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Keystone Insurance Agency, LLC v. Inside Insurance, LLC

Supreme Court of Utah

May 29, 2019

Keystone Insurance Agency, LLC, Appellant,
Inside Insurance, LLC, Shumway Insurance Group, Inc., Jonathan Shumway, Spencer Shumway, and Cabe Atkinson, Appellees.

          On Direct Appeal Fourth District, Utah County The Honorable Christine S. Johnson No. 150400767

          Aaron P. Dodd, Provo, for appellants

          Barry N. Johnson, Daniel K. Brough, Salt Lake City, for appellees

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



         ¶1 Keystone Insurance Agency appeals the district court's decision to exclude all evidence of its alleged damages, pursuant to Utah Rule of Civil Procedure 26(d)(4), in its suit against Inside Insurance. Additionally, Keystone appeals the district court's denial of its motion for reconsideration. Lastly, Keystone appeals the district court's dismissal with prejudice of Inside's counterclaim seeking expulsion of Keystone as a member of Inside.

         ¶2 Because Keystone failed to provide Inside with a viable computation of its claimed damages in compliance with Utah Rule of Civil Procedure 26(a)(1)(C), we affirm the district court's exclusion of Keystone's damages evidence under rule 26(d)(4). We also affirm the district court's denial of Keystone's motion for reconsideration after finding that the facts of this case are readily distinguishable from those of Williams v. Anderson, 2017 UT App 91, 400 P.3d 1071. Lastly, we hold that the district court did not abuse its discretion by dismissing Inside's expulsion counterclaim with prejudice pursuant to Utah Rule of Civil Procedure 41(a)(2) and (c).


         ¶3 On May 23, 2012, Shumway Insurance Group, Inc. (SIG) and Keystone entered into an operating partnership agreement. SIG was owned and controlled by Scott Shumway and Keystone was owned and controlled by Chad Johansson. Pursuant to the agreement, SIG and Keystone became members of Inside, with SIG owning seventy-five percent of Inside and Keystone owning twenty-five percent. Additionally, the agreement provided that Keystone would receive a 90/10 commission split on all new and renewal business written by or brought over by Keystone's principal, Johansson. Keystone would also receive a fifty percent commission from the initial fee for any satellite office brought on by Keystone. Nearly three years later, a disagreement relating to commission splits led to the termination of Johansson as an agent and sales representative of Inside. Keystone, however, remained a member of Inside despite the ousting of its principal from Inside. Following Johansson's departure, Keystone issued a demand letter to Inside, requesting access to review and copy Inside's organizational documents, income tax returns, and financial records. Following Inside's refusal to meet Keystone's demands to be treated as a member of Inside, access Inside's financial records, or be paid under the operating agreement, Keystone filed its complaint in the district court on May 27, 2015.

         ¶4 In the complaint, Keystone requested that the district court declare Keystone a member of Inside and order SIG to buy out Keystone's membership interest in Inside at its fair market value. Keystone also brought a number of other claims against Inside, alleging breach of contract, gross negligence, and breach of fiduciary duty. Keystone pled that it had sustained damages in an amount not less than $300, 000. On May 28, 2015, Keystone filed a motion for a temporary restraining order and a preliminary injunction relating to Inside's refusal to make certain documents and materials available to Johansson. The district court did not enter the injunction, but instead ordered that Inside furnish Johansson access to his company laptop or give him a copy of the hard drive so that he could obtain information regarding his customer contacts. On June 19, 2015, Inside provided Johansson a copy of the hard drive. Inside did not furnish Keystone with its financial information.

         ¶5 On June 22, 2015, the district court issued a Notice of Event Due Dates. It set February 29, 2016, as the deadline for completing fact discovery and July 4, 2016, as the deadline for completing expert discovery. Keystone served its initial disclosures on July 6, 2015. Keystone did not set forth a damages computation in its initial disclosures.[1] In response, Inside sent Keystone a letter on August 3, 2015, requesting that Keystone disclose a computation of its damages pursuant to rule 26(a)(1)(C).[2] Following an amendment to Keystone's disclosures, which still did not include a computation of damages, Inside again requested a computation of damages from Keystone on September 22, 2015. On October 14, 2015, Keystone responded to Inside's request for a computation of damages by explaining that it was working to determine the fair market value of its interest in Inside as of the date of Johansson's termination. Additionally, Keystone said that it was "in the process of obtaining some expert assistance" to assist in this determination. Keystone further explained that it was unable to state what amounts it was owed because Keystone did not have access to the information necessary to calculate the commissions entitled to Johansson. Keystone stated that once it received that information from Inside "either voluntarily . . . or through discovery," it would provide its damages computation.

         ¶6 On January 27, 2016, the parties agreed to extend fact discovery until March 31, 2016. Relevant to the third issue on appeal, on December 4, 2015, Inside asserted several counterclaims and third-party claims against Keystone and Johansson. Inside asserted claims for tortious interference with contractual relations, requested an injunction prohibiting Keystone from interfering with Inside's business, and sought the expulsion of Keystone from Inside. On March 2, 2016, Keystone served its first set of discovery requests, formally requesting production of all of Inside's financial records and QuickBooks records. On March 3, 2016, Inside amended and supplemented its initial disclosures to produce documents relevant to its counterclaims and third-party claims. Among those documents was a 197-page spreadsheet that tracked the commissions related to Inside clients previously associated with Keystone and Johansson from April 20, 2015, to the date of production. Inside further produced a document summarizing the 197-page spreadsheet. This summary document showed that, according to Inside's records, Keystone's total commissions from its new and renewal business between April 23, 2015, and February 19, 2016, was $74, 796.14, meaning that Keystone's ninety percent commission split was valued at $67, 316.53.

         ¶7 The parties ultimately agreed to extend fact discovery to May 26, 2016, and to extend expert disclosures to June 15, 2016. Keystone served a final supplement to its initial disclosures on April 21, 2016, but that supplement still did not include a computation of damages. Keystone did not furnish a computation of damages in any disclosure or discovery response during fact discovery.[3] On June 15, 2016, the final day of expert disclosures, Keystone disclosed Jeremiah Grant as an expert witness. Grant, using two different technical models, valued Keystone's twenty-five percent interest in Inside to be between $133, 228 and $330, 718 or between $77, 728 and $192, 948, respectively. Grant also estimated that Keystone's unpaid ninety percent commission split from May 2015 through March 2016 was $67, 177.25 and that Keystone was owed $3, 561 for unpaid pre-termination commissions and $34, 908.95 for unpaid overrides.

         ¶8 On July 15, 2016, Inside, claiming that Keystone had failed to disclose a computation of damages during discovery, filed a motion in limine seeking exclusion of all of Keystone's damages-related evidence pursuant to rule 26(d)(4). On November 15, 2016, the district court granted Inside's motion and excluded all of Keystone's damages-related evidence. The ruling also granted Inside's motion for partial summary judgment as to all of Keystone's claims with the exception of Keystone's request for declaratory relief to confirm its membership in Inside and its statutory rights to records inspections. Keystone then filed a Rule 54(b) Motion to Change Ruling and Order on December 13, 2016, which the district court denied.

         ¶9 On July 21, 2017, Keystone filed a Motion to Reconsider Ruling and Order Due to New Caselaw. In that motion Keystone contended that the spreadsheet disclosed by Inside constituted notice, to Inside, of the damages Keystone was seeking-at least as to the unpaid commissions Keystone sought as damages. Keystone argued that a recent court of appeals decision, Williams v. Anderson, 2017 UT App 91, 400 P.3d 1071, constituted new authority that required the district court to reverse its earlier ruling excluding Keystone's damages evidence. The district court denied that motion in an order entered August 15, 2017.

         ¶10 Previously on July 14, 2017, in light of the exclusion of Keystone's evidence of damages, Inside filed a motion to dismiss its own counterclaims, including its claim to expel Keystone as a member of Inside. The district court dismissed those counterclaims with prejudice on August 15, 2017. The parties subsequently stipulated to dismiss Keystone's ...

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