Russell Packard Development, Inc. v. Carson

• Decision Date: 01 March 2005
• Docket Number: No. 20030822.,20030822.
• Citation: 108 P.3d 741,2005 UT 14
• Parties: RUSSELL PACKARD DEVELOPMENT, INC., a California corporation; and Lawrence M. Russell, an individual, Plaintiffs and Respondents, v. Joel M. CARSON, an individual; William Bustos, an individual; and John Thomas, an individual, Defendants and Petitioners.
• Court: Utah Supreme Court

108 P.3d 741

2005 UT 14

RUSSELL PACKARD DEVELOPMENT, INC., a California corporation; and Lawrence M. Russell, an individual, Plaintiffs and Respondents, v. Joel M. CARSON, an individual; William Bustos, an individual; and John Thomas, an individual, Defendants and Petitioners.

No. 20030822.

Supreme Court of Utah.

March 1, 2005.

Michael R. Carlston, R. Brent Stephens, Heather S. White, Salt Lake City, for plaintiff.

Keith W. Meade, Salt Lake City, for defendant Carson.

Craig G. Adamson, Salt Lake City, for defendant Bustos.

George W. Pratt, Ali Levin, Salt Lake City, for defendant Thomas.

ON CERTIORARI TO THE UTAH COURT OF APPEALS

DURRANT, Justice:

¶ 1 In this case, the defendants affirmatively concealed the plaintiffs' causes of action during a significant portion, but not all, of the relevant statute of limitations period. Although the plaintiffs were placed on inquiry notice of the defendants' fraudulent behavior within the relevant statute of limitations period, the plaintiffs failed to file their complaint until after that period expired. Due to this failure, the district court granted the defendants' motions to dismiss the plaintiffs' claims as untimely. On appeal, the court of appeals reversed the district court, concluding that under the "concealment version" of the discovery rule, the determination of whether the relevant statute of limitations should be tolled was appropriately reserved for the fact-finder.

¶ 2 On certiorari, we are asked to consider (1) whether the court of appeals erred in its articulation and application of the "concealment version" of the discovery rule, and if so, (2) whether the court also erred in concluding that the plaintiffs' claims were improperly dismissed. Although we conclude that the court of appeals erroneously articulated and applied the discovery rule, we nevertheless agree with the court of appeals' determination that the district court improperly dismissed the plaintiffs' causes of action. Accordingly, we affirm the court of appeals' decision.

BACKGROUND

¶ 3 When reviewing the propriety of a motion to dismiss, we accept the factual allegations in the complaint as true and interpret those facts and all reasonable inferences drawn therefrom in a light most favorable to the plaintiff as the nonmoving party. Krouse v. Bower, 2001 UT 28, ¶ 2, 20 P.3d 895. We recite the facts of this case accordingly.

¶ 4 Russell/Packard Development, Inc. ("Russell/Packard") is a corporation engaged in real estate development in California. Lawrence Russell was the principal shareholder and chief executive officer of Russell/Packard at all times relevant to this appeal. We refer to Russell/Packard and Russell collectively as Plaintiffs.

¶ 5 In 1996, Russell became interested in developing residential real estate in Utah. In furtherance of this interest, he contacted and teamed with John Thomas, a Utah real estate builder and developer. Together with Russell/Packard, Russell and Thomas organized a Utah limited liability company called PRP Development, L.C. ("PRP"). Thomas became the manager and fiduciary of PRP, and PRP thereafter began pursuing real estate development activities in Utah. To aid in this pursuit, Thomas retained Joel Carson, a real estate agent with Wardley Better Homes and Gardens Real Estate ("Wardley"), to locate and review real estate proposals for purchase and development on PRP's behalf.

¶ 6 In 1996, Saratoga Springs Development, L.L.C. ("Saratoga"), a Utah real estate development company, retained Wardley's brokerage services to market and sell seventy-two twin home lots located in Saratoga Springs, Utah. In the summer of 1996, Thomas approached Dan Cary, the Wardley agent responsible for marketing the Saratoga property, to purchase the lots. Thomas did so at the urging of Carson and William Bustos, another Wardley agent with whom Carson had a business relationship and to whom Thomas owed a significant sum of money from previous business dealings. Thomas and Carson thereafter began ostensible negotiations with Saratoga and Wardley to purchase the lots through PRP. During these negotiations, both Cary and Wardley reasonably believed that they were negotiating to sell the lots to either Plaintiffs or Plaintiffs' real estate development entity, PRP.

¶ 7 In the fall of 1996, Carson, Thomas, and Bustos made an offer to purchase the lots for $25,000 per lot through CMT, Inc. ("CMT"), an entity controlled by Carson, Thomas, and Bustos.¹ Although CMT had no relationship with Plaintiffs or PRP, Carson and Thomas made misrepresentations and created the false appearance that CMT was affiliated with or owned by Russell, Russell/Packard, and PRP. To aid in this duplicity, Carson, Thomas, and Bustos misappropriated proprietary plans and drawings detailing Plaintiffs' own anticipated development and construction of the lots. As a result of these actions, Saratoga erroneously believed that it was negotiating the sale of the lots with PRP through CMT.

¶ 8 On November 4, 1996, CMT and Saratoga executed a real estate purchase contract for the Saratoga lots. The contract listed Carson as the real estate agent for CMT, and an individual by the name of "Charles Perez"² signed on CMT's behalf. The title company that was used to close the transaction between CMT and Saratoga received an earnest money wire from Poe Investments, L.L.C., a limited liability company organized by Carson and Bustos on or about July 19, 1996.

¶ 9 The same day the Saratoga-CMT contract was executed, Thomas made an offer in his capacity as an agent and fiduciary of PRP to purchase the lots from CMT for $30,000 per lot. PRP and CMT executed the real estate contract on November 8, 1996. Thomas signed as the general manager of PRP, "Charles Perez" signed on behalf of CMT, and Carson identified himself as the real estate agent for both CMT and PRP. The Saratoga-CMT and CMT-PRP contracts contained identical closing terms except for a $5,000 difference in price.

¶ 10 By interjecting themselves as undisclosed agents and principals for CMT in the above-described manner, Carson, Thomas, and Bustos successfully executed a "flip purchase and sale," allowing them to pocket $360,000 at Plaintiffs' expense. Although CMT was listed as the seller in the CMT-PRP contract and in the chain of title on the lots, neither Plaintiffs nor Saratoga knew what had occurred. Carson, Thomas, and Bustos continued to affirmatively conceal their misconduct until the spring of 2000.

¶ 11 It was at that time that a Saratoga accountant first began to suspect that CMT may not have been an agent or under the control of Plaintiffs. As a result of this suspicion, Saratoga contacted Plaintiffs, placing them on inquiry notice that CMT was not an agent for Saratoga. Plaintiffs thereafter investigated the control and ownership of CMT.

¶ 12 On November 30, 2001, Plaintiffs filed a complaint against Carson, Thomas, and Bustos (collectively "Defendants") in which Plaintiffs identified eight causes of action; namely, fraud, breach of fiduciary duty, civil conspiracy to defraud, commercial bribery, unjust enrichment, conversion and misappropriation of proprietary property, breach of a principal-agency relationship (as to Carson and Thomas), and intentional interference with prospective economic relations. Defendants responded by filing motions to dismiss. Among other defenses raised, Defendants asserted that Plaintiffs' claims were barred by the relevant statutes of limitation. The district court agreed with Defendants and granted their motions to dismiss.

¶ 13 On appeal, the court of appeals reversed the district court. Russell/Packard Dev., Inc. v. Carson, 2003 UT App 316, ¶ 36, 78 P.3d 616. The court acknowledged that, absent tolling, Plaintiffs' claims for breach of fiduciary duty, civil conspiracy, unjust enrichment, conversion and misappropriation, breach of principal-agent relation, and intentional interference with prospective economic relations (collectively the "four-year claims") expired on November 7, 2000 — approximately one year before Plaintiffs filed their complaint. Id. at ¶ 11. However, applying the concealment version of the discovery rule, the court concluded that the district court erred in granting Defendants' motions to dismiss.³ Id. at ¶ 28.

¶ 14 In reaching this conclusion, the court of appeals began its analysis by addressing what it identified as a "threshold issue" that must be established before the discovery rule may apply. Id. at ¶ 16. Specifically, it examined whether Plaintiffs had adequately demonstrated that they neither knew nor should have known of their causes of action against Defendants before being put on notice of a potential fraudulent transaction in the spring of 2000. Id. Accepting all facts alleged in the complaint as true and interpreting those facts in a light most favorable to Plaintiffs, the court concluded that Plaintiffs had made a sufficient threshold showing. Id. at ¶ 20.

¶ 15 Having determined that Plaintiffs did not possess either actual or constructive knowledge of the relevant facts underlying their claims prior to the spring of 2000, the court of appeals then addressed whether the concealment version of the discovery rule⁴ should operate to toll the statute of limitations under the circumstances. See id. at ¶¶ 21-28. In so doing, the court of appeals cited our decision in Berenda v. Langford, 914 P.2d 45 (Utah 1996), for the proposition that the concealment version of the discovery rule will toll a statute of limitations if a plaintiff first" `make[s] a prima facie showing of fraudulent concealment and then demonstrate[s] that, given the defendant's actions, a reasonable plaintiff would not have discovered his or her claim earlier.'" Russell/Packard, 2003 UT App 316 at ¶ 21, 78 P.3d 616 (quoting Berenda, 914 P.2d at 53). Applying the first prong of the Berenda rule, the court determined that Plaintiffs had made a prima facie showing of fraudulent concealment. Id. at ¶ 28....