Burr v. Koosharem Irrigation Company

The Utah Court of Appeals recently issued its opinion in the case of Burr v. Koosharem Irrigation Company. The case began in 2014 when Greg Torgerson, a shareholder in Koosharem Irrigation Company, filed a lawsuit against the Company. Shortly thereafter, two additional shareholders, Chad Torgerson and Bret Kouns, joined in the lawsuit. The three plaintiffs filed an Amended Complaint, which included a shareholder derivative claim against the Company and two of the Company's directors. The plaintiffs alleged that these two directors had breached their fiduciary duties to the Company, had engaged in self-dealing, and had failed to act in good faith and with loyalty. The plaintiffs also sought to have the two directors removed from the board due to "rigged elections."

Under the Utah Revised Nonprofit Corporation Act, a court action to remove a director must be commenced "by voting members holding at least 10% of the votes entitled to be cast in the election of the director's successor." The three plaintiffs owned a combined 11.9% of the outstanding shares in the Company. In 2015, however, plaintiff Bret Kouns passed away. The two remaining plaintiffs only owned a combined 5.3% of the outstanding shares.

Following an investigation by a court-appointed committee that determined that a derivative claim was not in the best interests of the Company, the court dismissed plaintiffs' derivative claims. The Company then sought to have the director removal claim dismissed as well, citing to the fact that the two remaining plaintiffs did not own the requisite number of shares.

Burr, another shareholder in the Company, then sought to join the lawsuit by filing a motion to intervene. If Burr was allowed to intervene in the lawsuit, the plaintiffs would collectively have sufficient shares to be above the required 10% threshold. The district court, however, denied Burr's motion to intervene, concluding that Burr had failed to adequately explain why he had waited nearly two years to try to join in the lawsuit. Burr appealed the decision to the Court of Appeals.

The Court began its opinion by noting the standard for a party seeking to intervene, which is that the party must demonstrate "(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." The Court determined that Burr had met these requirements. Although Burr's motion to intervene was not filed for almost two years after the case was initiated, his participation in the case did not become necessary until Kouns passed away. Thus, the motion to intervene was timely. Furthermore, Burr had an interest in the subject matter of the case because he was a shareholder in the Company, and without Burr's participation in the case, the director removal claim would be dismissed and the interests of Burr (and the other two plaintiffs) would be affected. Finally, the Court determined that Burr's interests were adequately represented until Kouns' death -- but after Kouns' death, Burr's interests were not adequately represented by the remaining two plaintiffs who did not own sufficient shares to allow the case to continue.

For these reasons, the Court of Appeals held that Burr should have been allowed to intervene in the case. The Court of Appeals therefore reversed the decision of the district court and sent the case back to the district court to continue.

To read the full opinion, click here.