Blanch v. Farrell , 436 P.3d 285 ( 2018 )

2018 UT App 172THE UTAH COURT OF APPEALS
CLAUDE C. BLANCH,
Appellant,
v.
JAN FARRELL, MARILYN ROYCE, DONENE BRISCOE,
AND BARBARA STUART,
Appellees.
Opinion
No. 20160792-CA
Filed September 7, 2018
Second District Court, Ogden Department
The Honorable Mark R. DeCaria
No. 150907627
Jason M. Yancey, Richard W. Jones, Taylor R. Jones,
Bryce M. Froerer, and Zane S. Froerer, Attorneys
for Appellant
Paul K. Bachman and Dana T. Farmer, Attorneys
for Appellees
JUDGE JILL M. POHLMAN authored this Opinion, in which
JUDGES KATE A. TOOMEY and DAVID N. MORTENSEN concurred.
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.
Blanch v. Farrell
BACKGROUND 1
¶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
1. Because this case is before us on appeal from the motion to
dismiss Blanch’s petition for failure to state a claim, we, like the
district court, “accept the factual allegations in the complaint as
true and consider them and all reasonable inferences to be
drawn from them in a light most favorable to the plaintiff.”
Biedermann v. Wasatch County, 2015 UT App 274, ¶ 2, 362 P.3d
287 (quotation simplified). Accordingly, we state the facts in a
light most favorable to Blanch. See id.20160792-CA 2 2018 UT App 172Blanch v. Farrell
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
20160792-CA 3 2018 UT App 172Blanch v. Farrell
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]
20160792-CA 4 2018 UT App 172Blanch v. Farrell
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
20160792-CA 5 2018 UT App 172Blanch v. Farrell
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 without considering his request for judicial
supervision of the Company’s winding up. 2
I. The District Court’s Consideration of the Written Consent on
Appellees’ Motion to Dismiss
¶16 Blanch first contends that in ruling on Appellees’ motion
to dismiss, the district court erred either by failing to exclude
2. Because Blanch does not raise any specific arguments
connected to the district court’s dismissal of his claim for
partition, we do not address that claim further.
20160792-CA 6 2018 UT App 172Blanch v. Farrell
documents outside of his petition or by failing to convert the
motion to one for summary judgment. See generally Utah R. Civ.
P. 12(b) (explaining that if, on a motion to dismiss for failure to
state a claim upon which relief can be granted, “matters outside
the pleading are presented to and not excluded by the court, the
motion shall be treated as one for summary judgment and
disposed of as provided in Rule 56”). He focuses this challenge
on the district court’s consideration of the Written Consent itself,
asserting that the court’s decision is unsustainable without
reference to it. Appellees counter that the Written Consent was
properly before the court because it was either referenced in or
was central to Blanch’s petition.
¶17 This court generally will not consider an issue on appeal
unless it has been preserved or the appellant asserts that a valid
exception to the preservation rule applies. See State v. Johnson,
2017 UT 76, ¶ 18, 416 P.3d 443. To preserve an issue, the
appellant must present it to the district court “in such a way that
the court has an opportunity to rule on it.” Id. (quotation
simplified). This means that “the issue must be specifically
raised, in a timely manner, and must be supported by evidence
and relevant legal authority.” Donjuan v. McDermott, 2011 UT 72,
¶ 20, 266 P.3d 839.
¶18 Here, Blanch attached the Written Consent as an exhibit
to his original petition, and then he alleged in his amended
petition that Appellees “have proposed and are desirous of
selling [the Assets] and distributing the cash sales proceeds” and
that they “have attempted to list all of the assets . . . for sale.”
Appellees responded with a motion to dismiss and attached the
Written Consent.
¶19 But Blanch did not object to Appellees’ reliance on the
Written Consent and he never asserted that the district court
could not consider it in ruling on the motion to dismiss or that
the court should treat the motion as one for summary judgment
under rule 56. As a result, Blanch did not raise the issue of
whether the Written Consent was a matter outside the pleading
requiring the motion to be converted, and he did not give the
20160792-CA 7 2018 UT App 172Blanch v. Farrell
district court the opportunity to rule on it. See Johnson, 2017 UT
76, ¶ 18. He therefore did not preserve this issue for appeal. 3
II. The Enforceability of the Written Consent
¶20 Blanch contends that the Written Consent is
unenforceable, raising several arguments in support. We first
identify which of his arguments have been preserved. We then
address whether the authority granted to Farrell under the
Written Consent—to sell the Assets for the purpose of winding
up the Company—survives the application of the New Act.
A. Whether the Written Consent Was Void Ab Initio
¶21 On appeal, Blanch makes three arguments seeking to
undermine the validity of the Written Consent. First, Blanch
suggests that the Written Consent was void ab initio when
signed “because [it] is really a defective attempt to amend the
Articles of Organization and change the management structure
from member-managed to manager-managed,” and it therefore
“would have been deemed ineffective since it would require
unanimous consent of the members” to make such changes.
Second, Blanch asserts that the Written Consent was adopted
“without any notice” to him, as required by the Old Act, and
that this lack of notice “invalidates the Written Consent.” Third,
Blanch complains that, because two of the signatures on the
Written Consent were those of “assignees/transferees of the
members who could not [validly provide] consent,” the “Written
Consent is not valid and never was.” But he did not make any of
these arguments to the district court and thus he has not
preserved them for appeal. Because he did not preserve these
arguments or assert any exception to the preservation rule, we
3. Given Blanch’s failure to properly challenge the district court’s
consideration of the Written Consent in ruling on the motion to
dismiss, we likewise consider the Written Consent in reviewing
the district court’s decision.
20160792-CA 8 2018 UT App 172Blanch v. Farrell
do not consider them further. See State v. Johnson, 2017 UT 76,
¶ 18, 416 P.3d 443.
B. The Continuing Force of the Written Consent
¶22 Blanch next challenges the district court’s conclusion that
the Written Consent has continuing force, thus giving Farrell the
authority to carry out the sale of the Assets even after the New
Act became effective. According to Blanch, the district court
erred in concluding that the Written Consent has binding “effect
after January 1, 2016 when the New Act required the approval of
all members” for such an action. He asserts that “at best, the
Written Consent was [in] effect until it was superseded by the
terms and provisions of the [New] Act.” In other words, “if the
Written Consent was ever valid . . . , it was only valid until
January 1, 2016—after which time, the New Act and its
provisions applied to all [limited liability companies].” By ruling
that the Written Consent is still operative, Blanch asserts, “the
Court is allowing the Company to continue . . . operat[ing] under
the [Old] Act.”
¶23 To resolve this issue, we must answer two questions. The
first is whether the Written Consent—representing the
Company’s approval of the sale of the Assets as part of its
winding up—required the unanimous consent of its members or
the consent of only two-thirds of its members. The answer to this
question turns on whether the Written Consent had to comply
with the voting requirements of the Old Act or the New Act. The
second question is whether the New Act, which became effective
as to all limited liability companies three months after the
Written Consent was passed, deprived the Written Consent of its
force as of January 1, 2016.
¶24 For a member-managed limited liability company like the
Company, the Old Act provided that “authorizing a member or
any other person to do any act on behalf of the company that is
not in the ordinary course of the company’s business” required
“the affirmative vote, approval, or consent of members holding
2/3 of the profits interests in the company.” Utah Code Ann.
20160792-CA 9 2018 UT App 172Blanch v. Farrell
§ 48-2c-803(3)(a)(i) (LexisNexis 2010). In contrast, the New Act
provides that “[a]n act outside the ordinary course of the
activities and affairs of the limited liability company may be
undertaken only with the affirmative vote or consent of all
members.” Id. § 48-3a-407(2)(d) (2015) (emphasis added). The
parties agree that authorizing the sale of assets as part of the
winding-up process falls outside the ordinary course of business.
¶25 Originally passed in 2013, the New Act was phased in
gradually. See generally id. §§ 48-3a-101 to -1405. Section
48-3a-1405 sets forth the New Act’s scheduled applicability. It
provides that before January 1, 2016, the New Act “governs only:
(a) a limited liability company formed on or after January 1,
2014; and (b) . . . a limited liability company formed before
January 1, 2014, which elects, in the manner provided in its
operating agreement or by law for amending the operating
agreement, to be subject to [the New Act].” Id. § 48-3a-1405(1);
see also id. § 48-2c-100 (Supp. 2013) (“Until [the Old Act] is
repealed January 1, 2016, [it] applies only to a limited liability
company formed on or before December 31, 2013, that has not
elected to be governed by [the New Act], as provided in Section
48-3a-1405.”). On or after January 1, 2016, however, the New Act
“governs all limited liability companies.” Id. § 48-3a-1405(2)
(2015) (emphasis added).
¶26 Neither one of the circumstances under subsection
48-3a-1405(1)(a) or (b) is applicable here. The Company was
formed before January 1, 2014, and, as Blanch explains, by
October 2015, “the Company had not chosen to be governed by
[the New] Act and the effective date imposing [the New] Act
had yet to occur.” Thus, at the time Appellees approved the
Written Consent in October 2015, the Old Act still governed, 4
4. The Old Act allowed limited liability companies, through the
articles of organization or an operating agreement, to modify the
applicable default rule requiring “the affirmative vote, approval,
or consent of members holding 2/3 of the profits interests in the
(continued…)
20160792-CA 10 2018 UT App 172Blanch v. Farrell
and because Appellees hold four-fifths of “the profits interests in
the company,” they had more than the necessary two-thirds vote
to approve the Written Consent. See id. § 48-2c-803(3) (2010).
Accordingly, the Written Consent complied with the voting
requirements of the Old Act.
¶27 The Written Consent also appears to comply with the Old
Act’s provisions regarding the designation of an agent for the
winding-up process. Utah Code section 48-2c-1303 directed that
for a member-managed company, “the following persons . . .
shall have the right to wind up the business of a dissolved
company: . . . first, the existing members or, second, an agent
designated by the existing members.” Id. § 48-2c-1303(1)(b). That
section further provided that the
person who winds up the business and affairs of a
dissolved company . . . shall . . . become a trustee
for the members and creditors of the company and,
in that capacity, may sell or distribute any
company property discovered after dissolution,
convey real estate, and take any other necessary
action on behalf of and in the name of the
company.
(…continued)
company.” Utah Code Ann. § 48-2c-803(3)(a)(i) (LexisNexis
2010); see also id. § 48-2c-803 (setting forth the default rules for
management by members “unless otherwise provided in this
chapter, in the articles of organization, or an operating
agreement”); OLP, LLC v. Burningham, 2008 UT App 173, ¶ 18,
185 P.3d 1138 (noting that “the provisions of the LLC Act serve
as default positions that govern an LLC if its members do not
include contrary language in their operating agreement or in the
LLC’s articles of organization”), aff’d, 2009 UT 75, 225 P.3d 177.
The Company’s articles of organization made no such
modification, and the Company did not have an operating
agreement. Consequently, the Old Act’s default rule applies.
20160792-CA 11 2018 UT App 172Blanch v. Farrell
Id. § 48-2c-1303(2)(a). This statute thus authorized the members
of this dissolved company to designate Farrell as an agent to
wind up the Company and also authorized Farrell to then sell
the Assets.
¶28 Blanch contends that when the New Act became effective
as to all limited liability companies on January 1, 2016, the
Written Consent became void, thereby depriving Farrell of any
authority to carry out the sale of the Assets, and that the sale of
the Assets would require the unanimous approval of the
Company’s members under the New Act. We read section
48-3a-1405 to mean that, after January 1, 2016, the New Act,
including its unanimity requirement under section 48-3a-407,
applies to all limited liability companies and all actions they
take. But we see nothing in section 48-3a-1405’s plain language
or anything else in the New Act that supports the proposition on
which Blanch’s argument depends, namely, that the New Act’s
broad implementation on January 1, 2016, had the effect of
invalidating previous actions taken by a limited liability
company. See generally Bagley v. Bagley, 2016 UT 48, ¶ 10, 387
P.3d 1000 (stating that “the primary objective of statutory
interpretation is to ascertain the intent of the legislature” and
that “since the best evidence of the legislature’s intent is the
plain language of the statute itself, we look first to the plain
language of the statute” (quotations simplified)). Moreover,
Blanch has not identified any pertinent authority in support of
his reading of the New Act. 5 See Bank of Am. v. Adamson, 2017 UT
5. Even if the New Act somehow invalidated the Written
Consent and the authority granted thereunder to proceed with
the sale of the Assets, Blanch has not demonstrated that he
would be entitled to the relief he seeks, that is, the distribution of
the Assets. To the contrary, the default rules under the New Act
provide that, in winding up a company, any surplus assets must
be distributed “in equal shares among members and dissociated
members” and all such distributions “must be paid in money.”
Utah Code Ann. § 48-3a-711(2)–(4) (LexisNexis 2015) (emphasis
(continued…)
20160792-CA 12 2018 UT App 172Blanch v. Farrell
2, ¶ 13, 391 P.3d 196 (explaining that an appellant will not carry
his burden of persuasion on appeal if he fails to “cite the legal
authority on which [his] argument is based and then provide
reasoned analysis of how that authority should apply in [this]
particular case”). We therefore conclude that the district court
did not err in deciding that Blanch did not state a claim in light
of the Written Consent.
III. Blanch’s Request for Judicial Supervision
¶29 Finally, Blanch contends that the district court erred by
dismissing his alleged claim for judicial supervision of the
Company’s winding up. In particular, he asserts that, to state
such a claim under Utah Code section 48-3a-703 of the New Act,
“all [he] was required to [do was] plead good cause” and that
the petition’s factual allegations constituted “prima facie good
cause to have the Court supervise the winding up process.”
¶30 Section 48-3a-703 of the New Act provides that a “district
court may order judicial supervision of the winding up of a
dissolved limited liability company, including the appointment
of a person to wind up the limited liability company’s activities
and affairs: (a) on application of a member, if the applicant
establishes good cause.” Utah Code Ann. § 48-3a-703(5)(a)
(LexisNexis 2015) (emphasis added).
¶31 Blanch’s amended petition labeled a cause of action
“Dissolution of [the Company],” and it requested that the
district court require “the winding up of [the Company to]
follow the applicable statute found in [section] 48-3a-703; [and]
that the assets be distributed to the members of the expired
[Company] in proportion to their respective interests.” Although
(…continued)
added). Given this provision, we agree with Appellees that
Blanch has not explained how the court could give him “land
and water in lieu of money.”
20160792-CA 13 2018 UT App 172Blanch v. Farrell
Blanch sought judicial relief, he did not specifically ask the court
to oversee the winding-up process. But even if Blanch’s claim
could be construed as an application for judicial supervision of
that process, his request was tied to his attendant request for
distribution of the Assets, which was based on his contentions
that they could not be sold without his approval and that the
Written Consent has no force or effect under the New Act.
Blanch did not alert the court to the fact that he sought judicial
supervision of the process generally, as he now seems to claim
on appeal. See generally State v. Johnson, 2017 UT 76, ¶ 18, 416
P.3d 443 (explaining that to preserve an issue, the appellant must
present it to the district court “in such a way that the court has
an opportunity to rule on it” (quotation simplified)). Thus,
having rejected Blanch’s claims for distribution and partition of
the Assets, we cannot fault the district court for dismissing his
petition without addressing whether he had demonstrated good
cause to warrant ongoing judicial supervision of the winding-up
process. 6
6. In his reply brief, Blanch complains that the district court
erred in dismissing his petition with prejudice. We do not
consider issues that are raised for the first time in a reply brief.
See Allen v. Friel, 2008 UT 56, ¶ 8, 194 P.3d 903. Blanch noted in
his opening brief that “by dismissing the claims with prejudice,
the [District] Court has permanently barred [him] from
requesting the Court judicially administer the winding up of the
company.” But he does not assert until his reply brief that the
district court committed error in this regard. As a result, we do
not consider this issue further, except to note that at oral
argument before this court, Appellees’ counsel stated, “Even if
[this court affirms] on the Written Consent, if there’s some basis
for [Blanch] to come in and still ask for judicial dissolution with
the Written Consent in place, . . . theoretically, . . . he should
have the opportunity to be able to do that. . . . His ability to ask
for supervision, as long as he can state good cause and the court
finds good cause, is there.”
20160792-CA 14 2018 UT App 172Blanch v. Farrell
CONCLUSION
¶32 We conclude that Blanch has waived all but one of his
arguments challenging the district court’s dismissal of his
petition by failing to preserve them. On his only properly
presented issue, we conclude that Blanch has not carried his
burden of demonstrating that the district court erred.
Accordingly, we affirm.
20160792-CA 15 2018 UT App 172