District Court, Provo Department The Honorable Kraig Powell
R. Parker, Danica N. Cepernich, and Adam M. Pace, Attorneys
L. Jeffs, Attorney for Appellees
Diana Hagen authored this Opinion, in which Judges Gregory K.
Orme and Ryan M. Harris concurred.
Adams and Smith Inc., Morgan Humphries, James L. Smith, and
Dawn Smith (collectively, the company) appeal the district
court's entry of judgment in favor of Gordon Willis and
Jeffrey Darby. After resigning from employment with the
company on January 20, 2015, Willis and Darby filed a
complaint in the district court demanding that the company
purchase their stock in accordance with the company's
Restrictive Stock Agreement (the stock agreement). The
parties moved for summary judgment on the issue of which of
two audited financial statements should provide the book
valueof the company upon which the purchase
price for the stock should be based. Interpreting the plain
language of the stock agreement, the district court agreed
with Willis and Darby and determined that the purchase price
should be based on the company's book value as reflected
in the audited financial statement for the 2013 calendar
year, which was completed on April 15, 2014.
At trial, Willis testified to the value of the company's
equipment as a non-retained expert witness. The company
objected, arguing that Willis and Darby had not complied with
rule 26(a)(4)(E) of the Utah Rules of Civil Procedure in
disclosing Willis as a non-retained expert witness. The
district court disagreed and ruled that Willis had been
sufficiently designated and that his testimony was therefore
admissible. The parties also disputed what equipment should
be included when adjusting the purchase price based on the
"fair market value of any equipment" as provided in
the stock agreement. At the conclusion of trial, the district
court interpreted this provision to refer to all equipment
the company owned "that would stand alone and be able to
be used to perform work."
The company argues that the district court erred in making
these three determinations. Because the district court
correctly interpreted the contract terms as a matter of law
and acted within its discretion in admitting Willis's
expert testimony, we affirm.
The plaintiffs, Willis and Darby, began working for the
company in the early 1990s. The company initially hired
Willis to work as a field engineer, but he rose through the
ranks and later became vice president of operations and a
shareholder. Between 2008 and 2009, Willis served as a
director on the company's board of directors and as the
company's president. In those roles, he became more
involved with the company's accounting practices.
According to Willis, the company's annual financial
statements were prepared on a calendar-year basis and the
final audited statements would be available "in March or
April of the following year." Willis was also involved
with purchasing equipment for the company and performing the
valuation of that equipment in connection with the buyout of
The company hired Darby to work as a project engineer. He
became a shareholder in 2000, and from that time until he
resigned, Darby worked as vice president of engineering and
served on the board of directors.
In 2009, Willis, Darby, other shareholders and the
company's trustees entered into the stock agreement.
Among other things, the stock agreement provides:
Upon the termination of employment . . . of a Shareholder,
all shares of the Stock of [the company] owned by the
terminated Shareholder shall be sold to [the company] and/or
the other Shareholders and [the company] and/or the other
Shareholders shall purchase the Stock at the price and upon
the terms set forth in Sections 6 and 7.
7, the provision at issue on appeal, provides that the
purchase price for each share of stock in the company
shall be the per share adjusted book value . . . as of the
last audited financial statement of [the company] preceding
the event requiring the determination of the purchase price .
. . . Book value shall be determined from the audited
financial statement of [the company] according to the
accounting practices previously utilized by the regular
accountant of [the company] who customarily prepares [the
company's] financial statement. Adjustment to the book
value shall be made by taking into account the fair market
value of any equipment with fair value in excess of ten
thousand dollars ($10, 000).
On January 20, 2015, Willis and Darby resigned from the
company. At the time, they believed that one of the
shareholders, James Smith, was going to retire in early 2015
and, after discussing "the financial issues of what
would happen when [Smith] retired," Willis and Darby
decided they did "not want to work there if the other
didn't work there."
After Willis and Darby resigned, they demanded that the
company purchase their stock in accordance with the stock
agreement. In response, the company offered to purchase their
stock for a price based on the company's "audited
December 31, 2014 financial statements," which had been
completed in March 2015 (the 2014 financial statement). Due
to a loss contingency, the 2014 financial statement showed a
substantial reduction in book value from the prior year.
Willis and Darby objected to the use of the 2014 financial
statement under section 7 of the stock agreement, which
required that the value of their shares be calculated based
on "the last audited financial statement." Because
the audit of the 2014 financial statement had not been
completed prior to their retirement date, they asserted that
the audited financial statement for 2013, which had been
completed on April 15, 2014 (the 2013 financial statement),
was the "last audited financial statement" on which
the value of their shares must be based. They filed a
complaint with the district court, alleging that the company
had failed to comply with the stock agreement and requesting,
among other things, that the district court make "a
determination of the purchase price" of their shares and
enter a judgment in the amount of that purchase price.
In their rule 26 initial disclosures, Willis and Darby named
themselves as individuals "who [were] likely to have
discoverable information and who [were] likely to be called
in [their] case in chief." The disclosures stated that
Willis and Darby had "information regarding the
accounting practices of [the company], the valuation of
equipment, prior purchases of minority shareholders'
interest, and discussions of the parties." Willis and
Darby also attached an equipment valuation Willis had
prepared and the supporting documents on which he had relied.
In its first set of interrogatories after receiving this
information, the company asked Willis to "explain in
detail how you calculated . . . the fair market value of
equipment in the computation of damages that you included
with your initial disclosures" and to "identify all
documents that support" that calculation. Willis
individually responded to the first set of interrogatories,
explaining his method of equipment valuation.
Before trial, Willis and Darby moved for partial summary
judgment, arguing that the purchase price of their stock
"must be determined using the audited financial
statements for the year 2013" in accordance with the
plain language of the stock agreement. In response, the
company filed a cross-motion for partial summary judgment,
arguing that the language in section 7 reflects "an
ambiguity regarding the parties' intent" as to
whether the 2014 or 2013 financial statements should be used
to calculate the stock price and ...