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Printcraft Press, Inc v. Sunnyside Park Utilities

July 2, 2012

PRINTCRAFT PRESS, INC., PLAINTIFF-RESPONDENT-CROSS-APPELLANT,
v.
SUNNYSIDE PARK UTILITIES, INC., AN IDAHO CORPORATION, DOYLE BECK, AN INDIVIDUAL, AND KIRK WOOLF, AN INDIVIDUAL, DEFENDANTS-APPELLANTS-CROSS- RESPONDENTS, AND SUNNYSIDE PARK OWNERS ASSOCIATION, INC., AN IDAHO CORPORATION, AND SUNNYSIDE INDUSTRIAL AND PROFESSIONAL PARK, LLC, AN IDAHO LIMITED LIABILITY CORPORATION, DEFENDANTS. PRINTCRAFT PRESS, INC., PLAINTIFF-RESPONDENT,
v.
SUNNYSIDE PARK UTILITIES, INC., AN IDAHO CORPORATION, DEFENDANT-APPELLANT, AND SUNNYSIDE PARK OWNERS ASSOCIATION, INC., AN IDAHO CORPORATION, AND SUNNYSIDE INDUSTRIAL & PROFESSIONAL PARK, LLC, AN IDAHO LIMITED LIABILITY COMPANY, DOYLE BECK, AN INDIVIDUAL AND KIRK WOOLF, AN INDIVIDUAL,
DEFENDANTS.



Appeal from the District Court of the Seventh Judicial District of the State of Idaho, Bonneville County, Hon. Joel E. Tingey, District Judge.

The opinion of the court was delivered by: Horton, Justice

2012 Opinion No. 105

Stephen Kenyon, Clerk

The district court's grant of SPU's motion under I.R.C.P. 60(b)(2) is reversed. The district court's denial of the defendants' motion for JNOV as to the existence and breach of a duty to disclose and as to the amount of damages is affirmed. The district court's order denying Printcraft's request for attorney fees below is affirmed.

This case arises from a dispute regarding the sewer system serving Sunnyside Industrial Park, LLC (the industrial park). Sunnyside Park Utilities (SPU) provides water and sewer services to the industrial park and Doyle Beck and Kirk Woolf are, respectively, the Secretary and President of SPU. Printcraft Press, Inc. (Printcraft) is a printing business that occupies a building in the industrial park. In 2004, via its principal, Travis Waters (Waters), Printcraft entered a ten-year lease for property in the industrial park. The dispute in this case concerns the failure of Beck, Woolf, and SPU to disclose limitations on the sewage system, including the amount of sewage the system could handle and its lack of suitability to dispose of some chemicals used in the printing business.

After Printcraft started using the sewage system, SPU disconnected Printcraft from the system in December 2006. Printcraft sued SPU, Beck, and Woolf (collectively the defendants) for breach of contract, fraudulent nondisclosure, and fraud. At trial, the jury found that the defendants owed Printcraft a duty to disclose the limitations of the system and failed to do so. As a result, the jury found that Printcraft suffered $990,000 in damages. The trial court denied the defendants' motion for judgment notwithstanding the verdict (JNOV) and entered judgment in favor of Printcraft on March 31, 2009. The defendants timely appealed and Printcraft timely cross-appealed. However, in August 2009, SPU filed a renewed motion for relief from judgment under Idaho Rule of Civil Procedure 60(b), asserting newly discovered evidence regarding whether Printcraft's damages claim was affected by its subsequent connection to the Idaho Falls city sewer system. The district court found that the newly discovered evidence satisfied the requirements of I.R.C.P. 60(b) and granted a new trial on the issue of damages.

On appeal, the defendants argue that they had no duty to disclose, that any failure to disclose did not lead Printcraft to believe any fact that was false, that the refusal to give SPU's requested jury instructions was improper, and that the district court erred in denying their motion for JNOV because there was not sufficient evidence to support the jury's determination of damages. In turn, Printcraft's cross-appeal argues that the district court erred in limiting the potential bases for the defendants' duty to disclose, that Printcraft's breach of contract claim was improperly dismissed, that the subsequent Rule 60(b) motion was improperly granted, that the issue of punitive damages should have been submitted to the jury, and that the judge erred in denying Printcraft's request for attorney fees. We affirm in part and reverse in part.

I. FACTUAL AND PROCEDURAL BACKGROUND

1. Factual background

The sewage system for the industrial park was a 1,000 gallon septic system with a capacity of 300 gallons per day until 2006 when the system was expanded to a 2,000 gallon per day capacity. In 2002, the industrial park entered a "Third Party Beneficiary Utility Agreement" (Third Party Agreement or the Agreement) with SPU to manage the industrial park's sewer system. The Third Party Agreement was made "for the benefit of the present and future owners of or occupants of all and each of the properties" in the industrial park. The Agreement called for SPU to supply "sewage collection of disposal service" to the buildings in the industrial park, excluding garbage collection. The Agreement authorized SPU to establish rules and regulations governing the sewer system. As noted above, Woolf was the president of SPU and Beck was the secretary. A sign was displayed at the industrial park, stating: "Sunnyside Industrial and Professional Park. Developed by: K.H. Woolf Development Co. . Water - Sewer - Intermountain Gas - County Taxes. Build to Suit KW Contractors, Inc."

In 2002, the District Seven Health Department sent a letter to Woolf regarding the SPU septic system. The letter informed Woolf that "no new connections will be allowed on the current sewer collection system until a Large Soil Absorption System, that replaces the current septic system, is approved and operating." At that point in 2002, there were eleven connections to the sewer system. By June of 2006, SPU added another seven connections to the system, including Printcraft's.

In 2004, Printcraft purchased a competing business and moved to the industrial park to consolidate the two businesses. Waters testified that he did not have to move the consolidated businesses into the industrial park, but did so to become more efficient. During this period, while Waters was preparing to move Printcraft, Waters met with Beck and Woolf a number of times in various capacities. These included: a meeting with Woolf in 2004 to discuss buying a lot in the industrial park; a brief meeting with Beck in 2004, discussing a railroad easement; a meeting with Beck in 2005 in which Waters gave Beck a preliminary sketch of the property; and in June or July of 2005, a meeting with Woolf regarding the need for approval of the building plans by the architectural committee, of which Beck was a member. At no time during these meetings was there any discussion of Printcraft's sewage needs nor was there any discussion of the system's limitations. Waters testified that before he moved Printcraft to the industrial park, he was not told of the Agreement, the limitations on the sewer system, or the rules and regulations associated with it. He testified that, had he known, he never would have moved Printcraft to the industrial park.

Waters, in addition to acting as principal for Printcraft, was also the owner of Waters Land and Cattle (WLC), CTR Development, and CTR Management. Through WLC, Waters purchased a lot in the industrial park from Mark Miskin, who is not involved in these proceedings. WLC then sold the property to CTR Development, which developed the property and paid SPU the connection fee for the septic services. CTR Development then sold the building to J&LB Properties, CTR Management entered a ten-year lease with J&LB, and Printcraft took possession of the building in 2006 under a ten-year sublease from CTR

Management.

Shortly after Printcraft took possession of the building, there were at least two instances where the septic tank overflowed. The second of these overflows, in June 2006, resulted in inks pooling on the ground above the septic system. Waters met with Beck regarding Printcraft's sewage and on September 6, 2006, Beck sent Waters a letter describing the system's limitations, most notably that it was only designed to accommodate human waste. On September 20, 2006, SPU's attorney sent a letter demanding that Printcraft comply with the applicable IDAPA provisions governing disposal in septic systems. Beck, Woolf, and Waters met on September 25 and reached an agreement as to the types of substances Printcraft could discharge. On December 11, 2006, SPU sent Printcraft a letter asserting that Printcraft was in breach of that agreement and threatening to disconnect Printcraft from the septic system. Printcraft denied that it was in violation of their agreement. SPU responded by stating that it would disconnect Printcraft from the system and, on December 15, 2006, Printcraft was disconnected. Following its disconnection, Printcraft obtained private sewer services at its own expense. It also pursued a connection to the Idaho Falls city sewer system. That connection was completed shortly after the trial.

2. Procedural history

Printcraft filed suit on December 18, 2006, and, by the time of its Third Amended Complaint, asserted two claims for breach of contract, one for fraudulent misrepresentation, and two counts of fraud. Printcraft also sought punitive damages. Printcraft claimed that it had incurred costs of $27,880 for moving into the industrial park, $15,098 for a lift station it installed to pump its waste into trucks for disposal away from the industrial park, and $12,000 per year for common-area maintenance at the industrial park. Printcraft also stated that the value of the 10- year lease at the industrial park was $1.08 million. SPU counterclaimed, asserting breach of contract, trespass, and nuisance.

The district court made a number of orders limiting the scope of these claims. Most notably, the district court denied SPU's motion for summary judgment as to the fraudulent misrepresentation claim, finding that, although there was neither a special relationship between the parties nor any partial, misleading statement, Printcraft could pursue its claim if it proved that it was mistaken about a material fact and that the defendants knew that it was mistaken. The court granted Printcraft's pre-trial motion to amend its complaint to include punitive damages claims against the defendants. The district court dismissed Printcraft's breach of contract claims, finding that because there was no dispute that it had discharged sewage in violation of IDAPA

58.01.03.004.03, Printcraft's illegal conduct justified the termination of its sewer service. The district court also dismissed Printcraft's fraud claim.

Printcraft's claims were limited to the fraudulent disclosure claim and the case went to trial. At trial, after putting forward evidence that it had not discharged illegal waste after September 2006, Printcraft moved for reconsideration of the order dismissing the breach of contract claim, which the district court denied. Printcraft rested its case in chief without presenting its evidence in support of its claim for punitive damages and the district court denied Printcraft's request to reopen its case to present that evidence. The defendants moved for a directed verdict after the close of their case, arguing again that no duty to disclose existed. The court denied the motion. Before the matter was submitted to the jury, the defendants objected to the court's refusal to give several of their proposed jury instructions. The jury returned a $990,000 judgment against the three defendants for fraudulent misrepresentation. The jury did not find Printcraft liable on any of SPU's counterclaims. The defendants moved for JNOV. The court denied this motion, finding that the jury's decision was supported by the evidence. The court, in a later decision, denied Printcraft's request for attorney fees. On April 2, 2009, the court entered judgment. The defendants timely appealed and Printcraft timely cross-appealed.

On August 20, 2009, the defendants moved for relief from the judgment based upon additional evidence under I.R.C.P. 60(b). In particular, they argued that three documents concerning the subsequent connection of Printcraft to the Idaho Falls sewer system constituted newly discovered evidence. The documents included: 1) the Right of Way Encroachment Application and Permit for Utilities; 2) the Plan and Profile for Printcraft Press Sewer

Connection; and 3) the Notice of Intent to Excavate. They also argued that Waters' statement at trial that connecting to the Idaho Falls sewer system was not an option constituted fraud such that they were eligible for relief under I.R.C.P. 60(b)(3). After a hearing, the court entered an order granting the motion on the basis of I.R.C.P. 60(b)(2), newly discovered evidence, and 60(b)(6), regarding other grounds for relief.

II. ISSUES ON APPEAL

1. Whether the district court abused its discretion in granting a new trial under Rule 60(b).

2. Whether the defendants owed Printcraft a duty to disclose the limitations of the septic system.

3. Whether the amount of damages was supported by substantial and competent evidence.

4. Whether the district court erred in dismissing Printcraft's breach of contract claim.

5. Whether the district court erred in denying Printcraft's motion to reopen its case to present evidence in support of its claim for punitive damages.

6. Whether the jury instructions fairly stated the law.

7. Whether the district court properly denied Printcraft's request for attorney fees at trial.

8. Whether any party is entitled to attorney fees on appeal.

III. ANALYSIS

A. The district court abused its discretion in granting the defendants' Rule 60(b) motion.

Following entry of judgment in this case, the defendants sought a new trial on the issue of damages. They based their motion on: I.R.C.P. 60(b)(2), for relief based on newly discovered evidence; I.R.C.P. 60(b)(3), based on fraud; and I.R.C.P. 60(b)(6), which provides for relief based on "any other reason justifying relief from the operation of the judgment." The district court found that the defendants had not made a showing of fraud but that they were entitled to relief under I.R.C.P. 60(b)(2) and 60(b)(6) based on the newly discovered evidence regarding Printcraft's imminent connection to the Idaho Falls sewer system. We hold that the district court's grant of relief under I.R.C.P. 60(b) was an abuse of discretion because the district court failed to apply the correct legal standard in reaching its decision.

1. Standard of review

The interpretation of the Idaho Rules of Civil Procedure is a matter of law over which this Court has free review. The decision to grant or deny a motion under I.R.C.P. 60(b) is committed to the discretion of the trial court.

A trial court's decision whether to grant relief pursuant to I.R.C.P. 60(b) is reviewed for abuse of discretion. The decision will be upheld if it appears that the trial court (1) correctly perceived the issue as discretionary, (2) acted within the boundaries of its discretion and consistent with the applicable legal standards, and

(3) reached its determination through an exercise of reason. A determination under Rule 60(b) turns largely on questions of fact to be determined by the trial court. Those factual findings will be upheld unless they are clearly erroneous. If the trial court applies the facts in a logical manner to the criteria set forth in Rule 60(b), while keeping in mind the policy favoring relief in doubtful cases, the court will be deemed to have acted within its discretion.

Eby v. State, 148 Idaho 731, 734, 228 P.3d 998, 1001 (2010) (internal citations omitted).

2. The district court abused its discretion in granting a new trial under I.R.C.P. 60(b).

In its order granting the motion for relief from judgment, the district court stated: "The primary issue under Defendant's [sic] motion is whether evidence that existed prior to trial to the effect that a connection to the City's system was possible/probable/imminent was not reasonably discoverable either under the circumstances, or due to Printcraft's misconduct." The court went on to say:

In considering the record, this Court is satisfied that there are unique and compelling circumstances entitling Defendants to relief under Rule 60(b)(2).

Newly discovered evidence relating to Printcraft's connection to the City's system was not discoverable by due diligence. That evidence is material to the issue of damages, not merely cumulative, and would likely have an effect on the damage award. The Court does not find that Defendants are entitled to relief under Rule 60(b)(3). However, the Court's finding that the newly discovered evidence was not previously discoverable is in part based upon Printcraft's discovery responses and obligation to supplement discovery. Under the circumstances, the Court also finds that Defendants are entitled to relief under Rule 60(b)(6).

(Emphasis added.) The district court expressly stated that its ruling was not based upon misrepresentation or other misconduct of an adverse party under Rule 60(b)(3). Instead, the court concluded that the evidence regarding Printcraft's connection to the City sewer system was not discoverable based in part on Printcraft's obligation to supplement discovery, which it found to be a unique and compelling circumstance under both I.R.C.P. 60(b)(2) and (6).

The district court appears to have conflated Rules 60(b)(2) and 60(b)(3). Rule 60(b)(2) allows for relief if the movant points to "newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b)," while Rule 60(b)(3) allows a court to grant relief if there is misconduct by an adverse party. Here, the court said that the defendants were not entitled to relief under 60(b)(3), but granted relief under 60(b)(2), based "in part" on Printcraft's alleged discovery misconduct. That holding inappropriately blends the two rules. If Printcraft committed misconduct warranting relief, then Rule 60(b)(3) should have applied; if the defendants could not have found "newly discovered evidence" through the exercise of due diligence, then Rule 60(b)(2) should have applied. While the court did conclude there was "newly discovered evidence" that was not discoverable by due diligence, it failed to explain what the evidence was or why it was previously undiscoverable. Nor did the court identify the other "part" of its reason for granting relief.

The court also applied a "unique and compelling circumstances" standard under Rule 60(b)(2). This standard circumscribes the trial court's discretion to grant relief under Rule 60(b)(6). The Court of Appeals first articulated the standard. See In re Estate of Bagley, 117 Idaho 1091, 1093-94, 793 P.2d 1263, 1265-66 (Ct. App. 1990) ("The party making a Rule 60(b)(6) motion must demonstrate unique and compelling circumstances justifying relief."). We then quoted the Court of Appeals' "unique and compelling" language in Miller v. Haller, where we considered a motion for relief under Rule 60(b)(6). 129 Idaho 345, 349, 924 P.2d 607, 611 (1996) (stating that "although the [trial] court is vested with broad discretion in determining whether to grant or deny a Rule 60(b) motion, its discretion is limited and may be granted only on a showing of 'unique and compelling circumstances' justifying relief."). Thus, even though we were deciding a decision involving Rule 60(b)(6), we spoke of the unique and compelling circumstances standard in terms of Rule 60(b) generally.

However, this Court has not previously applied the unique and compelling circumstances standard in the context of I.R.C.P. 60(b)(2). We have generally, but sparingly, applied it in cases where a party seeks relief under Rule 60(b)(6). See Dawson v. Cheyovich Family Trust, 149 Idaho 375, 380-81, 234 P.3d 699, 704-05 (2010); Eby, 148 Idaho at 736-37, 228 P.3d at 1003- 04; Berg v. Kendall, 147 Idaho 571, 578-79, 212 P.3d 1001, 1008-09 (2009); Miller, 129 Idaho at 349 924 P.2d at 611. We have also applied the standard in cases where a party has sought relief from a judgment but failed to specify a particular subsection of Rule 60(b). See Villa Highlands, LLC v. W. Cmty. Ins. Co., 148 Idaho 598, 604-05, 226 P.3d 540, 546-47 (2010); Palmer v. Spain, 138 Idaho 798, 802, 69 P.3d 1059, 1063 (2003). Given our limited application of the standard, it applies only to define the outer bounds of the trial court's discretion. Such delineation is unnecessary when considering a Rule 60(b)(2) motion because that subsection supplies its own limitation--the movant must show the existence of newly discovered evidence it could not previously have discovered by due diligence.

In this case, the trial court failed to articulate and correctly apply any existing Rule 60(b) standard. In the absence of an explanation as to why this case presented unique and compelling circumstances to trigger Rule 60(b)(6), the court abused its discretion in relying on that subsection to grant relief.

Rule 60(b)(2) only applies if there was "newly discovered evidence" that, by due diligence, was undiscoverable before the defendants could move for a new trial under Rule 59(b). Except for a passing reference to Printcraft's failure to supplement discovery, however, the court's order did not identify what evidence was "newly discovered." Nor did the court discuss whether any diligent attempts were made by the defendants to obtain such evidence. Nor did the court mention whether the defendants obtained the "newly discovered evidence" in time to move for a new trial under Rule 59(b).

It is clear from our review of the record that Printcraft made no attempt to conceal its efforts to connect to the city's sewer system. It is also clear from the record that this connection would be a significant step toward mitigating Printcraft's damages. Nevertheless, the defendants were less than diligent in attempting to learn the status of Printcraft's efforts to obtain a connection.*fn1 It was within the defendants' power to have discovered Printcraft's intentions by exercising due diligence. If the defendants initially were unaware that Printcraft was seeking to connect to the City's sewer system and making significant progress in that regard, the Affidavit of Lawry Wilde, dated and served on the defendants' counsel on September 2, 2008, at least six months before trial, clearly should have placed the defendants on notice. In his affidavit, Wilde, who is a member of CTR Management, stated that he had been at an Idaho Falls City Council meeting on July 10, 2008, to urge the city to annex Printcraft's building into the City of Idaho Falls in order to obtain a sewer connection and that Doyle Beck appeared in order to express his opposition to the proposed annexation. Nevertheless, the City approved the annexation. The affidavit continues, stating the following as facts:

12. Printcraft will have a lift stationed [sic] installed at its building within ...


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