Coleman v. Stuart

• Decision Date: 10 October 2019
• Docket Number: No. 20180182-CA,20180182-CA
• Citation: 451 P.3d 658
• Parties: Dan COLEMAN and Arete Gymnastics LLC, Appellees and Cross-appellants, v. Tom STUART, STS Properties LLC, and Tom Stuart Construction Inc., Appellants and Cross-appellees.
• Court: Utah Court of Appeals

451 P.3d 658

Dan COLEMAN and Arete Gymnastics LLC, Appellees and Cross-appellants,

v.Tom STUART, STS Properties LLC, and Tom Stuart Construction Inc., Appellants and Cross-appellees.

No. 20180182-CA

Court of Appeals of Utah.

Filed October 10, 2019

Barry N. Johnson and Joshua L. Lee, Salt Lake City, Attorneys for Appellants and Cross-appellees

Denver C. Snuffer Jr., Steven R. Paul, Salt Lake City, and Joshua D. Egan, Attorneys for Appellees and Cross-appellants

Judge Gregory K. Orme authored this Opinion, in which Judges Kate Appleby and Ryan M. Harris concurred.

Opinion

ORME, Judge:

¶1 Although the defendants raised the statute of frauds as a defense to plaintiff Dan Coleman's quiet title action in their answer to his complaint, at the summary judgment stage, and at trial, the trial court never addressed this important affirmative defense. Instead, following a bench trial, the court ruled that Coleman held a "financial interest" in the property at issue. We hold that the statute of frauds barred Coleman's quiet title action and accordingly reverse. In light of our resolution of the defendants' appeal, we do not address Coleman's cross-appeal.

BACKGROUND¹

The Coleman–Kriser Partnership

¶2 Prior to moving to Utah, Coleman and his wife Jana were successful and well-respected gymnastics coaches in Alaska. In 2003, they brought their gymnastics team to compete in Utah and "dominated the competition." Matthew Kriser, the operator of Kid's Universe, a local gymnastics program, was impressed by the Colemans' team and introduced himself. He asked the Colemans to help him develop Kid's Universe into a higher quality program, and they agreed to come to Utah as consultants to assist Kriser in his efforts.

¶3 Within a short period of time, Kriser and the Colemans formed a partnership. Under this partnership, Kid's Universe was divided into two programs: Kid's Universe and Arete Gymnastics. Kriser primarily managed Kid's Universe, which offered various after-school programs such as cheerleading, karate, and ballroom dance. Coleman focused his energies on Arete Gymnastics, a gymnastics program aimed at producing high-level gymnasts. The partnership proved successful, and the programs quickly grew from approximately 150 to 650 participants, triggering the need for larger facilities.

¶4 In June 2004, Kriser purchased property in Lindon (the Lindon Property) on which he and Coleman constructed a building large enough to meet both programs' growing needs. Kriser borrowed approximately $1 million for the purchase of the Lindon Property and construction of the building. He and his wife Debbie held title to the Lindon Property as joint tenants. Coleman was not listed on the title.

¶5 In June 2007, as compensation for Coleman's contributions to the construction of the building and development of the Arete Gymnastics program, Kriser and Coleman executed the "Kriser/Coleman Equity Agreement," in which the partners agreed to share equity in the Lindon Property in the following manner:

If the property, building and the gym and office equipment were to be sold, the equity would be determined by taking the total sales price less all of the expenses and losses. The leftover funds would be considered "the equity", and would be split 50%, to Matt and Debbie Kriser and 50% to Dan and Jana Coleman.

The agreement also granted Dan Coleman a right of first refusal to purchase the Lindon Property if it were to be offered for sale.

¶6 Around that same time, the partners began discussing the possibility of selling the Lindon Property and constructing a new and yet larger facility at a more favorable location with better visibility. Additionally, Kriser, a builder by trade who viewed Kid's Universe more as a "labor of love" and not necessarily a serious business pursuit, began sensing changes in the real estate and construction markets and wished to reduce his financial exposure in the event the market began to soften. The partners therefore discussed the possibility of the Colemans buying out the Krisers' interest in the Lindon Property.

The Coleman–Stuart Joint Venture

¶7 Coleman soon found property he liked in American Fork (the American Fork Property) that was visible from the freeway and capable of supporting a building large enough to meet the growing needs of Arete Gymnastics. The real estate broker who assisted Coleman in finding the American Fork Property recommended Tom Stuart Construction, Inc. (TSC) for the construction of the new building.

¶8 In August 2007, Coleman met with Tom Stuart, TSC's "primary decision maker," to discuss construction of the new building. Toward the end of the meeting, Stuart asked how Coleman would pay for the building. Coleman answered that he intended to use his equity in the Lindon Property, approximately $500,000, as a down payment and that he would finance the remaining balance.

¶9 After reviewing the "Kriser/Coleman Equity Agreement," Stuart noted that Coleman had a right of first refusal to the Lindon Property. This sparked discussion of Coleman and Stuart using the right of first refusal to purchase Kriser's interest in the Lindon Property. Once the new facility on the American Fork Property was completed, they would sell the Lindon Property and Coleman would transfer any equity he realized from the sale to help defray the expenses of the new building.² Ultimately, Stuart and Coleman would jointly own the new building through their respective business holdings, TSC and DJ Coleman Investments, LLC (DJCI). This arrangement appealed to Coleman because it meant that Arete Gymnastics could continue to operate on the Lindon Property until the new building on the American Fork Property was completed.

¶10 Coleman and Stuart reduced their arrangement to writing (the Letter of Intent) on November 14, 2007. The Letter of Intent stated:

It is also proposed that [TSC] and [DJCI] enter into an agreement to form [Arete Partners, LLC] to effect the construction of the new building. [Arete Partners] will become the sole owner and operator of the building. It is understood and accepted that TSC will own a 50% divided share (1/2 of the total building) of [Arete Partners] and DJCI will own an equal 50% (1/2 of the building) divided share.

¶11 Arete Partners was subsequently established as a limited liability company in March 2008 with Stuart listed as its manager. Although Coleman and Stuart intended Arete Partners to be a joint venture, the formation documents did not list Coleman as a member.

¶12 That same month, Coleman prepared the "Dan Coleman/Tom Stewart Equity Agreement" with the purpose of memorializing Coleman's understanding that he and Stuart were to be equal partners in any equity realized from the sale of the Lindon Property. The document stated, "The determination of the equity shall take into account all of the costs in the acquisition of [the Lindon Property]. Cost to come out first, then remaining equity will be split 50/50, 50% Coleman 50% Stewart." Coleman signed the document on March 30, 2008, and forwarded it to Stuart to sign. Stuart's signature does not appear on the agreement presented at trial, and the trial court held that "it is simply inconclusive whether or not Stuart signed the ‘Coleman/Stuart Equity Agreement.’ " Coleman believed that this agreement governed his relationship with Stuart right up until the parties initiated the current lawsuit eight years later.

¶13 Also in March 2008, Coleman executed a Real Estate Purchase Contract (REPC) that listed Coleman as the seller of the Lindon Property and Arete Partners as the buyer. Section 3 of the REPC listed the purchase price as $1,950,000 of which $1,550,000 would be funded by a loan arranged by Stuart, and Coleman was to pay the remaining $400,000.

¶14 On April 8, 2008, Coleman and Kriser signed closing documents listing them both as the sellers of the Lindon Property. The following day, the title company contacted Coleman to inform him that he was not listed as a record titleholder of the Lindon Property and that he and Kriser would have to sign additional documents removing him as a seller. Shortly thereafter, Coleman, the Krisers, and Stuart signed a document entitled "Addendum #1 Real Estate Purchase Contract" (Addendum #1). Although the text of Addendum #1 took up less than a third of a page, it made significant changes to the REPC. First, it struck most of section 3 of the REPC. The only surviving portion of section 3 then read, "Buyer shall make payment of the total Purchase Price for the Property in the following manner:" and provided no further information. Regardless, Coleman ultimately contributed a little over $400,000 toward the down payment, as originally contemplated by section 3 of the REPC.³

¶15 More significantly, Addendum #1 replaced Coleman with the Krisers as the sellers of the Lindon Property. And as the buyer, the document replaced Arete Partners with another of Stuart's entities, STS Properties, LLC. Stuart testified that the change to the property's buyer was necessary because Coleman did not qualify for the necessary loan and he believed STS Properties should be the record titleholder because it had assumed the risk associated with the loan. Although Coleman did not recall reading Addendum #1 or understanding the implications of the change before signing it, he did know as early as April 2009 that STS Properties, and not Arete Partners, held exclusive title to the Lindon Property. Following closing, a warranty deed conveying the Lindon Property from the Krisers to STS Properties was recorded on April 15, 2008.

¶16 After the sale, Arete Gymnastics continued to operate in the building on the Lindon Property. The parties agreed that Arete Gymnastics would make the monthly mortgage payments and cover all other expenses associated with the property. This arrangement lasted from May 2008 until trial, late in 2017.

¶17 Before Coleman and Stuart could move forward with the second phase of their plan—to purchase the American Fork Property and...