Pearce v. Purple Innovation

2025 UT App 45

THE UTAH COURT OF APPEALS

TERRY V. PEARCE AND TONY M. PEARCE,
Appellants,
v.
PURPLE INNOVATION, INC.,
Appellee.

Opinion
No. 20240032-CA
Filed April 3, 2025

Fourth District Court, Provo Department
The Honorable Robert C. Lunnen
No. 220401958

Cameron M. Hancock, Justin W. Starr, Michael A.
Eixenberger, Christopher A. Bates, and Hilary R.
Adkins, Attorneys for Appellants
C. Michael Judd and Elena T. Vetter,
Attorneys for Appellee

JUDGE RYAN D. TENNEY authored this Opinion, in which
JUDGES DAVID N. MORTENSEN and JOHN D. LUTHY concurred.

TENNEY, Judge:

¶1 This appeal involves a contract dispute between Terry
Pearce and Tony Pearce (the Pearces), who are brothers, and
Purple Innovation, Inc. (Purple), a mattress company that the
Pearces founded and owned for many years. In February 2018,
Purple was acquired by an outside entity. As part of that process,
the Pearces each signed an agreement under which they would
retain positions within the company and would continue
receiving salaries for a period of time. The agreement also entitled
them to receive lump-sum payments of their remaining salaries if
they left Purple under certain defined circumstances. In August
2020, the Pearces resigned from their positions, and shortly
Pearce v. Purple Innovation

thereafter, they requested their lump-sum payments. Purple
believed that the Pearces’ departures did not trigger the lump-
sum payment provision, however, so it denied their requests.

¶2 The Pearces sued for breach of contract, but the district
court granted Purple’s motion to dismiss the complaint. The
Pearces now appeal that decision. For the reasons set forth below,
we reverse.

BACKGROUND 1

The Employment Agreement and the Exchange Agreement

¶3 The Pearces are co-founders of Purple, a company that
manufactures mattresses, pillows, seat cushions, and other
products. The Pearces also created and controlled InnoHold, LLC
(InnoHold), and InnoHold was the “historic majority and
controlling owner” of Purple. While Purple was initially a
privately held company, its rapid growth prompted the Pearces
to pursue a public offering through merger.

¶4 On February 2, 2018, Global Partner Acquisition Corp.
(GPAC) entered into a merger agreement with Purple with plans
to take Purple public. Two agreements that were part of that
process were signed on that same day, and both end up mattering
for this appeal.

¶5 The Employment Agreement. First, the Pearces each
signed what’s been referred to as “the Employment Agreement,”

1. “On appeal from a motion to dismiss, we review the facts only
as they are alleged in the complaint. We accept the factual
allegations as true and draw all reasonable inferences from those
facts in a light most favorable to the plaintiff.” Willow Creek Assocs.
of Grantsville LLC v. Hy Barr Inc., 2021 UT App 116, n.1, 501 P.3d
1179 (quotation simplified).

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and Purple was the other side to that agreement. Under the
Employment Agreement, the Pearces were appointed as Co-
Directors of Research and Development for Purple, and they were
each provided with certain benefits moving forward. These
included $300,000 per year in salary, with that amount increasing
by $20,000 per year for a period of four years, renewable for one-
year terms thereafter; health benefits; retirement plans; office
space at Purple’s headquarters; an agreement that the Pearces
could work from any location; and an agreement that the Pearces
would not be required to work any particular number of hours.

¶6 The Employment Agreement also included a clause stating
that if the Pearces’ employments were “terminated” “by [the
Pearces] with Good Reason,” they would each be entitled to “a
one-time immediate lump sum of 100% of the remaining [s]alary
and benefits” that they would have been paid from the
termination date to the end of the relevant employment period. 2
The phrase “Good Reason” was defined in various ways,
including the Pearces’ “resignation following a Change of
Control.” The phrase “Change of Control” was then defined in
various ways, one of which was “a change in ownership or control
of [Purple] . . . effected through . . . any transaction or series of
related transactions to which [Purple] is a party in which excess
of 50% of [Purple’s] voting power is transferred.”

¶7 The Exchange Agreement. Purple and InnoHold also
agreed to what’s been referred to in this litigation as “the
Exchange Agreement.” Under Purple’s corporate structure, there
were two kinds of stock—Class A stock, which included both

2. If the terminations occurred during the initial four-year period,
the Pearces would each receive a lump-sum of the remaining
salary for that four-year period, but if the termination occurred
during a subsequent one-year renewable term, they would each
receive a payment for the amount owed for the remainder of the
“calendar year in which the Termination Date occurred.”

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voting rights and economic rights (i.e., the rights to receive
dividends and distributions), and Class B stock, which included
voting rights but no economic rights. According to the Exchange
Agreement, a holder of Class B stock could exchange one “Class
B unit” plus “one share of Class B stock” for one share of “Class A
stock.” It further provided that when a “Class B Holder
exercise[ed] its right to an [e]xchange,” Purple was required to
“take such actions as may be required to ensure that such Class B
Holder receives the shares of Class A Stock that such exchanging
Class B Holder is entitled to receive in connection with such
Exchange.” The Exchange Agreement also gave Purple the option
of providing the shareholder with a defined cash payment instead
of a share of Class A stock.

The Informal Agreement

¶8 At some point after GPAC’s acquisition, the Pearces and
Purple entered into what the Pearces later referred to in their
amended complaint as the “informal agreement.” But although
the Pearces described this as being an “informal” agreement, they
also alleged that this agreement was formal enough that it was
presented to and “approved by the Purple board of directors.”

¶9 The informal agreement had to do with the size of Purple’s
“public float.” As explained and alleged in the Pearces’ amended
complaint, a company’s “public float” refers to the number of
shares that are available for public trading that are not controlled
by insiders, shareholders, or employees. A “stock with a small
public float will generally be more volatile than a stock with a
large float,” because “with fewer shares available, it may be
harder to find a buyer or seller,” which “results in larger spreads
and lower trading volume.” Conversely, “[c]ompanies with a
large volume of floating stocks are preferred by institutional
investors” because “they can buy or sell large numbers of shares
without influencing the stock price much.”

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Pearce v. Purple Innovation

¶10 After the GPAC merger, “InnoHold held approximately
44,071,318 shares of Class B Stock of Purple, which equated to
approximately an eighty-two percent (82%) ownership interest
and voting power in Purple.” Purple wanted to reduce the
number of shares held by the Pearces (through InnoHold) because
this would “improve [Purple’s] liquidity and float.” So Purple
accordingly “asked the Pearces to sell their shares (and
InnoHold’s shares) to increase Purple’s public float stock.” In the
informal agreement, the Pearces agreed to do so.

The Pearces’ Stock Transactions and Subsequent Requests for Lump-
Sum Payments

¶11 But there was a problem. Although the Pearces had
“agreed to sell their shares,” they “could only legally or price-
effectively sell certain amounts each time, i.e., the Pearces could
not sell the majority of their Purple stock in one sale.” To get
around these impediments, the Pearces “agreed to sell their shares
through a series of related transactions.” These transactions
occurred from mid-2019 through mid-2020, and they were
accomplished in three groups.

¶12 First, from June through August 2019, the Pearces
distributed 2,512,617 shares of Class B stock, which amounted to
about 4.7% of the ownership of Purple, to certain Purple
employees, and those employees then exchanged those shares for
Class A shares, after which they sold them. In the amended
complaint, the Pearces later alleged that “Purple orchestrated”
these transfers, in particular the “exchange[s]” that were
conducted “pursuant to the Exchange Agreement,” and they
further alleged that the subsequent “sale of these shares to the
public” by the employees “increased the publicly tradeable shares
of Purple,” thereby “benefit[ting]” Purple.

¶13 Second, from November 2019 through June 2020, the
Pearces sold 23,907,777 shares of their stock, which amounted to
approximately 44.5% of the ownership in Purple. These sales

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Pearce v. Purple Innovation

occurred in a series of transactions that were conducted through
two agreements with underwriters, wherein the underwriters
agreed to purchase the Pearces’ shares at certain prices and then
sell those shares to the public. Purple was a party to each of the
agreements with the underwriters—its chief executive officer
signed both of the underwriting agreements—and the Pearces,
through InnoHold, were parties to the underwriting agreements
as well. Both underwriting agreements stipulated how many
shares each underwriter would receive; how many shares Purple,
InnoHold, or the Pearces would sell; as well as the price per share.
Both agreements expressly provided that the Pearces would be
selling “Class A Common Stock,” so to effectuate these
transactions, the Pearces exchanged their Class B shares for Class
A shares pursuant to the terms of the Exchange Agreement. In
their amended complaint, the Pearces alleged that “Purple
orchestrated, assisted with, or facilitated” these transactions to
increase its “market float.”

¶14 Third, in December 2019, InnoHold transferred 900,474
shares of stock, representing around 1.7% ownership in Purple, to
a “donor advised fund,” which was a charitable investment
account. As with the other transactions, “Purple orchestrated,
assisted with, or facilitated” this offering to increase its “market
float.”

¶15 As a combined result of these three groups of transactions,
the Pearces’ ownership in Purple (through InnoHold) was
reduced from approximately 82% to 31%.

¶16 In August 2020, the Pearces resigned from their positions
with Purple. In October 2020, they requested lump-sum payments
of their remaining salaries, asserting that they were entitled to
these payments under the “Good Reason” and “Change of
Control” provisions from the Employment Agreement. Purple
declined, asserting that these provisions did not apply because the
Pearces had sold or distributed their own shares through

20240032-CA 6 2025 UT App 45
Pearce v. Purple Innovation

“voluntary secondary offerings” and because Purple “was not a
party to those sales transactions.” (Emphasis omitted.)

Procedural History

¶17 The Pearces sued Purple for breach of contract, including a
claim for breach of the covenant of good faith and fair dealing.
They sought “at least $500,000 in remaining [s]alary owed to each
under the Employment Agreement[],” as well as consequential
damages, interest, costs, and attorney fees. In the amended
complaint that ultimately drove the litigation, the Pearces set forth
the allegations described above. Of some note, the Pearces alleged
that the three groups of transactions described above were each
“dependent upon and subject to the Exchange Agreement, to
which Purple was a party,” and they further alleged that these
transactions were “completed in accordance with” the informal
agreement “between the Pearces and Purple to increase float and
reduce the Pearces’ ownership interest.” The Pearces thus alleged
that

Purple was “a party” to a “transaction” or a “series
of related transactions” because it was a party to the
Exchange Agreement which outlined the terms of
the predicate transactions to obtain the shares of
Purple, agreed to work with the Pearces/InnoHold
to sell their shares to increase float, among other
things, entered into agreements with [the
underwriters] to sell the newly available Purple
shares to institutional investors, and also led the
efforts to orchestrate the underwritten offerings.

¶18 Purple later filed a motion to dismiss pursuant to rule
12(b)(6) of the Utah Rules of Civil Procedure, asserting that under
the terms of the Employment Agreement, the Pearces were not
entitled to the lump-sum payments because, in relevant part,
(1) the series of transactions through which the Pearces sold or
distributed their shares were not “related” and (2) Purple was not

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Pearce v. Purple Innovation

a party to the particular transactions in which the Pearces actually
sold their shares.

¶19 After briefing and argument, the district court granted
Purple’s motion. In its written decision, the court concluded that
even under the facts alleged by the Pearces in their amended
complaint, the Pearces were not entitled to relief. In the court’s
view, the plain language of the Employment Agreement
supported only one “reasonable” interpretation—namely, that
the “Change of Control” provision did not apply because Purple
was not a “party” to any of the particular transactions through
which the Pearces sold or distributed their shares, which the court
concluded were unrelated or “collateral” transactions. As part of
this decision, the court determined that for purposes of the
“Change of Control” provision, the term “party” referred to “the
buyer or the seller (or, in the case of a transfer, the transferor and
the transferee) of the stock at issue.” (Emphases in original.) The
court accordingly dismissed the Pearces’ amended complaint
with prejudice.

ISSUE AND STANDARD OF REVIEW

¶20 The Pearces appeal the district court’s decision to grant
Purple’s rule 12(b)(6) motion to dismiss. “The propriety of a trial
court’s decision to grant or deny a motion to dismiss under rule
12(b)(6) of the Utah Rules of Civil Procedure is a question of law
that we review for correctness.” Muir v. Wasatch Front Waste
& Recycling Dist., 2024 UT App 48, ¶ 11, 547 P.3d 863 (quotation
simplified). In reviewing such a ruling, “we accept all facts alleged
as true, and indulge all reasonable inferences in favor of the
plaintiff.” Id. (quotation simplified).

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Pearce v. Purple Innovation

ANALYSIS

¶21 “After a complaint has been filed, a defendant may move
under rule 12(b)(6) of the Utah Rules of Civil Procedure to have
the complaint dismissed for failure of the pleading to state a claim
upon which relief can be granted.” HKS Architects Inc. v. MSM
Enters. LTD, 2021 UT App 70, ¶ 19, 496 P.3d 228 (quotation
simplified). Importantly, “rule 12(b)(6) concerns the sufficiency of
the pleadings, not the underlying merits of a particular case.” Val
Peterson Inc. v. Tennant Metals Pty. Ltd., 2023 UT App 115, ¶ 21, 537
P.3d 660 (quotation simplified). A dismissal under rule 12(b)(6) is
“a severe measure and should be granted by the trial court only if
it is clear that a party is not entitled to relief under any state of
facts which could be proved in support of its claim.” HKS
Architects, 2021 UT App 70, ¶ 19 (quotation simplified). In other
words, “a motion to dismiss should be granted only if, assuming
the truth of the factual allegations in the complaint and drawing
all reasonable inferences therefrom in the light most favorable to
the plaintiff, it is clear that the plaintiff is not entitled to relief.” Val
Peterson, 2023 UT App 115, ¶ 21 (quotation simplified).

¶22 The Pearces’ claims turn on the meaning of certain
provisions within the Employment Agreement. 3 “When
interpreting a contract, a court first looks to the contract’s four
corners to determine the parties’ intentions, which are
controlling.” Elder v. Elder, 2024 UT App 68, ¶ 17, 550 P.3d 488
(quotation simplified). “If the language within the four corners of
the contract is unambiguous, the parties’ intentions are

3. The Pearces pleaded causes of action for both “Breach of
Contract” and “Breach of the Covenant of Good Faith and Fair
Dealing.” Purple’s motion to dismiss asked the court to dismiss
both “claims,” but it did not meaningfully differentiate between
the two, and the court’s ruling dismissed both without
differentiation. Neither party has asked us to treat them
differently on appeal.

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determined from the plain meaning of the contractual language,
and the contract may be interpreted as a matter of law.” Vierig v.
Therriault, 2023 UT App 67, ¶ 13, 532 P.3d 568 (quotation
simplified), cert. denied, 537 P.3d 1013 (Utah 2023). Our analysis of
such questions is “guided by the ordinary and usual meaning of
the words,” and “when assessing such meaning, we often look to
standard, non-legal dictionaries.” Willow Creek Assocs. of
Grantsville LLC v. Hy Barr Inc., 2021 UT App 116, ¶ 42, 501 P.3d
1179 (quotation simplified).

¶23 The district court concluded that the language at issue was
unambiguous. The question of “whether contract language is
ambiguous is a question of law,” Ostler v. Department of Public
Safety, 2022 UT App 6, ¶ 32, 505 P.3d 1119 (quotation simplified),
and we owe no deference to the court’s determination, see UDAK
Props. LLC v. Canyon Creek Com. Center LLC, 2021 UT App 16, ¶ 13,
482 P.3d 841. This is so because a district court is “in no better
position than is this court to interpret” contractual language. Level
3 Commc’ns, LLC v. Public Service Comm’n, 2007 UT App 127, ¶ 11,
163 P.3d 652. “A provision of a contract is not rendered
ambiguous by the bare existence of competing interpretations of
it. Instead, a provision is ambiguous if it is capable of more than
one reasonable interpretation because of uncertain meanings of
terms, missing terms, or other facial deficiencies.” Vierig, 2023 UT
App 67, ¶ 14 (quotation simplified). Simply put, “a contract is
ambiguous if the language of the contract is reasonably capable of
being understood in more than one sense.” Haynes v. Department
of Public Safety, 2020 UT App 19, ¶ 9, 460 P.3d 565 (quotation
simplified). “[A] reasonable interpretation is an interpretation
that cannot be ruled out, after considering the natural meaning of
the words in the contract provision in context of the contract as a
whole, as one the parties could have reasonably intended.” Brady
v. Park, 2019 UT 16, ¶ 55, 445 P.3d 395.

¶24 If the language at issue is ambiguous, then the district court
should not grant a motion to dismiss. See Haynes, 2020 UT App 19,

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Pearce v. Purple Innovation

¶ 12 (holding that because of a “plausible claim of ambiguity” in
the language of a settlement agreement, “dismissal under rule
12(b)(6) was premature”). Instead, at that point, “the intent of the
parties becomes a question of fact upon which parol evidence of
the parties’ intentions should be admitted.” Ostler, 2022 UT App
6, ¶ 31 (quotation simplified); see also E & H Land, Ltd. v.
Farmington City, 2014 UT App 237, ¶ 21, 336 P.3d 1077 (reversing
the district court’s grant of summary judgment after finding that
the pertinent contract language “seem[ed] to support two or more
plausible meanings” (quotation simplified)).

¶25 As discussed above, the Pearces were contractually
entitled to lump-sum payments of their remaining salaries if they
resigned following a “Change of Control,” and the phrase
“Change of Control” was then contractually defined as including

any transaction or series of related transactions to
which [Purple] is a party in which in excess of 50%
of [Purple’s] voting power is transferred.

¶26 The Employment Agreement did not contain definitions
for many of the key terms or phrases from this provision,
including “transaction,” “series of related transactions,” “party,”
or “in excess of 50% of [Purple’s] voting power is transferred.” In
the litigation below and again on appeal, the parties have
presented markedly different interpretations of what these terms
and phrases mean and how they function together within this
contract.

¶27 Purple’s interpretation is straightforward enough. Purple
contends that because the provision refers to a transfer of Purple’s
“voting power” through “any transaction or series of related
transactions to which [Purple] is a party,” the only transactions that
matter are the particular transactions in which the Pearces
actually sold or distributed their shares. (Emphasis added.)
Purple then contends that in the context of this provision, the term
“party” referred to only “the buyer or the seller (or, in the case of a

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Pearce v. Purple Innovation

transfer, the transferor and the transferee) of the stock at issue.”
(Emphases in original.) While acknowledging, as it must, that the
provision also incorporates “related transactions,” Purple
contends that “[t]o be ‘related,’ transactions need to involve the
same or similar parties, need to have been effected by the same
instrument (or set of linked instruments), and need to take place
in close temporal proximity to one another.” Because Purple was
not a party to the particular transactions in which the Pearces’
shares were sold, Purple claims that the “Change of Control”
provision was not triggered. As noted, the district court
concluded that this interpretation was the only reasonable one,
and it granted Purple’s motion to dismiss on this basis.

¶28 But as explained, the district court should have denied the
motion if the Pearces’ interpretation could not “be ruled out, after
considering the natural meaning of the words in the contract
provision in context of the contract as a whole, as one the parties
could have reasonably intended.” Brady, 2019 UT 16, ¶ 55. And
again, when reviewing their interpretation, we must accept the
allegations from their amended complaint as true. See Val Peterson,
2023 UT App 115, ¶ 21.

¶29 The Pearces’ interpretation essentially operates on two
interrelated fronts.

¶30 The first has to do with the term “party.” The Pearces stress
that under the allegations of the amended complaint, Purple was
a party to the informal agreement, which was apparently
important enough to warrant approval by Purple’s board of
directors. The Pearces alleged and now argue that this informal
agreement was the very thing that set in motion the entire
sequence of transactions through which they sold or distributed
their shares. The Pearces also point out that Purple was a party to
the Exchange Agreement. As detailed above, they alleged that the
Exchange Agreement played a central role in their ability to sell
their shares, because it provided the terms by which the Class B

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Pearce v. Purple Innovation

units and shares of Class B stock were exchanged for more
marketable shares of Class A stock. And the Pearces further point
out that Purple was a party (indeed, a signatory) to the
underwriting agreements through which the Pearces actually sold
the bulk of their shares.

¶31 Second, the Pearces emphasize the “Change of Control”
provision was broad enough to include a “series of related
transactions.” (Emphasis added.) The Pearces point out that in
common parlance, the term “related” refers to things that are
“connected by reason of an established or discoverable relation.” 4
And here, the Pearces again stress the centrality of the informal
agreement to their claims. As set forth in the amended complaint,
they sold or distributed their shares because of this agreement,
and they further alleged that this agreement was initiated at
Purple’s request. The Pearces also again point out that the
Exchange Agreement was at the center of the various sales
because (1) it allowed them (or, in some instances, the employees
who received the distributions) to convert Class B units and stock
into more marketable Class A stock, and (2) in the various
transactions, Purple chose to allow the exchanges to go forward,
thereby facilitating the sales, as opposed to exercising its rights to
simply cash out the Class B shares once the shareholder invoked
its rights under the Exchange Agreement. 5 And finally, the
Pearces point out that with respect to the sales that were
accomplished through the underwriters, Purple itself directly

4. Related, Merriam-Webster, https://www.merriam-webster.com
/dictionary/related [https://perma.cc/3K2V-XD64]; see also Related,
Black’s Law Dictionary (12th ed. 2024) (defining the term
“related” to mean “[c]onnected in some way; having relationship
to or with something else”).

5. Though a touch unclear, it’s at least reasonable to infer that this
may have been one of the reasons that the informal agreement
required approval by Purple’s board of directors.

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contracted with the underwriters and then played key roles in
“orchestrat[ing]” and “facilitat[ing]” the transactions.

¶32 Having considered the matter, we conclude that both sides
have put forward reasonable interpretations of the “Change of
Control” provision from the Employment Agreement. It could be
the case, as Purple contends, that the only thing that mattered for
purposes of this provision were the particular transactions in
which the shares were actually sold. But the Pearces’
interpretation is reasonable too. They’ve alleged that all of the
sales or distributions were initiated pursuant to an express (albeit
“informal”) agreement with Purple, that all of the sales or
distributions were “dependent upon and subject to” particular
actions by Purple pursuant to its rights under the Exchange
Agreement (an agreement to which Purple was also a party), that
a large number of these sales were accomplished through
underwriting agreements (agreements to which Purple was also
a party), and that Purple “orchestrated” the various transactions.
Given the interrelated connections between Purple, its own
agreements, its own conduct, and the subsequent sales of the
Pearces’ shares, the Pearces have put forward a reasonable
interpretation of the Employment Agreement under which the
“related transactions” provision was satisfied.

¶33 In an attempt to forestall this outcome, Purple argues that
the Pearces’ interpretation is unreasonable in light of the alleged
purpose for the “Change of Control” provision. In Purple’s view,
this provision was intended to protect the Pearces from outside
circumstances that changed Purple’s corporate ownership, as
opposed to the transactions at issue here, which were within the
Pearces’ control. We see the point, and it’s possible that the
evidence might bear this out. But the Pearces dispute that this was
actually the purpose behind this provision. And more to the point,
the question at this stage is simply whether each side has put
forward a “reasonable interpretation” of the contract’s language.
Vierig, 2023 UT App 67, ¶ 14 (quotation simplified). If they have,

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“the intent of the parties becomes a question of fact upon which
parol evidence of the parties’ intentions should be admitted.”
Haynes, 2020 UT App 19, ¶ 11 (quotation simplified).

¶34 For the reasons set forth above, we conclude that the
Pearces have put forward a reasonable interpretation of this
contract. Because of this, the question of intent and how it should
impact the interpretation of this contract is one for which the court
should take evidence. The court therefore erred by granting the
motion to dismiss.

CONCLUSION

¶35 We reverse the district court’s decision granting Purple’s
motion to dismiss, and we remand for further proceedings
consistent with this opinion.

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