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Chard v. Chard

Court of Appeals of Utah

December 19, 2019

STEPHANIE D. CHARD AND TRAINING TABLE RESTAURANTS INC., Appellants and Cross-appellees,
v.
KENT J. CHARD, PETER M. ENNENGA, DON SORENSEN, THOMAS E. LOWE, LOWE HUTCHINSON & COTTINGHAM PC, TRAINING TABLE LAND AND HOLDING LC, AND TT THREE LC, Appellees and Cross-appellants.

          Third District Court, Salt Lake Department The Honorable Robert P. Faust No. 160903525

          Andrew G. Deiss and John Robinson Jr., Attorneys for Appellants and Cross-appellees

          Byron G. Martin and Steven M. Edmonds, Attorneys for Appellees and Cross-appellants Thomas E. Lowe and Lowe Hutchison & Cottingham PC

          Thomas R. Barton, Alex B. Leeman, and Mark O. VanWagoner, Attorneys for Appellees and Cross-appellants Kent J. Chard, Peter M. Ennenga, Don Sorensen, Training Table Land and Holding LC, and TT Three LC

          Judge Ryan M. Harris authored this Opinion, in which Judges Jill M. Pohlman and Diana Hagen concurred.

          HARRIS, JUDGE

         ¶1 Since December 2016, Utahns have no longer been able to order a hearty plate of chili cheese fries from a restaurant table telephone. This unfortunate circumstance resulted from the sudden closure of the Training Table restaurants, which had been open for business along the Wasatch Front since the late 1970s. The closure, in turn, was the result of a bitter intra-family dispute between a father and a daughter, both of whom owned a 50% interest in the restaurants. The dispute between them eventually reached the courts, when Stephanie D. Chard sued her father Kent J. Chard and various related individuals and entities. Kent[1] responded by filing a counterclaim, as well as causing two of his companies- which owned the land underneath the restaurants-to file a separate complaint seeking to evict the restaurants for nonpayment of rent.

         ¶2 The landlord entities prevailed in the eviction proceedings, resulting in the closure of the restaurants. Later, the district court, on summary judgment, dismissed all of Stephanie's claims against Kent and the other defendants, as well as all the counterclaims filed by Kent and the landlord entities. Both sides now appeal, and seek reinstatement of some of their dismissed claims. For the reasons set forth below, we affirm the dismissal of many of the claims, but reverse the district court's dismissal of a few claims, at least one on each side, and remand for further proceedings.

         BACKGROUND[2]

         ¶3 Kent, along with three other partners, founded the Training Table restaurant chain in 1977, and operated the restaurants through Training Table Restaurants Inc. (TTR). While TTR, at various times, had as many as ten restaurants, it did not own the real estate that any of the restaurants occupied. The underlying properties were owned by two limited liability companies-TT Three LC (TT3) and Training Table Land and Holding Company LC (TTL&H) (collectively, Landlords)- formed by Kent and in which Kent owned a significant interest.[3]Over the years, and certainly during all relevant times, Landlords realized most of their income from the rents that TTR paid them, and Kent drew the bulk of his personal income from distributions from Landlords.

         ¶4 Because the restaurants were the family business, Stephanie had grown up around them, even working part-time for the business when she was a teenager, and had grown quite familiar with the restaurants, their locations, and their operation. In November 2012, Stephanie was a recent college graduate looking to formally enter the family business, and she used part of an inheritance to purchase a 50% interest in TTR from a third party for $100, 000. The purchase price was derived from a professional appraisal of the business, which pegged the value of the entire business at $200, 000. Upon completion of the purchase, Stephanie became a director of TTR and an equal partner with Kent in the restaurants (but acquired no interest in the properties or Landlords).

         ¶5 At that point in time, Kent was TTR's president, and TTR's board of directors consisted of Stephanie, Kent, Peter M. Ennenga, and Don Sorensen. Both Ennenga and Sorensen were longtime friends of and advisers to the Chard family, with Ennenga acting as a legal and business advisor, and Sorensen serving as the family accountant. Ennenga had been a licensed attorney until he was disbarred in 2001; after that, he continued to advise the Chard family, often through his new position as a paralegal for the law firm Lowe Hutchinson & Cottingham PC (LHC). For many years, LHC had served as TTR's legal counsel, performing extensive work on Kent's and TTR's behalf. The parties agree that LHC and Ennenga represented Kent during the 2012 purchase transaction, but the parties disagree as to whether Ennenga also represented Stephanie for the purposes of that transaction.

         ¶6 On November 16, 2012, shortly after Stephanie acquired her interest in the restaurants, TTR's board of directors held a meeting to discuss certain changes to the restaurant leases that Landlords had proposed, including an increase in the monthly rents that TTR would owe to Landlords. Across TTR's five then-operating locations, the proposal would increase TTR's monthly rent from $29, 000 per month to $30, 500 per month. All four members of TTR's board participated in the meeting, including Stephanie and Kent. The decision to raise the rent was based on a recent appraisal of Landlords' properties, and motivated by Landlords' desire to keep the rent consistent with nearby locations. Stephanie, as a member of the board, had access to this appraisal, and would have been aware of the underlying reasons for the proposed rent increase. During the meeting, TTR's board unanimously approved the proposed changes, which were memorialized in a series of written addenda (the Addenda) to the leases, and were made effective as of November 1, 2012.

         ¶7 Thereafter, TTR paid the increased monthly rent to Landlords, without complaint, for about three years. During this time, Kent continued to serve as TTR's president, and both Kent and Stephanie continued to serve as members of its board of directors. In 2014, however, at Stephanie's request, she was elevated to TTR's chief operating officer, and assumed a greater role in the company's day-to-day operations. A few months later, in January 2015, Kent stepped down as TTR's president, and Stephanie took his place, thereby assuming complete control of TTR's operations.

         ¶8 Soon after taking operational control of TTR, Stephanie began consulting with a different law firm (New Firm) regarding her family's overall estate plan. Initially, New Firm represented the Chard family collectively, and also provided corporate advice to TTR through Stephanie. In December 2015, New Firm sent a letter to Kent recommending a business succession plan (the Succession Plan). Under the terms of the proposed Succession Plan, Stephanie would purchase the remaining interests in TTR and Landlords on an installment basis, thus allowing Kent an income and eventually giving Stephanie complete ownership and control of not only TTR, but of Landlords as well. New Firm proposed enacting the Succession Plan effective January 1, 2016.

         ¶9 After conferring with Ennenga and Sorensen, Kent determined that the Succession Plan was not in his best interest, and therefore rejected it. In response, Stephanie began exploring with New Firm how to put "pressure" on Kent to accept her proposal, telling New Firm to "get aggressive" and "unleash the beast." Stephanie and her lawyers eventually sent a letter to LHC, with a copy to Kent, stating that New Firm (rather than LHC) was now counsel to TTR, and requesting that Ennenga and Sorensen step down from TTR's board of directors. In the letter, New Firm contended that Ennenga and Sorensen had conflicts of interest due to their ownership interests in TT3 and that Ennenga had been engaging in the unauthorized practice of law.

         ¶10 Stephanie knew that her strategy might not be well received, because Ennenga and Sorensen had been Kent's friends and advisors for several decades. And, as it happened, Kent did not respond well to Stephanie's demand: shortly after learning of it, Kent attempted suicide and was hospitalized for about two weeks. While Kent was recovering, Stephanie visited Kent in the hospital and brought documents for Kent to sign to effectuate the removal of Ennenga and Sorensen from the board of TTR. Kent refused to sign the documents.

         ¶11 In addition to sending a demand letter, Stephanie also directed TTR to begin withholding rent payments to Landlords, asserting generally that the rent amounts that had been approved in November 2012 were unfairly high. Specifically, she claimed that she had purchased her interest in TTR without meaningful legal representation, and that the Addenda had not been drafted and reviewed by an attorney prior to execution. Stephanie again floated the Succession Plan as a potential solution to these problems, and indicated that TTR would continue to withhold rent payments until the issues identified in the Succession Plan were resolved.

         ¶12 Kent was not opposed, in principle, to selling the business entities to Stephanie, but was of the view that the price Stephanie was offering was too low. After negotiations with Stephanie broke down, Landlords (at Kent's direction) began shopping the properties to third parties. A few weeks later, after locating a third-party buyer, Kent informed Stephanie that Landlords had decided to accept a competing offer to purchase Landlords' properties for a higher price than Stephanie had offered. Stephanie's response was to file a lawsuit.

         ¶13 Stephanie's lawsuit, as eventually amended, included claims against not only Kent, but also against Landlords, Ennenga, Sorensen, and LHC, and included claims personal to Stephanie, as well as derivative claims she purported to assert on behalf of TTR. The causes of action included breach of fiduciary duty, quiet title, failure to hold court-ordered shareholders meetings, unjust enrichment, judicial removal of directors, legal malpractice, securities fraud, common law fraud, and negligent misrepresentation. Though the claims varied in type, the underlying grievance motivating most of the claims was the asserted unfairness of the rental rates agreed upon in November 2012. In addition, soon after filing her lawsuit, Stephanie recorded a series of lis pendens against Landlords' properties.

         ¶14 Kent, Landlords, Ennenga, Sorensen, and LHC responded to Stephanie's lawsuit by moving to dismiss her claims; in addition, Kent and Landlords filed counterclaims of their own for, among other things, wrongful lien, breach of fiduciary duty, and infliction of emotional distress. Landlords also asked the court to release the lis pendens, which were holding up the sale of the properties to the third-party buyer. Following a hearing in September 2016, the district court dismissed Stephanie's derivative claims, and ordered the lis pendens to be released. In addition, the court dismissed the malpractice claim against Ennenga, reasoning that a legal malpractice claim could not lie against a person who was not a licensed attorney.

         ¶15 Meanwhile, TTR (at Stephanie's direction) continued to withhold rent from Landlords with regard to three of the five then-operating restaurants. In October 2016, after the district court's ruling on the initial motions, Landlords filed a separate lawsuit seeking to evict TTR from the three locations where TTR was still behind on its rent obligations. In response, TTR filed an answer alleging various defenses, including its claim that the amount of monthly rent was unfair.

         ¶16 Eventually, the district court consolidated Landlords' eviction complaint into the main action brought by Stephanie. However, the court kept the eviction action separate for purposes of discovery and trial, limiting the scope of the eviction action to resolution of the issue of possession of the properties as well as damages related to Kent's unlawful detainer claim against TTR. But because one of TTR's main defenses to the eviction action was the unfairness of the rent amounts, the district court believed that the fairness of the rents was at issue in the eviction action as well as in the main case, noting that litigation of that issue in connection with the eviction part of the case could very well have preclusive effect on the remainder of the case. Indeed, the court stated that a "determination on the rent values and the validity of these leases" in Landlords' favor in the eviction proceedings would "eliminate" some of Stephanie's claims in the main case, and that she would not "be able to raise and bring up again" those claims in the main case.

         ¶17 The eviction portion of the litigation was ready for trial first, and the court scheduled a three-day trial on those issues to take place in January 2017. On the first day of trial, however, TTR announced that it was prepared to stipulate to judgment in the eviction portion of the case. In the process of discussing the stipulated judgment, the district court expressed its view that, by stipulating to a judgment in the eviction case, TTR was in effect conceding "that the leases were not inappropriate," and that it would not later be allowed to argue to the contrary in the main case. In response, TTR's counsel (who also represented Stephanie in the main case) stated that he was "in agreement with that," because "all of the defenses that are asserted . . . have been adjudicated and decided if judgment . . . is entered" in the eviction case. Indeed, the district court later stated, in a written order, that "[a]t the eviction hearing, the Court clearly barred any claim connected to the issue of rent." Following the eviction hearing, the district court entered judgment against TTR and in favor of Landlords for past due rents, in the amount of $256, 824.53 plus attorney fees. TTR appealed that judgment, and this court entered an order affirming it.

         ¶18 While the eviction piece of the lawsuit was being litigated, the parties conducted discovery in the main action. While all parties submitted initial disclosures, as required by rule 26(a) of the Utah Rules of Civil Procedure, neither Stephanie nor Kent[4]included a computation of damages in connection with their disclosures. See Utah R. Civ. P. 26(a)(1)(C). Stephanie's damages disclosure stated simply that "Plaintiffs have not yet calculated their damages" and that they "reserve the right to amend or supplement their computation of damages after the completion of all discovery in this case." Kent's initial disclosure was no better, merely stating that "Defendants have not yet calculated their damages," and that they "reserve the right to supplement this response." Neither Stephanie nor Kent included in their initial disclosures specific categories of damages or any computation methodologies.

         ¶19 Stephanie later sent Kent some interrogatories regarding damages, and Kent responded in March 2017, some five months before the fact discovery cutoff date. Kent's responses included detailed information about his claimed damages, including categories of damages, computation methodologies, and calculations of amounts claimed. Kent did not send Stephanie any damages interrogatories, and therefore Stephanie did not respond to any, nor did she supplement her initial disclosures prior to the conclusion of the fact discovery period.

         ¶20 In August 2017, on or around the day fact discovery ended, both parties filed supplemental disclosures. Kent's supplement included some updated dollar figures for some categories of damages, but in the main provided essentially the same information already set forth in his March 2017 discovery responses. Stephanie's supplement, by contrast, provided a lot of information that had never before been disclosed, including categories of damages and computation methodologies.

         ¶21 While Stephanie's initial disclosures were quite spare with regard to damages, those disclosures identified a number of witnesses who had "information supporting [her] claims and defenses," and whom she "expect[ed] to call in [her] case in chief" at trial. Two of the witnesses she listed were attorneys at New Firm that she had consulted for advice not only regarding TTR but also regarding issues unique to her. She disclosed that one of the attorneys had "knowledge concerning matters in the pleadings, including but not limited to TTR and the damages caused to TTR by defendants' actions." She disclosed that the other attorney had "knowledge concerning matters in the pleadings, including but not limited to Ennenga's breaches of duty to TTR and Stephanie."

         ¶22 In response to these broad disclosures that Stephanie's own attorneys had relevant information about "matters in the pleadings" and that Stephanie intended to call them as trial witnesses, Kent issued subpoenas to the attorneys and asked to take their depositions. The two attorneys-but not Stephanie- filed objections, arguing that the subpoenas would require them to disclose information that was protected by attorney-client privilege. Kent then filed a Statement of Discovery Issues asking the court to overrule the attorneys' objections, and therein made two basic arguments: first, that because Kent was a director of TTR, he was entitled to access all communications between TTR and its lawyers; and second, that even if the legal advice the attorneys had given was for Stephanie alone, Stephanie had waived any privilege when she broadly disclosed her attorneys as witnesses she intended to call at trial regarding "matters in the pleadings." The court agreed with both of Kent's arguments, and ruled, as relevant to the second argument, that Stephanie had placed her attorneys' "knowledge and the communications they had with [her] at issue" when she disclosed them as witnesses on all issues in the case, and that she had thereby waived any privilege. Following the court's ruling, the attorneys each complied with the subpoena, produced documents, and sat for a deposition.

         ¶23 About a year later, after discovery was complete, Stephanie filed a motion asking the court to prevent Kent from using her attorneys' documents at trial, asserting that- even though the court had already ruled that the privilege had been waived-those documents were nevertheless protected by the attorney-client privilege. The court issued a written ruling on the motion, apparently granting the motion as to Stephanie's personal privilege, but denying the motion as to documents related to TTR's privilege. However, the court concluded its ruling by stating that the privilege regarding "[t]he information from [New Firm's] attorneys has been waived . . . when [Stephanie] named the attorneys to be witnesses in this case."

         ¶24 While discovery was ongoing in the main action, Landlords-judgment creditors of TTR as a result of the judgment entered in the eviction action-took steps to execute on some of TTR's assets, including any claims or causes of action that TTR might assert in the main action. Landlords put those claims up for auction at a sheriff's sale, and ended up purchasing those claims themselves.

         ¶25 Following the close of discovery, Kent and LHC filed summary judgment motions, asking the court, for various reasons, to dismiss all of Stephanie's claims. Stephanie opposed those motions, and filed a summary judgment motion of her own, seeking dismissal of Kent's counterclaims. The district court held two hearings on the motions, and issued two separate written decisions, eventually granting both sides' motions and dismissing all of Stephanie's and Kent's claims. As the district court saw it, Stephanie's claims failed for a number of reasons, including grounds common to most or all of her claims (such as failure to submit timely or sufficient damages disclosures, and the preclusive effect of the eviction judgment on claims related to fairness of the rents), as well as grounds unique to various causes of action (such as the claims being untimely filed or purchased by Landlords in the sheriff's sale). The ...


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