Failor v. Megadyne Medical Products, Inc.

Citation2009 UT App 179,213 P.3d 899
Decision Date02 July 2009
Docket NumberNo. 20080459-CA.,20080459-CA.
PartiesKenneth L. FAILOR; Premium Plastics, Inc.; and Mary Gilmer, Plaintiffs, Counterclaim Defendants, and Appellants, v. MEGADYNE MEDICAL PRODUCTS, INC., fka American Medical Products, Inc., Defendant, Counterclaimant, and Appellee.
CourtCourt of Appeals of Utah

Dale F. Gardiner, Cassie J. Medura, Scott M. Lilja, and Lisa B. Bohman, Salt Lake City, for Appellants.

George M. Haley, David R. Parkinson, and J. Andrew Sjoblom, Salt Lake City, for Appellee.

Before Judges BENCH, ORME, and DAVIS.

OPINION

BENCH, Judge:

¶ 1 Kenneth L. Failor; Premium Plastics, Inc.; and Mary Gilmer (collectively, Plaintiffs) bring this interlocutory appeal to challenge the trial court's (1) grant of MegaDyne Medical Products, Inc.'s (MegaDyne) motion to strike Plaintiffs' jury demand, (2) denial of Plaintiffs' objections to the special master's report, and (3) denial of Plaintiffs' motion to amend their complaint. We affirm.

BACKGROUND

¶ 2 This case arises from a dispute over payments due under a series of agreements between MegaDyne and Plaintiffs. Mega-Dyne manufactures electrosurgical blades that are coated with a patented nonstick surface. On behalf of MegaDyne's corporate predecessor, Kenneth L. Failor developed a prototype two-step coating process for applying the nonstick coating to medical instruments. In 1986, Mr. Failor engaged Mary Gilmer's husband, Harvey Van Epps Gilmer,1 and his company, Premium Plastics, Inc. (PPI), to begin large-scale production of medical instruments coated through this two-step process. Given the improvements they made to the coating technology, Mr. Gilmer and PPI also developed trade secrets regarding the manufacturing process for coating these medical instruments.

¶ 3 In 1988, Mr. Failor signed an agreement with MegaDyne under which Mr. Failor would be paid a certain amount per unit of specified products sold to MegaDyne customers.2 That same year, PPI entered into an agreement with MegaDyne under which PPI would coat certain MegaDyne products. PPI's agreement with MegaDyne was subsequently modified to provide that Mr. Gilmer would be compensated $.06 per unit for all products coated with a nonstick coating by MegaDyne.3 That agreement was modified once more to further provide that Megadyne would pay PPI $.06 for products coated through September 1997 but that beginning in October 1997 MegaDyne would pay PPI $.06 for coated products that were actually sold.

¶ 4 From time to time, Mr. Failor and Mr. Gilmer complained about the accuracy of the payments made by MegaDyne, and they became concerned that MegaDyne was not paying the entirety of the monies owed to them. Unable to resolve the perceived disparities amicably, Plaintiffs filed suit in 1998. In their complaint, Plaintiffs asserted five causes of action: (1) breach of contract, (2) breach of the covenant of good faith and fair dealing, (3) unjust enrichment, (4) accounting, and (5) negligent misrepresentation. Each of these claims addressed Megadyne's alleged failure to pay Plaintiffs the amounts due under the various contracts.

¶ 5 Shortly after filing their complaint, Plaintiffs filed a motion to appoint a special master.4 Citing the complexity of the issues involved, Plaintiffs requested "an independent auditor to determine the amounts of products coated and coated products sold" and indicated that "[t]hereafter the Court will be able to easily determine the amount of compensation owed by [Megadyne] to Plaintiffs." Megadyne consented to the appointment, and the parties mutually agreed that John W. Curran should serve as the special master.

¶ 6 The trial court granted Plaintiffs' motion for a special master and entered the Order of Reference prepared by Plaintiffs. The Order of Reference defined the issues that had been referred to the special master and outlined the special master's compensation, duties, powers, and procedure. The special master began his work in April 1999, and he filed his final report with the trial court on August 3, 2000. In the final report, the special master concluded that Megadyne had overpaid Mr. Failor and Mr. Gilmer by $66,525.60 and $20,298.42, respectively.

¶ 7 After receiving the special master's final report, MegaDyne submitted a motion to strike Plaintiffs' jury demand and for judgment on the report. The trial court took the motion under advisement but did not immediately issue a ruling. In fact, approximately seven years lapsed without resolution of this and other motions. In October 2007, the parties filed supplemental memoranda regarding MegaDyne's motion as well as Plaintiffs' unresolved motion for an evidentiary hearing on the special master's report and Plaintiffs' objections to the report. Thereafter, Plaintiffs sought leave to amend their complaint to add a claim for an alleged violation of the Uniform Trade Secret Act.

¶ 8 In May 2008, the trial court issued an order striking Plaintiffs' jury demand, overruling Plaintiffs' objections to the procedures utilized by the special master, and granting Plaintiffs' request for an evidentiary hearing. The trial court reasoned that Plaintiffs had, in essence, brought only an equitable claim for an accounting for which Plaintiffs had no entitlement to a jury trial. The trial court also refused to allow Plaintiffs to amend their complaint, citing the ten-year passage of time after the action was initiated. Before the trial court conducted an evidentiary hearing on the special master's report, Plaintiffs filed a request for leave to file an interlocutory appeal, which we granted.

ISSUES AND STANDARDS OF REVIEW

¶ 9 Plaintiffs claim that the trial court erred by granting MegaDyne's motion to strike their jury demand, and they assert that they are entitled to a jury trial on the legal claims pleaded in their complaint.

Whether there is a right to a jury trial is a question of law that we review for correctness. However, [i]t is the prerogative of the judge who actually tries the case to make the determination of whether an issue is one in equity or one in law wherein the party can insist on a jury as a matter of right. Thus, [u]nless it is shown that the ruling [determining the equitable or legal nature of the issue] was patently in error or an abuse of discretion, this court will not interfere with the ruling thereon.

Kenny v. Rich, 2008 UT App 209, ¶ 21, 186 P.3d 989 (alterations in original) (citations and internal quotation marks omitted), cert. denied, 199 P.3d 970 (Utah 2008), cert. denied, ___ U.S. ___, 129 S.Ct. 1628, 173 L.Ed.2d 997 (2009).

¶ 10 Plaintiffs next assert that the trial court erred by denying their objections to the procedures used by the special master and that the trial court should sustain their objections to the substance of the special master's report. We review "whether [a] special master proceeded properly in carrying out his duties" for correctness. Plumb v State, 809 P.2d 734, 741 (Utah 1990). "If we find error in any respect, we must vacate the [court] order unless the error was harmless." Id.

¶ 11 Finally, Plaintiffs contend that the trial court erred in denying their motion to amend on the ground that the case was ten years old. "The standard of review of a denial to amend pleadings is abuse of discretion." Kasco Servs. Corp. v. Benson, 831 P.2d 86, 92 (Utah 1992).

ANALYSIS
I. Jury Demand

¶ 12 Plaintiffs first claim that the trial court erred in striking their jury demand because they retained a right to a jury trial on their legal claims asserted against MegaDyne. "The distinction between issues triable at law and those triable in equity serves to delineate the scope of the right to a jury trial under our case law." Zions First Nat'l Bank v. Rocky Mountain Irrigation, Inc., 795 P.2d 658, 661 (Utah 1990). Utah courts have "made it clear that [the] constitutional right to a jury trial in civil cases extends only to cases that would have been cognizable at law at the time the constitution was adopted." Id. "In characterizing a cause of action, Utah courts look to the nature of the action and not the pleading labels chosen." Records v. Briggs, 887 P.2d 864, 868 (Utah Ct.App.1994); see also Jensen v. Sawyers, 2005 UT 81, ¶ 34, 130 P.3d 325 ("[W]e pay little heed to the labels placed on a particular claim, favoring instead an evaluation based on the essence and substance of the claim.").

¶ 13 Besides their request for an accounting, Plaintiffs listed four other causes of action in their original complaint. The substance of all these claims, however, was to ascertain whether Plaintiffs had been underpaid. Accounting is defined simply as "[a] legal action to compel a defendant to account for and pay over money owed to the plaintiff but held by the defendant." Black's Law Dictionary 19 (7th ed.1999). Although Plaintiffs use pleading labels for legal causes of action, the substance of each of those so-called legal claims was that MegaDyne failed to pay money owed to Plaintiffs, that it had unjustly retained funds to which it was not entitled, and that it did not disclose the accurate number of products coated and sold to avoid paying the full amount of money owed. The trial court therefore did not err in its conclusion that Plaintiffs' case was, in essence, for an accounting.

¶ 14 Nevertheless, it remains that "an action for an accounting may be legal or equitable[] depending upon the facts set out in the pleadings." Green v. Palfreyman, 109 Utah 291, 166 P.2d 215, 219 (1946). "The necessary prerequisite to the right to maintain a suit for an equitable accounting, like all other equitable remedies, is . . . the absence of an adequate remedy at law." Dairy Queen, Inc. v. Wood, 369 U.S. 469, 478, 82 S.Ct. 894, 8 L.Ed.2d 44 (1962). However, "[t]he equitable remedy of accounting may lie to adjust mutual accounts, or one-sided accounts which are complicated, or which, in addition to being mutual or complicated, require relief, by way of discovery, for their...

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