Mountain Dudes v. Split Rock et al
Filing
136
MEMORANDUM DECISION denying 62 Motion for Summary Judgment ; granting in part and denying in part 69 Motion for Partial Summary Judgment; denying as moot 72 Motion to Bifurcate; granting 88 Motion for Summary Judgment ; denying as moot 115 Motion to Continue. As a result of this order, the only issue left for trial is damages related to Split Rocks breach of contract. The parties are instructed to meet and confer to attempt to stipulate to a scheduling order setting dates for all event s remaining in this action, up to and including trial. The parties shall submit a joint order within 30 days of this Order, and if they cannot agree to such an order, they shall submit their proposed orders within that time. See Order for details. Signed by Judge Clark Waddoups on 4/21/2011. (jtj)
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION
MOUNTAIN DUDES, LLC, a Missouri
limited liability company,
Plaintiff,
MEMORANDUM DECISION
AND ORDER
vs.
SPLIT ROCK, INC., a Utah corporation, et
al.,
Case No. 2:08-cv-940-CW
Consolidated Action No. 2:09cv540
CW
Defendants.
In this diversity action, Plaintiff Mountain Dudes, LLC has sued various Defendants over
a series of events involving a real estate purchase. In short, Mountain Dudes purchased a home
in Southern Utah that featured nine arches as part of its design. After Mountain Dudes purchased
the home, two of the arches were removed. Mountain Dudes has sued numerous Defendants in
connection with the removal of the arches and related events. Now before the court are multiple
motions by the parties.
FACTS
I.
THE ASSOCIATION AND THE PROPERTY
In May 1995, Entrada at Snow Canyon Property Owners Association, Inc. (the
“Association”) was incorporated. The Association was created to operate a residential
community in Washington County, Utah known as Entrada at Snow Canyon (the
“Development”). On February 6, 1996, the Development’s Declaration of Covenants,
Conditions and Restrictions was recorded with the Washington County Recorder. Various
amendments to that declaration were subsequently recorded with the Washington County
Recorder, including a Corrective Entrada at Snow Canyon Third Amended and Restated
Declaration of Covenants, Conditions, and Restrictions (the “CC & Rs”), recorded on September
12, 2006. The property involved in this suit is a home and lot located on lot 75 of the Kachina
Springs subdivision of the Development (the “Property”). The CC & Rs governed the parties
and the Property at the time of the relevant events in this action.
II.
THE CC & Rs AND THE ARTICLES
The CC & Rs designate certain portions of the Development’s common areas as limited
common areas. The CC & Rs reserve these limited common areas, appurtenant to individual
units, for the exclusive use of the owner of a specific unit to the exclusion of all other owners.
The CC & Rs also provide for the creation of the Entrada Design Review Committee (the
“Design Committee”). The Design Committee approves construction and maintenance of any
building, fence, wall or other structure in the limited common areas. Further, the CC & Rs grant
the Association a broad easement to remove or repair any existing violation within the
Development if the violating unit’s owner fails to do so.
Section 5 of the Associations’ articles of incorporation outlines the procedure for
establishing a change in membership in the Association. Section 5 provides, in relevant part:
Change of membership shall be established by recording in the Official Records
of Washington County, Utah, a deed or other instrument establishing record fee
title of such Unit and by delivery to the Association of a certified copy of such
instrument. The owner designated by such instrument or certificate thus becomes
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a member of the Association, and the membership of the prior owner shall be
terminated.
(Articles § 5, Dkt. No. 89, Ex. A).1
Section 3.1 of the CC & Rs also addresses the acquisition of membership rights in the
Association. It provides, in relevant part:
Every Owner, as defined in Section 1.14, shall be deemed to have a membership
in, and be a member of, the Association. No Owner, whether one or more
Persons, shall have more than one membership per Unit owned. In the event the
Owner of a Unit is more than one Person, votes and rights of use and enjoyment
shall be as provided herein. . . The Membership rights of a Unit owned by a
corporation or partnership shall be exercised by the individual designated by the
Owner in a written instrument provided to the Secretary, subject to the provisions
of this Declaration and the By-Laws.
(CC & Rs §3.1, Dkt No. 70, Ex. B).
III.
THE PURCHASE AND THE LEASE-BACK
On October 4, 2006, Mountain Dudes, entered into a Real Estate Purchase Contract (the
“REPC”) with Split Rock, Inc. (“Split Rock”) to purchase the Property for $2,200,000. Split
Rock Homes built the house, and Split Rock Realty listed it for sale. The house featured a set of
nine large torii arches leading up to its front entry and continuing into the living area within. The
home and its arches received attention in the 2007 Parade of Homes for the St. George area and
the Winter 2008 edition of Utah Style and Design Magazine. Mountain Dudes asserts that the
arches and the publicity associated with them were material factors in Mountain Dudes’ decision
to purchase the Property. Two of the nine arches were located in the Property’s limited common
area.
1
Note that the Articles (along with other documents) are incorporated by the CC & Rs. For
convenience, the court will refer to the CC & Rs themselves as well as the incorporated documents
as the CC & Rs in this Order.
3
Split Rock has submitted an affidavit stating that because the Design Committee had not
previously required approval for homes like that on the Property, Split Rock did not believe that
the Property or its arches required the Design Committee’s approval. Split Rock did not submit
the design for approval prior to February 12, 2007, the date Mountain Dudes closed on the
purchase of the Property.
Shortly after closing on its purchase, Mountain Dudes leased the Property back to Split
Rock for a period of twelve months to be used for sales and marketing purposes. Mountain
Dudes did not deliver to the Association a certified copy of the deed or other instrument
establishing record fee title to the Property. Mountain Dudes also did not provide the
Association with a written instrument designating an individual to exercise membership rights on
its behalf.
IV.
THE REMOVAL OF THE ARCHES
As discussed further below, a member of the Design Committee first expressed concerns
that the Property “might encroach the established front setbacks of the development” in a
meeting on January 30, 2007. (Design Committee Meeting Minutes dated January 30, 2007, 9,
Dkt. No. 54, Ex. I.) The notation does not expressly refer to the arches. That meeting was held
nearly two weeks before Mountain Dudes closed on its purchase of the Property. On March 6,
2007, a few weeks after Mountain Dudes closed on the Property, the Design Committee met and
discussed the design of the Property. The discussion included whether the two arches in the
limited common area were located within the required setback and whether the Property’s design
should have been brought before the Design Committee for approval prior to construction. (See
Design Committee Meeting Minutes dated March 6, 2007, 7, Dkt. No. 89, Ex. E).
4
On March 20, 2007, the Association’s Board of Trustees met and discussed various
concerns relating to the Property, including “the institutional problems of enforcement” that
would occur if the arches were allowed to remain. (Association Meeting Minutes dated March
20, 2007, 3, Dkt. No. 89, Ex. G). Several other meetings about the arches took place until the
Design Committee reached a final conclusion on October 2, 2007. At a meeting on that date,
after reviewing several objections to the Property’s design, committee member Ron Slane made a
motion to remove the two arches located in the limited common area. Joseph Platt seconded the
motion. The motion was carried with votes from Mr. Slane, Mr. Platt, Kent Bylund and Dara
Tancredi in favor, with two opposing votes. (Design Committee Meeting Minutes dated October
2, 2007, 6, Dkt. No. 70, Ex. I). Significantly, Mr. Platt and Mr. Bylund were both principals of
Split Rock and members of the Design Committee at the time the vote was taken.
After the Design Committee’s decision, Split Rock removed the two arches from the
property’s limited common area in February 2008. Split Rock had possession of the Property at
the time under the lease back agreement. Split Rock, however, did not notify Mountain Dudes
that the arches were to be removed before the removal. Mountain Dudes did not find out about
the removal until some time later when it discovered the removal on its own.
V.
THE LITIGATION
On December 5, 2008, Mountain Dudes filed this action, alleging sixteen causes of
action. Recently, the court allowed Mountain Dudes to amend the complaint to clarify diversity
jurisdiction. The claims remain the same after that amendment and are as follows: (1) “Breach of
Contract;” (2) “Breach of the Implied Covenant of Good Faith and Fair Dealing;” (3) “Fraudulent
Nondisclosure and Concealment;” (4) “Fraud;” (5) “Constructive Fraud;” (6) “Civil Conspiracy;”
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(7) “Breach of Fiduciary Duties;” (8) “Trespass and Waste;” (9) “Intentional and Negligent
Misrepresentation;” (10) “Rescission;” (11) “Breach of General Warranty Deed;” (12) “Lack of
Notice and Due Process and Breach of CC&Rs;” (13) “Ultra Vires;” (14) “Alter Ego/Piercing the
Corporate Veil;” (15) “Promissory Estoppel;” and (16) “Negligence.” Not all claims are against
all Defendants.
On June 17, 2009, Mountain Dudes filed a motion seeking partial summary judgment
against Split Rock and other Defendants on the claims for misrepresentation, fraudulent
nondisclosure, and waste. Mountain Dudes also sought judgment against Split Rock for
breaching the section of the REPC in which Split Rock warranted that the property complied
with the CC & Rs.
On November 19, 2009 the court granted summary judgment against Split Rock on the
issue of liability for breach of the REPC, but denied the remainder of Mountain Dudes’ motion.
The court left open the question of how much damage Mountain Dudes suffered as a result of
Split Rock’s breach of the REPC.
VI.
The Settlement Agreement and the Consolidated Action
On September 8, 2008, prior to the filing of this action, Split Rock and Mountain Dudes
entered into a settlement agreement (the “Settlement Agreement”), in which Split Rock agreed to
repurchase the property from Mountain Dudes for a little over $2.2 million. Split Rock paid a
little more than $50,000 toward that settlement, then stopped making payments. On May 12,
2009, Split Rock filed an action in Utah state court seeking the return of the payments it had
previously made under the Settlement Agreement, claiming breach of contract and unjust
enrichment.
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Mountain Dudes removed that action to this court, and Split Rock sought to remand.
Judge David Sam denied Split Rock’s remand motion, accepting Mountain Dudes’ argument that
the Settlement Agreement was, in effect, a part of this action. On January 22, 2010, this court
consolidated Split Rock’s refund action with this case. In connection with the consolidated
complaint, Split Rock has moved for summary judgment on its claim that Mountain Dudes must
return it the roughly $50,000 Split Rock paid.
ANALYSIS
There are now four motions before the court: (1) the Association’s motion seeking the
dismissal of all Mountain Dudes’s claims against it (2) the other Defendants’ motion seeking the
dismissal of all Mountain Dudes’ remaining claims against them; (3) Mountain Dudes’ motion
seeking two separate trials; and (4) Split Rock’s motion for summary judgment in its favor on its
claims for a return of the payments it made on the Settlement Agreement. The court will rule on
each of these motions below.
I.
STANDARD FOR SUMMARY JUDGMENT
Summary judgment shall be granted “if the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P.
56(a). The party moving for summary judgment “bears the initial burden of demonstrating an
absence of a genuine issue of material fact.” Sally Beauty Co., Inc. v. Beautyco, Inc., 304 F.3d
964, 971 (10th Cir. 2002) (citation omitted). “Once the moving party has properly supported its
motion for summary judgment, the burden shifts to the nonmoving party to go beyond the
pleadings and set forth specific facts showing that there is a genuine issue for trial.” Id. (citation
omitted). “An issue is genuine ‘if the evidence is such that a reasonable jury could return a
7
verdict for the nonmoving party.’” Id. (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248 (1986)). When “applying this standard, [courts] examine the factual record in the light most
favorable to the non-moving party.” Narotzky v. Natrona Cnty. Mem'l Hosp. Bd. of Trs., 610
F.3d 558, 565 (10th Cir. 2010) (internal quotation marks and citation omitted). Finally, in this
case, the court has determined that Utah law governs all of the tort and contract claims in this
action.
II.
THE ASSOCIATION’S MOTION FOR SUMMARY JUDGMENT
Mountain Dudes alleges five cause of action against the Association: fraud; conspiracy;
trespass and waste; negligence; and breach of the CC & Rs. The Association moves for
summary judgment in its favor on each of these claims. In its opposition, Mountain Dudes only
attempts to establish its negligence and breach of contract claims. For the reasons discussed
below, Mountain Dudes has not met its burden of showing disputes of material fact on its
negligence and breach claims and summary judgment is appropriate in the Associations’s favor
on them. Moreover, because Mountain Dudes abandons its other claims, judgment in favor of
the Association on those claims is also granted.
A.
Negligence Against the Association
To support its negligence claim, Mountain Dudes asserts that the Association breached a
duty, which lead to harm to Mountain Dudes in the form of the arches being removed. But the
only duty that Mountain Dudes alleges the Association violated was the purported duty to give
Mountain Dudes notice of meetings. The only express source of that asserted duty Mountain
Dudes cites is the CC & Rs.
8
The Association correctly argues that it should prevail on this claim. Generally,
negligence claims are barred by the economic loss rule when a contract covers the relevant
subject matter. The economic loss rule thus “prevents parties who have contracted with each
other from recovering beyond the bargained-for risks.” Sunridge Dev. Corp. v. RB & G
Engineering, Inc., 230 P.3d 1000, 1006 (Utah 2010) (citation omitted). Here, Mountain Dudes
alleges that the Association violated a duty arising from the REPC– to give notice– and that
Mountain Dudes suffered a loss which was covered by the REPC– the removal of a feature found
to be out of compliance. Since the only source of the alleged duty is the CC & Rs, under the
economic loss rule, Mountain Dudes’ claim against the Association may only be brought for
breach of contract.
There are two possible ways that Mountain Dudes’s could avoid the application of the
economic loss rule to their claim. First, Mountain Dudes could prove that it sustained some
property damage aside from that set out in the CC & Rs. Second, Mountain Dudes could
establish that the Association had a duty to Mountain Dudes that arose independent of the CC &
Rs that the Association breached. See id. at 1006-07. Mountain Dudes has not shown that either
of these exceptions applies in this case. First, removal of a feature that did not comply with the
design code is a risk that was contemplated in the CC &Rs. Beyond the removal the arches,
which were found to be out of compliance, there was no property damage in this case. Second,
Mountain Dudes cites no independent duty that the Association had to inform Mountain Dudes
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of meetings.2 Any such duty arose only from the CC & Rs. Accordingly, the Association is
entitled to summary judgment in its favor on Mountain Dude’s negligence claim against it.
B.
Breach of Contract Claim Against the Association
The Association also prevails on Mountain Dudes’s twelfth cause of action for “lack of
notice and due process and breach of the CC & Rs.” (Dkt. No. 127-1 at 25.) Initially, the court
construes this claim as one for breach of contract only, since notice and due process claims do
not stand against a private parties. In short, Mountain Dudes asserts that the Association
breached the CC & Rs by failing to give Mountain Dudes notice of the hearings about the arches
and their results and by failing to give Mountain Dudes the opportunity remove the arches.3
The Association argues that it is entitled to judgment on a breach claim because Mountain
Dudes was the first to breach the CC & Rs. The Association asserts that Mountain Dudes
breached first in two ways, (1) by failing to provide the Association with proof that Mountain
Dudes owned the property at issue and (2) by failing to designate a representative to exercise
membership rights on Mountain Dudes’ behalf. As explained below, the Association does not
prevail on the former argument, but is correct on the latter.
As for the question of whether Mountain Dudes was required to provide notice of
ownership to be recognized as a member of the Association, there is a fact dispute on issues
2
Mountain Dudes cites “general standards of care” established by Utah statute for directors
of non-profit corporations, Utah Code § 16-6a-822(a)(2) as a possible source of duty. But Mountain
Dudes does not cite any authority that this statute can be construed to impose any particular duties
on the non-profit corporation, much less a duty of notice to owners.
3
The parties also made additional arguments in supplemental briefing after the hearing on
this matter was held. Because the court is able to rule on the issues raised in the initial briefs, it will
not rely upon any arguments made by either side in the supplemental briefs.
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relevant to this claim.4 First, the CC & Rs are ambiguous on whether Mountain Dudes had to
provide the Association with proof of ownership before the Association had to treat Mountain
Dudes as a member for notice purposes. One provision requires notice to the Association as part
of a change of membership, while other provisions imply that any owner is deemed a member
without regard to formal notice by the member. Neither side has provided any evidence about
what the drafting parties intended on this issue. Moreover, there is evidence that the Association
was aware that Mountain Dudes owned the property at issue. If the Association knew of that
ownership, it could be found that Mountain Dudes’s failure to file proof of ownership, even if it
was a breach, was not a material breach.
On the other hand, it is clear that the CC & Rs required Mountain Dudes to designate a
representative before the Association could have been expected to give Mountain Dudes notice.
Mountain Dudes argues that it did not have to designate because it is a limited liability company
and Paragraph 3.1 of the CC & Rs expressly states that this duty applies to a “corporation or
partnership.” But as a matter of contractual interpretation, the relevant portion of Paragraph 3.1
unambiguously applies to require limited liability companies to designate a representative. In
context, the relevant portion of Paragraph 3.1 is meant to require designation of a representative
in situations in which a member is not a natural person, but rather a corporate entity. Such
designation is needed because if the member is a corporate entity, a dispute could arise as to who
is authorized to represent the entity if different members take differing positions. Nothing about
Paragraph 3.1 or any other portion of the CC & Rs suggests that the Association agreed that it
4
It is also worth noting that the CC & Rs do not expressly require notice of meetings to
owners, but the Association has not argued that lack of notice was not a breach.
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would, on its own, determine the individual responsible for exercising the rights of a limited
liability company.
Given this context, the court finds that as a limited liability company, Mountain Dudes
was required to designate to the Association a representative to act on its behalf. Moreover, the
court finds that until Mountain Dudes made such a designation, it was not entitled to notice of
meetings and other actions from the Association. That is, Mountain Dudes was in breach of its
duty under the CC & Rs to designate a representative, and Mountain Dudes’s breach preceded
any breach by the Association. Further, Mountain Dudes’s breach was material, because
assuming the Association was required to give notices, Mountain Dudes’ failure to designate
prevented the Association from carrying out that duty. Accordingly, Mountain Dudes was the
first to breach the CC & Rs and its breach of contract claim against the Association fails. See
Fisher v. Taylor, 572 P.2d 393, 395 (Utah 1977) (first party to materially breach a contract
“cannot be heard to complain of a subsequent breach”).
In any event, as a factual matter, it appears that the Association likely believed that Split
Rock, as Mountain Dudes’s original vendor and subsequent lessee, had the right to exercise
Mountain Dudes’s rights under the CC & Rs. While the court stops short of finding that Split
Rock was Mountain Dudes’ designee for purposes of Paragraph 3.1 of the CC & Rs, it would not
have been unreasonable for the Association to have relied on Split Rock as Mountain Dudes’ de
facto representative for purposes of exercising any rights under the CC & Rs with regard to the
Property.
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C.
All Other Claims Against the Association
As mentioned above, Mountain Dudes makes no attempt to establish any dispute of
material fact on any of its remaining claims against the Association, or to defend the legal merits
of those claims. The court is persuaded by the Association’s argument that it is entitled to
judgment in its favor on these claims. Accordingly, summary judgment is GRANTED in the
Association’s favor on all of these claims as well.
III.
MOTION BY SPLIT ROCK AND THE NON-SPLIT ROCK DEFENDANTS FOR
PARTIAL SUMMARY JUDGMENT
For convenience, the court will refer to all Defendants other than the Association and
Split Rock together as the “Non-Split Rock Defendants.” Specifically, the Non-Split Rock
Defendants are: Split Rock Fine Homes Real Estate Company, LLC; Split Rock Realty LLC;
Split Rock Fine Homes, Inc.; Joseph L. Platt; Bartley Smith; Weldon Larsen; Kent L. Bylund;
Mary Musgrave; and Brady Platt. Mountain Dudes has alleged all but its twelfth cause of action
against some or all of Split Rock and the Non-Split Rock Defendants. Split Rock and all of the
Non-Split Rock Defendants have together moved for summary judgment in their favor on all
claims against them. The court will address the merits of this motion below.
A.
Breach of Contract Claim
Split Rock and the relevant Non-Split Rock Defendants argue that they are entitled to
judgment on Mountain Dudes’ first cause of action for breach of contract claim against them. As
an initial matter, the only written contract at issue in this action is the REPC, which incorporates
the lease back agreement. The REPC and the lease back agreement were both between Mountain
Dudes and Split Rock only. In supporting its breach of contract claim against Split Rock and the
Non-Split Rock Defendants, Mountain Dudes characterizes its breach of contract claim as only
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going to the REPC and the lease back agreement. Accordingly, the breach of contract claim is
properly brought only against Split Rock alone, and to the extent that claim is brought against
any other Non-Split Rock Defendant, it has no merit. Summary judgment is therefore proper on
this claim in favor of those Defendants.
On another preliminary issue, the court has already found that Split Rock is liable to
Mountain Dudes for a breach of the REPC, specifically the part of the REPC in which Split Rock
covenanted that the property complied with the CC & Rs. (See Order at Dkt. No. 60.) The
amount of damages to be awarded has not yet been resolved.5 The court will thus construe Split
Rock’s motion for judgment in its favor on the breach of contract claim as one going to any other
provision of the REPC and the lease back agreement.
Aside from the covenant in the REPC, Mountain Dudes points to only one express
contractual provision that it contends Split Rock breached. That is, in an addendum to the
REPC, Split Rock agreed that when the lease back terminated, it would “provide an additional
one year home warranty that will cover 100% repair or replacement on structure, furniture, and
fixtures.” (Addendum No. One to REPC, Dkt. No. 70-2.) Mountain Dudes argues that this
warranty obligated Split Rock to replace the two arches that were removed. But as a matter of
contract interpretation, this warranty does not require Split Rock to replace features removed
because they were found in violation of the CC & Rs. As a matter of plain language, when
parties refer to “repair or replacement” in a warranty, they are considering items that are damaged
5
Split Rock has pointed out that the court stated at a hearing that the amount of damages will
include the difference in value of the Property with and without the two removed arches. It should
be noted that in making this comment, the court did not intend to imply that Mountain Dudes will
be precluded from recovering any other damages available under Utah law for breach of contract.
If Mountain Dudes can prove such damages, it will be awarded them.
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or destroyed by negligence or otherwise. See Peterson & Simpson v. IHC Health Servs., Inc.,
217 P.3d 716 720 (Utah 2009) (“As with any contract, we determine what the parties have agreed
upon by looking first to the plain language within the four corners of the document.”) (citation
omitted). “Repair or replacement” do not, in their ordinary sense, refer to items purposely
removed because they fail to comply with enforceable restrictive covenants.
For all these reasons, the court concludes that Split Rock is not liable for any breach of
contract except for the breaching the covenant that the Property would comply with the CC & Rs.
Split Rock’s motion for judgment on the first cause of action is therefore GRANTED in part.
Since the court has already found such breach, however, Split Rock’s motion for partial summary
judgment on count one is DENIED in part with respect to that breach.
B.
Breach of Duty of Good Faith and Fair Dealing
Split Rock and the relevant Non-Split Rock Defendants also move for judgment in their
favor on Mountain Dudes’ second cause of action for breach of the implied duty of good faith
and fair dealing.
Initially, the Non-Split Rock Defendants correctly point out that a claim for a breach of
the implied covenant of good faith and fair dealing “arises under [a] contract,” and has “no
independent existence outside of the contract.” Peterson & Simpson, 217 P.3d at 722. In this
case, Mountain Dudes alleges a breach of the implied duties that arose under the REPC. As
already mentioned, however, none of the Non-Split Rock Defendants are parties to the REPC.
Absent a contractual duty, the Non-Split Rock Defendants owned no duty of good faith and fair
dealing to Mountain Dudes. Accordingly, to the extent that the good faith and fair dealing claim
15
goes to any Non-Split Rock Defendant, it has no merit. Summary judgment on this claim is
therefore appropriate against the Non-Split Rock Defendants against whom it is brought.
On the other hand, Split Rock has not shown that, on the merits at least, it is entitled to
judgment in its favor on the good faith and fair dealing claim against it. “To comply with his
obligation to perform a contract in good faith, a party’s actions must be consistent with the
agreed common purpose and the justified expectations of the other party.” St. Benedict’s Dev.
Co. v. St. Benedict’s Hosp., 811 P.2d 194, 200 (Utah 1991) (citation omitted). In this case, a
reasonable inference can be drawn that Split Rock and Mountain Dudes mutually understood that
implicit in the deal they made in the REPC was that the nine arches would remain a permanent
feature of the Property. The expectation that the arches would remain permanently appears
justified. Moreover, it is fairly clear that once the leaseback period began, Split Rock and
Mountain Dudes both justifiably expected that the nine arches would remain.
After the sale and during the lease period, Mr. Bylund and Mr. Platt, both principals of
Split Rock, voted to tear the arches down. While neither the REPC nor the leaseback agreement
expressly mandates that Split Rock would not take any action that resulted in the removal of the
arches, reason allows that this duty is implied. Moreover, Split Rock did not give Mountain
Dudes notice of the meetings leading up to the vote, or that the vote had been taken. Again,
while there was no requirement in the governing agreements that Split Rock give Mountain
Dudes this notice, the good faith duty to do so could be implied from the lease back provisions of
the REPC. Finally, Split Rock tore down the arches without giving any notice that it was doing
so to Mountain Dudes, thus cutting off any chance by Mountain Dudes to try to appeal the
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decision before the arches were gone. Again, while taking this action was not expressly
prohibited by the contract, Split Rock’s doing so could be found to be in bad faith.
The duty of good faith and fair dealing, implied under Utah law in all contracts, requires
that one party to a contract not take any action that will deprive the other party of the benefits of
the bargain See id. at 199 (“Under the covenant of good faith and fair dealing, each party
impliedly promises that he will not intentionally or purposely do anything which will destroy or
injure the other party’s right to receive the fruits of the contract.”) (citations omitted). In this
case, the facts reasonably support a conclusion that Split Rock, through Mr. Bylund and Mr.
Platt, took actions that had the effect of denying Mountain Dudes the benefits of the Property as
Split Rock had agreed to deliver it- with nine arches. Such actions were likely in violation of the
duty of good faith and fair dealing owed to Mountain Dudes implied in the REPC. Quite frankly,
the court would be surprised if Split Rock had a colorable defense for taking these actions.
Notwithstanding the fact that Mountain Dudes may have presented sufficient evidence to
avoid Split Rock’s motion for summary judgment on the claim for breach of the implied duty,
Split Rock may not recover on this claim. That is because the duty of good faith and fair dealing
arose from the REPC. As explained above, however, Mountain Dudes has already prevailed on
its claim that Split Rock breached the REPC. Moreover, the end result of Split Rock’s breach of
both the REPC and of Split Rock’s likely breach of the implied contractual duty in this case is
the same: the removal of the arches. Awarding any additional damages on the implied duty claim
would thus result in a double recovery, which is not allowed under Utah law. See Brigham City
Sand & Gravel v. Machinery Ctr., Inc., 613 P.2d 510, 511 (Utah 1980) (ruling that “a party
cannot have a double recovery for the same loss”) (citations omitted). Accordingly, once
17
Mountain Dudes prevailed on its claim for breach of contract, Mountain Dudes’ claim for breach
of the implied duty of good faith and fair dealing became moot. Judgment is therefore
GRANTED in Split Rock’s favor on the second cause of action.
C.
Fraud and Negligent Misrepresentation
In addition to its contractual claims, Mountain Dudes alleges fraud and negligent
misrepresentation against Split Rock and all of the Non-Split Rock Defendants. In its third, fifth
and sixteenth causes of action, Mountain Dudes alleges fraud and negligence, claiming the
Defendants omitted a material fact in the sale of the Property. In its fourth, ninth, and tenth and
fifteenth causes of action, Mountain Dudes alleges that Split Rock misrepresented material facts
in the REPC. Mountain Dudes bases its sixth cause of action for conspiracy on the existence of
the fraud claim. All Defendants against whom these claims are brought have moved for
judgment in their favor. For the reasons discussed below, the court GRANTS their motion.
1.
Omission-Related Claims
In support of its claims based on fraudulent and negligent omissions, Mountain Dudes
relies on two facts. First, Mountain Dudes cites Design Committee meeting minutes from
January 30, 2007 which note that with respect to the Property, “Dara [Tancredi of the Design
Committee] brought up a concern that this home might encroach the established front setbacks of
the development.” (Dkt. No. 54-2 at p. 9.) The “Actions” taken as listed in the minutes was
“None” and the “Follow Up” was for “Kent to look into the matter.” (Id.) The meeting notes
indicated that Joseph Platt and Mr. Bylund were present at that meeting. Second, Mountain
Dudes points to a March 11, 2008 letter from Joseph Platt to Mountain Dudes which includes a
statement that “certain members of [the Design Committee] had merely gone on record that they
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might have a problem with the arches.” (Dkt. No. 46-14.) On the basis of these facts, Mountain
Dudes argues that the relevant Defendants should have disclosed the concern Ms. Tancredi
expressed at the January 30 meeting about the arches prior to the sale of the Property and did not
do so, whether through fraud or negligence.
To prove an action for fraudulent non-disclosure, a plaintiff must show that “(1) the
nondisclosed information is material, (2) the nondisclosed information is known to the party
failing to disclose, and (3) there is a legal duty to communicate.” Hermansen v. Tasulis, 48 P.3d
235, 241-42 (Utah 2002) (citation omitted). Negligent omissions occur when one who has a
pecuniary interest in a transaction does not take reasonable care to obtain and reveal material
information. See Atkinson v. IHC Hosps., Inc., 789 P.2d 733, 737 (Utah 1990).
Assuming Split Rock and all of the Non-Split Rock Defendants knew of or should have
known of Ms. Tancredi’s concern, the claim still fails on the other two prongs of the fraud claim.
First, the only presently existing non-disclosed fact that arose pre-sale for which there is clear
evidence is Ms. Tancredi’s concern that the arches might not comply with the setback provisions
of the CC & Rs. Such a concern is not material. As a matter of logic, either the arches were in
violation of the setback provisions or they were not. If the arches did comply with the
provisions, then Ms. Tancredi’s concern would be irrelevant, because her concern would not
have provided any ground to remove the arches under the CC & Rs.6 If, on the other had, the
6
To the extent Mountain Dudes seeks an inference that Ms. Tancredi’s stated concern about
the setback indicated a larger agenda on her part to get rid of the arches, the evidence does not
reasonably support such an inference. Even if it did, there is no evidence that the Defendants knew
about such a plan. Moreover, while Joseph Platt’s letter states that more than one member had
expressed a potential problem with the arches on the record, the only record for which Mountain
Dudes presented evidence is the relevant meeting minutes, which reflect one concern by one
member.
19
arches did indeed violate that setback provisions, then this violation, not Ms. Tancredi’s concern,
is the relevant material fact. As discussed below, however, there was no duty to reveal this fact
in any event. Because Ms. Tancredi’s concern is not a material fact, it cannot form the basis of
either a fraud claim or a negligent misrepresentation claim.
Second, even if Ms. Tancredi’s concern were material, the relevant Defendants had no
legal duty to reveal it. In Utah, “[a] seller is not obligated to reveal all that he or she knows about
the property involved.” Mitchell v. Christensen, 31 P.3d 572, 574 (Utah 2001). Rather, “[i]f a
defect can be discovered by reasonable care, the doctrine of caveat emptor prevails and precludes
recovery by the vendee.” Id. at 575. In this case, a buyer using reasonable care would have
obtained any meeting minutes with entries concerning the Property. Had Mountain Dudes done
so here, it would have been aware of the January 30 minutes and known about Ms. Tancredi’s
statement. Moreover, if there was indeed a setback violation involving the arches, which was the
subject of Ms. Tancredi’s concern, a buyer using reasonable care could have discovered that
violation by reviewing the setback provisions of the CC & Rs and examining the Property to
ensure compliance. (Of course, if there was no setback violation, Ms. Tancredi’s stated concern
was of no relevance.) In sum, Mountain Dudes, using reasonable care, could have discovered
Ms. Tancredi’s concern, and also investigated the underlying subject matter of that concern to see
if it was valid. The relevant Defendants were thus under no legal duty to reveal the concern.
Moreover, it is clear that Mountain Dudes satisfied any concern about whether the Property
complied with the restrictive covenants by obtaining a covenant from Split Rock that the
Property would be in compliance. There is no indication on this record that Mountain Dudes
would have required anything further even if the claimed omitted evidence had been disclosed.
20
For the reasons discussed above, judgement in favor of all relevant Defendants on
Mountain Dudes’ fraud and negligence claims is appropriate to the extent that claim goes to an
omission. Accordingly, judgment on Mountain Dudes’ third cause of action (fraudulent
concealment), fifth cause of action (constructive fraud for failure to disclose), and sixteenth cause
of action (negligent non-disclosure) is granted in favor of all Defendants against whom they are
brought.
2.
Misrepresentation- Related Claims
In support of its alleged misrepresentation, Mountain Dudes points to an implied
representation in the REPC that the Property had been approved by the Design Committee.
Initially, the court notes that none of the Non-Split Rock Defendants made any representations in
the REPC. Accordingly, this claim could only potentially have any merit against Split Rock.
Judgment in favor of the non-Split Rock Defendants is thus appropriate on Mountain Dudes’
affirmative misrepresentation causes of action.
As to Split Rock, Mountain Dudes asserts that by representing in the REPC that the
Property complied with the CC & Rs, Mountain Dudes in effect represented that it had gotten
approval for the arches from the Design Committee before the sale. To reach this conclusion,
Mountain Dudes points to Section 12.1 of the REPC, which represents that the Property would
be built in compliance with the CC & Rs. Mountain Dudes then points to Section 13.1 of the CC
& Rs, which requires that the Design committee review and approve the construction of
structures in limited common areas. Mountain Dudes also relies on a portion of Section 14 of the
CC & Rs, which require that Design Committee approvals be obtained before submitting to the
local municipality for a building permit.
21
Split Rock counters that it did not intend to represent that the Property had gotten
approval from the Design Committee. Split Rock contends, and Mountain Dudes does not
dispute, that the Design Committee “had never reviewed the design of patio homes,” leading
Split Rock to believe that the Design Committee was not enforcing the relevant CC & Rs related
to approval. (Dkt. No. 70 at p. ix.)
Accordingly, it is undisputed that Split Rock did not make a knowingly false
representation when it stated in the REPC that the Property complied with the CC & Rs. That is
because while Split Rock may have been aware that the requirements of Sections 13.1 and 14 of
the CC & Rs existed on paper, Split Rock did not anticipate that those requirements would be
enforced. Split Rock therefore did not intend to represent that it had actually complied with
those particular requirements. Accordingly, Mountain Dudes’ claim for fraud by affirmative
misrepresentation against Split Rock has no merit and judgment in Split Rock’s favor is
appropriate.
As for the negligent misrepresentation claim, Split Rock had no independent duty to
inform Mountain Dudes whether or not the Design Committee had approved the Property. If
such a duty arose, it was because Split Rock was entering into a contract with Mountain Dudes
that addressed whether the Property complied with the CC & Rs. Likewise, the risk that the
Property did not comply with the CC & Rs was one borne by Split Rock in the REPC.
Accordingly, like the negligence claim against the Association, Mountain Dudes’ negligence
claim against Split Rock is barred by the economic loss rule. See Sunridge Dev. Corp., 230 P.3d
at 1006-07 (claims for negligent misrepresentations covered by a contract barred by economic
loss rule).
22
For these reasons, Mountain Dudes’ fourth cause of action (fraud by misrepresentation),
ninth cause of action (intentional and negligent misrepresentation), tenth cause of action (recision
based on fraudulent misrepresentation) and fifteenth cause of action (promissory estoppel) all fail
against all Defendants against whom they are brought, including Split Rock. All Defendants are
also entitled to judgment in their favor on the conspiracy claim, because Mountain Dudes based
this claim upon the fraud claims.
D.
Fiduciary Duty
The Defendants against whom Mountain Dudes brings its seventh cause of action for
breach of fiduciary duty argue that they are entitled to judgment on this claim as a matter of law.
The court agrees. Initially, Mountain Dudes concedes that it does not assert a traditional breach
of fiduciary duty claim against these Defendants, but rather asserts a breach of the duty of a real
estate agent to “be honest, ethical, and competent” in his or her dealings with the public.
Hermansen, 48 P.3d at 241.
Even assuming that all of the relevant Defendants owed such a duty to Mountain Dudes,
Mountain Dudes has not shown facts that constitute a breach of that duty. That is, the only
breach of duty Mountain Dudes alleges is the failure to tell Mountain Dudes of Ms. Tancredi’s
concerns about the arches that she expressed before the sale. The court, however, has already
concluded that these concerns were immaterial to the transaction. Mountain Dudes, moreover,
has not established that a real estate agent’s duty could extend to revealing immaterial facts about
a transaction. Accordingly, Mountain Dudes’ seventh cause of action fails against all
Defendants.
23
E.
Waste
Mountain Dudes asserts its eighth cause of action for trespass and waste claim against the
Association, Split Rock, and Split Rock Homes. In short, Mountain Dudes asserts that it was
waste to remove the two arches from the Property. The relevant Defendants seek judgment in
their favor on this claim.
First, as explained above, the court has already ruled that the Association is not liable on
this cause of action. Second, Mountain Dudes has not shown any facts that suggest that Split
Rock Homes committed trespass or waste. Accordingly, judgment in favor of both the
Association and Split Rock Homes on this claim is appropriate.
Since Split Rock was leasing the Property when the arches were removed, the only
question is whether Mountain Dudes has shown facts that would show that removing of the
arches was waste. Under Utah law:
In all claims for waste, three essential elements must be met:
1. There must be an act constituting waste. [This means there must be an act constituting
the destruction, misuse, alteration, or neglect of premises.]
2. The act must be done by one legally in possession.
3. The act must be to the prejudice of the estate or interest therein of another.
Oquirrh Assocs. v. First Nat’l Leasing Co., Inc., 888 P.2d 659, 664 (citation omitted). As to the
first prong, there was an alteration or destruction of the premises; the arches were removed. The
question is whether the removal is legally cognizable as “waste” in this case. The answer is no.
Here, Split Rock did not inadvertently knock down the arches or remove them totally on its own.
Instead, the Association ordered that the arches be removed because the arches violated the CC &
Rs. Split Rock complied with that order, albeit without notifying Mountain Dudes in advance.
Since the alteration or destruction was carried out as a requirement of the Association, who
24
Mountain Dudes agreed had authority to make such decisions, the removal was not waste. Cf.
Vicars v. First Va. Bank-Mountain Empire, 458 S.E.2d 293, 266 (Va. 1995) (“It is axiomatic that
a party cannot collect damages based on theories of waste or trespass when the party consented to
the very actions alleged to constitute trespass or waste.”) (citations omitted). Split Rock is thus
also entitled to judgment in its favor on this claim.
F.
Breach of Warranty Deed
Split Rock argues that Mountain Dudes has not shown facts that would tend to prove its
eleventh cause of action for breach of warranty deed. Split Rock is correct. “Before the grantee
can recover for breach of these covenants [warranty and quiet enjoyment], based upon either an
actual or a constructive eviction, the grantee must establish that title has been affirmatively
asserted against the grantee’s title and possession, and that the title thus asserted is paramount or
superior to the grantee’s title.” Holmes Dev., LLC v. Cook, 48 P.3d 895, 908 (Utah 2002).
Simply put, Mountain Dudes has not presented any evidence that, post sale, anyone has
affirmatively asserted title to the Property except Mountain Dudes.7 Split Rock is thus entitled to
judgment in its favor on this claim.
F.
Remaining Claims
Mountain Dudes did not oppose the relevant Defendants’ motion for summary judgment
on the thirteenth cause of action (ultra vires) and fourteenth cause of action (alter ego).
Accordingly, Mountain Dudes has abandoned those claims and judgment is granted in favor of
each Defendant against whom they are brought.
7
In its opposition to Split Rock’s motion on this claim, Mountain Dudes appears to confuse
a claim for breach of warranty, which is based on contract, to breach of warranty deed, which is
based on title.
25
IV.
MOUNTAIN DUDES’ MOTION FOR SEPARATE TRIAL ON DAMAGES
Mountain Dudes has moved for separate trials relating to liability and damages. This
motion is rendered moot by this Order. That is, the only issue left for trial at this point is what
the damages should be on Mountain Dudes’ successful breach of contract claim. Accordingly,
this motion is DENIED.
V.
SPLIT ROCK’S MOTION FOR SUMMARY JUDGMENT ON ITS
CONSOLIDATED CLAIM
Split Rock’s claim for a refund of the approximately $50,000 it paid on the settlement
agreement comes down to straight forward contract interpretation. According to Split Rock, if it
stopped making payments, it would be entitled to its money back. Mountain Dudes answers that
it is allowed to retain Split Rock’s payments as a credit to a future judgment on Mountain Dudes’
claims. The relevant provision reads as follows:
If Split Rock fails to [make certain payments on a certain schedule], then the settlement is
void ab initio and both Parties shall have the right to pursue all claims and defenses
which they have had prior to entering into this Agreement. In the event of a default of
Split Rock under the preceding sentence, all payments made by Split Rock to Mountain
Dudes under the terms of this Agreement or the REPC shall be credited to any judgment
Mountain Dudes obtains against Split Rock, if any.
(Settlement Agreement, Section 4, Dkt. No. 63-1.) Both sides agree that Split Rock did not pay
in accordance with the schedule contained in the Settlement Agreement.
As a matter of contractual interpretation, the Settlement Agreement anticipates that
Mountain Dudes would retain any payments Split Rock made until the damages issue in this
action is resolved. Looking closely at the first sentence set out above, the term “void ab initio”
does not refer to the “Agreement” as a whole, which is a defined term in the Settlement
Agreement. (Id.) Rather, the sentence mandates that Split Rock’s default will void the
26
“settlement.” (Id.) Split Rock’s default, therefore, was not intended to make the entire
Settlement Agreement void ab initio, but only void the promise of the parties not to initiate
litigation relating to the relevant events. The second sentence, however, refers to payments made
under “this Agreement” upon a default by Split Rock. (Id.). Accordingly, the first sentence
allows litigation to go forward but does not void the entire agreement, and the second sentence
governs what happens to payments made under the agreement in the event of a default. Split
Rock is therefore not entitled to judgment on its consolidated claims of breach of contract or
unjust enrichment.
VI.
CONCLUSION
For the foregoing reasons, the court ORDERS as follows:
Split Rock’s motion for summary judgment on its consolidated claims (Dkt. No. 62) is
DENIED;
Split Rock and the Non-Split Rock Defendants’ motion for partial summary judgment
(Dkt. No. 69) is GRANTED in part and DENIED in part as follows:
judgment in favor of all Non-Split Rock Defendants is GRANTED on all claims
brought against them;
Split Rock’s motion is GRANTED in part with respect to the first cause of action
for breach of contract on its argument that it only breached one specific provision of the contract,
but DENIED in part because Split Rock is indeed liable for a specific breach;
Split Rock’s motion is GRANTED in its favor with respect to all other claims
against it;
Mountain Dudes’ motion to bifurcate (Dkt. No. 72) is DENIED as moot;
27
the Associations’ motion for summary judgment (Dkt. No. 88) is GRANTED; and
Mountain Dudes’ motion to continue (Dkt. No. 115) is DENIED as moot.
As a result of this order, the only issue left for trial is damages related to Split Rock’s
breach of contract. The parties are instructed to meet and confer to attempt to stipulate to a
scheduling order setting dates for all events remaining in this action, up to and including trial.
The parties shall submit a joint order within 30 days of this Order, and if they cannot agree to
such an order, they shall submit their proposed orders within that time.
DATED this 21st day of April, 2011.
BY THE COURT:
_______________________________________
Clark Waddoups
United States District Judge
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