Blanch v. Farrell

436 P.3d 285

Claude C. BLANCH, Appellant,

v.Jan FARRELL, Marilyn Royce, Donene Briscoe, and Barbara Stuart, Appellees.

No. 20160792-CA

Court of Appeals of Utah.

Filed September 7, 2018

Jason M. Yancey, Layton, Richard W. Jones, Ogden, Taylor R. Jones, Bryce M. Froerer, and Zane S. Froerer, Ogden, Attorneys for Appellant

Paul K. Bachman and Dana T. Farmer, Ogden, Attorneys for Appellees

Judge Jill M. Pohlman authored this Opinion, in which Judges Kate A. Toomey and David N. Mortensen concurred.

Opinion

POHLMAN, Judge:

¶1 Claude C. Blanch, Jan Farrell, Marilyn Royce, Donene Briscoe, and Barbara Stuart are all equal members of a dissolved member-managed limited liability company named Five Blanch Property LLC (the Company). When four of the five members agreed to list certain assets for sale as part of the Company’s winding up, Blanch objected, filing a petition opposing the sale and seeking to partition one-fifth of the assets for himself. The district court dismissed Blanch’s petition with prejudice. Blanch appeals, and we affirm.

BACKGROUND¹

¶2 The family of the parties—Blanch, Farrell, Royce, Briscoe, and Stuart—historically owned certain assets, including real property in Weber County, Utah, and a number of shares in an irrigation company (collectively, the Assets). In 2005, the Assets were conveyed to the Company, a then newly formed, member-managed limited liability company.

¶3 Each party is an equal member of the Company. Though the Company never executed an operating agreement, its articles of organization stated that the Company would exist for three years, during which time the members were to meet and determine how to manage the Assets. The members held meetings, but they never agreed on the management of the Assets.

¶4 In 2008, the Company expired with the Assets still titled in its name. Since its dissolution, however, the Company has not wound up its affairs or distributed the Assets. In October 2015, as part of its winding up, all of the Company’s members except Blanch voted to list the Assets for sale.

¶5 Shortly thereafter, Blanch filed suit against Farrell, Royce, Briscoe, and Stuart (collectively, Appellees). Blanch petitioned the court to stop the sale of the Assets and to carve out his twenty-percent interest so that he could keep that portion in his name. As an exhibit to his original petition, Blanch attached a document titled, "Written Consent of More Than 2/3 of the Members of [the Company]" (the Written Consent).

¶6 The Written Consent was signed in October 2015 by Appellees, who together held an eighty-percent interest in the Company. In its recitals, the Written Consent stated that Appellees desired "to wind up the affairs of the Company"; "to sell all of the [Assets] owned by the Company as part of the winding-up of the Company, and thereafter distribute the net proceeds of the sale to the members ... according to their interests"; and "to designate Jan Farrell to negotiate and enter into any and all agreements necessary to sell all of the [Assets]." The Written Consent stated that Appellees adopted the resolutions to, among other things, authorize Farrell to negotiate agreements and take actions necessary to sell the Assets.

¶7 Blanch filed an amended petition in January 2016 in which he noted that Appellees "have attempted to list all of the [Assets] ... for sale," explaining that they "have proposed and are desirous of selling [the Assets] and distributing the cash sales proceeds." Blanch alleged that under the Utah Revised Uniform Limited Liability Company Act, effective January 1, 2016 (the New Act), all members of the Company had to unanimously agree to sell the Assets and that because he did not consent, Appellees lacked authority to approve the sale. See generally Utah Code Ann. §§ 48-3a-101 to -1405 (LexisNexis 2015).

¶8 Blanch asked the court to enjoin the sale of the Assets and to require that any sale be approved by the court or the unanimous agreement of the Company’s five members. He also asked the court to order the settling of the Company’s capital accounts and the distribution of the Assets in proportion to the members’ respective interests. Alternatively, Blanch asked the court to partition the Assets, separating his twenty-percent share.

¶9 Appellees moved to dismiss Blanch’s petition, asserting that he had failed to state a claim upon which relief could be granted. In support, Appellees attached the Written Consent and asserted that they had authority to sell the Assets and that the Written Consent, which resolved to sell the Assets, was valid. According to Appellees, when they signed the Written Consent in October 2015, the Utah Revised Limited Liability Company Act (the Old Act) applied. See generally id. §§ 48-2c-100 to -1902 (2010). And rather than requiring the unanimous approval of members to sell the Company’s assets, the Old Act required only two-thirds of its members to act. Id. § 48-2c-803(3). Accordingly, Appellees contended that because they held eighty percent of the interest in the Company, the Written Consent was properly executed and was not voided by the New Act.

¶10 In so arguing, Appellees noted that the Written Consent expressly stated that "the authority given [under the Written Consent] shall be effective until revoked by [Appellees] and shall continue notwithstanding the automatic application of [the New Act] on January 1, 2016." Although Appellees "fully acknowledge[d] that [the New Act] now governs the wind-up of [the Company]," they contended that "the Written Consent remains effective as to the authorization of [the Company] to sell the Assets in the wind-up" and that Blanch had failed "to allege any facts to show that the Written Consent was not authorized at the time of its execution."

¶11 In the alternative, Appellees asserted that, even if the Written Consent was no longer effective, the remedy Blanch sought—the distribution of the Assets in the Company’s winding up—was barred under the New Act, given that those distributions "must be paid in money." See id. § 48-3a-711(4) (2015). Appellees further argued that the Company owned the real property at issue and that because Blanch was not a joint tenant or tenant in common, he could not bring an action to partition that real property.

¶12 The district court granted Appellees’ motion. The court first determined that because the Company had expired, it "ha[d] no power other than to wind up its affairs, pay its bills, and distribute its assets." The court then determined that the Old Act controlled, that "no language within [the New Act] ha[d] been cited which [made] its provisions retroactive," and that the Company’s members had not agreed to be bound by the New Act. The court explained that under the Old Act, "members holding at least two-thirds interest in the company are required to bind [the Company]" and that, in this case, "a written consent was signed by all of the members ... other than [Blanch], evidencing four-fifths of the voting members, to list [the Assets] for sale and then to distribute the assets as the last step to winding up." The district court then reasoned that "four-fifths is 80%, sufficiently in excess of two-thirds of the voting members," and that the members signed the Written Consent in October 2015—before the application of the New Act to the Company. Further, the court determined that the Written Consent was "a permitted function" and the controlling member-managers had "the power to wind up [the Company] as they [saw] fit, including the sale of [the Assets], payment of all bills and obligations, and distribution of the proceeds to the members."

¶13 Based on these determinations, the district court concluded that Blanch could not "legally prevail as it pertains to the objection to sale and to the partitioning of [the Assets]." Additionally, it concluded that Blanch "was not a joint tenant or a tenant in common owner of the real property" and that the Company’s ownership of the real property "excluded that possibility [of partition]." Accordingly, the court dismissed Blanch’s petition with prejudice. Blanch appeals.

ISSUE AND STANDARD OF REVIEW

¶14 Blanch contends that the district court erred in granting Appellees’ motion to dismiss his petition. "A Rule 12(b)(6) motion to dismiss admits the facts alleged in the complaint but challenges the plaintiff’s right to relief based on those facts." Oakwood Village LLC v. Albertsons, Inc. , 2004 UT 101, ¶ 8, 104 P.3d 1226 (quotation simplified). "Under a rule 12(b)(6) dismissal, our inquiry is concerned solely with the sufficiency of the pleadings, and not the underlying merits of the case." Id. (quotation simplified). We assume the truth of the factual allegations in the complaint and draw "all reasonable inferences therefrom in the light most favorable to the plaintiff."

Hudgens v. Prosper, Inc. , 2010 UT 68, ¶ 14, 243 P.3d 1275 (quotation simplified). "We review a decision granting a motion to dismiss for correctness, granting no deference to the decision of the district court." Bylsma v. R.C. Willey , 2017 UT 85, ¶ 10, 416 P.3d 595 (quotation simplified). We likewise review for correctness the district court’s subsidiary legal determinations, including its interpretation and application of statutes. See DePatco, Inc. v. Teton View Golf Estates, LLC , 2014 UT App 266, ¶ 6, 339 P.3d 126 ("The proper interpretation and application of a statute is a question of law, and we afford no deference to the [district] court in reviewing its interpretation of applicable statutes." (quotation simplified) ).

ANALYSIS

¶15 Blanch challenges the district court’s dismissal of his petition on a number of grounds. We begin by addressing his argument regarding the propriety of the district court’s consideration of the Written Consent in resolving Appellees’ motion to dismiss. We then turn to Blanch’s arguments regarding the enforceability of the Written Consent. Finally, we address his contention that the district court erred in dismissing his petition...