Cross v. Olsen

2013 UT App 135_________________________________________________________
THE UTAH COURT OF APPEALS
JERROLD L. CROSS; LAKE FOREST PROPERTIES LLC; AND COLCO
DEVELOPMENT, INC.,
Plaintiffs and Appellants,
v.
DAVID W. OLSEN AND HEARTHSTONE DEVELOPMENT, INC.,
Defendants and Appellees.
Opinion
No. 20120107‐CA
Filed May 23, 2013
Fourth District, Provo Department
The Honorable Lynn W. Davis
No. 100400063
Richard G. Allen, Attorney for Appellants
Frederick A. Jackman, Attorney for Appellees
JUDGE J. FREDERIC VOROS JR. authored this Opinion, in which
JUDGES GREGORY K. ORME and MICHELE M. CHRISTIANSEN
concurred.
VOROS, Judge:
¶1 Plaintiffs Lake Forest Properties LLC and Colco
Development, Inc. (Lake Forest) appeal the trial court’s grant of
summary judgment in favor of Defendants David W. Olsen and
Hearthstone Development, Inc. (collectively, Defendants). We
reverse and remand for further proceedings.1
1. We also vacate our earlier order sealing the record and briefs
filed in this court.
Cross v. Olsen
BACKGROUND
¶2 This appeal involves an action for indemnification. In earlier
litigation related to but separate from the present case, Lake Forest
sued Olsen, Jerrold L. Cross, and Painted Horse Holdings, LC for
breach of a water purchase agreement (the Lake Forest Action).
Painted Horse was owned and, at different times, managed by
Cross and Hearthstone Development. Hearthstone was managed
by Olsen.
¶3 Cross and Defendants were involved in a number of
disputes in addition to the Lake Forest Action. During the course
of the Lake Forest Action, Cross entered into a settlement
agreement with Defendants (the Settlement Agreement). Four
provisions of that Settlement Agreement are at issue in this appeal.
¶4 First, the Settlement Agreement contained a requirement
that Defendants indemnify Cross for certain claims (the Indemnity
Provision). In the Indemnity Provision, Defendants agreed to
indemnify Cross “from any loss or damage, including reasonable
attorneys fees and costs, arising out of the following claims against
Painted Horse: . . . The Lake Forest Action.” The Indemnity
Provision was attached as an appendix to the Settlement
Agreement.
¶5 Second, the Settlement Agreement contained a mutual
release provision (the Release Provision). The Release Provision
states that “the Parties . . . hereby fully and forever release, acquit
and discharge one another . . . from any and all claims . . . arising
out of, connected with or in any manner related to the Lawsuits or
any other potential claims which could have been raised in the
Lawsuits . . . .”
¶6 The third relevant provision of the Settlement Agreement is
a notice requirement (the Notification Provision). The Notification
Provision states that Defendants “shall notify [Lake Forest] . . . that
20120107‐CA 2 2013 UT App 135Cross v. Olsen
[Defendants] are solely responsible for the resolution of [the Lake
Forest Action].”
¶7 Finally, the principal focus of this appeal is the Settlement
Agreement’s requirement of confidentiality (the Confidentiality
Provision). The Confidentiality Provision forbids the disclosure of
any terms or conditions of the agreement, with limited enumerated
exceptions:
This Agreement, excluding the Appendices, shall be
kept in strict confidence. No terms or conditions of
this Agreement may be disclosed to any third party,
other than . . . (e) under seal to the Fourth Judicial
District Court of Utah County, Utah to enforce the
terms of this Agreement.
As noted above, the Appendices included the Indemnity Provision.
¶8 After Cross and Defendants executed the Settlement
Agreement, Cross attempted to extricate himself from the Lake
Forest Action. Cross stated to Lake Forest that “Painted Horse,
Olsen and Hearthstone were obligated to pay the amounts owed to
[Lake Forest] by reason of the Settlement Agreement.” He also
stated that “if [Lake Forest] dismissed the Lake Forest [Action]
against Cross, Cross would be able to get Painted Horse, Olsen
and/or Hearthstone to pay the amounts owed to [Lake Forest].” He
said that due to a confidentiality provision, he “could not disclose
the specific terms of [the settlement] agreement,” nor could he
“disclose why dismissing Cross from the Lake Forest Action would
help resolve the matter.” But he assured Lake Forest that it “would
be paid if Cross was dismissed.”
¶9 Lake Forest dismissed Cross from the Lake Forest Action.
Defendants never notified Lake Forest that they were responsible
for resolution of that litigation and, in fact, denied any such
obligation when Lake Forest approached them seeking payment.
After Cross’s promises of payment did not materialize, Lake Forest
20120107‐CA 3 2013 UT App 135Cross v. Olsen
rejoined Cross in the Lake Forest Action. Lake Forest later
dismissed Olsen from that action, after which a stipulated
judgment was entered against Painted Horse and a default
judgment was entered against Cross. Judgment was entered jointly
and severally against Painted Horse and Cross.
¶10 After judgment was entered against Cross in the Lake Forest
Action, Cross filed the present action against Defendants, seeking
indemnification under the Settlement Agreement. Cross did not file
this case under seal. However, Cross moved to seal the record the
next day. Cross then assigned his interest in the present litigation
to Lake Forest in an attempt to satisfy the earlier default judgment
entered against him in the Lake Forest Action. After Lake Forest
was joined as a party in the present litigation, Lake Forest and
Defendants filed cross‐motions for summary judgment.
¶11 The trial court granted summary judgment in favor of
Defendants on the ground that Cross breached the Confidentiality
Provision of the Settlement Agreement by disclosing the terms and
conditions of the Settlement Agreement to Lake Forest and by
filing this action not under seal. The court concluded that these
breaches were material and excused any performance under the
Indemnity Provision by Defendants.
ISSUE AND STANDARD OF REVIEW
¶12 Lake Forest challenges a summary judgment ruling that
(1) as a matter of law Lake Forest breached the Confidentiality
Provision and that, (2) under the “first breach” rule, Lake Forest’s
breach excused Defendants’ performance under the Indemnity
Provision. Summary judgment is appropriate when “there is no
genuine issue as to any material fact and . . . the moving party is
entitled to a judgment as a matter of law.” Utah R. Civ. P. 56(c).
“An appellate court reviews a trial court’s legal conclusions and
ultimate grant or denial of summary judgment for correctness and
views the facts and all reasonable inferences drawn therefrom in
20120107‐CA 4 2013 UT App 135Cross v. Olsen
the light most favorable to the nonmoving party.” Orvis v. Johnson,
2008 UT 2, ¶ 6, 177 P.3d 600 (citations and internal quotation marks
omitted).
ANALYSIS
I. Breach of the Confidentiality Provision
¶13 Lake Forest first challenges the trial court’s ruling that it
breached the Settlement Agreement by violating the
Confidentiality Provision. The Confidentiality Provision states,
“This Agreement, excluding the Appendices, shall be kept in strict
confidence. No terms or conditions of this Agreement may be
disclosed to any third party, other than . . . (e) under seal to the
Fourth Judicial District Court of Utah County, Utah to enforce the
terms of this Agreement.” Unauthorized disclosure subjects the
breaching party to liquidated damages of $100,000.
¶14 The trial court based its ruling on two grounds: first, Cross
breached the Confidentiality Provision by revealing terms or
conditions of the agreement through his statements made in the
Lake Forest Action; second, Cross breached the Confidentiality
Provision by filing the present case not under seal.
A. Cross’s Statements to Lake Forest
¶15 The trial court ruled that Cross’s statements, summarized
above, “disclos[ed] the essential provisions of the agreement.” Lake
Forest correctly asserts that “[t]he District Court did not point to
any terms or conditions that were disclosed.” However,
Defendants assert three possible bases for this ruling. Defendants
argue that Cross’s statements disclosed the following aspects of the
Agreement: (1) “that the Settlement Agreement contains an
indemnification agreement,” (2) that the Settlement Agreement
contains a release provision, and (3) “that the agreement contains
confidentiality restrictions.” We address each possible basis in turn.
20120107‐CA 5 2013 UT App 135Cross v. Olsen
1. Indemnity Provision
¶16 Defendants maintain that Cross breached the Confidentiality
Provision by disclosing the existence of the Indemnity Provision.
Lake Forest responds that Cross was entitled to disclose the
existence of the Indemnity Provision under the terms of the
Confidentiality Provision itself. That provision expressly excludes
appendices to the Agreement, and the Indemnity Provision was an
appendix to the Agreement. Defendants do not rebut this
contention, and we see no persuasive response. We therefore
conclude that Cross’s disclosure of the Indemnity Provision does
not support the summary judgment.
2. Release Provision
¶17 Defendants also maintain that Cross breached the
Confidentiality Provision by disclosing the existence of the Release
Provision. Lake Forest responds that Cross’s statements were
insufficient to imply the existence of the Release Provision.
Defendants do not explain the connection between the Release
Provision and Cross’s statements. They point out that Cross stated
that he “would be able to get Painted Horse, Olsen and/or
Hearthstone to pay the amounts owed” to Lake Forest, but do not
explain how this statement relates to the Release Provision. Nor is
the connection apparent. Accordingly, we conclude that, based on
the current state of the record, the trial court erred to the extent its
ruling was premised on the disclosure of this term of the
Agreement.
3. Confidentiality Provision
¶18 Finally, Defendants maintain that Cross breached the
Confidentiality Provision by revealing the existence of the
Confidentiality Provision itself. Lake Forest responds that
Defendants never alleged in the trial court that Cross disclosed
“that the agreement contains confidentiality restrictions” and that
had Defendants advanced this allegation, Lake Forest would have
20120107‐CA 6 2013 UT App 135Cross v. Olsen
refuted it. However, Lake Forest’s opening brief acknowledges
that, when asked how Cross could get Defendants to pay Lake
Forest, Cross and his counsel stated “that they were prevented
from giving any explanation by the confidentiality provision of the
Settlement Agreement.” Furthermore, the affidavit Lake Forest
provided to the trial court stated that Cross told Lake Forest that he
could not disclose the terms of the Settlement Agreement and
could not disclose why dismissing him from the suit would resolve
the matter, “because of the confidentiality requirements of the
Settlement Agreement.” Accordingly, by Lake Forest’s own
acknowledgment at trial and on appeal, Cross’s comments did
reveal the existence of a confidentiality provision in the Settlement
Agreement.
¶19 Lake Forest has not shown that the disclosure was legally
permissible. We do not consider the practicability of a
confidentiality provision requiring the parties not to disclose the
confidentiality provision itself. Cf. Commercial Real Estate Inv., LC v.
Comcast of Utah II, Inc., 2012 UT 49, ¶ 29, 285 P.3d 1193 (“[P]arties
should be permitted to enter into contracts that actually may be
unreasonable or which may lead to hardship on one side.” (citation
and internal quotation marks omitted)). Suffice it to say that Lake
Forest does not address whether the language of the contract
supports such a reading and cites no case law that would prevent
such a reading of the Confidentiality Provision. We therefore
conclude that, to whatever extent the summary judgment rests on
disclosure of the Confidentiality Provision, Lake Forest has shown
no error in it. See State v. Robison, 2006 UT 65, ¶ 21, 147 P.3d 448(stating that the appellant carries the burden of persuasion on
appeal and the appellate court will not “do the heavy lifting” for
the appellant).
B. Filing the Case Not Under Seal
¶20 The act that most troubled the trial court was Cross’s filing
of the complaint not under seal in the present case. The trial court
deemed it “an open, egregious and notorious breach of a material
20120107‐CA 7 2013 UT App 135Cross v. Olsen
provision of the agreement.” Lake Forest, to whom Cross later
assigned his interest in this litigation, challenges this ruling, noting
that “the case was sealed the day after the complaint was filed.”
Lake Forest further argues that while “[n]ot filing the complaint
under seal created the risk that the terms and conditions of the
Settlement Agreement could have been disclosed to a third party,”
Defendants do not allege any actual disclosure to a third party. The
gist of this argument is that the record does not indicate that
anyone actually read the complaint who would not have read it
had it been filed under seal.
¶21 Defendants respond with the words of the trial judge: “The
filing of an action that is not done under seal is open and notorious
and constitutes publication to the entire world. That disclosure
goes to the very heart of the confidentiality provision within the
agreement.” They also allege that “[a]lthough Cross filed a motion
to seal the file the following day,” it was not ordered sealed until
“approximately 10 days after that.”2
¶22 Although the Settlement Agreement does not expressly
prohibit the filing of a lawsuit not under seal, it contains a
discernible negative pregnant to that effect:
This Agreement, excluding the Appendices, shall be
kept in strict confidence. No terms or conditions of
this Agreement may be disclosed to any third party,
other than . . . (e) under seal to the Fourth Judicial
2. Once a motion to seal is made, the case is treated as sealed until
the court rules on the motion. See Utah Code Jud. Admin. R.
4‐202.04(2)(C) (stating that after a motion is filed to classify a record
as private, protected, or sealed, “[t]he court shall deny access to the
record until the order is entered”). The trial court’s final order
states, “Although Plaintiff filed a request to file the complaint
under seal the next day, it is undisputed that the complaint was not
originally filed under seal.”
20120107‐CA 8 2013 UT App 135Cross v. Olsen
District Court of Utah County, Utah to enforce the
terms of this Agreement.
Stating that the terms of the Settlement Agreement may not be
disclosed except in a lawsuit filed under seal implies that a lawsuit
filed not under seal would constitute disclosure. On the other hand,
the provision’s operative term is disclosed, which, we agree with
Lake Forest, does seem to contemplate communication to some
third party.
¶23 Lake Forest’s brief makes no attempt to deal with the
implications of the wording of this passage of the Settlement
Agreement. And although this issue presents a quintessential
question of contract interpretation, Lake Forest cites no relevant
case law. See Utah R. App. P. 24(a)(9) (“The argument shall contain
the contentions and reasons of the appellant with respect to the
issues presented, . . . with citations to the authorities, statutes, and
parts of the record relied on.”). Nor does Lake Forest’s brief cite
any persuasive authority addressing whether filing a complaint not
under seal, without more, may constitute a disclosure. Compare,
e.g., Baella‐Silva v. Hulsey, 454 F.3d 5, 11–12 (1st Cir. 2006) (holding
that filing a document on the district court’s electronic filing system
constituted disclosure of the terms of a settlement agreement), with
Tsintolas Realty v. Mendez, 984 A.2d 181, 186–87 (D.C. 2009) (holding
that attaching a copy of a settlement agreement to a motion did not
constitute a material breach of a confidentiality provision). In short,
Lake Forest has not carried its burden as appellant to demonstrate
that the trial court made an error of law. See Robison, 2006 UT 65,
¶ 21. We therefore conclude that, to the extent the summary
judgment rests on the filing of the complaint not under seal, Lake
Forest has shown no error in it. In sum, we affirm the trial court’s
ruling that Cross breached the Confidentiality Provision of the
Settlement Agreement insofar as that ruling rests on Cross’s
disclosure of the Confidentiality Provision and Cross’s filing of the
complaint not under seal.
20120107‐CA 9 2013 UT App 135Cross v. Olsen
II. The First Breach Rule
¶24 Next, Lake Forest challenges the trial court’s ruling that,
under the first breach rule, Cross’s breach of the Confidentiality
Provision “excus[ed D]efendants from future performance and
entitl[ed] defendants to summary judgment as a matter of law.”
Lake Forest challenges the trial court’s reliance on the first breach
rule on two grounds: (1) that any breach by Cross was at most a
technical breach, not a substantial and material breach as required
by the rule, and (2) that any breach by Cross was not “first,” but
instead was preceded by Defendants’ breach of the Notification
Provision.
A. Material Breach
¶25 “[U]nder the first breach rule a party first guilty of a
substantial or material breach of contract cannot complain if the
other party thereafter refuses to perform. He 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 (citation and internal
quotation marks omitted).
¶26 Only a material breach will excuse further performance by
the non‐breaching party. McArthur v. State Farm Mut. Auto. Ins. Co.,
2012 UT 22, ¶ 28 n.7, 274 P.3d 981. Therefore, “[n]ot every minor
failure justifies nonperformance and rescission of the contract.”
Saunders v. Sharp, 840 P.2d 796, 806 (Utah Ct. App. 1992). “‘It must
be something so substantial that it could be reasonably deemed to
vindicate the other’s refusal to perform.’” Id. (quoting Zion’s Props.,
Inc. v. Holt, 538 P.2d 1319, 1321 (Utah 1975)).3
3. The terms rescission and excuse are sometimes mistakenly
interchanged. See Sprague v. Boyles Bros. Drilling Co., 294 P.2d 689,
693 (Utah 1956). Rescission nullifies the contract, whereas excuse
(continued...)
20120107‐CA 10 2013 UT App 135Cross v. Olsen
¶27 “What constitutes so serious a breach as to justify rescission
is not easily reduced to precise statement . . . .” Polyglycoat Corp. v.
Holcomb, 591 P.2d 449, 451 (Utah 1979). But Utah courts have given
guidance on what may constitute a material breach. “[C]ertainly a
failure of performance which defeats the very object of the contract
or [is] of such prime importance that the contract would not have
been made if default in that particular had been contemplated is a
material failure.” Id. (citation and internal quotation marks
omitted). Furthermore, “[a] breach which goes to only a part of the
consideration, is incidental and subordinate to the main purpose of
the contract, and may be compensated in damages does not
warrant a rescission of the contract . . . . A rescission is not
warranted by a mere breach of contract not so substantial and
fundamental as to defeat the object of the parties in making the
agreement.” Coalville City v. Lundgren, 930 P.2d 1206, 1210 (Utah Ct.
App. 1997) (citation and internal quotation marks omitted).
¶28 The relevant question is not whether the breach goes to the
heart of the provision breached, but whether it goes to the heart of
the contract itself. See 14 Richard A. Lord, Williston on Contracts
§ 43:6, at 578–80 (4th ed. 2000) (“Generally, such nonperformance
will attain this level of materiality only when it goes to the root,
heart or essence of the contract or is of such a nature as to defeat the
object of the parties in making the contract, or . . . when the
covenant not performed is of such importance that the contract
3. (...continued)
allows a party to exercise its right to refuse to perform under a
continuing contract. See id. “[D]ifferent considerations are involved
in rescission than in a case which will justify one party in refusing
to perform because of breach by the other.” Id. However, the
principle of materiality is relevant to both doctrines. See 14 Richard
A. Lord, Williston on Contracts § 43:6, at 578–80 (4th ed. 2000)
(defining materiality in terms of excuse using language similar to
that contained in Utah cases discussing rescission); see also 26
Richard A. Lord, Williston on Contracts § 68:2, at 37–42 (4th ed. 2003)
(discussing rescission).
20120107‐CA 11 2013 UT App 135Cross v. Olsen
would not have been made without it.” (emphasis added)).
Therefore, whether a breach is material is a question of degree. Id.§ 43:6, at 577–78. It turns on a number of factors:
“(a) the extent to which the injured party will be
deprived of the benefit which he reasonably
expected; (b) the extent to which the injured party
can be adequately compensated for the part of that
benefit of which he will be deprived; (c) the extent to
which the party failing to perform or to offer to
perform will suffer forfeiture; (d) the likelihood that
the party failing to perform or to offer to perform
will cure his failure, taking account of all the
circumstances including any reasonable assurances;
(e) the extent to which the behavior of the party
failing to perform or to offer to perform comports
with standards of good faith and fair dealing.”
Cache County v. Beus, 1999 UT App 134, ¶ 37, 978 P.2d 1043 (quoting
Restatement (Second) of Contracts § 241 (1981)); see also GeoNan
Props., LLC v. Park‐Ro‐She, Inc., 2011 UT App 309, ¶ 17 n.6, 263 P.3d
1169.
¶29 “Whether a breach of a contract constitutes a material breach
is a question of fact . . . .” Orlob v. Wasatch Med. Mgmt., 2005 UT
App 430, ¶ 26, 124 P.3d 269. Therefore, the issue will ordinarily be
resolved by the fact finder, and “[s]ummary judgment should be
granted with great caution.” Cf. Apache Tank Lines, Inc. v. Cheney,
706 P.2d 614, 615 (Utah 1985) (discussing the appropriateness of
summary judgment on the issue of proximate cause). See generally
Utah R. Civ. P. 56(c) (stating that summary judgment is to be
granted when “there is no genuine issue as to any material fact and
. . . the moving party is entitled to a judgment as a matter of law.”).
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
20120107‐CA 12 2013 UT App 135Cross v. Olsen
factual issue] becomes completely speculative.” Harline v. Barker,
912 P.2d 433, 439 (Utah 1996) (citations and internal quotation
marks omitted).
¶30 Here, the trial court concluded that filing the action not
under seal constituted a material breach. The trial court also
concluded that Cross’s disclosures to Lake Forest constituted “a
substantial and material breach.” However, the trial court appears
not to have examined the issue through the lens of the foregoing
standards. Without such an analysis, the trial court erred in
granting summary judgment on the factual question of material
breach.4
B. Breach of the Notification Provision
¶31 Lake Forest also contends that any breach by Cross was
preceded by a breach by Defendants. Thus, Lake Forest argues, the
defense of excuse is unavailable to Defendants. See Jackson v. Rich,
499 P.2d 279, 280 (Utah 1972) (“[T]he party first committing a
substantial breach of a contract cannot maintain an action against
the other contracting party for a subsequent failure to perform if
4. Lake Forest also contends that Defendants are not entitled to the
defense of excuse because the trial court did not rule on a necessary
element of that defense: mutual dependence. When one party
materially breaches a provision of a contract, the other party’s
“‘subsequent failure to perform’” a specific obligation is excused
only “‘if the promises are dependent.’” Jackson v. Rich, 499 P.2d 279,
280 (Utah 1972) (quoting 17 Am. Jur. 2d Contracts § 365); see also
Saunders v. Sharp, 840 P.2d 796, 806 (Utah Ct. App. 1992); 14
Richard A. Lord, Williston on Contracts § 43:1, at 552–53 (4th ed.
2000); id. §§ 44:6–44:16, at 92–114. Lake Forest further argues that
Defendants’ obligation to indemnify Cross could not be dependent
on Cross’s obligation of confidentiality, because by the very terms
of the contract, the Indemnity Provision was excluded from the
Confidentiality Provision. We need not reach these arguments
given our resolution of the case.
20120107‐CA 13 2013 UT App 135Cross v. Olsen
the promises are dependent.” (citation and internal quotation
marks omitted)).
¶32 The Settlement Agreement obligates Defendants to “notify
the plaintiff in the Lake Forest Action” that they “are solely
responsible for the resolution” of that matter. The trial court did
not rule on whether Defendants breached the Settlement
Agreement, and it certainly did not rule on the timing of any
alleged breach. On the contrary, it commented on the difficulty of
identifying a breach precisely because the timing of the required
notification was unspecified.
¶33 Lake Forest contends that the trial court erred in not ruling
that Defendants had breached this term of the Settlement
Agreement. Defendants respond that they did better than notify the
plaintiff in the Lake Forest Action that they were solely responsible
for the resolution of that case—they actually resolved it. However,
given our resolution of this appeal, we need not address this issue,
although the trial court may do so if raised by the parties again on
remand.
CONCLUSION
¶34 In sum, Lake Forest has demonstrated as a matter of law
that Cross did not breach the Confidentiality Provision of the
Settlement Agreement by disclosing the existence of the Indemnity
Provision, because that agreement was expressly excluded from the
Confidentiality Provision. Lake Forest has also shown that the
current record, at least, falls short of showing that Cross breached
the Confidentiality Provision by disclosing the existence of the
Release Provision. However, Lake Forest has not shown that the
trial court erred in ruling that Cross breached the Confidentiality
Provision by disclosing that the Settlement Agreement contains
confidentiality restrictions or by filing his complaint not under seal.
Finally, we agree with Lake Forest that the trial court erred in
ruling that Defendants were excused from performance under the
20120107‐CA 14 2013 UT App 135Cross v. Olsen
Settlement Agreement because Defendants have not demonstrated
that, under correct legal standards, Cross’s breaches were material
as a matter of law.
¶35 Accordingly, we reverse the grant of summary judgment
and remand for further proceedings consistent with this opinion.
20120107‐CA 15 2013 UT App 135