Daz Mgmt., LLC v. Honnen Equip. Co.

• Decision Date: 17 March 2022
• Docket Number: 20200656
• Parties: DAZ MANAGEMENT, LLC, Appellant, v. HONNEN EQUIPMENT COMPANY, Appellee.
• Court: Utah Supreme Court

508 P.3d 84

DAZ MANAGEMENT, LLC, Appellant,

v.HONNEN EQUIPMENT COMPANY, Appellee.

No. 20200656

Supreme Court of Utah.

Heard October 12, 2021

March 17, 2022

Donald L. Dalton, Salt Lake City, for appellant

Theodore E. Kanell, Daniel E. Young, Salt Lake City, for appellee

Chief Justice Durrant authored the opinion of the Court, in which Associate Chief Justice Lee, Justice Himonas, Justice Pearce, and Justice Petersen joined.

On Certiorari to the Utah Court of Appeals

Chief Justice Durrant, opinion of the Court:

Introduction

¶1 While Michael Tony Daz (Daz) was operating a John Deere grader, it fell upside-down into a canal. The grader had been rented by Daz's limited liability company, Daz Management, LLC (LLC), from Honnen Equipment Company (Honnen). The grader was damaged significantly, and though the rental agreement for the grader required the LLC to insure the grader against property damage, neither Daz nor Honnen discovered that the machine was not properly insured until after the accident.

¶2 Honnen then sued Daz personally, claiming he negligently damaged the grader and breached the rental agreement. Daz defended against Honnen's negligence claim by arguing he did not breach a duty of care, and he defended against the breach of contract claim by arguing, among other things, that he had not signed the rental agreement in a personal capacity, but on behalf of the LLC.

¶3 Honnen's claims were tried to the bench, with the district court ruling for Daz on both claims. As to the negligence claim, the court held that Daz did not breach a duty of care. On the breach of contract claim, it held that Daz had signed the rental agreement on behalf of the LLC and so was not a party to that agreement. At no time during the lawsuit did Honnen seek to add a claim against the LLC.

¶4 Less than one month after the district court entered judgment for Daz, Honnen brought a second action, this time against the LLC, asserting the same claims for breach of contract and negligence. The LLC argued the claims were barred under the claim preclusion branch of res judicata. Honnen then voluntarily dismissed the negligence claim but argued its breach of contract claim was not barred. The district court agreed with the LLC and dismissed the breach of contract claim.

¶5 Honnen appealed to the court of appeals, which reversed the district court's dismissal.¹ The court of appeals based its decision on the narrow ground that the judgment in the first lawsuit did not result in a final judgment on the merits – an essential element of claim preclusion.²

¶6 The LLC now asks us to reverse the decision of the court of appeals, arguing that court erred in determining that the judgment in the first action was not a final judgment on the merits. It also asks us to affirm the district court's decision that Honnen's breach of contract claim is barred by claim preclusion. We reverse the court of appeals. All elements of claim preclusion have been met, so Honnen's breach of contract claim against the LLC is barred.

Background

¶7 In the fall of 2015, Daz became interested in renting a John Deere grader from Honnen. Before allowing Daz to rent the grader, Honnen required him to submit a letter of credit. The letter of credit listed "Daz Management, LLC" as the relevant "business" or "registered organization."

¶8 Based on the information provided in the letter of credit, Honnen prepared a rental agreement for the grader. The rental agreement listed "Daz Management" as the lessee but left off the phrase "LLC." Among other things, the rental agreement required "Daz Management" to procure property insurance equal to or greater than the grader's value and obligated "Daz Management" to return the grader "in as good a condition as when the [grader] was delivered." Daz signed the rental agreement and initialed each page, but nowhere did the agreement state Daz was signing as an "owner" or "manager" of "Daz Management."

¶9 Daz used the grader to smooth over the banks of a canal system in Northern Utah. At some point, the canal bank under the grader started to give way, and Daz immediately enlisted the help of a local farmer to tow the grader away from the bank. But while towing efforts were underway, the bank broke off completely, causing the grader to fall upside-down into the water with Daz still buckled in the driver's seat. Fortunately for Daz, he escaped unharmed. But unfortunately for Daz, the grader incurred significant damage, and the parties did not discover that the grader was not properly insured until after the accident.

¶10 Honnen then sued Daz individually for breach of contract and negligence, listing the defendant as "Tony Daz d/b/a Daz Management." Daz filed an answer–which he amended twice – asserting several times that he had signed the rental agreement on behalf of the LLC, not in a personal capacity.

¶11 Daz also filed a third-party complaint against his insurance company, claiming it breached a duty to secure proper insurance for the grader. The third-party plaintiffs were listed as "Defendant Tony Daz dba ‘Daz Management’ and Daz Management, LLC." In the third-party complaint, Daz specifically stated he had "been incorrectly named in [the] action" and that "Daz Management, LLC is the party who rented the [grader]."³ Despite Daz's contentions, Honnen did not then bring a claim against the LLC.

¶12 Honnen's claims were tried to the bench. During trial, Daz submitted evidence that he signed the rental agreement on behalf of the LLC. Honnen sought to refute Daz's evidence by arguing that because the phrase "LLC" did not appear in the agreement and because Daz's signature did not indicate he was signing in a representative capacity, Daz signed the contract in a personal capacity. Daz also challenged the sufficiency of Honnen's damages evidence.

¶13 The district court ruled for Daz on both the breach of contract and negligence claims. As to the negligence claim, the court held that Daz did not breach a duty of care. On the breach of contract claim, the court held that Daz was not a party to the rental agreement. The court also made various factual findings, including: (1) that Daz "owns and does business as Daz Management, LLC"; (2) that the rental agreement's reference to "Daz Management" was a reference to the LLC; (3) that Daz signed the agreement in a representative capacity; (4) that Honnen "knew or in the exercise of common sense reasonably should have known" Daz signed the agreement on behalf of the LLC; and (5) that the grader sustained $180,380.49 of damages. Honnen never moved to amend its complaint to add the LLC as a defendant, nor did Honnen appeal the district court's ruling.

¶14 Less than one month after the district court issued its findings of fact and conclusions of law, Honnen filed the present suit against the LLC. The complaint asserts claims for breach of contract and negligence and is nearly identical to the complaint in the first lawsuit.

¶15 The LLC then filed a motion to dismiss, arguing that all of Honnen's claims were barred by the claim preclusion branch of res judicata. Honnen responded by voluntarily dismissing the negligence claim, but it argued the breach of contract claim was not barred.

¶16 The district court granted the LLC's motion to dismiss, holding that Honnen's breach of contract claim was barred by the claim preclusion branch of res judicata. In doing so, the court used our three-element test for claim preclusion, which requires: (1) that both suits "involve the same parties or their privies"; (2) that the claim had been "presented in the first suit or be one that could and should have been raised in the first action"; and (3) that the "first suit must have resulted in a final judgment on the merits."⁴ Regarding the first element, the court held that the identity of the defendants between the two actions was "a distinction without a difference" and that " [a]ll parties were well-aware that Tony Daz is Daz Management and that Daz Management is Daz Management, LLC." As to the second element, the court held that Honnen "was not unaware of [the LLC's] existence throughout the pendency of the first case" and "had ample notice and opportunity to join Daz Management, LLC." And regarding the third element, the court held that the first lawsuit was a final judgment on the merits "in favor of [Daz]." Honnen appealed to the court of appeals.

¶17 The court of appeals reversed,⁵ basing its decision on the narrow ground that the first lawsuit did not result in a final judgment on the merits.⁶ It characterized the judgment in the first action as "merely establish[ing] that, by not suing [the LLC]–the real party to the contract–Honnen failed to overcome an ‘initial bar to the court's authority/ because ‘the wrong parties [we]re before the court’ "⁷ Because the court of appeals determined that the first lawsuit did not result in a final judgment on the merits, it declined to address the other requirements for claim preclusion.⁸

¶18 The LLC argues the court of appeals erred in reversing the district court's decision and contends Honnen's breach of contract claim is barred. We have jurisdiction to hear this case under Utah Code section 78A-3-102(3)(a).

Standard of Review

¶19 "On certiorari, we review the court of appeals’ decision for correctness, focusing on whether that court correctly reviewed the trial court's decision under the appropriate standard of review."⁹ "Whether a claim is barred by res judicata is a question of law that we review for correctness."¹⁰

Analysis

¶20 The overarching issue before us is whether Honnen's breach of contract claim against the LLC is barred by the claim preclusion branch of res judicata. "[C]laim preclusion bars a party from prosecuting in a subsequent action a claim that has [or should have] been fully litigated previously."¹¹ The doctrine fulfills several important purposes, including: "(1) preserving the integrity of the judicial system by preventing inconsistent judicial outcomes; (2) promoting judicial...