Hofheins v. Bajio Mountain W. LLC
414 P.3d 531
Utah Ct. App.2017Background
- In August 2010 Bajio Mountain West LLC (Bajio) bought three restaurants and assumed their leases under an Asset Purchase Agreement (APA), agreeing to indemnify the seller (Bryan Hofheins/Mountain) for lease liabilities; Logan Hunter signed a guaranty for Bajio’s obligations.
- MG‑Taylorsville LLC (MGT) executed an assignment assuming lease obligations for the Taylorsville Property and agreed to hold the Hofheinses harmless.
- Bajio paid rent through Nov. 2011, then stopped; landlord Redwood Road Retail sued the Hofheinses in Third District for unpaid rent and recovered a judgment of $295,000 plus attorney fees (total $427,284.38).
- The Hofheinses third‑partied the Hunter Parties in the Redwood case seeking indemnification under the APA, Assignment, and Guaranty; Hunter Parties asserted various defenses and attempted (unsuccessfully) to file counterclaims.
- The trial court limited trial scope to the narrow indemnification question (excluding broader offset/credit issues pending in a separate Fourth District case), denied Hunter Parties’ Rule 41(b) dismissal motion (for failure to tender defense), and entered judgment requiring Bajio, MGT, and Hunter to indemnify the Hofheinses for the full Redwood Judgment plus attorneys’ fees.
- On appeal, Hunter Parties argued (1) the trial court erred in striking their summary‑judgment motions on an alleged breach of the covenant of good faith and fair dealing and (2) the court erred in denying dismissal under Rule 41(b) based on alleged failure to tender the defense. The Court of Appeals affirmed.
Issues
| Issue | Plaintiff's Argument (Hunter Parties) | Defendant's Argument (Hofheinses) | Held |
|---|---|---|---|
| Did the trial court err by striking Hunter Parties’ motions for summary judgment on Hofheinses’ alleged breach of the implied covenant of good faith and fair dealing? | Hunter: Striking the motions prevented consideration of their main affirmative defense and prejudiced them. | Hofheinses: The covenant claim was not properly pleaded in this narrow indemnity action and was litigated in the Fourth District. | Court: No reversible error — Hunter Parties were not prejudiced; the alleged covenant breach was effectively litigated in the companion Fourth District case and would function as an offset there. |
| Did the trial court err in denying a Rule 41(b) motion to dismiss for failure to tender defense? | Hunter: Tender of defense is a condition precedent to indemnification; failure to tender extinguishes indemnitor’s obligation (citing Summerhaze/Hill). | Hofheinses: Agreements are silent on tender; failure to tender does not bar indemnification here. | Court: No error — Summerhaze does not hold that failure to tender automatically defeats indemnification; at worst it shifts burdens and defenses. |
| Could Hunter Parties invoke the ‘first breach’ defense to avoid indemnification? | Hunter: Hofheinses breached first (e.g., lease transfer issues), so Hunter Parties’ obligations were excused. | Hofheinses: Hunter Parties elected to retain contract benefits and sued for damages, so cannot rely on first‑breach defense. | Court: First‑breach defense was precluded as a matter of law (trial court’s partial SJ); Hunter Parties did not contest that ruling on appeal. |
| Were Hunter Parties deprived of ability to present offset/mitigation arguments at trial? | Hunter: Pretrial order and striking motions prevented presentation of offset/credit evidence. | Hofheinses: Offset/credit issues were properly reserved to the Fourth District; Hofheinses mitigated and took reasonable steps. | Court: No reversible prejudice — trial court reasonably limited scope to indemnification and preserved offsets for the broader case; mitigation findings not shown to be erroneous. |
Key Cases Cited
- CCD, LC v. Millsap, 116 P.3d 366 (Utah 2005) (first‑breach rule bars a party first guilty of a material breach from later suing for subsequent failures to perform)
- Ross v. Epic Eng’g, PC, 307 P.3d 576 (Utah Ct. App. 2013) (standard of review for procedural‑rule interpretation)
- Markham v. Bradley, 173 P.3d 865 (Utah Ct. App. 2007) (standard of review for involuntary dismissal denial)
- Steinberg v. Community Housing Servs.-Capitol Villa, Ltd., 326 P.3d 673 (Utah Ct. App. 2014) (appellate review principles)
- Summerhaze Co. v. FDIC, 332 P.3d 908 (Utah 2014) (discusses purpose and consequences of tendering defense; failure to tender shifts burdens and defenses but does not automatically extinguish indemnification)
- Bank of Am. v. Adamson, 391 P.3d 196 (Utah 2017) (appellate briefing and burden principles)
- Harris v. Utah Transit Auth., 671 P.2d 217 (Utah 1983) (reversible‑error prejudice standard)
- Redevelopment Agency of Salt Lake City v. Mitsui Inv. Inc., 522 P.2d 1370 (Utah 1974) (full and fair presentation consideration)
- Allen v. Friel, 194 P.3d 903 (Utah 2008) (appellate waiver and error preservation principles)