Gallegos v. Lloyd

Decision Date14 February 2008
Docket NumberNo. 20061135-CA.,20061135-CA.
Citation178 P.3d 922,2008 UT App 40
PartiesAndrew GALLEGOS and Joan Gallegos, Plaintiffs and Appellees, v. James LLOYD, Julie Lloyd, et al., Defendants and Appellants.
CourtUtah Court of Appeals

T. Richard Davis, Salt Lake City, for Appellants.

George A. Hunt and Stephen Hester, Salt Lake City, for Appellees.

Before Judges BENCH, DAVIS, and McHUGH.

OPINION

McHUGH, Judge:

¶ 1 Appellants James Lloyd and Julie Lloyd (the Lloyds) appeal the trial court's award of attorney fees to Appellees Andrew Gallegos and Joan Gallegos (the Gallegoses). We reverse.

BACKGROUND

¶ 2 On August 6, 2004, the Gallegoses filed a complaint against the Lloyds for trespass, negligence, and quiet title, alleging that the Lloyds built their home on property that belonged to the Gallegoses. The Lloyds conceded that their home encroached upon the Gallegoses' property; however, they disputed "the nature and amount[ ] of damages." After discovery and about six weeks prior to trial, the trial court granted the Gallegoses' motion to amend their complaint to make an additional claim for punitive damages against the Lloyds based on allegations that the Lloyds were reckless in building their home and willfully disregarded the Gallegoses' property rights.

¶ 3 After a two-day bench trial, the court awarded compensatory damages to the Gallegoses in the amount of $72,053.31. The trial court also concluded that "[n]o award of punitive damages should be made in this matter." Finally, on its own motion, the trial court determined that the Gallegoses were entitled to attorney fees either as consequential damages or, alternatively, pursuant to Utah Code section 78-27-56 because "the Lloyds' defense . . . was without merit and not asserted in good faith." A final judgment memorializing this ruling and the court's findings of fact and conclusions of law were entered on July 19, 2006. On that same day, the Gallegoses moved for attorney fees and costs pursuant to rules 73(a) and 54(d) of the Utah Rules of Civil Procedure, see Utah R. Civ. P. 73(a), 54(d), and based on the trial court's bench ruling and subsequent judgment.

¶ 4 During a hearing on November 2, 2006, the trial court granted the Gallegoses' motion for attorney fees and costs. And on November 16, 2006, the court entered a Supplemental Judgment for Attorneys Fees and Costs, which awarded $56,798 in attorney fees and $9398.17 in costs to the Gallegoses. The Lloyds now appeal the supplemental judgment awarding attorney fees to the Gallegoses.

ISSUES AND STANDARDS OF REVIEW

¶ 5 The Lloyds first argue that the trial court erred when it awarded attorney fees as consequential damages to the Gallegoses. Generally, "[w]hether attorney fees should be awarded is a legal issue that we review for correctness." Gardiner v. York, 2006 UT App 496, ¶ 5, 153 P.3d 791 (citing Valcarce v. Fitzgerald, 961 P.2d 305, 315 (Utah 1998)).

¶ 6 The Lloyds' second argument is that the trial court erred when it awarded attorney fees to the Gallegoses under Utah Code section 78-27-56. See Utah Code Ann. § 78-27-56(1) (2002). We review a trial court's grant of attorney fees under section 78-27-56 as a mixed question of law and fact. Before awarding attorney fees to a plaintiff under section 78-27-56, the trial court must conclude that the defendant's defense "was without merit," id., and we review this legal conclusion for correctness. See Coalville City v. Lundgren, 930 P.2d 1206, 1211 (Utah Ct.App.1997). In addition, the trial court must make a factual finding—based on the defendant's subjective intent—that the defendant did "not br[ing] or assert[the defense] in good faith," Utah Code Ann. § 78-27-56(1), which we review under a clearly erroneous standard. See Still Standing Stable, LLC v. Allen, 2005 UT 46, ¶ 8, 122 P.3d 556; see also Valcarce, 961 P.2d at 316 ("The wide variety of circumstances that might support a finding of such intent requires that we give a trial court relatively broad discretion in concluding that bad faith has been shown.").

ANALYSIS
I. Attorney Fees as Consequential Damages

¶ 7 The Lloyds claim that, in Utah, a party cannot recover attorney fees as consequential damages in a tort case unless provided for by statute. To decide otherwise in this case, they argue, would be contrary to the rule that Utah courts have consistently followed. See Morganroth & Morganroth v. DeLorean, 213 F.3d 1301, 1318 (10th Cir.2000). We agree.

¶ 8 Utah follows the traditional American rule, which states that "attorney fees are not recoverable by a prevailing party unless authorized by statute or contract." Faust v. KAI Techs., 2000 UT 82, ¶ 17, 15 P.3d 1266. There are, however, exceptions to this general rule. See, e.g., Utahns For Better Dental Health-Davis, Inc. v. Rawlings, 2007 UT 97, ¶ 5, 593 Utah Adv. Rep. 36, 175 P.3d 1036 (private attorney general doctrine); Lewiston State Bank v. Greenline Equip., LLC, 2006 UT App 446, ¶¶ 21-22, 147 P.3d 951 (third-party tort rule); Macris & Assocs., Inc. v. Neways, Inc., 2006 UT App 33, ¶ 4 n. 1, 131 P.3d 263 (same); see also, e.g., Heslop v. Bank of Utah, 839 P.2d 828, 840-41 (Utah 1992) (employer's breach of the covenant of good faith and fair dealing); see also Macris & Assocs., Inc. v. Neways, Inc., 2002 UT App 406, ¶ 13 n. 8, 60 P.3d 1176 (listing additional exceptions). The present case does not fall under any of the previously-recognized exceptions to the general rule against awarding attorney fees in tort cases.1 See Gardiner, 2006 UT App 496, ¶¶ 7-8, 153 P.3d 791 ("`The award of attorney fees as consequential damages, outside the context of statutory and contractual authorization, should be limited to . . . two situations . . .: insurance contracts and the third-party exception.'" (omissions in original) (emphasis omitted) (quoting Collier v. Heinz, 827 P.2d 982, 984 (Utah Ct.App.1992))). The Gallegoses ask us to adopt a new exception, an invitation we decline. Therefore, we hold that the trial court erred in awarding attorney fees as consequential damages.

II. Attorney Fees Under Section 78-27-56(1)

¶ 9 As an alternative to awarding attorney fees in the form of consequential damages, the trial court awarded attorney fees to the Gallegoses under Utah Code section 78-27-56. Section 78-27-56(1) states: "In civil actions, the court shall award reasonable attorney's fees to a prevailing party if the court determines that the action or defense to the action was without merit and not brought or asserted in good faith. . . ." Utah Code Ann. § 78-27-56(1). "According to the plain language of section 78-27-56, three requirements must be met before the court shall award attorney fees: (1) the party must prevail, (2) the claim asserted by the opposing party must be without merit, and (3) the claim must not be brought or asserted in good faith." Hermes Assocs. v. Park's Sportsman, 813 P.2d 1221, 1225 (Utah Ct. App.1991) (citing Cady v. Johnson, 671 P.2d 149, 151 (Utah 1983)). We address each of these elements in turn.

A. The Gallegoses Were the Prevailing Party on Compensatory but Not Punitive Damages

¶ 10 A substantial portion of the trial was focused on evidence concerning the Lloyds' state of mind during the construction of the encroaching home. While the Lloyds claimed that the trespass was a mistake caused by their reliance on others, the Gallegoses asserted that the Lloyds willfully built on their property to improve their view, driveway grade, and cost of construction. The Lloyds denied that their conduct was willful, and thus argued that punitive damages were not warranted. See Hatanaka v. Struhs, 738 P.2d 1052, 1054 (Utah Ct.App. 1987) ("[B]efore punitive damages may be awarded [in a trespass case], the plaintiff must prove conduct that is willful and malicious, or that manifests a knowing and reckless indifference and disregard toward the rights of others." (internal quotation marks omitted)). According to the Gallegoses, the Lloyds contested "the intentional element of the Gallegos[es]' trespass claim," and therefore proof of intent was required to prevail on both their claim for punitive damages and their claim for compensatory damages for trespass. We disagree.

¶ 11 Damages are awarded on a successful trespass claim whether or not the defendant intentionally entered the plaintiff's property. See generally Walker Drug Co. v. La Sal Oil Co., 972 P.2d 1238, 1243 (Utah 1998) ("The essential element of trespass is physical invasion of the land. . . ."). It was therefore necessary for the Lloyds to contest the intent element to prevail on the issue of punitive damages, while intent was irrelevant to the underlying trespass claim. See Farr v. Swigart, 13 Utah 150, 44 P. 711, 713 (1896) ("In actions of trespass, where the injury has been wanton and malicious, or gross and outrageous, courts permit juries to add [to] the measured compensation of the plaintiff, which he would have been entitled to recover had the injury been inflicted without design or intention, something further, by way of punishment or example . . . ." (emphasis added)). The Restatement of Torts explains this concept as follows:

In order to be liable for a trespass on land under the rule stated in § 158, it is necessary only that the actor intentionally be upon any part of the land in question. It is not necessary that he intend to invade the possessor's interest in the exclusive possession of his land and, therefore, that he know his entry to be an intrusion.

Restatement (Second) of Torts § 164 cmt. a (1965).2

¶ 12 The trial court ruled that the Gallegoses did not meet their burden of proving willfulness by clear and convincing evidence.3 See Mueller v. Allen, 2005 UT App 477, ¶ 39, 128 P.3d 18 ("Under Utah law, punitive damages can be awarded only if `it is established by clear and convincing evidence that the acts or omissions of the tortfeasor are the result of willful and malicious or intentionally fraudulent conduct, or conduct that manifests a knowing and...

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