CCD, L.C. v. Millsap

In 1997, Craig Newman, Doug Stanley, and Christopher Millsap formed CCD, L.C. (plaintiff), a limited-liability company (LLC) operating as a title company. The CCD operating agreement included a term that prohibited the expulsion of the members of the LLC. All title companies in Utah had to have trust accounts to hold money for real estate transactions and escrow activities. In 2000, Newman and Stanley discovered Millsap had misappropriated over $600,000 from CCD’s trust account. In response, Newman, Stanley, and Millsap entered into an amended operating agreement in which Millsap would no longer access CCD trust or checking accounts. Furthermore, Newman would loan Millsap a significant sum to help replace the missing trust funds while Millsap repaid the misappropriated money. Additionally, the amended agreement allowed Millsap to return to his full membership in CCD one year after the loan was repaid. After the amended agreement was executed, Newman was asked by the Utah State Insurance Department to investigate the source of funds that Millsap was using to repay the loan. Newman discovered that Millsap had continued to misappropriate trust funds. Newman and Stanley argued that one week after discovering Millsap’s continued misuse of trust-account funds, Millsap’s employment at CCD was ended. Millsap claimed that he was returned to his full membership in the LLC and then sought to retire from the company with all the benefits owed a retiring member pursuant to the initial operating agreement. Millsap contended that he could not be subject to expulsion. Newman and Stanley filed suit against Millsap, alleging that CCD was entitled to expel Millsap as a member. The lower court determined that Millsap could be expelled from the LLC. Millsap appealed.