Gilbert Dev. Corp.. v. Wardley Corp..

• Decision Date: 16 December 2010
• Docket Number: No. 20090358–CA.,20090358–CA.
• Citation: 246 P.3d 131,671 Utah Adv. Rep. 23,2010 UT App 361
• Parties: GILBERT DEVELOPMENT CORPORATION, Plaintiff and Appellant,v.WARDLEY CORPORATION, Don Grymes, Terry LoCicero, Lloyd Melling, Chad Riddle, et al., Defendants and Appellees.
• Court: Utah Court of Appeals

246 P.3d 131
671 Utah Adv. Rep. 23
2010 UT App 361

GILBERT DEVELOPMENT CORPORATION, Plaintiff and Appellant,
v.
WARDLEY CORPORATION, Don Grymes, Terry LoCicero, Lloyd Melling, Chad Riddle, et al., Defendants and Appellees.

No. 20090358–CA.

Court of Appeals of Utah.

Dec. 16, 2010.

[246 P.3d 134]

Bryan J. Pattison, St. George; and Thomas J. Burns, David J. Jordan, and David J. Williams, Salt Lake City, for Appellant.Matthew L. Lalli, James D. Gardner, and Troy L. Booher, Salt Lake City, for Appellees.Before Judges McHUGH, ORME, and VOROS.

OPINION McHUGH, Associate Presiding Judge:

¶ 1 Gilbert Development Corporation (GDC) appeals from the entry of a directed verdict and the accompanying award of attorney fees in favor of Defendants Wardley Corporation (Wardley) and Wardley employees Don Grymes, Terry LoCicero, Lloyd Melling, and Chad Riddle (collectively, the Wardley employees). We affirm both the trial court's entry of a directed verdict in favor of Defendants and its determination that Defendants are entitled to their reasonable attorney fees, but we remand for a recalculation of the amount of attorney fees awarded.

BACKGROUND ¹

¶ 2 The dispute arises from a real estate transaction in which GDC was the seller; LoCicero and another Wardley employee,

[246 P.3d 135]

Karen Fuller,² were the seller's agents; Melling and Riddle were the buyer's agents; and Grymes was the broker responsible for both the buyer's and the seller's agents. Steve Gilbert (Gilbert) is the president and majority owner of GDC.

Gilbert's Prior Dealings with Dave Wright

¶ 3 In the early 1990s, GDC acquired Zion View Estates (Zion View), a seventy-five acre parcel of property in La Verkin, Utah, with the intention of developing it. GDC entered into an agreement with Dave Wright to install manufactured homes at Zion View, but it eventually terminated the agreement because Wright installed several homes that GDC had expressly rejected and because some of the homes installed had serious structural problems. That experience led Gilbert to conclude that Wright was an “[un]truthful” and “untrustworthy” person with whom Gilbert did not wish to do business in the future.

¶ 4 After terminating the agreement with Wright, GDC decided to sell the remaining property rather than continue with development plans. To that end, GDC retained Fuller and LoCicero to list and sell Zion View. On July 21, 1999, GDC and Wardley formalized that relationship by executing a listing agreement for the Zion View property (the Listing Agreement). The Listing Agreement sets forth the duties of the agents and the broker, including how those duties would be affected if other Wardley agents were to represent the buyer in the transaction.

¶ 5 Gilbert and Fuller testified that Gilbert clearly indicated when he signed the Listing Agreement that he would not consider seller financing of the Zion View transaction if Wright were involved. According to Fuller, Gilbert “did not want to have any kind of a connection with Mr. Wright in a financial way or a business way at all.” Gilbert testified that he told Fuller and LoCicero that he had previously been “disappointed” by Wright's conduct and that, therefore, “he did not want to have anything to do with ... Wright.”

REPC–1, a Cash–at–Closing Transaction

¶ 6 After GDC rejected an initial offer from a manufactured housing company named Mobile Mansions, LoCicero and Fuller informed GDC that an individual named Henry Butterfield had retained Melling and Riddle to represent him in purchasing Zion View. Gilbert, acting on behalf of GDC, entered into a real estate purchase contract (REPC–1) with Butterfield, wherein GDC agreed to convey Zion View to Butterfield in exchange for $1.2 million, with a $100,000 nonrefundable deposit due immediately and the remainder of the purchase price to be paid at closing. During the negotiations with respect to REPC–1, Gilbert dealt only with his agents, Fuller and LoCicero; therefore, Gilbert had never met Butterfield and was unaware that he owned Mobile Mansions.³

¶ 7 Also unknown to Gilbert and the GDC agents, Fuller and LoCicero, was the fact that for much of the negotiations, Butterfield's agents, Melling and Riddle, had been dealing exclusively with Wright, who was acting as Mobile Mansions and Butterfield's representative with respect to REPC–1.⁴ Indeed, Melling and Riddle were first contacted about the Zion View listing by Wright, spoke with Wright on the phone more than thirty times, and frequently met with him in person at either Wright's or Wardley's offices.

¶ 8 The November 1, 1999 closing date set forth in REPC–1 was extended until the end of November 1999 to allow Butterfield additional time to obtain the necessary financing. When the sale failed to close by the extended deadline, Gilbert and Butterfield each demanded the $100,000 earnest money deposit. ⁵

[246 P.3d 136]

For the stated purpose of resolving that dispute, Wardley sent written notice to the parties indicating that it intended to arbitrate the matter at a December 13, 1999 meeting (the arbitration) ⁶ among Gilbert; Gilbert's agents, Fuller and LoCicero; Butterfield's lawyer, Bruce Jenkins; Butterfield's agents, Melling and Riddle; and the broker, Grymes.

REPC–2, a Seller–Financed Transaction

¶ 9 After Gilbert agreed at the arbitration to discuss a new deal, Grymes raised the possibility of seller financing. Gilbert testified that he informed Grymes that he had no interest in seller financing or any other deal if Wright was involved. According to Gilbert, Grymes assured him that no one other than Butterfield “was involved in th[e] transaction,” and Melling and Riddle, who were present, did not comment on Wright's earlier participation in reviewing documents and serving as Butterfield's liaison with respect to REPC–1, the cash transaction. Gilbert testified that, upon receiving reassurance from Grymes that Wright was not involved, he signed a second real estate purchase contract (REPC–2), wherein GDC agreed to convey Zion View to Butterfield for a total of $1.6 million to be paid as follows: (1) GDC would immediately receive the $100,000 deposit that Butterfield had already paid toward REPC–1; (2) Butterfield would tender an additional $400,000 at the time of closing; and (3) GDC would seller-finance the remaining $1.1 million.

¶ 10 A few weeks after signing REPC–2, Gilbert heard a rumor that Wright was showing Zion View lots to prospective home buyers. Gilbert called his agents, Fuller and LoCicero, to inform them of the rumor and again “made it clear ... that if ... Wright's involved, th[e] deal's off.” Fuller and LoCicero said they had not heard anything about Wright being involved but would “check into” the rumor. Fuller testified that she first contacted the buyer's agents, Melling and Riddle, who responded that Fuller “couldn't prove that ... Wright was involved, and [that Fuller] didn't have any evidence except what [Gilbert] had said.” Unable to obtain any additional information from Melling and Riddle, Fuller next went to her broker, Grymes. Fuller testified that Grymes told her that “it would probably be in [her] best interest not to pursue [the matter] because [she] couldn't prove” that Wright was involved in REPC–2. When Fuller could not find any other evidence of Wright's involvement, she stopped pursuing the matter, and neither she nor LoCicero followed up with Gilbert regarding Wright's rumored involvement.

¶ 11 Despite his concerns, Gilbert did not make any independent investigation into Wright's involvement. Likewise, Gilbert did not perform any due diligence concerning Butterfield's credit-worthiness. For example, Gilbert did not request Butterfield's financial statements or other information relative to Butterfield's ability to repay the $1.1 million Gilbert had seller-financed. Instead, Gilbert reasoned that the $500,000 down payment under REPC–2 was “[p]retty good insurance,” because “if Butterfield's a deadbeat and defaults, [Gilbert would] get to keep the money ... and repossess the property.” The parties closed the sale as reflected in REPC–2 on January 13, 2000, with Wardley receiving $96,000 from the proceeds at closing. That amount was split six ways, first by the payment of a franchise fee to Better Homes & Gardens, and then as commission among Wardley, Fuller, LoCicero, Melling, and Riddle.

[246 P.3d 137]

¶ 12 In addition to the $500,000 down payment, Butterfield paid $138,606.05 to GDC during the year after closing. However, in the first part of 2001, Butterfield's payments stopped. Around that same time, Gilbert received a telephone message from Wright regarding the payments, to which Gilbert did not respond. Instead, on March 19, 2001, Gilbert sent a letter to Butterfield, demanding payment on the account and stating that although Gilbert had “receive[d] a telephone call from Mr. Dave Wright, alleging to be negotiating on [Butterfield's] behalf,” Gilbert had “no agreements or business dealings with Mr. Wright.”

¶ 13 When Butterfield failed to bring the account current, GDC initiated foreclosure proceedings. Those proceedings were significantly delayed when Butterfield and Mobile Mansions filed for bankruptcy in California and the bankruptcy trustee sued GDC for recoupment of almost one million dollars. ⁷ GDC retained California counsel and, after incurring almost $600,000 in attorney fees over approximately two years of litigation, was successful in having the trustee's claims dismissed. Only then was GDC able to complete the Utah foreclosure proceedings and to resell Zion View. In doing so, GDC incurred approximately $158,000 in expenses to bring the property taxes current and to return the property to marketable condition.⁸ Eventually, GDC sold the remaining Zion View lots for approximately $1.6 million.⁹

¶ 14 On April 10, 2003, GDC filed this lawsuit against Defendants asserting claims for, among other things, fraudulent nondisclosure, breach of contract, breach of the covenant of good faith and...