Brigham Young University v. Tremco

• Decision Date: 02 February 2007
• Docket Number: No. 20040744.,20040744.
• Citation: Brigham Young University v. Tremco, 156 P.3d 782, 2007 UT 17 (Utah 2007)
• Parties: BRIGHAM YOUNG UNIVERSITY, Plaintiff and Appellee, v. TREMCO CONSULTANTS, INC., aka Tremco Legal Solutions, Inc., SoftSolutions, Inc., and John Does 1-10, Defendants and Appellants. Kenneth W. Duncan, Lee A. Duncan, KWD Associates, L.C., and Julee Associates, L.C., Movants to Intervene, and Appellants.
• Court: Utah Supreme Court

156 P.3d 782

2007 UT 17

BRIGHAM YOUNG UNIVERSITY, Plaintiff and Appellee, v.TREMCO CONSULTANTS, INC., aka Tremco Legal Solutions, Inc., SoftSolutions, Inc., and John Does 1-10, Defendants and AppellantsKenneth W. Duncan, Lee A. Duncan, KWD Associates, L.C., and Julee Associates, L.C., Movants to Intervene, and Appellants.

No. 20040744.

Supreme Court of Utah.

February 2, 2007.

Rehearing Denied March 28, 2007.

Steven W. Call, Michael D. Mayfield, Herschel J. Saperstein, Benjamin J. Kotter, Salt Lake City, for plaintiff.

Eric K. Schnibbe, Salt Lake City, for defendant Tremco.

Neil R. Sabin, Salt Lake City, for defendant SoftSolutions.

Clark R. Nielsen, Salt Lake City, for movants.

NEHRING, Justice:

¶ 1 In this appeal, we review and reject Brigham Young University's latest attempt to satisfy a money judgment from persons and entities other than its judgment debtor, SoftSolutions, Inc.(SoftSolutions).In Brigham Young University v. Tremco Consultants, Inc.,2005 UT 19, 110 P.3d 678, we held that Brigham Young University (BYU) could not summarily extend liability to Tremco Consultants, Inc.(Tremco) for its SoftSolutions judgment.Today, we reject BYU's attempt to collect the SoftSolutions judgment from the officers and directors of SoftSolutions and related entities that we will collectively refer to as "Duncan et al."We hold that BYU could not pursue Duncan et al. for SoftSolutions' debt using only post-judgment collection procedures because those procedures did not afford those individuals a constitutionally permissible degree of due process of law.

¶ 2 The factual background, issues, analysis, and result of this appeal were foreshadowed in Tremco,2005 UT 19, 110 P.3d 678.To those who may desire a more panoramic view of the history of this conflict, we commend to them our prior opinion for factual and analytical detail that complements the summary of facts to which we now turn.

¶ 3 In the early 1980s, BYU developed a software product which used an algorithm called "D-Search."The strength of the software was its indexing and information retrieval capabilities, which could be used to improve database applications.Between 1987 and 1990, BYU entered into a series of licensing agreements with SoftSolutions that allowed SoftSolutions to use BYU's D-Search software technology in exchange for royalty payments.

¶ 4 In 1992, SoftSolutions transferred the licensed technology to its wholly owned subsidiary, SoftSolutions Technology Corporation(STC).Thereafter, SoftSolutions was dissolved by the state of Utah for failing to file an annual report.Two years later, WordPerfect acquired the STC stock.The shareholders of STC were three limited liability companies, KWD Associates, AST Associates, and Julee Associates, which collectively received approximately $13.5 million from WordPerfect in exchange for the STC stock.

¶ 5 Prior to its purchase of the STC stock, WordPerfect knew of and wished to be insulated from a simmering royalty dispute between SoftSolutions and BYU over the D-Search software.However, before the stock sale took place, Tremco signed an indemnification agreement with STC.Under its terms, Tremco agreed to pay for any obligations that SoftSolutions might incur from the SoftSolutions-BYU royalty dispute.

¶ 6 In 1995, after SoftSolutions had dissolved and WordPerfect had purchased the STC stock, an arbitrator awarded BYU $1,672,467 in its royalty dispute with SoftSolutions.The parties charged with wrapping up the affairs of SoftSolutions challenged the arbitrator's decision.The district court confirmed the arbitration award; and on appeal, we affirmed the damages portion of the district court's ruling.Softsolutions, Inc. v. Brigham Young Univ.,2000 UT 46, 1 P.3d 1095.

¶ 7 With its SoftSolutions judgment in hand, BYU turned its attention to collecting it.BYU pursued the collection procedures available to judgment creditors under the Utah Rules of Civil Procedure.BYU discovered that SoftSolutions had no assets.Therefore, BYU sued Tremco to establish Tremco's liability under the indemnification agreement.At BYU's behest, the district court consolidated BYU's collection action against SoftSolutions with the Tremco litigation.

¶ 8 The consolidation of these actions created an unusual hybrid court creature: part collection action and part traditional civil action against Tremco.SoftSolutions had seen its day in court to defend against the merits of BYU's claims come and go.It appeared in the district court solely as a judgment debtor.¹SoftSolutions appeared in this status disarmed with most of the due process protections it had possessed before BYU acquired the judgment against it.

¶ 9 By contrast, Tremco was fully armed with due process rights, which it tried to use without success to turn away BYU's claims.The district court granted BYU's motion for summary judgment against Tremco, resulting in the entry of an order dated June 13, 2002.The order included the court's determination that Tremco was liable to pay the 1998 SoftSolutions judgment.In reaching this result, the district court embraced each of BYU's four theories: (1) that Tremco, STC, and SoftSolutions had carried on a common, joint business as an association under Utah Rule of Civil Procedure 17(d);(2) that Tremco was liable to BYU for the judgment against SoftSolutions because Tremco had entered into an indemnity agreement with STC and BYU was a third-party beneficiary of that agreement; (3) that Tremco aided a fraudulent transfer of SoftSolutions assets to STC; and (4) that Tremco was in privity with SoftSolutions and was therefore liable for the SoftSolutions judgment under the doctrine of res judicata.

¶ 10 Contemporaneously with its quest for summary judgment against Tremco in the civil action, BYU sought an order in supplemental proceedings in its collection action pursuant to the version of rule 69 of the Utah Rules of Civil Procedure then in effect.²Rule 69 governed the collection procedures, principally the procedures for executing on property of a judgment debtor, available to a judgment creditor.

¶ 11 BYU claimed that using its legal theories as the rationale and rule 69 as the vehicle, it was entitled to execute against the property of Duncan et al. to satisfy the SoftSolutions judgment.BYU brought back the rule 17(d) business association theory that it deployed against Tremco and coupled it with new theories.First, it utilized Utah Code Ann. § 16-10a-1408(prohibiting distribution of assets to shareholders of a dissolved corporation until corporate debts are paid); second, it relied on two of our cases: Murphy v. Crosland,915 P.2d 491(Utah1996), andSteenblik v. Lichfield,906 P.2d 872(Utah1995), for the proposition that corporate officers are personally liable for the obligations of dissolved or suspended corporations.It then sought to advance its theory with the aid of rule 69(s), which authorized execution against the property of a judgment debtor that was in the possession of someone else.

¶ 12The district court was persuaded that BYU's theories had merit and entered a supplemental order dated July 10, 2002, (July 2002 supplemental order), extending liability for the SoftSolutions judgment to Duncan et al. as "associates of the unincorporated association."The district court also found Duncan et al. to have received proceeds from the sale of the STC stock.It adopted BYU's view that SoftSolutions continued to "own" the software throughout its odyssey through STC, the WordPerfect purchase of that stock, and the distribution of the sale proceeds among Duncan et al.

¶ 13 After the district court entered the July 2002 supplemental order, SoftSolutions and Duncan et al. each filed post-judgment motions seeking to vacate, alter, and/or amend the supplemental order.Duncan et al., which found themselves facing an execution on their assets, despite having never been joined as parties, also moved to intervene.In July 2003, the district court held a hearing on these motions.The district court orally denied each motion, noting that the collection procedures pursued by BYU did not offend Duncan et al.'s rights to due process of law.The district court did not reduce its oral ruling to a written order until August 2004, well after the appeal was underway that resulted in our Tremco decision in May 2005.

¶ 14 Testing the reach of the July 2002 supplemental order, BYU obtained writs of execution on two parcels of real property situated in Wasatch County, Utah.One of these parcels was held in the name of Rannoch, L.L.C., while Carie, L.L.C. held the second property.BYU asserted that these properties were traceable to Duncan et al. because they were purchased by KWD — a former shareholder of STC and beneficiary of the stock sale to WordPerfect that was controlled by Duncan et al. — with WordPerfect proceeds and then were transferred to Rannoch and Carie respectively without consideration.

¶ 15 In Tremco,we held that none of BYU's four theories could lawfully extend liability for the SoftSolutions judgment to Tremco.Consequently, we reversed the district court's grant of summary judgment against Tremco and vacated the June 13, 2002 order.We declined, however, to reach the challenges to the district court's imposition of liability on Duncan et al. because they were not named parties in any action before the district court, and we therefore did not acquire jurisdiction to take up their appeal.Tremco,2005 UT 19, ¶¶ 45-49, 110 P.3d 678.Moreover, we determined that we lacked jurisdiction to consider whether the district court erred when it denied Duncan et al.'s motion to intervene because that ruling had yet to be memorialized in a written order.

¶ 16 In the aftermath of Tremco, BYU continued to assert its right to execute on the assets of Duncan et al., including the Wasatch County properties because the July 2002 supplemental order continued in force with respect to those persons and...