Kendall Insurance, Inc. v. R & R Group

• Decision Date: 19 June 2008
• Docket Number: No. 20060570-CA.,20060570-CA.
• Citation: 2008 UT App 235,189 P.3d 114
• Court: Utah Court of Appeals
• Parties: KENDALL INSURANCE, INC.; Shirley Ann Morgan; and Charles Morgan, Plaintiffs and Appellees, v. R & R GROUP, INC.; and Rick B. Stanzione, Defendants and Appellants.

189 P.3d 114

2008 UT App 235

KENDALL INSURANCE, INC.; Shirley Ann Morgan; and Charles Morgan, Plaintiffs and Appellees, v. R & R GROUP, INC.; and Rick B. Stanzione, Defendants and Appellants.

No. 20060570-CA.

Court of Appeals of Utah.

June 19, 2008.

L. Andrew Briney, Spanish Fork, for Appellants.

Noel S. Hyde, South Ogden, for Appellees.

Before THORNE, Associate P.J., BENCH and McHUGH, JJ.

OPINION

THORNE, Associate Presiding Judge:

¶ 1 Defendants R & R Group, Inc. (R & R Group) and Rick B. Stanzione appeal from the trial court's final order and judgment rescinding the parties' contract for the sale of the Kendall Insurance Agency (the Kendall Agency), awarding ownership and control of the agency and attorney fees to Defendants, and awarding Plaintiffs Shirley Ann and Charles Morgan a judgment against Defendants in the amount of $75,000. Defendants also appeal from the trial court's decision denying Defendants' rule 60(b) motion. We affirm.

BACKGROUND

¶ 2 In March 2002, Stanzione, who owns and operates the R & R Group, an insurance agency, purchased the Kendall Agency from Max Kendall. Defendants operated the Kendall Agency and, in early 2003, began converting the Kendall Agency's paper client files to an automated system.

¶ 3 In August 2003, Defendants began negotiations with Plaintiffs relating to the sale and transfer of the recently purchased Kendall Agency and its related assets. Plaintiffs employed Paul Nelson, an experienced insurance agent, to assist them in the negotiation and management of the Kendall Agency. During negotiations, Stanzione made representations to Plaintiffs and Nelson regarding the value and composition of the Kendall Agency. Plaintiffs decided to purchase the agency and paid Defendants $75,000 as a down payment. The parties signed a written agreement, effective September 1, 2003, transferring the Kendall Agency from Defendants to Plaintiffs. For several months after acquiring the Kendall Agency, Plaintiffs continued to operate out of the same business location as Defendants.

¶ 4 Approximately three months after the transfer of the Kendall Agency, Plaintiffs determined that the actual value and composition of the Kendall Agency was significantly different than Stanzione had represented in August 2003. Plaintiffs requested that Defendants reform the contract and suspended further payments. Defendants refused to make any modifications to the contract and, in December 2003, demanded its full and immediate performance. In December 2003 and January 2004, Plaintiffs continued their suspension of payments and moved the location of the Kendall Agency to a premises separate from Defendants' business premises. In January 2004, Stanzione unilaterally redirected the Kendall Agency's mail to Defendants' business premises.

¶ 5 On February 24, 2004, Plaintiffs filed a complaint alleging various causes of action, including mutual mistake of fact, and requesting the equitable remedy of rescission. On March 24, 2004, Defendants filed an answer and counterclaim, which included a request for return of the Kendall Agency to Defendants. On April 9, 2004, Defendants filed a motion for order to show cause seeking, in part, possession and operational control of the Kendall Agency and its assets. In June 2004, the trial court held a hearing on Defendants' motion and ordered that operational control of the Kendall Agency be returned to Defendants.

¶ 6 On April 4, 2005, Defendants filed another motion for order to show cause alleging that Plaintiffs had failed to comply with the trial court's previous order. On August 31, 2005, the trial court held an evidentiary hearing on Defendants' motion. The parties agreed to continue the case for a bench trial preserving all testimony and exhibits for trial. A two-day bench trial was held. Afterward, the court found that a mutual mistake of fact relating to the value and composition of the Kendall Agency existed at the time that the parties negotiated the sale of the agency, and concluded that the contract should be rescinded as a matter of equity. The court further concluded that based on the rescission of the contract Plaintiffs should recover the $75,000 down payment used to purchase the Kendall Agency. The trial court also awarded Defendants, who had sought and obtained a return of the Kendall Agency and its assets, attorney fees and related costs in an amount not to exceed $17,500. The trial court stated that the actual amount of attorney fees and costs to be awarded Defendants may be determined upon submission of appropriate affidavits to be submitted within ten days after the entry of the court's order.

¶ 7 On May 26, 2006, Defendants filed a rule 60(b) motion requesting relief from their obligation to refund $75,000 to Plaintiffs. Defendants asserted that they should be relieved from such judgment because the trial court failed to make findings based on the motion for order to show cause that was merged with the bench trial proceedings. On August 2, 2006, the trial court denied Defendants' rule 60(b) motion, finding no reason justifying relief. Defendants appeal.

ISSUES AND STANDARDS OF REVIEW

¶ 8 Defendants argue that the trial court erred by finding as a matter of law that there was a mutual mistake of fact as to the value of the Kendall Agency at the time the parties signed the purchase agreement because the agreement contained an "as is" clause. Conclusions of law are accorded no particular deference and are reviewed for correctness. See American Towers Owners Ass'n v. CCI Mech., Inc., 930 P.2d 1182, 1188 (Utah 1996); see also Warner v. Sirstins, 838 P.2d 666, 669 (Utah Ct.App.1992).

¶ 9 Defendants also argue that there is insufficient evidence to support the trial court's finding that there was a mutual mistake of fact. "`When reviewing a bench trial for sufficiency of evidence, we must sustain the trial court's judgment unless it is against the clear weight of the evidence [presented at trial], or if the appellate court otherwise reaches a definite and firm conviction that a mistake has been made.'" State v. Andreason, 2001 UT App 395, ¶ 4, 38 P.3d 982 (alteration in original) (footnote omitted) (quoting State v. Larsen, 2000 UT App 106, ¶ 10, 999 P.2d 1252).

¶ 10 Defendants next argue that the trial court erred by failing to make findings of fact and conclusions of law relative to the issues raised in Defendants' motion for order to show cause. "`Questions about the legal adequacy of findings of fact and the legal accuracy of the trial court's statements present issues of law, which we review for correctness, according no deference to the trial court.'" Mardanlou v. Ghaffarian, 2006 UT App 165, ¶ 8, 135 P.3d 904 (quoting Shar's Cars, LLC v. Elder, 2004 UT App 258, ¶ 12, 97 P.3d 724), cert. denied, 150 P.3d 58 (Utah 2006).

¶ 11 Defendants further claim that the trial court erred in denying their rule 60(b) motion for relief from judgment. This court reviews the denial of a motion to set aside pursuant to rule 60(b) of the Utah Rules of Civil Procedure for abuse of discretion. See Franklin Covey Client Sales, Inc. v. Melvin, 2000 UT App 110, ¶ 9, 2 P.3d 451. On appeal from a rule 60(b) order, the reviewing court addresses only the propriety of the denial or grant of relief and does not reach the merits of the underlying judgment. See id. ¶ 19.

¶ 12 Lastly, Defendants assert that the trial court erred by capping attorney fees and costs to an amount not to exceed $17,500 and therefore failing to award Defendants, the prevailing party, all attorney fees according to the parties' promissory note which provides that "the defaulting party agrees to pay all costs incurred in the enforcement of this Note and the Security Agreement." "`The standard of review on appeal of [the amount of] a trial court's award of attorney fees is patent error or clear abuse of discretion.'" Jensen v. Sawyers, 2005 UT 81, ¶ 127, 130 P.3d 325 (alteration in original) (quoting Valcarce v. Fitzgerald, 961 P.2d 305, 316 (Utah 1998)).

ANALYSIS

I. Doctrine of Mutual Mistake

A. Application of Mutual Mistake Doctrine to Integrated Contract

¶ 13 Defendants argue that the mutual mistake of fact doctrine cannot, as a matter of law, support the equitable rescission of an integrated contract, and as a result, the trial court erred in considering the doctrine and concluding that rescission was appropriate. In support of this argument, Defendants cite Maack v. Resource Design & Construction, Inc., 875 P.2d 570 (Utah Ct.App.1994), for the proposition that only affirmative fraud and not mutual mistake can support the equitable rescission of an integrated contract. Defendants misinterpret the Maack decision.

¶ 14 In Maack, the Maacks appealed the trial court's grant of summary judgment against them based on its conclusion that an agreement's integration clause precluded consideration of any statements not expressly included in the agreement. See id. at 574-75. This court discussed fraud as an exception to the contract's "as is" and integration clauses, and analyzed each of the Maacks' claims for negligent misrepresentation, fraudulent nondisclosure, and fraudulent concealment in light of any relevant parol evidence without deciding whether each specific claim was an exception to the "as is" and integration clauses because the Maacks failed to brief this issue. See id. at 575. In so doing, this court made reference to the holding in Kaye v. Buehrle, 8 Ohio App.3d 381, 457 N.E.2d 373, 376 (1983), that an as is clause bars a claim for fraudulent nondisclosure but permits claims for "positive" fraud. See Maack, 875 P.2d at 575. This court's reference to Kaye does not, without more, support Defendant's proposition that only affirmative fraud can support the equitable rescission of an integrated contract. Thus, we do not conclude that this court's decision in Maack precludes rescission of an integrated contract on the basis of mutual mistake.

¶ 15 To the contrary, Utah courts have...