1600 Barberry Lane 8 LLC and 1600 Barberry Lane 9 LLC, Appellants,
Cottonwood Residential OP LP, Cottonwood Capital Property Management II LLC, Cottonwood Capital Property Management Inc., and Daniel Shaeffer, Appellees.
District Court, Salt Lake Department The Honorable Robert P.
Faust No. 170904221
Kenneth J. Catanzarite and Andrew G. Deiss, Attorneys for
Matthew L. Lalli, Michael A. Gehret, W. Danny Green, and
Henry H. Oh, Attorneys for Appellees
Diana Hagen authored this Opinion, in which Judges David N.
Mortensen and Jill M. Pohlman concurred.
Plaintiffs 1600 Barberry Lane 8 LLC and 1600 Barberry Lane 9
LLC (the Owners), two tenant-in-common owners of an apartment
complex in Georgia (the Property), appeal the district
court's dismissal of their amended complaint. The Owners
sued Cottonwood Residential OP LP, Cottonwood Capital
Property Management II LLC, Cottonwood Capital Property
Management Inc., and Daniel Shaeffer (collectively,
Cottonwood) for breach of fiduciary duty or aiding and
abetting breach of fiduciary duty and breach of contract or
tortious interference with a contract. The Owners' claims
arise out of the property management agreement (the
Agreement) between the Owners and Todd Mikles and Daymark
Residential and Asset Management (collectively, Daymark),
contracted to provide property and asset management services
for the Property. The Owners assert that Cottonwood breached
the Agreement and its fiduciary duty to the Owners by
charging fees that exceeded market rates for property and
asset management services or, alternatively, that Cottonwood
induced or aided and abetted Daymark in doing so. We conclude
that the Owners have not stated a claim for breach of
fiduciary duty because the Agreement does not give rise to a
fiduciary duty on behalf of either Daymark or Cottonwood with
respect to the fees they charged for their services. And
because the Agreement contained no provision limiting
management fees to market value, we conclude that neither
Cottonwood nor Daymark breached the Agreement by charging
fees that allegedly exceeded market rate. Accordingly, we
affirm the district court's dismissal of the amended
complaint for failure to state a claim upon which relief
could be granted.
In 2008, the Owners each acquired a 1.478% interest in the
Property, which was a "312 unit garden apartment
community" located in a suburb of Atlanta, Georgia. At
that time, the Owners entered into the Agreement with Daymark
for property and asset management services relating to the
Property. The Agreement contained a choice of law provision
stating that any disputes arising under the Agreement would
be governed by Georgia law. In relevant part, the Agreement
2.1 Status of Property Manager.
The [Owners] and [Daymark] do not intend to form a joint
venture, partnership or similar relationship. Instead, the
parties intend that [Daymark] shall act solely in the
capacity of an independent contractor for [the Owners].
Nothing in [the] Agreement shall cause [Daymark] and [the
Owners] to be joint venturers or partners of each other, and
neither shall have the power to or obligate the other party
by virtue of [the] Agreement, except as expressly provided in
this Agreement. Nothing in [the] Agreement shall deprive or
otherwise affect the right of either party to own, invest in,
manage, or operate, or to conduct business activities which
compete with, the Property. . . .
[Daymark] shall be the sole and exclusive manager of the
Property to act on behalf of [the Owners] and shall manage,
operate and maintain the Property in an efficient, economic,
and satisfactory manner and shall manage the performance of
everything reasonably necessary for the proper operation of
the Property for the tenants thereof . . . [Daymark] shall
perform all services in a diligent and professional manner .
. . .
. . . .
2.14 Right to Subcontract Property Management
[Daymark] reserves the right, in its sole discretion, to
subcontract some or all of the property management functions
described herein to local property managers and certain other
parties. However, except as expressly provided herein, the
fees to be paid to [Daymark] under [the] Agreement are
inclusive of fees payable to such third parties . . . .
. . . .
9.1 Property Management Fee.
[Daymark], or an affiliate, shall receive, for its services
in managing the Property in accordance with the terms of
[the] Agreement, a monthly management fee . . . and a monthly
asset management fee . . . . The Property Management Fee
shall be up to three percent (3%) of Gross Revenues . . . and
the Asset Management Fee shall be up to two percent (2%) of
Gross Revenues . . . . The Property Management Fee is ...