Reperex Inc. v. Child, Van Wagoner & Bradshaw

• Decision Date: 09 February 2017
• Docket Number: No. 20150246-CA,20150246-CA
• Citation: 392 P.3d 905
• Court: Utah Court of Appeals
• Parties: REPEREX INC., Brad Ball, and David Ball, Appellants, v. CHILD, VAN WAGONER & BRADSHAW; J. Russton Bradshaw; Coldwell Banker Commercial; and Duane Bush, Appellees.

392 P.3d 905

REPEREX INC., Brad Ball, and David Ball, Appellants,

v.CHILD, VAN WAGONER & BRADSHAW; J. Russton Bradshaw; Coldwell Banker Commercial; and Duane Bush, Appellees.

No. 20150246-CA

Court of Appeals of Utah.

Filed February 9, 2017

Rehearing Denied June 1, 2017

J. Spencer Ball, Salt Lake City, Attorney for Appellants.

Tyler S. Foutz, Salt Lake City, Attorney for Appellees Child, Van Wagoner & Bradshaw and J. Russton Bradshaw.

Shane W. Norris, South Jordan, Attorney for Appellees Coldwell Banker Commercial and Duane Bush.

Judge J. Frederic Voros Jr. authored this Opinion, in which Judges Gregory K. Orme and Michele M. Christiansen concurred.

Opinion

VOROS, Judge:

¶1 Reperex Inc., Brad Ball, and David Ball (collectively, the Buyers) purchased a business with the help of business brokerage Coldwell Banker Commercial and its agent Duane Bush (collectively, the Broker). Accountant J. Russton Bradshaw and his firm Child, Van Wagoner & Bradshaw (collectively, the Accountant) provided the Buyers with financial information about the business. The business ultimately failed. The Buyers claimed that the Broker and the Accountant had misrepresented the financial strength of the business and sued both for fraud, negligent misrepresentation, and breach of fiduciary duty. The district court dismissed all claims against the Broker and the claims of negligent misrepresentation and breach of fiduciary duty against the Accountant. The remaining fraud claim against the Accountant went to trial, and the jury returned a verdict in favor of the Accountant. The Buyers appeal.

¶2 We affirm the dismissal of the Buyers' claims against the Accountant and the trial verdict in favor of the Accountant. We vacate the dismissal of the Buyers' claims against the Broker and remand the case for further proceedings.

BACKGROUND¹

¶3 In July 2008 the Buyers contacted the Broker, expressing interest in acquiring a new business. The Broker introduced the Buyers to May's Custom Tile (the Business). The Business had an agreement with the Broker to "find buyers" and to "arrange and negotiate the sale, merger, lease, or trade [of] ... the assets of the Company." The Buyers met with the Broker and the owner of the Business, Steve May (the Seller), several times to discuss purchasing the Business. The Broker told the Buyers that he would represent both the Buyers and the Seller in a "dual agency capacity."

¶4 The Seller had originally hired the Accountant to prepare tax returns for the Business. When the Seller decided to sell the Business in 2008, he asked the Accountant to provide financial records and tax returns to an unrelated potential buyer (the Potential Buyer). The Accountant provided the requested documents to the Potential Buyer and answered his questions, which were relayed to him by email through the Broker. After the Potential Buyer learned that the Business's largest client (comprising a significant share of its 2007 sales) had filed for bankruptcy, he opted not to purchase the Business.

¶5 When the Buyers later expressed interest in the Business, the Seller asked the Accountant to provide the Broker with "similar documents" to those he had earlier provided to the Potential Buyer. Because of the confidential nature of the client list and other documents, the Seller was reluctant to hand over copies of the Business's records and other financial documents, but he agreed to let the Buyers review the records at the Accountant's office in a due diligence meeting.

¶6 The Buyers met with the Accountant, the Broker, and the Seller to conduct the due diligence meeting. The meeting lasted two hours or less; the Seller paid the Accountant for his time. The meeting was the only direct interaction between the Accountant and the Buyers. While the parties disagree about what occurred at the meeting, it is undisputed that the parties were all present and that the Buyers reviewed many of the Business's financial records—including tax returns and other financial statements compiled by the Accountant.

¶7 After examining the business records provided by the Accountant, the Buyers purchased the Business. In connection with the purchase, the Buyers signed a broker agreement for sale of assets that included a non-reliance clause, limiting the liability of the Broker:

Buyer hereby acknowledges that Buyer is relying on its own inspection of the involved business and the representations of the Seller and not of [the Broker] and/or any of its agents or employees with regards to the prior operating history of the business, the value of the assets being purchased and all other material facts of Seller in completing the transaction as evidenced by the Agreement for Purchase and Sale together with its attachments. Buyer further acknowledges that neither [the Broker] nor any of its agents and/or employees have verified the representations of the Seller, and should any representations be untrue, Buyer agrees to look solely to Seller for relief and to indemnify [the Broker], its agents and employees and hold them harmless in connection with all losses and damages caused to Buyer thereby.

¶8 After the Buyers purchased the Business, they learned that the Business was "not as advertised." The Broker had given the Buyers financial statements showing that the 2006 profits totaled over $ 300,000. The Broker did not tell the Buyers that the Accountant had sent him an email indicating that, in reality, the Business had made just over $ 74,000 in 2006.

¶9 The Buyers had also specifically asked the Broker about whether the Seller had commingled funds between the Business and another business he owned. The Broker responded that the Broker could not list or market a company for sale if there was any commingling. However, the Accountant had told the Broker that his firm had "not clean[ed] up" the Business's 2006 financials. The Accountant had earlier told the Broker by email, "The sales are OK. But the expenses are a bit shakey.... Keep in mind there was a lot of intercompany commingling between [the Business] and [the Seller's other business]." The Broker also knew, but did not inform the Buyers, that one of the Business's largest clients, a real estate developer called Promontory, had filed for bankruptcy. Promontory accounted for a significant share of the Business's profits the previous year. Indeed, Promontory's bankruptcy was the very reason the Potential Buyer lost interest in the Business.

¶10 The Buyers had also asked the Broker about the licensing requirements necessary to run the Business. The Broker informed the Buyers that they could get a contractor's license in 90 days; in reality, the Buyers needed three years to qualify for the license.

¶11 The Buyers sued the Broker for fraud, negligent misrepresentation, and breach of fiduciary duty. The Broker moved for judgment on the pleadings, arguing that the non-reliance clause in the broker agreement barred the Buyers' claims. The district court granted judgment on the pleadings on the claims of fraud and negligent misrepresentation, but not on the claim of breach of fiduciary duty. The Broker then filed a motion for summary judgment on the breach of fiduciary duty claim. The Broker argued that summary judgment was proper because the Buyers had failed to designate an expert witness to establish the elements of their breach of fiduciary duty claim. The district court granted the Broker summary judgment against the Buyers on that basis.

¶12 The Buyers also sued the Accountant for fraud, negligent misrepresentation, and breach of fiduciary duty. The Accountant moved for summary judgment. The Accountant argued, among other things, that the Buyers were not in privity of contract with the Accountant, that they had not satisfied any exceptions to the requirement of privity, and thus that their claims are barred. The district court granted summary judgment on the claims of negligent misrepresentation and breach of fiduciary duty. The court held a four-day jury trial on the remaining fraud claim. The Buyers requested a jury instruction on fraudulent nondisclosure, which included the element of duty. The district court denied the requested instruction, ruling that its previous grant of summary judgment in favor of the Accountant as to the negligence claim (with duty as one of the four elements) precluded a conclusion that the Accountant owed a duty that would support a claim of fraudulent nondisclosure. The jury returned a verdict in favor of the Accountant on the fraud claim.

¶13 The Buyers appeal the dismissal of their claims against the Broker and the dismissal of their claims of negligent misrepresentation and breach of fiduciary duty against the Accountant. They also appeal the district court's refusal to include a jury instruction for fraudulent nondisclosure on the fraud claim against the Accountant.

ISSUES ON APPEAL

¶14 First, the Buyers contend that the district court erred in dismissing their claims of fraud and negligent misrepresentation against the Broker based on the non-reliance clause in the broker agreement.

¶15 Second, the Buyers contend that the district court erred in granting summary judgment in favor of the Broker on the Buyers' breach of fiduciary duty claim on the ground that the Buyers had not designated an expert witness.

¶16 Third, the Buyers contend that the district court erred in granting summary judgment in favor of the Accountant on their claims of negligent misrepresentation and breach of fiduciary duty.

¶17 Finally, the Buyers contend that the district court erred in refusing to instruct the jury on fraudulent concealment and fraudulent nondisclosure.

ANALYSIS

I. Non-Reliance Clause

¶18 The Buyers contend that the district court erred when it granted the Broker's motion for judgment on the pleadings. "The grant of a motion for judgment on the pleadings is reviewed under the same standard as the grant of a motion to dismiss, i.e., we affirm the grant of such a motion only if, as a matter of law, the plaintiff could not...