AL-IN Partners, LLC v. Lifevantage Corp.

• Decision Date: 12 August 2021
• Docket Number: No. 20190565,20190565
• Citation: 496 P.3d 76
• Parties: AL-IN PARTNERS, LLC, Bradley Dixon Appellees, v. LIFEVANTAGE CORPORATION, Appellant.
• Court: Utah Supreme Court

496 P.3d 76

AL-IN PARTNERS, LLC, Bradley Dixon Appellees,

v.LIFEVANTAGE CORPORATION, Appellant.

No. 20190565

Supreme Court of Utah.

Heard April 14, 2021

Filed August 12, 2021

Gregory M. Saylin, Brittany J. Merrill, Salt Lake City, for appellant

Justice Petersen authored the opinion of the Court, in which Chief Justice Durrant, Associate Chief Justice Lee, Justice Himonas, and Justice Pearce joined.

Justice Petersen, opinion of the Court:

INTRODUCTION

¶1 An independent distributor sued a wellness company for breach of contract, claiming that the company had waived the provision upon which it later relied to terminate the distributor's contract. The distributor alleged that the company effected the waiver through express oral statements and conduct. The company moved to dismiss, arguing that because the contract contained both an antiwaiver provision and a requirement that any waiver be in writing, anything less was insufficient as a matter of law to waive a provision of the contract. The district court denied the motion and the company filed this interlocutory appeal.

¶2 A contracting party alleging waiver must show the other party intentionally waived both the underlying provision and any applicable antiwaiver provisions. Here, the distributor's allegation of an express oral waiver was legally sufficient to defeat a motion to dismiss. We affirm.

BACKGROUND¹

¶3 In 2009, Plaintiff Bradley Dixon, his wife Shelly, and their friends Corey and Denise Ray became some of the first independent distributors of products from LifeVantage, a multi-level marketing company that "manufactures wellness products which it markets and sells to consumers through a network of independent distributors." Like all independent distributors, Dixon entered into the LifeVantage Distributor Application and Agreement (the Agreement), which incorporated the company's policies and procedures (the P&Ps).

¶4 Relevant here, the Agreement permitted an independent distributor to own only one distributorship (the individual distributorship provision). And any breach of the Agreement could result in LifeVantage terminating the contract.

¶5 The Agreement also contained an antiwaiver provision, which stated that:

The company never gives up its right to insist on compliance with the Agreement .... No failure of LifeVantage to exercise any right or power under the Agreement or to insist upon strict compliance by an Independent Distributor with any obligation or provision of the Agreement, and no custom or practice of the parties at variance with the terms of the Agreement[ ] shall constitute a waiver of LifeVantage's right to demand exact compliance with the Agreement.

¶6 Further, the Agreement specified that any waiver could be effected "only in writing by an authorized officer of the Company" (the written waiver requirement).

¶7 Bradley Dixon owned Distributorship 101982 and Corey Ray owned Distributorship 101987. Despite Distributorship 101987 being "organized under Ray's name," Dixon and Ray worked jointly to develop its "downline" and the pair focused all of their efforts on it. They shared equally in the profits. Within one year of this operation, LifeVantage recognized Dixon and Ray as "elite distributors" and presented them with "Certificates of Accomplishment." Dixon and Ray were featured as co-owners of Distributorship 101987 in at least three separate issues of Prosper magazine, which "LifeVantage funds or otherwise uses as a marketing tool." LifeVantage sent Dixon to train lower-level distributors at "events across the globe" and "awarded both Dixon and Ray for Distributorship 101987's success with vacation[s] and a new Jeep Wrangler." Dixon's individual distributorship never achieved "elite status."

¶8 In 2013, Ray and Dixon formed AL-IN Partners, LLC (AL-IN), which they each owned in equal parts. They decided to assign ownership of Distributorship 101987 to their new partnership. So Dixon, who was a member of LifeVantage's Advisory Board Committee, approached LifeVantage CEO Doug Robinson, Vice President of Sales Ryan Thompson, and Chief Compliance Officer Ed Merchant at a LifeVantage board meeting to discuss ownership of Distributorship 101987. Because of the individual distributorship provision, "Dixon discussed with Robinson, Thompson, and Merchant how he could acquire an ownership interest in Distributorship 101987 as a member of [AL-IN] while remaining in compliance" with the P&Ps. Dixon suggested he relinquish ownership in his individual distributorship, but Robinson and Thompson "both affirmatively stated that Dixon need not transfer" that ownership "before formally acquiring an ownership interest in Distributorship 101987." Thompson told Dixon that he and Ray need only complete a Distributorship Name Change Form to transfer ownership of Distributorship 101987 to AL-IN. They did so, and LifeVantage approved the form and modified the account to remove Ray's name and list AL-IN as the owner of Distributorship 101987.

¶9 After LifeVantage approved the name change form, it began paying commissions from Distributorship 101987 to AL-IN. And "LifeVantage continued to announce and promote Dixon and Ray as partners in Distributorship 101987 at trainings, conventions, meetings, and other public forums."

¶10 But in 2016, LifeVantage terminated Distributorship 101987, citing a violation of the individual distributorship provision. Shortly thereafter, pursuant to an agreement with LifeVantage, Ray ended his ownership in AL-IN and was reinstated as a distributor for the company. This left Dixon as the sole owner of AL-IN. LifeVantage then stopped paying Distributorship 101987's commissions to AL-IN and channeled the commissions to Ray.

¶11 Dixon and AL-IN (collectively, AL-IN) sued LifeVantage, seeking a declaratory judgment that LifeVantage had waived its right to enforce the individual distributorship provision and that it improperly terminated Distributorship 101987 because of this waiver. AL-IN also alleged breach of contract, breach of the covenant of good faith and fair dealing, and promissory estoppel.

¶12 LifeVantage moved to dismiss, contending, among other things, that the breach of contract and declaratory judgment claims failed as a matter of law because AL-IN did not plead facts sufficient to establish that LifeVantage waived the individual distributorship provision. Specifically, LifeVantage pointed to the Agreement's antiwaiver provision and written waiver requirement. And it argued that because AL-IN's complaint did not assert the existence of any writing by a company officer waiving the individual distributorship provision, the allegations in the complaint were "plainly insufficient ... to amount to waiver."

¶13 In opposition, AL-IN asserted that it "pled allegations from which a fact finder could determine that under the totality of the circumstances, LifeVantage both expressly and impliedly waived its right to enforce" the individual distributorship provision. And it argued that the antiwaiver provision "is simply one factor in the totality of the circumstances analysis" to determine whether LifeVantage waived that provision.

¶14 Shortly after briefing was complete on the motion to dismiss, we issued Mounteer Enterprises, Inc. v. Homeowners Ass'n for the Colony at White Pine Canyon , 2018 UT 23, 422 P.3d 809, which LifeVantage submitted to the district court as supplemental authority. In Mounteer , we held in the context of an implied waiver that "a party asserting waiver in the face of an antiwaiver clause must establish ‘a clear intent to waive both the [antiwaiver] clause and the underlying contract provision.’ " Id. ¶ 21 (alteration in original) (citation omitted). LifeVantage argued that, because AL-IN made "no reference to the antiwaiver provisions" in its complaint, it had "failed to allege an adequate factual basis" for waiver of these provisions and thus could not state a claim for breach of contract or declaratory judgment.

¶15 After oral argument, the district court granted the motion to dismiss as to AL-IN's claims for breach of the covenant of good faith and fair dealing and promissory estoppel, but denied it as to the claims for breach of contract and declaratory judgment. In its oral ruling, the court recognized that " Mounteer establishes a fairly high burden of proof for plaintiffs seeking to prove waiver of a provision and separately to prove waiver of the antiwaiver provisions; and for that matter, in this case, to prove waiver of the requirement that any waiver be made in writing by an officer." But the court noted that " Mounteer also appears to draw a distinction between sins of omission and sin[s] of commission." So, because AL-IN alleged "affirmative conduct by officers of LifeVantage ... that [Dixon] didn't have to divest himself ... [of his] individual distributorship and could maintain joint ownership of another distributorship," the court concluded that the complaint was sufficient to defeat the motion to dismiss as to the breach of contract and declaratory judgment claims.

¶16 We granted LifeVantage's petition for interlocutory appeal. We exercise jurisdiction under Utah Code section 78A-3-102(3)(j).

STANDARD OF REVIEW

¶17 The issue before us is whether the district court erred when it denied LifeVantage's motion to dismiss with respect to the breach of contract and declaratory judgment claims. "A ruling on a motion to dismiss presents a legal question that we review for correctness, affording no deference to the district court's decision." Turner v. Staker & Parson Cos. , 2012 UT 30, ¶ 7, 284 P.3d 600.

ANALYSIS

¶18 Before we proceed to the merits of this question, we must address the fact that Appellee AL-IN did not file a brief or otherwise appear in this interlocutory appeal. So, we discuss as an initial matter how this affects our resolution of this case.

¶19 An appellee's failure to file a brief does not amount to an automatic default and consequent reversal of the lower court. "[W]e do not view the failure to file...