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Mountain Dudes v. Split Rock Holdings, Inc.

United States Court of Appeals, Tenth Circuit

December 27, 2019

MOUNTAIN DUDES, Plaintiff - Appellant,
v.
SPLIT ROCK HOLDINGS, INC., a Utah corporation; SPLIT ROCK HOLDINGS, LLC; OLD SPI, INC.; SPLIT ROCK FINE HOMES; SPLIT ROCK FINE HOMES REAL ESTATE COMPANY; SPLIT ROCK AT ENTRADA REAL ESTATE COMPANY; LANDEA REALTY; SPLIT ROCK CONSTRUCTION; 4-B BUILDERS; SPLIT ROCK DEVELOPMENT; SPLIT ROCK DEVELOPMENT GROUP; SPLIT ROCK DESIGN; SPLIT ROCK INTERIOR; JOSEPH L. PLATT; KENT L. BYLUND; BARTLEY W. SMITH; REN G. BOYCE; PATRICK MANNING; JOSEPH L. AND SUSAN A. PLATT FAMILY PROTECTION LIMITED PARTNERSHIP; BYLUND FAMILY LIMITED PARTNERSHIP; BARTLEY SMITH FAMILY LIMITED PARTNERSHIP; REN BOYCE FAMILY LIMITED PARTNERSHIP; STONE PUMA, INC.; MOUNTAIN MEADOW FARMS, INC.; PATRICK MANNING, LLC, Defendants - Appellees, and WELDON LARSEN, Defendant.

          Appeal from the United States District Court No. 2:13-CV-00510-CW for the District of Utah

          Brennan H. Moss (John P. Mertens, with him on the briefs), Pia Anderson Moss Hoyt, LLC, Salt Lake City, Utah, for Plaintiff-Appellant.

          Joseph E. Wrona (Jared C. Bowman, with him on the brief), Wrona DuBois, PLLC, Park City, Utah, for Defendants-Appellees.

          Before TYMKOVICH, Chief Judge, EBEL, and PHILLIPS, Circuit Judges.

          EBEL, CIRCUIT JUDGE.

         Substantively, this appeal addresses claims under Utah's Uniform Fraudulent Transfer Act ("UFTA"). But our resolution of this appeal turns primarily on a procedural matter involving how the sufficiency of evidence presented at a civil jury trial can be challenged. Rule 50, Fed. R. Civ. P., provides a carefully detailed process by which a party challenging the sufficiency of his opponent's evidence must give his opponent notice of that challenge and an opportunity to correct, if possible, any evidentiary deficiency before the case is submitted to the jury. Here, the district court deprived Plaintiff Mountain Dudes LLC of that opportunity. Instead, after the jury was unable to reach a verdict on Mountain Dudes' UFTA claims, the district court invoked Rule 50(b) to grant Defendants judgment as a matter of law on grounds the court raised sua sponte after the jury deadlocked. That was error. Exercising jurisdiction under 28 U.S.C. § 1291, we therefore REVERSE the judgment the district court entered sua sponte in Defendants' favor. However, we AFFIRM the district court's other rulings rejecting the grounds the various parties did raise seeking judgment as a matter of law. Finally, we REMAND this case for a new trial.[1]

         I. BACKGROUND

         This appeal concerns Mountain Dude's claims asserted under Utah's Fraudulent Transfer Act ("UFTA"), Utah Code §§ 25-6-1 to 25-6-14.[2] The "UFTA's apparent purpose is to prevent insolvent debtors from transferring all of their assets to avoid their creditors' claims, and to provide a means whereby creditors can collect against a fraudulently transferred asset." Porenta v. Porenta, 416 P.3d 487, 492 (Utah 2017).

         Here, Mountain Dudes is the creditor and Split Rock, Inc. ("SRI") is the debtor.[3] Mountain Dudes obtained a $1.175 million judgment against SRI as the result of a dispute over a home that Mountain Dudes purchased from SRI.

         At the same time that dispute between Mountain Dudes and SRI was ongoing, SRI, a land developer in St. George, Utah, went over $50 million in debt during the 2008 Great Recession. On June 24, 2009, SRI transferred all its remaining assets to a newly formed business, Split Rock Holdings, LLC ("SR Holdings").[4]

         Although the June 2009 transaction occurred between two business entities- SRI and SR Holdings-many of the same individuals were involved on both sides of that deal. At that time, SRI was operated by five equal "partners," individual Defendants Joseph L. Platt, Kent L. Bylund, Bartley W. Smith, Ren G. Boyce, and Weldon Larsen.[5] SR Holdings was formed in June 2009 by four of the same individuals-Platt, Bylund, Smith, and Boyce. Defendant Patrick Manning testified that he was also involved in the June 2009 transaction and soon thereafter joined SR Holdings.

         Through this June 2009 transaction, SRI sold to SR Holdings both SRI's name and goodwill, as well as deed restrictions on approximately 180 lots located in the Entrada subdivision in St. George. These deed restrictions obligated the lot owner to use SRI for any construction on the lot. In return for these assets, SR Holdings agreed to pay SRI $2.7 million plus interest over a five-year period of time. It further agreed to execute a promissory note on June 24, 2009, setting forth those payment obligations. While all the other documents required for that transaction-the Sale of Assets Agreement and the assignments of SRI's name and deed restrictions to SR Holdings-were executed on June 24, 2009, the parties disputed at trial whether SR Holdings ever executed the $2.7 million promissory note in SRI's favor.

         Mountain Dudes, as SRI's creditor, had hoped to levy the periodic payments that SR Holdings agreed to make to SRI on the $2.7 million obligation. Before any such payments were due, however, SRI and SR Holdings, in January 2010, modified the original Sale of Asset Agreement ("January 2010 Modification"), explaining that the parties had been mistaken about the value of the assets SRI transferred to SR Holdings. Instead of $2.7 million plus interest over five years, the January 2010 Modification required SR Holdings to pay SRI 8% of all net revenue SR Holdings earned over the next five years for construction on properties subject to the deed restrictions, but in no event to pay SRI less than $135, 000. The January 2010 Modification provided for a new note and further stated that "[a]ny previous Note is hereby cancelled." (Aplt. App. 114-15.)

         Ultimately, SR Holdings paid SRI a total of $188, 000 under the January 2010 Modification's terms. Over approximately the same time period, SR Holdings disbursed $1.1 million to three of the individual Defendants-Platt, Bylund and Manning. Two other individual Defendants, Boyce and Smith, left SR Holdings a month or two after the June 2009 Sale of Assets Agreement and used the Split Rock name to create Defendant Split Rock Construction, which earned money constructing homes on the deed-restricted lots.[6]

         Its hopes having been stymied of levying part of the $2.7 million plus interest that SR Holdings had originally agreed to pay SRI, Mountain Dudes brought this UFTA action in federal court, invoking diversity jurisdiction. See 28 U.S.C. § 1332(a). In support of its UFTA claims, Mountain Dudes alleged that SRI had transferred an asset-the $2.7 million obligation SR Holdings originally owed SRI- beyond the reach of SRI's creditors by agreeing to the January 2010 Modification, which greatly decreased the amount and certainty of what SR Holdings would pay SRI for its name, goodwill, and deed restrictions. See Utah Code § 25-6-2(2), (12) (2015) (defining "asset" and "transfer"). Invoking three separate UFTA provisions, Mountain Dudes further alleged that this transfer was fraudulent because SRI made it with the actual intent to hinder, delay, or defraud its creditors, or SRI made the transfer without receiving equivalent value at a time when SRI had incurred, or believed it would incur, debts beyond its ability to pay, or SRI made the transfer without receiving equivalent value at a time when it was insolvent or it became insolvent as a result of the transfer. See id. §§ 25-6-5(1)(a), 25-6-5(1)(b)(ii), 25-6-6(1) (2015). For relief, Mountain Dudes sought, among other things, to have the fraudulent transfer-the January 2010 Modification-voided, so that Mountain Dudes could then enforce the original $2.7 million obligation SR Holdings owed SRI and levy the payments SR Holdings made on that obligation. See id. § 25-6-8(1)(a) (2015). In this way, Mountain Dudes intended to levy some of the payments SR Holdings was obligated to make to SRI under the original Sale of Asset Agreement in order to recover the $1.175 million judgment SRI still owes Mountain Dudes. See id. § 25-6-8(1)(b) (2015). Mountain Dudes also sought to recover the proceeds of the alleged fraudulent January 2010 transfer from subsequent transferees, including the individual Defendants and the personal business entities they used to receive some of those proceeds. See id. §§ 25-6-8(2), 25-6-9(2), (3) (2015). The parties agreed prior to trial that Mountain Dudes had to prove its UFTA claims by clear and convincing evidence.

         The parties tried Mountain Dudes' UFTA claims to a jury, which deadlocked. Before discharging the deadlocked jury, the district court, with the parties' consent, asked the jurors to indicate on the special verdict form any question on which jurors had reached unanimous agreement. Doing so, jurors indicated that they had unanimously rejected Defendants' defense that the original June 2009 Sale of Assets Agreement was "void" because it was based on SRI's and SR Holdings' "mutual mistake" as to the enforceability of the deed restrictions and the overall value of the assets SRI transferred to SR Holdings. There was evidence presented at trial that, after SRI and SR Holdings executed the June 2009 Sale of Assets Agreement, SR Holdings decided not to try to enforce the deed restrictions after realizing there were significant obstacles in doing so. Jurors found that, while SRI and SR Holdings were mistaken as to the enforceability of the deed restrictions and the overall value of the assets SRI transferred, SR Holdings had borne the risk of those mistakes.

         Jurors further indicated that they had unanimously found that SRI, in agreeing to the January 2010 Modification, both acted for the "purpose" of "delaying" its creditors and did so when it was insolvent. (Aple. Supp. App. 976-78.) But jurors could not agree as to whether the January 2010 Modification was a "transfer" of an asset, defined as "every mode of disposing of or parting with an asset," including a "release from a money claim" (id. 951 (Instruction 19-A)). See Utah Code § 25-6-2(2), (12) (2015) (defining "asset" and "transfer"). Thus, jurors found that, if the January 2010 Modification was the transfer of an asset for purposes of the UFTA, it was a fraudulent transfer. But because jurors could not decide if the January 2010 Modification was the "transfer" of an asset, jurors were unable to decide the UFTA claims.

         During the trial, both sides made Fed.R.Civ.P. 50(a) motions for judgment as a matter of law, challenging the sufficiency of the other side's evidence. The district court reserved ruling upon those Rule 50(a) motions until the trial's conclusion. After discharging the deadlocked jury, the district court denied most of those Rule 50(a) motions without prejudice to the parties reasserting those motions under Rule 50(b).[7] After the parties filed post-trial Rule 50(b) motions, the district court denied Mountain Dudes' motion and granted the remaining Defendants judgment as a matter of law. On appeal, Mountain Dudes challenges both of those Rule 50(b) decisions.[8]

         II. FEDERAL RULE OF CIVIL PROCEDURE 50

         Rule 50 of the Federal Rules of Civil Procedure provides the process for challenging the sufficiency of the evidence in a civil jury trial. See Unitherm Food Sys., Inc. v. Swift-Eckrich, Inc., 546 U.S. 394, 399 (2006). Rule 50 provides:

(a) Judgment as a Matter of Law.
(1) In General. If a party has been fully heard on an issue during a jury trial and the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue, the court may:
(A) resolve the issue against the party; and
(B) grant a motion for judgment as a matter of law against the party on a claim or defense that, under the controlling law, can be maintained or defeated only with a favorable finding on that issue.
(2) Motion. A motion for judgment as a matter of law may be made at any time before the case is submitted to the jury. The motion must specify the judgment sought and the law and facts that entitle the movant to the judgment.
(b) Renewing the Motion After Trial; Alternative Motion for a New Trial.
If the court does not grant a motion for judgment as a matter of law made under Rule 50(a), the court is considered to have submitted the action to the jury subject to the court's later deciding the legal questions raised by the motion. No later than 28 days after the entry of judgment--or if the motion addresses a jury issue not decided by a verdict, no later than 28 days after the jury was discharged--the movant may file a renewed motion for judgment as a matter of law and may ...

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