Olé Mexican Foods Inc. v. J & W Distribution

549 P.3d 663

2024 UT App 67

OLÉ MEXICAN FOODS INC., Appellant,

v.J & W DISTRIBUTION LLC and Merlene Bills, Appellees.

No. 20220982-CA

Court of Appeals of Utah.

Filed May 9, 2024

Third District Court, Salt Lake Department, The Honorable Kara Pettit, No. 199911799

E. Scott Savage and Stephen R. Waldron, Salt Lake City, Attorneys for Appellant

Scarlet R. Smith and Jack D. Smart, Salt Lake City, Attorneys for Appellees

Judge Ryan M. Harris authored this Opinion, in which Judges Ryan D. Tenney and Amy J. Oliver concurred, with the exception of Footnote 4. Judge Oliver authored a separate opinion regarding that footnote, in which Judge Tenney joined.

Opinion

HARRIS, Judge:

¶1 This case involves a contract dispute between two companies in Utah’s tortilla supply chain: Olé Mexican Foods Inc. (Olé), a tortilla manufacturer, and J & W Distribution LLC (J&W), a food distributor. After the two companies sued each other and went to trial, a jury determined that Olé owed J&W $140,000. Following the verdict, the trial court determined that J&W was the prevailing party and awarded J&W attorney fees pursuant to the parties’ contract. The court then entered judgment for J&W. Olé filed a motion for a new trial, asserting that the jury verdict was internally inconsistent and that the evidence did not support the jury’s damages award. The trial court rejected Olé’s arguments and denied the motion.

¶2 On appeal, Olé challenges the trial court’s denial of its post-trial motion as well as the court’s attorney fees award. With regard to the verdict, Olé continues to maintain that the jury answered the special verdict form’s questions in a logically inconsistent way, and that the damages award was not supported by the evidence. With regard to attorney fees, Olé asserts that the parties’ contract does not actually provide for recovery of attorney fees, and it contends that in any event J&W was not the prevailing party. We reject all of Olé’s arguments and therefore affirm.

BACKGROUND ¹

[1] ¶3 Olé is a large corporation, headquartered in Georgia, that produces com and flour tortillas, among other products. Olé’s customers are located all over the country and include grocery stores and other food retailers. For dissemination of its products to its customers, Olé typically relies On "independent distributors," one of whom was, for a time, J&W.

¶4 J&W was a small Utah company founded by two brothers (Justin and Wade), assisted at times by their mother, Merlene Bills (Merlene).² Wade was friends with one of Olé’s managers (Manager), and J&W was created primarily to act as Olé’s Utah distributor. At its peak, J&W had eleven employees, and Olé was by far J&W’s biggest client.

¶5 In 2010, Olé and J&W began doing business together, and just weeks into their business relationship they executed a written contract captioned "Distributor Agreement" (the Agreement). In addition, Wade and Merlene both signed personal guarantees, each committing to personally cover J&W’s obligations to Olé. Wade passed away in 2011, leaving Merlene as the sole personal guarantor of J&W’s obligations.

¶6 In theory, J&W would purchase tortillas (often on credit) from Olé and then resell them to its customers at whatever price J&W was able to negotiate. But in practice, it worked this way only for a couple of J&W’s very small "cash" customers. For Walmart and Smith’s—J&W’s two largest customers—Olé would bill the customer directly, and it would account for the transaction by charging J&W’s credit account with a "distributor" price that was lower than the price paid by Walmart or Smith’s. The difference between the distributor price charged to J&W and the higher price paid by Walmart or Smith’s would be logged as a "credit" on J&W’s account with Olé, and over time, this was designed to build up a positive balance on J&W’s account. Olé would then periodically pay J&W the amount showing as a positive balance on the credit account. These payments were often referred to as "margin checks" or "commissions."

¶7 For the first three years of the companies’ relationship, things proceeded relatively smoothly. But in 2013, Olé informed J&W that, in its view, J&W had accumulated a negative balance in its credit account of about $80,000. J&W did not think it owed Olé anything, and it believed that Olé had simply made an accounting mistake. J&W "asked [Olé] to provide the information that shows" the debt, and Olé said it would "get that information to" J&W. In the meantime, and in an effort to keep what had theretofore been a lucrative business relationship on good terms, Justin offered to pay Olé $40,000 "light now" and asked to "sit down" with Olé and "find out if this is true or not." To this end, Justin agreed that Olé could "deduct" an additional $2,000 to $3,000 per week from J&W’s credit account as a method of paying the $40,000 he had agreed J&W would pay.

¶8 Just a few weeks later, however, Olé informed J&W that, rather than $80,000, J&W’s negative account balance was actually $850,000. This "did not make sense" to Justin; after all, $850,000 represented an entire "year’s worth of product." Justin asked Olé for clarification and requested specific documentation for this large negative balance, but Olé was not able to provide proof of the debt in a way that made sense to Justin. Later, Justin asked Manager for an explanation, and Manager offered his view that Olé would not be able to show that the debt was actually owed because its accounting system had recently experienced technical issues, including a malware attack.

¶9 Over the next two years, Olé attempted to convince J&W that the negative balance was real. Olé asserted—variously—that J&W might have been allowing products to expire or that someone might have been taking tortillas from J&W’s warehouse. At one point, Olé sent J&W a spreadsheet indicating that Olé was charging J&W for things like "chorizo, pastries, [and] cheeses"—items that J&W had never purchased or sold because it did not have a refrigerated warehouse. J&W disputed all of Olé’s theories as to how the large negative balance had accrued.

¶10 As time went by, Olé believed that the debt was not being paid down fast enough, and it began to increase the weekly deduction from $2,000 or $3,000 up to $5,000. There is no indication that J&W approved of or authorized any of these larger deductions. Through weekly deductions over the course of nearly two years, Olé deducted a total of some $350,000 from J&W’s credit account. This was a significant amount of money for a small company like J&W, and eventually J&W notified Olé that the extra deductions were bringing it to "a shutdown point." The two companies were never able to work out a solution to the problem and, in 2015, they severed their business relationship. J&W went out of business about two months later.

¶11 In 2016, Olé sued J&W and Merlene. Olé’s complaint was short, containing Just seven paragraphs; therein, Olé asserted that J&W had breached its contractual obligations to Olé, that Merlene had guaranteed J&W’s obligations, and that J&W and Merlene, jointly and severally, owed Olé $499,217.03. Olé also asked the court to award it reasonable attorney fees. Justin and Merlene jointly filed a pro se answer, denying Olé’s claims, and the parties exchanged some preliminary information. But Olé did little to move the case forward and, about two years later, the judge assigned to the case dismissed the lawsuit, without prejudice, for failure to prosecute.

¶12 In 2019, just under a year later, Olé filed the instant lawsuit, again suing J&W and Merlene. Olé used the same seven-paragraph complaint it had filed in its previous lawsuit, and it asked for the same relief. Along with the complaint, Olé submitted a two-page document entitled "Statement of Account." That document contains thirty-one separate line-item charges and credits, all occurring between August and December 2014, that add up to $499,217.03.

¶13 Following the filing of Olé’s complaint, J&W and Merlene³ answered—this time, with counsel—and denied Olé’s claims. J&W also filed a counterclaim against Olé in which it stated four separate causes of action: (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, (3) breach of implied contract, and (4) unjust enrichment. It asserted in the counterclaim that Olé failed to pay, and improperly withheld, more than $325,000 worth of commis- sion payments it was contractually bound to pay. J&W asked for an award of damages in that amount, as well as an award of attorney fees and costs.

¶14 The parties soon exchanged initial disclosures. But after that, no action was taken in the. case, by either party, for more than sixteen months. Neither side asked to, nor did, conduct discovery of any kind, and neither side designated any expert witnesses.

¶15 In April 2021, J&W filed a motion asking the trial court to dismiss Olé’s lawsuit for failure to prosecute, and it asked that the dismissal, this time, be with prejudice. Olé responded by opposing J&W’s motion and, in addition, filing a certificate of readiness for trial in which it represented that "discovery [was] completed" and that "the case [was] ready for trial." At a hearing held a few weeks later, the court denied J&W’s motion to dismiss and scheduled a jury trial to take place in early 2022.

¶16 After one continuance, the trial took place over four days in April 2022. Three witnesses testified in Olé’s case-in-chief, all of whom were employees of Olé during the relevant time period. Justin and Merlene were the only witnesses to testify for J&W. These witnesses testified regarding the events described above. Also during the trial, while neither side called a retained expert, both sides introduced into evidence various ledgers and accountings purporting to set forth each side’s view of how the debts and obligations should be computed. The ledgers were voluminous, and they contained weekly invoices spanning almost two years and...