Five individuals, including the plaintiff and Appellant Claude Blanch, were all equal members of a member managed limited liability company organized in 2005, at which time certain assets were transferred into the company.

These assets included certain property in Weber County and some shares in an irrigation company.

The Company never executed an operating agreement but its articles of organization stated that the company would exist for three years, during which time the members would meet and decide how to manage the assets. Although the members held several meetings, they did not determine how to manage the assets. The Company expired in 2008.

Although the Company had expired, the members did not wind up the Company’s affairs or distribute its asset for several years. In October 2015 all the members except Blanch met to wind up the Company’s affairs and voted to list the Assets for sale.

These four members signed a Written Consent. The recitals of this document stated that these 80% owner members desired to wind up the affairs of the Company by selling its assets and distributing the proceeds of the sale. It further stated that Jan Farrell was designated as agent to enter into any and all agreements necessary to implement the winding up of the Company.

Blanch filed a petition to have the district court stop the sale of the assets and to carve out his twenty percent interest so that he could keep that percentage in his own name. He attached a copy of the Written Consent as an exhibit to his petition.

Blanch later filed an Amended Petition in which he alleged that the Utah Revised Uniform Limited Liability Company Act (New Act), effective January 1st, 2016, required all members to unanimously approve the sale of the Company’s assets.

The other four members (the “Appellees”) moved to dismiss Blanch’s petition on the grounds that the Utah Revised Limited Liability Company Act (Old Act) applied to the Written Consent they had signed in October 2015. Under the Old Act only two-thirds of the members’ votes was needed in order to sell the Company’s assets.

In making this argument, the Appellees cited to the language in the Written Consent stating that the authority given under that document shall continue notwithstanding the automatic application of the New Act on January 1, 2016.

The Appellees argued that, even if the New Act did apply, Blanche’s requested remedy of partition of the property could not be granted because distributions of the Company’s assets in its winding up “must be paid in money.” Moreover, because Blanch was not a joint tenant or a tenant in common, he could not bring an action to partition the property.

Blanch made three arguments challenging the Written Consent: 1) that it was void ab initio because it was really an attempt to amend the Articles of Organization to change the LLC from a member-managed to a manager-managed company, and therefore that it was ineffective because such a change would have required the unanimous consent of the members; 2) that the Written Consent was adopted without any notice to him as required by the Old Act, and that this lack of notice invalidated the Written Consent; 3) that two of the signatures on the document were those of transferees or assignees who could not validly provide consent.

But Blanch did not make any of these arguments in the district court and, therefore, he had failed to preserve them for appeal. He did not cite any reason why the preservation rule should not apply.

The main question was whether the Old Act or the New Act applied to the Written Consent. The Old Act required the consent of only two-thirds of the Company’s members for actions outside the ordinary course of business, whereas the New Act required the unanimous consent of all members for such actions. There was no dispute that the sale of the Company’s assets was outside the ordinary course of business.

The New Act was passed in 2013 and was phased in gradually. The New Act states that it applies to 1) a limited liability company formed after January 1, 2014; and 2) to a limited liability company formed before January 1, 2014 which elects in the manner provided in its operating agreement or by law to be subject to the New Act. On or after January 1, 2016 the New Act applies to all limited liability companies.

Neither one of these two circumstances applied in the instant case. Therefore, at the time the Written Consent was executed, the Old Act applied. The Written Consent complied with the voting provisions of the Old Act, as four-fifths of the Company’s members had approved it (more than the two-thirds requirement).

The Written Consent also complied with the Old Act with respect to the manner of winding up the Company’s affairs. The Old Act allowed an agent designated by the Company’s members to act as a trustee for the Company and its creditors in winding up its affairs, including the authority to sell or distribute the Company’s assets, convey real estate and take any other action on behalf of or in the name of the company.

The Act sets out default provisions, which can always be modified by a Company’s Operating Agreement. As mentioned above, the Company in the instant case did not have an Operating Agreement, and its Articles of Organization did not change any default rules, so the default rules of the Old Act applied.

Blanch argued that when the New Act went into effect on January 1, 2016, it voided the Written Consent. But the Court found no language in the New Act that would void actions of the Company taken before the New Act went into effect. Moreover, even if the New Act did somehow invalidate the Written Consent, the Court found that it still could not grant the relief Blanch requested, namely, partition of the Company’s property. The New Act provided that any surplus assets in the winding up of a company’s affairs must be distributed in equal shares among the company’s members and dissociated members and that all such distributions must be in money.

Blanch contended that the district court erred in dismissing his claim for judicial supervision of the Company’s winding up. But Blanch’s Petition to the district court did not specifically ask the court to supervise the winding up. The Court noted that, even if the Petition could be construed to have requested judicial supervision of the winding up, that this was tied to his accompanying request that the Written Consent be invalidated and that the Company’s assets be partitioned, which the court had denied.

The Court of Appeals therefore upheld the district court’s dismissal of Blanch’s Petition.

The case is illustrative of the application of the New Act, which applies to all limited liability companies formed after January 1, 2016. It also illustrates the need for an Operating Agreement if the LLC members wish to change the default provisions of the New Act.

See Blanch v. Farrell, et al., 2018 UT App. 172.

This material should not be construed as legal advice for any particular fact situation, but is intended for general informational purposes only. For advice specific to any individual situation, an experienced attorney should be contacted.