Can a sole member override manager authority in Utah LLCs? Hardy v. Sagacious Grace Explained

In Hardy v. Sagacious Grace, the Utah Court of Appeals addressed whether a sole member of a manager-managed limited liability company can bind the entity to a contract by claiming to act outside the ordinary course of business.

Background and Facts

David Hardy negotiated to purchase property from Sagacious Grace LLC (SG) for $150,000. Leslie Mower, SG’s sole member, signed the real estate purchase contract on behalf of the company. However, SG was a manager-managed LLC with LC Manager, LC serving as the sole manager, and Jami Ross managing LC Manager. When SG later repudiated the contract, Hardy sued to enforce it, arguing that Mower had authority to bind SG either as its manager or by exercising her statutory right as sole member to approve acts outside the ordinary course of business.

Key Legal Issues

The primary issue was whether Mower possessed actual or apparent authority to bind SG to the contract. Hardy argued that under Utah Code § 48-3a-407(3)(c)(ii), Mower could override the general management restriction by consenting to an act outside SG’s ordinary course of activities.

Court’s Analysis and Holding

The court affirmed summary judgment for defendants. Under Utah Code § 48-3a-407(3)(a), manager-managed LLCs vest exclusive decision-making authority in the manager. Mower lacked actual authority because she was not SG’s manager, and she lacked apparent authority because Hardy could have discovered through public filings that she was not the manager. Crucially, the court rejected Hardy’s statutory override argument because he failed to establish that selling property fell outside SG’s ordinary course of business. The record contained insufficient evidence about SG’s business purpose or activities, and Mower’s testimony that SG “simply holds land” suggested property sales could be within the ordinary course.

Practice Implications

This decision emphasizes the importance of verifying LLC management structure through public filings before contract execution. Practitioners should obtain and review the company’s certificate of organization and operating agreement to confirm signatory authority. When relying on statutory overrides for member action, parties must establish what constitutes the entity’s ordinary course of business through concrete evidence rather than speculation.