Appeals court hears dispute over shareholder payments, sanctions and excluded declarations in Cook Martin Polson case

The Utah Court of Appeals heard oral argument in Cook Martin Polson v. Smith (Case No. 20230024) on whether the trial court properly excluded declarations and struck counterclaims as sanctions, and on competing interpretations of the shareholder and employment agreements that affect whether a shareholder was owed salary and distribution payments.

Appellate counsel for the party identified as Dan Smith argued the district court abused its discretion by excluding multiple declarations and by striking counterclaims against individual shareholders who had not themselves moved for sanctions. The appellant said the excluded declarations would create disputed issues of fact about earlier breaches, compensation practice and whether salaries and other benefits were treated as part of "distributions" under the shareholders agreement. The appellant asked the court to vacate the sanctions and either reinstate the claims or remand for reconsideration with the declarations considered.

Opposing counsel defended the sanctions, saying Smith repeatedly refused to comply with discovery obligations and that noncompliance — not merely the content of declarations — justified exclusion. Responding counsel also argued the shareholder agreement distinguishes salary from distributions and called the course-of-performance evidence relied on by the appellant either absent from the record or legally insufficient to rewrite plain contractual language.

A significant factual and contractual issue before the panel was the interpretation of two contract provisions. The employment agreement (as described at argument) provides an annual cash compensation figure of $62,400 and a separate $1,500 monthly payment (about $18,000 a year) for compliance with a noncompete. Appellant counsel said course-of-performance evidence shows that CMP historically paid shareholders and related benefits on a pro rata basis; counsel argued that evidence creates triable factual issues that preclude summary judgment on the contract claims.

The government-side advocate for CMP and company counsel said the plain text and the parties' corporate practice supported treating salaries and distributions as distinct categories. That counsel told the panel "salary and distributions are terms of art" and urged deference to the trial court's sanctions order.

The panel also discussed whether the shareholders' repurchase option was triggered and, if so, how the operative date for determining the relevant client list should be fixed. Counsel disagreed about whether the operative date is the termination notice in July or a December notice of the company's exercise of an option, a discrepancy that could affect whether clients were counted as company clients at the relevant time.

The court heard argument on several procedural and remedial questions: whether the appellate court could reverse sanctions and remand, whether excluded declarations would create disputed facts sufficient to vacate summary judgment, and whether striking claims against shareholders who did not move for sanctions was permissible. The panel did not rule from the bench; it took the matters under advisement and said it would issue a written opinion.