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Iota LLC v. Davco Management Co. LC

Court of Appeals of Utah

November 25, 2016

Iota LLC and California Benefit Inc., Appellees,
v.
Davco Management Company LC and David Fisher, Appellants.

         Fifth District Court, St. George Department The Honorable James L. Shumate No. 080502981

          Darwin C. Fisher, Attorney for Appellants

          Paul D. Veasy, Alan S. Mouritsen, and Douglas C. Naftz, Attorneys for Appellees

          Judge Stephen L. Roth authored this Opinion, in which Judges J. Frederic Voros Jr. and Kate A. Toomey concurred. [1]

          OPINION

          ROTH, Judge

         ¶1 This case returns to us after we vacated a contempt judgment and remanded to the district court in Iota, LLC v. Davco Mgmt. Co. (Iota I), 2012 UT App 218, 284 P.3d 681. That decision was based on a procedural defect, and on remand Iota LLC and California Benefit Inc. (collectively, Iota) cured the defect. The district court entered a new contempt judgment, from which Davco Management Company LC and David Fisher[2](collectively, Davco) now appeal. We affirm.

         BACKGROUND

         ¶2 A full account of the background in this case is available in Iota I, 2012 UT App 218, ¶¶ 2-9. In summary, Davco contracted with Iota for the purchase of two apartment complexes in St. George, Utah. The sale was owner-financed and Davco executed a promissory note to Iota for each property, both with maturity dates in December 2007. Payment of the notes was secured by trust deeds for each property. Among other things, the trust deeds granted Iota a security interest in the form of an assignment of the rents and other sources of revenue associated with the apartments on the two properties in the event of a default.

         ¶3 By September of 2008, the promissory notes were long past due and negotiations to resolve the defaults had proved unsuccessful. Davco stopped making payments on the notes, which triggered foreclosure on the properties and this lawsuit. During the initial stage of this suit, Iota moved ex parte for an order requiring Davco to deposit all apartment rents into court. The motion was based on Utah Rule of Civil Procedure 67, which provides that a court may order a party to deposit with the clerk of court "any money or other thing" that is shown by admissions in the pleadings or "upon the examination of a party, " to belong to or be "due to another party."

         ¶4 The district court issued an order on November 5, 2008 (the Ex Parte Order) requiring Davco Management and Fisher to deposit with the court all rents collected. Davco was properly served and neither filed an objection nor moved to have it set aside. Davco Management, through Fisher, collected and retained apartment rental payments and other revenue from September 2008 until the foreclosure sale was completed in February 2009. However, Davco deposited money with the court only once, in August 2009, when it remitted $33, 805.33. The single deposit was considerably less than the amount Davco had collected after the Ex Parte Order was entered, and Davco made the deposit only after "the Court made clear [in a hearing attended by Fisher] its displeasure with Davco's and David Fisher's failure to pay collected rents . . . into the Court."

         ¶5 Following the foreclosure sale of the properties, Iota sought deficiency judgments against Davco and to recover the rents and other revenue that Davco collected between September 1, 2008, and February 20, 2009. In addition, Iota argued in its trial brief that both Davco Management and Fisher should be held in contempt for failing to comply with the Ex Parte Order. Davco responded to the contempt argument by challenging the court's contempt jurisdiction on the basis that Iota had failed to file an affidavit of the facts constituting contempt as required by Utah Code subsection 78B-6-302(2). Davco also moved to have the Ex Parte Order struck, asserting that the trial court failed to comply with Utah Rule of Civil Procedure 67 in issuing it. The court denied both motions.

         ¶6 Iota prevailed at trial on its breach of contract and deficiency claims and successfully urged the court to hold Davco Management and Fisher in contempt for failing to comply with the Ex Parte Order. The court entered deficiency judgments against Davco (calculated as the difference between the proceeds of the trustee's sale and the unpaid balance of the promissory notes) and awarded Iota its attorney fees. The district court made two other rulings relevant to the current appeal. First, it concluded that Davco's failure to remit rents and other revenues to Iota after it defaulted on the promissory notes was a violation of the trust deeds' requirement to do so. Second, it held both Davco Management and Fisher in contempt for their failure to comply with the Ex Parte Order. The court entered a separate contempt judgment in the amount of $71, 119.17 for revenues withheld, plus attorney fees.

         ¶7 In Iota I, this court affirmed the deficiency judgments. However, we vacated the contempt judgment against Davco Management and Fisher. Our decision turned on the requirement that, "[w]hen the contempt is not committed in the immediate view and presence of the court or judge, an affidavit . . . shall be presented . . . of the facts constituting the contempt." Utah Code Ann. § 78B-6-302(2) (LexisNexis 2012). We determined that Iota never filed an affidavit, and as a consequence, "we reverse[d] the trial court's contempt rulings against Davco and Fisher for lack of jurisdiction and remand[ed] to the trial court for additional proceedings, on the contempt matter only . . . ." Iota I, 2012 UT App 218, ¶ 40. Further, "because we reverse[d] the contempt rulings on jurisdictional grounds, we determine[d] that any error relating to the trial court's Ex Parte Order was harmless" and therefore did not address Davco's challenges to the order on the merits. Id.

         ¶8 On remand, Iota filed an affidavit in support of its allegations of contempt against Davco, and the district court scheduled an evidentiary hearing to address the matter. At the hearing, the court took notice of the evidence, facts, and orders of the court from the prior contempt proceedings, "except for those portions reversed by [this court in Iota I]." In addition, Fisher testified for Davco Management as its managing member and on his own behalf, and Iota presented the testimony of its officer, Richard T. Murset.[3] At the conclusion of the hearing, the district court again held both Davco Management and Fisher in contempt based on a review of Iota I, briefing and testimony from the postappeal hearing, and evidence from the prior proceedings.

         ¶9 In its second contempt order, the district court concluded that the affidavit filed by Iota satisfied the statute's requirement and that the jurisdictional issue identified in Iota I had thus been satisfied. The court also concluded that the collateral bar doctrine precluded Davco from arguing that the Ex Parte Order was improperly issued:

Davco and David Fisher violated Utah Code Annotated § 78B-6-301 by knowingly disobeying this Court's Ex Parte Order in failing to turn over the rents to the court clerk for further disposition by Order of this Court. David Fisher, on behalf of himself and his company, Davco, has knowingly and wrongfully retained the security deposits and has failed to deliver those amounts to Iota . . . to apply towards Plaintiffs' debt obligations.

The district court found Davco Management and Fisher in contempt and entered judgment against both in the sum of $116, 025.02, which included the amount of the withheld rents and other revenues as well as Iota's attorney fees incurred in the contempt proceedings both before and after Iota I. Davco appeals.

         ANALYSIS

         ¶10 Davco raises multiple challenges to the district court's decision finding Davco Management and Fisher in contempt for failure to comply with the Ex Parte Order. Specifically, Davco contends that the district court either erred or abused its discretion by: (1) holding Davco in contempt based on an unclear and ambiguous Ex Parte Order; (2) awarding Iota damages; (3) finding Davco in contempt of court; (4) affirming its prior judgment for contempt; (5) awarding Iota its attorney fees and costs incurred in the preremand proceedings; (6) finding that the Order was valid and lawful; (7) denying Davco's motion to strike the Order; (8) taking judicial notice of all the facts, orders, and documents from the principal case; and (9) denying Davco the opportunity to present evidence showing that Iota's calculation of the withheld rents was wrong.

         ¶11 The issues fall into three categories: those challenging the validity of the Ex Parte Order, those challenging the district court's finding that Davco was in contempt for violating the Ex Parte Order, and those challenging the district court's award of attorney fees to Iota. We address them in that order.

         I. The Validity of the Ex Parte Order

         ¶12 Davco asserts that the Ex Parte Order was invalid and unenforceable because it failed to comply with rule 67 of the Utah Rules of Civil Procedure and, as a consequence, the district court should have struck it.[4] We first consider whether the district court properly concluded that the collateral bar doctrine blocked Davco's motion to strike the Ex Parte Order; only if that decision was incorrect need we consider the merits of Davco's argument that the order was invalid. The applicability of the collateral bar doctrine presents a question of law that we review for correctness. Cf. PC Riverview LLC v. Cao, 2016 UT App 178, ¶ 5 n.3, 381 P.3d 1185. We agree with the district court that the collateral bar doctrine precludes Davco from waiting until after it violated the Ex Parte Order to challenge its validity.

         A. The Collateral Bar Doctrine

         ¶13 "Under the collateral bar doctrine, a party may not challenge a district court's order by violating it. Instead, he must move to vacate or modify the order, or seek relief in [an appellate court]." United States v. Cutler, 58 F.3d 825, 832 (2d Cir.1995). "If he fails to do either, ignores the order, and is held in contempt, he may not challenge the order unless it was transparently invalid or exceeded the district court's jurisdiction." Id.

         ¶14 On remand, Iota restarted the contempt proceeding by filing the affidavit required to correct the procedural problem we identified in Iota I. The district court held an evidentiary hearing to consider anew whether Davco should be held in contempt for failure to deposit rents in violation of the Ex Parte Order. At that hearing, the court considered Davco's motion to strike the Ex Parte Order based on the argument that the order failed to comply with the requirements of Utah Rule of Civil Procedure 67. In its written ruling the court found that, after the Ex Parte Order was entered and served on Davco Management and Fisher in November 2008, neither "filed an objection" nor "moved to have [the order] set aside." It also found that Davco thereafter failed to deposit collected rents into the court as the Ex Parte Order required until August 7, 2009, when Davco deposited $33, 805.33 in response to the court's expressed "displeasure with Davco's . . . failure to pay." The court further noted that Davco did not "raise[] a challenge to the validity of the Ex Parte Order until the time of trial, almost eighteen months after the Ex Parte Order was issued and after the order had already been violated." Because they "chose to ignore the Ex Parte Order" rather than bring a timely challenge to its validity, the district court determined that Davco's "challenge[] to the Court's order of contempt [is] barred by the collateral bar doctrine."

         ¶15 Utah appellate courts have not addressed the collateral bar doctrine in modern times, other than nonbinding dicta in Iota I, 2012 UT App 218, ¶¶ 37-38, 284 P.3d 681.[5] However, our supreme court acknowledged the fundamentals of the doctrine as early as 1932 in Utah Power & Light Co. v. Richmond Irrigation Co., 13 P.2d 320, 324 (Utah 1932) ("A party may question the order which he is charged with refusing to obey, only insofar as he can show it to be absolutely void . . . ." (citation and internal quotation marks omitted)). And several years later in Liquor Control Commission v. McGillis, the supreme court stated that "the mere fact that an [order] was not justified by the facts of the particular case or was erroneous or improvident in any way is no defense" to violating the order. 65 P.2d 1136, 1141 (Utah 1937). Based on these acknowledgments, we are convinced that the collateral bar doctrine applies in Utah even if our precedent has not explicitly used that term, and we look to other courts for guidance on the application of this widely recognized doctrine.

         ¶16 "The orderly and expeditious administration of justice by the courts requires that 'an order issued by a court with jurisdiction over the subject matter and person must be obeyed by the parties until it is reversed by orderly and proper proceedings.'" Maness v. Meyers, 419 U.S. 449, 459 (1975) (quoting United States v. United Mine Workers of Am., 330 U.S. 258, 293 (1947)). The collateral bar doctrine follows directly from that premise; the doctrine "provides that a party may not challenge a court's order by violating it." 17 C.J.S. Contempt § 24 (2016). Indeed, the legitimacy of the judicial process itself would be jeopardized if parties were free to determine for themselves when and how to obey court orders. See id. (noting that the collateral bar rule "advances important societal interests in an orderly system of government, respect for the judicial process and the rule of law, and the preservation of civil order" to "protect the authority of the courts when they address close questions and to create a strong incentive for parties to follow the orderly process of law"). In this sense, "[t]he collateral bar rule is a cornerstone of a system of orderly and efficient adjudication." In re Establishment Inspection of Hern Iron Works, Inc., 881 F.2d 722, 730 (9th Cir. 1989).

         ¶17 The collateral bar doctrine underscores the principle that "no man can be judge in his own case." Walker v. City of Birmingham, 388 U.S. 307, 320 (1967) (holding that petitioners, who deliberately violated an injunction without first attempting to dissolve it, were properly convicted of criminal contempt). Thus, a party is foreclosed from making a private determination that a court's order need not be obeyed because it is legally incorrect. See Maness, 419 U.S. at 458 ("Persons who make private determinations of the law and refuse to obey an order generally risk criminal contempt even if the order is ultimately ruled incorrect."). Rather, "[i]t is for the court of first instance to determine the question of the validity of the law, and until its decision is reversed for error by orderly review . . ., its orders based on its decision are to be respected, and disobedience of them is contempt of its lawful authority." United Mine Workers, 330 U.S. at 294. The policy advanced by this doctrine is fundamental: "[R]espect for judicial process is a small price to pay for the civilizing hand of law, which alone can give abiding meaning to constitutional freedom." Walker, 388 U.S. at 321.

         ¶18 Although the collateral bar doctrine has not been adopted in Utah by name, its underlying principle is clearly acknowledged. As our supreme court put it, "disobedience of an order made by a court within its jurisdiction and power is a contempt [even if] the order [is] clearly erroneous." Liquor Control Comm'n, 65 P.2d at 1140 (citation and internal quotation marks omitted). That bedrock principle accords with other aspects of Utah law, such as the ethical responsibility of attorneys to obey court orders: "The rules of ethics dictate that attorneys may not protest adverse rulings by violating them in the name of zealous advocacy. The proper method for contesting an adverse ruling is to appeal it, not to violate it." State v. Clark, 2005 UT 75, ¶ 36, 124 P.2d 235. In other words, it is well recognized that respect for judicial authority is essential to the orderly functioning of the judicial branch, and the collateral bar doctrine is a natural corollary. Accordingly, we conclude that the district court was justified in applying the doctrine in response to Davco's late challenge to the validity of the Ex Parte Order.

         B. Application of the Collateral Bar Doctrine

         ¶19 Davco does not contest the district court's determination that Davco violated the Ex Parte Order for nearly eighteen months without challenging it. Rather, Davco argues that the collateral bar doctrine does not apply here because the order was beyond the district court's jurisdiction and was transparently invalid. We disagree.

         1. The District Court's Jurisdiction

         ¶20 The collateral bar doctrine requires a party to heed a valid court order unless and until it is reversed by orderly judicial proceedings. However, an order is not valid if the order "exceeded the district court's jurisdiction." United States v. Cutler, 58 F.3d 825, 832 (2d Cir. 1995). Stated affirmatively, the court must be operating within its jurisdiction for an order to be valid. Liquor Control Comm'n v. McGillis, 65 P.2d 1136, 1140 (Utah 1937); see also United States v. United Mine Workers of Am., 330 U.S. 258, 293 (1947) (indicating that only "an order issued by a court with jurisdiction over the subject matter and person must be obeyed"). This follows naturally from the essential nature of jurisdiction-without subject matter jurisdiction over a case and personal jurisdiction over a party, a court is literally powerless. E.g., State v. Rhinehart, 2007 UT 61, ¶ 19, 167 P.3d 1046 (discussing subject matter jurisdiction). See generally 56 Am. Jur. 2d Motions, Rules, and Orders § 47 (2016) (explaining that subject matter jurisdiction and personal jurisdiction are necessary prerequisites to establishing a court's authority). Thus, the collateral bar doctrine acknowledges an essential exception: if a court lacks either subject matter or personal jurisdiction, then its orders are unenforceable and need not be followed. Otherwise, they must. As a result, the only way a party can successfully attack an order "which he is charged with refusing to obey" is if the party can "show it to be absolutely void." Liquor Control Comm'n, 65 P.2d at 1140-41 (citing Utah Power & Light Co. v. Richmond Irrigation Co., 13 P.2d 320, 324 (Utah 1932)).

         ¶21 This distinction-between orders that are void for lack of jurisdiction (or, void ab initio) and those that are merely voidable based on error-makes a difference. "Errors other than lack of jurisdiction render the judgment merely voidable, and a voidable judgment can only be challenged on direct appeal." Bangerter v. Petty, 2010 UT App 49, ¶ 8, 228 P.3d 1250 (citation and internal quotation marks omitted) (distinguishing between void and voidable in the property context). Thus, an order issued by a court lacking jurisdiction is void and differs in kind from an order issued in error by a court with jurisdiction, which is merely voidable. A void order may be attacked collaterally at any time because the court was powerless to issue it in the first place; the collateral bar doctrine does not apply. On the other hand, a voidable order may only be challenged directly; the doctrine precludes an untimely attack on its validity. For purposes of this case, that means that we need only determine if the district court lacked subject matter or personal jurisdiction when it issued the Ex Parte Order. If it lacked either, then the Ex Parte Order was void ab initio and no contempt could lie. Otherwise, the Ex Parte Order was at best voidable, and a challenge made after violating it would be untimely and amount to a collateral attack precluded by the collateral bar doctrine.

         ¶22 Here, there is no dispute that the court had subject matter jurisdiction over the case as well as personal jurisdiction over Davco at the time the Ex Parte Order was entered. "In determining whether a court has subject matter jurisdiction, we focus on whether the court has authority over the general class of cases to which the particular case at issue belongs, rather than on the specific facts presented by any individual case." In re adoption of Baby E.Z., 2011 UT 38, ¶ 33, 266 P.3d 702. This case was a civil matter within the general jurisdiction of the district court. Utah Const. art. VIII, § 5; Utah Code Ann. § 78A-5-102(1) (LexisNexis 2012); see also Utah Code Ann. § 78A-2-201 (LexisNexis 2012) (allowing courts to "control in furtherance of justice the conduct of . . . persons in any manner connected with a judicial proceeding"). Personal jurisdiction was proper because the suit related to real estate located in Utah. Utah Code Ann. § 78B-3-205 (LexisNexis 2012) (listing "the ownership, use, or possession of any real estate situated in this state" as sufficient to confer personal jurisdiction). In addition, both Davco Management and Fisher were properly served with process and, later, with the Ex Parte Order itself. Finally, Utah Code section 78A-2-201, as well as Utah Rule of Civil Procedure 67, authorize district courts to enter orders of the Ex Parte Order's kind.

         ¶23 Davco's argument that the "specific facts presented" by Iota were legally insufficient to support the Ex Parte Order does not implicate the court's essential jurisdiction over the subject matter of the case or personal jurisdiction over the parties. Rather, it is simply a claim that the court erred in applying a rule of procedure. Accordingly, we conclude that the Ex Parte Order was not void ...


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