Opinion ID: 6218252
Heading Depth: 2
Heading Rank: 2

Heading: the district court erred in dissolving hn

Text: ¶23 Turning to the merits, we find that the district court erred in dissolving H&N for two distinct reasons. First, the district court erred in dissolving H&N because the clear terms of the election statute require the district court to grant H&N‟s duly-filed election in lieu of dissolution. And second, the district court erred in dissolving H&N because the court did so at the close of an unrelated valuation hearing—without affording Vicki (a 50% member of H&N and a party to the proceedings) prior notice or an opportunity to be heard. A. The District Court Erred in Dismissing H&N’s Election ¶24 The Utah Revised Limited Liability Company Act of 2001 granted members, for the first time, the right to petition for the judicial dissolution of their company on the grounds that the manager acted in a manner that was “illegal, oppressive, or fraudulent.” UTAH CODE § 48-2c-1210(2)(b). This same act, however, granted companies and non-petitioning members the corollary right to avoid dissolution by timely electing to purchase the petitioning member‟s interest in the company at its “fair market value.” Id. § 48-2c-1214(1). H&N timely exercised this right when it filed an election to purchase Dianne‟s shares within 90 days of Dianne‟s petition for dissolution. See id. § 48-2c-1214(2). Once timely filed, H&N‟s right to purchase Dianne‟s membership interest was absolute—and the district court erred in treating H&N‟s election as a mere optional right subject to the equitable discretion of the courts. ¶25 The district court located its authority to dismiss H&N‟s election and order dissolution in subsection 1214(1) of the election statute. That provision states that “[a]n election pursuant to this section is irrevocable unless the court determines that it is equitable to set aside or modify the election.” Id. § 48-2c-1214(1). The court reasoned that this provision “grants the court express statutory authority to set aside the election made by H&N . . . in the interest of equity.” Nevertheless, the district court‟s opinion supplemental briefing that Vicki was appealing both the dismissal of her election as well as H&N‟s election and that, “regardless of which party challenges the district court‟s actions, the arguments are the same.” 9 NELSON v. HILLS Opinion of the Court misapprehends both the plain meaning and the purpose of subsection 1214(1).8
¶26 When interpreting a statute, “we first look to the plain language of the statute and seek to interpret it in harmony with other statutes in the same chapter and related chapters.” Kamoe v. Ridge, 2021 UT 5, ¶ 15, 483 P.3d 720 (citation omitted) (internal quotation marks omitted). Here, the plain language of subsection 1214(1), both by itself and when read in harmony with other provisions in the statute, makes clear that courts do not have the authority to dismiss or deny duly-filed elections. Once a party duly-files an election, courts only have the discretion to approve or deny the electing party’s request to set aside or modify the election. ¶27 Subsection 1214(1) states: “An election pursuant to this section is irrevocable unless the court determines that it is equitable to set aside or modify the election.” The use of the word “irrevocable” is instructive. Utah law consistently uses the word “irrevocable” to indicate that an action cannot be undone by the actor who initiated it.9 Similarly, in every instance in which some ___________________________________________________________ 8 “A district court‟s interpretation of a statute is a question of law, which we . . . review for correctness.” Harvey v. Cedar Hills City, 2010 UT 12, ¶ 10, 227 P.3d 256. The availability of an equitable remedy is a legal conclusion that is also reviewed for correctness, and the formulation and application of an equitable remedy is reviewed for an abuse of discretion. See Ockey v. Lehmer, 2008 UT 37, ¶ 42 n.38, 189 P.3d 51. 9 For example, an irrevocable trust is one that cannot be undone by the settlor. See UTAH CODE § 75-7-605(1) (“Unless the terms of a trust expressly provide that the trust is irrevocable, the settlor may revoke or amend the trust.”); In re Hoopiiaina Trust, 2006 UT 53, ¶¶ 3 n.2, 31, 144 P.3d 1129 (holding that the settlor of two trusts “could not revoke or modify the trusts” where the trusts documents provided: “This trust shall be irrevocable. At no time shall any beneficial interest in the property inure to the Settlor”). Similarly, a bidder at a public auction makes an “irrevocable offer” to buy the bid-for property and is subject to penalties if she fails to do so. See UTAH CODE § 57-1-27 (providing that a bidder at a sale of trust property by public auction makes an “irrevocable offer” and, in the event of a refusal to pay, loses her deposit and is liable for 10 Cite as: 2022 UT 6 Opinion of the Court form of the verb “revoke” is used in the Utah Revised Limited Liability Company Act, the verb implies action from the party who first initiated the specified act. See, e.g., UTAH CODE § 48-2c403(1)(e) (an LLC may “revoke[]” the authority of its registered agent.); id. § 48-2c-706 (any member of an LLC may consent to the LLC taking action without meeting or prior notice, but any member may “revoke” such consent.); id. § 48-2c-1205 (an LLC that has filed for voluntary dissolution “may revoke” such dissolution within 120 days of the dissolution). Interpreted in this context, the word “irrevocable” as used in subsection 1214(1) must refer to revocation by the party who elected to purchase the membership interest of the member who petitioned for dissolution. And the substance of this provision sets forth a general rule that once a party elects to purchase a member‟s interest under the statute, that party cannot back out of the election. ¶28 The remainder of subsection 1214(1) provides an exception to this general rule: noting that an election is irrevocable “unless the court determines that it is equitable to set aside or modify the election.” (emphasis added). The word “unless” has the same logical meaning as “except if,”10 making it clear that the court‟s equitable power to set aside an election rests only as an exception for the electing party to request if it wants to back out of an otherwise irrevocable election. Nowhere does this sentence confer to the court discretion to dismiss or deny a duly-filed election for equitable reasons. ¶29 Two additional provisions of the election statute support our conclusion that a company has an absolute right to avoid dissolution by filing a timely election. First, subsection 1214(2)(a) sets forth election filing procedures and states that if the company files an election within 90-days of the petition for dissolution, “the “any loss occasioned by the refusal”); see also UTAH R. CIV. P. 69B(f) (“Every bid [at a sheriff‟s sale] is an irrevocable offer. If a person refuses to pay the amount bid, the person is liable for the difference between the amount bid and the ultimate sale price.”). And under the Utah Adoption Act, a consent to adoption of a child, or a relinquishment of a child for adoption, “may not be revoked” once signed. UTAH CODE § 78B-6-126. 10 See Unless, CAMBRIDGE DICTIONARY, https://dictionary.cambridge.org/us/dictionary/english/unless (last visited Jan. 31, 2022) (defining “unless” as “except if”). 11 NELSON v. HILLS Opinion of the Court company shall purchase the interest in the manner provided in this section.” This is a straightforward mandate—indicating that once the company files an election, all parties are locked into that course of action. This mandate does not permit the court to object to the election on equitable grounds. ¶30 Second, subsection 1214(2)(e) states that, once an election has been filed, the dissolution proceedings “may not be discontinued or settled, nor may the petitioning member sell or otherwise dispose of his interest in the company, unless the court determines that it would be equitable to the company and the members, other than the petitioning member,” to permit such a disposition. In other words, once the company files its election in lieu of dissolution, the petitioning member is obligated to sell its interest to the company—except if the court, in the interest of equity, allows the petitioning member to “discontinue[] or settle” the proceedings or dispose of the member‟s interest in some other manner. This section does not permit the petitioning member to avoid the sale of its interest by moving the court to dismiss a dulyfiled election in equity. Instead, the petitioning member can only avoid the sale of its membership interest to the electing party by withdrawing its petition for dissolution or disposing of its membership interest with court approval. And even here, the court is only permitted to grant the petitioning member this relief if “the court determines it would be equitable to the company and the members, other than the petitioning member.” Id. § 48-2c1214(2)(e). ¶31 Therefore, the plain language of subsection 1214(1), interpreted in harmony with other provisions in the same section and chapter, makes clear that a company has an absolute right to avoid dissolution by timely filing an election to purchase the petitioning member‟s interest. The petitioning member must accept the sale of its membership interest or seek leave from the court to withdraw its petition for dissolution or dispose of its membership interest in some other manner. But the plain language of the election statute does not permit the court to dismiss a dulyfiled election on equitable grounds in order to proceed with the dissolution of the company.
¶32 “The best evidence of the legislature‟s intent is the plain language of the statute,” State v. Ogden, 2018 UT 8, ¶ 31, 416 P.3d 1132 (citation omitted) (internal quotation marks omitted), and we look beyond a statute‟s plain language only if the relevant 12 Cite as: 2022 UT 6 Opinion of the Court language is ambiguous, Graves v. N.E. Services, Inc., 2015 UT 28, ¶ 67, 345 P.3d 619. We do not believe the language in subsection 1214(1) is ambiguous. However, we recognize that the district court in this case interpreted the statute differently. We also recognize that the New Hampshire Supreme Court has likewise interpreted a similar statute (governing limited liability companies in New Hampshire) to grant district courts discretion to dismiss duly-filed elections in equity. See Bendetson v. Killarney, Inc., 913 A.2d 756 (N.H. 2006). As such, we find it prudent to briefly describe how our interpretation of subsection 1214(1) aligns with the purpose of the election statute in light of its legislative history and relevant commentary. ¶33 The Utah Legislature modeled subsection 1214(1) on a similar provision found in the Utah Revised Business Corporation Act. See Brent R. Armstrong, New Revisions to Utah’s Limited Liability Company Act—the LLC Revolution Rolls On, UTAH BAR JOURNAL, August/September 2001, at 8, 12. Indeed, the language of both provisions is identical. Compare UTAH CODE § 48-2c-1214(1), with id. § 16-10a-1434(1). The Official Commentary to the Utah Revised Business Corporation Act notes that many courts “hesitate[] to award dissolution . . . because of its adverse effects on shareholders, employees, and others who may have an interest in the continuation of the business.” OFFICIAL COMMENTARY TO UTAH REVISED BUSINESS CORPORATION ACT, at 437 (Utah State Bar and Utah Business Corporation Act Revision Committee eds., 1992). The commentary continues by explaining that “it is rarely necessary to dissolve the corporation and liquidate its assets in order to provide relief.” Id. Instead, “the rights of a petitioning shareholder are fully protected by liquidating only that shareholder‟s interest and paying the fair value of such shareholder‟s shares while permitting the remaining shareholders to continue the business.” Id. As such, the commentary states that the corporate election statute “affords an orderly procedure by which a dissolution proceeding . . . can be terminated upon payment of the fair value of the petitioner‟s shares.” Id. ¶34 Notably, the commentary states that an “election to purchase is wholly voluntary, but it can be made as a matter of right within 90 days” after a petitioner files for dissolution. Id. (emphasis added). Once an election is filed, “[t]he petitioner becomes irrevocably committed to sell the shares.” Id. The commentary also notes that the law makes elections irrevocable (subject to the court‟s discretion) in order to “reduce the risk that . . . the buyout election will be used for strategic purposes.” Id. 13 NELSON v. HILLS Opinion of the Court ¶35 Read as a whole, the commentary to the Utah Revised Business Corporation Act reinforces what a comprehensive, plainmeaning reading of subsection 1214(1) already tells us: An electing company or member has an absolute right to avoid dissolution. The legislature granted electing parties this right in order to avoid the costly and often unnecessary nature of dissolution. The specific provision providing that an election “is irrevocable unless the court determines that it is equitable” to set it aside was crafted for the express purpose of reducing the risk that a party would file and then revoke an election for strategic purposes. This framework leaves no room for a court to deny a duly-filed election unilaterally in the name of equity.11
¶36 The district court erred when it found that subsection 1214(1) gave it discretion to “set aside the election made by H&N . . . in the interest of equity.” It is undisputed that H&N timely filed its election and never sought to revoke it. As such, H&N could make its election as a matter of right, and the district court lacked the power to dismiss the election and order the dissolution of H&N. Accordingly, we reverse the district court‟s decision to ___________________________________________________________ 11 Our interpretation of subsection 1214(1) is further bolstered by the legislative history of a similar provision in New York. New York Business Corporation Law section 1118 grants companies and shareholders the right to avoid dissolution by electing to purchase the shares of a shareholder petitioning for dissolution. See N.Y. BUS. CORP. LAW § 1118 (2021). Subsection 1118(a) of this statute states: “An election pursuant to this section shall be irrevocable unless the court, in its discretion, for just and equitable considerations, determines that such election be revocable.” Id. However, “[a]s originally enacted, section 1118 permitted electing shareholders to revoke their elections at any time.” In re Dissolution of Penepent Corp., 96 N.Y.2d 186, 192 (N.Y. 2001). “The amendment was prompted by concerns that majority shareholders could make section 1118 elections, prolong negotiations as to the fair value, and then revoke their elections, thus delaying the dissolution proceedings and exhausting the petitioning shareholder‟s resources.” Id. Thus, the legislative history of this provision in New York makes clear that courts‟ equitable considerations are limited to guarding against the unfair revocation of an election by the electing party. 14 Cite as: 2022 UT 6 Opinion of the Court dismiss H&N‟s election, dissolve H&N, and appoint a receiver to liquidate H&N‟s assets. And we remand this case back to the district court with instructions to continue the valuation and election proceedings in a manner consistent with this opinion and the election statute.12 B. The District Court Violated Vicki’s Due Process Rights by Ordering the Dissolution of H&N and the Removal of Burke as Manager Without Notice or an Opportunity to Be Heard ¶37 The district court also erred in ordering the dissolution of H&N for the independent reason that it did so sua sponte—without providing Vicki (a 50% member of H&N and a party to the lawsuit) notice and an opportunity to be heard.13 “In our judicial system . . . all parties are entitled to notice that a particular issue is being considered by a court and to an opportunity to present evidence and argument on that issue before decision.” Plumb v. State, 809 P.2d 734, 743 (Utah 1990). A court‟s “failure to give adequate notice and opportunity to participate can constitute a denial of due process under article I, section 7 of the Utah Constitution.” Id. Indeed, “[n]otice is a minimum constitutional precondition to a proceeding which will adversely affect the liberty or property interests of any party.” See Jordan v. Jensen, 2017 UT 1, ¶ 20, 391 P.3d 183 (quoting Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 800 (1983)). Here, the district court deprived Vicki of her constitutional due process rights when it ordered the ___________________________________________________________ 12 Vicki also appeals the district court‟s denial of her “conditional” election to purchase Dianne‟s shares in the event that the court found H&N‟s election ineffective or invalid. However, the election statute does not contemplate a “conditional” election made by a member after the company has already filed an election. A member “may elect to purchase” a petitioning member‟s interest only “if [the company] fails to elect.” UTAH CODE § 48-2c-1214(1). As such, because H&N did file an election to purchase Dianne‟s interest, Vicki‟s “conditional” election was void ab initio. 13Whether the district court gave constitutionally adequate notice that the stayed removal and dissolution claims and the issues of fraud and oppression would be decided at the valuation hearing is a legal issue that is reviewed for correctness. See Salt Lake Legal Defender Ass’n v. Atherton, 2011 UT 58, ¶ 9, 267 P.3d 227. 15 NELSON v. HILLS Opinion of the Court dissolution of H&N and the removal of Burke as manager without providing her notice or an opportunity to be heard. ¶38 The district court ordered the dissolution of H&N at the close of a fair market valuation hearing of Dianne‟s membership interest in H&N. The district court‟s Scheduling Order for the valuation hearing stated that the purpose of the evidentiary hearing was “to determine the fair market value of Dianne C. Nelson‟s interest in H&N Holdings, LLC.” Likewise, the Prehearing Order stated that the court would hold a “three-day valuation hearing . . . with respect to the value of Dianne Nelson‟s interest in H&N Holdings, LLC.” Neither of these orders adequately informed Vicki “of the nature of the proceedings against [her],” as they failed to indicate that the court would also consider Dianne‟s claim for the dissolution of H&N and the removal of Burke as manager. See Nelson v. Jacobsen, 669 P.2d 1207, 1212 (Utah 1983) (finding notice of trial “constitutionally deficient” where it “described the nature of the proceedings” in “ambiguous terms”). ¶39 Moreover, the dissolution and removal claims were never briefed or argued before the court.14 In fact, the district court had stayed both claims before the hearing—thereby depriving Vicki of the opportunity to pursue discovery on the claims. “It is error to adjudicate issues not raised before or during trial and unsupported by the record. . . . [A] trial court has no authority to render a decision on issues not presented for determination. Any findings ___________________________________________________________ 14 While the district court admitted evidence of the fraud and oppression claims against Burke at the valuation hearing in connection with Dianne‟s claims for attorney fees under the election statute, see UTAH CODE § 48-2c-1214(5)(d), this did not entitle the court to consider that evidence in connection with Dianne‟s dissolution and removal claims. Once a petitioning member‟s shares have been bought-out pursuant to the election statute, Utah Code section 48-2c-1214(5)(d) allows the court to award attorney fees to that member upon a showing that there was “probable ground” for dissolution. However, this “probable ground” standard is a lesser burden of proof than the “preponderance of evidence” or “clear and convincing” standard that would be necessary to prove fraud or oppression in the proper setting. 16 Cite as: 2022 UT 6 Opinion of the Court rendered outside the issues are a nullity.” Combe v. Warren’s Family Drive-Inns, Inc., 680 P.2d 733, 736 (Utah 1984) (citation omitted). ¶40 Accordingly, we reverse (on independent grounds) the district court‟s sua sponte orders dissolving H&N and removing Burke because we find that they violated Vicki‟s constitutional due process rights. And because these issues were not properly before the court during the valuation hearing, we nullify any findings of fact made by the district court concerning these claims.15