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Gillett v. Brown

Court of Appeals of Utah

January 26, 2017

David K. Gillett and Majestic Airlines Inc., Appellants,
Boyd J. Brown, Sentry Financial Corporation, and SFC Aircraft Corporation I, Appellees.

         Third District Court, Salt Lake Department The Honorable L.A. Dever No. 080921211

          Stephen G. Homer, Attorney for Appellants.

          Christopher M. Ault and Zachary W. Powell, Attorneys for Appellees Boyd J. Brown and Sentry Financial Corporation.

          Judge Stephen L. Roth authored this Opinion, in which Judge J. Frederic Voros Jr. and Justice John A. Pearce concurred.[1]

          ROTH, Judge.

         ¶1 This case involves claims of breach of contract and fraud. In March 1995, after David K. Gillett-through his company Majestic Airlines Inc. (collectively, Gillett and Majestic)- defaulted on repayment of a loan to Sentry Financial Corporation (Sentry). Sentry received a substantial partial payment of the balance due from one of the loan's personal guarantors, Boyd J. Brown. Neither Sentry nor Brown disclosed Brown's guaranty payment to Gillett or Majestic. Sentry later commenced an action in the district court against Majestic to collect on the past-due loan, and after the court entered default judgment in Sentry's favor, Sentry liquidated Majestic's assets and certain personal property of Gillett's, all of which had been pledged as security for the loan. Sentry thereafter reimbursed Brown for the guaranty payment he had made. Brown then facilitated the settlement of a dispute over Sentry's handling of the disposition of Gillett's and Majestic's property in the aftermath of the default judgment, which resulted in a mutual release of claims by and among Sentry, Brown, Majestic, and Gillett (the Release).

         ¶2 Gillett discovered Brown's guaranty payment and Sentry's reimbursement in 2002. Gillett and Majestic thereafter brought a claim of breach of contract against Sentry and claims of fraud and breach of contract against Brown. On appeal, Gillett and Majestic contend that the district court erred in granting summary judgment in favor of Brown and Sentry. We affirm the district court's dismissal of Gillett and Majestic's claims. Sentry and Brown request an award of attorney fees and costs incurred on appeal. We decline to award Sentry and Brown their attorney fees on appeal, but Sentry and Brown are entitled to their costs.


         ¶3 Majestic was a Utah corporation and Gillett was its president and sole owner.[2] In 1994, Majestic found itself in a financial predicament. It owed Textron Financial Corp. (TFC) almost half a million dollars on a loan and was in default. In April 1994, Sentry entered into an agreement with Majestic (the Loan Agreement) to pay off the balance of Majestic's TFC loan and provide a small additional sum to Majestic-a total principal amount of $483, 102.43. In return, Majestic agreed to make thirty-six equal monthly payments of $15, 779.57 beginning on July 1, 1994, as well as an interim payment on or before that date to cover the period between the signing of the Loan Agreement and July 1. The loan was secured by interests in four cargo aircraft and four fuel trucks, all property of Majestic, as well as by Gillett's pledge of certain personal property of his own. Because Majestic had previously defaulted on its loan with TFC, Sentry required additional assurances-the personal guaranties of Gillett himself and Brown, a mutual acquaintance of both Gillett and Sentry's CEO.

         ¶4 Majestic failed to make the interim payment as well as several monthly payments, and by March 1995 Majestic had paid only about $57, 000 of the amount it then owed Sentry in principal, interest, and other fees under the Loan Agreement. Following Majestic's default, Sentry demanded that Brown fulfill his obligation as personal guarantor by paying $249, 964.88 (the guaranty payment) to Sentry. Brown made the guaranty payment in March 1995, but neither Sentry nor Brown informed Majestic of that fact. A few weeks later, Sentry obtained a default judgment against Majestic for the ''principal sum of $450, 119.70, '' plus interest and costs. That principal sum did not reflect Brown's guaranty payment. To recover on the default judgment, Sentry arranged for a public auction in October 1995 of the assets Majestic and Gillett had pledged as collateral for the Loan Agreement. At the auction, Majestic bought back four aircraft, and the parties agreed that Majestic's obligation would be reduced by that amount. The proceeds of the auction were otherwise remitted to Sentry, which then reimbursed Brown for his guaranty payment.

         ¶5 After the auction, Gillett became concerned about Sentry's post-sale handling of the proceeds. He sought an accounting from Sentry of how the auction's proceeds had been applied to Majestic's indebtedness, including whether there was any surplus due to Majestic above what Sentry was owed. In addition, Sentry had held back the bills of sale for the repurchased aircraft, apparently because, by its accounting, Majestic still owed money on the default judgment. Sentry directed Gillett to discuss the outstanding issues with Brown. Around the same time, despite the lack of bills of sale, Gillett and Majestic began to use the aircraft in various business dealings. For example, Majestic disassembled two of the planes and shipped sections of the engines out of state. It also attempted to negotiate leases for two of the aircraft with an aviation company operating out of Kenya.

         ¶6 By the summer of 1996, Gillett and Majestic still had not received a post-auction accounting of the proceeds from the collateral sale or the bills of sale for the planes, and Gillett contacted Brown, as Sentry had suggested. Brown informed Gillett that Majestic still owed Sentry $150, 000 and that Sentry would not permit Majestic to lease the two planes to the Kenyan aviation company. According to Gillett, Majestic cancelled those leases in reliance on Brown's assertions.

         ¶7 A few months later, Sentry presented Gillett with the Release in an effort to resolve the outstanding disputes. Gillett sought Brown's advice as to whether to sign the Release. Brown informed him that, among other things, Sentry's general counsel wanted to criminally prosecute Gillett personally for disassembling one of the aircraft and shipping the ''hot parts'' of the aircraft out of state, which Majestic had done believing that it owned the aircraft after the collateral foreclosure sale. As Gillett recounts, Brown advised Gillett to sign the Release and told Gillett that he would ''get things worked out with Sentry.'' In December 1996, Gillett and Sentry signed the Release, which provided that ''Sentry and Gillett mutually release, forever discharge and agree to hold harmless each other, and . . . Boyd Brown, an individual, from any and all claims, demands, damages, actions, counts, causes of action, or suits at law of whatever kind and nature, and from all costs and attorneys' fees.‛

         ¶8 More than five years later, in March 2002, Gillett discovered that Brown had made the guaranty payment to Sentry and that Sentry had not reduced Majestic's loan obligation accordingly. In 2007, Gillett and Majestic sued Sentry and Brown, alleging three claims for relief: breach of contract against Sentry; breach of contract against Brown; and fraud against Brown. The 2007 suit was dismissed without prejudice months later for failure to serve the complaint on the defendants within 120 days of filing. See Utah R. Civ. P. 4(b). Gillett and Majestic then refiled essentially the same claims against Sentry and Brown in September 2008.

         ¶9 In the 2008 suit, Gillett and Majestic claimed that Sentry had breached the Loan Agreement by failing to disclose the guaranty payment and commensurately reducing the amount Majestic owed on the loan, by failing to provide Gillett and Majestic with an accounting of the surplus proceeds from the collateral auction, and by colluding with Brown to improperly induce Gillett and Majestic to execute the Release. The 2008 complaint alleged breach of contract against Brown, as well, but also added a fraud claim against him. Gillett and Majestic alleged that Brown had breached the Loan Agreement by ''failing to abide by the terms of the [agreement]'' and violating the implied covenant of good faith and fair dealing. In addition, they claimed that Brown had made ''false and fraudulent statements concerning the status of the outstanding delinquencies'' on the loan, which led to the loss of the aircraft and the auction proceeds and finally to Gillett and Majestic's execution of the Release. In particular, they alleged that in connection with the negotiation of the Release, Brown had made ''intentionally misleading and false statements‛-namely, that Gillett and Majestic ''were still indebted'' to Sentry at the time, that Sentry was threatening to criminally prosecute Gillett, and that Gillett and Majestic had no right to lease the two aircraft for use in Africa. They asserted that Brown made these statements to induce them to, among other things, pay Sentry additional money and sign the Release, and that Gillett and Majestic had acted and relied upon these statements to their detriment.[3]

         ¶10 Gillett and Majestic eventually filed a motion for partial summary judgment ''against Sentry . . . only'' for ''breach of contract . . . committed in violation of the implied covenant of good faith and fair dealing.'' Sentry opposed the motion, and Sentry and Brown filed a joint cross-motion for summary judgment against Gillett and Majestic. Sentry and Brown asserted that Gillett and Majestic's claims should be dismissed for several reasons, including that Majestic's claims were not within the allowable scope of the ''winding up'' of its business affairs as a dissolved corporation and that Gillett and Majestic's claims were barred by statutes of limitation as well as by the Release.

         ¶11 In response to the cross-motions for summary judgment, the district court ''dismissed] with prejudice all claims'' against Sentry and Brown, effectively denying Gillett and Majestic's motion and granting Sentry and Brown's cross-motion. In doing so, the court made several determinations. First, it concluded that, because Majestic was ''no longer a viable corporation'' and its ''winding up period had expired, '' it lacked standing to ''assert any claims.'' The court determined, however, that Gillett had ''the right to assert Majestic's claims'' as its successor in interest. The court then determined that all three of the complaint's substantive claims-the breach of contract claim against Sentry and the breach of contract and fraud claims against Brown-were barred. The court concluded that the breach of contract claims were barred on two independent grounds. First, the court determined that the applicable statute of limitations had run on the breach of contract claims. Applying what the court referred to as a ''first breach'' approach, the court concluded that the statute of limitations on the breach of contract claims began to run in 1995 when Gillett and Majestic defaulted on their obligations to Sentry under the Loan Agreement, a default that occurred before any alleged default by Sentry in connection with the collateral disposition or the Release. The court then determined that the six-year statute of limitations applicable to claims based upon written instruments had expired in 2001, thus barring the breach of contract claims.

         ¶12 Second, the court determined that the Release barred the breach of contract claims. Though Gillett and Majestic claimed the Release was invalid, the court decided that the statute of limitations on that claim had run its course before the first complaint was filed. Specifically, the court found that the limitations period for Gillett and Majestic's fraud claim, the only claim challenging the validity of the Release, began to run in 2002 when Gillett and Majestic first became aware of the factual basis for their claim. Applying the three-year fraud statute of limitations, the court determined that the fraudulent inducement claim expired in 2005-before Gillett and Majestic filed their first complaint-and therefore that the passage of time barred any challenge to the validity of the Release. As a result, the still-valid Release precluded Gillett and Majestic's contract claims against all the defendants.

         ¶13 The court accordingly dismissed with prejudice all claims in the 2008 complaint. Gillett and Majestic filed a combined rule 59(b) motion for a new trial and rule 60(b) motion to set aside the district court's judgment (the post-judgment motions). The district court denied the motions and affirmed its prior ruling granting summary judgment in favor of the defendants, concluding that Gillett and Majestic's '''objections' [were] merely a veiled attempt to take a second bite at the apple.‛


         ¶14 Gillett and Majestic now appeal the district court's grant of summary judgment in favor of Sentry and Brown. ''We review a district court's grant of summary judgment for correctness.'' IHC Health Services, Inc. v. D & K Mgmt, Inc., 2008 UT 73, ¶ 15, 196 P.3d 588. And because Gillett and Majestic's post-judgment motions essentially sought reconsideration of the district court's summary judgment decision, to the extent that they purport to separately appeal them, the standard of review is the same. Cf. State v. Parker, 872 P.2d 1041, 1044 (Utah 1994) (‚In determining the character of a motion, the substance of the motion, not its caption, is controlling.‛).


         ¶15 Gillett and Majestic contend that the district court made several errors in dismissing their claims: (1) the district court incorrectly applied the three-year fraud statute of limitations to their breach of contract claims against Sentry and Brown when it should have applied the six-year limitations period applicable to claims based on a written instrument; (2) the court failed to toll the running of the statute of limitations on the claims against Brown while he resided out of the state; (3) the court erred in ruling that Majestic's claims devolved to Gillett after Majestic's dissolution as a corporation and were not valid corporate ''winding up'' activities; (4) the court incorrectly applied the ''first breach'' doctrine to bar Gillett and Majestic's breach of contract claims against Sentry and Brown; and (5) the court failed to recognize disputes of material fact that precluded summary judgment.

         ¶16 Gillett and Majestic acknowledge that the ''winding up'' and the ''first breach'' issues become relevant only if we reverse the district court's dismissal of the breach of contract and fraud claims as time-barred. Indeed, they characterize the district court's conclusions on these points as ''peripheral, '' ''unnecessary, '' and ''irrelevant'' ''[i]f the summary judgment on the 'statute of limitations' bar is affirmed, '' noting that they have raised these issues on appeal ''only to avoid future 'law of the case' problems if the case is remanded for trial.'' Accordingly, we first consider whether the district court correctly applied the pertinent statutes of limitation to Gillett and Majestic's breach of contract claims against Sentry and Brown and their fraudulent inducement claim against Brown. Because we conclude that the district court correctly ruled that the claims against both defendants are time-barred and that there are no ...

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