Brigham Young University v. Tremco Consultants, Inc.

2007 UT 17, 156 P.3d 782, 570 Utah Adv. Rep. 66, 2007 Utah LEXIS 18, 2007 WL 286266
CourtUtah Supreme Court
DecidedFebruary 2, 2007
Docket20040744
StatusPublished
Cited by21 cases

This text of 2007 UT 17 (Brigham Young University v. Tremco Consultants, Inc.) is published on Counsel Stack Legal Research, covering Utah Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Brigham Young University v. Tremco Consultants, Inc., 2007 UT 17, 156 P.3d 782, 570 Utah Adv. Rep. 66, 2007 Utah LEXIS 18, 2007 WL 286266 (Utah 2007).

Opinion

NEHRING, Justice:

T1 In this appeal, we review and reject Brigham Young University's latest attempt to satisfy a money judgment from persons and entities other than its judgment debtor, SoftSolutions, Inc. (SoftSolutions). In Brigham Young University v. Tremco Consultants, Inc., 2005 UT 19, 110 P.3d 678, we held that Brigham Young University (BYU) could not summarily extend liability to Tremco Consultants, Inc. (Tremeo) for its SoftSolu-tions judgment. Today, we reject BYU's attempt to collect the SoftSolutions judgment from the officers and directors of SoftSolu- *784 tions and related entities that we will collectively refer to as "Duncan et al." We hold that BYU could not pursue Duncan et al. for SoftSolutions' debt using only post-judgment collection procedures because those procedures did not afford those individuals a constitutionally permissible degree of due process of law.

12 The factual background, issues, analysis, and result of this appeal were foreshadowed in Tremeo, 2005 UT 19, 110 P.3d 678. To those who may desire a more panoramic view of the history of this conflict, we commend to them our prior opinion for factual and analytical detail that complements the summary of facts to which we now turn.

T8 In the early 1980s, BYU developed a software product which used an algorithm called "D-Search." The strength of the software was its indexing and information retrieval capabilities, which could be used to improve database applications. Between 1987 and 1990, BYU entered into a series of licensing agreements with SoftSolutions that allowed SoftSolutions to use BYU's D-Search software technology in exchange for royalty payments.

14 In 1992, SoftSolutions transferred the licensed technology to its wholly owned subsidiary, SoftSolutions Technology Corporation (STC). Thereafter, SoftSolutions was dissolved by the state of Utah for failing to file an annual report. Two years later, WordPerfect acquired the STC stock. The shareholders of STC were three limited liability companies, KWD Associates, AST Associates, and Julee Associates, which collectively received approximately $18.5 million from WordPerfect in exchange for the STC stock.

15 Prior to its purchase of the STC stock, WordPerfect knew of and wished to be insulated from a simmering royalty dispute between SoftSolutions and BYU over the D-Search software. However, before the stock sale took place, Tremeo signed an indemnification agreement with STC. Under its terms, Tremceo agreed to pay for any obligations that STC might incur from the SoftSolu-tions-BYU royalty dispute.

T6 In 1995, after SoftSolutions had dissolved and WordPerfect had purchased the STC stock, an arbitrator awarded BYU $1,672,467 in its royalty dispute with SoftSo-lutions. The parties charged with wrapping up the affairs of SoftSolutions challenged the arbitrator's decision. The district court confirmed the arbitration award; and on appeal, we affirmed the damages portion of the district court's ruling. Softsolutions, Inc. v. Brigham Young Univ., 2000 UT 46, 1 P.3d 1095.

T7 With its SoftSolutions judgment in hand, BYU turned its attention to collecting it. BYU pursued the collection procedures available to judgment creditors under the Utah Rules of Civil Procedure. BYU discovered that SoftSolutions had no assets. Therefore, BYU sued Tremeo to establish Tremeo's liability under the indemnification agreement. At BYU's behest, the district court consolidated BYU's collection action against SoftSolutions with the Tremeco litigation.

T8 The consolidation of these actions cere-ated an unusual hybrid court creature: part collection action and part traditional civil action against Tremco. SoftSolutions had seen its day in court to defend against the merits of BYU's claims come and go. It appeared in the district court solely as a judgment debtor. 1 SoftSolutions appeared in this status disarmed with most of the due process protections it had possessed before BYU acquired the judgment against it.

T9 By contrast, Tremco was fully armed with due process rights, which it tried to use without success to turn away BYU's claims. The district court granted BYU's motion for summary judgment against Tremeco, resulting in the entry of an order dated June 138, 2002. The order included the court's determination that Tremeo was liable to pay the 1998 SoftSolutions judgment. In reaching this result, the district court embraced each of BYU's four theories: (1) that Tremeo, STC, and SoftSolutions had carried on a *785 common, joint business as an association under Utah Rule of Civil Procedure 17(d); (2) that Tremeo was liable to BYU for the judgment against SoftSolutions because Tremeo had entered into an indemnity agreement with STC and BYU was a third-party beneficiary of that agreement; (3) that Tremeo aided a fraudulent transfer of SoftSolutions assets to STC; and (4) that Tremco was in privity with SoftSolutions and was therefore liable for the SoftSolutions judgment under the doctrine of res judicata.

T 10 Contemporaneously with its quest for summary judgment against Tremeo in the civil action, BYU sought an order in supplemental proceedings in its collection action pursuant to the version of rule 69 of the Utah Rules of Civil Procedure then in effect. 2 Rule 69 governed the collection procedures, principally the procedures for executing on property of a judgment debtor, available to a judgment creditor.

11 BYU claimed that using its legal theories as the rationale and rule 69 as the vehicle, it was entitled to execute against the property of Duncan et al. to satisfy the Soft-Solutions judgment. BYU brought back the rule 17(d) business association theory that it deployed against Tremeo and coupled it with new theories. First, it utilised Utah Code Ann. § 16-102-1408 (prohibiting distribution of assets to shareholders of a dissolved corporation until corporate debts are paid); see-ond, it relied on two of our cases: Murphy v. Crosland, 915 P.2d 491 (Utah 1996), and Steenblik v. Lichfield, 906 P.2d 872 (Utah 1995), for the proposition that corporate officers are personally liable for the obligations of dissolved or suspended corporations. It then sought to advance its theory with the aid of rule 69(s), which authorized execution against the property of a judgment debtor that was in the possession of someone else.

12 The district court was persuaded that BYU's theories had merit and entered a supplemental order dated July 10, 2002, (July 2002 supplemental order), extending liability for the SoftSolutions judgment to Duncan et al. as "associates of the unincorporated association." The district court also found Duncan et al. to have received proceeds from the sale of the STC stock. It adopted BYU's view that SoftSolutions continued to "own" the software throughout its odyssey through STC, the WordPerfect purchase of that stock, and the distribution of the sale proceeds among Duncan et al.

T13 After the district court entered the July 2002 supplemental order, SoftSolutions and Duncan et al.

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Bluebook (online)
2007 UT 17, 156 P.3d 782, 570 Utah Adv. Rep. 66, 2007 Utah LEXIS 18, 2007 WL 286266, Counsel Stack Legal Research, https://law.counselstack.com/opinion/brigham-young-university-v-tremco-consultants-inc-utah-2007.