Ahhmigo, LLC v. Synergy Co. of Utah, LLC

• Decision Date: 03 February 2022
• Docket Number: 20200770
• Citation: 506 P.3d 536
• Parties: AHHMIGO, LLC, Appellant, v. The SYNERGY COMPANY OF UTAH, LLC, Appellee.
• Court: Utah Supreme Court

506 P.3d 536

AHHMIGO, LLC, Appellant,

v.The SYNERGY COMPANY OF UTAH, LLC, Appellee.

No. 20200770

Supreme Court of Utah.

Heard: November 10, 2021

Filed February 3, 2022

Troy L. Booher, Beth E. Kennedy, Dick J. Baldwin, David J. Jordan, David L. Mortensen, Salt Lake City, for appellant

Jonathan O. Hafen, Rachel Lassig Wertheimer, Salt Lake City, William D. Meyer, Boulder, CO, for appellee

Justice Pearce authored the opinion of the Court, in which Associate Chief Justice Lee, Justice Petersen, Judge Hagen, and Judge Harris joined.

Having recused themselves, Chief Justice Durrant and Justice Himonas did not participate herein; Court of Appeals Judge Diana Hagen and Judge Ryan M. Harris sat.

On Direct Appeal

Justice Pearce, opinion of the Court:

INTRODUCTION

¶1 Ahhmigo, LLC (Ahhmigo) contracted with The Synergy Company of Utah, LLC (Synergy) to purchase ingredients it planned to use to craft an energy drink. The contract required Ahhmigo to make a series of payments in advance of shipment. Ahhmigo made a portion of these payments but ran into some product development issues and eventually repudiated the contract.

¶2 Ahhmigo sought a refund of the payments it had made to Synergy for product it had never received. In arbitration proceedings, Synergy contended that the contract permitted it to keep those payments. The arbitrator ruled in favor of Synergy. Ahhmigo moved the district court to vacate the arbitrator's ruling, claiming that the arbitrator had manifestly disregarded the law. The district court denied Ahhmigo's motion.

¶3 Ahhmigo argues that the district court erred. But Ahhmigo never presented the issue it now wants us to rule on to the district court. And our preservation rules do not permit a party to raise an issue for the first time on appeal. We thus affirm. But we take the opportunity to express some qualms about the way we have talked about what it means for an arbitrator to manifestly disregard the law in hopes of prompting a robust discussion in a later case where the issue has been properly preserved.

BACKGROUND

¶4 Synergy agreed to sell two blended powders in bulk (Product) to Ahhmigo that Ahhmigo planned to use to make a new energy drink. The terms of the sale were set forth in two blanket purchase orders (Initial BPOs). The Initial BPOs contained the following provision: "If, for any reason, Buyer does not take shipment of all Product ordered on the Agreement, Buyer will still be responsible for paying the entire amount of the Agreement" (the Subject Provision).

¶5 Because of product development issues, Ahhmigo failed to accept shipment of the Product as the Initial BPOs required. At Ahhmigo's request, the parties executed a new BPO. When its product development issues persisted, Ahhmigo again requested another revised BPO. Under the revised BPO (RBPO), Ahhmigo agreed to make a series of specified payments prior to shipment. Ahhmigo also agreed, once again, to the Subject Provision.

¶6 Several months later, Ahhmigo requested, and Synergy shipped, some Product. Ahhmigo also made some pre-shipment payments.

But Ahhmigo was unable to develop its proposed energy drink and ultimately failed to fully pay for or request shipment of the remaining Product.

¶7 Four years later, Ahhmigo filed a Complaint and Demand for Arbitration against Synergy. Ahhmigo's complaint asserted six causes of action: breach of contract, breach of implied duty of good faith and fair dealing, reasonable reliance, unjust enrichment, conversion, and fraud. Synergy agreed to arbitrate Ahhmigo's claims.

¶8 The arbitrator dismissed four of Ahhmigo's causes of action. The parties held a seven-day arbitration on the remaining two claims: breach of contract and breach of the implied covenant of good faith and fair dealing. Ahhmigo asserted that Synergy had breached the parties’ contract by, among other things, failing to deliver the remaining Product to Ahhmigo, and by failing to refund Ahhmigo the payments it had made for Product it had never received. Ahhmigo also asserted that Synergy had breached the implied duty of good faith and fair dealing in part by "[s]eeking to impose an interpretation" of the Subject Provision that would entitle Synergy to the full purchase price. In Ahhmigo's view, this was "an unenforceable penalty/liquidated damages provision." And Ahhmigo set out to convince the arbitrator that Synergy had violated the implied covenant by persisting in that interpretation.

¶9 The arbitrator concluded that Ahhmigo had "failed to prove any damages" and ruled in favor of Synergy. The arbitrator first determined that "Ahhmigo never established that Synergy ever refused to deliver Product to Ahhmigo." To the contrary, "Ahhmigo specifically stated it no longer wanted the Product."

¶10 The arbitrator next rejected Ahhmigo's argument that the Subject Provision was an unenforceable penalty. Specifically, the arbitrator rejected Ahhmigo's argument that the Uniform Commercial Code (UCC) prevented Synergy from keeping Ahhmigo's payments and any existing resale proceeds.¹ The arbitrator reasoned that "[t]he UCC provides defaults that the parties are free to contract around." And by agreeing to the Subject Provision, Ahhmigo and Synergy had effectively "modifie[d] the terms of the UCC."² The arbitrator then determined that the Subject Provision was not unreasonable, "did not constitute a penalty under the UCC," and meant that "Ahhmigo still had to pay for Product even if it didn't accept delivery."

¶11 Ahhmigo moved the district court to vacate the arbitration award. Ahhmigo argued that the arbitrator had manifestly disregarded the law when he chose not to apply controlling case law of which he was aware.³ Specifically, Ahhmigo argued that Madsen v. Murrey & Sons Co. , 743 P.2d 1212 (Utah 1987) determined the remedies available to a seller when a buyer fails to take delivery of goods. In Ahhmigo's view, Madsen dictated that "if a buyer breaches a contract by failing to take delivery of goods, the court (or arbitrator) must calculate whether the buyer is entitled to a refund, pursuant to [the UCC]." Ahhmigo claimed that by declining to calculate whether Ahhmigo was entitled to a refund under the UCC, the arbitrator had "manifestly disregarded controlling Utah Supreme Court caselaw and allowed an almost $2 million windfall to Synergy."

¶12 The district court denied Ahhmigo's motion and confirmed the arbitration award. It concluded that the arbitrator had not manifestly disregarded the law by failing to apply Madsen because " Madsen [wa]s not a clearly governing legal principle that the Arbitrator decided to ignore or pa[id] no attention to in issuing the Arbitration Award." The district court reasoned that the arbitrator had "appreciate[d] the existence" of Madsen but had determined that it just did not apply to the facts of this case because unlike the parties in Madsen , "the parties contracted around the default damages provisions in the UCC, ... by including [the Subject Provision]" in their agreement.

¶13 Ahhmigo appeals. It now argues that the arbitrator manifestly disregarded the law when he defied an alleged stipulation between the parties and equated the Subject Provision with a liquidated damages provision. And it argues that the district court erred when it failed to vacate the arbitration award for that reason.

ANALYSIS

I. WE DO NOT REACH THE QUESTION AHHMIGO PRESENTS ON APPEAL BECAUSE AHHMIGO DID NOT RAISE IT IN THE DISTRICT COURT

¶14 Ahhmigo asks us to reverse the district court and vacate the arbitration award. Ahhmigo argues that the arbitrator manifestly disregarded the law when he failed to credit an alleged stipulation between the parties that the Subject Provision was not a liquidated damages provision. Ahhmigo argues that the arbitrator's approach created space for the arbitrator to avoid calculating Synergy's actual damages under the UCC formula we applied in Madsen v. Murrey & Sons Co. , 743 P.2d 1212 (Utah 1987), and instead "allow[ed] Synergy to keep all of Ahhmigo's payments as damages for Ahhmigo's breach, even if Synergy chose to resell the Product Ahhmigo paid for."

¶15 Synergy argues that Ahhmigo did not preserve the issue it now raises on appeal—that is, whether the arbitrator manifestly disregarded the law when he ignored a supposed stipulation of the parties.

¶16 "[A]n appellant must properly preserve an issue in the district court before it will be reviewed on appeal." O'Dea v. Olea , 2009 UT 46, ¶ 15, 217 P.3d 704. "An issue is preserved for appeal when it has been ‘presented to the district court in such a way that the court has an opportunity to rule on [it].’ " Patterson v. Patterson , 2011 UT 68, ¶ 12, 266 P.3d 828 (alteration in original) (quoting In re Adoption of Baby E.Z. , 2011 UT 38, ¶ 25, 266 P.3d 702 ). "To provide the court with this opportunity, ‘the issue must be specifically raised ..., and must be supported by evidence and relevant legal authority.’ " State in Int. of D.B. , 2012 UT 65, ¶ 17, 289 P.3d 459 (quoting Donjuan v. McDermott , 2011 UT 72, ¶ 20, 266 P.3d 839 ). When a party "ha[s] failed to preserve an issue in the [district] court, but seeks to raise it on appeal[,] ... the party must argue an exception to preservation."⁴ State v. Johnson , 2017 UT 76, ¶ 17, 416 P.3d 443.

¶17 Ahhmigo does not argue an exception to preservation. Ahhmigo instead argues that it "preserved the issue by submitting ... to the district court the issue of whether Synergy was entitled to keep both Ahhmigo's payments and the resale proceeds." According to Ahhmigo, "[t]hat issue includes [its] argument about liquidated damages because Utah law limits damages by excluding proceeds from resale, unless a liquidated damages provision provides otherwise."

¶18 Ahhmigo's effort to evade our preservation rule by "broadly defining the issue" it raised in the district court is unavailing. See Patterson , 2011 UT 68, ¶ 11, 266 P.3d 828 (internal quotation marks omitted). "[W]e view issues narrowly." Johnson , 2017 UT 76, ¶ 14 n.2, ...