Chamberlain v. Golds Gym , 2020 UT 20 ( 2020 )

This opinion is subject to revision before final
publication in the Pacific Reporter
2020 UT 20IN THE
SUPREME COURT OF THE STATE OF UTAH
GOLD‘S GYM INTERNATIONAL, INC.,
Appellant,
v.
CLARK CHAMBERLAIN and BRENT STATHAM,
Appellees.
No. 20170146
Heard December 14, 2018
Reheard November 15, 2019
Filed May 4, 2020
Blake T. Ostler, Tyler J. Moss, Salt Lake City, for appellant
Holly S. Chamberlain, Karthik Nadesan, Salt Lake City, for appellees
JUSTICE PEARCE authored the opinion of the Court, in which
CHIEF JUSTICE DURRANT, ASSOCIATE CHIEF JUSTICE LEE,
JUSTICE HIMONAS, and JUSTICE PETERSEN joined.
JUSTICE PEARCE, opinion of the Court:
INTRODUCTION
¶1 After ten years of litigation, Gold‘s Gym International, Inc.
(Gold‘s Gym) prevailed in a suit filed by members of a limited
liability company (Members) that had licensed Gold‘s Gym‘s name
to operate a fitness center in St. George. Gold‘s Gym wants attorney
fees from Members based on a fee provision in the license agreement
(License Agreement) between Gold‘s Gym and the limited liability
company. The district court denied fees, reasoning that Members, as
individuals, were not parties to the License Agreement and the
claims Members had raised did not relate to or arise out of that
agreement.
¶2 This ruling strikes Gold‘s Gym as patently unfair because
the district court, over Gold‘s Gym‘s repeated objections, appeared
to have allowed Members to bring the suit as if they had been parties
to the License Agreement. Gold‘s Gym generally argues that if
GOLD‘S GYM v. CHAMBERLAIN
Opinion of the Court
someone who is not a party to a contract tries to enforce its terms, it
must also assume the obligations that contract imposes.
¶3 Issues of preservation and waiver compromise our ability to
reach the heart of that question. We have recognized that in some
circumstances a non-party to a contract may be tagged with its
obligations, but Gold‘s Gym has not convinced us that it alerted the
district court that this case presented one of those circumstances.
And, although there are other arguments that Gold‘s Gym might
have advanced in its opening brief, it did not do so. The arguments
that are properly before us—that is, the arguments that Gold‘s Gym
preserved below and advanced in its opening brief—do not convince
us that the district court erred. We affirm the district court‘s denial of
the motion for attorney fees.
BACKGROUND1
¶4 More than two decades ago, Members Clark Chamberlain
and Brent Statham decided to open a ―Gold‘s Gym‖ branded fitness
center in St. George. While making plans, Members learned that
Vince Engle had paid a deposit to have the first option for a Gold‘s
Gym in St. George. Members approached Engle, and he agreed to
partner with them.
¶5 Engle, Members, and Doug Chamberlain formed Health
Source of St. George, LLC (LLC) for the purpose of opening the gym.
Engle, through a wholly owned entity, owned 50 percent of the LLC,
while Members and an entity Doug Chamberlain owned each had 25
percent of the membership interests. The LLC was manager-directed.
Engle and Doug Chamberlain served as co-managers through their
respective entities. Members were not managers.
¶6 In June 1999, the LLC entered into the License Agreement
with Gold‘s Gym. Engle signed as co-manager of the LLC. By June
2000, the gym was up and running. Engle managed the day-to-day
operations. Members moved away from St. George and were no
longer involved with the gym on a regular basis. Although Engle
provided a financial statement regarding the gym in 2000, Members
did not receive any further financial or tax documents through 2005.
Members never inquired why.
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1 When reviewing a bench trial, we view the facts in the light
most favorable to the trial court‘s decision. 438 Main St. v. Easy Heat,
Inc., 2004 UT 72, ¶ 72, 99 P.3d 801.
2
Cite as: 2020 UT 20Opinion of the Court
¶7 Meanwhile, as an apparent part of a corporate policy
change, Gold‘s Gym decided to move away from licensing its name
in favor of franchising. As part of this policy, Gold‘s Gym attempted
to get its licensees to agree to be franchisees. And to this end, in 2001,
Gold‘s Gym sent franchise documents to Engle and the LLC. In the
course of negotiating the franchise agreement, Engle falsely told
Gold‘s Gym that Members were no longer involved in the St. George
gym and that the plan was for him to be the sole owner of the
franchise. Engle then noted on the franchise documents that a
company he owned, Fitcorp, Inc., would be the Gold‘s Gym
franchisee.
¶8 In January 2003, Engle, through Fitcorp, Inc., sold the gym,
the franchise rights, the inventory, furniture, and fixtures to another
party. Within a month, Members learned about the sale and
contacted the buyer. Several months later, Gold‘s Gym
acknowledged and consented to the transfer from Engle to the new
buyer.
¶9 Two years later, Members filed a lawsuit against Gold‘s
Gym, Engle, and others. That action lay fallow for an extended
period, so the district court dismissed it. Members refiled with the
complaint that gives rise to this appeal.
¶10 In their complaint, Members repeatedly asserted that they
had personally entered into the License Agreement with Gold‘s
Gym. For example, the complaint averred that ―[Members] . . .
entered into a license agreement (License Agreement) with Gold‘s,
Inc.‖ Members‘ various causes of action against Gold‘s Gym likewise
asserted that a contract existed between Gold‘s Gym and Members
individually.2
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2 In support of their breach of contract claim against Gold‘s Gym,
Members asserted that ―[Members] entered into a License
Agreement with Gold‘s Inc. for the purpose of defining each party‘s
rights and obligations in [Members‘] ownership of a Gold‘s Gym
franchise,‖ and that ―[a]ll of the [Members‘] obligations under the
License Agreement were either performed or excused.‖ Members
then alleged that Gold‘s Gym breached the License Agreement and
that ―Defendant Gold‘s, Inc. knew or should have known . . . that if it
breached its License Agreement with [Members] . . . that [Members]
in all likelihood would be severely damaged. [Members] are entitled
to recover from defendant Gold‘s . . . .‖
(continued . . .)
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GOLD‘S GYM v. CHAMBERLAIN
Opinion of the Court
¶11 This was, in a word, wrong. There was no agreement
between Gold‘s Gym and the Members as individuals. The License
Agreement was executed between Gold‘s Gym and the LLC in
which these individuals were members. This distortion plagued the
litigation.
¶12 Gold‘s Gym repeatedly argued to the district court that
Members lacked standing to bring these claims because, despite their
allegations, Members were not parties to the License Agreement.
Gold‘s Gym argued that the claims Members asserted belonged to
the LLC and not to its individual members. Gold‘s Gym asserted this
in its answer, raised the arguments in a motion to dismiss, renewed
the arguments in a motion for summary judgment, tried its luck with
a motion to reconsider, and then, at trial, gave it another shot in a
motion for directed verdict. The arguments never succeeded.3
¶13 The district court‘s most substantive response came in
response to Gold‘s Gym‘s motion for summary judgment. The
district court concluded that ―[t]he Court is not convinced that this is
a derivative suit,‖ ―[Members] . . . are not improper parties,‖ and
―Gold‘s has not shown that this is a derivative action of the sort that
As part of the negligence cause of action, Members alleged that
―Gold‘s, Inc. owed a duty to [Members], by virtue of the License
Agreement, to protect [Members‘] interest granted therein . . . .
Gold‘s, Inc. breached its duty to [Members] . . . .‖ In like manner,
Members asserted that ―Gold‘s, Inc. acted willfully and/or in
reckless disregard of [Members‘] rights and interest in the Gym, as
granted in the License Agreement,‖ and that, but for Gold‘s Gym‘s
negligence, ―[Members‘] rights and interest in the License
Agreement could not have been transferred . . . .‖
Members based their tortious interference with contract claim on
the allegation that they ―had a valid contract or economic expectancy
with Gold‘s, Inc. for rights to a Gold‘s Gym franchise,‖ and that
defendant Engle and others ―knew of the contract between Gold‘s,
Inc. and [Members] . . . .‖ Members also alleged that the various
defendants‘ ―actions caused interference with the contract or
economic expectancy between [Members] and Gold‘s, Inc. and
caused damage to [Members] by depriving them of their franchise
rights in Gold‘s Gym St. George . . . .‖
3 Gold‘s Gym did succeed in having the breach of contract and
negligence claims dismissed on statute of limitation grounds.
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would require [the LLC] to be named a Plaintiff.‖ The court based
this on two lines of thought.
¶14 First, the district court found guidance in Aurora Credit
Services, Inc. v. Liberty West Development, Inc., 970 P.2d 1273 (Utah
1998). In that case, we reasoned that ―the rationale for requiring an
action to proceed derivatively is often absent in a closely held
corporation,‖ and held that ―a court may allow a minority
shareholder in a closely held corporation to proceed directly against
corporate officers.‖ Id. at 1280–81. The district court interpreted
Aurora to mean that ―derivative actions may not be required where
the corporation is closely held with a limited number of principals.‖4
¶15 Second, the district court stated that Gold‘s Gym did not
―cite authority requiring a derivative suit for claims against a party
who is not the primary corporation.‖ But the district court did not
use this rationale to conclude that Members could not assert the
claims. Rather, it permitted the claims to go forward without any
additional explanation about why it believed this to be an
appropriate course of action.
¶16 Thus, the district court appears to have either: (1) viewed
the claims arising out of the License Agreement as derivative claims
that Members could assert directly against Gold‘s Gym under a
closely held corporation exception; or (2) believed that a limited
liability company‘s members can directly assert claims against a
third party that arise out of a contract between that third party and
the LLC. Either way, the district court did not require Members to
follow the procedures in place for plaintiffs who wish to assert
derivative claims and allowed the claims to proceed to trial.5
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4 Although Aurora remains good law, we have called its holding
into doubt stating that, ―[f]rom our vantage point eight years after
Aurora, we can see that our proclamation of a ‗growing trend‘ in
recognizing an exception to the derivative action rule for closely held
corporations may have overstated matters.‖ Dansie v. City of
Herriman, 2006 UT 23, ¶ 16, 134 P.3d 1139.
5 There are statutory requirements for a member of a limited
liability company to bring a derivative action to enforce a right of
that entity. For example, with a few exceptions, the member must
demand that the entity bring the action, UTAH CODE § 48-3a-802,
have been a member when the alleged misconduct occurred and
currently be a member, id. § 48-3a-803, plead the date and content of
(continued . . .)
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GOLD‘S GYM v. CHAMBERLAIN
Opinion of the Court
¶17 We have misgivings about the district court‘s holding. But
Gold‘s Gym—understandably because it prevailed at trial—has not
appealed the denial of its summary judgment motion.6
¶18 Following a bench trial, the district court found that
Members had failed to prove their claims against Gold‘s Gym.
Gold‘s Gym then moved for attorney fees based on the attorney fees
provision in the License Agreement. Gold‘s Gym asserted that it was
the prevailing party and that the claims Members asserted arose out
of or related to the License Agreement. Members responded that,
because they were not parties to the License Agreement, the attorney
fees clause does not apply to them.
¶19 In its reply, Gold‘s Gym offered two arguments to explain
why Members, who never signed the License Agreement, were
nonetheless liable for fees. First, Gold‘s Gym argued that because
Members brought the claims directly on behalf of the LLC, they
claimed to be entitled to the benefit of the License Agreement. Gold‘s
Gym argued that if they claimed the benefit of the agreement,
Members must also accept its burdens, including the attorney fees
clause. Second, Gold‘s Gym argued that Members are estopped from
arguing that they are not bound by the fee provision because they
insisted that their claims were brought on behalf of the LLC.
¶20 The district court denied Gold‘s Gym‘s motion, finding that
Gold‘s Gym was not entitled to fees because Members were not
parties to the contract and that all the claims did not arise out of or
relate to the License Agreement. Gold‘s Gym appealed.
¶21 In its opening brief to this court, Gold‘s Gym asked us to
decide that the claims Members asserted were derivative claims.
Building on this assertion, Gold‘s Gym argued that the Members
were then liable for fees because they brought derivative claims. In
support of this, Gold‘s Gym pointed to the substantial benefit
doctrine. This doctrine generally allows derivative plaintiffs to
recover their fees if they confer a substantial benefit on the entity by
the member‘s demand on the entity and the entity‘s response, id.
§ 48-3a-804, and remit any proceeds or benefits of the action to the
entity, id. § 48-3a-806.
6 We can review the denial of a summary judgment ruling after a
trial in certain circumstances. See, e.g., Normandeau v. Hanson Equip.,
Inc., 2009 UT 44, ¶ 7, 215 P.3d 152. We do not do so here because no
party asked us to overturn the summary judgment ruling.
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Cite as: 2020 UT 20Opinion of the Court
bringing the action. See LeVanger v. Highland Estates Props. Owners
Ass’n Inc., 2003 UT App 377, ¶ 20–22, 80 P.3d. 569; D’Amico v. Bd. of
Med. Exam’rs, 520 P.2d 10, 28 (Cal. 1974) (―[W]hen a class action or
corporate derivative action results in the conferral of substantial
benefits . . . upon the defendant in such an action, that defendant
may, in the exercise of the court‘s equitable discretion, be required to
yield some of those benefits in the form of an award of attorneys
fees.‖); accord Guild, Hagen & Clark, Ltd. v. First Nat’l Bank of Nev., 600
P.2d 238 (Nev. 1979).
¶22 Gold‘s Gym also made assorted references to Members
having to assume both the rights and obligations of the contract, to
Utah‘s reciprocal attorney fees provision, as well as to the fact that
Members signed personal guaranties on the License Agreement.
¶23 Members countered that Gold‘s Gym‘s appellate arguments
were not preserved. Members noted that in support of its motion for
fees in the district court Gold‘s Gym argued: (1) that because
Members attempted to obtain the benefits of the License Agreement,
they should be saddled with its burdens; and (2) that Members are
estopped from claiming that the License Agreement‘s attorney fees
clause does not apply to them. Members argued that Gold‘s Gym
had changed its tune on appeal by asserting that Members‘ claims
are derivative and that a derivative plaintiff who asserts a
corporation‘s rights under a contract against a third party should be
personally bound by the attorney fees provision in that agreement.
¶24 In reply, Gold‘s Gym asserted that its arguments on appeal
are the same it made in the district court. It pointed to language in its
reply memorandum below and stray language in its opening
appellate brief, both of which refer to the general idea that a party
―cannot escape the obligations of the contract . . . particularly when
[they have] used the contract‘s benefits to its advantages and as a
sword throughout the litigation.‖
¶25 Following oral argument, we remanded to the district court.
We asked the district court to shed light on its rulings regarding
Members‘ standing to bring the claims in this case and whether it
had concluded that Members‘ claims were derivative. The district
court, however, was now occupied by a different judge than the one
who had ruled on summary judgment. In response to the remand
order, the district court noted that it had merely incorporated the
prior judge‘s ruling on summary judgment. The district court
averred that it had no recollection of having re-examined the issue
on the record. Thus, we were left with little to help us understand
the reasoning behind the summary judgment ruling.
7
GOLD‘S GYM v. CHAMBERLAIN
Opinion of the Court
¶26 After receiving the response to the remand order, we
ordered supplemental briefing from the parties on several questions.
We asked the parties for their understandings of the district court‘s
ruling, its effects, and the law it relied on.
¶27 We also asked under what circumstances a non-party has
been, or should be, required to pay attorney fees after it
unsuccessfully tries to enforce a contract. And we asked the parties
to supplement their arguments on the question of when courts have
required those who assert the benefits of a contract to be bound by
the contract‘s terms.
¶28 In response to these questions, Gold‘s Gym urged this court
to apply the principle of nonsignatory estoppel. Members contended
that this was a new argument that had neither been raised below nor
in the initial appellate brief.
STANDARD OF REVIEW
¶29 Gold‘s Gym advances a number of arguments aimed at
demonstrating that the law provides a path for a successful litigant
to recover attorney fees from an opponent, even where no contract
exists between the parties and no statute authorizes the recovery.
Whether Utah law recognizes such a path presents a question of law
we review for correctness. See Cent. Utah Water Conservancy Dist. v.
Upper E. Union Irrigation Co., 2013 UT 67, ¶ 27, 321 P.3d 1113(holding that whether a contract can be enforced against a party
notwithstanding impracticability arguments is a question of law
reviewed for correctness).
ANALYSIS
¶30 In its opening brief, Gold‘s Gym appears to offer four
reasons why Members might be liable for fees under the License
Agreement. First, Gold‘s Gym argues that this is a derivative action,
and under the substantial benefit doctrine, derivative plaintiffs like
Members must pay fees if they lose the litigation. Second, Gold‘s
Gym asserts that a nonsignator to a contract, who asserts rights
under that contract, must also accept all the burdens the contract
imposes. Third, Gold‘s Gym highlights that under Utah‘s reciprocal
attorney fees statute, a court may award fees when the contract
allows at least one party to recover fees. And fourth, Gold‘s Gym
notes that Members signed a personal guaranty that holds them
liable for some costs and fees. In supplemental briefing, Gold‘s Gym
also argues that nonsignatory estoppel provides a basis for this court
to find that Members are bound by the License Agreement‘s attorney
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Cite as: 2020 UT 20Opinion of the Court
fees clause.7 None of these arguments allows us to overturn the
district court‘s determination to deny Gold‘s Gym its fees.8
¶31 First, Gold‘s Gym argues that ―[p]ursuant to the ‗substantial
benefit‘ doctrine, . . . the Members must pay attorney fees.‖ The
substantial benefit doctrine generally grants attorney fees to
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7 As a threshold matter, Gold‘s Gym asks us to determine that the
claims Members brought were derivative claims. This would require
us to revisit and opine on the district court‘s summary judgment
ruling that Members had standing to bring these claims as
individuals. But the district court‘s ruling is not entirely clear and
subject to various potential readings.
The ruling might be read to say that the claims were direct. Or
the district court might have held that even though the claims were
derivative, Members could proceed without following procedures for
derivative claims under the closely held corporation exception we
recognized in Aurora Credit Services, Inc. v. Liberty West Development,
Inc., 970 P.2d 1273 (Utah 1998). The district court‘s decision also
implicates questions this court has not yet had an opportunity to
address. For example, whether the closely held corporation
exception extends to limited liability companies.
In an effort to say something meaningful on this topic, we
scoured the trial record. We remanded to the district court and asked
the district court to explain the basis of the ruling. We then asked the
parties for their understandings of what the district court meant in
the summary judgment ruling. All was to no avail. We still are not
sure what the district court held and why it held it. And we are
concerned that on the record before us, any attempt to say something
beneficial will ultimately have the opposite effect.
Fortunately, we need not interpret the district court‘s order to
resolve this matter. Gold‘s Gym has not asked us to overturn the
summary judgment ruling, and even if we credit Gold‘s Gym‘s
argument that Members‘ claims were derivative, Gold‘s Gym‘s
arguments for fees fail.
8 On appeal, Gold‘s Gym also makes several arguments for why
the costs and fees it incurred in this case fall within the scope of the
License Agreement‘s attorney fees provision. Because we are not
persuaded that the district court erred by concluding that Members
are not subject to the attorney fees provision, we need not decide
whether Members‘ claims would have been subject to the attorney
fees provision.
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Opinion of the Court
derivative plaintiffs who succeed in the action and confer a
substantial benefit on the entity on whose behalf they sued. The Utah
Legislature has incorporated this principle into Utah law. Utah‘s
Revised Uniform Limited Liability Company Act states that ―[i]f a
derivative action is successful in whole or in part, the court may
award the plaintiff reasonable expenses, including reasonable
attorney‘s fees and costs, from the recovery of the limited liability
company.‖ UTAH CODE § 48-3a-806(2); see also supra, ¶ 21.
¶32 In both its common law and statutory forms, the substantial
benefit doctrine contemplates a court awarding fees to a derivative
plaintiff who prevails and obtains a recovery for the company in
whose name she sued. Gold‘s Gym has offered no authority or
reasoning to extend the substantial benefit principle to a defendant
who prevails against derivative plaintiffs. Thus, even if we credit
Gold‘s Gym‘s argument that Members asserted derivative claims, we
are not convinced that the substantial benefit doctrine provides a
basis for a fee award.
¶33 Next, Gold‘s Gym states that Members ―cannot use
litigation as a sword when it is advantageous but then utilize it as a
shield to avoid fees.‖ Gold‘s Gym continues that ―[b]ecause the
Members elected to sue Gold‘s Gym on behalf of [the LLC] . . .
Members assumed all the risks and obligations thereunder.‖
¶34 Members assert that this argument was unpreserved. In
response, Gold‘s Gym argues that it made this argument to the
district court. And it supports this contention with a cut and pasted
block quote from its reply memorandum in support of its motion for
fees that it had filed in the district court. The block quote suggests
that the few sentences it offered in its opening brief do echo an
argument Gold‘s Gym made to the district court. But even if we
could find the argument preserved, we would be hard pressed to
conclude that it had been adequately briefed before us.
¶35 The block quote in Gold‘s Gym‘s reply brief hints at case
law that it presented to the district court. But it is hidden from us
with a well-placed ―citation omitted.‖ In other words, Gold‘s Gym
has given us no authority for the propositions it asserts. This is a
hard way for a party to meet its burden of persuasion. As we have
stated, ―[a] party may not simply point toward a pile of sand and
expect the court to build a castle. In both district and appellate
courts, the development of an argument is a party‘s responsibility,
not a judicial duty.‖ Salt Lake City v. Kidd, 2019 UT 4, ¶ 35, 435 P.3d
248.
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¶36 However, even if we were in the business of searching
district court filings for arguments that are alluded to on appeal, we
would reach the same result. This is because we are not convinced
that authority supports Gold‘s Gym‘s general assertion that in all
circumstances a nonsignator suing on a contract assumes all the risks
and obligations thereunder.
¶37 In the district court, Gold‘s Gym cited a Utah court of
appeals case, Richardson v. Rupper, 2014 UT App 11, ¶ 11, 318 P.3d
1218, which stated that ―[a] party cannot accept the benefits of a
contract and reject its burdens.‖ Richardson, however, dealt with a
party seeking to avoid the burdens of contracts that it had signed. See
id. ¶ 10. Another case Gold‘s Gym cited to the district court—
Francisconi, v. Hall, 2008 UT App 166, No. 20070331-CA, 2008 WL
1971336 (Utah Ct. App. May 8, 2008)—fails to persuade for the same
reason. Simply stated, neither case deals with nonsignators nor
supports the proposition Gold‘s Gym advances.
¶38 Another case Gold‘s Gym cited below—but again, not to
us—is also distinguishable. In Prudential Federal Savings & Loan
Association v. Hartford Accident & Indemnity Company, the petitioner
claimed it was not bound by a supplemental agreement that it did
not sign, which modified an original contract to which it was a party.
325 P.2d 899, 903 (Utah 1958). The court found that the petitioner
became party to the supplemental agreement by expressly agreeing
to portions of that agreement, by not limiting its assent to only
certain provisions, and by accepting the benefits of the agreement. Id.Gold‘s Gym has not explained how this case supports a general rule
that a party cannot accept the benefits of the contract and reject the
burdens. Accepting the benefits of the contract was only one part of
why the court found the petitioner bound by the supplemental
contract. More importantly, the petitioner had also ―expressly
agreed‖ to portions of the contract, id., something Members did not
do here.
¶39 Simply stated, the cases Gold‘s Gym cited to the district
court do not establish the general rule Gold‘s Gym advocates. Gold‘s
Gym may offer inapposite cases because Gold‘s Gym overstates the
general principle. We, and other courts, have recognized instances
where a nonsignator can assert rights in a contract. For example, we
allow assignees, third-party beneficiaries, and those who benefit
from a subrogation to assert rights in a contract to which they are not
a signator. But only in some of these instances will the nonsignator
be liable for the burdens of the contract. For example, assignees are
not automatically liable for all burdens of the contract under which
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Opinion of the Court
they assert rights. See, e.g., Radley v. Smith, 313 P.2d 465, 466 (Utah
1957) (―[I]t is no doubt possible for a party to become the assignee of
the rights under a contract without becoming responsible for the
duties,‖ and ―the question whether a purported assignment of an
entire contract includes such assumption depends upon its terms
and the intent of the parties.‖); accord Sans Souci v. Div. of Fla. Land
Sales & Condos., 448 So. 2d 1116, 1120 (Fla. Dist. Ct. App. 1984);
McDaniel Bros. Constr. Co. v. Burk-Hallman Co., 175 So. 2d 603, 605
(Miss. 1965); Cuchine v. H.O. Bell, Inc., 682 P.2d 723, 725 (Mont. 1984).
Rather, the court inquires into the intent of the parties to determine
for which liabilities the nonsignatory party is responsible.
¶40 That having been said, there may well be a certain subset of
claims where a nonsignator asserting rights under a contract is on
the hook for its burdens as well. But Gold‘s Gym has not provided
us with authority or reasoning for why plaintiffs who bring
unsuccessful derivative actions would be in this subset.
¶41 Gold‘s Gym next argues that ―[a] court may also award
costs and attorneys‘ fees based upon a written contract when the
provisions of the contract ‗allow at least one party to recover.‘‖
Gold‘s Gym supports this argument with a reference to Utah‘s
reciprocal fee statute. Utah Code section 78B-5-826 states that a court
―may award costs and attorney fees to either party that prevails in a
civil action based upon any promissory note, written contract, or
other writing . . . when the provisions of the promissory note,
written contract, or other writing allow at least one party to recover
attorney fees.‖ However, Gold‘s Gym says nothing more about it.
And this issue was never raised in the district court. As we have
explained, ―When a party fails to raise and argue an issue in the trial
court, it has failed to preserve the issue, and an appellate court will
not typically reach that issue . . . .‖ State v. Johnson, 2017 UT 76, ¶ 15,
416 P.3d 443.
¶42 The reciprocal fee statute may well be the way Utah law has
handled the policy concerns underlying Gold‘s Gym‘s contentions.9
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9 Indeed, this court has interpreted Utah Code section 78B-5-826
in a way that, at least at first blush, seems to help resolve instances
where a plaintiff asserts rights under a contract containing a fees
provision and then seeks to avoid the provision when she loses the
suit. In Hooban v. Unicity International, Inc., a defendant succeeded in
defeating claims based on a contract by showing that the plaintiff
was a stranger to the contract. 2012 UT 40, ¶ 7, 285 P.3d 766. The
(continued . . .)
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But this argument was never developed, and more importantly, was
never presented to the district court. Because the reciprocal attorney
fee statute argument was not preserved, we will not consider it. See
id. ¶ 15.
¶43 Gold‘s Gym next argues that Members signed a personal
guaranty that provides a basis for Gold‘s Gym to recover its attorney
fees. But Gold‘s Gym never raised this argument before the district
court. As with the argument based on the reciprocal fee statute, we
will not consider an unpreserved argument. See id.
¶44 Additionally, after briefing and oral arguments, we asked
the parties for supplemental briefing. In large part, we asked the
parties to help us understand the district court‘s ruling on standing.
But we also offered the parties an opportunity to elucidate some of
the arguments made in Gold‘s Gym‘s opening brief. We asked
whether the general assertion Gold‘s Gym advances about a non-
party accepting the benefits of a contract had ever been applied to
require a non-party to pay attorney fees, and if not, whether it
should be extended to that situation. We also asked for support for
defendant then moved for attorney fees based on the contract, but
the plaintiff argued it was not a party to the contract. Id. ¶¶ 7, 23.
This court held that the reciprocal attorney fees statute still applied.
Id. ¶ 31. We reasoned that the correct inquiry under the statute was
―whether the contract would allow at least one party to recover fees
in the hypothetical alternative scenario in which the opposing party
prevailed.‖ Id. ¶ 29. Had the plaintiff in Hooban been successful on its
claims to enforce the contract, it would have been entitled to
attorney fees under the provision. Id. ¶¶ 25–26. Thus, the statute
allowed the successful defendant to collect contractual attorney fees.
On the other hand, this case differs from Hooban in ways that
could be meaningful. While Members had at first claimed to have
entered into the agreement with Gold‘s Gym, by trial they made
clear that it was the LLC that was party to the agreement. Members
also argued that at least some of the claims they raised were not
based on the contract. And Gold‘s Gym prevailed on the claims on
the merits. It did not, as the party in Hooban, demonstrate that the
contract was unenforceable against it. We are not certain if, or to
what extent, these distinctions would affect the applicability of
section 78B-5-826 to the situation here. But because it was neither
preserved nor adequately briefed, we need not sort this out to
resolve this case.
13
GOLD‘S GYM v. CHAMBERLAIN
Opinion of the Court
Gold‘s Gym‘s related contention that if a plaintiff attempts to step
into the shoes of a party to a contract, the plaintiff can be liable for
fees.
¶45 In response, Gold‘s Gym argues that this court should adopt
the principle of nonsignatory estoppel and hold that Members are
liable for fees. While we have never formally adopted that principle,
we have suggested that it might be used to require a nonsignator to
arbitrate when the contract it seeks to enforce contains an arbitration
provision. See Ellsworth v. Am. Arbitration Ass’n, 2006 UT 77, ¶ 19
& n.11, 148 P.3d 983.
¶46 However, Gold‘s Gym never asked the district court to rule
on nonsignatory estoppel. ―An issue is preserved for appeal when it
has been presented to the district court in such a way that the court
has an opportunity to rule on [it]. To provide the court with this
opportunity, the issue must be specifically raised . . . and must be
supported by evidence and relevant legal authority.‖ Johnson, 2017
UT 76, ¶ 15 (alteration in original) (citations omitted) (internal
quotation marks omitted). Because the district court was not asked to
apply this principle, we do not consider it on appeal. See id.¶47 Finally, Gold‘s Gym asserts that instances like assignment
and subrogation involve a party ―stepping into the shoes of another.‖
Gold‘s Gym also uses this as an opportunity to make a new
argument that the district court, ―in effect,‖ treated Members as if
they were assignees of the claims. And Gold‘s Gym argues that an
assignee accepts both the benefits and burdens of a contract. As
noted above, an assignee of a right is not automatically liable for all
the assignor‘s burdens in that contract. Supra ¶ 39. Gold‘s Gym has
not convinced this court that a party ―stepping into the shoes‖ of
another, without more, automatically means that party would be
liable for contractual attorney fees.
CONCLUSION
¶48 We appreciate that this has been a painful road for the
parties and can understand Gold‘s Gym‘s desire to vindicate its
victory with an award of attorney fees. And we can see that the
district court‘s summary judgment ruling promoted an environment
that allowed Members to make claims that morphed in frustrating
and sometimes contradictory ways. But Gold‘s Gym bears the
burden of establishing that it is entitled to obtain attorney fees from
parties with whom it has no contract. Gold‘s Gym has not persuaded
us that the district court erred in denying the motion for attorney
fees. We affirm.
14