Supernova Media, Inc. v. Shannon's Rainbow, LLC

This opinion is subject to revision before final
publication in the Pacific Reporter
2013 UT 7IN THE
SUPREME COURT OF THE STATE OF UTAH
SUPERNOVA MEDIA, INC., a New York corporation, and
JOCELYN ENGLE, an individual,
Intervenors and Appellants,
v.
SHANNON’S RAINBOW, LLC, a Utah limited liability company,
SHANNON’S RAINBOW, LLC, a Delaware limited liability company,
SHANNON’S RAINBOW PRODUCTIONS, LLC, a Pennsylvania
limited liability company,
Plaintiffs,
v.
PIA ANDERSON DORIUS REYNARD & MOSS, LLC,
a Utah limited liability company,
Defendant and Appellee.
SUPERNOVA MEDIA, INC., a New York corporation,
Intervenor and Appellant,
v.
PIA ANDERSON DORIUS REYNARD & MOSS, LLC,
a Utah limited liability company,
Plaintiff and Appellee,
v.
KELLY H. NELSON, CHARLES MORRISON, SUMMITWORKS, LLC,
SHANNON’S RAINBOW, LLC, et al.,
Defendants.
No. 20110368
No. 20110412
Filed February 15, 2013
Third District, Salt Lake
The Honorable Robert K. Hilder
No. 110903542
The Honorable Glenn K. Iwasaki
No. 110903223
Attorneys:
Mary Anne Q. Wood, Kathryn O. Balmforth, Stephen Q. Wood,
Salt Lake City, for appellants
Robert K. Reynard, Brennan H. Moss, Troy L. Booher,
Salt Lake City, for appellees
JUSTICE DURHAM authored the opinion of the Court, in which
CHIEF JUSTICE DURRANT, ASSOCIATE CHIEF JUSTICE NEHRING,
JUSTICE PARRISH, and JUSTICE LEE joined.
SUPERNOVA MEDIA v. PIA ANDERSON
Opinion of the Court
JUSTICE DURHAM, opinion of the Court:
INTRODUCTION
¶1 Supernova Media, Inc., and Joycelyn Engle appeal the denial
of their motions to intervene as of right in two district court cases
that we consolidate for purposes of this opinion. They also appeal
the partial sealing of the record in one of the cases. We reverse the
denial of the motions to intervene and set aside the sealing order. We
remand for the district court to consolidate the cases and allow
appellants to intervene.
BACKGROUND
¶2 The parties to this appeal owe their relationship to the film
Shannon’s Rainbow, which was created and financed by two media
companies: SummitWorks, LLC (SummitWorks), and Supernova
Media, Inc. (Supernova). Frank Johnson, a principal of
SummitWorks, directed the film. Other principals of SummitWorks
include Kelly Nelson and Charles Morrison.1
¶3 In 2007, Johnson approached Joycelyn Engle of Supernova
for help in raising money for the film. Ms. Engle is a principal of
Supernova.2 The SummitWorks and Supernova parties formed LLCs
in Utah, Pennsylvania, and Delaware, each named “Shannon’s
Rainbow, LLC.” Supernova raised much of the film’s capital from its
investors, Stewart Rahr and Joseph DiPalma, who each invested one
million dollars.
¶4 In Mr. DiPalma’s investment agreements, Ms. Engle (on
behalf of Supernova) and SummitWorks were named as equal co-
managers of the Shannon’s Rainbow LLCs, such that neither co-
manager could act without the other. Ms. Engle also claims a 51
percent ownership interest in the film given to her for investing her
personal funds, deferring payments owed to her, and providing her
home as collateral for a bridge loan.
¶5 In 2008, Ms. Engle and SummitWorks reached an impasse
over whether the film should first be distributed in North America
or abroad. Since then, SummitWorks and Supernova have been
litigating the issue of who has the right to control distribution of the
1
SummitWorks, LLC, and the parties to this appeal that are
associated with it are collectively referred to as “SummitWorks” or
the “SummitWorks parties.”
2
Supernova Media, Inc., and Ms. Engle are collectively referred
to as “Supernova” or the “Supernova parties.”
2
Cite as: 2013 UT 7Opinion of the Court
film and to control the Shannon’s Rainbow LLCs generally. This
litigation has taken place in the federal district court for the District
of Utah and in New York state courts. Supernova investor Joseph
DiPalma also filed a lawsuit in New York state court seeking specific
performance of his investor agreement, which promised an initial
distribution of the film in North America.
¶6 Joseph Pia, a partner in defendant law firm Pia Anderson
Dorius Reynard & Moss, LLC (PADRM), served as legal counsel for
the Shannon’s Rainbow LLCs before and after the impasse. After the
impasse, he assisted SummitWorks in their litigation against
Supernova and Mr. DiPalma.
¶7 In 2010, the SummitWorks parties stopped paying legal fees
to PADRM. After six months of overdue bills, Mr. Pia withdrew
from representation and tried to foreclose two liens on the film: an
attorney’s lien under Utah Code section 38-2-7 and a consensual lien
pursuant to a 2009 representation agreement with the Shannon’s
Rainbow LLCs. Mr. Pia sent notice to SummitWorks (but not
Supernova) that he intended to publicly sell the film in February of
2011.
¶8 Mr. Pia then sued the SummitWorks parties and the
Shannon’s Rainbow LLCs in Utah state court (the first case) seeking
money damages and a declaratory judgment that his liens on the
film were valid and entitled to priority.3 Instead of filing a
counterclaim, the SummitWorks parties initiated a separate Utah
state court action (the second case) against PADRM, seeking a
declaration that the consensual lien was invalid and that any
foreclosure would have to be accomplished through a judicial
proceeding. The SummitWorks parties obtained a temporary
restraining order against the public sale of the film and also sought
a preliminary injunction.
¶9 Supernova did not receive formal notice of either of these
Utah state cases. When Supernova became aware of these cases, it
moved on its own behalf, and derivatively on behalf of the
Shannon’s Rainbow LLCs, to intervene as of right “for the purpose
of obtaining a preliminary injunction, and seeking a stay to permit
relevant issues to be decided in the pending . . . New York [actions].”
The motions to intervene were filed on February 23, 2011, in the
3
Mr. Pia also sued the Supernova affiliates in the federal district
court for the District of Utah. In that action, Judge Waddoups
ordered Mr. Pia “not [to] take any action or direct any action as to
the film at issue here until he is allowed to do so in this action.”
3
SUPERNOVA MEDIA v. PIA ANDERSON
Opinion of the Court
second case (before Judge Hilder) and on March 2, 2011, in the first
case (before Judge Iwasaki).
¶10 In the second case, SummitWorks and PADRM filed a
stipulated motion to close the preliminary injunction hearing and
seal the related records, based primarily on their claim that many of
the records were protected by attorney-client privilege. Judge Hilder
granted the motion. Although they had not been permitted to
intervene, the Supernova parties filed a motion to unseal the record.
¶11 Shortly after a hearing on March 21, 2011, PADRM and the
SummitWorks parties signed a settlement agreement. At Judge
Hilder’s request, the parties to the settlement disclosed three
paragraphs of their agreement to Supernova. These paragraphs set
forth the identity of the parties to the settlement and the scope of the
mutual releases between PADRM, the SummitWorks parties, and
the Shannon’s Rainbow LLCs.4
¶12 SummitWorks and PADRM then filed stipulated motions to
dismiss both cases under rule 41(a) of the Utah Rules of Civil
Procedure. Judge Iwasaki and Judge Hilder granted the motions to
dismiss and denied Supernova’s motions to intervene. Judge Hilder
also ruled that Supernova’s motion to unseal the record was mooted
by the denial of the motion to intervene. Supernova timely appealed.
This court has jurisdiction pursuant to section 78A-3-102(3)(j) of the
Utah Code.5
STANDARD OF REVIEW
¶13 “The standard of appellate review varies depending on the
nature of the [district] court’s analysis.” Manzanares v. Byington (In
re Adoption of Baby B.), 2012 UT 35, ¶ 40, __ P.3d __. We apply a
clearly erroneous standard to factual findings and a correctness
standard to legal conclusions. Id. ¶¶ 40–41. “On mixed
questions—involving application of a legal standard to a set of facts
unique to a particular case—our review is sometimes deferential and
4
This court has not seen any part of the settlement agreement
because it is not part of the record and has not been provided by the
parties.
5
The Supernova parties later learned that although the settlement
agreement itself left the film unencumbered, the SummitWorks
parties encumbered the film in order to fulfill their obligations under
the agreement. In the name of Shannon’s Rainbow, LLC (Utah), and
Shannon’s Rainbow, LLC (Pennsylvania), the SummitWorks parties
borrowed $110,000 from a third party using the film as collateral.
4
Cite as: 2013 UT 7Opinion of the Court
sometimes not,” id. ¶ 42 (footnote omitted), depending on the
following factors:
(1) the degree of variety and complexity in the facts to
which the legal rule is to be applied; (2) the degree to
which a trial court’s application of the legal rule relies
on facts observed by the trial judge, such as a witness’s
appearance and demeanor, relevant to the application
of the law that cannot be adequately reflected in the
record available to appellate courts; and (3) other policy
reasons that weigh for or against granting discretion to
trial courts,
State v. Levin, 2006 UT 50, ¶ 25, 144 P.3d 1096 (internal quotation
marks omitted).
¶14 We have often said that a district court’s ruling on a motion
to intervene under rule 24(a) is reviewed for correctness. E.g.,
Parduhn v. Bennett, 2005 UT 22, ¶ 13, 112 P.3d 495. However, a ruling
on a motion to intervene encompasses several types of analysis, each
subject to a different standard of review. Swallow v. Jessop (In re
United Effort Plan Trust), 2013 UT 5, ¶ 15, __ P.3d __. As a general
matter, the factual findings underpinning an intervention ruling are
subject to a clearly erroneous standard, Taylor-W. Weber Water
Improvement Dist. v. Olds, 2009 UT 86, ¶ 3, 224 P.3d 709, and the
district court’s interpretation of rule 24(a) is reviewed for
correctness, Arbogast Family Trust v. River Crossings, LLC, 2010 UT 40,
¶ 10, 238 P.3d 1035.
¶15 We review for abuse of discretion the district court’s
determination of whether the motion to intervene was timely filed.
See Jenner v. Real Estate Servs., 659 P.2d 1072, 1073–74 (Utah 1983).
Such review is appropriate under the Levin factors because
timeliness depends on the “the facts and circumstances of each
particular case.” Id. at 1073–74. To determine whether an intervenor
substantially and unjustifiably delayed its motion to intervene, a
district court must exercise judgment based on the totality of the
circumstances. See id.
¶16 We review for correctness the district court’s determination
of whether the intervenor has “claim[ed] an interest relating to the
property or transaction which is the subject of the action.” UTAH R.
CIV. P. 24(a); In re United Effort Plan Trust, 2013 UT 5, ¶ 22. Because
rule 24(a) requires intervenors only to “claim”—rather than
prove—an interest, the district court is not called on to weigh
conflicting evidence but rather to determine whether the intervenor
5
SUPERNOVA MEDIA v. PIA ANDERSON
Opinion of the Court
has presented sufficient evidence to make out a “claim.”
Furthermore, we expect most motions to intervene to be founded on
financial, personal, or institutional relationships or interests that
“can be adequately reflected in a cold record.” Levin, 2006 UT 50,
¶ 40.
¶17 The district court’s determinations of whether “the
disposition of the action may as a practical matter impair or impede
[the intervenor’s] ability to protect [the claimed] interest” and
whether that interest is “adequately represented by existing parties,”
are entitled to deferential review. UTAH R. CIV. P. 24(a); In re United
Effort Plan Trust, 2013 UT 5, ¶ 23. These determinations are fact-
intensive and require the court to exercise judgment based on the
circumstances of the parties and intervenors, their relationships with
one another, the likely results of the litigation, and the nature and
quality of the advocacy. Because of the district court’s first-hand
knowledge of the parties and the proceedings, it is better situated
than an appellate court to make these determinations.
¶18 Finally, we review with some deference the district court’s
ultimate decision to grant or deny a motion to intervene. In re United
Effort Plan Trust, 2013 UT 5, ¶ 24. If an intervenor meets the
requirements of rule 24(a), it has a “right” to intervene, and the court
“shall” permit intervention. UTAH R. CIV. P. 24(a). However, the
court’s assessment of the degree to which the intervenor has met the
four requirements of rule 24(a) is an exercise of discretion and
therefore entitled to some deference. See United States v. Hooker
Chems. & Plastics Corp., 749 F.2d 968, 983 (2d Cir. 1984) (“Application
of [rule 24(a)] requires that its components be read not discretely,
but together.”).
¶19 Regarding the sealing order, we uphold the district court’s
factual findings unless they are clearly erroneous, In re Adoption of
Baby B., 2012 UT 35, ¶ 40, and we review its interpretation of the
relevant rules of the Utah Code of Judicial Administration for
correctness, N.A.R., Inc. v. Walker, 2001 UT 98, ¶ 4, 37 P.3d 1068. We
review for abuse of discretion the district court’s application of
factual findings to the rules governing closure of court records. See
Soc’y of Prof’l Journalists v. Bullock, 743 P.2d 1166, 1168 (Utah 1987).
Abuse of discretion review is appropriate under the Levin factors
because before sealing a record, a district court must “balance the
interests favoring opening and closing the record.” UTAH CODE JUD.
ADMIN. R. 4-202.04(3)(B). Balancing is an inherently discretionary
task. Additionally, on a motion to seal, some of the “interests” to be
balanced may involve confidential information outside of the record.
6
Cite as: 2013 UT 7Opinion of the Court
ANALYSIS
¶20 Supernova appeals the denial of its motions to intervene as
of right under rule 24(a) of the Utah Rules of Civil Procedure.
PADRM argues that Supernova is not entitled to intervene because
its motions to intervene were untimely and because Supernova lacks
an interest in the subject of the litigation. For the reasons discussed
below, we conclude that Supernova has met the requirements of rule
24(a) and is entitled to intervene.
¶21 Supernova also appeals the sealing of court records related
to the preliminary injunction hearing because the order was not
supported by the findings required by rule 4-202.04 of the Utah
Code of Judicial Administration or by a consideration of the public’s
interest in open court records. PADRM argues that the district court
was not required to make findings or consider the public’s interest
because the case was civil, not criminal, and because some of the
records may have been privileged. We hold that the district court
abused its discretion because courts must always make the findings
required by rule 4-202.04, and must consider the public’s interest in
open court records before issuing a sealing order.
I. SUPERNOVA WAS ENTITLED TO
INTERVENE AS OF RIGHT
¶22 Supernova moved to intervene as of right under rule 24(a)
of the Utah Rules of Civil Procedure (URCP). Rule 24(a) provides,
[u]pon timely application anyone shall be permitted to
intervene in an action: (1) when a statute confers an
unconditional right to intervene; or (2) when the
applicant claims an interest relating to the property or
transaction which is the subject of the action and he is
so situated that the disposition of the action may as a
practical matter impair or impede his ability to protect
that interest, unless the applicant’s interest is
adequately represented by existing parties.
Thus, Supernova must show (1) that its motion to intervene was
timely, (2) that it has “an interest relating to the property or
transaction which is the subject of the action,” (3) “that the
disposition of the action may as a practical matter impair or impede
[its] ability to protect that interest,” and (4) that its interest is not
“adequately represented by existing parties.” Id.
7
SUPERNOVA MEDIA v. PIA ANDERSON
Opinion of the Court
A. Timeliness
¶23 Rule 24(a) requires that a motion to intervene be “timely.”
“[T]imeliness . . . [is] determined under the facts and circumstances
of each particular case, and in the sound discretion of the court.”
Jenner v. Real Estate Servs., 659 P.2d 1072, 1073–74 (Utah 1983). The
timeliness requirement is designed to minimize interference with
“the rights of existing parties” and “the orderly processes of the
court.” Id. at 1074.
¶24 Generally, a motion to intervene is timely if it is filed before
the “final settlement of all issues by all parties,” see Millard Cnty. v.
Utah State Tax Comm’n ex rel. Intermountain Power Agency, 823 P.2d
459, 461 (Utah 1991), and before entry of judgment or dismissal, see
Jenner, 659 P.2d at 1074. A party may waive its right to intervene by
substantially and unjustifiably delaying its motion to intervene. See
Republic Ins. Grp. v. Doman, 774 P.2d 1130, 1131 (Utah 1989)
(affirming the denial of intervention because the intervenor had
“notice and opportunity to intervene at an earlier stage of the
proceeding” but waited to do so until “every fact necessary for a
ruling on [a] motion for summary judgment [was admitted]”). Once
a motion to intervene as of right has been timely filed, it cannot
become untimely based on the actions of the court or of other
parties. See Millard, 823 P.2d at 461–62.
¶25 This court has decided at least two cases involving the
interplay between a motion to intervene and a settlement agreement.
In Millard, we held that the county’s motion to intervene in a
proceeding before the Utah State Tax Commission (Commission)
was improperly denied. Id. at 460–61. The county’s motion to
intervene was filed in June, the parties stipulated to the tax liability
in August, and the Commission denied the motion to intervene the
following February. Id at 460. We held that “[t]he settlement of a
controversy by the parties before a motion to intervene as of right
has been adjudicated does not constitute a final settlement and does
not render moot either the motion or an appeal from a denial of that
motion.” Id. at 461. We reversed and remanded for the Commission
to reopen the proceedings. Id. at 463–64.
¶26 In Ball v. Public Service Commission (In re Questar Gas Co.), we
held that a motion to intervene was appropriately denied because it
had been filed after the parties reached a settlement and over a year
after the proceedings commenced. 2007 UT 79, ¶¶ 32–37, 175 P.3d
545. We noted that the settlement was not entered strategically to
preempt the motion to intervene. Id. ¶ 34. We also noted that the
“failure to intervene earlier was not for lack of knowledge or notice
8
Cite as: 2013 UT 7Opinion of the Court
of the proceedings; indeed, [one of the intervenors] originally
participated in the proceedings” as an employee of one of the
parties. Id. ¶ 33.
¶27 The proceedings in Millard and Questar were governed by
the Utah Administrative Procedures Act (UAPA). See id. ¶ 31;
Millard, 823 P.2d at 462. Therefore, Utah Code section 63G-4-
2076—not URCP 24(a)—provided the standard for intervention.
Section 63G-4-207(2) permits intervention when “(a) the petitioner’s
legal interests may be substantially affected by the formal
adjudicative proceeding; and (b) the interests of justice and the
orderly and prompt conduct of the adjudicative proceedings will not
be materially impaired by allowing the intervention.”
¶28 The second requirement of section 63G-4-207(2) is analagous
to the requirements of URCP rule 24(b), which governs permissive
intervention. Under rule 24(b), a judge “shall consider whether the
intervention will unduly delay or prejudice the adjudication of the
rights of the original parties.” Section 63G-4-207 similarly permits a
judge to deny a motion to intervene based on the effect of the
intervention on the original parties. In contrast, timeliness under rule
24(a) is viewed not from the perspective of the original parties but
from the perspective of the intervenor. The question under rule 24(a)
is whether the intervenor acted with substantial and unjustifiable
delay. Therefore, the timeliness requirements of section 63G-4-207
and rule 24(a) are not identical for all purposes.
¶29 We hold that the requirements are similar, however, in that
under rule 24(a), as under section 63G-4-207, “[t]he settlement of a
controversy by the parties before a motion to intervene as of right
has been adjudicated does not constitute a final settlement and does
not render moot either the motion or an appeal from a denial of that
motion.” Millard, 823 P.2d at 461. When the parties to a case execute
a settlement after a motion to intervene as of right under rule 24(a)
has been filed, the judge must rule on the motion to intervene before
approving the settlement or dismissing the case.7
6
Current Utah Code section 63G-4-207 was numbered as 63-46b-9
when Millard and Questar were decided. Renumbering occurred in
2008.
7
As we noted in Millard, “some courts . . . have held that parties
who have knowledge of contemplated intervention cannot cut off a
right of intervention by a settlement.” Millard, 823 P.2d at 461 n.1.
We need not reach that issue in this case because the motion to
(continued...)
9
SUPERNOVA MEDIA v. PIA ANDERSON
Opinion of the Court
¶30 To allow a settlement between the parties to litigation to
moot a third party’s motion to intervene as of right would be to
allow the strategic behavior of the parties to “destroy the legal right
on which the motion to intervene is based and . . . defeat the . . .
policy allowing for intervention.” Id. Such a rule would also invite
collusion and such improper strategic behavior. As the Tenth Circuit
reasoned, “[t]o allow a settlement between parties to moot an extant
appeal concerning intervention of right might well provide
incentives for settlement that would run contrary to the interests of
justice.” Fed. Deposit Ins. Corp. v. Jennings, 816 F.2d 1488, 1491 (10th
Cir. 1987).
¶31 Here, the parties opposing intervention have sought to
distinguish Millard based on the identity of the parties and the
administrative nature of the proceedings in Millard. We are
unpersuaded that these factors undermine the applicability of the
rule we articulated in Millard—and now extend to rule 24(a)—that
a settlement cannot moot an extant motion to intervene as of right.
See Millard, 823 P.2d at 461. Supernova’s motions to intervene as of
right in these cases were filed before the settlement agreement was
executed and before dismissal. Neither PADRM nor SummitWorks
has disputed that, upon becoming aware of this litigation,
Supernova promptly moved to intervene. Therefore, the motions
were timely filed.
B. Interest Relating to the Subject of the Action
¶32 Rule 24(a) requires an intervenor to “claim[] an interest
relating to the property or transaction which is the subject of the
action.” (Emphasis added.) It does not require intervenors to
“prove” such an interest. Furthermore, an intervenor need not claim
an interest in the subject of the litigation but only an interest relating
to the subject of the litigation, such that the interest “may be
impacted by the judgment.” State v. Bosh, 2011 UT 60, ¶ 9, 266 P.3d
788.
¶33 The interest “may arise from the intervenor’s status or . . .
circumstances.” T.H. v. R.C. (In re E.H.), 2006 UT 36, ¶ 51, 137 P.3d
809. The interest may be of a pecuniary nature, such as when an
insurer seeks to intervene in a suit because it will be contractually
obligated to reimburse its insured for the amount of the judgment.
See, e.g., Chatterton v. Walker, 938 P.2d 255, 259 (Utah 1997). The
interest may also be of a non-pecuniary nature, such as when a
7
(...continued)
intervene was filed before the settlement occurred.
10
Cite as: 2013 UT 7Opinion of the Court
biological parent seeks to intervene in a child’s adoption
proceedings, see, e.g., In re E.H., 2006 UT 36, ¶¶ 57–60, or when a
trustee seeks to intervene in litigation involving trust assets or trust
administration, see, e.g., Frederick & Dorothy Westling Family Trust v.
Westling, 2010 UT App 291, ¶¶ 3–4, 242 P.3d 805.
¶34 Here, the Supernova parties claim an interest relating to the
subject of this litigation based on their investments in the Shannon’s
Rainbow LLCs and their right to control those LLCs. Their claims are
supported in the record by the investor agreements with Mr.
DiPalma, which name Ms. Engle, on behalf of Supernova, as a
manager of Shannon’s Rainbow, LLC, and require that she approve
any distribution arrangements. They are also supported by an
authorization agreement that appears to give Ms. Engle a 51 percent
ownership interest in the film. Furthermore, the Supernova parties
purport to sue derivatively on behalf of the Shannon’s Rainbow
LLCs, after having submitted the statutorily required demand
letters.
¶35 PADRM argues that because the dispute is based on unpaid
legal fees owed by the SummitWorks parties, Supernova “has not
established a direct, substantial, and legally protectable interest in
the present matter.” PADRM is wrong for three reasons. First,
PADRM misstates the standard: Supernova is only required to claim
“an interest relating to the property or transaction which is the
subject of the action.” UTAH R. CIV. P. 24(a) (emphasis added); see
Bosh, 2011 UT 60, ¶ 9. Supernova is not required to “establish” an
interest, and the interest need not be “direct” or “substantial.”
¶36 Second, the unpaid legal fees are not the sole subject of the
litigation. This litigation was precipitated by Mr. Pia’s scheduling a
non-judicial foreclosure sale of the film. In PADRM’s complaint filed
in the first case, the firm prayed for determinations regarding its
“lien and security interests” in the film. Furthermore, the
SummitWorks parties, in their complaint in the second case, sought
a declaration that the consensual lien was invalid and that any
foreclosure would have to be accomplished through a judicial
proceeding. Thus, the film was clearly a subject of the litigation.
¶37 Finally, even if the unpaid legal fees were the sole subject of
the litigation, the Supernova parties would still have an interest
under rule 24(a). Supernova claims that SummitWorks lacks
authority to litigate on behalf of the Shannon’s Rainbow LLCs and
that the majority of the assets put at risk by the litigation are
Supernova investments. See supra ¶ 34. Because of these control
11
SUPERNOVA MEDIA v. PIA ANDERSON
Opinion of the Court
rights and investments, the Supernova parties have an interest in
any litigation involving the Shannon’s Rainbow LLCs.
C. Practical Impairment
¶38 Rule 24(a) requires an intervenor to show that it “is so
situated that the disposition of the action may as a practical matter
impair or impede [the intervenor’s] ability to protect [its] interest.”
¶39 As we explained in Chatterton, rule 24(a) previously
permitted intervention only when an intervenor “is or may be bound
by a judgment in the action.” 938 P.2d at 258 (emphasis added)
(internal quotation marks omitted). Our prior case law reflects this
version of the rule. See, e.g., Lima v. Chambers, 657 P.2d 279, 282 (Utah
1982) (stating that rule 24(a) permits intervention only if “the
applicant is or may be bound by a judgment in the action”). A 1987
amendment eliminated the “bound” requirement and provided for
intervention when “the disposition of the action may as a practical
matter impair or impede [the intervenor’s] ability to protect that
interest.” Chatterton, 938 P.2d at 258 (quoting rule 24(a) as amended).
We noted in Chatterton that the amendment had the effect of
“mandat[ing] intervention on . . . more liberal terms.” Id.
¶40 Rule 24(a) of the Federal Rules of Civil Procedure was
similarly amended in 1966. Before the amendment, the rule
permitted intervention only when intervenors would be legally
bound by the judgment; since the amendment, the rule has required
only that an intervenor be “so situated that disposing of the action
may as a practical matter impair or impede the movant’s ability to
protect its interest.” FED. R. CIV. P. 24(a)(2). According to Wright and
Kane,
It has been clear to all courts that the principal purpose
of the amendment was to eliminate the old reading that
a would-be intervenor must be legally bound, and that
instead the court is to view the effect on the intervenor’s
interest with a practical eye. Indeed . . . the amendment
did not require, as an earlier draft would have, that the
judgment must “substantially” impair or impede the
applicant’s ability to protect its interest. Thus, . . . even
the stare decisis effect of the judgment in the existing
action may, in proper circumstances, create sufficient
practical disadvantage to warrant intervention as of
right.
20 CHARLES ALAN WRIGHT & MARY KAY KANE, FEDERAL PRACTICE &
PROCEDURE DESKBOOK § 80 (2012). This interpretation reinforces our
12
Cite as: 2013 UT 7Opinion of the Court
conclusion in Chatterton that the amendment served to broaden
access to intervention as of right.8
¶41 This court has interpreted the practical impairment
requirement since the rule was amended. In Chatterton, we held it
was proper for State Farm to intervene in an action brought by its
policyholder against an uninsured motorist who had rear-ended the
policyholder. Chatterton, 938 P.2d at 259–62. State Farm sought to
intervene to assert defenses on behalf of the uninsured motorist
because State Farm was contractually obligated to reimburse the
policyholder for damages caused by the uninsured motorist. Id. at
256, 259. We held that State Farm met the practical impairment
requirement because “State Farm's insurance contract with [the
policyholder] expressly render[ed] it liable . . . for the damages
caused by [the uninsured motorist.]” Id. at 259.
¶42 In Bosh,, we upheld intervention in a preservation action.
2011 UT 60, ¶ 12. Victims of a Ponzi scheme had assigned their
claims against the defendants to a corporation, which negotiated a
settlement with the defendants. Id. ¶¶ 2–3. The state was
investigating the Ponzi scheme and had frozen the defendants’
assets to preserve them for restitution. Id. ¶ 2. The corporation
moved to intervene in the state’s preservation action to seek to
unfreeze the assets. Id. ¶ 3. We found that the corporation met the
practical impairment requirement because “the preservation action
ha[d] a direct impact on [the corporation] and the Settlement
Agreement, and [would] impair [the corporation’s] ability to pursue
the settlement for its assignors.” Id. ¶ 11.
¶43 Here, the district court, having incorrectly concluded that
Supernova had not claimed an interest in the litigation, did not
address the remaining requirements of rule 24(a), including the
requirement that the intervenor show that it “is so situated that the
disposition of the action may as a practical matter impair or impede
[the intervenor’s] ability to protect [its] interest.” Given that there
appears to be no dispute in the record about the nature of the
litigation, the interests at stake, or the relationships between the
parties and the intervenors, we need not remand for factual findings
on these issues. Rather, we conclude that it is clear from the face of
8
“Interpretations of the Federal Rules of Civil Procedure are
persuasive where,” as here, “the Utah Rules of Civil Procedure are
substantially similar to the federal rules.” Tucker v. State Farm Mut.
Auto. Ins. Co., 2002 UT 54, ¶ 7 n.2, 53 P.3d 947 (internal quotation
marks omitted).
13
SUPERNOVA MEDIA v. PIA ANDERSON
Opinion of the Court
the pleadings that Supernova “is so situated that the disposition of
the action may as a practical matter impair or impede [its] ability to
protect [its] interest[s].” UTAH R. CIV. P. 24(a). First, Supernova has
a pecuniary interest in the film, which was in danger of being
foreclosed on. If PADRM had successfully foreclosed on the film,
Supernova’s ability to distribute and profit from the film would have
been impaired, if not entirely cut off. The SummitWorks parties
speculated in their complaint as to what would happen if PADRM
foreclosed on the film:
If the scheduled sale proceeds, Defendant will be
attempting to manage and distribute or sell the project
while the true owners will be suing to restore their
membership interests. The confusion and chaos in the
market place that will result, particularly with regard to
anyone attempting to deal with the movie project, will
effectively kill the project.
¶44 PADRM’s argument that Supernova’s interests in the film
will not be impaired because “[t]he foreclosure never occurred and
never will occur as long as the settlement agreement between the
parties is in force” is flawed because it relies on events occurring
after the motion to intervene was filed. The relevant time period for
assessing whether “the disposition of the action may as a practical
matter impair or impede [the intervenor’s] ability to protect [its]
interest” is the time at which the motion to intervene is filed.
¶45 Second, any judgment or settlement agreement resulting
from this litigation would have been (and was) made in the name of
the Shannon’s Rainbow LLCs. By not allowing Supernova to
intervene, the district courts in these cases impaired and impeded
Supernova’s ability to protect its interests in controlling the LLCs
and in protecting its investments from adverse judgments. See supra
¶ 34.
¶46 PADRM suggests that in lieu of intervening, Supernova
should vindicate its investment and control interests through
separate litigation. However, the availability of separate legal action
is irrelevant to an inquiry into whether a right to intervene exists. In
fact, one of the primary policies underlying intervention of right is
the prevention of duplicative lawsuits. See Lima, 657 P.2d at 284.
¶47 We therefore determine that Supernova meets the practical
impairment requirement of rule 24(a).
14
Cite as: 2013 UT 7Opinion of the Court
D. Representation by Existing Parties
¶48 Finally, rule 24(a) requires intervenors to show that their
interests are not “adequately represented by existing parties.”
“Adequacy of representation generally turns on whether there is an
identity or divergence of interest between the potential intervenor
and an original party and on whether that interest is diligently
represented.” Lima, 657 P.2d at 283. Because the SummitWorks
parties and the Supernova parties both purport to act on behalf of
the Shannon’s Rainbow LLCs, we must consider whether the
SummitWorks parties adequately represent the interests of
Supernova for purposes of this litigation.
¶49 Intervenors have a burden to present “some evidence of
diverging or adverse interests.” Bosh, 2011 UT 60, ¶ 10. Such
evidence can show, “for example, [that] the representative party has
an interest adverse to the applicant, has colluded with the opposing
party, or is otherwise unable to diligently represent the applicant’s
interest.” Beacham v. Fritzi Realty Corp., 2006 UT App 35, ¶ 9, 131 P.3d
271.
¶50 The Supernova parties allege a pattern of collusion between
SummitWorks and Mr. Pia. They allege that, beginning in 2008,
SummitWorks and Mr. Pia cooperated to exclude the Supernova
parties from management of the Shannon’s Rainbow LLCs. In this
litigation, for example, SummitWorks and Mr. Pia failed to give the
Supernova parties notice of the proceedings and moved to close the
preliminary injunction hearing and seal the related court records.
They also refused to allow the Supernova parties to see the
settlement agreement in its entirety.
¶51 Supernova also alleges a divergence of interests between
itself and SummitWorks:
The SummitWorks Parties were concerned primarily
about escaping personal liability, and were not
challenging Mr. Pia’s underlying right to take the Film
or any other assets of the Shannon’s Rainbow Entities.
The SummitWorks Parties had no personal investment
at stake. They had enriched themselves from the fund of
the Shannon’s Rainbow Entities, and now that those
funds were exhausted, they had much less incentive
than the Supernova Parties to fight to retain control of
the Film.
PADRM does not dispute these allegations of collusion or
divergence of interests. Thus, although the district court did not
15
SUPERNOVA MEDIA v. PIA ANDERSON
Opinion of the Court
expressly rule on this requirement, see supra ¶ 43, we determine that
Supernova has met its burden to show that its interests are not
adequately represented by the SummitWorks parties.
¶52 One of the two cases before us presents the unusual
circumstance of a court purporting to protect the interests of a
litigant—here, Supernova. The judge in this case stated at a March
21 hearing that he was “deferring on the intervention” until he saw
the settlement agreement and determined whether any of
Supernova’s interests would be compromised. After reviewing the
settlement agreement in camera, he determined which paragraphs
the Supernova parties should see. Finally, he dismissed the case and
denied the motion to intervene because he found that the Supernova
parties “had not shown” that their interests were affected by the
outcome of case, that is, by the settlement agreement that they were
not allowed to see.
¶53 The district court’s postponement of judgment on the motion
to intervene was improper; the motion should have been decided in
a timely manner, based on the circumstances as they existed when
the motion was filed. The court’s actions are also troubling because
judicial oversight is never an adequate substitute for intervention
where a right to intervene exists. Lima, 657 P.2d at 283–84; see also
State ex rel. State Farm Mut. Ins. Co. v. Craig, 364 S.W.2d 343, 346 (Mo.
Ct. App. 1963) (rejecting as “specious” the argument that the
intervenor’s interests would be adequately represented because “the
court will require proof of plaintiff’s cause” and noting that “[t]he
court cannot, and should not, act as attorney for” a party). If an
intervenor meets the requirements of rule 24(a), the intervenor must
be permitted to protect its interests as a fully participating party.
“[I]t is not the role of a judge to be an advocate. Such a concept is
fundamentally contrary to the nature of our adversary system.”
Lima, 657 P.2d at 283.
¶54 Because Supernova has met all of the requirements of rule
24(a), it was error to deny its motions to intervene. Furthermore,
because Supernova should have been permitted to intervene, the
settlement agreement does not constitute “a stipulation of all of the
parties,” which is a necessary predicate for dismissal under URCP
41(a)(2)(i). The district courts therefore erred in dismissing the cases
based on the settlement agreement.
16
Cite as: 2013 UT 7Opinion of the Court
II. THE SEALING ORDER WAS IMPROPER BECAUSE
THE COURT FAILED TO MAKE THE FINDINGS
REQUIRED BY RULE 4-202.04(3) OF THE UTAH
CODE OF JUDICIAL ADMINISTRATION AND
FAILED TO CONSIDER THE PUBLIC’S INTEREST
IN OPEN COURT RECORDS
¶55 Supernova appeals the district court’s order sealing the court
documents related to the preliminary injunction hearing in the first
case. Supernova argues that the sealing order was improper because
the court failed to make necessary findings and failed to consider the
public’s interest in open court records. We agree.
¶56 Rule 4-202.04(3) of the Utah Code of Judicial Administration
(UCJA) requires judges to follow prescribed steps before granting a
motion to seal a court record. A judge must (1) “make findings and
conclusions about specific records;” (2) “identify and balance the
interests favoring opening and closing the record;” and (3) “if the
record is ordered closed, determine there are no reasonable
alternatives to closure sufficient to protect the interests favoring
closure.” UTAH CODE JUD. ADMIN. R. 4-202.04(3). The rule applies to
both civil and criminal proceedings.
¶57 The “interests” that must be identified and balanced under
rule 4-202.04(3) include the public’s interest in open court records.
See State v. Allgier, 2011 UT 47, ¶¶ 10–11, 258 P.3d 589 (holding that
under the plain language of the UCJA there is a “presumptive right
of public access” to court records). The public’s presumptive right
to access court records serves many purposes, including “to educate
the public about the workings of government,” “to contribute to
informed debate,” “to hold public officers and employees
accountable,” “to increase public confidence,” and “to give notice of
important claims, rights and obligations.” UTAH CODE JUD. ADMIN.
R. 4-202(1) (providing an illustrative list of the purposes served by
open court records).
¶58 Because of the public’s interest in open court records, a court
must make the findings required by rule 4-202.04(3) even when all
parties stipulate to sealing. A court has discretion to seal documents
only “if the public’s right of access is outweighed by competing
interests.” State v. Archuleta, 857 P.2d 234, 240–41 (Utah 1993)
(internal quotation marks omitted) “Competing interests include
protecting the integrity of ongoing investigations and proceedings,
the privacy of those involved, . . . the defendant’s right to a fair
trial,” id. at 241 (footnotes omitted), public safety, and “promot[ing]
the rehabilitation of offenders, especially youthful offenders,” UTAH
17
SUPERNOVA MEDIA v. PIA ANDERSON
Opinion of the Court
CODE JUD. ADMIN. R. 4-202(2) (providing an illustrative list of the
purposes served by closed court records).
¶59 Here, SummitWorks and PADRM filed a stipulated motion
to close the preliminary injunction hearing and seal all related
records. They claimed many of the documents were protected by
attorney-client privilege and argued that disclosure of information,
trial strategy, and analysis would disadvantage the SummitWorks
parties in other lawsuits against the Supernova parties. The district
court granted the motion to seal based on its “review[ of] the
Stipulated Motion and the supporting memorandum” and its
finding “[g]ood cause” to seal. It made no further factual findings.
¶60 The failure of a district court to make necessary findings is
an abuse of discretion “unless the facts in the record are clear,
uncontroverted, and capable of supporting only a finding in favor
of the judgment.” Butler, Crockett & Walsh Dev. Corp. v. Pinecrest
Pipeline Operating Co., 909 P.2d 225, 231 (Utah 1995) (internal
quotation marks omitted). Because here the facts in the record do not
show that the public interest was considered or that alternatives to
closing the record were considered, the district court abused its
discretion when it granted the sealing order, and the order must be
set aside.
CONCLUSION
¶61 Supernova has a right to intervene in this litigation, and the
public has a right to access the court records related to the
preliminary injunction hearing unless and until they are properly
sealed under UCJA rule 4-202.04(3). We therefore reverse the denial
of Supernova’s motions to intervene and set aside the sealing order.
¶62 Our holding requires us to determine what actions are
necessary on remand to return the parties to their status quo prior to
the erroneous denial of the motions to intervene. We conclude that
the dismissals must be vacated inasmuch as they were predicated on
the erroneous view that the settlement agreement constituted “a
stipulation of all of the parties” under URCP 41(a)(2)(i). We also
conclude that the settlement agreement must be set aside so that
Supernova may participate in the resolution of the issues presented
in the litigation. Finally, to promote judicial economy and prevent
inconsistent outcomes, we direct that the cases be consolidated into
one district court action.
____________
18