473 P.3d 624
Utah Ct. App.2020Background:
- In 2011 BACH and FranCounsel formed Royal Aloha International LLC under an Operating Agreement that allocated membership: Hill 25% (personally), BACH 25%, FranCounsel 50%; FranCounsel’s in-kind capital contribution was stated to have a fair market value of $500,000.
- Hill and Mihoubi executed a separate License Agreement granting Royal rights to use BACH’s franchise system; BACH claimed Hill lacked authority to bind it.
- In 2013 BACH sued to void both agreements as procured through fraud/self-dealing; FranCounsel and Royal counterclaimed for breach.
- Phase one (bench): court found both agreements valid and enforceable, concluding Hill had authority (apparent and alternative actual authority) and Mihoubi had no duty to further investigate.
- Phase two (jury): only FranCounsel’s breach claim under the Operating Agreement was tried; damages presentation was limited to the $500,000 in-kind contribution figure from the Operating Agreement; jury awarded $100,000; BACH’s JNOV was denied.
- Post-trial Appellees sought attorney fees under indemnity clauses in both agreements; the district court denied fees and the parties cross-appealed (BACH appeals enforceability and damages rulings; Appellees cross-appeal fee denial).
Issues:
| Issue | Plaintiff's Argument (BACH) | Defendant's Argument (FranCounsel/Royal) | Held |
|---|---|---|---|
| Whether Hill had authority to bind BACH to the Operating Agreement (apparent/actual authority) | Hill lacked authority; Mihoubi knew of Hill’s conflict and should have investigated, so no apparent authority | Hill had apparent (and alternative actual) authority based on BACH’s manifestations; Mihoubi reasonably relied and need not investigate further | Court affirmed: evidence supports apparent authority; trial court’s factual findings not clearly erroneous |
| Whether FranCounsel’s damages disclosure complied with Utah R. Civ. P. 26 | FranCounsel’s initial disclosure ($500,000) was bald and insufficient; trial should have been barred | $500,000 was a contractually stipulated value in the Operating Agreement so no further computation was required | Affirmed: disclosure adequate because parties contracted for the $500,000 value and the agreement was produced in discovery |
| Proper measure of damages — recoverability of capital contribution from another member | A member cannot recover another member’s capital contribution; any reimbursement claim must be against the LLC (Royal) | FranCounsel sought damages for lost value of services performed; Operating Agreement’s $500,000 figure measures those damages | Affirmed: FranCounsel sought damages for breach measured by the agreed $500,000 value, not reimbursement of Royal’s capital from BACH |
| Sufficiency of evidence supporting the $100,000 jury award and denial of JNOV | No competent evidence supported fact or amount of damages; verdict speculative | Evidence, viewed in favor of FranCounsel, permitted the jury’s award; BACH failed to show no competent evidence existed | Affirmed: district court did not err in denying JNOV; BACH did not meet heavy burden to show insufficiency |
| Whether indemnity clauses in Operating Agreement and License Agreement entitled Appellees to attorney fees | BACH argued the contracts did not obligate BACH to pay fees and that indemnity language and funding clauses limited recovery | Appellees argued the indemnities cover fees incurred and that phase-one/phase-two victories trigger fees | Affirmed: court correctly denied fees; Appellees failed to engage the trial court’s reasoning on appeal and contractual language did not clearly obligate BACH to pay fees |
Key Cases Cited
- Grazer v. Jones, 289 P.3d 437 (Utah 2012) (apparent and actual authority principles)
- Glew v. Ohio Sav. Bank, 181 P.3d 791 (Utah 2007) (deference to fact-sensitive apparent authority findings)
- Burdick v. Horner Townsend & Kent Inc., 345 P.3d 531 (Utah 2015) (apparent authority requires principal manifestations)
- Zions Gate R.V. Resort LLC v. Oliphant, 326 P.3d 118 (Utah Ct. App. 2014) (knowledge of agent’s lack of authority defeats apparent authority)
- Hussein v. UBS Bank USA, 446 P.3d 96 (Utah Ct. App. 2019) (agent authority doctrines)
- Sleepy Holdings LLC v. Mountain West Title, 370 P.3d 963 (Utah Ct. App. 2016) (Rule 26 damages disclosure analysis)
- Williams v. Anderson, 400 P.3d 1071 (Utah Ct. App. 2017) (damage computation must be apparent in initial disclosures when fixed or stipulated)
- ASC Utah Inc. v. Wolf Mountain Resorts LC, 309 P.3d 201 (Utah 2013) (standard for JNOV review)