Brigham Young University Law School BYU Law Digital Commons Utah Supreme Court Briefs 2008 ANGEL INVESTORS, LLC, a Utah corporation, suing derivatively on behalf of XanGo, LLC v. AARON GARRITY, BRYAN DAVIS, GARY HOLLISTER, GORDON MORTON, JOSEPH MORTON, and KENT WOOD : Brief of Appellee Utah Supreme Court Follow this and additional works at: https://digitalcommons.law.byu.edu/byu_sc2 Part of the Law Commons Original Brief Submitted to the Utah Supreme Court; digitized by the Howard W. Hunter Law Library, J. Reuben Clark Law School, Brigham Young University, Provo, Utah; machine-generated OCR, may contain errors. Hatch, James and Dodge; Mark F. James; Phillip J. Russell; Attorneys for Appellees. Mary Anne Q. Wood; Richard J. Armstrong; Wood Crapo, LLC; Attorneys for Appellant. Recommended Citation Brief of Appellee, Angel Investors v. Garrity, No. 20080111.00 (Utah Supreme Court, 2008). https://digitalcommons.law.byu.edu/byu_sc2/2766 This Brief of Appellee is brought to you for free and open access by BYU Law Digital Commons. It has been accepted for inclusion in Utah Supreme Court Briefs by an authorized administrator of BYU Law Digital Commons. Policies regarding these Utah briefs are available at http://digitalcommons.law.byu.edu/utah_court_briefs/policies.html. Please contact the Repository Manager at [email protected] with questions or feedback. IN THE UTAH SUPREME COURT ANGEL INVESTORS, LLC, a Utah corporation, suing derivatively on behalf of XanGo, LLC, Plaintiff/Appellant, Supreme Court No. 20080111-SC vs. AARON GARRITY, BRYAN DAVIS, GARY HOLLISTER, GORDON MORTON, JOSEPH MORTON, and KENT WOOD, Defendants/Appellees. BRIEF OF APPELLEES APPEAL FROM A FINAL JUDGMENT OF THE FOURTH JUDICIAL DISTRICT COURT IN UTAH COUNTY THE HONORABLE FRED D. HOWARD Mary Anne Q. Wood (3539) Mark F. James (5295) Richard J. Armstrong (7461) Phillip J. Russell (10445) WOOD CRAPO, LLC HATCH, JAMES & DODGE, PC 500 Eagle Gate Tower 10 West Broadway, Suite 400 60 East South Temple Salt Lake City, Utah 84101 Salt Lake City, Utah 84111 Telephone: (801) 363-6363 Telephone: (801) 366-6060 Attorneys for Plaintiff/Appellant Attorneys for Defendants/Appellees FILED UTAH APPELLATE COURTS JUL t : 2008 IN THE UTAH SUPREME COURT ANGEL INVESTORS, LLC, a Utah corporation, suing derivatively on behalf of XanGo, LLC, Plaintiff/Appellant, Supreme Court No. 20080111-SC vs. AARON GARRITY, BRYAN DAVIS, GARY HOLLISTER, GORDON MORTON, JOSEPH MORTON, and KENT WOOD, Defendants/Appellees. BRIEF OF APPELLEES APPEAL FROM A FINAL JUDGMENT OF THE FOURTH JUDICIAL DISTRICT COURT IN UTAH COUNTY THE HONORABLE FRED D. HOWARD Mary Anne Q. Wood (3539) Mark F. James (5295) Richard J. Armstrong (7461) Phillip J. Russell (10445) WOOD CRAPO, LLC HATCH, JAMES & DODGE, PC 500 Eagle Gate Tower 10 West Broadway, Suite 400 60 East South Temple Salt Lake City, Utah 84101 Salt Lake City, Utah 84111 Telephone: (801) 363-6363 Telephone: (801) 366-6060 Attorneys for Plaintiff/Appellant Attorneys for Defendants/Appellees COMPLETE LIST OF ALL PARTIES TO THE PROCEEDING The caption contains the names of all parties to the proceeding. These parties are: 1. The Appellant, Angel Investors, LLC, which shall be referred to herein as "Angel Investors" or "Plaintiff." 2. The Appellees, Aaron Garrity, Bryan Davis, Gary Hollister, Gordon Morton, Joseph Morton, and Kent Wood, who shall be referred to collectively herein as "Defendants." Defendants set forth this separate list of parties to the proceeding to clear up any confusion that might arise from reviewing the "Complete List of All Parties to the Proceeding" contained in the Opening Brief of Appellant ("Plaintiffs Brief), filed by Angel Investors. Therein, Plaintiff indicates that the Appellee is XanGo, LLC ("XanGo"). See Plaintiffs Brief at /. In fact, XanGo is not the Appellee. Plaintiff has sued XanGo in a different case entitled Angel Investors, LLC v. XanGo, LLC, Case No. 060402848. In the matter before this Court, Plaintiff is seeking to bring suit on behalf of XanGo in a derivative action against the above-named Defendants. i TABLE OF CONTENTS COMPLETE LIST OF ALL PARTIES TO PROCEEDING i TABLE OF CONTENTS ii TABLE OF AUTHORITIES iv STATEMENT OF JURISDICTION 1 STATEMENT OF THE ISSUES 1 DETERMINATIVE CONSTITUTIONAL PROVISIONS, STATUTES, ORDINANCES, AND RULES 4 STATEMENT OF THE CASE 6 SUMMARY OF ARGUMENTS 11 ARGUMENT 15 I. THE DISTRICT COURT PROPERLY GRANTED DEFENDANTS' RULE 12 (b)(1) MOTION TO DISMISS WHEN IT FOUND THAT PLAINTIFF DOES NOT APPEAR TO FAIRLY AND ADEQUATELY REPRESENT SIMILARLY SITUATED XANGO OWNERS PURSUANT TO RULE 23A 15 A. The District Court Did Not Abuse its Discretion in Finding that XanGo Owners are Similarly Situated to Plaintiff in this Derivative Action and Plaintiff Must Represent the Interests of those Owners 16 B. The District Court Did Not Abuse its Discretion in Finding that Plaintiff Does Not Appear to Fairly and Adequately Represent Similarly Situated XanGo Owners 23 1. Plaintiffs Direct Lawsuit Against XanGo Requesting, Among Other Relief, Damages from and Dissolution of XanGo, Creates an Actual Conflict of Interest 26 2. All XanGo Owners Except Plaintiff Oppose Plaintiffs Attempt to Represent XanGo's Owners in the Derivative Action 33 ii 3. Other "Outside Entanglements" and "Conflicts of Interest" Demonstrate That Plaintiff Does Not Appear to Fairly and Adequately Represent Similarly Situated XanGo Owners 37 II. THE DISTRICT COURT DID NOT ABUSE ITS DISCRETION WHEN IT DECLINED TO CONVERT DEFENDANTS' RULE 12(b)(1) MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION INTO A MOTION FOR SUMMARY JUDGMENT AND DENIED PLAINTIFF'S RULE 56(f) REQUEST FOR FURTHER DISCOVERY 39 CONCLUSION 43 CERTIFICATE OF MAILING 44 iii TABLE OF AUTHORITIES CASES Angel Investors, LLC v. XanGo, LLC, Case No. 060402848 i, 6 Aspenwood, LLC v. C.A.T., LLC, 2003 UT App. 28, 73 P.3d 947 41 Brandon v. Brandon Constr. Co., Inc., 116 S.W.2d 349 (Ark. 1989) 35-36 Brown v. Glover, 2000 UT 89, 16 P.3d 540 3 Canfieldv. Layton City, 2005 UT60, 122P.3d622 41 demons v. Wallace, 592 P.2d 14 (Colo. Ct. App. 1978) 22 Cohen v. Beneficial Loan Corp., 337 U.S. 541 (1949) 15 Coombs v. Juice Works Dev., Inc., 2003 UT App. 388, 81 P.3d 769 42 Davis v. Corned, Inc., 619 F.2d 588 (6th Cir. 1980) 24-25, 33, 35-37 DuPontv. Wyly, 61 F.R.D. 615, 624 (D.Del. 1973) 25 Eye Site, Inc. v. Blackburn, 796 S.W.2d 160 (Tex.1990) 22 G.A. Enterprises, Inc. v. Leisure Living Commun., Inc., 517 F.2d 24 (1st Cir. 1975) 25,38 GFLP,Ltd. v. CL Mgmt. Ltd., 2007 UT App. 131, 163P.3d636 29,31 Guttman v. Braemer, 51 F.R.D. 537 (S.D.N.Y. 1970) 34 Hallv. Tennessee Dressed Beef Co., 957 S.W.2d 536 (Tenn. 1997) 22, 29-30 Halsted Video, Inc. v. Guttillo, 115 F.R.D. 177 (N.D. 111. 1987) 22 Hornreich v. PlantIdus., Inc., 535 F.2d 550 (9th Cir. 1972) 2 In re Transocean Tender Offer Securities Litigation, 455 F.Supp. 999 (D.C. 111. 1978) 27 iv Jordon v. Bowman Apple Prods. Co., Inc., 728 F. Supp. 409 (W.D. Va. 1990) 17-18, 22 Kuzmickey v. Dunmore Corp., 420 F. Supp. 226 (E.D. Pa. 1976) 34 Larson v. Dumke, 900 F.2d 1363 (9th Cir. 1990) 18, 33, 35-36 LeVanger v. Highland Estates Properties Owners Assoc, Inc., 80 P.3d 569 (Utah Ct. App. 2003) 24 Mayer v. Dev. Corp. of America, 396 F. Supp. 917 (D. Del. 1975) 15 Murphy v. Crosland, 886 P.2d 74 (Utah Ct. App. 1994) 28 Neusteterv. District Court, 675 P.2d 1 (Colo. 1984) 29-31 Nolen v. Shaw-Walker Co., 449 F.2d 506 (6th Cir. 1971) 33-34 Read v. Read, 556 N.W.2d 768 (Wis. Ct. App. 1996) 28, 32 Rothenbergv. Security Mgmt. Co., 667 F.2d 958 (11th Cir. 1982) 24-25, 33, 35-38 Ryan v. Aetna Life Ins. Co., 765 F. Supp. 133 (S.D.N.Y. 1991) 25, 27 Smith v. Ayres, 977 F.2d 946 (5th Cir. 1992) 1-2, 17-19, 36 Spoons v. Lewis, 987 P.2d 36 (Utah 1999) 39-41 Stuart v. Colorado Interstate Gas Co., 271 F.3d 1221 (10th Cir. 2001) 42 Vanderbiltv. Geo-Energy Ltd., 725 F.2d 204 (3d Cir. 1983) 24 Wheeler v. McPherson, 2002 UT 16, 40 P.3d 632 (Utah 2002) 39-41 UTAH RULES OF CIVIL PROCEDURE Utah Rule of Civil Procedure 12(b)(1) 1-3,6, 11, 13, 14,39-42 Utah Rule of Civil Procedure 12(b)(6) 14, 41 Utah Rule of Civil Procedure 23A(b) 1, 4, 7, 11-12, 14-17,23-24, 37 Utah Rule of Civil Procedure 23.1 1 v Utah Rule of Civil Procedure 56 4, 40 Utah Rule of Civil Procedure 56(c) 5,40 Utah Rule of Civil Procedure 56(e) 5, 40 Utah Rule of Civil Procedure 56(f) 3, 5, 7, 11, 13-14, 35, 39-42 FEDERAL RULES OF CIVIL PROCEDURE Federal Rule of Civil Procedure 23.1 1-2, 23-24 UTAH STATUTES Utah Code Ann. § 48-2c-703 37 Utah Code Ann. § 78A-3-102(j) 1 vi STATEMENT OF JURISDICTION The Utah Supreme Court has jurisdiction over this appeal pursuant to Utah Code Ann. §78A-3-1020). STATEMENT OF THE ISSUES Defendants disagree with Plaintiffs Statement of the Issues and set forth the issues as follows: ISSUE NO. 1: Did the District Court properly determine that Plaintiff does not appear to fairly and adequately represent similarly situated XanGo owners, as required under Utah Rule of Civil Procedure 23A(b),1 when it found Plaintiff lacked standing and granted Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction pursuant to Utah Rule of Civil Procedure 12(b)(1)? Standard of Review: The Utah Supreme Court has not previously articulated a standard by which Utah appellate courts shall review a trial court's dismissal of a derivative suit on the grounds that it "appears that the plaintiff does not fairly and adequately represent the interests of the shareholders or members similarly situated in enforcing the right of the corporation or association." Utah R.