This opinion is subject to revision before final

publication in the Pacific Reporter

2015 UT 59

IN THE

SUPREME COURT OF THE STATE OF UTAH

YUANZONG FU, AKA FRANK FU,

Respondent,

v.

CLYDE RHODES, JOSEPH NASO, AND RENE NASO EVANS,

Petitioners.

No. 20130622

Filed July 23, 2015

On Certiorari to the Utah Court of Appeals

Third District, Salt Lake

The Honorable Judith S. H. Atherton

No. 080916174

Attorneys:

Randy B. Birch, Heber City, for petitioner

David J. Hodgson, Salt Lake City, for respondent

JUSTICE DURHAM authored the opinion of the Court, in which

CHIEF JUSTICE DURRANT, ASSOCIATE CHIEF JUSTICE LEE,

JUSTICE PARRISH, and JUDGE HANSEN joined.

Due to his retirement, JUSTICE NEHRING did not participate herein; 

DISTRICT JUDGE ROYAL I. HANSEN sat.

JUSTICE DENO G. HIMONAS became a member of the Court on 

February 13, 2015, after oral argument on this matter and, 

accordingly, did not participate.

JUSTICE DURHAM, opinion of the Court:

INTRODUCTION

¶1 When the real estate bubble burst in 2008, the petitioners—a 

group of real estate investors—defaulted on a series of loans from 

respondent Yuanzong Fu. Fu sued. After more than a year of pretrial 

litigation, the district court entered default judgment against the 

petitioners because of their repeated failure to meet discovery 
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deadlines. This judgment was affirmed by the court of appeals, 

which decided unanimously that the district court had not abused its 

discretion by entering a default. Fu v. Rhodes, 2013 UT App 120, 

¶¶ 10–11, 304 P.3d 80.

¶2 But the court of appeals was divided by a second issue, 

namely, whether the petitioners could argue for the first time on 

appeal that Fu’s complaint was legally insufficient. Two judges 

concluded that they could not because challenges to the legal 

sufficiency of a complaint must ordinarily be preserved, and court of 

appeals precedent did not allow an exception for cases of default 

judgment. Id. ¶¶ 12–19 (citing State v. Sixteen Thousand Dollars United 

States Currency, 914 P.2d 1176 (Utah Ct. App. 1996)). One judge 

disagreed, arguing that our precedent required such an exception. Id.

¶¶ 23–30 (McHugh, J., concurring in part and dissenting in part) 

(citing Skanchy v. Calcados Ortope SA, 952 P.2d 1071, 1076 (Utah 1998)

(“On appeal from a default judgment, a defendant may contest the 

sufficiency of the complaint and its allegations to support the 

judgment.” (internal quotation marks omitted))).

¶3 We granted certiorari, and we affirm the court of appeals on 

both issues.

BACKGROUND

¶4 In 2006 and 2007, Yuanzong Fu lent the petitioners over 

$170,000 to be used in their various real estate investment 

businesses. In August 2008, Mr. Fu filed a complaint against the 

petitioners alleging that they had failed to make required payments. 

His prayer for relief rested on claims of breach of contract, 

foreclosure, fraudulent transfer, fraud, and negligent

misrepresentation.

¶5 The petitioners filed their answer, and the parties proceeded 

to discovery. The petitioners missed their first discovery deadline in 

March 2009, and Mr. Fu agreed to a two-week extension. After the 

petitioners missed their second deadline, the district court granted 

Mr. Fu’s motion to compel discovery in May 2009. The order warned 

the petitioners that if they failed to produce all requested documents 

within ten days, their answer would be stricken and Fu would be 

entitled to judgment as prayed for in the complaint.

¶6 More than eight months later, in January 2010, the district 

court asked the parties why the lawsuit should not be dismissed for 

failure to prosecute, as nothing had been filed with the court in the 

entire intervening time. Mr. Fu answered that the respondents had 

still not complied with the court’s May 2009 discovery order. The 

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court set one last deadline for petitioners to produce all requested 

materials or have their answer stricken: May 31, 2010.

¶7 On June 2, Mr. Fu moved the court to enter default judgment 

against the petitioners as a discovery sanction under rule 37 of the 

Utah Rules of Civil Procedure. Fourteen months after the original 

discovery deadline, Mr. Fu claimed he had still not received a 

number of requested financial records, including the “books and 

records” of the petitioners’ investment company, proof of the 

payments that the petitioners claimed they had made on the loans, 

and the petitioners’ tax returns. He alleged further that the 

petitioners’ failure to produce these documents had prevented him 

from deposing a necessary witness. He accused the petitioners of 

bad faith and dilatory tactics, citing their long and persistent history 

of missing discovery deadlines.

¶8 The petitioners told a different story. They claimed that most 

of the requested records had been provided, including their bank 

statements, all their email correspondence with Mr. Fu, and all their 

files on the specific investment properties that were relevant to the 

case. Other records, including their tax returns, could not be 

provided because they did not exist. In response to Mr. Fu’s 

allegations of bad faith, they claimed that Fu himself had caused 

much of the delay by not requesting to see the records when the 

petitioners made them available. And to the extent the delay was the 

petitioners’ fault, they made excuses: they weren’t entirely sure what 

documents Mr. Fu was asking for, one of the petitioners traveled 

extensively for work, and another was unemployed and moving 

from house to house as his properties were foreclosed from under 

him. The petitioners’ counsel pointed out that he was representing 

them for free because they’d lost so much money and because he’d 

been friends with petitioner Rhodes since middle school.

¶9 Nevertheless, the petitioners acknowledged that they had 

not strictly complied with the discovery requests—not even by 

August 2010, nearly three months after the final discovery deadline, 

when the court held its first hearing on Mr. Fu’s motion. After the 

court granted the motion, the petitioners objected to the entry of 

default judgment, and the court held a second and final hearing in 

December 2010. The petitioners acknowledged again that their 

production of discovery materials had not “technically” complied 

with the court’s orders, and the court granted Mr. Fu the relief 

prayed for in his complaint.

¶10 On appeal the petitioners argued, as they had below, that 

their discovery failures did not merit the extreme sanction of default. 

Fu v. Rhodes, 2013 UT App 120, ¶ 10, 304 P.3d 80. They also argued, 

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as they had not below, that default judgment could not be entered on 

some claims because Mr. Fu’s complaint had not alleged sufficient 

facts to support relief. Id. ¶ 9. Specifically, respondents argued that 

Fu’s alleged facts did not allow the court to pierce the veil of their 

LLC and hold them liable in their personal capacities. Id. ¶¶ 33–42 

(McHugh, J., concurring in part and dissenting in part). They also 

argued that Mr. Fu’s alleged facts did not support his claims of 

fraud, negligent misrepresentation, foreclosure, and fraudulent 

transfer. Id. ¶¶ 43–53.

¶11 The court of appeals rejected the first argument, concluding 

that the default judgment had not been an abuse of discretion, and 

refused to consider the second set of arguments because they had 

not been preserved. We now review the court of appeals’ decision on 

certiorari.

STANDARD OF REVIEW

¶12 “On certiorari, we review for correctness the decision of the 

court of appeals . . . . The correctness of the court of appeals’ decision 

turns, in part, on whether it accurately reviewed the [district] court’s 

decision under the appropriate standard of review.” State v. Levin, 

2006 UT 50, ¶ 15, 144 P.3d 1096. In other words, in order to 

determine whether the court of appeals erred in finding that the 

district court did not abuse its discretion, we must ourselves review 

the district court’s decision for an abuse of discretion. See Kilpatrick v. 

Bullough Abatement, Inc., 2008 UT 82, ¶ 23, 199 P.3d 957 (“[D]istrict 

courts are granted a great deal of deference in selecting discovery 

sanctions, and we overturn a sanction only in cases evidencing a 

clear abuse of discretion.”).

¶13 We must also determine whether the court of appeals erred 

in deciding it could not consider the petitioners’ legal sufficiency 

arguments because they were unpreserved. This was a decision of 

law, which we review for correctness. See Arnold v. Grigsby, 2009 UT 

88, ¶ 7, 225 P.3d 192 (“We review conclusions of law for correctness, 

granting the court of appeals’ decision no deference.”).

ANALYSIS

I. THE DISTRICT COURT DID NOT ABUSE ITS DISCRETION

¶14 When reviewing district courts’ discovery sanctions, we 

“follow[] a two-step process.” Kilpatrick v. Bullough Abatement, Inc., 

2008 UT 82, ¶ 23, 199 P.3d 957. The first step is to ascertain whether 

“the district court has made a factual finding that the party’s 

behavior merits sanctions.” Id. Second, if the district court has made 

the necessary factual finding, then we review its decision for an 

abuse of discretion. Id.

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A. Sanctions Were Appropriate

¶15 Here the first inquiry is not quite satisfied. The district court 

based its sanction on the petitioners’ “continued failures to comply 

with timely discovery, their failure to comply with the Court’s 

previously entered Order to Compel, and their failure to comply 

with the Case Management Orders.” It did not, as Kilpatrick required, 

make a factual finding that the petitioners’ discovery violations were 

“the result of willfulness, bad faith, fault or persistent dilatory 

tactics.” Id. ¶ 26; see also Morton v. Cont’l Baking Co., 938 P.2d 271, 276 

(Utah 1997) (“[Discovery sanctions are warranted if] (1) the party’s 

behavior was willful; (2) the party has acted in bad faith; (3) the court 

can attribute some fault to the party; or (4) the party has engaged in 

persistent dilatory tactics tending to frustrate the judicial process.”).

¶16 But “[a] failure to make factual findings regarding 

willfulness is not always grounds for reversal.” Kilpatrick, 2008 UT 

82, ¶ 29. We can still affirm sanctions if the record and the court’s 

factual findings demonstrate a basis for them, id., and we find that to 

be the case here. Although we do not believe that the petitioners’ 

repeated disregard of discovery deadlines was tactical or the product 

of bad faith, neither are we persuaded that the petitioners ever took 

the court’s deadlines as seriously as they should have. We find it 

particularly offensive that in August 2010—two months after the 

final discovery deadline, with the threat of default judgment 

imminent—the petitioners’ counsel still did not know exactly what 

records had been produced, or even what records existed. This 

seems to us to manifest an unwillingness to do the work involved in 

responding adequately to discovery, as well as a careless disregard 

for the court’s time and the plaintiff’s right to prosecute his case.

¶17 Under such circumstances, some sort of sanction was clearly 

appropriate. We must therefore determine whether the district court 

abused its discretion by choosing default judgment as the 

appropriate sanction.

B. The Court Did Not Abuse Its Discretion by Entering Default Judgment

¶18 One of the situations in which a court can appropriately 

enter default judgment is when “there has been a frustration of the 

judicial process, viz., where the failure to respond to discovery 

impedes trial on the merits and makes it impossible to ascertain 

whether the allegations of the answer have any factual merit.” W. W. 

& W. B. Gardner, Inc. v. Park W. Vill., Inc., 568 P.2d 734, 738 (Utah 

1977). This is essentially the situation Mr. Fu complained of to the 

court below: “We’ve alleged fraud [in the complaint] . . . . We believe 

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there’s absolute fraud, and we need these books and records to 

prove it. They have not provided them.”

¶19 Examining the record, we believe there was an adequate 

basis for the trial court to agree with Mr. Fu that the petitioners’ 

discovery failures had rendered further litigation pointless. To begin 

with, there is the sheer magnitude of the delay. The petitioners failed 

to comply with their discovery deadline no fewer than four times, 

twice in the face of court orders threatening default judgment. In 

May 2009, the court ordered the petitioners to finish discovery in ten 

days or have their answer stricken. Yet some requested records 

remained outstanding a full fifteen months later.

¶20 In addition to the magnitude of the delay, we are also struck 

by the petitioners’ apparent unreliability in explaining their 

discovery difficulties to Mr. Fu and the court. As we already noted, 

the petitioners’ counsel was still unsure about the status of important 

discovery requests more than two months after the final deadline. 

We also note that, although petitioners’ counsel has claimed that 

none of the requested tax returns existed at the time of the final 

discovery deadline on May 31, 2010, the record demonstrates that he 

himself thought they existed as late as May 5 of that year. In other 

words, sixteen months after Fu requested the petitioners’ tax returns, 

the petitioners had still not informed their lawyer that they had no 

tax returns. Under such circumstances, it is unsurprising that Mr. Fu 

claimed he had received conflicting reports from petitioners’ counsel 

about the availability of various documents, and likewise 

unsurprising that the district court apparently believed him.

¶21 It is possible, as the petitioners now argue, that lesser 

sanctions would have been sufficient to allow justice to be done in 

this case. Further, we do encourage district courts imposing 

sanctions to consider alternative sanctions carefully before entering a 

default. But the question on appeal is not whether some other 

sanction would have been more appropriate; it is whether the party 

challenging the trial court’s decision can demonstrate that default 

judgment was inappropriate. And where, as appears to be the case 

here, a party’s conduct during discovery has destroyed its credibility 

with opposing parties and with the court, we cannot conclude that 

the court’s decision to enter default judgment was an abuse of 

discretion.

II. THE PRESERVATION RULE BARS CONSIDERATION OF THE 

PETITIONERS’ LEGAL INSUFFICIENCY ARGUMENTS

¶22 Before the court of appeals, the petitioners argued for the 

first time that the factual allegations of Mr. Fu’s complaint did not 

legally support the relief that the district court had granted. Fu v. 

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Rhodes, 2013 UT App 120, ¶ 9, 304 P.3d 80. They acknowledged that 

this issue was not preserved, id., and the court of appeals declined to 

consider it, id. ¶ 19.

¶23 On certiorari, the petitioners argue that the court of appeals 

erred by not acknowledging an exception to the preservation rule for 

parties who challenge the legal sufficiency of the complaint on 

appeal from a default judgment. To support this argument, they 

appeal to the principle that a default judgment may not be entered 

on the basis of a legally insufficient complaint. Further, they point to 

our decision in Skanchy v. Calcados Ortope SA, 952 P.2d 1071 (Utah 

1998), which they claim held “that, on appeal from a default 

judgment, a defendant may, for the first time, contest the complaint’s 

sufficiency to support the judgment.” The court of appeals rejected 

this interpretation of Skanchy, concluding that the Skanchy court did 

not decide “whether a claim that a complaint was insufficient to 

support a default judgment could be raised for the first time on 

appeal, but whether it could be raised at all.” Fu, 2013 UT App 120, 

¶ 16.

¶24 We find these arguments to be somewhat beside the point. 

Skanchy concerned a default judgment entered for failure to appear, 

Skanchy, 952 P.2d at 1074, and the difference between that situation 

and this one is obvious. A defaulting party who has failed to appear 

will typically have learned of the lawsuit very recently, and will 

have had little time to assess the lawsuit’s merits before the deadline 

passes for filing a notice of appeal or a rule 60(b) motion. The same 

cannot be said of a party facing default because of discovery 

sanctions, whose situation more closely resembles that of a party that 

has lost at summary judgment or even after trial.

¶25 The petitioners’ circumstances are illustrative. They had 

already been litigating this case for over two years when the court 

granted Mr. Fu’s motion for entry of judgment. Even after the court 

granted Fu’s motion, the petitioners still had time to file objections to 

the proposed default judgment order, and they did so, leading the 

district court to hold a second hearing on the issue three months 

after it granted the motion. The petitioners had ample opportunity to 

contest the legal sufficiency of Mr. Fu’s complaint before the district 

court, and they failed to take advantage of it. We see no reason to 

protect them from the consequences of that failure.

¶26 We therefore hold that where default judgment has been 

entered as a discovery sanction, a party appealing from that 

judgment may challenge the legal sufficiency of the complaint only if 

it has preserved the issue before the district court or if one of the 

normal exceptions to the preservation rule applies. The petitioners 

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have identified no such exception here, and so we find no fault with 

the court of appeals’ decision not to consider this issue.

CONCLUSION

¶27 The district court did not abuse its discretion, and the court 

of appeals correctly determined that it should not consider the issue 

of the complaint’s legal sufficiency because that issue had not been 

preserved.

¶28 The decision of the court of appeals is affirmed.

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