Can one LLC member bind the company without consent from other members? Sumsion v. Bay Harbor Farm LC Explained

In Sumsion v. Bay Harbor Farm LC, the Utah Court of Appeals addressed whether a single LLC member can bind the company for actions outside the ordinary course of business without obtaining consent from other members. The court’s analysis provides important guidance on LLC governance and attorney-client relationships.

Background and Facts

Bay Harbor Farm, LC was a Utah LLC formed in 1994 with Donald Proctor and Stan Weed each holding 45% interests and serving as managers. After a falling-out in 2001, Weed attempted to dissolve the company, though it continued owning real property. When a worker was injured on the property in 2002, both Bay Harbor and Proctor were named in workers’ compensation litigation. Proctor retained attorney Steven Sumsion to defend him personally and purported to hire Sumsion on behalf of Bay Harbor as well. Weed, however, took no action to defend the company and claimed Bay Harbor had been dissolved.

Key Legal Issues

The central issue was whether Proctor had authority under Utah’s 2005 LLC statute to retain counsel for Bay Harbor without Weed’s consent. The court also addressed whether Sumsion’s claims were time-barred and whether an attorney’s lien could be enforced without a valid attorney-client relationship.

Court’s Analysis and Holding

The court applied Utah Code Section 48-2c-803(3)(a), which required approval by at least two-thirds of profit-sharing members for any action “not in the ordinary course of the company’s business.” Since hiring an attorney for workers’ compensation litigation was outside Bay Harbor’s ordinary farming business, and only Proctor (45% interest) approved Sumsion’s retention while Weed (45% interest) did not, the two-thirds threshold was not met. The court rejected Sumsion’s argument that an unwritten “course of dealing” could vary the statutory default rule, emphasizing that the 2005 statute required operating agreements to be in writing. Additionally, the court found Sumsion’s unjust enrichment claim was time-barred under the four-year statute of limitations.

Practice Implications

This decision underscores the importance of proper authorization in LLC governance. Practitioners representing LLCs must verify that actions outside the ordinary course of business have the required member approval under applicable statutes. The court’s emphasis on written operating agreements also highlights the need for clear documentation of any variations from statutory default rules. For attorneys, this case demonstrates the risks of assuming authority exists without proper verification of client relationships in entity representation.