Elisabeth M. McOmber | Snell & Wilmer
On March 7, 2024, the Utah Supreme Court issued its decision in Sunstone Realty Partners X LLC v. Bodell Construction Company (2024 UT 9). The decision provides a cautionary tale for parties to a construction contract who may seek to enforce a judgment in Utah.
The underlying dispute at issue involved construction defect claims and arose from a construction contract between Sunstone, a Hawaiian real estate development company, and Bodell, a Salt Lake City based commercial construction firm. The construction project was in Hawaii and the dispute was arbitrated in Hawaii. Sunstone prevailed in the arbitration and received an arbitration award of $9.5 million against Bodell, which was then entered as a judgment by a Hawaiian court. Sunstone then domesticated the judgment in a Utah state court pursuant to the Utah Foreign Judgment Act (UFJA), which allows a foreign judgment to be domesticated in Utah and sets out how a Utah court must treat a foreign judgment. Utah Code Section 78B-5-301-307. Shortly thereafter, Bodell filed a motion with the Utah court asking it to order that Utah’s post-judgment interest rate applied rather than Hawaii’s rate. This was a distinction with a real difference as Utah’s rate at the time was 2.29% while Hawaii’s was 10%. The Utah court granted Bodell’s motion and entered an order that simply stated that “Utah’s post judgment rate applies as of the date of the domestication of the foreign judgment in Utah.” 2024 UT 9, ¶6.
Sunstone appealed on three bases: (1) the district court erred by failing to apply Hawaii’s interest rate; (2) the contract between Sunstone and Bodell required that Hawaii’s rate be applied; and (3) Hawaii’s rate should apply due to comity between the two states. The Utah Supreme Court affirmed the Utah District Court’s decision holding that the lower Utah post-judgment interest rate applied.
On the first issue, Sunstone argued that Hawaii’s higher rate should apply because doing so served the UFJA’s general purpose and because post-judgment interest is a substantive part of the judgment rather than a means of enforcing a judgment. The Utah Supreme Court disagreed. The Court first looked to the provision of the UFJA stating: “[a] foreign judgment filed under this part has the same effect and is subject to the same procedures, defenses, enforcement, satisfaction, and proceedings . . . as a judgment of a district court of this state.” 2024 UT 9, ¶13. The Court then assessed whether post-judgment interest fell within this provision. The Court found that post-judgment interest is an enforcement mechanism designed to encourage prompt payment of a judgment and is not, as Sunstone argued, a substantive part of a judgment. The Court then determined that post-judgment interest therefore falls within the provision of the UFJA, and the district court was correct in determining that Utah’s post-judgment interest rate applied.
On the second issue, Sunstone argued that the contract’s provisions should govern regardless of the Utah statute. The contract provided that it was governed by the law of the location of the project, i.e., Hawaii, and that payments were to bear interest at either a rate that the parties agreed to in writing or at the legal rate in the place where the project was located. Again, the Utah Supreme Court disagreed. The Court first found that the contract’s choice of law provision did not apply because: (1) such an agreement only applies to the substantive law governing the dispute; and (2) absent a specified rate set out in the judgment itself, application of post-judgment interest is a procedural matter which is governed by the law of the forum, i.e. Utah. The Court then turned to Sunstone’s reliance on the contract’s provision regarding interest on payments. The Court noted that the contract could have contained a provision setting an agreed post-judgment interest rate, but it did not. The Court found that the contract provision Sunstone wanted applied related only to interest on payments, did not constitute an agreement regarding the post-judgment interest rate, and that it would not “allow[] the parties to transmogrify an unrelated interest rate clause into an expression of agreement on a post judgment [sic] interest rate.” 2024 UT 9, ¶26. Accordingly, the Court held that absent any such specific clause in the contract, the UFJA governed, and Utah’s post-judgment interest rate applied.
Finally, on Sunstone’s third argument that principles of comity required application of Hawaii’s post-judgment interest rate, the Utah Supreme Court once more did not agree. The Court explained that comity was the principle that courts of one state should defer to those of another for considerations of public policy and in the exercise of judicial discretion. The Court found, however, that where an issue is addressed by statute, in this case the UFJA, the legislature had already decided how the question should be resolved and the Court could not use principles of comity to avoid the statute’s requirements.
In sum, this case carefully analyzed Utah’s foreign judgment enforcement statute (some version of which exists in nearly every other state) to find that Utah’s post-judgment interest rate applies to a foreign judgment domesticated in Utah and any non-Utah company entering into a contract involving a Utah company should be aware of this aspect of Utah law. But the decision’s key takeaway is that this entire issue could have been avoided if Sunstone had ensured that the contract contained a specific provision addressing post-judgment interest on any judgment arising out of the contract and had further ensured that the specified post-judgment rate was included in the judgment entered by the Hawaiian court. Thus, Sunstone Realty Partners X LLC v. Bodell Construction Company once again emphasizes the cautionary tale that it is critical to carefully review any contract before it is entered into to ensure that all necessary provisions are negotiated and included.
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