McNeil Eng'g & Land Surveying, LLC v. Bennett

• Decision Date: 15 December 2011
• Docket Number: No. 20100862–CA.,20100862–CA.
• Parties: McNEIL ENGINEERING AND LAND SURVEYING, LLC; McNeil Engineering, Inc.; and Scott McNeil, Plaintiffs, Counterclaim Defendants, and Appellant, v. Dale K. BENNETT; Benchmark Engineering and Land Surveying, LLC; Benchmark Cad Services, LLC; Land Development Cadd, Inc.; and Florence B. Alhambra, Defendants, Counterclaimants, and Appellee.
• Court: Utah Court of Appeals

2011 UT App 423

268 P.3d 854

697 Utah Adv. Rep. 18

McNEIL ENGINEERING AND LAND SURVEYING, LLC; McNeil Engineering, Inc.; and Scott McNeil, Plaintiffs, Counterclaim Defendants, and Appellant,

v.Dale K. BENNETT; Benchmark Engineering and Land Surveying, LLC; Benchmark Cad Services, LLC; Land Development Cadd, Inc.; and Florence B. Alhambra, Defendants, Counterclaimants, and Appellee.

No. 20100862–CA.

Court of Appeals of Utah.

Dec. 15, 2011.

Matthew C. Barneck and Paul P. Burghardt, Salt Lake City, for Appellant.

Reed L. Martineau, Keith A. Call, and Derek J. Williams, Salt Lake City, for Appellee.

Before Judges McHUGH, ORME, and THORNE.

OPINION

McHUGH, Associate Presiding Judge:

¶ 1 McNeil Engineering and Land Surveying, LLC (ME & LS) appeals the trial court's judgment in favor of Dale K. Bennett. We reverse and remand for further proceedings consistent with this opinion.

BACKGROUND

¶ 2 Scott F. McNeil founded McNeil Engineering, Inc. (MEI) in 1983, and he continues to be its sole owner. MEI hired Bennett in 1983. In 1996, McNeil restructured his business by dividing the operations of MEI among three newly-created limited liability companies, including ME & LS. Since then, MEI has acted as a “sort of umbrella company” that does not perform engineering services. MEI now provides administrative support and leases its employees to ME & LS and McNeil's other limited liability companies. As a result of this arrangement, ME & LS does not have any traditional employees; instead, it leases all of its employees from MEI. The leased employees receive their salaries, bonuses, and benefits from MEI but perform their work assignments exclusively for ME & LS or one of the other limited liability companies formed by McNeil.

¶ 3 In December 1996, McNeil, Bennett, and five others entered into an operating agreement (Operating Agreement) for the newly-formed ME & LS. Bennett, McNeil, and each of the others were designated as members of ME & LS, and Bennett and McNeil were named the initial managing members. Approximately five years later, on November 1, 2001, the ME & LS members amended the Operating Agreement (Second Amendment),¹ in order to expand and clarify the provisions governing a member's withdrawal from the company. Section 12.1 of the Second Amendment states that one way in which “[a] Person shall cease to be a Member” of ME & LS is if the person withdraws from the company. Section 12.3(a) of the Second Amendment then explains, “For purposes of this Section, a Member shall be deemed to withdraw when the Member voluntarily resigns or terminates the Member's employment with the Company for reasons other than bankruptcy, death, disability or incompetency.” Although the term “employment” is not defined, Section 1.10 of the Operating Agreement defines “Company” as ME & LS. Section 12.3 of the Second Amendment further provides that “the Company and each other Member shall have an option to purchase the withdrawing Member's Membership Interest” and that “[t]he purchase price shall be an amount equal to the book value of the Member's Membership Interest in the Company.”

¶ 4 On August 17, 2005, Bennett submitted a letter of resignation to McNeil, announcing his resignation from MEI. As a result, MEI could no longer lease Bennett's services to ME & LS, and Bennett did not perform any work for ME & LS after the date of his resignation letter. At that time, Bennett owned 252 shares of ME & LS, which was equivalent to a 26.53% membership interest. In addition to tendering his resignation, Bennett's letter indicated that he wished to receive “at least current book value” for his shares in ME & LS.

¶ 5 In a June 29, 2006 letter, ME & LS exercised its option to purchase Bennett's membership interest at “book value” to be determined as of a certain date. On August 1, 2006, Bennett rejected the offer and asserted that his resignation from MEI did not constitute withdrawal as a member of ME & LS. This litigation ensued.

¶ 6 After the completion of significant discovery, the parties filed cross-motions for partial summary judgment on whether Bennett's resignation from MEI constituted a withdrawal from his membership in ME & LS. On December 21, 2006, the trial court found in favor of Bennett, stating that

the term “employment” as it is used in Section 12.3 of the Operating Agreement is not ambiguous, and that the natural use and meaning of that term as it is used within Section 12.3 is that in order to withdraw as a member, the member must voluntarily resign employment from ME & LS.

The Court also conclude[d] that the parties intended the term “employment” to refer only to employment specifically with ME & LS, and that the parties did not intend the term to be broad enough to include employees leased from other businesses.

On April 3, 2008, the trial court entered, through a different judge, judgment in favor of Bennett and ordered ME & LS to pay $142,174.93, which is the amount to which Bennett would have been entitled in the form of member distributions for 2005 and 2006.

McNeil filed an appeal, but this court dismissed the appeal for lack of proper certification on May 21, 2009. See McNeil Eng'g & Land Surveying v. Bennett, 2009 UT App 138U, para. 5, 2009 WL 1423554 (mem.). On October 17, 2010, a third trial court judge issued an amended order to certify the April 3, 2008 order as final. See generally Utah R. Civ. P. 54(b). ME & LS now appeals the trial court's partial summary judgment and the underlying orders from December 21, 2006, and April 3, 2008.²

ISSUE AND STANDARDS OF REVIEW

¶ 7 ME & LS claims that the trial court erred by narrowly interpreting “employment” in the Second Amendment to exclude the work of leased employees.³ “The interpretation of a contract is a question of law, which we review for correctness, giving no deference to the ruling of the [trial] court.” Salt Lake City Corp. v. Big Ditch Irrigation Co., 2011 UT 33, ¶ 19, 258 P.3d 539. Likewise, the determination of whether a contract is facially ambiguous is a question of law, which we review for correctness. See Daines v. Vincent, 2008 UT 51, ¶ 25, 190 P.3d 1269. We resolve questions of facial ambiguity in a contract according to the parties' intent, which is a question of fact. See id.

ANALYSIS

¶ 8 “Under well-accepted rules of contract interpretation, we look to the language of the contract to determine its meaning and the intent of the contracting parties.” Café Rio, Inc. v. Larkin–Gifford–Overton, LLC, 2009 UT 27, ¶ 25, 207 P.3d 1235. We also “consider each contract provision ... in relation to all of the others, with a view toward giving effect to all and ignoring none.” Green River Canal Co. v. Thayn, 2003 UT 50, ¶ 17, 84 P.3d 1134 (omission in original) (internal quotation marks omitted). “If the language within the four corners of the contract is unambiguous, the parties' intentions are determined from the plain meaning of the contractual language, and the contract may be interpreted as a matter of law.” Id. (internal quotation marks omitted). “A contractual term or 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.” Daines, 2008 UT 51, ¶ 25, 190 P.3d 1269 (internal quotation marks omitted). In determining whether a contract is ambiguous, we “consider any credible evidence” but will not conclude that the contract is ambiguous unless both interpretations “are reasonably supported by the language of the contract.” See Ward v. Intermountain Farmers Ass'n, 907 P.2d 264, 268 (Utah 1995); see also Daines, 2008 UT 51, ¶ 27, 190 P.3d 1269.

¶ 9 “[C]ontractual ambiguity can occur in two different contexts: (1) facial ambiguity with regard to the language of the contract and (2) ambiguity with regard to the intent of the contracting parties.” Daines, 2008 UT 51, ¶ 25, 190 P.3d 1269. To determine if a contract is facially ambiguous, “a judge [must] first review relevant and credible extrinsic evidence offered to demonstrate that there is in fact an ambiguity.” Id. ¶ 31. However, “a finding of ambiguity [is justified] only if the competing interpretations are ‘reasonably supported by the language of the contract.’ ” Id. (quoting Ward, 907 P.2d at 268); see also Moss v. Parr Waddoups Brown Gee & Loveless, 2008 UT App 405, ¶ 12, 197 P.3d 659.

¶ 10 Here, the trial court concluded that the term “employment” in Section 12.3(a) of the Second Amendment “is not ambiguous, and that the natural use and meaning of that term as it is used within Section 12.3 is that in order to withdraw as a member, the member must voluntarily resign employment from ME & LS.” Based on that conclusion, the trial court also ruled that the members of ME & LS intended that the withdrawal provision apply only to ME & LS's direct employees. See Selvig v. Blockbuster Enters., LC, 2011 UT 39, ¶ 23, 266 P.3d 691 (“ ‘If the language of the contract is unambiguous, the intention of the parties may be determined as a matter of law based on the language of the agreement.’ ” (quoting Peterson v. Sunrider Corp., 2002 UT 43, ¶ 18, 48 P.3d 918)). We reverse on both points.

I. The Second Amendment Is Facially Ambiguous

¶ 11 We begin our analysis, as we must, by examining the four corners of the Operating Agreement, including its amendments. See Bakowski v. Mountain States Steel, Inc., 2002 UT 62, ¶ 16, 52 P.3d 1179. Section 12.3(a) of the Second Amendment states that “a Member shall be deemed to withdraw when the Member voluntarily resigns or terminates the Member's employment with the Company [ (ME & LS) ] for reasons other than bankruptcy, death, disability or incompetency.” Before the trial court and on appeal, the parties have asserted competing interpretations of Section 12.3(a). We conclude that the language of the Operating Agreement, as amended, reasonably supports both interpretations.

¶ 12 Bennett focuses on the word “Company,” and argues that a member withdraws from ME & LS...