Hofheins v. Bajio Mountain W. LLC

2017 UT App 238THE UTAH COURT OF APPEALS
GORDON HOFHEINS AND BRYAN HOFHEINS,
Appellees,
v.
BAJIO MOUNTAIN WEST LLC, MG-TAYLORSVILLE LLC,
AND LOGAN HUNTER,
Appellants.
Opinion
No. 20150983-CA
Filed December 29, 2017
Third District Court, Salt Lake Department
The Honorable Todd M. Shaughnessy
No. 120901276
D. David Lambert, Leslie W. Slaugh, and Richard A.
Roberts, Attorneys for Appellants
David L. Arrington, Peter H. Donaldson, and
Matthew J. Orme, Attorneys for Appellees
JUDGE JILL M. POHLMAN authored this Opinion, in which JUDGES
GREGORY K. ORME and MICHELE M. CHRISTIANSEN concurred.
POHLMAN, Judge:
¶1 Third-party defendants Bajio Mountain West LLC (Bajio),
MG-Taylorsville LLC (MGT), and Logan Hunter appeal the trial
court’s judgment in which they were ordered to indemnify
third-party plaintiffs Gordon Hofheins and Bryan Hofheins. We
affirm.
BACKGROUND
¶2 In August 2010, Bajio entered into an Asset Purchase
Agreement (the APA) with Bryan Hofheins and Mountain
Hofheins v. Bajio Mountain West
Pacific Farms (Mountain). 1 Under the terms of the APA, Bajio
bought three restaurants that were owned and operated by
Mountain and Bryan Hofheins. Each of the restaurants held a
lease on the real property at their respective locations, including
a property in Taylorsville, Utah (the Taylorsville Property). Also
under the terms of the APA, Bajio assumed the leases for the
three restaurants and agreed to “‘indemnify and hold Seller
harmless’ from any liabilities or obligations thereunder,
including the lease for the restaurant located at the Taylorsville
Property” (the Lease). 2 Logan Hunter signed a guaranty (the
Guaranty), in which he personally guaranteed Bajio’s obligations
under the APA.
¶3 In connection with the APA’s closing, MGT, a Bajio-
related entity, entered into a lease assignment agreement (the
Assignment) with Bryan Hofheins and Gordon Hofheins, the
named tenants on the Lease. Pursuant to the Assignment, MGT
assumed all lease obligations on the Taylorsville Property and
agreed to hold the Hofheinses harmless from any and all liability
under the Lease. In addition, Bajio, MGT, and Logan Hunter
(collectively, the Hunter Parties) repeatedly acknowledged that
they were responsible for the rent payments at the Taylorsville
Property.
¶4 With the exception of two months of common area
maintenance payments, Bajio paid the obligations on the Lease
from August 2010 through November 2011. After November
2011, Bajio made no rent or common area maintenance
payments. About one month later, Bajio ceased operating the
restaurant at the Taylorsville Property.
1. Mountain is not a party to the present lawsuit. See infra ¶¶ 5–7.
2. The only lease at issue is the lease for the Taylorsville
Property. We refer to the lease for that single property as the
Lease.
20150983-CA 2 2017 UT App 238Hofheins v. Bajio Mountain West
¶5 Bajio and related parties sued the Hofheinses and
Mountain in the Fourth District Court in October 2011 (the
Fourth District Case). Bajio alleged breach of the APA and
breach of an associated settlement agreement between Mountain
and Bajio (the Settlement Agreement).
¶6 Later, in February 2012, Redwood Road Retail LLC
(Redwood), 3 the landlord of the Taylorsville Property, filed the
present action in the Third District Court against the Hofheinses,
the named tenants on the Lease, alleging breach of the Lease due
to lack of payment. The Hunter Parties did not make payments
to the Hofheinses or otherwise indemnify them for the unpaid
rent or for Redwood’s claims.
¶7 As a result, the Hofheinses subsequently filed a third-
party complaint against the Hunter Parties based upon the
Hunter Parties’ respective obligations under the APA, the
Assignment, and the Guaranty. In the third-party complaint, the
Hofheinses’ theories for breach of contract relied on the Hunter
Parties’ failure to make payments related to the Taylorsville
Property and their failure to indemnify the Hofheinses for their
expenses connected to defending against Redwood’s first-party
claims and for any and all amounts for which they may be held
liable for such claims.
¶8 When the Hunter Parties answered the third-party
complaint, they asserted a number of affirmative defenses. Those
affirmative defenses included, among others, that the third-party
claims were “barred to the extent that amounts owed to the
Hofheins[es], if any, are offset by their liabilities to [the Hunter
Parties]” and that, to the extent the Hofheinses have been
damaged, “such damages were a result, either in whole or in
part, or were contributed to by reason of their own acts,
3. Redwood, while the original plaintiff in this action, is not a
party to this appeal.
20150983-CA 3 2017 UT App 238Hofheins v. Bajio Mountain West
omissions, breach of the APA, negligence, or intentional
conduct.” The Hunter Parties did not assert any counterclaims
against the Hofheinses.
¶9 Around the same time, and early on in the litigation, Bajio
and Logan Hunter moved the court in the Fourth District Case to
consolidate the third-party claims raised in the present action
with the Fourth District Case. The court denied that request.
¶10 Thereafter, in the present action, the Hunter Parties
moved for leave to amend their answer and to file counterclaims
for breach of contract, breach of the covenant of good faith and
fair dealing, and declaratory judgment. 4 They allowed their
motion to languish, however, and did not submit it for decision
until over a year later. The trial court ultimately denied the
motion as untimely and prejudicial.
¶11 At the same time, the trial court granted summary
judgment on the narrow issue of whether the Hunter Parties
could rely on the “first breach” defense to the Hofheinses’
breach of contract claim. 5 The Hunter Parties had asserted that
the Hofheinses could not recover on their breach of contract
claim because the Hofheinses had breached the agreements first.
4. Within two months of filing this motion and before the trial
court ruled on it, the Hunter Parties affirmed in a separate filing
that they “ha[d] not asserted any affirmative claims in this
action.”
5. “[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 (citations and
internal quotation marks omitted).
20150983-CA 4 2017 UT App 238Hofheins v. Bajio Mountain West
The Hunter Parties premised this assertion on the Hofheinses’
alleged failure to obtain the landlord’s consent to transfer the
Lease. Under this theory, once the Hofheinses had breached the
agreements, the Hunter Parties would have had no obligation to
fulfill their side of the bargains. But the trial court ruled that, as a
matter of law, “because [the Hunter Parties] elected to sue for
damages under the contract rather than rescission of the
contract, [the Hunter Parties] may not insulate [themselves] from
liability from [their] own breach under the first breach rule.” In
other words, the court ruled that the Hunter Parties’ “decision to
retain the benefit of the bargain precludes [their] argument that
[their] subsequent breach was excused.” The trial court later
clarified that while the Hunter Parties “may not rely on the first
breach rule as a defense to the Hofheinses’ claim for
indemnification,” they retained their ability to “invoke [their]
other defenses.”
¶12 The Hunter Parties filed a motion for summary judgment
on a purported claim for breach of the implied covenant of good
faith and fair dealing. In response, the Hofheinses moved to
strike the Hunter Parties’ motion, arguing that it was improper
because the Hunter Parties had not asserted any claims against
the Hofheinses in the present action, including a claim for breach
of the implied covenant of good faith and fair dealing. On
September 15, 2014, the trial court agreed with the Hofheinses
and struck the Hunter Parties’ motion for summary judgment.
Given that the court had previously denied the Hunter Parties’
request to file a counterclaim, the court reasoned that the Hunter
Parties had no cognizable causes of action. The court also stated
that “the granting of the Hofheinses’ Motion to Strike is not a
ruling on the merits of any claims or defenses in this case.”
¶13 Notwithstanding this decision, the Hunter Parties filed a
second motion for summary judgment, again seeking a
determination that the Hofheinses had breached the covenant of
good faith and fair dealing. Again, the Hofheinses responded by
moving to strike the motion. The trial court struck the Hunter
20150983-CA 5 2017 UT App 238Hofheins v. Bajio Mountain West
Parties’ second motion. The court explained that the Hunter
Parties’ “latest motion for summary judgment [was] akin to a
motion for reconsideration of the Court’s prior order granting
the Hofheinses’ motion to strike,” and the court “decline[d] to
revisit its prior ruling.”
¶14 Redwood’s first-party claims against the Hofheinses were
eventually resolved in favor of Redwood. All parties to this case
stipulated to a damage amount of $295,000 on Redwood’s
claims, exclusive of attorney fees and costs. The trial court then
awarded Redwood a total of $132,284.38 in attorney fees and
costs, resulting in a total judgment of $427,284.38 (the Redwood
Judgment).
¶15 The Hofheinses prepared for trial on their third-party
claims by filing several motions in limine. One of those motions
sought to exclude any evidence of a purported offset to the
obligations that the Hunter Parties allegedly owed to the
Hofheinses. Another such motion sought exclusion of “any
evidence or argument [the Hunter Parties] may seek to introduce
regarding relief in the form of excused performance on the basis
of prior material breach by the Hofheinses.”
¶16 During the final pretrial conference, the trial court asked
the Hunter Parties to explain the defense they intended to rely
on at trial. The Hunter Parties responded that their defense
would be that “there was a breach of the agreement by a breach
of the covenant of good faith and fair dealing” and that, by
proving breach, they would “reduce their obligation or eliminate
their obligation” to indemnify the Hofheinses. The court then
inquired whether their reliance on the alleged breach was not for
the purpose of excusing performance but rather was the basis for
an offset, to which the Hunter Parties responded, “Yes . . . it’s all
about offset.” The court later tried to clarify, asking the Hunter
Parties, “So the evidence that you seek to admit about a prior
material breach is . . . the factual predicate to the amounts that
you claim are an offset against the indemnification obligation[?]”
20150983-CA 6 2017 UT App 238Hofheins v. Bajio Mountain West
The Hunter Parties responded, “Exactly . . . there was a breach of
this agreement that caused damage that’s an offset to any
obligation that we have.”
¶17 After the final pretrial conference, the trial court issued an
order defining the scope of the trial (the August 2015 Order).
Pursuant to the August 2015 Order, the issues before the court
were limited to (1) whether the Hunter Parties were liable to
indemnify the Hofheinses under the APA for part or all of the
Redwood Judgment; (2) whether the Redwood Judgment, for
which indemnification was sought, included any past due rents
for which the Hunter Parties were not responsible; (3) whether
the Redwood Judgment included any costs or attorney fees for
which the Hunter Parties were not responsible; and (4) whether
any party was entitled to costs and attorney fees related to the
third-party complaint.
¶18 The August 2015 Order also recognized that, in the event
the Hofheinses prevailed on their indemnification claim and
were awarded damages, the Hunter Parties asserted that they
were entitled to an offset or credit against such damages based
on their claims that the Hofheinses, or those in privity with
them, breached the APA, related agreements, or the implied
covenant of good faith and fair dealing. The court explained that
the “factual basis for these claims of offset or credit is unrelated
to the narrow issues raised by [Redwood’s] complaint . . . and
the narrow indemnification issues raised in [the Hofheinses’]
third party complaint.” At the same time, the court noted the fact
that some or all of these claims were the subject of the
“substantially broader” litigation in the Fourth District Court. 6
6. In the Fourth District Case, the district court ruled that Bajio
and Logan Hunter could “seek to offset amounts due and owing
by proving that [they have] valid claims against [Mountain] and
resulting damages.”
20150983-CA 7 2017 UT App 238Hofheins v. Bajio Mountain West
¶19 In the interest of fairness and judicial economy, and
particularly “to avoid . . . the risk that trial of the offset/credit
issues . . . [would] impinge on matters pending in the Fourth
District Case,” the August 2015 Order stated that the trial court
declined to consider the Hunter Parties’ claims of offset or credit.
The trial court explained that those matters could and should be
addressed in a forum better suited to resolve them—the Fourth
District Court, which “has the ability, in the context of the
broader dispute between these parties, to make any adjustments
to an award in that case that may be necessary as a result of the
outcome in this case.” Because of its concern that the parties
could rely on its refusal to hear the offset/credit issue to argue
that such issues could not be considered in the Fourth District
Court, the court clarified that it did not intend the August 2015
Order to have res judicata effect, explaining,
As discussed at the Final Pretrial Conference, the
court expressed its concern that one or both of the
parties could use the court’s ruling [declining to
consider the Hunter Parties’ claims of offset or
credit] in the Fourth District Case to argue that,
under principles of res judicata, such issues could
no longer be heard in that case. That too would be
contrary to the principles of judicial economy and
efficiency . . . . Accordingly, to the extent either
party successfully argues in the Fourth District
Case that the court’s ruling [regarding the offset or
credit issue] operates as res judicata on claims that
this court is declining to hear, that result would be
contrary to the purpose of this pretrial order and
the court would, under those circumstances,
entertain an appropriate post-judgment motion to
address the issue.
The August 2015 Order thus left open the possibility that the
parties could file post-judgment motions should the Fourth
District Court apply res judicata principles in the other case to
20150983-CA 8 2017 UT App 238Hofheins v. Bajio Mountain West
decline hearing the issue of the Hunter Parties’ claimed offset or
credit.
¶20 The Hofheinses’ third-party claims were tried to the court.
At the close of the Hofheinses’ case-in-chief, the Hunter Parties
moved to dismiss under rule 41(b) of the Utah Rules of Civil
Procedure, 7 arguing that the Hofheinses’ claims should be
dismissed because the Hofheinses had failed to tender their
defense to the Hunter Parties. 8 The trial court denied the Hunter
Parties’ motion for four reasons. First, the court reasoned that
the agreements at issue “are silent with respect to whether the
[Hofheinses] maintained an obligation to tender a defense or
provide notice of a pending lawsuit or potential liability.”
7. At the time of trial, rule 41(b) provided that, “[a]fter the
plaintiff, in an action tried by the court without a jury, has
completed the presentation of his evidence the defendant,
without waiving his right to offer evidence in the event the
motion is not granted, may move for a dismissal on the ground
that upon the facts and the law the plaintiff has shown no right
to relief.” Utah R. Civ. P. 41(b) (2015). “The court as trier of the
facts may then determine them and render judgment against the
plaintiff or may decline to render any judgment until the close of
all the evidence.” Id.
8. “‘Tender of defense’ describes a common-law practice in
which a person or entity against whom an action is brought
gives notice of the suit to a person or entity that may ultimately
be liable for payment of the judgment, by contract or by
implication.” Summerhaze Co. v. FDIC, 2014 UT 28, ¶ 3 n.2, 332
P.3d 908 (citing 59 Am. Jur. 2d Parties § 241 (2014)). “The purpose
is to offer the person who may ultimately be liable ‘the
opportunity to appear and defend the action,’ because the
person or entity may be bound by the judgment.” Id. (quoting 59
Am. Jur. 2d Parties § 241 (2014)).
20150983-CA 9 2017 UT App 238Hofheins v. Bajio Mountain West
Second, the court determined that “[a] tender of the defense or
notice of claims is not a condition precedent” to the Hofheinses’
potential recovery. Third, the court concluded that “[t]o the
extent a tender or notice was required, the Hofheinses satisfied
such obligations by sending letters to [the Hunter Parties’]
counsel and asserting third-party claims for indemnification
against [the Hunter Parties].” Fourth, the court determined that
even had tender or notice been required and not provided, “this
does not mean that the Hofheinses would not be entitled to a
recover[y].” In other words, “the lack of tender and notice is
[not] a defense that would eliminate any indemnification
obligation.”
¶21 At the close of trial, the court ruled in favor of the
Hofheinses on their breach of contract claims. First, the court
determined that the APA is a valid and enforceable agreement
between Bajio and Bryan Hofheins, and that Bajio had materially
breached the APA by failing to satisfy the obligations under the
Lease and by failing to indemnify Bryan Hofheins. The court
then concluded that Bajio was liable to Bryan Hofheins to the
same extent Bryan Hofheins was liable under the Redwood
Judgment. Second, and for the same reasons, the court
concluded that “Logan Hunter, by virtue of having executed the
Guaranty . . . , agreed to guarantee [Bajio’s] obligations under
the APA, including its indemnification obligation, and by virtue
of [Bajio’s] breach, Logan Hunter has likewise breached the
provisions of the Guaranty.” Third, the court determined that
the Assignment was a valid and enforceable agreement between
MGT and the Hofheinses. The court concluded that the
Assignment requires indemnification of the Hofheinses and that
MGT had breached the agreement by failing to perform its
obligations thereunder and by failing to hold the Hofheinses
harmless for the Lease obligations. The court accordingly ruled
that “MGT [was] liable to the Hofheinses to the same extent that
the Hofheinses [were] liable under the [Redwood Judgment].”
20150983-CA 10 2017 UT App 238Hofheins v. Bajio Mountain West
¶22 With respect to the Hunter Parties’ defense that the
Hofheinses had failed to mitigate their damages, the trial court
added that the Hunter Parties could have taken steps to limit
liability and that the Hofheinses had taken “reasonable steps to
mitigate damages.” As a result, the court rejected the Hunter
Parties’ defense and declined to reduce the amount for which the
Hunter Parties were liable.
¶23 The trial court also determined that the APA, the
Guaranty, and the Assignment “all contain enforceable attorney
fees provisions.” Pursuant to those provisions, the court
determined that the Hofheinses were entitled to recover their
reasonable attorney fees and costs, which amounted to
$401,787.04 and $10,820.16, respectively.
¶24 Thereafter, the trial court entered final judgment on the
third-party claims. The court awarded judgment in favor of the
Hofheinses and against the Hunter Parties for $427,284.38, the
full amount of the Redwood Judgment, and for $412,607.20 to
cover attorney fees and costs. The Hunter Parties then filed this
appeal.
¶25 While this appeal was pending, the Fourth District Court
ruled on Bajio’s and Logan Hunter’s claims in the other case, and
ruled as a matter of law that Bryan Hofheins and Mountain had
breached the implied covenant of good faith and fair dealing by
entering into an agreement with another entity that negated the
purpose of the Settlement Agreement between Bajio and
Mountain. See supra ¶ 5. On the issue of damages, the Fourth
District Court entered judgment in favor of Bajio and Logan
Hunter for nominal damages of one dollar.
ISSUES AND STANDARDS OF REVIEW
¶26 On appeal, the Hunter Parties raise two arguments. First,
the Hunter Parties contend that the trial court erred in striking
20150983-CA 11 2017 UT App 238Hofheins v. Bajio Mountain West
their motions for summary judgment premised on the
Hofheinses’ alleged breach of the covenant of good faith and fair
dealing. 9 The trial court’s decision was grounded in its
conclusion that a party cannot seek summary judgment in its
favor on a non-pleaded claim and that the Hunter Parties had
failed to plead the claim that was the subject of their summary
judgment motion. This court generally reviews the trial court’s
“interpretation and application of a rule of [civil] procedure for
correctness.” Ross v. Epic Eng’g, PC, 2013 UT App 136, ¶ 12, 307
P.3d 576 (citation and internal quotation marks omitted). And
for this court to reverse, “the appellant must show error that was
substantial and prejudicial.” Id. (citation and internal quotation
marks omitted); see also Utah R. Civ. P. 61 (“The court at every
stage of the proceeding must disregard any error or defect in the
proceeding which does not affect the substantial rights of the
parties.”).
¶27 Second, the Hunter Parties contend that the trial court
erred in denying their motion to dismiss the action under rule
41(b) of the Utah Rules of Civil Procedure. “When reviewing the
denial of a motion for involuntary dismissal [under rule 41(b)],
an appellate court should defer to the trial court’s findings and
inferences under a clearly erroneous standard and review the
trial court’s conclusions of law for correctness.” Markham v.
Bradley, 2007 UT App 379, ¶ 13, 173 P.3d 865. A finding is clearly
erroneous only when it is “against the clear weight of the
evidence” or if this court otherwise reaches “a definite and firm
conviction that a mistake has been made.” Steinberg v.
9. The Hofheinses interpret the Hunter Parties’ first contention
on appeal as a challenge to the August 2015 Order that limited
the scope of trial. But we will address the issue as presented in
the Hunter Parties’ opening brief, and we therefore consider
whether the trial court erred in striking the Hunter Parties’
motions for summary judgment.
20150983-CA 12 2017 UT App 238Hofheins v. Bajio Mountain West
Community Housing Services-Capitol Villa, Ltd., 2014 UT App 102,
¶ 5, 326 P.3d 673 (citation and internal quotation marks omitted).
ANALYSIS
I. Striking the Hunter Parties’ Motions for Summary Judgment
¶28 The Hunter Parties contend that the trial court erred in
striking their motions for summary judgment. Those motions
asked the trial court to determine that the Hofheinses had
“violat[ed] the covenant of good faith and fair dealing relating to
the agreements which are the basis for the claims by [the]
Hofheinses against [the Hunter Parties].” The Hunter Parties
assert that the trial court’s decision striking their motions for
summary judgment “had the effect of [their] affirmative
defenses not being considered at trial.”
¶29 On appeal, the Hunter Parties and the Hofheinses largely
focus on the question of whether prejudice flowed from the trial
court’s granting of the motions to strike. For purposes of our
analysis, we assume, without deciding, that the trial court’s
grant of the motions to strike was in error. We therefore focus on
whether the Hunter Parties have sufficiently demonstrated that
they were harmed by the grant of the Hofheinses’ motions to
strike.
¶30 The Hunter Parties assert that the “result of the error in
striking [their] motions for summary judgment was that the trial
court never considered [the Hofheinses’] breach of the covenant
of good faith and fair dealing,” which was the Hunter Parties’
“main affirmative defense” to the Hofheinses’ indemnification
claim. They assert that the trial court’s error was “compounded
by the trial court’s pre-trial order” limiting the scope of trial and
“preclud[ing the Hunter Parties] from presenting evidence that
20150983-CA 13 2017 UT App 238Hofheins v. Bajio Mountain West
[the Hofheinses] breached the settlement agreement.” 10 The
Hunter Parties further assert that, “[a]t a minimum, [they]
should have been allowed to present evidence of [the
Hofheinses’] bad acts to offset against the legal obligations owed
by [the Hunter Parties] under the Settlement Agreement.” The
Hunter Parties maintain that while they could not rely on the
first breach rule as a defense to the Hofheinses’ claim for
indemnification, the striking of their motions meant they were
“never allowed to invoke . . . other defenses prior to trial or at
trial.” (Internal quotation marks omitted.)
¶31 The Hofheinses respond that the Hunter Parties’ “main
defense” was in fact “a claim for breach of the implied covenant
of good-faith and fair dealing under [the] Settlement Agreement
between [Bajio] and non-party [Mountain].” The Hofheinses
further contend that “that claim was never placed at issue in this
case” and that the Hunter Parties are attempting to “boot strap
in claims that [they] raised in the Fourth District Case.”
¶32 Generally, to obtain reversal, “the appellant must show
error that was substantial and prejudicial in the sense there is at
least a reasonable likelihood that in the absence of the error the
result would have been different.” Ross v. Epic Eng’g, PC, 2013
UT App 136, ¶ 12, 307 P.3d 576 (citation and internal quotation
marks omitted); see also Harris v. Utah Transit Auth., 671 P.2d 217,
222 (Utah 1983) (“An error is reversible if there is a reasonable
10. While the Hunter Parties argue that the trial court’s August
2015 Order compounded its alleged error in striking their
motions for summary judgment, we do not read the Hunter
Parties’ argument as a separate challenge to that order. In
framing their appeal, the Hunter Parties requested only that this
court review the trial court’s granting of the motions to strike
and its ruling regarding the Hofheinses’ alleged duty to tender.
The Hunter Parties did not request we review the scope of the
August 2015 Order. Thus we do not separately address it.
20150983-CA 14 2017 UT App 238Hofheins v. Bajio Mountain West
likelihood that a more favorable result would have been
obtained by the complaining party in the absence of the error.”).
A claimed error may also be substantial and prejudicial “in the
sense that [the appellant] was in some manner deprived of [a]
full and fair presentation and consideration of the disputed
issues.” Redevelopment Agency of Salt Lake City v. Mitsui Inv. Inc.,
522 P.2d 1370, 1374 (Utah 1974).
¶33 We are not persuaded that the trial court’s striking of the
Hunter Parties’ motions for summary judgment caused
prejudice. The Hunter Parties have not shown that they were
deprived of a fair opportunity to litigate their claim that the
Hofheinses had breached the implied covenant of good faith and
fair dealing, because they have been litigating that claim in the
Fourth District Case. Indeed, according to the Hunter Parties,
“the Fourth District Court, relying upon the same factual
predicate in the companion case, granted partial summary
judgment to [the Hunter Parties] and ruled that [the Hofheinses’]
actions and misrepresentations breached the covenant of good
faith and fair dealing.” In contrast to the Fourth District Case,
the present action centered on the narrow question of whether
the Hunter Parties were required to indemnify the Hofheinses.
The present action is, in the Hunter Parties’ words, “ancillary” to
“the main event” in the Fourth District Court.
¶34 In addition, the Hunter Parties represented to the trial
court at the final pretrial conference that their argument about
the Hofheinses’ alleged breach of the implied covenant of good
faith and fair dealing was “all about offset,” meaning that the
Hunter Parties suffered damages that would offset “any
obligation that [the Hunter Parties] have” to indemnify the
Hofheinses. This representation to the trial court did not suggest
that the breach of the implied covenant could somehow defeat
the Hofheinses’ indemnification claim against the Hunter
Parties.
20150983-CA 15 2017 UT App 238Hofheins v. Bajio Mountain West
¶35 And although the trial court ultimately decided not to
consider the offset issue in the present action, it tailored its order
regarding the scope of trial to ensure that it would not prevent
the Hunter Parties from pursuing that issue in the Fourth
District Case. The court specifically noted that the Fourth District
Court had “the ability, in the context of the broader dispute
between these parties, to make any adjustments to an award in
that case that may be necessary as a result of the outcome in this
case.” The court then directed that, if the Fourth District Court
applied res judicata principles to the issue of the Hunter Parties’
claimed offset, the trial court would entertain appropriate post-
judgment motions. Thus, the trial court did not restrict the
Hunter Parties from pursuing an offset that they represented
derived from the Hofheinses’ alleged breach of the implied
covenant. In light of these circumstances, we conclude that the
Hunter Parties have been able to pursue their claim for breach of
the implied covenant of good faith and fair dealing and related
offset issues in the Fourth District Case and that therefore the
trial court’s striking of their motions for summary judgment did
not deprive them of a fair opportunity to litigate those issues.
¶36 We also conclude that the Hunter Parties have not shown
a reasonable likelihood of a different outcome had the trial court
reached the merits of their motions for summary judgment. On
appeal, the Hunter Parties suggest that their argument regarding
the Hofheinses’ alleged breach of the implied covenant of good
faith and fair dealing would have defeated the Hunter Parties’
indemnification obligation. The Hunter Parties’ theory of breach,
however, is based on the Hofheinses’ alleged conduct that
predated the Hunter Parties’ breach. Consequently, by all
appearances, this theory is a reincarnation of their argument
under the first breach rule. Under that rule, supra note 5, a
plaintiff cannot maintain an action for the defendant’s
subsequent failure to perform and the defendant thus has a
complete defense to the plaintiff’s breach of contract claim. See
CCD, LC v. Millsap, 2005 UT 42, ¶ 29, 116 P.3d 366.
20150983-CA 16 2017 UT App 238Hofheins v. Bajio Mountain West
¶37 Here, before their motions for summary judgment on the
Hofheinses’ alleged breach were at issue, the Hunter Parties had
pursued a defense under the first breach rule. But the trial court
ruled on partial summary judgment that the Hunter Parties
could not rely on the first breach rule as a matter of law. 11 While
this order did not obstruct their ability to “invoke [their] other
defenses,” on appeal, the Hunter Parties have not cited or
developed legal authority to demonstrate how the Hofheinses’
alleged breach of the implied covenant of good faith and fair
dealing would have otherwise excused the Hunter Parties’
performance or allowed them to defeat the Hofheinses’
indemnification claim. The Hunter Parties thus have not shown
how their argument on appeal regarding the Hofheinses’ alleged
breach is any different from an argument under the first breach
rule. Because the Hunter Parties were precluded from asserting
that defense even before the trial court struck their motions for
summary judgment, the Hunter Parties have not shown a
reasonable likelihood of a different outcome had the trial court
considered their arguments related to the Hofheinses’ alleged
breach.
¶38 In sum, we conclude that the Hunter Parties have not
shown that any assumed error in the trial court’s striking of their
motions for summary judgment related to the Hofheinses’
alleged breach of the implied covenant of good faith and fair
dealing was substantial and prejudicial. Accordingly, we reject
this claim of error on appeal.
II. Denying the Hunter Parties’ Rule 41(b) Motion
¶39 The Hunter Parties next contend that the trial court erred
in denying their motion to dismiss the Hofheinses’ claims under
rule 41(b) of the Utah Rules of Civil Procedure. They had
11. The Hunter Parties do not challenge this determination on
appeal.
20150983-CA 17 2017 UT App 238Hofheins v. Bajio Mountain West
premised their motion on the Hofheinses’ failure to tender the
defense, that is, the Hofheinses’ failure to give notice of
Redwood’s suit against them to the Hunter Parties, who, under
the indemnification obligations of the APA, the Guaranty, and
the Assignment, could ultimately be liable for payment of any
judgment to Redwood.
¶40 In denying the rule 41(b) motion, the trial court concluded
that the pertinent agreements “are silent” as to whether the
Hofheinses had an obligation to tender a defense. The court then
determined that a tender of defense or a notice of claims “is not a
condition precedent” to the Hofheinses’ potential recovery, and
that even had tender or notice been required and not provided,
“the lack of tender and notice is [not] a defense that would
eliminate any indemnification obligation.” On appeal, the
Hunter Parties do not dispute that the pertinent agreements
make no mention of a duty to tender, and they instead focus
their attention on the trial court’s rationale that a tender of
defense is not a condition precedent that would eliminate the
Hunter Parties’ indemnification obligation. See Condition
precedent, Black’s Law Dictionary 355 (10th ed. 2014) (defining a
“condition precedent” as “[a]n act or event, other than a lapse of
time, that must exist or occur before a duty to perform
something promised arises”).
¶41 The Hunter Parties stake their argument on appeal to the
proposition that “the tender of defense is necessarily required to
be made in order to impose indemnification obligations,” which
means, according to the Hunter Parties, that the Hofheinses’
alleged failure to tender the defense “precludes [the Hunter
Parties] from being required to indemnify [the Hofheinses].” In
support, they cite Summerhaze Co. v. FDIC, 2014 UT 28, 332 P.3d
908, and assert that Summerhaze holds that “a party’s failure to
tender the defense to a third-party necessarily precludes the
party from subsequently seeking indemnification from the same
third-party.” The Hunter Parties thus contend that, applying
Summerhaze, the Hofheinses’ failure to tender the defense
20150983-CA 18 2017 UT App 238Hofheins v. Bajio Mountain West
extinguished the Hunter Parties’ obligation to indemnify under
the agreements.
¶42 Summerhaze does not support the Hunter Parties’
contention. In that case, the Utah Supreme Court explained that
one purpose of tendering a defense is to provide notice, which
allows an indemnitor “to appear and defend the [indemnitee] on
claims where the [indemnitee] may ultimately seek to hold the
[indemnitor] liable.” See id. ¶ 37. With respect to the
consequences of failing to tender, the supreme court stated that
an indemnitee’s “[f]ailure to tender a defense ‘simply changes the
burden of proof and imposes on the [indemnitee] the necessity of
again litigating and establishing that it is entitled to indemnity
from the [indemnitor].’” See id. (emphasis added) (quoting 42
C.J.S. Indemnity § 48 (2013)). The supreme court further
explained that, “without a tender of defense, an [indemnitor]
may challenge its liability for the judgment, contest the amount
of damages, or set forth any other available defense that the
[indemnitee] neglected to make.” See id. Notably, Summerhaze
does not say or suggest that the indemnitee’s failure to tender a
defense would release the indemnitor from its indemnification
obligation. See id. ¶¶ 36–38 (discussing tender of defense). 12
Accordingly, Summerhaze would not dictate that the Hofheinses’
alleged failure to tender the defense would preclude the Hunter
12. The supreme court’s discussion in Summerhaze Co. v. FDIC,
2014 UT 28, 332 P.3d 908, was in the context of insurance
contracts that place on the insurer “a duty to indemnify the
insured” and “a duty to defend the insured against a liability
claim.” Id. ¶ 36 (citations and internal quotation marks omitted).
As the supreme court explained, the duty to defend “is triggered
when the insured tenders the defense.” Id. (citation and internal
quotation marks omitted). Neither side claims that the relevant
agreements in this case place an express, independent duty to
defend on the Hunter Parties.
20150983-CA 19 2017 UT App 238Hofheins v. Bajio Mountain West
Parties from being required to indemnify the Hofheinses.
Because the Hunter Parties’ reliance on Summerhaze is misplaced
and because they have not provided any other pertinent
authority in support of their position, 13 the Hunter Parties have
not demonstrated error in the trial court’s denial of their rule
41(b) motion. 14
¶43 Finally, in connection with their challenge to the denial of
their rule 41(b) motion, the Hunter Parties make a related
argument that the Hofheinses’ “failure to tender the defense
13. The Hunter Parties rely heavily on Hill v. Okay Construction
Co., 252 N.W.2d 107 (Minn. 1977), a Minnesota case cited by the
Utah Supreme Court in Summerhaze. See 2014 UT 28, ¶ 36 n.82.
The Hunter Parties assert that Hill stands for the proposition that
“‘tender of defense is generally a condition precedent to
obtaining indemnification.’” (Quoting Summerhaze, 2014 UT 28,
¶ 36 n.82 (citing Hill, 252 N.W.2d at 121).) They fail to
acknowledge, however, that Hill states only that tender of
defense “is generally a condition precedent to obtaining
indemnification for attorney fees incurred in [the] defense” of a
claim. Hill, 252 N.W.2d at 121 (emphasis added). We therefore
do not agree that Summerhaze’s citation to Hill amounted to an
adoption of the broader assertion the Hunter Parties argue here.
14. Because we affirm on this basis, we need not address the trial
court’s alternative determination that even if notice or tender
was a prerequisite for indemnification, the Hofheinses satisfied
that obligation. In any event, the Hunter Parties fail to
demonstrate why the Hofheinses’ actions were legally
inadequate to constitute a tender of defense. See Bank of Am. v.
Adamson, 2017 UT 2, ¶ 12, 391 P.3d 196 (explaining that “an
appellant who fails to adequately brief an issue will almost
certainly fail to carry its burden of persuasion on appeal”
(citation and internal quotation marks omitted)).
20150983-CA 20 2017 UT App 238Hofheins v. Bajio Mountain West
exacerbated [the Hofheinses’] obligation to mitigate their
damages.” This argument’s basis and the precise relief sought,
however, are unclear. Moreover, the Hunter Parties have not
adequately addressed, let alone established error in, the trial
court’s conclusions that the Hofheinses took reasonable steps to
mitigate damages and that the Hunter Parties could have taken
other steps to limit liability in the case. See Allen v. Friel, 2008 UT
56, ¶ 7, 194 P.3d 903 (“If an appellant fails to allege specific
errors of the lower court, the appellate court will not seek out
errors in the lower court’s decision.”). We therefore conclude
that the Hunter Parties have not carried their burden of
persuasion on the subject of mitigation and we do not consider
this argument further. See Bank of Am. v. Adamson, 2017 UT 2,
¶ 13, 391 P.3d 196 (concluding that “[a]n appellant that fails to
devote adequate attention to an issue is almost certainly going to
fail to meet its burden of persuasion”).
CONCLUSION
¶44 We conclude that the Hunter Parties have not shown that
they were prejudiced by the trial court’s striking of their motions
for summary judgment on the Hofheinses’ alleged breach of the
implied covenant of good faith and fair dealing. We also
conclude that the Hunter Parties have not shown error in the
trial court’s denial of the rule 41(b) motion based on the
Hofheinses’ alleged failure to tender the defense to the Hunter
Parties. Accordingly, we affirm the trial court’s judgment
ordering the Hunter Parties to indemnify the Hofheinses.
20150983-CA 21 2017 UT App 238