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Veracity Networks LLC v. MCG Southern LLC

Court of Appeals of Utah

April 4, 2019

Veracity Networks LLC, Appellant,
MCG Southern LLC, Appellee.

          Third District Court, Salt Lake Department The Honorable Robert P. Faust No. 160907558

          Richard D. Burbidge and Carolyn J. LeDuc, Attorneys for Appellant

          Brennan H. Moss, Attorney for Appellee

          Judge Jill M. Pohlman authored this Opinion, in which Judges Gregory K. Orme and Michele M. Christiansen Forster concurred.


          POHLMAN, JUDGE:

         ¶1 In this interpleader case, Veracity Networks LLC appeals the district court's judgment awarding attorney fees to MCG Southern LLC. Veracity contends that the district court erred in awarding attorney fees under the attorney fees provision and the indemnification provision of the parties' lease agreement. We agree with Veracity that the court erred in awarding fees under the attorney fees provision, but we are unable to review the court's decision under the indemnification provision due to a lack of findings and analysis. We therefore vacate the award and remand for further proceedings consistent with this opinion.


         ¶2 Veracity leased certain commercial property from MCG. In 2013, MCG filed a complaint for unlawful detainer and other claims against Veracity (the Underlying Action), relying on a written lease agreement (the Lease). The district court granted summary judgment to MCG, concluding that, among other things, Veracity did not have standing to contest the validity of the Lease. Veracity appealed that decision to this court. See MCG S. LLC v. Veracity Networks LLC, 2018 UT App 33, ¶¶ 9-10, 415 P.3d 1174.

         ¶3 While the appeal was pending, Veracity filed a complaint for interpleader[1] and thereby initiated the present action (the Interpleader Action). In the complaint's general allegations, Veracity described the Underlying Action. It acknowledged the district court's ruling, but it "maintain[ed] [that the Lease] is invalid" and noted the pending appeal. Veracity then alleged that after the district court's ruling, it paid monthly rent to MCG, albeit "under protest." It also alleged that after Banner Bank- MCG's assignee of the rent payments-sent notice of assignment of rents and demanded direct payment of rents, Veracity made rent payments to Banner Bank, also "under protest." Finally, it alleged that Shawn Robinson, an attorney for MCG, claimed to have an attorney's lien against the commercial property and demanded that Veracity make rent payments to him. Veracity therefore named MCG, Banner Bank, and Robinson as defendants in the Interpleader Action.

         ¶4 Given the "competing demands for payment of rent" and the resulting potential for "multiple liabilities against Veracity," Veracity alleged in the only count of its complaint that although it had "an obligation to pay monthly rent, in a disputed amount," it was "unable to determine the proper party to whom the rent should be paid." Veracity explained the nature of its dispute, alleging that "Veracity disputes any obligation to pay rent beyond 1.2 times the monthly mortgage payment owed by MCG to Banner Bank and retains an interest in any rents paid beyond that amount." And Veracity concluded with the allegation that it was necessary to interplead the current and future rent payments with the district court, because Veracity was "in doubt as to which claim or claims of the parties are legally correct and have priority, and as [it] also claims an interest in certain portions of the rent payments."

         ¶5 In its prayer for relief, Veracity requested that "the Court order that Veracity may interplead the funds at issue with the Court"; that "each of the Defendants be restrained from instituting any action against Veracity for the recovery of funds at issue"; that the court "adjudge to whom the funds should be paid"; and that "Veracity be discharged from all liability under the premises." It also requested that "Veracity be awarded its reasonable fees and costs as provided by law" and that "the Court order such other relief as the Court may deem proper."

         ¶6 In answering Veracity's complaint, Robinson admitted that "his Lien is inferior to the obligation owed to Banner Bank and withdr[ew] his claim for rents." Based on a subsequent stipulation, the district court dismissed Robinson from the case.

          ¶7 Banner Bank answered the complaint by asserting that "any rents that Veracity admits to owing to MCG under any rental or lease agreement should be immediately paid to Banner Bank." It also urged the court to dismiss it from the Interpleader Action "because there is no interpleader dispute existing between Banner [Bank] and MCG."

         ¶8 MCG moved to dismiss the Interpleader Action. According to MCG, Banner Bank and MCG agreed that the rents owed by Veracity "should be paid directly to Banner Bank," and therefore "there is no dispute to the funds." MCG further argued that "interpleader requires the plaintiff or stakeholder to disclaim any interest in the funds," that Veracity improperly "continue[d] to maintain an interest in the funds," and that through the Interpleader Action Veracity was making an "inappropriate collateral attack on" the ruling in the Underlying Action. MCG thus asserted that the Interpleader Action was "improper and should be dismissed."

         ¶9 Veracity opposed MCG's motion to dismiss. It stated that "it has been faced with competing demands as to whom rents should be paid and has asserted as much in its complaint, thus stating a claim for interpleader." According to Veracity, "there [was] still a dispute as to the recipient of Veracity's rental payments," and "[i]f MCG and Banner Bank were to stipulate to the proper recipient of the interpleaded funds and future rents and if MCG were to amend its Answer to acknowledge Banner Bank's right to the interpleaded funds and future rents, Veracity would likely agree to dismissal and disbursement of the interpleaded funds to Banner Bank," "subject to reservation of Veracity's claimed interests." With respect to Veracity's claimed interests, Veracity asserted that it "disputes the amount of rent claimed by MCG but, nonetheless, has paid the amount claimed, albeit under protest so as to preserve its rights to recoup overpayments" and to "avoid any argument of waiver down the road." Veracity further explained that "[r]eserving its rights and interests to overpayments is entirely consistent with modern interpleader"[2] and that its "reservation of rights does not preclude Veracity's interpleader action."

         ¶10 The district court granted MCG's motion to dismiss, concluding that "there [was] no present basis for an interpleader suit as the interpled Defendants [did] not dispute among themselves as to which of them is entitled to the funds." The court explained that neither Robinson nor MCG disputed Banner Bank's rights to the rent payments and consequently Banner Bank has an "uncontested assignment of rents and is entitled to the rents." The court also noted "the other issues of the complaint have already been determined in another case which is currently on appeal."

         ¶11 After the Interpleader Action was dismissed, MCG moved for an award of its attorney fees, relying on two provisions of the Lease. First, under the attorney fees provision in Paragraph 22.13, MCG argued that as a prevailing party it should receive attorney fees from Veracity in an action brought to interpret the Lease. In support, MCG asserted that "not only was [the Interpleader Action] brought to determine to whom the rent should be paid under the Lease, but Veracity also put the terms of the Lease at issue in its Complaint." Veracity did so, MCG asserted, "by specifically requesting that [the district court] interpret the Lease in its favor, either by recognizing and accepting its arguments that Veracity should not be held liable for the face value rental amount on the Lease or by holding that Veracity has no liability under the Lease whatsoever for its occupancy of the premises." MCG's assertions relied on the portions of Veracity's complaint disputing the amount due under the Lease, claiming to "retain an interest" in rents, and asking for its liability to be discharged. See supra ¶¶ 3-5. Second, under the indemnification provision in Paragraph 11.1 of the Lease, MCG argued that it should receive attorney fees because the litigation was commenced by Veracity, MCG was made a defendant to the case, and "[t]here has been no willful misconduct or gross negligence by MCG."[3]

         ¶12 Veracity opposed MCG's motion for attorney fees, arguing that the plain terms of the Lease do not provide for an award of fees to MCG. According to Veracity, the Interpleader Action was not an action to "enforce or interpret any of the provisions" of the Lease and therefore did not meet any of the predicates for an award of attorney fees under the attorney fees provision. Contrary to MCG's claim that Veracity's complaint put the Lease's interpretation at issue, Veracity stated that, in its complaint, it "simply included its recitation of the underlying facts and litigation [in the Underlying Action] as background information for the Court . . . and to preserve its position that MCG's subject lease is invalid and the rental amounts are in dispute."[4] Veracity also argued that the indemnification provision similarly does not authorize an award of attorney fees to MCG for the reason that MCG had committed "willful misconduct and gross negligence." Specifically, Veracity argued that MCG did not show that its failure to meet its obligations, which included making its monthly mortgage payments and paying its prior counsel, "was anything other than willful or negligent." Veracity further complained that it had "had no opportunity to conduct discovery as to MCG's failure to meet its obligations." In its reply memorandum in support of its motion for attorney fees, MCG did not respond to Veracity's arguments and allegations related to the indemnification provision.

         ¶13 The district court granted MCG's motion for attorney fees, stating, "Pursuant to Rule 73 of the Utah Rules of Civil Procedure and Paragraphs 22.13 and 11.1 of the Lease, MCG is entitled to attorney fees from Veracity . . . ." Veracity appeals.

         ¶14 During the pendency of the present appeal, this court reversed the district court's summary judgment in the Underlying Action. Concluding that the district court erred in ruling that "Veracity could not defend [the] lawsuit by contesting the validity of the lease," this court remanded the Underlying Action to the district court for further ...

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