Olp, L.L.C. v. Burningham

• Decision Date: 04 December 2009
• Docket Number: No. 20080517.,20080517.
• Citation: 225 P.3d 177,2009 UT 75
• Parties: OLP, L.L.C. and Richard Wilson, Plaintiffs and Respondents, v. Wayne BURNINGHAM and Optical Lens Products Management, Inc. dba Intermountain Antireflective Coatings, Defendants and Petitioners.
• Court: Utah Supreme Court

225 P.3d 177

2009 UT 75

OLP, L.L.C. and Richard Wilson, Plaintiffs and Respondents, v. Wayne BURNINGHAM and Optical Lens Products Management, Inc. dba Intermountain Antireflective Coatings, Defendants and Petitioners.

No. 20080517.

Supreme Court of Utah.

December 4, 2009.

Brent O. Hatch, T. Parker Douglas, Phillip J. Russell, Salt Lake City, for plaintiffs.

Stephen K. Christiansen, Lisa B. Bohman, Salt Lake City, for defendants.

On Certiorari to the Utah Court of Appeals

DURHAM, Chief Justice:

INTRODUCTION

¶ 1 Under the Utah Revised Limited Liability Company Act (the LLC Act), a member may file to dissolve a limited liability company by alleging a management deadlock, illegal or oppressive acts by the controlling members, wasted assets, or that it is no longer reasonably practical to carry on the business. Utah Code Ann. § 48-2c-1210(2) (2007). The LLC Act, however, is not the only remedy available to disputing limited liability company members; a party may also seek damages for common law claims. In this case, defendant Wayne Burningham argues that even if a member seeks legal remedies outside of the LLC Act, the damage award must be determined using the LLC Act's ownership allocation provisions. We disagree and affirm the court of appeals' affirmance of a verdict awarding Richard Wilson damages and finding the defendant liable for repudiating the parties' agreement to work together in a limited liability company with each party as a fifty percent owner. We also affirm the court of appeals' determination that factual issues that underlie both legal and equitable claims were properly determined by the jury.

BACKGROUND

¶ 2 Defendant Wayne Burningham sought certiorari review of the court of appeals' decision to affirm a jury verdict and a $1.2 million award of damages against him for repudiating his agreement with Richard Wilson to equally own and operate OLP, LLC. The facts of the case are recounted at length in the court of appeals' opinion. See OLP, LLC v. Burningham, 2008 UT App 173, ¶¶ 2-9, 185 P.3d 1138. Therefore, we rehearse only those facts relevant to the questions presented to this court.

¶ 3 Richard Wilson and Wayne Burningham formed OLP, LLC to purchase and operate an anti-reflective optical lens coating machine. When creating OLP, Burningham and Wilson contributed equal cash amounts and orally agreed to share equal control and ownership of OLP and consequently share the company's profits and losses. As reflected in OLP's operating agreement, Wilson and Burningham also agreed that Intermountain Coatings, a company owned by Burningham, would use the lens coating machine. The operating agreement did not address the internal operations of OLP.

¶ 4 Not long after OLP's lens coating machine became operational, the parties began to disagree about how clients and the accompanying profits should be divided between OLP and Intermountain Coatings. As it became apparent that Wilson and Burningham could no longer function as business partners, the two parties also began to dispute how to divide ownership interests, and as part of that disagreement, whether to classify additional money Intermountain Coatings had provided to OLP as a loan or as a contribution by Burningham.

¶ 5 After failed efforts at reconciliation, in August 2001, Wilson filed suit against Burningham and Intermountain Coatings (collectively, the Defendants) seeking legal and equitable remedies for breach of fiduciary duty, repudiation, breach of contract, and other contract-related claims. Wilson also sought an accounting of OLP's expenses, revenues, profits, and losses. The Defendants alleged various affirmative defenses in response and asserted a counterclaim for dissolution alleging that the members were deadlocked in the management of the company. Further, Burningham argued that, in the wind up, the members' ownership interests should be determined and distributed according to the balance of each member's capital account as provided for in the LLC Act because the company's operating agreement did not address ownership.

¶ 6 Burningham then moved for partial summary judgment, requesting, pursuant to Utah Code section 48-2c-1210, (1) that the court determine as a matter of law that OLP was dissolved and (2) the court wind up the company. Additionally, Defendants moved to limit all damage issues to an accounting under the LLC Act, which would thereby remove any need for a jury.

¶ 7 During a hearing on the various summary judgment motions, the parties discussed at great length how to resolve the legal and equitable claims alleged in the case. Ultimately the district court concluded that it could bifurcate the determination of the parties' legal and equitable claims by first holding a jury trial to determine the legal claims, that is, Wilson's fiduciary duty and contract-related claims. Then, if necessary, following the trial, the court would conduct an accounting and consider any remaining claims. To facilitate this bifurcation, the district court denied the Defendants' request for dissolution without prejudice and indicated that they could renew their request after the jury trial if required, and that if warranted the court would enter a decree of dissolution nunc pro tunc.

¶ 8 At trial, the Defendants renewed their motion for dissolution in the form of a motion for directed verdict. They argued that Burningham and Wilson were deadlocked in management and voting power and that it was no longer practical to carry on the business. The district court granted the motion and found that the company had been effectively dissolved no later than August 31, 2001, which was the date the Defendants filed an answer to Wilson's complaint. Rather than proceeding with a dissolution, accounting, and winding up under the LLC Act, the district court determined that the jury should first decide Wilson's contract and fiduciary duty claims and any accompanying damages. At the close of a six-day trial, the court instructed the jury that if Burningham wrongfully dissolved OLP by repudiating his contract with Wilson and converting OLP's assets, they should award Wilson damages for lost profits up to the date of the November 2004 trial. Otherwise, if Burningham only breached his contract with Wilson, damages should be limited to August 31, 2001, the date the district court had found the company effectively dissolved.

¶ 9 The jury returned a verdict in favor of Wilson and awarded over $1.2 million in compensatory damages. In reaching that verdict, the jury found that Burningham and Intermountain Coatings had breached their contracts with Wilson and OLP and had also breached the fiduciary duties owed to Wilson and the company. The jury awarded damages based on a finding that Burningham repudiated the limited liability company agreement and converted the company's assets, breached the implied duty of good faith and fair dealing, and breached his fiduciary duties, but declined to award expectation or punitive damages. Burningham appealed.¹

¶ 10 The court of appeals affirmed the district court. It held the district court correctly allowed Wilson's claim for repudiation to proceed to the jury without an application of the default member ownership provisions of the LLC Act or a complete judicial dissolution of the company under the LLC Act. OLP, LLC, 2008 UT App 173, ¶ 51, 185 P.3d 1138. The court first determined that a cause of action for repudiation "exists outside of the LLC Act." Id. ¶ 15. As part of this separate legal claim, the court of appeals concluded the jury considered member ownership a "hotly disputed" factual question and a key determination to awarding damages, and decided the issue in favor of Wilson. Id. ¶¶ 20-21. Therefore, the court of appeals held the district court did not need to calculate capital accounts to decide membership as a matter of law. Second, the court reasoned there was not a conflict between Wilson's repudiation claim and the district court's dissolution of OLP. Id. ¶ 27. The court concluded that repudiation was a distinct event that occurred well before the district court granted the dissolution. See id. ¶ 26. Further, the court of appeals noted that by finding August 31, 2004 to be the dissolution date, it was unclear whether the district court had formally dissolved OLP. Id. ¶ 23. The court of appeals also held that because repudiation was a separate legal claim from equitable dissolution, the district court did not err by first submitting the legal issue to the jury before considering any equitable remedies under the LLC Act. Id. ¶ 34. This was proper, the court determined, because under Utah precedent, "when legal and equitable issues turn on the same operative facts, a jury must decide the legal issue first." Id. (quoting Zions First Nat'l Bank v. Rocky Mountain Irrigation, Inc., 795 P.2d 658, 662 (Utah 1990)). Finally, the court of appeals rejected Burningham's argument that to repudiate an LLC, a member must deny the existence of the business organization because such a limitation "would place the viability of an injured party's legal claim within the control of the alleged guilty party." Id. ¶ 39.

¶ 11 Burningham seeks a reversal of the court of appeals' opinion. We have jurisdiction pursuant to Utah Code section 78A-3-102(3)(a) (2008).

STANDARD OF REVIEW

¶ 12 Burningham presents three questions for this court's review: (1) whether the court of appeals erred in construing the scope of the LLC Act in relation to its affirmance of repudiation of a limited liability company agreement; (2) whether the court of appeals erred in its review of the district court's adjudication of claims and defenses presented below; and (3) whether the court of appeals and district court misapprehended the appropriate roles of judge and jury in adjudicating the claims and defenses presented below. Burningham's arguments for the second question overlap with the first and third question; therefore, we address those arguments as part...