Amber M. Mettler (11460) Snell & Wilmer L.L.P. 15 West South Temple, Suite 1200 Gateway Tower West Salt Lake City, Utah 84101-1004 Telephone: (801) 257-1900 asullivan@swlaw.com amettler@swlaw.com
Michael D. Zimmerman (3604) Troy L. Booher (9419) Zimmerman J ones Booher LLC Kearns Building, Suite 721 136 South Main Street Salt Lake City, Utah 84101 Telephone: (801) 924-0200 mzimmerman@zjbappeals.com tbooher@zjbappeals.com
Attorneys for Plaintiffs/Counterclaim Defendants Greater Park City Company and Greater Properties, Inc. J ames W. Quinn (pro hac vice) Bruce S. Meyer (pro hac vice) Weil Gotshal & Manges, LLP 767 Fifth Avenue New York, New York 10153 Telephone: (212) 310-8385 james.quinn@weil.com bruce.meyer@weil.com IN THE THIRD JUDICIAL DISTRICT COURT IN AND FOR SUMMIT COUNTY, STATE OF UTAH GREATER PARK CITY COMPANY, a Utah corporation, and GREATER PROPERTIES, INC., a Delaware corporation, Plaintiffs, vs. UNITED PARK CITY MINES COMPANY, a Delaware corporation, and TALISKER LAND HOLDINGS, LLC, a Delaware limited liability company, TALISKER LAND RESOLUTION LLC, a Delaware limited liability company, VR CPC HOLDINGS, INC., a Delaware Corporation, FLERA, LLC, a Delaware limited liability company, TALISKER CANYONS LEASECO LLC, a Delaware limited liability company, TALISKER
PLAINTIFFS MEMORANDUM REGARDING SECURITY FOR A STAY PENDING THE CONCLUSION OF LITIGATION BEFORE THE TRIAL COURT
**REDACTED**
Case No. 120500157 J udge Ryan Harris
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CANYONS FINANCE CO LLC, a Delaware limited liability company, and J OHN DOE CORPORATIONS 1 THROUGH 10, Defendants. UNITED PARK CITY MINES COMPANY, a Delaware corporation, and TALISKER LAND HOLDINGS, LLC, a Delaware limited liability company,
Counterclaim Plaintiffs,
vs.
GREATER PARK CITY COMPANY, a Utah corporation, and GREATER PROPERTIES, INC., a Delaware corporation,
Counterclaim Defendants.
Pursuant to the Stipulated Scheduling Order signed by the Court on J uly 1, 2014, and the Revised Stipulated Scheduling Order signed by the Court on August 12, 2014, Plaintiffs/Counterclaim Defendants Greater Park City Company and Greater Properties, Inc. (collectively, Plaintiffs), by and through their counsel of record, respectfully submit this Memorandum Regarding Security for a Stay Pending the Conclusion of Litigation Before the Trial Court. TABLE OF CONTENTS
Page
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I. SUMMARY ....................................................................................................................... 1 Period Covered by the Bond .............................................................................................. 1 The Appropriate Amount of the Bond ............................................................................... 2 Fair Rental Value ............................................................................................................... 2 Items That Should Not Be Included in the Bond ............................................................... 3 II. BACKGROUND ............................................................................................................... 3 A. The Leases ............................................................................................................. 3 B. Vail Transaction ..................................................................................................... 4 C. Taliskers Unlawful Detainer Counterclaim .......................................................... 5 D. Taliskers Damages Claims ................................................................................... 6 III. GENERAL LEGAL STANDARDS FOR STAYS PENDING FURTHER ADJ UDICATION AND FOR THE DETERMINATION OF SECURITY ...................... 8 A. Utahs Unlawful Detainer Statute .......................................................................... 8 B. Utah Rule of Civil Procedure 62 ............................................................................ 9 IV. ARGUMENT ................................................................................................................... 10 A. The Period for Which Plaintiffs Seek a Stay ....................................................... 10 B. Taliskers Claims for Rent and Damages ............................................................ 10 1. The Value of All Taliskers Claims for Monetary Relief Are Based on the Fair Rental Value of the Leased Premises .................................... 10 2. The Fair Rental Value of the Leased Premises is No More Than $1,000,000 Per Year ................................................................................ 12 a. Fair Market Value ........................................................................ 12 b. Investment or Use Value .............................................................. 15 c. Vails Valuation of the Leased Premises ..................................... 16 3. Summary Rental Value Calculations ....................................................... 18 4. Amounts to Which Talisker is Not Entitled Under its Damages Claims ...................................................................................................... 18 a. Taliskers Alleged Lost Profits .................................................... 18 b. Plaintiffs Profits .......................................................................... 20 c. Double Recovery of Rent From Both Vail and Plaintiffs ............ 22 d. Prejudgment Interest .................................................................... 25 TABLE OF CONTENTS (continued) Page
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e. Limited Reasonable Attorneys Fees ........................................... 27 C. Principles for the Computation of the Amount of Security ................................. 29 1. The Amount Secured Should Equal No More Than the Fair Rental Value of the Leased Premises from May 1, 2011, to May 29, 2013, Plus Taliskers Reasonable Attorneys Fees Incurred in Connection with the Unlawful Detainer Counterclaim Since October 28, 2013 ........ 29 2. Trebled Damages Should Not Be Included in the Amount Secured ....... 29 3. Prejudgment Interest Should Not be Included in the Amount Secured ..................................................................................................... 30 V. CONCLUSION ................................................................................................................ 31
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FEDERAL CASES 650 Park Ave. Corp. v. McRae, 665 F. Supp. 228, 237 (S.D.N.Y. 1987)................................................................................. 22 Alexander v. Chesapeake, Potomac, and Tidewater Books, Inc., 190 F.R.D. 190 (E.D. Va. 1999) .............................................................................................. 1 Bowes v. Saks & Co., 397 F.2d 113 (7th Cir. 1968) ................................................................................................. 17 ClearOne Commcns, Inc. v. Chiang, 432 Fed. Appx. 770 (10th Cir. 2011) ..................................................................................... 26 E.E.O.C. v. Waffle House, Inc., 534 U.S. 279 (2002) ............................................................................................................... 23 In re Network Associates, Inc., Sec. Litig., C 99-01729WHA, 2000 WL 33376577 (N.D. Cal. Sept. 5, 2000) ........................................ 15 Kelly v. Kruse, Landa, Zimmerman & Maycock, Civil No. C-85-1057W, 1998 U.S. Dist. LEXIS 18657 (D. Utah Dec. 9, 1988) .......................................................... 30 Lenci v. Owner, 638 P.2d 598, 803-04 (Wash. Ct. App. 1981)........................................................................ 11 Murphy v. Texaco, Inc., 567 F. Supp. 910 (N.D. Ill. 1983) .......................................................................................... 13 Shepherd v. C.I.R., 115 T.C. 376 (2000) ............................................................................................................... 15 United States v. Miller, 317 U.S. 369 (1942) ............................................................................................................... 12 STATE CASES 438 W. 19th St. Operating Corp. v. Metro. Oldsmobile, Inc., 142 Misc. 2d 170 (N.Y. Civ. Ct. 1989).................................................................................. 13 Anesthesiologists Assocs. of Ogden v. St Benedicts Hosp., 852 P.2d 1030 (Utah Ct. App. 1993) ..................................................................................... 26 Aris Vision Institute, Inc. v. Wasatch Prop. Management, Inc., 2006 UT 45, 143 P.3d 278 .............................................................................................. passim Bennett v. Huish, 2007 UT App 19, 155 P. 3d 917 ............................................................................................ 27 Bjork v. April Indus., Inc., 560 P.2d 315 (Utah 1977) ...................................................................................................... 26 Brooks v. Networks of Chattanooga, Inc., 946 S.W.2d 321 (Tenn. Ct. App. 1996) ................................................................................. 13 Canyon Country Store v. Bracey, 781 P.2d 414 (Utah 1989) ...................................................................................................... 26 Charles Downey Family Ltd. Pship v. S & V Liquor, Inc., 880 N.E.2d 322 (Ind. Ct. App. 2008)..................................................................................... 13 Christopherson, Farris, White & Utley, P.C. v. Pugh, 2006 UT App 68, 2006 WL 448677 (Utah Ct. App. Feb. 24, 2006) ..................................... 28 19843005
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Coinmach Corp. v. Aspenwood Apartment Corp., 417 S.W.3d 909 (Tex. 2013) .................................................................................................. 20 Coleman v. Thomas, 2000 UT 53, 4 P.3d 783 ......................................................................................................... 11 Colt Investments, L.L.C. v. Boyd, 419 S.W.3d 194 (Mo. Ct. of App. 2013) ............................................................................... 13 Dejavue, Inc. v. U.S. Energy Corp., 1999 UT App 355, 993 P.2d 222 ........................................................................................... 25 Diversified Holdings, L.C. v. Turner, 2002 UT 129, 63 P.3d 686 ..................................................................................................... 29 First Sec. Bank of Utah, N.A. v. J .B.J . Feedyards, Inc., 653 P.2d 591 (Utah 1982) ...................................................................................................... 26 Forrester v. Cook, 292 P. 206 (Utah 1930) .............................................................................................. 11, 18, 21 Golden Meadows Properties, LC v. Strand, 2010 UT App 257, 241 P.3d 375 ........................................................................................... 27 Hall v. Feigenbaum, 319 P.3d 61 (Wash. Ct. App. 2014) ....................................................................................... 22 Keith J orgensens, Inc. v. Ogden City Mall Co., 2001 UT App 128, 26 P.3d 872 ............................................................................................. 28 McGuire v. City of J ersey City, 593 A.2d 309 (N.J . 1991)....................................................................................................... 17 Monroc, Inc. v. Sidwell, 770 P.2d 1022 (Utah Ct. App. 1989) ..................................................................................... 11 Nielsen v. OReilly, 848 P.2d 664 (Utah 1992) ...................................................................................................... 30 Olympus Hills Shopping Center, Ltd. v. Landes, 821 P.2d 451 (Utah 1991) ...................................................................................................... 23 Reid v. Mutual of Omaha Ins. Co., 776 P.2d 896 at 906 (Utah 1989) ..................................................................................... 11, 23 Rische Const. Co. v. May, 112 N.W.2d 165 (Wis. 1961) ................................................................................................. 22 Simmons v. OCharley's, Inc., 914 S.W.2d 895 (Tenn. Ct. App. 1995) ................................................................................. 20 Sprincin King St. Partners v. Sound Conditioning Club, Inc., 925 P.2d 217 (Wash. 1996).................................................................................................... 30 Superior Motels, Inc. v. Rinn Motor Hotels, Inc., 241 Cal. Rptr. 487 (Cal. Ct. App. 1987) .................................................................... 21, 22, 26 Taylor Nat'l, Inc. v. J ensen Bros. Constr. Co., 641 P.2d 150 (Utah 1982) ........................................................................................................ 8 T-Mobile USA, Inc. v. Utah State Tax Commn, 2011 UT 28, 254 P.3d 752 ..................................................................................................... 16 19843005
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Valley Lane Corp. v. Bowen, 592 P.2d 589 (Utah 1979) ...................................................................................................... 13 Westport Taxi Serv., Inc. v. Westport Transit Dist., 664 A.2d 719 (Conn. 1995) ................................................................................................... 26 Wright v. Vickaryous, 598 P.2d 490 (Alaska 1979)................................................................................................... 23 STATE STATUTES N.M. Stat. Ann. 47-8-3 ............................................................................................................. 13 Utah Code Ann. 15-1-1(2) ........................................................................................................ 30 Utah Code Ann. 59-2-102(12) .................................................................................................. 12 Utah Code Ann. 78B-6 .................................................................................................... passim STATE RULES Utah R. Civ. P. 4 ............................................................................................................................ 8 Utah R. Civ. P. 54(b) ................................................................................................................. 8, 9 Utah R. Civ. P. 62 ................................................................................................................. passim FEDERAL REGULATIONS 26 C.F.R. 1.170A-1(c)(2) .......................................................................................................... 12 OTHER AUTHORITIES 9 A.L.R. 5th 63 (Originally published in 1993) ........................................................................... 27 32 A.L.R. 2d 582.......................................................................................................................... 13 Accounting Standards Codification 840 ...................................................................................... 17 Accounting Standards Codification 840-10-25. .......................................................................... 17 Restatement (Second) of Property, Land. & Ten. 14.5 ............................................................. 25 The Appraisal of Real Estate at 22 (12 th ed. 2003) ................................................................ 12, 15
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I. SUMMARY The issues before the Court concern (1) the methodology the Court should follow in setting the amount of the bond that will secure a stay of the Order of Restitution entered on J uly 1, 2014, and (2) the appropriate amount of the bond. 1 In a motion filed on J une 12, 2014, Plaintiffs asked the Court, among other things, to stay any order of restitution pending the conclusion of this case at the trial level. The Court has since directed the parties to file simultaneous memoranda on the methodology the Court should follow in calculating the amount of the bond and for the parties positions on what the amount of the bond should be. This memorandum complies with that direction. Period Covered by the Bond The bond that is the subject of the present proceeding is interim in nature. The period of time for which a stay is sought will conclude with this Courts entry of final judgment following the adjudication of the remaining claims of the parties. Based on the Courts Stipulated Order Regarding Schedule (J uly 1, 2014), the parties anticipate that the remaining issues will be tried late this year or early in 2015. When final judgment is entered by this Court, Plaintiffs expect to apply for a stay pending appeal to the Utah Supreme Court under Rule 62(d), Utah Rules of Civil
1 Throughout this memorandum and for convenience, Plaintiffs refer to the proposed security as a bond. However, both Rule 62 and the unlawful detainer statute contemplate the possibility of security other than a corporate bond, including, for example, a personal bond having one or more sureties who are residents of Utah with a collective net worth of at least twice the amount of the bond, or a deposit of money in court or security in lieu of a bond. See Utah Code Ann. 78B-6-808(4)(b)(i)-(ii); Utah R. Civ. P. 62(i)(1)-(2); see also Alexander v. Chesapeake, Potomac, and Tidewater Books, Inc., 190 F.R.D. 190, 193-94 (E.D. Va. 1999) (defendants may either post a bond in the amount set aside, or, if the parties agree, place the sum into an escrow, to be released to plaintiffs if they prevail on appeal). Once the Court sets the appropriate amount of security required to continue the stay, and if Plaintiffs elect to post such security, Plaintiffs should be afforded the opportunity to post security in a form other than a corporate bond, as long it is acceptable to and approved by the Court. 19843005
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Procedure. The bond that is the subject of the present memorandum would be replaced by a supersedeas bond in an amount determined by the Court pursuant to Rule 62(j). The Appropriate Amount of the Bond The amount secured by the bond should equal no more than the fair rental value of the Leased Premises from May 1, 2011, through May 28, 2013, plus Taliskers reasonable attorneys fees incurred in connection with the unlawful detainer counterclaim since October 2013, and costs. Plaintiffs experts have determined the range of values for the market rent appropriate for the Leased Premises based on a series of assumptions. Based solely on the fair market value of the Leased Premises which should control here the fair rental value of the property for the period from May 1, 2011 to J anuary 31, 2015, is $226,650 per year. Assuming, however, that the Leased Premises may be leased as part of an operating ski resort, the reasonable rental value is no more than $1,000,000 per year. Vails own estimate of the fair market value of the Leased Premises together with unspecified improvements implies an annual rental value for the property is no more than $2,890,000 per year. Using these figures to provide a range of possible values, the total amount of the security required to stay the execution of the Order of Restitution until entry of final judgment before this Court should be between $1,021,308 and $6,559,616. Fair Rental Value The Courts determination of the amount of an interim bond must be based on a preliminary estimate of the total net amount of rent and damages that will be awarded to Defendant Talisker Land Holdings, LLC (Talisker). Those damages will be based on the fair rental value of the Leased Premises for the period in question, which began on May 1, 2011, and will end when final judgment is entered by this Court. The Court should base its estimate of the fair rental value on the fair market value the leasehold. As shown below, since both rent and damages must be based on fair rental value, Talisker would not be entitled to recover for either its own alleged lost profits or Plaintiffs profits for the period of occupancy. 19843005
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Items That Should Not Be Included in the Bond Talisker should not be permitted to recover and the amount of the bond should not include rent for the period for which Talisker has already been paid rent by Defendant VR CPC Holdings, Inc. (Vail). Nor should the bond include prejudgment interest primarily because the fair rental value is not a liquidated sum to which prejudgment interest should be applied. Trebled damages should be excluded from the amount secured because the law is clear that all such punitive damages must be excluded from the amount secured by the bond under both the unlawful detainer statute and Rule 62. Finally on this score, although the estimated amount of Taliskers unlawful detainer attorneys fees may be included in the amount secured by the bond, those attorneys fees began to accrue in about October 2013, when Taliskers unlawful detainer counterclaim was filed. II. BACKGROUND A. The Leases 1. Plaintiffs own and operate the Park City Mountain Resort (the Resort or PCMR). A significant portion of the Resorts skiable terrain is operated on land leased through two lease agreements (the Resort Area Lease and the Crescent Ridge Lease, collectively referred to as Leases). The Leases cover approximately 3,000 acres of land (the Leased Premises). 2. The Leases initial term ran until 1991, with the option to extend the term for three additional terms of twenty years (for a total of sixty years or until 2051). Prior to the end of the initial term in 1991, both Leases were extended for an additional twenty-year term until April 30, 2011. 3. On May 2, 2011, Plaintiffs gave written confirmation to UPCM and Defendant Talisker Land Holdings, LLC (collectively, Talisker) that the Leases had been extended for an additional 20-year term. 19843005
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4. On December 30, 2011, Talisker advised Plaintiffs for the first time that its position was that Plaintiffs had failed to timely renew the Leases and the Leases had, therefore, expired on April 30, 2011. 5. Plaintiffs initiated this lawsuit on March 9, 2012, seeking, among other things, a declaration from the Court that the Leases had been extended. (See generally Compl.) 6. Although Talisker contended that the Leases expired on April 30, 2011, by letter dated April 12, 2012, Talisker expressly permitted Plaintiffs to remain on the Leased Premises for the period between April 30, 2011, and April 30, 2012. (See 4/12/2012 Letter attached as Exhibit 14 to 2/7/2014 Declaration of Michael D. Zimmerman (Zimmerman Decl.).) Among other things, Talisker stated that if Plaintiffs did not leave the premises by April 30, 2012, beginning May 1, 2012, rent for the Leased Premises would be $7.7 million per annum. (Id.) 7. On March 29, 2013, Talisker sent another letter to Plaintiffs again demanding rent in the amount of $7.7 million per year and informing Plaintiffs that while Talisker had no present intention to move for immediate possession of the Resort Lands, it may do so in the future. (See 3/29/2013 Letter from D. Smith, attached as Exhibit 15 to Zimmerman Decl.) 8. On April 15, 2013, Talisker sent notice to Plaintiffs reiterating that Talisker had no present intention to move for immediate possession of the Premises, but informing Plaintiffs that if they remained on the Leased Premises after May 1, 2013, they would do so as a tenant at will. (4/15/2013 Letter from D. Smith, attached as Exhibit 16 to Zimmerman Decl.) B. Vail Transaction 9. On or about May 29, 2013, Talisker and Vail Resorts, Inc. (through Defendant VR CPC Holdings, Inc.) consummated a transaction in a series of agreements, pursuant to which VR CPC Holdings leased the Canyons Resort property for a fifty-year term, with six automatic fifty-year renewal periods, for a total term of 350 years (the Vail Transaction). (See 5/21/2014 Mem. Decision and Order at 97.) 19843005
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10. As part of the Vail Transaction, the parties created a new entity, known as Talisker Land Resolution LLC, in order to afford Vail a means to exercise control over this litigation. (Id. at 98.) Talisker Land Resolution acquired 100% of the equity in, and is the sole member of, TLH. (Id.) 11. As part of the Vail Transaction, the parties agreed that the Leased Premises may be added to Vails lease if Talisker prevails in this litigation, although the amount of rent paid by Vail to Talisker a fixed base rent of $25 million per year will not change; additional participatory rent which is to be paid by Vail based on the resorts earnings, may change if Vail is able to operate PCMR. (See, e.g., 4/8/2014 Decl. of J ack Bistricer at 6 (The May 2013 deal with Vail was structured so that the Talisker-affiliated entities involved in the deal would benefit financially from the potential upside that I believed could be achieved through the arrangement with Vail. Specifically, in addition to the $25 million per year that VR CPC Holdings pays as fixed base rent, VR CPC Holdings is also obligated to pay participating rent of 42% of the amount by which the EBITDA from [Canyons Resort and PCMR] exceeds a certain threshold amount.), Ex. A.) 12. In its public securities filings, Vail represented that the fair market value of the Leased Premises with improvements, is $57.8 million. (See September 27, 2013 Vail Resorts, Inc. 10-K at F-18, available at http://files.shareholder.com/downloads/MTN/2798586215x0xS812011-13-29/812011/filing.pdf, excerpts attached as Ex. B.) C. Taliskers Unlawful Detainer Counterclaim 13. On August 28, 2013, Talisker, by and through its sole member, Talisker Land Resolution, served GPCC and GPI with a Five Day Notice to Quit pursuant to Utah Code Ann. 78B-6-802, et seq. (5/21/2014 Mem. Decision and Order at 84.) 19843005
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14. On October 28, 2013, Talisker filed counterclaims against Plaintiffs, including a counterclaim for unlawful detainer. 15. On March 14, 2014, for the first time, Talisker took action to obtain possession of the Leased Premises by filing a motion for partial summary judgment on the unlawful detainer counterclaim and an order of restitution. (See Talisker Counterclaim at 66-75; 3/14/2014 Talisker Mem.) 16. On J une 12, 2014, Plaintiffs filed their Motion to Postpone or Stay the Effect and Enforcement of Any Ruling that May be Rendered on Defendants Unlawful Detainer Counterclaim. 17. On J uly 1, 2014, the Court entered an Order of Partial Summary J udgment and an Order of Restitution on an unlawful detainer counterclaim in favor of Talisker. The Court ruled that Talisker is entitled to take possession of the Leased Premises, but stayed enforcement of the J uly 1 orders until after the August 27, 2014 hearing. 18. On J uly 25, 2014, Talisker responded to Plaintiffs motion to stay, indicating that it would not oppose a stay of the Courts Order of Restitution on the condition that Plaintiffs post a bond sufficient to protect Taliskers rights to collect on a judgment for [Plaintiffs] wrongful use of Taliskers property. (7/29/2014 Letter from J . Lund.) 19. On J uly 10, 2014, Plaintiffs filed an appeal from the J uly 1 orders entered by the Court concerning Taliskers unlawful detainer counterclaim as a precautionary measure. Plaintiffs do not believe the J uly 1 orders finally resolve the litigation, but filed the appeal out of an abundance of caution. D. Taliskers Damages Claims 20. Talisker has asserted three claims for monetary relief: (1) rent for the period since the Leases expired on April 30, 2011; (2) unlawful detainer damages; and (3) in the alternative, 19843005
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unjust enrichment damages. 2 (See generally Talisker Counterclaim at 61-81.) Pursuant to the unlawful detainer statute, in addition to seeking restitution of the Leased Premises, Talisker claims it is entitled to the reasonable value of use of the Leased Premises and the buildings, structures, facilities, and improvements thereon, from five days after service of the Notice to Quit to the present until the time [GPCC and GPI] vacate the premises. (See Talisker Counterclaim at 73-74.) 21. In its written discovery responses, Talisker refused to disclose the amount of damages it seeks. It advised Plaintiffs only that the monetary relief it claims will be the subject of expert evidence and testimony and that it is entitled to at least $7.7 million for the 2012- 2013 period pursuant to its April 12, 2012 letter, even though this amount was not computed, but was simply closer to what [Talisker believes it] should at least be getting for Plaintiffs use of [Taliskers] lands. (7/9/2013 Defs Resp. to Interrogatory No. 4, attached as Ex. C; 8/23/2013 Defs Suppl Resp. to Interrogatory No. 4, attached as Ex. D.) 22. To date, Talisker has provided no additional information as to the amount of damages to which it claims to be entitled, the alleged reasonable value of use of the Leased Premises, or the basis for such amounts. (See, e.g., 12/16/2013 Talisker Suppl Initial Discl. at 5-6, attached as Ex. E.) J ack Bistricer, however, testified that EBITDA (earnings before interest, taxes, depreciation, and amortization) is not relevant to real estate, only to an operating business. (See 11/20/2013 J . Bistricer Dep. Tr. at 21:13-24, attached as Ex. F.) 23. Other than Talisker, none of the defendants has asserted a claim against Plaintiffs for rent or damages. To be specific, Vail has not asserted a claim for damages or any other relief in this case.
2 As the Court noted in its February 20, 2014 Memorandum Decision and Order, Talisker was permitted to maintain its claim of unjust enrichment in the alternative, even though it was highly unlikely that such a claim will ever be needed because Talisker likely has an adequate remedy at law. (See 2/20/2014 Mem. Decision and Order at 20-21.) 19843005
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III. GENERAL LEGAL STANDARDS FOR STAYS PENDING FURTHER ADJUDICATION AND FOR THE DETERMINATION OF SECURITY A. Utahs Unlawful Detainer Statute Because there is no final judgment from which Plaintiffs may appeal as a matter of right pursuant to Utah Rule of Civil Procedure 4, and because no judgment has been certified as final and appealable pursuant to Utah Rule of Civil Procedure 54(b) (such that Rules 62(d) and 62(h) would apply by their terms), the appropriate standard for determining the amount of security is the unlawful detainer statute. The unlawful detainer statute provides that [a] request for hearing by the defendant may not stay enforcement of the restitution order unless: (i) the defendant furnishes a corporate bond, cash bond, certified funds, or a property bond to the clerk of the court in an amount approved by the court according to the formula set forth in Subsection 78B-6- 808(4)(b); and (ii) the court orders that the restitution order be stayed. Utah Code Ann. 78B- 6-812(2)(b) (emphasis added). The formula set forth in Subsection 78B-6-808(4)(b) is as follows: the probable amount of costs of suit, including attorney fees and actual damages which may result to the plaintiff if the defendant has improperly withheld possession. Utah Code Ann. 78B-6-808(4)(b)(vi) (emphasis added). Subsection 78B-6-808(4)(b) indicates that the requisite security may take the form of a corporate bond, cash bond, certified funds, or a property bond executed by two persons who own real property in the state and who are not parties to the action and the form of the bond is at the [tenants] option. Id. at -808(4)(b)(i)-(ii) To the extent there is any lack of clarity in Subsection 78B-6-808(4)(b) as to the standards this Court should follow in setting the bond amount, the principles set forth in Rule 62 provide guidance, particularly since Rule 62 generally allows the Court to stay execution of a judgment in its discretion. See Utah R. Civ. P. 62(a); see also Taylor Natl, Inc. v. J ensen Bros. Constr. Co., 641 P.2d 150, 154 (Utah 1982) (court, in its discretion, may temporarily stay execution in order to prevent injustice, but it may not negate its own judgment by indefinitely staying execution thereon). 19843005
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B. Utah Rule of Civil Procedure 62 Rule 62 allows the Court to stay execution of a judgment in its discretion, Utah R. Civ. P. 62(a), when an appeal is taken, Utah R. Civ. P. 62(d), or when a court has ordered a final judgment on some but not all of the claims presented in the action under the conditions stated in Rule 54(b), Utah R. Civ. P. 62(h). Subsection (h) allows the court to stay enforcement under such conditions as are necessary to secure the benefit thereof to the party in whose favor the judgment is entered. Subsection (d) conditions a stay on the posting of a supersedeas bond. Rule 62(j) directs the Court to set the supersedeas bond in an amount that adequately protects the judgment creditor against loss or damage occasioned by the appeal and assures payment in the event the judgment is affirmed. Utah R. Civ. P. 62(j). [T]he presumptive amount of a bond for compensatory damages is the amount of the compensatory damage plus costs and attorney fees, as applicable, plus 3 years of interest at the applicable rate. Utah R. Civ. P. 62(j)(2)(A) (emphasis added). 3 In setting the amount of the bond, the Court may consider any relevant factors, including the judgment debtors ability to pay the judgment and the respective harm to the parties from setting a higher or lower amount. Utah R. Civ. P. 62(j)(1). The Advisory Committee Note to the rule states: In considering conditions for setting a bond of less than the presumed amount under paragraph (j)(1), the judges objective is to protect both a judgment creditors interest in collecting a judgment affirmed on appeal and to afford a judgment debtor a reasonable opportunity to prosecute an appeal without unduly and unnecessarily affecting the judgment debtors operations. No bond is required for punitive damages. Id. at 62(j)(2)(C). Further, a supersedeas bond may be either a commercial bond or a personal bond having one or more sureties who are residents of Utah having a collective net worth of at least twice the amount of the bond, exclusive of property exempt from execution. Id. at 62(i)(1).
3 The post judgment interest rate for calendar year 2014 is 2.13%. See https://www.utcourts.gov/resources/intrates/interestrates.htm. 19843005
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IV. ARGUMENT A. The Period for Which Plaintiffs Seek a Stay. Plaintiffs seek a stay of enforcement of the Order of Restitution through the conclusion of the proceedings before this Court. Based on the Stipulated Scheduling Order entered by the Court on J uly 1, 2014, the parties anticipate a trial occurring at the end of this year or the early part of 2015. Once the remaining issues have been resolved and final judgment is entered, Plaintiffs will seek a stay during the pendency of their appeal pursuant to Rule 62; the Courts order of stay pursuant to Rule 62(d) will be conditional on a bond or other security in compliance with Rule 62(j). That bond will, in effect, replace the bond or other security that is the subject of this memorandum. For present purposes, the relevant period for the calculation of the amount to be secured is from May 1, 2011 through J anuary 31, 2015, the approximate date of trial. B. Taliskers Claims for Rent and Damages. 1. The Value of All Taliskers Claims for Monetary Relief Are Based on the Fair Rental Value of the Leased Premises. The starting point for the Court should be its preliminary determination of the market rent for the Leased Premises. Talisker has asserted three overlapping claims for monetary relief: (1) rent; (2) unlawful detainer damages; and (3) in the alternative, unjust enrichment damages. No other defendant including Vail has asserted any claim for damages. The damages sought by Talisker under the unlawful detainer statute are inclusive of all other damages it seeks. This is because the unlawful detainer statute provides [t]he judgment shall be entered against the defendant for [1] the rent, [2] for three times the amount of the damages assessed resulting to the plaintiff from, in relevant part, unlawful detainer and/or waste, and [3] for reasonable attorney fees. 4 Utah Code Ann. 78B-6-811(3). Damages incurred during the period of
4 Although Talisker has alleged damages for waste of the premises, it has never identified because it cannot what waste Plaintiffs allegedly committed. (See, e.g., 12/16/2013 Talisker Suppl Discl. at p. 5 (waste is currently unknown but will be the subject of future discovery) Ex. E.) 19843005
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unlawful detainer in other words, damages incurred after the fifth day following service of the notice to quit are subject to trebling. Id.; see also Monroc, Inc. v. Sidwell, 770 P.2d 1022, 1025 (Utah Ct. App. 1989) (only damages incurred after the tenancy has been terminated by the notice to quit may be trebled). Thus, for the period May 1, 2011, through September 2, 2013 (the date on which the tenancy terminated as a result of the Notice to Quit served on August 28, 2013), Talisker may be entitled to rents, which amounts are not subject to trebling. See, e.g., Monroc, Inc., 770 P.2d at 1025. For the period after termination of the tenancy (on September 2, 2013) through entry of final judgment, Talisker may be entitled to damages resulting from Plaintiffs unlawful detainer of the Leased Premises, which damages are measured by the rental value or the reasonable value of the use and occupancy of the premises 5 and are subject to trebling. Forrester v. Cook, 292 P. 206, 211 (Utah 1930); see also Monroc, Inc., 770 P.2d at 1025-26 (noting that damages for unlawful detainer were the propertys fair rental value for the period the tenant remained on the premises after receiving the notice of unlawful detainer); Lenci v. Owner, 638 P.2d 598, 803-04 (Wash. Ct. App. 1981) (The amount of damages occasioned by an unlawful detainer and holding over is based upon the fair value of the use of the premises rather than the amount of rent agreed upon by the parties under a lease no longer in effect.).
5 For the reasons argued in detail at pages 22 to 25 of this memorandum, Talisker cannot lawfully claim any such damages. However, if such damages were to be assessed, these damages would continue to accrue until Plaintiffs returned possession of the Leased Premises to Talisker, which assuming the stay is continued would presumably only occur if, and not until, Plaintiffs do not prevail on their appeal. See, e.g., Coleman v. Thomas, 2000 UT 53, 6, 4 P.3d 783. As such, any damages that accrue after entry of judgment may either be paid into escrow or may be added to the supersedeas bond that replaces the security required for the interim stay requested by Plaintiff. Cf. Reid v. Mutual of Omaha Ins. Co., 776 P.2d 896, 906 (Utah 1989) (To recover for later accruing rents, the landlord must bring a supplemental proceeding or proceedings in which it can prove that additional rents have accrued and that reasonable efforts to mitigate those losses have been taken.). 19843005
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2. The Fair Rental Value of the Leased Premises is No More Than $1,000,000 Per Year. The Court may potentially follow one of two different approaches to determine the value of the Leased Premises: (1) a fair market value analysis or (2) an investment or use value analysis. Both can be determined by analyzing the price paid for comparable properties or by performing an income capitalization analysis (calculating the present value of the future benefits of the Leased Premises). (See, e.g., Declaration of Lance Dor (Dor Decl.) at 12-14, 20, 33, Ex. G.) Using both of these methods, Plaintiffs conclude that an appropriate rental value of the Leased Premises is $226,650 per year, but in no event more than $1,000,000 per year. As shown below (at pages 16 to 18), a valuation in this range of magnitudes is confirmed by the fair market value ($57.8 million) attributed to the Leased Premises in Vails public securities filings. a. Fair Market Value Fair market value means the amount at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts. Utah Code Ann. 59-2-102(12); see also United States v. Miller, 317 U.S. 369, 374 (1942) (market value is what a willing buyer would pay in cash to a willing seller); 26 C.F.R. 1.170A-1(c)(2) (The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.); The Appraisal of Real Estate at 22 (12th ed. 2003) (market value is [t]he most probable price, as of a specific date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeable, and for self-interest, and assuming that neither is under undue duress.). Plaintiffs have found no authority permitting the use of any method other than a fair 19843005
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market value analysis to arrive at the rent and damages due in an unlawful detainer action. 6
As set forth in the Declaration of Lance Dor, attached hereto as Exhibit F, the fair market rental value of the Leased Premises is $226,650 per year. (Dor Decl. at 16-30.) This figure was calculated by determining the annual rental income of the fair market value of the property using a 5% overall rate of return, which is appropriate for the risk profile of the Leased Premises. This method based on the sales of comparable properties assumes that a buyer (or in this case a lessee) would pay no more for a specific property than the cost of acquiring (or renting) a property with the same quality, utility, and perceived benefits of ownership (or
6 See, e.g., Murphy v. Texaco, Inc., 567 F. Supp. 910, 913 (N.D. Ill. 1983) (damages include recovery for any rental income Texaco could have obtained during the post-termination period an amount based on the then-prevailing market rental rate); Colt Investments, L.L.C. v. Boyd, 419 S.W.3d 194, 198 (Mo. Ct. of App. 2013) (evidence as to fair rental value of the property based on testimony of local real estate broker); Charles Downey Family Ltd. Pship v. S & V Liquor, Inc., 880 N.E.2d 322, 327 (Ind. Ct. App. 2008) (as numerous cases have held, that measure is the fair market rental value of the premises after the expiration of the lease); Brooks v. Networks of Chattanooga, Inc., 946 S.W.2d 321, 325 (Tenn. Ct. App. 1996) (the tenant becomes liable for the fair market rental value for the period that it occupies the premises beyond the term of the lease (quotation omitted)); 438 W. 19th St. Operating Corp. v. Metro. Oldsmobile, Inc., 142 Misc. 2d 170, 173 (N.Y. Civ. Ct. 1989) (In making a determination as to value the Court has the obligation to appraise the actual value of the property taking into consideration whatever restrictions apply because of agreements between the parties, or to governmental decrees, or other factors (citations omitted)); Valley Lane Corp. v. Bowen, 592 P.2d 589, 592 (Utah 1979) (Defendants evidence through an expert witness was that a reasonable monthly rental value of the property for the ten months they were in possession after expiration of the old lease would be $1,800. As opposed to this, the plaintiffs expert testified that with only minor repairs and upkeep, the rental value would be $3,800 per month; and that with more extensive renovation, i.e., if new pin setters and carpeting was installed and the interior of the building was painted, a fair market value on a ten year lease commencing September 1, 1976 would be $5,700 per month.); see also N.M. Stat. Ann. 47-8-3 (New Mexicos Uniform Owner-Resident Relations Act defines fair rental value to mean that value that is comparable to the value established in the market place); 32 A.L.R. 2d 582 at 2 (Rental value apparently has reference to what the premises are worth for lease purposes on the open market . . . .). 19843005
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tenancy). 7 (Dor Decl. at 10-12, Ex. G.) Accordingly, Mr. Dor selected comparable properties based on whether they were similar to the highest and best use of the Leased Premises. (Id. at 12, 21.) Highest and best use is defined as [t]he reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible, and that results in the highest value. (Dor Decl. at 7 (quotation omitted).) Here, the highest and best use of the Leased Premises is use as recreation or ranch land. The legal, physical, and financially feasible uses of the property are very limited because the property is isolated vacant land with little or no infrastructure (no tie to a public sewer system, no snow-making water or infrastructure, and no public access). It is zoned for open space, and 2,500 acres of the 3,022 acres comprising the Leased Premises have no development rights. (Id. at 17-19.) After comparing each of the comparable properties to the Leased Premises (on the basis of land use potential or limitations; regional and direct accessibility and proximity of goods, services and amenities; size; view/setting and overall aesthetic appeal; topography/utility; and recreational use potential) to determine what adjustments should be made, the properties were analyzed on a price per acre basis because this is the most appropriate unit-of-comparison for the Leased Premises, reflecting recreational/ranch uses. (See Dor Decl. at 22-23, Ex. G.) The nine comparable properties Mr. Dor analyzed had an unadjusted unit price range between $932 and $3,600 per acre. (Id. at 23.) The adjusted unit price range was between $1,100 and $2,000 per acre. The unit value that appropriately reflects the approximate midpoint within this range is $1,500 per acre. (Id. at 23.) The fair market value of the Leased Premises is calculated by multiplying the $1,500 per
7 The two other approaches to valuation the cost approach and the income approach are not applicable here. (See Dor Decl. at 20, Ex. G.) The cost approach does is not relevant to the Leased Premises, because the property is vacant land. (Id.) The income approach is not relevant because the values of ranch/residential land, like the Leased Premises, is not typically based on income potential. (Id.) 19843005
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acre amount by the number of acres comprising the property (3,022). (Id.) The resulting figure ($4,533,000) is the fair market value of the Leased Premises. To arrive at an annual rental rate, the fair market value ($4,533,000) is multiplied by the annual rate of return appropriate for land with the risk profile of the Leased Premises (5%), which is sometimes called a capitalization rate or CAP rate. (Id. at 24-20; see also Declaration of Matthew H. Connors (Connors Decl. at 17, Ex. H.) The resulting amount represents the ground rental rate that provides a lessor with the desired overall rate of return appropriate for the market. Accordingly, based on the fair market value of the Leased Premises and a 5% rate of return or capitalization rate, the fair rental value is $226,650 per year. 8
b. Investment or Use Value Investment or use value is the value of an asset or business to a specific investor or user. Investment or use value is different from fair market value because it is not the exchange price between a willing buyer and seller, but the value of the asset to a particular buyer or user. In re Network Associates, Inc., Sec. Litig., C 99-01729WHA, 2000 WL 33376577, at *2 (N.D. Cal. Sept. 5, 2000) (unpublished; quotation omitted); see also Shepherd v. C.I.R., 115 T.C. 376, 394 (2000) affd, 283 F.3d 1258 (11th Cir. 2002) (Investment value is more subjective because it is predicated on the investment preferences of the individual investor. (quotation omitted)). 9
Using the investment or use value approach, the appraiser focuses on the value the real estate contributes to the enterprise of which it is a part, without regard to the highest and best use of the property or the monetary amount that might be realized from its sale. Use value may vary depending on the management of the property and external conditions such as changes in business operations. The Appraisal of Real Estate at 24 (12th ed. 2003). Because investment or use value is not equivalent to fair market value, it is not an
8 $226,650 =$1,500 per acre x 3,022 acres x 5%. (See Dor Decl. at 29-30, Ex. G.) 9 Copies of all unpublished cases cited herein are attached as Exhibit I. 19843005
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appropriate measure of the fair rental value of the Leased Premises. 10 In other words, the resulting value is necessarily different from what a willing lessor and willing lessee would accept for the Leased Premises; rather, it equates to the amount a particular investor or user would pay to lease the Leased Premises for the purpose of operating a ski resort on the property, and it assumes that such a use is possible. Even though the investment or use value of the Leased Premises is not directly relevant to the determination of fair rental value, Plaintiffs asked their expert real estate appraiser to determine the propertys investment or use value as a point of reference. As set forth in Mr. Dors declaration, the rental value based on an investment or use value of the Leased Premises is approximately $829,000 to $1,000,000 per year. (See Dor Decl. at 31-36, Ex. G.) These amounts are based on land rents currently being paid for similar facilities, using the formula adopted by the U.S. Forest Service, the lessor of the majority of ski resort lands in the United States, and land rent rates generally paid in the ski industry. This valuation necessarily assumes that the Leased Premises could be leased for the purpose of operating a ski resort on the property. Plaintiffs believe that this assumption is unreasonable unless the owner of the property also acquires ownership or control of base facilities and infrastructure. Because of these limitations, Plaintiffs do not believe these values reflect a fair rental value for the property. c. Vails Valuation of the Leased Premises In its public securities filings, Vail estimated fair market value of the land and associated improvements on the Leased Premises as $57.8 million. (See September 27, 2013
10 Investment or use value may also include both tangible and intangible assets associated with the property. Here, since the issue is the fair rental value of the Leased Premises (i.e., property), only tangible assets (the land) should be considered. Intangible assets such as synergy value and customer base are associated with the business being conducted on the property; they are not directly attributable to tangible property. T-Mobile USA, Inc. v. Utah State Tax Commn, 2011 UT 28, 39, 254 P.3d 752. As a consequence, any measure of the fair rental value of Leased Premises that includes intangible assets, would improperly be assessing damages against Plaintiffs for assets to which Talisker is not entitled and which Talsisker does not own or control. 19843005
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Vail Resorts, Inc. 10-K at F-18 & F-19, available at http://files.shareholder.com/downloads/MTN/2798586215x0xS812011-13-29/812011/filing.pdf.) Vails disclosure is relevant here for two reasons. First, it is apparent from these filings that the Vail Transaction even though structured as a lease transaction was in fact an acquisition by Vail of the Canyons Resort as well as the Leased Premises. 11 (See Connors Decl. at 9-12, Ex. H.) As demonstrated below, this confirms that Talisker could assert no damages arising from Plaintiffs occupancy of the Leased Premises once those lands were sold to Vail. See, e.g., Bowes v. Saks & Co., 397 F.2d 113, 116- 17 (7th Cir. 1968) (holding, in relevant part, that landlords suffered no damages as a result of commercial tenants failure to restore premises that had been sold by landlords); McGuire v. City of J ersey City, 593 A.2d 309, 315 (N.J . 1991) (we think it is more appropriate to consider the landlords sale of the premises as a mitigation, and the sale ended the right to damages for lost future rent because sale price . . . compensate[d] for the value of the future rental income). Second, Vails disclosure suggests a fair rental value of less than $3 million per year. Based on Vails estimate of the fair market value of the Leased Premises at $57.8 million (which is generous since Vail acknowledges this amount includes the value of improvements that may
11 GAAP guidance set forth in Accounting Standards Codification (ASC) 840: Leases establishes a four-part test to determine whether the economics of a transaction indicate that it is an operating lease (true lease) or a capital lease (constructive sale). If a lease satisfies any of the four tests, it must be accounted for as a capital lease, meaning it will be treated as a sale. In other words, the accounting is meant to recognize the true economics of the transaction. The four tests are generally described as: (1) whether the lease transfers title of the asset to the lessee; (2) whether a bargain-purchase option exists such that the lessee can purchase the asset at a price significantly below the expected fair value at the date the option becomes exercisable; (3) whether the lease period equals or exceeds 75% of the assets economic life; or (4) whether the present value of the minimum lease payments equals or exceeds 90% of the fair market value of the assets subject to the lease. See also ASC 840-10-25. 19843005
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or may not belong to Talisker under the Leases 12 ), and based on a capitalization rate appropriate for the Leased Premises, the implied annual rental rate is $2,890,000 ($57,800,000 x 5%). 13 (See Connors Decl. at 20, Ex. H.) As shown above, the annual rental rate derived from Vails valuation of the Leased Premises exceeds the fair market rental value of the Leased Premises. 3. Summary Rental Value Calculations. In sum, based on the fair market value of the Leased Premises, the fair rental value of the property is $226,650 per year. Assuming the Leased Premises can be leased for use as part of an operating a ski resort on the property, an appropriate rental value of the property is between $829,000 and $1,000,000 per year. Based on Vails own fair market valuation of the Leased Premises (and associated improvements), the rental value is no more than $2,890,000. Rental values derived from an investment or use valuation or from Vails valuation of the Leased Premises represent the outer limit of those rental values that could under any circumstances be assessed for the Leased Premises. 4. Amounts to Which Talisker is Not Entitled under its Damages Claims. a. Taliskers Alleged Lost Profits Talisker is only entitled to recover those damages that are the natural and proximate consequences of the acts complained of and nothing more. Forrester, 292 P. at 211. Since Talisker has never been more than a landlord entitled to a reasonable rent on its land, Talisker is not entitled to recover its alleged lost profits in excess of the fair rental value since April 30,
12 It also is unknown whether Vail accounted for the fact that a significant portion of the Park City Mountain Resorts skiable terrain the 240 acres surrounding the base of J upiter Lift is not owned by Talisker, is not the subject of the Leases, and, therefore, could not have been transferred by Talisker to Vail. 13 Indeed, an estimate of the amount of Vails $57.8 million attributable to land only based on the historical percentage land represents of total fixed assets as reflected in the financial statements of Vail and Park City Mountain Resorts parent company, Powdr Corp., results in an implied land rental rate of between $404,600 and $578,000 per year. (See Connors Decl. at 23, Ex. H.) 19843005
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2011. In other words, the damages must be directly traceable to the . . . unlawful detainer . . . . A causal connection that is too attenuated, such as unlawful detainer which allegedly results in loss of consortium, would not justify an award for damages. There must be a common sense relationship. Aris Vision Institute, Inc. v. Wasatch Prop. Management, Inc., 2006 UT 45, 19, 143 P.3d 278. The only consequence to Talisker of Plaintiffs continued occupancy of the Leased Premises has been that Talisker has been deprived of its rent. Talisker itself has never utilized the property for any purpose other than to lease it to Plaintiffs, and it could not possibly make any other productive use of the Leases Premises. In 2007, it successfully annexed the majority of the Leased Premises into Park City Municipal Corporation, stripped all of the development rights from the property, and executed a deed restriction limiting the use of the property. (See 2/7/2014 Declaration of M. Harrington (Harrington Decl.) at 19(a) (In return for the transfer of density from PCMRs ski terrain to the Flagstaff Mountain Annexation Area, the use of the alpine terrain would be perpetually limited to open space and ski resort uses would be governed by the terms of the PCMR Development Agreement), (b) (No development or associated operations would be permitted on the annexed alpine terrain other than as part of the ski-related operations as allows and described in the PCMR Development Agreement.).) As a result, even if Talisker had intended to make productive use of the Leased Premises following the expiration or termination of the Leases, the only allowable economic use of the property would be as part of a ski resort. (See id.) Talisker itself, however, could not operate such a resort on the Leased Premises because, among other things, Talisker does not own or control the base facilities, parking, snow-making infrastructure, or water rights necessary to operate the Resort all of which are owned or controlled by Plaintiffs or their affiliates. In sum, Talisker is entitled at most to rent. Because Talisker could not have made any profits on the Leased Premises, it is not entitled to recover any profits as a result of Plaintiffs 19843005
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continued occupancy of the Leased Premises. See, e.g., Simmons v. OCharleys, Inc., 914 S.W.2d 895, 902 (Tenn. Ct. App. 1995) (rejecting claim for lost profits in unlawful detainer case because landlord had no building prior to the end of the unlawful detainer, thus there was no delay that resulted in lost profits). Because Taliskers intention has always been to lease the Leased Premises to Plaintiffs, any profits purportedly lost by Talisker would necessarily be duplicative of (and possibly even less than) the reasonable rent to which it is entitled. This is because a landowners profits derived from leasing its land would be included in the rent paid to the landowner by the tenant. Payment of both rent and a portion of the Taliskers allegedly lost profits would, therefore, be duplicative. As one court has explained,
Typically, the landlord could not recover both reasonable rent and lost profits because recovery is limited to the amount necessary to place the plaintiff in the position it would have been in but for the trespass. Lost profits are measured by deducting operating expenses from gross earnings, resulting in net profits. Reasonable renti.e., the value of the use of the propertyis calculated as part of the gross earnings, and thus is already included in the net profit calculation. To allow the plaintiff to recover both reasonable rent and lost profits would, in most cases, constitute a double recovery. In a residential leasewhere there is no business or for- profit endeavorlost profits would constitute the profits normally associated with reasonable rent. Coinmach Corp. v. Aspenwood Apartment Corp., 417 S.W.3d 909, 921 n.7 (Tex. 2013) (quotation, citation, and alterations omitted). b. Plaintiffs Profits Talisker should not be permitted to claim as damages all or a portion of Plaintiffs profits from the Resort for at least three reasons: First, Talisker has never asserted any claim or entitlement to Plaintiffs profits regardless of Plaintiffs unlawful detainer of the Leased Premises. See, e.g., Aris Vision Institute, Inc., 2006 UT 45, 19 (there must be a common sense relationship between the 19843005
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unlawful detainer and an alleged loss to justify an award of damages). Thus, the natural and proximate consequences of Plaintiffs continued occupancy of the Leased Premises cannot include Taliskers loss of all or a portion of Plaintiffs profits. Forrester, 292 P. at 211. Second, Plaintiffs profits are not attributable solely, or even substantially, to the Leased Premises. Plaintiffs profits like the profits of any business owner are a result of Plaintiffs own investment in and management of the Resort, Plaintiffs marketing and brand name recognition, Plaintiffs workforce, as well as Plaintiffs ownership or control of the water rights necessary for snowmaking, the base facilities, and the parking all necessary components of the Resort. Finally, the Court has already held that Talisker is not entitled to Plaintiffs profits under its alternative claim of unjust enrichment. (See 2/20/2014 Memorandum Decision and Order at 23.) On this score, Talisker has conceded two key propositions. First, its unjust enrichment claim will be subject to dismissal if there is an adequate remedy at law. Second, in order to obtain the remedy of disgorgement of lost profits, some showing of willful misconduct or bad faith is necessary. (Id. at 20, 22 (quotation omitted).) The Court concluded that remaining on the land after expiration of a lease, even after being told to leave does not constitute the sort of fraudulent or willfully wrongful conduct envisioned by the disgorgement of profits remedy in an unjust enrichment claim. (Id. at 22.) The same must be true with respect to Taliskers claims for rent and unlawful detainer, for which it does not even plead entitlement to disgorgement of profits. To hold otherwise, would ignore and render meaningless the Courts ruling dismissing Taliskers request for disgorgement of profits and it finds no support in the law. See, e.g., Superior Motels, Inc. v. Rinn Motor Hotels, Inc., 241 Cal. Rptr. 487, 508 (Cal. Ct. App. 1987) (Profits [of the tenant] are not synonymous with rental value.). In short, [n]et profits may be an appropriate measure of damages in a breach of contract action, but they are not equivalent to reasonable rental value the measure of damages in an unlawful detainer case, and are, 19843005
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position it would have been in had [the tenant] vacated the [premises] as she had agreed to do). Because Talisker has not been damaged after May 29, 2013, it can claim no damages for the period in which Plaintiffs have been in unlawful detainer (September 3, 2013, through present). As a result, none of Taliskers damages is subject to trebling. Like any other type of damages, damages for unlawful detainer or rent may (and, under certain circumstances, must) be mitigated. See, e.g., Reid, 776 P.2d at 906 (a mitigation requirement is generally appropriate in the context of modern landlord-tenant transactions and, therefore, a landlord who seeks to hold a breaching tenant liable for unpaid rents has an obligation to take commercially reasonable steps to mitigate its losses, which ordinarily means that the landlord must seek to relet the premises); see also Olympus Hills Shopping Center, Ltd. v. Landes, 821 P.2d 451, 455 (Utah 1991) (approving of trial courts conclusion that liability should be limited to two years of rent because using commercial reasonable efforts, the landlord could have relet the premises within two years). 15 The corollary of the principle of mitigation is that a landlord, like Talisker, is not entitled to double compensation. See Wright v. Vickaryous, 598 P.2d 490, 499-500 (Alaska 1979) (rejecting unlawful detainer damages award that included rental value for the property and the award of the hay crops harvested off the property as double compensation); see also E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 296-97 (2002) (if one fails to mitigate his or her damages, any recovery is limited because it goes without saying that the courts can and should preclude double recovery by an individual (quotation omitted)). Since Vail is already paying rent to Talisker, and since Talisker is being more than fairly compensated for use of the Leased Premises, Talisker has suffered no injury since May 2013. As a result, it is not entitled to seek damages for Plaintiffs occupancy and/or unlawful detainer.
15 Plaintiffs do not contend that Talisker had an obligation to mitigate its damages since Plaintiffs remained in possession of the Leased Premises. Indeed, Plaintiffs concede that the fact Talisker was able to more than mitigate its damages (i.e., find a party willing to pay in excess of fair rental value for property to which it was and is not entitled to possess and is the subject of ongoing and contentious litigation) is remarkable. 19843005
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Presumably, Talisker will respond by arguing that it would be unfair for Plaintiffs to occupy the property without payment rent for the period after May 29, 2013. The immediate question becomes, unfair to whom? Certainly not to Talisker which is already being paid more than fair rental value for use of the property. And Vail the only party conceivably harmed by Plaintiffs ongoing possession of the Leased Premises could not possibly complain for at least two reasons. First, Vail entered into the transaction with Talisker fully aware of the dispute over the Leases. Vail knew that Plaintiffs continued to occupy the Leased Premises, even though Talisker asserted the Leases had expired on April 30, 2011. In other words, Vail agreed to pay Talisker $25 million per year (in total rent for both the Canyons and Park City Mountain Resort properties) regardless whether Plaintiffs remained on the property, regardless whether Talisker prevailed in the litigation, and regardless whether Vail ever took possession of the Leased Premises. Presumably Vail took this risk because it saw an opportunity to take over Park City Mountain Resort. (See, e.g., 1/31/2014 Mem. in Supp. of Motion for Partial Summary J udgment on Violation on Sale at 18 (in Vail transaction Vail obtained an immediate long-term leasehold interest in the Canyons Resort property, with the possibility of adding to that lease the Talisker property upon which PCMR operates, following the resolution of this litigation). Thus, Vails damages (if any) are a result of its own doing and not, as required by the law, directly traceable to the . . . unlawful detainer. Aris Vision Institute, Inc., 2006 UT 45, 19. Second, Vails deal with Talisker does not allow it to take possession until the present litigation is over. Although Vail now controls the litigation on behalf of Talisker, the Leased Premises have not yet been added to the Master Agreement of Lease, and Vail does not have the right to occupy the property. As a result of its bargain with Talisker, Vail has no right of possession and has no claim against Plaintiffs. This is critical because the right of the incoming tenant to sue [a holdover tenant] for damages is grounded in his right to possession of the 19843005
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premises during the period of the holdover. Restatement (Second) of Property, Land. & Ten. 14.5 Rep. Note 4 (1977). Vail cannot claim to have been deprived of the right of possession during the holdover period because its right of possession must await the conclusion of this case or at least the addition of the Leased Premises to the Master Agreement of Lease. As Talisker and Vail have argued repeatedly to this Court, the lease of the Park City Mountain Resort ski terrain to Vail is contingent only. (See, e.g., 9/18/2013 Hearing Tr. (If we win, they [Vail] become a tenant on this property, thats all.); 2/7/2014 Talisker Mem. in Supp. of Motion for Partial Summary J udgment on Right of First Refusal at 3 (a future lease contingent on the outcome of this litigation . . . is precisely what Vail obtained); 1/31/2014 Mem. in Supp. of Motion for Partial Summary J udgment on Violation on Sale at 18 (in Vail transaction Vail obtained an immediate long-term leasehold interest in the Canyons Resort property, with the possibility of adding to that lease the Talisker property upon which PCMR operates, following the resolution of this litigation).) Because Vail has never had the right to possess the Leased Premises, Vail can have no claim against Plaintiffs arising out of Plaintiffs continued occupancy of the Leased Premises. 16
d. Prejudgment Interest Talisker is not entitled to recover prejudgment interest. The Utah Court of Appeals has observed that [w]hile an award of prejudgment interest might well be appropriate under the breach of contract claim, such an award is highly problematic with respect to the forcible entry, unlawful detainer, and conversion claims. Dejavue, Inc. v. U.S. Energy Corp., 1999 UT App
16 For this same reason, Talisker cannot claim any damages arising from any lost participating rent associated with the Resort. In other words, even assuming Vail could make productive use of the Leased Premises without the assets owned or controlled by Plaintiffs (it cannot), unless and until the demising amendment has been exercised, Vail has no right to possess the Leased Premises and, therefore, Talisker is not entitled to any participating rent associated with the Resort. (See, e.g., 1/31/2014 Talisker Mem. in Supp. of Motion for Partial Summary J udgment on Violation on Sale at 21 (For purposes of the participating rent calculation, the PCMR land is not included as part of the Resort unless and until it is leased to Vail.).) 19843005
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355, 25, 993 P.2d 222, 228 (emphasis added); see also Superior Motels, Inc., 241 Cal. Rptr. at 510 (rejecting prejudgment interest in unlawful detainer case). This is not a situation, for example, in which a tenant has defaulted on a lease and owes a liquidated sum of rent that is to be determined by reference to the lease. Instead, Talisker has shown that it is completely unable to justify the rent it has demanded. As a result, until judgment is entered, Taliskers damages will not be capable of calculation with the mathematical accuracy required to warrant prejudgment interest. See Canyon Country Store v. Bracey, 781 P.2d 414, 422 (Utah 1989) (While the basis of the formula used to determine Canyon Countrys lost profits may have been sufficient for the jury to render a verdict in favor of Canyon Country, it is too speculative to allow for the addition of prejudgment interest.); Anesthesiologists Assocs. of Ogden v. St Benedicts Hosp., 852 P.2d 1030, 1042 (Utah Ct. App. 1993) (affirming denial of prejudgment interest award on lost profits), revd on other grounds, 884 P.2d 1236 (Utah 1994). Prejudgment interest is available only where damages can be calculated with mathematical accuracy. . . . ClearOne Commcns, Inc. v. Chiang, 432 Fed. Appx. 770, 773-74 (10th Cir. 2011) (citing Bjork v. April Indus., Inc., 560 P.2d 315, 317 (Utah 1977)). Even if it were appropriate to assess prejudgment interest in an unlawful detainer case, prejudgment interest cannot lawfully be assessed on any trebled damages. Cf. Westport Taxi Serv., Inc. v. Westport Transit Dist., 664 A.2d 719, 740 (Conn. 1995) (holding that prejudgment interest on treble damages was improper). Although no Utah court appears to have addressed the specific question, it is clear that prejudgment interest is not awarded on punitive damages and that Utah courts view treble damages under the unlawful detainer statute as the equivalent of punitive damages. See, e.g., Aris Vision Institute, Inc., 2006 UT 45, 7 (trebling of damages under the unlawful detainer statute is highly penal in nature); First Sec. Bank of Utah, N.A. v. J .B.J . Feedyards, Inc., 653 P.2d 591, 600 (Utah 1982) (This rule clearly precludes prejudgment interest on the courts mental anguish and punitive damages awards, which were not fixed or 19843005
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ascertainable before the time of trial.); Bennett v. Huish, 2007 UT App 19, 42-45, 155 P.3d 917 (prejudgment interest awarded on actual damages only; not punitive damages award). This is consistent with the general rule across the country. See 9 A.L.R. 5th 63 (Originally published in 1993) (attempts to collect prejudgment interest on punitive and statutory multiple damages are denied by the majority of the courts.). Accordingly, Talisker is not entitled to prejudgment interest. e. Limited Reasonable Attorneys Fees Pursuant to the unlawful detainer statute, Talisker is entitled to recover its reasonable attorneys fees incurred in connection with the unlawful detainer claim. See Utah Code Ann. 78B-6-811(3) (providing for reasonable attorney fees). Courts permit fee awards for all claims including claims that do not generally permit an award of attorneys fees when all of the claims involve a common core of facts and related legal theories. Golden Meadows Properties, LC v. Strand, 2010 UT App 257, 35-37, 241 P.3d 375. In Golden Meadows, for example, the plaintiff initiated an unlawful detainer action and the defendants responded with a counterclaim for quiet title, constructive trust, and adverse possession. Id. at 1. Under those circumstances, the court agreed that the legal work performed in responding to the counterclaim was inextricably intertwined with the legal work associated with the initial unlawful detainer action and, therefore, the fees for such work were appropriately awarded to the prevailing plaintiff. Id. at 35. In contrast to Golden Meadows, Plaintiffs initiated this litigation in March 2012, but Talisker refrained from seeking relief under the unlawful detainer statute until August 2013. Until that time, it expressly permitted Plaintiffs to remain on the Leased Premises. (See, e.g., 5/21 2014 Mem. Decision and Order at 80, 82.) Talisker did not file a counterclaim under the unlawful detainer statute until October 28, 2013. Thus, no legal work by Taliskers attorneys was or could have been inextricably mixed with the unlawful detainer claim until such a claim 19843005
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was filed. 17 Compare, e.g., Christopherson, Farris, White & Utley, P.C. v. Pugh, 2006 UT App 68, 2006 WL 448677, at *4 (Utah Ct. App. Feb. 24, 2006) (unpublished) (holding that legal work performed on the complaint for breach of contract was inextricably mixed with the defense on the counterclaims. [Counterclaim plaintiff] relied on the same factual assertions for the entire case, based on her belief that the [counterclaim defendant] had not properly represented her in the prior case.). Moreover, it is simply unfair to assess attorneys fees for legal work done by Taliskers attorneys during the time period in which Talisker expressly allowed Plaintiffs to remain on the Leased Premises and, in fact, disclaimed any intention to move for immediate possession of the Resort Lands. (5/21/2014 Mem. Decision and Order at 82.) Accordingly, upon entry of judgment Talisker should be required to categorize the time and fees expended for (1) successful claims for which there may be an entitlement to attorney fees, (2) unsuccessful claims for which there would have been an entitlement to attorney fees had the claims been successful, and (3) claims for which there is no entitlement to attorney fees. Keith J orgensens, Inc. v. Ogden City Mall Co., 2001 UT App 128, 26 P.3d 872, 880 (quotation omitted). Talisker will only ever be entitled to its reasonable attorney fees incurred in connection with its unlawful detainer counterclaim and only for the period after October 28, 2013.
17 Indeed, at the very least, no attorneys fees incurred in connection with Plaintiffs seventh and eighth causes of action should be awarded because Talisker itself argued vociferously that these claims d[id] not belong in this case, but should be filed, if at all, as a separate action that can be stayed until the status of the Leases has been determined. (8/12/2013 Defs Oppn to Motion for Leave at iv; see also id. at 8-10 (arguing that Plaintiffs new claims . . . involve multiple non-parties and legally have nothing whatever to do with the present litigation (emphasis added)).) 19843005
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C. Principles for the Computation of the Amount of Security. 1. The Amount Secured Should Equal No More Than the Fair Rental Value of the Leased Premises from May 1, 2011, to May 29, 2013, Plus Taliskers Reasonable Attorneys Fees Incurred in Connection with the Unlawful Detainer Counterclaim Since October 28, 2013. As shown above, Talisker is entitled to recover the fair market rental value of the Leased Premises for the period after the expiration of the Leases but before the Vail Transaction, which equals $471,308 in damages ($226,650 per year for the period May 1, 2011, through May 28, 2013). But even using Vails own estimate of the fair market value of the Leased Premises, the most Talisker would be entitled to is roughly $6,009,616 in damages ($2,890,000 per year for the period May 1, 2011, through May 28, 2013) plus reasonable attorneys fees in connection with the unlawful detainer claim and costs. These are the only amounts that should be included in any security required to stay the eviction through entry of final judgment. 2. Trebled Damages Should Not Be Included in the Amount Secured. Trebled damages should not be included in the amount secured for three reasons. First, as shown above, Talisker has suffered no injury since May 29, 2013, and is, therefore, not entitled to any damages that are subject to trebling. Second, the unlawful detainer statute limits the bond amount to the probable amount of costs of suit, including attorney fees and actual damages which may result to the plaintiff if the defendant has improperly withheld possession. Utah Code Ann. 78B-6-808(4)(b)(vi) (emphasis added). Trebled damages are not actual damages incurred by the landlord, but merely amounts included as the judgment by the Court essentially as punishment. See id. at 78B-6-811(3) (The judgment shall be entered against the defendant for . . . three times the amount of the damages assessed . . . .). Third, Rule 62(j)(2)(C) expressly excludes punitive damages from a bond required for a stay, and statutory treble damages are the equivalent of punitive damages. See Avis Vision Institute, Inc., 2006 UT 45, 7 (trebling of damages under the unlawful detainer statute is highly penal in nature); Diversified Holdings, L.C. v. Turner, 2002 UT 129, 30, 63 P.3d 686 (a statutory penalty of 19843005
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treble damages coupled with an award of punitive damages was duplicative); Sprincin King St. Partners v. Sound Conditioning Club, Inc., 925 P.2d 217, 222 (Wash. 1996) (recognizing that double damages pursuant to Washingtons unlawful detainer statute is the equivalent of punitive damages). 3. Prejudgment Interest Should Not be Included in the Amount Secured. Finally, prejudgment interest should not be included in the amount secured by the bond because not only does the unlawful detainer statute omit any reference to prejudgment interest in the formula used to calculate a bond, see Utah Code Ann. 78B-6-811(3), as shown above, Talisker is not entitled to prejudgment interest in any event. 18
* * * In summary, the amount of the security required to stay the execution of the Order of Restitution until entry of final judgment should be between $1,021,308 and $6,559,616. 19
Item Low High Rent for the period May 1, 2011 through May 28, 2013 $471,308 $6,009,616 Actual damages which may result to the plaintiff if the defendant has improperly $0 $0
18 Even assuming Talisker is entitled to prejudgment interest (it is not), it is unclear and Talisker has to date supplied no evidence of what interest rate should apply. The Utah Code provides a rate for breach of contract claims. See Utah Code Ann. 15-1-1(2) (Unless parties to a lawful contract specify a different rate of interest, the legal rate of interest for the loan or forebearance of any money, goods, or chose in action shall be 10% per annum.). Here, however, there is no breach of contract claim and thus the 10% rate does not apply. See, e.g., Nielsen v. OReilly, 848 P.2d 664, 670 (Utah 1992) (rejecting claim that insured was entitled to prejudgment interest because he had a contractual relationship with the insurance company because the insured did not pursue a breach of contract claim against [the insurer]); compare Kelly v. Kruse, Landa, Zimmerman & Maycock, Civil No. C-85-1057W, 1998 U.S. Dist. LEXIS 18657, at *26-27 (D. Utah Dec. 9, 1988) (unpublished) (awarding prejudgment interest on legal malpractice claim where there was a finding that the defendants breached the express terms of the parties Retainer Agreement and Statement of Services). 19 These amounts do not account for Plaintiffs own remaining damages claims against Talisker which, if awarded, would offset, in whole or in part, any damages owed by Plaintiffs to Talisker. 19843005
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withheld possession. Utah Code Ann. 78B- 6-808(4)(b) Estimate of reasonable attorneys fees associated with unlawful detainer claim $500,000 $500,000 Costs $50,000 $50,000 Total: $1,021,308 $6,559,616 Upon entry of final judgment, Plaintiffs can replace the security required for the requested interim stay with a supersedeas bond which bond will include the actual amount of damages awarded by the jury and three years of post-judgment interest, as required by Rule 62(j). V. CONCLUSION For the reasons set forth herein and for those set forth in Plaintiffs motion to stay, the Court should continue the stay of the Order of Restitution through the remainder of the litigation before this Court and require Plaintiffs to post security in an amount between $1,021,308 and $6,559,616, which amounts represent an estimate of (1) Taliskers actual damages, (2) Taliskers attorneys fees incurred in connection with the unlawful detainer counterclaim, filed October 28, 2013, and (3) costs. DATED this 15th day of August, 2014. Snell & Wilmer L.L.P. /s/ Alan L. Sullivan Alan L. Sullivan Amber M. Mettler Zimmerman Jones Booher LLC Michael D. Zimmerman Troy L. Booher Weil Gotshal & Manges, LLP J ames W. Quinn Bruce S. Meyer Attorneys for Plaintiffs/Counterclaim Defendants 19843005
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CERTIFICATE OF SERVICE I hereby certify that on the 15th day of August, 2014, I caused the foregoing PLAINTIFFS MEMORANDUM REGARDING SECURITY FOR A STAY PENDING THE CONCLUSION OF LITIGATION BEFORE THE TRIAL COURT to be served via the Courts electronic filing system and/or U.S. mail upon the following: J ohn R. Lund Kara L. Pettit SNOW, CHRISTENSEN & MARTINEAU 10 Exchange Place, 11th Floor Post Office Box 4500 Salt Lake City, Utah 84145-5000 (Via electronic filing)
Howard M. Shapiro (pro hac vice pending) J onathan E. Paikin (pro hac vice pending) Christopher E. Babbit (pro hac vice pending) WILMER CUTLER PICKERING HALE and DORR LLP 1875 Pennsylvania Avenue, NW Washington, D.C. 20006 (Via U.S. mail)
Attorneys for Defendants United Park City Mines Company; Talisker Land Holdings, LLC; Talisker Land Resolution LLC; and Talisker Canyons Leaseco LLC
J onathan A. Dibble RAY QUINNEY & NEBEKER P.C. 36 South State Street, Suite 1400 Salt Lake City, UT 84111 (Via electronic filing)
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Robert C. Blume (pro hac vice) Ryan T. Bergsieker (pro hac vice) GIBSON, DUNN & CRUTCHER LLP 1801 California Street Denver, CO 80202-2642 (Via U.S. mail)
Attorneys for Defendant VR CPC Holdings, Inc.
Mark J ames Hatch, J ames & Dodge, P.C. 10 West Broadway, Suite 400 Salt Lake City, Utah 84101 (Via electronic filing)
Attorneys for Talisker Canyons Finance Co LLC and Flera, LLC
Michael Gill Daniel Storino Mayer Brown LLP 71 South Wacker Drive Chicago, Illinois 60606 (Via U.S. mail)
Of Counsel for Talisker Canyons Finance Co LLC and Flera, LLC