Iota, LLC v. Davco Management Co.

IN THE UTAH COURT OF APPEALS
‐‐‐‐ooOoo‐‐‐‐
Iota, LLC, a Utah limited liability ) OPINION
company; and California Benefit, Inc., a )
California corporation, ) Case No. 20100855‐CA
)
Plaintiffs and Appellees, )
) FILED
v. ) (August 2, 2012)
)
Davco Management Company, LC, a ) 2012 UT App 218Utah limited liability company, )
)
Defendant and Appellant. )
‐‐‐‐‐
Fifth District, St. George Department, 080502981
The Honorable James L. Shumate
Attorneys: Darwin C. Fisher, St. George, for Appellant
Paul D. Veasy, David R. Hall, and Alan S. Mouritsen, Salt Lake City, for
Appellees
‐‐‐‐‐
Before Judges McHugh, Voros, and Davis.
DAVIS, Judge:
¶1 Davco Management Company, LC (Davco) appeals several of the trial court’s
rulings in favor of Iota, LLC and California Benefit, Inc. (collectively, Plaintiffs). We
affirm in part, and reverse and remand in part.
BACKGROUND
¶2 In 2005, Davco, through its member and manager, David Fisher, entered into a
real estate purchase contract (REPC) with Iota for the purchase of Casa Sonoma and
with California Benefit for the purchase of Casa Grande, both of which are apartment
complexes located in St. George, Utah. That purchase was never finalized because
Davco was unable to obtain financing. However, in 2006, the parties entered into new
REPCs for the purchase of the properties using owner financing. Under the new
REPCs, Davco executed a promissory note for each property (the promissory notes).
The first was executed in favor of Iota in the amount of $1,341,395, with the entire
balance due on or before December 1, 2007. The second was executed in favor of
California Benefit in the amount of $2,411,596, with the entire balance due on or before
December 10, 2007. Davco was to make monthly interest‐only payments on the notes
until they became due. To secure payment of the notes, Davco also executed a trust
deed for each property in favor of each property’s seller (the trust deeds), granting a
security interest in the property, rents, and security deposits.
¶3 In connection with the purchase, Davco requested profit and loss statements for
the apartment complexes (the financial information). In advance of closing, Plaintiffs
provided Davco with financial information for January 2005 through May 2006. Davco
contends that this information was inaccurate because the statements contained
information for other properties as well. Davco also alleges that Plaintiffs never
provided financial information for the remainder of 2006, although the trial court found
that Plaintiffs provided that information in February 2007. Davco contends that
Plaintiffs orally agreed to provide the financial information and that this information
was necessary in order for it to obtain financing.
¶4 Although Fisher attempted to obtain lender financing in order to pay the
balances on the promissory notes, his loan application was denied on February 21, 2008,
because (1) he “did not have two years of income stream as the owner,” (2) the
appraised value of Casa Grande was lower than anticipated, and (3) he had credit
problems arising from eleven previous foreclosures. As a result, Davco was unable to
pay the balance of the promissory notes when they matured in December 2007.
However, Davco continued to seek financing after the maturity dates, and Plaintiffs
continued to assist it in that effort.
20100855‐CA 2
¶5 While the apartments were under Davco’s ownership, Davco conveyed Casa
Sonoma to Fisher’s father (Father) without Iota’s knowledge or consent. The
apartments were ultimately conveyed back to Davco.1 Additionally, Davco recorded a
$500,000 trust deed encumbering Casa Sonoma in favor of Fab 5 Management LLC, also
without the knowledge or consent of Iota.
¶6 On June 3, 2008, approximately six months past the maturity dates on the
promissory notes, Plaintiffs requested that Davco obtain financing by the end of July
2008. When Davco still had not obtained financing by August 25, 2008, Plaintiffs
requested that Davco deliver deeds in lieu of foreclosure. Davco refused the request
and asked Plaintiffs for an extension until October 2. Plaintiffs agreed but requested
that Davco increase its monthly payments by $1,000 per month for Casa Sonoma and
$1,500 per month for Casa Grande as consideration for the extension. Davco rejected
the request and stopped payment on the September interest checks to Plaintiffs, after
which Davco made no additional payments. On September 9, 2008, Davco requested
reimbursement for the cost of improvements made to the apartments while they were
under Davco’s ownership. On September 24, Davco repeated the request and further
alleged that Plaintiffs had previously agreed to a one‐year extension on the maturity
dates of the promissory notes. Plaintiffs denied the allegation and ultimately proceeded
with nonjudicial foreclosures of the properties, at which time they discovered the
conveyance to Father and the $500,000 encumbrance.
¶7 Between the time that Davco stopped making monthly payments in September
2008 and the time of the trustee’s sale in February 2009, Davco collected and retained
rents and security deposits from the apartment tenants. On November 5, 2008, the trial
court issued an Ex Parte Order requiring that Davco and Fisher deposit all rents
collected with the court.2 The Ex Parte Order was sent to Davco and Fisher’s attorney,
who neither filed an objection nor moved to have it set aside at that time. Davco and
1
Conveying the apartments to Father was apparently part of an effort to obtain
financing in Father’s name.
2
At the time the Ex Parte Order was issued, Fisher was a party to the
proceedings. He was ultimately removed as a party in Plaintiffs’ first amended
complaint.
20100855‐CA 3
Fisher did not deposit any of the rent or security deposits with the trial court until
August 7, 2009, at which point they deposited $33,805.33.
¶8 A trustee’s sale was conducted on February 20, 2009. Iota purchased Casa
Sonoma with a credit bid of $934,000, and California Benefit purchased Casa Grande
with a credit bid of $1,800,000. Following the trustee’s sale, Plaintiffs brought suit to
obtain deficiency judgments against Davco and to recover the rents and security
deposits collected by Davco between September 1, 2008, and February 20, 2009. Davco
disputed the claims, arguing breach of contract, breach of the implied covenant of good
faith and fair dealing, equitable estoppel, and waiver. Davco also claimed that it was
entitled to recover against Plaintiffs for the cost of improvements made to the
apartments. Although no contempt allegation was raised in their complaint, Plaintiffs
raised in the pretrial order and argued in their trial brief that both Davco and Fisher
should be held in contempt for failing to comply with the Ex Parte Order. Davco
challenged the trial court’s jurisdiction to conduct the contempt proceeding in
conjunction with the trial due to the lack of an affidavit of the facts constituting
contempt. At trial, Davco also moved to have the Ex Parte Order stricken, asserting that
the trial court failed to comply with rule 67 of the Utah Rules of Civil Procedure in
issuing the order. The trial court denied the motion.
¶9 Following a three‐day trial, the trial court rejected all of Davco’s defenses and
ruled that Plaintiffs were entitled to deficiency judgments against Davco. Davco was
ordered to pay $389,438.30 to Iota and $272,266.20 to California Benefit, as well as
Plaintiffs’ attorney fees. Furthermore, the trial court concluded that Davco’s failure to
remit the rent and security deposits to Plaintiffs was a violation of the terms of the trust
deeds and awarded Plaintiffs $132,844.96 for that violation. The trial court also ruled
that Davco had violated the terms of the Iota trust deed by conveying Casa Sonoma to
Father and by encumbering the property. The trial court dismissed Davco’s claim that
it was entitled to a set‐off for improvements made to the property. The trial court also
held Davco and Fisher in contempt for their failure to comply with the Ex Parte Order
and awarded Plaintiffs $71,119.17, representing rent and security deposits, together
with their attorney fees in connection with the contempt.3 Davco now appeals.
3
The deficiency judgments were to be reduced by the amounts already deposited
with the court and by any amounts paid under the judgment for violation of the terms
of the trust deeds and the judgments for contempt.
20100855‐CA 4
ISSUES AND STANDARDS OF REVIEW
¶10 On appeal, Davco argues that the trial court made a number of errors. First,
Davco challenges several of the trial court’s factual findings, claiming that the findings
were unsupported by the evidence. We review a trial court’s findings of fact for clear
error. See Houskeeper v. State, 2008 UT 78, ¶ 18, 197 P.3d 636.
¶11 Second, Davco argues that the court incorrectly applied the statute of frauds and
its part performance exception. This is a mixed question of law and fact. See Spears v.
Warr, 2002 UT 24, ¶ 23, 44 P.3d 742, overruled on other grounds by Tangren Family Trust ex
rel. Tangren v. Tangren, 2008 UT 20, ¶ 16 & n.20, 182 P.3d 326. Thus, we review the trial
court’s determinations regarding the applicability of the statute of frauds for correctness
and its underlying factual determinations for clear error. See id.
¶12 Third, Davco argues that the trial court should have ruled that Plaintiffs’ claims
were barred by equitable estoppel. “The issue of whether equitable estoppel has been
proven is a classic mixed question of fact and law.” Department of Human Servs. ex rel.
Parker v. Irizarry, 945 P.2d 676, 678 (Utah 1997). Because the equitable estoppel inquiry
is highly fact‐sensitive, “we properly grant the trial court’s decision a fair degree of
deference when we review the mixed question of whether the requirements of the law
of estoppel have been satisfied in any given factual situation.” Id.
¶13 Fourth, Davco contests the trial court’s conclusion that Plaintiffs did not waive
their right to enforce the terms of the promissory notes. “[W]e . . . grant very broad
discretion to the trial court’s application of legal propositions to the facts in waiver
cases.” Living Scriptures, Inc. v. Kudlik, 890 P.2d 7, 10 (Utah Ct. App. 1995).
¶14 Fifth, Davco contests the trial court’s finding that Plaintiffs did not breach the
implied covenant of good faith and fair dealing. “[W]hether there has been a breach of
good faith and fair dealing is a factual issue,” Cook v. Zions First Nat’l Bank, 919 P.2d 56,
61 (Utah Ct. App. 1996), and “[w]e review questions of fact under the clearly erroneous
standard,” Tangren Family Trust ex rel. Tangren v. Tangren, 2006 UT App 515, ¶ 6, 154
P.3d 180, aff’d, 2008 UT 20, 182 P.3d 326.
¶15 Sixth, Davco contends that the trial court lacked jurisdiction to hold Davco and
Fisher in contempt. “We review legal conclusions concerning the existence of
20100855‐CA 5
jurisdiction for correctness and afford no deference to the district court.” State v.
Mullins, 2005 UT 43, ¶ 6, 116 P.3d 374.
¶16 Seventh, Davco argues that the Ex Parte Order was invalid because the trial court
did not comply with rule 67 of the Utah Rules of Civil Procedure. “We review the
interpretation and application of a rule of procedure for correctness.” Edwards v. Powder
Mountain Water & Sewer, 2009 UT App 185, ¶ 14, 214 P.3d 120. Nevertheless, where the
outcome of the proceedings is not affected by an alleged error, it will be considered
harmless. See Covey v. Covey, 2003 UT App 380, ¶ 21, 80 P.3d 553.
¶17 Finally, Davco argues that the trial court erred in concluding that it had breached
the terms of the Iota trust deed by conveying Casa Sonoma to Father and by recording
the $500,000 encumbrance. Because this argument was not preserved for appeal, Davco
argues plain error. In order to demonstrate plain error, Davco must establish “that
there was error below, that the error should have been obvious to the district court, and
that the error was prejudicial.” State v. Diaz‐Arevalo, 2008 UT App 219, ¶ 13, 189 P.3d
85.
ANALYSIS
I. Factual Findings
¶18 Davco challenges three of the trial court’s factual findings: (1) that there was no
oral contract to extend the maturity dates of the promissory notes, (2) that Plaintiffs
provided the financial information to Davco, and (3) that the financial information was
not necessary in order for Davco to refinance. We conclude that all of these findings are
either supported or constitute harmless error.
¶19 Although both parties present arguments regarding the sufficiency of the
evidence to support the trial court’s finding that no oral contract existed, it does not
appear to us that the trial court ever made such a finding. The findings merely state
that Fisher alleged that Plaintiffs had agreed to a one‐year extension and that Richard T.
Murset, managing member of both Iota and California Benefit, denied that such an
agreement existed. Because any such oral agreement would be unenforceable under the
statute of frauds, and because we ultimately conclude that the part performance
20100855‐CA 6
exception to the statute of frauds does not apply in this case for reasons independent of
the oral contract’s existence, see infra ¶¶ 24‐25, we conclude that the trial court’s failure
to make a specific finding as to the existence of the oral contract was harmless.
¶20 Davco next alleges that the trial court’s finding that Plaintiffs provided Davco
with the financial information was clearly erroneous because the evidence was
insufficient to demonstrate that the financial information for June through December of
2006 was ever provided. Murset’s testimony that he provided the remainder of the 2006
information in February 2007 was sufficient to support the trial court’s finding to that
effect. Davco makes a number of arguments concerning the lack of documentation and
inconsistencies between Murset’s deposition and his testimony at trial. However, the
trial court was free to accept Murset’s testimony even in the absence of supporting
documentation and in the face of alleged inconsistencies, see Henshaw v. Henshaw, 2012
UT App 56, ¶¶ 11‐12, 271 P.3d 837 (explaining that “[i]t is within the province of the
trial court, as the finder of fact, to resolve issues of credibility” and that a lack of
documentary evidence supporting a witness’s testimony or contradictory testimony
from other witnesses does not preclude the trial court from accepting the witness’s
testimony as true), especially given that those inconsistencies appear to be attributable
mainly to confusion about what was being asked.
¶21 Davco also alleges that it could not use the information provided to obtain
refinancing because it included information regarding other rentals managed by
Plaintiffs and the manner in which the numbers were presented made it impossible to
determine what portion of the numbers actually reflected the profits and losses of Casa
Grande and Casa Sonoma. However, even if we were to accept Davco’s assertion that
the financial information was detrimentally over‐inclusive and that this fact rendered
the trial court’s finding erroneous, any error in the finding was harmless in light of the
trial court’s additional finding that the financial information was not needed to obtain
refinancing.
¶22 The trial court’s finding that the financial information was unnecessary was
supported by the evidence and therefore not clearly erroneous. Davco asserts that the
evidence on which the trial court relied—the testimony of the mortgage broker that
Davco needed two years of financial information under its ownership and that the 2005
and 2006 financial information could not assist the refinance—was stricken by the trial
court on hearsay grounds. However, the trial court struck only the mortgage broker’s
20100855‐CA 7
testimony regarding statements made to him by a commercial lender. The mortgage
broker’s testimony regarding the reasons the loan application was denied was not
hearsay. The mortgage broker testified that one of the reasons for the denial was
Fisher’s failure to meet seasoning requirements, which he explained required a two‐
year financial history from the current owner of the property. The mortgage broker also
testified that in processing Davco’s application, he never requested that Fisher provide
him with the financial information for 2005 and 2006. This non‐hearsay evidence was
sufficient to support the trial court’s finding that the financial information was not
necessary to obtain financing.
II. Statute of Frauds
¶23 The trial court ruled that Davco’s defense that it had orally agreed with Plaintiffs
to a one‐year extension on the maturity dates of the promissory notes was barred by the
statute of frauds. Davco does not dispute that the alleged modification is subject to the
statute of frauds. See generally Fisher v. Fisher, 907 P.2d 1172, 1176 (Utah Ct. App. 1995)
(“[W]hen a contract is required to be in writing, the same requirement applies with
equal force to any alteration or modification thereof.” (alteration in original) (internal
quotation marks omitted)). Rather, Davco asserts that the modification is subject to the
part performance exception to the statute of frauds. “[W]here there is evidence of part
performance under the modified agreement, and where it would be inequitable to
permit a party to repudiate the oral modification and seek enforcement of the written
contract, the oral agreement may be removed from the statute of frauds and enforced.”
Id. at 1177. In order for an oral contract to come under the part performance exception
to the statute of frauds, the following conditions must exist:
First, the oral contract and its terms must be clear and
definite; second, the acts done in performance of the contract
must be equally clear and definite; and third, the acts must
be in reliance on the contract. Such acts in reliance must be
such that a) they would not have been performed had the
contract not existed, and b) the failure to perform on the part
of the promisor would result in fraud on the performer who
relied, since damages would be inadequate.
Martin v. Scholl, 678 P.2d 274, 275 (Utah 1983) (internal quotation marks omitted).
20100855‐CA 8
¶24 Because we conclude that the reliance prong of the test is not satisfied here, we
agree with the trial court that Davco’s breach of contract defense is barred by the statute
of frauds. The requirements of this prong are most stringent where the existence of the
oral contract is uncertain, that is, where neither independent acts nor an admission of
the contract affirmatively demonstrate that an oral contract existed. See id. at 277‐78.
Such is the case here. Plaintiffs vigorously deny the existence of an oral contract to
extend the maturity dates, and the only evidence of the contract presented by Davco is
Fisher’s assertion and the testimony of the real estate agent that he “vaguely”
remembered Murset telling him that Plaintiffs had given Davco “another year” to
refinance. The disputed evidence in this case required the trial court to make a
credibility judgment on the question of whether an oral contract existed, and thus, the
acts in reliance must have been “exclusively referable to the contract,”4 see id. at 277(internal quotation marks omitted), in order for the oral contract to be enforceable on
grounds of part performance. See id. at 274, 280 (holding that a ranch foreman’s actions
of working long hours, declining more lucrative employment, and performing personal
services for the employer were not exclusively referable to an alleged promise by the
employer to convey 120 acres of land to the foreman in return for his continued
employment, particularly given that the existence of the oral contract was vigorously
disputed). In other words, Davco’s performance in reliance on the alleged oral contract
“must be reasonably explicable only on the postulate that a contract exists.” See id. at
277 (internal quotation marks omitted).
¶25 Davco’s actions here are not such that they can only be explained by an
agreement with Plaintiffs to extend the maturity dates by a year. Its actions can just as
easily be explained by Plaintiffs’ leniency in enforcing the maturity dates and
cooperation with Davco’s continued efforts to obtain financing after the maturity dates
had passed. If Davco hoped to ultimately obtain refinancing and Plaintiffs had
indicated a willingness to cooperate with the financing after the maturity dates, it is to
be expected that Davco would continue to manage the apartments and make payments
on the promissory notes until it could pay the balance due to Plaintiffs; Davco could not
have expected Plaintiffs to continue to indulge Davco’s delay in paying the balance if
4
While it does not appear that the trial court ever made a specific finding as to
whether an oral agreement was made, see supra ¶ 19, the trial court’s failure to make a
finding on this issue was harmless because any part performance on the part of Davco
was not exclusively referable to the alleged oral contract, see infra ¶ 25.
20100855‐CA 9
Davco was not at least making the agreed‐upon monthly payments.5 Thus, Davco’s
actions indicate merely an ongoing cooperation between the parties and are not
exclusively referable to the alleged oral contract to extend the maturity dates for a
particular period of time.6
III. Equitable Estoppel
¶26 Davco next contends that the trial court should have concluded that Plaintiffs’
claims were barred by equitable estoppel. This claim is based on Davco’s assertion that
Plaintiffs failed to fulfill their promises to provide Davco with accurate financial
information and to extend the maturity dates on the promissory notes by one year.
¶27 In order to establish equitable estoppel, a party must prove
(1) a statement, admission, act, or failure to act by one party
inconsistent with a claim later asserted; (2) reasonable action
or inaction by the other party taken on the basis of the first
5
Davco also asserts that it spent approximately $128,376 on remodeling costs in
reliance on the agreement to extend the maturity dates. However, Fisher testified at
trial that the improvements were made during 2006 and 2007. Since the oral agreement
is not alleged to have been entered into until at least December 2007, when the maturity
dates were reached, the fact that Davco undertook the improvements does not indicate
any reliance on an oral agreement to delay the maturity dates. And even if some
improvements continued after the maturity dates, we cannot say that such
improvements would be exclusively referable to an oral agreement.
6
Although the parties also argue the applicability of the statute of frauds to
Plaintiffs’ alleged agreement to provide the financial information, the trial court did not
explicitly rule on that question. Rather, the trial court implicitly rejected it by finding
that the financial information was not needed for the refinance—in other words, any
breach of an alleged promise to provide the financial information would be immaterial
because the financial information could not have helped Davco obtain refinancing.
Because the financial information was not needed for the refinance, Davco cannot
demonstrate that its acts were in any way reliant on the alleged promise to provide the
financial information.
20100855‐CA 10
party’s statement, admission, act, or failure to act; and (3)
injury to the second party that would result from allowing
the first party to contradict or repudiate such statement,
admission, act, or failure to act.
Whitaker v. Utah State Ret. Bd., 2008 UT App 282, ¶ 22, 191 P.3d 814 (internal quotation
marks omitted). Davco cannot establish the third prong of the test—that it was injured
by Plaintiffs’ alleged failure to provide accurate financial information and to extend the
maturity dates.
¶28 First, the trial court’s finding that the financial information was not needed to
obtain financing forecloses the possibility that the failure to provide the information
injured Davco. But even if we were to agree with Davco that the evidence was
insufficient to support this finding, Davco has pointed us to no evidence that would
support the opposite conclusion, i.e., that the financial information was necessary to
obtain refinancing and that Plaintiffs’ failure to provide it caused Davco’s failure to
refinance. At best, Davco’s arguments might demonstrate that the effect of not
providing the financial information to the mortgage broker was unknown.
¶29 Similarly, Davco failed to establish that it would have been able to refinance if
the maturity dates had been extended to December 2008 in accordance with Plaintiffs’
other alleged promise, given that its original application was rejected not only for
Davco’s failure to meet seasoning requirements but also due to the low appraisal and
Fisher’s bad credit. The most Davco can show is that the mortgage broker stated in his
deposition that he did not know whether the loan would have been approved if the
seasoning requirement had been met, a statement the broker repudiated at trial. In fact,
despite the fact that the trustee’s sale did not occur until February 2009, two months
past the time Davco claims it should have been permitted to refinance, Davco never did
manage to obtain refinancing. See generally Utah Code Ann. § 57‐1‐31 (2010) (outlining
the procedure for curing a default under a trust deed).
¶30 While the trial court did not make any explicit conclusions regarding equitable
estoppel, its ruling in favor of Plaintiffs implicitly and justifiably rejects this defense.
Because we conclude that Davco failed to meet its burden in establishing its equitable
estoppel claim, see generally State v. Hamilton, 2003 UT 22, ¶ 35, 70 P.3d 111 (explaining
20100855‐CA 11
that “estoppel is an affirmative defense” and its proponent has “the burden of proving
reliance”), we affirm the trial court’s implicit ruling.
IV. Waiver
¶31 Next, Davco asserts that Plaintiffs waived their right to declare a default when
the maturity dates passed without payment because they agreed to a one‐year extension
on the maturity dates of the promissory notes. Because we have determined that any
such agreement was unenforceable due to its failure to comply with the statute of
frauds, Davco’s waiver argument fails.
V. Covenant of Good Faith and Fair Dealing
¶32 Davco asserts that Plaintiffs breached the implied covenant of good faith and fair
dealing because their failure to either provide the financial information or delay the
maturity dates long enough for Davco to establish a two‐year history of ownership
prevented Davco from refinancing. “Under the covenant of good faith and fair dealing,
each party impliedly promises that he will not intentionally or purposely do anything
which will destroy or injure the other party’s right to receive the fruits of the contract.”
Brown v. Moore, 973 P.2d 950, 954 (Utah 1998) (internal quotation marks omitted).
“[O]ne party may not render it difficult or impossible for the other to continue
performance and then take advantage of the non‐performance he has caused.” Zion’s
Props., Inc. v. Holt, 538 P.2d 1319, 1321 (Utah 1975). That is not what occurred here.
¶33 As to Plaintiffs’ alleged failure to provide the financial information, the trial court
determined that the information was not needed for refinancing, so the failure to
provide it could not have been a breach of the covenant of good faith and fair dealing.
Moreover, Plaintiffs’ refusal to give Davco an additional year to refinance so it could
establish two years of ownership could not have been a breach of good faith and fair
dealing because Plaintiffs were not required to surrender their rights under the
promissory notes in order to assist Davco in refinancing. Declining to give up rights
granted by a contract does not constitute a breach of the covenant of good faith and fair
dealing, cf. Cook Assocs., Inc. v. Utah Sch. & Institutional Trust Lands Admin., 2010 UT App
284, ¶ 16, 243 P.3d 888, and the alleged promise to do so in this case is unenforceable
under the statute of frauds. Furthermore, it does not appear that Davco would have
ultimately benefitted from an extension because the trial court found that there were
20100855‐CA 12
factors apart from the seasoning issue that prevented Davco from refinancing and
because Davco never did refinance, despite accruing two years of ownership prior to
the trustee’s sale. Thus, Plaintiffs’ actions were unlikely to have injured Davco’s ability
to receive the fruits of its contract.
VI. Contempt
¶34 Davco next challenges the trial court’s finding of contempt against Davco and
Fisher, asserting that Davco and Fisher were not provided with proper notice of the
contempt allegation and that the trial court therefore lacked jurisdiction to hold either of
them in contempt.7 Utah Code section 78B‐6‐302(2) provides, “When [a] contempt is
not committed in the immediate view and presence of the court or judge, an affidavit or
statement of the facts by a judicial officer shall be presented to the court or judge of the
facts constituting the contempt.” Utah Code Ann. § 78B‐6‐302(2) (2008). In this case, no
affidavit was ever filed. The contempt issue makes its first appearance in the December
18, 2009 pretrial order, which states that Plaintiffs were “seek[ing] judgment against
David Fisher individually, specifically requesting that he be held in contempt of court
for his willful violation of the Order and that judgment be entered against him for the
rents and security deposits taken by him.” The pretrial order says nothing regarding a
contempt allegation against Davco. Plaintiffs’ trial brief then proceeds to present facts
and argument in support of Plaintiffs’ contempt allegations against both Davco and
Fisher. However, neither the pretrial order nor the trial brief contains an appropriate
affidavit.8
7
Davco also contends that the notice it received did not comply with due process
requirements, but because we reverse the contempt order on jurisdictional grounds, we
need not reach this question.
8
Plaintiffs assert that deposition testimony by Fisher, which was quoted in their
trial brief, was the equivalent of an affidavit. While it is possible that a sworn
admission by the alleged contemnor could meet the statute’s affidavit requirement, cf.
Crank v. Utah Judicial Council, 2001 UT 8, ¶ 28 n.11, 20 P.3d 307 (noting the possibility
that a verified pleading might be considered equivalent to an affidavit in the context of
a contempt proceeding), we do not think the requirement was met under the
circumstances of this case, where the Plaintiffs merely quoted a few lines of Fisher’s
(continued...)
20100855‐CA 13
¶35 Plaintiffs assert that the arguments in their pleadings satisfied due process
because they provided “adequate and timely notice of the charges made against the
alleged contemnor” by “set[ting] forth the acts done or omitted that form the factual
basis for the contempt charge,” see Khan v. Khan, 921 P.2d 466, 468‐69 (Utah Ct. App.
1996) (internal quotation marks omitted), just as an affidavit would have done. But the
statutory affidavit requirement is not concerned only with due process; it is
jurisdictional. See Robinson v. City Court ex rel. City of Ogden, 112 Utah 36, 185 P.2d 256,
258 (1947). Thus, even assuming that the discussion in the pretrial order and the trial
brief complies with due process, it is not sufficient under the statute to confer
jurisdiction on the trial court in the absence of an affidavit. Cf. Jones v. Cox, 84 Utah 568,
37 P.2d 777, 778 (1934) (reversing a trial court’s contempt ruling on jurisdictional
grounds where the trial court had issued an order to show cause but no initiating
affidavit was ever filed). Thus, the trial court’s contempt ruling cannot stand.9
8
(...continued)
deposition in their trial brief. Plaintiffs further asserted at oral argument that “the
attorneys’ making the motions before the court” regarding contempt was the equivalent
of “a statement of facts by a judicial officer.” The term “judicial officer” is not explicitly
defined for purposes of section 78B‐6‐302. However, as that term is used in other
provisions of the Utah Code relating to contempt, it is apparent that it refers to judges
and not attorneys. See Utah Code Ann. § 78B‐6‐301(12) (2008) (listing “[d]isobedience of
the lawful orders or process of a judicial officer” as an action constituting contempt); id.
§ 78A‐2‐218 (providing that “[e]very judicial officer has power” to enforce order in
court proceedings, compel obedience to court orders, compel attendance of individuals
in court, administer oaths in court proceedings, and punish for contempt). We therefore
determine that the appropriate definition of a judicial officer in the context of section
78B‐6‐302 is “any justice or judge of a court of record or any county court judge,” see
Utah Code Ann. § 20A‐1‐102(36) (Supp. 2011) (defining “judicial officer” for purposes of
the election code). Thus, a written pleading submitted by an attorney does not
constitute “a statement of the facts by a judicial officer.”
9
Davco also appears to contend that the trial court did not have personal
jurisdiction over Fisher to hold him in contempt. As a matter of clarification, we
reiterate that
a trial court has the power to hold non‐parties in contempt if
(continued...)
20100855‐CA 14
VII. Rule 67
A. Harmless Error
¶36 Davco also argues that the trial court erred in issuing the Ex Parte Order without
complying with the terms of rule 67 of the Utah Rules of Civil Procedure, which permits
such an order only “[w]hen it is admitted by the pleadings, or shown upon the
examination of a party, that he has in his possession or under his control any money . . .
which belongs or is due to another party.” Utah R. Civ. P. 67. Davco asserts that if the
trial court did indeed fail to comply with rule 67 in issuing the Ex Parte Order, then
Davco and Fisher cannot be found in contempt for violating it. Because we determine
that the trial court never acquired jurisdiction over the contempt issue, we have relieved
Davco and Fisher of the only harm they claim as a result of the issuance of the allegedly
unlawful Ex Parte Order and any error in issuing that order was harmless.
B. Collateral Bar Doctrine
¶37 Judge Voros’s concurring opinion, in which Judge McHugh joins, electing not to
address the merits of Davco’s rule 67 argument in light of our determination that any
error on the part of the trial court in failing to comply with rule 67 was harmless,
constitutes the majority opinion on this matter. Nevertheless, because I anticipate that
the contempt issue may again arise on remand in the event Plaintiffs elect to pursue the
contempt matter, I would have us address the merits of the rule 67 argument as
guidance for the trial court. See generally State v. Low, 2008 UT 58, ¶ 61, 192 P.3d 8679
(...continued)
those parties conspire to frustrate a lawful order of the court.
Specifically, a person may be held in contempt for
“[d]isobedience of any lawful judgment, order or process of
the court,” or “[a]ny other unlawful interference with the
process or proceedings of a court.”
Crank, 2001 UT 8, ¶ 25 (alterations in original) (citations omitted) (quoting Utah Code
Ann. § 78‐32‐1(5), (9) (1996) (current version at Utah Code Ann. § 78B‐6‐301(5), (9)
(2008))). Furthermore, we note that at the time Fisher was initially subjected to the Ex
Parte Order, he was a party to the proceedings. See infra note 12.
20100855‐CA 15
(explaining that appellate courts have discretion to address issues that are likely to arise
on remand in order to provide guidance to the trial court).
¶38 As far as I can tell from the record and the briefs, Davco did not raise its
challenge to the validity of the Ex Parte Order until the time of trial, almost eighteen
months after the Ex Parte Order was issued and after the order had already been
violated. Rather than challenge the order, Davco and Fisher simply elected to ignore it.
“The orderly and expeditious administration of justice by the courts requires that an
order issued by a court with jurisdiction over the subject matter and person must be
obeyed by the parties until it is reversed by orderly and proper proceedings.” Maness v.
Meyers, 419 U.S. 449, 459 (1975) (internal quotation marks omitted).
Under the collateral bar doctrine, a party may not challenge
a district court’s order by violating it. Instead, he must move
to vacate or modify the order, or seek relief in [the appellate
courts]. If he fails to do either, ignores the order, and is held
in contempt, he may not challenge the order unless it was
transparently invalid or exceeded the district court’s
jurisdiction.[10]
United States v. Cutler, 58 F.3d 825, 832 (2d Cir. 1995); see also Maness, 419 U.S. at 458(“Persons who make private determinations of the law and refuse to obey an order
generally risk criminal contempt even if the order is ultimately ruled incorrect.”); United
States v. United Mine Workers of Am., 330 U.S. 258, 294 (1947) (“Violations of an order are
punishable as criminal contempt even though the order is set aside on appeal . . . .”); 17
C.J.S. Contempt § 24 (2011) (outlining the collateral bar doctrine) cf. State v. Clark, 2005
UT 75, ¶¶ 35‐36, 124 P.3d 235 (stating that “[t]he proper method for contesting an
adverse ruling is to appeal it, not to violate it” and that “an attorney who violates court
orders and breaks ethical rules . . . cannot claim immunity from contempt proceedings”
10
A third exception, excusing noncompliance with an order later found invalid
where complying with the challenged order “could cause irreparable injury” such that
“[s]ubsequent appellate vindication does not necessarily have its ordinary consequence
of totally repairing the error,” Maness v. Meyers, 419 U.S. 449, 460 (1975), is inapplicable
under the facts of this case because Fisher and Davco would have suffered no
“irreparable injury” by complying with the Ex Parte Order and depositing the funds
with the court.
20100855‐CA 16
and “may not protest adverse rulings by violating them in the name of zealous
advocacy”). “Even to invoke the ‘transparently invalid’ ‘exception,’ however, a
defendant must make some good faith effort to seek emergency relief from the appellate
court.” Cutler, 58 F.3d at 832 (additional internal quotation marks omitted). Davco
made no such effort.11 Cf. id. at 832‐33 (rejecting a defendant’s argument that an order
was transparently invalid where the defendant “made no effort whatever to vacate or
modify the order, or seek relief in [the appellate court]”). And Davco has not alleged
that the trial court lacked jurisdiction to issue the Ex Parte Order, only that it was not
supported by the appropriate admissions by Davco and Fisher.12 See generally Utah R.
Civ. P. 67. Thus, I would hold that Davco and Fisher cannot avoid a contempt charge
on the basis that the Ex Parte Order they violated was invalid when they made no good
faith effort to object to the order prior to violating it.
VIII. Davco’s Breaches
¶39 Finally, Davco argues that the trial court plainly erred in concluding that Davco
had breached the Iota trust deed by recording deeds to Father and by encumbering the
property. Davco asserts that these conclusions are relevant to Plaintiffs’ affirmative
defense that any breach resulting from the failure to provide the financial information
was excused by Davco’s previous breaches. However, because we have concluded that
Plaintiffs were not obligated to provide the financial information, any error in the trial
court’s conclusions regarding Davco’s breaches could not have been prejudicial. See
generally State v. Diaz‐Arevalo, 2008 UT App 219, ¶ 13, 189 P.3d 85 (explaining that a
party challenging a ruling on grounds of plain error must establish “that there was error
below, that the error should have been obvious to the district court, and that the error was
prejudicial” (emphasis added)).
11
In fact, even when responding to Plaintiffs’ contempt allegation in its trial brief,
Davco did not raise the issue of the Ex Parte Order’s validity. That argument appears to
have been raised for the first time during trial.
12
To the extent that Davco’s argument may be construed as asserting that the trial
court lacked personal jurisdiction over Fisher, that argument is based solely on Davco’s
contention that Fisher was not a party to the action. However, Fisher was a party at the
time the Ex Parte Order was issued on November 4, 2008, and was not removed as a
party until Plaintiffs filed their first amended complaint on November 14, 2008.
20100855‐CA 17
CONCLUSION
¶40 Because we conclude that the trial court correctly rejected Davco’s part
performance, equitable estoppel, waiver, and good faith and fair dealing claims, we
affirm the trial court’s deficiency judgment in favor of Plaintiffs. We also reject Davco’s
plain error challenge to the trial court’s findings that Davco breached the Iota trust deed
because Davco has failed to demonstrate prejudice.13 Nevertheless, we reverse the trial
court’s contempt rulings against Davco and Fisher for lack of jurisdiction and remand
to the trial court for additional proceedings, on the contempt matter only, consistent
with this opinion. And because we reverse the contempt rulings on jurisdictional
grounds, we determine that any error relating to the trial court’s Ex Parte Order was
harmless.
¶41 Affirmed in part, and reversed and remanded in part.
____________________________________
James Z. Davis, Judge
‐‐‐‐‐
VOROS, Associate Presiding Judge (concurring in part and writing for the majority in
part):
¶42 I fully concur in Judge Davis’s opinion, except as to Part VII.B. That section of
the opinion offers guidance on an issue that Judge Davis anticipates may arise on
remand. I would decline to give such guidance in this case for reasons stated below.
13
Because Plaintiffs were awarded fees in the trial court in connection with their
non‐contempt claims and have prevailed on those claims on appeal, they are entitled to
an award of their attorney fees and costs on appeal with respect to those claims, to be
assessed by the trial court on remand. See Meadowbrook, LLC v. Flower, 959 P.2d 115, 120
(Utah 1998).
20100855‐CA 18
And because Judge McHugh concurs with my opinion on this issue, the following
opinion represents the judgment of the court on this one limited point.
¶43 This court unanimously rejects Davco’s challenge to the trial court’s denial of its
motion to set aside the Ex Parte Order on the ground that any possible error was
harmless. This holding disposes of the claim of error on appeal. However, Judge Davis
would in addition hold that Davco and Fisher forfeited their right to challenge the
contempt citation on the ground that the Ex Parte Order was not a lawful order of the
court. While we recognize that we have discretion to address issues fully briefed on
appeal that will likely arise on remand, see State v. Low, 2008 UT 58, ¶ 61, 192 P.3d 867(citing State v. James, 819 P.2d 781, 795 (Utah 1991)), we decline to do so here for several
reasons.
¶44 First, we are not persuaded that the question is likely to arise on remand. Judge
Davis anticipates “that the contempt issue may again arise on remand in the event
Plaintiffs elect to pursue the contempt matter.” Of course, none of us can foretell the
future. But the fact that an issue might arise on remand if Plaintiffs elect to pursue the
matter falls short of the “likely to arise” standard.
¶45 Second, the question treated in Part VII.B was not briefed by the parties on
appeal. Judge Davis cites State v. Low, which in turn cites State v. James, and James limits
the principle of giving guidance on remand to issues “fully briefed” on appeal:
[T]here are other issues presented on appeal that will likely
arise during retrial. We therefore exercise our discretion to
address those issues for purposes of providing guidance on
remand. See State v. James, 819 P.2d 781, 795 (Utah 1991)
(“Issues that are fully briefed on appeal and are likely to be
presented on remand should be addressed by this court.”).
Low, 2008 UT 58, ¶ 61; see also Utah R. App. P. 30(a) (“If a new trial is granted, the court
may pass upon and determine all questions of law involved in the case presented upon
the appeal and necessary to the final determination of the case.” (emphasis added)).
Neither party here briefed the question of whether one who disobeys a court order
forfeits the right to challenge its lawfulness in a later contempt hearing. We are thus
disinclined to resolve the issue “without the engaged participation of the parties whose
20100855‐CA 19
affairs will be directly affected” by that resolution. See State v. Robison, 2006 UT 65, ¶ 16,
147 P.3d 448 (referring to reversing on an unbriefed issue).
¶46 Finally, the question treated in Part VII.B is one of first impression in Utah.
Davco contends that it disobeyed an unlawful order of the court. Our contempt statute
defines contempt of court to include “disobedience of any lawful . . . order . . . of the
court.” Utah Code Ann. § 78B‐6‐301 (2008) (emphasis added). We are aware of no Utah
decision addressing what lawful means as used in this statute. The Utah case cited by
our colleague holds that a lawyer’s ethical duty of zealous advocacy does not insulate
his actions from contempt proceedings. See State v. Clark, 2005 UT 75, ¶¶ 33–36, 124
P.3d 235. But in that case, the lawyer “knowingly violated a lawful court order.” Id.
¶ 39 (emphasis added). The lawfulness of the Ex Parte Order here has not been
resolved.
¶47 In sum, the question of law Judge Davis treats in Part VII.B is not necessary to
the resolution of this appeal, was not briefed by the parties, involves a novel question of
statutory interpretation, and may well not arise on remand. Consequently, we express
no opinion on it.
____________________________________
J. Frederic Voros Jr.,
Associate Presiding Judge
‐‐‐‐‐
¶48 I CONCUR:
____________________________________
Carolyn B. McHugh,
Presiding Judge
20100855‐CA 20