Opinion ID: 2525539
Heading Depth: 2
Heading Rank: 1

Heading: dei has a valid basis for asserting a claim of setoff

Text: ¶ 11 Bichler argues that DEI has no valid basis for asserting a right of setoff in the unlawful detainer action because neither the Lease nor the Purchase Agreement gives DEI a contractual right to offset payments of rent against losses allegedly caused by Bichler. DEI argues that even assuming it does not have a contractual right of setoff, it may still assert a counterclaim of setoff as a matter of law because the doctrine of setoff arises in equity. We first determine whether DEI has a contractual right of setoff. Finding that DEI does not have such a right, we then address whether it nonetheless has a basis to assert an equitable right of setoff.
¶ 12 DEI argues that both the Lease Agreement and the Purchase Agreement provide it with a contractual right of setoff. We use the principles of contract interpretation to interpret the terms of the Lease and the Purchase Agreement. The underlying purpose in construing or interpreting contractual provisions is to determine the intentions of the parties. IHC Health Servs. v. D & K Mgmt., 2008 UT 73, ¶ 44, 196 P.3d 588 (internal quotation marks omitted). Absent ambiguity, we look only to the language of the contract to determine its meaning and the intent of the contracting parties. Café Rio, Inc. v. Larkin-Gifford-Overton, LLC, 2009 UT 27, ¶ 25, 207 P.3d 1235. ¶ 13 DEI argues that paragraph 25 of the Lease provides it with a contractual right to offset rents. We disagree. The Lease clearly identifies Bichler as Lessor and DEI as Lessee of the property. In relevant part, paragraph 25 of the Lease, entitled Estoppel Certificate, provides that Lessee shall, within fifteen (15) days after Lessor's request, execute and deliver to Lessor a written declaration in a form adequate for recording ... certifying that there are no defenses or offsets against the enforcement of this lease by the Lessor, or stating those claimed by Lessee. Contrary to DEI's assertion, paragraph 25 does not provide it with a contractual right of setoff. Rather, it merely provides a process whereby Bichler may require DEI to certify to a third party, through an estoppel certificate, that the Lease is valid and that DEI does not intend to assert any legal defense or offset to enforce the Lease. At most, the language of the Lease recognizes that DEI may have an equitable right to setoff apart from the provisions of the Lease. ¶ 14 DEI also argues that it has a contractual right of setoff under the terms of the Purchase Agreement. The Purchase Agreement entitles the Purchaser to set-off against any payments due and owing to the Shareholders ... any and all amounts that may become due and payable from time to time to Purchaser by the Shareholders pursuant to the terms of this Agreement.... The Purchase Agreement defines ESG as the Purchaser and Bichler and Bevans as the Shareholders. DEI, Bichler, and Bevans are also identified collectively as the Sellers. Nowhere does the Purchase Agreement define DEI as a Purchaser. Thus, based on the plain language of the Purchase Agreement, DEI does not have a contractual right to setoff arising from amounts due to its breach. That right belongs solely to ESG as the Purchaser. Because we find that DEI has no contractual right to setoff under the lease or the Purchase Agreement, we next must address whether DEI has an equitable right of setoff.
¶ 15 DEI argues that even if its claim of setoff is not based in contract, it nonetheless has an equitable right of setoff. We agree. The doctrine of setoff ... is essentially an equitable one requiring that the demands of mutually indebted parties be set off against each other and that only the balance be recovered in a judicial proceeding by one party against another. 20 Am.Jur.2d Counterclaim, Recoupment, and Setoff § 6 (2008) (internal citations omitted). The right to set-off exists independently of statute and rests upon the inherent power of a court to do justice to the parties before it. It is an equitable right founded on equitable principles. 80 C.J.S. Set-off and Counterclaim § 5 (2000). ¶ 16 With the adoption of the Utah Rules of Civil Procedure in 1950, the distinctions between recoupment, setoff, and counterclaim were dissolved in Utah. Mark VII Fin. Consultants Corp. v. Smedley, 792 P.2d 130, 133 (Utah Ct.App.1990). Indeed, [a] `setoff' is [merely] a counterclaim which a defendant may have against a plaintiff to be used in full or partial satisfaction of whatever is owed. Id. at 132 (citing Studley v. Boylston Nat'l Bank, 229 U.S. 523, 528, 33 S.Ct. 806, 57 L.Ed. 1313 (1913)). Therefore, to determine whether DEI has a basis for asserting an equitable right of setoff, we need only determine whether DEI has a cognizable counterclaim against Bichler that, if successful, would entitle DEI to a monetary recovery. ¶ 17 DEI contends that it has valid counterclaims against Bichler for alleged breaches of the Purchase Agreement, the Employment Agreement, and fiduciary duties owed as a director of DEI. We address each of these claims in turn. ¶ 18 DEI asserts that ESG and DEI are in essence the same party in interest under the Purchase Agreement and, therefore, a violation of the Purchase Agreement by Bichler can be recovered by either DEI or ESG. We disagree. Under the plain terms of the Purchase Agreement, DEI and ESG are not the same party in interest. The Purchase Agreement identifies ESG as Purchaser, and Bichler and DEI collectively as Sellers. Bichler is also identified as a Shareholder. In general, the duties and obligations in the Purchase Agreement flow between the purchaser on the one hand and the shareholders and sellers on the other. While the terms of the Purchase Agreement might conceivably contain provisions that create mutual obligations between DEI as a seller and Bichler as a shareholder, DEI has not brought to our attention any such provisions. Therefore, we find that DEI has failed to demonstrate that it has a cognizable counterclaim based on a breach of the Purchase Agreement. ¶ 19 Additionally, DEI argues that is has a valid counterclaim against Bichler for allegedly violating the Employment Agreement and breaching fiduciary duties as a director of DEI. The Employment Agreement involves two parties: Bichler and DEI. Pursuant to the Employment Agreement, Bichler owed DEI specific obligations and duties. A violation of these duties would entitle DEI to sue Bichler and conceivably recover monetary damages. Therefore, DEI has a cognizable counterclaim against Bichler for an alleged breach of the Employment Agreement. Similarly, as a director of DEI, Bichler owed certain duties to DEI, and DEI has a right to sue Bichler individually for breach of any of those duties. Accordingly, DEI also has a cognizable counterclaim against Bichler for the alleged breach of fiduciary duties. We therefore conclude that DEI has a valid basis for asserting an equitable right of setoff with regard to its claims that Bichler violated the Employment Agreement and breached fiduciary duties as a director of DEI. ¶ 20 Having determined that DEI has a valid basis for asserting an equitable right of setoff, we now determine whether these claims are properly raised as counterclaims within an action for unlawful detainer.