Fehr v. Stockton

2018 UT App 136

THE UTAH COURT OF APPEALS

THOMPSON E. FEHR,
Appellant,
v.
JOHN H. STOCKTON,
Appellee.

Opinion
No. 20160996-CA
Filed July 6, 2018

Second District Court, Ogden Department
The Honorable Ernest W. Jones
No. 150903545

Thompson E. Fehr and John T. Anderson, Attorneys
for Appellant
Margaret H. Olson, Attorney for Appellee

JUDGE JILL M. POHLMAN authored this Opinion, in which
JUDGE DIANA HAGEN concurred. JUDGE GREGORY K. ORME
concurred, with opinion.

POHLMAN, Judge:

¶1 Thompson E. Fehr appeals the district court’s order
dismissing with prejudice his complaint filed against John H.
Stockton. Fehr also seeks review of the district court’s judgment
awarding attorney fees to Stockton. We reverse the dismissal,
vacate the attorney fees award, and remand for further
proceedings.

BACKGROUND

¶2 Fehr alleges that he performed legal services for Stockton
pursuant to an oral agreement between Fehr and Stockton’s
agent. Specifically, Fehr claims Stockton retained him on an
 Fehr v. Stockton

hourly basis to protect Stockton’s intellectual property through
the filing and prosecution of several patent applications
concerning a retractable hose extension for a vacuum. Fehr
characterized his method of accounting as an “open account,”
whereby he would enter (1) debits on the account as he
performed legal services and paid patent maintenance fees for
Stockton, and (2) credits on the account as he received payments
from Stockton or Stockton’s agent. Fehr alleges that he
performed legal services for Stockton “[b]eginning on or about
January 7, 2003, and continuing through January 20, 2015,” and
that he “periodically provided [Stockton] invoices showing fees
earned, costs advanced, and payments received.” The district
court reasonably inferred from these allegations that Fehr sent
Stockton “periodic invoices from 2003–2015.” See generally
Hudgens v. Prosper, Inc., 2010 UT 68, ¶ 14, 243 P.3d 1275
(indicating that in ruling on a motion to dismiss, courts draw
“all reasonable inferences [from the complaint’s allegations] in
the light most favorable to the plaintiff” (quotation simplified)).

¶3 In June 2015, Fehr sued Stockton to collect amounts he
claims are due and owing under the parties’ alleged oral
agreement. He asserted a claim for breach of contract and
alternative claims for quantum meruit. 1

¶4 In response, Stockton moved to dismiss the complaint. He
argued that Fehr’s claim for breach of an oral contract was
barred by the four-year statute of limitations applicable to oral
contracts. Similarly, Stockton argued that the doctrine of laches
barred Fehr’s equitable claims. Stockton also argued that the
parties’ alleged oral agreement “is void under the statute of

1. “Quantum meruit is an equitable tool that allows a plaintiff to
receive restitution for the reasonable value of services provided
to the defendant.” Emergency Physicians Integrated Care v. Salt
Lake County, 2007 UT 72, ¶ 10, 167 P.3d 1080; see also Quantum
meruit, Black’s Law Dictionary (10th ed. 2014) (“A claim or right
of action for the reasonable value of services rendered.”).

20160996-CA 2 2018 UT App 136
 Fehr v. Stockton

frauds” because, by its alleged terms, it could not be performed
within one year. See Utah Code Ann. § 25-5-4(1)(a) (LexisNexis
2013). Finally, Stockton argued that Fehr brought the suit in bad
faith and requested that the court award him attorney fees under
Utah’s bad faith attorney fees statute, Utah Code section
78B-5-825.

¶5 The district court granted Stockton’s motion to dismiss
with prejudice. It concluded that Fehr’s complaint was
time-barred because his arrangement with Stockton pursuant to
the parties’ alleged oral contract did “not meet the definition of
[an] open account.” The court further concluded, without
discussion, that the complaint was “barred by the . . . statute of
frauds.” The court did not separately address Fehr’s equitable
claims or Stockton’s arguments that the claims were barred by
the laches doctrine.

¶6 After further briefing and in a separate order, the court
granted Stockton’s motion for bad faith attorney fees under
section 78B-5-825. The court found that the case “was without
merit, frivolous and had little or no weight in law or fact,” and
that Fehr “lacked subjective good faith in filing the case.”

¶7 Fehr filed a timely notice of appeal, claiming error in the
dismissal of his claims with prejudice and in the award of
attorney fees to Stockton.

ISSUES AND STANDARDS OF REVIEW

¶8 Fehr raises two issues on appeal. The first is whether the
district court erred in dismissing his complaint. “A Rule 12(b)(6)
motion to dismiss admits the facts alleged in the complaint but
challenges the plaintiff’s right to relief based on those facts.”
Oakwood Village LLC v. Albertsons, Inc., 2004 UT 101, ¶ 8, 104 P.3d
1226 (quotation simplified). “Under a rule 12(b)(6) dismissal, our
inquiry is concerned solely with the sufficiency of the pleadings,
and not the underlying merits of the case.” Id. (quotation
simplified). We assume the truth of the factual allegations in the

20160996-CA 3 2018 UT App 136
 Fehr v. Stockton

complaint and draw “all reasonable inferences therefrom in the
light most favorable to the plaintiff.” Hudgens v. Prosper, Inc.,
2010 UT 68, ¶ 14, 243 P.3d 1275 (quotation simplified). “We
review a decision granting a motion to dismiss for correctness,
granting no deference to the decision of the district court.”
Bylsma v. R.C. Willey, 2017 UT 85, ¶ 10, 416 P.3d 595 (quotation
simplified). We likewise review the district court’s subsidiary
legal determinations for correctness. See State v. Huntington-
Cleveland Irrigation Co., 2002 UT 75, ¶¶ 11–12, 52 P.3d 1257
(explaining that appellate courts review for correctness the
district court’s determination of whether a statute of limitations
has expired); Bennett v. Huish, 2007 UT App 19, ¶ 9, 155 P.3d 917
(“The applicability of the statute of frauds is a question of law to
be reviewed for correctness.” (quotation simplified)).

¶9 The second issue is whether the district court erred in
awarding attorney fees to Stockton under the bad faith attorney
fees statute. “We review a [district] court’s grant of attorney fees
under the bad faith statute as a mixed question of law and fact.”
Fadel v. Deseret First Credit Union, 2017 UT App 165, ¶ 16, 405
P.3d 807 (quotation simplified). “A finding of bad faith is a
question of fact and is reviewed by this court under the clearly
erroneous standard.” Id. (quotation simplified). “The ‘without
merit’ determination is a question of law, and therefore we
review it for correctness.” Id. (quotation simplified).

ANALYSIS

I. Dismissal of Fehr’s Complaint

¶10 The district court dismissed Fehr’s complaint on two
independent grounds. First, the court ruled that Fehr’s
complaint was barred by the four-year statute of limitations
applicable to oral contracts and open accounts. See Utah Code
Ann. § 78B-2-307 (LexisNexis Supp. 2017). Second, the court
concluded that the complaint was barred by the statute of
frauds. We conclude that the court erred in both respects.

20160996-CA 4 2018 UT App 136
 Fehr v. Stockton

A. The Statute of Limitations

¶11 Fehr contends that the district court erred in dismissing
his complaint on timeliness grounds, asserting that because his
last charge to Stockton “was within four years of the [filing] of
the Complaint,” his suit was not time-barred. The district court
concluded that Fehr’s breach of contract claim was barred by the
four-year statute of limitations found in Utah Code section
78B-2-307. That section states, in relevant part:

An action may be brought within four years:
(1) after the last charge is made or the last payment
is received: (a) upon a contract, obligation, or
liability not founded upon an instrument in
writing; . . . or (c) on an open account for work,
labor or services rendered, or materials
furnished . . . .

In applying this statute, the court determined that the facts Fehr
pleaded about his arrangement with Stockton did not meet the
definition of an “open account” and for that reason Fehr’s claim
was time-barred. We disagree with the court’s ultimate
conclusion.

¶12 The statute of limitations operates to bar claims based on,
among other things, an oral contract or an open account where
the plaintiff brings a claim more than four years “after the last
charge is made or the last payment is received.” Id.
§ 78B-2-307(1). Here, the court determined, and the parties agree,
that Fehr’s claim against Stockton for breach of contract is based
on an alleged oral agreement. Thus, the four-year statute of
limitations is relevant to this case. But the question of whether
the statute bars Fehr’s claim does not, as the court determined,
turn on whether Fehr’s method of accounting for services
performed and payments received under the contract is properly
characterized as an “open account.” Rather, the pertinent
question is whether Fehr brought this action within four years of

20160996-CA 5 2018 UT App 136
 Fehr v. Stockton

Fehr’s last charge or receipt of the last payment. See id. And the
answer to that question, based on Fehr’s allegations, is yes.

¶13 Fehr alleges that he last charged Stockton under the
alleged agreement in January 2015. 2 Fehr sued Stockton in June
2015—five months later. Thus, based on Fehr’s allegations and
the reasonable inferences drawn therefrom, Fehr’s complaint for
breach of an alleged oral contract is timely because he filed it
within a few months of making the last charge—well within the
four-year limitations period. See State v. Huntington-Cleveland
Irrigation Co., 2002 UT 75, ¶ 17, 52 P.3d 1257 (interpreting an
earlier, but substantively similar, version of the relevant statute
of limitations, and explaining that “[a] cause of action for breach
of contract for failure to make a payment . . . accrues only after a
charge is made . . . and thus the limitation period begins to run
when the . . . charge is made”). We therefore reverse the district
court’s decision to the contrary.

¶14 However, it is important to note that in reversing the
district court’s determination that Fehr’s complaint was
time-barred in its entirety, we do not conclude that the entirety
of Fehr’s claim was timely filed. In Huntington-Cleveland, a case
on which Fehr heavily relies, our supreme court held that the
applicable “limitation period may expire on some assessments
but not on others. Specifically, [a party] cannot challenge every
assessment made . . . in perpetuity. . . . [O]nly payments due or
assessments charged within the four years prior to filing the
lawsuit can be the basis for a contractual claim.” Id. ¶ 20
(quotation simplified). In other words, the supreme court held

2. Fehr appears to assume that sending an invoice constitutes
making a “charge” within the meaning of the statute of
limitations, and Stockton does not argue otherwise. See Utah
Code Ann. § 78B-2-307(1) (LexisNexis Supp. 2017). For purposes
of this appeal, we assume, without deciding, that Fehr made a
“charge” in January 2015 under his alleged agreement with
Stockton.

20160996-CA 6 2018 UT App 136
 Fehr v. Stockton

that the statute of limitations precluded that party from
challenging individual charges made more than four years
before the complaint was filed. See id. Similarly, here, there may
be charges for which Fehr seeks to recover that are barred by the
four-year statute of limitations. We conclude only that, where
Fehr alleges that he made a charge under the alleged agreement
within four years of filing his complaint, the court erred in
dismissing the complaint in its entirety. 3

B. The Statute of Frauds

¶15 Fehr also contends that the district court erred in
concluding that the statute of frauds barred his claims. As an
alternative ground for dismissing Fehr’s breach of contract
claim, Stockton argued that the alleged “open account”

3. In addition to seeking the dismissal of Fehr’s breach of
contract claim as untimely, Stockton moved to dismiss Fehr’s
alternative claims for quantum meruit as barred by the doctrine
of laches. “To successfully assert a laches defense, a defendant
must establish both that the plaintiff unreasonably delayed in
bringing an action and that the defendant was prejudiced by that
delay.” Veysey v. Veysey, 2014 UT App 264, ¶ 16, 339 P.3d 131
(quotation simplified). The application of laches as a defense to
equitable claims is “highly fact-dependent.” Id. Although the
district court dismissed Fehr’s complaint in its entirety, it did not
articulate either during oral argument or in its written order the
basis for the dismissal of Fehr’s equitable claims. Because the
district court summarily dismissed these claims without
analysis, we cannot review the correctness of its decision. See
Springville Citizens for a Better Cmty. v. City of Springville, 1999 UT
25, ¶ 32, 979 P.2d 332 (concluding that the district court’s failure
to articulate a basis for rejecting certain claims prevented the
appellate court from reviewing the correctness of the district
court’s rulings). Accordingly, without opining on the merits of
Fehr’s equitable claims or the application of the laches defense,
we reverse the court’s dismissal of these claims.

20160996-CA 7 2018 UT App 136
 Fehr v. Stockton

arrangement described by Fehr “is void under the statute of
frauds.” Without analysis, the district court agreed and
concluded that the statute of frauds barred Fehr’s complaint.

¶16 Utah’s statute of frauds provides, in relevant part, that
“[t]he following agreements are void unless the agreement, or
some note or memorandum of the agreement, is in writing,
signed by the party to be charged with the agreement: (a) every
agreement that by its terms is not to be performed within one
year from the making of the agreement.” Utah Code Ann.
§ 25-5-4(1)(a) (LexisNexis 2013). Fehr does not dispute that the
oral contract he alleges is subject to the statute of frauds. Fehr
disagrees, however, with Stockton’s contention that the one-year
clause of the statute of frauds bars his claim because “the oral
contract alleged could not be performed within one year.” We
agree with Fehr.

¶17 It is well settled that “the one-year clause applies only to
contracts that are literally incapable of being performed within
one year.” Pasquin v. Pasquin, 1999 UT App 245, ¶ 18, 988 P.2d 1;
see also Zion’s Service Corp. v. Danielson, 366 P.2d 982, 985 (Utah
1961) (“The words ‘cannot be fully performed’ must be taken
literally. The fact that performance within a year is entirely
improbable or not expected by the parties, does not bring the
contract within [the statute of frauds].” (quotation simplified)).
The alleged oral agreement between Fehr and Stockton was not
literally incapable of being performed within one year.

¶18 While Fehr alleges that his agreement with Stockton
included the terms that his fees would increase every other year
and that Stockton was obliged to pay patent maintenance fees
that would accrue over time, those terms did not mandate that
the agreement extend beyond one year. After all, the contract as
alleged was one for legal services. And Utah’s Rules of
Professional Conduct make clear that “[a] client has a right to
discharge a lawyer at any time, with or without cause.” Utah R.
Prof’l Conduct 1.16 cmt. 4; see also Pang v. International Document
Services, 2015 UT 63, ¶ 43, 356 P.3d 1190. Thus, regardless of the

20160996-CA 8 2018 UT App 136
 Fehr v. Stockton

parties’ expectations regarding future events, the alleged oral
agreement for legal services was terminable at any time by
Stockton. Accordingly, it was capable of being fully performed
within one year and is thus beyond the reach of the statute of
frauds. See Zion’s Service Corp., 366 P.2d at 985 (“Where the
agreement can be performed within one year, though this be
done by election of one of the parties to terminate, there can be
no doubt but that the Statute of Frauds is not applicable.”);
Pasquin, 1999 UT App 245, ¶ 19 (holding that the enforcement of
a lifetime employment agreement was not barred by the statute
of frauds, because it could be fully performed within one year by
death or voluntary discontinuance). 4

4. On appeal, Stockton urges us to affirm the district court’s
dismissal with prejudice on the alternate ground that Fehr failed
to sufficiently allege the existence of a contract between Stockton
and Fehr. The crux of Stockton’s argument is that Fehr failed to
allege facts sufficient to show an agency relationship between
Stockton and the individual who dealt with Fehr, allegedly on
Stockton’s behalf. We observe that this argument is based on an
alleged pleading deficiency. And while such an alleged
deficiency may warrant the dismissal of the complaint without
prejudice, Stockton has not shown that he would be entitled to a
dismissal with prejudice for such a failing. See Coroles v. Sabey,
2003 UT App 339, ¶ 47, 79 P.3d 974 (noting that a court is
required to dismiss an inadequately pleaded complaint, and
explaining that such a dismissal “based upon the inadequacy of
the pleadings, not the merits of the case,” must be without
prejudice). For this reason, without expressing an opinion on the
merits of whether Fehr adequately pleaded the existence of an
agency relationship and a contract, we decline to exercise our
discretion to affirm on this proposed alternate ground. See
Siebach v. Brigham Young Univ., 2015 UT App 253, ¶ 36, 361 P.3d
130 (“Although we possess the ability to affirm on any legal
ground or theory apparent on the record, we also possess the
(continued…)

20160996-CA 9 2018 UT App 136
 Fehr v. Stockton

II. Award of Attorney Fees

¶19 Next, Fehr contends that the district court erred in
awarding attorney fees to Stockton. After dismissing Fehr’s
complaint in its entirety, the district court granted Stockton’s
motion for an award of attorney fees under Utah Code section
78B-5-825. 5 That section provides, in relevant part, “In civil
actions, the court shall award reasonable attorney fees to a
prevailing party if the court determines that the action or
defense to the action was without merit and not brought or
asserted in good faith . . . .” Utah Code Ann. § 78B-5-825(1)
(LexisNexis 2012).

¶20 The district court determined that Fehr’s “case was
without merit, frivolous and had little or no weight in law or
fact,” and that Fehr “lacked subjective good faith in filing the
case.” The court’s determination that the case lacked merit was
based on its conclusion that the case was barred by the statute of
limitations and on its disbelief that Fehr’s open account theory
“would ever fly.” Thus, the district court’s dismissal order,
concluding that Fehr’s complaint was time-barred in its entirety,
underpins its subsequent award of attorney fees. Having
reversed the dismissal order above, we must vacate the attorney
fees award. In reaching this result, however, we express no

(…continued)
discretion to conclude that the district court should be afforded
the opportunity to rule on the arguments in the first instance.”).

5. In its order, the district court referenced section 78B-5-826 (the
prevailing party attorney fees statute) as the basis for its award.
But in the hearing on the motion, the court cited section
78B-5-825, and given the basis for Stockton’s motion and the
court’s finding of bad faith, it appears the reference to the
prevailing party attorney fees statute was inadvertent. We
construe the court’s order as having awarded fees to Stockton
under section 78B-5-825.

20160996-CA 10 2018 UT App 136
 Fehr v. Stockton

opinion regarding the district court’s finding of bad faith and the
merits of any subsequent motion should Stockton again seek
relief under the bad faith attorney fees statute on remand.

CONCLUSION

¶21 For the foregoing reasons, we reverse the district court’s
order dismissing the complaint in its entirety, and we vacate the
order awarding attorney fees to Stockton. We remand this case
to the district court for further proceedings.

ORME, Judge (concurring):

¶22 I concur in the court’s opinion. I write separately for a
very limited purpose and that is to emphasize that the award of
attorney fees premised on Fehr’s bad faith must fall with the
order dismissing his complaint. The main opinion makes that
clear. And the main opinion goes on to state that “we express no
opinion regarding the district court’s finding of bad faith.”
Supra ¶ 20. That is solid analysis, and I do not disagree with it.

¶23 But I worry that the district court might read something
into that neutral comment that we do not intend. Thus, I wish to
point out—speaking only for myself, of course—that if the fee
award were before us, I would have no trouble in voting to
affirm it. The court’s finding of bad faith was well supported in
the record before the court. In my opinion, while the fee award
was premature, it was not improper in an absolute sense.

¶24 I realize that my colleagues have no intention of
suggesting otherwise in stating that we express no opinion on
the question. I just want to ensure that in so stating we do not
inadvertently chill Stockton’s renewal of the request, nor the
district court’s careful consideration of it, at an appropriate
juncture in the course of this lawsuit.

20160996-CA 11 2018 UT App 136