District Court, Salt Lake Department The Honorable Robert P.
Faust No. 130903953
Richard D. Burbidge, Jefferson W. Gross, S. Ian Hiatt, and
Carolyn J. LeDuc, Attorneys for Appellant and Cross-appellee
Brennan H. Moss and Jedediah G. Brinton, Attorneys for
Appellees and Cross-appellant
Diana Hagen authored this Opinion, in which Judges Kate A.
Toomey and David N. Mortensen concurred.
MCG Southern LLC (MCG) sued Veracity Networks LLC (Veracity)
for breach of a lease agreement. In response, Veracity
asserted that the lease was voidable due to an alleged breach
of fiduciary duty by the principal who negotiated and
executed the lease. On summary judgment, the district court
ruled that Veracity did not have standing to assert the
breach of fiduciary duty claim and that MCG was entitled to
judgment as a matter of law. Veracity appeals the grant of
summary judgment, and MCG cross-appeals the district
court's calculation of damages. Because we reverse the
grant of summary judgment and vacate the district court's
subsequent decisions, we do not reach the issue of damages.
In 2001, Christensen formed Broadweave Networks of St. George
LLC and Broadweave Networks, Inc. (collectively, Broadweave),
which provided telephone and internet services to a
master-planned community in Washington County, Utah.
Christensen served as Broadweave's CEO, president, and
chairman of the board of directors (the Board) until 2009.
Broadweave leased a building on property owned by the State
of Utah. In November 2007, Christensen proposed to the Board
that he form a new company (later organized as MCG) "to
lease the Real Property from [the State of Utah], purchase
the Building, and then lease the Building to
In October 2007, Christensen provided the Board with written
disclosures concerning this proposal. In part, the
disclosures explained that "the new company would lease
the building to Broadweave at a monthly rate of 1.2 times the
amount of the new company's loan payment, taxes and
insurance in order to qualify for a commercial mortgage and
which would be a loan requirement." This multiplier is
known as a Debt Service Coverage Ratio or DSCR. These
disclosures were memorialized in a resolution approved by the
Christensen subsequently formed MCG and obtained a loan from
Far West bank, which required a DSCR multiplier of 1.3-a
higher rate than the 1.2 offered by the lender that
Christensen initially proposed to the Board. On August 1,
2008, Christensen, acting on behalf of both MCG and
Broadweave, executed a written lease agreement in which MCG
leased the building to Broadweave at the 1.3 rate.
¶6 In 2009, Veracity Communications and Broadweave
combined "their respective business activities, "
which were "controlled and owned by [Veracity]."
Following the acquisition, Veracity assumed Broadweave's
lease payments to MCG.
In May 2013, MCG filed a complaint against Veracity for
breach of lease (failure to pay rent), unlawful detainer, and
waste with regard to the building. In response to the
complaint, Veracity filed an answer and counterclaims and
asserted a third party complaint against Christensen for,
among other things, breach of fiduciary duty. Specifically,
Veracity alleged that Christensen breached his duty to
Broadweave when he entered into a lease that set the monthly
building rent above the amount approved by the Board and that
the lease was therefore voidable. As the successors to
Broadweave's claims and interests, Veracity argued that
it was entitled to assert this breach of fiduciary duty as a
counterclaim and defense.
Both parties moved for summary judgment. At the heart of the
dispute was whether the lease agreement was valid, or whether
it was voidable because of Christensen's alleged breach
of fiduciary duty. MCG filed a supplemental brief in support
of its motion for summary judgment, arguing that Veracity
"lacks standing to challenge the lease entered into by
[MCG] and Broadweave." During oral argument on the
motions, the district court questioned whether Veracity had
"standing" to assert its breach of fiduciary duty
claims. The court asked Veracity to submit "a
supplemental filing to specifically cite to the exact
provisions or paragraphs in the documents consisting of the
Broadweave/Veracity transactions (300 plus pages) by which
[Veracity] claims standing or the right to bring a cause of
action for breach of a fiduciary duty owed to
Broadweave." At oral argument and in a supplemental
filing, Veracity pointed ...