Norman v. Arnold

• Decision Date: 06 August 2002
• Docket Number: No. 20010134.,20010134.
• Citation: 2002 UT 81,57 P.3d 997
• Parties: Robert NORMAN, Sr., and Diane Norman, husband and wife, Plaintiffs and Appellants, v. Mark E. ARNOLD and Norman M. Larson, Defendants and Appellees.
• Court: Utah Supreme Court

57 P.3d 997
2002 UT 81

Robert NORMAN, Sr., and Diane Norman, husband and wife, Plaintiffs and Appellants,
v.
Mark E. ARNOLD and Norman M. Larson, Defendants and Appellees

No. 20010134.

Supreme Court of Utah.

August 6, 2002.

Rehearing Denied November 18, 2002.

57 P.3d 999

J. Stephen Russell, Moab, for plaintiffs

Matthew L. Lalli, Amy F. Sorenson, Salt Lake City, for defendant Mark E. Arnold.

James C. Haskins, Thomas N. Thompson, Salt Lake City, for defendant Norman M. Larson.

WILKINS, Justice:

¶ 1 Plaintiffs appeal the dismissal of their amended complaint and the denial of their

57 P.3d 1000

motion for leave to file a second amended complaint. The district court dismissed the amended complaint after granting summary judgment in favor of defendants Arnold and Larson, and after denying plaintiffs leave to file a second amended complaint. With respect to the grant of summary judgment and the dismissal of the amended complaint, we affirm in part and reverse in part. With respect to the denial of leave to file a second amended complaint, we affirm

FACTUAL AND PROCEDURAL BACKGROUND

¶ 2 In reviewing a grant of summary judgment, we view the facts and all reasonable inferences drawn therefrom in the light most favorable to the nonmoving party. E.g., Arredondo v. Avis Rent A Car Sys., 2001 UT 29, ¶ 2, 24 P.3d 928. We recite the facts accordingly.

¶ 3 On March 15, 1995, several individuals executed a joint venture agreement, the Moab Land Development Joint Venture Agreement, and agreed to construct, manage, and maintain a Holiday Inn in Moab, Utah. The original members and signatories to the joint venture agreement were Plaintiffs Robert and Diane Norman and three members of 4-D development: Duane Barney, Peter Lanto, and Greg Page.¹ The Normans were to contribute the land on which the hotel was to be built, Page was to arrange for financing of the project, Lanto was to oversee construction, and Barney was to manage the hotel once it was completed.

¶ 4 Defendant Norman Larson was retained, either as an individual, or as the owner of Western Empire Advisors ("WEA"), to assist the group in obtaining financing. Defendant Mark Arnold, an attorney, was contacted by Larson and retained as legal counsel for the group. In an affidavit Arnold indicated he "performed various tasks for the joint venture," and in deposition he testified that he understood that he represented the joint venture members, "Diane Norman, Bob Norman, Greg Page, Duane Barney, [and] Pete Lanto," as a "group," but not individually.

¶ 5 Larson obtained a Holiday Inn franchise for the Moab area in June 1995. In an effort to assist the group with short-term financing, Arnold introduced the group to Ann and Norman Young. The Youngs agreed to loan the joint venture $160,000 at 18% interest, due in 90 days, with loan fees totaling twelve points. In return, Larson and the five members of the group—Robert Norman, Diane Norman, Page, Barney, and Lanto—signed a promissory note in favor of the Youngs. Further, the Normans agreed to pledge the property they contributed to the joint venture as collateral for the loan and signed a deed of trust in the Youngs' favor.

¶ 6 In October 1995, Lanto sold his interest in the joint venture to Arnold and WEA, Larson's entity. Arnold and WEA bought from Lanto "all interest whatsoever Seller may own in two Holiday Inn ventures located in Moab, Utah, and Park City, Utah," for $8,500.

¶ 7 Eventually, Page and Larson failed to obtain permanent financing. The 90 day Young note came due. Arnold persuaded the Youngs to extend the promissory note several times and not foreclose on the Normans' land. In further efforts to avoid foreclosure, Arnold introduced the Normans to Jim Winkler, who purchased the land from the Normans. The Young note was satisfied from the proceeds of the sale of the Normans' land, and the Youngs released the trust deed.

¶ 8 The Normans filed suit against Arnold, Larson, Barney, Lanto, Rasmussen, and Page in September 1998. Eventually an amended complaint was filed in November 1999. The amended complaint named only Arnold and Larson as defendants and articulated four causes of action: (1) breach of the joint venture agreement by both Arnold and Larson; (2) default of the trust deed note by Arnold and Larson, claiming they were jointly and severally liable to the Normans; (3)

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breach of fiduciary duty by Arnold; and (4) punitive damages.²

¶ 9 Arnold moved for partial summary judgment claiming that (1) he could not have breached the joint venture agreement because he never signed the written agreement or assented to its terms, (2) he owed no fiduciary duties to the Normans because he was not their personal lawyer, and (3) he could not be liable for punitive damages because the remaining "default of trust deed" claim sounded in contract.

¶ 10 The district court granted partial summary judgment in favor of Arnold, dismissing the claims for breach of fiduciary duty and punitive damages against him. The district court held that Arnold did not breach any fiduciary duties, dismissing the only tort claim against him. Consequently, because only contract claims remained, the district court also dismissed the punitive damages request.

¶ 11 The matter proceeded to trial, but a mistrial resulted on August 28, 2000, and the trial was rescheduled for January 2001. Three days after the mistrial, on September 1, 2000, the Normans requested leave to file a second amended complaint. The district court denied this motion.

¶ 12 Subsequently, the three parties each requested partial summary judgment in their favor. Larson moved for partial summary judgment claiming (1) he could not have breached the joint venture agreement because he was not a party to it and (2) he owed nothing to the Normans for defaulting on the Young trust deed note. The Normans moved for partial summary judgment, contending that Arnold and Larson were jointly and severally liable to them on the trust deed note as a matter of law. Arnold moved for partial summary judgment on the two causes of action that remained against him: (1) breach of the joint venture agreement and (2) default on the trust deed note as a jointly and severally liable co-obligor.

¶ 13 The district court granted Larson's and Arnold's motions for summary judgment and denied the Normans' motion, dismissing plaintiffs' claims for breach of the joint venture agreement because Arnold and Larson were not parties to the March 15, 1995 joint venture agreement, and dismissing plaintiffs' default of trust deed claim against both Arnold and Larson because Arnold was not an obligor on the note and any obligation Larson had on the trust deed note was to the Youngs, not the Normans.

¶ 14 This appeal followed.

ANALYSIS

I. STANDARD OF REVIEW

¶ 15 Summary judgment is appropriate only when there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. Utah R. Civ. P. 56(c); see also, e.g., Greene v. Utah Transit Auth., 2001 UT 109, ¶ 10, 37 P.3d 1156. We give a district court's decision to grant summary judgment no deference and review it for correctness. E.g., Greene, 2001 UT 109 at ¶ 10, 37 P.3d 1156.

II. BREACH OF FIDUCIARY DUTIES BY ARNOLD

¶ 16 The district court held, as a matter of law, that Arnold, as a result of representing the group, did not owe, and therefore could not breach, any fiduciary duties to the Normans. On appeal, the Normans claim Arnold owed them fiduciary duties because an implied attorney-client relationship was created by the fact that Arnold represented the group, of which the Normans were members. Arnold counters that he could not owe the Normans any fiduciary duties because the Normans admitted in deposition that they recognized Arnold represented the group, not their individual interests; and the Normans retained another lawyer to represent them individually. We hold that the district court erred in granting summary judgment on this issue by concluding as a matter of law that Arnold did not breach any fiduciary duties owed to the Normans.

¶ 17 Arnold would owe fiduciary duties to the Normans if an implied attorney-client relationship existed between him and the Normans. In Kilpatrick v. Wiley, Rein

57 P.3d 1002

& Fielding, we clarified the standard for determining whether an implied attorney-client relationship exists. We said, "the proper determination of whether an implied attorney-client relationship exists hinges on whether the party had a reasonable belief that it was represented." 2001 UT 107, ¶ 40, 37 P.3d 1130. We then construed Margulies v. Upchurch, 696 P.2d 1195 (Utah 1985), and explained that Margulies recognized that under certain circumstances, an implied attorney-client relationship may arise when the individual members of a limited partnership reasonably believe they are represented in their individual capacities by the limited partnership's legal counsel. Kilpatrick, 2001 UT 107 at ¶ 47, 37 P.3d 1130 (citing Margulies, 696 P.2d at 1200-01). We then clarified that "Margulies did not . . . create two separate tests to determine whether an implied attorney-client relationship exists." Id. at ¶ 49. "Margulies adopted only one test to determine whether an implied attorney-client relationship exists, i.e., whether the individual limited partners reasonably believed that the limited partnership's legal counsel represented their interests," which is resolved by looking at the totality of the circumstances surrounding the legal representation. Id. In the instant case, therefore, the test is whether, under the totality of the circumstances, the Normans reasonably believed that Arnold, the lawyer for the group, represented their interests as individuals as distinguished from their common interests with the other limited partners.³

¶ 18 The record facts both discredit and support a conclusion that an implied attorney-client relationship existed between Arnold and the Normans....