Appeals court weighs discovery sanctions, shareholder‑agreement disputes in Cook Martin Polson case

The Utah Court of Appeals heard argument in Cook Martin Polson (CMP) v. Smith, case number 20230024, addressing whether the trial court properly excluded declarations and entered sanctions after alleged discovery violations, and related questions about contract interpretation and share repurchase procedures.

Attorneys for both sides debated whether exclusion of declarations was harmless and whether that evidentiary ruling affected the validity of summary judgment. Appellate counsel for the former CMP shareholder argued the declarations would create disputed factual issues—about prior breaches, distribution practices and a repurchase calculation—and asked the court to reverse the sanctions and either reinstate claims or remand for further proceedings. CMP and its counsel defended the trial court’s sanctions and summary‑judgment rulings as within its discretion given repeated discovery noncompliance.

Why the dispute matters: the appeal raises three interlocking issues—(1) whether exclusion of a party’s testimony for failure to disclose under discovery rules was an abuse of discretion; (2) whether course‑of‑performance evidence (how CMP actually distributed compensation over time) can convert what appears to be plain contract language into a disputed factual issue for trial; and (3) whether the repurchase provision in the shareholder agreement was triggered and, if so, whether the record supports the district court’s conclusion that shares were effectively repurchased without further payment.

Key arguments and factual points

Counsel for the appellant emphasized declarations from the former shareholder (Dan Smith) that the appellant says show prior breaches beginning in 2013 and a consistent course of performance under which "salaries" and other payments were handled pro rata. Appellate counsel pointed to a line in the employment agreement and the shareholder agreement and the spreadsheet on the record that says the employment agreement set compensation at $62,400 annually ("$5,200 per month") and cited an additional noncompete payment of $1,500 per month as part of the contractual scheme.

CMP’s lawyers replied that discovery failures and failure to identify the witness in disclosures prejudiced CMP’s ability to take deposition discovery and prepare to meet that testimony; they argued the trial court did not abuse its discretion in excluding late declarations or in imposing sanctions under the procedural rules the parties cited.

Panel focus and procedural questions

Judges questioned whether the district court had enough factual basis to strike claims against additional individual defendants who had not themselves moved for sanctions, and whether the sanctionable conduct could legally support dismissal of claims against parties who did not join in the motion. The panel flagged Ninth Circuit and other out‑of‑jurisdiction authority cited by the parties but probed Utah procedural rules and precedent that control the scope of permissible sanctions.

On contractual matters, the panel asked whether the shareholder agreement’s provision that "dividends and other forms of distributions…shall be made pro rata" could reasonably be read, on the record, to include salaries or whether salaries were plainly separate contract items. Appellate counsel argued course of performance (years of practice by the company) pointed to a factual dispute that precludes summary resolution; CMP argued the district court was entitled to treat the documents’ plain language as dispositive.

Court action and next steps

The panel took the matter under advisement at the end of argument. Judges asked follow‑up questions suggesting they may consider whether the trial court abused discretion in excluding declarations and whether remand is necessary to resolve disputed factual questions about distributions and repurchase timing. Counsel were told the court would issue a written opinion.

What remains unresolved

The appeal raises factual conflicts the parties say are outcome‑determinative: whether prior breaches existed that predate decision points relied on by the trial court; whether CMP’s historical practice of equalizing shareholder receipts creates a triable issue as to whether salaries were treated as part of pro rata distributions; and whether CMP properly exercised a repurchase option and, if so, whether the record supports its calculation and any offsetting obligations. The appeals court will decide whether evidentiary exclusions and sanctions were reversible error and whether contract interpretation and repurchase issues require further factfinding on remand.

At argument end the court recessed and said it would issue a written decision after taking the matter under advisement.