1600 Barberry Lane 8 LLC v. Cottonwood Residential

2019 UT App 146THE UTAH COURT OF APPEALS
1600 BARBERRY LANE 8 LLC AND 1600 BARBERRY LANE 9 LLC,
Appellants,
v.
COTTONWOOD RESIDENTIAL OP LP, COTTONWOOD CAPITAL
PROPERTY MANAGEMENT II LLC, COTTONWOOD CAPITAL PROPERTY
MANAGEMENT INC., AND DANIEL SHAEFFER,
Appellees.
Opinion
No. 20180105-CA
Filed August 22, 2019
Third District Court, Salt Lake Department
The Honorable Robert P. Faust
No. 170904221
Kenneth J. Catanzarite and Andrew G. Deiss,
Attorneys for Appellants
Matthew L. Lalli, Michael A. Gehret, W. Danny
Green, and Henry H. Oh, Attorneys for Appellees
JUDGE DIANA HAGEN authored this Opinion, in which
JUDGES DAVID N. MORTENSEN and JILL M. POHLMAN concurred.
HAGEN, Judge:
¶1 Plaintiffs 1600 Barberry Lane 8 LLC and 1600 Barberry
Lane 9 LLC (the Owners), two tenant-in-common owners of an
apartment complex in Georgia (the Property), appeal the district
court’s dismissal of their amended complaint. The Owners sued
Cottonwood Residential OP LP, Cottonwood Capital Property
Management II LLC, Cottonwood Capital Property Management
Inc., and Daniel Shaeffer (collectively, Cottonwood) for breach of
fiduciary duty or aiding and abetting breach of fiduciary duty
and breach of contract or tortious interference with a contract.
1600 Barberry Lane 8 LLC v. Cottonwood Residential OP LP
The Owners’ claims arise out of the property management
agreement (the Agreement) between the Owners and Todd
Mikles and Daymark Residential and Asset Management
(collectively, Daymark), 1 who contracted to provide property
and asset management services for the Property. The Owners
assert that Cottonwood breached the Agreement and its
fiduciary duty to the Owners by charging fees that exceeded
market rates for property and asset management services or,
alternatively, that Cottonwood induced or aided and abetted
Daymark in doing so. We conclude that the Owners have not
stated a claim for breach of fiduciary duty because the
Agreement does not give rise to a fiduciary duty on behalf of
either Daymark or Cottonwood with respect to the fees they
charged for their services. And because the Agreement
contained no provision limiting management fees to market
value, we conclude that neither Cottonwood nor Daymark
breached the Agreement by charging fees that allegedly
exceeded market rate. Accordingly, we affirm the district court’s
dismissal of the amended complaint for failure to state a claim
upon which relief could be granted.
BACKGROUND 2
¶2 In 2008, the Owners each acquired a 1.478% interest in the
Property, which was a “312 unit garden apartment community”
1. The property manager listed in the Agreement was Grubb
& Ellis Company, which later became Daymark. The Owners
have filed suit against Daymark in another court, but Daymark
was not named as a defendant in this action and is not a party.
2. “On appeal from a motion to dismiss, we review the facts as
they are alleged in the complaint.” Ho v. Jim’s Enters., Inc., 2001
UT 63, ¶ 2, 29 P.3d 633.
20180105-CA 2 2019 UT App 1461600 Barberry Lane 8 LLC v. Cottonwood Residential OP LP
located in a suburb of Atlanta, Georgia. At that time, the Owners
entered into the Agreement with Daymark for property and
asset management services relating to the Property. The
Agreement contained a choice of law provision stating that any
disputes arising under the Agreement would be governed by
Georgia law. 3 In relevant part, the Agreement provided:
2.1 Status of Property Manager. The [Owners] and
[Daymark] do not intend to form a joint venture,
partnership or similar relationship. Instead, the
parties intend that [Daymark] shall act solely in the
capacity of an independent contractor for [the
Owners]. Nothing in [the] Agreement shall cause
[Daymark] and [the Owners] to be joint venturers
or partners of each other, and neither shall have the
power to or obligate the other party by virtue of
[the] Agreement, except as expressly provided in
this Agreement. Nothing in [the] Agreement shall
deprive or otherwise affect the right of either party
to own, invest in, manage, or operate, or to conduct
business activities which compete with, the
Property. . . .
2.2 Management. [Daymark] shall be the sole and
exclusive manager of the Property to act on behalf
of [the Owners] and shall manage, operate and
maintain the Property in an efficient, economic,
and satisfactory manner and shall manage the
3. The parties agree that under the Agreement’s choice of law
provision, Georgia law governs the substance of the Owners’
claims. While we apply Georgia law “to the substantive issues
presented in this case, we still follow our own rules of
procedure.” Waddoups v. Amalgamated Sugar Co., 2002 UT 69,
¶ 20, 54 P.3d 1054.
20180105-CA 3 2019 UT App 1461600 Barberry Lane 8 LLC v. Cottonwood Residential OP LP
performance of everything reasonably necessary
for the proper operation of the Property for the
tenants thereof . . . [Daymark] shall perform all
services in a diligent and professional manner . . . .
....
2.14 Right to Subcontract Property Management
Functions. [Daymark] reserves the right, in its sole
discretion, to subcontract some or all of the
property management functions described herein
to local property managers and certain other
parties. However, except as expressly provided
herein, the fees to be paid to [Daymark] under [the]
Agreement are inclusive of fees payable to such
third parties . . . .
....
9.1 Property Management Fee. [Daymark], or an
affiliate, shall receive, for its services in managing
the Property in accordance with the terms of [the]
Agreement, a monthly management fee . . . and a
monthly asset management fee . . . . The Property
Management Fee shall be up to three percent (3%)
of Gross Revenues . . . and the Asset Management
Fee shall be up to two percent (2%) of Gross
Revenues . . . . The Property Management Fee is set
forth in the annual Budget approved by [the
Owners] in accordance with Section 2.5 hereof . . . .
....
11. Conflicts. [Daymark] shall not deal with or
engage, or purchase goods or services from, any
subsidiary or affiliated company of [Daymark] in
20180105-CA 4 2019 UT App 1461600 Barberry Lane 8 LLC v. Cottonwood Residential OP LP
connection with the management of the Property
for amounts above market rates . . . .
....
13.1 Assignment. [Daymark] may not assign [the]
Agreement without the prior written consent of
each of [the Owners] which consent may be
withheld in each [of the Owner’s] sole and absolute
discretion . . . .
Section 2.5 also provided that Daymark would prepare and
submit to the Owners “an initial capital and operating budget . . .
for the promotion, operation, leasing . . . , repair, maintenance
and improvement of the Property” for each calendar year, which
the majority of the Owners must approve.
¶3 In October 2012, Daymark announced that it had decided
to focus its efforts on its commercial-office-property portfolio
and recommended to the Owners that Cottonwood take over
management services for the Property. The Owners
“acquiesced” and allowed Cottonwood to assume the role of
asset and property manager for the Property. But they allege that
they would not have consented to this change if Daymark had
disclosed that the Agreement’s asset and property manager fees
exceeded the fair market rate for the services. The Owners allege
that the excessively high fees accounted for Cottonwood’s
willingness to purchase the Agreement from Daymark for $8
million. 4
4. The Owners allege that Daymark sold the Agreement to
Cottonwood and that Cottonwood thereby “subsumed from
[Daymark] all of their obligations in the [Agreement].” In ruling
on the motion to dismiss, the district court considered the
(continued…)
20180105-CA 5 2019 UT App 1461600 Barberry Lane 8 LLC v. Cottonwood Residential OP LP
¶4 In June 2017, the Owners filed a complaint against
Cottonwood, alleging that Cottonwood had breached a fiduciary
duty it owed to the Owners or, in the alternative, aided and
abetted Daymark in the breach of its fiduciary duty. Specifically,
the Owners alleged that Daymark had a fiduciary duty to
disclose that transferring the Agreement to Cottonwood was not
in the Owners’ best interests because it would allow
Cottonwood to continue collecting above-market fees. The
complaint alleged that Cottonwood both aided and abetted
Daymark’s breach and was “directly liable . . . as the successor
fiduciary” to Daymark for failing to disclose facts that would
have led the Owners to discover that they were being
overcharged.
¶5 Under rule 12(b)(6) of the Utah Rules of Civil Procedure,
Cottonwood moved to dismiss the Owners’ action for failure to
state a claim upon which relief can be granted, to which the
Owners responded by filing an amended complaint. In their
amended complaint, the Owners again asserted their fiduciary
duty claim and added two alternative claims: breach of contract
and interference with contract. In their breach of contract claim,
(…continued)
contract between Daymark and Cottonwood, which the Owners
did not attach to or expressly reference in their pleading, and
concluded that Daymark did not assign the Agreement to
Cottonwood but rather engaged Cottonwood as a subcontractor.
The Owners allege that the district court improperly considered
the contract between Daymark and Cottonwood without
converting the motion to dismiss to one for summary judgment.
See Utah R. Civ. P. 12(b). We need not decide whether this was
error, because we affirm the district court without regard to the
contract between Daymark and Cottonwood. In other words,
our analysis does not depend on whether Cottonwood was an
assignee of or a subcontractor under the Agreement.
20180105-CA 6 2019 UT App 1461600 Barberry Lane 8 LLC v. Cottonwood Residential OP LP
the Owners alleged that the fees under the Agreement “were
capped at the lesser of market value for the actual services
provided or for the maximum listed fee” and that Cottonwood
breached the Agreement by “charging and continuing to
overcharge[] asset and property management fees in excess of
fair value.” Alternatively, the Owners alleged that, by paying
Daymark $8 million in “exchange for all future property
management and asset management fees at rates in excess of fair
value,” Cottonwood “improperly induced” Daymark to breach
the provisions of the Agreement that allegedly capped fees “at
the lesser of market value or the maximum listed fee.”
¶6 In response to the Owners’ amended complaint,
Cottonwood filed another motion to dismiss for failure to state a
claim. The Owners opposed that motion, and the district court
heard argument on it. At argument, Cottonwood contended that,
as a matter of Georgia law, a property manager does not “owe a
fiduciary duty to forego enjoying the benefits of the bargain that
the parties struck in a written property management
agreement.” Because the Owners had not alleged that Daymark
and Cottonwood charged more than the negotiated fees set forth
in the Agreement, Cottonwood also argued that the Owners’
allegations did not amount to either a breach of contract or a
breach of fiduciary duty.
¶7 The district court granted Cottonwood’s motion to
dismiss on a number of alternative grounds. In granting the
motion, the district court determined, among other things, that
Cottonwood did not owe the Owners a fiduciary duty, because
the Agreement between the parties did not give rise to a
confidential relationship under Georgia law. The district court
also ruled that the Owners could not state a claim for breach of
contract or interference with contract based on the alleged
practice of charging above-market rates, because nothing in the
Agreement limited the property and asset management fees to
market rate. The Owners appeal.
20180105-CA 7 2019 UT App 1461600 Barberry Lane 8 LLC v. Cottonwood Residential OP LP
ISSUE AND STANDARD OF REVIEW
¶8 The Owners contend that the district court erred in
granting Cottonwood’s motion to dismiss, arguing that the
amended complaint contained sufficient allegations to sustain
claims of breach of contract, tortious interference with a contract,
and breach of and aiding and abetting the breach of fiduciary
duty. 5 “We review a decision granting a motion to dismiss for
correctness, granting no deference to the decision of the district
court,” Bylsma v. R.C. Willey, 2017 UT 85, ¶ 10, 416 P.3d 595(quotation simplified), and “likewise review the district court’s
subsidiary legal determinations for correctness,” Fehr v. Stockton,
2018 UT App 136, ¶ 8, 427 P.3d 1190.
5. The Owners include two other issues in their statement of the
issues on appeal. Their second issue—whether the district court
erred in denying the Owners’ motion for leave to amend the
complaint a second time—is mentioned only in the statement of
issues on appeal. The issue is never mentioned again in the
Owners’ opening brief and accordingly, we do not reach it. See
Utah Physicians for a Healthy Env’t v. Executive Dir. of the Utah
Dep’t of Env’tl Quality, 2016 UT 49, ¶ 27, 391 P.3d 148 (“A party
may not dump the burden of argument and research on the
appellate court.” (quotation simplified)) The Owners’ third issue
is whether the district court erred in failing to convert
Cottonwood’s motion to dismiss into a motion for summary
judgment because the court considered material outside the
pleadings. As mentioned, supra note 4, it is unnecessary to reach
that issue because we affirm solely on the basis of the complaint
and the documents attached to the complaint. See Oakwood
Village LLC v. Albertsons, Inc., 2004 UT 101, ¶ 12, 104 P.3d 1226(“If a court does not exclude material outside the pleadings and
fails to convert a rule 12(b)(6) motion to one for summary
judgment, it is reversible error unless the dismissal can be
justified without considering the outside documents.”).
20180105-CA 8 2019 UT App 1461600 Barberry Lane 8 LLC v. Cottonwood Residential OP LP
ANALYSIS
¶9 When reviewing a dismissal under rule 12(b)(6) of the
Utah Rules of Civil Procedure, “our inquiry is concerned solely
with the sufficiency of the pleadings, and not the underlying
merits of the case.” Oakwood Village LLC v. Albertsons, Inc., 2004
UT 101, ¶ 8, 104 P.3d 1226 (quotation simplified). “A Rule
12(b)(6) motion to dismiss admits the facts alleged in the
complaint but challenges the plaintiff’s right to relief based on
those facts.” Id. (quotation simplified). Accordingly, “we accept
the plaintiff’s description of facts alleged in the complaint to be
true, but we need not accept extrinsic facts not pleaded nor need
we accept legal conclusions in contradiction of the pleaded
facts.” America West Bank Members, LC v. State, 2014 UT 49, ¶ 7,
342 P.3d 224 (quotation simplified). To survive a rule 12(b)(6)
motion, a complaint must “allege sufficient facts . . . to satisfy
each element” of every claim. Id. ¶ 15 (quotation simplified).
¶10 The Owners maintain that they sufficiently pleaded facts
supporting claims of breach of fiduciary duty or aiding and
abetting a breach of fiduciary duty, breach of contract, and
tortious interference with a contract. We affirm the court’s
dismissal of all three claims on the following grounds: (1) the
Owners failed to state a claim for breach of fiduciary duty
because the Agreement did not create a fiduciary duty with
respect to fees; and (2) the Owners failed to state a claim for
either breach of contract or tortious interference with a contract
because the allegation that Cottonwood and Daymark charged
above-market rates, if true, would not constitute a breach of the
Agreement.
I. Fiduciary Duty
¶11 The Owners argue that Cottonwood breached its
fiduciary duty to the Owners by charging above-market
property and asset management fees without disclosing that
20180105-CA 9 2019 UT App 1461600 Barberry Lane 8 LLC v. Cottonwood Residential OP LP
those fees were above market value. The Owners further allege
that Cottonwood aided and abetted Daymark’s breach of the
same fiduciary duty by paying Daymark $8 million in exchange
for allowing Cottonwood to perform the services for the same
fees under the Agreement. However, because the Agreement
does not create a fiduciary duty with respect to fees, the Owners
have failed to state a claim under either theory.
¶12 Under Georgia law, to state a claim for breach of fiduciary
duty, the Owners must allege facts that demonstrate “the
existence of a fiduciary duty,” “breach of that duty,” and
damages. Ansley Marine Constr., Inc. v. Swanberg, 660 S.E.2d 6, 9
(Ga. Ct. App. 2008) (quotation simplified). To state a claim for
aiding and abetting breach of fiduciary duty, the Owners must
allege facts that demonstrate Cottonwood, “through improper
action or wrongful conduct and without privilege,” purposely,
with malice, with the intent to injure, and “with the knowledge
that [Daymark] owed [the Owners] a fiduciary duty” acted to
procure a breach of Daymark’s fiduciary duty to the Owners,
and that Cottonwood’s actions “procured” Daymark’s breach,
resulting in damages. See Insight Tech., Inc. v. FreightCheck, LLC,
633 S.E.2d 373, 379 (Ga. Ct. App. 2006). Importantly, under either
theory, the existence of a fiduciary duty is a necessary element of
the claim.
¶13 Fiduciary duties arise from confidential relationships,
including those created by contract. See Douglas v. Bigley, 628
S.E.2d 199, 204 (Ga. Ct. App. 2006). By statute, Georgia defines
confidential relationships as follows:
Any relationship shall be deemed confidential,
whether arising from nature, created by law, or
resulting from contracts, where one party is so
situated as to exercise a controlling influence over
the will, conduct, and interest of another or where,
from a similar relationship of mutual confidence,
20180105-CA 10 2019 UT App 1461600 Barberry Lane 8 LLC v. Cottonwood Residential OP LP
the law requires the utmost good faith, such as the
relationship between partners, principal and agent,
etc.
Ga. Code Ann. § 23-2-58 (LexisNexis 2019). “The mere fact that
one reposes trust and confidence in another does not create a
confidential relationship . . . and the burden is upon the party
asserting the existence of such relationship to affirmatively show
the same.” Allen v. Hub Cap Heaven, Inc., 484 S.E.2d 259, 264 (Ga.
Ct. App. 1997) (quotation simplified); see also Parello v. Maio, 494
S.E.2d 331, 333 (Ga. 1998) (noting that “the mere circumstance
that two people have come to repose a certain amount of trust
and confidence in each other as the result of business dealings is
not, in and of itself, sufficient to find the existence of a
confidential relationship”).
¶14 Georgia law recognizes that “most business relationships
are not generally confidential or fiduciary relationships.” Newitt
v. First Union Nat’l Bank, 607 S.E.2d 188, 196 (Ga. Ct. App. 2004).
“Where parties are engaged in a transaction to further their own
separate business objectives, there is no duty to represent or
advance the other’s interests.” Id.¶15 In this case, the Owners rely exclusively on the
Agreement as the basis of the fiduciary duty. In the amended
complaint, the Owners allege that the property manager was a
fiduciary because it “was obligated to perform asset
management and real estate property management services” for
the Owners’ benefit. The Owners further allege that “having
subsumed the fiduciary duties of property and asset manager”
under the Agreement, Cottonwood became the “successor
fiduciary.” Thus, the Owners rely on the contractual relationship
between the parties as the basis for the fiduciary duty.
¶16 The Agreement authorizes the property manager to act on
behalf of the Owners to “manage, operate and maintain the
20180105-CA 11 2019 UT App 1461600 Barberry Lane 8 LLC v. Cottonwood Residential OP LP
Property in an efficient, economic and satisfactory manner.” But
an agent is only a fiduciary with respect to the matters within
the scope of its agency. See American Mgmt. Services East, LLC. v.
Fort Benning Family Communities, LLC, 774 S.E.2d 233, 249 (Ga.
Ct. App. 2015) (applying Virginia law). Even assuming that the
property managers owed the Owners fiduciary duties when
performing management services, the Agreement does not
impose an obligation on the property manager to act on the
Owners’ behalf in setting the fees for its services.
¶17 The Agreement requires the property manager to act on
behalf of the Owners in performing its management duties, but
makes clear that the property manager is not acting as the
Owners’ agent in all respects. The Agreement expressly states
that the parties “do not intend to form a joint venture,
partnership, or similar relationship” and that the property
managers “shall act solely in the capacity of an independent
contractor.” Georgia courts have held that no confidential
relationship exists where, as here, the “contract expressly
provided for an independent contractor relationship” and “the
parties were engaged in a transaction with each other in an effort
to further their own separate business objectives.” Allen, 484
S.E.2d at 264; see also Automated Sol. Enters., Inc. v. Clearview
Software, Inc., 567 S.E.2d 335, 338 (Ga. Ct. App. 2002) (holding
that the relationship between the parties was not confidential but
was “merely a business relationship between two independent
concerns” where the contract provided that the plaintiff was an
independent contractor and disclaimed any intent to form a
partnership or joint venture). In setting the amount to be
charged for the property manager’s services, the parties were
engaged in an ordinary business transaction in which both sides
were representing their own interests. See Morrell v. Wellstar
Health System, Inc., 633 S.E.2d 68, 74 (Ga. Ct. App. 2006) (holding
that “[w]hen nonprofit hospitals and their patients enter into
agreements on the price to be charged for medical care, they are
20180105-CA 12 2019 UT App 1461600 Barberry Lane 8 LLC v. Cottonwood Residential OP LP
ordinarily engaged in business transactions indistinguishable
from those engaged in by for-profit corporations with no
confidential or fiduciary relationship between the parties”).
¶18 In fact, the Agreement specifically provides a mechanism
for each party to look out for its own best interests with respect
to fees. Instead of granting the property manager unfettered
discretion to set the total fees up to the 3% cap, the Agreement
requires that the property manager set forth its management fees
in a yearly budget that is subject to approval by the Owners. In
other words, the Agreement does not place the property
manager in a position “to exercise a controlling influence over
the will, conduct, and interest” of the Owners or in “a similar
relationship of mutual confidence” with respect to the fees
charged for management services. See Ga. Code Ann. § 23-2-58(2019). Discretionary control over the amount of management
fees did not lie with the property manager but with the Owners.
Because the property manager did not exercise a controlling
influence or hold a similar relationship of mutual confidence
with respect to setting fees, it had no obligation to act in the
Owners’ best interests when charging for its services.
¶19 In sum, based on the Agreement, neither Daymark nor
Cottonwood owed the Owners a fiduciary duty with respect to
fees charged for their services. Because the Agreement is the
only basis alleged for the existence of a fiduciary duty, the
amended complaint fails to state a claim for either breach of
fiduciary duty or aiding and abetting such a breach.
II. Breach of the Agreement
¶20 The Owners also allege that Cottonwood breached the
Agreement by charging above-market property and asset
management fees or, in the alternative, “improperly induced
[Daymark] to breach its obligation” under the Agreement by
paying Daymark $8 million in “exchange for all future property
20180105-CA 13 2019 UT App 1461600 Barberry Lane 8 LLC v. Cottonwood Residential OP LP
management and asset management fees at rates in excess of fair
value.” The district court determined that, even assuming that
Cottonwood was a party to the Agreement between the Owners
and Daymark, the facts alleged in the amended complaint could
not establish breach of contract by either Cottonwood or
Daymark because the Agreement contained no provision
limiting management fees to market value rates. We need not
first determine whether Cottonwood is a party to the
Agreement, because we agree with the district court that the
Owners have failed to allege a breach of the Agreement
regardless of the parties’ legal relationships.
¶21 To state a claim for either breach of contract or tortious
interference with a contract, a party must have sufficiently
alleged a breach of a contractual obligation. See Reindel v. Mobile
Content Network Co., 652 F.Supp.2d 1278, 1287 (N.D.Ga. 2009)
(explaining that, in order “[t]o establish a breach of contract
claim, a plaintiff must show (1) an enforceable agreement, (2)
breach of that agreement, and (3) damages as a result of that
breach”); White v. Shamrock Bldg. Sys., Inc., 669 S.E.2d 168, 174
(Ga. Ct. App. 2008) (explaining that, to succeed in a tortious
interference claim, the plaintiff must show the defendants,
“without privilege, acted improperly, purposely, and with
malice with the intent to injure” and “that they induced a breach
of a contractual obligation”). Here, both claims fail because the
facts alleged in the amended complaint cannot establish a breach
of the Agreement.
¶22 The Owners allege that Daymark and Cottonwood
charged above-market property and asset management fees and
that such fees were prohibited under the Agreement. The
Owners argue that when read together, the terms of sections 9.1
and 2.2 of the Agreement preclude Daymark and Cottonwood
from charging fees that exceeded the market value for property
and asset management. “An issue of contract construction is at
the outset a question of law for the court.” Grier v. Brogdon, 505
20180105-CA 14 2019 UT App 1461600 Barberry Lane 8 LLC v. Cottonwood Residential OP LP
S.E.2d 512, 514 (Ga. Ct. App. 1998). Under Georgia law, contracts
must be construed in accordance with the intention of the
parties. Ga. Code Ann. § 13-2-3 (2019). To ascertain the intention
of the parties, we first “look to the four corners of the instrument
to determine the meaning of the agreement from the language
employed.” Barrow County Airport Auth. v. Romanair, Inc., 563
S.E.2d 467, 470 (Ga. Ct. App. 2002). “If the terms used are clear
and unambiguous they are to be taken and understood in their
plain, ordinary, and popular sense.” Race, Inc. v. Wade Leasing,
Inc., 411 S.E.2d 56, 57 (Ga. Ct. App. 1991) (quotation simplified).
¶23 Looking at the four corners of the Agreement, there is no
provision limiting the property and asset management fees to
“market value.” Section 9.1 of the Agreement provides: “The
Property Management Fee shall be up to three percent (3%) of
Gross Revenues . . . and the Asset Management Fee shall be up
to two percent (2%) of Gross Revenues.” Although this provision
clearly limits the property and asset management fees to 3% and
2% of gross revenues, respectively, the limits are not tied to
market value and the Owners have not alleged that the fees
charged exceeded the stated limits. Section 9.1 also requires that
the fees be set forth in the annual budget the property manager
submits to the Owners for approval, but there is no allegation
that Daymark or Cottonwood failed to disclose the fee amounts
in the budget or that the Owners rejected the proposed amounts.
¶24 The Owners also rely on section 2.2 of the Agreement,
which provides that the property manager “shall manage,
operate and maintain the Property in an efficient, economic, and
satisfactory manner and shall manage the performance of
everything reasonably necessary for the proper operation of the
Property for the tenants thereof . . . [and] shall perform all
services in a diligent and professional manner.” But this
provision speaks to the property manager’s duties in performing
the contracted services, not to the amount that it can charge for
those services.
20180105-CA 15 2019 UT App 1461600 Barberry Lane 8 LLC v. Cottonwood Residential OP LP
¶25 The Agreement contains only a single provision linked to
market value. Section 11 provides that the property manager
“shall not deal with or engage, or purchase goods or services
from, any subsidiary or affiliated company of Property Manager
in connection with the management of the Property for amounts
above market rates.” This provision plainly limits the cost of
additional items and services that the property manager can
purchase on behalf of the Owners from its own subsidiary or
affiliate companies in the course of managing the Property, not
what the Owners are obligated to pay the property manager for
its management of the Property. Further, the parties’ use of
“market rate” in section 9.1 demonstrates that they knew how to
impose a market value limit when that was their intention; the
absence of similar language in section 2.2 thus supports the
conclusion that the parties did not intend to impose a market
value limit on fees. See, e.g., Skolnick v. Exodus Healthcare Network,
PLLC, 2018 UT App 209, ¶ 21, 437 P.3d 584 (recognizing that the
conditional language used in one contractual provision
“demonstrates that the parties knew how to make specific
obligations . . . conditional when that was their intent”).
¶26 In sum, the only contractual limitations on property and
asset management fees are the 3% and 2% of gross revenue
maximums and the requirement that the fees be set forth in the
annual budget submitted by the property manager to the
Owners for approval. The Owners have not alleged a breach of
either contractual term. Because these terms are the exclusive
limitation on property and asset management fees under the
Agreement, the Owners cannot state a claim for breach of
contract or tortious interference based upon alleged
overcharging for fees without alleging that the fees were higher
than 3% and 2% of gross revenue or that they were not approved
as part of the yearly budget. Given that the amended complaint
makes no such allegations, it fails to state a claim for breach of
20180105-CA 16 2019 UT App 1461600 Barberry Lane 8 LLC v. Cottonwood Residential OP LP
contract or tortious interference with a contract. The district
court did not err in dismissing these claims.
CONCLUSION
¶27 We conclude that the Owners failed to state a claim for
breach of a fiduciary duty because the Agreement did not create
a fiduciary relationship with respect to fees charged for services.
Additionally, because the terms of the Agreement do not limit
the management fees to market value, the Owners have not
alleged a breach of the Agreement that could support either their
contract claim or their claim for tortious interference with a
contract. Accordingly, we affirm the district court’s order of
dismissal.
20180105-CA 17 2019 UT App 146