Diversified Striping v. Kraus , 2022 UT App 91 ( 2022 )

2022 UT App 91THE UTAH COURT OF APPEALS
DIVERSIFIED STRIPING SYSTEMS INC., KMB EQUIPMENT LLC, KEVIN
BECK, AND PAMELA K. BECK,
Appellants and Cross-appellees,
v.
JOE KRAUS, FLJ LLC, AND NATIONAL STRIPING INC.,
Appellees and Cross-appellants.
Opinion
No. 20200309-CA
Filed July 21, 2022
Third District Court, Salt Lake Department
The Honorable Todd M. Shaughnessy
No. 120901549
Jonathan O. Hafen, Rita M. Cornish, David P.
Mooers-Putzer, and Timothy M. Willardson,
Attorneys for Appellants and Cross-appellees
Jeremiah R. Taylor, D. Scott Crook, Taylor Cutler,
and Christopher S. Feuz, Attorneys for Appellees
and Cross-appellants
JUDGE JILL M. POHLMAN authored this Opinion, in which JUDGE
RYAN D. TENNEY and JUSTICE DIANA HAGEN concurred.1
POHLMAN, Judge:
¶1 This case arises from a complex business dispute that
culminated in a bench trial, after which the district court found
one side liable for breach of contract and breach of fiduciary duty.
1. Justice Diana Hagen began her work on this case as a member
of the Utah Court of Appeals. She became a member of the Utah
Supreme Court thereafter and completed her work on the case
sitting by special assignment as authorized by law. See generally
Utah R. Jud. Admin. 3-108(4).
Diversified Striping v. Kraus
Both sides now appeal. The court’s determinations on liability are
not contested on appeal. Instead, the main issues before us focus
on the court’s decisions regarding lost profits and damages, joint
and several liability, the availability of prejudgment interest, the
applicable postjudgment interest rate, punitive damages, and
postjudgment attorney fees. We affirm in part, reverse and vacate
in part, and remand.
BACKGROUND2
¶2 This dispute involves two groups in the pavement striping
business. We first introduce the two groups and their joint
venture, the four relevant documents, and the breakdown of the
business relationship, followed by a description of the litigation
and the resulting judgment and damages award.
The Beck Parties
¶3 Kevin and Pamela Beck own or control several entities.
One of those entities, Diversified Striping Systems Inc. (DSS), is
the successor to National Striping Company, Incorporated
(NSCI), which was a joint venture, the formation of which we
describe below.3 The Becks also own or control KMB Equipment
LLC (KMB), which was formed to own construction equipment,
which it would then lease to the Becks’ other companies.
2. “On appeal from a bench trial, we view the evidence in a light
most favorable to the trial court’s findings, and therefore recite the
facts consistent with that standard.” Grimm v. DxNA LLC, 2018 UT
App 115, ¶ 2 n.1, 427 P.3d 571 (cleaned up).
3. Because DSS is NSCI’s successor, we refer to the joint venture
as DSS throughout this opinion.
20200309-CA 2 2022 UT App 91Diversified Striping v. Kraus
The Kraus Parties
¶4 Joe Kraus owned or controlled National Striping Inc. (NSI),
which provided striping services in California. He also partially
owned or controlled FLJ LLC (FLJ), a company that provided
pavement striping services for highways and airports. Kraus was
the only member of FLJ with operational experience; the other two
members provided only capital. But in late 2009 or early 2010,
FLJ’s two capital investors left the company for reasons unrelated
to this case, leaving Kraus with insufficient capital to achieve his
business plans. Kraus needed to either scale back the operations
of FLJ and NSI or secure an infusion of capital.
The Joint Venture
¶5 In mid-2010, Kraus and Kevin Beck began discussing the
possibility of a joint venture. Kraus sought the Becks’ investment
in his striping business, and while the Becks had no experience in
that industry, they had substantial experience in construction and
contracting generally. Eventually, the Becks and Kraus agreed
that they would form a company together, with the Becks owning
80% and Kraus owning 20%. The general nature of the agreement
was that Kraus would contribute equipment and other assets
owned by FLJ or NSI, and the Becks would contribute capital.
¶6 In 2011, Kraus and the Becks formed DSS to provide
highway and airport striping services. DSS would use the
employees, location, customer lists, contact information, and web
domain of Kraus’s existing striping business. It would also
employ the general manager (Manager) of Kraus’s existing
business and use the striping trucks and other equipment owned
by FLJ. Kraus would bring his experience, knowledge, and
relationships for the benefit of DSS. He would be involved in the
marketing and business strategy as well as provide general
oversight of the venture.
20200309-CA 3 2022 UT App 91Diversified Striping v. Kraus
¶7 The parties agreed that Kraus would not be an employee
of DSS, nor would he draw a salary. Instead, Kraus’s return on his
investment would be in the form of 20% ownership in DSS and its
expected profits. In addition, Kraus would be an executive officer
or director of the company. To provide Kraus some income while
the venture got off the ground, the parties agreed that Kraus
would be given an advance on his anticipated 20% of DSS’s
profits. The advance would be equal to $70,000 per year for two
years.
¶8 The Becks agreed to provide the capital necessary to
achieve Kraus’s business plan, including financing the purchase
of an epoxy truck. An epoxy truck is a striping truck needed for
certain jobs, such as the lucrative projects associated with striping
airport runways and taxiways. Given that the Becks were running
other businesses, they did not envision being heavily involved in
DSS’s management.
¶9 Kraus’s preexisting business, NSI, had outstanding debts
to vendors and suppliers that arose in connection with its prior
operations. Kraus was personally responsible for these debts, and
he was concerned that vendors might be reluctant to do business
with the new venture if they knew he was involved. For this
reason, and to allow him more time to sort out his finances, Kraus
agreed that he would receive his equity in DSS “a year or so” after
the business was formed and was operational. But it was always
understood that Kraus would be a 20% owner of DSS in return for
his and his companies’ contributions.
The Documents Memorializing the Agreement
¶10 The parties’ agreement was memorialized in four
documents: the asset purchase agreement, a promissory note, a
stock sale agreement, and a profit advance agreement.
¶11 First, the asset purchase agreement (the Asset Purchase
Agreement), dated January 19, 2011, was entered into by FLJ and
20200309-CA 4 2022 UT App 91Diversified Striping v. Kraus
KMB. FLJ was controlled by Kraus, and it owned striping
equipment and related assets. KMB was owned and controlled by
the Becks and was formed at the time of the transaction for the
purpose of leasing equipment to DSS and other businesses.
¶12 Pursuant to the Asset Purchase Agreement, KMB agreed to
pay FLJ $100,000 in exchange for the used equipment under the
terms of the promissory note. The agreement states that the
$100,000 is “payable without interest, when [KMB’s] lease income
from the subject equipment equals $100,000.”4 The equipment was
not appraised or valued for purposes of the transaction. And
although Kraus later testified that he had paid over $500,000 for
the equipment, the district court did not determine its fair market
value. Rather, the court found only that the fair market value at
the time of the transaction exceeded the $100,000 figure recited in
the Asset Purchase Agreement.
¶13 Second, the promissory note (the Note), dated February 25,
2011, reiterated the above payment terms. It stated that KMB
would pay FLJ $100,000 “without interest, when [KMB’s] lease
revenue from the equipment purchased for which this note is
given equals $100,000.” The district court later found that KMB
never paid FLJ the full $100,000 but that it made partial payments
on the Note totaling $85,996.78, leaving an unpaid amount of
$14,003.22.
¶14 Third, the stock sale agreement (the Stock Sale Agreement),
dated February 18, 2011, was between DSS and Kraus. Under that
agreement, DSS agreed to transfer to Kraus 200 shares of DSS
stock, equal to 20% of the issued and outstanding shares, in return
for a payment of $100,000, due on or before December 1, 2012. The
Stock Sale Agreement also recited that Kraus was to be made a
director or executive officer of DSS prior to the sale. The district
4. The parties do not appear to dispute that the lease revenue
reached the $100,000 threshold at some point.
20200309-CA 5 2022 UT App 91Diversified Striping v. Kraus
court later found that Kraus was never issued his 20% of the DSS
shares. The parties disputed whether Kraus satisfied the
conditions precedent to DSS’s obligation to issue the shares to
him. Yet the parties ultimately stipulated that at all relevant times
Kraus had a 20% ownership interest in DSS and at all times was
entitled to a 20% share of its profits.
¶15 Fourth, Kraus and DSS signed the agreement for advances
against profits (the Profit Advance Agreement) in April 2011.
Under this agreement, DSS agreed to pay Kraus $70,000 per year,
or $5,833.33 per month, for the period from January 2011 through
December 2012, totaling twenty-four months. Further, Kraus
agreed that if his 20% share of DSS’s profits fell below this
amount, he would repay DSS for any overage. The district court
later found that although DSS made some of these monthly
payments until June 2011, DSS made no further payments after
that month. The court found that the total unpaid amount under
the Profit Advance Agreement was $108,833.31.
The Breakdown of the Joint Venture
¶16 After the formation of DSS, Kraus transferred all the
employees of his prior business to DSS. The Becks, however,
arranged for the employees to be employed not by DSS, but by a
payroll and human resources company owned by them,
Professional Consulting Services (PCS). The Becks did not
disclose this to Kraus until after the fact. Although Kraus was “not
too concerned” about this alternate arrangement, it mattered to
him how much PCS was going to charge DSS for the employees,
and the Becks alone determined the amount and did not disclose
it to Kraus in advance.
¶17 Shortly after DSS’s formation, Manager began working as
its general manager. DSS also began operating out of the location
used by Kraus’s previous business. Kraus provided DSS with all
his customer and contact lists. And in March and April 2011,
20200309-CA 6 2022 UT App 91Diversified Striping v. Kraus
Kraus caused all the striping equipment used by his prior
business to be transferred to KMB.
¶18 For DSS to rent this equipment from KMB, Pamela Beck
had told Kraus that KMB would charge 1–2% above the cost of
maintaining the equipment. DSS exclusively used the equipment;
it was not used by the Becks’ other businesses or regularly rented
to others. After the above transactions closed, KMB charged DSS
$10,000 per month for renting this equipment. The district court
found this “amount bore no relationship to the cost of maintaining
the equipment” and, contrary to Pamela Beck’s assurance, “was
vastly greater than 1–2% above the cost of maintaining it.” And,
as it turned out, KMB also did not cover all the costs of repairing
and maintaining the equipment; instead, KMB billed DSS for at
least some repairs. Moreover, the Becks and their advisors
determined the $10,000 amount without consulting Kraus. He
found out about it after the fact and did not agree with the charge.
¶19 The Becks arranged for KMB to buy the epoxy truck for
$510,000. KMB financed the purchase and paid $9,504.61 per
month on the loan. KMB then charged DSS a $20,000 monthly
rental fee for the epoxy truck. As with the $10,000 monthly charge
for the other equipment, KMB, the Becks, or the Becks’ advisors
determined the rental fee for the epoxy truck without consulting
Kraus in advance.
¶20 Under the foregoing arrangement, DSS did not own any of
the equipment necessary to carry out its striping business.
Instead, it would be obligated to pay KMB—an entity controlled
and wholly owned by the Becks—at least $30,000 per month to
rent the necessary equipment.
¶21 As DSS was launching, Kraus continued to pay various
bills related to the business, including payroll and utilities. Kraus
also paid DSS the proceeds from work that was already in
progress. In total, Kraus contributed $122,614.61 in value to DSS.
20200309-CA 7 2022 UT App 91Diversified Striping v. Kraus
But DSS did not reimburse him in full for these contributions. It
paid him only $85,996.78, leaving a balance owing of $36,617.85.5
¶22 DSS bid for and obtained jobs, including in California,
using NSI’s contractor’s license. According to Kraus, he never
authorized DSS to use NSI’s contractor’s license.
¶23 Through the summer and fall of 2011, the Becks involved
Kraus less and less in the joint venture. Kraus also faced
increasing difficulty in getting reimbursed for expenses that he
paid for DSS to operate.
¶24 Finally, in November 2011, the Becks caused DSS to move
out of the facility owned by Kraus. They also instructed Manager
and other employees not to give Kraus a key to the facility or
allow him on the premises. Afterward, communication with
Kraus was limited.
¶25 Meanwhile, PCS was charging markups and overhead
costs associated with the employees working for DSS. These
markup and overhead charges were designed to reflect services
being provided by the “home office” in Salt Lake City. The district
court found that DSS was, in effect, paying the salary and benefits
of the Becks and upper management through these charges.
Despite receiving their compensation indirectly through these
overhead charges, the Becks also directly paid themselves at least
$78,000 each from DSS in 2011. This sum was not a distribution of
profits.
¶26 In late 2011 and early 2012, as the business relationship
continued to sour, Kraus began contacting various contractors
with whom DSS was doing business and from whom payments
for contracts were owing. Kraus told them that DSS did not have
5. Although the district court’s calculation of the balance appears
to be two cents too high, we refer to $36,617.85 throughout this
opinion because that is the amount stated in the judgment.
20200309-CA 8 2022 UT App 91Diversified Striping v. Kraus
a valid contractor’s license and was operating under NSI’s license.
Kraus further directed these contractors to make payments to NSI,
not DSS. He claimed that he did this because he had not given
permission for DSS to use NSI’s license and because he wanted to
pressure DSS and the Becks to deal fairly with him.
¶27 Soon after, the Becks’ representatives reached out to Kraus
to try to finalize the remaining terms of the business relationship
and inquire about payments owed to him. But Kraus refused to
discuss the matter and did not return phone calls. Next, Kraus
contacted and advised internet service providers that DSS was
unlawfully using domain names because Kraus was still the
registered owner of the websites. As a result, email
communications with customers and vendors ceased. Kraus’s
conversations with contractors also led to at least one contractor
directly paying NSI.
¶28 The Becks responded by changing the name of the joint
venture to DSS and by excluding Kraus from its operation. DSS
continued to operate until April 2016, when the Becks shut it
down. As part of its liquidation, the Becks caused KMB and DSS
to sell the equipment, including the epoxy truck, to a competitor
for $960,486.51.
The Litigation
¶29 In 2012, the Becks, DSS, and KMB (collectively, the Beck
Parties) filed suit against Kraus, FLJ, and NSI (collectively, the
Kraus Parties).6 The Beck Parties asserted causes of action for
fraud, tortious interference with existing or prospective economic
6. The Becks and KMB were not initially named as parties; they
were added as plaintiffs when a third amended complaint was
filed in 2015.
20200309-CA 9 2022 UT App 91Diversified Striping v. Kraus
advantage, and defamation. The Kraus Parties, in turn, raised
counterclaims for breach of contract and breach of fiduciary duty.7
¶30 The matter was tried to the bench in 2019. At the conclusion
of trial, the district court issued written findings of fact and
conclusions of law, addressing each of the parties’ claims.
¶31 The district court first determined that the Beck Parties’
claims lacked merit. It therefore dismissed their claims with
prejudice.
¶32 Next, the district court addressed the Kraus Parties’
counterclaims. With respect to the breach of contract claim, the
court first found that the Kraus Parties had performed all their
material obligations under the Asset Purchase Agreement
(between KMB and FLJ), the Stock Sale Agreement (between DSS
and Kraus), and the Profit Advance Agreement (between DSS and
Kraus), or, in the alternative, that the Kraus Parties’ performance
was excused by the Beck Parties’ prior material breach. The court
then found that KMB breached the Asset Purchase Agreement
and the Note by failing to pay FLJ the amounts due thereunder;
DSS had breached the Profit Advance Agreement by failing to pay
Kraus the amounts due thereunder; and DSS also had breached
the Stock Sale Agreement by failing to issue 20% of the shares to
Kraus and to appoint him as an officer or director. Additionally,
the court found that DSS breached its obligation to reimburse
Kraus for amounts due to him. The court found that the Kraus
Parties were harmed as a direct and proximate result of these
breaches.
7. The Kraus Parties also raised counterclaims for breach of the
implied covenant of good faith and fair dealing, promissory
estoppel, fraudulent transfer, alter ego, conversion, fraud, and
unjust enrichment. But those claims are not relevant to this
appeal.
20200309-CA 10 2022 UT App 91Diversified Striping v. Kraus
¶33 As for Kraus’s claim for breach of fiduciary duty, the court
found that the Becks caused the companies under their control to
breach duties owed to Kraus. The court explained that, as majority
shareholders in DSS, the Becks had a fiduciary duty to deal fairly
and openly with Kraus, who was a minority shareholder in DSS.
The Becks then caused KMB and PCS, companies in which they
were the sole shareholders, to do business with DSS. The court
found that the “terms of those business arrangements stood to
benefit, directly and indirectly, the Becks and to damage or injure
the interests of [DSS].” It further found that the Becks “had an
economic interest in minimizing the profits of [DSS], to which
they would only be entitled to 80%, and maximizing the profits of
KMB and PCS, to which they would be entitled to 100%.” Because
these transactions “were plainly self-interested,” the Becks “had a
duty to ensure the fairness of the transaction to [DSS], along with
a duty to disclose to Kraus, as a minority shareholder, the terms
of those agreements.” The court found that although Kraus was
advised that DSS would be doing business with KMB and PCS,
“the Becks failed to disclose the terms of those arrangements and,
in particular, the fact that [DSS] would be obligated to pay KMB
and PCS substantial sums each month.” Those amounts “would
come directly out of the potential profits of [DSS]”—profits in
which Kraus had a 20% interest.
¶34 In addition, the court found that the Becks breached their
fiduciary duties by causing DSS to pay them “salaries” of at least
$78,000 each in 2011. It also found that the Becks failed to show
that the $10,000 monthly rental fee for equipment paid to KMB
was “fair or commercially reasonable.” The court found this fee
was “merely . . . a way to syphon [DSS]’s revenues to KMB.”
Similarly, the court found that the $20,000 monthly amount that
DSS paid to KMB for the epoxy truck was not fair or reasonable.
It further found that the Becks violated their fiduciary duties by
not disclosing to Kraus the terms of PCS’s contracts with DSS and
by failing to “provide Kraus any information about the company,
its operations, or its profits despite him being a 20% equity
20200309-CA 11 2022 UT App 91Diversified Striping v. Kraus
owner.” The court thus concluded that clear and convincing
evidence showed the Becks owed Kraus fiduciary duties, they
breached those duties, and the breaches were the direct and
proximate cause of harm to Kraus.
¶35 In summary, the district court determined that all the Beck
Parties’ claims failed on their merits, and it therefore dismissed
those claims with prejudice. And the court determined that the
Kraus Parties’ claims for breach of contract and breach of
fiduciary duty were meritorious.
¶36 On the question of damages, the district court determined
that DSS owed Kraus $36,617.85 for unpaid reimbursements. It
also considered whether to award lost profits to Kraus as a part
owner in DSS. It acknowledged that new businesses, like DSS,
“lack an actual record of past earnings,” making “accurate
predictions of . . . lost profits extremely difficult,” but that perhaps
other means existed to establish the requisite level of certainty to
measure lost profits in this case. (Cleaned up.) At trial, Kraus
presented an expert (Expert) to opine on the subject of lost profits.
Expert opined that Kraus’s share of the profits in this case
amounted to $681,000. But the court rejected Expert’s testimony
as unreliable because “a number of [his] assumptions are
speculative” and several of the adjustments in his analysis
“tended to overstate the profitability of the company.”
¶37 Yet the court found that DSS was in fact profitable, and it
“believe[d] that a reasonable, rational, lost profits calculation can
be made from the assumptions and beliefs held by the parties at
the time of contracting.” Specifically, the court found that at DSS’s
inception, “all parties envisioned that the true profits of the
venture would be at least $350,000 per year for the first two years
of operation” and that “20% of that amount is $70,000, the amount
the parties used in the [Profit Advance Agreement].” The court
determined that this amount represented the parties’ “best
estimate” of DSS’s “likely profits, at least for the first two years.”
20200309-CA 12 2022 UT App 91Diversified Striping v. Kraus
Given that DSS operated for five and one quarter years, the court
decided that a “conservative calculation of Kraus’s lost profits,”
based on the Profit Advance Agreement, for the five-year period
was $367,500. It then subtracted the $31,166.69 that DSS had
actually paid Kraus under the Profit Advance Agreement, thus
reducing his lost profits to $336,333.31. From this amount, the
court also subtracted the $108,833.31, which was the unpaid
amount under the Profit Advance Agreement and was awarded
separately. That left Kraus’s lost profits at $227,500.
¶38 The district court then accounted for the amounts realized
upon DSS’s liquidation. The court found that the equipment sold
for $960,486.51, including the epoxy truck that KMB purchased
for approximately $500,000. Because DSS never owned the epoxy
truck, the court gave KMB credit for its full value, which meant
that the rest of the equipment sold for approximately $450,000.
The court decided that Kraus was entitled to 20% of that amount,
which equaled $90,000. Adding this $90,000 to the $227,500
calculated above totaled $317,500.
¶39 Regarding the breach of the Asset Purchase Agreement
and the Note, the court entered judgment in favor of FLJ and
against KMB in the principal amount of $14,003.22, plus
postjudgment interest at the statutory rate. See supra ¶¶ 12–13.
Regarding the breach of the Profit Advance Agreement, the court
entered judgment in favor of Kraus and against DSS in the
principal amount of $108,833.31, plus postjudgment interest at the
statutory rate. See supra ¶ 15. And regarding Kraus’s claim for
unpaid reimbursements, the court entered judgment in favor of
Kraus and against DSS in the amount of $36,617.85, plus
postjudgment interest. See supra ¶ 21. Notably, the court
determined that for the Becks’ breaches of their fiduciary duties,
they would be jointly and severally liable for the awarded
amounts described in this paragraph. For Kraus’s breach of
fiduciary duty claim, the court also ordered judgment in favor of
20200309-CA 13 2022 UT App 91Diversified Striping v. Kraus
Kraus and against the Becks, jointly and severally, in the principal
amount of $303,496.78, plus postjudgment interest.8
¶40 Kraus requested punitive damages. But the district court
did “not find, by clear and convincing evidence, that the Becks’
conduct was so extreme and outrageous as to warrant the
imposition of punitive damages.” The court thus declined to
award them.
¶41 Finally, the court determined that the Kraus Parties were
entitled to recover their reasonable costs and attorney fees. It also
ordered that all awarded amounts would bear postjudgment
interest from the date of the original judgment at the statutory rate
set forth in Utah Code section 15-4-1. Both sides appeal.
ISSUES AND STANDARDS OF REVIEW
¶42 On appeal, the Beck Parties raise two main issues. First,
they challenge the district court’s lost profits award. “Whether the
district court applied the correct rule for measuring damages is a
question of law that we review for correctness.” Mahana v. Onyx
Acceptance Corp., 2004 UT 59, ¶ 25, 96 P.3d 893. “Whether the
amount awarded by the district court was supported by the
evidence is a determination of fact that may be reversed on appeal
only if clearly erroneous.” Id.¶43 Second, the Beck Parties contend that the district court
erred in concluding that the Becks were jointly and severally liable
to FLJ and Kraus for KMB’s breach of the Asset Purchase
Agreement and the Note. This issue involves the interpretation
and application of statutory law and caselaw, which we review
for correctness. See Biesele v. Mattena, 2019 UT 30, ¶ 13, 449 P.3d 1(reviewing a challenge to the imposition of joint and several
8. The $303,496.78 total results from subtracting the $14,003.22
(awarded separately) from the $317,500 above. See supra ¶ 38.
20200309-CA 14 2022 UT App 91Diversified Striping v. Kraus
liability for correctness given that the argument raised “questions
of the application and interpretation” of the Liability Reform Act);
Ortega v. Ridgewood Estates LLC, 2016 UT App 131, ¶ 29, 379 P.3d
18 (“The district court’s interpretation of case law presents a
question of law, which we review for correctness.”).
¶44 On cross-appeal, the Kraus Parties raise four main issues.
First, they contend that the district court incorrectly denied them
prejudgment interest. “A trial court’s decision to grant or deny
prejudgment interest presents a question of law which we review
for correctness.” Cornia v. Wilcox, 898 P.2d 1379, 1387 (Utah 1995).
¶45 Second, the Kraus Parties contend that the district court
applied the incorrect postjudgment interest rate, claiming that the
rate of 10% should have been applied to the damages awarded for
breach of contract. “Whether the trial court applied the correct
interest rate is a question of law, which we review for
correctness.” Knight Adjustment Bureau v. Lewis, 2010 UT App 40,
¶ 2, 228 P.3d 754.
¶46 Third, the Kraus Parties contend that the district court
erred by applying the wrong legal standard for punitive damages.
“Whether the trial court employed the proper standards presents
a legal question which is reviewed for correctness.” Chandler v.
Blue Cross Blue Shield of Utah, 833 P.2d 356, 360 (Utah 1992).
¶47 Fourth, the Kraus Parties contend that the district court
erred in denying them postjudgment attorney fees. This issue
turns on the application of rule 73 of the Utah Rules of Civil
Procedure. “[W]e review a district court’s interpretation and
application of our rules of civil procedure for correctness.” Sanders
v. Sanders, 2021 UT App 122, ¶ 4, 502 P.3d 1230.
20200309-CA 15 2022 UT App 91Diversified Striping v. Kraus
ANALYSIS
I. The Beck Parties’ Issues on Appeal
A. Lost Profits
¶48 The Beck Parties contend that the “district court erred in
finding, calculating, and awarding damages for breach of
fiduciary duty against the Beck Parties”—a damages award that
was largely based on Kraus’s lost profits in the joint venture, DSS.
The Beck Parties’ challenge is threefold. First, they contend that
the court “erred in awarding Kraus lost profits in an amount
based on a determination that twenty percent of DSS’s profits
every year would be $70,000.” Second, the Beck Parties contend
that “it was error for the district court to include 20% of the
amount KMB realized upon the sale of its assets in the damages
award.” Third, they contend that the flaws in the lost profits
damages award are so intertwined with the damages awarded for
breach of contract that this court should vacate the damages
award in its entirety and remand for reconsideration. We address
each argument in turn.
1. Whether the Lost Profits Were Reasonably Certain
¶49 The Beck Parties challenge the district court’s
determination that Kraus suffered $70,000 annually in lost profits,
arguing that its calculation “was based on legally irrelevant
evidence, was speculative, and was clearly erroneous.” The Beck
Parties assert that the court “fashioned a lost profits analysis
based solely on the parties’ pre-venture [Profit] Advance
Agreement” and that, by doing so, the court “incorrectly
transformed Kraus’s desired salary for DSS’s first two years of
operation into a full-blown lost profits analysis.” According to the
Beck Parties, the “figure the district court used for its lost profits
finding—$70,000 per year—was never an actual estimate of
Kraus’s profits.” Rather, it “was simply what Kraus thought he
needed to live on while DSS got up and running, until Kraus
20200309-CA 16 2022 UT App 91Diversified Striping v. Kraus
would receive a distribution of DSS’s actual profits.” They claim
that the “extrapolat[ed]” figure is “speculative because neither
Kraus nor the Becks made any calculation or relied on facts about
the business in setting the $70,000 per year projection.” If we
agree, the Beck Parties request that we remand the case to the
district court for reconsideration of any lost profits damages.
¶50 Kraus defends the district court’s damages award, arguing
that the lost profits were established with the requisite
“reasonable certainty.” In his view, the Profit Advance
Agreement “alone establishe[d] the reasonability of the court’s
lost profit calculation” because the Becks themselves “agree[d]
that a reasonable amount of advanced profits was $70,000 per
year” and their willingness to advance that amount inherently
reflected “their assumption that the company’s actual
profitability would reasonably relate to the amount advanced.”
Kraus also argues that the court properly took into consideration
the totality of the circumstances, including that the Becks “did
their own independent due diligence” on the equipment that
Kraus contributed and the state of Kraus’s business during
negotiations; that the Becks had “substantial experience in the
construction business”; that the Profit Advance Agreement was
executed three months into DSS’s operations such that the Becks
“had already experienced first-hand the performance and
potential of the joint venture”; that DSS was actually profitable;
and that the Becks were able to syphon money away from DSS
(including paying themselves $78,000 each in 2011). Kraus also
asserts that the Beck Parties’ arguments merely ask this court to
“re-weigh the evidence.”
¶51 The district court determined that it could make a
reasonable calculation of Kraus’s lost profits stemming from the
Becks’ breaches of fiduciary duties, even though DSS was a new
business that lacked an actual record of past earnings. It reasoned
that it could do so based on “the assumptions and beliefs held by
the parties at the time of contracting.” In particular, it found that
20200309-CA 17 2022 UT App 91Diversified Striping v. Kraus
“all parties envisioned that the true profits of the venture would
be at least $350,000 per year for the first two years of operation.”
Kraus’s 20% share of that amount is $70,000, which is the same
amount that the parties used in the Profit Advance Agreement
that they executed in April 2011. The court thus saw $70,000 as the
parties’ own “best estimate at the time of the venture’s likely
profits, at least for the first two years of operation.” It then
multiplied that amount by the number of years that DSS operated,
concluding that the total amount represented a “conservative
calculation” of Kraus’s lost profits given that DSS was a start-up
and other circumstances. We ultimately cannot affirm the court’s
decision.
¶52 “It is well settled that, although the plaintiff has the burden
of proving the fact, causation, and amount of damages, [the
plaintiff] need only do so with reasonable certainty rather than
with absolute precision.” Alta Health Strategies, Inc. v. CCI Mech.
Service, 930 P.2d 280, 286 (Utah Ct. App. 1996) (cleaned up).
Further, “although damages may not be determined by
speculation or guesswork, evidence allowing a just and
reasonable estimate of the damages based on relevant data is
sufficient.” Id. (cleaned up).
¶53 Lost profits damages in particular “must be established
with reasonable certainty.” Cook Assocs., Inc. v. Warnick, 664 P.2d
1161, 1165 (Utah 1983). Put differently, lost profits must be proved
with “sufficient certainty that reasonable minds might believe
from a preponderance of the evidence that the damages were
actually suffered.” Id. (cleaned up); accord Kilpatrick v. Wiley, Rein
& Fielding, 2001 UT 107, ¶ 76, 37 P.3d 1130.
¶54 Our supreme court has explained that “the pivotal
question” surrounding lost profits “is not whether the plaintiff
has proven an established earning record but whether [the
plaintiff] has proven the damages for lost profits with reasonable
certainty, although the former is often relevant to the latter.” Cook,
20200309-CA 18 2022 UT App 91Diversified Striping v. Kraus
664 P.2d at 1166 (cleaned up). An established business’s “record
of past earnings obviously increases the certainty with which one
could predict future profits.” Id. “But that fact should not
automatically preclude new businesses from recovering lost
profits because they lack such a record.” Id. “Rather, new
businesses should be allowed to try to prove lost profits up to a
reasonable level of certainty by other means, just as established
businesses are permitted to do.” Id. And “[o]nce a defendant has
been shown to have caused a loss, [the defendant] should not be
allowed to escape liability because the amount of the loss cannot
be proved with precision.” Id.; accord Kilpatrick, 2001 UT 107, ¶ 76.
“Consequently, the reasonable level of certainty required to
establish the amount of a loss is generally lower than that required
to establish the fact or cause of a loss.” Cook, 664 P.2d at 1166.
¶55 A lost profits claim cannot “rest[] on an assumption
unsupported by the record” or be based on evidence that is
“wholly speculative.” First Sec. Bank of Utah, NA v. J.B.J. Feedyards,
Inc., 653 P.2d 591, 596 (Utah 1982). Yet, “while the evidence must
not be so indefinite as to allow the [factfinder] to speculate as to
[lost profits], some degree of uncertainty is tolerable.” Carlson
Distrib. Co. v. Salt Lake Brewing Co., 2004 UT App 227, ¶ 19, 95 P.3d
1171 (cleaned up). “It is, after all, the wrongdoer, rather than the
injured party, who should bear the burden of some uncertainty in
the amount of damages.” Atkin Wright & Miles v. Mountain States
Tel. & Tel. Co., 709 P.2d 330, 336 (Utah 1985).
¶56 Importantly, the evidence of lost profits “must be evidence
that rises above speculation and provides a reasonable, even
though not necessarily precise, estimate of damages.” See id. Utah
law thus allows for the amount of damages to be “based upon
approximations, if the fact of damage is established, and the
approximations are based upon reasonable assumptions or
projections.” Id.; see also Francis v. National DME, 2015 UT App 119,
¶ 28, 350 P.3d 615.
20200309-CA 19 2022 UT App 91Diversified Striping v. Kraus
¶57 Here, Kraus insists that the district court’s consideration of
“all of the relevant circumstances surrounding the parties’
dealings” established the “reasonable certainty of [its] lost profit
calculation.” We do not share this view. Although the court
broadly acknowledged “the totality of the circumstances,
including the start up nature of the venture,” it derived the
$70,000 figure for Kraus’s annual lost profits directly from the
Profit Advance Agreement. The court’s reference to DSS’s “start
up nature,” in context, likely referred to how DSS did not have an
actual record of past earnings and therefore any lost profits had
to be established by other means. See Cook, 664 P.2d at 1166. And
given that the court found that Expert—who testified on Kraus’s
behalf—offered “speculative” and unreliable opinions on lost
profits, the court ultimately relied on the Profit Advance
Agreement as an alternative means of providing the basis for a
lost profits calculation. In other words, we agree with the Beck
Parties that the district court’s lost profits analysis was based
solely on the Profit Advance Agreement.
¶58 The Beck Parties assert that even if the Profit Advance
Agreement “was based on the parties’ pre-venture estimate of
profits,” the court’s reliance on it was still “inappropriate”
because “[l]ost profits damages must be proven by expert
testimony, as projecting potential profits requires technical or
specialized knowledge.” We do not embrace this view. When a
business is new and a past earnings record is thus unavailable,
“[a]lternative means of establishing the certainty of lost profits
include expert testimony of profit potential, evidence of the actual
profits of similar businesses, and evidence of subsequent earnings
of the business claiming lost profits.” Cook, 664 P.2d at 1166 n.4;
see also Kilpatrick, 2001 UT 107, ¶¶ 76–77 (“One method of
measuring damages in such a situation is by expert testimony.”).
Although expert testimony may be one available means of
showing lost profits, our caselaw does not necessarily require
expert testimony for lost profits to be used as a measure of
20200309-CA 20 2022 UT App 91Diversified Striping v. Kraus
damages for a new business.9 See Cook, 664 P.2d at 1166 & n.4. By
the same token, we do not read our caselaw to mean that the three
methods mentioned above are the only possible methods of
establishing the reasonable certainty of lost profits. See id.
¶59 The court used the Profit Advance Agreement to find that
“all parties envisioned that the true profits of the venture would
be at least $350,000 per year for the first two years of operation.”
The court reasoned that because Kraus was entitled to 20% of
DSS’s profits and because his annual advance under the Profit
Advance Agreement was $70,000, the $350,000 represented the
parties’ “best estimate” of DSS’s likely profits (20% of $350,000 =
$70,000). But Utah law requires that this approximation be “based
upon reasonable assumptions or projections” or be a “reasonable,
even though not necessarily precise, estimate of damages.” See
Atkin, 709 P.2d at 336.
¶60 We conclude that the district court’s calculation of Kraus’s
annual lost profits of $70,000 was not based on “reasonable
9. Yet the Beck Parties suggest that Ghidotti v. Waldron, 2019 UT
App 67, 442 P.3d 1237, directs that “[l]ost profits damages must
be proven by expert testimony.” In that case, the district court
concluded that the new business owners there “could not prove
their damages with the requisite degree of certainty because they
did not have an expert to testify on profit potential.” Id. ¶¶ 7, 20
(cleaned up). On appeal, the new business owners challenged the
district court’s decision that they had failed to properly disclose
an expert witness, but they did not argue that they should have
been able to prove their damages through other available means.
Id. ¶¶ 9, 13 & n.5. Because they relied solely on expert testimony
as the method by which they intended to prove lost profits
damages, see id. ¶¶ 13–14 & n.5, and because this court affirmed
that their disclosure was inadequate, id. ¶ 15, we are not
persuaded that Ghidotti stands for the broader proposition for
which the Beck Parties advocate.
20200309-CA 21 2022 UT App 91Diversified Striping v. Kraus
assumptions or projections” of DSS’s likely profits. See id. The
court relied on the $70,000 figure included in the Profit Advance
Agreement, but that amount was not based on the parties’ pre-
venture estimate of profits. The agreement itself says nothing to
indicate that it was based on the parties’ estimate or projection of
DSS’s profitability. It states only that Kraus was “entitled to
receive an advance against profits totaling $70,000 per year” for
two years and that Kraus would “be liable to repay [DSS] the
shortfall if, at the end of two years, 20% of the actual profits
earned by [DSS was] less than the total amount advanced” to
Kraus under the Profit Advance Agreement.
¶61 Other evidence in the record similarly does not support a
finding that the $70,000 figure was tethered to a projection of
expected profits. Kraus himself testified that rather than
becoming DSS’s salaried employee, he opted to receive the
advances under the Profit Advance Agreement so that he could
“live,” “get [his] bills paid,” and “run [his] other companies.” As
Kraus explained, the $70,000 figure was merely “what [he] had
asked for and [Kevin Beck] agreed.” The fact that the parties
ultimately labeled it a “profit advance” does not demonstrate that
$70,000 reflected the parties’ estimate of Kraus’s share of DSS’s
likely profits, much less that it reflected a reasonable estimate.
Rather, it was undisputed that the number was based entirely on
what Kraus needed to live and pay his bills, the number was not
“negotiable,” and he was to receive the amount during the first
two years “regardless of whether [the joint venture] was
profitable.” Kraus has pointed to no evidence to suggest that
either side conducted a profitability analysis or that the $70,000
figure was consistent with their expectations for the joint
venture.10
10. Kraus invites this court to speculate that the Becks agreed that
the $70,000 figure “was a reasonable approximation of . . . Kraus’s
(continued…)
20200309-CA 22 2022 UT App 91Diversified Striping v. Kraus
¶62 As a result, the district court’s lost profits analysis “rests on
. . . assumption[s] unsupported by the record.” See First Sec. Bank,
653 P.2d at 596. We thus conclude that Kraus’s lost profits
damages were not established with reasonable certainty, and we
therefore reverse and vacate this portion of the district court’s
award. Having agreed with the Beck Parties that the court’s
decision on lost profits was infirm, we remand for the court to
reconsider whether any other evidence would support a
reasonably certain basis for lost profits damages.11
2. Whether Kraus Should Have Received 20% of the Value of
KMB’s Liquidated Assets
¶63 The Beck Parties also complain that the “district court’s
damages award for lost profits impermissibly included $90,000
share of profits” based on their “own expectations” and
“assumptions of profitability.” But Kraus has not shown what the
Becks’ expectations were or that in agreeing to the non-negotiable
$70,000 advance, they engaged in any kind of profitability
analysis. Further, Kraus has not shown that, even if the Becks had
assumptions or projections about the venture’s profitability, those
assumptions or projections were reasonable. See Atkin Wright
& Miles v. Mountain States Tel. & Tel. Co., 709 P.2d 330, 336 (Utah
1985) (“The amount of damages may be based upon
approximations . . . [if] the approximations are based upon
reasonable assumptions or projections.”); Webb v. Utah Tour
Brokers Ass’n, 568 F.2d 670, 677 (10th Cir. 1977) (applying Utah law
and concluding that evidence failed to show “a tangible
foundation” from which a factfinder could determine that a
reasonable probability existed that profits would have been
made).
11. The parties have not identified another basis for the lost profits
award, and we express no opinion on whether any such basis
exists in the evidence.
20200309-CA 23 2022 UT App 91Diversified Striping v. Kraus
that represented 20% of the amounts realized by KMB on the
liquidation of its assets.” They make two points on this score.
First, they assert that Kraus was not entitled to this amount
because he did not own any interest in KMB. Second, they assert
that the $90,000 impermissibly gave Kraus a double recovery
because it was “duplicative of the lost profits awarded to Kraus
and the contract damages awarded to FLJ, Kraus’s entity.”
¶64 On their second point, the Beck Parties argue that the
$90,000 was duplicative of the lost profits award because the
“injury to DSS (and, therefore, Kraus) flowing from” the Becks’
breach of fiduciary duty—which was causing DSS to enter into
self-interested transactions with KMB related to renting the
equipment—“is measured by the amount KMB overcharged DSS”
and was already “captured in the lost profits measure of
damages.” And a portion of the $90,000, they assert, is duplicative
of the $14,003.22 awarded to FLJ for KMB’s breach of the Asset
Purchase Agreement and the Note because the $14,003.22
represented the shortfall on the $100,000 sale price and “fully
compensated FLJ (and through it, Kraus) for the value of the
equipment sold to KMB.” In other words, “[i]t is as though he/FLJ
both sold the equipment to KMB for $100,000 but continued to
own it until KMB liquidated it.”
¶65 Kraus responds that DSS and KMB, together, operated the
striping business and that “[w]hile Mr. Kraus may not have
owned any interest in KMB,” he placed the equipment with KMB
and “he certainly was a partner in the joint venture” with the
Becks. Kraus argues that if the Becks had not “forced [him] out”
of DSS, he would have received 20% of the profits while DSS
operated and would have received his fair share of the proceeds
from the liquidation of the joint venture. He also argues that the
Becks’ actions “with regard to KMB that undermined the joint
venture would certainly justify an award of damages.” Kraus
further argues that no double recovery occurred here because the
20200309-CA 24 2022 UT App 91Diversified Striping v. Kraus
parties’ transactions and agreements were “interrelated” and
“cannot be separated.”
¶66 The district court found that the Becks sold “the
equipment” related to DSS’s striping business, including the
epoxy truck, for $960,486.51. Under DSS and KMB’s business
arrangement, DSS never owned any of the striping equipment.
Rather, KMB owned the equipment and leased it to DSS. Because
KMB originally purchased the epoxy truck and DSS did not own
it, the court gave KMB credit for its full value. The court then
found that the rest of the equipment sold for approximately
$450,000, and it awarded Kraus 20% of that amount, which
equaled $90,000.
¶67 Both sides agree that “the equipment” referred to in the
court’s findings included other assets in addition to the striping
equipment owned by KMB.12 But the court did not draw a
distinction between the striping equipment and any other assets
included in the liquidation.
¶68 This distinction matters because we agree with the Beck
Parties that Kraus was not an owner of KMB and therefore was
not entitled to a share of the sale proceeds of KMB’s equipment.
Cf. Utah Code Ann. § 48-3a-711(2)(b) (LexisNexis 2015) (providing
that after discharging its obligations when winding up, a limited
liability company will distribute any remaining surplus “in equal
12. In support, Kraus relies on a trial exhibit of an asset purchase
agreement related to the liquidation and attached it as an
addendum to his brief. But the trial exhibits were not included in
the record on appeal, and “this court’s power of review is strictly
limited to the record presented on appeal.” See Reperex, Inc. v.
May’s Custom Tile, Inc., 2012 UT App 287, ¶ 12, 292 P.3d 694(cleaned up). In any event, we need not consider this exhibit in
light of the Beck Parties’ acknowledgment that other assets were
part of the liquidation.
20200309-CA 25 2022 UT App 91Diversified Striping v. Kraus
shares among members and dissociated members”). Yet when the
court awarded Kraus $90,000, Kraus received a portion of the
proceeds related to assets that had belonged to KMB. Although
Kraus believes that his ownership in the joint venture entitled him
to recover this portion of the sale because “placing the equipment
in KMB was part of that joint venture,” he provides no authority
for the notion that his participation in the joint venture entitled
him to recover under the circumstances here, particularly where
he freely transferred ownership of the equipment so that he could
acquire a 20% stake in DSS. We thus conclude that Kraus should
not have received a portion of the sale of KMB’s equipment, and
we vacate this portion of his award.
¶69 Nevertheless, Kraus was a co-owner of DSS and therefore
is entitled to 20% of the sale proceeds that related to any
assets that had belonged to DSS. On remand, the district
court should reassess the proceeds from the liquidation
and exclude the amounts related to the sale of KMB’s equipment
from Kraus’s award. It should also make specific findings
regarding the amount of proceeds related to assets owned by DSS,
and then the court may award Kraus a portion of those proceeds.
See generally Bastian v. King, 661 P.2d 953, 957 (Utah 1983)
(instructing district courts to provide factual findings that
demonstrate that “there is a rational basis for the award of
damages” and that “the findings support the judgment and that
the evidence supports the findings”). Although we do not opine
on the Beck Parties’ double recovery arguments, the district court
should, if presented, consider any such arguments made on
remand.
3. Whether the Entire Damages Award Should Be Vacated
¶70 Third, the Beck Parties contend that the entire damages
award should be vacated because the flaws identified above are
“intertwined with” the remainder of the award. Again pointing to
the district court’s reliance on the Profit Advance Agreement to
20200309-CA 26 2022 UT App 91Diversified Striping v. Kraus
project DSS’s profits as $350,000 per year, the Beck Parties contend
that the court’s calculation of damages for the breach of the
Profit Advance Agreement—$108,833.31—was likewise
“impermissibly speculative.” This is true, the Beck Parties argue,
because the terms of that agreement would have required
Kraus to repay DSS if Kraus’s share of the actual annual profits
fell below $70,000. The Beck Parties thus urge this court to
vacate the award and remand for additional findings or a new
hearing.
¶71 We agree that the district court needs to reassess the
entire damages award, especially given that we have
vacated other portions of the award. We also agree with the Beck
Parties that the court should reevaluate the $108,833.31 related to
the breach of the Profit Advance Agreement. Although that
amount reflects the shortfall from the $140,000 that Kraus
expected to receive under that agreement, the agreement’s
repayment provision meant that Kraus would not necessarily
keep that entire amount “if, at the end of two years, 20% of the
actual profits earned by [DSS was] less than the total amount
advanced.” The court found that DSS was profitable at some
point, but the court did not make specific findings about what, if
any, profits DSS realized or when. Further, it is unknown whether
any such profits were sufficient for Kraus to have avoided liability
for repayment. In other words, the $108,833.31 appears to
presume that the $350,000 figure derived from the Profit Advance
Agreement accurately reflected DSS’s profits and that Kraus
would have no repayment obligation. But we have rejected the
court’s reliance on the Profit Advance Agreement as a basis for
determining lost profits, and that decision leaves the court’s
award for breach of that agreement without a foundation.
Accordingly, the court on remand should reassess the amounts to
which Kraus is entitled under the Profit Advance Agreement, if
any, and provide appropriately detailed findings.
20200309-CA 27 2022 UT App 91Diversified Striping v. Kraus
B. Joint and Several Liability
¶72 As their last issue on appeal, the Becks contend that the
district court erred in imposing joint and several liability on them
for the $14,003.22 related to KMB’s breach of the Asset Purchase
Agreement and the Note. According to the Becks, they cannot be
held personally liable for KMB’s liabilities under corporate law.
¶73 The district court determined that KMB breached the Asset
Purchase Agreement and the Note by failing to pay the amounts
due thereunder in exchange for FLJ’s used equipment.
Specifically, KMB fell short $14,003.22 of the amount due to FLJ.
The court also determined that “the Becks breached fiduciary
duties owed by them to Kraus, and caused the companies under
their control to breach duties owed to Kraus, which itself amount
to a breach of these contractual obligations.” And the court
ultimately held the Becks jointly and severally liable for the
$14,003.22 owed by KMB to FLJ.
¶74 Generally, a “member or manager [of a limited liability
company] is not personally liable, directly or indirectly, by way of
contribution or otherwise, for a debt, obligation, or other liability
of the limited liability company solely by reason of being or acting
as a member or manager.” Utah Code Ann. § 48-3a-304(1)
(LexisNexis 2015). But a member or manager “may be held
‘personally liable for his limited liability company’s contractual
breaches if he assumed personal liability, acted in bad faith or
committed a tort in connection with the performance of the
contract.’” H&P Invs. v. iLux Cap. Mgmt. LLC, 2021 UT App 113,
¶ 50, 500 P.3d 906 (quoting Reedeker v. Salisbury, 952 P.2d 577, 582
(Utah Ct. App. 1998)). When the district court imposed joint and
several liability for the $14,003.22 on the Becks—members of
KMB—the court effectively imposed personal liability on them.
¶75 The court appears to have premised its decision on its
conclusion that the Becks breached their fiduciary duties to Kraus
in connection with KMB’s performance of the Asset Purchase
20200309-CA 28 2022 UT App 91Diversified Striping v. Kraus
Agreement and the Note. See id. And the Becks have not carried
their burden of persuasion to show error in the court’s decision.
See generally 1600 Barberry Lane 8 LLC v. Cottonwood Residential O.P.
LP, 2021 UT 15, ¶ 53, 493 P.3d 580 (explaining that appellants
shoulder “the burden of persuasion to convince the reviewing
court that the district court erred”). The Becks assert that their
fiduciary duties to Kraus with respect to their joint venture
“cannot be read so broadly as to require the Becks to ensure that
other entities they control (like KMB) never breach an agreement
with an entity that Kraus controls (like FLJ).” But beyond that,
they do not explain why. Instead, they cite, without analysis, a
string of cases from various jurisdictions that stand generally for
the proposition that fiduciary duties between partners do not
extend to unrelated business ventures. See, e.g., LG & E Cap. Corp.
v. Tenaska VI, LP, 289 F.3d 1059, 1063–64 (8th Cir. 2002) (collecting
cases indicating that a party’s fiduciary duties to another party are
limited to dealings involving their joint venture). But here, KMB’s
obligations and breach were tied to the joint venture, so it is not
evident that the Becks’ authority is on point. And because the
Becks have not shown that their breach of fiduciary duties could
not support personal liability here, see H&P Invs., 2021 UT App
113, ¶ 50, we cannot say that the district court erred in imposing
joint and several liability on the Becks for the $14,003.22 award.
II. The Kraus Parties’ Issues on Cross-Appeal
A. Prejudgment Interest
¶76 The Kraus Parties contend that the district court erred in
declining to award them prejudgment interest. Specifically, they
assert that prejudgment interest should have been awarded with
respect to three amounts in the judgment: (i) $14,003.22 relating to
the breach of the Asset Purchase Agreement, (ii) $108,833.31
relating to the breach of the Profit Advance Agreement, and
(iii) $36,617.85 relating to the unpaid reimbursements. After we
20200309-CA 29 2022 UT App 91Diversified Striping v. Kraus
set forth Utah law on prejudgment interest, we address each of
these amounts in turn.
¶77 “The purpose of awarding prejudgment interest is to
compensate a party for the depreciating value of the amount
owed over time and, as a corollary, to deter parties from
intentionally withholding an amount that is liquidated and
owing.” Encon Utah, LLC v. Fluor Ames Kraemer, LLC, 2009 UT 7,
¶ 67, 210 P.3d 263 (cleaned up). In Utah, prejudgment interest is
recoverable “where the damage is complete, the amount of the
loss is fixed as of a particular time, and the loss is measurable by
facts and figures.” Id. ¶ 51 (cleaned up). This standard “focuses on
the measurability and calculability of the damages,” id. ¶ 52, and
it requires “the amount of the loss [to] be calculated with
mathematical accuracy in accordance with well-established rules
of damages,” USA Power, LLC v. PacifiCorp, 2016 UT 20, ¶ 100, 372
P.3d 629 (cleaned up).
¶78 Yet even though “all claims can be reduced eventually to
monetary value,” not all claims are subject to prejudgment
interest. See Canyon Country Store v. Bracey, 781 P.2d 414, 422 (Utah
1989). Utah courts will not award prejudgment interest in cases
“where the trier of fact has to use its ‘best judgment in assessing
the amount to be allowed for past as well as for future injury.’”
KTM Health Care Inc. v. SG Nursing Home LLC, 2018 UT App 152,
¶ 81, 436 P.3d 151 (quoting USA Power, 2016 UT 20, ¶ 100). For
example, cases involving wrongful death or defamation have
“losses that cannot be calculated with mathematical accuracy”
because the damage amounts are “determined by the broad
discretion of the trier of fact.” USA Power, 2016 UT 20, ¶ 100
(cleaned up).
¶79 When prejudgment interest is available, the applicable rate
is typically dictated by statute. See Beckman v. Cybertary
Franchising LLC, 2018 UT App 47, ¶ 64, 424 P.3d 1016. As relevant
here, Utah Code section 15-1-1(2) provides, “Unless parties to a
20200309-CA 30 2022 UT App 91Diversified Striping v. Kraus
lawful contract specify a different rate of interest, the legal rate of
interest for the loan or forbearance of any money, goods, or chose
in action shall be 10% per annum.” Utah Code Ann. § 15-1-1(2)
(LexisNexis 2013). This statute was amended in 2019 to allow for
a 10% interest rate for “a claim for breach of contract.” Id. (Supp.
2021) (“Unless the parties to a lawful written, verbal, or implied
contract expressly specify a different rate of interest, the legal rate
of interest for the contract, including a contract for services, a loan
or forbearance of any money, goods, or services, or a claim for
breach of contract is 10% per annum.”). When a contract does not
fall within the scope of section 15-1-1, the applicable interest rate
is provided in section 15-1-4: “the federal postjudgment interest
rate as of January 1 of each year, plus 2%.” Id. § 15-1-4(3)(a); see
also USA Power, 2016 UT 20, ¶ 109. These same statutes apply to
determining the rates for postjudgment interest. See USA Power,
2016 UT 20, ¶ 106 n.187; see also Utah Code Ann. §§ 15-1-1, 15-1-4
(LexisNexis Supp. 2021).
¶80 We now consider each portion of the judgment to which
the Kraus Parties claim entitlement to prejudgment interest.
1. $14,003.22 Related to the Asset Purchase Agreement
¶81 FLJ argues that because KMB did not pay $14,003.22 of the
$100,000 due under the Asset Purchase Agreement, the $14,003.22
was measurable by facts and figures and that the district court
therefore should have awarded prejudgment interest on this
amount. Although it acknowledges that the Asset Purchase
Agreement provides that the $100,000 would be “payable without
interest, when [KMB’s] lease income from the subject equipment
equals $100,000,” FLJ asserts that this zero-interest provision
“applies only to the extent that KMB timely paid the amount
due,” and that the “repayment would be ‘without interest’ only
until the time [KMB’s] lease revenue from the equipment equaled
$100,000” and therefore was not intended to extend indefinitely.
Further, because the agreement “does not specify an interest rate
20200309-CA 31 2022 UT App 91Diversified Striping v. Kraus
applicable in the event of KMB’s breach,” FLJ contends that the
court should have awarded 10% prejudgment interest under Utah
Code section 15-1-1(2).
¶82 The Beck Parties respond that the “without interest”
provision in the Asset Purchase Agreement shows that the parties
agreed that the obligation would bear no interest at all. They also
assert that the agreement “does not distinguish between pre-
default and default interest rates” and therefore the applicable
interest rate for this claim is zero.
¶83 We agree with FLJ that the $14,003.22 shortfall under the
Asset Purchase Agreement and the Note qualifies for
prejudgment interest. It represents a loss that is complete, “fixed
as of a particular time,” and readily “measurable by facts and
figures.” See Encon Utah, 2009 UT 7, ¶ 51 (cleaned up).
¶84 The Asset Purchase Agreement and the Note provided that
the $100,000 would be “payable without interest, when [KMB’s]
lease income from the subject equipment equals $100,000.”
Looking at this plain language, see Brady v. Park, 2019 UT 16, ¶ 53,
445 P.3d 395 (explaining that when interpreting a contract, “we
first look at the plain language of the contract” (cleaned up)), we
disagree with the Beck Parties’ claim that this provision meant
that interest would never accrue. Instead, we read this to mean
that there is no interest until payment on the $100,000 note became
due. Thus, interest would not accrue on the $100,000 until the time
when KMB’s income from renting the equipment equaled
$100,000. After that point, if the Note remained unpaid, nothing
in the Asset Purchase Agreement and the Note precludes interest
from accruing.
¶85 We further agree with FLJ that the $14,003.22 qualifies for
the 10% interest rate under Utah Code section 15-1-1(2). Based on
the Beck Parties’ concession that the Asset Purchase Agreement
“does involve a loan,” we conclude that the 10% interest rate
applies. See Utah Code Ann. § 15-1-1(2) (LexisNexis 2013); see also
20200309-CA 32 2022 UT App 91Diversified Striping v. Kraus
USA Power, 2016 UT 20, ¶ 109. Accordingly, the district court
should award FLJ prejudgment interest at 10% per annum on the
$14,003.22 award.
2. $108,833.31 Related to the Profit Advance Agreement
¶86 Kraus argues that given that DSS paid only $31,166.69 of
the $140,000 it owed under the Profit Advance Agreement, the
$108,833.31 award was measurable by facts and figures. He
asserts that prejudgment interest should apply to this amount at
10% per year under Utah Code section 15-1-1.
¶87 The Beck Parties counter that the $70,000 per year “was not
the actual amount owed Kraus under the agreement” because
Kraus would have to repay some of this amount if DSS’s profits
were “less than $350,000 per year.” They assert that because of the
repayment provision, Kraus’s recovery under the Profit Advance
Agreement “could not be calculated with mathematical certainty”
and therefore Kraus’s award was not subject to prejudgment
interest. Kraus responds that his “requirement to reconcile” the
advance with the actual profits was “excused by [DSS’s] failure to
perform” its payment obligations under the Profit Advance
Agreement. Moreover, he asserts that he “likely would not have
had to repay any advanced profits.”
¶88 As discussed above, we conclude that the district court, on
remand, needs to reevaluate the $108,833.31 damages award
related to the breach of the Profit Advance Agreement. Supra ¶ 71.
Given that Kraus’s entitlement to $140,000 under that agreement
was contingent on DSS’s actual profits, this aspect of Kraus’s
damages is too uncertain for us to assess whether prejudgment
interest is available. If, on remand, the district court again
determines that Kraus is entitled to damages for breach of the
Profit Advance Agreement, the court should reassess the
propriety of prejudgment interest under the standards we have
discussed above. Supra ¶¶ 77–79.
20200309-CA 33 2022 UT App 91Diversified Striping v. Kraus
3. $36,617.85 in Unpaid Reimbursements
¶89 Kraus contends that the $36,617.85 in unpaid
reimbursements also met Utah’s prejudgment interest standard.
According to Kraus, DSS’s failure to reimburse Kraus was a
breach of an oral agreement, and because that agreement did not
specify an interest rate, the applicable rate should be 10% under
Utah Code section 15-1-1.13 In contrast, the Beck Parties point to
the lack of a specified interest rate and assert that it means “the
amount of prejudgment interest is zero.”
¶90 We agree with Kraus that the $36,617.85 in unpaid
reimbursements satisfies the prejudgment interest standard. The
court calculated this amount by taking the value of Kraus’s
reimbursable contributions ($122,614.61) and subtracting the
amount he did receive ($85,996.78). Supra ¶ 21 & note 5. Thus, this
damages award was “calculated with mathematical accuracy,” see
USA Power, 2016 UT 20, ¶ 100 (cleaned up), and prejudgment
interest should accrue on the $36,617.85.
¶91 However, we disagree with Kraus that the applicable
prejudgment interest rate is 10% under Utah Code section 15-1-1.
To qualify for the 10% rate under that provision, Kraus must
demonstrate that the agreement involved “the loan or forbearance
of any money, goods, or chose in action.” See Utah Code Ann.
§ 15-1-1(2); see also USA Power, 2016 UT 20, ¶ 109. Unfortunately
for Kraus, he has not engaged in that analysis.
¶92 Instead, he argues for the application of an amended
version of the statute, which allows for a 10% interest rate for “a
claim for breach of contract.” See Utah Code Ann. § 15-1-1(2)
(LexisNexis Supp. 2021). But we “apply the law as it exists at the
13. Citing the court’s findings, Kraus also claims the failure to
reimburse was a breach of the Stock Sale Agreement. But it is
unclear whether the court found that agreement to be a basis for
this claim.
20200309-CA 34 2022 UT App 91Diversified Striping v. Kraus
time of the event regulated by the law in question.” State v. Clark,
2011 UT 23, ¶ 13, 251 P.3d 829. Because prejudgment interest is
available only when “the amount of the loss is fixed as of a
particular time,” Encon Utah, 2009 UT 7, ¶ 51 (cleaned up), and all
the Kraus Parties’ losses were allegedly fixed before the current
statute came into effect in 2019, we apply the earlier version of
Utah Code section 15-1-1, see Clark, 2011 UT 23, ¶ 13; cf. Gressman
v. State, 2013 UT 63, ¶ 14, 323 P.3d 998 (concluding that provisions
affecting postjudgment interest, in a different context, affected
substantive rights because they “enlarge, eliminate, or destroy
vested or contractual rights and do not merely dictate the practice
and procedure or the legal machinery by which the substantive
law is determined or made effective” (cleaned up)). Accordingly,
the Kraus Parties’ claims to prejudgment interest cannot rely on
the current statute’s provision allowing for interest at 10% per
annum for “a claim for breach of contract.” See Utah Code Ann.
§ 15-1-1(2).14
14. Kraus suggests that we should give the current statute
retroactive effect. But “[a] provision of the Utah Code is not
retroactive, unless the provision is expressly declared to be
retroactive.” Utah Code Ann. § 68-3-3 (LexisNexis 2016); see also
Gressman v. State, 2013 UT 63, ¶ 12, 323 P.3d 998. Kraus further
argues that the current statute should be retroactive because the
recent amendment merely “clarifies” the earlier enactment. Utah
“case law has occasionally referred to amendments clarifying
statutes as an exception to the retroactivity ban.” Gressman, 2013
UT 63, ¶ 16 (cleaned up). To decide whether an amendment is a
mere clarification, we ask “whether it alters or explains language
already present in the original statute or whether the amendment
added new language or subsections that did not exist in any form
before the amendments were made.” Id. ¶ 17 (cleaned up). “An
amendment that does the former is more likely clarifying in
nature; one that does the latter is not.” Id. We conclude that the
(continued…)
20200309-CA 35 2022 UT App 91Diversified Striping v. Kraus
¶93 Because Kraus has not established that section 15-1-1
provides the appropriate rate of interest, we conclude that Utah
Code section 15-1-4 provides the applicable rate for prejudgment
interest on his unpaid reimbursements.15 See USA Power, 2016 UT
20, ¶ 109.
B. Postjudgment Interest Rate
¶94 Next, the Kraus Parties challenge the district court’s choice
of postjudgment interest rate, arguing that the court erred in
picking the rate under Utah Code section 15-1-4. They contend
that under the current version of Utah Code section 15-1-1, “a
post-judgment interest rate of 10% should be applied to the
current statute’s amendment providing that the 10% annual
interest rate applies to “a claim for breach of contract” added new
language to the statute and was not merely clarifying. See id.Compare Utah Code Ann. § 15-1-1(2) (LexisNexis Supp. 2021), with
id. (2013). For these reasons, we will not apply the current version
of section 15-1-1 retroactively to this case.
15. Kraus also claims prejudgment interest with respect to the
$90,000 that the district court awarded to him as his share of DSS’s
liquidation. We have vacated the $90,000 award and remanded
for reconsideration. Supra ¶¶ 68–69. If, on remand, the district
court determines that Kraus is entitled to a portion of the
liquidation (while excluding proceeds from KMB’s equipment),
the court should also reassess whether prejudgment interest
would be appropriate under the standards we have discussed.
In addition, Kraus asserts that the court should have
awarded prejudgment interest with respect to the $303,496.78 in
lost profits. As discussed in detail above, we vacate the lost profits
award and remand to the court for reconsideration. Supra ¶ 62.
Should the court, on remand, again award lost profits to Kraus, it
will need to consider any related claim for prejudgment interest
anew.
20200309-CA 36 2022 UT App 91Diversified Striping v. Kraus
damages awarded for breach of contract,” namely, the $14,003.22
for breach of the Asset Purchase Agreement, the $108,833.31 for
breach of the Profit Advance Agreement, and the $36,617.85 for
breach of the agreement to reimburse Kraus.
¶95 The Beck Parties oppose 10% postjudgment interest here,
arguing that the Kraus Parties incorrectly rely on an amended
version of the statute. In the Beck Parties’ view, the earlier version
of the statute applies, and the agreements do not qualify for
application of the 10% interest rate because they either specify an
interest rate “or are not loan or forbearance contracts subject to
the statute.”
¶96 As discussed above, we agree with the Beck Parties that the
Kraus Parties’ claims to prejudgment interest cannot rely on the
current statute’s provision allowing for interest at 10% per annum
for a claim for breach of contract. Supra ¶ 92. Nevertheless, we
have determined that FLJ is entitled to prejudgment interest
under the earlier version of the statute regarding the $14,003.22
related to the Asset Purchase Agreement because it involves a
loan. Supra ¶ 85. For the same reasons, the 10% per annum interest
rate applies for postjudgment interest on this amount, and the
district court erred in imposing the rate under Utah Code section
15-1-4. We reject, however, Kraus’s claim that the 10% per annum
postjudgment interest rate applies to the $36,617.85 awarded for
breach of the agreement to reimburse Kraus. Just as Kraus failed
to demonstrate application of the 10% interest rate for
prejudgment interest on this amount, see supra ¶ 91, he has failed
to demonstrate that the district court erred in not applying this
rate to this claim for postjudgment interest.16
16. Because we have vacated the district court’s award for
damages for breach of the Profit Advance Agreement, supra
¶¶ 71, 88, we do not address Kraus’s argument relating to the
(continued…)
20200309-CA 37 2022 UT App 91Diversified Striping v. Kraus
C. Punitive Damages
¶97 Kraus contends that the district court erred in denying his
request for punitive damages. He argues, first, that the court
applied “the wrong legal standard in evaluating whether punitive
damages were warranted” and, second, that the court should
have awarded punitive damages under the correct standard.
Because we agree with Kraus on his first point, we remand for
reconsideration without reaching his second point.
¶98 “In Utah, punitive damages are available only upon clear
and convincing proof of willful and malicious or intentionally
fraudulent conduct, or conduct that manifests a knowing and
reckless indifference toward, and disregard of, the rights of
others.” Smith v. Fairfax Realty, Inc., 2003 UT 41, ¶ 27, 82 P.3d 1064(cleaned up). In fact, the Utah Code provides that punitive
damages are generally available “only if compensatory or general
damages are awarded and it is established by clear and
convincing evidence that the acts or omissions of the tortfeasor
are the result of willful and malicious or intentionally fraudulent
conduct, or conduct that manifests a knowing and reckless
indifference toward, and a disregard of, the rights of others.” Utah
Code Ann. § 78B-8-201(1)(a) (LexisNexis 2018); accord Jones v.
Mackey Price Thompson & Ostler, 2020 UT 25, ¶ 57, 469 P.3d 879.
¶99 Here, the district court declined to award punitive
damages to Kraus, explaining that it did “not find, by clear and
convincing evidence, that the Becks’ conduct was so extreme and
outrageous as to warrant the imposition of punitive damages.”
Although the court identified the correct burden of proof, it is not
apparent from the court’s reference to conduct that was not
postjudgment interest rate applied to that award. If, on remand,
the court again awards damages for breach of that agreement, the
court should assess the proper postjudgment interest rate under
the standards we have discussed above. Supra ¶ 79.
20200309-CA 38 2022 UT App 91Diversified Striping v. Kraus
sufficiently “extreme and outrageous” that the court considered
whether that same conduct fell short of the punitive damages
standard of “willful and malicious or intentionally fraudulent
conduct, or conduct that manifests a knowing and reckless
indifference.” See Smith, 2003 UT 41, ¶ 27 (cleaned up). We thus
agree with Kraus that it is unclear whether the court applied the
correct standard for punitive damages. Given this lack of clarity,
the court should revisit its punitive damages decision on remand
and demonstrate that it has applied the correct standard.17
D. Postjudgment Attorney Fees
¶100 As their final issue on cross-appeal, the Kraus Parties
contend that they are entitled to “post-judgment, pre-appeal
attorney’s fees.” Relying on rule 73(f)(3) of the Utah Rules of Civil
Procedure, they claim entitlement to “fees incurred in an effort to
enforce the judgment.” The Beck Parties respond that the Kraus
Parties’ request before the district court in this regard “was
premature and overbroad.”
¶101 We agree with the Beck Parties that the Kraus Parties’
request was premature under rule 73(f)(3). That rule provides that
“[w]hen a party has established its entitlement to attorney fees
under any paragraph of [rule 73], and subsequently . . . applies for
any writ” or “files a motion pursuant to Rules 64(c)(2) or 58C . . . ,
the party may request as part of its application for a writ or its motion
that the party’s judgment be augmented . . . , and the clerk or the
court shall allow such augmented attorney fees request without a
supporting affidavit if it approves the writ or motion.” Utah R.
Civ. P. 73(f)(3) (emphasis added). Because the Kraus Parties’
request was not properly made as “part of [an] application for a
writ or [a] motion,” they have not established their entitlement to
17. The parties did not brief whether punitive damages would still
be available to Kraus should he fail to prove lost profits. Thus, in
remanding this issue, we express no opinion on that question.
20200309-CA 39 2022 UT App 91Diversified Striping v. Kraus
augmented attorney fees under rule 73(f)(3) at this juncture. See
id. We thus decline to award them postjudgment attorney fees.
III. The Kraus Parties’ Request for Appellate Attorney Fees
¶102 Lastly, the Kraus Parties request that this court award them
attorney fees incurred on appeal. Noting that the district court
awarded them attorney fees, they claim that success on appeal
should entitle them to receive appellate attorney fees.
¶103 Generally, “when a party who received attorney fees below
prevails on appeal, the party is also entitled to fees reasonably
incurred on appeal.” Telegraph Tower LLC v. Century Mortgage LLC,
2016 UT App 102, ¶ 52, 376 P.3d 333 (cleaned up). Because the
Kraus Parties were awarded attorney fees below but prevailed
only in part on appeal, they are entitled to only those appellate
attorney fees associated with the issues on which they have
prevailed. See id. We remand for the district court to calculate
those reasonable fees.18
CONCLUSION
¶104 With respect to the Beck Parties’ appeal, we affirm the
district court’s imposition of joint and several liability on the
Becks. But we reverse and vacate the district court’s damages
award and remand for reconsideration. On remand, the court
should (1) reassess lost profits and ensure that any such damages
are reasonably certain, (2) ensure that Kraus’s proceeds from
18. The Kraus Parties also request an award of costs incurred on
appeal. Rule 34(a)(4) of the Utah Rules of Appellate Procedure
provides that “if a judgment or order is affirmed or reversed in
part, or is vacated, costs are awarded only as the court orders.”
Because the Kraus Parties did not exclusively prevail on appeal,
and because of the difficulty in attributing costs to particular
issues, we decline to award them costs.
20200309-CA 40 2022 UT App 91Diversified Striping v. Kraus
DSS’s liquidation do not include proceeds from the sale of KMB’s
equipment, and (3) reevaluate whether Kraus is entitled to
damages under the Profit Advance Agreement.
¶105 On the Kraus Parties’ cross-appeal, we conclude that FLJ is
entitled to prejudgment and postjudgment interest at 10% per
annum on the $14,003.22 related to the Asset Purchase
Agreement, and Kraus is entitled to prejudgment and
postjudgment interest at the rate provided by Utah Code section
15-1-4 on the $36,617.85 awarded for unpaid reimbursements. We
also conclude that the district court should (1) revisit the interest
issues with respect to the $108,833.31 related to the breach of the
Profit Advance Agreement and any amounts it may award in lost
profits or in connection with DSS’s liquidation and (2) reevaluate
whether punitive damages are appropriate. The Kraus Parties are
not entitled to postjudgment attorney fees at this point, but we
award them the appellate attorney fees they incurred for the
issues on which they have prevailed on appeal. The district court
should determine the amount of those fees on remand.
¶106 Accordingly, we affirm in part, reverse and vacate in part,
and remand for further proceedings consistent with this opinion.
20200309-CA 41 2022 UT App 91