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Reperex, Inc. v. Coldwell Banker Commercial

Supreme Court of Utah

September 18, 2018

Reperex, Inc., Brad Ball, and David Ball, Respondents and Cross-Petitioners,
Coldwell Banker Commercial, Duane Bush, Child, Van Wagoner & Bradshaw PLLC, and J. Russton Bradshaw, Petitioners and Cross-Respondents.

          Third District, Salt Lake The Honorable Todd M. Shaughnessy No. 110916924

         On Certiorari to the Utah Court of Appeals

          J. Spencer Ball, Salt Lake City, for respondents and cross-petitioners Joseph M. Stultz, Salt Lake City, for petitioners and cross-respondents Coldwell Banker Commercial and Duane Bush

          Tyler S. Foutz, Salt Lake City, Shane W. Norris, Midvale, for petitioners and cross-respondents Child, Van Wagoner & Bradshaw PLLC and J. Russton Bradshaw

          Associate Chief Justice Lee authored the opinion of the court, in which Justice Himonas, Justice Pearce, Justice Peterson, and Judge Davis joined.

          Having recused himself, Chief Justice Durrant does not participate herein; District Judge Lynn W. Davis sat.


          Lee, Associate Chief Justice.

         ¶1 Reperex, Inc. bought a business in a deal brokered by Coldwell Banker Commercial. After the purchased business failed, Reperex sued Coldwell and Bradshaw, an accounting firm, for fraud, negligent misrepresentation, and breach of fiduciary duty. All of the claims against Coldwell were dismissed before trial. The negligent fraud and breach of fiduciary duty claims against Bradshaw were likewise dismissed. The remaining fraud claim went to trial, where Bradshaw prevailed.

         ¶2 Reperex appealed. The court of appeals affirmed as to Bradshaw but reversed as to Coldwell. Coldwell and Reperex filed cross-petitions for certiorari. We granted both petitions.

         ¶3 The first question presented in Coldwell's petition is whether Coldwell can be held liable despite a nonreliance clause in Coldwell's contract with Reperex. We determine that the nonreliance clause protects Coldwell from representations that it passed along from May's (the company Reperex purchased), but not from misrepresentations that Coldwell made independently. And we uphold the enforceability of this provision despite Reperex's public policy challenge to it. The second question presented by Coldwell is whether expert testimony was required to sustain Reperex's breach of fiduciary duty claim. We hold that it was not required because the misrepresentations alleged by Reperex were clearly material.

         ¶4 Reperex's cross-petition also raises two issues. The first concerns the question whether Reperex has a basis to assert a claim against Bradshaw under Utah Code section 58-26a-602, a statute that limits claims against CPAs to those in "privity of contract" or that can establish the applicability of the general requirement of privity. We affirm the court of appeals' decision that Reperex failed to establish a basis for overcoming the protections available to Bradshaw under this statute. The second question in Reperex's cross-petition is whether Reperex was entitled to a jury instruction on nondisclosure fraud. The court of appeals affirmed the district court's refusal to give such an instruction on the ground that Utah Code section 58-26a-602 "occupies the field" and forecloses a duty of disclosure by not expressly prescribing one. We reverse on this issue and remand for a determination of whether Bradshaw owed Reperex a duty under the common law.


         ¶5 Reperex, Brad Ball, and David Ball (collectively, "Reperex") purchased a company called May's Custom Tile in a transaction that was brokered by Coldwell Banker Commercial and Duane Bush (collectively, "Coldwell"). Coldwell represented both Reperex and May's seller, Steve May, in a "dual agency capacity."

         ¶6 In the course of the transaction, an accounting firm called Child, Van Wagoner & Bradshaw[1] provided some financial information to Reperex about May's. May's had previously hired Bradshaw to prepare its tax returns. And when another party had considered buying May's, Bradshaw had agreed to share the company's tax returns with that potential buyer. So when Reperex was looking into buying the company, May's asked Bradshaw to share "similar documents" with Reperex. Bradshaw allowed Reperex to look through those documents at its office in a due diligence meeting. The details of that interaction are disputed.

         ¶7 At some point after the purchase, May's went out of business. Reperex sued Coldwell, alleging various nondisclosures and misrepresentations. First, some of the financial statements Coldwell gave Reperex indicated that May's profits in 2006 were over $300, 000. But according to Reperex, the actual profits for that year were only $74, 000-a fact that Bradshaw had mentioned to Coldwell over email. Second, when Reperex asked whether May's had commingled funds with a sister business, Coldwell said it hadn't even though Bradshaw had told Coldwell earlier that in fact there had been a "lot of intercompany mingling." Third, Coldwell failed to inform Reperex that one of May's clients, which accounted for 40percent of its business, had gone bankrupt the year before. Fourth, Coldwell told Reperex that it would take the company 90 days to acquire the license they needed to run the business, when it actually took three years to qualify. On these facts Reperex asserted claims for fraud, negligent misrepresentation, and breach of fiduciary duty against Coldwell.

         ¶8 Reperex asserted the same three claims against Bradshaw. It alleged that Bradshaw had provided "attestation services" to Reperex and that it had made several misrepresentations at the due diligence meeting. Bradshaw contests most of these basic facts and asserts that it simply handed over documents and gave mostly noncommittal answers to the questions that Reperex asked at the meeting. Bradshaw denies that it provided "attestation services" or that there was an agreement to provide such services.

         ¶9 Coldwell moved for judgment on the pleadings, asserting that it was immune from liability because Reperex had disclaimed any reliance on Coldwell's representations. The contract between Coldwell and Reperex included an acknowledgment that Reperex was "relying on its own inspection of the involved business and the representations of the Seller and not of [Coldwell] and/or any of its agents or employees" with regard to any material facts about the business. The agreement also included an acknowledgment that Coldwell had not "verified the representations of the Seller, and should any representations be untrue, Buyer agrees to look solely to Seller for relief and to indemnify [Coldwell] . . . and hold them harmless in connection with all losses and damages caused to Buyer thereby." Reperex argued in response that this provision was effectively a disclaimer of liability for fraud, making it void as against public policy.

         ¶10 The district court granted judgment on the pleadings as to the fraud and negligent misrepresentations claims, but denied the motion as to the breach of fiduciary duty claim. In disposing of the fraud and negligent fraud claims, the court relied on an unpublished court of appeals opinion called Ruf, Inc. v. Icelandic Investments, Inc., 1999 UT App. 103, 1999 WL 33244779. In that case, the court of appeals held that releases like the one in this case are distinguishable from releases from liability for fraud, because they merely "define[] roles." Id. at *1 n.1. It reasoned that such provisions don't permit fraud-by disclaiming the essential element of reliance they instead render the plaintiff unable to prove fraud. Id. at *1.

         ¶11 At the close of expert discovery, Coldwell moved for summary judgment on the remaining breach of fiduciary duty claim. It argued that the claim failed as a matter of law because Reperex had not designated the requisite experts to establish the elements of that claim. The district court agreed and granted summary judgment.

         ¶12 Bradshaw moved for summary judgment on the claims against it as well. In so doing Bradshaw relied on Utah Code section 58-26a-602, which states generally that a CPA cannot be liable "to persons with whom they are not in privity of contract for civil damages resulting from acts, omissions, decisions, or other conduct in connection with professional services performed by that [CPA]." The statute also recognizes two exceptions: one for fraud claims and another where there is a writing indicating an intent to rely on the CPA's representations. Utah Code § 58-26a-602(1) & (2).

         ¶13 Bradshaw argued that this statute precludes liability, as Reperex was not in privity of contract or able to establish either exception. The district court agreed that Reperex could not show that it was in privity or that the writing exception was satisfied. It accordingly granted summary judgment on the negligent misrepresentation and breach of fiduciary duty claims. In light of the fraud exception, however, the district court allowed the fraud claim against Bradshaw to go to trial. Before trial, Reperex asked for a jury instruction addressing fraudulent nondisclosure-a theory of relief that requires a showing of the existence of a duty of disclosure. The district court declined to give the instruction on the basis of its determination (as to negligent misrepresentation) that Bradshaw did not owe Reperex a duty. And the jury subsequently ruled in Bradshaw's favor on the fraud claim.

         ¶14 Reperex appealed the dismissal of its claims against Coldwell. It also appealed the dismissal of its claims against Bradshaw and the denial of the request for a jury instruction on fraudulent nondisclosure.

         ¶15 The court of appeals affirmed as to the claims against Bradshaw but reversed as to the claims against Coldwell. As to Bradshaw, the court of appeals agreed with the district court that no privity had been established and that there was no writing sufficient to establish the writing exception. It also affirmed the district court's refusal to give a jury instruction on fraudulent nondisclosure.

         ¶16 On the claims against Coldwell, the court of appeals concluded that the nonreliance clause did not preclude Reperex's claims for fraud and negligent misrepresentation. It first identified circumstances in which a contract provision of this sort could be unenforceable on public policy grounds-as where a contract is procured by fraud in the inducement, or purports to insulate "a person against his own fraud." Reperex Inc. v. Child, Van Wagoner & Bradshaw, 2017 UT App 25, ¶ 22, 392 P.3d 905 (citing Miller v. Celebration Mining Co., 2001 UT 64, ¶ 10, 29 P.3d 1231; Lamb v. Bangart, 525 P.2d 602, 608 (Utah 1974)). And it held that Reperex had asserted claims for relief that "could reasonably support a finding" in its favor on these grounds. Id., ¶ 28.

         ¶17 The court of appeals also reversed the district court's summary dismissal of the fiduciary duty claim. It held that the details surrounding Coldwell's actions were not so complex that expert testimony was needed in order to establish a breach of fiduciary duty. It stated that "the complexity of the claim, not the complexity of the transaction, determines whether expert testimony is required." Id., ¶ 50. And it concluded that the fact pattern at issue presented a simple enough case of nondisclosure and materiality that experts were not needed.

         ¶18 Coldwell filed a petition for certiorari and Reperex filed a cross-petition. We granted both petitions.


         ¶19 Coldwell challenges the court of appeals's decisions (a) reversing the district court's dismissal of Reperex's fraud and negligent misrepresentation claims under a "nonreliance" provision of the parties' contract, and (b) reversing the dismissal of Reperex's fiduciary duty claims on the basis of Reperex's failure to designate an expert witness. Reperex, for its part, contends that the court of appeals erred (a) in affirming the dismissal of Reperex's claims against Bradshaw under the terms of Utah Code section 58-26a-602, and (b) in affirming the district court's decision refusing to give a jury instruction on fraudulent nondisclosure. We consider each argument in turn.

         A. The Enforceability and Applicability of the Nonreliance Provision

         ¶20 Coldwell first challenges the court of appeals's decision reversing the dismissal of Reperex's fraud and negligent misrepresentation claims on a motion for judgment on the pleadings. Our review of this decision is de novo. DIRECTV v. Utah State Tax Comm'n, 2015 UT 93, ¶ 11, 364 P.3d 1036 ("In reviewing a decision on a motion for judgment on the pleadings, we yield no deference to the district court's analysis.").

         ¶21 Coldwell's motion for judgment on the pleadings was based on a "nonreliance" provision in a contract entered into between Reperex and Coldwell. The ...

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