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Bodell Construction Co. v. First Interstate Financial LLC

Court of Appeals of Utah

October 18, 2018

Bodell Construction Company, Appellee,
First Interstate Financial LLC, First Interstate Financial Utah LLC, First Interstate Financial LLC, and Paul Thurston, Appellants.

          Third District Court, Salt Lake Department The Honorable Mark S. Kouris No. 120901496

          Karra J. Porter, Kristen C. Kiburtz, and James C. Lewis, Attorneys for Appellants

          Jeffrey L. Silvestrini, Stephen T. Hester, and Bradley M. Strassberg, Attorneys for Appellee

          JUDGE DIANA HAGEN authored this Opinion, in which JUDGES MICHELE M. CHRISTIANSEN FORSTER and DAVID N. MORTENSEN concurred.

          HAGEN JUDGE

         ¶1 A jury found that First Interstate Financial LLC, First Interstate Financial Utah LLC, First Interstate Financial LLC, and Paul Thurston (Thurston), [1] defrauded Bodell Construction Company (Bodell) by misrepresenting a real estate investment. Bodell discovered the misrepresentations after learning that McGillis Investment Company (McGillis) had sued Thurston over the same investment (the McGillis Litigation). The McGillis Litigation is central to each claim of error presented on appeal. First, Thurston challenges the admission of evidence relating to the McGillis Litigation, claiming that any probative value was substantially outweighed by the risk of unfair prejudice. Second, Thurston contends that he was entitled to a directed verdict because the undisputed facts established that the statute of limitations on Bodell's fraud claims began to run as a matter of law before Bodell discovered the McGillis Litigation. Third, Thurston challenges the jury's punitive damages award on due process grounds, claiming that the award was intended to punish him for conduct that formed the basis of the McGillis Litigation. We affirm.


         ¶2 In 2006, Thurston persuaded Bodell to invest $1.2 million in the development of condominiums in San Francisco, known as 310 Townsend (the 310 Townsend Project). Thurston represented to Bodell that the 310 Townsend Project did not have any current or foreseeable problems. Thurston also told Bodell that he had personally invested over $4 million of his own "cash equity" in the project. Bodell considered it significant that Thurston had "skin in the game" by placing his own money at risk and relied upon that representation in deciding to invest.

         ¶3 In truth, Thurston had bought his interest in the 310 Townsend Project by borrowing over $4 million from McGillis. To obtain the loan, Thurston misrepresented to McGillis that he was acting on behalf of a group of developers from southern California. McGillis believed that Thurston had vetted the borrowers and paid him a fee for finding and underwriting the loan.

         ¶4 Before approaching Bodell, Thurston had told McGillis that the southern California developers needed more time to repay the loan because the project was experiencing permit delays and cost overruns. McGillis agreed to extend the loan for a $1.2 million payment. Thurston then asked Bodell to contribute the $1.2 million without disclosing the current problems with the 310 Townsend Project, the existence of the McGillis loan, or the fact that Bodell's investment was needed to extend the McGillis loan.

         ¶5 After Bodell invested, Thurston provided Bodell's representative with a letter explaining that the 310 Townsend Project was experiencing delays, permit problems, and cost overruns. When Bodell's representative questioned why the project was not as Thurston had represented, Thurston claimed that he was as surprised as Bodell and "had no idea that there were issues like this" when he encouraged Bodell to invest. Thurston told Bodell that they had both been misled. Believing that they were "teammates" and "on the same side," Bodell's representative continued to work with Thurston for several months in an attempt to salvage the investment. But, in 2007, Bodell asked Thurston for its money back. Thurston apologized for not realizing the problems with the 310 Townsend Project and returned a $50, 000 premium that Bodell had paid for the opportunity to invest.

         ¶6 Several years later, Bodell filed this action against Thurston for an accounting and breach of the covenant of good faith and fair dealing. As part of his initial disclosures, Thurston produced documents that referenced the McGillis Litigation. Bodell obtained transcripts from the McGillis Litigation and discovered the existence of the McGillis loan, Thurston's representations to McGillis that the 310 Townsend Project was experiencing delays and cost overruns before Bodell invested, and that Thurston needed $1.2 million to extend the McGillis loan. Upon learning these additional facts, Bodell amended its complaint to allege fraud and fraudulent concealment. Specifically, Bodell alleged that it had been fraudulently induced into investing in the 310 Townsend Project and would not have invested if Thurston had disclosed all material aspects of the deal.

         ¶7 Before trial, Thurston filed a motion in limine seeking to exclude "any reference" to the McGillis Litigation. Bodell opposed the motion, arguing that the McGillis Litigation was relevant to its fraud and fraudulent concealment claims. Specifically, in reviewing the McGillis Litigation transcripts, Bodell had learned that Thurston knew of the problems with the 310 Townsend Project at the time he asked Bodell to invest and that Thurston had not invested his own cash equity but instead needed Bodell's investment to secure an extension on the McGillis loan. Bodell argued that this evidence was also relevant to refute Thurston's statute-of-limitations defense because it would show it could not have reasonably discovered the fraud before obtaining the McGillis Litigation transcripts.

         ¶8 At the pretrial motion hearing, Thurston conceded that evidence of the McGillis Litigation, as it pertained to the 310 Townsend Project and the McGillis loan, was relevant to Bodell's fraud claims and statute-of-limitations argument. Accordingly, Thurston narrowed his motion in limine and sought to exclude only two categories of evidence relating to the McGillis Litigation: (1) the "dozens and dozens" of other transactions at issue in the McGillis Litigation that were unrelated to the 310 Townsend Project and (2) "information concerning the outcome of that case, the verdict, [and] the findings of fact." Bodell indicated that the parties were "largely in agreement on the scope of an order in limine if there's going to be one" but argued that it was unnecessary at this point. The court agreed, indicating that it would rule on objections to the evidence at trial.

         ¶9 Thurston expressed concern that, without an order in limine, some of Bodell's witnesses, who harbored animus against him, might intentionally blurt out prejudicial information. The court indicated that Thurston's concern could be addressed by having Bodell instruct its witnesses about "staying on track" and answering only the question posed. Bodell indicated it had already talked to its witnesses and they understood that. Based on those representations, the court denied the motion.

         ¶10 Bodell's representative was the first witness at trial. When he was asked about the McGillis Litigation, Thurston objected, claiming the evidence was irrelevant and prejudicial. In response, Bodell argued that the testimony was relevant because "[i]t goes to how he discovered the fraud." The court overruled Thurston's objections and allowed the representative to testify as to what "he learned about through the lawsuit," but it directed Bodell's counsel to "be very shallow" in discussing the lawsuit itself.

         ¶11 Bodell's representative went on to testify that he learned from the McGillis Litigation that Thurston had not invested his own money in the 310 Townsend Project as he represented, that the McGillis loan was the source of the funds, and that Bodell's investment was used to get an extension on that loan. The representative further testified that he learned Thurston had told McGillis that there were problems with the 310 Townsend Project that required an extension of the loan even though Thurston had represented to Bodell that there were no such problems. Thurston objected to this testimony on hearsay grounds, but the court overruled those objections.

         ¶12 On cross-examination, Thurston questioned the representative about Bodell's responses to certain interrogatories. Specifically, he asked what information Bodell had to support the claim that Thurston had defaulted on the McGillis loan. The representative answered:

That he was perhaps going to default. I don't know exactly, but yes. I learned through that trial, learned that-that's where I learned about-one of the sources of learning about the big default, I mean the cheating McGillis out of $2 million that he was successful in winning, a fraud against Mr. Thurston.

         Thurston did not object or move to strike the answer as nonresponsive but instead asked the witness to "limit [his] answer to [the] question."

         ¶13 Bodell requested a sidebar at which it suggested that Thurston "opened the door with that question. He has asked him about the result of the trial however you look at it." The court agreed, stating, "That's precisely what you're doing . . . . You're opening the door to let them bring the trial in." Thurston conceded, "It's in." Thurston explained that this line of questioning was designed to show that there was no support for some of the claims made in Bodell's answers to interrogatories. The court surmised that "this area that [Thurston was] getting into now probably doesn't require [further discussion of] the [McGillis] trial" and allowed Thurston to finish his cross-examination. The court indicated that it would address the matter the following morning outside of the jury's presence.

         ¶14 When testimony resumed, Thurston again asked about the basis for Bodell's assertion that Thurston was in default on the McGillis loan, specifically asking whether Bodell had any documentation to that effect. Bodell's representative answered, "Well, I'm not aware of anything directly, just what I understood occurred in the McGillis case where they won the fraud judgment against [Thurston] related to this and other investments." Thurston did not object or move to strike this testimony.

         ¶15 The following morning, Thurston argued that the testimony regarding the outcome of the McGillis Litigation was not only prejudicial but false. He explained that the verdict in the McGillis Litigation was for breach of fiduciary duty, not fraud, and that it was impossible to determine whether the jury's verdict even related to the 310 Townsend Project given the number of transactions at issue in that case. Thurston explained that he did not move to strike the testimony because he did not want to draw attention to it, but that he did ...

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