Advanced Recovery Systems v. American Agencies et al

Filing 645

MEMORANDUM DECISION granting in part and denying in part 619 Motion for Summary Judgment. See order. Signed by Judge Jill N. Parrish on 11/30/20. (alf)

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20424 Page 1 of 27
FILED
2020 NOV 30 PM 12:32
CLERK
U.S. DISTRICT COURT
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
AMERICAN AGENCIES, LLC,

v.

MEMORANDUM DECISION AND ORDER
GRANTING IN PART AND DENYING IN
PART MOTION FOR SUMMARY
JUDGMENT

BRENT SLOAN,

Case No. 2:13-cv-00283-JNP-CMR

Third-Party Plaintiff,

Third-Party Defendant.

District Judge Jill N. Parrish

Before the court is Brent Sloan’s motion for summary judgment on American Agencies’
(AA’s) claim against him for tortious interference with contract. ECF No. 619. Sloan also argues
that, as a matter of law, consequential damages for this cause of action may not include AA’s
attorney fees. The court GRANTS IN PART and DENIES IN PART the motion for summary
judgment.
BACKGROUND
AA is a debt-collection agency. It used software owned by Advanced Recovery Systems
(ARS) to issue a series of automated collection letters for past-due accounts owed to small
businesses. AA entered into a license agreement with ARS that gave AA the exclusive right to use
the software. The agreement also gave AA the right of first refusal to purchase ARS if the owners
offered the company for sale.
The license agreement permitted ARS to recruit independent sales agents to sell AA’s debt
collection services for a commission. The sales agents were required to pay $25,000 to AA for the

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20425 Page 2 of 27

right to sell the services. The license agreement required AA to then pay the $25,000 fee to ARS
as consideration for recruiting the sales agent.
In 2012, Sloan was looking to get into the debt collection industry. He began negotiating
with the owners of ARS, Scott Mitchell and Blake Reynolds, to form a collection services
company. AA was unaware of these negotiations. In early 2013, the owner of AA, Steve Kusic,
proposed selling the company to ARS. Mitchell and Reynolds informed Sloan of the offer. Sloan
saw the proposed sale as an opportunity to partner with ARS.
During the negotiations for the sale, AA discovered that it had not received a $25,000
payment from some of the sales agents that ARS had recruited. In a March 6, 2013 email with the
subject line “Embezzlement,” Kusic asked Mitchell and Reynolds to send a check to him for the
missing payments. Kusic stated: “Why would you embezzle money, that I would turn around and
give you 100% license fee back to you [sic] under the terms of the contract?” A few hours later,
Reynolds responded that the six sales agents had insisted on paying the fee directly to it and that
ARS had promised them that it would reimburse the fee if “the company is not as we have
represented.” He stated that ARS would be responsible for reimbursing the money if any refund
requests were made. Reynolds also represented in his email that ARS had just wired $75,000 to
AA. Kusic sent a reply email in which he stated: “Sorry, this is embezzlement, clear and simple.
So my question is why were not forwarded [sic] to AA, the day you received them?” ARS later
sent a second $75,000 payment, for a total of $150,000 for the six sales agents recruited by ARS.
Sloan provided a large portion of the $150,000 that was sent to AA for the sales agent fees.
He loaned the money to ARS believing that it would be refunded pursuant to the terms of the
license agreement between AA and ARS. But AA refused to return the $150,000. On March 20,
2013, Reynolds sent an email to Kusic stating that he still wanted to pursue negotiations for ARS
2

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20426 Page 3 of 27

to purchase AA. In the email, Reynolds also gave formal notice of ARS’s accusation that AA had
breached the license agreement by (1) failing to reimburse travel expenses, (2) failing to make
contractual payments on time, (3) failing to pay commissions, and (4) failing to pay back the
$150,000 in sales agent fees. Reynolds stated that under the license agreement, AA had 30 days to
remedy the deficiencies.
On March 26, 2013, corporate counsel for AA responded to Reynold’s email. She stated
that AA had rejected ARS’s purchase offer. Counsel for AA further asserted that “with what has
transpired with the alleged embezzlement issues and unknown changes to our documents, AA
cannot in good faith, continue to negotiate under the same terms.” She made a counteroffer for a
substantially higher price. AA’s counsel also denied that AA had breached the license agreement.
As to the $150,000 payment, she accused ARS of making unauthorized changes to the contracts
signed by the sales agents. She stated that AA had deposited the $150,000 in a separate bank
account and that the contract modifications had to be clarified “before discussion about releasing
the funds [could] be undertaken.”
On April 2, 2013, AA’s corporate counsel sent a follow-up letter. She asked Reynolds to
state what changes had been made to the contracts signed by the sales agents. She also added a
new complaint: “To date Mr. Kusic has not received an acceptable reason for checks being made
out to ARS and then ARS depositing those checks. Assuming there is no illegal or malicious intent
behind those deposits a reasonable explanation for this activity has yet to be provided.” AA’s
corporate counsel issued an ultimatum: “If we do not receive any acceptable response from you
for these issues within seven (7) days, American Agencies will be keeping the funds and forfeiting
your commission.”

3

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20427 Page 4 of 27

The parties abandoned negotiations for the purchase of AA. ARS, after consulting with
lawyers, decided to sue AA. Sloan participated in the decision to sue AA and primarily funded the
lawsuit. ARS filed its complaint against AA on April 22, 2013. In the suit, ARS asserted that AA
breached the license agreement by: (1) refusing to pay ARS the $150,000 in license fees collected
from the sales agents, (2) failing to pay $19,000 for travel expenses, and (3) failing to pay an
unknown amount of commissions due under the agreement. ARS sought damages and a
declaration that it was no longer bound by the license agreement due to these alleged breaches.
ARS also alleged that the parties had formed an enforceable agreement for ARS to purchase AA
and that AA breached that agreement by refusing to honor the deal.
In mid-April 2013, Mitchell and Reynolds introduced Sloan to Bruce Klinger and Rick
Rainho. Klinger and Rainho owned Fidelis, a debt collection company that competed with AA. In
May 2013, Klinger and Rainho traveled to Utah to meet with Mitchell, Reynolds, and Sloan to
discuss Fidelis purchasing the assets of ARS. Klinger and Rainho were interested in the deal
because they wanted to gain access to the software owned by ARS. The meetings were held in
Sloan’s offices. Klinger and Rainho were notified of the existence of the licensing agreement
between ARS and AA. But they believed that the agreement was no longer binding because AA
had breached the agreement. Klinger and Rainho did not know that the license agreement
contained a right of first refusal for AA to purchase ARS.
The negotiations were successful and Fidelis acquired the assets of ARS, including the
software and its legal claims against AA. Mitchell and Reynolds received shares of Fidelis in
exchange. On June 10, 2013, Sloan purchased shares of Fidelis and became its CEO. Fidelis
changed its name to Kinum.

4

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20428 Page 5 of 27

Meanwhile, AA countersued ARS and asserted third-party claims against Sloan. AA
alleged, among other things, that Sloan was liable for tortious interference with the contract
between AA and ARS. After about three and a half years of litigation, the court granted summary
judgment in favor of AA on all of ARS’s claims against it and set a trial date for AA’s claims.
Before trial, AA asserted that Sloan was liable for its attorney fees as consequential damages for
its claim for tortious interference with contract. The jury found that Sloan was liable for tortious
interference with contract and determined that attorney fees should be awarded as damages for the
claim. The court later found that the proper amount of fees owed was $1,564,026.83. 1
Sloan appealed the resulting judgment against him. The Tenth Circuit reversed the jury
verdict on the tortious interference with contract claim, holding that the court erred by failing to
instruct the jury on the “improper means” element of this cause of action.
On remand, Sloan moves for summary judgment on the tortious interference with contract
claim. He argues that AA has not produced evidence to support the improper means element of
this claim. AA opposes the motion. It argues that the law of the case doctrine bars this court from
granting summary judgment. It also asserts that the evidence supports five separate theories of
interference with the licensing agreement through improper means. First, AA argues that Sloan
conspired with Reynolds and Mitchell to misrepresent to AA that the $150,000 in payments were
license fees collected from independent sales agents. Second, AA asserts that Sloan lied to ARS’s
lawyers by telling them that the $150,000 paid to AA was collected from sales agents. Third, AA

1

This lawsuit initially involved many other parties, claims, counterclaims, and third-party claims.
All the claims in the suit have been resolved except for AA’s third-party claim against Sloan for
tortious interference with contract. Accordingly, the court does not recount the many legal twists
and turns of this case here.
5

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20429 Page 6 of 27

contends that Sloan breached his duties to Klinger, Rainho, and Fidelis by failing to disclose the
existence of the right of first refusal found in the license agreement before Fidelis purchased the
assets of ARS. Fourth, AA argues that Sloan is liable for the tort of wrongful use of civil
proceedings by facilitating ARS’s lawsuit against AA. Fifth, AA asserts that Sloan is liable for the
tort of abuse of process for the same lawsuit.
Sloan also argues that, even if he is not entitled to summary judgment on AA’s tortious
interference with contract claim, the court should determine as a matter of law that AA may not
recover attorney fees as consequential damages for this tort. AA responds that attorney fee
damages are appropriate.
LEGAL STANDARD
Summary judgment is appropriate when “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 movant bears the initial burden of demonstrating the absence of a genuine dispute of
material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the movant has met this
burden, the burden then shifts to the nonmoving party to “set forth specific facts showing that there
is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Summary
judgment on a claim is required if the party that bears the burden of proof at trial “fails to make a
showing sufficient to establish the existence of an element essential to that party’s case.” Celotex,
477 U.S. at 322.

6

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20430 Page 7 of 27

ANALYSIS 2
I.

LIABILITY FOR TORTIOUS INTERFERENCE WITH CONTRACT
In order to prevail on a tortious interference with contract claim, a plaintiff must prove:

“(1) that the defendant intentionally interfered with the plaintiff’s existing . . . economic relations,
(2) . . . by improper means, (3) causing injury to the plaintiff.” Eldridge v. Johndrow, 345 P.3d 553,
565 (Utah 2015) (second alteration in original) (citation omitted). The improper means element is
limited to “conduct contrary to law—such as violations of statutes, regulations, or recognized
common-law rules—or the violation of an established standard of a trade or profession.” C.R.
England v. Swift Transportation Co., 437 P.3d 343, 355 (Utah 2019).
Sloan moves for summary judgment on the tortious interference with contract claim,
asserting that AA has not produced evidence supporting the improper means element. AA argues
that the Tenth Circuit held that substantial evidence supported the improper means element and
that the law of the case doctrine prevents this court from contradicting this holding. AA also
contends that the evidence supports five separate theories of improper means. The court addresses
the law of the case argument and each of the five theories of improper means in turn.
A.

Law of the Case

The jury found Sloan liable for both tortious interference with contract and tortious
interference with business relations. Tortious interference with business relations, like tortious

2

AA argues that the court should deny Sloan’s motion for summary judgment because he did not
comply with the court’s local rules. Sloan included a “Facts” section in his brief but did not include
a “concise statement of the undisputed material facts.” See DUCivR 56-1(b). The court agrees that
Sloan technically violated this rule. But the court concludes that this violation did not hamper AA’s
response to or the court’s evaluation of the motion. Accordingly, the court denies AA’s request to
deny Sloan’s motion for summary judgment for this violation.
7

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20431 Page 8 of 27

interference with contract, requires proof that the interference was accomplished through improper
means. In support of its tortious interference with business relations claim, AA presented two
theories of improper means to the jury, arguing that Sloan (1) used deceit to conceal the transfer
of the debt-collection software to Fidelus/Kinum and (2) helped to initiate unfounded litigation
against AA.
On appeal, Sloan argued that the Tenth Circuit should reverse the jury verdict on the
tortious interference with business relations claim because AA failed to establish the improper
means element. First, Sloan argued that AA’s deceit theory was preempted by Utah statute. But
the Tenth Circuit rejected this argument because Sloan had failed to preserve it. Advanced
Recovery Sys. v. Am. Agencies, 923 F.3d 819, 825 (10th Cir. 2019). Second, Sloan argued that the
unfounded litigation theory was not supported by substantial evidence. The Tenth Circuit,
however, did not address this argument because Sloan had not challenged the sufficiency of the
evidence supporting the deceit theory. Because the jury could have based its verdict on AA’s deceit
theory of improper means, Sloan’s failure to challenge the evidence supporting this theory was
fatal to his substantial evidence argument. Id. at 826. Thus, the Tenth Circuit affirmed the jury’s
verdict on the tortious interference with business relations claim without deciding whether
substantial evidence supported either AA’s deceit or unfounded litigation theories of improper
means.
In footnote number eight, though, the Tenth Circuit hypothesized that it would have
rejected a substantial evidence challenge to the deceit theory:
Even if Mr. Sloan had challenged the sufficiency of the evidence on
deceit, we would have rejected the challenge. In our view, the trial
evidence permitted a reasonable jury to find that Mr. Sloan had
deceitfully concealed transfers involving the software and American
Agencies’ customer data. . . .
8

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20432 Page 9 of 27

First, Mr. Sloan knew before the merger with Kinum that American
Agencies had an exclusive license to use the software and a right of
first refusal on a sale of Advanced Recovery Systems.
Second, with knowledge of these rights, Mr. Sloan helped to merge
Advanced Recovery Systems into Kinum without telling American
Agencies of the merger or the transfer of software to Kinum.
Id. at 825 n.8.
The Tenth Circuit went on to reverse the tortious interference with contract claim because
the court did not instruct the jury on the improper means element of that claim. AA now argues
that footnote number eight of the Tenth Circuit’s opinion establishes the law of the case on the
issue of whether AA has produced sufficient evidence supporting the improper means element of
the tortious interference with contract claim. “The law-of-the-case doctrine provides that, ‘when a
court rules on an issue of law, the ruling “should continue to govern the same issues in subsequent
stages in the same case.” ’ ” Fish v. Schwab, 957 F.3d 1105, 1139 (10th Cir. 2020) (citation
omitted). “Under this doctrine, ‘the decision of the appellate court establishes the law of the case
and ordinarily will be followed by . . . the trial court on remand . . . .’ ” Id. (citation omitted). The
court determines that the law of the case doctrine does not apply here for two reasons.
First, “it is well-settled that ‘[d]icta is not subject to the law of the case doctrine.’ ” Bishop
v. Smith, 760 F.3d 1070, 1083 (10th Cir. 2014) (alteration in original) (citation omitted). The Tenth
Circuit held that it need not address Sloan’s substantial evidence argument because he did not
mount an argument for all the theories supporting the improper means element of the tortious
interference with business relations claim. That court’s supposition that it would have concluded
there was substantial evidence to support the deceit theory if Sloan had made a substantial evidence
argument is dicta because it is unnecessary to the disposition of the appeal. See id. (“Statements
which appear in an opinion but which are unnecessary for its disposition are dicta.”).
9

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20433 Page 10 of 27

Second, AA does not advance the theory of improper means suggested by the Tenth
Circuit. That court hypothesized that it would have found that substantial evidence supported a
theory that Sloan breached a legal duty to inform AA of plans to merge ARS with Fidelis. But on
remand, AA does not argue this theory. It asserts that Sloan helped Reynolds to lie, that Sloan
breached legal duties by lying to his lawyers, and that Sloan breached duties owed to Klinger,
Rainho, and Fidelis by failing to inform them of the right of first refusal. Because the theory of
improper means discussed in the Tenth Circuit’s opinion is not before this court, it is not relevant
here.
Accordingly, the court concludes that the law of the case doctrine does not require a finding
that the improper means element of the tortious interference with contract claim is supported by
evidence.
B.

Fraudulent Misrepresentation

AA argues that Sloan committed the tort of civil conspiracy and that liability for this tort
satisfies the improper means element of its tortious interference with contract claim. It asserts that
Reynolds lied when he told Kusic that ARS had collected a $25,000 fee from six sales agents and
that the money that ARS was forwarding to AA came from those fees. AA further contends that
Sloan entered a conspiracy with Mitchell and Reynolds to tell this lie and that Sloan provided
much of the money used to make the $150,000 payment.
To prove that Sloan is liable for civil conspiracy, AA must establish that Reynolds made a
fraudulent misrepresentation. See Puttuck v. Gendron, 199 P.3d 971, 978 (Utah Ct. App. 2008)
(cited by Advanced Recovery Sys., 923 F.3d at 824–25) (“The claim of civil conspiracy ‘require[s],
as one of [its] essential elements, an underlying tort.’ ” (alterations in original) (citation omitted)).
A fraudulent misrepresentation claim requires proof
10

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20434 Page 11 of 27

(1) that a representation was made (2) concerning a presently
existing material fact (3) which was false and (4) which the
representor either (a) knew to be false or (b) made recklessly,
knowing that there was insufficient knowledge upon which to base
such a representation, (5) for the purpose of inducing the other party
to act upon it and (6) that the other party, acting reasonably and in
ignorance of its falsity, (7) did in fact rely upon it (8) and was
thereby induced to act (9) to that party’s injury and damage.
State v. Apotex Corp., 282 P.3d 66, 80 (Utah 2012).
Sloan argues that he is entitled to summary judgment on AA’s civil conspiracy theory of
improper means because AA has not produced evidence supporting all the elements of the
underlying tort of fraudulent misrepresentation. Specifically, he asserts that AA has not produced
evidence that it reasonably relied upon Reynolds’s misrepresentation to act in a way that caused
damages. In other words, Sloan contends that AA was not lulled into complacency by any
misrepresentation made by Reynolds. The court agrees.
When Kusic discovered that AA had not received $25,000 payments from sales agents
recruited by ARS, he sent an email to Mitchell and Reynolds accusing them of embezzlement and
demanding a check for payment of these fees. In an obvious attempt to placate Kusic, Reynolds
responded to the email by stating that six sales agents had paid ARS directly and that ARS would
forward the money to AA. Kusic, however, was not placated. He immediately sent an email to
Reynolds stating: “Sorry, this is embezzlement, clear and simple. So my question is why were not
forwarded [sic] to AA, the day you received them?” AA then refused to return the $150,000 that
ARS had paid. Corporate counsel for AA stated that suspicions that ARS had embezzled the money
justified AA’s decision to discontinue negotiations for the sale of the company under previously
discussed terms. Counsel for AA also stated that Kusic had not received an acceptable explanation

11

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20435 Page 12 of 27

for the $25,000 payments allegedly collected by ARS and that AA would be keeping the money if
ARS did not provide an adequate explanation.
In sum, the statement made by Reynolds was met by skepticism, suspicion, and accusations
of wrongdoing regarding the $25,000 payments owed by the sales agents recruited by ARS. AA
has not pointed to evidence that it relied upon the statements to its detriment. Absent such proof,
AA cannot establish an essential element of fraudulent misrepresentation and, in turn, a necessary
element of civil conspiracy. Accordingly, Sloan is entitled to summary judgment on this theory of
improper means.
C.

Violations of Rule 11 and the Rules of Professional Conduct

AA asserts that ARS’s allegation in its complaint that the $150,000 payment was “collected
from independent licensees” is not true. It presumes that this falsehood appears in in the complaint
because Sloan lied to ARS’s lawyers. AA argues that this misrepresentation constitutes a violation
of Rule 11 of the Federal Rules of Civil Procedure because Sloan was a client of ARS’s lawyers.
It also contends that because Sloan is a lawyer, 3 this misrepresentation violates Rule 8.4(c) of the
Utah Rules of Professional Conduct, which prohibits “conduct involving dishonesty, fraud, deceit,
or misrepresentation.” AA argues that these violations satisfy the improper means element of its
tortious interference with contract claim.
Sloan counters that because these theories are based on Sloan’s alleged communications
with his lawyers in preparation for a lawsuit, the judicial proceedings privilege bars liability. The
judicial proceedings privilege is an absolute privilege that protects the participants in a litigation

3

Sloan was admitted to the Utah Bar in 1984. But in 2013, he had not practiced law for over 20
years.
12

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20436 Page 13 of 27

from liability for statements made during a judicial proceeding. See Price v. Armour, 949 P.2d
1251, 1256 (Utah 1997). Noting that the Utah Supreme Court has held that the judicial proceedings
privilege immunizes litigants from tortious interference with business relations claims that are
based upon statements made during litigation, id. at 1258, Sloan contends that the privilege must
also apply to tortious interference with contract claims.
AA argues that the judicial proceedings privilege does not protect Sloan because this
privilege applies only to defamation claims or claims arising from defamatory statements. It
maintains that the privilege barred liability in Price only because the tortious interference with
business relations claim at issue in that case was based on an allegedly libelous letter. See id.
(“Holding that a defamatory statement made during a judicial proceeding is absolutely privileged
but then holding that the privilege does not apply to the claim that the statement interfered with a
business relation would defeat the very purpose of the privilege and would chill free and open
expression in the judicial setting.”).
The court disagrees with AA’s narrow interpretation of the judicial proceedings privilege.
Although “[h]istorically, the judicial proceeding privilege in Utah has been used to ‘immunize[ ]
certain statements that are made during a judicial proceeding from defamation claims,’ ” the Utah
Supreme Court has “extended the privilege beyond defamation claims to include ‘all claims arising
from the same statements.’ ” Moss v. Parr Waddoups Brown Gee & Loveless, 285 P.3d 1157, 1165
(Utah 2012) (second alteration in original) (citation omitted). For example, the privilege applies to
intentional infliction of emotional distress claims, DeBry v. Godbe, P.2d 979, 986 (Utah 1999),
and fraud claims, Bennett v. Jones, Waldo, Holbrook & McDonough, 70 P.3d 17, 34 (Utah 2003),
even though these causes of action do not require a defamatory statement. Indeed, the Utah
Supreme Court has expanded the judicial proceedings privilege to encompass not only statements,
13

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20437 Page 14 of 27

but also conduct occurring during a judicial proceeding. Moss, 285 P.3d at 1166. Noting the
importance of the protections afforded by the judicial proceedings privilege, that court found that
lawyers who had helped to enforce a civil discovery order were immune from claims for abuse of
process, invasion of privacy, intentional infliction of emotional distress, trespass, conversion, and
civil conspiracy. Id. at 1162–63, 1165–66.
In sum, the Utah Supreme Court has interpreted the judicial proceedings privilege broadly.
It has explicitly declined to restrict the privilege to defamation claims or claims based upon
defamatory statements. Indeed, that court has held that the privilege immunized lawyers from
liability for alleged misrepresentations made to a client about a lawsuit. Bennett, 70 P.3d at 34.
Thus, AA’s claim that Sloan should be held liable for allegedly false communications made to his
lawyers in this litigation falls within the ambit of the judicial proceedings privilege. Because the
privilege bars this theory of improper means, the court grants summary judgment in favor of Sloan
on this theory.
D.

Fraudulent Nondisclosure

AA asserts that Sloan knew about the right of first refusal clause found in the license
agreement between AA and ARS. Although Klinger and Rainho knew about the agreement and
the software license granted to AA, they did not know about the right of first refusal clause. AA
argues that Sloan had a duty to tell Klinger and Rainho about this clause and breached this duty
by failing to disclose it. AA implies that if Klinger and Rainho had known about the right of first
refusal, they would have refused to consummate the merger of Fidelis and ARS. Thus, AA asserts
that Sloan’s wrongful conduct towards Klinger and Rainho caused the merger, which, in turn,
interfered with AA’s contract with ARS.

14

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20438 Page 15 of 27

Relying upon a District of Utah ruling and a District of Oregon ruling, Sloan argues that
AA’s theory is fatally flawed because in order to state a claim for tortious interference with
contract, the improper means employed by the defendant must be directed towards the plaintiff.
US Magnesium, LLC v. ATI Titanium LLC, No. 2:17-cv-923-DB, 2019 WL 1755427, at *3 (D.
Utah Apr. 19, 2019) (“None of the cases discussed in the parties’ briefing support the theory that
the breach of a fiduciary duty owed to a third party constitutes improper means under Utah law
. . . . The court declines to expand the definition of improper means to include such conduct . . . .”);
Int’l Longshore & Warehouse Union v. ICTSI Oregon, Inc., 15 F. Supp. 3d 1075, 1111 (D. Or.
2014) (“[I]n those jurisdictions that have accepted a breach of fiduciary duty as ‘improper means,’
the fiduciary duty breached is a duty owed to the plaintiff.”). The court respectfully disagrees with
these authorities.
The rule articulated by the Utah Supreme Court does not limit the improper means element
to wrongful conduct towards the plaintiff. A tortious interference with contract claim requires the
plaintiff to prove: “(1) that the defendant intentionally interfered with the plaintiff’s existing . . .
economic relations, (2) . . . by improper means, (3) causing injury to the plaintiff.” Eldridge, 345
P.3d at 565 (second alteration in original) (citation omitted). The rule requires only that the
interference be accomplished through improper means. There is no requirement that the improper
means be directed toward the plaintiff. Instead, “[a] party is subject to liability for an intentional
interference with present contractual relations if he intentionally and improperly causes one of the
parties not to perform the contract.” St. Benedict’s Dev. Co. v. St. Benedict’s Hosp., 811 P.2d 194,
201 (Utah 1991) (second emphasis added).
The Restatement (Second) of Torts confirms that the improper means need not be directed
towards the plaintiff. The wrongful conduct may be threats of physical or economic harm directed
15

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20439 Page 16 of 27

towards the other party to the contract or actions that otherwise prevent the other party from
performing an obligation under the contract. RESTATEMENT (SECOND)

OF

TORTS § 766 cmt. k

(1979). Although the Utah Supreme Court declined to adopt the restatement rule in its entirety,
Leigh Furniture & Carpet Co. v. Isom, 657 P.2d 293, 304 (Utah 1982), that court has consistently
cited section 766 with approval, see C.R. England, 437 P.3d at 348; St. Benedict’s, 811 P.2d at
201; Nelson v. Jacobsen, 669 P.2d 1207, 1215 (Utah 1983). Thus, the restatement reflects Utah
law on improper means.
Thus, the improper means requirement may be satisfied by wrongful conduct towards a
third party that induces a breach of the plaintiff’s contract. Accordingly, the court rejects Sloan’s
argument that the improper means must be aimed at the plaintiff.
In passing, Sloan raises a second argument. He asserts that Klinger’s and Rainho’s
ignorance of the right of first refusal was caused by their neglect in failing to read the license
agreement prior to the merger. But this argument is inadequately briefed. Sloan does not cite the
record or case law in support of his assertion. Thus, the court may not, at this time, grant summary
judgment on AA’s fraudulent misrepresentation theory.
The court, however, notes that several questions remain regarding AA’s new theory of
improper means, which was asserted for the first time on remand. “To support a claim of fraudulent
nondisclosure a plaintiff must prove the following three elements: (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). Sloan’s
inadequately briefed argument appears to be that Sloan adequately disclosed the right of first
refusal because the licensing agreement was made available to Klinger and Rainho. But without
citations to the record, it is unclear whether undisputed evidence would support this assertion.
16

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20440 Page 17 of 27

Additionally, it is unclear to the court what AA claims to be the source of Sloan’s legal duty to
disclose the right of first refusal to Klinger and Rainho, who were sophisticated parties with due
diligence obligations. Moreover, the court is not certain whether there are disputes of material fact
as to whether disclosure of the right of first refusal would have dissuaded Klinger and Rainho from
purchasing the assets of ARS given their apparent belief that ARS was no longer bound by the
licensing agreement.
In short, the court determines that it may not grant summary judgment on AA’s fraudulent
nondisclosure theory based on the arguments presented in Sloan’s briefs. But because AA has
raised this theory for the first time in its response brief, substantial questions remain regarding the
underpinnings of the fraudulent nondisclosure theory of improper means. Moreover, the court was
unable to question the parties regarding the contours of this theory because oral argument on the
motion for summary judgment was cancelled due to the illness of Sloan’s counsel.
Accordingly, the court denies without prejudice summary judgment on AA’s fraudulent
nondisclosure theory of improper means. Because of the substantial expense to the parties and the
public for a jury trial on this issue, however, the court requests further briefing to determine
whether summary judgment is warranted. Sloan may file an additional motion for summary
judgment raising other arguments regarding the fraudulent nondisclosure theory by January 11,
2021. Sloan should comply with the court’s local rules on motions for summary judgment and cite
the record or other evidence in support of the motion. AA may file a response brief by February 8,
2021. Sloan may reply by February 22, 2021.

17

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20441 Page 18 of 27

E.

Wrongful Use of Civil Proceedings

AA also asserts that the lawsuit filed by ARS and funded in part by Sloan satisfies the
improper means element because Sloan committed the tort of wrongful use of civil proceedings.
An individual
who takes an active part in the initiation, continuation, or
procurement of civil proceedings against another is subject to
liability to the other for wrongful civil proceedings if (a) he [or she]
acts without probable cause, and primarily for a purpose other than
that of securing the proper adjudication of the claim in which the
proceedings are based, and (b) . . . the proceedings have terminated
in favor of the person against whom they are brought.
Gilbert v. Ince, 981 P.2d 841, 845 (Utah 1999) (first alteration in original) (quoting RESTATEMENT
(SECOND) OF TORTS § 674 (1977)). A litigant acts without probable cause if he or she does not
reasonably believe “in the existence of the facts upon which the claim is based” or does not
“correctly or reasonably believe[] that under those facts the claim may be valid under the
applicable law.” Id. at 845–46 (quoting RESTATEMENT (SECOND) OF TORTS § 675 (1977)).
AA argues that Sloan initiated the lawsuit without probable cause because he did not
reasonably believe the facts on which the claims were based. It points to ARS’s complaint, which
alleged that “AA failed to pay to ARS $150,000.00 of license fees collected from independent
licensees as required by . . . the License Agreement.” AA argues that Sloan did not believe in the
existence of this fact because he knew that much of the money paid to AA could be traced to
money that he had loaned to ARS.
But ARS’s claim for the return of the $150,000 payment did not hinge on a strict tracing
of the $150,000 to the bank accounts of the sales agents ARS recruited. Relatively early in the
litigation, Sloan readily admitted in his deposition that he provided a large portion of the $150,000
that ARS paid to AA. ARS then argued in its opposition to summary judgment that the fact that
18

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20442 Page 19 of 27

the $150,000 payment was drawn in part from money provided by Sloan did not negate its breach
of contract claim. In addition, ARS asserted claims for unjust enrichment, breach of the covenant
of good faith and fair dealing, and money had and received. The success of these claims did not
rest on the source of the money paid to AA. Because ARS’s claims were not based upon an
assertion that the money came directly from the sales agents, the court rejects AA’s argument that
there was no factual basis for ARS’s claims seeking the return of the $150,000.
The court also concludes that Sloan could have reasonably believed that ARS had
potentially valid legal claims for the return of the $150,000. Although AA ultimately prevailed on
the breach of contract claim, resolution of this claim rested on judicial interpretations of various
provisions of the licensing agreement. ARS’s unjust enrichment, conversion, and money had and
received claims were also resolved based on the court’s interpretation of the scope of the licensing
agreement. The court concludes that it would not have been obvious to Sloan that ARS’s claims
for the return of the $150,000 were not valid under the law. Thus, Sloan did not act without
probable cause when he funded ARS’s lawsuit.
Moreover, AA does not address ARS’s other claims in its lawsuit. In its complaint, ARS
also sought compensation for travel expenses and unpaid commissions and damages for breach of
an alleged agreement to purchase AA. AA does not address these portions of ARS’s lawsuit. For
this independent reason, AA has failed to point to evidence showing that Sloan lacked probable
cause when he helped to initiate the lawsuit.

19

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20443 Page 20 of 27

In short, AA has not cited evidence supporting the lack of probable cause element of its
wrongful use of civil proceedings theory of improper means. 4 Accordingly, Sloan is entitled to
summary judgment on this theory.
F.

Abuse of Process

Finally, AA argues that Sloan is liable for the tort of abuse of process. Under Utah law,
“abuse of process applies to ‘[o]ne who uses a legal process . . . against another primarily to
accomplish a purpose for which it is not designed.’” Gilbert, 981 P.2d at 845 (alterations in the
original) (quoting RESTATEMENT (SECOND) OF TORTS § 682 (1977)). “A claim for abuse of process
requires the plaintiff to show (1) that the defendant used legal process, (2) to accomplish an
improper purpose or purpose for which that process was not designed, (3) causing the plaintiff’s
harm.” Mountain W. Surgical Ctr., L.L.C. v. Hosp. Corp. of Utah, 173 P.3d 1276, 1278 (Utah
2007). “The usual case of abuse of process is one of some form of extortion, using the process to
put pressure upon the other to compel him to pay a different debt or to take some other action or
refrain from it.” RESTATEMENT (SECOND) OF TORTS § 682 cmt. b (1977). For example, where a
party used a legal process to improperly seize a large number of turkeys before Thanksgiving for
the primary purpose of forcing the other party to pay an unrelated debt, the party that used the
improperly seized turkeys as a bargaining chip was liable for abuse of process. Templeton Feed &

4

To prevail on a wrongful use of civil proceedings claim, AA also must prove that Sloan initiated
ARS’s lawsuit “primarily for a purpose other than that of securing the proper adjudication of the
claim.” Gilbert, 981 P.2d at 845 (citation omitted). Below, in Part I.F of this ruling, the court
concludes that AA has not produced evidence that Sloan initiated the lawsuit for an ulterior
purpose. For these same reasons, AA has not pointed to evidence that would support the improper
purpose element of wrongful use of civil proceedings. Accordingly, Sloan is also entitled to
summary judgment on AA’s wrongful use of civil proceedings theory because AA failed to support
the improper purpose element of this claim.
20

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20444 Page 21 of 27

Grain v. Ralston Purina Co., 446 P.2d 152, 154–56 (Cal. 1968) (cited with approval in Hatch v.
Davis, 147 P.3d 383, 390 (Utah 2006)).
AA argues that Sloan is liable for abuse of process because he helped to initiate ARS’s
lawsuit against AA “as a pretext for consummating the sale of ARS, thereby circumventing [AA’s]
right of first refusal.” But the lawsuit was not a necessary step to consummate the sale of ARS to
Fidelis. Nor did it facilitate the merger. The owners of ARS, the owners of Fidelis, and Sloan
believed that ARS was no longer bound by the license agreement because AA had committed a
material breach. ARS initiated a lawsuit to obtain a judicial confirmation of this theory. Although
ARS assumed a significant risk by consummating the merger before obtaining a final ruling on its
theory, it did not have to wait. If ARS had been correct, AA would not have had no valid legal
claim for breach of the license agreement. See CCD, L.C. v. Millsap, 116 P.3d 366, 373 (Utah
2005) (“[U]nder the ‘first breach’ rule ‘a party first guilty of a substantial or material breach of
contract cannot complain if the other party thereafter refuses to perform.’ ” (citation omitted)).
AA appears to assert that ARS’s lawsuit helped Sloan to facilitate the sale of ARS because
the mere fact that ARS had filed a lawsuit made Sloan’s assertion that ARS was no longer bound
by the license agreement more persuasive. But this is not the type of improper purpose recognized
by Utah law. Sloan did not use a legal proceeding to improperly seize property, see Templeton
Feed & Grain, 446 P.2d at 154–56, nor did he otherwise use the lawsuit to improperly extort AA,
see RESTATEMENT (SECOND) OF TORTS § 682 cmt. b (1977). Indeed, even a desire to harm or
embarrass a defendant through a lawsuit is not recognized as an improper purpose. Hatch, 147
P.3d at 389–90 (legal proceedings “merely accompanied by spite, ill-will, or any of the other less
agreeable human emotions that frequently attach themselves to court papers” are insufficient to
state a claim for abuse of process); Palmer v. Tandem Mgmt. Servs., Inc., 505 N.W.2d 813, 817
21

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20445 Page 22 of 27

(Iowa 1993) (“[T]here is no abuse of process when the action is filed to intimidate and embarrass
a defendant knowing there is no entitlement to recover the full amount of damages sought. Proof
of an improper motive by the person filing the lawsuit for even a malicious purpose [is not
sufficient].”). Thus, a plaintiff’s hope that third parties will believe that his or her claims have
merit is not an improper purpose. See RESTATEMENT (SECOND) OF TORTS § 682, cmt. b (1977)
(“[T]here is no action for abuse of process when the process is used for the purpose for which it is
intended, but there is an incidental motive of spite or an ulterior purpose of benefit to the
defendant.” (emphasis added)).
AA has not shown that a dispute of material fact bars summary judgment on the abuse of
process theory for an additional reason. “To state a claim for abuse of process, a party must allege
both ‘an ulterior purpose’ and ‘ “a wilful act in the use of the process not proper in the regular
conduct of the proceeding.” ’ ” Hatch, 147 P.3d at 389 (citation omitted). Thus, an ulterior motive
for filing a lawsuit “is not enough.” Id. AA does not cite evidence that Sloan committed a willful
act in the use of ARS’s lawsuit “not proper in the regular conduct of the proceeding.” Because
there is no evidence that Sloan or ARS did anything in prosecuting its claims other than seek a
favorable judicial resolution, an abuse of process claim may not stand. See W. PAGE KEETON ET
AL.,

PROSSER AND KEETON ON THE LAW OF TORTS § 121 (5th ed.1984) (“[T]here is no liability

where the defendant has done nothing more than carry out the process to its authorized conclusion,
even though with bad intentions.”).
For these reasons, Sloan is entitled to summary judgment on AA’s abuse of process theory
of improper means.

22

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20446 Page 23 of 27

II.

ATTORNEY FEES AS CONSEQUENTIAL DAMAGES
AA seeks attorney fees as consequential damages for its tortious interference with contract

claim. It argues that it is entitled to fees as damages under the third-party litigation rule, which
“allows recovery of attorney fees as consequential damages, but only in the limited situation where
the defendant’s [wrongful conduct] foreseeably cause[s] the plaintiff to incur attorney fees through
litigation with a third party.” Macris & Assocs., Inc. v. Neways, Inc., 60 P.3d 1176, 1179 (Utah Ct.
App. 2002) (alterations in original) (citation omitted); accord Broadwater v. Old Republic Sur.,
854 P.2d 527, 535 (Utah 1993) (“when the natural consequence of one’s negligence is another’s
involvement in a dispute with a third party, attorney fees reasonably incurred in resolving the
dispute are recoverable from the negligent party as an element of damages.” (citation omitted)).
AA asserts that Sloan’s tortious interference with the license agreement caused it to litigate with
third parties to protect its rights under that contract. It contends, therefore, that it is entitled to
attorney fees incurred in litigating these claims.
Sloan moves for summary judgment on AA’s claim for attorney fee damages. He first
argues that attorney fee damages are not appropriate in this case because the third-party litigation
rule does not apply to joint tortfeasors. See OnePoint Sols., LLC v. Borchert, 486 F.3d 342, 352
(8th Cir. 2007); Vacco Indus., Inc. v. Van Den Berg, 5 Cal. App. 4th 34, 57 (1992), (holding that
the third-party litigation rule “was not intended to apply to one of several joint tortfeasors in order
to justify additional attorney’s fee damages”). He asserts that because much or all the attorney fees
sought by AA were expended on claims against joint tortfeasors or claims against himself, attorney
fee damages cannot be awarded.
In order to evaluate Sloan’s argument, the court must first determine the proper scope of
attorney fees that may be awarded for AA’s tortious interference with contract claim. In this
23

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20447 Page 24 of 27

extensive litigation, AA had to pay its lawyers to defend itself against claims brought by ARS, to
assert multiple counterclaims against ARS, and to assert claims against several other parties. In
cases involving damages under the third-party litigation rule,
care must be taken . . . to ensure not only that the attorney fees are
otherwise properly calculated, but also that an allocation is made
between recoverable fees incurred in litigation with third parties and
non-recoverable fees incurred in pursuing the negligent defendant
or expended on causes of action not proximately necessitated by that
defendant’s negligence.
S. Sanpitch Co. v. Pack, 765 P.2d 1279, 1283 (Utah Ct. App. 1988) (citation omitted). Thus,
assuming that AA prevails at trial on its tortious interference with contract claim, the court must
decide which legal claims asserted by AA were proximately caused by Sloan’s interference with
the licensing agreement. The court must then make an allocation between recoverable fees and
nonrecoverable fees.
Although AA proposed five separate theories of tortious interference through improper
means, the court has granted summary judgment on all these theories, save one. AA’s remaining
theory is that Sloan breached a duty to disclose the right of first refusal clause to Klinger and
Rainho. AA argues that Sloan’s wrongful conduct caused the merger of ARS with Fidelis/Kinum
without notifying AA, which breached the right of first refusal. Thus, AA may argue at trial that
Sloan’s unlawful conduct required AA to sue ARS and its successor, Fidelis/Kinum, for breach of
the right of first refusal clause. Any award of attorney fees as consequential damages must be

24

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20448 Page 25 of 27

limited to fees allocated to AA’s contract claim against ARS or Fidelis/Kinum for breach of this
provision of the licensing agreement. 5
Because AA may recover only fees attributable to this breach of contract claim against
ARS and its successors, Sloan’s argument that the court may not award fees for pursuing claims
against joint tortfeasors is not relevant. Therefore, the court rejects it.
Next Sloan argues that attorney fee damages are not appropriate in this case because
Sloan’s conduct was not the initial cause of AA’s counterclaims against ARS. See Webb v. Fin.
Indus. Regulatory Auth., Inc., 889 F.3d 853, 858 (7th Cir. 2018) (“Illinois courts have not applied
the exception when the defendant caused the legal fees to increase in an already existing third-party
suit; they have applied it when the defendant caused the third-party suit in the first place.”). AA
asserted counterclaims against ARS before it even knew about Sloan or the sale of ARS to Fidelis.
Sloan contends that because AA was able to add a counterclaim against ARS for breach of the
right of first refusal only after it had already commenced litigation against it, Sloan should not be
liable for attorney fees because he did not cause the initial litigation against ARS.
The court disagrees. The mere happenstance that AA had already asserted claims against
ARS would not excuse it from liability for attorney fees expended on an additional claim that AA
was forced to assert against ARS to vindicate its rights under the license agreement. In South
Sanpitch, the plaintiff sued the defendant title company for negligently failing to promptly record
a deed of partial reconveyance. 765 P.2d at 1280. As part of the same action, the plaintiff also
asserted a third-party claim to quiet title to the affected parcel of property. Id. The plaintiff sought

5

As noted above, though, the court has invited further briefing on AA’s fraudulent nondisclosure
theory of improper means. If the court grants summary judgment on this theory, the attorney fee
issue would become moot.
25

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20449 Page 26 of 27

attorney fees expended on the third-party claim as damages in its claim against the defendant. Id.
at 1282. The Utah Court of Appeals held that the fact that the claim against the defendant for
attorney fees and the claim against the third party to quiet title were joined together in the same
action did not bar recovery of fees. Id. at 1283. So long as the court allocates fees between the
recoverable and nonrecoverable segments of the litigation, the plaintiff may recover its fees in
pursuing the third-party claim. Id. Here too, careful allocation between recoverable claims and
nonrecoverable claims will adequately resolve any issues caused by the fact that AA had asserted
other claims against ARS before it could sue it for breach of the right of first refusal.
In short, because the court must allocate fees for recoverable and nonrecoverable claims,
the court rejects Sloan’s arguments. Accordingly, the court denies summary judgment on AA’s
claim for attorney fees as consequential damages.
CONCLUSION
For the reasons stated above, the court GRANTS IN PART and DENIES IN PART Sloan’s
motion for summary judgment and rules as follows:
1) The court grants summary judgment on AA’s theories of improper means based on
fraudulent misrepresentation, violations of Rule 11 and the Utah Rules of Professional
Conduct, wrongful use of civil proceedings, and abuse of process.
2) The court denies without prejudice summary judgment on AA’s theory of improper
means based on Sloan’s fraudulent nondisclosure of the right of first refusal. Sloan may
file an additional motion for summary judgment raising other arguments regarding the
fraudulent nondisclosure theory by January 11, 2021. AA may file a response brief by
February 8, 2021. Sloan may reply by February 22, 2021.

26

Case 2:13-cv-00283-JNP-CMR Document 645 Filed 11/30/20 PageID.20450 Page 27 of 27

3) The court denies summary judgment on AA’s claim for attorney fees as consequential
damages.
DATED November 30, 2020.
BY THE COURT

______________________________
Jill N. Parrish
United States District Court Judge

27