Can LLC members sue for repudiation damages outside statutory dissolution procedures? OLP v. Burningham Explained

In OLP v. Burningham, the Utah Court of Appeals addressed whether members of a limited liability company can pursue common law repudiation claims despite the comprehensive statutory framework governing LLC dissolution under Utah’s Limited Liability Company Act.

Background and Facts

Wilson and Burningham formed OLP, LLC as equal owners to operate a lens coating business. From 1998 to 2001, disputes arose over management decisions and profit sharing. Wilson alleged that Burningham wrongfully excluded him from the business, used LLC equipment primarily for his separate corporation’s benefit, and converted OLP’s assets to his own use. Wilson sued for repudiation of their LLC agreement, seeking damages rather than statutory dissolution.

Key Legal Issues

The central question was whether the Utah Limited Liability Company Act’s comprehensive dissolution procedures preclude common law repudiation claims. Burningham argued that the LLC Act provides the exclusive remedy for disputes between members, requiring judicial dissolution, accounting, and winding up procedures. Wilson countered that repudiation claims exist independently from statutory dissolution procedures.

Court’s Analysis and Holding

The Court of Appeals held that common law repudiation actions remain available to LLC members despite the LLC Act’s comprehensive framework. Drawing on Wanlass v. DLand Title, the court explained that repudiation claims are not dissolution actions but rather damage claims for wrongful exclusion and asset conversion. The court distinguished between dissolution procedures and damage claims, noting that an excluded member may “waive the tort or breach and sue to specifically enforce the partnership or joint venture agreement” or “submit to the repudiation and sue for damages.”

Practice Implications

This decision provides important strategic options for LLC practitioners. When a member is wrongfully excluded from an LLC, attorneys should consider whether pursuing repudiation damages might yield better results than statutory dissolution proceedings. Repudiation claims can potentially recover lost profits and other damages that may exceed what would be available through formal dissolution and liquidation. The court also clarified that the existence of the LLC need not be disputed for repudiation claims to proceed, rejecting a narrow interpretation that would have limited such claims significantly.