Covey v. Covey, 20020197-CA.

• Decision Date: 06 November 2003
• Docket Number: No. 20020197-CA.,20020197-CA.
• Citation: 80 P.3d 553,2003 UT App 380
• Parties: Noel COVEY, Plaintiff and Appellee, v. Almon COVEY, Defendant and Appellant.
• Court: Utah Court of Appeals

80 P.3d 553

2003 UT App 380

Noel COVEY, Plaintiff and Appellee, v. Almon COVEY, Defendant and Appellant.

No. 20020197-CA.

Court of Appeals of Utah.

November 6, 2003.

Dena C. Sarandos, Larry R. Keller, and Christian J. Cannon, Cohne Rappaport & Segal, Salt Lake City, for Appellant.

James E. Magleby and Paxton R. Guymon, Miller Magleby & Guymon PC, Salt Lake City, for Appellee.

Before Judges JACKSON, BENCH, and DAVIS.

OPINION

DAVIS, Judge:

¶ 1 Almon Covey (Almon) appeals from two trial court judgments entered on August 14, 2001, and February 8, 2002. We affirm.

BACKGROUND

¶ 2 Almon is the older brother of Noel Covey (Noel). Sometime during 1991, Almon asked Noel to loan him 7219 shares of Sears, Roebuck and Co. stock (the Sears stock) that she owned. Almon wished to use the Sears stock to pledge as collateral on a margin account that he had with a securities brokerage firm, Covey & Co. Almon was a stockbroker with Covey & Co. and also its principal owner.

¶ 3 To document the loan of the Sears stock, Almon and Noel agreed to the terms of a document titled "Loan Accommodation Agreement" (the Agreement). Under the terms of the Agreement, the parties agreed that Noel would loan the Sears stock to Almon, provided that: (1) the Sears stock was "returned to [Noel] timely"; (2) Almon provide certain consideration to Noel; and (3) appropriate remedies were available to Noel in the event that Almon failed to "return the [Sears stock] timely."¹ The Agreement authorized Almon to pledge the Sears stock as collateral on his margin account at Covey & Co., "provided that [Almon] enter[ed] into an appropriate pledge agreement with" Covey & Co. The Agreement required that the terms of "an appropriate pledge agreement" must provide that "ownership of the [Sears stock] shall not be transferred unless and until [Covey & Co.] executes on the collateral to cover the required margin in accordance with the terms of the pledge agreement and the requirements under [Almon]'s margin account."

¶ 4 In defining the term of the loan, the Agreement stated that Almon was to return the Sears stock to Noel "within thirty days of the date of [the] Agreement." The Agreement provided that, in the event that Almon did not return the Sears stock to Noel within thirty days, Almon "shall be required to pay to [Noel] the sum of $1,000 per day, for each day after such thirty[-]day period until the [Sears stock is] returned to [Noel]."

¶ 5 The only item specifically listed as "consideration" in the Agreement was Almon's agreement to bear sole responsibility for all damage or necessary repairs to a 1981 Jeep CJ-5, which Almon apparently loaned to Noel as part of the Agreement. However, the Agreement also stated that, at the same time the Agreement was executed, Almon delivered to Noel a "Warranty Deed and Notice of Interest in Real Property, ... duly executed by [Almon] in favor of [Noel]," concerning certain real property owned by Almon on Walker Lane in Holladay, Utah (the Walker Lane property). The Agreement provided that, following the execution of the Agreement, Noel was "authorized to record the Notice of Interest with the Salt Lake County Recorder's office," in order to provide notice that Noel possessed an interest in the Walker Lane property "pending [Almon's] return of the [Sears stock]." The Agreement further provided that, in the event that Almon did not return the Sears stock to Noel and pay any applicable "$1,000 per day" late fees "within sixty (60) days of [the] Agreement," Noel "shall be entitled to take title to the real property in lieu thereof and record the Warranty Deed."

¶ 6 The Agreement contained several miscellaneous provisions, but only two of them are relevant to this appeal. First, in reference to remedies, the agreement provided:

No failure or delay on the part of [Noel] in exercising any right, power, or remedy under [the] Agreement or any exhibits or other documents executed and delivered in connection herewith shall operate as a waiver thereof; or shall any single or partial exercise of any such right, power, or remedy preclude any other or further exercise thereof or the exercise of any other right, power, or remedy under [the] Agreement, the exhibits thereto, or any other document executed and delivered in connection herewith. The remedies provided in such documents are cumulative and not exclusive of any remedies provided by law.

Second, the Agreement provided:

In the event any party institutes any action or suit to enforce [the] Agreement or to secure relief from any default hereunder or breach hereof, the breaching party or parties shall reimburse the non-breaching party or parties for all costs, including reasonable attorney[ ] fees, incurred in connection therewith and in enforcing or collecting any judgment rendered therein.

¶ 7 The parties executed the Agreement on September 19, 1991, and Noel delivered the Sears stock to Almon. Noel then recorded her Notice of Interest in the Walker Lane property on September 20, 1991. During the term of the Agreement, there was never a margin call on Almon's margin account at Covey & Co., and Covey & Co. never executed on the Sears stock to satisfy the requirements of Almon's margin account. However, at some point after the execution of the Agreement, the Sears stock was sold. There was conflicting evidence presented at trial about when and how the sale of the Sears stock occurred, but it was undisputed that the sale of the stock did not occur pursuant to an execution on the Sears stock by Covey & Co. to satisfy the requirements of Almon's margin account at Covey & Co. Almon never returned the stock to Noel and, as a result, he was in breach of the Agreement. When Noel discovered that the Sears stock had been sold, she had the option of recording the Warranty Deed for the Walker Lane property; however, she chose not to do so.

¶ 8 Around the same time that Noel discovered the Sears stock had been sold, she also discovered a significant loss in an account she held at Covey & Co. This loss, which was unrelated to the Sears stock or the Agreement, was attributable to certain transactions that had occurred in her account. Noel was unaware that these transactions had taken place and did not authorize any of them. In her testimony at trial, Noel indicated that Almon was the only stockbroker at Covey & Co. that Noel ever authorized to make transactions in her account.

¶ 9 On October 28, 1996, Almon sold the Walker Lane property (the Walker Lane sale). At some point prior to this date, Noel agreed to remove her Notice of Interest from the property so that the sale could proceed. The parties agreed in advance of the Walker Lane sale that Noel would receive the net proceeds from the sale. Although Noel obtained possession of the net proceeds of the sale, there was conflicting evidence presented at trial regarding the effect of her possession of the proceeds. Almon's testimony at trial was that he understood Noel's receipt of the proceeds to be her elected remedy under the Agreement. Almon also testified that he instructed Noel to repurchase the Sears stock herself with the proceeds. Noel's testimony at trial was that she held the proceeds only as a form of collateral to ensure that Almon would return the Sears stock to her and that she believed she would incur a tax liability if she repurchased the Sears stock herself with the proceeds.

¶ 10 Both before and after the Walker Lane sale, the parties had several discussions regarding Almon's breach of the Agreement. There was conflicting evidence presented at trial regarding the substance of these discussions; however, it is clear that the parties were never able to agree upon a course of action to resolve Almon's breach of the Agreement or upon the effect of Noel's receipt of the sale proceeds.

¶ 11 On November 20, 1997, Noel filed a complaint against Almon, alleging causes of action for breach of contract and breach of fiduciary duty.² Almon failed to arrive timely for the pretrial conference, and, as a result, the trial court entered his default.³ After his default was entered at the pretrial conference, Noel withdrew the jury demand contained in her complaint. Accordingly, the trial court scheduled and conducted a bench trial after setting aside Almon's default.

¶ 12 On the first day of trial, at the request of Almon's trial counsel, the parties and the trial court had a discussion about the propriety of Noel's withdrawal of her jury demand while Almon was in default and whether the case should be tried to a jury or to the bench. At the conclusion of this discussion, the trial court ruled that Almon had waived his right to a jury trial and that the case would be tried to the bench.

¶ 13 After a two-day bench trial, the trial court made several findings and conclusions. In reference to Noel's claims relating to the Agreement, the trial court determined that: (1) the Agreement "is clear and unambiguous"; (2) Almon breached the Agreement; (3) the Agreement "anticipated only one circumstance in which the Sears [s]tock could be sold, namely, if Covey & Co. executed on [it] to satisfy" Almon's margin account at Covey & Co.; (4) under the Agreement, the parties intended "that the Sears [s]tock be returned" unless Covey & Co. executed on it to satisfy Almon's margin account at Covey & Co.; (5) "[t]he option of recording the Warranty Deed was not the sole remedy for [Almon's] failure to return the Sears [s]tock"; and (6) "specific performance should be granted to Noel ... and Almon ... shall purchase and replace the Sears [s]tock." In reference to Noel's duty to mitigate damages, the trial court determined that "Almon... did not carry his burden of proof that Noel ... failed to take reasonable steps to mitigate her damages" and that "[t]here has been no failure by Noel ... to mitigate damages." In reference to Noel's claims for breach of fiduciary duty, the trial court determined that "[a]s [Noel's] stockbroker, Almon......