Burr v. Koosharem Irrigation Company

2017 UT App 123

THE UTAH COURT OF APPEALS

MICHAEL BURR,
Appellant,
v.
KOOSHAREM IRRIGATION COMPANY, LADON TORGERSEN,
AND CLAYTON BAGLEY,
Appellees.

Opinion
No. 20160324-CA
Filed July 28, 2017

Sixth District Court, Richfield Department
The Honorable Wallace A. Lee
No. 140600023

Lloyd D. Rickenbach, Attorney for Appellant
Edwin C. Barnes, Steven E. Clyde, and Timothy R.
Pack, Attorneys for Appellee Koosharem
Irrigation Company
Marcus Taylor, Attorney for Appellee
LaDon Torgersen
David A. Van Dyke, Attorney for Appellee
Clayton Bagley

JUDGE MICHELE M. CHRISTIANSEN authored this Opinion, in
which JUDGES J. FREDERIC VOROS JR. and DAVID N. MORTENSEN
concurred.

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.
Burr v. Koosharem Irrigation Company

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

1. The plaintiffs are not parties to this appeal.

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Burr v. Koosharem Irrigation Company

dishonest conduct; or (B) gross abuse of authority
or discretion with respect to the nonprofit
corporation[.]

Utah Code Ann. § 16-6a-809(1)(a) (LexisNexis 2013) (emphasis
added). The three plaintiffs owned a combined 11.9% of the
outstanding Koosharem shares.

¶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 Utah
Code Ann. § 16-6a-612(4)(a), (b) (LexisNexis 2013) (providing
that a derivative proceeding shall be dismissed “if a person or
group specified in Subsection 4(b) . . . determines in good faith,
after conducting a reasonable inquiry upon which the person’s
or group’s conclusions are based, that the maintenance of the
derivative proceeding is not in the best interest of the nonprofit
corporation”). The next month, Koosharem and Kouns’s estate
filed a joint motion to dismiss Kouns as a plaintiff pursuant to
rules 25(a)(1) and 41(a)(2) of the Utah Rules of Civil Procedure.
See Utah R. Civ. P. 25(a)(1); id. R. 41(a)(2). Koosharem also filed a
separate motion to dismiss the plaintiffs’ only remaining cause
of action—the director-removal action. Koosharem observed that
section 16-6a-809 of the Act required “the shareholder [to] hold

2. There is some discrepancy in the record regarding whether the
two remaining plaintiffs owned 5.3% or 5.4% of the outstanding
Koosharem shares, possibly due to rounding. However, that
discrepancy is immaterial for purposes of this appeal.

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at least 10% of the outstanding shares of the corporation” and
that given Kouns’s death, “Plaintiffs no longer hold 10% of the
outstanding shares of Koosharem and cannot satisfy the
statutory requirement. In fact, Plaintiffs only hold 5.3% of the
shares.”

¶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 Utah
Code Ann. § 16-6a-809(1)(a).” The court denied Burr’s motion to
intervene, concluding that Burr had failed to explain “why, after
nearly two years of conscious inaction, his Motion is timely, nor
does he explain why Plaintiffs will not adequately represent his
interest in this case.” Burr appeals from the denial of his motion
to intervene.

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

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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 Utah R. Civ. P. 24(a)). And
“[t]he 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.” Id. ¶ 17 (second and
third alterations in original) (quoting Utah R. Civ. P. 24(a)).
“Finally, we review with some deference the district court’s
ultimate decision to grant or deny a motion to intervene.”
Id. ¶ 18.

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.

Utah R. Civ. P. 24(a). Thus, a party seeking to intervene as a
matter of right must demonstrate

(1) that its motion to intervene was timely, (2) that
it has “an interest relating to the property or

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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 (alteration in original) (quoting
Utah R. Civ. P. 24(a)).

A. Timeliness

¶11 Pursuant to rule 24(a), a motion to intervene must be
“timely.” Utah R. Civ. P. 24(a). “Timeliness is determined under
the facts and circumstances of each particular case, and in the
sound discretion of the court.” Supernova Media, 2013 UT 7, ¶ 23
(brackets, omission, citation, and internal quotation marks
omitted). “Generally, a motion to intervene is timely if it is filed
before the final settlement of all issues by all parties, and before
entry of judgment or dismissal.” Id. ¶ 24 (citation and internal
quotation marks omitted).

¶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 the parties,” (2) “before entry of judgment or dismissal,” and
(3) before a trial date was set. See Supernova Media, 2013 UT 7,
¶ 24.

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¶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 Utah
Code Ann. § 16-6a-809(1)(a) (LexisNexis 2013). Consequently, if
Burr was not allowed to intervene as a plaintiff, the case would
necessarily be dismissed—as it ultimately was—for failure to
meet the 10% statutory requirement. See id. Although the district
court faulted Burr for not having been involved in the case
earlier, the record demonstrates that Burr simply had no need to
seek intervention earlier than he did, as the original three
plaintiffs possessed the requisite 10% of Koosharem shares and
seemingly would have been able to adequately represent Burr’s
interest without his participation in the litigation. On the other
hand, Burr apparently kept himself abreast of the status of the
litigation so that he might attempt to intervene if the
circumstances materially changed.

¶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.

B. Interest Relating to the Subject of the Action

¶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.” Utah R. Civ. P. 24(a) (emphasis added).
Rule 24(a) “does not require intervenors to ‘prove’ such an
interest.” Supernova Media, 2013 UT 7, ¶ 32. “Furthermore, an
intervenor need not claim an interest in the subject of the
litigation but only an interest relating to the subject of the
litigation, such that the interest may be impacted by the
judgment.” Id. (citation and internal quotation marks omitted).

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Burr v. Koosharem Irrigation Company

¶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 (alterations in
original) (quoting Utah R. Civ. P. 24(a)). Here, the district court
did not address this requirement because it had already
concluded that Burr’s motion to intervene was untimely and that
Burr had failed to explain why the existing plaintiffs could not
adequately represent his interest.

¶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

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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
Utah R. Civ. P. 24(a). The district court is better suited to make
that determination after further development of the record on
remand.

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.”
Utah R. Civ. P. 24(a). “Adequacy of representation generally
turns on whether there is an identity or divergence of interest
between the potential intervenor and an original party and on
whether that interest is diligently represented.” Supernova Media,
2013 UT 7, ¶ 48 (citation and internal quotation marks omitted).
Moreover, intervenors have a burden to present “some evidence
of diverging or adverse interests.” Id. ¶ 49 (citation and internal
quotation marks omitted). “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.”
Id. (alteration in original) (citation and internal quotation marks
omitted).

¶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

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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 Utah Code Ann.
§ 16-6a-809(1)(a) (LexisNexis 2013). Thus, without Burr’s
intervention, the plaintiffs’ director-removal action simply could
not proceed. Consequently, the plaintiffs were unable to
diligently represent Burr’s interest, see Supernova Media, 2013 UT
7, ¶ 49, and we therefore conclude that the district court
inappropriately determined that the existing plaintiffs were
adequate to represent Burr’s interest and thus should not have
denied Burr’s motion to intervene on that basis.

CONCLUSION

¶25 We reverse the order of the district court and remand the
case for further proceedings.

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