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NetDictation LLC v. Rice

Court of Appeals of Utah

December 5, 2019

NetDictation LLC and Anita Karan, Appellants,
Angela Rice and NRT Commercial Utah LLC, Appellees.

          Third District Court, Salt Lake Department The Honorable Todd M. Shaughnessy No. 120905273

          Donald L. Dalton, Attorney for Appellants

          Stephen W. Whiting and David N. Jardine, Attorneys for Appellee Angela Rice

          Joseph M. Stultz and Daniel C. Dansie, Attorneys for Appellee NRT Commercial Utah LLC

          Judge Gregory K. Orme authored this Opinion, in which Judges Jill M. Pohlman and Diana Hagen concurred.

          AMENDED OPINION [*]

          ORME, JUDGE

         ¶1 This appeal arises from a poorly constructed provision of a promissory note that was attached to a larger, integrated contract. The first issue is a question of contract interpretation. The district court ruled in plaintiff Angela Rice's favor, granting her partial summary judgment and reserving for a bench trial the determination of what constituted "a reasonable time under the circumstances" for payment. Defendant NetDictation, LLC appeals the court's grant of partial summary judgment, which we affirm. The second issue arises out of NetDictation's cross-complaint against Rice's business broker, defendant NRT Commercial Utah, LLC, which does business as Coldwell Banker Commercial LLC (Coldwell Banker). NetDictation alleged that Coldwell Banker breached the limited duty it owed to NetDictation by imperfectly conveying NetDictation's concerns about the provision of the promissory note at issue to NetDictation's attorneys, who drafted it. The district court granted Coldwell Banker's motion for summary judgment, which ruling we likewise affirm.


         ¶2 On December 30, 2011, NetDictation and Anita Karan (collectively, NetDictation) entered into an Asset Purchase and Sale Agreement (the APSA) to purchase a medical transcription business, Accu-Write, Inc., from Rice.[2] Coldwell Banker brokered the transaction, representing Rice.

         Rice's Claim Against NetDictation

         ¶3 Section 1.3 of the APSA listed the purchase price as $98, 000, of which NetDictation was to pay $5, 000 as a deposit, $20, 000 as a down payment, and the remaining $73, 000 at closing. NetDictation was to deliver the $73, 000 to Rice in the form of "two executed promissory notes," one in the amount of $25, 000 (the $25, 000 Note) and the other in the amount of $48, 000 (the $48, 000 Note). Both notes were attached as exhibits to the APSA. The APSA also contained an integration clause, which provided that the APSA (with its attached schedules and exhibits) "sets forth the entire understanding of the parties" and "supersedes all prior oral or written agreements, instruments and understandings."

         ¶4 The $25, 000 Note stated that it was to be paid in "[a] balloon payment . . . due and payable to [Rice] on or before April 1, 2012." The $48, 000 Note, on the other hand, contained a more complex repayment structure. NetDictation was to make payment on the note in monthly installments over a 24-month period, the amount of which varied depending on Accu-Write's post-sale income. The $48, 000 Note provided the following method of calculating the monthly payment, hereinafter referred to as the Payment Provision:

FOR VALUE RECEIVED, NetDictation, LLC . . ., hereby irrevocably promises and agrees to pay to the order of [Rice] . . . the principal sum of Forty Eight Thousand Dollars ($48, 000.00) . . . all in accordance with the terms and conditions set forth below.
1. Monthly payments, in the amount of Thirty-Five Percent (35%) of the monthly income of [Accu-Write], . . . based on the following formula:
1.1. Fifty Thousand Dollars ($50, 000.00) down payment divided by Twenty Four (24) months equals Two Thousand Eighty Three Dollars and Thirty Three Cents ($2, 083.33) down payment adjustment. The average monthly income is Eleven Thousand Six Hundred Sixty Six Dollars ($11, 666.00) multiplied by Thirty Five Percent (35%) equals Four Thousand Eighty Three Dollars and Thirty One Cents ($4, 083.31) minus Two Thousand Eight[y] Three Dollars and Thirty Three Cents ($2, 083.33) down payment adjustment comes to One Thousand Nine Hundred Ninety Nine Dollars and Ninety Eight Cents ($1, 999.98) per month for Twenty Four (24) Months. This payment will be adjusted accordingly if the monthly income of [Accu-Write] increases or decreases.

         ¶5 The $48, 000 Note further provided that in the event of NetDictation's default, Rice "may at [her] sole option consider the entire unpaid principal balance and accrued but unpaid interest . . . at once . . . due and payable without notice," and that "all amounts owing and past due hereunder, including without limitation principal (whether by acceleration or in due course), interest, late fees and other charges, shall, if permitted by applicable law, bear interest at the rate of twelve percent (12%) per annum both before and after judgment."

         ¶6 Following closing, Accu-Write did not maintain its past profitability. For that reason, up until the initiation of the current lawsuit, no payments came due on the $48, 000 Note pursuant to the Payment Provision. Nevertheless, NetDictation made payments totaling $3, 376.25 on the $48, 000 Note in January, February, and March of 2012.

         ¶7 By April 2012, the parties' relationship had deteriorated due to Accu-Write's poor performance, and NetDictation ceased making payments on either note in June. Rice subsequently filed suit in August, alleging that NetDictation still owed $4, 000 on the $25, 000 Note that had come due in April and that NetDictation had failed to pay the monthly installments on the $48, 000 Note in April, May, June, and July.[3]

         ¶8 Rice and NetDictation filed cross-motions for summary judgment. The primary issue was whether NetDictation's duty to pay the $48, 000 obligation was contingent on Accu-Write's profitability.[4] Rice argued that because the APSA provided for a fixed purchase price of $98, 000, the $48, 000 Note also represented a fixed amount, of which only the installment payment amounts were variable based on profitability, not the ultimate liability on the note. And to the extent the full amount was not satisfied by the end of the note's 24-month term, Rice argued, quoting Watson v. Hatch, 728 P.2d 989 (Utah 1986), that "the law implies that [the time of performance] is to be done within a reasonable time under the circumstances." See id. at 990. NetDictation, on the other hand, contended that $50, 000 of the $98, 000 purchase price was fixed-consisting of the $5, 000 deposit, the $20, 000 down payment, and the $25, 000 Note-but that the balance reflected in the $48, 000 Note, was "explicitly variable" under the terms of the Payment Provision.

         ¶9 The district court granted Rice's motion for summary judgment "in part." The court stated that the APSA, "particularly Paragraph 1.3. and sub-paragraphs thereunder in conjunction with the Promissory Notes . . . reflected an absolute and fixed purchase amount." Although noting that "the payment terms of the $48, 000 Promissory Note are undoubtedly problematic," and "it is difficult . . . to understand why they were drafted the way they were," the court nevertheless concluded that the note "reflected $48, 000 defined as a principal sum," and "indicate[d] it was for a fixed amount" when read in conjunction with its other provisions-for example, those providing that the note "is transferable and allows prepayment." But because "[t]he $48, 000 Promissory Note does not contain a payment schedule or balloon provision" in the event "the gross monthly income of [Accu-Write was] not sufficient to warrant a monthly payment during the 24 month period," the court concluded that "no payments would have been due until a reasonable time after the end of that period." The court accordingly granted Rice partial summary judgment, reserving for trial the determination of what constituted "a reasonable time under the circumstances" for the balance of the $48, 000 Note to become due.

         ¶10 Following a bench trial, the district court awarded Rice the principal sum due on the $48, 000 Note, interest on that amount, a $2, 400 late fee, interest on the late fee, and $1, 433.65 in costs, [5] totaling $76, 224.49.[6]

         NetDictation's Cross-claim Against Coldwell Banker

         ¶11 Approximately one month after the district court partially granted Rice's motion for summary judgment, NetDictation filed a cross-complaint against Coldwell Banker, [7] alleging that Coldwell Banker had "breached its duty of due, professional care to" NetDictation. Specifically, Rice and NetDictation had agreed to "arrange to have an Attorney prepare closing documents to consummate the transaction." To that end, Coldwell Banker arranged for a law firm (Law Firm)[8] to represent NetDictation in the transaction and to draft the APSA and promissory notes in accordance with the "Offer for Purchase and Sale of Assets" agreement (the Offer to Purchase), which both parties had signed and which had the Payment Provision attached as an addendum. Although Coldwell Banker retained Law Firm to represent NetDictation in the transaction, Law Firm never directly communicated with NetDictation. Instead, Coldwell Banker apparently took it upon itself to act as an intermediary for all communication between Law Firm and NetDictation.

         ¶12 Law Firm drafted the closing documents and sent them to Coldwell Banker, who forwarded them to NetDictation for review. In response, referring to the Payment Provision of the $48, 000 Note, NetDictation emailed Coldwell Banker raising the following concern:

The document makes no mention of the way the "earn out" will be paid. As it stands now it seems to indicate that I owe the entire money on the day of closing. To be honest . . ., I feel like I want to use my own attorney to draft this since I just completed a deal this summer. Thoughts?

         ¶13 Instead of forwarding the email verbatim to Law Firm, Coldwell Banker informed Law Firm of NetDictation's concerns in a separate email, on which it copied NetDictation, stating, "With reference to [the $48, 000] Note will you include the guidelines for payment I sent to you in the [Offer to Purchase] as an exhibit? It outlines how payments will be calculated and paid." Law Firm replied, but only to Coldwell Banker: "I believe I typed the provision almost verbatim into [the $48, 000 Note]." Coldwell Banker then communicated to NetDictation that the Payment Provision, as it appeared in the addendum to the Offer to Purchase, had been incorporated into the $48, 000 Note. Nonetheless, NetDictation notified Coldwell Banker a few days later that it had forwarded the closing documents to another attorney ...

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