Verdi Energy Group v. Nelson

2014 UT App 101
_________________________________________________________
THE UTAH COURT OF APPEALS
VERDI ENERGY GROUP, INC.,
Plaintiff and Appellant,
v.
GREG NELSON AND BRIGHAM LUNDAHL,
Defendants and Appellees.
Opinion
No. 20130013-CA
Filed May 1, 2014
Fifth District Court, St. George Department
The Honorable James L. Shumate
No. 090502231
Justin D. Heideman and R. Brett Evanson,
Attorneys for Appellant
James E. Slemboski and Daniel J. Tobler, Attorneys
for Appellees
JUDGE STEPHEN L. ROTH authored this Opinion, in which JUDGES
JAMES Z. DAVIS and MICHELE M. CHRISTIANSEN concurred.
ROTH, Judge:
¶1 Verdi Energy Group, Inc. (Verdi) appeals from the district
court’s decisions to grant summary judgment in favor of Greg
Nelson and Brigham Lundahl and to award Nelson and Lundahl
their attorney fees. We affirm the summary judgment decision
but reverse and vacate the award of attorney fees.

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20130013-CA 2 2014 UT App 101
BACKGROUND1
¶2 Nelson, Lundahl, and their wives owned real property
containing a hydrothermal well in Iron County, Utah. The
Nelsons were 20% owners of the property, while the Lundahls
owned 80%. On February 11, 2009, Verdi offered to purchase the
property, including the well and certain water rights, for
$400,000 with a closing date in July 2009. Verdi presented its
offer on a standard real estate purchase contract (REPC) form,
naming Nelson and Lundahl as the sellers (collectively, the
Sellers), but not their wives. Verdi provided $8,000 in earnest
money. The Sellers made a counteroffer by interlineating
handwritten changes directly on the REPC and marking
‚COUNTEROFFER‛ on the signature form, which was labeled
‚ACCEPTANCE/COUNTEROFFER/REJECTION.‛ The changes
included a higher purchase price of $500,000 and a closing date
in June 2009 rather than July. Nine days later, on February 20,
Verdi sent the Sellers Addendum No. 3. Addendum No. 3
proposed the same purchase price and closing date as the
Sellers’ counteroffer but included a more specific legal
description of the subject property (together with a detailed
reference to the recorded warranty deed that had transferred
ownership of the property to Nelson, Lundahl, and their wives),
gave Verdi complete access to the property for purposes of
conducting due diligence, and added a confidentiality provision
relating to the results of Verdi’s due diligence activities.
Addendum No. 3 gave the Sellers until February 21, 2009, to
accept its terms and provided that ‚*u+nless so accepted, the
offer as set forth in this ADDENDUM shall lapse.‛ The Sellers
did not respond.
1. We recite ‚the facts and all reasonable inferences drawn
therefrom in the light most favorable to the nonmoving party.‛
Orvis v. Johnson, 2008 UT 2, ¶ 6, 177 P.3d 600 (citation and
internal quotation marks omitted).

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20130013-CA 3 2014 UT App 101
¶3 Negotiations continued for a period of months, during
which Verdi made a second similar offer, which the Sellers
ignored, and Lundahl presented his own offer that would have
required Verdi to put $100,000 down prior to closing as evidence
of its ability to purchase the property, which Verdi refused.
Finally, in May 2009, Verdi presented the Sellers with
Addendum No. 6. Nelson checked the acceptance box and
signed his name, but Lundahl did not respond. According to
Verdi, it believed its offer had been accepted, so it then
undertook a number of activities that it claims amounted to part
performance under the REPC. The Sellers characterize these
activities as simple due diligence contemplated by the REPC
provision that allowed Verdi to cancel the contract if it was
unsatisfied by the results of any inspections of the property. In
June 2009, the Sellers informed Verdi that they no longer wished
to sell the property.
¶4 On July 22, 2009, Verdi filed a complaint against the
Sellers, asserting breach of contract, breach of the covenant of
good faith and fair dealing, anticipatory repudiation, and
constructive trust. On August 17, 2010, the Sellers moved to
dismiss Verdi’s complaint on the basis that the documents
exchanged between the parties showed that they had never
entered into a contract. The Sellers asserted that no contract had
arisen from the exchange of offers and counteroffers, as
evidenced by the fact that neither the REPC nor any of the
addenda had been executed by Verdi as buyer and both Lundahl
and Nelson as sellers. The Sellers also pointed out that their
wives, who were joint owners of the property, had not executed
any of the documents and that as a consequence, there was no
agreement for the sale of the property that satisfied the Utah
Statute of Frauds. The district court denied the Sellers’ motion to
dismiss without explanation.
¶5 Verdi then amended the complaint to add claims of fraud
and negligent misrepresentation, asserting that the Sellers had
represented that they had full authority to sell the property and
were now claiming that they could not bind their wives. Verdi

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20130013-CA 4 2014 UT App 101
claimed that these representations were made in the original
written REPC and during oral negotiations leading up to
Addendum No. 6. In its prayer for relief, Verdi sought specific
performance of the purchase contract, imposition of a
constructive trust on the property, or damages from the Sellers’
failure to perform the contract.
¶6 On February 9, 2011, the Sellers again moved to dismiss.
With regard to the contract, negligent misrepresentation,
anticipatory repudiation, and constructive trust claims, the
Sellers once again asserted that neither the REPC nor the various
addenda were enforceable because none of the documents had
been accepted by both Verdi and the Sellers and because none
complied with the statute of frauds, which states that ‚*e]very
contract . . . for the sale, of any lands . . . [must be] in writing
subscribed by the party by whom the . . . sale is to be made, or
by his lawful agent thereunto authorized in writing.‛ Utah Code
Ann. § 25-5-3 (LexisNexis 2013).2 The Sellers also claimed that
Verdi could not prevail on a fraud claim because it could not
have reasonably relied upon the Sellers’ failure to disclose their
wives’ ownership interests during negotiations or in the
execution of Addendum No. 6 when due diligence on Verdi’s
part would have revealed a record title that showed the wives as
co-owners. At a hearing on the motion in June 2011, the district
court ‚determined that a motion to dismiss was not proper‛ but
that it ‚would hear the matter as a motion for summary
judgment.‛ Verdi requested a continuance, which the court
granted on the basis that it needed additional briefing about
whether the Sellers could bind their wives to the contract and
whether Verdi’s real estate agent was aware that the property
had four owners, rather than two. The parties subsequently
submitted additional documentation on the issue of the Sellers’
authority to bind their wives to the contract.
2. The statutory provisions cited in this opinion have not been
amended since the time of the underlying proceedings. We
therefore cite the current version of the Utah Code.

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20130013-CA 5 2014 UT App 101
¶7 On October 25, 2011, the Sellers filed a second request to
submit their motion for summary judgment. Verdi requested a
hearing, but on November 1, 2011, the district court granted
summary judgment to the Sellers without a hearing and in a
summary order that stated simply, ‚Motion Granted.‛3 Counsel
for the Sellers then prepared a supplemental order, detailing the
bases for the court’s ruling, to which Verdi filed a written
objection. On January 3, 2012, the court issued the supplemental
order, in which it concluded that Verdi’s claims for breach of
contract, breach of good faith and fair dealing, anticipatory
repudiation, and constructive trust failed because ‚no contract
exists‛ where the REPC had never been executed and neither
Lundahl nor the wives had signed Addendum No. 6. It further
ruled that no principal–agent relationship existed that
authorized Lundahl’s and Nelson’s execution of the REPC or
Addendum No. 6 on their wives’ behalf. The district court also
concluded that Verdi’s fraud claim failed because by the exercise
of reasonable diligence, Verdi could have learned that the wives
had an interest in the property, and Verdi therefore could not
show reasonable reliance on any representation by the Sellers
that they owned the property. Finally, the court determined that
Verdi’s negligent misrepresentation claim failed because Verdi
could not have reasonably relied upon any representations made
in the REPC when it was never fully executed. Consequently, the
court dismissed all six causes of action with prejudice.
¶8 The January 3 supplemental order also awarded the
Sellers $18,944 in attorney fees under the bad faith statute. See
Utah Code Ann. § 78B-5-825 (LexisNexis 2012). The award of
fees was apparently based on a December 29, 2011 affidavit
prepared by one of the Sellers’ attorneys. That affidavit was not
3. The summary order and a subsequent supplemental order
both refer to the motion granted on November 1 as a motion to
dismiss, but the court actually considered the motion as one for
summary judgment. Accordingly, we will treat it as a summary
judgment ruling on appeal.

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20130013-CA 6 2014 UT App 101
accompanied by a written motion requesting fees, and the
affidavit itself did not describe any basis for awarding attorney
fees. The affidavit described the work done in very broad terms,
concluding simply with the attorney’s ‚opinion that the *$18,944
in+ attorney’s fees as stated herein are fair and reasonable.‛ The
supplemental order explained that an award of bad faith
attorney fees was justified because
there was clearly no contract between the parties
when the action was initiated and the goal, it
appears, was to stop or delay the [Sellers] from
moving forward with other ventures while [Verdi]
attempted to gather funds and ultimately force the
[Sellers] to sell [Verdi] the property. In other
words, [Verdi] used the present lawsuit to
encumber the property and attempt to coerce the
[Sellers] into selling it the property. Thus, [Verdi]
brought this action without merit and not in good
faith.
¶9 In its written objection, Verdi challenged the merits of the
bad faith determination and the lack of factual findings to
support it. Verdi also objected on the basis that the court had
never made a ruling on bad faith attorney fees in prior
proceedings and there had been no hearing on the issue. The
district court issued its supplemental order without a hearing
and without addressing these objections. Verdi then filed several
postjudgment motions, including a motion for relief from
judgment, an objection to the sufficiency of the affidavit
supporting the request for attorney fees, and a motion for the
court to enter more detailed findings on its denial of the motion
for relief from judgment. The district court apparently heard
from the parties on these issues at a hearing in September 2012.
Following that hearing, the court entered an order, prepared by
Verdi’s counsel, in which it noted that its January 3 award of
attorney fees had been ‚premature‛ but that it was now
awarding the Sellers ‚their attorney fees in the amount
requested in their Affidavit of Attorney Fees.‛ The order

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20130013-CA 7 2014 UT App 101
provides neither a basis for the award nor any further findings
to support it. The transcript from the September 2012 hearing is
not part of the record on appeal.
ISSUES AND STANDARDS OF REVIEW
¶10 Verdi asserts that the district court erred in four ways.
The first three challenges relate to the grant of summary
judgment. First, Verdi claims that the district court erred in
granting summary judgment on its breach of contract and breach
of the covenant of good faith and fair dealing claims because the
court ‚failed to properly apply the doctrine of partial
performance as an exception to the statute of frauds.‛ Second,
Verdi asserts that the court erred in dismissing its constructive
trust claim because the court failed to recognize that execution of
the contract transferred equitable title to Verdi. Third, Verdi
contends that the court erred in granting summary judgment on
the fraud and negligent misrepresentation claims because there
were issues of material fact regarding whether Verdi could
reasonably have relied on the Sellers’ representations that they
had full authority to sell the property.4
¶11 In an appeal from the grant of summary judgment, ‚*a+n
appellate court reviews a trial court’s legal conclusions and
ultimate grant or denial of summary judgment for correctness,
and views the facts and all reasonable inferences drawn
therefrom in the light most favorable to the nonmoving party.‛
Orvis v. Johnson, 2008 UT 2, ¶ 6, 177 P.3d 600 (citations and
internal quotation marks omitted). The propriety of the court’s
grant of summary judgment in this case turns upon the existence
of a contract. ‚Whether a contract exists between parties is
4. Verdi does not make any arguments directly challenging the
district court’s grant of summary judgment on the anticipatory
repudiation claim.

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ordinarily a question of law, reviewed for correctness.‛ Cea v.
Hoffman, 2012 UT App 101, ¶ 27, 276 P.3d 1178.
¶12 Finally, Verdi challenges the district court’s award of bad
faith attorney fees. Verdi contends that the court’s
determinations that the case was meritless and not brought in
good faith were not sufficiently supported by the record to
justify an award of bad faith attorney fees and that, in any event,
the Sellers’ affidavit was inadequate under rule 73 of the Utah
Rules of Civil Procedure to support a fee award.
¶13 ‚We review a trial court’s grant of attorney fees under
[the bad faith statute] as a mixed question of law and fact.‛
Gallegos v. Lloyd, 2008 UT App 40, ¶ 6, 178 P.3d 922. An award of
attorney fees under the bad faith statute must be supported by
separate determinations that the claims were asserted in bad
faith and that they lacked merit. Still Standing Stable, LLC v.
Allen, 2005 UT 46, ¶ 12, 122 P.3d 556. ‚A finding of bad faith is a
question of fact and is reviewed by this court under the ‘clearly
erroneous’ standard.‛ Jeschke v. Willis, 811 P.2d 202, 204 (Utah Ct.
App. 1991). ‚The ‘without merit’ determination is a question of
law, and therefore we review it for correctness.‛5 Id. at 203–04.
ANALYSIS
I. The Summary Judgment Claims
¶14 It is the burden of the ‚proponent of the contract . . . [to]
show*+ that an offer and acceptance‛ occurred. Cea, 2012 UT App
101, ¶ 27 (citation and internal quotation marks omitted). ‚An
5. Our resolution of Verdi’s challenge to the district court’s
determinations supporting the award of bad faith attorney fees
eliminates the need to reach Verdi’s claim that the attorney fees
affidavit failed to comply with rule 73 of the Utah Rules of Civil
Procedure.

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20130013-CA 9 2014 UT App 101
offer is a manifestation of willingness to enter into a bargain,‛ as
evidenced by definite and unambiguous terms. Id. ¶ 24 (citations
and internal quotation marks omitted). To accept an offer, one
‚must unconditionally assent to all material terms presented in
the offer, including price and method of performance.‛ Id. ¶ 25
(citation and internal quotation marks omitted). Failure to accept
all of the offered terms, whether by offering different terms or by
failing to respond at all, amounts to a rejection of the contract. Id.
¶15 Thus, when an offeree responds to an offer with a
‚proposal of different terms from those of the offer,‛ the offeree
has made ‚a counteroffer, and no contract arises unless the
original offeror accepts *the counteroffer+ unconditionally.‛ Id.
(citation and internal quotation marks omitted); 1 Corbin on
Contracts § 3.28 (1993) (‚Any expression of assent that changes
the terms of the offer in any material respect may be operative as
a counter-offer.‛). Once a counteroffer is made, ‚*t+he offeree’s
power to accept the original offer is thereby terminated.‛ Cea,
2012 UT App 101, ¶ 25. And the original offeror must accept the
counteroffer unconditionally for a contract to result. Id. As with
the original offer, failure to respond to the counteroffer
constitutes a rejection. See id.; Restatement (Second) of Contracts
§ 36 (1981).
¶16 The facts relating to the various transactions between
Verdi and the Sellers are undisputed. Thus, the question before
us is whether those facts demonstrate that a contract for the sale
of the property was actually formed. Verdi asserts that a contract
arose out of its February 2009 presentation of the REPC, the
Sellers’ counteroffer, Verdi’s Addendum No. 3 response, and
Nelson’s acceptance of Addendum No. 6 in May 2009. We
conclude that the district court correctly determined that the
parties’ negotiations did not result in a contract.
¶17 On February 11, 2009, Verdi offered to purchase the
property, including the well and certain water rights, for
$400,000, with a closing date in July 2009. The offer was
accompanied by $8,000 in earnest money. Verdi made the offer

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20130013-CA 10 2014 UT App 101
in the form of a REPC. Paragraph 23 of the REPC provided that
‚‘*a+cceptance’ occurs when Seller or Buyer, responding to an
offer or counteroffer of the other (a) signs the offer or
counteroffer where noted to indicate acceptance; and (b)
communicates to the other party or to the other party’s agent
that the offer or counteroffer has been signed as required.‛
¶18 The Sellers responded to Verdi’s offer by making
handwritten interlineations on the face of the REPC itself that,
among other things, increased the purchase price to $500,000
and moved the closing date forward from July to June 2009. The
Sellers then checked the ‚counteroffer‛ box on the last page of
the printed form (leaving blank the ‚acceptance‛ box just above
it), initialed and signed it, and returned it to Verdi. The
counteroffer box advised Verdi that the counteroffer
‚present*ed+ for Buyer’s Acceptance the terms of Buyer’s offer
subject to the exceptions or modifications as specified‛ in the
handwritten interlineations.6 (Emphasis added.) Thus, by its
own terms, the Sellers’ response to Verdi’s REPC was a
counteroffer, not an acceptance. See Cea v. Hoffman, 2012 UT App
101, ¶ 25, 276 P.3d 1178 (noting that rejecting material terms of
an offer, such as the purchase price, and proposing different
terms is a counteroffer, not an acceptance).
¶19 On February 20, 2009, nine days after the date of the
counteroffer, Verdi presented the Sellers with Addendum No. 3,
which reiterated the counteroffer’s purchase price and closing
date but added additional terms. In particular, the counteroffer
more specifically identified the subject property by including its
full legal description and the recording information for the
warranty deed that conveyed the property to the Nelsons and
the Lundahls; it granted Verdi ‚full and complete access to the
6. The counteroffer notice actually says ‚specified in the attached
ADDENDUM NO. 2.‛ The parties agree that Addendum No. 2
was never a part of the Sellers’ counteroffer and that all of the
terms of the counteroffer were handwritten onto the REPC itself.

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identified property for all testing and evaluation purposes‛; and
finally, it mandated that ‚due diligence and test data remain*+
confidential and the property of the buyer.‛ These modifications
were apparently of sufficient importance to Verdi that
Addendum No. 3 required the Sellers—by 5:00 p.m. the next
day—‚to accept the terms of this ADDENDUM in accordance
with the provisions of Section 23 of the REPC,‛ which required
the Sellers to ‚sign* Addendum No. 3] where noted to indicate
acceptance‛ and ‚communicate*+ to *Buyer+ . . . that the . . .
counteroffer has been signed as required.‛ This requirement,
when considered in conjunction with the additional protections
proposed by Verdi, makes Addendum No. 3 a counteroffer,
rather than an acceptance of the Sellers’ counteroffer, as Verdi
now claims. See id. (‚*N+o contract arises unless the original
offeror accepts [the counteroffer] unconditionally.‛ (citation and
internal quotation marks omitted)). Addendum No. 3 also
provided, ‚Unless so accepted, the offer as set forth in this
ADDENDUM shall lapse.‛ When the Sellers did not respond to
Addendum No. 3, Verdi’s counteroffer expired according to its
own terms. See Restatement (Second) of Contracts § 36 (1981)
(explaining that ‚*a+n offeree’s power of acceptance is
terminated by the non-occurrence of any condition of acceptance
under the terms of the offer‛). In addition, the Sellers’ failure to
respond amounted to a rejection of the counteroffer. See Cea,
2012 UT App 101, ¶ 25 (noting that a failure to respond is a
rejection of an offer). As a consequence, we conclude that the
series of communications in February 2009 between Verdi on the
one hand and Nelson and Lundahl on the other represented a
series of offers and counteroffers, none of which were accepted,
as required, by both Verdi and the Sellers. Thus, no contract
formed between the parties as of February 2009. This conclusion
is further supported by the parties’ course of conduct following
the Sellers’ failure to respond to Addendum No. 3, namely the
exchange of three more offers.
¶20 Three months after the Sellers failed to respond to
Addendum No. 3, Verdi again offered to purchase the property
under the same terms proposed in Addendum No. 3 but with a

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20130013-CA 12 2014 UT App 101
closing date and due diligence deadline in December 2009. A
few days later, on May 26, 2009, Lundahl counteroffered, setting
a closing and due diligence deadline in September 2009 and
requiring Verdi to pay $100,000 of the $500,000 purchase price
within a month of accepting the offer. That same day, Verdi
responded by presenting the Sellers with Addendum No. 6.
Addendum No. 6 offered to purchase the property for $500,000
and to close in September 2009 but required the return of the
$8,000 earnest money. Nelson checked the acceptance box and
signed his name to Addendum No. 6. Lundahl never signed.
Lundahl’s failure to respond by the acceptance deadline
constituted a rejection: ‚*x+ Seller [ ] Buyer shall have until 5:00
[ ] am [x] pm Mountain Time on May 28, 2009, to accept the terms of
this ADDENDUM in accordance with the provisions of Section 23 of
the REPC. Unless so accepted, the offer as set forth in this
ADDENDUM shall lapse.‛ See id. Lundahl’s failure to execute
Addendum No. 6 renders it unenforceable.7 See also Utah Code
Ann. § 25-5-3 (LexisNexis 2013) (explaining that under the Utah
Statute of Frauds, ‚*e+very contract . . . for the sale, of any lands,
. . . shall be void unless the contract . . . is in writing subscribed
by the party by whom the . . . sale is to be made‛); Williams v.
Singleton, 723 P.2d 421, 423 (Utah 1986) (explaining that where
fewer than all co-owners have signed a contract for sale of
jointly-owned property, the agreement is not enforceable).
Without a valid contract, Verdi’s claims based on contract,
constructive trust, and fraud or misrepresentation must fail, as
explained below.
A. Contract Claims
¶21 Verdi first asserts that summary judgment on his breach
of contract and breach of the covenant of good faith and fair
7. Verdi has not made a claim that Nelson’s signature bound
Lundahl or that Nelson had authority to authorize the sale on
behalf of Lundahl. Verdi also does not claim that the REPC is
separately enforceable against Nelson’s interest in the property.

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20130013-CA 13 2014 UT App 101
dealing claims was improper because the contract was
enforceable under the part performance doctrine. Verdi’s part
performance argument arises from one of the grounds asserted
by the Sellers as the basis for summary judgment: violation of
the statute of frauds. Both in their motion for summary
judgment and on appeal, the Sellers contended that even if there
was an agreement to sell the property to Verdi, that agreement
necessarily fails because the Sellers’ wives had not signed the
REPC or the various addenda. According to the Utah Statute of
Frauds, ‚*e+very contract . . . for the sale, of any lands, or any
interest in lands, shall be void unless the contract . . . is in
writing subscribed by the party by whom the . . . sale is to be
made, or by his lawful agent thereunto authorized in writing.‛
Utah Code Ann. § 25-5-3. There is no husband–wife exception to
the rule that each owner must consent to the sale via signature
on the contract or written authorization to another to bind a co-
owner to the sale. Williams, 723 P.2d at 423. Rather, the contract
must be signed by each of the owners of the property because
‚*o+ne joint tenant or tenant in common cannot bind his cotenant
by a contract which he may make relating to the common
property‛ without the other’s express written authorization. Id.
¶22 Verdi asserts that the part performance doctrine saves the
contract from the statute of frauds problem created by the wives’
failure to sign the contract. The part performance doctrine is an
equitable remedy fashioned ‚to prevent an overly rigid
adherence to the statute [of frauds] from becoming the means of
perpetuating a fraud.‛ Jenkins v. Percival, 962 P.2d 796, 801 (Utah
1998). It generally applies when the parties have not
documented their agreement in writing but one party has
‚partially perform[ed] its contractual obligations.‛ Id. To make
out a claim of part performance, ‚[f]irst, the oral contract and its
terms must be clear and definite; second, the acts done in
performance of the contract must be equally clear and definite;
and third, the acts must be in reliance on the contract.‛ Martin v.
Scholl, 678 P.2d 274, 275 (Utah 1983) (citation and internal
quotation marks omitted). According to Verdi, it entered into an
unambiguous agreement with the Sellers to purchase the

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20130013-CA 14 2014 UT App 101
property and it performed on the contract in reliance on the
Sellers’ oral and written representations that they had full
authority to sell the property.
¶23 Verdi’s part performance argument fails. Verdi’s claim
that there was an agreement that was made unenforceable by the
statute of frauds due to the wives’ failure to sign rests on its
contention that the REPC, together with Addendum No. 3 and
Addendum No. 6, represented an offer-and-acceptance chain
that established an agreement by the Sellers to sell the property
to Verdi. Yet we have rejected Verdi’s foundational contention
that the Sellers agreed to sell the property, because Verdi and the
Sellers—their wives aside—never reached the meeting of the
minds necessary to form a contract for the sale and purchase of
the property in the first place. See supra ¶ 20 & n.7. The doctrine
of part performance permits a court to enforce a contract that is
otherwise unenforceable because of the failure to comply with
the statute of frauds; it does not create a contract that was never
in existence. Martin, 678 P.2d at 275. Thus, even if Verdi’s
performance were otherwise sufficient under part performance
standards (which we do not decide),8 it cannot overcome the
failure of the parties to reach a meeting of the minds.
¶24 We therefore affirm the district court’s grant of summary
judgment on Verdi’s breach of contract claims. See Utah R. Civ.
P. 56(c) (explaining that summary judgment is appropriate when
8. For example, because we have resolved Verdi’s part
performance claim on the basis that there was no underlying
contract implicating the statute of frauds, we need not address
the question of whether Verdi’s subsequent activities met the
standard for part performance in reliance on the contract or were
simply due diligence efforts contemplated by the REPC
provision permitting the buyer to cancel the sale under certain
conditions.

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20130013-CA 15 2014 UT App 101
there are no disputed facts and ‚the moving party is entitled to a
judgment as a matter of law‛).
B. Constructive Trust Claim
¶25 Verdi next asserts that the district court should not have
granted summary judgment on the claim that the Sellers held the
property in a constructive trust for Verdi’s benefit. Verdi’s
argument is that ‚*u+pon the execution of the Real Estate
Purchase Contract, which occurred upon the execution of
Addendum No. 6, equitable title transferred to Verdi,‛ pending
execution of a deed of conveyance at the closing when it would
have received legal title as well. In support of its position, Verdi
cites C&J Industries v. Bailey, 618 P.2d 58 (Utah 1980), for the
proposition that upon the execution of a real estate contract, the
‚property has been sold and bought‛ even though ‚the final act
necessary to bring the purpose of the contract to fruition, that is,
the conveyance of legal title, is to occur in the future,‛ rendering
the contract ‚technically executory.‛ Id. at 59. As with its part
performance claim, however, Verdi’s argument depends upon
the formation of a valid contract of sale. And we have already
concluded that no contract for the sale of the property to Verdi
was ever formed. See supra ¶ 20 & n.7. Without an agreement,
Verdi cannot claim an ownership interest in the property,
equitable or otherwise. As a result, the district court did not err
in granting summary judgment on Verdi’s constructive trust
claim.
C. Fraud and Negligent Misrepresentation Claims
¶26 Finally, Verdi argues that summary judgment was
inappropriate on its fraud and negligent misrepresentation
claims because there is a genuine dispute of material fact about
whether Nelson and Lundahl represented to Verdi that they had
full authority to convey title to the property, including any
interest that their wives might hold. See generally Smith v.
Frandsen, 2004 UT 55, ¶¶ 10–11, 94 P.3d 919 (explaining that to
prove negligent misrepresentation, which is a form of fraud, the

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20130013-CA 16 2014 UT App 101
plaintiff must show that the defendant made a false
representation); Armed Forces Ins. Exch. v. Harrison, 2003 UT 14,
¶ 16, 70 P.3d 35 (explaining that in making out a claim of fraud,
the plaintiff must show that the defendant made a
misrepresentation of material fact). That claim fails for the same
reason Verdi’s contract and constructive trust claims do—the
lack of a valid contract.
¶27 Verdi claims that Nelson and Lundahl each represented
that he had full authority to convey all the rights in the
undivided portion of the land in which he had an interest,
including the rights of any co-owner of that portion. In other
words, Nelson represented that he had authority to sell a 20%
joint interest in the property and Lundahl represented that he
had authority to sell an 80% joint interest, regardless of whether
ownership of that interest was also shared with another, i.e.,
their respective wives. But Verdi’s purchase of the property did
not fail because of any misrepresentation by the Sellers that they
had authority to bind their wives to the contract. Rather, the
purchase fell through because no valid contract to sell the land to
Verdi was ever formed. Had Lundahl executed Addendum
No. 6 and then the purchase failed to occur because the wives
refused to sign the contract, the scope of the Sellers’
representations about their authority to bind their wives would
be material to the dispute. But under the present facts, where no
one representing Lundahl’s 80% undivided interest in the
property signed the final segment of the REPC–Addendum
No. 3–Addendum No. 6 sequence that could have created a
contract, any representation (or misrepresentation) about the
Sellers’ authority to bind their wives is immaterial. Accordingly,
the district court properly granted summary judgment in favor
of the Sellers on the fraud and negligent misrepresentation
claims.
II. Attorney Fees
¶28 We now turn to Verdi’s claim that the district court erred
in awarding bad faith attorney fees to the Sellers. The bad faith

Verdi Energy Group, Inc. v. Nelson
20130013-CA 17 2014 UT App 101
statute allows a trial court to ‚award reasonable attorney fees to
a prevailing party if the court determines that the action or
defense to the action was without merit and not brought or
asserted in good faith.‛ Utah Code Ann. § 78B-5-825(1)
(LexisNexis 2012). In order for a court to award fees under the
statute, it must separately address the requirements of bad faith
and lack of merit. Still Standing Stable, LLC v. Allen, 2005 UT 46,
¶¶ 7–10, 122 P.3d 556 (‚*T+he mere fact that an action is meritless
does not necessarily mean that the action is also brought in bad
faith.‛ (citation and internal quotation marks omitted)); Utah
Telecomms. Open Infrastructure Agency v. Hogan, 2013 UT App 8,
¶ 15, 294 P.3d 645 (‚While the ‘purpose’ behind *the+ action is
relevant to whether [a party] acted in bad faith, it is not relevant
to whether the action lacked merit.‛).
¶29 The district court provided the following explanation for
the award of bad faith attorney fees:
[T]here was clearly no contract between the parties
when the action was initiated and the goal, it
appears, was to stop or delay the [Sellers] from
moving forward with other ventures while [Verdi]
attempted to gather funds and ultimately force the
[Sellers] to sell [Verdi] the property. In other
words, [Verdi] used the present lawsuit to
encumber the property and attempt to coerce the
[Sellers] into selling it the property. Thus, [Verdi]
brought this action without merit and not in good
faith.
While the court seems to conclude that Verdi’s claims were
brought for the purpose of delay so that it could force the Sellers
to sell the property to Verdi and, implicitly, without a belief in
their actual merits, there does not appear to be any evidence in
the record to support these findings.
¶30 Our supreme court has noted that the bad faith statute ‚is
narrowly drawn. It was not meant to be applied to all prevailing

Verdi Energy Group, Inc. v. Nelson
20130013-CA 18 2014 UT App 101
parties in all civil suits.‛ Cady v. Johnson, 671 P.2d 149, 151 (Utah
1983). Thus, for a district court to determine that an action was
brought in bad faith, it must find that the plaintiff ‚(1) [lacked
a]n honest belief in the propriety of the activities in question; (2)
. . . inten[ded] to take unconscionable advantage of others; [or]
(3) [had] intent to, or knowledge of the fact that the activities in
question will . . . hinder, delay or defraud others.‛ Id. (citation
and internal quotation marks omitted). In this case, the district
court found that Verdi’s purpose in bringing the action was ‚to
stop or delay the [Sellers] from moving forward with other
ventures while [Verdi] attempted to gather funds and ultimately
force the [Sellers] to sell *Verdi+ the property.‛
¶31 We cannot ascertain the basis for the district court’s
finding that Verdi was acting in bad faith. See Jeschke v. Willis,
811 P.2d 202, 204 n.1 (Utah Ct. App. 1991) (‚[W]here attorney
fees are awarded pursuant to the [bad faith] statute, specific
findings are required.‛). Although a trial court is ‚not require[d]
. . . to hold a hearing to determine if a party has exhibited bad
faith,‛ Home Abstract & Title Co., Inc. v. American Pension Servs.,
Inc., 2012 UT App 165, ¶ 7, 282 P.3d 1015 (citation and internal
quotation marks omitted), the record must support such a
finding. In other words, the record must demonstrate that some
evidence of Verdi’s intention was presented to the court to
support a finding of bad faith and that basic due process
requirements were satisfied.
¶32 Here, as far as we have been able to determine from the
record, the Sellers had mentioned bad faith on only one occasion
prior to the award of bad faith fees, when they raised the
concern that Verdi’s complaint ‚was filed in bad faith‛ at the
original hearing on the motion for summary judgment in June
2011. Specifically, the Sellers asserted that by filing a cause of
action based on a contract that clearly does not exist and failing
to prosecute it for two years, Verdi was employing ‚an
intimidation tactic‛ intended to get the Sellers ‚to cave‛ into
selling the property to Verdi. That allegation was stated in the
course of argument, and the Sellers offered no specific evidence

Verdi Energy Group, Inc. v. Nelson
20130013-CA 19 2014 UT App 101
in support. Verdi did not have an opportunity to respond to the
allegation, and the district court did not make any findings of
bad faith at that time.9 Thereafter, the Sellers did not link their
allegation that Verdi was acting in bad faith with a request for
attorney fees or mention it in their later submission of an
affidavit in support of attorney fees, which did not identify any
basis for a fee award. Nor did the Sellers subsequently submit
any evidence to support a claim of bad faith. Under ordinary
circumstances, such shortcomings might warrant a remand for
the district court to further consider whether Verdi acted in bad
faith. But because we conclude that the court’s without merit
conclusion was in error, see infra ¶ 34, we instead reverse and
vacate the award of attorney fees altogether.
¶33 To demonstrate that an action is ‚without merit,‛ the
party seeking an award of attorney fees must do more than
assert that the case was unsuccessful. Jeschke, 811 P.2d at 203.
Rather, it must persuade the court that the action ‚border*s+ on
frivolity,‛ meaning the claims have ‚little weight or importance‛
or have ‚no basis in law or fact.‛ Cady, 671 P.2d at 151 (internal
quotation marks omitted). In other words, to support a
conclusion that the action lacks merit, the district court must
determine not only that Verdi’s claims were unsuccessful but
also that they were so deficient that Verdi could not have
9. At the original summary judgment hearing, there was no
motion for bad faith attorney fees pending before the district
court, and the court did not award any attorney fees, although it
agreed that the lawsuit had been pending for too long. The court
explained that ‚there are too many questions that remain
unanswered‛ about the merits of the claim and the justification
for the delays. The court granted Verdi’s request for a
continuance and reserved a ruling on the motion for summary
judgment. The court nevertheless told counsel that ‚*i+f it’s
appropriate for the Court to impose sanctions, [it] can at the
appropriate time.‛

Verdi Energy Group, Inc. v. Nelson
20130013-CA 20 2014 UT App 101
reasonably believed them to have a basis in law and fact. For
example, Utah appellate courts have held that for purposes of
the bad faith statute, an action or defense is without merit when
a party misrepresented the underlying facts in order to try to
make out its claim or defense, see Valcarce v. Fitzgerald, 961 P.2d
305, 315 (Utah 1998); Jeschke, 811 P.2d at 204, and when the
plaintiff fraudulently altered the documents underlying the
claim, see Wardley Better Homes & Gardens v. Cannon, 2002 UT 99,
¶ 30, 61 P.3d 1009. On the other hand, we have concluded that
an action that was based on a reading of a contract provision
requiring confidentiality was not without merit even though the
district court denied a preliminary injunction on the basis that
the provision was unenforceable, which caused the plaintiff to
then voluntarily dismiss the claim. Utah Telecomms. Open
Infrastructure Agency v. Hogan, 2013 UT App 8, ¶¶ 5, 16, 294 P.3d
645.
¶34 In this case, the district court concluded that Verdi’s
claims lacked merit based on the fact that ‚there was clearly no
contract between the parties when the action was initiated.‛ We
agree that Verdi’s claims lacked merit in the conventional sense,
i.e., they were unsuccessful because they depended on the
existence of a contract that was never formed. We disagree,
however, that the claims were so obviously unsupported by the
principles of contract law or the facts of the case as to be patently
groundless. The factual context of this case involved a
complicated series of negotiations, offers, and counteroffers that
Verdi asserts ultimately resulted in an enforceable contract. And
although it became apparent by the time discovery closed and
the court was presented with the second motion for summary
judgment that the REPC–Addendum No. 3–Addendum No. 6
sequence did not create a contract, both the underlying facts and
the law on contract formation permit a colorable argument that a
contract arose.10 The Sellers do not make much of an attempt to
10. The fact that the same district court originally granted
Verdi’s request for a prejudgment writ of attachment, which
(continued . . .)

Verdi Energy Group, Inc. v. Nelson
20130013-CA 21 2014 UT App 101
support a contrary conclusion. Indeed, their only argument for
upholding the without merit determination is that there was ‚no
legitimate reason for this lawsuit other than to essentially take
advantage of the Sellers and attempt to hinder, delay, or defraud
them.‛ Verdi’s purpose, however, ‚is not relevant to whether the
action lacked merit.‛ See id. ¶ 15.
¶35 For these reasons, we conclude that Verdi’s claims were
not ‚without merit‛ as the term is used in the bad faith statute.
Accordingly, the grant of bad faith attorney fees must be
reversed. See id. ¶ 18 (noting that an action must both lack merit
and be asserted in bad faith to warrant an award of attorney fees
under the bad faith statute). See generally Cady v. Johnson, 671
P.2d 149, 151 (Utah 1983) (noting that because the bad faith
statute is ‚narrowly drawn,‛ ‚*i+t was not meant to be applied to
all prevailing parties in all civil suits‛).
CONCLUSION
¶36 Summary judgment for the Sellers was appropriate on all
of Verdi’s claims because the parties never formed a contract.
We reverse and vacate the award of attorney fees under the bad
faith statute, however, because Verdi’s claims were not without
merit as required for such an award. We deny the Sellers’
request for attorney fees on appeal because they neither received
attorney fees in the district court nor prevailed on appeal.
requires a showing that there is a ‚substantial likelihood . . . [of]
prevail*ing+ on the merits of the underlying claim*s+,‛ see Utah R.
Civ. P. 64A(c)(3), is further indication that Verdi’s claims had
some colorable basis in law and fact.