Bilanzich v. Lonetti

• Decision Date: 20 March 2007
• Docket Number: No. 20060017.,20060017.
• Parties: Michael T. BILANZICH, Plaintiff and Petitioner, v. John LONETTI, an individual; Eunes I. Lonetti, an individual; and JDL Holdings, L.C., Defendants and Respondents.
• Court: Utah Supreme Court

160 P.3d 1041

2007 UT 26

Michael T. BILANZICH, Plaintiff and Petitioner, v. John LONETTI, an individual; Eunes I. Lonetti, an individual; and JDL Holdings, L.C., Defendants and Respondents.

No. 20060017.

Supreme Court of Utah.

March 20, 2007.

Rehearing Denied April 24, 2007.

Richard D. Burbidge, Jefferson W. Gross, Salt Lake City, for plaintiff.

Terry L. Wade, Bryan J. Pattison, Michael F. Leavitt, St. George, for defendants.

On Certiorari to the Utah Court of Appeals

PARRISH, Justice:

INTRODUCTION

¶ 1 Michael Bilanzich asks this court to overturn a court of appeals decision denying his claim for attorney fees. We hold that Utah Code section 78-27-56.5 grants the district court discretion to award attorney fees and costs to a prevailing party if the writing that forms the basis of the lawsuit provides attorney fees for at least one party. Therefore, we reverse the court of appeals and remand to that court with instructions to remand the case to the district court for further proceedings.

BACKGROUND

¶ 2 John and Eunes Lonetti (the "Lonettis") loaned $1,780,600 to Reese's Enterprises, Inc. ("REI"). The loan was evidenced by a promissory note and secured by a security agreement and a trust deed in real property owned by the corporation. The Lonettis and REI later entered into an agreement modifying the original promissory note to account for the outstanding principal, interest, and an additional loan of $354,938. The modified promissory note held a balance of $2,167,717. The Lonettis subsequently filed suit against REI to foreclose their trust deed and collect on the note.

¶ 3 In an attempt to resolve REI's legal and financial woes, a representative of REI approached Bilanzich, proposing that he execute a personal guaranty on the Lonetti loan and other debts in exchange for an ownership interest in REI. Thereafter, in order to settle the Lonetti suit, REI, the Lonettis, and Bilanzich entered into a settlement agreement memorialized in a document entitled "term sheet." Among other things, the term sheet provided that Bilanzich would place a personal guaranty of the REI promissory note into escrow and that, upon the satisfaction of the condition that REI obtain adequate financing, the guaranty would be released to the Lonettis at a closing. The term sheet specified that "[i]f financing is not obtained, the closing will not occur, all items in escrow will be returned to the party depositing them, and Lonetti will foreclose and realize on security."

¶ 4 In accord with the provisions of the term sheet, Bilanzich signed a personal guaranty and placed it in escrow. The Bilanzich guaranty included a unilateral provision that granted to the Lonettis any "costs, expenses, and attorney's fees incurred in collection of the Note and realization of the security."

¶ 5 REI did not obtain adequate financing to satisfy the conditions of the term sheet, and the corporation later filed for bankruptcy. Despite this fact, the Bilanzich guaranty was released from escrow to the Lonettis. The Lonettis subsequently assigned the REI note, the deed of trust, and the Bilanzich guaranty to their company, JDL Holdings L.C. ("JDL").

¶ 6 Bilanzich filed this action in August 2000, seeking to have the personal guaranty provided to the Lonettis declared unenforceable due to the nonoccurrence of a condition precedent to the guaranty.¹ Bilanzich also sought a rescission of the guaranty and a claim of unjust enrichment against the Lonettis and JDL. JDL then brought suit against Bilanzich, seeking to recover on the guaranty. The JDL action was consolidated with the Bilanzich case. In August 2003, Bilanzich filed a motion for partial summary judgment against the Lonettis and JDL, which the district court granted, holding that the failure of a condition precedent set forth in the term sheet rendered the guaranty unenforceable. Thereafter, Bilanzich agreed with the Lonettis and JDL to dismiss his other claims in exchange for an agreement not to appeal the judgment.

¶ 7 Bilanzich then filed a motion seeking his attorney fees pursuant to Utah Code section 78-27-56.5 and the terms of the guaranty. Bilanzich argued that this statute entitled him to attorney fees because the guaranty allowed at least one party to recover fees and because the litigation was based on that document. The Lonettis and JDL opposed the motion for fees, principally arguing that Bilanzich could not rely on a provision for attorney fees found in a document that was ruled to be unenforceable. The Lonettis and JDL also asserted that the settlement agreement barred such a motion and that the fees claimed by Bilanzich were unreasonable in light of the multiple defendants and claims involved.

¶ 8 The district court denied Bilanzich's motion for fees.² Bilanzich appealed. The court of appeals affirmed the district court on the basis of the common law rule that a party may not "`avoid [a] contract and, at the same time, claim the benefit of the provision for attorney fees.'" Bilanzich v. Lonetti, 2005 UT App 522U, paras. 4, 7, 2005 WL 3315329 (quoting BLT Inv. Co. v. Snow, 586 P.2d 456, 458 (Utah 1978)). In so holding, the court of appeals reasoned that the common law rule established in BLT Investment survived the enactment of Utah Code section 78-27-56.5. Id. para. 6.

¶ 9 Bilanzich subsequently petitioned for certiorari, which we granted for the following issue: "Whether Utah Code Ann. § 78-27-56.5 allows an award of attorney fees pursuant to a contract, where a party successfully claims the same contract is unenforceable due to failure of a condition precedent."

STANDARD OF REVIEW

¶ 10 The question presented to us requires an interpretation of Utah Code section 78-27-56.5. Statutory interpretation is a matter of law that we review for correctness. MacFarlane v. State Tax Comm'n, 2006 UT 25, ¶ 9, 134 P.3d 1116. Consequently, we cede no deference to the court of appeals.

ANALYSIS

¶ 11 Generally, attorney fees are awarded only when authorized by contract or by statute. Fericks v. Lucy Ann Soffe Trust, 2004 UT 85, ¶ 23, 100 P.3d 1200. But see Stewart v. Pub. Serv. Comm'n, 885 P.2d 759, 782-83 (Utah 1994) (awarding fees under this court's equitable powers in an original proceeding challenging a telephone rate increase where the petitioner acted "as a private attorney general"). Bilanzich has no contractual right to attorney fees because the fees provision within the guaranty was unilateral providing for an award of attorney fees and costs only to the Lonettis³ in the event of a lawsuit. Moreover, even if the contractual language had allowed Bilanzich to recover fees and costs, under the common law, the invalidation of the guaranty due to the failure of the condition precedent necessarily invalidated the attorney fees clause contained therein.⁴ BLT Inv. Co. v. Snow, 586 P.2d 456, 458 (Utah 1978); Quealy v. Anderson, 714 P.2d 667, 668-69 (Utah 1986).

¶ 12 Because Bilanzich cannot establish a contractual claim to attorney fees, we next consider whether Utah Code section 78-27-56.5 grants authority to the district court to award attorney fees and costs to Bilanzich. Under the statute,

[a] court may award costs and attorney's fees to either party that prevails in a civil action based upon any promissory note, written contract, or other writing executed after April 28, 1986, when the provisions of the promissory note, written contract, or other writing allow at least one party to recover attorney's fees.

Utah Code Ann. § 78-27-56.5 (2002).

¶ 13 "When interpreting statutes, our primary goal is to evince the true intent and purpose of the Legislature." State v. Martinez, 2002 UT 80, ¶ 8, 52 P.3d 1276 (internal quotation marks omitted). The first step of statutory interpretation is to evaluate the "best evidence" of legislative intent, namely, "the plain language of the statute itself." Id. (internal quotation marks omitted). "When examining the statutory language we assume the legislature used each term advisedly and in accordance with its ordinary meaning." Id. (internal quotation marks omitted).

¶ 14 The plain language of Utah Code section 78-27-56.5 provides that a court may award costs and attorney fees to a prevailing party in a civil action if two main conditions are met. First, the civil action must be "based upon any promissory note, written contract, or other writing." And second, "the provisions of the promissory note, written contract, or other writing" must "allow at least one party to recover attorney's fees."

¶ 15 The first condition of the statute is met because the Lonettis' claim against Bilanzich was based entirely upon the personal guaranty. Utah Code section 78-27-56.5 defines those documents that may form the basis of a lawsuit under this section very broadly. Any "promissory note, written contract, or other writing" falls within the ambit of the statute so long as the litigation is "based upon" that document. This first condition requires only that a party to the litigation assert the writing's enforceability as basis for recovery; the statute's plain language does not require that the writing actually be enforceable. Therefore, the litigation below meets the first criterion of the statute because it was based upon the Lonettis' assertion that the guaranty provided them with a legal right to recovery.

¶ 16 The second condition of the statute is also met because the guaranty provides for an award of attorney fees and costs to the Lonettis.⁵ Although the guaranty itself was rendered unenforceable by the failure of a condition precedent, the language of the statute focuses on the provisions of the writing rather than its legal effect. Under the statute, it is immaterial that events outside of the writing rendered the guaranty ineffectual because the provisions of the guaranty "allow[ed] at least one party to recover attorney's fees." Thus, under the clear terms of Utah Code section 78-27-56.5, a court may award attorney fees and costs to Bilanzich as...