The Appellate Group

Nelson v. Hills

Nelson v. Hills, 2022 UT 6 (Himonas, J.)

Limited Liability Companies

Plaintiff and Defendant are each 50% members of  a limited liability company (Company). Plaintiff filed a lawsuit seeking dissolution of Company. In lieu of dissolution, Company and Defendant timely filed an election to purchase Plaintiff’s membership interest. At a hearing to determine the fair market value of Plaintiff’s interest while the dissolution proceedings were stayed, the district court dismissed the election made by Company and Defendant “in the interest of equity” and sua sponte ordered the dissolution of Company. On appeal, the Utah Supreme Court reversed:

  • District courts are not permitted to dismiss timely elections on equitable grounds. The language in Utah Code § 48-2c-1214(1) providing that an election is irrevocable “unless the court determines that it is equitable to set aside or modify the election” creates an exception for the electing party to request if it wants to back out of an otherwise irrevocable election. But this language does not “confer[s] to the [district] court discretion to dismiss or deny a duly-filed election for equitable reasons.” Instead, Company “had an absolute right to avoid dissolution by purchasing [Plaintiff’s] interest in the company at its fair market value.”
  • Additionally, the district court violated Defendant’s due process rights when it sua sponte ordered the dissolution of the Company. Defendant was a party to the lawsuit and a 50% member of Company, and she was entitled to notice and an opportunity to be heard on the issue.

Read the full court opinion