Clear Creek Dev. v. Peterson Pipeline Ass'n, Inc.

545 P.3d 306

2024 UT App 22

CLEAR CREEK DEVELOPMENT, LLC, Appellant,

v.PETERSON PIPELINE ASSOCIATION, INC., Appellee.

No. 20220565-CA

Court of Appeals of Utah.

Filed February 23, 2024

Second District Court, Morgan Department, The Honorable Noel S. Hyde, No. 210500049

Ryan M. Nord, Attorney for Appellant

Douglas P. Farr, Salt Lake City, Jacob D. Barney, and Mary-Christine Sungaila, Attorneys for Appellee

Judge John D. Luthy authored this Opinion, in which Judges Michele M. Christiansen Forster and Ryan M. Harris concurred.

Opinion

LUTHY, Judge:

¶1 This case addresses some of the contours of rule 13(a) of the Utah Rules of Civil Procedure, which governs compulsory counterclaims. In a prior lawsuit, Peterson Pipeline Association, Inc. (Peterson Pipeline) brought a number of claims against Clear Creek Development, LLC (Clear Creek). Clear Creek asserted no counterclaims in that lawsuit, and eventually Peterson Pipeline’s claims were dismissed without prejudice.

¶2 Clear Creek then initiated this lawsuit, asserting claims that arise from the same transaction that gave rise to Peterson Pipeline’s claims in the prior lawsuit. Peterson Pipeline moved for dismissal of Clear Creek’s claims, arguing that because they arise from the same transaction that gave rise to Peterson Pipeline’s claims in the prior lawsuit, Clear Creek’s claims were compulsory counterclaims in the prior lawsuit and rule 13(a) bars their assertion here. The district court agreed and dismissed Clear Creek’s claims. Clear Creek now appeals.

¶3 We conclude that when Peterson Pipeline’s claims in the prior lawsuit were dismissed without prejudice, Clear Creek’s once-compulsory counterclaims became compulsory no more and that Clear Creek was therefore free to bring those claims in this action. Accordingly, we reverse.

BACKGROUND

The Previous Litigation

¶4 Peterson Pipeline is a public water supplier that "distributes culinary water and fire suppression water to its members." Clear Creek is a company involved in residential building construction. Having received representations from Peterson Pipeline that it was willing to provide water service, Clear Creek installed infrastructure to connect a subdivision it was building to Peterson Pipeline’s water system, with an alleged understanding that Clear Creek or the lot owners in the subdivision would pay a "$15,000 per lot [Peterson Pipeline] membership fee if they wanted to use [Peterson Pipeline’s] infrastructure for culinary and fire suppression water." Subsequently, the lot owners were allegedly "unable to agree on whether to pay the $15,000 membership fee."

¶5 Thereafter, without any membership fees having been paid and apparently in order to meet code requirements for obtaining certificates of occupancy, Clear Creek allegedly turned on the valves connecting its subdivision to Peterson Pipeline’s water system and pressurized the pipes in the subdivision. In response to this alleged use of its water system without authorization, Peterson Pipeline filed a lawsuit against Clear Creek, asserting claims for conversion, unjust enrichment, and interference with water rights. At the same time, Peterson Pipeline also filed a motion for a preliminary injunction to prevent Clear Creek from accessing Peterson Pipeline’s water system as the case proceeded. The district court granted the injunction. Clear Creek then filed an answer to Peterson Pipeline’s complaint; it did not assert any counterclaims.

¶6 Over the course of the next year, the parties "engaged in extensive settlement discussions" but did not reach a settlement agreement. They then jointly submitted a stipulated request to extend fact discovery. The court granted that request in an order that also included the following provision: "Defendants have leave to file a counterclaim if they elect to do so within 14 days of entry of this order." Again, Clear Creek did not assert any counterclaims.

¶7 The following month, Peterson Pipeline moved to dismiss its complaint without prejudice, explaining, "While [Peterson Pipeline] believes it was damaged by [Clear Creek’s] actions, the [preliminary injunction] prevented additional damage and [Peterson Pipeline] has opted not to pursue its other claims at this point." Clear Creek opposed the motion, arguing that dismissal should be denied or, alternatively, that any dismissal should be with prejudice. In support of its objection, Clear Creek observed that the parties had engaged in "more than a year of litigation," that the case was "more or less prepared for trial," and that dismissing Peterson Pipeline’s claims without prejudice would leave Peterson Pipeline free to "subject [Clear Creek] to further litigation on the same matters after having [already had] a full and fair opportunity to discover its claims and to pursue this matter." The court was "unpersuaded" by Clear Creek’s objection and granted the dismissal of Peterson Pipeline’s claims without prejudice.

The Instant Case

¶8 Within two months of the dismissal of Peterson Pipeline’s lawsuit, Clear Creek filed this action, asserting claims of fraud and breach of contract against Peterson Pipeline stemming from the same circumstances that had given rise to Peterson Pipeline’s claims in the prior lawsuit—the subdivision’s connection to and use of Peterson Pipeline’s water system. Specifically, Clear Creek alleged, among other things, that Peterson Pipeline had agreed to provide water service for at least one of the lots in the subdivision but later, after Clear Creek incurred significant infrastructure expenses, refused to provide water service to any lots unless all lot owners agreed to a land use restriction prohibiting the construction of wells on their lots.

¶9 Peterson Pipeline moved to dismiss Clear Creek’s complaint. Peterson Pipeline argued that because Clear Creek’s claims "arise from the same operative facts and the same transaction," as did Peterson Pipeline’s claims in the previous case, Clear Creek’s claims had been compulsory counterclaims under rule 13(a) of the Utah Rules of Civil Procedure in the previous case and, as such, could not be asserted in this case.

¶10 Clear Creek opposed the motion, contending that its claims had not been compulsory counterclaims in the previous case and that, even if they were, rule 13(a) did not bar them. Clear Creek observed that while rule 13(a) defines compulsory counterclaims, it sets forth no specific remedy for when a defendant fails to file a compulsory counterclaim in an initial lawsuit and then later pursues the claim in a separate lawsuit. On that basis, Clear Creek asserted that any preclusion of an initially unpled counterclaim subsequently raised in separate litigation must be through application of the doctrine of claim preclusion, which prohibits the relitigation of claims that could have been brought in a previous action only when "the first suit … resulted in a final judgment on the merits." Macris & Assocs. v. Neways, Inc., 2000 UT 93, ¶ 20, 16 P.3d 1214 (cleaned up). Because there was no final judgment on the merits in the previous case, Clear Creek contended that "there is no basis under [r]ule 13 to dismiss" its claims here.

¶11 After a hearing on the matter, the district court granted Peterson Pipeline’s motion to dismiss. In its written order, the court rejected Clear Creek’s view that rule 13(a) provides no independent remedy for a party’s failure to file a compulsory counterclaim, reasoning that although "no express remedy appears in the language of [r]ule 13 itself, such a remedy does appear in case law." The court further determined that "a [r]ule 13(a) analysis focuses on whether a party waived its claims by failing to bring them as counterclaims in a prior action," not on whether the party’s claims were "previously … adjudicated" under "a claim preclusion analysis." The court then concluded that because Clear Creek’s claims in this lawsuit "arise out of the same transaction or occurrence as [Peterson Pipeline’s] claims in the prior lawsuit," Clear Creek’s claims were compulsory counterclaims in the prior action and were waived when Clear Creek did not bring them in the prior action. On that basis, the court dismissed Clear Creek’s claims with prejudice. Clear Creek now appeals.

ISSUE AND STANDARD OF REVIEW

[1, 2] ¶12 Clear Creek contends that the district court erroneously dismissed its claims under an incorrect application of rule 13(a) of the Utah Rules of Civil Procedure. "A ruling on a motion to dismiss presents a legal question that we review for correctness, affording no deference to the district court’s decision." Turner v. Staker & Parson Cos., 2012 UT 30, ¶ 7, 284 P.3d 600. Likewise, "the district court’s interpretations of rules of procedure are questions of law reviewed for correctness." Simler v. Chilel, 2016 UT 23, ¶ 9, 379 P.3d 1195 (cleaned up).

ANALYSIS

¶13 Clear Creek first asserts that the district court erred by determining that rule 13(a) of the Utah Rules of Civil Procedure provides an independent remedy when a party fails to assert a compulsory counterclaim.¹ Specifically, Clear Creek argues that rule 13(a) "merely informs, from a procedural standpoint, when a claim is compulsory" and that whether an unpled compulsory counterclaim is barred in subsequent litigation depends on "a substantive res judicata analysis (claim preclusion)." We disagree that rule 13(a) does not provide an independent remedy for a party’s failure to assert a compulsory counterclaim. However, we conclude that claim preclusion principles undergird rule 13(a) and, thus, that a counterclaim arising from the same transaction as a plaintiff’s claims ceases to be compulsory if the plaintiff’s claims are dismissed without prejudice before a final adjudication on the merits.

[3] ¶14 When interpreting court rules, "our primary goal is to evince the true intent and purpose of the rule-making body and to render all parts of the rule relevant and meaningful." Cox v. Krammer, 2003 UT App 264, ¶ 10, 76...