Ihc Health Services v. D & K Management

• Decision Date: 24 October 2008
• Docket Number: No. 20061017.,20061017.
• Citation: 196 P.3d 588,2008 UT 73
• Court: Utah Supreme Court
• Parties: IHC HEALTH SERVICES, INC., a Utah non-profit corporation, Plaintiff and Appellee, v. D & K MANAGEMENT, INC., a Utah corporation, Defendant and Appellant.

196 P.3d 588

2008 UT 73

IHC HEALTH SERVICES, INC., a Utah non-profit corporation, Plaintiff and Appellee, v. D & K MANAGEMENT, INC., a Utah corporation, Defendant and Appellant.

No. 20061017.

Supreme Court of Utah.

October 24, 2008.

D. Matthew Moscon, Lauren A. Shurman, Salt Lake City, for plaintiff.

Michael N. Zundel, James C. Swindler, Glenn R. Bronson, Salt Lake City, for defendant.

AMENDED OPINION

DURRANT, Associate Chief Justice:

INTRODUCTION

¶ 1 In this case, a landlord, IHC Health Services, Inc. ("IHC"), seeks to eject its tenant, D & K Management ("D & K"), for breach of its lease (the "Lease") because of a late rental payment. The district court granted summary judgment in favor of IHC and awarded attorney fees to IHC pursuant to a provision in the Lease. D & K appeals, asserting that the district court erred when it (1) held that, as a matter of law, IHC did not waive its right to terminate the Lease; (2) refused to consider D & K's untimely-raised defense of substantial compliance; and (3) awarded attorney fees to IHC. We conclude that the district court appropriately granted summary judgment in favor of IHC on the issue of waiver because, under the totality of the circumstances, no reasonable fact finder could conclude that IHC intended to waive its right to terminate the Lease. We also affirm the district court's decision to refuse to consider D & K's untimely-raised substantial compliance defense. But we reverse the district court's award of attorney fees.

BACKGROUND

¶ 2 The parties do not dispute the underlying material facts. In 1994, D & K leased space in a shopping center in Murray, Utah, from Medical Plaza 9400. D & K uses the space to operate a sexually oriented business, the Southern Xposure private club. In January 1998, IHC purchased the shopping center from Medical Plaza 9400 with plans to build a state-of-the-art medical complex. IHC notified D & K by letter that it had purchased the shopping center.

¶ 3 The initial term of the Lease was five years, but it includes three five-year renewal options. The Lease provides that the tenant must pay rent "in advance of the first day of each calendar month during the term of the Lease." In addition, the Lease provides that "fail[ure] to pay any rental or any other sum due hereunder within ten [10] days after the same / [sic] shall be due" constitutes default. And upon occurrence of default, the landlord may "[t]erminate this Lease by written notice to the Tenant.... [A]nd the Landlord may recover from Tenant all damages it may incur by reason of Tenant's breach, including ... reasonable attorney's fees." Section 23 of the Lease also provides as follows:

In the event that at any time during the term of this Lease either Landlord or the Tenant institutes any action or proceeding against the other relating to the provisions of this Lease or any default hereunder, then the unsuccessful party in such action or proceeding agrees to reimburse the successful party for the reasonable expenses of such action including reasonable attorney's fees, incurred therein by the successful party.

¶ 4 IHC sought to terminate the Lease after D & K failed to pay rent for March 1998 during that month. D & K did, however, deliver a check for its rental payment for April 1998 on April 8. IHC accepted and cashed the check. D & K still had not sent the March 1998 rental payment on April 14, 1998, when IHC sent D & K a Notice of Default and Forfeiture of Lease Agreement. The notice directed it to surrender possession of the leased premises within thirty days. On April 16, having received the Notice of Default, D & K attempted to deliver a check for the March 1998 rental payment to IHC. Although IHC's property managers accepted D & K's March rent check at their office and issued a receipt, IHC promptly returned the check uncashed to D & K on April 17, 1998.

¶ 5 D & K asserts that IHC waived its right to terminate the Lease by accepting and cashing the check for the April 1998 rental payment and by sending certain correspondence to D & K. From June 1998 to January 1999, IHC sent numerous letters and invoices to D & K demanding, among other things, that D & K pay increased rent and maintain insurance according to the terms of the Lease. In each of these letters, IHC addressed D & K as "Dear Tenant." D & K timely sent rent checks each month from May 1998 until March 1999. IHC retained the checks but did not cash them.

¶ 6 In March 1999, the parties entered into an agreement to hold all rental payments in escrow and preserve the parties' then-existing rights. Shortly thereafter in May 1999, IHC sued, alleging breach of the Lease. IHC sought ejectment, a declaratory judgment that D & K was in breach, damages for breach, and attorney fees. D & K's answer invoked ten affirmative defenses, including waiver, estoppel, and unconscionability. D & K did not specifically invoke the defense of substantial compliance in its Answer.

¶ 7 IHC moved for a declaratory judgment that D & K had forfeited the Lease and that all of D & K's affirmative defenses failed as a matter of law. IHC pointed out that D & K admitted that it had paid the March rent late. IHC argued that it did not, as a matter of law, waive its right to terminate the Lease. D & K moved for summary judgment in its favor on the affirmative defenses of waiver and equitable estoppel. Although IHC's motion sought declaratory judgment that D & K had forfeited the Lease and that all of D & K's defenses failed as a matter of law, D & K's Opposition and Motion for Summary Judgment raised only waiver and equitable estoppel as defenses. D & K did not raise the doctrine of substantial compliance in any pleading or motion in response to IHC's motion.

¶ 8 The district court granted summary judgment in favor of IHC, ruling that D & K's waiver defense failed as a matter of law and that it had forfeited the Lease. The district court did not directly address D & K's equitable estoppel defense. But its memorandum decision erroneously noted that IHC had returned the April 1998 rent check to D & K uncashed. D & K appealed the ruling to this court.

¶ 9 This court took up the matter in IHC Health Services, Inc. v. D & K Management, Inc. ("D & K I").¹ We ruled that although the district court failed to address D & K's equitable estoppel argument, the argument failed as a matter of law.² As to waiver, we reiterated the rule from our previous cases that although waiver is intensely fact dependent, "a fact finder need only determine whether the totality of the circumstances warrants the inference of relinquishment."³ We stated that because the district court had misapprehended the fact that IHC accepted the April 1998 rental payment, it could not have properly considered the totality of the circumstances.⁴ Therefore, we remanded the case to the district court for reconsideration in light of the correct facts.⁵

¶ 10 On remand, IHC filed a new Motion for Summary Judgment on its claims for forfeiture, declaratory judgment, and breach of contract. D & K argued only waiver as a defense in its Opposition to Summary Judgment and did not raise the doctrine of substantial compliance. The district court again granted summary judgment in favor of IHC and ruled that it was entitled to judgment as a matter of law on its claims for forfeiture, declaratory judgment, and breach of contract.

¶ 11 D & K first asserted substantial compliance as a defense to forfeiture when IHC moved for a certification of finality under rule 54(b) to recover possession of the property.⁶ The district court refused to hear the substantial compliance argument because the claim of forfeiture had already been decided. The district court certified the judgment as final, and D & K appealed.

¶ 12 Although the district court certified the decision as a final judgment, the court of appeals dismissed the appeal for lack of jurisdiction and remitted the case to the district court to resolve the remaining issues in the case, including attorney fees and damages. After the remittitur from the court of appeals, D & K moved the district court to reconsider the forfeiture claim in light of its substantial compliance argument. The district court denied the motion, holding that D & K

never timely raised this argument and is precluded from making it at this late date on grounds of res judicata and/or specifically law of the case.... It is undisputed that [D & K] could have raised this defense at some earlier point, and certainly prior to or at the time of appealing the first judgment entered by this court's predecessor (and again by this court following remand by the Utah Supreme Court, which latter decision [D & K] now wants reconsidered). In fact, [D & K] did not previously raise or argue the defense of substantial compliance. It had a fair opportunity to present and have determined the defense of substantial compliance, but elected not to do so.

The district court held that it did "not believe that it ha[d] the right or discretion to consider new issues that could have been raised, but were not, from the point of remand." It noted that it would decline to consider D & K's substantial compliance argument even if it had discretion because, having been briefed on the defense, it "d[id] not find that D & K ha[d] presented the Court with facts that would support a substantial compliance defense." The district court also concluded that none of the exceptions to the law of the case doctrine excused D & K's failure to argue substantial compliance.

¶ 13 IHC sought to resolve the case more expeditiously by voluntarily dismissing its claim for damages resulting from D & K's breach of the Lease and moving the court to award attorney fees. IHC expressly waived its claim to attorney fees under section 17.2(c) of the Lease, which provides for damages resulting from the tenant's breach. Instead, IHC sought attorney fees under section 23 of the Lease, which provides for an award of attorney fees...