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Gables at Sterling Village Homeowners Association Inc. v. Castlewood-Sterling Village I, LLC

Supreme Court of Utah

February 9, 2018

Gables at Sterling Village Homeowners Association, Inc. Appellant and Cross-Appellee,
Castlewood-Sterling Village I, LLC., [1] Appellees and Cross-Appellants.

         On Direct Appeal Third District, Salt Lake The Honorable Judge Elizabeth A. Hruby-Mills No. 100901740

          A. Richard Vial, Edward W. McBride, Jr., Jeffery J. Owens, David A. Cox, Salt Lake City, for appellants and cross-appellees

          Heinz J. Mahler, Shane T. Peterson, and Smith D. Monson, Salt Lake City, for appellees and cross-appellants Castlewood-Sterling Village I, LLC, Castlewood Development LLC, Castlewood Development, Inc., Castlewood Builders, LLC, Richard L. Harris, and Jeffrey A. Duke

         Other Parties to the Proceeding:

          Joseph E. Minnock, Anna Nelson, Salt Lake City, for Lamoreaux Construction Corporation

          Albert W. Gray, Michael W. Wright, Sandy, for B.A. Critchfield Construction, LLC

          Susan Black Dunn, Wayne L. Black, Salt Lake City, for Beus Roofing, Inc.

          Elisabeth M. McComber, Douglas P. Farr, Salt Lake City, for R&JL Siding and Management, LLC

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

          Due to her retirement, Justice Durham did not participate herein; and District Court Judge Jennifer A. Brown sat.

          Justice Petersen became a member of the Court on November 17, 2017, after oral argument in this matter, and accordingly did not participate.




         ¶ 1 Sometime after the property developer who built the Gables at Sterling Village turned that planned unit development over to The Gables at Sterling Village Homeowner's Association (the Association), property owners began to notice problems. Concrete was cracking and buckling. Decks became unsafe to walk on. Stucco began peeling off of the units and stones fell off of pillars. The Association filed this action against the developer, the builders, and their principals alleging, among other things, breaches of fiduciary duty and of the implied warranty of habitability. The property developer asserted a counterclaim for indemnification. The district court granted summary judgment against the Association, reasoning that the Association lacked contractual privity with the property developer. The district court later granted the property developer's motion for directed verdict on the Association's claim for breach of fiduciary duty. None of the Association's claims survived summary judgment or directed verdict. The property developer filed a post-trial motion for indemnification of attorney fees, which the district court granted.

         ¶ 2 The Association appealed and the property developer cross-appealed. Because we affirm that the district court did not err by granting summary judgment and directed verdict, we do not reach the merits of the property developer's cross-appeal. We conclude, however, that the developer should have tried his indemnification claim rather than raise it by post-trial motion, and we therefore vacate the district court's award of attorney fees. We award the property developer its costs on appeal under rule 34 of the Utah Rules of Appellate Procedure.


         ¶ 3 Jeffrey A. Duke owned and operated several business entities-Castlewood-Sterling Village I, LLC, Castlewood Development, LLC (collectively, Developer), and Castlewood Builders, LLC. Through these entities, Duke developed the Gables at Sterling Village, a planned unit development comprised of seventy-eight residential units in fifteen buildings. Once construction was complete, Developer drafted and recorded the Declaration of Covenants, Conditions, and Restrictions of the Gables (the Declaration).

         ¶ 4 Under the Declaration, Developer retained control of the Association until a certain number[2] of units had been sold. At that point, Developer turned control of the Association over to its members.

         ¶ 5 The Declaration gave the Association responsibility for maintaining the common areas and certain parts of the living units:

The Association shall maintain, repair, and replace all landscaping and improvements in the Common Areas . . . . The Association shall provide exterior maintenance of the Living Units including but not limited to painting, repair, replacement and care of roofs, gutters, downspouts, and exterior building surfaces.

         ¶ 6 To fulfill its obligation, the Declaration authorized the Association to levy assessments on its members. Additionally, the Declaration gave the Association the authority to use assessment funds to "establish[] and fund[] a reserve to cover major repair or replacement of improvements within the Common Areas." Developer also drafted and recorded the Association's Articles of Incorporation (the Articles). The Articles contained an indemnification provision that provided for indemnification of board members and officers under certain circumstances:

The Corporation shall indemnify any and all of its officers or members of the Board of Trustees, or former officers or members of the Board of Trustees, or any person who may have actually and necessarily incurred by them in connection with the defense of any action, suit or proceeding in which they or any of them are made parties, or a party, by reason of being or having been members of the Board of Trustees or officers of the Corporation, except in relation to matters as to which any member of the Board of Trustees or officer or former officer or member of the Board of Trustees or person shall be adjudged in such action, suit or proceeding to be liable for negligence or misconduct in the performance of duty.

          ¶ 7 Developer turned over control of the Association to its members in 2008. At this point, the Association had $16, 581 in its reserve account. After turnover, the Association retained an expert to conduct a reserve study to determine whether Developer had adequately funded the reserve account before handing the Association the reins. The reserve study indicated that by 2009, the reserve account's ideal balance would have been roughly $45, 000. But the expert also concluded that the $16, 581 starting balance "indicate[d] a fair reserve fund position."

         ¶ 8 Shortly after the Association took control, a multitude of construction defects manifested themselves, apparently caused by water intrusion into the structural components of the living units. The Association retained a construction expert, who estimated the total cost of repair for the defects in the common areas and exterior surfaces of the units to be about $4, 600, 000. Over the next several years, the Association levied assessments on its members and paid for various repairs at the Gables with money from the Association's operating and reserve accounts.

         ¶ 9 In 2010, the Association sued Developer, alleging, among other things, breach of fiduciary duties, breach of contract, breach of express and implied warranties, and joint-venture liability between Developer and Duke. Developer raised a counterclaim for indemnification, arguing that the Articles of Incorporation entitled it to indemnification.

         ¶ 10 In 2011, Developer filed a third-party complaint against several of the subcontractors, including B.A. Critchfield Construction, LLC (Critchfield), Beus Roofing, Inc. (Beus), and R&JL Siding and Management, LLC (R&JL), alleging breach of contract, negligence, and indemnity.[3]

         ¶ 11 This matter was heavily litigated with each party filing several pre- and post-trial motions. Three of those motions are relevant to this appeal: Critchfield's motions for summary judgment against the Association and Developer; Developer's motion for a directed verdict; and Developer's post-trial motion for indemnification of attorney fees.

         Motions for Summary Judgment

         ¶ 12 Critchfield moved for summary judgment against the Association, asserting that the Association lacked privity of contract with the Developer and that the Association could not prove a prima facie case of breach of implied warranty. R&JL joined in the motion. Critchfield and Beus moved for summary judgment against Developer on the same or similar grounds.

         ¶ 13 In response, the Association argued that the Declaration created privity of contract. Two months after filing its opposition to Critchfield's motion for summary judgment, the Association moved for leave to file a supplemental brief. In its proposed supplemental brief, the Association asserted for the first time that the Real Estate Purchase Contracts (REPC) and warranty deeds also created privity of contract between the Association and Developer. The district court denied the Association's motion.

         ¶ 14 The district court granted Critchfield's motion against the Association and Developer. The district court concluded that the Declaration did not establish privity with Developer, noting that "nothing in the Declaration . . . speaks to whether [the Association] has the right to sue third parties for damages to the 'Living Units' on behalf of the homeowners."[4]

         ¶ 15 The Association filed a motion for reconsideration, which the district court found was "largely comprised of a recitation of the identical facts, exhibits and legal analysis" that the district court addressed in its original ruling on the motion for summary judgment. The Association also argued that the district court erred in denying its motion for leave to file a supplemental argument. The district court denied the Association's motion to reconsider.

         ¶ 16 The district court explained that "[t]he parties were given the appropriate opportunity to file dispositive motions and raise any issues or objections to those motions" and the Association sought to supplement its opposition "well after briefing in this matter was complete." The court concluded that "it would be inequitable to allow [the Association] a 'second bite at the apple' to defeat summary judgment based solely on its failure to include a legal argument in support of its Opposition where the underlying facts and law were known at the time of filing the initial Opposition." The district court also explained that consideration of the Association's additional briefing "would not change the Court's ruling, " because the REPC did not "indicate any intent by the contracting parties to . . . confer third-party beneficiary status" on the Association.

         Motion for Directed Verdict

         ¶ 17 The Association presented its breach of fiduciary duty claims against Developer at trial. Duke, the Gables' property manager, the Association's president, several construction experts, an architectural expert, and a former Association board member testified. At the conclusion of the Association's case, Developer moved for directed verdict on several grounds. The district court granted Developer's motion, concluding that the Association needed expert testimony to establish the standard of care Developer owed to the Association. As the Association had failed to forward any evidence to establish the standard of care, the district court dismissed the Association's claims against Developer with prejudice.

         Motion for Indemnification

         ¶ 18 Duke, as the owner and operator of the various Developer entities, filed a post-trial motion seeking indemnification from the Association of his defense costs and attorney fees. Duke asserted that the Association's Articles required the Association to indemnify him for attorney fees and costs because the court determined that he was not liable for negligence or misconduct in the performance of his duty as a member of the board of the Association. The Association argued that Duke's duties stemmed from his role as developer and not as a member of the Association's board, and was therefore not entitled to indemnification. The Association also argued that because "the attorneys' fees and costs are themselves part of the merits of [Duke's] contractual indemnification claim, " Duke needed to have raised his indemnification claim at trial. The district court granted Duke's motion, concluding that the indemnification's language provides for the indemnification of "any and all of its officers or members of the Board of Trustees, or former officers or members of the Board of Trustees." The district court reasoned that because Duke is a former trustee of the Association, he is entitled to indemnification. The district court awarded attorney fees and costs to Duke.

         ¶ 19 The Association appealed. Developer cross-appealed.


         ¶ 20 The Association raises three issues on appeal.[5] First, the Association argues that the district court erred when it granted Critchfield's motion for summary judgment. We review "a summary judgment for correctness, giving no deference to the trial court's decision." Bahr v. Imus, 2011 UT 19, ¶ 15, 250 P.3d 56.

         ¶ 21 Second, the Association contends that the district court erred when it granted Developer's motion for directed verdict. "This [c]ourt's standard of review of a directed verdict is the same as that imposed upon a trial court." Merino v. Albertsons, Inc., 1999 UT 14, ¶ 3, 975 P.2d 467 (alteration in original) (citation omitted). "A trial court is justified in granting a directed verdict only if, examining all evidence in a light most favorable to the non-moving party, there is no competent evidence that would support a verdict in the non-moving party's favor." Id. "A motion for directed verdict can be granted only when the moving party is entitled to judgment as a matter of law." Id. (internal quotation marks omitted).

         ¶ 22 Third, the Association posits that the district court erred when it granted Duke's motion for indemnification of his defense costs and attorney fees. "Whether a party may recover attorney fees in an action is a question of law that we review ...

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