Summary
The Utah Supreme Court held that the Utah Revised Limited Liability Company Act does not displace common law contract and fiduciary-duty claims between limited liability company members. The court further held that the LLC Act's equitable dissolution and accounting procedures are not exclusive remedies, and that a jury could determine ownership percentages and factual issues underlying related equitable claims before any accounting or dissolution proceeding.
Topics
Practice areas
Questions Presented
- Whether the Utah Revised Limited Liability Company Act displaced or exclusively governed common-law contract, repudiation, good-faith, and fiduciary-duty claims between LLC members.
- Whether a member pursuing common-law damages was required to obtain an accounting, calculate capital accounts, or complete judicial dissolution under the LLC Act before recovering damages.
- Whether the jury properly determined factual issues concerning LLC ownership and equitable defenses before the district court addressed equitable claims and remedies.
Holdings
- The LLC Act does not generally preempt or displace common-law claims, including repudiation, breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty, asserted by one LLC member against another member or related parties.
- The LLC Act's dissolution, expulsion, accounting, and winding-up remedies do not foreclose additional legal remedies, and the court declines to apply an exclusivity rule requiring LLC members to pursue an accounting or dissolution before asserting legal claims for damages.
- An LLC member may sue another member for repudiating the LLC agreement without formal dissolution and winding up. When legal and equitable issues depend on the same operative facts, the jury must decide the legal issue first, and its factual findings bind the trial court on the parallel equitable issues.
Key quotations
“members of a limited liability company may choose either to pursue common law claims, or to dissolve the company under the LLC Act and recover their interest in the company after an accounting and winding up.” (¶ 14)
“Therefore, we hold that the LLC Act does not abrogate common law claims nor does the exclusivity rule apply to limit disputes among members to equitable remedies.” (¶ 19)
“when legal and equitable issues turn on the same operative facts, a jury must decide the legal issue first[, and] the jury's factual determination binds the trial court in its determination of the parallel equitable issue.” (¶ 26)
Factual background
Wilson and Burningham formed OLP, LLC to purchase and operate an optical lens-coating machine, contributing equal amounts of cash and orally agreeing to equal control, ownership, profits, and losses. Their relationship deteriorated over the allocation of clients, profits, and additional funds contributed by Burningham's company. Burningham ultimately repudiated the parties' agreement and converted OLP assets, leading Wilson to sue and a jury to award him more than $1.2 million in compensatory damages.
Procedural history
Wilson sued Burningham and Intermountain Coatings for repudiation, breach of contract, breach of fiduciary duty, and related claims, and sought an accounting. The district court found the company effectively dissolved, but bifurcated the legal and equitable claims and submitted the contract and fiduciary-duty claims to a jury. The jury found for Wilson and awarded more than $1.2 million in compensatory damages. The Utah Court of Appeals affirmed, and the Utah Supreme Court granted certiorari and affirmed the court of appeals.