Wachocki v. Luna

2014 UT App 139
_________________________________________________________
THE UTAH COURT OF APPEALS
BARBARA WACHOCKI AND REST EASY ADULT DAY CARE, INC.,
Plaintiffs and Appellees,
v.
LAUREL M. LUNA; VERONICA GRAJEDA; KINDRED KEEPERS
ADULT DAY CENTER, LLC; AND KINDRED KEEPERS AT HOME
SERVICES, LLC,
Defendants and Appellants.
Memorandum Decision
No. 20111121-CA
Filed June 19, 2014
Second District Court, Ogden Department
The Honorable Ernest W. Jones
No. 080908227
Randall Lee Marshall, Attorney for Appellants
Richard H. Reeve and William A. Street, Attorneys
for Appellees
JUDGE JOHN A. PEARCE authored this Memorandum Decision, in
which JUDGE J. FREDERIC VOROS JR. concurred. JUDGE JAMES Z.
DAVIS concurred in the result.
PEARCE, Judge:
¶1 Laurel M. Luna; Veronica Grajeda; Kindred Keepers Adult
Day Center, LLC; and Kindred Keepers At Home Services, LLC
appeal the default judgment entered below in favor of Barbara
Wachocki and Rest Easy Adult Day Care, Inc. (Rest Easy). We
affirm in part, vacate in part, and remand this matter to the district
court for further proceedings consistent with this memorandum
decision.

Wachocki v. Luna
1. Because of the default below, we accept the allegations in
Wachocki’s complaint as true. See Skanchy v. Calcados Ortope SA, 952
P.2d 1071, 1076 (Utah 1998) (stating that, upon default, the
plaintiff’s “factual allegations are deemed admitted”).
2. We refer to Kindred Keepers Adult Day Center, LLC and
Kindred Keepers At Home Services, LLC collectively as Kindred
Keepers.
20111121-CA 2 2014 UT App 139
¶2 In 1999, Wachocki and Luna founded Rest Easy, an adult
day care facility. They each owned 50% of the corporation and
were Rest Easy’s only shareholders throughout its existence.
Wachocki provided the majority of the initial capital, developed
Rest Easy’s policies and procedure manual, and handled licensing
issues. Luna managed the day-to-day operations of the business,
served as the corporation’s bookkeeper, and oversaw billing and
other financial issues. In 2002, Rest Easy also began offering in-
home personal care services to its clients under the name Rest Easy
Personal Care Services. Grajeda began working for Rest Easy in
2003 and eventually became the manager of Rest Easy Personal
Care Services.
¶3 Sometime prior to the fall of 2007, Luna and Grajeda offered
to purchase Wachocki’s interest in Rest Easy. After Wachocki1
rejected their offer, Luna and Grajeda prepared to start a venture
that would compete with Rest Easy. In May 2008, Luna and
Grajeda formed Kindred Keepers and filed articles of organization
listing them as Kindred Keepers’ members and managers.2
¶4 Also in May 2008, and while Wachocki was away on
vacation, Luna informed Wachocki that Rest Easy was ready to
undergo and pass a state inspection that was necessary for Rest
Easy to maintain its license and stay in business. Unbeknownst to
Wachocki, Luna cancelled the inspection. Luna and Grajeda then
used Wachocki’s absence as an opportunity to relocate Rest Easy’s
files and employees to offices Kindred Keepers had leased. Luna
and Grajeda also moved Rest Easy’s office supplies, furniture, and
equipment to Kindred Keepers’ offices.

Wachocki v. Luna
20111121-CA 3 2014 UT App 139
¶5 Kindred Keepers began performing services for Rest Easy’s
former clients, who were informed that they were now Kindred
Keepers’ clients. Kindred Keepers billed Medicaid using Rest
Easy’s Medicaid provider number but diverted the Medicaid funds
Rest Easy received to Kindred Keepers to pay Kindred Keepers’
employees (who had, until very recently, been Rest Easy’s
employees).
¶6 Wachocki and Rest Easy filed an action against Luna,
Grajeda, and Kindred Keepers (collectively, Appellants), alleging
that they had sabotaged Rest Easy and stolen its business.
Appellants failed to answer the complaint. The district court
entered a default judgment after conducting a two-day bench trial
to determine what damages should be awarded based on the
complaint’s allegations. The district court ultimately awarded
Wachocki and Rest Easy $230,000 in compensatory damages, which
included past and future lost profits, consequential damages,
disgorgement of funds, and the amount due on an unpaid personal
loan Wachocki made to Luna. The district court also awarded
$128,000 in punitive damages. The court awarded the entire
amount of $358,000 against all Appellants. Appellants raise
multiple challenges to the damages awarded below.
¶7 “When a defendant fails to appear and answer a complaint,
the entry of a default does not automatically entitle a plaintiff to a
default judgment for the damages claimed in the complaint.”
Skanchy v. Calcados Ortope SA, 952 P.2d 1071, 1076 (Utah 1998). If
the damages the complaint seeks are not liquidated damages, the
court must review the complaint, “determine whether the
allegations state a valid claim for relief, and award damages in an
amount that is supported by some valid evidence.” Id. Although
the complaint’s factual allegations are deemed admitted, a
plaintiff’s legal allegations do not bind the district court and the
court should enter a default judgment only if the pleaded facts will
support a valid legal claim. Id.
¶8 Accordingly, on “appeal from a default judgment, a
defendant may contest the sufficiency of the complaint and its
allegations to support the judgment.” Id. (citation and internal

Wachocki v. Luna
3. Appellants also appear to argue that the damages awarded for
Luna’s breach of the duty of care consist of tax liabilities that
should be shouldered equally by both Luna and Wachocki.
However, the district court’s order awarded “lost profits and
future lost profits and consequential damages” on the breach of
duty claim. Appellants do not specify what portion of that award
represents the tax liability that they claim was improperly
awarded. Moreover, Appellants seem to suggest, but do not
expressly argue, that the complaint’s factual allegations do not
specifically support the damages awarded for Luna’s breach of the
duty of care. To the extent that Appellants intended to make this
argument, it is not adequately developed and thus insufficient to
discharge Appellants’ burden of demonstrating trial court error.
See Utah R. App. P. 24(a)(9) (requiring appellate arguments to
“contain the contentions and reasons of the appellant with respect
to the issues presented . . . with citations to the authorities, statutes,
and parts of the record relied on”).
20111121-CA 4 2014 UT App 139
quotation marks omitted). We review the district court’s
assessment of the legal sufficiency of a complaint for correctness.
Franco v. Church of Jesus Christ of Latter-day Saints, 2001 UT 25, ¶ 10,
21 P.3d 198. We review the amount of any unliquidated damages
awarded after default judgment to ensure that the award “is
supported by some valid evidence.” Skanchy, 952 P.2d at 1076.
¶9 Appellants first argue that Wachocki and Rest Easy’s claim
for breach of the duty of care against Luna must fail because a
corporate director can be liable to the corporation or its
shareholders only if her “breach or failure to perform constitutes
gross negligence, willful misconduct, or intentional infliction of
harm on the corporation or the shareholders.” Utah Code Ann.
§ 16-10a-840(4) (LexisNexis 2013). Appellants argue that the
complaint failed to allege that Luna’s mismanagement constituted
gross negligence or willful or intentional misconduct and that
damages attributable to her mismanagement of Rest Easy are
therefore improper.3

Wachocki v. Luna
4. Utter indifference is one of the hallmarks of gross negligence. See
Blaisdell v. Dentrix Dental Sys., Inc., 2012 UT 37, ¶ 14, 284 P.3d 616
(“Gross negligence is the failure to observe even slight care; it is
carelessness or recklessness to a degree that shows utter
indifference to the consequences that may result.” (citation and
internal quotation marks omitted)).
5. Appellants provide no authority for their assertion that both
breach of the duty of loyalty and intentional interference with
economic relations are business torts. However, we accept their
characterization for purposes of our analysis.
20111121-CA 5 2014 UT App 139
¶10 Although the complaint may not have used the terms “gross
negligence,” “willful misconduct,” or “intentional infliction of
harm,” it did allege a pattern of behavior by Luna that
demonstrated utter indifference to the fate of Rest Easy at best and
a concerted effort to destroy the business at worst. For example,4
the complaint alleged that Luna formed Kindred Keepers to
directly compete with Rest Easy, surreptitiously cancelled a state
inspection needed to maintain Rest Easy’s business license,
improperly hired away Rest Easy’s employees, and “continuously
withdrew and/or received Rest Easy’s funds for [her] own benefit.”
In light of the overall pattern of behavior alleged in the complaint,
we see no error in the district court’s award of damages for Luna’s
breach of the duty of care, notwithstanding the complaint’s failure
to expressly use the terms Utah Code section 16-10a-840(4)
employs.
¶11 Appellants next argue that Wachocki and Rest Easy’s claims
of breach of the duty of loyalty and intentional interference with
economic relations are business torts, for which damages should
have been limited to Rest Easy’s lost profits. Even if we assume that
Appellants are correct that these claims are properly characterized
as “business torts” in this context, Appellants take an unduly
narrow view of the available damages. We have previously stated5
that the appropriate measure of damages for a business tort is the
“pecuniary loss” caused by the tortious behavior “as measured by
lost net profits or any other consequential losses.” Stevensen 3rd E., LC

Wachocki v. Luna
6. Elsewhere in their brief, Appellants claim that the consequential
damages award was “grossly miscalculated” and attack the award
of certain items of consequential damages. However, Appellants
make no attempt to marshal the evidence presented at the two-day
trial on damages. In light of that failure, Appellants have not
carried their burden of persuasion on appeal. See State v. Nielsen,
2014 UT 10, ¶ 42 (“[A] party challenging a factual finding or
sufficiency of the evidence to support a verdict will almost
certainly fail to carry its burden of persuasion on appeal if it fails to
marshal.”).
7. Despite the supreme court’s express disclaimer in Prince, Yeates
& Geldzahler v. Young, 2004 UT 26, 94 P.3d 179, the district court
used that case as its sole authority to conclude:
All employees, even at-will employees, owe a duty of
loyalty to their employer and must not, while
employed, act contrary to the employer’s interest,
which necessarily includes a duty not to compete
with the employer’s business interests. The correct
measure of damages for an employee’s breach of this
duty is the disgorgement of money and benefits that
(continued...)
20111121-CA 6 2014 UT App 139
v. Watts, 2009 UT App 137, ¶ 38, 210 P.3d 977 (emphasis added).
Appellants make no effort to identify any portion of the judgment
that could not be characterized as “other consequential losses”
resulting from the actions alleged in the complaint.6
¶12 Appellants next argue that, as a “mere employee,” Grajeda
owed no duty of loyalty to refrain from competing with Rest Easy.
Appellants correctly note that the Utah Supreme Court has
explicitly left open the question of whether every “mere employee”
owes a duty of loyalty to not compete with her employer. See
Prince, Yeates & Geldzahler v. Young, 2004 UT 26, ¶ 22 n.2, 94 P.3d
179 (“We need not, and do not, decide today whether all ‘mere
employees’ owe fiduciary duties to their employers to not compete
with the employer’s legitimate business interests.”).7

Wachocki v. Luna
7. (...continued)
the employee received from the employer during the
period of competition and breach.
(Citation omitted.)
20111121-CA 7 2014 UT App 139
¶13 However, acknowledging the existence of this question is
not the same as adequately articulating an argument that would
allow us to address it. Appellants present no authority or analysis
aimed at convincing this court that an employee who engages in
the egregious behavior alleged in this case does not violate a duty
of loyalty owed to her employer. Wachocki and Rest Easy have
similarly failed to brief any helpful argument, limiting their
analysis to the incorrect assertion that the supreme court actually
recognized such a duty in Prince, Yeates & Geldzahler v. Young, 2004
UT 26, 94 P.3d 179.
¶14 Although neither party has provided us with any helpful
analysis on the duty of loyalty issue, it is ultimately Appellants
who have abdicated their burden of persuasion on appeal. See Salt
Lake Cnty. v. Butler, Crockett & Walsh Dev. Corp., 2013 UT App 30,
¶ 37 n.5, 297 P.3d 38 (holding that the appellant “has not met its
burden of persuasion on appeal by adequately briefing a plausible
claim”). “An appellate court is not a depository in which [a party]
may dump the burden of argument and research.” Allen v. Friel,
2008 UT 56, ¶ 9, 194 P.3d 903 (alteration in original) (citation and
internal quotation marks omitted). Yet that is exactly what
Appellants have done here—raised an issue in the apparent hope
that this court will develop the arguments for and against and then
decide the question based upon its own framing of the issue. Under
these circumstances, we decline to address Appellants’ duty of
loyalty argument because it is inadequately briefed, see ASC Utah,
Inc. v. Wolf Mountain Resorts, LC, 2013 UT 24, ¶ 16, 309 P.3d 201,
and we affirm the district court’s award of damages against
Grajeda for breach of the duty of loyalty.
¶15 Appellants next argue that the lost profits damages awarded
against them are based upon an expert’s impermissible speculation.
“Damages, to include lost profits, ‘must be proven with reasonable

Wachocki v. Luna
20111121-CA 8 2014 UT App 139
certainty and the amount by a reasonable though not necessarily
precise estimate.’” Carlson Distrib. Co. v. Salt Lake Brewing Co., 2004
UT App 227, ¶ 19, 95 P.3d 1171 (quoting Sawyers v. FMA Leasing
Co., 722 P.2d 773, 774 (Utah 1986)). However, while the evidence of
damages must not be so indefinite as to allow speculation as to
their amount, “‘some degree of uncertainty is tolerable.’” Id.
(quoting Acculog, Inc. v. Peterson, 692 P.2d 728, 732 (Utah 1984)).
¶16 Here, Appellants assert that Wachocki and Rest Easy’s
expert “used charts and statistics to project what the profits of Rest
Easy should have been” instead of extrapolating from the
company’s actual performance. They also complain that the expert
improperly assumed that Luna’s mismanagement of Rest Easy
prior to 2008 rose to the level of malfeasance. Appellants have not
argued here or below that this expert’s testimony was inadmissable
under the standards outlined in Utah Rule of Evidence 702. Nor do
they cite any authority suggesting that the methodology the expert
employed was unreliable. Similarly, Appellants baldly assert that
the complaint lacks allegations that would permit the expert to
assume that Luna engaged in acts of malfeasance prior to 2008.
Appellants do not, however, support that assertion with any
reference to the complaint or any explanation of why they believe
the allegations pleaded do not support the expert’s testimony. On
this briefing, we cannot conclude that either of the alleged flaws
caused the ultimate damages award to fall short of the reasonable
estimate that the law requires. See Carlson Distrib. Co., 2004 UT App
227, ¶ 19.
¶17 Appellants also challenge the district court’s decision to
credit the testimony of Wachocki and Rest Easy’s expert over that
of Appellants’ expert. “[I]t is the district court’s province to
determine the weight and credibility of expert testimony.” Strohm
v. ClearOne Commc’ns, Inc., 2013 UT 21, ¶ 57 n.13, 308 P.3d 424. The
district court here expressly found that Wachocki and Rest Easy’s
expert was “most convincing and compelling,” that his report was
“excellent” and “well documented,” and that the court was “not
persuaded” by Appellants’ expert. Nothing in Appellants’

Wachocki v. Luna
20111121-CA 9 2014 UT App 139
argument provides a basis for us to second-guess the district
court’s credibility determinations.
¶18 Appellants also argue that certain portions of the
compensatory damages award should not have been assessed
against Grajeda. Wachocki and Rest Easy have conceded that
Grajeda should not have been assessed the damages identified in
the district court’s order as “Wachocki’s Share of Rest Easy’s Lost
Profits” and “Balance of Unpaid Personal Loan Plus 10% Statutory
Interest.” We therefore vacate the district court’s award of these
damages against Grajeda.
¶19 However, as to the other compensatory damages awarded
against Grajeda, we reject Appellants’ argument that it is “patently
unfair to assess the same damages against a mere employee who
was doing what her boss told her to do as the damages assessed
against Luna.” Although Grajeda was an employee, she actively
participated in the formation of Kindred Keepers and the
subsequent destruction of Rest Easy’s business. Grajeda is therefore
properly liable for consequential losses resulting from her tortious
behavior. See Stevensen 3rd E., LC v. Watts, 2009 UT App 137, ¶ 38,
210 P.3d 977.
¶20 Finally, Appellants challenge the district court’s award of
punitive damages as excessive. Appellants argue that the district
court erred by assessing punitive damages, in part, based on
conduct that was merely negligent. Appellants further argue that
the district court “did not really consider the financial wealth” of
each defendant as required by Crookston v. Fire Insurance Exchange,
817 P.2d 789 (Utah 1991). We vacate the district court’s award of
punitive damages and remand that issue for reconsideration
consistent with this memorandum decision.
¶21 Appellants argue that Utah law generally allows punitive
damages to be awarded only for conduct that, at a minimum,
“manifests a knowing and reckless indifference toward, and a
disregard of, the rights of others.” Utah Code Ann. § 78B-8-
201(1)(a) (LexisNexis 2012). Appellants concede that some of their
conduct satisfies the statutory standard, but they argue that other

Wachocki v. Luna
8. The district court, in an order prepared by Wachocki, purported
to award punitive damages based on the total amount of
compensatory damages “at a ratio of approx. 2 to 1 pursuant to
Crookston.” We note that the district court actually applied a
punitive to compensatory damages ratio of approximately 1 to 2.
We also note that a 3 to 1 ratio is generally the appropriate ceiling
for punitive damages. See Diversified Holdings, LC v. Turner, 2002
UT 129, ¶ 24, 63 P.3d 686 (“The ratio of punitive to compensatory
damages does not, by itself, determine whether or not an award is
excessive; an award that falls outside certain parameters will,
however, elicit more searching judicial scrutiny. For punitive
awards of less than $100,000 a ratio of three to one will generally be
justifiable, but for awards greater than $100,000, a somewhat lower
ratio is usually appropriate.” (citation omitted)).
20111121-CA 10 2014 UT App 139
conduct—such as Luna’s failure to repay the loan from
Wachocki—does not.
¶22 An award of punitive damages must be premised on
conduct that satisfies the statutory requirement of knowing and
reckless indifference toward, and a disregard of, the rights of
others. For example, the Utah Supreme Court has explained that
“[w]hile simple negligence will not support punitive damages,
negligence manifesting a knowing and reckless indifference toward
the rights of others will.” Diversified Holdings, LC v. Turner, 2002 UT
129, ¶ 29, 63 P.3d 686. “A determination must be made on the facts
of each case whether the negligence complained of is of the sort
that will support punitive damages.” Id.
¶23 Here, the district court calculated punitive damages by
simply applying a fixed ratio to the total amount of compensatory
damages. In so doing, the district court failed to make the required8
findings that each portion of the total compensatory damage award
resulted from conduct that met the culpability standard of Utah
Code section 78B-8-201(1)(a). See Diversified Holdings, 2002 UT 129,
¶¶ 25–33. We therefore vacate the award of punitive damages and
remand for recalculation. If the district court again elects to

Wachocki v. Luna
9. For example, even if the court were to find that Luna’s failure to
repay her personal loan from Wachocki satisfies Utah Code section
78B-8-201(1)(a), Luna’s failure should not be used to calculate
punitive damages against Grajeda or Kindred Keepers.
10. Crookston v. Fire Insurance Exchange, 817 P.2d 789 (Utah 1991),
identified seven factors that must be considered in awarding
punitive damages:
(i) the relative wealth of the defendant; (ii) the nature
of the alleged misconduct; (iii) the facts and
circumstances surrounding such conduct; (iv) the
effect thereof on the lives of the plaintiff and others;
(v) the probability of future recurrence of the
misconduct; (vi) the relationship of the parties; and
(vii) the amount of actual damages awarded.
Id. at 808. The Utah Supreme Court subsequently clarified that the
“‘harm to others’ [factor] may only be used to assess
reprehensibility, but may not be used to directly punish a
defendant for harm caused to nonparties.” Westgate Resorts, Ltd. v.
Consumer Prot. Grp., LLC, 2012 UT 55, ¶ 14, 285 P.3d 1219.
20111121-CA 11 2014 UT App 139
calculate punitive damages by applying a ratio to the amount of
compensatory damages, the court may do so only to the extent that
it makes findings that the conduct giving rise to the compensatory
damages portion of the ratio satisfies the requirements of Utah
Code section 78B-8-201(1)(a). The district court should also ensure
that punitive damages are awarded against each of Appellants only
for conduct that each one committed.9
¶24 Appellants also complain that the district court failed to
properly consider their individual wealth as Crookston requires.10
See 817 P.2d at 808. Specifically, Appellants argue that the district
court ignored evidence that Luna and Grajeda both earned
approximately $20,000 in 2010 and instead evaluated their wealth
based on the fact that “Rest Easy grossed over $300,000.00 per year
in 2004, 2006, and 2007 [and] it is difficult to understand where the
money went each year.”

Wachocki v. Luna
20111121-CA 12 2014 UT App 139
¶25 There are two problems with the district court’s approach.
First, Rest Easy’s gross receipts prior to Appellants’ takeover are
not a direct proxy for Luna’s and Grajeda’s individual wealth, and
the district court erred to the extent that it treated them as such.
Second, the district court has an obligation to assess the relative
wealth of each defendant individually, as the award needed to
deter one defendant from future misconduct may differ from that
needed to deter another. Similarly, given the constitutional
considerations of an excessive punitive damages award, see
Westgate Resorts, Ltd. v. Consumer Prot. Grp., LLC, 2012 UT 55, ¶ 10,
285 P.3d 1219, an award that can be constitutionally imposed
against one defendant may fail constitutional muster when
imposed against another. On remand, the district court should
reevaluate the relative wealth of each defendant individually.
¶26 We vacate portions of the compensatory damages award
against Grajeda pursuant to Wachocki and Rest Easy’s concessions
on appeal. Specifically, we vacate the award of damages against
Grajeda for the past lost profits damages and for the personal loan
from Wachocki to Luna. We also vacate the punitive damages
award because the district court based that award on the
compensatory damages without finding that the compensatory
damages were based upon conduct that satisfies Utah Code section
78B-8-201(1)(a) and because the district court failed to properly
assess the individual wealth of each defendant. We otherwise
affirm the judgment, and we remand this matter to the district
court for further proceedings consistent with this memorandum
decision.