Iota, LLC v. Davco Mgmt. Co.

284 P.3d 681

714 Utah Adv. Rep. 8

2012 UT App 218

IOTA, LLC, a Utah limited liability company; and California Benefit, Inc., a California corporation, Plaintiffs and Appellees,

v.DAVCO MANAGEMENT COMPANY, LC, a Utah limited liability company, Defendant and Appellant.

No. 20100855–CA.

Court of Appeals of Utah.

Aug. 2, 2012.

Darwin C. Fisher, St. George, for Appellant.

Paul D. Veasy, David R. Hall, and Alan S. Mouritsen, Salt Lake City, for Appellees.

Before Judges McHUGH, VOROS, and DAVIS.

OPINION

DAVIS, Judge:

¶ 1 Davco Management Company, LC (Davco) appeals several of the trial court's rulings in favor of Iota, LLC and California Benefit, Inc. (collectively, Plaintiffs). We affirm in part, and reverse and remand in part.

BACKGROUND

¶ 2 In 2005, Davco, through its member and manager, David Fisher, entered into a real estate purchase contract (REPC) with Iota for the purchase of Casa Sonoma and with California Benefit for the purchase of Casa Grande, both of which are apartment complexes located in St. George, Utah. That purchase was never finalized because Davco was unable to obtain financing. However, in 2006, the parties entered into new REPCs for the purchase of the properties using owner financing. Under the new REPCs, Davco executed a promissory note for each property (the promissory notes). The first was executed in favor of Iota in the amount of $1,341,395, with the entire balance due on or before December 1, 2007. The second was executed in favor of California Benefit in the amount of $2,411,596, with the entire balance due on or before December 10, 2007. Davco was to make monthly interest-only payments on the notes until they became due. To secure payment of the notes, Davco also executed a trust deed for each property in favor of each property's seller (the trust deeds), granting a security interest in the property, rents, and security deposits.

¶ 3 In connection with the purchase, Davco requested profit and loss statements for the apartment complexes (the financial information). In advance of closing, Plaintiffs provided Davco with financial information for January 2005 through May 2006. Davco contends that this information was inaccurate because the statements contained information for other properties as well. Davco also alleges that Plaintiffs never provided financial information for the remainder of 2006, although the trial court found that Plaintiffs provided that information in February 2007. Davco contends that Plaintiffs orally agreed to provide the financial information and that this information was necessary in order for it to obtain financing.

¶ 4 Although Fisher attempted to obtain lender financing in order to pay the balances on the promissory notes, his loan application was denied on February 21, 2008, because (1) he “did not have two years of income stream as the owner,” (2) the appraised value of Casa Grande was lower than anticipated, and (3) he had credit problems arising from eleven previous foreclosures. As a result, Davco was unable to pay the balance of the promissory notes when they matured in December 2007. However, Davco continued to seek financing after the maturity dates, and Plaintiffs continued to assist it in that effort.

¶ 5 While the apartments were under Davco's ownership, Davco conveyed Casa Sonomato Fisher's father (Father) without Iota's knowledge or consent. The apartments were ultimately conveyed back to Davco.¹ Additionally, Davco recorded a $500,000 trust deed encumbering Casa Sonoma in favor of Fab 5 Management LLC, also without the knowledge or consent of Iota.

¶ 6 On June 3, 2008, approximately six months past the maturity dates on the promissory notes, Plaintiffs requested that Davco obtain financing by the end of July 2008. When Davco still had not obtained financing by August 25, 2008, Plaintiffs requested that Davco deliver deeds in lieu of foreclosure. Davco refused the request and asked Plaintiffs for an extension until October 2. Plaintiffs agreed but requested that Davco increase its monthly payments by $1,000 per month for Casa Sonoma and $1,500 per month for Casa Grande as consideration for the extension. Davco rejected the request and stopped payment on the September interest checks to Plaintiffs, after which Davco made no additional payments. On September 9, 2008, Davco requested reimbursement for the cost of improvements made to the apartments while they were under Davco's ownership. On September 24, Davco repeated the request and further alleged that Plaintiffs had previously agreed to a one-year extension on the maturity dates of the promissory notes. Plaintiffs denied the allegation and ultimately proceeded with nonjudicial foreclosures of the properties, at which time they discovered the conveyance to Father and the $500,000 encumbrance.

¶ 7 Between the time that Davco stopped making monthly payments in September 2008 and the time of the trustee's sale in February 2009, Davco collected and retained rents and security deposits from the apartment tenants. On November 5, 2008, the trial court issued an Ex Parte Order requiring that Davco and Fisher deposit all rents collected with the court.² The Ex Parte Order was sent to Davco and Fisher's attorney, who neither filed an objection nor moved to have it set aside at that time. Davco and Fisher did not deposit any of the rent or security deposits with the trial court until August 7, 2009, at which point they deposited $33,805.33.

¶ 8 A trustee's sale was conducted on February 20, 2009. Iota purchased Casa Sonoma with a credit bid of $934,000, and California Benefit purchased Casa Grande with a credit bid of $1,800,000. Following the trustee's sale, Plaintiffs brought suit to obtain deficiency judgments against Davco and to recover the rents and security deposits collected by Davco between September 1, 2008, and February 20, 2009. Davco disputed the claims, arguing breach of contract, breach of the implied covenant of good faith and fair dealing, equitable estoppel, and waiver. Davco also claimed that it was entitled to recover against Plaintiffs for the cost of improvements made to the apartments. Although no contempt allegation was raised in their complaint, Plaintiffs raised in the pretrial order and argued in their trial brief that both Davco and Fisher should be held in contempt for failing to comply with the Ex Parte Order. Davco challenged the trial court's jurisdiction to conduct the contempt proceeding in conjunction with the trial due to the lack of an affidavit of the facts constituting contempt. At trial, Davco also moved to have the Ex Parte Order stricken, asserting that the trial court failed to comply with rule 67 of the Utah Rules of Civil Procedure in issuing the order. The trial court denied the motion.

¶ 9 Following a three-day trial, the trial court rejected all of Davco's defenses and ruled that Plaintiffs were entitled to deficiency judgments against Davco. Davco was ordered to pay $389,438.30 to Iota and $272,266.20 to California Benefit, as well as Plaintiffs' attorney fees. Furthermore, the trial court concluded that Davco's failure to remit the rent and security deposits to Plaintiffs was a violation of the terms of the trust deeds and awarded Plaintiffs $132,844.96 for that violation. The trial court also ruled that Davco had violated the terms of the Iota trust deed by conveying Casa Sonoma to Father and by encumbering the property. The trial court dismissed Davco's claim that it was entitled to a set-off for improvements made to the property. The trial court also held Davco and Fisher in contempt for their failure to comply with the Ex Parte Order and awarded Plaintiffs $71,119.17, representing rent and security deposits, together with their attorney fees in connection with the contempt.³ Davco now appeals.

ISSUES AND STANDARDS OF REVIEW

¶ 10 On appeal, Davco argues that the trial court made a number of errors. First, Davco challenges several of the trial court's factual findings, claiming that the findings were unsupported by the evidence. We review a trial court's findings of fact for clear error. See Houskeeper v. State, 2008 UT 78, ¶ 18, 197 P.3d 636.

¶ 11 Second, Davco argues that the court incorrectly applied the statute of frauds and its part performance exception. This is a mixed question of law and fact. See Spears v. Warr, 2002 UT 24, ¶ 23, 44 P.3d 742,overruled on other grounds by Tangren Family Trust ex rel. Tangren v. Tangren, 2008 UT 20, ¶ 16 & n. 20, 182 P.3d 326. Thus, we review the trial court's determinations regarding the applicability of the statute of frauds for correctness and its underlying factual determinations for clear error. See id.

¶ 12 Third, Davco argues that the trial court should have ruled that Plaintiffs' claims were barred by equitable estoppel. “The issue of whether equitable estoppel has been proven is a classic mixed question of fact and law.” Department of Human Servs. ex rel. Parker v. Irizarry, 945 P.2d 676, 678 (Utah 1997). Because the equitable estoppel inquiry is highly fact-sensitive, “we properly grant the trial court's decision a fair degree of deference when we review the mixed question of whether the requirements of the law of estoppel have been satisfied in any given factual situation.” Id.

¶ 13 Fourth, Davco contests the trial court's conclusion that Plaintiffs did not waive their right to enforce the terms of the promissory notes. “[W]e ... grant very broad discretion to the trial court's application of legal propositions to the facts in waiver cases.” Living Scriptures, Inc. v. Kudlik, 890 P.2d 7, 10 (Utah Ct.App.1995).

¶ 14 Fifth, Davco contests the trial court's finding that Plaintiffs did not breach the implied covenant of good faith and fair dealing. “[W]hether there has been a breach of good faith and fair dealing is a factual issue,” Cook v. Zions First Nat'l Bank, 919 P.2d 56, 61 (Utah Ct.App.1996), and “[w]e review questions of fact under the clearly erroneous standard,” Tangren Family...