Utah's high court rules XanGo suit is still active

The Utah Supreme Court recently ruled that a 1 percent stockholder of XanGo can continue with a corporate malfeasance lawsuit against the company's founders.

Angel Investors LLC is one of 20 entities with a small ownership interest in the mangosteen-driven company XanGo LLC. The "majority owners," which include founders Aaron Garrity, Bryan Davis, Gary Hollister, Gordon Morton, Joseph Morton and Kent Wood, own the remaining 86 percent, according to a Utah Supreme Court ruling.

Angel Investors filed a lawsuit in 4th District Court against XanGo, alleging the company was loaning money to the majority owners so they could personally acquire minority interests in the company and had refused to allow Angel Investors access to financial records, according to the ruling.

After that direct lawsuit, Angel Investors filed a derivative lawsuit in June 2007. A derivative lawsuit, or a stockholder's derivative suit, is filed by a shareholder who sues in the name of the company against an entity.

In this case, Angel Investors, on XanGo's behalf, again sued the majority owners for allegedly acting against XanGo's interests.

In that lawsuit, Angel Investors alleged the majority owners had taken millions of dollars in personal loans from XanGo and purchased minority interests in the company with those loans, thus getting benefits belonging to XanGo and all its shareholders. They also allege the founders paid themselves huge wages and wasted corporate assets, according to the ruling.

The majority owners asked the court to dismiss the lawsuit, but Angel Investors opposed that motion and asked for more time to prove they could appropriately bring the case.

Judge Fred Howard dismissed the lawsuit, finding that Angel Investors didn't constitute the required "class of one," because it was a similarly situated to other shareholders, according to the ruling.

Howard also ruled that due to both the direct and derivative suit pending, Angel Investors couldn't properly represent XanGo.

The Supreme Court reversed both findings and sent it back to 4th District Court to proceed with the case.

They ruled that Angel Investors is a unique entity and qualifies as a "class of one," and thus can appropriately file the claim, and that there is no conflict of interest, despite two lawsuits, that would inhibit Angel Investors LLC's representation of XanGo.

"Although all other minority shareholders have testified that they do not support Angel Investors in the derivative action, nothing in their affidavits refutes Angel Investors' allegations," the high court ruled.

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