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KIRTON Mcconkie Richard J. Armstrong, #7461 Brinton M KIRTON McCONKIE Richard J. Armstrong, #7461 Brinton M. Wilkins, #10713 60 East South Temple, Suite 1800 Salt Lake City, Utah 84111 Telephone: (801) 328-3600 Facsimile: (801) 212-2147 Attorneys for Plaintiff IN THE THIRD JUDICIAL DISTRICT COURT FOR THE STATE OF UTAH IN AND FOR SALT LAKE COUNTY ) XANGO, LLC, a Utah limited liability ) company, ) ) COMPLAINT AND JURY DEMAND Plaintiffs, ) ) vs. ) Civil No. ) BRYAN DAVIS, an individual; and BD ) Judge LANDMARK HOLDINGS LLC, a Utah ) limited liability company, JOHN DOES ) 1-25. ) ) Defendants. ) ) Plaintiff complains of Defendants and alleges as follows: I. PARTIES 1. XanGo, LLC (the "Company" and "XanGo") is a Utah limited liability company doing business in the State of Utah. 2. Bryan Davis is a resident of Utah County, and a licensed Utah attorney. 3. BD Landmark Holdings, LLC is a Utah single member limited liability company and is authorized to transact business in the State of Utah. II. JURISDICTION AND VENUE 4. This Court has jurisdiction to hear this matter and over the parties, and venue is proper in this Court pursuant to Article 9.13 of the Second Amended and Restated Operating Agreement of XanGo, LLC. According to that Article, Mr. Davis "[c]onsents, submits and subjects himself . to the exclusive personal and subject matter jurisdiction of the . Utah State courts located in Salt Lake County, Utah." III. GENERAL ALLEGATIONS A. XanGo and Its Independent Distributors. 5. XanGo is a consumer direct-marketing company, commonly known and referred to as a multi-level marketing or network marketing company. 6. XanGo's business consists of manufacturing nutritional juices, health food, and health-related products, and then marketing these products through a network of independent contractors referred to as distributors. 7. Distributors open accounts for customers to buy products directly from the Company. Distributors also recruit and enroll other individuals as distributors to build sales teams to engage in similar marketing activities. 8. Each distributor has the potential to create a multi-level customer base over which it has oversight. Each distributor also receives commission payments reflecting a certain percentage of the income derived from the sales made by other distributors in his or her downline. 2 9. Because of the Company's unique business model, downlines — particularly those established and maintained by high-level distributors — are highly valuable. 10. Information regarding the Company's downlines is rigorously and systematically protected and is not made public. 11. Information regarding downlines is, in short, proprietary confidential information and/or a trade secret. 12. The Company works to ensure that its distributors remain with the Company and that the Company's reputation and goodwill remains strong, in order to encourage its distributors to perform to the highest possible standards and to prevent distributors from deserting the Company. B. Mr. Davis is employed at XanGo from 2002 to 2012. 13. Since its founding in 2002, the Company has proved very successful and has become an industry leader. 14. Mr. Davis is a founder of XanGo and has been involved with the Company since its inception in 2002. 15. Since the Company's founding, Mr. Davis has served on the Company's board of managers. 16. In addition to serving on its board of managers, the Company employed Mr. Davis for more than ten (10) years. As an employee, he has been involved in overseeing and directing the Company's legal affairs, as well as international relations, security, distributor compliance and human resources. 3 17. As a member of the board of managers, a Company employee, and a Company lawyer, Mr. Davis has been privy to an enormous amount of private and confidential information regarding the Company. 18. As an attorney for XanGo and as one of its founding managers, Mr. Davis is a party to one or more confidentiality and non-disclosure agreements where he agreed that he would not disclose XanGo's financial and other private information. 19. In a sworn statement dated July 5, 2007, Mr. Davis stated: "I believe it is very important (both to XanGo and its Members) that such information remain confidential and private." 20. Indeed, Mr. Davis himself has played a central role in many, if not all, of the major decisions regarding the Company since its founding. C. Mr. Davis is sued in the Angel Investors case. 21. In 2007, XanGo was sued by minority investors alleging mismanagement of XanGo, waste of corporate assets, and oppression of minority investors and members ("Prior XanGo Litigation"). Mr. Davis was a party to the Prior XanGo Litigation as an individual defendant. 22. In a sworn statement filed in the Prior XanGo Litigation, Mr. Davis testified: "I believe . the actions of other members of XanGo's management team, hav[e] been highly effective, successful, and in the best interest of [XanGo]." 23. Mr. Davis also testified that "[w]hether amounts paid as salary, bonuses, commissions, or other benefits, I believe the total compensation paid to . other members of 4 XanGo's management team, is reasonable and, if anything, below the compensation paid to similarly situated executives." 24. Mr. Davis also testified: "In my opinion, XanGo's success as a company is primarly tied to the efforts of our management team." 25. The Prior XanGo Litigation settled on or about August 8, 2010. D. Mr. Davis commits malpractice in his capacity as the Company's lead attorney. 26. One of Mr. Davis' first assignments as the Company's attorney was drafting XanGo's original operating agreement, a true and correct copy of which is attached hereto as Exhibit "A". 27. Many of the claims in the Prior XanGo Litigation arose as a direct and proximate result of XanGo's failure to have a properly drafted and signed operating agreement that created and otherwise set forth the issuance and governance of membership interests. 28. On December 4, 2008, Mr. Davis admitted that instead of drafting the operating agreement, he used a "cookie cutter" form found in a binder. 29. At other times, Mr. Davis stated that he drafted the operating agreement from a form that he found online. 30. Mr. Davis has admitted under oath that he did not advise his client or otherwise communicate with his client about any specifics in relation to the drafting of the operating agreement, the creation of membership interests, or the proper treatment of minority investors in the operating agreement. 31. In drafting the original operating agreement, Mr. Davis included provisions that provided himself a substantial ownership interest in the Company. 5 32. Mr. Davis did not advise his client about this conflict of interest prior to agreeing to draft the original operating agreement. 33. Mr. Davis acted negligently and engaged in legal malpractice in his representation of XanGo's interests in relation to drafting the original operating agreement. 34. The acts and failures to act described herein constituted a failure to use the same degree of care, skill, judgment and diligence used by reasonably prudent attorneys under similar circumstances. 35. The acts and failures to act described herein were the actual cause of injury and harm to XanGo, in that but for Mr. Davis' malpractice in failing to properly advise XanGo and in engaging in other negligence in relation to the original operating agreement, the Prior XanGo Litigation as it related to membership interests of investors would have likely been avoided. 36. The acts and failures to act described herein were the proximate cause of injury and harm to XanGo in that a reasonable likelihood exists that the claims in the direct action relative to the original operating agreement in the Prior XanGo Litigation would have been avoided and altogether dismissed with prejudice. 37. As Mr. Davis' malpractice relates to his drafting of the operating agreement, such negligence and breach of fiduciary duty culminated on August 8, 2010, when XanGo settled the Prior XanGo Litigation. 38. As an attorney for XanGo, Mr. Davis has ethical obligations relative to keeping confidential communications he has had with XanGo in relation to his advising his client. 39. Mr. Davis has breached this ethical obligation by disclosing confidential information about XanGo to employees, distributors and competitors. 6 40. Mr. Davis has a pattern of breaching his fiduciary duties and disclosing client confidences. E. Mr. Davis signs the Second Amended Operating Agreement 41. On or about May 15, 2009, Mr. Davis signed the Company's Second Amended and Restated Operating Agreement (the "Second Operating Agreement"), a true and correct copy of which is attached hereto as Exhibit "B." 42. As set forth in the Operating Agreement's Section 5.03(a), Mr. Davis is identified as one of the Company's Class "A" Managers. 43. Mr. Davis and BD Landmark Holdings, LLC, own 116,150 Class "A" ownership Units in the Company. 44. The Operating Agreement states that no manager "will be liable to the Company or any Member for an act of omission done in good faith to promote the Company's best interests, unless the act or omission constitutes gross negligence, willful misconduct or a knowing violation of law." See Second Operating Agreement at Article 5.07(b). 45. In performing his duties, Mr. Davis is entitled to rely in good faith on information, opinions, reports, or statements in executing his duties as a manager. See Second Operating Agreement at Article 5.07(b). This same provision governed Mr. Davis' performance of his duties at XanGo under the
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