## Facts

- Cookietree, Inc., a closely held company, adopted a 1991 shareholder agreement restricting share transfers.
- Greg Schenk, the controlling shareholder and director, acquired additional shares in 1999 in a manner that violated the agreement’s transfer restrictions.
- Samuel R. McLaughlin, an employee/officer and minority shareholder, objected to the 1999 acquisition and later challenged corporate actions that sought to validate it.
- In 2005, Cookietree’s board and shareholders executed waivers and consents purporting to waive the transfer restrictions and retroactively ratify the 1999 purchase; Schenk participated and benefited.
- In 2009, the Utah Supreme Court held the 2005 waivers were tainted by Schenk’s conflict of interest and remanded for a fairness determination.
- On remand, Cookietree implemented new corporate approvals in 2009 (board) and 2010 (shareholders) again waiving the restrictions and ratifying the 2005 waivers, structured to address the conflict.
- After reassignment to a new district judge, the court concluded the post-remand ratifications eliminated the need for a separate fairness hearing and entered summary judgment for defendants.

## Issues

1. Whether the remand required a formal judicial fairness hearing, such that the district court was barred by law-of-the-case or the mandate rule from relying on post-remand corporate ratifications.
2. Whether post-remand board and shareholder ratifications can cure the conflict of interest that tainted earlier waivers and thereby moot the need for a separate fairness hearing.
3. Whether summary judgment was proper given the post-remand ratifications and the remand instruction to make a fairness determination.

## Decision

- The Utah Supreme Court affirmed summary judgment for Cookietree, Schenk, and related appellees.
- The court held the district court did not violate law-of-the-case or the mandate rule by declining to conduct a formal fairness hearing after the post-remand ratifications.
- The court concluded the 2009–2010 ratifications were structured to remove or ameliorate the earlier conflict and served the same function as the ordered fairness determination.
- With the conflict cured and no remaining genuine dispute requiring a fairness proceeding, summary judgment was affirmed.

## Legal Principles

- In closely held corporations, actions ratifying an interested transaction are subject to heightened scrutiny when a controlling shareholder’s conflict taints the approval process.
- A remand ordering a “fairness determination” requires a substantive evaluation of whether the conflict has been cured or rendered immaterial, not a mandated procedural form such as an evidentiary hearing.
- Law-of-the-case and the mandate rule do not prevent a trial court from considering materially changed circumstances on remand, including subsequent corporate actions taken to address defects identified on appeal.
- Properly structured, post-remand ratifications by disinterested or properly constituted decision-makers may cure prior conflict-related defects and moot the need for separate judicial remedial proceedings.

## Conclusion

The Utah Supreme Court held that Cookietree’s post-remand board and shareholder ratifications cured the conflict that had tainted earlier waivers, so the district court could satisfy the required fairness determination without a separate fairness hearing and could enter summary judgment for defendants.


McLaughlin v. Schenk, 2013 UT 20, 299 P.3d 1139 (Utah 2013)