Burr v. Koosharem Irrigation CompanyBurr v. Koosharem Irrigation Company
CHRISTIANSEN, Judge:
¶ 1 Appellant Michael Burr appeals from the district court‘s denial of his motion to intervene as of right. We reverse the denial and remand the case for further proceedings.
BACKGROUND
¶ 2 Burr is a shareholder of Koosharem Irrigation Company (Koosharem), a mutual water company organized under the Utah Revised Nonprofit Corporation Act (the Act).
¶ 3 In March 2014, plaintiff Greg Torgerson filed a complaint against Koosharem, and plaintiffs Chad Torgerson and Bret Kouns joined the case in August 2014.1 All three plaintiffs were shareholders of Koosharem. In early 2015, the plaintiffs filed an amended complaint, which included a shareholder derivative action against Koosharem and two of its individual directors—LaDon Torgersen and Clayton Bagley (the Directors). The plaintiffs alleged that Koosharem‘s Board of Directors, and the Directors specifically, had “breached their fiduciary duties to [Koosharem] by, among other things, engaging in self-dealing, failing to act with due care, ... and failing to act in good faith with total loyalty and impartiality.”
¶ 4 The plaintiffs also sought declaratory relief in the form of “a judgment and Order from [the district court] ordering the removal of [the Directors] from the Board of Directors” and ordering that they be “prohibited from holding office [within the company] or voting for at least three calendar years.” The plaintiffs alleged that the Directors had “rigged” the “elections for the two director positions that were voted on at the March 2013 annual shareholder meeting.” Under the Act,
[t]he applicable court may remove a director in a proceeding commenced either by the nonprofit corporation or by voting members holding at least 10% of the votes entitled to be cast in the election of the director‘s successor if the court finds that: (i) the director engaged in: (A) fraudulent or dishonest conduct; or (B) gross abuse of authority or discretion with respect to the nonprofit corporation[.]
¶ 5 On June 12, 2015, plaintiff Bret Kouns passed away. The remaining two plaintiffs—Greg Torgerson and Chad Torgerson—only owned a combined 5.3% of the outstanding Koosharem shares.2
¶ 6 In September 2015, upon Koosharem‘s motion, the district court dismissed the plaintiffs’ derivative claim after a court-appointed committee conducted an investigation and determined that “the derivative action is not in the best interest of [Koosharem] ... and the majority of shareholders.” See
¶ 7 On November 25, 2015, Burr moved to intervene as of right under rule 24(a) of the Utah Rules of Civil Procedure. In his memorandum in support of his motion, Burr stated that his Koosharem shares, in combination with Greg Torgerson‘s and Chad Torgerson‘s shares, would amount to more than 10% of the total Koosharem shares, thus “sav[ing] this litigation by providing Plaintiff more than 10% [of the] shares.”
¶ 8 After a hearing, the district court granted the joint motion to dismiss Kouns as a plaintiff. The court also granted Koosharem‘s motion to dismiss the plaintiffs’ director-removal action, concluding that “[w]ith [Kouns‘s] passing, the surviving plaintiffs own only 5.4% of the outstanding Koosharem shares,” which was “not enough to bring a cause of action under
ISSUE AND STANDARDS OF REVIEW
¶ 9 Burr contends that the district court erroneously denied his motion to intervene. A district court‘s “ruling on a motion to intervene encompasses several types of analysis, each subject to a different standard of review.” Supernova Media, Inc. v. Pia Anderson Dorius Reynard & Moss, LLC, 2013 UT 7, ¶ 14, 297 P.3d 599. “As a general matter, the factual findings underpinning an intervention ruling are subject to a clearly erroneous standard, and the district court‘s interpretation of rule 24(a) is reviewed for correctness.” Id. (citation omitted). We review the district court‘s timeliness determination for abuse of discretion. Id. ¶ 15. We review the district court‘s determination of whether the intervenor has “‘claim[ed] an interest relating to the property or transaction which is the subject of the action‘” for correctness. Id. ¶ 16 (alteration in original) (quoting
ANALYSIS
¶ 10 Rule 24(a) of the Utah Rules of Civil Procedure provides,
Upon timely application anyone shall be permitted to intervene in an action: (1) when a statute confers an unconditional right to intervene; or (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and he is so situated that the disposition of the action may as a practical matter impair or impede his ability to protect that interest, unless the applicant‘s interest is adequately represented by existing parties.
(1) that its motion to intervene was timely, (2) that it has “an interest relating to the property or transaction which is the subject of the action,” (3) “that the disposition of the action may as a practical matter impair or impede [its] ability to protect that interest,” and (4) that its interest is not “adequately represented by existing parties.”
Supernova Media, 2013 UT 7, ¶ 22, 297 P.3d 599 (alteration in original) (quoting
A. Timeliness
¶ 11 Pursuant to rule 24(a), a motion to intervene must be “timely.”
¶ 12 Here, the district court determined that Burr had failed to adequately explain “why, after nearly two years of conscious inaction, his Motion is timely.” Accordingly, the court found that Burr‘s motion was untimely. We disagree.
¶ 13 The record indicates that Burr filed his motion to intervene approximately one month after Koosharem and Kouns‘s estate moved to dismiss Kouns as a plaintiff and after Koosharem moved to dismiss the plaintiffs’ director-removal action. Koosharem and Kouns‘s estate filed their motions on October 21, 2015, and Burr filed his motion to intervene on November 25, 2015. And, as Burr correctly observes, he filed his motion to intervene (1) before “the final settlement of all issues by all parties,” (2) “before entry of judgment or dismissal,” and (3) before a trial date was set. See Supernova Media, 2013 UT 7, ¶ 24, 297 P.3d 599.
¶ 14 In determining that Burr failed to explain why his motion was timely “after nearly two years of conscious inaction,” the district court apparently either overlooked or disregarded the rationale behind Burr‘s motion to intervene. After Kouns died, the remaining two plaintiffs did not possess the requisite shares to move forward with the director-removal action. See
¶ 15 In light of the particular facts and circumstances of this case, we conclude that the district court abused its discretion when it determined that Burr‘s motion to intervene was not timely. See Supernova Media, 2013 UT 7, ¶¶ 15, 23, 297 P.3d 599.
¶ 16 Pursuant to rule 24(a), an intervenor must “claim[ ] an interest relating to the property or transaction which is the subject of the action.”
¶ 17 Although the district court did not explicitly address this factor, the court‘s conclusion that Burr had not explained “why Plaintiffs will not adequately represent his interest in this case” includes an implicit determination that Burr had an interest relating to the subject of the litigation. And in any event, we conclude that Burr, as a shareholder (and thus part owner) of Koosharem, had an interest relating to the subject of the litigation, i.e., the legitimacy of the 2013 election of the Directors.
C. Practical Impairment
¶ 18 “Rule 24(a) requires an intervenor to show that it ‘is so situated that the disposition of the action may as a practical matter impair or impede [the intervenor‘s] ability to protect [its] interest.‘” Supernova Media, 2013 UT 7, ¶ 38, 297 P.3d 599 (alterations in original) (quoting
¶ 19 On appeal, Burr contends that his “rights with respect to any claim regarding the 2013 Election ... will be impaired if he is not allowed to intervene and the case moves forward and its dismissal due to Plaintiff‘s lacking 10% shares becomes final.” Koosharem, on the other hand, contends that “[t]he disposition of this action will not impair [Burr‘s] interests.” According to Koosharem, the allegation that the 2013 election was conducted improperly “is now moot” because “the terms of [the Directors] expired and Koosharem conducted a new election of directors in March of 2015 which Plaintiffs have not objected to.”
¶ 20 Given the apparent dispute regarding the nature of the litigation, we think it necessary to remand for factual findings on this issue. See Uhrhahn Constr. & Design, Inc. v. Hopkins, 2008 UT App 41, ¶ 29, 179 P.3d 808 (“Generally, when a trial court fails to make factual findings on a material issue, such failure constitutes reversible error, and we remand to the trial court to enter the necessary findings unless we determine that such error is harmless, i.e., the undisputed evidence clearly establishes the missing findings or the missing findings may reasonably be implied.“). It is unclear from the record whether the Directors are still on the board after the 2015 election, and, as previously discussed, one of the remedies the plaintiffs sought was to have the Directors “prohibited from holding office [within the company] or voting for at least three calendar years.” There is simply not enough information in the record for this court to determine whether this case is moot or whether Burr “is so situated that the disposition of the action may as a practical matter impair or impede his ability to protect [his] interest.” See
D. Adequate Representation by Existing Parties
¶ 21 Lastly, rule 24(a) requires intervenors to show that their interests are not “adequately represented by existing parties.”
¶ 22 Here, the district court determined that Burr had failed to explain “why Plaintiffs will not adequately represent his interest in this case.” The court also observed that the assertion that the plaintiffs would not adequately represent Burr‘s interest was “particularly puzzling, as Michael Burr and Plaintiff Greg Torgerson are represented by the same attorney.”
¶ 23 Burr concedes that his interests were adequately represented while Kouns was still alive. According to Burr, that representation went from adequate to inadequate when Kouns died, because the remaining two plaintiffs owned less than 10% of the outstanding Koosharem shares. Burr asserts that these circumstances “satisfied the prong of a ‘minimal showing’ of inadequate representation by existing parties.” We agree.
¶ 24 Although Burr‘s interest is presumably identical to that of the other two plaintiffs, we conclude that the plaintiffs’ representation is not adequate under the circumstances of this case. Specifically, while Kouns was alive, the plaintiffs’ combined Koosharem shares amounted to 11.9% of the total outstanding shares. At that point, Burr‘s interests were adequately represented by the plaintiffs. After Kouns died, however, the remaining two plaintiffs’ shares amounted to only 5.3% of the outstanding Koosharem shares—less than the requisite 10% for a director-removal action. See
CONCLUSION
¶ 25 We reverse the order of the district court and remand the case for further proceedings.