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Deer Crest Associates I, L.L.C. v. Avalon Deer Valley

June 2, 2009

DEER CREST ASSOCIATES I, L. L.C., UTAH LIMITED LIABILITY COMPANY, PLAINTIFF - COUNTER-DEFENDANT - APPELLEE,
v.
AVALON DEER VALLEY, L.L.C., AN OREGON LIMITED LIABILITY COMPANY; WILLAMETTE LANDING DEVELOPMENT, INC., AN OREGON CORPORATION; A. PAUL BRENNEKE, AN INDIVIDUAL, DEFENDANTS - COUNTER-CLAIMANTS - APPELLANTS,
v.
DEER CREST RESORT GROUP, L.L.C., A DELAWARE LIMITED LIABILITY COMPANY, COUNTERCLAIM - DEFENDANT.



APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH. (D. Ct. No. 2:04-CV-220-TS).

The opinion of the court was delivered by: Tacha, Circuit Judge.

PUBLISH

Before TACHA, MURPHY, and TYMKOVICH, Circuit Judges.

Plaintiff-Appellee Deer Crest Associates I, L.C. ("Deer Crest") and the Defendants-Appellants (collectively, "Avalon") contracted for a construction project on Deer Crest's land. Deer Crest ultimately filed suit against Avalon for, among other claims, breach of contract. Avalon counterclaimed. After motions for summary judgment and a bench trial, the district court entered final judgment for Deer Crest on each of its claims and against Avalon on its counterclaims. Avalon appeals. We have jurisdiction under 28 U.S.C. § 1291 and AFFIRM.

I. BACKGROUND

Deer Crest owns more than six hundred acres of land near Utah's Deer Valley Ski Resort. Avalon comprises two real estate development companies-Avalon Deer Valley, LLC ("ADV") and Willamette Landing Development, Inc. ("Willamette")-and their principal owner, Paul Brenneke. In February 2001, Deer Crest approached Mr. Brenneke about funding and developing the Deer Crest Project (the "Project"), which entailed the construction of a world-class hotel, high-end condominium units, and private resort residences on Deer Crest's land. By June 2001, the parties had reached sufficient consensus that Avalon began managing and developing the Project. In August 2001, the parties signed a formal operating agreement (the "Agreement") memorializing their rights and obligations.*fn1

The Agreement created a new company, the Deer Crest Resort Group, LLC ("DCRG"), to conduct all Project-related business. The Agreement designated ADV and Deer Crest as DCRG's members, and Willamette as the developer of the Project. The Agreement also outlined a development schedule that consisted of two phases; Avalon was required to reach a number of Project milestones as part of Phase I before beginning Phase II. Finally, the Agreement gave both Deer Crest and Avalon the option to terminate their relationship under specified circumstances. Deer Crest could terminate the Agreement if Avalon failed to meet any of the Phase I milestones. Avalon could terminate the Agreement at any time prior to the completion of Phase I, but if Avalon chose to do so, it had to convey to Deer Crest certain materials, including architectural plans, permits, appraisals, site studies, and legal agreements. The Agreement also provided Avalon with a "Second Year Option," which allowed it to terminate its participation in the Project after the first year. This option had to be exercised, if at all, by May 15, 2002.

On January 8, 2002, shortly after Avalon was required to break ground for Phase I construction, Mr. Brenneke delivered a letter to Deer Crest signed by counsel, stating, "Consistent with the operating agreement, we, Avalon Deer Valley LLC, are terminating our involvement with Deer Crest Resort Group LLC, and withdrawing as a member effective immediately." However, Avalon did not initiate the termination and wrapping-up procedures outlined in the Agreement, and Willamette continued its development of the Project. Avalon also began negotiating with Deer Crest for a new Phase I financing plan. The parties memorialized that plan in a letter of understanding ("the Letter"), dated January 16, 2002. The Letter described ADV as a member of DCRG and stated that the Letter "constitutes an amendment of the Operating Agreement."

Project construction began on January 21, 2002. On February 8, Avalon and Deer Crest entered into a memorandum of understanding ("the Memorandum") in which ADV, Willamette, and Deer Crest identified themselves as members of DCRG. Although the Memorandum made specific modifications to the Agreement, it contemplated that the Agreement would otherwise remain in effect. On May 14-one day before the Second Year Option was set to expire-Mr. Brenneke signed a document guaranteeing Avalon's obligations under the Agreement and the Memorandum. The next day, Avalon notified Deer Crest that it would continue to invest in the Project, and construction on the Project continued.

On March 5, 2003, in response to Avalon's failure to meet certain Phase I milestones, Deer Crest sent a letter to Mr. Brenneke declaring the Agreement terminated and requesting that Avalon participate in the winding-up procedures set forth in the Agreement. Avalon replied on March 25, stating that it "hereby terminates the [A]greement." Deer Crest then filed suit against Avalon based on its failure to comply with its obligations under the Agreement. Deer Crest asserted claims for breach of contract, breach of personal guaranty, negligent misrepresentation, and unjust enrichment. Avalon counterclaimed for unjust enrichment and breach of the covenant of good faith and fair dealing.*fn2 The district court granted Deer Crest's motion for partial summary judgment on Avalon's counterclaim for unjust enrichment. Following a bench trial, the district court entered judgment for Deer Crest on each of its claims and against Avalon on its remaining counterclaim for breach of the covenant of good faith and fair dealing. The district court found that the Agreement had terminated on March 5, 2003, as opposed to January 8, 2002 or May 15, 2002, and it used that termination date to calculate the damages it awarded to Deer Crest.

On appeal, Avalon argues that the district court made two contradictory determinations regarding the termination date of the Agreement. Although the district court found after the bench trial that the Agreement was terminated on March 5, 2003, Avalon asserts that the court relied on an earlier date when it decided the motion for summary judgment. Avalon contends that this earlier termination date-either January 8, 2002 or May 15, 2002-reduces the amount of damages Avalon owes to Deer Crest.*fn3

II. DISCUSSION

A. Standard of Review

We review de novo a district court's application of state law to interpret a contract. See Salve Regina Coll. v. Russell, 499 U.S. 225, 231 (1991) ("[A] court of appeals should review de novo a district court's determination of state law."); Unicover World Trade Corp. v. Tri-State Mint, Inc., 24 F.3d 1219, 1222 (10th Cir. ...


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