OLP v. Burningham

2009 UT 75
This opinion is subject to revision before final
publication in the Pacific Reporter.
IN THE SUPREME COURT OF THE STATE OF UTAH
----oo0oo----
OLP, L.L.C. and Richard Wilson, No. 20080517
Plaintiffs and Respondents,
v.
Wayne Burningham and Optical
Lens Products Management, Inc.
dba Intermountain Antireflective F I L E D
Coatings,
Defendants and Petitioners. December 4, 2009
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Third District, Salt Lake
The Honorable Robert K. Hilder
No. 010906652
Attorneys: Brent O. Hatch, T. Parker Douglas, Phillip J.
Russell, Salt Lake City, for plaintiffs
Stephen K. Christiansen, Lisa B. Bohman,
Salt Lake City, for defendants
---
On Certiorari to the Utah Court of Appeals
DURHAM, Chief Justice:
INTRODUCTION
¶1 Under the Utah Revised Limited Liability Company Act
(the LLC Act), a member may file to dissolve a limited liability
company by alleging a management deadlock, illegal or oppressive
acts by the controlling members, wasted assets, or that it is no
longer reasonably practical to carry on the business. Utah Code
Ann. § 48-2c-1210(2) (2007). The LLC Act, however, is not the
only remedy available to disputing limited liability company
members; a party may also seek damages for common law claims. In
this case, defendant Wayne Burningham argues that even if a
member seeks legal remedies outside of the LLC Act, the damage
award must be determined using the LLC Act’s ownership allocation
provisions. We disagree and affirm the court of appeals’
affirmance of a verdict awarding Richard Wilson damages and
finding the defendant liable for repudiating the parties’

No. 20080517 2
agreement to work together in a limited liability company with
each party as a fifty percent owner. We also affirm the court of
appeals’ determination that factual issues that underlie both
legal and equitable claims were properly determined by the jury.
BACKGROUND
¶2 Defendant Wayne Burningham sought certiorari review of
the court of appeals’ decision to affirm a jury verdict and a
$1.2 million award of damages against him for repudiating his
agreement with Richard Wilson to equally own and operate OLP,
LLC. The facts of the case are recounted at length in the court
of appeals’ opinion. See OLP, LLC v. Burningham, 2008 UT App
173, ¶¶ 2-9, 185 P.3d 1138. Therefore, we rehearse only those
facts relevant to the questions presented to this court.
¶3 Richard Wilson and Wayne Burningham formed OLP, LLC to
purchase and operate an anti-reflective optical lens coating
machine. When creating OLP, Burningham and Wilson contributed
equal cash amounts and orally agreed to share equal control and
ownership of OLP and consequently share the company’s profits and
losses. As reflected in OLP’s operating agreement, Wilson and
Burningham also agreed that Intermountain Coatings, a company
owned by Burningham, would use the lens coating machine. The
operating agreement did not address the internal operations of
OLP.
¶4 Not long after OLP’s lens coating machine became
operational, the parties began to disagree about how clients and
the accompanying profits should be divided between OLP and
Intermountain Coatings. As it became apparent that Wilson and
Burningham could no longer function as business partners, the two
parties also began to dispute how to divide ownership interests,
and as part of that disagreement, whether to classify additional
money Intermountain Coatings had provided to OLP as a loan or as
a contribution by Burningham.
¶5 After failed efforts at reconciliation, in August 2001,
Wilson filed suit against Burningham and Intermountain Coatings
(collectively, the Defendants) seeking legal and equitable
remedies for breach of fiduciary duty, repudiation, breach of
contract, and other contract-related claims. Wilson also sought
an accounting of OLP’s expenses, revenues, profits, and losses.
The Defendants alleged various affirmative defenses in response
and asserted a counterclaim for dissolution alleging that the
members were deadlocked in the management of the company.
Further, Burningham argued that, in the wind up, the members’
ownership interests should be determined and distributed
according to the balance of each member’s capital account as

3 No. 20080517
provided for in the LLC Act because the company’s operating
agreement did not address ownership.
¶6 Burningham then moved for partial summary judgment,
requesting, pursuant to Utah Code section 48-2c-1210, (1) that
the court determine as a matter of law that OLP was dissolved and
(2) the court wind up the company. Additionally, Defendants
moved to limit all damage issues to an accounting under the LLC
Act, which would thereby remove any need for a jury.
¶7 During a hearing on the various summary judgment
motions, the parties discussed at great length how to resolve the
legal and equitable claims alleged in the case. Ultimately the
district court concluded that it could bifurcate the
determination of the parties’ legal and equitable claims by first
holding a jury trial to determine the legal claims, that is,
Wilson’s fiduciary duty and contract-related claims. Then, if
necessary, following the trial, the court would conduct an
accounting and consider any remaining claims. To facilitate this
bifurcation, the district court denied the Defendants’ request
for dissolution without prejudice and indicated that they could
renew their request after the jury trial if required, and that if
warranted the court would enter a decree of dissolution nunc pro
tunc.
¶8 At trial, the Defendants renewed their motion for
dissolution in the form of a motion for directed verdict. They
argued that Burningham and Wilson were deadlocked in management
and voting power and that it was no longer practical to carry on
the business. The district court granted the motion and found
that the company had been effectively dissolved no later than
August 31, 2001, which was the date the Defendants filed an
answer to Wilson’s complaint. Rather than proceeding with a
dissolution, accounting, and winding up under the LLC Act, the
district court determined that the jury should first decide
Wilson’s contract and fiduciary duty claims and any accompanying
damages. At the close of a six-day trial, the court instructed
the jury that if Burningham wrongfully dissolved OLP by
repudiating his contract with Wilson and converting OLP’s assets,
they should award Wilson damages for lost profits up to the date
of the November 2004 trial. Otherwise, if Burningham only
breached his contract with Wilson, damages should be limited to
August 31, 2001, the date the district court had found the
company effectively dissolved.
¶9 The jury returned a verdict in favor of Wilson and
awarded over $1.2 million in compensatory damages. In reaching
that verdict, the jury found that Burningham and Intermountain
Coatings had breached their contracts with Wilson and OLP and had

1 The district court vacated the verdict against
Intermountain Coatings in favor of OLP but sustained the verdict
against Burningam in favor of Wilson. Wilson cross-appealed the
district court’s reversal of the verdict against Intermountain
Coatings, but the court of appeals considered it a conditional
cross appeal and declined to address its merits. That decision
is not before us on certiorari. Therefore, we consider only the
claims between Burningham and Wilson.
No. 20080517 4
also breached the fiduciary duties owed to Wilson and the
company. The jury awarded damages based on a finding that
Burningham repudiated the limited liability company agreement and
converted the company’s assets, breached the implied duty of good
faith and fair dealing, and breached his fiduciary duties, but
declined to award expectation or punitive damages. Burningham
appealed.1
¶10 The court of appeals affirmed the district court. It
held the district court correctly allowed Wilson’s claim for
repudiation to proceed to the jury without an application of the
default member ownership provisions of the LLC Act or a complete
judicial dissolution of the company under the LLC Act. OLP, LLC,
2008 UT App 173, ¶ 51. The court first determined that a cause
of action for repudiation “exists outside of the LLC Act.” Id.
¶ 15. As part of this separate legal claim, the court of appeals
concluded the jury considered member ownership a “hotly disputed”
factual question and a key determination to awarding damages, and
decided the issue in favor of Wilson. Id. ¶¶ 20-21. Therefore,
the court of appeals held the district court did not need to
calculate capital accounts to decide membership as a matter of
law. Second, the court reasoned there was not a conflict between
Wilson’s repudiation claim and the district court’s dissolution
of OLP. Id. ¶ 27. The court concluded that repudiation was a
distinct event that occurred well before the district court
granted the dissolution. See id. ¶ 26. Further, the court of
appeals noted that by finding August 31, 2004 to be the
dissolution date, it was unclear whether the district court had
formally dissolved OLP. Id. ¶ 23. The court of appeals also
held that because repudiation was a separate legal claim from
equitable dissolution, the district court did not err by first
submitting the legal issue to the jury before considering any
equitable remedies under the LLC Act. Id. ¶ 34. This was
proper, the court determined, because under Utah precedent, “when
legal and equitable issues turn on the same operative facts, a
jury must decide the legal issue first.” Id. (quoting Zions
First Nat’l Bank v. Rocky Mountain Irrigation, Inc., 795 P.2d
658, 662 (Utah 1990)). Finally, the court of appeals rejected
Burningham’s argument that to repudiate an LLC, a member must
deny the existence of the business organization because such a

5 No. 20080517
limitation “would place the viability of an injured party’s legal
claim within the control of the alleged guilty party.” Id. ¶ 39.
¶11 Burningham seeks a reversal of the court of appeals’
opinion. We have jurisdiction pursuant to Utah Code section 78A-
3-102(3)(a) (2008).
STANDARD OF REVIEW
¶12 Burningham presents three questions for this court’s
review: (1) whether the court of appeals erred in construing the
scope of the LLC Act in relation to its affirmance of repudiation
of a limited liability company agreement; (2) whether the court
of appeals erred in its review of the district court’s
adjudication of claims and defenses presented below; and
(3) whether the court of appeals and district court
misapprehended the appropriate roles of judge and jury in
adjudicating the claims and defenses presented below.
Burningham’s arguments for the second question overlap with the
first and third question; therefore, we address those arguments
as part of our consideration of the first and third issues.
¶13 In accordance with rule 49(a)(4) of the Utah Rules of
Appellate Procedure, our review is limited to the “questions set
forth in the petition or fairly included therein”; we do not
address any of the extraneous arguments presented by the parties
in their briefs or at oral argument. Utah R. App. P. 49(a)(4).
Additionally, “[o]n certiorari, we review the decision of the
court of appeals and not that of the district court.” State v.
Anderson, 2009 UT 13, ¶ 6, 203 P.3d 990 (quoting State v. Brake,
2004 UT 95, ¶ 11, 103 P.3d 699). “Our review is for correctness,
and we cede no deference to that court.” Peterson v. Kennard,
2008 UT 90, ¶ 8, 201 P.3d 956.
ANALYSIS
¶14 Central to each of the questions presented in this case
is the role of the LLC Act in a dispute between LLC members that
involves common law tort and contract claims. Burningham argues
that the district court erred by not applying the LLC Act to the
computation of damages Burningham owed Wilson. We disagree and
hold the scope of the LLC Act is not so broad as to supersede
common law tort and contract claims; members of a limited
liability company may choose either to pursue common law claims,
or to dissolve the company under the LLC Act and recover their
interest in the company after an accounting and winding up.
Additionally, we hold the court of appeals correctly construed
the role of the judge and the role of the jury in concluding that
the jury properly determined member ownership in the context of

No. 20080517 6
the repudiation claim and that there remained no equitable issues
for the district court to determine.
I. THE LLC ACT DOES NOT DISPLACE THE COMMON LAW CLAIMS OR
REMEDIES AVAILABLE TO A LIMITED LIABILITY COMPANY MEMBER FOR
CLAIMS AGAINST OTHER COMPANY MEMBERS OR OTHER RELATED PARTIES
¶15 Wilson asserted and presented to the jury claims for
repudiation or breach of contract, breach of good faith and fair
dealing, and breach of fiduciary duty, which are all common law
claims. Burningham argues these claims should have been resolved
under the LLC Act’s dissolution provisions because the LLC Act’s
dissolution procedures provide the exclusive remedy to claims
between members. We disagree. Instead, we uphold the court of
appeals’ determination that despite the comprehensive nature of
the LLC Act, LLC members retain the ability to sue for damages
based on common law claims such as repudiation or breach of
contract and breach of fiduciary duty. These claims are separate
and distinct from dissolution claims and may be pursued
separately.
A. The LLC Act Does Not Generally Preempt Common Law Claims
¶16 “Traditionally, the legislature may change the common
law only explicitly.” Gottling v. P.R. Inc., 2002 UT 95, ¶ 29,
61 P.3d 989 (Durham, C.J., dissenting). In limited cases, the
scope of a statute may preempt the common law either by governing
an area in so pervasive a manner that it displaces the common law
or by directly conflicting with the common law. Bishop v.
GenTec, Inc., 2002 UT 36, ¶ 9, 48 P.3d 218. Upon a review of the
plain language and structure of the LLC Act, we conclude the LLC
Act does not preempt or displace the common law claims asserted
by Wilson.
¶17 The form and plain language of the LLC Act indicate
that common law claims are not preempted. The Act does not
contain an explicit statement regarding the retention or
displacement of common law claims; therefore we look to how the
Act refers to and treats common law claims to determine the Act’s
impact on them. These references indicate the legislature
considered common law claims generally retained and specifically
limited them where necessary. For example, the default contract
provisions of the LLC Act directly limit common law claims
against members who are acting on behalf of the company. Utah
Code Ann. § 48-2c-807(1) (2007). At the same time, however, the
Act protects the ability of members to seek damages when other
members are grossly negligent or their misconduct is willful.
Id. Similarly, the statute clearly indicates in its treatment of
limited liability company operating agreements that parties may

7 No. 20080517
not contract out of certain duties and obligations, such as good
faith and fair dealing. Id. § 48-2c-120(1)(c). The Act’s
specific limitation and simultaneous retention of particular
claims indicates the legislature considered all civil claims
retained and chose to specifically limit the claims against
members acting on behalf of the company. Thus, we conclude that
the LLC Act does not preempt existing common law claims.
¶18 Burningham appears to argue that even if common law
claims are retained, the remedies for such claims are limited to
the provisions of the LLC Act. That is, a party may not seek
legal damages before an equitable accounting or dissolution--a
concept commonly referred to as the exclusivity rule. While this
argument reflects historic partnership case law, we decline to
adopt it in the context of limited liability companies. The LLC
Act provides numerous remedies for disputing members such as
dissolving the company or expelling members; all of which, we
note, are equitable remedies. See Utah Code Ann. § 48-2c-710,
-1201 to -1214 (2007 & Supp. 2008). By providing explicit
procedures for these equitable remedies, however, the LLC Act
does not foreclose additional legal remedies. We conclude this
notion is a relic of partnership law that need not be
incorporated into limited liability law.
¶19 Historically, the notion of exclusive equitable
remedies developed as a matter of common law. See Sertich v.
Moorman, 783 P.2d 1199, 1201-02 (Ariz. 1989) (outlining
development of exclusivity rule in English and American common
law). As a “judicially created rule of convenience” the
exclusivity rule restricted disputes between partners to the
equity courts to avoid “premature and piecemeal judgments,” a
party standing as “both plaintiff and defendant,” and “the
complicated accounting required to establish the rights of
partnership parties.” Id. at 1202. However, as the law and
equity courts merged and rules of procedure developed, courts,
including the Utah Court of Appeals, repeatedly found the rule
inapplicable and created exceptions to the rule. See generally
59A Am. Jur. 2d Partnership §§ 351-53 (2003); see also
Charlesworth v. Reyns, 2005 UT App 214, ¶ 22, 113 P.3d 1031. A
limited number of courts have abolished the exclusivity rule
outright. See Sertich, 783 P.2d at 1205 (concluding that
“continued enforcement of the accounting rule is indeed
illogical, impractical, and inequitable”); Dupuis v. Becnel Co.,
535 So. 2d 375, 378 n.20 (La. 1988). In addition, the Uniform
Partnership Act abolished the exclusivity rule in partnerships
and the Uniform Limited Liability Act excludes it from limited

2 We acknowledge that Utah has not adopted the Uniform
Limited Liability Act. We cite to the Uniform Act only as a
reflection of the development of the common law.
3 Wrongful dissolution is based on a partner’s ability to
voluntarily dissolve the company, even against the partnership
agreement. In such cases, however, the dissolution is considered
wrongful. Utah’s LLC Act does not provide this ease of exit.
Intead the only avenue for dissolution is through the courts.
Therefore as there is no voluntary dissolution, there is also no
(continued...)
No. 20080517 8
liability companies.2 Uniform Partnership Act § 405, cmt. n.2.
(1997); Uniform Limited Liability Act § 410, cmt. (1996). Noting
a strong trend away from the exclusivity rule, we see no reason
to judicially incorporate it into Utah’s limited liability
company law. Therefore, we hold that the LLC Act does not
abrogate common law claims nor does the exclusivity rule apply to
limit disputes among members to equitable remedies.
B. Common Law Claims and Judicial Dissolution Are
Discrete Actions That Courts Must Adjudicate Separately
¶20 Burningham argues that even if common law claims are
available, the court of appeals misapplied the common law and the
LLC Act still provides the rule of decision in adjudicating the
claims. Again, we disagree. A member of an LLC, similar to a
partner, may sue another member for repudiating the LLC. This
action is a separate claim for damages that does not require
formal dissolution and wind up.
¶21 Common law repudiation is applicable in a limited
liability contract dispute when one member refuses to perform the
agreement and thereby abandons the purpose of the contract.
Burningham argues that in affirming the district court, the court
of appeals incorrectly condoned a hybrid action of common law
repudiation and wrongful dissolution. On the contrary, the court
of appeals correctly disavowed any such confusion by indicating
that a reference to Wilson’s repudiation claim as a “wrongful
dissolution” claim was inaccurate. OLP, LLC v. Burningham, 2008
UT App 173, ¶ 9 n.4, 185 P.3d 1138. Although the court of
appeals discussed several cases involving or discussing wrongful
dissolutions, it did so only because they were the most
analogous. They were, however, partnership cases; the court of
appeals relied on them because the LLC Act, especially at the
time this case arose, was new and still did not have a well-
developed body of law construing its import. And, while a
wrongful dissolution claim does not directly translate into a
dissolution of limited liability company analysis,3 the reasoning

3 (...continued)
wrongful dissolution.
9 No. 20080517
does. The reason for allowing a claim of wrongful dissolution of
a partnership on the one hand, and allowing a claim for
repudiating a limited liability company agreement on the other,
is the same. A claim for repudiation is “not an action between
partners but an action between contracting parties, one of whom
has breached the contract.” Gherman v. Colburn, 140 Cal. Rptr.
330, 343 (Cal. Ct. App. 1977). When one party effectively
extinguishes a business agreement, whether it be a partnership
agreement or a limited liability agreement, that party cannot
rely on the agreement (or the default provisions of the LLC Act
that supplement the agreement) to protect itself from the harm
its actions have occasioned. Smith v. Maine, 260 N.Y.S. 425, 431
(N.Y. Sup. Ct. 1932) (“A partner who has not fully and fairly
performed the partnership agreement on his part has no standing
in a court of equity to enforce any rights under the agreement.”)
(internal quotation marks omitted).
¶22 Burningham argues that the court of appeals’
delineation of repudiation in a limited liability situation is at
odds with the common law. Relying on Gherman, he argues that to
repudiate a partnership or a limited liability company a party
must deny the existence of the business entity. We see no need
to limit repudiation to the terms of Gherman. Certainly, the
disavowal of the existence of a business entity would result in a
repudiation of the entity’s operating agreement. However, a
party may recognize the existence of a business entity and still
abandon the entity’s contract. For instance, “[a] refusal . . .
to act[] and perform functions as [a partner], as distinguished
from mere neglect of duty, may be considered a repudiation of the
[business entity].” Smith, 260 N.Y.S. at 431. As the court of
appeals aptly explained, limiting repudiation to the disavowal of
a business entity’s existence would put the validity of an
injured member’s claims in the hands of the alleged wrongdoer who
may acknowledge the entity, but refuse to perform the contract
creating the entity. OLP, LLC, 2008 UT App 173, ¶ 39.
Therefore, the court of appeals was correct that common law
repudiation and other breach of contract and breach of fiduciary
duty claims are valid claims in a limited liability situation,
and are distinct and separate from judicial dissolution or any
dissolution under the LLC Act.
¶23 With distinct common law claims and LLC Act claims
available, a member of a limited liability company may elect
which remedy to pursue. A common law claim against a company
member does not automatically trigger the LLC Act’s equitable

4 In this case, the court of appeals correctly noted that
although the district court determined a date of dissolution, it
did not formally dissolve the company. To do so would have
required additional steps and procedures, none of which were
undertaken in this case. See Utah Code Ann. § 48-2c-1213 (2007).
The date of dissolution was used only to define allowable damages
based on whether there was a simple breach of contract or whether
there was a repudiation.
5 The LLC Act provides, in the absence of a written
operating agreement, that a member’s proportion of interest or
ownership of the company depends on the balance of his capital
account. Capital accounts are maintained by the company for each
member and are adjusted to reflect, among other things, the value
of all contributions by that member. Id. § 48-2c-102(3) (2007 &
Supp. 2008)
6 Burningham argues that the jury was not properly
instructed to determine the members’ ownership. This argument
is, however, outside of the question on certiorari. We review
only the decision of the court of appeals and not that of the
district court. Responding to Wilson’s argument that this issue
was not preserved to this court, Burningham cites only to
(continued...)
No. 20080517 10
remedies, as Burningham argues. In some cases, both remedies may
be required; in other cases one remedy adjudicated to completion
may foreclose the other remedy, as occurred in this case. See
infra Part II. For this reason it makes sense to adjudicate the
claims separately.4 The order of the adjudication of the claims
depends on whether a jury trial is required and whether the
claims share common facts--issues that invoke a consideration of
the proper roles of judge and jury.
II. THE COURT OF APPEALS PROPERLY CONSIDERED
THE ROLE OF THE JUDGE AND JURY
¶24 Burningham argues that despite the court’s decision to
delay an adjudication of dissolution, the ownership of the
members’ interests had to be determined according to an
accounting of the parties’ capital accounts as provided for in
the LLC Act before Wilson could be awarded damages.5 The court
of appeals agreed that damages were dependent on Wilson’s
percentage of ownership, but concluded the jury had determined
the ownership percentages. OLP, LLC v. Burningham, 2008 UT App
173, ¶¶ 20-21, 185 P.3d 1138. We agree.
¶25 The jury found that Burningham and Wilson had entered a
contract to form and operate OLP as equal members.6 Burningham

6 (...continued)
arguments made to the district court and to statements made by
the district court. As the court of appeals did not address the
issue, it is outside the scope of our review.
11 No. 20080517
argues that this determination was insufficient because the
parties made disproportionate contributions and therefore a
revaluation of the capital accounts was necessary to determine
each party’s membership percentage. This argument ignores the
consequences of a repudiation. By abandoning the limited
liability contract, as the jury found, Burningham also abandoned
his ability to seek resolution of the dispute according to the
company’s governing documents or the default provisions supplied
by the LLC Act. At the point of repudiation, there were no
longer any limited liability company terms to enforce, and
Wilson’s damages were determined as of the time of contract
formation. For the same reason, Burningham’s argument that
dissolution procedures and a winding up were necessary also does
not carry the day. With a finding of repudiation there was no
limited liability company to dissolve or wind up.
¶26 Burningham argues that even if the jury did determine
membership interests, the district court erred by submitting the
issue to the jury in the first place. He suggests that the court
should have performed an equitable accounting before submitting
any legal claims to the jury. First, as discussed in Part I, we
have declined to incorporate the rule that an accounting must be
performed before a party may pursue legal claims. Second,
Burningham seeks an accounting to determine Burningham and
Wilson’s membership interests. The court of appeals correctly
held this was a factual issue belonging to the jury, and “when
legal and equitable issues turn on the same operative facts, a
jury must decide the legal issue first[, and] the jury’s factual
determination binds the trial court in its determination of the
parallel equitable issue.” Zions First Nat’l Bank v. Rocky
Mountain Irrigation, Inc., 795 P.2d 658, 662 (Utah 1990).
Therefore, following the jury’s determination that the members
had fifty-fifty ownership of the company, there was no need for
the court to perform a separate accounting. The jury’s factual
determination was binding. Similarly, the facts underlying
Burningham’s equitable defenses were determined by the jury or
not applicable after the jury found there was a repudiation.
CONCLUSION
¶27 In summary, we hold the LLC Act does not displace all
legal claims between limited liability company members.
Similarly we decline to incorporate the exclusivity rule into the
limited liability body of law, which would require disputing

No. 20080517 12
members to first seek an accounting or other settlement of the
business entity before pursuing legal claims. Finally, we hold
that the jury properly considered the factual issues underlying
Burningham’s equitable claims and defenses and because these
findings were binding on the trial court it was unnecessary for
the court to try those claims and defenses separately.
Therefore, we affirm.
---
¶28 Associate Chief Justice Durrant, Justice Wilkins,
Justice Nehring, and Judge Lyon concur in Chief Justice Durham’s
opinion.
¶29 Having recused herself, Justice Parrish does not
participate herein; District Judge Michael D. Lyon sat.