Gardiner v. York

Decision Date14 December 2006
Docket NumberNo. 20051162-CA.,20051162-CA.
Citation153 P.3d 791,2006 UT App 496
PartiesRichard GARDINER, Plaintiff and Appellant, v. Betty YORK and Interport, Inc., Defendants and Appellee.
CourtUtah Court of Appeals

James K. Slavens, Fillmore, for Appellant.

A. Samuel Primavera, Riverton, for Appellee.

Before Judges BILLINGS, McHUGH, and THORNE.

OPINION

McHUGH, Judge:

¶ 1 Richard Gardiner appeals from the trial court's order denying his motion for attorney fees. In this case, we examine whether attorney fees incurred in pursuing a fraudulent transfer action are recoverable as consequential damages stemming from a prior breach of contract. Because we hold that the trial court failed to engage in the appropriate analysis of this issue, we remand for further proceedings consistent with this opinion.

BACKGROUND

¶ 2 Gardiner obtained a judgment of $7182, plus interest and costs, against Interport, Inc. (Interport) for breach of contract. The breach of contract suit was tried and decided in Virginia. Gardiner then domesticated the judgment in Utah.

¶ 3 While the Virginia action was underway, Interport's president, William York Jr., transferred Interport's only asset, a warehouse in Delta, Utah, to his parents, William York Sr. and Betty York. After the judgment was domesticated, Gardiner filed a petition for relief in Utah against Interport and Betty York,1 alleging that the transfer of the warehouse was fraudulent. Gardiner sought either a judgment lien or avoidance of the transfer. See Utah Code Ann. § 25-6-8 (1998) (setting forth the remedies of creditors who seek relief from debtors' fraudulent transfer of assets). The trial court entered a default judgment against Interport after it failed to defend. A bench trial was held with Betty York as the remaining defendant. The trial court found that Interport had transferred the warehouse with the intent to defraud Gardiner and authorized a judgment lien against the property.2

¶ 4 Gardiner then filed a motion to recover the attorney fees he incurred in pursuing the fraudulent transfer litigation. The trial court denied the motion. When the trial court denied Gardiner's motion to reconsider the attorney fee ruling, he appealed.

ISSUE AND STANDARD OF REVIEW

¶ 5 The sole issue on appeal is whether the trial court erred in denying Gardiner's request for attorney fees. Whether attorney fees should be awarded is a legal issue that we review for correctness. See Valcarce v. Fitzgerald, 961 P.2d 305, 315 (Utah 1998).

ANALYSIS
I. The Trial Court's Decision

¶ 6 Gardiner requested an award of attorney fees at the conclusion of trial. The trial court denied the motion, reasoning that there was "no basis[,] either statutory or contractual[,] why the fees should be awarded." Gardiner then filed a motion to reconsider,3 clarifying that his argument for attorney fees was based on the "third-party litigation exception" to the general rule that attorney fees are only recoverable when authorized by statute or contract. In his memorandum in support of his motion to reconsider, Gardiner cited Macris & Associates v. Neways, Inc., 2002 UT App 406, 60 P.3d 1176, and Collier v. Heinz, 827 P.2d 982 (Utah Ct.App.1992), for the principle that attorney fees may be recoverable as consequential damages in the limited situation where the defendant's breach of contract4 foreseeably caused the plaintiff to incur attorney fees in litigation with a third party. See Macris, 2002 UT App 406 at ¶¶ 13-14, 60 P.3d 1176; Collier, 827 P.2d at 983-84. The trial court, however, again denied attorney fees, this time stating that

[Gardiner] . . . cites the [c]ourt to the case of [Collier] for the proposition that there is a "third party exception" to the general rule that a court should not award attorney[] fees unless there is a statutory or contractual basis to do so. The [c]ourt finds the Collier decision to be limited only to the situation where an insurer breaks its contract with an insured, which is not the situation in the present case.

Although the trial court correctly noted that Collier identified a right to attorney fees that is unique to the insurance context, it confused that rule with the more general third-party litigation exception. See 827 P.2d at 984. "Under the third-party attorney fee[] exception, only the fees incurred in litigation with the third party are recoverable as consequential damages." Id. at 983-84. Attorney fees may not be awarded under the third-party litigation exception when the litigation for which fees are sought is between the contracting parties. See id. at 984.

¶ 7 The Collier court, however, noted that the Utah Supreme Court in Canyon Country Store v. Bracey, 781 P.2d 414 (Utah 1989), carved out a separate exception in circumstances where an insurer breached a contract with an insured. See 827 P.2d at 984-85. In such direct actions between an insured and his insurer, attorney fees incurred in that action can be recovered. See Bracey, 781 P.2d at 420; Collier, 827 P.2d at 984. The insurance case rule, however, is distinct from the exception that allows the recovery of fees incurred in third-party litigation if the fees are consequential damages of the breach. The Collier court explained: "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." 827 P.2d at 984 (emphasis added); cf. Pugh v. North Am. Warranty Servs., Inc., 2000 UT App 121, ¶ 21 & n. 7, 1 P.3d 570 (awarding attorney fees in a breach of insurance contract case but noting that the insurance contract exception should not be expanded beyond "the realm of contracts fairly characterized as insurance contracts").

¶ 8 The Collier court ultimately concluded that an award of attorney fees was inappropriate in that case because neither the third-party litigation exception nor the insurance contract exception applied. See 827 P.2d at 985. There, the attorney fees were incurred in a direct action between the contracting parties and the contract at issue was a settlement agreement rather than an insurance contract. See id. at 984-85. Here, the trial court's decision on Gardiner's motion to reconsider focused solely on the insurance case exception, despite the fact that the third-party litigation exception and the insurance contract exception are separate and distinct concepts. In this case, Gardiner and Interport were the contracting parties, and Gardiner sued a third party, Betty York, in the fraudulent transfer litigation.5 Thus, although the trial court correctly rejected the insurance exception, it erred in failing to analyze whether the third-party litigation exception warranted an award of attorney fees.

II. The Third-Party Litigation Exception as Applied to This Case

¶ 9 On appeal, Gardiner argues that he is entitled to an award of attorney fees because Interport's actions caused him to incur those fees in obtaining a judgment lien against the warehouse. In his brief, Gardiner argues primarily that Interport's fraudulent transfer was the wrongful act that caused him to engage in litigation with Betty York.6 We reiterate that the third-party litigation exception "allows recovery of attorney fees as consequential damages, but only in the limited situation where the defendant's breach of contract foreseeably caused the plaintiff to incur attorney fees through litigation with a third party." Collier, 827 P.2d at 983 (emphasis added); see also Lewiston State Bank v. Greenline Equip., L.L.C., 2006 UT App 446, ¶ 21 (noting that the Utah Supreme Court "has allowed an award of attorney fees as consequential damages arising from a breach of contract, but only in limited contexts"). Therefore, attorney fees are recoverable under this exception only if they are caused by and are a foreseeable result of the original breach of contract, not a subsequent wrongful act.

¶ 10 In Macris & Associates v. Neways, Inc., 2002 UT App 406, 60 P.3d 1176, this court considered the third-party litigation exception under circumstances similar to those at issue here. Plaintiff Macris originally filed suit for breach of contract against Images and Attitude, Inc. See id. at ¶ 2. Images subsequently sold its assets to Neways. See id. at ¶ 4. While the breach of contract action was pending, Macris filed suit against Neways, claiming that the transfer of assets from Images to Neways was fraudulent and left Images with insufficient assets to satisfy any judgment that Images might be required to pay as a result of the breach of contract suit. See id. at ¶ 3. Macris prevailed in the breach of contract suit and Neways International, Inc., a company separate from Neways, paid the judgment. See id. at ¶ 7. Neways then filed a motion for summary judgment in the fraudulent transfer suit, arguing that the suit was rendered moot by Neways International's payment of the judgment. See id. at ¶ 8. In response, Macris asserted that it was entitled to recover the attorney fees incurred in the fraudulent transfer action. See id. The trial court granted the motion for summary judgment, holding that attorney fees were not recoverable because the action arose under the Utah Uniform Fraudulent Transfer Act (UFTA), which did not contain an express provision authorizing an award of attorney fees. See id. at ¶ 9.

¶ 11 This court reversed, reasoning that the UFTA was a codification of the common law and should be liberally construed. See id. at ¶ 16 ("`[U]nless displaced by [the UFTA], the principles of law and equity, including merchant law and the law relating to principal and agent, equitable subordination, estoppel, laches, fraud, misrepresentation, duress, coercion, mistake, insolvency, or other validating or invalidating cause, supplement [the UFTA's] provisions.'") (quoting Utah Code Ann. § 25-6-11 (1998)). Thus, this court in Macris held that "the third-party litigation exception is retained from common...

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