In Tita v. Tita, a March 2, 2022 opinion from Florida’s Fourth District Court of Appeal, the Court analyzed an operating agreement to determine that it did not defeat the specific devise of decedent’s company interests contained in decedent’s will.
The Facts of Tita v. Tita
John Tita executed a last will and testament in 2017. The will contained a specific devise of the decedent’s interest in a limited liability company to two of decedent’s children, Andrew and Sandra:
(e) Specific Gift of LLC Interest. I give all of my interests in the Layton Hills Properties, LLC, to my son, ANDRE TITA, and my daughter, SANDRA TITA, in equal shares. If any of them predecease me, the share of the deceased beneficiary will pass to that person’s descendants who survive me, per stirpes. If one of the named beneficiaries predeceases me without descendants, their share shall lapse and pass equally to the remaining share. The main asset of the Layton Hills Properties, LLC, is real property located in Layton, Utah that has two buildings on the property . . . .
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If upon my death, the Property is not held in the Layton Hills Properties, LLC, then I give all of my interest in any entity holding the Property, or I devise the Property itself if not held in an entity, to the beneficiaries designated above subject to the same conditions as provided in this Article 2.1 (e).
Decedent’s will left his wife, Eva, all of the residuary estate.
The Operating Agreement
Decedent owned an interest in Layton Hills Properties, LLC, a Utah limited liability company (the “Company”). At the time of the Company’s organization, Decedent and his wife each held a 39.5% membership interest in the company; Andre held an 11% interest, and Sandra and Michael each held a 5% interest. Regarding the death of a member, the operating agreement provided:
8.4 Death. Incompetency or Bankruptcy of Member On the death, adjudicated incompetence or bankruptcy of a Member, unless the Company exercises its rights under Section 8.5, the successor in interest to the Member (whether an estate, bankruptcy trustee, or otherwise) will receive only the economic right to receive distributions whenever made by the Company and the Member’s allocable share of taxable income, gain, loss, deduction, and credit (the “Economic Rights”) unless and until a majority of the other Members determined on a per capita basis admit the transferee as a fully substituted Member in accordance with the provisions of Section 8.3.
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8.5 Death Buy Out Notwithstanding the foregoing provision of Section 8, the Members covenant and agree that on the death of any Member, the Company, at its option, by providing written notice to the estate of the deceased Member within 180 days of the death of the Member, may purchase, acquire and redeem the Interest of the deceased Member in the Company pursuant to the provision of Section 8.5.
In a Utah proceeding, the wife (Eva) and Michael secured an order declaring that the Company “has exercised its option to purchase and redeem the interest of deceased member, John P. Tita, Sr. from the estate in accordance with the ‘Death Buy Out’ provision of the Operating Agreement.”
The Florida Probate Proceedings
Andre, Sandra, and Eva agreed in the Florida probate proceedings that the Utah Court’s decision with regard to the validity of the Operating Agreement would be binding on the Estate of Decedent. Andre and Sandra were appointed as co-personal representatives of the Florida probate estate.
Eva moved for an order determining disposition of a failed devise, arguing that if a contract (here, the operating agreement) has a specific provision regarding the disposition of a property, it trumps the testamentary disposition of the same property. The wife argued that because the Company exercised the “Death Buy Out” provision of the operating agreement, the decedent’s attempt to devise the membership interest to Andre and Sandra failed, which caused the proceeds from the buyout to become part of the residuary estate, of which the wife is the sole beneficiary.
The Florida probate court ruled in favor of Andre and Sandra, determining that the devise of the decedent’s interest in the Company did not fail when the Company exercised its option to purchase the interest from the estate and that the proceeds of the buyout must pass as “a specific devise under Article 2.1(e) of the Will. The Florida probate court found, among other findings, that the interest in the Company was in existence at the time of the decedent’s death and was thus part of decedent’s estate.
Does an Operating Agreement Defeat a Testamentary Division Of the Same Property?
To defeat a testamentary disposition of the same property, an operating agreement must contain specific language that unquestionably control the disposition of a member’s interests upon death. Here, the appellate court concluded that the operating agreement lacked the specific language that would override the decedent’s disposition of the membership interest in his will.
First the court determined that Utah law would apply:
“[U]nder Florida’s choice-of-law rules, the ‘laws of the jurisdiction where [a] contract was executed govern interpretation of the substantive issues regarding the contract.’” Blechman, 160 So. 3d at 157–58 (quoting Lumbermens Mut. Cas. Co. v. August, 530 So. 2d 293, 295 (Fla. 1988)). Therefore, the interpretation of the Operating Agreement is based upon Utah law. See id. (citing Walling v. Christian & Craft Grocery Co., 41 Fla. 479, 27 So. 46, 49 (1899) (“[M]atters bearing upon the execution, interpretation, and validity of a contract are determined by the law of the place where it is made.”)).
Utah’s principles of contract interpretation are similar to those of Florida:
Utah courts first look at the plain language of a contract “to determine the parties’ meaning and intent.” Brady v. Park, 2019 UT 16, ¶ 53, 445 P.3d 395, 407. “If the language within the four corners of the contract is unambiguous, the parties’ intentions are determined from the plain meaning of the contractual language, and the contract may be interpreted as a matter of law.” Id. (quoting Cent. Fla. Invs., Inc. v. Parkwest Assocs., 2002 UT 3, ¶ 12, 40 P.3d 599); accord Kipp v. Kipp, 844 So. 2d 691, 693 (Fla. 4th DCA 2003) (explaining that “unambiguous [contractual] language is to be given a realistic interpretation based on the plain, everyday meaning conveyed by the words”). Both Florida and Utah courts are required to read the contract at issue as a whole and give meaning and effect to each part. Brady, 2019 UT at ¶ 55, 445 P.3d at 408 (interpreting a “contract provision in context of the contract as a whole”); Discover Prop. & Cas. Ins. Co. v. Beach Cars of W. Palm, Inc., 929 So. 2d 729, 732 (Fla. 4th DCA 2006) (stating that the contractual language should be “read in the context of the document as a whole”). “An interpretation which gives effect to all provisions of the contract is preferred to one which renders part of the writing superfluous, useless, or inexplicable.” UDAK Props. LLC v. Canyon Creek Com. Ctr. LLC, 2021 UT App 16, ¶ 18, 482 P.3d 841, 848 (quoting 11 Williston on Contracts § 32:5 (4th ed. 2020)); PNC Bank, N.A. v. Progressive Emp. Servs. II, 55 So. 3d 655, 658 (Fla. 4th DCA 2011) (“[An] interpretation which gives a reasonable meaning to all provisions of a contract is preferred to one which leaves a part useless or inexplicable.” (quoting Premier Ins. Co. v. Adams, 632 So. 2d 1054, 1057 (Fla. 5th DCA 1994))).
The Utah Probate Code provides that:
(1) Any of the following provisions in an insurance policy, contract of employment, bond, mortgage, promissory note, deposit agreement, pension plan, trust agreement, conveyance, or any other written instrument effective as a contract, gift, conveyance, or trust are considered nontestamentary, and this code does not invalidate the instrument or any provision:
(a) that money or other benefits previously due to, controlled, or owned by a decedent shall be paid after his death to a person designated by the decedent in either the instrument or a separate writing, including a will, executed at the same time as the instrument or subsequently;
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(c) that any property which is the subject of the instrument shall pass to a person designated by the decedent in either the instrument or a separate writing, including a will, executed at the same time as the instrument or subsequently.
Just like Florida law, the Utah probate code is consistent with the “general principle that express language in a contractual agreement ‘specifically addressing the disposition of [property] upon death’ will defeat a testamentary disposition of said property.” Blechman, 160 So. 3d at 159 (quoting Murray, 364 So. 2d at 68).
Language In the Operating Agreement Must Unquestionably and Specifically Address Disposition Of Company Interest At Death to Control Over Testamentary Disposition
Here, the Operating Agreement did not unquestionably contain language specifically addressing disposition of an interest in the Company upon death. In contrast, the Operating Agreement in this case anticipated that a transfer of a member’s interest would be through a testamentary devise. The Operating Agreement indicates that the Company should give written notice to the estate of the deceased member within 180 days if the Company decides to exercise the “Death Buy Out” provision. The Operating Agreement anticipates that the membership interest of a deceased member would be part of that member’s probate estate, and provides that the Company should handle the death buyout matter with the estate to “purchase, acquire, and redeem the interest of the deceased member.” The Court stated:
The language about giving notice to the estate regarding the exercise of the “Death Buy Out” option would be nonsensical if the Operating Agreement itself controlled a transfer of an interest triggered by the death of a member. Also, the Operating Agreement’s recognition that the Company could deal with an estate for a buyout is in line with the notion that the personal representative would distribute the proceeds of the buyout according to the directions in a will. Another provision of the Operating Agreement acknowledges that transfer of a member’s interest would not be controlled by the Operating Agreement. Section 8.4 recognizes that a “successor in interest to the Member” could be “an estate, bankruptcy trustee, or otherwise,” opening the door to any number of potential transfers. The decedent’s bequest to appellees of his interest in the Company vested upon his death. See § 732.514, Fla. Stat. (2018). Once vested, the Operating Agreement controlled the nature of appellees’ interest and the terms of a buyout.
Here, the decedent was in possession of a membership interest in the Company when he died. Nothing in the Operating Agreement operated to trump the will and effect a transfer of the membership interest outside of the will. The membership interest devised to appellees was a specific legacy that became part of the probate estate. Because the Company elected to exercise its right to purchase the decedent’s membership interest from the estate, Andre and Sandra were entitled to receive the proceeds of the sale under the will.
