Win-Win Invs. LLC v. Dutson

483 P.3d 64

WIN-WIN INVESTMENTS LLC, Appellant,

v.Bernhard DUTSON and Azora Dutson, Appellees.

No. 20190332-CA

Court of Appeals of Utah.

Filed February 19, 2021

T. Jake Hinkins, Kurt W. Laird, South Jordan, and Renee L.H. Blocher, Attorneys for Appellant

Daniel L. Day, Attorney for Appellee

Judge Diana Hagen authored this Opinion, in which Judges Michele M. Christiansen Forster and Jill M. Pohlman concurred.

Opinion

HAGEN, Judge:

¶1 This landlord-tenant case began as an action by the lessee, Win-Win Investments LLC, against the lessors, Bernhard and Azora Dutson, alleging that the Dutsons improperly terminated the lease and failed to recognize Win-Win's option to purchase the property. The Dutsons brought a counterclaim, alleging that Win-Win had breached the lease agreement by failing to maintain the premises. After the district court dismissed Win-Win's claims at trial, Win-Win attempted to defend against the Dutsons’ counterclaim for damages by asserting that it had assigned the lease to a third party. The district court ruled that the assignment defense had not been adequately pleaded and denied Win-Win's request to amend its pleadings to conform to the evidence. Win-Win appeals that ruling as well as the final judgment awarding damages on the Dutsons’ breach of contract counterclaim. We conclude that the district court correctly ruled that Win-Win's affirmative defense had not been pleaded. Moreover, we conclude that the court appropriately denied Win-Win's motion to amend its pleadings after finding that the assignment issue had not been tried by implied consent. Finally, we conclude sufficient evidence supports the court's damages award. Accordingly, we affirm.

BACKGROUND

¶2 The Dutsons owned a house in Riverton, Utah (the Property) that they agreed to lease to Win-Win. In February 2015, the parties entered into a written lease agreement (the Lease) with an option for Win-Win to purchase the Property for $350,000. Joseph White owned both Win-Win and its sister company, Foundation for Family Life of Utah (the Foundation). Win-Win subleased the Property to the Foundation.

¶3 In exchange for the purchase option, Win-Win agreed, upon execution of the Lease, to place $1,000 in escrow as earnest money to be credited against the purchase price. The Lease provided that Win-Win could exercise the option "at any time during the lease period upon notice to the Lessor in writing by certified mail or email." The Lease had an initial term of one year but was renewable annually for four years by written notice. Win-Win never deposited the required $1,000 earnest money into escrow.

¶4 Although Win-Win renewed the Lease in January 2016, it did not renew it at any point thereafter. In April 2017, over a month after the lease term expired, the Dutsons sent a notice to Win-Win inquiring whether Win-Win intended to renew the Lease. After getting no response, the Dutsons sent Win-Win a notice to vacate.

¶5 Win-Win then filed a complaint against the Dutsons alleging several causes of action, all of which related to Win-Win's contention that the Dutsons unilaterally cancelled the Lease and failed "to recognize Win-Win's right to purchase" the Property. The Dutsons counterclaimed, alleging that Win-Win had breached the Lease by failing "to maintain the premises in the same or improved condition, order and repair as the premises were at the commencement of the term of the Lease." They also sought a judgment declaring that "Win-Win never acquired an option to purchase the premises" because it had failed to deposited the $1,000 into escrow and that it "forfeited the right to an additional consecutive term to lease the premises" by failing to renew the lease in 2017.

¶6 The district court held a bench trial. At the close of Win-Win's case-in-chief, the Dutsons moved to dismiss Win-Win's claims. The court granted the Dutsons’ motion to dismiss, concluding that "under the Lease, if Win-Win intended to exercise the option, Win-Win was required to do so during the lease period." However, "[b]y no later than March 1, 2017, the Lease had expired because Win-Win failed to give timely notice of renewal for an additional one-year term. At no point prior thereto did Win-Win attempt to exercise the option by tendering payment of the purchase price." Thus, only the Dutsons’ counterclaim for breach of contract remained in dispute.

¶7 The Dutsons offered testimony from three witnesses to prove that Win-Win had failed to maintain the Property as required by the Lease. Mr. Dutson testified regarding the condition of the Property both before Win-Win took possession of the Property and after the Lease was terminated. An expert witness testified about his inspection of the Property and the calculated costs of repairing the damage he observed. Finally, the Dutsons’ son, who had periodically visited the Property before and during Win-Win's tenancy, testified regarding the condition of the Property. In its defense, Win-Win called Mr. White, its owner, who asserted for the first time that Win-Win had not merely sublet the Property to the Foundation but had assigned to the Foundation its entire interest in the Lease. The Dutsons did not object to this testimony.

¶8 Relying on Mr. White's testimony, Win-Win argued for the first time in post-trial briefing that it had assigned its entire leasehold interest to the Foundation, and thus could not be held liable for damages done to the Property. The Dutsons objected, arguing that Win-Win had not pleaded an assignment defense and that the Dutsons had not consented to try it. In response, Win-Win maintained that it had pleaded assignment in its answer to the counterclaim when it stated:

Defendant's claims are barred by the doctrines of laches, waiver, estoppel, unclean hands and any other defense available under Utah Rule of Civil Procedure 8(c), including, but not limited to, accord and satisfaction, failure of consideration, fraud, illegality, laches, release and statute of limitations.

(Emphasis added.) Win-Win asserted that the term "release" encompassed its claim of assignment. In the alternative, Win-Win argued that it had presented evidence on assignment during the bench trial, and therefore moved to amend the pleadings to conform to the evidence pursuant to rule 15(b) of the Utah Rules of Civil Procedure.

¶9 The court ruled that Win-Win had not pleaded assignment as an affirmative defense in its answer to the Dutsons’ breach of contract claim. Specifically, the court noted that pleading "release" as a defense was not specific enough to give the Dutsons notice as to Win-Win's assignment theory. Further, the court denied Win-Win's request to amend the pleadings, finding that it would be "clearly prejudicial" and "plainly unfair" to the Dutsons to allow an amendment because they had no notice of the assignment theory.

¶10 The court awarded the Dutsons $146,065.05, the total amount of damages calculated by their expert. It noted that, pursuant to the Lease, "Win-Win accepted the premises in good condition and agreed to repair existing damages." As a result, Win-Win was "obligated to repair or be liable for all damage to the Property beyond reasonable wear and tear." The court viewed hundreds of photographs of the Property and found that the damage depicted went "well beyond reasonable wear and tear." It concluded that the Dutsons had presented "credible and exhaustive testimony of damages" amounting to $146,065.05. The court also awarded attorney fees pursuant to the Lease's attorney fee provision and entered a final order and judgment.

ISSUES AND STANDARDS OF REVIEW

¶11 Win-Win now appeals, challenging the district court's rulings on the Dutsons’ counterclaim.¹ First, it argues that it adequately pleaded assignment as an affirmative defense under Utah Rule of Civil Procedure 8(c). "We review the [district] court's findings of fact for clear error and its conclusions of law for correctness." Hart v. Salt Lake County Comm'n , 945 P.2d 125, 132 (Utah Ct. App. 1997). "We review the district court's interpretation and application of the rules of civil procedure for correctness and will reverse only if the appellant shows error that was substantial and prejudicial." Conner v. Department of Com. , 2019 UT App 91, ¶ 15, 443 P.3d 1250 (cleaned up).

¶12 In the alternative, Win-Win contends that the district court erred in denying its request to amend its pleadings to conform to the evidence. We review the district court's interpretation of rule 15(b) of the Utah Rules of Civil Procedure for correctness, but because its "determination of whether the issues were tried with all parties’ implied consent is highly fact intensive, we grant the [district] court a fairly broad measure of discretion in making that determination under a given set of facts." Pilot v. Hill , 2019 UT 10, ¶ 9, 437 P.3d 362 (cleaned up). In other words, whether the Dutsons impliedly consented to trying an unpleaded defense "is a fact-intensive mixed question of law and fact entitling the [district] court's decision to broad deference." See id.

¶13 Finally, Win-Win challenges the district court's award of damages. Win-Win argues that the evidence presented at trial was insufficient to support the award of $146,065.05. "When reviewing a bench trial for sufficiency of the evidence, we must sustain the [district] court's judgment unless it is against the clear weight of the evidence, or if we otherwise reach a definite and firm conviction that a mistake has been made." Koehler v. Allen , 2020 UT App 73, ¶ 13, 466 P.3d 738 (cleaned up).

ANALYSIS

I. Assignment

¶14 Win-Win contends that the district court should have reached the merits of its defense that it assigned the Lease to the Foundation and thus was not liable for any damages to the Property. Win-Win argues that the court should have reached this issue either because it was adequately pleaded in its answer or because it was tried by implied consent. We analyze each argument in turn.

A. Adequacy of Pleading

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