Untying a Legal Knot in the Utah Supreme Court

The law is a tool. As with any tool, you use it to fix what is broken or to maintain what is working (i.e., to secure justice). And as with any tool, the law can be used in the “wrong” way. A clever, unscrupulous party can apply the law in ways not intended, thereby doing harm to a business and the people behind it.

Fortunately, through business litigation, the law provides ways to remedy harm that laws themselves—when misused—may have helped to create.

A sweet deal turns sour for International Confections Company

International Confections Company (ICC) produced and sold candy throughout North America, and did so successfully, growing from nearly nothing to more than $40 million in revenues in a little over three years. Part of that company’s most recent success could be attributed to an exclusive licensing agreement with Mrs. Fields Franchising.

It was supposed to be a 17-year deal, but it didn’t last that long. Mrs. Fields hired a consultant who determined that a 17-year exclusive arrangement would render the company undesirable to potential buyers. As a result, Mrs. Fields manufactured default and informed ICC that the exclusive agreement was to be terminated. ICC’s protests were ignored, and by means of a legal loophole, Mrs. Fields was released from the agreement.

Losing the Mrs. Fields business was devastating for ICC. Things then got dramatically worse, thanks again to direct actions taken by Mrs. Fields Franchising.

Mrs. Fields Franchising acquires a devalued ICC

To fund its growth, ICC had negotiated a large line of credit which was conditional on its exclusive licensing agreement with Mrs. Fields. When the bank learned the licensing agreement had been terminated, it immediately put ICC into receivership (as per the terms of its line of credit), and then put ICC up for sale.

While ICC was negotiating to repay the outstanding portion of the line of credit, the auction to sell the company proceeded. An hour before the bidding closed, a new buyer swooped in with the winning bid. That bidder was Mrs. Fields Franchising.

Things only got worse for ICC when its attorney withdrew from the case without proper notification, even though such a notification was required by law. ICC wasn’t even informed about the final court hearing confirming the sale to Mrs. Field’s until January 2015, nearly a month later.

Mrs. Fields wriggled out of its licensing agreement with ICC, which in turn greatly devalued the company. Then, in the final moments of the auction to purchase ICC, Mrs. Fields took advantage of the low price and purchased ICC for $2 million (the company had been valued at $40 million prior to the termination of the licensing agreement).

Ohio business attorneys build a strong case

At that point, International Confections Company (which was headquartered both in Utah and Ohio) became our client. We immediately saw the inequity of the entire situation. The sale should never have gone through for two reasons:

  • First, when ICC settled its debt with the bank, the company should have been removed from receivership. At that time, the bank had no jurisdiction to continue the sale. Yet ICC’s attorney, for reasons that remain unexplained, waived the “no jurisdiction” issue and allowed the sale to continue.
  • Second, the hearing that confirmed the sale to Mrs. Fields was conducted without proper representation for ICC. Utah law allows a client 21 days to secure new legal representation when an attorney withdraws. Yet the hearing was held less than a week after the attorney notified the court (but not ICC) of his withdrawal. ICC did not even have an opportunity to appear pro se at the hearing.

We appealed the case to the Utah Supreme Court. And while getting the court to reverse a decision is always an uphill battle, this case had one other huge obstacle to overcome.

Overcoming ‘equitable mootness’ through business litigation

“Equitable mootness” is a doctrine that we believe is seriously flawed, though it has been followed by appellate courts for more than a quarter century. Essentially, it says that once a deal (particularly with regard to a bankruptcy) has been completed and a substantial period of time has passed, you can’t go in and undo it, even if some injustice had been done as part of that agreement. Unraveling a complicated deal at that point, so the thinking goes, would not be equitable to all the parties involved.

But what is equitable about allowing an injustice to stand? Where is the relief for a business that was the victim of such an injustice? That was essentially what we argued before the Utah Supreme Court on behalf of ICC.

If parties in this case were allowed to get away with wrongdoing for the sake of equitable mootness, what would prevent future parties from maliciously bending the law regarding jurisdiction and legal representation when they could cite this case as a precedent?

A decision from the Utah Supreme Court is pending. However, we are prepared to pursue justice through other avenues if the court doesn’t recognize how unfairly ICC has been treated.

The business of helping good people

A final note about ICC: It is “our kind of client.” Not just because it has a problem that calls for experienced Ohio business litigation attorneys. But because of the character of the people behind it.

The owner of the company is a stand-up person who built a business from scratch only to have it ripped away through business and legal shenanigans, and through a legal process that faltered rather than adhered to the law. He’s concerned about what happens to the ICC employees who invested their own time and energy in helping to build the business. Legally he could have walked away from ICC and discharged its remaining debts, but he wants his creditors paid in full. He wants justice, from the Utah court and from Mrs. Fields Franchising, even though that’s not the easiest path.

That kind of client deserves business litigation attorneys who will go to Utah—or as far as it takes—to win the justice he deserves.

If you find yourself in a similar situation, don’t hesitate to reach out to the Ohio business litigation attorneys at Cooper & Elliott for legal assistance. We’re here to help.

The outcome of any client’s case will depend on the particular legal and factual circumstances of the case.