Court Opinion

ID: 5138930
Source: CourtListenerOpinion
Date Created: 2021-12-21 15:22:01.257495+00
Date Added: 2024-06-11T11:32:45.258288
License: Public Domain

2019 UT App 80

               THE UTAH COURT OF APPEALS

        BACKBONE WORLDWIDE INC. AND BURKE HEDGES,
                      Appellants,
                          v.
               LIFEVANTAGE CORPORATION,
                       Appellee.

                           Opinion
                      No. 20180038-CA
                      Filed May 16, 2019

          Third District Court, Salt Lake Department
              The Honorable Andrew H. Stone
                         No. 110918426

         Scott O. Mercer and Ryan B. Hancey, Attorneys
                         for Appellants
           Thomas R. Karrenberg, Richard A. Kaplan,
         Jared D. Scott, and Nathan P. Hatch, Attorneys
                           for Appellee

    JUDGE RYAN M. HARRIS authored this Opinion, in which
    JUDGES GREGORY K. ORME and KATE APPLEBY concurred.

HARRIS, Judge:

¶1     LifeVantage Corporation (LifeVantage) terminated a
contract it had entered into with Backbone Worldwide Inc.
(Backbone). There is no dispute that LifeVantage had the
technical right to terminate the contract due to certain actions
Backbone had taken. But because LifeVantage did not seem
bothered by Backbone’s actions when they were first taken,
Backbone contends that LifeVantage did not terminate the
contract for those permissible reasons, but instead claims that
LifeVantage terminated the contract simply because it did not
want to pay, and because of animosity toward Backbone’s
               Backbone Worldwide v. LifeVantage

owner, Burke Hedges. Backbone contends that LifeVantage’s
termination of the contract under these circumstances was
improper and a violation of the implied covenant of good faith
and fair dealing. The district court was not persuaded by
Backbone’s arguments, and entered summary judgment in favor
of LifeVantage, not only on Backbone’s contract claim, but also
on LifeVantage’s separate counterclaim for conversion. We
affirm the district court’s entry of summary judgment in
LifeVantage’s favor.

                       BACKGROUND

¶2     In 2009, LifeVantage—already an existing, publicly-
traded company—relaunched itself as a multi-level marketing
company to promote sales of a nutritional supplement. As part
of these efforts, LifeVantage sought the help of Hedges and his
company, Backbone. Hedges was well-known within the multi-
level marketing industry as an author and speaker. In May 2009,
LifeVantage and Backbone entered into an agreement whereby
Backbone would become a LifeVantage distributor and
undertake additional duties to promote LifeVantage. To this end,
Hedges, for and on behalf of Backbone, signed LifeVantage’s
standard     Independent     Distributor   Agreement,     which
incorporated LifeVantage’s Policies and Procedures; the parties
also agreed to and executed a written amendment of that
agreement (First Amendment) outlining Backbone’s additional
duties and compensation. The standard Independent Distributor
Agreement, along with the First Amendment and the
incorporated Policies and Procedures, constitute the full
agreement between the parties, and are collectively referred to
herein as “the Agreement.”

¶3    Under the terms of the Agreement, LifeVantage agreed to
make “Support Payments” to Backbone in the amount of $20,000
per month for the first three months of the Agreement, then

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$10,000 per month for the next nine months or until the
“cancellation of the Agreement for any reason in accordance
with the Agreement.” LifeVantage also agreed to compensate
Backbone as a distributor, through commissions and various
bonuses, at the highest level allowed by LifeVantage’s
compensation plan, regardless of whether Backbone actually
qualified for that level through the usual measurements.

¶4     The Agreement defined “Cancellation” as “the expiration
or termination of an Independent Distributor’s Business.
Cancellation may be either voluntary or involuntary by either
LifeVantage or an Independent Distributor, through non-
renewal, inactivity or breach of the Agreement.” “Breach” was
defined as “an actual or alleged transgression or violation of any
part of this Agreement.” The Agreement addressed remedies for
breach and stated that “[a]ny breach of the Agreement . . . may
result, at LifeVantage’s discretion, in . . . [c]ancellation of the
[Agreement].”

¶5     While the Agreement required Backbone to “develop
sales aides” for LifeVantage, it also required that “supplemental
marketing material of any kind, . . . be submitted to
[LifeVantage’s] Compliance Department for approval before it
can be used or made public.” Moreover, the Agreement
contained several restrictions on distributors’ ability to develop
websites to promote LifeVantage products, and required
distributors to register any such websites with LifeVantage and
receive written approval from LifeVantage before making any
such site publicly available.

¶6     In June 2009—only weeks after entering into the
Agreement—Backbone developed and made public a website
(the Website) that it used for various purposes, including the
promotion of LifeVantage products. Backbone, through Hedges,
also pitched the Website to others in the LifeVantage network as
a way for them to likewise market their LifeVantage business.

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                Backbone Worldwide v. LifeVantage

On the Website, Backbone also made health-related claims about
LifeVantage products and income-related claims about working
for LifeVantage, two actions that were expressly prohibited by
the Agreement. Backbone further used the Website to sell not
only LifeVantage products but also non-LifeVantage products,
another activity prohibited by the Agreement. LifeVantage never
provided Backbone with written approval for any marketing
material, including the Website.

¶7     By October 2009, LifeVantage had developed cash
flow problems, and it stopped paying Backbone the Support
Payments required by the Agreement. LifeVantage proposed
another amendment to the Agreement (Second Amendment)
under which Backbone would agree to accept LifeVantage
stock in lieu of the cash Support Payments. In anticipation
that Backbone would agree to the Second Amendment,
LifeVantage instructed its stock transfer agent (Transfer Agent)
to issue a certificate for 240,000 shares of stock in Hedges’s
name, to be sent to LifeVantage. However, Backbone
never agreed to the Second Amendment, and therefore
LifeVantage maintained possession of the certificate and did not
present it to Hedges.

¶8     In February 2010, LifeVantage emailed Backbone
regarding the Website, and for the first time took the position
that the Website should not have gone live without
LifeVantage’s prior approval, was not in compliance with the
Agreement, and needed to be brought into compliance
immediately. Shortly thereafter, LifeVantage began looking into
other alleged misconduct by Backbone and Hedges. LifeVantage
had received complaints about Hedges’s personal behavior;
these complaints ranged from Hedges “not [being] a team
player,” to Hedges stealing the business of other LifeVantage
distributors, all the way to sexual harassment. In May 2010,
LifeVantage sent Backbone a letter restating its concerns with the
Website, and stating that it had received complaints from other

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                 Backbone Worldwide v. LifeVantage

members of its organization about Hedges’s conduct. Hedges
denied the allegations of personal misconduct.

¶9     After    conducting     an    investigation,    LifeVantage
determined that at least some of the complaints of personal
misconduct against Hedges were credible, and that Backbone
had committed various breaches of the Agreement. At this point,
in June 2010, LifeVantage terminated the First Amendment to
the Agreement and placed Backbone on “probation.” After that,
however, LifeVantage continued to receive complaints about
Hedges’s personal behavior, and it “suspended” Backbone’s
distributorship in July 2010. Less than a month later, LifeVantage
terminated the Agreement entirely.

¶10 In July 2010, while LifeVantage was investigating and
taking action against Backbone, Transfer Agent—apparently as a
routine matter, without being specifically asked to do so by
LifeVantage—sent Hedges a statement showing that he had been
issued a certificate for 240,000 shares of LifeVantage stock. In
early 2011, Hedges called Transfer Agent, and explained that he
had never received a stock certificate for the shares. Transfer
Agent asked Hedges to fill out some additional paperwork,
including an affidavit attesting that he had never received a
stock certificate, and Hedges complied. Transfer Agent
acknowledged Hedges’s non-receipt of the stock certificate in a
letter dated March 9, 2011, and then issued Hedges a substitute
stock certificate for the 240,000 shares. Transfer Agent did not
inform LifeVantage about the new stock certificate issued to
Hedges. Soon after receiving the certificate, Hedges proceeded to
transfer all of his shares to his wife, who later sold the shares to a
third party for approximately $380,000.

¶11 Backbone filed suit against LifeVantage in October 2011
asserting, among other claims, breach of contract and breach of

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                Backbone Worldwide v. LifeVantage

the covenant of good faith and fair dealing. 1 Its chief complaint
was that LifeVantage had failed to pay all of the Support
Payments due under the Agreement. Backbone would later file
two amended complaints, each of which contained a general
breach of contract claim but omitted any separate claim for
breach of the covenant of good faith and fair dealing. For its part,
LifeVantage denied any wrongdoing. In March 2014,
LifeVantage learned, through Backbone’s counsel, that Hedges
had acquired a substitute stock certificate and thereby had
obtained the 240,000 shares of LifeVantage stock, and
LifeVantage responded by filing counterclaims for conversion,
fraud, and securities fraud against Hedges personally. 2

¶12 Backbone’s second amended complaint, filed in May 2015,
stated that Backbone never agreed to amend the Agreement to

1. Backbone listed Hedges as a co-plaintiff in its initial complaint
and in each subsequent amended complaint, but it did not then
offer (and does not now offer) any explanation as to how Hedges
could have been individually injured—other than in his capacity
as Backbone’s owner—by LifeVantage’s failure to pay the
Support Payments. For the purposes of this opinion, we view the
breach of contract claims against LifeVantage as having been
pleaded only by Backbone.

2. LifeVantage nominally pleaded these counterclaims against
Backbone and against Hedges personally. The counterclaim
included an assertion that Backbone was the alter ego of Hedges,
but the district court never resolved that claim. Absent its
argument for alter ego, LifeVantage offered no explanation in its
counterclaim—and offers none here—as to how Backbone can be
liable for conversion of the 240,000 shares of stock. For the
purposes of this opinion, we view the conversion counterclaim
as having been pleaded only against Hedges personally.

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                Backbone Worldwide v. LifeVantage

allow LifeVantage to compensate it in stock instead of cash.
Though it acknowledged that Hedges received the substitute
stock certificate, and that the stock would have been given as
compensation for the amount due Backbone under the original
Agreement, it still claimed Backbone was damaged in the full
amount of unpaid Support Payments.

¶13 LifeVantage and Backbone each filed cross-motions for
summary judgment on all relevant issues. The district court
initially granted summary judgment in favor of LifeVantage on
its conversion counterclaim against Hedges, but denied
summary judgment on LifeVantage’s counterclaims for fraud
and securities fraud, as well as on Backbone’s breach of contract
claims. LifeVantage asked the court to reconsider its summary
judgment ruling, and after additional briefing and argument, the
court entered an order granting summary judgment in favor of
LifeVantage on Backbone’s breach of contract claims. The court
determined that Backbone breached the contract by rolling out
the Website without prior written approval, that this breach
gave LifeVantage the contractual right to terminate, and that
LifeVantage was not prohibited from terminating under Utah’s
first breach rule. The parties then settled the remaining issues
and the district court entered an order and judgment dismissing
them with prejudice.

            ISSUES AND STANDARD OF REVIEW

¶14 Backbone and Hedges now appeal the district court’s
summary judgment orders, and ask us to review two issues. 3

3. In their opening brief, Backbone and Hedges stated that they
were raising seven issues on appeal. But many of these issues are
sub-issues of the two issues we describe. For instance,
Backbone’s claim that the court erred in calculating its damages
                                                   (continued…)

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                Backbone Worldwide v. LifeVantage

First, Backbone argues that the district court erred by granting
summary judgment in LifeVantage’s favor on Backbone’s breach
of contract claims against LifeVantage. Second, Hedges argues
that the district court erred by granting summary judgment in
LifeVantage’s favor on its conversion counterclaim. “We review
a grant of summary judgment for correctness, granting no
deference to the district court’s legal conclusions.” Salt Lake City
Mission v. Salt Lake City, 2008 UT 31, ¶ 5, 184 P.3d 599. A district
court may properly enter summary judgment “‘if the moving
party shows that there is no genuine dispute as to any material
fact and the moving party is entitled to judgment as a matter of
law.’” Salo v. Tyler, 2018 UT 7, ¶ 29, 417 P.3d 581 (quoting Utah
R. Civ. P. 56(a)). In reviewing the record in connection with a
summary judgment motion, a court must view “all facts and the
reasonable inferences to be made therefrom . . . in a light
favorable to the non-moving party.” USA Power, LLC v.
PacifiCorp, 2010 UT 31, ¶ 33, 235 P.3d 749.

                            ANALYSIS

                                 A

¶15 Backbone argues that LifeVantage violated the implied
covenant of good faith and fair dealing when it terminated the
Agreement, because it views the reasons LifeVantage offered for
the termination as pretextual and offered in bad faith. In

(…continued)
under the Agreement, by its own admission, “is erroneous for
the same reasons [the court’s] termination decision is
erroneous.” Another issue raised by Backbone—whether a
statement made in passing by the district court was correct—is
inconsequential, because it was hypothetical and had no bearing
on the outcome of the case.

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                Backbone Worldwide v. LifeVantage

addition, Backbone asserts that LifeVantage breached the
contract first, and argues that the first breach rule prevented
LifeVantage from terminating the Agreement. Assuming,
without deciding, that Backbone pleaded a breach of implied
covenant claim, 4 we conclude that the district court did not err in
determining that LifeVantage legally terminated the Agreement.

                                 1

¶16 “The implied covenant of good faith and fair dealing (the
covenant) inheres in every contract.” Markham v. Bradley, 2007
UT App 379, ¶ 18, 173 P.3d 865. The covenant prohibits the
parties from intentionally “injur[ing] the other party’s right to
receive the benefits of the contract,” and “prevent[s] either party
from impeding the other’s performance of his obligations” by
“render[ing] it difficult or impossible for the other to continue

4. LifeVantage asserts that Backbone waived any claim for
breach of the implied covenant when it filed an amended
complaint that—unlike its original complaint—did not contain a
separately pleaded cause of action for breach of the implied
covenant, though it did contain a general cause of action for
breach of contract. It is certainly true that lawyers often plead a
claim for breach of the implied covenant separately, but we
wonder whether this is simply a matter of custom, or whether
there is some legal reason the claim must be pleaded separately.
After all, the implied covenant is simply a term of the contract
like any other, see generally Eggett v. Wasatch Energy Corp., 2004
UT 28, ¶ 14, 94 P.3d 193 (“A violation of the covenant is a breach
of the contract.”), and no one would contend that separately
pleaded causes of action for breach of each separate contractual
provision at issue are necessary. In any event, we need not
further concern ourselves with this question here, because even
assuming that Backbone properly pleaded a claim for breach of
the implied covenant, that claim fails on its merits.

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                Backbone Worldwide v. LifeVantage

performance.” Id. (quotation simplified). But the covenant
“cannot create rights and duties inconsistent with express
contractual terms,” Oakwood Village LLC v. Albertsons, Inc., 2004
UT 101, ¶ 45, 104 P.3d 1226; see also Young Living Essential Oils,
LC v. Marin, 2011 UT 64, ¶ 10 n.4, 266 P.3d 814 (same), and it
“cannot compel a contractual party to exercise a contractual right
to its own detriment for the purpose of benefitting another
party,” Markham, 2007 UT App 379, ¶ 19 (quotation simplified).

¶17 “[T]he degree to which a party to a contract may invoke
the protections of the covenant turns on the extent to which the
contracting parties have defined their expectations and imposed
limitations on the exercise of discretion through express contract
terms.” Smith v. Grand Canyon Expeditions Co., 2003 UT 57, ¶ 20,
84 P.3d 1154. The covenant has an important role to play when
the terms of the contract leave the very existence of the right to
terminate it in the sole and undefined discretion of one party. In
such situations, the covenant requires that the party possessing
such discretion exercise it in a good faith, objectively reasonable
manner. See Markham, 2007 UT App 379, ¶ 21 (“Where the
contract allows discretion but does not provide any express
standard for exercising that discretion, the covenant imposes an
objective standard of reasonableness.”). These situations
necessarily involve contracts that do not impose definitional
limits on the party’s exercise of discretion, and therefore
implying “good faith” or “reasonableness” requirements
through the covenant is not at all inconsistent with any express
contractual terms.

¶18 Two examples, from cases relied upon by Backbone, are
illustrative. In Powderham v. Synergy Worldwide, Inc., No. 2:08-
CV-548 CW, 2010 WL 988494 (D. Utah Mar. 12, 2010), the parties’
contract provided that the defendant could terminate the
contract if at any time it was “dissatisfied” with the plaintiff’s
performance, but it provided no criteria for objectively
determining whether the defendant was truly “dissatisfied.” Id.

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                 Backbone Worldwide v. LifeVantage

at *1. And in Markham, the parties’ contract permitted the
defendant to terminate it if the content of a credit report was
“not acceptable” to the defendant, but provided no guidance for
determining what ought to be “acceptable.” 2007 UT App 379,
¶ 22. 5 In each of these situations, because the ability of one party

5. Two other cases may also fall into this category, although they
discuss discretionary contractual rights other than termination.
See Cook Assocs., Inc. v. Utah School & Institutional Trust Lands
Admin., 2010 UT App 284, 243 P.3d 888; Olympus Hills Shopping
Center, Ltd. v. Smith’s Food & Drug Centers, Inc., 889 P.2d 445
(Utah Ct. App. 1994). In Cook Associates, the parties’ land lease
provided that defendant had the “discretion to adjust the rental
rate” as it deemed “reasonably necessary,” but the lease gave no
other guidance as to how much the defendant could raise the
rent. 2010 UT App 284, ¶ 2 (quotation simplified). And in
Olympus Hills, the grocery store tenant had the right to occupy
the leased premises with another “lawful retail selling business,”
but the lease provided no additional guidance as to what kind of
retail business it could operate there. 889 P.2d at 449 (quotation
simplified). In both cases, the implied covenant was deemed to
supply an objective reasonableness standard, drawn from the
parties’ course of dealing and from the parties’ “justified
expectations” surrounding the contract, that cabined the party’s
ability to unilaterally expand the scope of the relevant
contractual right. See Cook Assocs., 2010 UT App 284, ¶ 29;
Olympus Hills, 889 P.2d at 451. In this case, by contrast, neither
party had any subjective discretion in determining whether
LifeVantage had the right to terminate; moreover, LifeVantage’s
decision to exercise its right to terminate the Agreement in the
wake of Backbone’s breach did not unsettle anyone’s “justified
expectations” or deprive anyone of the “reasonably expected
benefit[s] of the bargain,” see Olympus Hills, 889 P.2d at 450–51,
because the parties’ bargain specifically included affording
                                                     (continued…)

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                Backbone Worldwide v. LifeVantage

to terminate the contract was left entirely up to that party’s
undefined discretion, the courts held that the implied covenant
operated to supply an objective reasonableness standard by
which the party’s discretion must be exercised. See Powderham,
2010 WL 988494, at *6; Markham, 2007 UT App 379, ¶ 21; see also
Resource Mgmt. Co. v. Weston Ranch & Livestock Co., 706 P.2d 1028,
1037 (Utah 1985) (stating that “courts endeavor to construe
contracts so as not to grant one of the parties an absolute and
arbitrary right to terminate a contract”).

¶19 The situation is different, however, when a party’s right
to terminate a contract is not a matter of one-sided, undefined
discretion but, instead, is established pursuant to objective
criteria. For example, in many contracts the right to terminate is
conditioned on the happening of an objectively defined event.
See, e.g., Load Zone Mktg. & Mgmt., LLC v. Clark, 2014 UT App
194, 333 P.3d 1255 (discussing a contract in which each side had
the right to terminate if the buyer failed to procure a loan by a
certain date). In such situations, the contract by its terms gives a
party the express right to terminate the contract upon objectively
defined criteria; no discretion is contemplated or exercised in
arriving at that decision. When this occurs, the implied covenant
does not intervene to impose an objective reasonableness
standard on the party’s ability to terminate, because the express
terms of the contract already objectively afford the party that
right, and the implied covenant cannot operate to vary express
contractual rights.

¶20 Load Zone, relied upon by LifeVantage, is illustrative.
There, the contract allowed either side the option to terminate it
if the defendant “was unable to secure a loan” by a set deadline.

(…continued)
LifeVantage the option to cancel the Agreement if Backbone
committed “any breach” of the Agreement’s terms.

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Id. ¶ 2. That deadline passed without the defendant being able to
secure a loan, giving either side the right to terminate, and the
defendant elected to exercise that right and terminate the
contract. Id. ¶ 3. The plaintiff sued, arguing that the defendant
had not terminated the contract because he had been unable to
secure a loan; the plaintiff contended—and the defendant
acknowledged—that the defendant chose to terminate for other
unrelated economic reasons. Id. ¶ 5. This court, in ruling in favor
of the defendant, cited federal authorities holding that, “as a
general rule, ‘if a party has a legal right to terminate a contract,
its motive for exercising that right is irrelevant.’” Id. ¶ 17
(quotation simplified) (quoting Tuf Racing Prods., Inc. v. American
Suzuki Motor Corp., 223 F.3d 585, 589 (7th Cir. 2000)). Because the
contract clearly provided that the defendant had the right to
terminate, and did not leave the existence of a termination right
up to one party’s discretion, the defendant could exercise that
express contractual right regardless of its motives.

¶21 This case falls into the second category of cases, because
LifeVantage had the express and objectively determined right to
terminate the Agreement due to Backbone’s undisputed
breaches. LifeVantage’s right to terminate did not depend upon
purely subjective circumstances, such as LifeVantage being
“dissatisfied” or upon deliverables being “unacceptable.” E.g.,
Powderham, 2010 WL 988494, at *6; Markham, 2007 UT App 379,
¶ 21. Instead, the Agreement prohibited Backbone from
disseminating any unapproved marketing materials, and
Backbone had (among other things) already launched the
unapproved Website by the summer of 2009. Given those facts,
the Agreement gave LifeVantage the right to cancel for any
breach, no matter how slight, and therefore it is undisputed that
LifeVantage had the objective right to terminate the Agreement.

¶22 Backbone argues, however, that LifeVantage had ulterior
motives for terminating the Agreement that were unrelated to
Backbone’s breaches. Backbone correctly points out that

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                 Backbone Worldwide v. LifeVantage

LifeVantage did not express its displeasure with the Website
until February 2010, more than six months after it had gone
public, and several months after it became clear that LifeVantage
was unable to pay Backbone the Support Payments that were
owed. But these facts are materially indistinguishable from the
facts of Load Zone, and that case controls the outcome here.
LifeVantage had the objective and undisputed right to terminate
the Agreement, and where “a party has a legal right to terminate
a contract, its motive for exercising that right is irrelevant.” Load
Zone, 2014 UT App 194, ¶ 17 (quotation simplified).

¶23 Backbone attempts to distinguish Load Zone on the ground
that, in Load Zone, this court made no mention of the implied
covenant of good faith and fair dealing in its analysis. Although
the court’s analysis in Load Zone did not expressly discuss the
implied covenant, the cases cited in Load Zone do. For instance,
the Seventh Circuit stated plainly that parties do not have the
right to complain “about a pretextual termination” where there
is “good cause for termination,” and clarified that “the fact that
there is a duty of good faith read into every contract does not
justify judicial inquiry into motive.” Tuf Racing Prods., Inc. v.
American Suzuki Motor Corp., 223 F.3d 585, 589 (7th Cir. 2000)
(cited with approval in Load Zone, 2014 UT App 194, ¶ 17); see
also Milford-Bennington R.R. Co. v. Pan Am Rys., 695 F.3d 175,
180–81 (1st Cir. 2012) (holding, in the face of a claim for breach of
the implied covenant, that where a party has “an unassailably
valid reason” to exercise a contractual right, “its alleged ulterior
motives are irrelevant”) (also cited with approval in Load Zone,
2014 UT App 194, ¶ 17).

¶24 LifeVantage had an objectively clear right to terminate the
Agreement any time after June 2009, when Backbone first went
live with the Website without getting approval as required
under the Agreement. LifeVantage waited several months before
electing to exercise that right, a turn of events to which Backbone
ascribes illicit motive but which, in reality, is not all that

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unusual. Sometimes, parties who possess even a clear and
objectively determined right to terminate a contract may
nevertheless choose to remain in a contractual relationship; by
the same token, parties may sometimes elect to exercise their
right to terminate even though the contractual relationship could
perhaps be salvaged. 6 But as long as the party has an express
and objectively determined right to terminate, and absent the
elements of legal waiver being met, see, e.g., Mounteer Enters., Inc.
v. Homeowners Ass’n for the Colony at White Pine Canyon, 2018 UT
23, ¶ 17, 422 P.3d 809, that party may exercise that right, and its
motives for doing so are irrelevant, despite the existence of the
implied covenant, see Load Zone, 2014 UT App 194, ¶ 17. To hold

6. The parties’ decision to use the word “discretion” in the
section of the Agreement setting forth LifeVantage’s range of
remedies in the event of Backbone’s breach does not change the
analysis. In this case, the Agreement expressly provided
LifeVantage with the option, in the event of Backbone’s breach,
to select—at its “discretion”—any one of several remedies,
including “[c]ancellation” of the Agreement. There is no need for
implication of an objective reasonableness standard here,
because the Agreement gives LifeVantage a clearly defined and
limited right. See Smith v. Grand Canyon Expeditions Co., 2003 UT
57, ¶ 20, 84 P.3d 1154 (stating that “the degree to which a party
to a contract may invoke the protections of the covenant turns on
the extent to which the contracting parties have defined their
expectations and imposed limitations on the exercise of
discretion through express contract terms”). Indeed, even if the
only options LifeVantage had in the event of Backbone’s breach
were to choose to terminate or elect not to, the analysis would
not be different; parties generally have discretion to waive or
postpone the exercise of an objectively determined right to
terminate, and the implied covenant does not justify an inquiry
into a party’s motive for exercising (or not exercising) that right.

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                Backbone Worldwide v. LifeVantage

otherwise would allow the covenant to displace or vary express
contractual rights, something our cases forbid. See, e.g., Oakwood,
2004 UT 101, ¶ 45. Accordingly, the implied covenant is no bar in
this case to LifeVantage’s lawful exercise of its right to terminate
the Agreement.

                                 2

¶25 Backbone next argues that LifeVantage was not
permitted to terminate the Agreement because LifeVantage
materially breached the Agreement first, and therefore,
termination was in violation of Utah’s first breach rule. Pursuant
to that rule, “a party first guilty of a substantial or material
breach of contract cannot complain if the other party thereafter
refuses to perform.” Bonneville Distrib. Co. v. Green River Dev.
Assocs., Inc., 2007 UT App 175, ¶ 32, 164 P.3d 433 (quotation
simplified). The first breaching party “can neither insist on
performance by the other party nor maintain an action against
the other party for a subsequent failure to perform.” Id.
(quotation simplified).

¶26 Backbone is not a candidate for invocation of the first
breach rule because, in this case, it is undisputed that Backbone
was the first party to breach the Agreement. Backbone first
rolled out the Website in June 2009, while LifeVantage did not
stop paying Backbone until October 2009. Since the first breach
rule—even if it otherwise applied here on these facts, something
we stop short of deciding 7—could only aid Backbone if
LifeVantage breached first, see id., it does not apply here. 8

7. LifeVantage argues that there exists another ground upon
which the first breach rule is inapplicable in this case, and the
district court’s ruling espoused this alternative argument. We do
not need to reach the merits of this alternative argument,
                                                     (continued…)

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                 Backbone Worldwide v. LifeVantage

¶27 Because neither the implied covenant nor the first breach
rule imposed a legal bar to LifeVantage’s termination of the
Agreement, we conclude that the district court did not err in
entering summary judgment in favor of LifeVantage on
Backbone’s claims for breach of contract and for breach of the
implied covenant of good faith and fair dealing.

                                 B

¶28 Finally, Hedges argues that the district court erred by
granting summary judgment in favor of LifeVantage on the issue
of conversion. Specifically, Hedges asserts that the court erred by
not drawing what he deems a reasonable inference in his favor,
namely, that LifeVantage “changed its mind” about the Second
Amendment and intentionally gave Hedges the stock in lieu of
the Support Payments it owed, despite his refusal to sign the
Second Amendment. We are not persuaded.

¶29 To prevail on appeal, an appellant “must explain, with
reasoned analysis supported by citations to legal authority and
the record, why the party should prevail on appeal.” Utah R.
App. P. 24(a)(8); see also Andersen v. Andersen, 2015 UT App 260,
¶ 6, 361 P.3d 698 (discussing appellant’s burden on appeal).
Hedges devotes less than two pages of his opening brief to this

(…continued)
because of our determination that Backbone cannot avail itself of
the first breach rule given that it is the party that breached first.

8. Backbone also argues that its breaches involving the Website
were not “material” breaches sufficient to be considered the
“first” breach. We find this argument unconvincing, because the
Agreement expressly states that “any breach” is sufficient to
trigger the right to terminate, and is therefore material under the
terms of the Agreement.

20180038-CA                     17                 2019 UT App 80
                 Backbone Worldwide v. LifeVantage

topic, and his arguments fail to persuade us because they lack
the “reasoned analysis supported by citations to legal authority
and the record” crucial to satisfying the burden. See Utah R.
App. P. 24(a)(8). Hedges cites only one case—Poteet v. White,
2006 UT 63, 147 P.3d 439—in his conversion analysis, a case that
supports his argument that, as a nonmovant, he is entitled to
have reasonable inferences drawn in his favor. But no
conversion claim was at issue in Poteet, and Hedges does not
provide this court with so much as a list of the elements of
conversion, much less a reasoned analysis of how any reasonable
inference in his favor would defeat summary judgment on any
of the elements of a conversion claim.

¶30 Hedges’s citations to the factual record are similarly bereft
of substance. In his opening brief, Hedges cites only to the
district court’s decision on the issue of conversion and his own
pleadings. In his reply brief, he adds only two citations to the
record, one to his own deposition testimony and one to an
account statement from Transfer Agent evidencing the fact that a
stock certificate was issued. None of this evidence provides a
foundation for inferring LifeVantage’s intent, if any, in issuing a
stock certificate in Hedges’s name. Although a nonmoving party
is “entitled to all favorable inferences, he is not entitled to build a
case on the gossamer threads of whimsy, speculation and
conjecture.” Ladd v. Bowers Trucking, Inc., 2011 UT App 355, ¶ 7,
264 P.3d 752 (quotation simplified). The scant evidence Hedges
cites leaves us only to “theoriz[e] about matters over which there
is no certain knowledge.” See Heslop v. Bear River Mutual Ins. Co.,
2017 UT 5, ¶ 22, 390 P.3d 314 (quotation simplified).

¶31 Because Hedges does not supply us with an evidentiary
foundation from which to draw a relevant inference in his favor,
nor the legal framework under which to analyze the implications
of that inference, he fails to carry his burden of demonstrating
that the court committed error in entering summary judgment in
LifeVantage’s favor on its counterclaim for conversion.

20180038-CA                      18                 2019 UT App 80
                 Backbone Worldwide v. LifeVantage

                          CONCLUSION

¶32 Because LifeVantage terminated its contract with
Backbone only after Backbone committed objective, defined, and
undisputed breaches, the district court was correct to not
question its motives for doing so. And because Backbone
committed some of those undisputed breaches before
LifeVantage ceased making the Support Payments, Backbone
cannot avail itself of the first breach rule. The court therefore did
not err in granting summary judgment in favor of LifeVantage
on Backbone’s claims for breach of contract, including any claim
for breach of the implied covenant of good faith and fair dealing.
And Hedges has not carried his burden of persuading us that the
district court erred in granting summary judgment in favor of
LifeVantage on the conversion counterclaim.

¶33    Affirmed.

20180038-CA                     19                 2019 UT App 80