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Pino v. Entity #4812420-0140

Court of Appeals of Utah

May 2, 2019

Sam Pino, Jeanne R. Thomas, Todd Palmer, and Jodie Palmer, Appellants,
Entity #4812420-0140, Appellee.

          Third District Court, Salt Lake Department The Honorable Robert P. Faust No. 140903403

          Thomas N. Crowther, Bret J. Crowther, Matthew S. Brahana, and Christopher Bond, Attorneys for Appellants

          J. Craig Smith and Kathryn J. Steffey, Attorneys for Appellee

          Judge David N. Mortensen authored this Opinion, in which Judges Jill M. Pohlman and Diana Hagen concurred.


         ¶1 Rather than drawing from their reservoir of cooperative experience, the users of a water well dispute how their mutual association should continue. A nonprofit water corporation failed to renew its registration and was administratively dissolved. A group of shareholders (Appellants) contended that, upon dissolution, the corporation's articles of incorporation and bylaws required its assets to be liquidated and the proceeds distributed to the corporation's shareholders. Appellants claim that the trial court erred in granting summary judgment in favor of the corporation when it determined that the corporation properly distributed its assets to a successor corporation. We affirm.


         ¶2 In 1997, a group of lot owners in the Brighton Estates Subdivision in Wasatch County entered into an agreement to drill a well to provide water to the subdivision. In 2000, the group formed a nonprofit corporation, Entity #4812420-0140, commonly known as The Well Corporation (TWC 2000), to own, finance, and oversee the installation of a culinary water distribution system and thereafter to own and operate the well and water distribution system. The well was drilled on land owned by the Ault Family Trust (Trust) and used for the stated purpose.

         ¶3 In 2007, Michael Ault, as a representative and agent of the Trust, was elected to TWC 2000's board of directors. And in November 2008, the Trust granted an easement to TWC 2000 to provide access for the operation and maintenance of the water well.

         ¶4 In December 2010, while Ault was still serving on the board, TWC 2000's registration with the Utah Division of Corporations and Commercial Code (Division) expired and was not renewed. In February 2012, a new board of directors (Directors) was elected, but it was not aware of TWC 2000's expired corporate status. The Directors discovered the expired status more than two years after TWC 2000's registration had expired.

         ¶5 As a result, in February 2013, the Directors formed The Well Corporation 2013 (TWC 2013) to function in the place of TWC 2000 and receive the assets and liabilities of TWC 2000. In October 2013, TWC 2000 executed an assignment (2013 Assignment) transferring all of its assets and obligations to TWC 2013 so that TWC 2000's shareholders could continue to receive water from the well. In May 2014, Appellants, who consist of a group of dissenting shareholders, commenced this action against TWC 2000 in the trial court seeking, among other relief, confirmation of TWC 2000's dissolution, liquidation of TWC 2000's assets, return of such assets to TWC 2000's shareholders, and the return of the easement to the Trust.

         ¶6 In August 2014, the Division reinstated TWC 2000, and the two companies rescinded the 2013 Assignment, leaving all the assets in TWC 2000's ownership. In September 2014, TWC 2000 held a shareholder meeting, at which a majority of TWC 2000's shares were represented, and ninety-five percent of those shares present voted to ratify the Directors' actions in (1) forming TWC 2013 to act as a successor corporation and (2) causing TWC 2000 to be reinstated.

         ¶7 Appellants then filed an objection with the Division to TWC 2000's reinstatement, and in October 2014, the Division placed TWC 2000 "in pending status awaiting the outcome of the litigation." In response, TWC 2000 and TWC 2013 enacted a conditional recession agreement providing that the 2013 Assignment would remain effective until TWC 2000 was restored to active status by the Division.

         ¶8 In the present proceeding, the trial court considered but rejected Appellants' arguments, granted TWC 2000's motion for summary judgment, and denied Appellants' cross-motion for summary judgment, concluding that "Utah law does not require a post-dissolution distribution to comply with the dissolved corporation's Articles of Incorporation and Bylaws," (Articles) and, even if the law "did require [TWC 2000] to distribute its assets after dissolution in accordance with ...

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