Sunridge Development Corporation v. RB&G Engineering, Inc., 2010 UT 6 (Utah 2/5/2010)

• Decision Date: 05 February 2010
• Docket Number: No. 20080160.,20080160.
• Citation: 2010 UT 6
• Parties: Sunridge Development Corporation and Sunridge Enterprises, LLC, Plaintiffs and Petitioners, v. RB&G Engineering, Inc., Defendant and Respondent.
• Court: Utah Supreme Court

Page 1

2010 UT 6

Sunridge Development Corporation and Sunridge Enterprises, LLC, Plaintiffs and Petitioners, v. RB&G Engineering, Inc., Defendant and Respondent.

No. 20080160.

Supreme Court of Utah.

Filed February 5, 2010.

This opinion is subject to revision before final publication in the Pacific Reporter.

Appeal from the Fourth District, American Fork, The Honorable Fred D. Howard, No. 070100134.

On Certiorari to the Utah Court of Appeals.

Stephen Quesenberry, Charles L. Perschon, Provo, for plaintiffs.

Craig C. Coburn, Lincoln Harris, Zachary E. Peterson, Salt Lake City, for defendant.

NEHRING, Justice:

INTRODUCTION

¶1 In this case we address the legal relationships created by an assignment. In particular, we examine the scope of an assignee's right to recover damages from a third party that breached a contract made with, or duty owed to, the assignor. Respondent RB&G, an engineering firm, persuaded a majority of the court of appeals that while it may have breached a contract or duty before the key assignment occurred, the assignee could not recover damages sustained after the date of the assignment. Petitioners Sunridge Development Corporation and Sunridge Enterprises, LLC, argue that an assignee may recover damages that flow from a breach of an assigned contract regardless of when the actual damages occur. We reverse the court of appeals and remand to the district court.

BACKGROUND

¶2 In the 1960s, Stephen Stewart formed Sunridge Development Corporation (SDC). In 1981, SDC purchased a parcel of property in Provo, Utah, for the purpose of developing the property into Alpine Brook, a residential development. In 1993, SDC contracted with RB&G Engineering, Inc., a geological engineering firm, to obtain a geologic study of the property. SDC commissioned another geologic report from RB&G in 1995. The two reports describe geologic features of the property, make recommendations for foundation design, and include depictions of the subdivision and the planned units.

¶3 In 1996, Mr. Stewart formed Sunridge Enterprises, LLC (Enterprises).¹ Mr. Stewart was the principal of Enterprises, which was the entity that took on the responsibility for developing the Provo property into Alpine Brook. Development of the property then commenced. Mr. Stewart made a statement in a deposition suggesting that when he formed Enterprises, SDC transferred the property and made certain assignments to Enterprises, including an assignment of all rights and claims under the RB&G reports. The documents evidencing the development agreement, transfer of the property, and assignment are not a part of the record in this case.

¶4 In 1998, the Utah Geologic Survey, a division within the Department of Natural Resources, sent Provo City a letter expressing its concern that the RB&G reports did not adequately address the seriousness of the geologic faults on the property. Provo City responded to the Survey's concerns by requiring Enterprises to expand setbacks within the Alpine Brook development to mitigate the risks associated with the faults. By the time Provo City mandated these changes, Enterprises had completed the design of certain portions of the development. The site revisions required by Provo City resulted in a loss of fourteen units, amounting to a claimed loss of over one million dollars. Delays in development, redesign, and attorney fees resulted in additional costs.

¶5 Petitioners claim that RB&G failed to notify SDC and Enterprises of the geologic condition of the site in the reports. In early February, SDC sued RB&G for breach of contract and negligence. SDC later amended its complaint to include Enterprises as a plaintiff. SDC and Enterprises sought to recover for the loss of the fourteen units as well as additional "administrative costs," which included the costs of delay redesign, and attorney fees. As discovery progressed, RB&G moved for summary judgment on SDC's negligence claims and Enterprises' breach of contract and negligence claims. The district court granted summary judgment against both SDC and Enterprises on their negligence claims, concluding that the economic loss rule barred any recovery in negligence. The court also granted summary judgment against Enterprises on its breach of contract claim. The court reasoned that Enterprises could not recover damages from RB&G because it could not stand in a better position than its assignor, SDC. The court explained that because RB&G had fully performed its contracts with SDC, the assignment only transferred SDC's rights to pursue remedies for existing, not future, breaches of those contracts. Therefore, because the loss of the fourteen units occurred after the assignment, Enterprises could not recover those damages from RB&G because SDC never had the right to recover such damages. The court further concluded that the assignment did not establish privity between Enterprises and RB&G or otherwise entitle Enterprises to pursue its alleged damages.

¶6 A year later, RB&G moved for summary judgment on SDC's remaining breach of contract claims, which sought recovery for the "administrative costs." The district court granted summary judgment to RB&G because SDC had not supported its damage summary with evidence eligible for consideration by the court under Utah Rule of Civil Procedure 56(c) before the discovery period closed. The parties agreed not to appeal the second summary judgment of SDC's breach of contract claims.

¶7 Petitioners appealed the first summary judgment and the case was transferred to the Utah Court of Appeals. Specifically, Petitioners argued that Enterprises could recover as an assignee of the RB&G reports for damages that occurred after the assignment and/or that SDC could recover in negligence. The court of appeals declined to address the merits of the appeal. Instead, the court of appeals held that because SDC's contract damages were dismissed on summary judgment, Enterprises could not recover as an assignee because "`an assignee gains nothing more, and acquires no greater interest than had his assignor. . . .'" Sunridge Dev. Corp. v. RB&G Eng'g, Inc., 2008 UT App 29, ¶ 8, 177 P.3d 644 (quoting Aird Ins. Agency v. Zions First Nat'l Bank, 612 P.2d 341, 344 (Utah 1980)). The court of appeals reasoned that Enterprises was subject to SDC's failure to timely present evidence of the damages at issue in the second summary judgment because "assignment merely allows the assignee to stand in the shoes of the assignor." Id. ¶ 9. Judge Bench dissented. He reasoned that "[a]lthough an assignee's damages are limited to those damages the assignor would have suffered, the assignee should not be required to depend upon the assignor to litigate on its behalf." Id. ¶ 15 (Bench, J. dissenting). Judge Bench noted that a determination of Enterprises' rights, if any, to pursue claims under the RB&G contracts needed to be addressed before analyzing any effect the second summary judgment might have had on Enterprises. Id.

¶8 We granted certiorari to determine whether the majority of the court of appeals' panel erred in its assessment of the effect of the judgments rendered by the district court. We have jurisdiction pursuant to Utah Code section 78A-3-102(3)(a) (2008).

STANDARD OF REVIEW

¶9 On certiorari review, we review the decision of the court of appeals, not the decision of the district court. See Massey v. Griffiths, 2007 UT 10, ¶ 8, 152 P.3d 312.

ANALYSIS

¶10 The parties have briefed two issues: (1) whether Enterprises can recover any damages resulting from the required redesign of Alpine Brook as an assignee of the RB&G contracts and (2) whether SDC can recover similar damages in negligence despite the economic loss rule.² We address each issue in turn.

I. AN ASSIGNMENT DOES NOT NECESSARILY PRECLUDE AN ASSIGNEE FROM RECOVERING DAMAGES FOR CLAIMS THAT ARISE AFTER THE ASSIGNMENT

¶11 Before we discuss an assignee's rights against a third party that owed duties to the assignor, we first note that the court of appeals erred when it held that SDC's procedural errors in proving its contract damages absolutely barred Enterprises' ability to recover as an assignee of the RB&G reports.³ While it is correct that an assignee stands in the shoes of its assignor and cannot stand in a better position than its assignor, an assignee should nevertheless be given the chance to fully and fairly litigate the rights it claims to have acquired by assignment. The opportunity to litigate its own rights allows the assignee to demonstrate the rights of the assignor and defend against any limitations on the effect of the assignment alleged by the third-party obligor.

¶12 We now move to the merits of Enterprises' argument that it can recover from RB&G as an assignee, a task that requires a brief detour into the law of assignments generally, as well as an analysis of a central assignment case, SME Industries, Inc. v. Thompson, Ventulett, Stainback and Associates, Inc., 2001 UT 54, 28 P.3d 669.⁴

A. Basic Assignment Law

¶13 It is well recognized that "[t]he assignee [stands] in the shoes of the assignor." 9 John E. Murray, Jr., Corbin on Contracts § 51.1 (rev. ed. 2007). Therefore, "`[t]he assignee is subject to any defenses that would have been good against the [assignor]; the assignee cannot recover more than the assignor could recover; and the assignee never stands in a better position than the assignor.'" SME Indus., 2001 UT 54, ¶ 16 (second alteration in original) (emphasis omitted) (quoting 6 Am. Jur. 2d Assignments § 144 (1999)). "[A]n assignee gains nothing more, and acquires no greater interest than had his assignor." Aird Ins. Agency v. Zions First Nat'l Bank, 612 P.2d 341, 344 (Utah 1980) (citing Cheney v. Rucker, 381 P.2d 86, 91 (Utah 1963)). In other words, "the common law puts the assignee in the assignor's shoes, whatever the shoe size." Olvera v. Blitt & Gaines, P.C., 431 F.3d 285, 289 (7th Cir. 2005).

¶14 The parties, as well as Judge Bench in his dissent, chose the...