Mark White v. Peter Jeppson

¶1 Plaintiffs Mark and Irene White challenge the district court's

judgment in favor of Defendants.1 The district court granted in part

White v. Jeppson

1. (...continued)

mean Jeppson and Williams individually, unless the context

requires otherwise.

2. Defendants captioned this motion as one for judgment on the

pleadings and for summary judgment, and the district court

characterized its ruling as a "judgment on the pleadings and for

summary judgment.” Because the court considered matters outside

the pleadings, we treat Defendants' motion as one for summary

judgment. See Utah R. Civ. P. 12(c) ("If, on a motion for judgment

on the pleadings, matters outside the pleadings are presented to

and not excluded by the court, the motion shall be treated as one

for summary judgment[.]”).

3. In reviewing the facts relevant to the district court's grant of

Defendants' motion for judgment on the pleadings, we accept the

factual allegations in the complaint as true. See Intermountain Sports,

Inc. v. Department of Transp., 2004 UT App 405, ¶ 7, 103 P.3d 716.

And because we treat Defendants' other motion as one for

summary judgment, see supra note 2, we recite all remaining facts

and reasonable inferences that may be drawn from them in the

light most favorable to Plaintiffs as the nonmoving party. See Orvis

v. Johnson, 2008 UT 2, ¶ 6, 177 P.3d 600.

20120997-CA 2 2014 UT App 90

the Defendants' motion for judgment on the pleadings because of

Plaintiffs' failure to join indispensable parties. It also granted

Defendants' motion targeting Plaintiffs' failure to timely designate

an expert witness.2 We reverse and remand for further

proceedings.

BACKGROUND3

¶2 In 2005, in an effort to learn how to manage money more

effectively, Plaintiffs enrolled in a financial course offered through

a community education program. The course was taught by

Defendants. Following the eight-week course, Plaintiffs met with

Jeppson personally and entered into an agreement for Jeppson to

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become their personal financial coach. After the initial coaching

sessions, Defendants began offering Plaintiffs different investment

opportunities and introducing them to individuals who had

potential real estate investment projects.

A. Stadig Transactions

¶3 In 2005, Jeppson introduced Plaintiffs to a real estate broker

named Todd Stadig. Plaintiffs claim that Jeppson "pushed” them

to invest and that they eventually invested more than $3 million

with Stadig and his related entities. Plaintiffs also allege that

Jeppson failed to disclose that Stadig owed him large sums of

money and that Jeppson and Stadig had "finder's fees”

arrangements whereby Stadig paid Jeppson for each person

Jeppson convinced to invest with Stadig.

¶4 Plaintiffs' investments with Stadig were not profitable, and

they brought a separate action against him and related entities in

2009. They did not name or join Defendants as parties to that suit.

In 2011, Plaintiffs obtained a judgment against Stadig for the full

amount that they invested with him.

B. Packer Transaction

¶5 In the fall of 2005, Jeppson introduced Plaintiffs to an

attorney named James Packer. Packer administered a real estate

investment trust (the Packer REIT). Plaintiffs claim that while they

investigated the Packer REIT, "Jeppson took a prominent role in

encouraging them to invest” and made "representations about the

investment.” Jeppson also represented to them that Defendants

were invested in the Packer REIT and were receiving "big checks”

from their investment.

¶6 Plaintiffs eventually invested over $800,000 in the Packer

REIT and subsequently lost nearly all of it. According to Plaintiffs,

they later learned not only that Defendants had never invested

with the Packer REIT, but that Jeppson, Williams, and their related

entities had some sort of consulting relationship with the Packer

REIT. Plaintiffs initiated a separate legal proceeding against Packer

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and the Packer REIT in 2010. Defendants were not joined as parties

to that suit, and it remains pending in the Fourth District Court.

C. West Yellowstone Transaction

¶7 In 2006, Jeppson introduced Plaintiffs to a real estate agent

named Roger Beattie. Beattie presented Plaintiffs with the

opportunity to purchase a motel that he managed in West

Yellowstone, Montana. Plaintiffs allege that Jeppson encouraged

them to purchase the motel and persuaded them that Williams

should serve as a management consultant. Plaintiffs purchased the

motel, allowing Beattie to continue managing the property, and

hired an entity owned by Defendants to provide management

consulting services through Williams. Plaintiffs allege that the

motel did not meet their monthly income goals as Jeppson claimed

it would, and Plaintiffs eventually sold it to Beattie in 2011 for the

same amount as their purchase price.

D. Nunley Court Transaction

¶8 In 2007, Defendants and a real estate agent formed Araunah,

LLC in order to develop two townhouses on Nunley Court in

Holladay, Utah. At Defendant's urging, Plaintiffs invested in the

development. Plaintiffs did not realize any income from their

investment because the homes never sold, and a bank eventually

foreclosed on the properties.

E. This Lawsuit

¶9 As a result of Plaintiffs' losses in connection with these four

transactions, they filed their complaint in district court alleging two

causes of action against Defendants: (1) breach of fiduciary duty

and (2) violation of Utah securities laws. Defendants filed a motion

for judgment on the pleadings for failure to join indispensable

parties. The district court granted Defendants' motion insofar as it

related to Plaintiffs' claims involving Stadig, Beattie, and Packer,

whom the district court deemed necessary, but denied the motion

as it related to Plaintiffs' claims involving the Nunley Court

transaction. Defendants also filed a motion for judgment on the

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pleadings and for summary judgment based on Plaintiffs' failure

to designate an expert. The district court granted this motion

because "in the absence of expert testimony on the requisite

standard of care, causation, securities, and damages, Plaintiffs will

be unable to prove their claims at trial.” Consequently, the district

court dismissed all of Plaintiffs' claims against Defendants.

Plaintiffs appeal.

ISSUES AND STANDARDS OF REVIEW

¶10 Plaintiffs contend that the district court abused its discretion

by ruling that they failed to join indispensable parties under rule 19

of the Utah Rules of Civil Procedure. "[A] trial court's

determination properly entered under Rule 19 will not be

disturbed absent an abuse of discretion.” Seftel v. Capital City Bank,

767 P.2d 941, 944 (Utah Ct. App. 1989).

¶11 Plaintiffs also argue that the district court erred in granting

Defendants' motion premised on Plaintiffs' failure to timely

designate an expert. We treat this motion as one for summary

judgment. See supra note 2. "We review a summary judgment

determination 'for correctness, granting no deference to the

[district] court's legal conclusions.'” Salt Lake County v. Holliday

Water Co., 2010 UT 45, ¶ 14, 234 P.3d 1105 (alteration in original)

(quoting Hansen v. America Online, Inc., 2004 UT 62, ¶ 6, 96 P.3d

950).

ANALYSIS

I. Failure to Join Indispensable Parties

¶12 Plaintiffs argue that the district court abused its discretion

by determining that Stadig, Packer, and Beattie were indispensable

parties to Plaintiffs' action. In considering whether unjoined parties

are indispensable under rule 19 of the Utah Rules of Civil

Procedure, we must first decide whether a party is necessary. See

Johnson v. Higley, 1999 UT App 278, ¶ 29, 989 P.2d 61. "'[A]

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necessary party is one whose presence is required for a full and fair

determination of his rights as well as of the rights of the other

parties to the suit.'” Id. (alteration in original) (quoting Cowen & Co.

v. Atlas Stock Transfer Co., 695 P.2d 109, 114 (Utah 1984)). "Rule 19

requires joinder of such parties 'to guard against the entry of

judgments which might prejudice the rights of such parties in their

absence.'” Johnson, 1999 UT App 278, ¶ 29 (quoting Cowen, 695 P.2d

at 114). "Only if the party is necessary, but the court finds joinder

unfeasible, must the court address indispensability under Rule

19(b).” Johnson, 1999 UT App 278, ¶ 29.

¶13 Assuming joinder will not deprive the court of its

jurisdiction, a party is necessary to an action if

"(1) in [the party's] absence complete relief cannot be

accorded among those already parties, or (2) [the

party] claims an interest relating to the subject of the

action and is so situated that the disposition of the

action in [the party's] absence may (i) as a practical

matter impair or impede [the party's] ability to

protect that interest or (ii) leave any of the persons

already parties subject to a substantial risk of

incurring double, multiple, or otherwise inconsistent

obligations by reason of [the party's] claimed

interest.”

Turville v. J & J Properties, LC, 2006 UT App 305, ¶ 36, 145 P.3d 1146

(alterations in original) (quoting Utah R. Civ. P. 19(a)(1)–(2)). We

conclude that Stadig, Packer, and Beattie are not necessary parties

under rule 19.

¶14 First, complete relief can be granted among the parties in the

absence of Stadig, Packer, and Beattie. The district court concluded

that these parties were necessary because any damages that

Plaintiffs suffered as a result of their failed investments would

necessarily implicate the actions or inaction of Stadig, Packer, and

Beattie. Defendants contend that joinder is therefore "necessary to

prevent separate actions and inconsistent rulings on the issues of

causation and damages.” However, it "has long been the rule that

White v. Jeppson

4. Rule 19 of the Federal Rules of Civil Procedure is "substantially

similar” to rule 19(a) of the Utah Rules of Civil Procedure, and it is

therefore appropriate for this court to consider interpretations of

the equivalent federal rule. See Tucker v. State Farm Mut. Auto. Ins.

Co., 2002 UT 54, ¶ 7 n.2, 53 P.3d 947.

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it is not necessary for all joint tortfeasors to be named as defendants

in a single lawsuit.” Temple v. Synthes Corp., 498 U.S. 5, 7 (1990). See

also PaineWebber, Inc. v. Cohen, 276 F.3d 197, 204 (6th Cir. 2001)

("[M]ultiple proceedings and inconsistent results . . . can occur

whenever joint tortfeasors are not parties to the same lawsuit. This

form of prejudice, however, does not require a finding that joint

tortfeasors are necessary or indispensable parties [for purposes of

rule 19 of the Federal Rules of Civil Procedure].”).4

¶15 Defendants contend that Turville v. J & J Properties, LC, 2006

UT App 305, 145 P.3d 1146, should nonetheless control because,

like the unjoined party in Turville, each of the unjoined parties in

this case was an "instrumental participant” in the harm that is the

subject of Plaintiffs' claims. See id. ¶ 39. However, the unusual

factual backdrop of Turville is readily distinguishable from the facts

of this case. In Turville, the plaintiff named a defendant in his

individual capacity, but the defendant died before he was served

with the complaint and his estate was not substituted as a party. Id.

¶¶ 8–10, 17. We concluded that because the plaintiff "named or

included [the defendant] in his claims as the major, if not the sole,

actor responsible for [the plaintiff's] alleged damages,” his estate

was a necessary party. Id. ¶ 42.

¶16 In so concluding, we referred to a federal district court case

holding, conversely, that where a plaintiff "'makes no claims

against [the unjoined party,] it is clear [under rule 19] that complete

relief can be granted in its absence.'” Id. ¶ 40 (first alteration in

original) (quoting Mallalieu–Golder Ins. Agency v. Executive Risk

Indem., 254 F. Supp. 2d 521, 525 (M.D. Pa. 2003)). Such is the case

here. Plaintiffs have made no claims against Stadig, Packer, or

Beattie in this lawsuit. Indeed, Plaintiffs' claims in this case "were

expressly limited to [Defendants'] acts or omissions,” and they

White v. Jeppson

5. While the district court expressed concerns about potential res

judicata problems arising in this case, those concerns appear to be

wide of the mark. Res judicata has no bearing on whether a party

is necessary under rule 19 but is an affirmative defense that may be

raised in the pleadings. See Utah R. Civ. P. 8(c); Jackson v. Rich, 499

P.2d 279, 280 (Utah 1972). To the extent that res judicata has any

potential bearing on these parties, it should have already been

pleaded in this case or may be pleaded in any subsequent suits

arising out of the same subject matter.

6. Defendants assert that any judgment against them in this action

"will amount to Plaintiffs receiving a double recovery.” However,

rule 19 seeks to prevent double, multiple, or inconsistent obligations

(continued...)

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have already sought resolution of their claims against the unjoined

parties in separate suits. See Johnson, 1999 UT App 278, ¶ 33.

Accordingly, as Plaintiffs' claims are strictly limited to Defendants'

conduct, complete relief can be granted among Plaintiffs and

Defendants without joining Stadig, Packer, and Beattie.

¶17 Similarly, entry of a judgment against Defendants would not

prejudice the rights of the unjoined parties in their absence, see id.

¶ 29, nor do Stadig, Packer, and Beattie claim "an interest relating

to the subject of the action,” see Utah R. Civ. P. 19(a)(2). Plaintiffs'

claims are limited to the acts or omissions of Defendants, and the

unjoined parties have no interest in Plaintiffs' claims against

Defendants for breach of fiduciary duty or under Utah securities

laws.5 See Huber v. Taylor, 532 F.3d 237, 249 (3d Cir. 2008) ("That

[the defendant] and [the unjoined party] may have 'jointly owed

fiduciary duties to their mutual clients' does not mean that they

shared 'an interest relating to the subject of the action' for purposes

of Rule 19(a) analysis.”). Indeed, Plaintiffs are the only parties with

any known interest in the claims they have asserted in this case.

Therefore, there is also no risk that "any of the persons already

parties” will be subject to "double, multiple, or otherwise

inconsistent obligations by reason of [Stadig's, Packer's, and

Beattie's] claimed interest.”6 See Utah R. Civ. P. 19(a)(2)(ii).

White v. Jeppson

6. (...continued)

and does not prohibit double recovery. See Utah R. Civ. P.

19(a)(2)(ii) (emphasis added). That said, under Utah law, if a

plaintiff improperly seeks previously compensated damages, "the

court should, at the conclusion of the trial, either on its own

initiative or on motion of a party, reduce the judgment by the

amount of those previously compensated damages, and thereby

prevent double recovery.” See Ohio Cas. Ins. Co. v. Brundage, 674

P.2d 101, 102 (Utah 1983) (citation and internal quotation marks

omitted).

20120997-CA 9 2014 UT App 90

¶18 In sum, Plaintiffs have sought recovery from Defendants

based only on Defendants' acts or omissions. Accordingly, the

presence of Stadig, Packer, and Beattie is not required for a full and

fair determination of their rights or the rights of Defendants and

Plaintiffs. See Johnson v. Higley, 1999 UT App 278, ¶ 29, 989 P.2d 61.

Additionally, no indispensability analysis under rule 19(b) is

required because we conclude that the unjoined parties are not

even necessary parties under rule 19(a). It follows that the district

court exceeded the bounds of sound discretion in ruling as it did.

II. Failure to Designate an Expert Witness

¶19 Plaintiffs next contend that the district court erred in

granting Defendants' motion for summary judgment for failure to

timely designate an expert witness. In granting Defendants'

motion, the court concluded that "in the absence of expert

testimony on the requisite standard of care, causation, securities,

and damages, Plaintiffs will be unable to prove their claims at

trial.”

¶20 Under Utah law, it is true that where "the average person

has little understanding of the duties owed by particular trades or

professions, expert testimony must ordinarily be presented to

establish the standard of care.” Wycalis v. Guardian Title, 780 P.2d

821, 826 n.8 (Utah Ct. App. 1989). For example, courts have

previously required expert testimony in cases involving the

standard of care for doctors, architects, engineers, insurance

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brokers, and professional estate executors. See id. Indeed, the

Eighth Circuit Court of Appeals has deemed expert testimony

necessary under circumstances comparable to this case that

involved the standard of care for an investment trading advisor.

See S & A Farms, Inc. v. Farms.com, Inc., 678 F.3d 949, 954–55 (8th

Cir. 2012).

¶21 Relying on this general principle, the district court

determined that expert testimony was required on all claims in this

case because it involves "complex real estate investments that

involved multiple parties and types of properties, and various

financing arrangements spanning a period of several years.” The

court also noted that Plaintiffs invested during "one of the sharpest

declines in the real estate market in decades.” However, while we

agree that this case involves some issues that go beyond the

common knowledge and understanding of a layperson, the district

court's broad brush approach did not adequately assess the need

for an expert on each claim, or, more precisely, on each element of

Plaintiffs' claims.

¶22 Our concern is underscored by analogy to our cases

discussing the trial court's role in ensuring the reliability of expert

witnesses. We have noted that when evaluating potential experts,

trial judges perform "an important gatekeeping function, intended

to ensure that only reliable expert testimony will be presented to

the jury.” Gunn Hill Dairy Props., LLC v. Los Angeles Dep't of Water

& Power, 2012 UT App 20, ¶ 31, 269 P.3d 980. See also Utah R. Evid.

702 advisory committee note (explaining that rule 702 of the Utah

Rules of Evidence "assigns to trial judges a 'gatekeeper'

responsibility to screen out unreliable expert testimony”). And "the

trial court must become more involved, and its gatekeeping role

becomes more challenging out of necessity, as the case and expert

testimony become more complex.” Gunn Hill, 2012 UT App 20,

¶ 32. We conclude that the same general principles apply to the

district court's determination of whether expert testimony is

required on any given issue in this case. Especially in a complex,

multi-issue and multi-party case like this one, the district court

should carefully analyze the need for expert testimony on a claimWhite

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by-claim, element-by-element basis, rather than taking the blanket

approach that it did here.

¶23 For instance, Plaintiffs' claim, if true, that Defendants

breached their fiduciary duty to Plaintiffs when they lied about

having invested in the Packer REIT and having received "big

checks” from the investment is a clear example of where expert

testimony is not needed. The gravity of investment advisors

misrepresenting their participation in an investment and the

consequence of lying about, or even exaggerating, the return they

have received on their investment is certainly "within the common

knowledge and experience of the layman.” Cf. Nixdorf v. Hicken,

612 P.2d 348, 352 (Utah 1980) (holding that expert testimony is

unnecessary in medical malpractice cases "where the propriety of

the treatment received is within the common knowledge and

experience of the layman”). However, because we are not in the

best position to determine which claims require expert testimony

and which claims do not, we reverse the grant of summary

judgment and remand the case to the district court to analyze the

need for expert testimony on each of Plaintiffs' claims.

¶24 Plaintiffs’ claims focus only on the acts or omissions of

Defendants, and therefore the unjoined parties are not necessary

parties that must be joined under rule 19 of the Utah Rules of Civil

Procedure. We reverse the district court’s determination to the

contrary. Additionally, we reverse the summary judgment and

remand for the court to make particularized decisions regarding

which, if any, of Plaintiffs’ claims require expert testimony.