1600 Barberry Lane 8 LLC v. Cottonwood Residential
2019 UT App 146
| Utah Ct. App. | 2019Background
- Two Utah LLCs (Owners) each owned small TIC interests in a 312‑unit Georgia apartment complex and entered a property/asset management agreement with Daymark (formerly Grubb & Ellis) in 2008. The Agreement included a Georgia choice‑of‑law clause.
- Agreement labeled the manager an independent contractor, required annual budgets for Owner approval, capped management and asset‑management fees at “up to 3%” and “up to 2%” of gross revenue respectively, and prohibited purchases from affiliates at above‑market rates.
- In 2012 Daymark shifted focus and recommended Cottonwood take over management; Owners acquiesced. Owners later alleged Daymark sold the management contract to Cottonwood (or Cottonwood became subcontractor/successor) and that fees charged exceeded fair‑market value.
- Owners sued Cottonwood in Utah district court, alleging breach of fiduciary duty (and aiding/abetting), breach of contract, and tortious interference, arguing fees were above market and should have been disclosed or limited by the Agreement.
- The district court dismissed the amended complaint under Rule 12(b)(6). It held (a) the Agreement did not create a fiduciary/confidential relationship regarding fees, and (b) the Agreement did not limit fees to market value (only to stated percentage caps and Owner budget approval), so no contractual breach or tortious interference was pleaded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Daymark/Cottonwood owed a fiduciary duty re: management fees | Agreement made manager a fiduciary obliged to disclose above‑market fees and act in Owners’ best interests | Agreement established independent‑contractor/business relationship; no confidential control over Owners’ interests on fees | No fiduciary duty existed as to fees; contractual terms (independent contractor language, Owners’ budget approval) negated confidential relationship |
| Whether Cottonwood aided/abetted a fiduciary breach by paying Daymark $8M | Cottonwood knowingly procured Daymark’s breach by buying future above‑market fees | Aiding/abetting requires existence of fiduciary duty; none exists here | Fails because no underlying fiduciary duty was alleged or created by Agreement |
| Whether charging above‑market fees breached the Agreement | Agreement terms (when read together) cap fees at market value or the listed maximums | Agreement caps fees only by percentage and budget process; it does not tie manager’s fee to market value | No breach of contract: Agreement only set percentage caps (3%/2%) and required budget approval; Owners did not allege fees exceeded stated caps or lacked budget approval |
| Whether tortious interference is stated by allegedly inducing breach via purchase | Cottonwood induced Daymark to breach fee limitations by paying for above‑market future fees | Tortious interference requires proof of breach of contractual obligation; no such breach alleged | Fails because no breach of the Agreement was pleaded (same reasoning as breach claim) |
Key Cases Cited
- Ansley Marine Constr., Inc. v. Swanberg, 660 S.E.2d 6 (Ga. Ct. App. 2008) (elements required to state breach of fiduciary duty under Georgia law)
- Insight Tech., Inc. v. FreightCheck, LLC, 633 S.E.2d 373 (Ga. Ct. App. 2006) (elements for aiding and abetting a fiduciary breach)
- Allen v. Hub Cap Heaven, Inc., 484 S.E.2d 259 (Ga. Ct. App. 1997) (independent‑contractor language negates a confidential/fiduciary relationship)
- American Mgmt. Servs. East, LLC v. Fort Benning Family Communities, LLC, 774 S.E.2d 233 (Ga. Ct. App. 2015) (agency/fiduciary duties limited to scope of agency)
- Oakwood Village LLC v. Albertsons, Inc., 104 P.3d 1226 (Utah 2004) (standard for reviewing Rule 12(b)(6) dismissal)