Osguthorpe v. ASC Utah, Inc.

365 P.3d 1201

Stephen A. OSGUTHORPE, individually and in his capacity as Interim Personal Representative of the Estate of D.A. Osguthorpe, D.V.S. and also in his capacity as Successor Trustee of The Dr. D.A. Osguthorpe Trust; and D.A. Osguthorpe Family Partnership, Appellants,

v.ASC UTAH, INC. ; American Skiing Company; Leslie B. Otten; Wolf Mountain Resorts, L.C.; et al., Appellees.

No. 20130861.

Supreme Court of Utah.

Oct. 13, 2015.

Rehearing Denied Feb. 26, 2016.

David W. Scofield, Larry R. Williams, Sandy, for appellants.

John R. Lund, Julianne P. Blanch, Salt Lake City, Joseph E. Wrona, Park City, for appellees.

Associate Chief Justice LEE authored the opinion of the Court, in which Chief Justice DURRANT, Justice DURHAM, and Judge ORME joined. Having recused himself, Justice HIMONAS does not participate herein; Court of Appeals Judge GREGORY K. ORME sat.

Associate Chief Justice LEE, opinion of the Court:

¶ 1 This appeal arises out of a longstanding dispute between the Stephen A. Osguthorpe family and ASC Utah, Inc. The Osguthorpes own land that has long been used for sheep ranching. For many years ASC operated The Canyons ski resort on land adjacent to that owned by the Osguthorpes. By contract the Osguthorpes authorized ASC to use their land in exchange for an annual payment. That contract has been amended by the parties a number of times. It also implicates the interests of a third party—the estate of Enoch Smith—which has been deemed entitled to 50 percent of any rents derived from the Osguthorpe land.

¶ 2 The Osguthorpes have asserted that ASC stands in breach of contract. Their claims arise out of ASC's management of the land in question. In challenging ASC's actions, the Osguthorpes asserted claims for breach of the covenant of good faith and fair dealing, for injunctive relief, and for equitable rescission or reformation of the agreement between ASC and the Osguthorpes. The first claim was resolved against the Osguthorpes in a jury trial. The second and third claims were decided by the district court in a bench trial—in a decision denying injunctive relief and refusing to terminate the agreement but agreeing to reform it in part.

¶ 3 We affirm in large part. First, we affirm the Osguthorpes' challenge to matters resolved in the course of the jury trial on the ground that we lack jurisdiction (given the Osguthorpes' failure to file a notice of appeal as to the jury verdict). Second, we affirm the trial court's refusal to award injunctive relief because we deem the court's decision a matter falling within its equitable discretion, and we see no abuse of that discretion. And third, we affirm the decision to reform the contract prospectively in part; we vacate only the portion of the trial court's order purporting to dispose of the rights of the Osguthorpes (and the Smith estate) to payments tendered by ASC but rejected by the Osguthorpes.

I

¶ 4 In 1996, D.A. Osguthorpe and the Osguthorpe Family Partnership entered into a twenty-eight-year agreement with Wolf Mountain ski resort. That agreement granted Wolf Mountain the right to use some of the land the Osguthorpes used for sheep herding. This simple, single-page document provided that Wolf Mountain would pay the Osguthorpes "annual rental payments for the Property in the amount of $100,000." That amount was to be paid in advance at the beginning of each year. A short time later, Wolf Mountain assigned its rights under the agreement to ASC, who has owned and operated The Canyons ski resort on the land for many years.

¶ 5 ASC and the Osguthorpes amended the agreement twice, with two effects. The first was to eventually bring the total payment to $200,000 annually. And the second was to add some references to services (like consulting) that the Osguthorpes were to provide under the agreement.

¶ 6 Shortly after the second amendment, the estate of Enoch Smith—a business partner of D.A. Osguthorpe—sued the Osguthorpes, seeking a share of the annual payments under a pre-existing partnership dissolution agreement. Smith v. Osguthorpe, 2002 UT App 361, ¶¶ 6, 8–9, 58 P.3d 854. The Osguthorpes' defense was that the partnership dissolution agreement entitled Smith's estate only to "lease" payments, and that the amended agreements between the Osguthorpes and ASC actually conveyed an easement (meaning there was no "rent") and were intended to be largely a contract for personal services. Id. ¶¶ 36–38, 42–44.

¶ 7 In the Osguthorpe–Smith case, the district court asked ASC—a nonparty—to "set forth its position" with respect to the meaning of the amended agreements. ASC declined, citing its non-party status. And the district court wound up ruling in favor of Smith's estate, holding that it was entitled to half of the annual payments and that the agreements in fact did not represent a contract for services. Our court of appeals upheld this interpretation of the amended lease agreement, though it remanded on the issue of whether the agreements were "integrated" with respect to the question of dividing the payment between rents and personal services. Id. ¶¶ 45–46.

¶ 8 While this litigation was pending, ASC and the Osguthorpes executed a "Restatement of Agreement" on August 1, 2001. The Restatement of Agreement attempted to establish a process to allocate the annual payment between the fair market value of ASC's rights in the land and the services to be provided by the Osguthorpes. The process chosen in the Restatement of Agreement—valuation of the interest in the land by several appraisers—pegged the value of ASC's use of the land at a mere $3,275.50 annually. Thus, the balance of the $200,000 payment was to be for the services the Osguthorpes would render. The obvious effect would have been to greatly diminish the value of the Smith estate's interest under the partnership dissolution agreement.

¶ 9 These efforts notwithstanding, the district court in the Osguthorpe–Smith case concluded that the Restatement of Agreement had legally failed to accomplish this objective. Smith v. Osguthorpe, 2006 UT App 425, 2006 WL 2925451 (per curiam) (unpublished opinion). Thus, the court held that despite the allocation of the payment between rent and services, it was "not a new agreement" at all. Instead, "as evidenced by the caption," it was a " ‘Restatement of Agreement.’ " The court also found "critical" the fact that the Restatement of Agreement's effective date was retroactive to August 1996—the signing date of the original agreement between the Osguthorpes and Wolf Mountain. Because it had already "held that the contractual relationship between the Osguthorpes and [ASC] [based on the 1996 agreement] concern[ed] solely the lease of the land and include[d] no compensation for services rendered by the Osguthorpes to [ASC]," the district court held that Smith's estate was still entitled to half of the entire annual payment, and not just the $1,600 or so it would receive under the Osguthorpes' reading of the Restatement of Agreement.

¶ 10 The court of appeals held that the Osguthorpes had failed to file a timely appeal from the decision regarding the validity of the Restatement. Id. And in the Osguthorpe–ASC suit, the district court held that this determination of the effect of the Restatement of Agreement was binding as a matter of res judicata.

¶ 11 As the above litigation proceeded, the relationship between the Osguthorpes and ASC began to deteriorate. Over the course of several years, the Osguthorpes complained of a range of breaches by ASC—allegedly placing snow-making pipes above ground in a manner injuring the Osguthorpes' sheep, mowing areas intended for sheep grazing, permitting soil erosion in various places, and failing to prevent invasive weed species from taking root. In the Osguthorpes' view, ASC perpetually failed to heed the Osguthorpes' requests or to respond to their complaints. Around 2006, the Osguthorpes tried to get ASC to execute "two completely separate agreements" to make clear that the parties had all along (since 1996) intended for an allocation of the annual payment between rent and personal services, seemingly in yet another attempt to resolve the dispute with the Smith estate. But ASC refused to do so. And this was apparently a tipping point in the parties' relationship.

¶ 12 From 1997 to 2006, ASC had tendered (and the Osguthorpes had accepted) all required payments under the agreements—a total of $2,000,000. But after ASC's refusal to sign the new proposed agreements in 2006, the Osguthorpes refused to accept any tendered payments, though ASC continued to nominally tender them until at least 2010. The Osguthorpes took the position that ASC's alleged breaches in failing to properly take care of the land had terminated any agreement between the two parties. And they filed the suit that is before us on this appeal.

¶ 13 The Osguthorpes asserted several claims, including one for breach of the covenant of good faith and fair dealing and a claim for equitable rescission or reformation of the agreement between ASC and the Osguthorpes. The good faith and fair dealing claim complained of two of ASC's decisions. First was the decision not to intervene in the Smith litigation when the district court asked ASC to "set forth its position" regarding whether the original agreements in fact intended to divide the payment between rent and services. The second decision was ASC's refusal to sign new separate agreements in 2006 that would similarly help the Osguthorpes with the Smith lawsuit.

¶ 14 The rescission and reformation theories of relief were premised on an allegation of mutual mistake (as to the legal effect of the language chosen in the 2001 Restatement of Agreement) as well as allegations of continuing breaches of contract and damages that were difficult to estimate (injuries to sheep, top soil, grazing areas, etc.). Initially, the Osguthorpes brought these allegations to bear in a claim for waste, seeking damages. But they eventually abandoned that theory of recovery, and instead...