Lee Cheves, individually and derivatively on behalf of Industrial Communications, Inc. v. David R. Williams, Deanna M. Williams, and Industrial Communications, Inc., a Utah Corp.

breach of fiduciary Duty - Breach of Contract - Fraud - Conversion - Conspiracy to Commit Fraud - Lee Cheves met David R. Williams in 1958 or 1959, while Cheves was
a student at New Mexico State University in Las Cruces, New
Mexico. At the time, both Cheves and Williams worked at the White
Sands Missile Range in White Sands, New Mexico. Cheves began
working for Williams in two small businesses that Williams
operated out of his home, and the two became good friends. They
soon began talking about going into business together and, by
1962, Cheves had accepted Williams' offer to become partners in a
communications business. Under their agreement, Williams would own
a two-thirds interest in the business because Williams was the one
putting up the money and had greater experience in the
communications field, and Cheves would own a one-third interest in
the business.

The two thus formed Industrial Communications. Williams opened the
business in Vernal, Utah, on April 1, 1963. Cheves joined Williams
in Vernal in June 1963, after graduating from college. Each party
agreed to take only so much money out of the business as each
needed for support, with Williams taking about twice as much as
did Cheves. All other profits would remain with the company.
Partnership tax returns were filed throughout this period, which
indicated that Williams and Cheves were co-partners in Industrial
Communications.

Over the next several years, Industrial Communications expanded
its operations into northern Utah and Wyoming. The company opened
an office in Salt Lake City in 1966. Williams managed the Salt
Lake office; Cheves remained in Vernal. Williams and his wife
maintained the company's records at the Salt Lake office and were
responsible for signing company checks. Neither Williams nor his
wife kept track of how much money they took out of the partnership
as personal income.

In 1981, assets from Industrial Communications were used to
establish a corporation called General Broadcasting, Inc., which
operated an AM radio station in North Salt Lake City. Two other
corporations, Utah Telcourier, Inc. and Intermountain
Broadcasting, Inc., were also established using Industrial
Communications' assets.

Industrial Communications, Inc., was incorporated on January 5,
1987. Cheves signed the corporation's articles of incorporation
and a document indicating that he was to receive twenty percent of
the corporation's shares. Cheves trusted Williams to make up the
difference between Cheves' one-third interest in the partnership
and the twenty percent interest given him in the corporation. No
partnership assets were ever formally transferred into Industrial
Communications, Inc.

Also in 1987, Williams expanded the business to Hawaii, forming a
corporation named General Telcourier, Inc. By 1988, Williams was
spending approximately eight months of the year in Hawaii.

Cheves left Industrial Communications in September 1990. He
requested a formal accounting of the partnership by letter on
March 14, 1991.

Cheves filed the current action on April 15, 1991. In his first
amended complaint, Cheves requested a declaratory judgment
regarding the existence of a partnership, as well as an equitable
or statutory accounting of the business for the period from June
1963 to the present. Cheves' complaint also stated causes of
action for breach of fiduciary duty, breach of contract, fraud and
conspiracy to commit fraud, fraudulent transfer of assets and
conspiracy to commit such fraudulent transfers, and conversion.

On December 6, 1991, the trial court heard argument on Williams'
motion to disqualify the law firm of Giauque, Crockett, Bendinger
& Peterson ("Giauque") from representing Cheves. Giauque had
represented some of the partnership's affiliated corporations for
a period in the mid-1980's, and Williams argued that such
representation required Giauque's disqualification in this case.
The trial court denied Williams' motion, stating orally that it
did "not find there was a substantially [sic] factual relationship
between this present action and any other prior discussions that
would have occurred between counsel for the plaintiff in this case
and Mr. Williams" and "that there would likely be no information
that would have been discussed in those matters that would have
formed a basis for use by plaintiff's counsel to the disadvantage
of Mr. Williams."

On July 21, 1992, the trial court heard argument on Williams'
motion for partial summary judgment, in which Williams asserted
that Cheves had waived his right to an accounting by failing to
request it promptly. On August 19, 1994, the trial court heard
argument on Williams' motion for final partial summary judgment
regarding the existence of a partnership. The court denied both
motions.

On January 17, 1995, the trial court heard argument on a motion
relating to the burden of proof on the existence of a partnership,
on the accounting, and on a motion relating to prejudgment
interest. The court ruled that, because "the books and records of
Industrial Communications were maintained under the virtually
exclusive control of the Defendants[,] . . . if Mr. Cheves proves
that a partnership exists, the burden of proof regarding whether
partnership funds were used to acquire assets that the Williams
[sic] claim are [personal] property . . . shifts to the
Defendants. Likewise the Court rules that the burden of proof for
an accounting shifts to the Defendants." The court further ruled
that "if prejudgment interest is proper in this case, it is to be
assessed by the Court and not the jury. However, the parties may
submit to the jury a special interrogatory to determine the date
from which prejudgment interest begins to run under the facts of
this case." (Emphasis added).

The jury returned a Special
Verdict Form on February 16, 1995, in which the jury found: that
Cheves and Williams were partners in Industrial Communications;
that Cheves' claims were not barred by any statute of limitations,
laches, estoppel, failure of consideration or waiver; that the
partnership included the assets of General Broadcasting, Inc.,
General Telcourier, Inc., Utah Telcourier, Inc., and Intermountain
Broadcasting, Inc.; and that Cheves should receive $900,000 for
his interest in the partnership. In a judgment dated March 13,
1995, the court ordered that Cheves recover costs plus $900,000,
with postjudgment interest. On March 23, 1995, Cheves filed a
Motion to Amend Judgment, requesting that the court, pursuant to
section 48-1-39 of the Utah Code, add prejudgment interest to the
award running from the date Cheves first demanded an accounting.
Orders restraining the Williams and Industrial Communications,
Inc., from disposing of any nonexempt property were dated March
28, 1995. A Praecipe was signed March 29, 1995. On July 17, 1995,
Williams filed a Motion for Stay of Judgment Pending Appeal and
for Establishment of Amount of Approved Security.

Unknown

Unknown

Affirmed in part and reversed in part by the Supreme Court of Utah. See: 1999 UT 86, ___ P.2d ___. Reported by kkm.