Cook Martin Poulson v. Smith
464 P.3d 541
Utah Ct. App.2020Background
- Daniel Smith was a CMP accountant (since 1995), became a shareholder in 2005; Employment and Shareholders’ Agreements contained noncompetes and a buyout-on-discreditable-acts clause with specified valuation and payment terms.
- CMP terminated Smith on July 31, 2014, alleging falsified reports, billing improprieties, failure to follow procedures, and providing services to CMP clients while accepting payments directly.
- CMP obtained a TRO and a preliminary injunction: the TRO/PI prohibited soliciting or contacting current CMP clients and soliciting former clients (PI expanded the look‑back to five years in some language); the PI’s explicit ORDER text prohibited solicitation but contained findings suggesting a broader prohibition.
- Discovery dispute: court ordered Smith to produce responsive documents (including electronic files) within 7 days; Smith refused to produce copies or disks and offered only on‑site inspection of his computer after the deadline.
- District court held Smith in contempt for violating the PI and the discovery order, struck his counterclaim, awarded CMP fees, entered default findings (including that Smith breached the agreements and liquidated damages of $448,354), and entered final judgment for CMP; it also granted summary judgment to the third‑party shareholders.
- On appeal the Utah Court of Appeals (1) affirmed contempt for the discovery violation, (2) reversed contempt for violating the preliminary injunction (plain error) because the PI’s ORDER prohibited only solicitation of former clients, and (3) reversed the sanctions, summary judgment, and fee award and remanded because the court could not determine whether it would have imposed the same sanctions based on the discovery violation alone.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Smith violated the preliminary injunction | CMP: Smith provided accounting services to CMP clients in breach of the PI | Smith: he did not solicit clients; former clients sought him out; PI only barred solicitation of former clients | Reversed contempt for PI: PI’s ORDER barred solicitation of former clients (not all work); contempt here was plain error |
| Whether Smith violated the discovery order | CMP: Smith refused to produce electronic files in requested form (paper/disk) and missed court deadline | Smith: offering on‑site inspection complied because files were kept "in the usual course of business" on his computer | Affirmed contempt for discovery violation: CMP requested copies/downloads; Rule 34(c)(2) requires ESI in usable form; on‑site one‑time glance did not comply |
| Whether sanctions (striking pleadings, default findings, fees, final judgment) were appropriate/severity | CMP: sanctions warranted given willful violations of PI and discovery | Smith: sanctions excessive and unduly harsh | Reversed sanctions and remanded: because contempt for PI was erroneous, court could not know whether it would have imposed same sanctions based solely on discovery violation; therefore sanctions vacated for reconsideration |
| Whether default findings supported summary judgment on breach claims and third‑party claims | CMP: default findings established Smith’s breaches and justified liquidated damages and summary judgment | Smith: findings omitted necessary elements (e.g., CMP’s performance under Shareholders’ Agreement), so summary judgment improper | Reversed summary judgment and fee award; some findings support breach of Employment Agreement/liquidated damages but findings insufficient to show CMP’s performance under the Shareholders’ Agreement, so third‑party and some contract rulings cannot stand |
Key Cases Cited
- Von Hake v. Thomas, 759 P.2d 1162 (Utah 1988) (elements required to establish civil contempt)
- Salt Lake City v. Dorman-Ligh, 912 P.2d 452 (Utah Ct. App. 1996) (injunctions must be clear and specific to support contempt)
- Barton v. Barton, 29 P.3d 13 (Utah Ct. App. 2001) (contempt sanctions reviewed for abuse of discretion)
- Kilpatrick v. Bullough Abatement, Inc., 199 P.3d 957 (Utah 2008) (discovery‑sanctions standard and deference to trial court)
- Mind & Motion Utah Invs., LLC v. Celtic Bank Corp., 367 P.3d 994 (Utah 2016) (summary judgment standard; view facts in light most favorable to nonmoving party)
- Marshall v. Marshall, 915 P.2d 508 (Utah Ct. App. 1996) (striking pleadings and default are severe discovery sanctions)
- Hall v. Hall, 858 P.2d 1018 (Utah Ct. App. 1993) (missing factual findings may be harmless if evidence clearly establishes omitted elements)
- Brown v. Richards, 840 P.2d 143 (Utah Ct. App. 1992) (prevailing party entitled to appellate fees when awarded fees below)