Schenk Family Ltd. Partnership v. Northshore Ltd. Partnership

2016 UT App 124THE UTAH COURT OF APPEALS
SCHENK FAMILY LIMITED PARTNERSHIP,
Appellee,
v.
NORTHSHORE LIMITED PARTNERSHIP,
Appellant.
Opinion
No. 20141089-CA
Filed June 3, 2016
Second District Court, Ogden Department
The Honorable Noel S. Hyde
No. 070900119
Zane S. Froerer and Paul H. Johnson, Attorneys
for Appellant
Donald L. Dalton, Attorney for Appellee
SENIOR JUDGE RUSSELL W. BENCH authored this Opinion, in which
JUDGES J. FREDERIC VOROS JR. and KATE A. TOOMEY concurred. 1
BENCH, Senior Judge:
¶1 NorthShore Limited Partnership appeals the trial court’s
award of damages and attorney fees to Schenk Family Limited
Partnership (SFLP). We vacate the trial court’s award and
remand for further proceedings consistent with this opinion.
1. Senior Judge Russell W. Bench sat by special assignment as
authorized by law. See generally Utah R. Jud. Admin. 11-201(6).
Schenk Family v. NorthShore
BACKGROUND
¶2 In September 2002, SFLP obtained mining property on the
Great Salt Lake, which it leased to NorthShore. SFLP was
induced to enter the Lease, in part, due to a related Supply
Agreement between NorthShore’s sister company, Mineral
Resources International, Inc. (MRI), and Mitch Shaw and David
Schenk. 2 Two separate sections of the Lease contained provisions
indicating that “[i]n case of default by [NorthShore], all
inventory and mining rights become the property of [SFLP].” 3
¶3 In 2006, Shaw and Schenk agreed to terminate the Supply
Agreement as consideration for NorthShore’s promise to
renegotiate the Lease. However, according to SFLP, NorthShore
“refused to propose in good faith any terms for renegotiation of
the Lease.”
¶4 On February 22, 2007, SFLP, as a defendant in a case
initiated by MRI, filed a third-party complaint against
NorthShore, in which it alleged that “termination of the Supply
Agreement, under [the] circumstances, has resulted in breach
and/or termination of the [Lease].” SFLP subsequently amended
2. David Schenk is the son of SFLP’s general partners.
3. There was some dispute in the trial court as to the definition of
inventory and mining rights. NorthShore argued that mining
rights and inventory should be defined as “the subsurface
mining rights and the inventory of minerals contained below the
surface of the leasehold property,” which were owned by SFLP
and leased to NorthShore. The trial court determined that the
mining rights included a royalty agreement issued to
NorthShore by the State of Utah, which permitted NorthShore to
harvest mineral brines from the Great Salt Lake, and that
inventory included NorthShore’s inventory of mineral brines. In
light of our holding on appeal, we need not resolve this issue.
20141089-CA 2 2016 UT App 124Schenk Family v. NorthShore
its third-party complaint to add claims for breach based on
NorthShore’s failing to pay property taxes, missing rent
payments, and refusing to allow SFLP to inspect the property.
As a remedy, SFLP sought “a judicial declaration that the Lease
has terminated with consequent legal effect, including [SFLP’s]
right of immediate possession and reversion of all inventory and
mining rights.” SFLP also sought “attorney’s fees, legal
expenses, and costs of Court.”
¶5 On December 30, 2011, NorthShore filed a motion for
partial summary judgment on SFLP’s claim that NorthShore
breached the Lease by failing to pay taxes and by missing rent
payments and on SFLP’s requested remedy of termination of the
Lease. The trial court granted NorthShore’s motion, dismissing
the breach of contract claims challenged by the motion and
determining that SFLP could not terminate the Lease as a
remedy for the remaining breach of contract claims. But the
court clarified that it was denying the motion to the extent that it
sought summary judgment on SFLP’s claim that it “is entitled to
the remedy of all inventory and mining rights becoming the
property of SFLP upon a default of the Lease Agreement by
NorthShore.”
¶6 SFLP’s remaining third-party claims—that MRI’s
termination of the Supply Agreement and NorthShore’s refusal
to permit inspections constituted material breaches of the
Lease—were tried as part of a larger trial involving related
parties. The only issue tried to the jury on SFLP’s claims against
NorthShore was breach. A Special Verdict Form was submitted
to the jury asking, “Do you find from a preponderance of the
evidence that NorthShore Limited Partnership breached the
Commercial Property Lease in the manner alleged by Schenk
Family Limited [P]artnership?” The jury answered “Yes” to this
question. The issue of damages arising from a breach by
NorthShore was not submitted to the jury.
20141089-CA 3 2016 UT App 124Schenk Family v. NorthShore
¶7 Following the trial, SFLP filed a Motion for Reversion of
Inventory and Mining Rights and a Motion for Attorney’s Fees.
The trial court held a hearing on the motions, during which
NorthShore argued that SFLP had never provided a calculation
of damages or indicated that it expected the trial court to make a
legal ruling on damages, that any claim for damages should
have been put before the jury, and that the remedy provisions
providing for a transfer of mining and inventory rights did not
apply to the types of breach alleged by SFLP. The trial court
rejected NorthShore’s arguments and concluded that the jury’s
finding of breach was sufficient for the trial court to make a legal
determination that the breach constituted a default under the
Lease. The court further concluded that the parties bargained for
a contractual remedy in the Lease, which provided for the
transfer of mining and inventory rights in the event of default.
Accordingly, the trial court ordered “that all inventory and
mining rights of [NorthShore] on or appertaining to the property
subject to the . . . Lease . . . are the property of [SFLP].” The trial
court also found that SFLP was entitled to attorney fees under
the Lease as the prevailing party and that SFLP’s claimed fees
were reasonable. Accordingly, the trial court ordered
NorthShore to pay SFLP $28,687.50 in attorney fees. In ruling on
various subsequent motions, the trial court eventually reduced
the fee award to $23,864.40 and later augmented it by $17,381.10.
NorthShore filed a notice of appeal, challenging the trial court’s
award of the inventory and mining rights and attorney fees.
ISSUES AND STANDARDS OF REVIEW
¶8 NorthShore argues that the trial court erred in
interpreting the Lease to provide for forfeiture of the inventory
and mining rights as a remedy for the breaches of contract found
20141089-CA 4 2016 UT App 124Schenk Family v. NorthShore
by the jury. 4 “We review the interpretation of a contract for
correctness.” Osguthorpe v. Wolf Mountain Resorts, LC, 2013 UT
12, ¶ 7, 322 P.3d 620.
¶9 NorthShore also argues that SFLP was not entitled to
attorney fees under the Lease, because it was not the prevailing
party, and that the trial court’s award of fees was not reasonable.
“[W]hether a party is the prevailing party in an action is a
decision left to the sound discretion of the trial court, and we
review the trial court’s decision for an abuse of discretion.” Smith
v. Simas, 2014 UT App 78, ¶ 13, 324 P.3d 667 (citation and
internal quotation marks omitted). Likewise, “a trial court has
broad discretion in determining what constitutes a reasonable
fee, and we will consider that determination against an abuse-of-
discretion standard.” EDSA/Cloward, LLC v. Klibanoff, 2008 UT
App 284, ¶ 8, 192 P.3d 296 (citation and internal quotation marks
omitted).
ANALYSIS
I. Interpretation of the Lease
¶10 NorthShore asserts that the trial court erred in
interpreting the Lease. The court interpreted the Lease to allow
the forfeiture of inventory and mining rights to SFLP as the
remedy for any breach of the Lease, including the termination of
4. Because we agree with NorthShore that the trial court
misinterpreted the remedy provisions of the Lease, we need not
examine NorthShore’s arguments that the jury’s verdict was
actually a general verdict precluding further consideration of
damages; that the trial court erred in considering SFLP’s request
for damages post-trial and in refusing to give NorthShore a
reasonable opportunity to defend against the claim; and that
enforcing the remedy provisions was unconscionable.
20141089-CA 5 2016 UT App 124Schenk Family v. NorthShore
the Supply Agreement and NorthShore’s refusal to permit
inspections. The forfeiture remedy 5 appears in two paragraphs
of the Lease—one dealing with NorthShore’s obligation to pay
rent and the other dealing with NorthShore’s obligation to pay
taxes and maintain insurance coverage:
If any payment becomes more than ten days past-
due, such unpaid amounts shall bear interest from
the due date to the date of payment at the rate of
five percent (5%) of the outstanding balance per
month. If any payment becomes more than thirty
days late, Lessor may issue written Notice of
Default to Lessee via certified mail and shall
provide 30 days with which to cure. In case of
default by Lessee, all Inventory and mining rights
become the property of Lessor.
....
If property taxes become delinquent, or Lessee fails
to keep in force the required Insurance, Lessor may
issue written Notice of Default to Lessee via
certified mail and shall provide 30 days with which
5. There was some discussion in the trial court as to whether the
remedy provision in this case was a forfeiture clause, a
liquidated damages clause, or some combination of both.
However, on appeal, the parties appear to agree that the remedy
provision is a type of forfeiture clause. Even though the remedy
provision did not provide for the forfeiture of the entire Lease,
we agree that it is a forfeiture provision because it is “[a]
contractual provision stating that, under certain circumstances,
one party must forfeit something to the other.” Forfeiture Clause,
Black’s Law Dictionary (9th ed. 2009).
20141089-CA 6 2016 UT App 124Schenk Family v. NorthShore
to cure. In case of default by Lessee all Inventory and
mining rights become the property of Lessor.
(Emphasis added.)
¶11 NorthShore urges us to construe the remedy provisions as
applying only to defaults under those paragraphs—i.e., failure to
pay rent and failure to pay taxes or keep insurance in force.
SFLP, on the other hand, defends the trial court’s determination
that because there is “no language in the . . . Lease that would
expressly limit this remedy only to a breach of the terms of the
two specific paragraphs,” the forfeiture remedy applied to all
defaults 6 under the Lease.
¶12 “When interpreting a contract, we look to the writing
itself to ascertain the parties’ intentions, and we consider each
contract provision . . . in relation to all of the others, with a view
toward giving effect to all and ignoring none.” Green River Canal
Co. v. Thayn, 2003 UT 50, ¶ 17, 84 P.3d 1134 (omission in original)
(citation and internal quotation marks omitted). “[F]orfeitures
are not favored in the law,” and “forfeiture provisions will be
strictly construed against the one who seeks to enforce them.”
Richardson v. Hart, 2009 UT App 387, ¶ 15, 223 P.3d 484 (citation
and internal quotation marks omitted). Having reviewed the
language of the Lease, we agree with NorthShore that the
6. For purposes of our analysis, we accept the trial court’s
determination that the breaches found by the jury could be
classified as defaults. Compare Default, Black’s Law Dictionary
(9th ed. 2009) (defining “default” as a failure “to perform a
contractual obligation”), with id. Breach of Contract (defining
“breach of contract” as a “[v]iolation of a contractual obligation
by failing to perform one’s own promise, by repudiating it, or by
interfering with another party’s performance”).
20141089-CA 7 2016 UT App 124Schenk Family v. NorthShore
remedy provisions apply only to defaults based on nonpayment
of rent, nonpayment of taxes, and failure to maintain insurance.
¶13 The structure of the remedy provisions indicates the
parties’ intent for them to apply only to specific, identified
defaults—nonpayment of rent or taxes and failure to maintain
insurance. Had the parties intended for the forfeiture remedy to
apply to all types of default under the Lease, we would expect to
see a single remedy provision pertaining to the entire Lease. By
listing the remedy in specific paragraphs identifying particular
types of default along with the method for providing notice of
default and an opportunity to cure, 7 the parties indicated their
intent for the remedy to apply specifically to the types of default
outlined in those paragraphs. The fact that the parties included
the default remedy in two separate provisions also supports this
conclusion; had they intended for the remedy to apply to all
types of default, there would have been no need to repeat the
remedy in the paragraph relating to taxes and insurance.
¶14 Further, given our jurisprudence disfavoring forfeiture
provisions, the parties’ failure to explicitly indicate their
intention for the forfeiture remedy to apply to all defaults under
the Lease precludes us from interpreting the Lease as providing
a contractual remedy for the breaches found by the jury in this
case. Thus, SFLP’s only remaining remedy for a breach based on
the termination of the Supply Agreement or the failure to permit
7. The fact that the Lease does not outline any procedure for
providing notice and an opportunity to cure with respect to
other types of default further supports a narrow interpretation of
the remedy provisions, since a party seeking to enforce a
forfeiture provision must give the other party “notice of default
and a reasonable period of time in which to cure the default
before exercising a forfeiture provision.” See Johnston v. Austin,
748 P.2d 1084, 1086–87 (Utah 1988).
20141089-CA 8 2016 UT App 124Schenk Family v. NorthShore
inspections would have been actual monetary damages. But
SFLP made no attempt to prove its damages at trial and instead
relied exclusively on the forfeiture remedy provided in the
Lease. Because the forfeiture remedy does not apply to the
breaches committed by NorthShore, the trial court erred in
awarding SFLP the inventory and mining rights.
II. Attorney Fees
¶15 NorthShore next challenges the trial court’s award of
attorney fees to SFLP. The Lease provides that “[i]n the event of
a dispute, the non-prevailing party shall pay the prevailing
party’s attorneys fees.” NorthShore maintains that because SFLP
failed to present evidence of damages at trial and its breach of
contract claims did not entitle it to an award of the inventory
and mining rights under the Lease, it could not be considered
the prevailing party. Cf. Smith v. Simas, 2014 UT App 78, ¶¶ 29–
31, 324 P.3d 667 (upholding a trial court’s determination that
there was no prevailing party where one party prevailed on the
issue of breach but the other party prevailed on materiality and
damages). It further challenges the reasonableness of the trial
court’s award.
¶16 “Whether or not a party is the prevailing party is a
question for the trial court, depending in large measure on the
context of each case.” Id. ¶ 29 (citation and internal quotation
marks omitted). Factors relevant to this determination may
include, but are not limited to, (1) contractual
language, (2) the number of claims, counterclaims,
cross-claims, etc., brought by the parties, (3) the
importance of the claims relative to each other and
their significance in the context of the lawsuit
considered as a whole, and (4) the dollar amounts
attached to and awarded in connection with the
various claims.
20141089-CA 9 2016 UT App 124Schenk Family v. NorthShore
R.T. Nielson Co. v. Cook, 2002 UT 11, ¶ 25, 40 P.3d 1119. This
standard permits a “case-by-case evaluation by the trial court,
and flexibility to handle circumstances where both, or neither,
parties may be considered to have prevailed.” Id. The
reasonableness of attorney fees may be based on a variety of
factors, including
the difficulty of the litigation, the efficiency of the
attorneys in presenting the case, the reasonableness
of the number of hours spent on the case, the fee
customarily charged in the locality for similar
services, the amount involved in the case and the
result attained, and the expertise and experience of
the attorneys involved.
Dixie State Bank v. Bracken, 764 P.2d 985, 989 (Utah 1988) (citation
and internal quotation marks omitted).
¶17 Had the trial court determined, as we do on appeal, that
the Lease did not permit SFLP to recover the inventory and
mining rights as a remedy for the breaches found by the jury, see
supra ¶ 14, the trial court’s determination regarding who was the
prevailing party and the extent to which SFLP’s claimed fees
were reasonable would likely have been affected. We therefore
vacate the trial court’s award of attorney fees. But because “the
trial court is in a better position than we are as an appellate court
to decide which party is the prevailing party,” R.T. Nielson, 2001
UT 11, ¶ 25, and “to assess the reasonableness of the fees
requested under a contract,” Foote v. Clark, 962 P.2d 52, 56 (Utah
1998), we remand this case for the trial court to revisit its
determination that SFLP was the prevailing party, in light of our
holding in this case, and to adjust and re-enter the attorney fee
award as appropriate.
20141089-CA 10 2016 UT App 124Schenk Family v. NorthShore
CONCLUSION
¶18 We determine that the remedy provision in the Lease
providing for a transfer of inventory and mining rights applied
only to defaults based on nonpayment of rent or taxes or failure
to maintain insurance. The trial court therefore erred in
determining that SFLP was entitled to that remedy for breaches
arising from the termination of the Supply Agreement and
NorthShore’s refusal to permit inspections. We therefore vacate
the trial court’s award of the inventory and mining rights and its
award of attorney fees and remand for further proceedings
consistent with this opinion.
20141089-CA 11 2016 UT App 124