Court Opinion

ID: 9901032
Source: CourtListenerOpinion
Date Created: 2023-11-20 22:11:51.771514+00
Date Added: 2024-06-11T09:21:24.583178
License: Public Domain

2023 UT App 102

               THE UTAH COURT OF APPEALS

                   PATRICIA BELNAP JOHNSON,
                           Appellee,
                               v.
            JENNIFER SCHNABEL AND EVOLUTION YOGA,
                          Appellants.

                            Opinion
                        No. 20210655-CA
                    Filed September 14, 2023

            Fourth District Court, Provo Department
               The Honorable Darold J. McDade
                         No. 200400173

            Justin D. Heideman and Justin R. Elswick,
                     Attorneys for Appellants
               David D. Jeffs, Attorney for Appellee

     JUDGE AMY J. OLIVER authored this Opinion, in which
 JUDGES MICHELE M. CHRISTIANSEN FORSTER and JOHN D. LUTHY
                         concurred.

OLIVER, Judge:

¶1     A yoga studio in Orem, Utah, became a center of
controversy after a dispute arose over the terms of its commercial
lease (Lease). Jennifer Schnabel signed the Lease—in the name of
evolution yoga 1—with Patricia Belnap Johnson in her capacity as
Trustee of the Patricia Belnap Johnson Trust. But evolution yoga
did not exist. After Schnabel filed a petition for personal
bankruptcy—a material default under the terms of the Lease—
Johnson asked the district court to declare the Lease terminated.
Schnabel counterclaimed for forcible detainer and intentional
interference with economic relations. The district court granted

1. We refer to “evolution yoga” as it appears in the Lease.
                        Johnson v. Schnabel

summary judgment to Johnson, finding that Schnabel was
personally liable as the “Tenant” and that her bankruptcy petition
was a material default, entitling Johnson to terminate the Lease.
The court denied summary judgment on Schnabel’s
counterclaims and dismissed them, awarding attorney fees and
costs to Johnson. We affirm the decisions of the district court.

                         BACKGROUND

¶2     Schnabel and Johnson signed the Lease, which designated
the use of the premises “solely for yoga and other fitness related
classes” and set forth a sixty-four-month term. Each page of the
Lease displayed a footer in the bottom right corner stating:

       LEASE AGREEMENT
       Landlord: The Patricia Belnap Johnson Trust
       Tenant: evolution yoga

¶3     Section 18.2(b) of the Lease contemplated that “[i]n the
event of any . . . material default or breach by Tenant,” the Trust
would have the right to “Terminate Tenant’s right to possession
by notice to Tenant.” Section 18.1 identified several material
defaults, including “the filing by or against Tenant of a petition to
have Tenant adjudged [] bankrupt or of a petition for
reorganization or arrangement under any law relating to
bankruptcy (unless, in the case of a petition filed against Tenant,
the same is dismissed within sixty (60) days).”

¶4     The last page of the Lease contained the signature block.
“Landlord” was identified as the Patricia Belnap Johnson Trust
and signed by Johnson herself as “Its . . . Trustee.” Schnabel
printed her name on the “Tenant” line on behalf of the “Company:
evolution yoga” and signed as “Its Owner.” Schnabel also signed
a Guarantee on the Lease which listed both “Jennifer Schnabel”
and “evolution yoga” as the “Tenant.”

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                        Johnson v. Schnabel

¶5     But evolution yoga did not exist when the Lease was
signed. And eight days later, Schnabel incorporated a different
entity, InBalance Yoga (InBalance). InBalance made the rental
payments to Johnson and, three years later, InBalance obtained
Johnson’s permission to sublease the studio to a different entity,
InBalance Yoga and Wellness (Yoga & Wellness). The sublease
agreement designated InBalance as the “Sublandlord” and Yoga
& Wellness as the “Subtenant.” Johnson later claimed she never
knew InBalance was a corporation and was not aware of the
capacity in which Schnabel signed the sublease on behalf of
InBalance.

¶6      While the studio was sublet to Yoga & Wellness, Schnabel
filed a petition for bankruptcy based on personal consumer debt.
But shortly after filing, Schnabel brought an unopposed motion to
dismiss her petition, which the bankruptcy court granted without
prejudice.

¶7     One month later, Johnson learned about Schnabel’s
bankruptcy petition. Johnson sent a letter by certified mail to
“Jennifer Schnabel dba evolution yoga” notifying her that the
bankruptcy petition put her in material breach of section 18.1(e)
of the Lease. Johnson informed Schnabel that because of the
breach, the Lease was terminated as of that day. Johnson then
entered into a new agreement on behalf of the Trust directly with
Yoga & Wellness to lease the studio. Schnabel sent a letter back to
Johnson alleging Johnson had violated the Lease by announcing
early termination and creating the new agreement with Yoga
& Wellness.

¶8     Johnson then filed a complaint in district court, seeking
judgment declaring the Lease terminated and returning
possession of the studio back to the Trust. Johnson’s complaint
was answered by “Schnabel and evolution yoga dba InBalance
Yoga” as “Defendants.” Schnabel denied any liability to Johnson
and raised thirty-five affirmative defenses. Schnabel also asserted
two counterclaims: first, that Johnson had committed forcible

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                        Johnson v. Schnabel

detainer under Utah Code section 78B-6-814 because she
terminated the Lease without “judicial process,” and second, that
Johnson’s new lease with Yoga & Wellness was an intentional
interference with Schnabel’s own economic relations with Yoga
& Wellness.

¶9     Johnson filed a motion for summary judgment, asking the
court to declare the Lease terminated because its terms clearly
defined a bankruptcy petition filed by the Tenant as a material
default, Schnabel had filed just such a petition, and Johnson was
entitled to remedies for that default—including termination of the
Lease. Schnabel opposed summary judgment, arguing she was
not the Tenant under the Lease because she signed for “evolution
yoga d/b/a InBalance” in her representative capacity and thus her
personal bankruptcy petition did not constitute a material default.
Schnabel further argued that even if she were the Tenant, the
bankruptcy petition had not been a material default because she
had otherwise substantially complied with the lease terms. She
simultaneously filed a cross-motion for partial summary
judgment on her counterclaims.

¶10 After a hearing on the cross-motions for summary
judgment, the court concluded as a matter of law that the Lease
unambiguously designated Schnabel as the Tenant. The court
found it undisputed that Schnabel had filed for bankruptcy,
which was a material default under the plain language of the
Lease. The court granted Johnson’s motion for summary
judgment, noting the Lease “is what it is. It’s specific. It allows
plaintiff to do what they’ve done here.” The court also denied
Schnabel’s motion for partial summary judgment and dismissed
her counterclaims.

¶11 Johnson prepared a Proposed Order memorializing the
judgment, but Schnabel objected. Schnabel then filed a motion for
modification of the ruling, arguing the court “made one or two
legal errors, which must be revised.” After another hearing, the
court overruled Schnabel’s objections to the Proposed Order and

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                        Johnson v. Schnabel

denied her motion for modification of its ruling. The court
explained that it was “simply relying on the list of undisputed
facts and the arguments that were initially set forth” and that,
based on those facts, granting summary judgment to Johnson was
appropriate.

¶12 Thereafter, the court issued its written order granting
Johnson’s motion for summary judgment, denying Schnabel’s
cross-motion for summary judgment, dismissing her
counterclaims, and awarding attorney fees to Johnson.

             ISSUES AND STANDARD OF REVIEW

¶13 On appeal, Schnabel challenges both the district court’s
grant of summary judgment to Johnson on Johnson’s claims and
the dismissal of her counterclaims on summary judgment. “An
appellate court reviews a trial court’s legal conclusions and
ultimate grant or denial of summary judgment for correctness and
views the facts and all reasonable inferences drawn therefrom in
the light most favorable to the nonmoving party.” Orvis v. Johnson,
2008 UT 2, ¶ 6, 177 P.3d 600 (cleaned up).

                            ANALYSIS

                  I. The Tenant Under the Lease

¶14 Schnabel argues the district court erred in concluding the
Lease unambiguously designated her as the Tenant. When
interpreting a contract, “if the language within the four corners of
the contract is unambiguous, the parties’ intentions are
determined from the plain meaning of the contractual language,
and the contract may be interpreted as a matter of law.” Mind
& Motion Utah Invs., LLC v. Celtic Bank Corp., 2016 UT 6, ¶ 24, 367
P.3d 994 (cleaned up). A contract is ambiguous “if it is capable of
more than one reasonable interpretation because of uncertain

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                        Johnson v. Schnabel

meanings of terms, missing terms, or other facial deficiencies.” In
re Western Ins. Co., 2022 UT 38, ¶ 36, 521 P.3d 851 (cleaned up).

¶15 Here, at first glance, the plain terms of the Lease
unambiguously designate evolution yoga as the Tenant. “Tenant”
is identified as evolution yoga in the footer on every page of the
Lease. And the signature block appears as follows:

      TENANT:
      By: Jennifer Schnabel
      Company: evolution yoga
      By: Jennifer Schnabel
      Its: Owner

But while the Lease may be facially unambiguous, evolution yoga
did not exist when it was signed. By necessity, someone must be
the Tenant under the Lease, and that someone is Schnabel.

¶16      Under section 16-10a-204 of the Utah Code, “All persons
purporting to act as or on behalf of a corporation, knowing there
was no incorporation . . . are jointly and severally liable for all
liabilities created while so acting.” Utah appellate courts have
consistently held that “the individual who signs a contract in the
name of a nonexistent corporation can be a party to the contract”
and will become a party “by assuming to act as a corporation
without authority.” Gardner v. Madsen, 949 P.2d 785, 789 (Utah
1997) (cleaned up) (holding the individual who signed a contract
for a houseboat on behalf of an involuntarily dissolved
corporation personally liable under the contract); see also Smith
& Edwards v. Golden Spike Little League, 577 P.2d 132, 134 (Utah
1978) (holding that “where a person enters into a contract with
another, under a representation that he is acting as agent for a
principal, when there is in fact no such principal, he renders
himself personally liable upon the contract” even when “the
purported agent had no wrongful intent”); American Vending
Services, Inc. v. Morse, 881 P.2d 917, 923 (Utah Ct. App. 1994)
(imposing joint and several liability on defendants who

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                        Johnson v. Schnabel

purchased a car wash on behalf of a nonexistent corporation for
“all the debts and liabilities that they incurred or that arose as a
result of their actions before the corporation legally existed”).

¶17 Here, Schnabel signed the Lease on behalf of evolution
yoga. But evolution yoga did not exist. Because Schnabel
purported to act in a representative capacity on behalf of a
nonexistent entity, the district court did not err in finding she was
the Tenant under the Lease.

                        II. Material Default

¶18 Next, Schnabel argues her personal petition for bankruptcy
was not a material default under the Lease because she is not the
Tenant, and even if she were, the court erred in not evaluating her
actions under the equitable doctrine of substantial compliance.

¶19 Where a lease is unambiguous, a court determines the
parties’ intent from its plain language. See Mind & Motion Utah
Invs., LLC v. Celtic Bank Corp., 2016 UT 6, ¶ 24, 367 P.3d 994. Here,
the Lease was unambiguous, and the district court did not err in
interpreting it based on its plain terms. Section 18.1(e) explicitly
defined “filing by or against Tenant of a petition to have Tenant
adjudged [] bankrupt or of a petition for reorganization or
arrangement under any law relating to bankruptcy” as a “material
default.” As set forth above, Schnabel is the Tenant under the
Lease. It is undisputed that she filed a personal petition for
bankruptcy. By the Lease’s plain terms, her voluntary petition for
bankruptcy was a material default.

¶20 Despite the Lease’s clear definition of material default,
Schnabel argues the district court should have evaluated her
actions under the equitable doctrine of substantial compliance.
Substantial compliance allows equity to “intervene and rescue a
lessee from forfeiture of a lease when the lessee has substantially
complied with the lease in good faith.” Cache County v. Beus, 1999
UT App 134, ¶ 28, 978 P.2d 1043 (cleaned up). But this doctrine

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                        Johnson v. Schnabel

cannot be applied in cases where a breach is “material, serious, or
substantial.” Id. ¶ 35 (cleaned up). And it should be “sparingly
employed as it defeats the bargained-for legal rights of the
parties.” Id. ¶ 40.

¶21 Utah courts have utilized substantial compliance where
parties’ failures to precisely comply with the terms of a lease
agreement are “negligible.” Housing Auth. of Salt Lake City v.
Delgado, 914 P.2d 1163, 1166 (Utah Ct. App. 1996) (concluding
inadvertent underpayment of rent by ninety-six cents was not
material, and the tenant had substantially complied); see also
U-Beva Mines v. Toledo Mining Co., 471 P.2d 867, 869 (Utah 1970)
(concluding failure to pay an $87 tax was “so minor” in relation
to the $55,000 paid under the lease as to “invoke the offices of
equity”); Grassy Meadows Sky Ranch Landowners Ass’n v. Grassy
Meadows Airport, Inc., 2012 UT App 182, ¶ 15, 283 P.3d 511
(concluding some “normal wear and tear” and maintenance of
airport in “reasonably good working order” was not a material
breach and evinced good faith efforts to substantially comply).

¶22 But in Red Cliffs Corner, LLC v. J.J. Hunan, Inc., 2009 UT App
240, 219 P.3d 619, this court declined to evaluate a lessee’s
repeated late rental payments for substantial compliance, instead
following the lease agreement’s own definition of material
default. Id. ¶¶ 25–26. There, the lease defined as a material default
the failure to pay rent after notice from the landlord. Id. ¶ 24. And
the agreement provided that the landlord could terminate the
lease based on repeated defaults, even if the tenant had cured the
default, and even if the default was not considered material. Id.
We held the lease’s definition of a default governed because the
parties had “bargained for the right” to terminate based on that
default. Id. ¶ 26.

¶23 Similarly, the Lease here explicitly defined the filing of a
bankruptcy petition as a material default. And Schnabel’s
voluntary petition for bankruptcy is not the type of “trivial or
technical” breach, see Beus, 1999 UT App 134, ¶ 35, that warrants

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                        Johnson v. Schnabel

the application of equity. Intentionally filing for bankruptcy in
violation of explicit terms in the Lease is not akin to making a
good faith effort but inadvertently failing to exactly comply.
Because evaluating Schnabel’s actions for substantial compliance
would defeat the explicitly defined and bargained-for definition
of material default in the Lease, the district court did not err in
declining to do so.

¶24 The district court correctly interpreted the Lease according
to its plain language. This plain language defined a bankruptcy
petition filed by the Tenant as a material default. Schnabel is the
Tenant. Thus, her petition for bankruptcy was a material default,
and the district court did not err in so concluding.

                  III. Schnabel’s Counterclaims

A.     Forcible Detainer

¶25 Under Utah’s forcible detainer statute, a “forcible detainer”
occurs when a landlord holds and keeps “by force, or by menaces
and threats of violence, the possession of any real property.” Utah
Code § 78B-6-801(2)(a). To recover under this statute, a plaintiff
must show (1) a forcible detainer occurred and (2) she was in
actual, peaceable possession, or entitled to possession at the time.
Id. § 78B-6-809(1).

¶26 No forcible detainer occurred here. Johnson’s letter
notifying Schnabel about her lawful termination of the Lease did
not exclude Schnabel from the property by “force,” “menaces,” or
“threats of violence.” Schnabel nonetheless argues the letter was
a forcible detainer because it violated section 78B-6-814 of the
forcible detainer statute, which prevents a landlord from
“exclud[ing] a tenant from the tenant’s premises in any manner
except by judicial process.” But section 78B-6-814 is inapplicable
here. The forcible detainer statute is concerned with possessory
interests in property. See Osguthorpe v. Wolf Mountain Resorts, LC,
2010 UT 29, ¶ 22, 232 P.3d 999 (noting the forcible detainer and

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                        Johnson v. Schnabel

unlawful detainer provisions “evidence a legislative intent to
create a mechanism for quickly and clearly resolving conflicts
over lawful possession of property between landowners and
tenants”) (emphasis added); Bel Courtyard Invs., Inc. v. Wolfe, 2013
UT App 217, ¶ 17, 310 P.3d 747 (the forcible detainer statute
“prevents landlords from disturbing actual possession of property
except by legal process”) (cleaned up) (emphasis added).

¶27 As Schnabel herself concedes, she was not “physically in
possession” of the studio when she received Johnson’s letter. She
had subleased the studio to Yoga & Wellness. And a lease—or, in
this case, a sublease—generally “conveys an interest in land and
transfers possession.” Osguthorpe, 2010 UT 29, ¶ 25 (cleaned up).
In Osguthorpe, our supreme court determined a landlord had
retained a possessory interest in property because the lease
limited the lessee’s use of the property and did not allow the
lessee to exclude others from the property. Id. ¶ 27. But here, the
sublease agreement stated InBalance, as the Sublandlord, leased
“all of the [p]remises” to Yoga & Wellness as the Subtenant.
(Emphasis added.) Because Yoga & Wellness was not limited in
its use of the studio, Schnabel did not retain a possessory interest
in it. Thus, section 78B-6-814 does not apply to Johnson’s
termination letter, and the letter was not a forcible detainer. And
without a possessory interest in the studio, Schnabel cannot
establish the second element of the forcible detainer statute. Thus,
the district court did not err in denying summary judgment and
dismissing this counterclaim.

B.     Intentional Interference with Economic Relations

¶28 Schnabel also argues the district court erred in dismissing
her counterclaim against Johnson for intentionally interfering
with Schnabel’s economic relations with Yoga & Wellness.
Intentional interference requires a showing “(1) that the
defendant intentionally interfered with the plaintiff’s existing or
potential economic relations, (2) by improper means, (3) causing
injury to the plaintiff.” Eldridge v. Johndrow, 2015 UT 21, ¶ 70, 345

 20210655-CA                     10              2023 UT App 102
                        Johnson v. Schnabel

P.3d 553 (cleaned up). At minimum, Schnabel cannot establish
that Johnson terminated the Lease through improper means.

¶29 As we concluded above, Schnabel materially defaulted
under the Lease, empowering Johnson to terminate it and sign a
new lease with Yoga & Wellness. Accordingly, Johnson’s
termination letter was not an improper means to terminate the
Lease. Thus, Schnabel cannot show the necessary elements of
intentional interference with economic relations. The district
court did not err in denying summary judgment and dismissing
this counterclaim.

                        IV. Attorney Fees

¶30 Finally, both parties request an award of attorney fees on
appeal pursuant to section 23.5 of the Lease, 2 which states:

      If Tenant or Landlord shall bring any action for any
      relief against the other, declaratory or otherwise,
      arising out of this Lease, including any suit by
      Landlord for the recovery of rent or possession of
      the Premises, the losing party shall pay the
      successful party a reasonable sum for attorney’s fees
      whether or not such action is prosecuted to
      judgment.

“A party entitled by contract or statute to attorney fees below and
that prevails on appeal is entitled to fees reasonably incurred on
appeal.” Federated Capital Corp. v. Haner, 2015 UT App 132, ¶ 19,
351 P.3d 816 (cleaned up). Because Johnson was awarded her fees
below pursuant to the Lease and she is the prevailing party on

2. Schnabel also argues that the district court’s award of attorney
fees to Johnson should be reversed. But because we affirm the
district court’s grant of summary judgment to Johnson, we also
affirm the award of attorney fees below.

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                        Johnson v. Schnabel

appeal, we grant Johnson’s request for fees in accordance with this
provision and deny Schnabel’s request for fees.

                         CONCLUSION

¶31 We conclude that the district court did not err when it
determined that Schnabel was the Tenant, that her personal
bankruptcy petition constituted a material default under the
Lease, and that Johnson properly terminated the Lease. We also
conclude that the district court did not err when it determined
that Schnabel could not show the essential elements of her
counterclaims. We affirm the rulings of the district court in all
respects, award Johnson her attorney fees on appeal, and remand
for the district court to determine the amount of this award.

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