Utah Supreme Court
Can a limited liability company member avoid expulsion by claiming retirement? CCD v. Millsap Explained
Summary
Christopher Millsap, a member and manager of CCD limited liability company, misappropriated over $625,000 from the company’s trust account for personal use. After entering an amended operating agreement giving him a second chance, Millsap continued misappropriating funds. When CCD sought to expel him under the Utah Limited Liability Company Act, Millsap claimed he had retired and could not be expelled.
Analysis
In CCD v. Millsap, the Utah Supreme Court addressed whether a limited liability company member could avoid statutory expulsion by claiming retirement after engaging in wrongful conduct. This case provides crucial guidance for practitioners handling LLC member disputes and expulsion proceedings.
Background and Facts
Christopher Millsap was a member and manager of CCD, L.C., which operated a title company. After Millsap misappropriated $625,000 from the company’s trust account for personal real estate investments, the members entered an amended operating agreement giving him a second chance. Despite this agreement specifically prohibiting him from accessing trust accounts, Millsap continued misappropriating funds, taking an additional $11,540.06. When CCD moved to expel him under Utah Code section 48-2c-710, Millsap claimed he had retired and could no longer be expelled as a member.
Key Legal Issues
The central issue was whether a limited liability company member could avoid judicial expulsion under the Utah Limited Liability Company Act by claiming retirement after engaging in conduct warranting expulsion. The court also examined the relationship between contractual operating agreement provisions and statutory expulsion rights that cannot be waived.
Court’s Analysis and Holding
The Utah Supreme Court rejected Millsap’s “I quit before you fired me” argument, holding that policy considerations underlying the Limited Liability Company Act prevent members from avoiding expulsion through strategic retirement. The court emphasized that allowing such tactics would frustrate the Act’s purpose of providing companies with tools to remove members who engage in wrongful conduct. The court noted that Utah Code section 48-2c-120(1)(f) expressly prohibits operating agreements from varying statutory expulsion rights, demonstrating the legislature’s intent to preserve these protections.
Practice Implications
This decision reinforces that statutory expulsion provisions under Utah Code section 48-2c-710 cannot be circumvented by membership withdrawal or retirement claims. Practitioners should focus expulsion actions on the statutory grounds rather than contractual provisions, as these rights are non-waivable. The decision also clarifies that companies need not seek expulsion immediately upon discovering misconduct—they may provide second chances without waiving future expulsion rights for continued wrongdoing.
Case Details
Case Name
CCD v. Millsap
Citation
2005 UT 42
Court
Utah Supreme Court
Case Number
No. 20020875
Date Decided
July 8, 2005
Outcome
Affirmed
Holding
A member of a limited liability company cannot avoid expulsion under Utah Code section 48-2c-710 by attempting to retire after engaging in wrongful conduct that materially affects the company’s business.
Standard of Review
Correctness for summary judgment determinations and legal conclusions
Practice Tip
When representing limited liability companies seeking member expulsion, focus on the statutory grounds under Utah Code section 48-2c-710 rather than contractual expulsion provisions, as statutory rights cannot be waived by operating agreements.
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