Case Summary: Hooban v. Unicity
Posted on Sep. 5, 2012

What are some potential risks in purchasing an asset from a bankruptcy? The recent Utah Supreme Court case, Hooban v. Unicity, discusses some of those risks.

Unicity is a direct sales seller of nutritional supplements and personal care products. In 1994, it entered into a distribution agreement with a business called H&H Network Services, under which H&H’s right to transfer its distributorship was limited and secured by a right of ‘first offer’ – a right to purchase the distributorship instead of allowing it to be transferred to a third party. 

Ten years later, the owners of H&H filed for bankruptcy. The plaintiff in this case, Roger Hooban, purchased all of H&H’s stock in an auction held by the bankruptcy trustee. Unicity sought to exercise the right of first offer to purchase the distributorship under the terms of the distribution agreement. Hooban rejected Unicity’s offer. 

Hooban filed this case. He asserted that he was the owner of H&H’s stock and therefore obtained all of its rights under the distribution agreement. Unicity argued that Hooban was not a party to the distribution agreement and therefore held no right to operate as a Unicity distributer. The district court ruled that Hooban was not a party to the distribution agreement, and therefore could not sue to enforce its terms. The court also rejected Hooban’s claim that he was authorized to act as a distributer. 

After defeating Hooban, Unicity then asked the court to award it attorney fees. Unicity’s claim for fees was based on a Utah statute, which provides that when a contract allows one party to recover attorney fees, it will be read to allow the other party to also recover fees if that party prevails in litigation between them. The district court denied Unicity’s request because Hooban was not a party to the distribution agreement. Both the Utah Court of Appeals and the Utah Supreme Court disagreed with Hooban. The Utah Supreme Court ruled that because Hooban relied on the contract in his arguments, and because if Hooban had won, he would have been entitled to attorney fees, Unicity was entitled to recover its fees from Hooban.

This case underscores the importance of consulting with counsel before purchasing an asset which may be of no value or even a negative value. In this case, what Hooban purchased and the legal strategies and his counsel pursued ultimately cost him much more than the cost of H&H’s stock. A similar circumstance can arise when a party purchases property that has environmental contamination. We at Jones Waldo suggest that you consult with counsel and understand the risks both before you purchase an asset and pursue litigation.

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Author

kathleenAttorney Kathleen McDonald

Kathleen is a shareholder at Jones Waldo.  She specializes in litigation with a particular emphasis on appeals and commercial litigation.  Kathleen has written or argued appeals in the Tenth Circuit, the Utah Court of Appeals, and the Utah Supreme Court.  Kathleen specializes in construction, environmental, civil rights, and commercial litigation.

Kathleen received her law degree with honors from the University of Arizona in 2004.  She received her undergraduate degree from Oberlin College.  Kathleen has unusually well-rounded legal experience; in law school, Kathleen clerked with an in-house corporate attorney and worked in government.  She also clerked at the Utah Court of Appeals.  

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Kathleen volunteers a significant amount of time each week with a variety of community programs including the Tracy Aviary, the Bennion Center and Friends of Animals.

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