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Edwards v. Carey

Court of Appeals of Utah

November 15, 2019

Joseph Edwards, Appellant,
v.
Michael Carey, Wendy Carey, and Seirus Innovative Accessories Inc., Appellees.

          Third District Court, Salt Lake Department The Honorable Mark S. Kouris No. 150905215

          Peter W. Billings and David P. Billings, Attorneys for Appellant

          Andrew G. Deiss and Shannon Petersen, Attorneys for Appellees Michael Carey and Wendy Carey

          Nathan D. Thomas and Elizabeth M. Butler, Attorneys for Appellee Seirus Innovative Accessories Inc.

          Judge Gregory K. Orme authored this Opinion, in which Judges Michele M. Christiansen Forster and Kate Appleby concurred.

          OPINION

          ORME, JUDGE.

         ¶1 Joseph Edwards appeals the district court's dismissal of his lawsuit against Michael Carey, Wendy Carey, and Seirus Innovative Accessories, Inc. (Seirus) (collectively, Defendants) for forum non conveniens. We reverse. In admittedly oversimplified terms, the district court erred in according Edwards's choice of forum only some deference instead of greater deference and by considering whether the relevant criteria merely outweighed, as opposed to strongly outweighed, the deference properly to be accorded the plaintiff's forum choice.

         BACKGROUND[1]

         ¶2 In 1985, Edwards and Michael[2] co-founded Seirus, a Utah company with its principal place of business in San Diego, California. Until 2015, Edwards and Michael each held a 50% interest in Seirus and, together with Wendy, served as the officers and directors of the company, each holding various positions throughout the years.

         ¶3 Between 2003 and 2009, Edwards and Michael each loaned money to Seirus. These debts were memorialized in the form of several promissory notes. Edwards held six such notes (the Promissory Notes), each providing that it "shall be governed by and construed in accordance with the laws of the State of California."[3] On July 10, 2015, Edwards filed suit against Seirus in Utah for failure to pay the full interest owed on the Promissory Notes. The court ultimately granted partial summary judgment to Edwards in February 2016, ordering Seirus to pay Edwards $215, 883.92 in withheld interest, and the parties stipulated to a dismissal of the remainder of that case.

         ¶4 On July 27, 2015, shortly after Edwards initiated the prior suit, the Careys called a special meeting of Seirus's board of directors. During that meeting, the Careys outvoted Edwards and removed him from his positions as co-president and secretary of Seirus. The Careys also voted, again over Edwards's objection, to adopt a proposed debt-to-equity exchange, which "provided that additional stock could be issued to existing shareholders, through conversion of debt, owed by [Seirus] to a shareholder, into equity." Michael elected to exchange the entirety of Seirus's debt owed to him for additional equity in the company. Edwards, conversely, did not.[4] As a result, Michael's ownership interest increased to 55.44% and Edwards's decreased to 44.56%.

         ¶5 Two days later, Edwards filed the current action against Defendants. In his initial complaint he (1) asserted conflict of interest against the Careys, (2) asserted breach of fiduciary duty against the Careys, (3) sought removal of the Careys as directors of Seirus, and (4) sought a declaratory judgment undoing the July 27 votes of the board of directors. Edwards amended his complaint (the First Amended Complaint), adding a claim for (5) deprivation of preemptive rights against the Careys. Although Edwards named Seirus as a defendant in his third, fourth, and fifth causes of action, he did not allege any wrongdoing on Seirus's part but apparently named the company as an aid to obtaining complete relief.

         ¶6 The Careys moved the district court to compel arbitration, which motion the court denied. The Careys appealed the district court's decision, and this court affirmed. See Edwards v. Carey, 2017 UT App 73, ¶ 22, 397 P.3d 797. During the pendency of the prior appeal, Edwards began splitting his time between Utah and California, and his residency for tax withholding purposes was eventually changed to California.[5] Following the resolution of the Careys' prior appeal in May 2017, the parties agreed to an informal stay of proceedings so that Seirus could focus on a patent infringement suit it was defending that was scheduled for trial that September.

         ¶7 In December 2017, the parties filed a stipulated motion authorizing Edwards to amend his complaint for a second time. The court granted the motion, and Edwards filed his second amended complaint (the Second Amended Complaint) in which he still alleged he was a Utah resident. The proposed amended complaint was attached to the motion, and Defendants did not raise an objection to such a complaint being properly brought in Utah.

         ¶8 The Second Amended Complaint differed significantly from the First Amended Complaint. Edwards brought five new causes of action, keeping only three from the First Amended Complaint: (1) breach of fiduciary duty against the Careys, (2) deprivation of preemptive rights against Defendants, and (3) removal of the Careys as directors of Seirus. Edwards newly alleged that although Seirus had recommenced making regular payment on the Promissory Notes following the court's February 2016 order in the now-dismissed case, [6] it had again stopped paying on the notes in the spring of 2017. Accordingly, Edwards brought new claims against Seirus for (4) breach of contract, (5) breach of the implied covenant of good faith and fair dealing, and (6) entitlement to a declaratory judgment in the form of "an order directing [Seirus] to make regularly scheduled payments [on the Promissory Notes], as they become due." Edwards also brought new claims against Defendants related to a non-compete clause in an agreement (the Buy-Sell Agreement) that he had entered into with them, (7) asserting breach of the implied covenant of good faith and fair dealing, and (8) seeking declaratory relief in the form of "an order directing Defendant[s] . . . to consent to Edwards being released [from the] non-competition [clause] contained in the Buy-Sell Agreement."

         ¶9 Less than a month after Edwards filed the Second Amended Complaint pursuant to stipulation, Defendants moved the district court to dismiss the complaint for forum non conveniens. They argued that because Edwards, "a California resident, assert[ed] claims against California residents, related to contracts to which California law applies, and where the witnesses reside in California, California provides a substantially more convenient forum."

         ¶10 Seirus's primary lender is a bank located in San Diego County, California (the Bank). Whenever Seirus seeks either to renew or modify its credit arrangement, "the Bank evaluates the strength of Seirus' financial position and, depending on the circumstances, requires personal guarantees and subordination agreements from shareholders holding promissory notes." In August 2016, Edwards entered into one such agreement (the 2016 Subordination Agreement), which expressly provided that it was to be governed by federal and California law.

         ¶11 Six months later, in April 2017, Seirus sought renewal of its line of credit. The Bank required Seirus to execute an agreement (the Change of Terms Agreement) which, among other things, required that Seirus cause Edwards to execute a new subordination agreement that would indefinitely suspend payment on the Promissory Notes (the 2017 Subordination Agreement). Edwards declined to sign the 2017 Subordination Agreement. Like the 2016 Subordination Agreement, the 2017 Subordination Agreement expressly provided that it was to be governed by federal and California law, and the Change of Terms Agreement invoked the California Code of Civil Procedure.

         ¶12 In his Second Amended Complaint, Edwards alleged that the 2016 Subordination Agreement "remains the effective agreement between the parties" and that, although "the [2016] Subordination Agreement briefly suspended monthly payments [on the Promissory Notes] at the end of 2016," it permitted Seirus to recommence payment in January 2017. Seirus, conversely, argued that it "underst[ood] the terms of the . . . 2016 Subordination Agreement and subsequent modifications to its line of credit to prohibit Seirus from making-and Mr. Edwards from accepting-payment on the Promissory Notes."

         ¶13 Accordingly, in their motion to dismiss the Second Amended Complaint, Defendants argued that "resolution of the question of whether Seirus breached any obligation to pay on the Promissory Notes requires the Court to construe and apply the . . . 2016 Subordination Agreement as well as the Change of Terms Agreement and associated documents[, ] all of which invoke California Law." Similarly, the Buy-Sell Agreement, which formed the basis for Edwards's seventh and eighth causes of action, also invoked California law.

         ¶14 In addition to asserting that Edwards's new causes of action "stem from business conducted in California and [are] subject to California law," Defendants pointed to the following factors in support of their motion to dismiss: although incorporated in Utah, Seirus's principal place of business-along with all of its employees and business records-is located in California; potential third-party witnesses employed by the Bank are also located in California; although Edwards alleged he was a Utah resident in the Second Amended Complaint, he resided in California at the time of ...


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