Taghipour v. Jerez, 20010450.

• Citation: 2002 UT 74,52 P.3d 1252
• Decision Date: 30 July 2002
• Docket Number: No. 20010450.,20010450.
• Parties: Namvar TAGHIPOUR, Danesh Rahemi, M.D., and Jerez, Taghipour and Associates LLC, a Utah limited liability company, Plaintiffs and Petitioners, v. Edgar C. JEREZ, Mt. Olympus Financial, L.C., a Utah limited liability company, and Dean Becker, Defendants and Respondents.
• Court: Supreme Court of Utah

52 P.3d 1252

2002 UT 74

Namvar TAGHIPOUR, Danesh Rahemi, M.D., and Jerez, Taghipour and Associates LLC, a Utah limited liability company, Plaintiffs and Petitioners, v. Edgar C. JEREZ, Mt. Olympus Financial, L.C., a Utah limited liability company, and Dean Becker, Defendants and Respondents.

No. 20010450.

Supreme Court of Utah.

July 30, 2002.

Bruce R. Baird, Salt Lake City, for plaintiffs.

Blake S. Atkin, Gregory P. Hawkins, Salt Lake City, for Jerez and Mount Olympus Financial.

Dean Becker, pro se.

On Certiorari to the Utah Court of Appeals

RUSSON, Justice:

¶ 1 On a writ of certiorari, Namvar Taghipour, Danesh Rahemi, and Jerez, Taghipour and Associates, LLC, seek review of the decision of the court of appeals affirming the trial court's dismissal of their causes of action against Mount Olympus Financial, L.C. ("Mt. Olympus"). We affirm.

BACKGROUND

¶ 2 Namvar Taghipour, Danesh Rahemi, and Edgar Jerez ("Jerez") formed a limited liability company known as Jerez, Taghipour and Associates, LLC (the "LLC"), on August 30, 1994, to purchase and develop a particular parcel of real estate pursuant to a joint venture agreement. The LLC's articles of organization designated Jerez as the LLC's manager. In addition, the operating agreement between the members of the LLC provided: "No loans may be contracted on behalf of the [LLC] ... unless authorized by a resolution of the [m]embers."

¶ 3 On August 31, 1994, the LLC acquired the intended real estate. Then, on January 10, 1997, Jerez, unbeknownst to the LLC's other members or managers, entered into a loan agreement on behalf of the LLC with Mt. Olympus. According to the agreement, Mt. Olympus lent the LLC $25,000 and, as security for the loan, Jerez executed and delivered a trust deed that conveyed the LLC's real estate property to a trustee with the power to sell the property in the event of default. Mt. Olympus then dispensed $20,000 to Jerez and retained the $5,000 balance to cover various fees. In making the loan, Mt. Olympus did not investigate Jerez's authority to effectuate the loan agreement beyond determining that Jerez was the manager of the LLC.

¶ 4 After Mt. Olympus dispersed the funds pursuant to the agreement, Jerez apparently misappropriated and absconded with the $20,000. Jerez never remitted a payment on the loan, and because the other members of the LLC were unaware of the loan, no loan payments were ever made by anyone, and consequently, the LLC defaulted. Therefore, Mt. Olympus foreclosed on the LLC's property. The members of the LLC, other than Jerez, were never notified of the default or pending foreclosure sale.

¶ 5 On June 18, 1999, Namvar Taghipour, Danesh Rahemi, and the LLC (collectively, "Taghipour") filed suit against Mt. Olympus and Jerez. Taghipour asserted three claims against Mt. Olympus: (1) declaratory judgment that the loan agreement and subsequent foreclosure on the LLC's property were invalid because Jerez lacked the authority to bind the LLC under the operating agreement, (2) negligence in failing to conduct proper due diligence in determining whether Jerez had the authority to enter into the loan agreement, and (3) partition of the various interests in the property at issue. In response, Mt. Olympus moved to dismiss all three claims, asserting that pursuant to Utah Code section 48-2b-127(2), the loan agreement documents are valid and binding on the LLC since they were signed by the LLC's manager. This section provides:

Instruments and documents providing for the acquisition, mortgage, or disposition of property of the limited liability company shall be valid and binding upon the limited liability company if they are executed by one or more managers of a limited liability company having a manager or managers or if they are executed by one or more members of a limited liability company in which management has been retained by the members.

Utah Code Ann. § 48-2b-127(2) (1998).¹ The trial court granted Mt. Olympus' motion and dismissed Taghipour's claims against Mt. Olympus, ruling that under the above section, "instruments and documents providing for the mortgage of property of a limited liability company are valid and binding on the limited liability company if they are executed by the manager," that the complaint alleges that Jerez is the manager of the LLC, and that therefore the loan documents Jerez executed are valid and binding on the LLC.

¶ 6 Taghipour appealed to the Utah Court of Appeals.² Taghipour argued that the trial court's interpretation of section 48-2b-127(2) was in error, inasmuch as it failed to read it in conjunction with Utah Code section 48-2b-125(2)(b), which provides that a manager's authority to bind a limited liability company can be limited by the operating agreement. That section provides in relevant part:

If the management of the limited liability company is vested in a manager or managers, any manager has authority to bind the limited liability company, unless otherwise provided in the articles of organization or operating agreement.

Id. § 48-2b-125(2)(b). The Utah Court of Appeals affirmed the trial court, concluding that the plain language of section 48-2b-127(2) provided no limitation on a manager's authority to execute certain documents and bind a limited liability company, and specifically stated such documents shall be valid and binding upon the limited liability company if executed by one or more managers. Taghipour v. Jerez, 2001 UT App 139, ¶ 12, 26 P.3d 885. Further, the court of appeals concluded that this specific statute prevailed over the general statute, section 48-2b-125(2)(b), and that the loan documents executed by Jerez were therefore binding upon the LLC in this case. Id. at ¶ 13. It also held that Mt. Olympus did all that it was required to do under section 48-2b-127(2) and that Taghipour waived the right to appeal the dismissal of the partition claim by failing to object to the dismissal of that claim. Id. at ¶¶ 12, 17-18. Taghipour petitioned this court for certiorari, which we granted.

¶ 7 Taghipour asks this court to reverse the court of appeals, arguing that (1) sections 48-2b-125(2)(b) and 48-2b-127(2) should be read in harmony to require that managers "be properly authorized to bind the limited liability company in all situations," and therefore Jerez lacked authority to bind the LLC under the operating agreement, and (2) a commercial lender has a due diligence obligation to determine the authority of a manager of a limited liability company before that manager can encumber the assets of the company, which Mt. Olympus failed to do by neglecting to determine whether Jerez had the authority to bind the LLC.³ In reply, Mt. Olympus contends that under Utah Code section 48-2b-127(2), Mt. Olympus could properly rely on Jerez's execution of the loan agreement as the manager of the LLC without further inquiry.

STANDARD OF REVIEW

¶ 8 On certiorari, we review the decision of the court of appeals rather than that of the trial court, Grand County v. Rogers, 2002 UT 25, ¶ 6, 44 P.3d 734, and we review the decision of the court of appeals for correctness, Brookside Mobile Home Park, Ltd. v. Peebles, 2002 UT 48, ¶ 11, 48 P.3d 968. Additionally, because the paramount issue in this case is a question of statutory construction, it is a question of law that we review for correctness. State v. Lusk, 2001 UT 102, ¶¶ 11, 19, 37 P.3d 1103.

ANALYSIS

¶ 9 The issue in this case is whether the loan agreement documents executed by Jerez, as manager of the LLC, are valid and binding on the LLC under section 48-2b-127(2) of the Utah Limited Liability Company Act (the "Act"), as the statute existed at the time Jerez executed the loan agreement, see supra note 1, or whether the documents were not binding on the LLC because, consistent with section 48-2b-125(2)(b) of the Act, the operating agreement effectively denied Jerez the necessary authority to bind the LLC where the agreement provides: "No loans may be contracted on behalf of the [LLC] . . . unless authorized by a resolution of the [m]embers." Taghipour reasons that this operating agreement provision precludes Jerez from executing a loan without a resolution of the members since under section 48-2b-125(2)(b) of the Act a manager cannot bind a limited liability company if the articles of organization or operating agreement does not afford the manager the authority to do so.

I. COMPETING STATUTORY PROVISIONS

¶ 10 To determine whether the loan agreement in this case is valid and binding on the LLC, it must first be determined whether this case is governed by section 48-2b-127(2), which makes certain kinds of documents binding on a limited liability company when executed by a manager, or section 48-2b-125(2)(b), which provides that a manager's authority to bind a limited liability company can be limited or eliminated by an operating agreement.

¶ 11 When two statutory provisions purport to cover the same subject, the legislature's intent must be considered in determining which provision applies. Jensen v. IHC Hosps., Inc., 944 P.2d 327, 331 (Utah 1997). To determine that intent, our rules of statutory construction provide that "when two statutory provisions conflict in their operation, the provision more specific in application governs over the more general provision." Hall v. State Dep't of Corr., 2001 UT 34, ¶ 15, 24 P.3d 958; see also Biddle v. Washington Terrace City, 1999 UT 110, ¶ 14, 993 P.2d 875

.

¶ 12 In this case, the Utah Court of Appeals, affirming the trial court, concluded that section 48-2b-127(2) was more specific than section 48-2b-125(2)(b), and therefore took precedence over it. Taghipour, 2001 UT App 139 at ¶ 13, 26 P.3d 885. However, Taghipour contends that in determining which of the two provisions is more specific, the more restrictive clause is more specific because it is more limiting and "would require authority in all situations." Accordingly, Taghipour contends that section 48-2b-125(2)(b) is the more...