McLaughlin v. Schenk
299 P.3d 1139
Utah2013Background
- In 1999 Greg Schenk purchased Cookietree, Inc. shares in violation of a 1991 Shareholder Agreement.
- In 2005 Cookietree’s Board and shareholders, including Schenk, waived the 1991 restrictions (the 2005 Waivers).
- McLaughlin sued alleging the stock transfer violated the 1991 Agreement; district court granted summary judgment based on the waivers.
- This Court held the 2005 Waivers tainted by Schenk’s participation and remanded for a fairness determination under Utah Code 16-10a-851.
- After remand, Cookietree’s Board ratified the 2005 Waivers in 2009 and shareholders ratified again in 2010.
- In 2010, the Legislature amended 16-10a-622(3) to say shareholders have no fiduciary duties to other shareholders when acting as shareholders; not retroactive.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Law of the case and reconsideration of the fairness issue | McLaughlin contends the replacement judge violated the law of the case by re-litigating the issue. | Schenk/Cookietree argue the replacement judge could revisit the issue under case law. | Replacement judge did not err; law of the case allowed reconsideration. |
| Effect of statute on fiduciary duties of shareholders | McLaughlin:l claim McLaughlin I governs fiduciary duties despite statute. | Statute 16-10a-622(3) supersedes McLaughlin I but is not retroactive here. | Statute supersedes McLaughlin I but not retroactive; not dispositive given pre-amendment facts. |
| Mandate compliance with McLaughlin I regarding fairness hearing | McLaughlin argues remand required a fairness hearing. | Remand allowed post-remand actions to resolve conflict of interest. | District court did not violate the mandate; post-remand actions could be used. |
| Whether summary judgment was proper given post-remand actions | Post-remand actions left material issues unresolved, so summary judgment inappropriate. | 2009 Board ratification mooted the conflict of interest issue; summary judgment proper. | Summary judgment proper because 2009 ratification resolved conflict of interest. |
Key Cases Cited
- McLaughlin v. Schenk, 2009 UT 64 (Utah Supreme Court 2009) (held shareholders owe fiduciary duties; remanded for fairness inquiry; later superseded by statute)
- Mid-Am. Pipeline Co. v. Four-Four, Inc., 2009 UT 43 (Utah Supreme Court 2009) (law-of-the-case exceptions; discretion to reconsider)
- IHC Health Servs., Inc. v. D & K Mgmt., 2008 UT 73 (Utah Supreme Court 2008) (law-of-the-case exceptions and reconsideration principles)
- Warne v. Warne, 2012 UT 13 (Utah Supreme Court 2012) (statutory retroactivity considerations)
- Amax Magnesium Corp. v. State Tax Comm’n, 874 P.2d 840 (Utah 1994) (non-retroactivity default rule for statutes)