Court Opinion

ID: 5138448
Source: CourtListenerOpinion
Date Created: 2021-12-21 15:03:10.090332+00
Date Added: 2024-06-11T07:39:24.191215
License: Public Domain

2017 UT App 91

               THE UTAH COURT OF APPEALS

                     JACOB D. WILLIAMS,
                         Appellant,
                             v.
              CRAIG ALAN ANDERSON, QUINN ZITE,
                   AND ANDERSON ZITE LLC,
                         Appellees.

                            Opinion
                       No. 20150886-CA
                       Filed June 2, 2017

          Third District Court, Salt Lake Department
                The Honorable Robert P. Faust
                         No. 130901891

       Melinda A. Morgan and Richard F. Ensor, Attorneys
                        for Appellant
         Daniel K. Brough and Eric B. Vogeler, Attorneys
                         for Appellees

JUDGE JILL M. POHLMAN authored this Opinion, in which JUDGES
J. FREDERIC VOROS JR. and MICHELE M. CHRISTIANSEN concurred.

POHLMAN, Judge:

¶1     In this interlocutory appeal, plaintiff Jacob D. Williams
appeals the district court’s grant of a motion in limine
preventing him from presenting damages-related evidence at
trial. Challenging the basis for the court’s ruling, Williams
contends that he adequately disclosed “a computation of any
damages claimed” for purposes of rule 26 of the Utah Rules of
Civil Procedure when he disclosed that he sought damages
amounting to 30% of the purchase price of the company that he
once co-owned with Craig Alan Anderson and Quinn Zite. We
agree and therefore reverse and remand.
                      Williams v. Anderson

                        BACKGROUND

¶2     Williams filed a complaint against Anderson, Zite, and
Anderson Zite LLC (collectively, Defendants), alleging that he
and Anderson founded Fix A Phone LLC, a company that
repaired cell phones and consumer electronics and sold
electronic accessories.1 According to Williams, Zite subsequently
became a partner in Fix A Phone, resulting in Williams having a
30% ownership interest in the company. Williams alleged,
among other things, that Anderson and Zite unjustly cancelled
or terminated his ownership interest and thereafter sold the
company to Tricked Out Services Inc.

¶3     In his complaint, Williams sought declaratory relief and
alleged claims for breach of fiduciary duty, civil conspiracy, and
fraud. In connection with his claims, Williams sought to recover
30% of the purchase price that Tricked Out Services paid for Fix
A Phone. He also sought a ruling declaring that he was “a thirty
percent (30%) owner of any equity or ownership interest that
[Anderson and Zite] possess[] in Tricked Out Services, . . . or in
any money owed by Tricked Out Services” to Anderson or Zite,
as well as punitive and other damages. Williams did not allege
the amount of Fix A Phone’s purchase price, but he alleged that
approximately seven months before his ownership interest in Fix
A Phone was cancelled, his interest was worth between $77,000
and $119,000. He also alleged that a few months later, Fix A
Phone was valued at approximately $1.5 million. Williams

1. Williams’s complaint suggests that Anderson and Zite
renamed the company to Anderson Zite LLC. For simplicity, we
refer to the company as Fix A Phone throughout this opinion.

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                        Williams v. Anderson

identified his case as a “Tier Three Case” under Utah Rule of
Civil Procedure 26.2

¶4      In response, Defendants answered and asserted
counterclaims, seeking damages in an amount to be proven at
trial, and alleging that Fix A Phone had sold “substantially all of
[its] assets for a base purchase price of $200,000.” Defendants
also alleged, “This is a Tier 3 case for purposes of discovery.”

¶5      At the outset of discovery, Williams provided initial
disclosures in which he claimed “entitle[ment] to 30% of the
price Tricked Out Services, Inc., paid for Fix A Phone, LLC, as
well as 30% of any equity or ownership interest Defendants may
have in Tricked Out Services, Inc., including any money owed
by Tricked Out Services, Inc., and punitive damages.” Later,
Williams received the purchase agreement between Fix A Phone
and Tricked Out Services, which provides that the “aggregate
purchase price to be paid by [Tricked Out Services] to [Fix A
Phone] for the Acquired Assets and for the other covenants and
agreements of [Fix A Phone] shall be $200,000.00 (the ‘Purchase
Price’).” The agreement also states that “[i]n addition to the
Purchase Price, and as consideration for [Anderson’s and Zite’s
consulting] services . . . , [Tricked Out Services] further . . . agrees
to pay to [Anderson and Zite] 50% of [its] Net Profits . . . derived
from cell phone repair services” for two years.

¶6     Before depositions were taken, the parties exchanged
emails regarding a potential mediation of the dispute. In one
email, Defendants’ counsel explained that because Defendants

2. Under rule 26, each case falls into one of three tiers based
upon the total amount of all damages claimed in the action. Utah
R. Civ. P. 26(c)(5) & advisory committee notes. The rule sets
limits on the standard fact discovery for each tier in proportion
to the amount in controversy. Id. A case involving claims for
damages of “$300,000 or more” falls into Tier 3. Id. R. 26(c)(5).

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                      Williams v. Anderson

sold Fix A Phone for $200,000, “the most” Williams could
recover was “30% of $200,000, or $60,000,” even if he prevailed
on all claims:

      Regarding mediation, my clients’ position is that
      they sold the assets of the Fix-A-Phone business for
      $200,000, per the purchase agreement. Any further
      compensation they receive is in consideration for
      the services they are required to render per the
      contract. (In other words, if they don’t consult, they
      don’t get paid.) Therefore, the most Mr. Williams
      can recover, even if he succeeds on 100% of his
      claims, is 30% of $200,000, or $60,000. If Mr.
      Williams is willing to set that figure as a ceiling for
      the mediation, my clients would be willing to
      mediate . . . .

The parties mediated, but Williams did not agree to Defendants’
suggested ceiling.

¶7     Afterward, Williams amended his initial disclosures. He
maintained that he was entitled to 30% of Fix A Phone’s
purchase price and 30% of any equity or ownership interest that
Defendants may have in Tricked Out Services, including
punitive damages and “any money owed by Tricked Out
Services.” Williams also added that he was “entitled to 30% of
any cash or other assets that remained at Fix A Phone after the
asset sale” and to “Fix A Phone distributions from which he was
excluded.”

¶8    During a subsequent deposition, Williams testified that
former employees of Fix A Phone told him that the company
was valued at and sold for $1.5 million. He also stated that he
ultimately learned that the company had not sold for that much:

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                      Williams v. Anderson

      Q: Did you ultimately learn or come to the
      conclusion that the company had not in fact sold
      for 1.5 million?

      A: Yes.

      Q: Okay. How did you come to that conclusion?

      A: When we got the documents . . . .

      Q: Okay. Do you know how much the company
      did sell for?

      A: Two hundred, plus a percentage of the
      [company’s] profit or revenue.

      Q: If Mr. Anderson and Mr. Zite work as
      consultants; right?

      A: I would need to check it.

      Q: Okay. And your knowledge of this is just based
      on receiving the agreement in this litigation from
      Tricked Out?

      A: Right.

¶9     Later, and shortly before the scheduled trial date,
Defendants filed a motion in limine, seeking to prevent Williams
“from presenting evidence on damages.” Defendants asserted
that Williams had failed to disclose a computation of his
damages as required by rule 26(a)(1)(C) of the Utah Rules of
Civil Procedure. Defendants argued that “[a]t most, Williams
provided a formula for ascertaining his damages—apparently a
30% share of whatever profits Defendants earned or enjoyed as a
result of their ownership in and sale of Fix A Phone.”
Defendants further argued that “such a formula, without more,
cannot serve as a basis of damages.” According to Defendants,

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                       Williams v. Anderson

Williams’s failure had “left [them] without any sense of the true
proportionality of the case.” They also contended that Williams’s
failure had affected the “manner in which they conducted
discovery” and had harmed their ability to prepare for trial.

¶10 In opposition to the motion, Williams argued that his
disclosure—that his damages equaled 30% of Fix A Phone’s
purchase price—satisfied his rule 26 obligation and asserted that
Defendants had “not been prejudiced in any way.” Defendants
knew that the selling price of Fix A Phone was $200,000 and they
could “multiply 30% by $200,000.” As a result, Williams argued,
Defendants knew he claimed “$60,000 for the sale of his interest
in Fix A Phone.” Williams also conceded that because
“Defendants have testified that they received no ownership
interest in Tricked Out Services . . . and there were no assets or
cash kept in Fix A Phone, LLC after the sale,” “there are no
damages for these items” as long as Defendants’ testimony
remained consistent on this point.

¶11 At a hearing on Defendants’ motion, the parties provided
the district court with additional details regarding discovery. For
example, Williams represented that altogether, the parties took
three depositions, “[p]robably about five hours on each side,”
and exchanged “a couple sets of discovery.” Defendants
acknowledged “the notion that discovery ha[d] been minimal, at
least in writing and in depositions,” and noted that they had
retained an expert who provided a written report on a liability
issue. In addition, the parties addressed the fact that within days
of the hearing, Defendants disclosed to Williams that they had
received some funds pursuant to the purchase agreement after
discovery closed. Williams acknowledged that he probably
would not be entitled to the recently disclosed funds if they were
received for Anderson’s and Zite’s consulting hours.

¶12 The district court granted Defendants’ motion in limine.
The court concluded that a “claim of a fixed percentage for
damages does not comply with the requirement to disclose a

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                       Williams v. Anderson

calculation of . . . damages . . . under Rule 26.” The court further
concluded that “the record indicates that Williams has not in fact
agreed with Defendants that Fix-A-Phone sold for $200,000 and
has contended that the purchase price includes the 50% net
profit calculation described in Section 2.02 of the Asset Purchase
Agreement.” Accordingly, the court ordered that Williams
would be prevented from “opining on or otherwise presenting
damages-related evidence” at trial. In doing so, the court
acknowledged Defendants’ assertion that “they defended this
lawsuit as if it were a $450,000 case,” and Williams’s assertion
that Defendants always understood the extent of the damages
Williams sought because they knew the purchase price for Fix A
Phone. Williams filed a petition for interlocutory review, which
we granted.

             ISSUE AND STANDARD OF REVIEW

¶13 Williams contends the district court erred in determining
that he did not disclose “a computation of any damages
claimed” for purposes of rule 26 of the Utah Rules of Civil
Procedure and erred in preventing him from presenting
damages-related evidence at trial. While we afford trial courts
broad discretion in discovery matters, Dahl v. Dahl, 2015 UT 79,
¶ 63, we review the interpretation of the Utah Rules of Civil
Procedure for correctness, Pete v. Youngblood, 2006 UT App 303,
¶ 7, 141 P.3d 629. We will not find an abuse of discretion “absent
an erroneous conclusion of law or where there is no evidentiary
basis for the trial court’s ruling.” Askew v. Hardman, 918 P.2d 469,
472 (Utah 1996).

                            ANALYSIS

¶14 Williams contends that his disclosures complied with
Utah Rule of Civil Procedure 26 because his “disclosures plainly
articulated the nature of his damage (being excluded from the

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                       Williams v. Anderson

[company’s] sale) as well as the extent of his damage (thirty-
percent of the Fix A Phone sale price).” But according to
Defendants, Williams did not provide a computation of his
claimed damages because, even though he “provided an
algebraic formulation . . . that he was entitled to ‘30% of x,’”
Williams “staunchly refused to ever define x,” leaving
Defendants in the dark about what damages Williams sought.
Williams responds that the variable x—“[t]he price Tricked Out
[Services] paid for Fix A Phone”—was “undisputed and well-
known to Defendants,” and that “there is no undisclosed
‘witness, document, or material’ as Defendants were in
possession of the actual price paid for Fix-A-Phone’s assets at all
times.”

¶15 Rule 26 governs the disclosures to be made during the
course of discovery. Subsection (a) requires a party, “without
waiting for a discovery request,” to serve initial disclosures on
the other parties. Utah R. Civ. P. 26(a)(1).3 A party’s initial
disclosures must contain, among other things, “a computation of
any damages claimed and a copy of all discoverable documents
or evidentiary material on which such computation is based,
including materials about the nature and extent of injuries
suffered.” Id. R. 26(a)(1)(C). To comply with this requirement,
“[p]arties should make a good faith attempt to compute
damages to the extent it is possible to do so and must in any
event provide all discoverable information on the subject,
including materials related to the nature and extent of the
damages.” Id. R. 26 advisory committee notes. Rule 26 requires
disclosures and responses to discovery to be “based on the
information then known or reasonably available to the party.”
Id. R. 26(d)(1). Parties also have a continuing obligation to
supplement disclosures with “additional or correct information”

3. The Utah Rules of Civil Procedure have been amended since
this case was filed in March 2013. Because these alterations do
not affect our analysis, we cite the rules in their current form.

20150886-CA                     8                2017 UT App 91
                       Williams v. Anderson

if they “learn[] that a disclosure or response is incomplete or
incorrect in some important way” and “if [the additional or
correct information] has not been made known to the other
parties.” Id. R. 26(d)(5).

¶16 Rule 26 explains the consequences of a failure to disclose.
“If a party fails to disclose or to supplement timely a disclosure
or response to discovery, that party may not use the undisclosed
witness, document or material at any hearing or trial unless the
failure is harmless or the party shows good cause for the
failure.” Id. R. 26(d)(4). “Not being able to use evidence that a
party fails properly to disclose provides a powerful incentive to
make complete disclosures.” Id. R. 26 advisory committee notes.

¶17 In this case, the parties dispute whether Williams’s
disclosure—that he was entitled to 30% of the price Tricked Out
Services paid for Fix A Phone—met the requirement for a
“computation of any damages claimed.”4 In Williams’s view,
rule 26 contemplates the disclosure of “the ‘act or process’ or the
‘calculation’ or the ‘system or reckoning’ by which the damages
claimed were identified.” Defendants, in contrast, assert that “a
plaintiff must disclose a computation, which, by definition, is a
definite, concrete number.”

¶18 This court has recently explained that “[e]ven if a plaintiff
cannot complete its computation of damages before future
events take place, ‘the fact of damages . . . and the method for
calculating the amount of damages’ must be apparent in initial
disclosures.” Sleepy Holdings LLC v. Mountain West Title, 2016 UT

4. Notably, on appeal, Williams limits his argument to his claim
to 30% of Fix A Phone’s purchase price. He does not contend
that he should be allowed to pursue a portion of any proceeds
related to revenue sharing payments under the purchase
agreement, nor does he seek a portion of any cash or other assets
that he once believed remained with Fix A Phone after the sale.

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                        Williams v. Anderson

App 62, ¶ 14, 370 P.3d 963 (omission in original) (quoting
Stevens-Henager College v. Eagle Gate College, 2011 UT App 37,
¶ 22, 248 P.3d 1025). To illustrate, in Sleepy Holdings, the plaintiff
relied on its initial disclosure that its damages stemmed from a
failed $2 million real estate sale as described in the complaint. Id.
¶¶ 3, 15. This court explained that because the complaint “[did]
not identify the failed sale as damages,” and because the
“contract price represents only one element of the damages
calculation” in a failed property sale, the plaintiff’s description of
the $2 million sale did not “offer a computation or method of
calculating the damages as required by law.” Id. ¶¶ 16–17. Thus,
the plaintiff “failed to satisfy the requirements of rule 26.” Id.
¶ 17.5

¶19 Here, we must likewise determine whether Williams
adequately disclosed the fact of damages and the method for
calculating those damages. After alleging in his complaint that
Defendants sold Fix A Phone after they invalidated his 30%
ownership interest in the company, Williams’s initial disclosures
articulated that he claimed “entitle[ment] to 30% of the price
Tricked Out Services, Inc., paid for Fix A Phone.” In contrast to
the disclosure of a contractual sale price in Sleepy Holdings,
untethered to any specific claim of damages, a damages theory,
or method of calculation, Williams’s disclosure described the
precise components he intended to factor into his damages
claim. The description disclosed both the fact of damages and
the method by which those damages would be calculated. And
while Williams did not know the purchase price was $200,000
when he served his initial disclosures, Defendants knew how
much Fix A Phone had sold for and could readily calculate this
component of Williams’s damages as 30% of $200,000, or
$60,000. Thus, Williams’s disclosure explaining the process for

5. Although Sleepy Holdings applies an earlier version of the
discovery rules, the relevant disclosure requirement has not
changed.

20150886-CA                      10                2017 UT App 91
                       Williams v. Anderson

calculating his claimed portion of Fix A Phone’s purchase price
satisfied his obligation under rule 26(a)(1)(C) to produce a
“computation of any damages claimed”—at least with regard to
that component of his damages claim.

¶20 The district court arrived at the opposite conclusion in
large part because Williams’s disclosures and complaint
referenced claims to damages in addition to 30% of the $200,000
sale price. Its decision turned on its understanding that Williams
did not agree with Defendants that Fix A Phone sold for
$200,000. According to the district court, Williams “contended
that the purchase price includes the 50% net profit calculation
described in section 2.02 of the Asset Purchase Agreement.” In
support, the court cited Williams’s amended disclosures and his
deposition testimony. Williams’s amended disclosure stated:

       Williams is entitled to 30% of the price Tricked Out
       Services, Inc., paid for Fix A Phone, LLC, as well as
       30% of any equity or ownership interest
       Defendants may have in Tricked Out Services, Inc.,
       including any money owed by Tricked Out
       Services, Inc., and punitive damages. [Williams] is
       also entitled to 30% of any cash or other assets that
       remained at Fix A Phone after the asset sale.
       [Williams] is also entitled to Fix A Phone
       distributions from which he was excluded.

During Williams’s deposition, he testified that he learned after
receiving the purchase agreement during discovery that the
company sold for “[t]wo hundred [thousand], plus a percentage
of the [company’s] profit or revenue.” (Emphasis added.)

¶21 Defendants endorse the district court’s reasoning. But
Williams’s references to other funds was a claim to damages in
addition to his claim to 30% of the price paid for Fix A Phone. In
both versions of his initial disclosures, Williams stated his belief
that he was entitled to 30% of the price Tricked Out Services

20150886-CA                     11                2017 UT App 91
                       Williams v. Anderson

paid for Fix A Phone, as well as other assets, distributions, or
ownership interests. However vague the claims to other funds
may have been, Williams’s disclosure of his claim to 30% of Fix
A Phone’s purchase price was consistent and straightforward.
Even during his deposition, Williams conceded that Fix A Phone
had sold for $200,000. While Williams asserted that he might also
be entitled to some share of the company’s profit or revenue,
Defendants’ follow-up questions demonstrated that they
understood Williams was referring to section 2.02 of the
purchase agreement, which states: “In addition to the Purchase
Price, and as consideration for [Anderson’s and Zite’s
consulting] services to be rendered pursuant to Section 2.02(c)
below, [Tricked Out Services] further . . . agrees to pay to
[Anderson and Zite] 50% of [its] Net Profits . . . derived from cell
phone repair services” for two years.6 The fact that Williams, at
one time, believed he may have been entitled to some share of
that additional consideration does not undermine the fact that he
consistently disclosed his claim to 30% of a fixed purchase price.

¶22 Williams’s description of his “entitle[ment] to 30% of the
price Tricked Out Services, Inc., paid for Fix A Phone” thus gave
adequate notice to Defendants of that portion of his damages
claim and the method for calculating those damages. Under
these circumstances, the district court erred in determining that
Williams’s “claim of a fixed percentage for damages [did] not
comply” with rule 26’s requirement to disclose a computation of
damages claimed.

6. Although Defendants apparently received some funds
pursuant to this section of the purchase agreement, Williams
admitted that he would not be entitled to the belatedly disclosed
funds if they were “truly” paid for Anderson’s and Zite’s
consulting hours. Moreover, Williams does not pursue an
argument on appeal that he is entitled to those funds. See supra
¶ 17 n.4.

20150886-CA                     12                2017 UT App 91
                       Williams v. Anderson

¶23 Defendants nevertheless rely on federal cases in support
of their claim that “formulas in lieu of concrete computations”
do not meet a party’s duty to disclose damages. Defendants’
reliance on these cases is misplaced.

¶24 First, Defendants direct us to Design Strategy, Inc. v. Davis,
469 F.3d 284 (2d Cir. 2006), in which the United States Court of
Appeals for the Second Circuit affirmed a district court’s
determination that the plaintiff had failed to comply with its
obligation to disclose its damages for lost profits under rule 26(a)
of the Federal Rules of Civil Procedure. Id. at 295–96. Defendants
cite the Design Strategy court’s statement that the plaintiff’s
“‘simple arithmetic’ calculation [was] wholly inadequate as a
measure of damages.” Id. at 295. But the context of this statement
matters.

¶25 The court first concluded that the plaintiff failed to
disclose a claim for damages related to lost profits because
“nowhere did [the plaintiff] ever disclose ‘lost profits’ as even a
‘category’ of ‘damages’ sought” in its initial disclosures. Id. The
court then rejected the plaintiff’s contention that its disclosure of
its financial statements was sufficient, explaining, “Rule 26(a)
requires more than providing—without any explanation—
undifferentiated financial statements; it requires a ‘computation,’
supported by documents.” Id. Further, the plaintiff’s assertion
that the defendants could calculate lost profits using “simple
arithmetic” by using the plaintiff’s financial statements was
“wholly inadequate as a measure of damages” because the facts
did not lend themselves to a simple calculation. See id. Thus,
Design Strategy is distinguishable both because the plaintiff there
failed to disclose the category of damages sought and because
the plaintiff’s damages were not readily calculable from the
information disclosed. See id. The decision in Design Strategy
does not support a blanket rule that “formulas in lieu of concrete
computations” are always insufficient to meet a party’s
disclosure requirements.

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                        Williams v. Anderson

¶26 Defendants also cite City & County of San Francisco v.
Tutor-Saliba Corp., 218 F.R.D. 219 (N.D. Cal. 2003). Defendants
quote the language of that case stating that “the ‘computation’ of
damages required by [Federal Rule of Civil Procedure 26]
contemplates some analysis.” Id. at 221. The court further
explained,

       [F]or instance, in a claim for lost wages, there
       should be some information relating to hours
       worked and pay rate. On the other hand, disclosing
       a precise figure for damages without a method of
       calculation may be sufficient in cases where other
       evidence is developed e.g. in the context of a
       preliminary hearing, and it is appropriate to defer
       further specification to e.g. development of expert
       testimony.

Id. (citations omitted). The court’s discussion suggests that the
adequacy of an initial disclosure depends on the circumstances
of the case and the nature of the damages claimed. See id. As a
result, Tutor-Saliba does not support the notion that formulas
disclosed as a computation of damages are insufficient per se.
Rather, a disclosure satisfies rule 26 if it provides sufficient detail
to inform a defendant about the fact and amount of the
plaintiff’s damages. Here, Defendants were aware that Williams
claimed 30% of Fix A Phone’s purchase price and that the
company sold for $200,000. In addition, as Williams points out,
“there is no undisclosed ‘witness, document, or material’ as
Defendants were in possession of the actual price paid for Fix-A-
Phone’s assets at all times.” While there may have been
ambiguity about what additional damages Williams sought,
Defendants understood their potential exposure relative to that
component of Williams’s damages claim.

¶27 Defendants also rely on Brighton Collectibles, Inc. v. RK
Texas Leather Mfg., No. 10-CV-419-GPC(WVG), 2013 WL 4716210
(S.D. Cal. Sept. 3, 2013). There, the plaintiff disclosed its damage

20150886-CA                      14                 2017 UT App 91
                       Williams v. Anderson

theory and the evidence underlying the damages calculation but
failed to disclose the “computation” of damages sought. Id. at
*2–3. The district court found the disclosure was insufficient
because the plaintiff “did not [timely] present the method or
formula for calculating actual damages.” Id. at *3. Given that the
court’s decision in that case turned on the plaintiff’s failure to
disclose a “method or formula for calculating actual damages,”
which Williams provided in this case, Brighton Collectibles is not
supportive of Defendants’ position. See id.

¶28 Finally, Defendants argue that the district court’s
exclusion of Williams’s damages evidence was proper because
Williams’s failure to disclose lacked good cause and was not
harmless. See Utah R. Civ. P. 26(d)(4) (providing that a party
may not use an “undisclosed witness, document or material . . .
unless the failure is harmless or the party shows good cause for
the failure”). In so arguing, Defendants emphasize that they
would have handled the case differently if Williams had
expressly quantified his damages as $60,000. Because we
conclude that Williams’s disclosures in connection with his claim
to a share of Fix A Phone’s purchase price did not constitute a
failure to disclose, we need not reach the question of good cause
or harmlessness.

                         CONCLUSION

¶29 The district court erred in concluding that Williams’s
disclosure that he was entitled to 30% of the company’s purchase
price failed to satisfy his duty to disclose under rule 26(a)(1)(C)
of the Utah Rules of Civil Procedure. We therefore reverse the
district court’s grant of Defendants’ motion in limine to the
extent it relates to a claim for 30% of the Fix A Phone $200,000
purchase price. We remand this case for further proceedings
consistent with this decision.

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