Opinion ID: 1119928
Heading Depth: 1
Heading Rank: 3

Heading: breach of contract, statutory entitlement, and promissory estoppel claims

Text: In the order dismissing plaintiffs' complaint, the court found that (1) defendants are immune from suit under the Utah Governmental Immunity Act, Utah Code Ann. § 63-30-10(1)(a), (c), (d), and (f); (2) defendants owe no duty of care toward plaintiffs upon which to base tort liability; (3) based upon the allegations set forth in the amended complaint, defendants are not the alter ego of the ILGC; and (4) defendants are immune from suit under section 7-8a-20(3) of the ILGC Act. We affirm the trial court's conclusions, although on different grounds than those articulated by that court. The threshold issue we must address is whether plaintiffs have stated a claim upon which relief can be granted. The only contract claim alleged in the amended complaint asserts, Plaintiff Foothill Federated thus entered into a contract with the ILGC to pay statutorily required assessments in exchange for the ILGC's agreement to guarantee Foothill Financial's deposits at statutorily mandated levels. (Emphasis added.) Thus, the only contract plaintiffs allege is a bilateral contract between Foothill Federated and the ILGC. Plaintiffs did not bargain for a promise from the ILGC to guarantee deposits, however, nor did they pay the assessments in exchange for an act by the ILGC. Neither party's act induced the other's action. On the contrary, plaintiffs concede that each party's act was undertaken pursuant to statute, based upon an existing legal obligation. It is well recognized that the performance of a duty imposed by law is insufficient consideration to support a contract. See, e.g., Hale v. Brewster, 81 N.M. 342, 467 P.2d 8, 11 (1970) (court-appointed attorney had duty to accept payment from court for representation as sole compensation; if client's note was given to attorney as fee for services, attorney was already bound to perform and client had a valid defense to action by attorney on the note); Gragg v. James, 452 P.2d 579, 587 (Okla. 1969) (oral modification to contract relieving defendant of responsibility must be supported by additional consideration to be enforceable); Walden v. Backus, 81 Nev. 634, 408 P.2d 712, 714 (1965) (buyer's relinquishment of premises insufficient to support accord where buyer was already bound under sale agreement to return premises); Restatement (Second) of Contracts § 73 (1981). Therefore, we conclude that statutorily mandated assessment payments do not constitute consideration sufficient to support a contract. Plaintiffs' breach of contract claim fails as a matter of law. Plaintiffs' statutory entitlement claim, which is also based on the alter ego theory, likewise fails. The statutory entitlement claim is based on Utah Code Ann. § 7-8a-8, which provides the amount of the guaranty of depositors' funds. That statute, however, cannot be read separately from section 7-8a-13(1), which requires a ratable reduction of depositors' recoveries by whatever deficiency there may be in the funds available to the guaranty corporation. Because the legislature established the liability of the ILGC under section 7-8a-8 and then limited its liability under section 7-8a-13(1), plaintiffs cannot consistently assert a claim of statutory entitlement against the State based upon one statute while ignoring the other. Whether under the contract theory or the statutory entitlement theory, plaintiffs cannot recover more against the State as the alter ego of the ILGC than they could by suing the ILGC directly. By itself, the statutory limitation of liability in section 7-8a-13(1) does not result in a dismissal of plaintiffs' claims. There may be factual issues regarding the total funds available for the ILGC to distribute. The appropriate place to resolve those issues, however, is in the separate proceeding liquidating the ILGC. Nonetheless, even if the statutory limitation of liability is not a reason for dismissal, plaintiffs' claims were properly dismissed. Even if a statutory entitlement claim exists against the State, an alter ego theory cannot be a basis for that claim. Section 7-8a-8, guaranteeing depositors' funds, was enacted by the legislature. A claim based on that statute should be made directly against the State. Although the ILGC may be a party to the action because of its status as an entity created by statute for the purpose of guaranteeing deposits, there is no reason to use the ILGC as a means of asserting an alter ego claim against the State. Because there is no valid contract claim and the statutory entitlement claim cannot rest on the alter ego theory, it is unnecessary to determine whether the State can be held liable as the alter ego of a publicly created corporation. Plaintiffs' third claim for relief is based upon promissory estoppel. Plaintiffs seek to estop the State from denying representations and promises that led plaintiffs to believe that the obligations of the ILGC were guaranteed by the State. This court may uphold the trial court's dismissal of this cause of action if the complaint fails to allege the elements of a promissory estoppel claim or if, as a matter of law, estoppel may not be asserted against the State in this instance. The elements of promissory estoppel are (1) a promise the promisor reasonably expects will induce reliance; (2) reasonable reliance inducing action or forebearance by the promisee or a third person; and (3) detriment to the promisee or a third person. See Topik v. Thurber, 739 P.2d 1101, 1103 (Utah 1987); Sugarhouse Fin. Co. v. Anderson, 610 P.2d 1369, 1373 (Utah 1980). The amended complaint alleges that (1) Weis and the DFI represented that the State backed up the guarantees, (2) these representations induced plaintiffs to acquire Foothill Financial, and (3) plaintiffs lost approximately $9 million as a result. That pleading sufficiently sets out the elements of promissory estoppel. We therefore turn to the issue of whether, as a matter of law, plaintiffs are precluded from asserting an estoppel claim against the State. Utah recognizes the general rule precluding a party from asserting estoppel against the government. Utah State University v. Sutro & Co., 646 P.2d 715, 718 (Utah 1982). This rule safeguards the interests of the public which may be jeopardized by the vagaries of political tides, frequent changes of public officials, the possibility of collusion, or of circumventing procedures set up by law, then suing for the value of goods furnished or services rendered. Id. Nonetheless, we recognize an exception to this general rule in unusual circumstances when it is plainly apparent that its application would result in injustice, and there would be no substantial adverse effect on public policy... . Id. The critical inquiry is whether it appears that the facts may be found with such certainty, and the injustice to be suffered is of sufficient gravity, to invoke the exception. Id. at 720. In Sutro, we allowed an estoppel claim against a government entity, but stated: In addressing the question whether under any state of facts that may be found in this case the defense of estoppel may be applied, there are some observations to be made. The first is that there is a distinction to be drawn between contracts or activities which are either malum in se, or which are strictly prohibited by statute, and thus may be strongly against public policy, as compared to activities ... which, though not authorized by law, are not inherently evil. In the former class of cases, it is quite universally held that no estoppel will lie against the government, whereas in activities which are merely ultra vires the courts are more likely to allow such a defense... . Id. at 719 (emphasis added). In this case, the individual plaintiffs acquired Foothill Financial in a sophisticated multi-million dollar purchase. They are chargeable with notice of the statutes governing the ILGC, particularly section 7-8a-13(1), set out above, limiting the liability of the ILGC to its available funds, and section 7-8a-20(2), which provides: All advertising by any person with regard to its membership in the guaranty corporation shall include the following statement: Thrift certificates of deposit and thrift savings accounts protected up to a maximum of $15,000 by the Industrial Loan Guaranty Corporation of Utah, a private corporation which is not an instrumentality of the state of Utah or the Federal Government. (Emphasis added.) Any statements made by Weis or the DFI that the deposits would be unconditionally insured up to $15,000 are in direct contravention of these statutory limitations. Thus, plaintiffs do not allege a claim that comes within the Sutro exception to the rule that promissory estoppel may not be applied against the government. This claim fails as a result. Plaintiffs do not allege any tortious conduct such as misrepresentation or negligence by Weis or the DFI. They do not complain of any failure to warn Foothill Federated of the imperiled financial condition of the ILGC or that the DFI failed to discover or to be aware of the ILGC's condition. Rather, plaintiffs rely solely on an alleged contract with the State and/or on the assertion that the State is estopped from denying the existence of a contract. These claims are without merit, and we therefore affirm the trial court's dismissal of the complaint. HALL, C.J., HOWE, Associate C.J., and STEWART and ZIMMERMAN, JJ., concur.