Wittingham LLC v. TNE Ltd. Partnership

2016 UT App 187THE UTAH COURT OF APPEALS
WITTINGHAM LLC, THE MUIR SECOND FAMILY LIMITED
PARTNERSHIP, AND DOROTHY JEANNE MUIR,
Appellees and Cross-appellants,
v.
TNE LIMITED PARTNERSHIP,
Appellant and Cross-appellee.
Opinion
No. 20140751-CA
Filed September 1, 2016
Second District Court, Farmington Department
The Honorable Robert J. Dale
No. 090700547
Jeffrey L. Silvestrini and Bradley M. Strassberg,
Attorneys for Appellant and Cross-appellee TNE
Limited Partnership
James K. Tracy and Stacy J. McNeill, Attorneys
for Appellees and Cross-appellants
JUDGE GREGORY K. ORME authored this Opinion, in which JUDGE
MICHELE M. CHRISTIANSEN and SENIOR JUDGE PAMELA T.
GREENWOOD concurred.1
ORME, Judge:
¶1 TNE Limited Partnership appeals an adverse district
court ruling regarding the validity of a contract in its suit against
Nick Muir, The Muir Second Family Limited Partnership (the
Muir Partnership), and Wittingham LLC, the most recent
1. Senior Judge Pamela T. Greenwood sat by special assignment
as authorized by law. See generally Utah R. Jud. Admin. 11-
201(6).
Wittingham v. TNE Limited Partnership
successor to the Muir Partnership. The contract, which
purported to bind the Muir Partnership, was signed by its
putative general partner, Nick Muir, after the partnership had
been dissolved. In view of Utah Supreme Court precedent, we
must agree with the district court that the contract is void rather
than voidable. And we reject a cross-appeal challenging the
district court’s refusal to award attorney fees. Accordingly, we
affirm the district court’s decision.
BACKGROUND
¶2 The Muir Partnership was administratively dissolved on
May 3, 2007. Two years later, Nick Muir, its former general
partner, arranged for a loan in the amount of $435,000 from TNE,
ostensibly for the purpose of removing a valid encumbrance on a
pair of apartment buildings owned by the Muir Partnership.
Nick Muir signed the note memorializing the loan in the name of
the Muir Partnership. The TNE loan was apparently secured by
a trust deed recorded against the apartments, but Muir did not
reveal to TNE that the Muir Partnership had been dissolved. Nor
did Muir reveal that the prior encumbrance was illusory, instead
stating that it secured a loan on which a substantial balance was
still owed. In reality, the prior encumbrance was a sham, the
result of some contrivance by Muir and others in which a trust
deed had been recorded for which no meaningful consideration
had been given.
¶3 After TNE disbursed the funds to Muir, the existing
‚encumbrance‛ was released, and the apartment buildings were
transferred between successive business entities owned by
members of Muir’s family, the last transfer being to Wittingham
LLC. Shortly after TNE disbursed the loan funds to Muir—and
once the sham encumbrance and Muir’s misappropriation of the
TNE loan proceeds were discovered—Wittingham LLC, the
Muir Partnership, and Dorothy Jeanne Muir (collectively,
Wittingham) filed this action, seeking to have the TNE trust deed
20140751-CA 2 2016 UT App 187Wittingham v. TNE Limited Partnership
declared void. TNE filed a counterclaim against Wittingham and
Nick Muir, seeking a determination that the trust deed was
valid. The district court determined that the TNE trust deed was
void because the Muir Partnership was already dissolved when
Muir signed the note and trust deed in favor of TNE. Thus, the
court concluded that TNE could not enforce the trust deed.2
Although TNE also raised claims against Muir personally, the
district court determined that it lacked personal jurisdiction over
him as he had never been served with process and had never
made an appearance in the case. The court declined to grant
Wittingham’s request for attorney fees premised upon the fee
2. While Muir and his co-conspirators apparently
misappropriated the rest of the loan proceeds, $22,368.65 was
used to pay taxes and utilities related to the apartment complex
now owned by Wittingham LLC. The district court determined
that Wittingham was unjustly enriched to that extent and
ordered the repayment of that amount. Neither party appealed
this aspect of the district court’s decision. TNE challenges,
however, the district court’s conclusion that Wittingham was
unjustly enriched only to this extent. We agree with the district
court that the funds purportedly disbursed to remove the sham
encumbrance did not benefit Wittingham—after all, the sham
encumbrance could have easily been set aside as fraudulent
without any payment being made and likely with some recovery
for the recordation of a wrongful lien—and that, as a
consequence, Wittingham was not unjustly enriched by the
payment of those funds. Because ‚*t+he measure of unjust
enrichment . . . is the value of the benefit conferred on the other
party,‛ Wilberg v. Hyatt, 2012 UT App 233, ¶ 24, 285 P.3d 1249, it
necessarily follows that, to the extent Wittingham derived no
real benefit from the funds that TNE disbursed, Wittingham
cannot be liable to TNE for repayment of those funds.
20140751-CA 3 2016 UT App 187Wittingham v. TNE Limited Partnership
provisions of the TNE trust deed. Both TNE and Wittingham
appeal. We affirm.
ISSUES AND STANDARD OF REVIEW
¶4 TNE argues that the district court erroneously ‚ruled that
the TNE Trust Deed was void rather than voidable‛ and ‚that it
lacked jurisdiction to render a disposition on TNE’s cross-claims
against Nick Muir.‛ Wittingham challenges the district court’s
denial of its request for attorney fees pursuant to its contract. All
three of these issues3 are ‚legal questions, which we review for
correctness.‛ See Hi-Country Estates Homeowners Ass’n v. Bagley
& Co., 2008 UT App 105, ¶ 8, 182 P.3d 417 (void contract);
National Advertising Co. v. Murray City Corp., 2006 UT App 75,
¶ 11, 131 P.3d 872 (jurisdiction); Watkins v. Henry Day Ford, 2013
UT 49, ¶ 19, 304 P.3d 841 (contract interpretation).
ANALYSIS
I. The Trust Deed Was Void Under Utah Law.
¶5 ‚The distinction between void and voidable is important‛
because a voidable contract ‚may be ratified at the election of the
injured party‛ while a void contract may not. Ockey v. Lehmer,
2008 UT 37, ¶ 18, 189 P.3d 51. Despite this important distinction,
however, Utah appellate courts have, on occasion, been
imprecise in their use of the terms and used ‚void‛ and
‚voidable‛ somewhat interchangeably. Id. Generally speaking,
‚the difference between void and voidable contracts is whether
3. The parties raise other issues, see infra ¶¶ 14–16, but our
conclusion that the trust deed is void obviates the need to
discuss in any detail the standards of review that might apply to
these issues.
20140751-CA 4 2016 UT App 187Wittingham v. TNE Limited Partnership
they offend public policy.‛ Id. ¶ 19. An invalid contract is
generally void if it ‚offend*s+ public policy or harm[s] the
public,‛ but it is voidable if it offends only the aggrieved party.
Id. Typical examples of contracts that offend public policy are
those that involve egregious or illegal behavior, such as contracts
to pay a gambling debt, see, e.g., Appleton v. Maxwell, 65 P. 158,
159 (N.M. 1901); contracts tending to encourage or facilitate
prostitution, see, e.g., Rosenblath v. Sanders, 91 So. 252, 252 (La.
1922); Hunstock v. Palmer, 23 S.W. 294, 295 (Tex. Civ. App. 1893);
life insurance contracts entered into in contemplation of murder,
see, e.g., Lopez v. Life Ins. Co. of Am., 406 So. 2d 1155, 1159 (Fla.
Dist. Ct. App. 1981); Colyer’s Adm’r v. New York Life Ins. Co., 188
S.W.2d 313, 314–15 (Ky. 1945); and contracts concerning the sale
of a child, see Utah Code Ann. § 76-7-203(2)(a) (LexisNexis 2012).
As the Utah Supreme Court explained,
The actual fact is that the courts look at the over-all
picture of each such questioned contract and
determine upon the facts of the individual case
whether the ends of justice demand that [a contract
be considered void, rather than voidable]. In
making such determination the following factors
are taken into consideration: (a) the degree of
criminality or evil involved; (b) the moral quality
of the conduct of the parties; (c) comparison
between them as to guilt or innocence; (d) the
equities between them; and (e) the effect upon
third parties or the public.
McCormick v. Life Ins. Corp. of Am., 308 P.2d 949, 952 (Utah 1957).
¶6 The contract at issue in this case—a rather commonplace
loan secured by a trust deed, albeit one entered into between the
putative general partner of an administratively dissolved limited
partnership and another party apparently unaware of the
administrative dissolution—does not fall within the ambit of the
public policy rationale outlined above or meet the five-part test
20140751-CA 5 2016 UT App 187Wittingham v. TNE Limited Partnership
announced in McCormick. Nonetheless, as the Utah Supreme
Court held in Houston v. Utah Lake Land, Water & Power Co., 187
P. 174 (Utah 1919), contracts entered into by dissolved
corporations are void in Utah, no matter how inoffensive the
subject matter. See id. at 177. The same has been true with respect
to limited partnerships until recently, because ‚*a+ limited
partnership is an entity equivalent to a corporation for litigation
purposes*.+‛4 Margulies ex rel. Margulies v. Upchurch, 696 P.2d
1195, 1200 (Utah 1985). While this result is surely open to
criticism5—and, indeed, it has recently been changed by the
Legislature with respect to limited partnerships6—we see no way
around it in this case.
4. Neither side contends that the rule applicable to the limited
partnerships in this case is any different than the rule applicable
to corporations, although prospectively this will not be so. See
infra note 6.
5. The Washington Court of Appeals, deciding a case against a
similar statutory backdrop, reached a less rigid result than did
our Supreme Court in Houston v. Utah Lake Land, Water & Power
Co., 187 P. 174 (Utah 1919). See White v. Dvorak, 896 P.2d 85, 88
(Wash. Ct. App. 1995) (‚*A+lthough [a] corporation cannot
enforce a contract entered into when it lacked the capacity to
contract, the contract is not absolutely void or completely
unenforceable.‛).
6. Prior to 2013, the enforceability of contracts formed after
dissolution of a limited partnership was governed by section 48-
1-32 of the Utah Code. But that statute was repealed with Utah’s
adoption of the most recent version of the Uniform Limited
Partnership Act. See 2013 Utah Laws 2185; Utah Code Ann. § 63I-
2-248(1) (LexisNexis Supp. 2014) (setting forth the repeal date of
the former sections addressing ‚General and Limited Liability
Partnerships‛). Under the new statute, the TNE trust deed
would presumably be valid, because ‚*a+ limited partnership is
(continued…)
20140751-CA 6 2016 UT App 187Wittingham v. TNE Limited Partnership
¶7 TNE does not appeal the district court’s conclusion that
the trust deed was an invalid contract under Utah Code section
48-1-32, which was the governing statute in effect when TNE
sued the Muir Partnership, and so we have no occasion to revisit
this determination. Section 48-1-32 recognized only limited
circumstances in which the contracts of a dissolved partnership
would be valid, none of which TNE contends are applicable
here. See Utah Code Ann. § 48-1-32(1)(a)–(b) (LexisNexis 2010).
Thus, the only question remaining is whether the invalidity of
the TNE trust deed resulted in a void or a merely voidable
contract.
¶8 TNE maintains that the contract, though contrary to
section 48-1-32, was voidable rather than void. It does so based
on a common-law rule that it believes the Utah Supreme Court
announced in Miller v. Celebration Mining Co., 2001 UT 64, 29
P.3d 1231. In Miller, the former president of an administratively
dissolved corporation sought to enforce a written agreement
between himself, on behalf of the dissolved corporation, and the
chairman of Celebration Mining Company. Id. ¶ 1. The Miller
court held that where a person represents himself as having
authority to contract on behalf of a dissolved corporation, the
misrepresentation induces another party to enter into such a
contract, and the other party was justified in relying upon the
misrepresentation, the contract is voidable as between the person
who engaged in the misrepresentation and the other party, at the other
(…continued)
*now+ bound by a general partner’s act after dissolution
which . . . would have bound the limited partnership . . . before
dissolution,‛ assuming the party seeking to enforce the contract
is further able to prove that it did ‚not know or have notice of
the dissolution.‛ See Utah Code Ann. § 48-2e-804(1)(b)
(LexisNexis 2015). TNE does not claim the current statute has
retroactive effect.
20140751-CA 7 2016 UT App 187Wittingham v. TNE Limited Partnership
party’s option. See id. ¶¶ 10, 12–16. Although Miller could be,
and by this court has indeed been, read more broadly than this,
see Orvis v. Johnson, 2006 UT App 296U, para. 5, we are
persuaded that such a reading was perhaps the product of a little
wishful thinking and was, in any event, in error.
¶9 A careful reading of Miller may explain this court’s
misstep in Orvis v. Johnson, where we stated, citing Miller, that a
corporation’s postdissolution contracts are ‚merely voidable‛ at
the other party’s option. See Orvis v. Johnson, 2006 UT App 296U,
para. 5 (emphasis in original). But Miller did not overrule the
Utah Supreme Court’s decision in Houston,7 because whereas
Houston specifically holds that contracts signed on behalf of
dissolved corporations are void, see 187 P. at 177, Miller finessed
the issue by stating that such contracts are merely voidable as
between the individual who signed the agreement, purportedly on
behalf of the dissolved corporation, and the other party, see 2001
UT 64, ¶¶ 10–11. TNE has directed this court to no other decision
that might have overturned the rule announced in Houston,
namely that such contracts are ‚wholly void.‛ See 187 P. at 177.
Thus, that rule controls the appeal before us, and we disavow
Orvis to the extent it is inconsistent with Miller and Houston.
¶10 Moreover, a close reading of Houston confirms that the
Utah Supreme Court in that case used the term ‚void‛ advisedly
rather than casually, because it further clarified that such
contracts were ‚not confirmable, and not a subject of
ratification.‛ 187 P. at 177. The Court held that a ‚civilly dead
corporation could not ratify those things that it had no authority
7. Chief Justice Howe, in dissent, noted that ‚*c+learly, a contract
is void as to the corporation itself post dissolution and we have
previously so held.‛ Miller v. Celebration Mining Co., 2001 UT 64,
¶ 34 n.3, 29 P.3d 1231 (Howe, C.J., dissenting) (citing Houston v.
Utah Lake Land, Water & Power Co., 187 P. 174, 177 (Utah 1919)).
20140751-CA 8 2016 UT App 187Wittingham v. TNE Limited Partnership
and no power to do.‛8 Id. Therefore, Houston controls our
resolution of this case.9
8. The Court in Houston described the dissolved corporation’s
business tactics in colorful terms:
It is utterly fallacious to say that a corporation by
its corporate death is given everlasting corporate
life . . . . If in this case the corporation could buy
the stock of a California corporation and engage in
the loan business in California, it could as well
engage in banking in Chicago or buy and operate
an oil well in Wyoming. If the theory plausibly
presented by appellants is tenable, a private
corporation in this state desiring to enlarge and
extend its powers may have its charter forfeited by
failing to pay its annual state corporation license
tax and then become a law unto itself, engage in
any kind of business that may suit the fancy of its
officers, and become a buccaneer on the high seas
of finance.
Houston v. Utah Lake Land, Water & Power Co., 187 P. 174, 176–77
(Utah 1919).
9. TNE and Wittingham also discuss Bagnall v. Suburbia Land Co.,
579 P.2d 914 (Utah 1978), but only Houston is completely on
point. Although Bagnall comes close to addressing the issues
presented in this case, it does so only in passing and the
decision’s language makes clear that it was decided primarily on
a lis pendens issue. See id. at 916–17 (noting that a deed
‚executed without corporate authority . . . was a nullity‛ but
resting its decision on ‚the fact that a [recorded] lis pendens . . .
serves to conclusively defeat any interest [a party] may have
acquired through [a grantor whose claims were defeated] by
reason of the doctrine of lis pendens‛).
20140751-CA 9 2016 UT App 187Wittingham v. TNE Limited Partnership
¶11 Thus, although a contrary outcome might well be more
equitable under the circumstances, the burden of precedent—
even arguably outdated precedent based on the conceits of an
entirely different era—dictates our decision in this matter.10
Accordingly, we affirm the district court’s determination that the
TNE trust deed was void.
II. The District Court Lacked Personal Jurisdiction over Muir.
¶12 TNE also appeals the district court’s conclusion that it
lacked jurisdiction over TNE’s claim against Nick Muir. We
10. Although this court must follow the rule of Houston, the Utah
Supreme Court is not similarly bound. Given the shift in the
applicable statutory law and the adaptability of the more
disciplined view that only those contracts truly against the
public interest are void, the Supreme Court may well wish to
consider whether the time has come for Houston to be overruled.
See State v. Menzies, 889 P.2d 393, 399 (Utah 1994) (‚The general
American doctrine as applied to courts of last resort is that a
court is not inexorably bound by its own precedents but will
follow the rule of law which it has established in earlier cases,
unless clearly convinced that the rule was originally erroneous
or is no longer sound because of changing conditions and that
more good than harm will come by departing from precedent.‛)
(citations and internal quotation marks omitted). The precedent
is an old one—Houston was decided in the same year that the
Treaty of Versailles was signed—and much has changed in the
law of business organizations during the century following
World War I. Moreover, since Chief Justice Howe’s dissenting
opinion in Miller, no Utah court has so much as referenced
Houston or its holding in any way—including the majority in
Miller. Compare Miller v. Celebration Mining Co., 2001 UT 64, ¶ 34
n.3, 29 P.3d 1231 (Howe, C.J., dissenting), with id. ¶¶ 6–16
(majority opinion).
20140751-CA 10 2016 UT App 187Wittingham v. TNE Limited Partnership
affirm the district court’s decision because (1) TNE failed to
serve Muir notice of its claim against him and (2) Muir never
waived service of process by making an appearance or
responding to TNE’s claim against him. Cf. Wells v. Kelley, 42 P.
1133, 1133–34 (Utah 1895) (explaining that personal service on a
party is ordinarily required to give the court jurisdiction as to
that party, but that ‚having appeared . . . at the hearing, without
making objection, [the party] waived any technical right as to
service . . . which he might have had‛).11
III. Wittingham Is Not Entitled to Attorney Fees.
¶13 There is no validity to any claim derived from the trust
deed because the deed was void ab initio. See Consolidated Realty
Group v. Sizzling Platter, Inc., 930 P.2d 268, 273 n.7 (Utah Ct. App.
1996) (‚*T+he term ‘void’ can only be properly applied to those
contracts that are of no effect whatsoever, such as are a mere
nullity*.+‛). Thus, Wittingham is not entitled to recover attorney
fees pursuant to the terms of the trust deed, regardless of what
the proper interpretation of the terms of that agreement might be
if the contract were valid, because the agreement is wholly void.
Generally, ‚attorney fees may be awarded only when they are
authorized by statute or contract.‛ Fericks v. Lucy Ann Soffe Trust,
2004 UT 85, ¶ 23, 100 P.3d 1200. As the only contract between the
11. Because its claim against Muir was dismissed without
prejudice, TNE may be in a position to reassert it. Miller makes
clear that a person who signs a contract on behalf of a business
entity that does not exist may be held personally liable by the
other party to the contract as a result of the deception. 2001 UT
64, ¶¶ 7–8 (acknowledging that a person who ‚purport*s+ to act
as or on behalf‛ of an administratively dissolved business entity
may be ‚jointly and severally liable for all liabilities created
while so acting‛) (citation and internal quotation marks
omitted).
20140751-CA 11 2016 UT App 187Wittingham v. TNE Limited Partnership
parties was one that was wholly void and as Wittingham has
identified no independent statutory basis upon which we may
grant it attorney fees, it follows that its request for fees must be
denied.
IV. Other Issues
¶14 TNE’s estoppel and contract theories cannot prevail
because these theories are also premised on the validity of what
we have determined to be a void contract. See Millard County
School Dist. v. State Bank of Millard County, 14 P.2d 967, 972 (Utah
1932) (‚It may well be said that contracts and corporate acts and
transactions which are . . . illegal and void . . . cannot support an
action nor become enforceable by performance, ratification, or
estoppel[.+‛); Consolidated Realty Group, 930 P.2d at 273 n.7. And
we agree with the district court that, as the trust deed was void,
‚TNE ha*d+ no legal or equitable interest in the Apartments,
[and thus] lack[ed] standing . . . to challenge the Dissolved
Partnership’s conveyance of the Apartments to Wittingham.‛ See
Millard County School Dist., 14 P.2d at 972.
¶15 TNE also argues that the conveyance of the apartment
buildings from the Muir Partnership to, ultimately, Wittingham
LLC constituted a fraudulent transfer. The district court declined
to address the merits of this claim because it concluded that Nick
Muir was an indispensable party. In light of that conclusion and
its conclusion that it lacked personal jurisdiction over Muir, the
court dismissed TNE’s fraudulent transfer claims without
prejudice. We do not disturb that ruling.
¶16 The final argument Wittingham raised concerns a
judgment against one Mario Naujoks. We are unable to reach the
argument, however, as it is inadequately briefed. Although
Wittingham refers to the record of the district court’s decision
concerning Naujoks, Wittingham fails to seriously analyze that
decision and the district court’s reasoning such that we can
meaningfully review the court’s decision in this regard. See, e.g.,
20140751-CA 12 2016 UT App 187Wittingham v. TNE Limited Partnership
State v. Sloan, 2003 UT App 170, ¶ 13, 72 P.3d 138 (‚Briefs must
contain reasoned analysis based upon relevant legal authority.
An issue is inadequately briefed when the overall analysis of the
issue is so lacking as to shift the burden of research and
argument to the reviewing court.‛) (citation and internal
quotation marks omitted).
CONCLUSION
¶17 Because the TNE trust deed was void as to the Muir
Partnership, it cannot be enforced, and neither party may avail
itself of remedies premised upon the existence of a valid
contract. Thus, the district court’s judgment is affirmed.
20140751-CA 13 2016 UT App 187