Nelson v. Hills

2022 UT 6IN THE
SUPREME COURT OF THE STATE OF UTAH
VICKI HILLS, BURKE HILLS, H&N HOLDINGS, LLC
Appellants,
v.
DIANNE C. NELSON
Appellee and Cross-Appellant.
No. 20190182
Heard February 8, 2021
Filed February 10, 2022
On Direct Appeal
Third District, Salt Lake City
The Honorable Matthew Bates
No. 150900638
Attorneys:
R. Stephen Marshall, Kevin M. Paulson, Salt Lake City, for
appellants Vicki J. Hills and H&N Holdings, LLC
Robert F. Babcock, Andrew L. Berne, Salt Lake City, for appellant
Burke A. Hills
Michael D. Stanger, Zachary T. Shields, Scarlet R. Smith, Salt Lake
City, for appellee and cross-appellant Dianne Nelson
Michael R. Johnson, Douglas Monson, Brent D. Wride, Salt Lake
City, for John H. Curtis, receiver for H&N Holdings, LLC
JUSTICE HIMONAS authored the opinion of the Court in which
CHIEF JUSTICE DURRANT, ASSOCIATE CHIEF JUSTICE LEE,
JUSTICE PEARCE, and JUSTICE PETERSEN joined.
JUSTICE HIMONAS, opinion of the Court:
INTRODUCTION
¶1 This case arises from the internal breakdown and
subsequent judicial dissolution of H&N Holdings, LLC—a Utah
NELSON v. HILLS
Opinion of the Court
limited liability company owned by Dianne Nelson and Vicki Hills
and formerly managed by Vicki‟s1 husband, Burke Hills.
¶2 In 2015, Dianne filed a lawsuit seeking (among other
claims) the dissolution of H&N and the removal of Burke as
manager on the grounds that Burke had acted in an illegal,
oppressive, and fraudulent manner. In lieu of dissolution, H&N
and Vicki filed elections to purchase Dianne‟s membership interest
in H&N, as provided by Utah Code section 48-2c-1214 (the election
statute) (repealed).2 The district court, however, read the election
statute to grant it broad discretion to deny the elections on
equitable grounds. While Dianne‟s dissolution claim was stayed
pending the valuation of the fair market value of her membership
interest in H&N, the district court dismissed H&N‟s and Vicki‟s
elections and ordered, sua sponte, the dissolution of H&N, the
removal of Burke as manager, and the appointment of a receiver to
liquidate H&N‟s assets.
¶3 Utah limited liability companies are creatures of statute,
and our courts are bound by the laws set forth by the legislature.
Utah Code section 48-2c-1214 grants limited liability companies
the absolute right to purchase a members‟ interest in the company
in lieu of dissolution when that member petitions for dissolution.
District courts are not permitted to dismiss duly-filed elections on
equitable grounds. As such, we find that the district court erred
when it dismissed H&N‟s election and ordered the dissolution of
the company.
¶4 Moreover, the due process clause of the Utah Constitution
affords all parties the right to receive notice and an opportunity to
be heard on all claims that adversely affect their property interests.
Vicki was a party to the proceedings below, and she is a 50%
member of H&N. Nevertheless, the district court ordered the
dissolution of H&N and the removal of Burke as manager sua
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1 Throughout the litigation, the parties have referred to one
another in their papers by their given names. We continue this
practice where appropriate.
2 The litigation in this case commenced prior to the date the
Utah Revised Uniform Limited Liability Company Act of 2013
began to govern H&N. See UTAH CODE § 48-3a-14(1). As such, all
citations herein are to the Utah Revised Limited Liability
Company Act of 2001 (repealed in 2016).
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sponte—without providing Vicki adequate notice or an
opportunity to present evidence or argument on the issues.
Accordingly, we find that the district court erred in its orders to
dissolve H&N and remove Burke as manager for the separate
reason that the orders violated Vicki‟s constitutional due process
rights.
¶5 For these reasons, and the reasons set forth further below,
we reverse the district court‟s orders and remand this case back to
the district court with instructions to continue the valuation and
election proceedings in the manner prescribed by the election
statute.
BACKGROUND
¶6 Vicki Hills and Dianne Nelson are each 50% members of
H&N.3 They formed H&N in 2010 as a manager-managed LLC for
the purpose of holding real property. Vicki‟s husband, Burke Hills,
was the manager of H&N, but he was not a member. At the time of
H&N‟s formation, Burke and Dianne‟s husband (Russell Nelson)
co-owned a construction company named Hills Construction, Inc.
(HCI).
¶7 In 2014, the Nelsons began to suspect Burke of
misappropriating HCI‟s corporate funds and assets. This led the
Nelsons to investigate Burke‟s management of H&N. The Nelsons
brought suit the following year asserting various claims against
the Hills, H&N, and HCI. Russell‟s claims against Burke and HCI
were eventually settled, extinguishing Russell‟s and HCI‟s interest
in this case. Dianne asserted claims of breach of fiduciary duty,
fraud, and accounting against Burke and claims of unjust
enrichment and conversion against both Vicki and Burke
(collectively, the Tort Claims). Dianne also sought the removal of
Burke as H&N‟s manager and the dissolution of H&N under the
Utah Revised Limited Liability Company Act. UTAH CODE §§ 48-
2c-809, 48-2c-1210.
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3 Where possible, we recite the facts in accordance with the
district court‟s findings. We note, however, that Vicki complains of
the district court using certain facts determined at the valuation
hearing to decide issues not properly before it. Because those facts
are ultimately irrelevant to our resolution of the issues before us,
we do not recite them here.
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NELSON v. HILLS
Opinion of the Court
¶8 In response, H&N filed an election to purchase Dianne‟s
membership interest in lieu of dissolution pursuant to Utah Code
section 48-2c-1214. Vicki also filed a “conditional” election in the
event the district court determined H&N‟s election ineffective or
invalid. Pursuant to the election statute, the district court stayed
the dissolution proceedings to determine the fair market value of
Dianne‟s membership interest. See id. § 48-2c-1214(4).
¶9 Following extensive discovery, the district court held a
valuation hearing in 2017 for the sole purpose of determining the
fair market value of Dianne‟s membership interest. Ruling from
the bench, and notwithstanding the stay of the dissolution
proceedings, the district court found “that the election that has
been made by H&N and by the Hills in this case should be set
aside in the interest of equity.” The court found that dissolution
was proper because Burke had committed “multiple acts of fraud
and oppression” as manager of H&N. The court ordered the
dissolution of H&N, the removal of Burke as manager, and the
appointment of a receiver to liquidate H&N‟s assets.
¶10 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 interpreted this provision to protect “the moving party
so that the nonmoving parties cannot use the right to make an
election in a way that is abusive or unfair.” The court found that
Burke managed H&N fraudulently and oppressively from its
inception. Because the Utah Revised Limited Liability Company
Act defines “fair market value” to include “all relevant discounts
or premiums,” id. § 48-2c-904, the court interpreted the election
statute to permit H&N “to buy out Dianne at a greatly discounted
price” once the marketability and minority discounts were
applied.4 As such, the district court concluded that dissolution was
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4 A minority discount adjusts the value of a minority
interest in a company to reflect the fact that the interest lacks
sufficient voting power to control the company‟s decisions and
management. A marketability discount adjusts the value of a
membership interest to reflect the fact that there is no readily
available market for the interest. See 18A AM. JUR. 2D Corporations
§ 700 (2021).
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necessary to ensure that H&N‟s assets would “be split 50/50 right
down the middle.”
¶11 Following the district court‟s ruling, Dianne moved for
attorney fees under Utah Code section 48-2c-1214(5)(d), which
provides for attorney fees and costs in the case of judicial
dissolution under section 1210(2)(b). The district court eventually
granted Dianne $191,963.07 in attorney fees, $52,928.35 in expert
fees, and $1,446.17 in costs, all to be paid by H&N as part of its
liquidation.
¶12 Dianne also sought to amend her initial complaint to assert
a claim challenging the legal fees and costs incurred by H&N in
the litigation under a theory of breach of fiduciary duty. This claim
rested on Dianne‟s assertion that “[i]n pursuing the purchase of
Dianne‟s interest, which stood solely to benefit Vicki, Burke and
Vicki have caused H&N to pay attorney fees, thereby diminishing
significantly the assets of H&N, with no benefit to Dianne.” The
district court raised the “threshold question” of whether Dianne
had standing to assert this claim, which, at first glance, the district
court considered to belong to H&N. Dianne argued that she had
standing under the closely held business exception as articulated
in Banyan Investment Co. v. Evans, 2012 UT App 333, 292 P.3d 698,
because Burke‟s “fraud and oppression . . . were directed uniquely
at Dianne personally.” The district court, at first, agreed.
¶13 Meanwhile, Burke responded with a cross-claim against
H&N for unjust enrichment based on his years of company
management without pay.
¶14 Again ruling from the bench, the district court disposed of
all remaining claims. Regarding Dianne‟s challenge to H&N‟s costs
and fees incurred in the litigation, the court reversed its initial
ruling that Dianne had standing under the closely held corporation
exception. The court explained that because the receivership gave
the receiver “full authority” to manage the legal affairs of H&N,
including the right to “litigate or settle” claims against alleged
tortfeasors, the exception no longer applied. As for Dianne‟s
remaining Tort Claims, the court granted summary judgment to
the Hills. Finally, the court granted Dianne summary judgment on
Burke‟s unjust enrichment claim because “this claim kind of boils
down to Mr. Hills claiming that it was unjust that he didn‟t pay
himself.”
¶15 The district court entered final judgment on March 5, 2019.
The parties now appeal. Vicki appeals the orders dismissing
H&N‟s and Vicki‟s elections, dissolving H&N, and removing
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NELSON v. HILLS
Opinion of the Court
Burke as manager. She also appeals the award of attorney fees to
Dianne under Utah Code section 48-2c-1214(5)(d). Burke appeals
the summary disposition of his cross-claim against H&N. Dianne
appeals the district court‟s denial of her breach of fiduciary duty
claims against Burke.
¶16 We have jurisdiction under Utah Code section 78A-3-
102(3)(j).
ANALYSIS
¶17 We begin our analysis with a brief discussion of Vicki‟s
standing to challenge the dissolution of H&N on appeal. We then
turn to the merits of the appeal and find that the district court
erred in its orders to dismiss H&N‟s election, remove Burke as
manager, and dissolve the company. As such, we reverse the
district court‟s orders and remand this case back to the district
court with instructions to continue with the election proceedings in
accordance with the election statute. Because we reverse the
district court‟s orders dismissing H&N‟s election, dissolving H&N,
and removing Burke as manager, all of the remaining claims on
appeal have been rendered moot or must be reversed.
I. VICKI HAS STANDING TO APPEAL THE DISSOLUTION OF
H&N
¶18 As a threshold matter, the parties disagree on whether
Vicki has standing to appeal the district court‟s dismissal of H&N‟s
election to purchase Dianne‟s membership interest in lieu of
dissolution.5 Dianne and H&N (via its receiver) argue that Vicki
does not have standing to challenge the dismissal of H&N‟s
election because this right was reserved to the company by statute.
See UTAH CODE § 48-2c-1214; see also Provo City Corp. v. Thompson,
2004 UT 14, ¶ 9, 86 P.3d 735 (“[A] party may generally assert only
his or her own rights and cannot raise the claims of third parties
who are not before the court.”). Nevertheless, because we find that
Vicki has standing to appeal the district court‟s order to dissolve
H&N, we find that Vicki also has standing on appeal to argue that
the dissolution of H&N was improper because the district court
should have granted H&N‟s election in lieu of dissolution.
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5 Because H&N is now under the control of a receiver, only
Vicki has appealed the district court‟s dismissal of H&N‟s election.
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¶19 Utah Code section 48-2c-1213(3) states that a “court‟s order
[for dissolution] may be appealed as in other civil proceedings.”
And, to appeal a judgment in other civil proceedings, “an
appellant generally must show both that he or she was a party or
privy to the action below and that he or she is aggrieved by that
court‟s judgment.” Chen v. Stewart, 2005 UT 68, ¶ 50, 123 P.3d 416(citation omitted). Additionally, “[o]n appeal, a party whose
standing is challenged must show that he or she had standing
under the traditional test in the original proceeding before the
district court.” Id. (citation omitted). Here, Vicki satisfies all these
requirements.
¶20 Vicki was a party to the action below, and Vicki was
aggrieved by the dissolution order because, once liquidated, Vicki
will no longer be a 50% member of H&N. “A member‟s interest in
a company is personal property,” UTAH CODE § 48-2c-701(1), and
while Vicki would be compensated for her membership interest
through the liquidation proceedings, individuals are not required
to sell or liquidate personal property against their will. Cf. Fox v.
Piercey, 227 P.2d 763, 765 (Utah 1951) (“„Duress‟ is unlawful
constraint whereby one is forced to do some act against one‟s
will.”). Moreover, company interests sold pursuant to judicial
dissolution or liquidation typically garner less value than interests
sold without any compulsion to sell.6
¶21 Vicki also satisfies the requirement of having standing
under the traditional test in the original proceedings. Rights
related to the judicial dissolution of a limited liability company are
conferred by statute, and to have standing to assert statutory rights
under the traditional test, a party‟s alleged injury (1) must be
distinct and palpable and (2) must fall within the “zone of interest”
the relevant statute seeks to protect. See In re Questar Gas Co., 2007
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6 See, e.g., Arthur J Shartsis, Dissolution Actions Yield Less
than Fair Market Enterprise Value (Appraising for “Fair Value” Under
California Corporations Code Section 2000) (2011 reprint) (originally
published in BUSINESS VALUATION UPDATE),
https://www.sflaw.com/wp-
content/uploads/2016/02/AShartsis-Fair-Market-Value.pdf;
Charles W. Murdock, The Evolution of Effective Remedies for Minority
Shareholders and Its Impact Upon Valuation of Minority Shares, 65
NOTRE DAME L. REV. 425, 442 (1990).
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Opinion of the Court
UT 79, ¶¶ 59, 61, 175 P.3d 545; see also Forsberg v. Bovis Lend Lease,
Inc., 2008 UT App 146, ¶ 9, 184 P.3d 610 (“Standing to assert rights
created by statute requires that the plaintiff be within the zone of
interest contemplated by [the statute] and have suffered a distinct
and palpable injury.” (alteration in original) (internal quotation
marks omitted)). Utah‟s LLC statute grants members of a limited
liability company the right to petition a court for judicial
dissolution on the grounds that the company‟s manager acted in a
manner that was illegal, oppressive, or fraudulent. See UTAH CODE
§ 48-2c-1210(2)(b). Because a member has a statutory right to
initiate judicial dissolution proceedings, it follows that the ability
of a member to object to judicial dissolution is likewise within the
zone of interest protected by Utah‟s LLC statute. See id. And
Vicki‟s injury is distinct and palpable for the same reason she is an
aggrieved party on appeal: the dissolution of H&N will cause
Vicki to lose her status as a 50% member of H&N.
¶22 Therefore, Vicki meets all the requirements to appeal the
district court‟s dissolution order. Vicki was a party to the action
below, was aggrieved by the order to dissolve H&N, and had
standing to object to the dissolution of H&N in the original
proceedings. And because Vicki has standing to appeal the
dissolution of H&N, she also has standing to make the argument
that the district court erred in dissolving H&N because the court
should have granted H&N‟s election.7
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7 Dianne also argues that Vicki waived any challenge to the
district court‟s dismissal of H&N‟s election because Vicki failed to
raise this issue in her opening brief. According to Dianne, Vicki
only challenged the district court‟s actions with respect to Vicki‟s
“conditional” election. We disagree. While it is true that Vicki‟s
opening brief fails to artfully present the issues on appeal, the
substance of Vicki‟s brief argues that the election statute “does not
confer on the court equitable authority to set aside an election at
the request of the party who sued for dissolution,” that “Dianne
could not revoke the elections of H&N or of Vicki,” and that
“neither H&N nor Vicki invoked the revocability provision of
section 48-2c-1214(1).” Dianne appears to have interpreted Vicki‟s
argument to this effect, as Dianne notes in her response brief that
the first issue on appeal is whether “the district court exceed[ed]
its discretion by setting aside H&N‟s and Vicki‟s election.”
Moreover, Vicki‟s counsel clarified in both oral arguments and
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II. THE DISTRICT COURT ERRED IN DISSOLVING H&N
¶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.”
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Opinion of the Court
misapprehends both the plain meaning and the purpose of
subsection 1214(1).8
1. The Plain Meaning of Subsection 1214(1)
¶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
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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
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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 § 48-2c-
403(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”).
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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 duly-
filed 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. § 48-2c-
1214(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 duly-
filed election on equitable grounds in order to proceed with the
dissolution of the company.
2. The Purpose of Subsection 1214(1)
¶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
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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, plain-
meaning 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
3. Conclusion
¶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
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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 6Opinion 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
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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
III. REMAINING CLAIMS
¶41 Because we reverse the district court‟s orders dismissing
H&N‟s election, dissolving H&N, and removing Burke as
manager, all of the remaining claims on appeal have been
rendered moot or must be reversed.
¶42 First, Burke appeals the district court‟s denial of his unjust
enrichment claim on summary judgment. This claim rests on
Burke‟s allegation that H&N failed to compensate Burke for his
services while managing the company. Nevertheless, Burke‟s
counsel conceded at oral argument that this claim would be moot
if the dissolution and receivership orders were “unwound.” And
because we reverse the district court‟s order to dissolve H&N, we
find this claim moot.
¶43 Second, Vicki appeals the district court‟s award of attorney
fees to Dianne under Utah Code section 48-2c-1214(5)(d). Under
the election statute, the district court may award to the petitioning
member “reasonable fees and expenses of counsel and experts” if
it finds that the petitioning member had “probable ground” for
dissolution. UTAH CODE § 48-2c-1214(5)(d) (citing id. § 48-2c-
1210(2)). Vicki argues on appeal that the attorney fee provision of
the election statute “only applies where an election has been
successfully made.” Because we reverse the district court‟s
dismissal of H&N‟s election and remand this case back to the
district court for further election proceedings, we need not
consider this argument. Assuming H&N‟s election to purchase
Dianne‟s interest is finalized, Vicki‟s argument on appeal will be
___________________________________________________________
15 “[T]he effect of a given set of facts is a question of law
and, therefore, one on which an appellate court owes no deference
to a trial court‟s determination.” State v. Pena, 869 P.2d 932, 936
(Utah 1994), abrogated on other grounds by Campbell v. State Farm
Mutual Auto Ins. Co., 2001 UT 89, ¶ 13, 65 P.3d 1134.
17
NELSON v. HILLS
Opinion of the Court
moot. We, therefore, remand the finding of attorney fees back to
the district court with instructions to reconsider this issue at the
end of the election proceedings.
¶44 Finally, Dianne appeals the district court‟s summary
judgment order denying her breach of fiduciary duty claims
against Burke and finding that Dianne lacked standing to
challenge H&N‟s ability to pay legal fees and expenses incurred in
this litigation. Dianne argues that she can make these claims
directly, as the injuries stemming from the alleged misconduct
uniquely impact her. Alternatively, Dianne argues that she should
be able to make these claims derivatively under the closely held
corporation exception as stated in Aurora Credit Services, Inc. v.
Liberty West Development, Inc., 970 P.2d 1273 (Utah 1998).
Nevertheless, Dianne never stated a claim challenging H&N‟s
ability to pay legal fees and expenses incurred in this litigation
until after the district court dismissed H&N‟s election and ordered
dissolution.16 And the district court did not deny Dianne‟s breach
of fiduciary duty claims against Burke until nearly a year after the
district court ordered the dissolution of H&N.17 Because our
decision winds back the clock on this litigation and remands this
case back to the district court with instructions to continue the
election proceedings, we reverse the district court‟s next-in-time
___________________________________________________________
16 Indeed, this claim will likely be moot assuming H&N‟s
election to purchase Dianne‟s interest in the company is finalized
upon remand. The district court has discretion to consider the
effect of H&N‟s expenses related to this litigation when it
determines the fair market value of Dianne‟s interest. See UTAH
CODE § 48-2c-1214(4) (“[T]he court shall . . . determine the fair
market value of the petitioning member‟s interest in the company
as of the day before the date on which the petition [for dissolution]
was filed or as of any other date the court determines to be
appropriate under the circumstances and based on the factors the
court determines to be appropriate.” (emphasis added)).
17 We also note that Dianne has misinterpreted the district
court‟s ruling on her breach of fiduciary duty claims against
Burke. Dianne seems to think the district court disposed of all her
breach of fiduciary duty claims on a lack of standing.
Nevertheless, the district court dismissed some of her fiduciary
duty claims on the merits after finding “no evidence of any injury
to H&N or the . . . Nelsons.”
18
Cite as: 2022 UT 6Opinion of the Court
orders and remand for further proceedings in light of this material
change in facts and circumstances.
CONCLUSION
¶45 We find that the district court erred when it dismissed
H&N‟s election and ordered the dissolution of H&N and the
removal of Burke as manager. Pursuant to the election statute,
H&N had an absolute right to avoid dissolution by purchasing
Dianne‟s interest in the company at its fair market value.
Moreover, the district court violated Vicki‟s constitutional due
process rights by ordering the dissolution of H&N and the
removal of Burke as manager without providing her fair notice
and an opportunity to be heard. Accordingly, we reverse the
district court‟s orders dismissing H&N‟s election, dissolving H&N,
and removing Burke as manager. We remand this case back to the
district court with instructions to continue the election proceedings
concerning H&N‟s duly-filed election in a manner consistent with
this opinion and the clear dictates of the election statute.
19