Gables at Sterling Village Homeowners Association, Inc. Appellant and Cross-Appellee,
Castlewood-Sterling Village I, LLC.,  Appellees and Cross-Appellants.
Direct Appeal Third District, Salt Lake The Honorable Judge
Elizabeth A. Hruby-Mills No. 100901740
Richard Vial, Edward W. McBride, Jr., Jeffery J. Owens, David
A. Cox, Salt Lake City, for appellants and cross-appellees
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
Parties to the Proceeding:
E. Minnock, Anna Nelson, Salt Lake City, for Lamoreaux
W. Gray, Michael W. Wright, Sandy, for B.A. Critchfield
Black Dunn, Wayne L. Black, Salt Lake City, for Beus Roofing,
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.
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
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 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
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
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.
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
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
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."
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
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.
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.
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.
AND STANDARDS OF REVIEW
20 The Association raises three issues on
appeal. 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 ...