SUPERNOVA MEDIA, INC., a New York corporation, and Jocelyn Engle, an individual, Intervenors and Appellants, v. Shannon‘s Rainbow, LLC, a Utah limited liability company, Shannon‘s Rainbow, LLC, a Delaware limited liability company, Shannon‘s Rainbow Productions, LLC, a Pennsylvania limited liability company, Plaintiffs, v. PIA ANDERSON DORIUS REYNARD & MOSS, LLC, a Utah limited liability company, Defendant and Appellee. Supernova Media, Inc., a New York corporation, Intervenor and Appellant, v. Pia Anderson Dorius Reynard & Moss, LLC, a Utah limited liability company, Plaintiff and Appellee, v. Kelly H. Nelson, Charles Morrison, Summitworks, LLC, Shannon‘s Rainbow, LLC, et al., Defendants.
Nos. 20110368, 20110412
Supreme Court of Utah
Feb. 15, 2013
2013 UT 7 | 297 P.3d 599
Robert K. Reynard, Brennan H. Moss, Troy L. Booher, Salt Lake City, for appellees.
Justice DURHAM, opinion of the Court:
INTRODUCTION
¶ 1 Supernova Media, Inc., and Joycelyn Engle appeal the denial of their motions to intervene as of right in two district court cases that we consolidate for purposes of this opinion. They also appeal the partial sealing of the record in one of the cases. We reverse the denial of the motions to intervene and set aside the sealing order. We remand
BACKGROUND
¶ 2 The parties to this appeal owe their relationship to the film Shannon‘s Rainbow, which was created and financed by two media companies: SummitWorks, LLC (SummitWorks), and Supernova Media, Inc. (Supernova). Frank Johnson, a principal of SummitWorks, directed the film. Other principals of SummitWorks include Kelly Nelson and Charles Morrison.1
¶ 3 In 2007, Johnson approached Joycelyn Engle of Supernova for help in raising money for the film. Ms. Engle is a principal of Supernova.2 The SummitWorks and Supernova parties formed LLCs in Utah, Pennsylvania, and Delaware, each named “Shannon‘s Rainbow, LLC.” Supernova raised much of the film‘s capital from its investors, Stewart Rahr and Joseph DiPalma, who each invested one million dollars.
¶ 4 In Mr. DiPalma‘s investment agreements, Ms. Engle (on behalf of Supernova) and SummitWorks were named as equal co-managers of the Shannon‘s Rainbow LLCs, such that neither co-manager could act without the other. Ms. Engle also claims a 51 percent ownership interest in the film given to her for investing her personal funds, deferring payments owed to her, and providing her home as collateral for a bridge loan.
¶ 5 In 2008, Ms. Engle and SummitWorks reached an impasse over whether the film should first be distributed in North America or abroad. Since then, SummitWorks and Supernova have been litigating the issue of who has the right to control distribution of the film and to control the Shannon‘s Rainbow LLCs generally. This litigation has taken place in the federal district court for the District of Utah and in New York state courts. Supernova investor Joseph DiPalma also filed a lawsuit in New York state court seeking specific performance of his investor agreement, which promised an initial distribution of the film in North America.
¶ 6 Joseph Pia, a partner in defendant law firm Pia Anderson Dorius Reynard & Moss, LLC (PADRM), served as legal counsel for the Shannon‘s Rainbow LLCs before and after the impasse. After the impasse, he assisted SummitWorks in their litigation against Supernova and Mr. DiPalma.
¶ 7 In 2010, the SummitWorks parties stopped paying legal fees to PADRM. After six months of overdue bills, Mr. Pia withdrew from representation and tried to foreclose two liens on the film: an attorney‘s lien under
¶ 8 Mr. Pia then sued the SummitWorks parties and the Shannon‘s Rainbow LLCs in Utah state court (the first case) seeking money damages and a declaratory judgment that his liens on the film were valid and entitled to priority.3 Instead of filing a counterclaim, the SummitWorks parties initiated a separate Utah state court action (the second case) against PADRM, seeking a declaration that the consensual lien was invalid and that any foreclosure would have to be accomplished through a judicial proceeding. The SummitWorks parties obtained a temporary restraining order against the public sale of the film and also sought a preliminary injunction.
¶ 9 Supernova did not receive formal notice of either of these Utah state cases. When Supernova became aware of these cases, it moved on its own behalf, and derivatively on behalf of the Shannon‘s Rainbow LLCs, to intervene as of right “for the purpose of obtaining a preliminary injunction, and seeking a stay to permit relevant issues to be
¶ 10 In the second case, SummitWorks and PADRM filed a stipulated motion to close the preliminary injunction hearing and seal the related records, based primarily on their claim that many of the records were protected by attorney-client privilege. Judge Hilder granted the motion. Although they had not been permitted to intervene, the Supernova parties filed a motion to unseal the record.
¶ 11 Shortly after a hearing on March 21, 2011, PADRM and the SummitWorks parties signed a settlement agreement. At Judge Hilder‘s request, the parties to the settlement disclosed three paragraphs of their agreement to Supernova. These paragraphs set forth the identity of the parties to the settlement and the scope of the mutual releases between PADRM, the SummitWorks parties, and the Shannon‘s Rainbow LLCs.4
¶ 12 SummitWorks and PADRM then filed stipulated motions to dismiss both cases under
STANDARD OF REVIEW
¶ 13 “The standard of appellate review varies depending on the nature of the [district] court‘s analysis.” Manzanares v. Byington (In re Adoption of Baby B.), 2012 UT 35, ¶ 40, 308 P.3d 382. We apply a clearly erroneous standard to factual findings and a correctness standard to legal conclusions. Id. ¶ 40-41. “On mixed questions—involving application of a legal standard to a set of facts unique to a particular case—our review is sometimes deferential and sometimes not,” id. ¶ 42 (footnote omitted), depending on the following factors:
(1) the degree of variety and complexity in the facts to which the legal rule is to be applied; (2) the degree to which a trial court‘s application of the legal rule relies on facts observed by the trial judge, such as a witness‘s appearance and demeanor, relevant to the application of the law that cannot be adequately reflected in the record available to appellate courts; and (3) other policy reasons that weigh for or against granting discretion to trial courts, State v. Levin, 2006 UT 50, ¶ 25, 144 P.3d 1096 (internal quotation marks omitted).
¶ 14 We have often said that a district court‘s ruling on a motion to intervene under
¶ 15 We review for abuse of discretion the district court‘s determination of whether the motion to intervene was timely filed. See Jenner v. Real Estate Servs., 659 P.2d 1072, 1073-74 (Utah 1983). Such review is appropriate under the Levin factors because timeliness depends on the “the facts
¶ 16 We review for correctness 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.”
¶ 17 The district court‘s determinations of whether “the disposition of the action may as a practical matter impair or impede [the intervenor‘s] ability to protect [the claimed] interest” and whether that interest is “adequately represented by existing parties,” are entitled to deferential review.
¶ 18 Finally, we review with some deference the district court‘s ultimate decision to grant or deny a motion to intervene. In re United Effort Plan Trust, 2013 UT 5, ¶ 24. If an intervenor meets the requirements of
¶ 19 Regarding the sealing order, we uphold the district court‘s factual findings unless they are clearly erroneous, In re Adoption of Baby B., 2012 UT 35, ¶ 40, and we review its interpretation of the relevant rules of the Utah Code of Judicial Administration for correctness, N.A.R., Inc. v. Walker, 2001 UT 98, ¶ 4, 37 P.3d 1068. We review for abuse of discretion the district court‘s application of factual findings to the rules governing closure of court records. See Soc‘y of Prof‘l Journalists v. Bullock, 743 P.2d 1166, 1168 (Utah 1987). Abuse of discretion review is appropriate under the Levin factors because before sealing a record, a district court must “balance the interests favoring opening and closing the record.”
ANALYSIS
¶ 20 Supernova appeals the denial of its motions to intervene as of right under
¶ 21 Supernova also appeals the sealing of court records related to the preliminary injunction hearing because the order was not supported by the findings required by
I. SUPERNOVA WAS ENTITLED TO INTERVENE AS OF RIGHT
¶ 22 Supernova moved to intervene as of right under
[u]pon 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.
Thus, Supernova must show (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.”
A. Timeliness
¶ 23
¶ 24 Generally, a motion to intervene is timely if it is filed before the “final settlement of all issues by all parties,” see Millard Cnty. v. Utah State Tax Comm‘n ex rel. Intermountain Power Agency, 823 P.2d 459, 461 (Utah 1991), and before entry of judgment or dismissal, see Jenner, 659 P.2d at 1074. A party may waive its right to intervene by substantially and unjustifiably delaying its motion to intervene. See Republic Ins. Grp. v. Doman, 774 P.2d 1130, 1131 (Utah 1989) (affirming the denial of intervention because the intervenor had “notice and opportunity to intervene at an earlier stage of the proceeding” but waited to do so until “every fact necessary for a ruling on [a] motion for summary judgment [was admitted]“). Once a motion to intervene as of right has been timely filed, it cannot become untimely based on the actions of the court or of other parties. See Millard, 823 P.2d at 461-62.
¶ 25 This court has decided at least two cases involving the interplay between a motion to intervene and a settlement agreement. In Millard, we held that the county‘s motion to intervene in a proceeding before the Utah State Tax Commission (Commission) was improperly denied. Id. at 460-61. The county‘s motion to intervene was filed in June, the parties stipulated to the tax liability in August, and the Commission denied the motion to intervene the following February. Id. at 460. We held that “[t]he settlement of a controversy by the parties before a motion to intervene as of right has been adjudicated does not constitute a final settlement and does not render moot either the motion or an appeal from a denial of that motion.” Id. at 461. We reversed and remanded for the Commission to reopen the proceedings. Id. at 463-64.
¶ 26 In Ball v. Public Service Commission (In re Questar Gas Co.), we held that a motion to intervene was appropriately denied because it had been filed after the parties reached a settlement and over a year after the proceedings commenced. 2007 UT 79, ¶ 32-37, 175 P.3d 545. We noted that the settlement was not entered strategically to preempt the motion to intervene. Id. ¶ 34. We also noted that the “failure to intervene
¶ 27 The proceedings in Millard and Questar were governed by the Utah Administrative Procedures Act (UAPA). See id. ¶ 31; Millard, 823 P.2d at 462. Therefore,
¶ 28 The second requirement of
¶ 29 We hold that the requirements are similar, however, in that under
¶ 30 To allow a settlement between the parties to litigation to moot a third party‘s motion to intervene as of right would be to allow the strategic behavior of the parties to “destroy the legal right on which the motion to intervene is based and ... defeat the ... policy allowing for intervention.” Id. Such a rule would also invite collusion and such improper strategic behavior. As the Tenth Circuit reasoned, “[t]o allow a settlement between parties to moot an extant appeal concerning intervention of right might well provide incentives for settlement that would run contrary to the interests of justice.” Fed. Deposit Ins. Corp. v. Jennings, 816 F.2d 1488, 1491 (10th Cir. 1987).
¶ 31 Here, the parties opposing intervention have sought to distinguish Millard based on the identity of the parties and the administrative nature of the proceedings in Millard. We are unpersuaded that these factors undermine the applicability of the rule we articulated in Millard—and now extend to
B. Interest Relating to the Subject of the Action
¶ 32
¶ 33 The interest “may arise from the intervenor‘s status or ... circumstances.” T.H. v. R.C. (In re E.H.), 2006 UT 36, ¶ 51, 137 P.3d 809. The interest may be of a pecuniary nature, such as when an insurer seeks to intervene in a suit because it will be contractually obligated to reimburse its insured for the amount of the judgment. See, e.g., Chatterton v. Walker, 938 P.2d 255, 259 (Utah 1997). The interest may also be of a non-pecuniary nature, such as when a biological parent seeks to intervene in a child‘s adoption proceedings, see, e.g., In re E.H., 2006 UT 36, ¶ 57-60, or when a trustee seeks to intervene in litigation involving trust assets or trust administration, see, e.g., Frederick & Dorothy Westling Family Trust v. Westling, 2010 UT App 291, ¶ 3-4, 242 P.3d 805.
¶ 34 Here, the Supernova parties claim an interest relating to the subject of this litigation based on their investments in the Shannon‘s Rainbow LLCs and their right to control those LLCs. Their claims are supported in the record by the investor agreements with Mr. DiPalma, which name Ms. Engle, on behalf of Supernova, as a manager of Shannon‘s Rainbow, LLC, and require that she approve any distribution arrangements. They are also supported by an authorization agreement that appears to give Ms. Engle a 51 percent ownership interest in the film. Furthermore, the Supernova parties purport to sue derivatively on behalf of the Shannon‘s Rainbow LLCs, after having submitted the statutorily required demand letters.
¶ 35 PADRM argues that because the dispute is based on unpaid legal fees owed by the SummitWorks parties, Supernova “has not established a direct, substantial, and legally protectable interest in the present matter.” PADRM is wrong for three reasons. First, PADRM misstates the standard: Supernova is only required to claim “an interest relating to the property or transaction which is the subject of the action.”
¶ 36 Second, the unpaid legal fees are not the sole subject of the litigation. This litigation was precipitated by Mr. Pia‘s scheduling a non-judicial foreclosure sale of the film. In PADRM‘s complaint filed in the first case, the firm prayed for determinations regarding its “lien and security interests” in the film. Furthermore, the SummitWorks parties, in their complaint in the second case, sought a declaration that the consensual lien was invalid and that any foreclosure would have to be accomplished through a judicial proceeding. Thus, the film was clearly a subject of the litigation.
¶ 37 Finally, even if the unpaid legal fees were the sole subject of the litigation, the Supernova parties would still have an interest under
C. Practical Impairment
¶ 38
¶ 39 As we explained in Chatterton,
¶ 40
It has been clear to all courts that the principal purpose of the amendment was to eliminate the old reading that a would-be intervenor must be legally bound, and that instead the court is to view the effect on the intervenor‘s interest with a practical eye. Indeed ... the amendment did not require, as an earlier draft would have, that the judgment must “substantially” impair or impede the applicant‘s ability to protect its interest. Thus, ... even the stare decisis effect of the judgment in the existing action may, in proper circumstances, create sufficient practical disadvantage to warrant intervention as of right.
20 CHARLES ALAN WRIGHT & MARY KAY KANE, FEDERAL PRACTICE & PROCEDURE DESKBOOK § 80 (2012). This interpretation reinforces our conclusion in Chatterton that the amendment served to broaden access to intervention as of right.8
¶ 41 This court has interpreted the practical impairment requirement since the rule was amended. In Chatterton, we held it was proper for State Farm to intervene in an action brought by its policyholder against an uninsured motorist who had rear-ended the policyholder. Chatterton, 938 P.2d at 259-62. State Farm sought to intervene to assert defenses on behalf of the uninsured motorist because State Farm was contractually obligated to reimburse the policyholder for damages caused by the uninsured motorist. Id. at 256, 259. We held that State Farm met the practical impairment requirement because “State Farm‘s insurance contract with [the policyholder] expressly render[ed] it liable ... for the damages caused by [the uninsured motorist.]” Id. at 259.
¶ 42 In Bosh, we upheld intervention in a preservation action. 2011 UT 60, ¶ 12, 266 P.3d 788. Victims of a Ponzi scheme had assigned their claims against the defendants to a corporation, which negotiated a settlement with the defendants. Id. ¶ 12-3. The state was investigating the Ponzi scheme and had frozen the defendants’ assets to preserve them for restitution. Id. ¶ 2. The corporation moved to intervene in the state‘s preservation action to seek to unfreeze the assets. Id. ¶ 3. We found that the corporation met the practical impairment requirement because “the preservation action ha[d] a direct impact on [the corporation] and the Settlement Agreement, and [would] impair [the corporation‘s] ability to pursue the settlement for its assignors.” Id. ¶ 11.
¶ 43 Here, the district court, having incorrectly concluded that Supernova had not claimed an interest in the litigation, did not address the remaining requirements of
If the scheduled sale proceeds, Defendant will be attempting to manage and distribute or sell the project while the true owners will be suing to restore their membership interests. The confusion and chaos in the market place that will result, particularly with regard to anyone attempting to deal with the movie project, will effectively kill the project.
¶ 44 PADRM‘s argument that Supernova‘s interests in the film will not be impaired because “[t]he foreclosure never occurred and never will occur as long as the settlement agreement between the parties is in force” is flawed because it relies on events occurring after the motion to intervene was filed. The relevant time period for assessing whether “the disposition of the action may as a practical matter impair or impede [the intervenor‘s] ability to protect [its] interest” is the time at which the motion to intervene is filed.
¶ 45 Second, any judgment or settlement agreement resulting from this litigation would have been (and was) made in the name of the Shannon‘s Rainbow LLCs. By not allowing Supernova to intervene, the district courts in these cases impaired and impeded Supernova‘s ability to protect its interests in controlling the LLCs and in protecting its investments from adverse judgments. See supra ¶ 34.
¶ 46 PADRM suggests that in lieu of intervening, Supernova should vindicate its investment and control interests through separate litigation. However, the availability of separate legal action is irrelevant to an inquiry into whether a right to intervene exists. In fact, one of the primary policies underlying intervention of right is the prevention of duplicative lawsuits. See Lima, 657 P.2d at 284.
¶ 47 We therefore determine that Supernova meets the practical impairment requirement of
D. Representation by Existing Parties
¶ 48 Finally,
¶ 49 Intervenors have a burden to present “some evidence of diverging or adverse interests.” Bosh, 2011 UT 60, ¶ 10. Such evidence can show, “for example, [that] the representative party has an interest adverse to the applicant, has colluded with the opposing party, or is otherwise unable to diligently represent the applicant‘s interest.” Beacham v. Fritzi Realty Corp., 2006 UT App 35, ¶ 9, 131 P.3d 271.
¶ 50 The Supernova parties allege a pattern of collusion between SummitWorks and Mr. Pia. They allege that, beginning in 2008, SummitWorks and Mr. Pia cooperated to exclude the Supernova parties from management of the Shannon‘s Rainbow LLCs. In this litigation, for example, SummitWorks and Mr. Pia failed to give the Supernova parties notice of the proceedings and moved to close the preliminary injunction hearing and seal the related court records. They also refused to allow the Supernova parties to see the settlement agreement in its entirety.
¶ 51 Supernova also alleges a divergence of interests between itself and SummitWorks: The SummitWorks Parties were concerned primarily about escaping personal liability, and were not challenging Mr. Pia‘s under-
PADRM does not dispute these allegations of collusion or divergence of interests. Thus, although the district court did not expressly rule on this requirement, see supra ¶ 43, we determine that Supernova has met its burden to show that its interests are not adequately represented by the SummitWorks parties.
¶ 52 One of the two cases before us presents the unusual circumstance of a court purporting to protect the interests of a litigant—here, Supernova. The judge in this case stated at a March 21 hearing that he was “deferring on the intervention” until he saw the settlement agreement and determined whether any of Supernova‘s interests would be compromised. After reviewing the settlement agreement in camera, he determined which paragraphs the Supernova parties should see. Finally, he dismissed the case and denied the motion to intervene because he found that the Supernova parties “had not shown” that their interests were affected by the outcome of case, that is, by the settlement agreement that they were not allowed to see.
¶ 53 The district court‘s postponement of judgment on the motion to intervene was improper; the motion should have been decided in a timely manner, based on the circumstances as they existed when the motion was filed. The court‘s actions are also troubling because judicial oversight is never an adequate substitute for intervention where a right to intervene exists. Lima, 657 P.2d at 283-84; see also State ex rel. State Farm Mut. Ins. Co. v. Craig, 364 S.W.2d 343, 346 (Mo. Ct. App. 1963) (rejecting as “specious” the argument that the intervenor‘s interests would be adequately represented because “the court will require proof of plaintiff‘s cause” and noting that “[t]he court cannot, and should not, act as attorney for” a party). If an intervenor meets the requirements of
¶ 54 Because Supernova has met all of the requirements of
II. THE SEALING ORDER WAS IMPROPER BECAUSE THE COURT FAILED TO MAKE THE FINDINGS REQUIRED BY RULE 4-202.04(3) OF THE UTAH CODE OF JUDICIAL ADMINISTRATION AND FAILED TO CONSIDER THE PUBLIC‘S INTEREST IN OPEN COURT RECORDS
¶ 55 Supernova appeals the district court‘s order sealing the court documents related to the preliminary injunction hearing in the first case. Supernova argues that the sealing order was improper because the court failed to make necessary findings and failed to consider the public‘s interest in open court records. We agree.
¶ 56
¶ 57 The “interests” that must be identified and balanced under
¶ 58 Because of the public‘s interest in open court records, a court must make the findings required by
¶ 59 Here, SummitWorks and PADRM filed a stipulated motion to close the preliminary injunction hearing and seal all related records. They claimed many of the documents were protected by attorney-client privilege and argued that disclosure of information, trial strategy, and analysis would disadvantage the SummitWorks parties in other lawsuits against the Supernova parties. The district court granted the motion to seal based on its “review[ of] the Stipulated Motion and the supporting memorandum” and its finding “[g]ood cause” to seal. It made no further factual findings.
¶ 60 The failure of a district court to make necessary findings is an abuse of discretion “unless the facts in the record are clear, uncontroverted, and capable of supporting only a finding in favor of the judgment.” Butler, Crockett & Walsh Dev. Corp. v. Pinecrest Pipeline Operating Co., 909 P.2d 225, 231 (Utah 1995) (internal quotation marks omitted). Because here the facts in the record do not show that the public interest was considered or that alternatives to closing the record were considered, the district court abused its discretion when it granted the sealing order, and the order must be set aside.
CONCLUSION
¶ 61 Supernova has a right to intervene in this litigation, and the public has a right to access the court records related to the preliminary injunction hearing unless and until they are properly sealed under
¶ 62 Our holding requires us to determine what actions are necessary on remand to return the parties to their status quo prior to the erroneous denial of the motions to intervene. We conclude that the dismissals must be vacated inasmuch as they were predicated on the erroneous view that the settlement agreement constituted “a stipulation of all of the parties” under
Justice DURHAM authored the opinion of the Court, in which Chief Justice DURRANT, Associate Chief Justice NEHRING, Justice PARRISH, and Justice LEE joined.