establishing its breach of contract claim at trial. See
Salo v. Tyler, 2018 UT 7, ¶ 26, 417 P.3d 581 (“A movant who seeks
summary judgment on a claim on which it will bear the burden
of persuasion at trial cannot seek summary judgment without
producing affirmative evidence in support of the essential
elements of its claim.”). The limited evidence regarding
Arlington’s performance did not establish that no genuine issue
of material fact remained for trial. Therefore, the district court
correctly denied Arlington’s cross-motion for partial summary
judgment on that basis.
CONCLUSION
¶24 Issues of material fact preclude summary judgment in
favor of either party. Accordingly, we vacate the district court’s
ruling granting summary judgment for the Clinic and affirm the
court’s ruling denying partial summary judgment for Arlington.
We remand for further proceedings consistent with this opinion.
20190503-CA 12 2021 UT App 72