Angel Investors, LLC v. Garrity

Summary

The Supreme Court of Utah held that Angel Investors, LLC, could proceed as a class of one in a derivative action on behalf of XanGo, LLC. The court concluded that the defendants had not shown an actual conflict of interest or otherwise established that Angel Investors was an inadequate representative, and it remanded for further proceedings.

Holdings

1. A sole dissenting shareholder or member of a closely held corporation or limited liability company qualifies as a class of one for purposes of derivative standing when the plaintiff seeks by its pleading to enforce a right of the entity and does not appear to be similarly situated to any other shareholder or member.
2. The motivations of shareholders or members in opposing a derivative action are relevant to determining whether they are similarly situated to the derivative plaintiff.
3. A plaintiff's simultaneous direct action against an entity does not per se disqualify the plaintiff from bringing a derivative action. Disqualification requires proof of an actual conflict of interest that prevents the plaintiff from acting in the entity's best interest; a possible conflict is insufficient.
4. The court may decline to address an inadequately briefed appellate argument that lacks developed legal reasoning, supporting authority, and necessary record citations.
5. The court will not affirm on an unpreserved alternative ground when the trial court's findings are insufficient to sustain that ground and the appellate court would have to find new facts or reweigh the evidence.

Questions Presented

1. Whether a sole dissenting member of a closely held limited liability company may qualify as a class of one for purposes of derivative standing under Utah Rule of Civil Procedure 23A.
2. Whether the motivations of other shareholders or members in opposing a derivative action are relevant to determining whether they are similarly situated to the derivative plaintiff.
3. Whether the defendants proved that Angel Investors was an inadequate representative because it had a pending direct action against XanGo seeking dissolution and damages.
4. Whether the defendants' alternative arguments concerning Angel Investors' failure to sign the operating agreement or its relatively small potential recovery could support affirmance despite not being adequately preserved or developed below.
5. Whether the district court's discovery ruling should be addressed on appeal.

Disposition

reversed_and_remanded