Iron Head Const. v. Gurney

2009 UT 25
This opinion is subject to revision before final
publication in the Pacific Reporter.
IN THE SUPREME COURT OF THE STATE OF UTAH
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Iron Head Construction, Inc., No. 20080099
Plaintiff and Respondent,
v.
F I L E D
Alan K. Gurney and Vicki W. Gurney,
Defendants and Petitioners. April 24, 2009
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Sixth District, Richfield
The Honorable David L. Mower
No. 010600008
Attorneys: Douglas L. Neeley, Manti, for plaintiff
Edwin C. Barnes, Aaron D. Lebenta, Salt Lake City,
Lloyd D. Rickenbach, Koosharem, for defendants
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On Certiorari to the Utah Court of Appeals
DURHAM, Chief Justice:
INTRODUCTION
¶1 Petitioners Alan K. Gurney and Vicki W. Gurney (the
Gurneys) appeal from a ruling by the Utah Court of Appeals
affirming the district court’s award of $12,835.48 in prejudgment
interest subsequent to the parties’ settlement of all claims
during trial. We reverse and vacate.
BACKGROUND
¶2 In early 2000, the Gurneys hired Iron Head
Construction, Inc. (Iron Head) to expand and remodel part of
their home. The parties signed a contract that indicated Iron
Head would be paid $168,558 for the work. Once construction
began, the Gurneys made several changes to the scope of the
project. According to Iron Head, these changes included
expanding the work originally contracted for as well as a
complete remodel of both floors of the Gurneys’ home.
¶3 Iron Head attempted to collect an additional $82,463.33
from the Gurneys above and beyond the contract price.
Specifically, Iron Head claimed it was owed compensation for the

1 Iron Head contends the standard of review “is in substance
one of mixed law and fact.” This is not appropriate because no
(continued...)
No. 20080099 2
additional modifications requested by the Gurneys. The Gurneys
refused to pay any additional compensation to Iron Head because
the modifications claimed by Iron Head had not been agreed to in
writing as required by the contract. As a result, Iron Head
filed both a mechanic’s lien against the Gurneys’ home and a suit
alleging breach of contract, unjust enrichment, and quantum
meruit, and requesting foreclosure of the mechanic’s lien.
¶4 Following three days of a bench trial, and in the
middle of Iron Head’s case in chief, the parties agreed that the
Gurneys would pay Iron Head $43,500 to settle the case. The
agreement settled all claims between the parties but reserved for
determination by the trial court the question of whether Iron
Head was entitled to prejudgment interest on the settlement
amount. The agreement between the parties was not reduced to
writing and was instead announced to the court during the trial.
It contained no admissions of liability or identification of the
basis for the settlement amount. Iron Head contends the
settlement constituted an agreed upon amount of damages for their
claims. In contrast, the Gurneys assert that the settlement
amount represented a nuisance value only and was reached in order
to save the parties the time and expense of further litigation.
¶5 Following briefing by both parties, the district court
determined that damages became complete on December 31, 2000 and
awarded $12,835.48 in prejudgment interest to Iron Head. The
majority of the panel of the court of appeals affirmed the
district court’s award. Iron Head Constr., Inc. v. Gurney, 2008
UT App 1, ¶ 22, 176 P.3d 453.
ISSUES AND STANDARD OF REVIEW
¶6 We granted certiorari on two issues. For clarity, we
treat those issues in reverse order: (1) whether the court of
appeals erred in affirming the district court’s award of
prejudgment interest on the amount of the parties’ settlement;
and, (2) whether the court of appeals erred in holding that the
presence of equitable claims among those settled did not preclude
an award of prejudgment interest.
¶7 “‘A trial court’s decision to grant or deny prejudgment
interest presents a question of law which we review for
correctness.’” Smith v. Fairfax Realty, Inc., 2003 UT 41, ¶ 16,
82 P.3d 1064 (quoting Cornia v. Wilcox, 898 P.2d 1379, 1387 (Utah
1995)).1 On certiorari review of a question of law, “we accord

1 (...continued)
findings of fact were made at the district court level.
3 No. 20080099
no particular deference to the court of appeals’ ruling and
review it for correctness.” Machock v. Fink, 2006 UT 30, ¶ 8,
137 P.3d 779 (quoting Salt Lake County v. Metro W. Ready Mix,
Inc., 2004 UT 23, ¶ 11, 89 P.3d 155).
ANALYSIS
¶8 The court of appeals erred in affirming the district
court’s award of prejudgment interest on the settlement amount.
The court of appeals reasoned that because the parties’
settlement agreement reserved the issue of entitlement to
prejudgment interest for determination by the district court, an
award of such interest was appropriate under the factors set
forth in Fell v. Union Pacific Railway, 88 P. 1003 (Utah 1907).
Iron Head Constr., Inc. v. Gurney, 2008 UT App 1, ¶ 11, 176 P.3d
453. This analysis failed to address several basic problems with
the district court’s award. We will address each problem in
turn.
I. PREJUDGMENT INTEREST IS NOT AVAILABLE FOR AMOUNTS PAID
PURSUANT TO SETTLEMENT ABSENT AN ADMISSION
OF LIABILITY FOR DAMAGES
¶9 The award of prejudgment interest on the settlement
amount in this case cannot stand because (1) the settlement
involved no underlying finding of damages or liability against
either party; (2) the amount stipulated to by the parties was not
related to an amount that could be calculated to a mathematical
certainty; and, (3) allowing an award of prejudgment interest
based solely on a stipulated amount between the parties
undermines the public policy of encouraging settlements.
¶10 “[A]n award of prejudgment interest simply serves to
compensate a party for the depreciating value of the amount owed
over time and, as a corollary, deters parties from intentionally
withholding an amount that is liquidated and owing.” Trail
Mountain Coal Co. v. Utah Div. of State Lands & Forestry, 921
P.2d 1365, 1370 (Utah 1996). “Plaintiffs are entitled to damages
for the loss of use of the money that, but for the [defendant]’s
breach and ensuing delay, would have been paid to plaintiffs in
satisfaction of their . . . claim.” Kraatz v. Heritage Imps.,
2003 UT App 201, ¶ 75, 71 P.3d 188 (alterations in original)
(citing Castillo v. Atlanta Cas. Co., 939 P.2d 1204, 1212 (Utah
Ct. App. 1997)).

No. 20080099 4
¶11 In Utah, the standard for prejudgment interest on an
award of damages was first enunciated in Fell v. Union Pacific
Railway. There, we held that prejudgment interest was
appropriate where “the injury and consequent damages are complete
and [can] be ascertained as of a particular time and in
accordance with fixed rules of evidence and known standards of
value.” 88 P. at 1007. More recently, we have stated that
prejudgment interest may be proper when “the loss ha[s] been
fixed as of a definite time and the amount of the loss can be
calculated with mathematical accuracy in accordance with well-
established rules of damages.” Bellon v. Malnar, 808 P.2d 1089,
1097 (Utah 1991) (finding no error in the denial of prejudgment
interest due to the equitable nature of the action).
¶12 Alternatively, prejudgment interest is not permissible
in “cases where the damages are incomplete and are peculiarly
within the province of the jury to assess at the time of the
trial.” Fell, 88 P. at 1006. This includes cases in which the
fact finder is left “‘to determine the amount of damages from a
mere description of the wrongs done or injuries inflicted.’”
Smith v. Fairfax Realty, Inc., 2003 UT 41, ¶ 22, 82 P.3d 1064
(quoting San Pedro, L.A. & Salt Lake R.R. Co. v. Bd. of Educ. of
Salt Lake City, 99 P. 263, 267 (Utah 1909)); see also Bailey-
Allen Co. v. Kurzet, 876 P.2d 421, 427 (Utah Ct. App. 1994)
(concluding prejudgment interest should not be awarded because
“any damages in this case cannot be fixed at a particular time
and with accuracy”); Shoreline Dev., Inc. v. Utah County, 835
P.2d 207, 211-12 (Utah Ct. App. 1992) (rejecting a claim for
prejudgment interest on an award for damages for unjust
enrichment).
¶13 Here, the Gurneys assert that prejudgment interest
should not have been awarded on the settlement amount agreed to
by the parties because, among other things, there was no finding
of liability against the Gurneys and no admission of fault. We
agree. In a case such as this, where the settlement does not
rest on a finding or contain a stipulation of liability and
damages against a party, prejudgment interest is unavailable.
Moreover, as discussed below, even if the settlement in this case
had included a stipulation as to damages, prejudgment interest
would not be allowed because the damages could not be determined
with mathematical accuracy, and allowing such an award would
counteract Utah’s clear public policy of encouraging settlements.
A. The Settlement Amount Was Not Damages
¶14 As previously discussed, the standard for prejudgment
interest in Utah is based on an award of damages. See Fell, 88
P. at 1006. The court of appeals’ adoption of the district
court’s use of the term “damages” as a characterization for the

5 No. 20080099
amount stipulated to by the parties is misguided. The settlement
amount agreed to by the parties was not based on an admission or
finding of liability.
¶15 On the contrary, no evidence exists in the record to
suggest the Gurneys agreed to the settlement because they
believed they were liable to Iron Head for damages. The lack of
a finding of liability or entry of judgment against the Gurneys
makes an award of prejudgment interest inappropriate in this case
because any such award must necessarily rely on a judgment. The
settlement amount cannot properly be characterized as an award of
damages for which prejudgment interest should be awarded.
¶16 The dissenting opinion in the court of appeals’
decision is persuasive on this point. It notes, “The rather
round sum of $43,500 is . . . a figure that has essentially been
plucked from the air, albeit by the parties rather than a jury.”
Iron Head Constr., Inc., 2008 UT App 1, ¶ 25 (Orme, J.,
dissenting). It also describes several examples of the various
elements that could have made up the settlement amount between
the parties. See id. The record is devoid of any description of
the basis for the settlement amount, and for that reason, we
“cannot tell how much of the settlement amount, if any, is for
the kind of thing that may warrant an award of prejudgment
interest and how much reflects the range of imponderables
inherent in any settlement decision.” Id. at ¶ 26. The court of
appeals erred in accepting the district court’s characterization
of the amount as damages and affirming its award of prejudgment
interest.
B. The Settlement Amount Could Not Be Calculated
to a Mathematical Certainty
¶17 The court of appeals held that prejudgment interest was
appropriate on the settlement amount because “Iron Head’s damages
were based upon evidence about hours worked, materials, submitted
invoices, time cards, bills paid, and labor costs.” Iron Head
Constr., Inc., 2008 UT App 1, ¶ 20. The court further explained
that “a fact finder could have determined any damage amount based
on the evidence presented. A jury verdict . . . would have
relied upon ‘fixed rules of evidence and known standards of
value.’” Id. (quoting Fell, 88 P. at 1007). However, the
evidence presented at the trial below was incomplete at the time
the case was settled. The value underlying the amount the
parties agreed upon had never been submitted for decision by a
fact-finder and was not calculable to a mathematical certainty.
¶18 Furthermore, in ordering the award of prejudgment
interest against the Gurneys, the district court misperceived the
task of mathematical computation; it simply relied on the fact

No. 20080099 6
that the interest amount (as opposed to the so-called damage
amount) was calculable to a mathematical certainty. As noted
above, the rule in Utah is that prejudgment interest may be
proper when “the loss ha[s] been fixed as of a definite time and
the amount of the loss can be calculated with mathematical
accuracy in accordance with well-established rules of damages.”
Bellon, 808 P.2d at 1097 (emphasis added). The mathematical
accuracy standard does not apply to the calculation of
prejudgment interest itself, but instead applies to the amount of
damages found by the trier of fact. See Bennett v. Huish, 2007
UT App 19, ¶ 44, 155 P.3d 917 (upholding an award of prejudgment
interest where “Plaintiffs’ losses were fixed when Huish refused
to return the money [in dispute]” and “[t]he amount of loss is
quantifiable and calculable within a mathematical certainty”
based on the damages found by the trier of fact).
C. The Settlement of Claims is Encouraged
¶19 The Gurneys assert that awarding prejudgment interest
on the parties’ settlement amount in this case is contrary to
Utah’s public policy of encouraging settlements. We agree.
¶20 We have long held that the public policy of Utah is to
encourage settlements. See Slusher v. Ospital, 777 P.2d 437, 441
(Utah 1989); Alvin G. Rhodes Pump Sales v. Indus. Comm’n, 681
P.2d 1244, 1248 (Utah 1984). The purpose behind this policy is
to “‘promote harmony and to prevent the waste of assets.’” R&R
Indus. Park, L.L.C. v. Utah Prop. & Cas. Ins. Guar. Ass’n, 2008
UT 80, ¶ 46, 199 P.3d 917 (quoting In re Estate of Chasel, 725
P.2d 1345, 1348 (Utah 1986)). When parties agree to settle their
claims, they move their dispute outside the realm of the judicial
process. In so doing, they effectively agree to forego the
assistance of the court in exchange for the immediacy and
certainty of a settlement.
¶21 In this case, the parties’ settlement was agreed upon
in order to prevent the further expenditure of their assets on
protracted litigation. The agreement did not include an
admission or finding of liability, and no judgment was entered
against either party. Additionally, the agreement did not
specify what values and conditions made up the stipulated amount.
These facts preclude the settlement amount from being
characterized as damages and from falling within the standard of
an amount of loss that can be calculated to a mathematical
certainty.
¶22 For the reasons stated above, we hold that an award of
prejudgment interest in this case was error. Further, we doubt

2 While we do not reach an answer to this question today, we
note that other jurisdictions have determined a judicial award of
prejudgment interest is improper on a settlement amount. See
Witt v. State Farm Mut. Auto. Ins. Co., 942 P.2d 1326, 1327
(Colo. Ct. App. 1997) (holding that the “plaintiff, by accepting
the settlement and the distribution of its proceeds, has waived
any right to assert a claim for prejudgment interest” where the
plaintiff settled with the tortfeasor prior to trial); Ramadanis
v. Stupak, 805 P.2d 65, 66 (Nev. 1991) (implying that a
settlement and prejudgment interest are mutually exclusive
because “a plaintiff may choose to waive his or her right to
prejudgment interest in favor of the certainty and immediacy of
settlement payments”); Miller v. Twin City Fire Ins. Co., No. 07-
98-0061-CV, 1999 Tex. App. LEXIS 108, at *6 (Tex. App. Jan. 11,
1999) (unpublished) (holding that “neither statutory law nor
common law provides that prejudgment interest may be awarded by a
court for settlement agreements” because the agreement is not
supported by an underlying judgment against one of the parties).
Parties, of course, always have the ability to incorporate
prejudgment interest considerations into their settlement
negotiations, if they so choose.
7 No. 20080099
whether a judicial award of prejudgment interest would ever be
appropriate on a settlement amount stipulated to by the parties.2
II. AN AWARD OF PREJUDGMENT INTEREST ON EQUITABLE CLAIMS
¶23 Because we conclude that the court of appeals erred in
affirming the district court’s award of prejudgment interest on
the parties’ settlement amount, we need not reach the Gurneys’
argument regarding the applicability of prejudgment interest to
equitable claims.
CONCLUSION
¶24 For the foregoing reasons, we reverse the ruling of the
court of appeals and vacate the district court’s award of
prejudgment interest.
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¶25 Associate Chief Justice Durrant, Justice Wilkins,
Justice Parrish, and Justice Nehring concur in Chief Justice
Durham’s opinion.