Opinion
Case No. 2:01CV907K
March 20, 2003
MEMORANDUM DECISION AND ORDER
This matter is before the court on Defendants' Motion for Partial Summary Judgment and several motions in limine filed by Plaintiffs and Defendants. The court held a hearing on these motions on March 7, 2003. At the hearing, Plaintiff was represented by Alan C. Bradshaw, and Defendants were represented by J. Craig Smith and D. Scott Crook. Having fully considered the motions, memoranda, affidavits, and exhibits submitted by the parties and the facts and law relevant to these motions, the court enters the following Memorandum Decision and Order.
BACKGROUND
In 1998, Defendants William and Charlene Tuttle placed their farm on the market for sale. Their farm was approximately 1,100 acres near Holden, Utah. The farm is comprised of twenty separate parcels of property. Also sometime in early 1998, Defendants J. Kenton and Lori Tuttle decided to sell their farm, also located in Millard County near Holden, Utah. Kenton and Lori Tuttle's farm included approximately 640 acres.
In the late summer of 1998, Blame Hunter, Defendants' real estate agent, told his brother-in-law Grant Ellsworth, a farmer in Arizona, about Defendants' property. Grant Ellsworth indicated interest in viewing the farm. He spoke to his son and partner in the Ellsworth Farms Partnerships, David Ellsworth, about the property and they traveled to Utah in August 1998 to view the property.
Grant and David Ellsworth met with William Tuttle and his real estate agents, Blame Hunter and Gerald Anderson. During this meeting, Grant Ellsworth asked William Tuttle about how much water the farm was entitled to and how water rights were determined. Tuttle responded that the farm was entitled to four acre feet of water and had wells to produce that much water. Tuttle also stated that he had watered the whole farm for over twenty years and that he had had adequate water during that time. The conversation continued about irrigation pipe, well depths, and water tables, but the parties did not discuss water rights further.
The parties then toured the farm, and viewed an irrigation well Tuttle referred to as a large diesel well located in parcel 18. Ellsworth also claims that he asked Tuttle about how old his alfalfa stands were and that Tuttle responded that he was on a five-year rotation.
In discussing the purchase price with the listing agents, William Tuttle set the price based on the existence of 1,057 acres of legally irrigated ground. The selling agents prepared a marketing description for the farm which represents that there is a "positive water source with wells run by electricity and one diesel well." On October 7, 1998, Kenton Tuttle signed a listing agreement representing that he had water rights sufficient to allow him to irrigate 502 acres of his 640 acre farm. Kenton Tuttle also set the purchase price of the farm based on this division, $1600 for an irrigated acre and $200 for a dry acre.
On October 6, 1998, an offer to purchase the properties was sent to the parties. The offer indicates that Gerald Anderson and Blame Hunter were acting as limited agents for both the buyers and the sellers. At about this same time, Grant and David Ellsworth met again with William Tuttle and the real estate agents. The conversation continued about water rights, irrigation pipe, well depths, water tables, sprinkling systems, weed control, fertilizer, and Kenton and Lori Tuttle's farm. They toured William and Charlene Tuttle's farm again and also viewed Kenton and Lori Tuttle's farm.
David Ellsworth recalls William Tuttle stating that the irrigation equipment was in good shape and that the wells were providing enough water to adequately water the farm. At the time the Ellsworths viewed the Kenton and Lori Tuttle farm, the Ellsworths claim that the Tuttles were watering all acres covered by pivots, 502 acres.
Later in October 1998, David Ellsworth claims that he visited the farm with his wife and brother. David stated that they toured the farm with William Tuttle again, and Tuttle explained the details of the farm to David Ellsworth's brother. He claims that Tuttle said that he was farming 1100 acres and it was all watered.
On November 12, 2002, Lori Tuttle sent a facsimile to the real estate agents that included some of their water rights certificates and at least one page of William and Charlene Tuttle's water rights information. On November 13, 2002, Grant Ellsworth received a copy of the fax. After he received these documents, he sat down and began to make a chart to reconcile the water licenses with the acreage involved.
A few days later, Grant Ellsworth called William Tuttle because he had a problem putting all of the information together and trying to cover all the acreage and water rights. He asked Tuttle for more information regarding the water rights so that he could "put the whole package together, that everything was covered by a valid certificate." Ellsworth claims that Tuttle told him that Utah water law is very complicated and hard to understand and that he had been farming the ground for over twenty years and had never had any problem with water. Ellsworth claims that Tuttle also told him that he would send him a copy of the state engineer's survey regarding the acreage which indicated that all of the ground that was being irrigated had valid water rights.
In the mid-1990s, the Utah State Engineer conducted an acreage survey of the water rights in the Pahvant Valley where both farms are located. At the conclusion of the survey, a group of people were notified that they were using water illegally. Also, on March 28, 1996, a letter was sent to the water users in the area not determined to be using water illegally that stated that all water users who were irrigating land without a water right were notified. The letter continued, stating that "[a]s a result of this effort, and with the cooperation of water users, all irrigated lands are now covered by valid water rights." The letter also stated that the state had completed a cataloging of wells and a survey was made to determine the number of uncontrolled wells that were wasting water. The letter stated that "[t]he result of this effort was an updated accounting of all significant irrigation wells and flowing wells in the valley." William and Kenton Tuttle both received copies of this letter. However, the Tuttles also saw the survey map prepared by the State Engineer. All of parcel 20 on the William and Charlene Tuttle Farm and the outer edges of the pivot circles on the Ken and Lori Tuttle Farm appear red on the survey. Red indicated illegal irrigation.
At the end of November or beginning of December, John Ellsworth signed the Real Estate Purchase Contract ("REPC") signed by William and Charlene Tuttle on November 6, 1998. He also signed the REPC signed by Kenton and Lori Tuttle on November 10, 1998. Pursuant to the terms of the agreements, the parties were to close on the deal by October 1, 1999. On June 1, 1999, John Ellsworth assigned his interest in the REPCs to Grant and Fern Ellsworth.
On June 29, 1999, William and Kenton Tuttle and Grant Ellsworth signed a document entitled Agreement. Under this agreement, Grant Ellsworth agreed to pay interest of 7% to sellers beginning April 1, 1999 to July 1, 1999, on the unpaid balance as of June 29, 1999. The interest was to be paid from the proceeds of hay sales before January 1, 2000. The agreement does not specifically mention either of the REPCs.
At closing, the water rights transferred to the Plaintiffs were specifically set forth in the two warranty deeds. The deeds were delivered to and accepted by the Ellsworths and all of the existing rights were transferred.
William and Charlene Tuttle did not convey or have any water rights for Parcel 4, Parcel 20, or Parcel 14, although these areas were being irrigated when the farm was shown to Plaintiffs. William and Charlene Tuttle acquired Parcel 4 in 1976 in a separate transaction that involved the acquisition of the land with no water rights. With respect to Parcel 20, Defendants pursued a change application to move water to that property but the application was canceled. Also, with respect to Parcel 14, the Tuttles had in their possession a document for seventeen years that stated the only potentially applicable water right did not cover the parcel. The 160 acres contained in these parcels never had any water rights despite the letter received from the State Engineer.
Also, in March 1979, William Tuttle filed a change application with the State Engineer in which he sought to change the place of use for water used to irrigate 200 acres within his farm and move it to the Kenton and Lori Tuttle farm. On July 6, 1979, the Tuttles' neighbors protested the change application. On May 1, 1980, a public hearing was held. The State Engineer's Memorandum Decision confirms that at the meeting the Tuttles stated that the 200 acres of irrigation would be abandoned from irrigation at the original place of use, the William Tuttle farm. The State Engineer approved the change application based on that condition. However, this information was not conveyed to the Ellsworths before the purchase of the properties.
In addition, William Tuttle was a part owner of the West Holden irrigation company, which was originally owned by four families with each family holding a quarter of the company's stock. West Holden owned a single water right. In July of 1976, all shareholders of West Holden agreed to have the Utah State Division of Water Resources study the feasability of pursuing a sprinkler irrigation system, including the possibility of adding another well to the existing single well. On December 9, 1977, West Holden filed a change application to obtain permission to drill a second well. The application was protested by neighbors on February 28, 1978.
West Holden's owners decided to proceed with a one-well sprinkler instead of fighting the protest. The completed sprinkler system was comprised of three wheel times that were installed on three quarter/quarter sections of the William and Charlene Tuttle Farm. The system did not irrigate any of the other West Holden acres of the William and Charlene Tuttle Farm.
Despite West Holden's failed attempt to file a change application to drill a second point of diversion for water right 67-287 held by the company, William Tuttle had a well drilled in Section 1 of his farm in October 1982 ("Diesel Well"). Tuttle claimed that the well was drilled in conjunction with the Dastrup Change Application which was cancelled when another party made claim to the same application. Tuttle claims that he asked for this change application to be reinstated and was told that it would be done without paperwork. However, the State Engineer's office mandates that all requests for reinstatements of change applications be in writing. There is no evidence in the State Engineer's file that William Tuttle sought to reinstate the Dastrup Application.
On August 21, 1998, Terry Monroe at the State Engineer's office sent William Tuttle a letter explaining that the State Engineer was in the process of tying points of diversion with the water rights associated with each well. The letter stated that the Diesel Well in Section 1 of the William and Charlene Tuttle farm had been on their sample, but that he could not identify this well on the State's computer database or find any developmental history associated with it. Mr. Monroe asked William Tuttle to identify the water right associated with the well.
Although William Tuttle received this letter while he was in discussions with the Ellsworths regarding the sale of the farm, he never told the Ellsworths about this letter. He also never responded to the State Engineer's office. After the Ellsworths purchased the property, the State Engineer shut down the Diesel Well.
On November 13, 2001, Plaintiffs filed this action alleging four causes of action against Defendants: 1) fraudulent misrepresentation; 2) breach of warranty; 3) breach of contract; and 4) conversion.
The experts in this litigation appear to agree on the amount of water rights for the two Tuttle farms. of the 1,100 acres of the William and Charlene Tuttle farm, the Tuttles could legally water 484 acres at most. of the 640 acres of the Kenton and Lori Tuttle farm, the Tuttles could legally water only 451.2 acres. According to expert testimony, the difference in value between an irrigated acre of land and a dry acre is $1,400. Therefore, the difference in value applied to each farm would be $802,200 for the William and Charlene Tuttle farm and $71,400 for the Kenton and Lori Tuttle farm.
DISCUSSION Defendants' Motion for Partial Summary Judgment
Defendants move for summary judgment on Plaintiffs' First, Third and Fourth Causes of Action. Defendants contend that Plaintiffs' fraud claim fails because it is barred by the statute of limitations, there is no evidence that the Tuttles made any misrepresentation of fact, and Plaintiffs cannot show that they reasonably relied on any misrepresentation. Defendants also argue that there is no evidence of breach of the June 29, 1999 agreement under the breach of contract claim and that Plaintiffs claim for conversion stems from the same underlying facts as the breach of contract and must also fail as a matter of law.
I. Fraudulent Misrepresentation
A. Statute of Limitation
Under Utah Code Annotated Section 78-12-26 a fraud action must be brought within three years "except that the cause of action in such case does not accrue until the discovery by the aggrieved party of the facts constituting the fraud or mistake." The Utah Supreme Court has stated that "[t]he words `until the discovery' are generally interpreted as meaning from the time the fraud was actually known or could have been discovered through the exercise of reasonable diligence." Baldwin v. Burton, 850 P.2d 1188, 1196 (Utah 1993).
In Snow v. Rudd, 2000 UT 20, 998 P.2d 262, the court found that, as a matter of law, a plaintiff knew of her sister's allegedly fraudulent receipt of a home from a family trust when she received copies of deeds which referenced the trust documents.
In this case, Defendants argue that Plaintiffs had the means sufficient to lead to the discovery of the alleged fraud on November 12, 1998, when the Tuttles forwarded to the real estate agents certain water rights information. Because the real estate agents were acting as limited agents for all of the parties and an agent's knowledge of matters is imputed to the principal, Defendants argue that Plaintiffs had the requisite notice and duty of inquiry as of November 12, 1998 and the Complaint filed on November 13, 2001, is time barred.
The limited and incomplete water rights information faxed from Lori Tuttle to the real estate agents on November 12, 1998, could not have put Plaintiffs on notice that there was fraud. The telephone call Ellsworth made to Tuttle later that month was to ask for more information. Ellsworth would have had no way of knowing that anything fraudulent was going on until after receiving further information. In addition, the Tuttles could have provided information regarding water rights at any time before closing on the property and negated a fraud claim. There is no way to apply the notice and reasonable diligence requirements in the way suggested by Defendants.
Plaintiffs' claims did not accrue until Plaintiffs acted upon Defendants' representations by closing on the transaction on July 9, 1999. The discovery rule is not meant to be applied to shorten a statute of limitation or to start the running of the statute of limitation before a cause of action has even accrued. A party must have suffered a legal injury in order for a limitation period to begin. Plaintiffs in this case have sued for damages based on the difference between the value of the land if it were covered by valid water rights as represented by Defendants and the value of the land today. Under these theories, Plaintiffs were not harmed until the purchase and the cause of action did not accrue until the purchase occurred.
Defendants' reliance on cases finding that damages for a fraud claim can be as insignificant as a pecuniary loss of $20 to pay a babysitter or travel expenses of three to five dollars in gasoline are not applicable. Plaintiffs could not have successfully prosecuted an action for misrepresentation prior to purchasing the land because prior to the closing of the REPCs, Plaintiffs had suffered no legally cognizable injury. Therefore, the earliest date that Plaintiffs' fraud action accrued and the statute of limitation began to run is the date of purchase, July 9, 1999.
B. Elements of Fraud
Defendants argue that Plaintiffs cannot meet the elements of fraud as a matter of law. Under Utah law, a plaintiff must prove the following elements to establish fraud:
(1) That a representation was made; (2) concerning a presently existing material fact; (3) which was false; (4) which the representor either (a) knew to be false or (b) made recklessly, knowing that he had insufficient knowledge upon which to base such representation; (5) for the purpose of inducing the other party to act upon it; (6) that the other party, acting reasonably and in ignorance of its falsity; (7) did in fact rely upon it; (8) and was thereby induced to act; (9) to his injury and damage.Prince v. Bear River Mutual Ins. Co., 2002 UT 68 ¶ 41, 56 P.3d 524, 536.
In this case, Defendants argue there was no misrepresentation, Tuttle had no knowledge that his water rights were insufficient, and Ellsworth did not reasonably rely on any alleged misrepresentation.
1) Misrepresentation
Defendants argue that the following statements made by Tuttle during the Plaintiffs' visits to the farms and over the farm when Ellsworth had some questions about the number of water rights do not constitute a misrepresentation: (1) the duty on the farm was four acre feet of water; (2) the farms had wells sufficient to meet that duty; (3) Tuttle had farmed the property for over twenty years and not had a problem with his water rights; and (4) the State had delivered him a letter stating that he was irrigating with valid water rights.
However, a misrepresentation includes "half-truths" and may be committed by the suppression of truth as well as the suggestion of falsehood.
Defendants prepared marketing descriptions of and set the price for their properties based on a certain number of legally irrigated acres when there is evidence that Defendants knew or should have known about several limitations. In addition, William Tuttle told the Ellsworths on numerous occasions that he never had any problems with water over his twenty-plus years of farming the land. However, the history of his attempts to get water for the property belie this assertion. Defendants also did not inform Plaintiffs of the State Engineer's inquiry into the Diesel Well. There is also evidence that Defendants saw the survey prepared by the State Engineer and that some acreage of their properties were included as illegally irrigated. Based on these facts alone, the court must conclude that there are at least factual disputes as to whether misrepresentations were made.
2) Knowledge
Defendants also argue that they had no knowledge that their water rights were insufficient, no knowledge that they were watering any parcel of their property improperly, and had received a letter from the State that was a clear indication to them that they had sufficient water rights to water their farm and that all of their wells were fine.
However, given the history of the William Tuttle's attempts to get additional water for his farm and Kenton and Lori Tuttle's farm coupled with his efforts on behalf of West Holden Company's attempts to get more water and an additional well, there is evidence that he knew there was a need for more water, he knew the procedure that had to be followed to get additional water rights, and he knew the Diesel Well was improperly drilled without authorization. Defendants purchased Parcels 4, 14, and 20 of the William and Charlene Tuttle farm without any water rights. There is evidence that Defendants were still watering 200 acres on their farm even though they had agreed to stop using the water at the original point of diversion in order to get water rights for the Kenton and Lori Tuttle farm. In addition, the letter regarding the Diesel Well came after the Defendants received the letter from the State Engineer's office which they claim validated their irrigation practices. This evidence raises disputed issues of material fact regarding Defendant's knowledge.
3) Reasonable Reliance
Finally, Defendants argue that Ellsworth did not reasonably rely upon any alleged misrepresentation. Defendants argue that the standard for reasonable reliance is whether the plaintiff "could have ascertained with reasonable diligence the truth or falsity of [the] alleged misrepresentations" by requesting documents, demanding to know information, or obtaining an independent evaluation. Maack v. Resource Design Constr., Inc., 875 P.2d 570, 577 (Utah Ct.App. 1994).
In this case, prior to signing the REPC in November 1998, Grant Ellsworth attempted to reconcile the water licenses with the acreage involved and called William Tuttle about his concerns and need for additional information. After his conversation with Tuttle, in which Tuttle stated he had never had a problem with water in over twenty years of farming the property and had received a letter from the States stating that all of the property was being legally watered, Ellsworth did nothing to ascertain more information prior to closing on the property. Ellsworth did not contact the State Engineer's office, and did not contact an attorney.
Defendants' contend that Plaintiffs failed to diligently inquire, therefore, the fraud claim must fail, Reasonable reliance is a factual determination based on the specific facts of each question and is usually for the jury to decide. As a general rule," a plaintiff may justifiably rely on positive assertions of fact without independent investigation." Conder v. A.L. Williams Assoc., 739 P.2d 634, 638 (Utah Ct.App. 1987). A plaintiff is only required to make a further investigation on his own if, under the circumstances, "the facts should be apparent to one of his knowledge and intelligence from a cursory glance, or he has discovered something which should serve as a warning that he is being deceived." Id. at 639.
In addition, with respect to water rights, an owner of land "is presumed to know. . . the quantity of water available" and a purchaser has no duty to investigate an owner's representations absent facts putting him on notice. Dugan v. Jones, 615 P.2d 1239, 1246 (Utah 1980), superceded by statute on other grounds, 846 P.2d 1307 (Utah 1993).
In this case, the Ellsworths' visits to the farms revealed the farm being fully irrigated, which was consistent with Defendants' assertions that they had enough water rights to water the property. Although there is a duty of inquiry, under Utah law there is no "duty to disbelieve, aggressively investigate, and set straight." Diversified Equities Inc. v. American Sav. Loan Ass'n, 739 P.2d 1133, 1137 n. 5 (Utah Ct.App. 1987). Ellsworth's telephone conversation with William Tuttle for further explanation regarding the water rights on the property did not, as a matter of law, require Ellsworth to further question the water rights available on the property.
In addition, there is evidence that it is not customary for a purchaser of farm property to conduct an in-depth review of the water records. The real estate agents did not recommend that Plaintiffs obtain a legal opinion and stated that buyers typically rely upon representations from the selling farmers concerning a farm's water rights. These practices are consistent with the Utah Supreme Court's admonition that a seller is presumed to know the quantity of water available. See Dugan, 615 P.2d at 1246. The Tuttles also testified that they did not review records or obtain a legal opinion when they bought the property.
The cases cited by Defendants are distinguishable because they found that attorney purchasers did not reasonably rely on alleged misrepresentations because they failed to conduct routine inspections and appraisals of a home before purchasing. Water rights are different than these types of routine procedures and are treated differently by courts and those in the real estate industry. In addition, those cases involved situations where the plaintiffs did not inquire at all. However, in this case, Ellsworth inquired as to water rights information on several occasions and was always given assurance by William Tuttle that the property had plenty of water rights. Therefore, the court cannot conclude that the Ellsworths' reliance was not reasonable as a matter of law. The issue should be presented to a jury.
The court concludes that Plaintiffs' claim is not barred by the statute of limitations and there are disputed issues of material facts with regard to whether the elements of fraud are met. Therefore, summary judgment on this claim is inappropriate
II. Breach of Contract Conversion Claims
Plaintiffs have alleged a breach of contract against Defendants based on the REPCs and a June 29, 1999 agreement entered into between William and Kenton Tuttle and Grant Ellsworth. Under the June 29 agreement, Grant Ellsworth agreed to "pay interest of 7% to sellers beginning April 1, 1999, to July 1, 1999, on unpaid balances as of this date, June 29, 1999." The interest was to "be paid from the proceeds of hay sales before Jan. 1, 2000."
With respect to the REPCs, Plaintiffs agreed to pay expenses incurred in connection with the 1999 crop. The REPC stated that the "Buyer may elect to farm subject property for the 1999 crop year at any time prior to making the 1 April payment by reimbursing seller for expenses incurred in connection with the 1999 crop." The parties dispute whether these expenses included mortgage interest and whether Defendants asked for payment for mortgage interest or interest on past loans for farm expenses. Under their Fourth claim, Plaintiffs allege conversion for the sums taken as a result of the alleged breaches of contract.
Defendants argue that they are entitled to judgment as a matter of law on the breach of contract and conversion claim. Defendants argue that the court must interpret the contracts using the ordinary and usual meaning of the words used and if this approach is taken, they are entitled to the money they received from Ellsworth.
A. June 29, 1999 Agreement
With regard to the obligation for the Ellsworths to pay 7% interest for the principal amounts due and owing the Tuttles at closing, Defendants argue that the term "proceeds" in the Agreement cannot be construed to mean profits. Defendants contend that "proceeds" mean the total sum derived from a sale or transaction. However, Plaintiffs argue that the June 29, 1999 Agreement is without consideration and, in any event, the term "proceeds" cannot be read to require the payment of interest absent a profit from the 1999 hay crop.
Plaintiffs rely on several facts to argue that the June 29, 1999 agreement is an entirely new agreement, which would require new consideration, rather than a modification of the existing REPCs. Neither REPC has any provision for the payment of interest by the buyer on the unpaid purchase price before closing. The REPCs provide for the purchase price to be paid as a sum certain on or before October 1, 1999. The June 29, 1999 Agreement between Grant Ellsworth, William Tuttle, and Kenton Tuttle is not integrated and does not state that it is intended to amend either REPC. It also does not involve all of the same parties as the original REPCs since it was not signed by Lori or Charlene Tuttle. However, the Agreement refers to buyer and sellers and the reference to unpaid balance appears to be a reference to the balance owed under the REPCS. In addition, the REPCs allowed for modification by written agreement of the parties. The court concludes that these facts raise a genuine dispute as to whether the June 29, 1999 Agreement was intended to modify the REPCs. Therefore, the court cannot conclude as a matter of law that the June 29, 1999 Agreement fails for lack of considerations.
Even if there was consideration to support the Agreement, Plaintiffs argue that the plain meaning of the term proceeds" is that all expenses have been paid. Proceeds is defined as "the profits or returns from a sale, investment, etc." Webster's Encyclopedic Unabridged Dictionary of the English Language 1542 (2001). Plaintiffs argue that Defendants position that proceeds means gross revenue is a definition from a 1966 dictionary. Defendants assert that in addition to the dictionary definition supporting their position, Ellsworth knew there were no profits because he made a note stating that "Expenses of approximately 300,000 and revenue of approximately 450,000. There is no apparent surplus for this to come from the hay proceeds. Expenses exceeded income." However, Plaintiffs argue that the parties' intention was that the interest would not be paid if there were no profits. To the extent that the parties have provided competing dictionary definitions and evidence for determining the plain meaning of the term "proceeds," the court concludes the term is ambiguous and parol evidence must be considered at trial to ascertain the intentions of the parties.
B. REPCs
The second breach of contract issue relates to Defendants' argument that, under the REPCs, they were entitled to deduct payments for mortgage interest from the 1999 crop operating account under the REPC provision allowing for payment of "expenses incurred in connection with the 1999 crop." Plaintiffs dispute Defendants' characterization of prior obligations as mortgage interest. William Tuttle stated in his deposition that the interest payment in question was not mortgage but farm operating interest payments that they had to make on a secured line of credit for past farm operation costs, Plaintiffs contend that in 1999, however the Tuttles had no need for the operating line of credit because Plaintiffs had agreed to pay all Engineer as a party. However, Plaintiffs claims for fraud and/or mistake based on misrepresentations do not turn on the validity of water rights, which is in fact uncontested because the parties' experts agree on the amount of water conveyed. The amount of water conveyed will be established by an analysis of water rights certificates.
The court concludes that there is no need for the Plaintiffs to assert any claim against the State Engineer and there is no dispute requiring a quiet title action. Defendants argument that a judicial determination regarding the sufficiency and validity of the water rights before Plaintiffs can bring an action for misrepresentation and mistake is without merit. No administrative exhaustion is required in this type of case. The State Engineer has done everything he needs to in this case by issuing the water rights certificates at issue.
Therefore, Defendants' Motion in Limine to Exclude Evidence Re: Legality or Validity of Water Rights is denied.
2. Motion to Exclude Evidence Re: Mutual Mistake Rescission
Defendants seek to exclude any evidence regarding alleged mutual mistake and supporting a damage remedy of rescission. Plaintiffs sent Defendants a letter on November 25, 2002, four days prior to the discovery deadline, indicating that they intend to present evidence supporting mutual mistake and seek rescission as an alternative remedy. Plaintiffs have not amended their Complaint and the court's scheduling order required amendment of pleadings by June 17, 2002.
Defendants argue that the mutual mistake claim is not timely and was raised too close to the close of discovery. However, Plaintiffs' Amended Complaint details all of the factual circumstances necessary to allege a mutual mistake claim. Under notice pleading, complaints must be construed to do substantial justice. Defendant have been on notice of the factual circumstances giving rise to mistake. In fact, Defendants themselves placed mistake into issue by admitting the gross inadequacy of the conveyed water while at the same time claiming good faith ignorance of such defects. Therefore, there is no surprise or bad faith and Plaintiffs may properly assert a claim for mutual mistake.
Plaintiffs argue that rescission has always been properly pled in association with the fraud claim because it is an available remedy and Defendants are confusing the election of remedies doctrine with pleading requirements. Defendants deposed David Ellsworth concerning rescission related issues, and Defendants have designated trial evidence to show rescission is improper.
However, Plaintiffs Complaint never specifically states that they are seeking rescission as a remedy. Rather, in order to contend that rescission has always been pled, Plaintiffs rely on their catchall request for all appropriate relief. Although there is evidence in the record relevant to rescission, at oral argument on this motion, Defendants asserted that had they known before the discovery deadline that Plaintiffs intended to seek rescission as a remedy, they would have retained an expert on farming practices. The court agrees that Defendants will be prejudiced in presenting a proper defense on this issue without an expert.
Therefore, the court concludes that Plaintiffs may seek rescission as a remedy. However, if Plaintiffs seek rescission as a remedy, Defendants are allowed additional time to retain an expert on farming practices and the trial date will be moved. However, if Plaintiffs wish to keep the current trial date, the court will not allow Plaintiffs to pursue the remedy of rescission. The court gives Plaintiffs seven days from the date of this Order to notify the court and Defendants as to its election.
3. Motion to Exclude Testimony Amounting to Opinion Testimony of Conclusions of Law
Defendants seek to exclude all expert testimony to be presented by any witness that the water rights transferred to Plaintiffs were not appurtenant to or did not benefit certain parcels and that Defendant's watering of certain parcels was illegal.
Michael Quealy, a water law lawyer, is a retained expert for Plaintiffs to testify about sufficiency and validity of the water rights and the illegality of the Tuttles' watering practices. Terry Monroe, Assistant Regional Engineer, State Division of Water Rights, is intended to testify regarding his findings as to sufficiency and validity of water rights and the illegality of the Tuttle's watering practices.
Defendants' expert does not appear to disagree with these witnesses on these issues. The parties should, therefore, be able to stipulate as to the amount of water rights. Because Defendants' expert does not dispute the findings of Plaintiffs expert or the State Engineer, the trier of fact is bound to honor it regardless of whether it is a factual or legal conclusion.
Under FRE 702, an expert may not state legal conclusions drawn by applying the law to the facts. Questions of law are for the court's instructions, not expert testimony. However, a summary of the water rights reflected in the certificates conveyed are merely a series of factual determinations drawn from water rights certificates and the accompanying files. Testimony that only constitutes the witness' personal experience relating to a relevant subject matter is not impermissible. Therefore, the experts may properly synthesize the information relevant to each water right. A summary by the experts will be helpful to the trier of fact. Jurors of normal experience would not be able to decide on a solid basis without technical assistance of one having knowledge in the subject by experience in a particular field. Submitting this type of information in the jury instructions would not make practical sense.
In Specht v. Jensen, 853 F.2d 805 (10th Cir. 1988), the Tenth Circuit drew a narrow line in determining the scope of expert testimony under FRE 702, stating "[w]e do not exclude all testimony regarding legal issues. We recognize that a witness may refer to the law in expressing an opinion without that reference rendering the testimony inadmissible. Indeed a witness may properly be called upon to aid the jury in understanding the facts in evidence even though reference to those facts is couched in legal terms."
However, the experts cannot tell the jury how to find on an ultimate issue of law. Therefore, the experts cannot opine on whether Defendants committed fraud or were mistaken in their representations to Plaintiffs. For these reasons, Defendants' Motion in Limine to Exclude Testimony Amounting to Opinion Testimony of Conclusions of Law is granted in part and denied in part.
4. Motion to Exclude Expert Testimony of Undisclosed Expert
Defendants seek to exclude any expert opinion testimony of Terry Monroe, Assistant Regional Engineer, State Division of Water Rights. Both parties identified Monroe as a fact witness because of his involvement in the State's Pahvant Valley water survey and his discussions with the parties regarding water rights. Monroe was deposed, and Defendants is concerned about the type of testimony Plaintiff may try to elicit at trial because of the questions at his deposition that sought expert witness opinions. Plaintiffs have not identified Monroe as an expert witness. Plaintiffs, however, listed Monroe in their initial disclosures and said that he had testimony as to "inadequacies with the water rights conveyed from Defendant to Plaintiff."
Defendants assert that because Plaintiffs never identified Monroe as an expert witness, they were unprepared at the time of his deposition for the expert witness questioning and prejudiced. Plaintiffs, however, do not contend that Monroe is an expert retained or employed to provide expert testimony. Rather, Plaintiffs contend that Monroe's testimony is factual.
Just because an witness has expertise does not mean the testimony is governed by FRE702. Monroe can testify as to his experience, understanding of the process, and the information and facts relevant to the issues in this case. However, Monroe may not testify as to ultimate legal conclusion such as whether the Tuttle's were acting legally or illegally. Therefore, Defendants' Motion to Exclude Expert Testimony of Undisclosed Expert is granted in part and denied in part.
Plaintiffs' Motions in Limine
1. Motion to Exclude Alleged Statements by Deceased as Hearsay
Plaintiffs seek to exclude all evidence regarding alleged conversations with and statements by the deceased, James Stephenson. William Tuttle may testify that James Stephenson, who died in March 1982, allowed Tuttle to divert 2 CFS of water owned by the West Holden Irrigation Company.
Plaintiffs claim that the alleged statement is offered to advance Tuttle's claim that James Stephenson also believed that plenty of water existed. Plaintiffs contend that this statement is not offered to show effect on Tuttle, it is offered to show that Stephenson, like Tuttle, believed there was an additional two CFS of water.
Courts routinely exclude testimony regarding alleged statements by decedents on hearsay grounds. There is no way for the opposing party to verify the accuracy of testimony. Also, memories fade with time and can play tricks. Therefore, the statements or recollections are not reliable.
In this case, no evidence other than Tuttle's alleged recollection corroborates that these statements were made — no contract, conveyance, shareholders' meeting notes, or record of payment. Extrajudicial statements lack the conventional indicia of reliability. The statement is prejudicial to Plaintiffs because it cannot be proven that a conversation existed, let alone the granted.
2. Motion to Exclude Expert Testimony Vouching for Defendants' Credibility/Confusion
Plaintiffs seek to exclude all expert testimony relating to the alleged complexity and confusing nature of the water rights evidence as improper credibility vouching under FRE 403, 608, and 702. Defendants' expert, Jack Barnett, opines that anyone would be genuinely confused by the water rights files.
Plaintiffs argue that Barnett's proposed testimony that the water rights files are confusing in an abstract sense is impermissible credibility testimony and only the jury is allowed to evaluate Defendants' credibility. The crux of Defendants' defense is that they had no knowledge of' the water shortage. Defendants' expert should not be allowed to bolster pleas of ignorance especially since he is cloaked in the prestige of an expert.
The Tenth Circuit has specifically excluded expert testimony vouching for another witness' credibility. U.S. v. Charley, 189 F.3d 1251, 1267 (10th Cir. 1999). In Charly, the Tenth Circuit noted "[t]he crucial factor that separates admissible opinion testimony from impermissible vouching is the basis upon which the expert forms his or her opinion."
In this case, Barnett is making conclusions from his own investigation of the records and his experience. Although Barnett has no expertise to offer opinions on what a lay person would find confusing, he can testify as to whether he found the records confusing during his own investigation. Barnett, however, cannot opine as to whether he knows or thinks the records were confusing to Defendants. Defendants can more properly offer their own testimony on that subject. Accordingly, Plaintiffs' Motion to Exclude Expert Testimony Vouching for Defendants' Credibility and Confusion is granted in part and denied in part.
3. Motion to Exclude Evidence of Farming Practices and Contingent Exchange
Plaintiffs seek to exclude all evidence regarding evidence of Plaintiffs' farming practices and evidence of Plaintiffs' arrangements with Greg Kessler on the ground that it is not relevant to these proceedings. In the alternative, to the extent this court entertains such evidence in light of Plaintiffs' rescission claim, Plaintiffs request that the evidence be considered outside the presence of the jury as it is unduly prejudicial and misleading when weighed against its probative value.
Defendants seek to introduce evidence that the farmland is not as green or productive as when it was operated by them, that pivots were accidentally run into power poles, and water has been taken to a nearby farm without the State Engineer's knowledge or approval of a change application. Defendants have asked neighbors to compare Plaintiffs and Defendants operations on the land. Defendants also seek to introduce pictures that have negative descriptions written on them, such as "weeds only," "broken sprinkler," etc.
Defendants have also solicited testimony concerning a contingent agreement between Plaintiffs and Greg Kessler whereby Plaintiffs agreed to exchange the Kenton and Lori Tuttle farm for nearby acreage owned by Greg Kessler. The exchange will occur only if Plaintiffs are unsuccessful in rescinding the purchase transaction in this case. David Ellsworth also testified that pending the outcome of this case, the water rights for Section 17 are being used to water land in Section 19, which is owned by Kessler. Ellsworth stated that the costs of pumping water up the hill to water Section 17 was prohibitive. Defendants questioned Terry Monroe about this diversion of water and have photographs on this subject listed as trial exhibits.
Plaintiffs argue that this evidence has no bearing on any issue in the case and must be excluded. Plaintiffs assert the fact that the farm is not as green and productive is hardly surprising given Defendants' irrigation of far more acreage than their water rights allowed. In addition, Plaintiffs contend that this evidence is not relevant because all of it is subsequent to the closing.
The evidence serves no relevant purpose and has no probative value with respect to Plaintiffs' damages claim for misrepresentation and/or fraud regarding the alleged shortfall of water rights in the purchase of the farm. Plaintiffs' are seeking only the difference in land price associated with an irrigated acre versus a dry acre. If Plaintiffs are seeking to be compensated for improvements they have made to the farm, the evidence would be relevant to what damages they have done. However, Plaintiffs asserted that they are not seeking compensation for improvements.
In addition, the contingent exchange with Greg Kesler does not mitigate Plaintiffs damages. Not only is the entire exchange contingent on the outcome of this case, the exchange does not affect the water rights. The same water rights must be used to irrigate whatever property they may exchange. However, to the extent that Plaintiffs use Kesler as a witness in support of their case, evidence of the pending exchange is admissible to demonstrate bias.
Moreover, evidence that David Ellsworth is watering a different parcel without a change application approved is more prejudicial than probative. This evidence has no relation in time to the purchase of the farm or the difference in value between an irrigated acre and a dry acre of property. Even if Plaintiffs had been watering parcels of land that have no water rights, it has no bearing on the value of the land. The parcels have no water rights. Therefore, the only purpose of the evidence would be to paint Plaintiffs in an unfavorable light. The evidence would confuse and prejudice the jury and is, therefore, inadmissible.
Evidence of farming practices is only relevant if Plaintiffs seek rescission as a remedy. A defrauded parties remaining in possession of property and dealing with it as his own may constitute a waiver of the right to rescind the contract. Dugan v. Jones, 615 P.2d 1239, 1247 (Utah 1980). The party seeking rescission must act promptly because he has an obligation to place the opposite party substantially in status quo. If Plaintiffs have changed the character of the property so that a return to the status quo is impossible, they are precluded from seeking rescission. In order for the court to determine whether are entitled to rescission as a remedy, evidence of farming practices is relevant and necessary.
If the court considers evidence as to whether the property can be restored to its prior condition, Plaintiffs request that the court hear such evidence outside the presence of the jury. The court concludes that this procedure is appropriate given that rescission is an equitable remedy, its implementation is at the court's discretion, and the evidence would prejudice and confuse the jury with respect to Plaintiffs' other claims. Accordingly, Plaintiffs' Motion to Exclude Evidence of Farming Practices and Contingent Exchange is granted in part and denied in part.
CONCLUSION
For the reasons stated above, Defendants' Motion for Partial Summary Judgment is DENIED. Plaintiffs' Motion to Exclude Alleged Statements by Deceased as Hearsay is GRANTED. Plaintiffs' Motion to Exclude Expert Testimony Vouching for Defendants' Credibility and Confusion is GRANTED IN PART and DENIED IN PART as explained above. Plaintiffs' Motion to Exclude Evidence of Farming Practices and Contingent Exchange is GRANTED IN PART and DENIED IN PART as explained above.
Defendants' Motion in Limine to Exclude Evidence Re: Legality or Validity of Water Rights is DENIED. Defendants' Motion in Limine to Exclude Testimony Amounting to Opinion Testimony of Conclusions of Law is GRANTED IN PART and DENIED IN PART as explained above. Defendants' Motion to Exclude Expert Testimony of Undisclosed Expert is GRANTED IN PART and DENIED IN PART as explained above. Defendants' Motion in Limine to Exclude Evidence Re: Mutual Mistake Rescission is GRANTED IN PART and DENIED IN PART as explained above. Plaintiffs have seven days from the date of this Order to notify the court whether they will seek rescission as a remedy so that the court may schedule the trial dates.