Wittingham, LLC v. TNE Ltd. P'ship

• Decision Date: 15 July 2020
• Docket Number: No. 20190220,20190220
• Parties: WITTINGHAM, LLC ; The Muir Second Family Limited Partnership; and Dorothy Jeanne Muir, Appellees/Cross-appellants, v. TNE LIMITED PARTNERSHIP, Appellants/Cross-appellees.
• Court: Utah Supreme Court

469 P.3d 1035

WITTINGHAM, LLC ; The Muir Second Family Limited Partnership; and Dorothy Jeanne Muir, Appellees/Cross-appellants,

v.TNE LIMITED PARTNERSHIP,¹ Appellants/Cross-appellees.

No. 20190220

Supreme Court of Utah.

Heard February 12, 2020

Filed July 15, 2020

James K. Tracy, Stacy J. McNeill, Joshua L. Lee, Salt Lake City, for appellees/cross-appellants

Jeffrey L. Silvestrini, Bradley M. Strassberg, Salt Lake City, for appellants/cross-appellees

Chief Justice Durrant authored the opinion of the Court, in which Associate Chief Justice Lee, Justice Himonas, Justice Pearce, and Justice Petersen joined.

On Direct Appeal

Chief Justice Durrant, opinion of the Court:

Introduction

¶1 We are asked to determine whether a contract entered into by a dissolved partnership is void or merely voidable. This distinction is important because, among other reasons, "a contract or a deed that is void cannot be ratified or accepted," while "a contract or deed that is voidable may be ratified at the election of the injured party."²

¶2 Two years after the Muir Second Family Limited Partnership (the Muir Partnership or Partnership) was administratively dissolved, Nicholas Muir—the former general partner of the Muir Partnership—obtained a loan from the TNE Limited Partnership (TNE). Mr. Muir obtained the loan, which he secured through a trust deed, ostensibly to remove an encumbrance on apartments owned by the dissolved Partnership. But the encumbrance was, in fact, part of a fraudulent scheme to obtain title to the apartments.

¶3 Once the scheme was discovered, Wittingham, LLC, a successor-in-interest to the Muir Partnership, brought suit to declare the trust deed void and recover damages for the fraudulent scheme. The district court held that the trust deed was void because the Muir Partnership had been dissolved prior to the time Mr. Muir signed the trust deed, and dismissed TNE's counter-claims against Wittingham, LLC and cross-claims against Mr. Muir.

¶4 Both TNE and Wittingham, LLC appeal. TNE appeals the district court's determination that the TNE trust deed is void and the court's dismissal of TNE's remaining claims. Wittingham, LLC cross-appeals, arguing that the district court erred in finding that Mr. Muir was competent and that he intended to bind the dissolved Partnership when he entered into the TNE transaction. And finally, Wittingham, LLC claims it was entitled to attorney fees under the TNE trust deed as the prevailing party.

Background

¶5 The Muir Partnership was organized on December 30, 1993, and continued until it was administratively dissolved on May 3, 2007. Two years after dissolution, Nicholas Muir, the former general partner of the defunct Partnership, obtained a loan for $435,000 from TNE. To secure the loan, Mr. Muir issued a promissory note to TNE, which was secured by a trust deed on a pair of apartment buildings owned by the Partnership. Prior to the execution of the TNE trust deed, Mr. Muir did not disclose to TNE that the Muir Partnership had been administratively dissolved. Instead, he created and registered a second entity: "Muir Second Family Limited Partnership" (second partnership). The only difference between the names of the two partnerships is that the name of the second partnership is missing the definite article "the."³

¶6 In his negotiations with TNE, Mr. Muir asserted that the loan was necessary to remove an existing encumbrance on the apartments. That existing encumbrance was another trust deed, which secured a promissory note payable to Trump Security LLC. In fact, the purported purpose of the TNE transaction was a sham. There was no promissory note payable to Trump Security nor was there a valid trust deed. And the sole member of Trump Security was Gavin Dickson, who assisted Mr. Muir in his scheme. Mr. Muir apparently agreed to the sham encumbrance in order to obtain funds to repair the apartments.

¶7 After TNE disbursed the funds, the sham encumbrance was released. Mr. Dickson, acting on behalf of Trump Security,⁴ then directed that the TNE funds be used for purposes that did not benefit the Partnership. When Mr. Muir's family discovered the sham encumbrance and misappropriation of the TNE funds, Wittingham, LLC, the Muir Partnership, and Dorothy Jeanne Muir (collectively, Wittingham) commenced this action, seeking to have the TNE trust deed declared void.

¶8 Wittingham asserted that the TNE trust deed was void because (1) the transaction was not for the purpose of winding up Partnership affairs and (2) Mr. Muir was incompetent, as the result of a head injury, when he entered into the TNE transaction. Wittingham also sought to recover damages from TNE, Trump Security, and Mr. Dickson for civil conspiracy due to their roles in the fraudulent scheme. Wittingham obtained a default judgment against Mr. Muir, who transferred his partnership interest to plaintiff Jeanne Muir to satisfy the judgment. After the transfer of Mr. Muir's partnership interest, the Muir family made a series of transactions transferring title to the apartment buildings among successive business entities, the last being Wittingham, LLC.

¶9 In response, TNE filed counter-claims against Wittingham asserting that the TNE trust deed was valid and that the Muir Partnership was bound by the agreement.⁵ It also raised various cross-claims against Mr. Muir personally, including fraud, estoppel, and breach of warranty in his individual capacity and as general partner of the Muir Partnership. It claimed that the transfer of Mr. Muir's partnership interest to Jeanne Muir, and the subsequent transfer of title of the apartments to various entities owned by Jeanne Muir, was fraudulent and part of a civil conspiracy to prevent TNE from collecting damages against Mr. Muir and the Muir Partnership. In the alternative, TNE argued that the Muir Partnership was unjustly enriched when it retained the benefit of the $435,000.

¶10 After a bench trial, the district court found that Mr. Muir was competent when he entered into the TNE transaction. It further found that Mr. Muir entered into the transaction on behalf of the Muir Partnership, not the second partnership. But it concluded that the TNE trust deed was void ab initio , rather than voidable. The district court reasoned that, because Mr. Muir's dealings with TNE were not acts performed for the purpose of winding up Muir Partnership affairs, the TNE trust deed was an illegal contract and thus void. Because the court declared the trust deed void, it dismissed all but one of TNE's counter-claims—a counter-claim for unjust enrichment.

¶11 The court determined that Wittingham was unjustly enriched by a small portion of the funds that were used to pay various tax and utility liens on the apartments, thereby benefitting the Partnership. Additionally, on its own initiative, the court dismissed the cross-claims that TNE asserted against Mr. Muir because TNE failed to serve Mr. Muir under Utah Rule of Civil Procedure 4.

¶12 After trial, Wittingham sought attorney fees under the Reciprocal Fee Statute. The court denied this request because it determined that the TNE trust deed did not provide for attorney fees and held that Wittingham was not a "prevailing party" under the fee statute. Both Wittingham and TNE appealed.⁶ We have jurisdiction pursuant to Utah Code section 78A-3-102(3)(j).

Standards of Review

¶13 TNE challenges the district court's determination that the TNE trust deed was void. This is a legal question, "which we review for correctness, giving no deference to the trial court's determination on the matter[ ]."⁷ It also challenges the district court's determinations that (1) the court lacked personal jurisdiction over Mr. Muir because TNE failed to properly serve him under Utah Rule of Civil Procedure 4 and (2) Mr. Muir did not waive an objection to insufficient service of process by filing a responsive pleading or making an appearance in the proceedings. When a "jurisdictional decision has been made on documentary evidence only, an appeal from that decision presents only legal questions that are reviewed for correctness."⁸ We review for clear error any factual determinations to support a jurisdictional conclusion.⁹

¶14 On cross-appeal, Wittingham argues the court erred in determining that Mr. Muir was competent at the time he entered into the TNE transaction. We review for clear error the district court's "specific findings of fact" underlying its determination that Mr. Muir was competent.¹⁰ A factual finding is clearly erroneous if it is "against the clear weight of the evidence, or if the appellate court otherwise reaches a definite and firm conviction that a mistake has been made."¹¹ And when the factual findings lead to a district court's "ultimate legal conclusion[ ]" of competency, we review this conclusion for correctness.¹²

¶15 Wittingham also challenges the district court's determination that Mr. Muir intended to bind the Muir Partnership, and not the second partnership, when he entered into the TNE transaction. "Determining whether a contract is ambiguous presents a threshold question of law, which we review for correctness."¹³ And once a contract is found ambiguous and the district court considers extrinsic evidence to determine its meaning, this "generally presents questions of fact" which we review for clear error.¹⁴

¶16 Wittingham also argues that it was entitled to attorney fees under the Reciprocal Fee Statute, Utah Code section 78B-5-826 because (1) provisions in the TNE trust deed provided for attorney fees and (2) it was the prevailing party in the matter. Whether a contract provides for attorney fees is a question of law that we review for correctness.¹⁵ And we review a district court's determination that there was no prevailing party in the matter for an abuse of discretion.¹⁶

Analysis

¶17 The parties raise multiple issues on appeal and cross-appeal. Although TNE raises eight issues on appeal, we address only two because our decisions on those issues are dispositive. First,...