Rockwell Transp. LLC v. Hooper

534 P.3d 753

ROCKWELL TRANSPORT LLC and Theron Briggs, Appellants,

v.Sam T. HOOPER, Ronald R. Hunt, Aaron Sanders, and Rockwell Transport Management LLC, Appellees.

No. 20210566-CA

Court of Appeals of Utah.

Filed July 6, 2023

Brett W. Hastings, Salt Lake City, Attorney for Appellants

Troy L. Booher, Salt Lake City, Caroline A. Olsen, and David W. Scofield, Sandy, Attorneys for Appellees

Judge Amy J. Oliver authored this Opinion, in which Judges Ryan M. Harris and John D. Luthy concurred.

Opinion

OLIVER, Judge:

¶1 Theron Briggs, a member of Rockwell Transport LLC (Rockwell), brought direct and derivative claims against the other members and the new LLC they formed without him. A special litigation committee (the SLC) investigated the derivative claims, and the district court enforced the SLC's determination to settle the conversion claim and dismiss the remaining derivative claims. The court also granted summary judgment in favor of the defendants on Briggs's direct claims and denied both sides’ requests for attorney fees. Briggs now appeals these rulings. We affirm in part and remand the matter with instruction.

BACKGROUND

¶2 In April 2012, Briggs, Sam Hooper, and Ronald Hunt created Rockwell, a hauling service for "large shipments of commodities, such as oil and fuel," in the Uintah Basin. Hooper and Hunt provided financial support for Rockwell and each held a forty-six percent ownership interest; Briggs contributed his considerable experience in the trucking industry and held an eight-percent ownership interest. In 2014, Briggs resigned as the trucking manager of Rockwell but maintained his eight-percent ownership interest. Rockwell was initially profitable, but during 2015 and 2016, it experienced a significant drop in revenue when oil prices fell. In June 2016, Hooper and Hunt hired Aaron Sanders to replace Briggs as the trucking manager and gave him an ownership interest, taken equally from their shares. Five months later, Hooper, Hunt, and Sanders transferred Rockwell's assets to a new company they formed called Rockwell Transport Management LLC (RTM). Briggs held no ownership interest in RTM.

¶3 In 2018, Briggs and Rockwell filed a complaint against Hooper, Hunt, Sanders, and RTM (collectively Defendants), alleging both direct and derivative claims on behalf of Rockwell. Specifically, Plaintiffs alleged seven direct and derivative causes of action: (1) breach of the operating agreement related to capital contributions (derivative and direct), (2) breach of the operating agreement related to distributions (derivative and direct), (3) breach of fiduciary duty (derivative and direct), (4) breach of Utah Code section 48-3a-404 related to distributions among LLC members (direct), (5) breach of Utah Code section 48-3a-410 related to information-sharing among LLC members (direct), (6) conversion (derivative and direct), and (7) accounting (derivative and direct). Defendants answered and asserted eight counterclaims against Briggs.¹

¶4 Defendants exercised their statutory right to request creation of a special litigation committee to investigate Briggs's derivative claims. See Utah Code § 48-3a-805 ("If a limited liability company is named as or made a party in a derivative proceeding, the limited liability company may appoint a special litigation committee to investigate the claims asserted in the proceeding and determine whether pursuing the action is in the best interests of the limited liability company."). Rockwell appointed a certified public accountant (Accountant) who has extensive experience in investigative accounting, receiverships, and bankruptcy to serve as the SLC.²

¶5 In the report and statement of determination, the SLC, with the assistance of special litigation counsel, concluded that Defendants had committed the tort of conversion when they transferred Rockwell's assets to RTM. The SLC valued Rockwell's assets at the time of conversion at $212,000 and recommended that the derivative claim associated with the conversion be "resolved by payment to [Rockwell] of the required amount—here, $212,000." The SLC stated that because Rockwell was no longer operating, the "appropriate result could be obtained simply by netting out [Defendants’] interest and requiring payment to [Briggs] by [Defendants] of $17,000 (eight percent of $212,000)." The SLC also recommended that "the derivative claims based on the alleged failure to provide initial capital contributions" be dismissed, along with the accounting claim "to the extent" it was derivative.

¶6 Defendants then moved to enforce the SLC's determination on Briggs's derivative claims and for summary judgment on Briggs's direct claims. At a hearing on the motions, both parties agreed the SLC met the statutory qualification requirements, but Briggs argued the SLC "did not exercise reasonable care in evaluating all the claims." The district court deferred ruling on Defendants’ motion to enforce pending an evidentiary hearing on the narrow issue of whether the SLC exercised reasonable care in its investigation.

¶7 The district court, however, granted summary judgment to Defendants on all of Briggs's direct claims based on Briggs's failure to produce "any affirmative evidence of direct and individual damages to him as opposed to Rockwell." The court rejected Briggs's contention that his failure to produce such evidence was justified because he did not have access to RTM's records, stating that Briggs "has not cited any legal authority to support his notion that as a non-member of this new limited liability company, he would have some right to view its financial records or receive an accounting" and "has not moved for a continuance to conduct additional discovery under Rule 56(d)."

¶8 At the evidentiary hearing on the SLC's investigation, Accountant explained that he had considered interest on the conversion claim and, after consulting with legal counsel for the SLC, determined not to include interest. The court then ruled it would enforce the SLC's determination, specifically finding that the SLC was "disinterested and independent" and had made its "recommendation in good faith, independently and with reasonable care."

¶9 The court also held a hearing to consider whether attorney fees should be awarded to any party and whether interest should be added to the $212,000 settlement. Briggs based his request for attorney fees on three grounds: (1) Utah's "substantial benefit" doctrine, (2) Utah Code section 48-3a-806(2) (stating that "[i]f a derivative action is successful in whole or in part, the court may award the plaintiff reasonable expenses, including reasonable attorney's fees and costs, from the recovery of the limited liability company"), and (3) Rockwell's operating agreement, which states that "[i]n the event that any action is filed in relation to this Agreement, the unsuccessful party shall pay to the successful party, as a part of any judgment or settlement, a reasonable sum for the other party's attorney's fees." Briggs, arguing that he and Rockwell were "the only parties that have received any judgment," requested $47,060 in attorney fees and $2,367.77 in costs, for a total of $49,427.77. Defendants contended that Briggs could not be considered a prevailing party because his direct claims were dismissed and the $212,000 awarded to Rockwell was "not a win for Mr. Briggs" because it represented a settlement amount, not a judgment. In response, Briggs urged the court to use "common sense" and a "flexible and reasoned approach" to determine which party prevailed.

¶10 A week later, the district court issued its written ruling and denied both sides’ fee requests and the request for interest. On the issue of attorney fees, the court concluded that "this case presents what a true draw would look like" because "neither side achieved their optimal outcome and their claims of victory ring hollow given the procedural course that this action has taken and the final Order that was entered." The court was referring to the fact that although Briggs won a $212,000 judgment for Rockwell, he also diminished that award by "protracting the litigation." Likewise, although Defendants succeeded in having all of Briggs's direct claims dismissed, they had to pay a judgment to Rockwell on one of Briggs's derivative claims. On the issue of interest, the court concluded that Briggs did not meet his "burden of proof in establishing a right to interest either under a theory of prejudgment interest or as an inherent part of the conversion claim."

ISSUES AND STANDARDS OF REVIEW

¶11 Plaintiffs now appeal, raising three issues for our review. First, Briggs challenges the district court's dismissal of his direct claims. When claims are "dismissed on the merits, as a matter of law on summary judgment, we review the district court's decision for correctness, affording it no deference." Chard v. Chard , 2019 UT App 209, ¶ 30, 456 P.3d 776.

¶12 Second, Briggs and Rockwell challenge the district court's denial of interest on the conversion settlement. "A trial court's decision to grant or deny ... interest presents a question of law which we review for correctness." Donatelli v. Beaumont , 2009 UT App 34, ¶ 3, 204 P.3d 201 (cleaned up).

¶13 Third, Briggs challenges the district court's attorney fees ruling, which we review for abuse of discretion. See Olsen v. Lund , 2010 UT App 353, ¶ 5, 246 P.3d 521 ("Which party is the prevailing party depends, to a large measure, on the context of each case, and, therefore, it is appropriate to leave this determination to the sound discretion of the trial court." (cleaned up)).

ANALYSIS

¶14 For the reasons discussed herein, we hold that the court correctly dismissed Briggs's direct claims and correctly denied interest on Rockwell's conversion claim. However, we also hold that because Rockwell was a prevailing party on Briggs's derivative claims, Briggs should have been awarded attorney fees related to that claim, and we remand the matter with instruction for the...