Can LLC operating agreements limit a manager's authority to mortgage property? Taghipour v. Jerez Explained

In Taghipour v. Jerez, the Utah Supreme Court addressed a critical question about the interplay between LLC operating agreements and statutory authority for property transactions. The case involved an LLC manager who executed a loan agreement and trust deed without member approval, directly violating the operating agreement’s requirement for member authorization of loans.

Background and Facts

Namvar Taghipour, Danesh Rahemi, and Edgar Jerez formed an LLC to purchase and develop real estate. The operating agreement explicitly stated: “No loans may be contracted on behalf of the [LLC] . . . unless authorized by a resolution of the [m]embers.” Despite this restriction, Jerez, acting as the LLC’s designated manager, secretly entered into a $25,000 loan agreement with Mt. Olympus Financial and executed a trust deed securing the LLC’s property. After Jerez misappropriated the funds and defaulted on the loan, Mt. Olympus foreclosed on the property.

Key Legal Issues

The central issue was whether Utah Code section 48-2b-127(2), which makes certain property-related documents “valid and binding” when executed by an LLC manager, prevails over section 48-2b-125(2)(b), which allows operating agreements to limit a manager’s authority. This presented a classic conflict between specific and general statutory provisions.

Court’s Analysis and Holding

The Utah Supreme Court applied the principle that specific statutory provisions govern over general ones. The court determined that section 48-2b-127(2) specifically addresses “instruments and documents providing for the acquisition, mortgage, or disposition of property,” making it more specific than the general manager authority provisions in section 48-2b-125(2)(b). The court emphasized that the specific statute contains no limitations based on operating agreement restrictions and creates no additional requirements beyond manager execution.

Practice Implications

This decision significantly impacts LLC practice by establishing that operating agreement restrictions cannot override the statutory authority granted to managers for property transactions under section 48-2b-127(2). Practitioners should advise LLC members that standard operating agreement limitations may be insufficient to prevent unauthorized property encumbrances. Alternative protective measures, such as requiring multiple signatures or removing manager designation for property matters, may be necessary to maintain meaningful control over property transactions.