## Facts

- In 1997, Craig Newman, Doug Stanley, and Christopher Millsap formed CCD, L.C., a Utah LLC operating a title company in St. George, Utah; Millsap managed the St. George office while Newman and Stanley focused on marketing in Salt Lake County.
- CCD’s original operating agreement included a term barring expulsion of LLC members.
- Utah title companies were required to maintain trust accounts to hold funds for real estate transactions and escrow activities.
- In March 2000, Newman and Stanley discovered Millsap had taken $625,000 from CCD’s trust account to finance his personal investment in the Pheasant Meadow Subdivision; Millsap admitted the misuse.
- The members then executed an amended operating agreement addressing Millsap’s misconduct and the missing funds:
  - Millsap agreed he would not access CCD’s trust account or write company checks.
  - Newman agreed to loan Millsap $493,965 to help replace the trust funds while Millsap repaid the misappropriated money.
  - Newman took a security interest in Millsap’s ownership interest in CCD as collateral for the loan.
  - The amended agreement provided that Millsap’s status as a full member would be restored one year after he timely repaid the loan.
- After the amended agreement, the Utah State Insurance Department asked Newman to investigate the source of funds Millsap used in connection with repayment.
- Newman discovered a second misuse of CCD trust funds: Millsap allegedly used CCD customer file numbers to disguise transfers, resulting in additional trust-account losses totaling $11,540.06.
- Newman and Stanley asserted that about a week after discovering the second misuse, Millsap’s employment at CCD ended and he was removed as a member.
- Millsap contended he had been restored to full membership and then attempted to retire under the original operating agreement, claiming the buyout and other benefits owed a “retiring” member and arguing the no-expulsion term prevented removal.
- CCD filed suit against Millsap (and the Chris and Sandra Millsap Family Trust) seeking a determination that Millsap could be expelled; the district court ruled that Millsap was lawfully expelled, and Millsap appealed.

## Issues

1. Whether an LLC could expel Millsap as a member, despite an original operating agreement clause barring expulsion, where the members later executed an amended operating agreement altering Millsap’s membership rights after his first misappropriation.
2. Whether Millsap was entitled to claim “retiring member” benefits under the original operating agreement based on his account of events, or whether the district court correctly treated him as expelled following repeated misuse of trust funds.

## Decision

- The Utah Supreme Court affirmed the district court’s determination that Millsap was lawfully expelled from CCD.
- The court treated the amended operating agreement as a valid modification of the members’ relationship and as controlling over the earlier no-expulsion provision for purposes of Millsap’s status and rights after the first defalcation.
- Because Millsap’s return to full membership was conditional under the amended agreement and he engaged in further misuse of trust funds, Millsap could not invoke the original agreement’s retirement provisions to obtain the benefits of a voluntary retirement.

## Legal Principles

- An LLC operating agreement is a contract that governs members’ rights and duties, subject to statutory limits; courts enforce its terms as written.
- Members may amend an operating agreement, and a later amendment controls to the extent it changes or conflicts with an earlier provision.
- Contractual rights conditioned on future performance (such as reinstatement to full membership after repayment and a waiting period) are not available when the conditions are not met.
- Appellate review generally treats legal conclusions for correctness and respects supported trial-level factual findings; a judgment will be upheld when the record supports the determination that a member’s status was terminated under the governing agreement and law.

## Conclusion

The Utah Supreme Court affirmed the judgment that Millsap was properly expelled from CCD after repeated misappropriation of trust-account funds, holding that the amended operating agreement validly modified his membership rights and prevented him from claiming retiring-member benefits under the original no-expulsion operating agreement.


CCD, L.C. v. Millsap, 116 P.3d 366 (2005)