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Yarro Team's Memo in Support of Motion to Dismiss - PDF and text (Canopy et al v. Yarro et al)
Monday, February 21 2005 @ 05:21 AM EST

There's another motion filed in the dueling Canopy lawsuits, but this one is in the Canopy et al v. Yarro et al lawsuit, by the defendants Ralph Yarro, Darcy Mott and Brent Christensen, a Motion to Dismiss for Failure to Plead as Compulsory Counterclaim, and this is the Memorandum in Support of Defendant's Motion to Dismiss for Failure to Plead as Compulsory Counterclaim. I don't have the Motion as PDF yet, but we'll have it soon. UPDATE: Here is the Motion to Dismiss.

It is in this document that we learn that Canopy was already granted intervenor status by the judge. The Yarro side in the Yarro et al v. Kreidel et al lawsuit tried to get a temporary restraining order, seeking to reinstate the three plaintiffs to their positions in Canopy. They did not prevail, and it was in connection with that matter that Canopy was granted intervenor status.

The argument in this motion is that the Mustard/Noorda/Peterson/Kreidel team shouldn't have brought a separate lawsuit. They should, instead, have brought their claims as counterclaims to the lawsuit the Yarro team had filed. Because they failed to do so, the defendants argue that the plaintiffs' claims should be dismissed and they should be forced to bring their claims as counterclaims to the Yarro litigation.

As you can see, each side wants the other to join *their* lawsuit, not the other way around. Here though, there is something strange. The defendants, the Yarro team, on page 6 claim that their lawsuit, the one where they are the plaintiffs, lists Canopy Group as a defendant. Our court-obtained copy doesn't list Canopy as a defendant. There is a footnote on page 2 of this Motion that says that they filed an Amended Complaint on February 9, which, they say, "did not materially change the allegations in the Original Lawsuit Complaint", which original was filed on January 20. So maybe they quickly added Canopy Group as a defendant, so the parties would be identical, but if they did, they did it after the Kreidel et al team had already filed their complaint, not before. The order would be that Yarro team filed their complaint on January 20 and served it on the 21st; Kreidel team filed theirs on January 25; then the Yarro team filed an Amended Complaint on February 9. We'll have to try to get that Amended Complaint and take a look to see if that is when Canopy was listed as a defendant or if this document is simply wrong in saying Canopy Group is a defendant. It might explain why the Canopy team didn't file a "compulsory" counterclaim but filed their own lawsuit and then asked for consolidation of the Yarro litigation with theirs, listing Canopy as intervenor-defendant.

You will also note that it says that the Yarro team's lawyers are representing the plaintiffs, but in actuality, in this lawsuit, they are the defendants. That's why, one way or another, it makes sense to put the two cases together. Even the lawyers are getting confused. They ask the court to dismiss the Kreidel lawsuit, and force that team to bring their side of the story as counterclaims to the Yarro complaint. This looks like it's going to be a real mud wrestling, knock-out, drag-out fight, with every little issue turned into a very big deal. There is a lot at stake, so I gather no Gentleman's Rules here. Each side has added a lawyer to the team, and if you note the Certificate of Service, you will see that Val Noorda Kreidel and Terry Peterson have retained their own lawyers, separate from the attorneys representing the others. I am not surprised, and I expect to see more of that. Here's why. A lawyer can't represent two parties at the same time if they have conflicting interests.

Sometimes it happens, like in a divorce, but the defendant would have to sign off on it, after somebody told him or her why it is better to have your own representation, and even then, even if you do all that, you are asking for trouble down the road. Ditto with a prenuptial agreement. You might have clients who swear up and down that they want to share the same lawyer. But if you let them, the one that later hates the agreement can go to court and say, "I didn't have proper representation," so it's safer all around to avoid trouble and have all parties properly and separately represented, unless the interests of all are identical.

It's the same with wills and trusts. If a lawyer represents the person drawing up the will or the trust, he can't represent the beneficiaries too, or the trustees. They need their own. In fact, one attorney I worked for would make family members leave the office entirely when a parent was there to discuss a will.

The interests of Canopy Group are not identical with the interests of Terry Peterson, for example, or even with Val Noorda Kreidel. And the interests of the corporation are not identical to the trust's or the Noordas as individuals. In fact, it seems to me the trust and Canopy have an interest in going after each others' assets, for starters, if you are thinking about money only.

If you are curious, here are the bios for the Noorda team's lawyers, with pictures, as listed in the previous document: David B. Watkiss; Anthony C. Kaye; James W. Stewart ; Boyd L. Rogers; and the new one, Craig H. Howe, who has experience in securities matters, I notice. The first one is the partner so he's probably the supervising attorney, and you'll remember his name from some of the Yarro teams' affidavits.

*********************************

STANLEY J. PRESTON (4119)
MICHAEL R. CARLSTON (0577)
MARALYN M. REGER (8468)
BRYAN M. SCOTT (9381)
SNOW, CHRISTENSEN & MARTINEAU
Attorneys for Plaintiffs
[address, phone]


IN THE FOURTH JUDICIAL DISTRICT COURT

UTAH COUNTY, STATE OF UTAH


THE CANOPY GROUP, INC., a Utah
corporation, and RAYMOND J. NOORDA
and LEWENA NOORDA, as Trustees of
the Noorda Family Trust,

Plaintiffs,

vs.

RALPH J. YARRO III, an individual,
DARCY G. MOTT, an individual, and
BRENT D. CHRISTENSEN, an individual,

Defendants.

_____________________________

MEMORANDUM IN SUPPORT OF
DEFENDANTS' MOTION TO
DISMISS FOR FAILURE TO PLEAD
AS COMPULSORY
COUNTERCLAIM

Civil No. 050400245

Honorable Anthony W. Schofield, Div. 8

__________________________

Pursuant to Rule 13(a) of the Utah Rules of Civil Procedure, defendants Ralph J. Yarro III ("Mr. Yarro"), Darcy G. Mott ("Mr. Mott") and Brent D. Christensen ("Mr. Christensen") (collectively the "Yarro Plaintiffs") hereby respectively submit this Memorandum In Support Of Defendants' Motion to Dismiss For Failure To Plead As Compulsory Counterclaim.

1

STATEMENT OF FACTS

A. Original Lawsuit

On January 20, 2005, the Yarro Plaintiffs filed a Complaint in the Fourth Judicial District Court, Utah County, State of Utah (Case No. 050400205) (referred to hereafter as the "Original Lawsuit"), seeking damages against, among others, the Noorda Family Trust ("the Trust"), Raymond J. Noorda ("Mr. Noorda") and Lewena Noorda ("Mrs. Noorda"). Counsel for the Trust, Mr. and Mrs. Noorda and The Canopy Group, Inc. ("Canopy") accepted service of the Original Lawsuit Complaint on January 21, 2005, on behalf of the Trust and Mr. and Mrs. Noorda. Canopy was permitted to intervene in the Original Lawsuit at the time the Yarro Plaintiffs sought to obtain a temporary restraining order to reinstate the status quo. The Original Lawsuit Complaint incorporates documents and agreements referred to in the Complaint as the "Canopy 2000 Recapitalization Plan," including: (1) Canopy's Amended and Restated Articles of Incorporation, attached to the Original Lawsuit at Tab 1; (2) Canopy's 2000 Stock Option Plan, attached to Original Lawsuit Complaint at Tab 2; and (3) Shareholder Agreement, attached to Original Lawsuit Complaint at Tab 3. A copy of the Original Lawsuit Complaint is attached hereto as Exhibit A. 1

The claims asserted in the Original Lawsuit, including without limitation the claims for breach of contract, are grounded in the Canopy 2000 Recapitalization Plan and arise out of a

2

Canopy Board Meeting on December 17, 2004, at which Mrs. Noorda proposed and read a resolution that purportedly: (1) granted her and Mr. Noorda sufficient additional voting share options to give themselves control of Canopy; (2) terminated the Yarro Plaintiffs for cause (without detailing what they had allegedly done wrong); and (3) appointed William Mustard as the President and Chief Executive Officer of Canopy. See Original Lawsuit Compl. 69. The Original Lawsuit Complaint alleges, among other things, that the Yarro Plaintiffs have suffered irreparable harm as a result of the purported actions taken on December 17, 2004 and thereafter, which actions constitute breaches of the Canopy 2000 Recapitalization Plan. The Yarro Plaintiffs seek damages for, among other things, deprivation of their right to manage Canopy, as well as the deprivation of certain compensation, bonuses and benefits.

B. Second Lawsuit

On January 24, 2005, after having accepted service of the Original Lawsuit, Mr. and Mrs. Noorda as trustees for the Trust, as well as Canopy (collectively the "Noorda Parties") filed a Complaint in the Fourth Judicial District Court, Utah County, State of Utah (Case No. 050400245) (the "Second Lawsuit" or the "instant case") against the Yarro Plaintiffs.

The Second Lawsuit Complaint contains extensive quotations from the very same documents and agreements that are an integral part of the Original Lawsuit, and asserts that the Yarro Plaintiffs have breached the various agreements and/or that said agreements are null and void. See, e.g., Second Lawsuit Compl. 26-38, 54-57, 59-61, 105-123, and p. 29 B, E. In

3

the Second Lawsuit Complaint, the Noorda Parties cite and/or quote provisions of Canopy's Amended and Restated Articles of Incorporation in paragraphs 27, 28, 29; cite and/or quote provisions of Canopy's 2000 Stock Option Plan in paragraphs 30, 31, 32, 33, 54, 56, 57, 58, 59, 60, 61, 106, 107, 108, 109, 110, and 111; and cite and/or quote provisions of the Shareholder Agreement in paragraphs 36, 37, 38, 113, 114, 116, 118 119, 120, 121, 122, and 123. The Second Lawsuit Complaint offers no explanation or attempted justification for filing a new action rather than pleading the claims as counterclaims to the Original Lawsuit.

ARGUMENT

I. RULE 13(A) REQUIRES DEFENDANTS TO BRING CLAIMS ARISING OUT OF
THE SAME TRANSACTION OR OCCURRENCES AS COMPULSORY COUNTERCLAIMS

The Noorda Parties should be required to make their claims in the Original Lawsuit in accordance with Rule 13(a) of the Utah Rules of Civil Procedure. Rule 13(a) provides:

A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject-matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction.

Utah R. Civ. P. 13(a). Thus, under Rule 13(a), a claim must be brought as a compulsory counterclaim if it arises from the "same transaction" as a claim in the original lawsuit. Mark VII Financial Consultants v. Smedley, 792 P.2d 130, 132-33 (Utah Ct. App. 1990). Claims that rely upon the same underlying agreements or claim breaches of the same agreements and involve the

4

same parties as the original claims arise from the "same transactions." See Romar Dev. Co. v. Gulf View Mgt. Corp., 644 So.2d 462, 468 (Ala. 1994) ("Where the claim and the counterclaim allege respective breaches of the same contract, the counterclaim is compulsory"); Mathis v. Bill De La Garza & Assocs., 778 S.W.2d 105 (Tx. Ct. App. 1989) (finding that where one party claimed breach of contract, and the other party alleged breach of the same contract, "the counterclaim was a compulsory one."); cf. King v. Barron, 770 P.2d 975, 977 (Utah 1988) (in reviewing a severance of claims, the Court quoted the following with approval "The test for determining whether the two causes of action arose out of the same transaction or occurrence is the logical relationship test" (citation omitted)); Massey v. Board of Trustees, 2004 UT App 27, 12, 86 P.3d 120 (in analyzing a claim preclusion issue, stating that claims brought in two separate suits were "unquestionably part of the same transaction" because "they are related in time, space, origin and motivation, and form a convenient trial unit that any defendant could expect to be brought in one suit." (emphasis added)).

The purpose of Rule 13(a) "is to ensure that all relevant claims arising out of a given transaction are litigated in the same action." Raile Family Trust v. Promax Dev. Corp., 2001 UT 40, 12, 24 P.3d 980.

5

II. THE CLAIMS ASSERTED IN THE SECOND LAWSUIT ARE COMPULSORY
COUNTERCLAIMS TO THE ORIGINAL LAWSUIT.

A. The Claims Are Against Opposing Parties.

To constitute a compulsory counterclaim, the claim must be asserted against "any opposing party." Utah R. Civ. P. 13(a). This element is satisfied because the same persons and entities are parties to the Original Lawsuit and the Second Lawsuit. In the Original Lawsuit, Mr. Yarro, Mr. Mott and Mr. Christensen are plaintiffs and the Noorda Family Trust, Mr. and Mrs. Noorda, and Canopy, as well as others, are defendants. In the Second Lawsuit, Mr. Yarro, Mr. Mott and Mr. Christensen are named as defendants, and Mr. and Mrs. Noorda as trustees of the Noorda Family Trust and Canopy are plaintiffs.

B. The Claims In the Instant Case Arise Out Of The Same Transactions That
Are The Subject Matter Of The Original Lawsuit.

The claims asserted in the instant case arise out of the same transactions and occurrences that are the subject matter of the Original Complaint. In the Original Complaint, the Yarro Plaintiffs allege that the Noorda Parties breached the Canopy 2000 Recapitalization Plan, and in particular, the Canopy 2000 Stock Option Plan and the Shareholder Agreement. In the instant case, the Noorda Parties allege that the Yarro Plaintiffs breached those same agreements by the actions taken in their capacity as board member, officers, and/or employees of Canopy. Not only do the Noorda Parties allege breaches of those agreements, they also seek the Court to find that the agreements attached to and incorporated in the Original Complaint are null and void. Thus,

6

There can be no question that the claims asserted by the Noorda Parties in the instant case are compulsory counterclaims to the Original Lawsuit. See Romar, 644 So.2d at 468 ("Where the claim and the counterclaim allege respective breaches of the same contract, the counterclaim is compulsory.").

Furthermore, at issue in both the Original Lawsuit and the Second lawsuit is who should serve as directors of Canopy. In the Original Lawsuit, the Yarro Plaintiffs assert that Mr. Yarro should continue to serve as a director of Canopy and that Mr. and Mrs. Noorda should be removed as directors of Canopy, that certain actions purportedly taken by Mr. and Mrs. Noorda on December 17, 2004 are void ab initio and that subsequent related actions must be rescinded. In the instant case, the Noorda Parties assert that Mr. Yarro should be removed as a director of Canopy, and that certain actions taken by the Yarro Plaintiffs, in their capacity as board member, officers, and/or employees of Canopy are void and should be rescinded. The claims in the Original Lawsuit certainly have a "logical relationship" with the claims in the instant case, and are "related in time, space, origin and motivation, and form a convenient trial unit that any defendant could expect to be brought in one suit." King, 770 P.2d at 977; Massey, 2004 UT App 27 at 12. Therefore, the claims in the instant action arise out of the same subject matter as the claims in the Original Lawsuit. Accordingly, the Noorda Parties must bring those claims, if at all, as compulsory counterclaims to the Original Lawsuit.

7

C. The Court Has Jurisdiction Over All Parties In The Instant Action.

The final element that is considered in determining whether a claim must be brought as a compulsory counterclaim is whether the adjudication of the claim requires "the presence of third parties of whom the court cannot acquire jurisdiction." In this case, both the Original Lawsuit and the Second Lawsuit were filed in the same court, and assigned to the same judge. There are no third parties necessary to the adjudication of the claims in the Second Lawsuit over which this court cannot acquire jurisdiction. Accordingly, the claims of the Second Lawsuit must be brought as compulsory counterclaims to the Original Lawsuit.

CONCLUSION

The claims made in the instant case arise from the same transactions and occurrences that are the subject matter of the Original Complaint, and are brought against opposing parties. Because the Noorda Parties brought their claims in this action, in violation of Rule 13(a), the Yarro Plaintiffs are entitled to dismissal of the instant action. Accordingly, the Court should grant the motion to dismiss, and the Noorda Parties should be ordered to bring their claims, if any, as compulsory counterclaims to the Original Complaint.

8

DATED this 14th day of February, 2005.

SNOW, CHRISTENSEN & MARTINEAU

By: ___[signature]___
Stanley J. Preston
Michael R. Carlston
Maralyn M. Reger
Bryan M. Scott
Attorneys for Plaintiffs

9


1 The Yarro Plaintiffs filed an Amended Complaint on February 9, 2005. The Amended Complaint did not materially change the allegations in the Original Lawsuit Complaint.


CERTIFICATE OF SERVICE

I hereby certify that I am employed by the law offices of Snow, Christensen & Martineau, attorneys for defendants, and that a true and correct copy of the MEMORANDUM IN SUPPORT OF DEFENDANTS' MOTION TO DISMISS FOR FAILURE TO PLEAD AS COMPULSORY COUNTERCLAIM (Case No. 050400205, Fourth Judicial District Court, Utah County, for the State of Utah) was served on the following, by mailing, postage prepaid, this 14th day of February, 2005:

David B. Watkiss, Esq.
James W. Stewart, Esq.
Anthony C. Kaye, Esq.
Ballard Spahr Andrews & Ingersoll, LLP
[address]

Attorneys for William Mustard, The Noorda Family Trust, Raymond J. Noorda, Lewena Noorda and The Canopy Group, Inc.

Jeffrey S. Facter, Esq.
Shearman & Sterlilng, LLP
[address]

Eric G. Maxfield, Esq.
Holme Roberts & Owen, LLPO
[address]

Attorneys for Terry Peterson

Blake D. Miller, Esq.
Miller Magleby & Guymon, PC
[address]

Attorney for Val Kreidel

___[signature]____

10


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