1600 Barberry Lane 8 LLC v. Cottonwood Residential O.P. LP

• Decision Date: 27 May 2021
• Docket Number: No. 20181020,20181020
• Citation: 493 P.3d 580
• Court: Utah Supreme Court
• Parties: 1600 BARBERRY LANE 8 LLC, 1600 Barberry Lane 9 LLC, Appellants, v. COTTONWOOD RESIDENTIAL O.P. LP, Cottonwood Capital Property Management II, LLC, Cottonwood Capital Management, Inc., Daniel Shaeffer, Appellees.

493 P.3d 580

1600 BARBERRY LANE 8 LLC, 1600 Barberry Lane 9 LLC, Appellants,

v.COTTONWOOD RESIDENTIAL O.P. LP, Cottonwood Capital Property Management II, LLC, Cottonwood Capital Management, Inc., Daniel Shaeffer, Appellees.

No. 20181020

Supreme Court of Utah.

Heard September 16, 2020

Filed May 27, 2021

Andrew G. Deiss, Salt Lake City, Kenneth J. Catanzarite, Eric V. Anderton, Anaheim, CA, for appellants

Matthew L. Lalli, Dillon P. Olson, Salt Lake City, Henry H. Oh, Los Angeles, CA, for appellees

Justice Petersen authored the opinion of the Court, in which Chief Justice Durrant, Associate Chief Justice Lee, Justice Himonas, and Justice Pearce joined.

Justice Petersen, opinion of the Court:

INTRODUCTION

¶1 Appellants sued under a contract with a choice of law provision, which required contractual disputes to be governed by Georgia law. Appellees prevailed on a motion to dismiss in the district court, and the court awarded them attorney fees under a provision of the contract. Appellants now seek reversal of that award. The question before us is whether Georgia or Utah law determines the award of contractual attorney fees in this case. This requires us to address as a threshold question whether a claim for contractual attorney fees is a substantive matter governed by the law of the contractually chosen jurisdiction, or a procedural matter governed by the law of the forum.

¶2 We conclude that a claim for contractual attorney fees is substantive in nature, governed in this case by Georgia law. Because Appellants have not shown an error in the district court's award of attorney fees under Georgia law, we affirm.

BACKGROUND¹

¶3 Appellants 1600 Barberry Lane 8, LLC and 1600 Barberry Lane 9, LLC (collectively, Barberry) each own a fractional interest in an apartment complex in Georgia as tenants in common. Barberry entered into a Property Management Agreement (PMA) with a company called Daymark Residential and Asset Management and its "control person, principal, director and officer," Todd Mikles (collectively, Daymark). In the PMA, Barberry agreed to pay Daymark for asset and property management services. The PMA contains a choice of law provision, which provides that the agreement "is governed by and construed in accordance with the internal laws of the State where the Property is located." In this case, that state is Georgia.

¶4 A few years after Barberry obtained its interest in the property, Mikles and his affiliates purchased Daymark. They recommended to Barberry that it should allow another company—Appellees (collectively, Cottonwood)² —to take over asset and property management for the apartment complex. Barberry agreed.

¶5 After several years of this arrangement, Barberry became dissatisfied with the fees it had been paying and filed suit in California. But the suit was dismissed for lack of personal jurisdiction.

¶6 Barberry then sued Cottonwood in Utah. The thrust of its complaint was that unbeknownst to Barberry, Daymark secretly sold the PMA to Cottonwood for $8 million and, as the assignee of the PMA, Cottonwood became the property manager under the agreement. Barberry alleged that Daymark and then Cottonwood had collected above-market fees and commissions for their services. And Barberry claimed that in so doing, Cottonwood had breached the PMA or, in the alternative, interfered with the PMA. And it asserted Cottonwood had breached a fiduciary duty to Barberry arising from its role as property manager or, in the alternative, aided and abetted Daymark's breach of fiduciary duty.

¶7 Cottonwood moved to dismiss. It argued, in part, that it was not liable for breach of contract because it was not a party to any agreement with Barberry. It asserted that it had not purchased the PMA and become the property manager, as alleged by Barberry. Rather, it had entered into a sub-property management agreement with Daymark, in which Daymark engaged Cottonwood as a subcontractor to "sub-manage" the property. And it asserted Barberry was not a party to this sub-agreement. Accordingly, Cottonwood argued it could not be liable to Barberry for breach of contract because it had not entered into any contracts with Barberry. Cottonwood attached a copy of the sub-property management agreement as an exhibit to its motion.

¶8 The district court granted the motion to dismiss on multiple alternative grounds. The court agreed with Cottonwood's breach of contract argument, concluding that Cottonwood had entered into the sub-property management agreement with Daymark and was a "subcontractor" that "sub-manage[d]" the property. Additionally, the court concluded that even if Cottonwood was the property manager under the PMA, Barberry's allegations did not amount to a violation of the PMA. With regard to the claims sounding in breach of fiduciary duty, the court concluded that the PMA did not give rise to any fiduciary relationship between the parties under Georgia law.

¶9 After prevailing on the motion to dismiss, Cottonwood filed a motion seeking recovery of its attorney fees. Barberry objected to the request for fees and contested the amount Cottonwood sought. The court held a hearing on the matter.

¶10 Cottonwood argued that it was entitled to fees under the attorney fee provision of the PMA, which provides:

In any action or proceeding between Property Manager and the Tenants in Common arising from or relating to this Agreement or the enforcement or interpretation hereof, the party prevailing in such action or proceeding shall be entitled to recover from the other party all of its reasonable attorneys’ fees and other costs and expenses of the action or proceeding.

¶11 Barberry opposed the motion, primarily arguing that Cottonwood was not entitled to fees under the terms of this provision. First, Barberry argued that Georgia law should govern the attorney fee provision just as it did the rest of the PMA. And Barberry asserted that under Georgia law, an attorney fee provision is interpreted like any other contractual provision—by reading the language of the agreement. Looking to the terms of the attorney fee provision, Barberry argued that it applied only in an "action or proceeding between the Property Manager and the Tenants in Common ." And it reasoned that because the district court had concluded Cottonwood was a sub-contractor rather than the property manager, Cottonwood could not collect its fees under this provision.

¶12 Cottonwood responded that Utah law should apply to the provision because a claim for attorney fees presents a procedural issue and matters of procedure are governed by the law of the forum state. Under Utah law, Cottonwood argued that even though it was not the property manager under the PMA, it was entitled to its attorney fees pursuant to Utah's Reciprocal Fee Statute, which permits a prevailing party to recover its fees if the underlying litigation is brought pursuant to a contract that permits recovery of attorney fees by at least one of the parties to the litigation. See UTAH CODE § 78B-5-826 ; see also Hooban v. Unicity Int'l, Inc. , 2012 UT 40, ¶¶ 28–29, 285 P.3d 766.³

¶13 Alternatively, Cottonwood argued that even if Georgia law applied, it should still prevail because Barberry could not take a position contrary to the allegations in its complaint.⁴ Cottonwood asserted that since Barberry's complaint alleged that Cottonwood had purchased the PMA and, as assignee, become the property manager under the agreement, Georgia's judicial admissions doctrine prevented Barberry from disclaiming that position.⁵

¶14 The district court ruled in favor of Cottonwood and awarded it attorney fees.

The court recognized that Utah law is unsettled as to whether an award of contractual attorney fees is considered substantive or procedural for purposes of determining choice of law. But it avoided ruling on the issue because it determined Cottonwood was entitled to attorney fees under the law of either jurisdiction. The court concluded that if Utah law applied, Cottonwood was entitled to its fees under the Reciprocal Fee Statute. And it determined that if Georgia law applied, Georgia's judicial admissions doctrine would prohibit Barberry from taking a position contrary to the allegation in its complaint that Cottonwood was the property manager under the PMA.

¶15 Barberry separately appealed both the district court's order to dismiss and its order awarding attorney fees. Both cases were transferred to the court of appeals. But we recalled the instant appeal involving the attorney fee order.

¶16 In its appeal of the dismissal order in the court of appeals, Barberry argued that the district court should not have considered the sub-property management agreement that Cottonwood attached to its motion to dismiss because the sub-agreement was not attached to or referenced in the complaint. 1600 Barberry Lane 8 LLC v. Cottonwood Residential OP LP , 2019 UT App 146, ¶ 8 n.5, 449 P.3d 949, cert. denied , 456 P.3d 388 (Utah 2019). The sub-agreement was the basis of the district court's finding that Cottonwood had not been assigned the PMA but was merely engaged as a subcontractor to Daymark. And Barberry argued that before considering the sub-agreement, the district court should have converted the motion to a motion for summary judgment and proceeded under Utah Rule of Civil Procedure 56. Id.

¶17 But the court of appeals affirmed the order of dismissal without addressing whether the district court's consideration of the sub-agreement was improper. Id. It concluded that the district court's alternative ground for dismissal—that Barberry's allegations did not make out a violation of the PMA, interference with the PMA, or a breach of fiduciary duty even if they were true—was a sufficient basis to dismiss the complaint. Id. ¶ 27. Barberry then petitioned this court for certiorari, which we denied. 1600 Barberry Lane 8 L [sic] v. Cottonwood Residential , 456 P.3d 388 (Utah 2019).

¶18 Barberry's appeal regarding the district court's attorney fee award is...