Cross v. Olsen

• Decision Date: 23 May 2013
• Docket Number: No. 20120107–CA.,20120107–CA.
• Parties: Jerrold L. CROSS; Lake Forest Properties LLC; and Colco Development, Inc., Plaintiffs and Appellants, v. David W. OLSEN and Hearthstone Development, Inc., Defendants and Appellees.
• Court: Utah Court of Appeals

303 P.3d 1030

735 Utah Adv. Rep. 34

Jerrold L. CROSS; Lake Forest Properties LLC; and Colco Development, Inc., Plaintiffs and Appellants,

v.David W. OLSEN and Hearthstone Development, Inc., Defendants and Appellees.

No. 20120107–CA.

Court of Appeals of Utah.

May 23, 2013.

Richard G. Allen, for Appellants.

Frederick A. Jackman, for Appellees.

Judge J. FREDERIC VOROS JR. authored this Opinion, in which Judges GREGORY K. ORME and MICHELE M. CHRISTIANSEN concurred.

Opinion

VOROS, Judge:

¶ 1 Plaintiffs Lake Forest Properties LLC and Colco Development, Inc. (Lake Forest) appeal the trial court's grant of summary judgment in favor of Defendants David W. Olsen and Hearthstone Development, Inc. (collectively, Defendants). We reverse and remand for further proceedings.¹

BACKGROUND

¶ 2 This appeal involves an action for indemnification. In earlier litigation related to but separate from the present case, Lake Forest sued Olsen, Jerrold L. Cross, and Painted Horse Holdings, LC for breach of a water purchase agreement (the Lake Forest Action). Painted Horse was owned and, at different times, managed by Cross and Hearthstone Development. Hearthstone was managed by Olsen.

¶ 3 Cross and Defendants were involved in a number of disputes in addition to the Lake Forest Action. During the course of the Lake Forest Action, Cross entered into a settlement agreement with Defendants (the Settlement Agreement). Four provisions of that Settlement Agreement are at issue in this appeal.

¶ 4 First, the Settlement Agreement contained a requirement that Defendants indemnify Cross for certain claims (the Indemnity Provision). In the Indemnity Provision, Defendants agreed to indemnify Cross “from any loss or damage, including reasonable attorneys fees and costs, arising out of the following claims against Painted Horse: ... The Lake Forest Action.” The Indemnity Provision was attached as an appendix to the Settlement Agreement.

¶ 5 Second, the Settlement Agreement contained a mutual release provision (the Release Provision). The Release Provision states that “the Parties ... hereby fully and forever release, acquit and discharge one another ... from any and all claims ... arising out of, connected with or in any manner related to the Lawsuits or any other potentialclaims which could have been raised in the Lawsuits....”

¶ 6 The third relevant provision of the Settlement Agreement is a notice requirement (the Notification Provision). The Notification Provision states that Defendants “shall notify [Lake Forest] ... that [Defendants] are solely responsible for the resolution of [the Lake Forest Action].”

¶ 7 Finally, the principal focus of this appeal is the Settlement Agreement's requirement of confidentiality (the Confidentiality Provision). The Confidentiality Provision forbids the disclosure of any terms or conditions of the agreement, with limited enumerated exceptions:

This Agreement, excluding the Appendices, shall be kept in strict confidence. No terms or conditions of this Agreement may be disclosed to any third party, other than ... (e) under seal to the Fourth Judicial District Court of Utah County, Utah to enforce the terms of this Agreement.

As noted above, the Appendices included the Indemnity Provision.

¶ 8 After Cross and Defendants executed the Settlement Agreement, Cross attempted to extricate himself from the Lake Forest Action. Cross stated to Lake Forest that “Painted Horse, Olsen and Hearthstone were obligated to pay the amounts owed to [Lake Forest] by reason of the Settlement Agreement.” He also stated that “if [Lake Forest] dismissed the Lake Forest [Action] against Cross, Cross would be able to get Painted Horse, Olsen and/or Hearthstone to pay the amounts owed to [Lake Forest].” He said that due to a confidentiality provision, he “could not disclose the specific terms of [the settlement] agreement,” nor could he “disclose why dismissing Cross from the Lake Forest Action would help resolve the matter.” But he assured Lake Forest that it “would be paid if Cross was dismissed.”

¶ 9 Lake Forest dismissed Cross from the Lake Forest Action. Defendants never notified Lake Forest that they were responsible for resolution of that litigation and, in fact, denied any such obligation when Lake Forest approached them seeking payment. After Cross's promises of payment did not materialize, Lake Forest rejoined Cross in the Lake Forest Action. Lake Forest later dismissed Olsen from that action, after which a stipulated judgment was entered against Painted Horse and a default judgment was entered against Cross. Judgment was entered jointly and severally against Painted Horse and Cross.

¶ 10 After judgment was entered against Cross in the Lake Forest Action, Cross filed the present action against Defendants, seeking indemnification under the Settlement Agreement. Cross did not file this case under seal. However, Cross moved to seal the record the next day. Cross then assigned his interest in the present litigation to Lake Forest in an attempt to satisfy the earlier default judgment entered against him in the Lake Forest Action. After Lake Forest was joined as a party in the present litigation, Lake Forest and Defendants filed cross-motions for summary judgment.

¶ 11 The trial court granted summary judgment in favor of Defendants on the ground that Cross breached the Confidentiality Provision of the Settlement Agreement by disclosing the terms and conditions of the Settlement Agreement to Lake Forest and by filing this action not under seal. The court concluded that these breaches were material and excused any performance under the Indemnity Provision by Defendants.

ISSUE AND STANDARD OF REVIEW

¶ 12 Lake Forest challenges a summary judgment ruling that (1) as a matter of law Lake Forest breached the Confidentiality Provision and that, (2) under the “first breach” rule, Lake Forest's breach excused Defendants' performance under the Indemnity Provision. Summary judgment is appropriate when “there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law.” Utah R. Civ. P. 56(c). “An appellate court reviews a trial court's legal conclusions and ultimate grant or denial of summary judgment for correctness and views the facts and all reasonable inferences drawn therefrom in the light most favorable to the nonmoving party.” Orvis v. Johnson, 2008 UT 2, ¶ 6, 177 P.3d 600 (citations and internal quotation marks omitted).

ANALYSIS

I. Breach of the Confidentiality Provision

¶ 13 Lake Forest first challenges the trial court's ruling that it breached the Settlement Agreement by violating the Confidentiality Provision. The Confidentiality Provision states, “This Agreement, excluding the Appendices, shall be kept in strict confidence. No terms or conditions of this Agreement may be disclosed to any third party, other than ... (e) under seal to the Fourth Judicial District Court of Utah County, Utah to enforce the terms of this Agreement.” Unauthorized disclosure subjects the breaching party to liquidated damages of $100,000.

¶ 14 The trial court based its ruling on two grounds: first, Cross breached the Confidentiality Provision by revealing terms or conditions of the agreement through his statements made in the Lake Forest Action; second, Cross breached the Confidentiality Provision by filing the present case not under seal.

A. Cross's Statements to Lake Forest

¶ 15 The trial court ruled that Cross's statements, summarized above, “disclos [ed] the essential provisions of the agreement.” Lake Forest correctly asserts that “[t]he District Court did not point to any terms or conditions that were disclosed.” However, Defendants assert three possible bases for this ruling. Defendants argue that Cross's statements disclosed the following aspects of the Agreement: (1) “that the Settlement Agreement contains an indemnification agreement,” (2) that the Settlement Agreement contains a release provision, and (3) “that the agreement contains confidentiality restrictions.” We address each possible basis in turn.

1. Indemnity Provision

¶ 16 Defendants maintain that Cross breached the Confidentiality Provision by disclosing the existence of the Indemnity Provision. Lake Forest responds that Cross was entitled to disclose the existence of the Indemnity Provision under the terms of the Confidentiality Provision itself. That provision expressly excludes appendices to the Agreement, and the Indemnity Provision was an appendix to the Agreement. Defendants do not rebut this contention, and we see no persuasive response. We therefore conclude that Cross's disclosure of the Indemnity Provision does not support the summary judgment.

2. Release Provision

¶ 17 Defendants also maintain that Cross breached the Confidentiality Provision by disclosing the existence of the Release Provision. Lake Forest responds that Cross's statements were insufficient to imply the existence of the Release Provision. Defendants do not explain the connection between the Release Provision and Cross's statements. They point out that Cross stated that he “would be able to get Painted Horse, Olsen and/or Hearthstone to pay the amounts owed” to Lake Forest, but do not explain how this statement relates to the Release Provision. Nor is the connection apparent. Accordingly, we conclude that, based on the current state of the record, the trial court erred to the extent its ruling was premised on the disclosure of this term of the Agreement.

3. Confidentiality Provision

¶ 18 Finally, Defendants maintain that Cross breached the Confidentiality Provision by revealing the existence of the Confidentiality Provision itself. Lake Forest responds that Defendants never alleged in the trial court that Cross disclosed “that the agreement contains confidentiality restrictions” and that had Defendants advanced this allegation, Lake Forest would have refuted it. However, Lake Forest's opening brief acknowledges that, when asked how Cross could get Defend...