2005 UT 42
This opinion is subject to revision before final
publication in the Pacific Reporter.
IN THE SUPREME COURT OF THE STATE OF UTAH
----oo0oo----
CCD, L.C., a Utah limited
No. 20020875
liability company dba United
Title Services of Southern
Utah,
Plaintiff and Appellee,
v.
Christopher Lynn Millsap, an
individual, and The Chris and
F I L E D
Sandra Millsap Family Trust,
Defendants and Appellants.
July 8, 2005
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Fifth District, Washington County
The Honorable James L. Shumate
No. 010501860
Attorneys: Stephen E. W. Hale, Justin P. Matkin, Salt Lake City,
for plaintiff
James C. Bradshaw, Ann Marie Taliaferro,
Salt Lake City, for defendants
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NEHRING, Justice:
¶1
Christopher Millsap challenges a district court
determination that he was lawfully expelled as a member of the
limited liability company from which he had diverted money for
his own use. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
¶2
Messrs. Craig Newman, Doug Stanley, and Christopher
Millsap formed CCD, a limited liability company, in 1997. The
company operated United Title Services of Southern Utah, a title
company located in St. George, Utah. Mr. Millsap acted as the
manager in St. George. Messrs. Newman and Stanley oversaw
marketing in Salt Lake County.

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¶3
All title companies are required by law to set up trust
accounts to hold the money from the closings of real estate
transactions and any other funds held by the company when acting
as an escrow agent. In March 2000, Messrs. Newman and Stanley
discovered that Mr. Millsap had misappropriated $625,000 from
CCD's trust account to finance his personal interest in Pheasant
Meadow Subdivision in Washington County.
¶4
Mr. Millsap admitted to his partners that he took the
money. To remedy the situation, CCD's members entered into an
amended operating agreement. Under its terms, Mr. Millsap agreed
not to access the trust account or write company checks.
Mr. Newman consented to lend Mr. Millsap $493,965 to help replace
the trust money. Mr. Newman secured the loan with a security
interest in Mr. Millsap's ownership interest in CCD. If
Mr. Millsap defaulted on the loan, Mr. Millsap's rights to vote
his membership interest in CCD would terminate and vest in
Mr. Newman. The amended agreement provided that Mr. Millsap's
status as a full member in CCD would be restored one year after
he timely repaid the loan.
¶5
Shortly after the amended agreement was made, at the
request of the Utah State Insurance Department, Mr. Newman
investigated the source of the funds that Mr. Millsap used to
repay the trust account. He discovered that Mr. Millsap had
continued to misappropriate trust account funds by using CCD
customer file numbers to disguise the transfer of funds obtained
in connection with property sales to Mr. Millsap's own company,
Gren Development. The second episode of defalcation resulted in
trust fund misappropriations totaling $11,540.06.
¶6
The parties dispute what happened next. Mr. Millsap
says the other members of CCD presented him with what amounted to
an extortionate ultimatum: accept a buy-out or face disclosure of
his crimes to authorities. Mr. Millsap claims that he refused
the buy-out and reported his crimes to the insurance commission,
an act that led to his being charged with thirteen counts of
unlawful dealing of property by a fiduciary and his pleading
guilty to five counts.
¶7
Messrs. Newman and Stanley tell a different story.
They claim that after they discovered Mr. Millsap's misuse of the
trust account, CCD terminated Mr. Millsap's employment. In
support of their account, they cite a letter CCD sent to
Mr. Millsap, less than a week after his new misappropriations
were discovered, advising him that his employment and benefits
had been terminated and explaining that he could file for COBRA
No. 20020875
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insurance coverage. The record indicates that two months later
Mr. Millsap wrote to CCD requesting COBRA information,
demonstrating that Mr. Millsap had received the letter of his
termination.
¶8
Mr. Millsap contends that his COBRA inquiry
notwithstanding, he fulfilled the amended operating agreement
conditions, refused the buy-out, and could not be terminated as a
member of CCD. According to Mr. Millsap, he had satisfied all of
the amended operating agreement conditions for reinstatement as a
member of CCD and was, therefore, eligible to retire from the
company and enjoy the rights extended to a retiring member under
the original operating agreement. Consistent with this
understanding, Mr. Millsap wrote CCD a letter giving formal
notice of his desire to retire as a member of the company. After
receiving the request for an appraisal of Mr. Millsap's interest
in CCD in anticipation of retirement, CCD sued Mr. Millsap. The
company alleged multiple grounds for relief. Only its claim that
it was entitled to a decree expelling Mr. Millsap from CCD
concerns us here.
¶9
Mr. Millsap and CCD each sought to support their
disparate positions by turning to the Utah Limited Liability Act
and CCD's operating agreement, which was executed by the three
members as required by the Act. Several provisions of the
operating agreement play a role in the dispute that led to this
appeal.
¶10
Specifically, the operating agreement specified that:
"[n]o [m]ember may be expelled from the Company by act or desire
of the remaining [m]embers"; and that "[n]o [m]ember, without the
majority consent of the [m]embers, shall: use the name, credit or
property of the Company for any purposes other than a proper
Company purpose." The operating agreement further forbade any
member from "any act detrimental to the Company business . . .
which would make it impossible to carry on business" and in the
event of a violation provides that the "[m]ember shall become
liable to the Company for the amount of the claim incurred by the
Company in connection with said violation of the restriction."
Upon the retirement of a member, the operating agreement
authorized CCD to acquire the retiring member's interest in the
company. If CCD did not elect to purchase the member's interest,
the remaining members could acquire the interest. If neither CCD
nor the remaining members acquired the interest, then CCD would
dissolve and all remaining properties would be distributed in
liquidation.
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¶11
Mr. Millsap moved for summary judgment on CCD's
expulsion claim. He argued that since he was "retired" and no
longer a member of CCD, he could not be expelled from CCD under
section 48-2c-710 of the Utah Limited Liability Company Act.1
Section 48-2c-710 reads as follows:
A member of a company may be expelled:
(1) as provided in the company's operating
agreement;
(2) by unanimous vote of the other members if
it is unlawful to carry on the company's
business with the member; or
(3) on application by the company or another
member, by judicial determination that the
member:
(a) has engaged in wrongful conduct
that adversely and materially
affected the company's business;
(b) has willfully or persistently
committed a material breach of the
articles of organization or
operating agreement . . . ;

1 Utah enacted the Limited Liability Company Act, Utah Code
Ann. §§ 48-2b-101 to -158 (1998) (repealed 2001), in 1991 in
response to the need for expanded flexibility and utility in
companies with limited liability and pass-through taxation for
the owners. Brent R. Armstrong, New Revisions to Utah's Limited
Liability Company Act­the LLC Revolution Rolls On, Utah State Bar
Journal, June/July 2001. The Act provided "default" rules which
apply automatically in the absence of rules specified in the
governing documents, the articles of organization, or the
operating agreement. Id.
In 2001, Utah enacted the Revised Limited Liability Company
Act, which added new definitions, varying and limiting certain
obligations, including the right to expel a member. Ruth Quigley
Hawe, Recent Developments in Utah Law, Utah's Revised Limited
Liability Act, 2001 Utah L. Rev. 1099, 1100-01. The Revised Act
was effective July 1, 2001. It repealed and replaced the
original Act. We therefore apply the provisions of the Revised
Act to the issues of this case.
No. 20020875
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(c) has engaged in conduct relating
to the company's business which
makes it not reasonably practicable
to carry on the business with the
member.
Utah Code Ann. § 48-2c-710 (2001) (emphasis added).
¶12
CCD responded to Mr. Millsap's motion with a
cross-motion for summary judgment claiming that it was entitled
to expel Mr. Millsap as a matter of law. The district court
granted CCD's motion, grounding its ruling on these undisputed
facts: (1) Mr. Millsap improperly endorsed checks and withdrew
funds from the trust account after the amended operating
agreement was signed specifically restricting his right to do so;
and (2) Mr. Millsap notified the parties of his intent to retire
after CCD filed the lawsuit seeking to expel him.
¶13
The court concluded that Mr. Millsap materially
breached both the operating agreement and amended operating
agreement, and that under the "first to breach" doctrine, he was
not entitled to enforce any items of either agreement, including
retirement provisions. The court also concluded that
Mr. Millsap's wrongful conduct materially affected CCD's business
and that under section 48-2c-710 of the Act, the right of a
limited liability company to expel a member matures when a
wrongful act occurs. Under the district court's interpretation,
Mr. Millsap's claim of retirement had no legal relevance. The
court also found that there were genuine issues of material fact
as to whether Messrs. Newman and Stanley were fraudulently
induced to enter into the amended operating agreement with
Mr. Millsap.
STANDARD OF REVIEW
¶14
A district court may properly grant summary judgment
where there is no genuine issue as to any material fact and the
moving party is entitled to a judgment as a matter of law. Utah
R. Civ. P. 56(c). We "review a summary judgment determination
for correctness, granting no deference to the [district] court's
legal conclusions. We determine only whether the [district]
court erred in applying the governing law and whether the
[district] court correctly held that there were no disputed
issues of material fact." Wayment v. Clear Channel Broad. Inc.,
2005 UT 25, ¶ 15, P.3d (alterations in original)
(citations omitted) .
ANALYSIS
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No. 20020875

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¶15
This appeal presents us with a variation on the
well-worn rhetorical volley between employer and employee:
"You're fired!" "You can't fire me, I quit." The legal
consequences of the dueling declarations between CCD and
Mr. Millsap concerning his separation from CCD are at the core of
the matter before us. Orbiting around this central question are
a cluster of satellite issues that we must take up. Did
Mr. Millsap retire from CCD before he was expelled? If he did
and was no longer a member of CCD, could CCD nevertheless expel
him? Did Mr. Millsap breach the amended operating agreement when
he diverted trust account money to his personal business
enterprises, and, if he did, was CCD foreclosed from seeking his
expulsion because it waited too long to do anything about it?
Does the "first breach" doctrine excuse CCD's refusal to honor
Mr. Millsap's attempt to retire?
A. Under the Language and Policy Considerations of the Revised
Limited Liability Company Act, Mr. Millsap
was Ineligible for Retirement
¶16
No one disputes that by misappropriating some $625,000
from the trust account of CCD, Mr. Millsap was eligible for
expulsion from CCD. Still, if the CCD operating agreement
contained the sole grant of authority to members of CCD to
respond to the misdeeds of other members, it would be unlikely
that CCD could have expelled Mr. Millsap. Section 13 of the
agreement imposes an absolute bar to expulsions stating, "[n]o
[m]ember may be expelled from the Company by act or desire of the
remaining [m]embers." This contractual prohibition is
superceded, however, by section 48-2c-120 of the Act, which
prohibits an operating agreement from "vary[ing] the right to
expel a member based on any event specified in subsection
48-2c-710(3)." Utah Code Ann. § 48-2c-120(1)(f) (2001).
Mr. Millsap's conduct could reasonably be interpreted to satisfy
one or more of these statutory events. Section 48-20-710
identifies the relevant events and explains the procedure for
expulsion this way:
(3) on application by the company or another
member, by judicial determination that the
member:
(a) has engaged in wrongful conduct
that adversely and materially
affected the company's business;
(b) has willfully or persistently
committed a material breach of the
No. 20020875
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articles of organization or
operating agreement or of a duty
owed to the company or to the other
members under Section 48-2c-807; or
(c) has engaged in conduct relating
to the company's business which
makes it not reasonably practicable
to carry on the business with the
member.
Id. § 48-2c-710(3) (2001).
¶17
Although entitled to expel Mr. Millsap for his first
episode of misdeeds, Messrs. Newman and Stanley elected instead
to extend to Mr. Millsap what they have described as a "second
chance." Mr. Millsap's redemption came with conditions embodied
in the amended operating agreement. Mr. Newman loaned
Mr. Millsap money to repay the company the funds that Mr. Millsap
had taken. Mr. Millsap's membership rights, including his right
to retire, were suspended until one year had elapsed after he
repaid the loan to Mr. Newman. Mr. Millsap insists that, his
relapse into converting trust account monies for his own use
notwithstanding, he met the conditions imposed by the amended
operating agreement. Having had his membership rights restored
and having declared his intention to retire, Mr. Millsap contends
that the Act renders him immune from expulsion and requires CCD
to treat him as a retiring member under the terms of CCD's
initial operating agreement.
¶18
Mr. Millsap labors to coax this result from a plain
language interpretation of selected provisions of the Act.
First, he asserts that the Act supports his contention that by
declaring an intent to retire, he terminated his membership in
CCD. Section 48-2c-709 (2001) of the Act authorizes members to
withdraw upon the happening of events specified in an operating
agreement. Id. § 48-2c-709 (2001). Because CCD's operating
agreement specifically permitted retirement of a member,
Mr. Millsap insists that he was permitted to withdraw pursuant to
section 709. Next, he asserts that CCD's attempt to expel him
was a nullity because section 709 of the Act expressly limits
expulsion to members, see id., and at the time CCD filed suit to
expel him, he had retired and was no longer a member. We do not
read the Act as mandating this result.
¶19
Of course, there is a logical tie between the status of
membership and the act of being expelled from that status.
Mr. Millsap's argument neatly reduces to this syllogism: only
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No. 20020875

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members of limited liability companies may be expelled;
Mr. Millsap was not a member; therefore, Mr. Millsap could not be
expelled. There exists, however, no legal principle that
requires legislative enactments to be leashed to Aristotelian
logic. While it is true that nonmembership generally moots the
necessity of expulsion, it is not always so. We think this is
apparent from the language and structure of the Act that the
cessation of membership in a limited liability company does not
inevitably foreclose expulsion.
¶20
Mr. Millsap's plain language reading of the Act strips
away from its text all policy considerations associated with
limited liability company membership and expulsion and replaces
them with a bare mechanical application driven exclusively by
considerations of chronology: "I quit before you fired me."
Thus, Mr. Millsap's argument features nuanced discussions of
when, if ever, his retirement became effective and how, if at
all, his retirement affected his status as a member of CCD. He
then turns his attention to a similar inquiry regarding when and
whether CCD could have expelled him.
¶21
The subtlety and complexity of these explorations is
revealed in Mr. Millsap's protracted effort to harmonize a plain
language interpretation of when an expulsion becomes effective
under section 48-2c-710(3) with the saga of his affiliation with
CCD. Section 710(3) explains the procedure and grounds for
expelling a member of a limited liability company for cause. Id.
§ 48-2c-710(3). This subsection provides sparse procedural
direction, stating that a member may be expelled "on application
by the company or another member, by judicial determination."
Id. An interpretation of this provision based on time and
sequence is of vital importance to Mr. Millsap's chronology-
driven argument. To Mr. Millsap, this statutory language does
not derive its significance from describing how an expulsion
occurs, but rather exists to define when an expulsion is
effective.
¶22
If CCD could not expel Mr. Millsap if he were no longer
a member, it matters greatly if the effective date of the
expulsion were the filing of a lawsuit seeking expulsion, the
entry of a final decree of expulsion, or the occurrence of some
other event. The importance of extracting from the text of
section 710(3) a specific event of expulsion is wholly dependent
on the premise that the preeminent concern of the Act is to
define and regulate membership. This premise is false. We find
unpersuasive Mr. Millsap's contention that the paramount
objective of the Act is to fix boundaries between the tenure of a
member and the right to expel a member. Put another way, when
No. 20020875
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viewed in the abstract, Mr. Millsap's syllogism is unassailable,
but when placed in the context of applying a statute assigned the
task of regulating the formation and operation of limited
liability companies, that syllogism becomes starkly artificial
and irrelevant.
¶23
We therefore cannot sidestep testing the likely
consequences of Mr. Millsap's favored interpretation--that his
retirement terminated his membership in CCD, thereby rendering
his expulsion impossible--against the policy considerations that
inform the Act. It is self-evident that a statute establishing
the duties and powers of a limited liability company would
provide a method to remove a member who subverts the interests of
the company through his wrongful acts. The drafters of the Act
deemed expulsion authority to be so important that, despite
acknowledging the power of limited liability company members to
govern their affairs by contract, they expressly barred members
from bargaining for expulsion rules that varied from those set
out in section 710.
¶24
These legitimate policy aims would be frustrated if a
member whose conduct made him eligible for expulsion could block
expulsion by voluntarily ceasing to be a member, a move that
under the terms of the retirement provision of CCD's operating
agreement could threaten a forced liquidation of the company.
Where the Act takes pains to preserve the statutory expulsion
provisions against erosion through the terms of operating
agreements, we decline to read its provisions in a manner that
sanctions by indirection what the Act directly prohibits. Yet
this is precisely what an interpretation of section 710 that
conditions expulsion on membership status would do.
¶25
It is similarly unlikely that the Act's drafters
perceived a need to articulate in detail the interplay between
membership and expulsion upon which Mr. Millsap's claim turns.
The absence of textual guidance on the relationship between
membership status and the right to expel does not, in our view,
support Mr. Millsap's plain language interpretation. To the
contrary, if the drafters of the Act had intended that its
provisions be interpreted in a way that imposed a substantial
burden on a limited liability company's right to expel a member
based solely on the timing considerations tied to the member's
voluntary secession from membership, they would reasonably have
been expected to have been more attentive to setting out the
substantive and procedural parameters of membership secession and
expulsion. Were we to adopt Mr. Millsap's chronology-driven
interpretation, we would be compelled to engraft onto the Act
timing benchmarks of our making that would permit us to determine
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No. 20020875

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whether CCD expelled Mr. Millsap before he terminated his
membership. The alternative is to construe the meaning of the
Act in a manner consonant with its policy objectives. Faced with
these choices, we elect to interpret the Act in light of its
underlying policy rather than an artificial construction
unrelated to the Act's purpose.
¶26
In Mr. Millsap's view, any policy-based interpretation
of the Act that would permit the expulsion of a retired or
withdrawn member targets the wrong source of potential mischief.
According to Mr. Millsap, the Act should be interpreted in a
manner that best protects a member like himself from a company's
bad faith expulsion efforts. The prospect that such abuse can
occur assumes that courts are either incapable or unwilling to
make informed and impartial judgments about the merits of
expulsion actions brought under section 710. This is an
assumption that Mr. Millsap has failed to support with any facts.
The requirement that expulsions be made by judicial determination
affords members like Mr. Millsap, through the intervention of a
neutral and impartial fact finder, the most reliable safeguard
against inequitable treatment available in our society.
¶27
Indeed, the greater risk of overreaching would arise
from Mr. Millsap's preferred interpretation. A member who has
engaged in wrongdoing that would expose him to expulsion would
command unjustifiable leverage were he to be able to force a
dissolution of the company by withdrawing as a member before the
company could obtain a judicial determination that he should be
expelled.
¶28
Moreover, we are wary of embracing statutory
interpretations that confer legal rights based on victories in
races to the courthouse. The proper focus of inquiry should be
on the merits of claims concerning a limited liability company
members's conduct and not on reviewing the results of photo
finishes to the courthouse door. Accordingly, we reject the
premise that underlies Mr. Millsap's argument that because his
announced retirement predated the judicial determination of his
expulsion, he could not be expelled as a member of CCD.
¶29
As a result of our interpretation of the Act, we affirm
the district court's conclusion that the Act authorized
Mr. Millsap's expulsion. Our conviction that the Act's expulsion
provisions are not solely dependent on considerations of
chronology renders unnecessary the district court's invocation of
the "first breach" doctrine. We have explained that under the
"first breach" rule "a party first guilty of a substantial or
material breach of contract cannot complain if the other party
No. 20020875
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thereafter refuses to perform." Jackson v. Rich, 499 P.2d 279,
280 (Utah 1972). "He can neither insist on performance by the
other party nor maintain an action against the other party for a
subsequent failure to perform." Id. The district court applied
this doctrine to conclude that Mr. Millsap's misuse of company
funds constituted a breach of the initial and amended operating
agreements that deprived him of the right to enforce the
operating agreement's retirement provisions. Under our
interpretation of the Act, CCD had the right to seek the
statutory expulsion of Mr. Millsap even if he had not forfeited
his right to retire or had taken steps to exercise that right.
¶30
Having determined that CCD's right to seek the
expulsion of Mr. Millsap survived his attempts to retire, we now
take up Mr. Millsap's challenge to the district court's
determination that CCD established through undisputed facts
sufficient grounds to expel Mr. Millsap as a member of CCD. The
district court found that under the terms of the amended
operating agreement Mr. Millsap had "no authority to withdraw
funds from CCD's general or escrow accounts," and that,
notwithstanding this restriction, he endorsed checks drawn on the
company's trust account, thereby breaching the agreement. The
district court concluded that Mr. Millsap's breach constituted
wrongful conduct that "adversely and materially affected CCD's
business" and that thus met the requirement for expulsion.
¶31
Mr. Millsap takes issue with this finding and
conclusion for two reasons: he contends that these indiscretions
were not grave enough to permit expulsion and that, even if they
were, CCD waived its right to complain about them. We will
discuss each of these matters in turn.
¶32
According to Mr. Millsap's view of the Act, expulsion
is permitted only in response to an ongoing threat to the
company. Like Mr. Millsap's argument concerning the effect of
membership status on the statutory right to expel a member, this
attack on the district court's interpretation of the Act turns on
the court's alleged failure to acknowledge the preeminent role
that time plays in a limited liability company's authority to
expel a member. That vice is, according to Mr. Millsap, evident
here because the district court permitted Mr. Millsap to be
expelled for stale misdeeds that, as a matter of law, could no
longer adversely and materially affect CCD's business. CCD
concedes that it did not seek Mr. Millsap's expulsion based on
his misconduct known to CCD at the time it entered into the
amended operating agreement. Therefore, Mr. Millsap asserts, no
lawful basis existed for his expulsion. We disagree.
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¶33
It is undisputed that Mr. Millsap misappropriated trust
account funds totaling at least $11,540.06 for his personal use
after the amended operating agreement was signed. It is
difficult for us to find justification for reversing the district
court's conclusion that this behavior merited expulsion.
Mr. Millsap's misconduct continued the pattern of behavior that
resulted in losses to the company of $625,000. It took place
after Mr. Millsap's prior wrongdoing had been discovered and
after CCD had assented to permit Mr. Millsap to atone for his
misdeeds by fulfilling the terms of the amended operating
agreement.2

¶34
We are also unpersuaded that CCD waived its right to
expel Mr. Millsap for his second episode of misconduct. "A
waiver is the intentional relinquishment of a known right."
Geisdorf v. Doughty, 972 P.2d 67, 72 (Utah 1998). CCD
acknowledges that it waived its right to expel Mr. Millsap for
his first episode of defalcation when it entered into the amended
operating agreement. The record contains no evidence, however,
to indicate that CCD intended to relinquish its right to seek the
expulsion of Mr. Millsap for misconduct that occurred after the
amended operating agreement became effective. Moreover, we find
no merit in Mr. Millsap's contention that CCD's only recourse,
upon discovering that Mr. Millsap had continued to misappropriate
company funds, was to further amend the operating agreement.
Such a limitation on CCD's options would have varied the
statutory provisions relating to the grounds for expulsion and
would therefore be unenforceable under section 48-2c-120(1)(f).
CONCLUSION
¶35
The district court properly ruled that CCD could expel
Mr. Millsap as a member of the limited liability company for his
misappropriation of company funds. His effort to block his

2 Mr. Millsap points to remarks made by the district court
from the bench indicating that the court believed that the
misappropriations of funds made by Mr. Millsap after executing
the amended operating agreement to be immaterial. We see no
reason to treat these remarks, to the exclusion of the district
court's written findings of fact and conclusions of law, as the
court's final pronouncements on the matter despite Mr. Millsap's
protestations that the written findings and conclusions were
nothing more than CCD's revisionist account of the events at the
hearing that resulted in the court's ruling. The district court
stood by the written findings and conclusions in the face of
Mr. Millsap's objection to their form and a motion to reconsider,
and we therefore presume their validity.
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expulsion by attempting to retire was unavailing and did not cut
off his exposure to a judicially determined statutory expulsion.
Affirmed.
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¶36
Chief Justice Durham, Associate Chief Justice Wilkins,
Justice Durrant, and Justice Parrish concur in Justice Nehring's
opinion.
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