Free Motion Fitness, Inc. v. Wells Fargo Bank West, NA

2009 UT App 120, 208 P.3d 1066, 629 Utah Adv. Rep. 3, 2009 Utah App. LEXIS 121, 2009 WL 1152032
CourtCourt of Appeals of Utah
DecidedApril 30, 2009
Docket20080024-CA
StatusPublished
Cited by3 cases

This text of 2009 UT App 120 (Free Motion Fitness, Inc. v. Wells Fargo Bank West, NA) is published on Counsel Stack Legal Research, covering Court of Appeals of Utah primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Free Motion Fitness, Inc. v. Wells Fargo Bank West, NA, 2009 UT App 120, 208 P.3d 1066, 629 Utah Adv. Rep. 3, 2009 Utah App. LEXIS 121, 2009 WL 1152032 (Utah Ct. App. 2009).

Opinions

OPINION

McHUGH, Judge:

T1 Free Motion Fitness, Inc. (Free Motion) and Icon Health & Fitness (Icon) (collectively, the Buyer Parties) appeal from the trial court's orders granting summary judgment in favor of Wells Fargo Bank West, NA (Wells Fargo) and Ground Zero Design, LLC (Ground Zero) and dismissing the Buyer Parties' claims. We affirm.

BACKGROUND

T2 Ground Zero was engaged in the business of manufacturing exercise equipment. Ground Zero owned a cable-cross device used in the manufacture of that equipment. Because of its interest in the cable-cross device, Ieon agreed to acquire certain assets held by Ground Zero. Icon formed a wholly-owned subsidiary, Free Motion, to hold those assets.1

The Purchase Agreement

8 On December 19, 2000, the Buyer Parties entered into an Asset Purchase Agreement (the Purchase Agreement), whereby Free Motion bought all of Ground Zero's assets used in the manufacture of exercise equipment incorporating the cable-cross device. Icon was also a party to the Purchase Agreement as Free Motion's parent company. Pursuant to the Purchase Agreement, Ground Zero represented and warranted that "(Ground Zero] has good, valid and marketable title to the Assets" and that "no Intellee-tual Property ... infringes upon any rights owned or held by any other Person."

{4 The Purchase Agreement further provides for indemnification by Ground Zero of the Buyer Parties as follows:

[Ground Zero] agrees to indemnify ... the "Buyer Parties" [] and hold each of them harmless from ... any Losses which the Buyer Parties may suffer, sustain or become subject to, ... as a result of, arising out of, relating to or in connection with:
() ... the breach of any representation or warranty made by [Ground Zero] ...;
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(v) any Liability of [Ground Zero] not assumed by [the Buyer Parties]. ...

The Indemmity Agreement

15 As part of the closing on December 19, 2000, Ground Zero, Free Motion, and Wells Fargo, as the escrow agent, also executed an Indemnity Escrow Agreement (Indemnity Agreement). Pursuant to that agreement, Free Motion deposited $400,000 of the purchase price (the Escrow Fund) with Wells Fargo to be held and used to pay indemnified claims of the Buyer Parties that might arise during the first year after closing. Wells Fargo was then to disburse any remaining [1069]*1069amounts according to the terms of the Indemnity Agreement.

The Hoist Litigation

1 6 Approximately three months after closing, Hoist Fitness Systems, Inc. (Hoist) delivered a letter to the Buyer Parties, claiming that the cable-cross device infringed on a patent held by Hoist. After negotiations with Hoist proved unsuccessful and Ground Zero declined to address the matter, Free Motion filed a complaint in the federal district court of Utah, seeking a declaratory judgment that the cable-cross device did not infringe upon the Hoist patent. In response, Hoist asserted a counterclaim against Free Motion and also filed a third-party complaint against Icon, seeking an order enjoining any further infringement.

T 7 Pursuant to the Indemnity Agreement, the Buyer Parties sent a buyer's certificate (the Hoist Buyer's Certificate) to Wells Fargo, stating that "[in the event that the Hoist claim of infringement is successfully prosecuted," Ground Zero will be in breach of its warranty that the cable-cross device does not infringe on any rights held by any other person and will be subject to the indemnification obligations of the Purchase Agreement. The Hoist Buyer's Certificate also notified Wells Fargo of the Buyer Parties' position: "Such indemnification obligation includes any Losses which the Buyer Parties may suffer ..., includ[ing] attorney[ ] fees and costs incurred in defending against [the Hoist] claim."

8 Although the Indemnity Agreement required Wells Fargo to forward a copy of the Hoist Buyer's Certificate to Ground Zero, as seller, Wells Fargo did not do so. Instead, Wells Fargo placed the certificate in its files without reading it. Nevertheless, on the same day they sent the Hoist Buyer's Certificate to Wells Fargo, the Buyer Parties also fased a copy of it to Ground Zero.2 Ground Zero did not respond to the certificate.

The Escrow Fund Release

T 9 On the first business day after the one-year anniversary of the transaction, Ground Zero contacted Wells Fargo and requested that the Escrow Fund be released to it pursuant to the terms of the Indemnity Agreement. Despite the fact that the Hoist Buyer's Certificate remained unresolved, Wells Fargo released the Escrow Fund to Ground Zero. Wells Fargo admits that this release was in breach of the Indemnity Agreement.

Final, Unappealable Judgment

T 10 A year and four months later, on April 11, 2008, the federal district court dismissed Hoist's claims against the Buyer Parties, finding that the cable-cross device did not infringe on Hoist's patent. Thirty days later, on May 11, 2008, that decision became final and unappealable. See Fed. R.App. P. 4.

The Znetizx Litigation

1 11 In a separate matter, the receiver for Zmetix, Inc., sued Ground Zero, Icon, and Free Motion, claiming that Ground Zero had failed to deliver design services for which it had been paid by Znetix and that Icon and Free Motion were equally liable because they had purchased substantially all of Ground Zero's assets. On July 29, 2008, the Buyer Parties sent another buyer's certificate to Wells Fargo seeking indemnification for the Znetix claim (the Znetix Buyer's Certificate).3 Eventually, the Znetix receiver released all claims against Ground Zero and the Buyer Parties in exchange for a settlement amount, $100,000 of which was paid by Icon.

The Trial Court Proceedings

1 12 The Buyer Parties filed the complaint in this action, asserting claims against Wells Fargo for breach of the Indemnity Agreement and breach of fiduciary duty, and asserting claims against Ground Zero for indemnification pursuant to both the Purchase Agreement and the Indemnity Agreement. In turn, Wells Fargo asserted cross-claims against Ground Zero for contractual indem[1070]*1070nification, - equitable indemnification, and constructive trust. Ground Zero filed counterclaims, seeking a declaration that Wells Fargo and the Buyer Parties were estopped from making claims under the Indemnity Agreement and asserting a breach of contract claim against Wells Fargo. Eventually, the parties filed seven motions and cross-motions for summary judgment.

[13 On June 2, 2006, the trial court held a hearing on the various motions for summary judgment, with the understanding that resolution of some of those motions would determine whether the court needed to reach others. The trial court subsequently granted Ground Zero's and Wells Fargo's motions for summary judgment against the Buyer Parties on the ground that, although Wells Fargo improperly released the Escrow Fund, the Buyer Parties could show no damage caused by that release.

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Cite This Page — Counsel Stack

Bluebook (online)
2009 UT App 120, 208 P.3d 1066, 629 Utah Adv. Rep. 3, 2009 Utah App. LEXIS 121, 2009 WL 1152032, Counsel Stack Legal Research, https://law.counselstack.com/opinion/free-motion-fitness-inc-v-wells-fargo-bank-west-na-utahctapp-2009.