Summit Water Distribution Company accuses founder, others of misappropriating nearly $18 million
August 23, 2018
The Summit Water Distribution Company filed a multi-million dollar lawsuit last week against the estate of one of its founders and several others, claiming they misappropriated nearly $18 million in funds.
The Snyderville Basin water company filed the 19-page lawsuit in Summit County's 3rd District Court on Aug. 17. The suit names as defendants the estate of Leon "Hy" Saunders, the founder of SWDC who died in July; his son Brody Saunders, an SWDC board member; Stuart Knowles, a longtime member of SWDC board; a firm called Trilogy Limited, LP; John S. Flitton, a company shareholder; and a firm called Flitton & Glick, P.C.
Leon Saunders founded SWDC in 1979 and served as its president until April of 2015 and held the largest chunk of the company's development shares, the lawsuit states. When he resigned from the board of directors in 2015, his son, Brody, was appointed to fill the vacated seat and represent a trust into which Leon Saunders had transferred his interest in SWDC. Knowles, a longtime board member, was the second largest development shareholder and transferred his stocks to Trilogy Limited, according to the suit.
The lawsuit accuses Leon Saunders of authorizing the sale of 311 shares of stock to the Weber Basin Water Conservancy District in 2010 and never disclosing the transaction to the SWDC board. The Weber Basin Water Conservancy District issued a check to SWDC in the amount of roughly $4.9 million, but the funds were never deposited into the SWDC's accounts and were, instead, distributed to Leon Saunders and Trilogy Limited, the lawsuit claims. The lawsuit also states Brody Saunders and Knowles signed a confidentiality agreement related to the sale and that the check from the transaction was deposited into an account of Flitton & Glick, P.C. before being distributed to Leon Saunders and Trilogy Limited. Flitton recorded the bill of sale with the county recorder, according to the suit.
The lawsuit further alleges $13 million from the 2013 sale of a SWDC treatment plant to the Weber Basin Water Conservancy District were also distributed to Saunders and Trilogy Limited, and that the SWDC never received any of the proceeds.
Attorney Shawn E. Draney is representing Trilogy Limited, Knowles and Brody Saunders. Draney said in an email statement the Saunders family is in the process of having a personal representative appointed for Leon Saunders' estate. The statement further says an estate cannot be sued or have counsel until a personal representative is appointed.
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"All of the information available to us so far substantiates our belief that the claims are without merit and are time barred," the statement read. "A response to the company's complaint will be filed within the time provided under the rules."
When SWDC hired new management in 2015, the new officers began reviewing past transactions made under the leadership of Leon Saunders, Brody Saunders and Knowles. The suit claims the three refused to vote on issues related to the investigation of the transactions and "continued adverse domination of the board and of voting shares." The suit accuses Knowles, Brody Saunders and Leon Saunders of breach of fiduciary duty. Flitton, an attorney and shareholder of Flitton & Glick P.C., represented Leon Saunders, Knowles and SWDC, the suit states, and is accused of legal malpractice.
SWDC is seeking a judgment of not less than roughly $17.9 million from the defendants.
The water company currently serves 4,400 connections between the top of Parley's Canyon and Canyons Village at Park City Mountain Resort, with users and businesses in the Jeremy Ranch, Kimball Junction and Trailside areas. Other neighborhoods and businesses are also served through the water company.
Attempts to contact the other defendants were unsuccessful.