                                                               Filed: December 20, 2012

              IN THE SUPREME COURT OF THE STATE OF OREGON

SYNECTIC VENTURES I, LLC,
an Oregon limited liability company;
SYNECTIC VENTURES II, LLC,
an Oregon limited liability company;
SYNECTIC VENTURES III, LLC,
an Oregon limited liability company,
                                                                    Plaintiffs-Appellants,
                                                                   Petitioners on Review,

      v.

EVI CORPORATION, an Oregon corporation,
dba Endovascular Instruments, Inc.;
SYNECTIC VENTURES IV, LLC,
an Oregon limited liability company;
SYNECTIC VENTURES V, LLC,
an Oregon limited liability company;
and SYNECTIC ASSET VENTURES, LLC,
purportedly an Oregon limited liability company,
                                                                Defendants-Respondents,
                                                                Respondents on Review.

            (CC 060404199; CA A139879 (Control), A142184; SC S059454)

      En Banc

      On review from the Court of Appeals.*

      Argued and submitted January 10, 2012.

        Scott A. Shorr, Stoll Stoll Berne Lokting & Shlachter PC, Portland, argued the
cause for petitioners on review. With him on the brief were Gary M. Berne, Mark A.
Freil, and Roy Pulvers, Hinshaw & Culbertson LLP, Portland.

       Kevin H. Kono, Davis Wright Tremine LLP, Portland, argued the cause for
respondents on review. With him on the brief were Robert D. Newell and Derek D.
Green.



                                         1
       Cody Hoesly, Larkins Vacura LLP, Portland, filed a brief on behalf of amicus
curiae Oregon Trial Lawyers Association.

       DE MUNIZ, J.

       The decision of the Court of Appeals is reversed. The judgments of the circuit
court are reversed, and the case is remanded to the circuit court for further proceedings.


     *Appeal from Multnomah County Circuit Court, Henry C. Breithaupt, Judge Pro
Tempore. 241 Or App 550, 251 P3d 216 (2011).




                                          2
 1                      DE MUNIZ, J.

 2                  Plaintiffs -- Synectic Ventures I, LLC, Synectic Ventures II, LLC, and

 3   Synectic Ventures III, LLC -- entered into a loan agreement regarding money that they

 4   had loaned to defendant EVI Corporation. The loan agreement provided that the loan,

 5   which was secured by a security interest in essentially all of defendant's property, would

 6   be converted to equity ownership in defendant, if defendant obtained additional financing

 7   by a certain date. Shortly before that deadline, the managing member of plaintiffs -- who

 8   was also chairman of the board and treasurer of defendant and financially interested in

 9   defendant -- entered into an agreement purporting to extend the loan period by an

10   additional year. During the extension period, defendant obtained the additional financing

11   and converted the debt to equity. Plaintiffs filed an action against defendant, asserting

12   (among other things) that they were not bound by the extension because the managing

13   member had had a conflict of interest and defendant knew of the conflict. The trial court

14   rejected that argument and granted summary judgment for defendant. The Court of

15   Appeals affirmed. Synectic Ventures I, LLC v. EVI Corp., 241 Or App 550, 251 P3d 216

16   (2011). On review, we conclude that the trial court erred in granting defendant summary

17   judgment. We therefore reverse the decision of the Court of Appeals and the judgment of

18   the trial court.

19                            I. FACTS AND PROCEDURAL POSTURE

20   A.     Underlying Facts

21                  As noted, this case is before us on review from a trial court's grant of

22   summary judgment for defendant. Accordingly, we consider the facts, as well as all
                                                   1
 1   reasonable inferences from those facts, in the light most favorable to the nonmoving

 2   party -- in this case, plaintiffs. Loosli v. City of Salem, 345 Or 303, 306 n 1, 193 P3d 623

 3   (2008); see ORCP 47 C (on summary judgment, trial court must determine whether there

 4   is no genuine issue of material fact "based upon the record before the court viewed in a

 5   manner most favorable to the adverse party").

 6                 Plaintiffs are manager-managed limited liability companies (LLCs).1

 7   Plaintiffs' purpose, as identified in their operating agreements, was to invest plaintiffs'

 8   funds in all types of securities of other corporations. Plaintiffs, in turn, were capitalized

 9   by their members, who are individuals or entities seeking investment gains from the

10   money they contributed to plaintiffs; plaintiffs are, in effect, investment vehicles for their




            1
                    Plaintiffs assert that they are member-managed LLCs, but defendant
     disputes that assertion. The distinction between manager-managed LLCs and member-
     managed LLCs has some significance here, as the LLC management type often
     determines which statutory provisions apply. See, e.g., ORS 63.130(1) (listing rights of
     members in member-managed LLC); ORS 63.130(2) (listing rights of managers in
     manager-managed LLC).

                   We agree with defendant that plaintiffs are manager-managed LLCs
     because all their operating agreements specifically designate a manager. See ORS
     63.001(20) (defining "manager-managed limited liability company" to include an LLC
     "whose articles of organization otherwise expressly provide that the limited liability
     company will be managed by a manager or managers"); compare ORS 63.001(22)
     (defining "member-managed limited liability company" as all other types of LLCs).
     Although each operating agreement designated the manager as the "Managing Member,"
     that would not transform plaintiffs into member-managed LLCs. See ORS 63.001(19)
     (by implication: "'Manager' or 'managers' means a person or persons, who need not be
     members, designated by the members of a manager-managed limited liability company to
     manage the limited liability company's business and affairs." (Emphasis added.)).



                                                   2
 1   members. At all relevant times, plaintiffs were managed by Craig Berkman.2

 2                 Plaintiffs' operating agreements contained a number of provisions relevant

 3   to the scope of Berkman's authority to act on plaintiffs' behalf. Because the scope of that

 4   authority is integral to the proper resolution of this case on review, we discuss those

 5   provisions in some detail.

 6                 First, the operating agreements gave Berkman, as managing member,

 7   exclusive control over plaintiffs. Specifically, each operating agreement provided:

 8                 "4.1 Management of Company.

 9                 "(a) The management and control of the Company and its business
10          and affairs is vested exclusively in the Managing Member of the
11          Company[.] * * * The Managing Member shall have the authority to
12          undertake all actions on behalf of the Company without the consent of the
13          other Members, except to the extent expressly provided in this Agreement.
14          No Member other than the Managing Member shall have the authority to
15          bind the Company. Without limitation of the foregoing, the Managing
16          Member shall have the right, without obtaining the consent of the other
17          Members, to (i) invest the funds of the Company in the securities of one or
18          more issuers and to negotiate the terms of such investment * * *."

19                 Second, the operating agreements indicated that third parties could rely on

20   the representations of the managing member without needing to make further inquiry.

21   Each operating agreement stated:

22                 "Right to Rely on Managing Member. Any person or entity dealing
23          with the Company may rely (without further inquiry) upon a certificate

            2
                   In fact, Berkman was only indirectly the managing member; the actual
     managing members were entities controlled by Berkman. The parties have treated
     Berkman as being the managing member for all relevant purposes on appeal and review,
     however, and we will do so as well. See Synectic Ventures, 241 Or App at 553 n 1 (so
     noting for proceedings in Court of Appeals).



                                                   3
 1          signed by the Managing Member as to any matter affecting the Company."

 2                 Finally, the operating agreements allowed each of plaintiff's members to

 3   invest in or manage companies in which the plaintiffs themselves invested. Specifically,

 4   each operating agreement provided, in part:

 5                 "3.2 Other Business of Members. Any Member * * * may engage
 6          independently or with others in other business and investment ventures of
 7          every nature and description and shall have no obligation to account to the
 8          Company for such business or investments or for business or investment
 9          opportunities. * * * The Members acknowledge that each Member may
10          own securities issued by or participate in the management of companies in
11          which the Company may invest and that neither the other Members nor the
12          Company shall have any claim or cause of action against such Member
13          arising from such ownership or participation."

14                 One of the businesses in which plaintiffs invested was defendant, a

15   company that develops medical devices. At all relevant times, Berkman -- the managing

16   member of plaintiffs -- was also chairman of the board and treasurer of defendant. In

17   2004, Berkman also owned a significant number of shares in defendant, which he had

18   pledged as security for personal debts of between $500,000 and $700,000. Berkman also

19   periodically received interest-free loans from defendant.

20                 Before March 2003, plaintiffs had loaned over $3 million to defendant.3 In

21   that month, plaintiffs and defendant entered into a loan agreement memorializing those

22   advances. Under the loan agreement, defendant was obligated to pay back the amount of


            3
                   In fact, those sums were loaned not just by plaintiffs, but also by two other
     investors, Synectic Ventures IV, LLC, and Synectic Ventures V, LLC. Plaintiffs have
     named those other investors as defendants in this proceeding. For the sake of simplicity,
     throughout this opinion we will not otherwise note the additional investors.



                                                   4
 1   the advances, plus eight percent interest, by December 31, 2004. The debt was secured

 2   by a security interest in all of defendant's personal property -- specifically, intellectual

 3   property relating to medical devices. If defendant obtained an additional $1 million in

 4   financing from any source before the loan maturity date, however, then the loan amount

 5   would automatically be converted to shares in defendant, and plaintiffs would not be able

 6   to foreclose on the security interest.

 7                 Later in 2003, a number of the members of plaintiffs, having become

 8   disgruntled with Berkman's management, hired a law firm to represent them. On July 28,

 9   2003, the law firm sent Berkman a letter that (among other things) requested Berkman's

10   voluntary resignation as managing member of plaintiffs. In September 2003 and again in

11   June 2004, Berkman signed letter agreements with those members agreeing not to enter

12   into new obligations on behalf of plaintiffs without getting advance approval by those

13   members. On September 2, 2004, the law firm wrote to Berkman and notified him that

14   he would be removed as managing member as soon as the other members could elect a

15   new managing member.

16                 Beginning September 10, 2004 -- less than four months before plaintiffs'

17   loan to defendant matured, and just over one week after learning that he soon would be

18   removed as managing member -- Berkman prepared an amendment to the March 2003

19   loan agreement. The amendment falsely stated that it had been made on August 15,

20   2004. The amendment primarily extended the maturity date on the loan agreement for an

21   extra year, from December 31, 2004, to December 31, 2005. Berkman participated on

22   both sides of the transaction: On behalf of defendant he signed a consent resolution of
                                                    5
 1   defendant's board of directors authorizing the transaction, while on behalf of plaintiffs he

 2   signed the amendment itself. If Berkman had not amended the loan agreement to extend

 3   the maturity date, then plaintiffs would have been entitled to foreclose on all of

 4   defendant's assets after December 31, 2004. Foreclosure would have made defendant's

 5   stock worthless, and would have given plaintiffs control of its intellectual property.

 6                 Berkman was removed as the managing member in December 2004. By

 7   January 2005, the new managing member had been informed about the amendment to the

 8   loan agreement that purported to extend the date for defendant to obtain the additional

 9   financing. A law firm acting on behalf of the new managing member notified defendant

10   in late August 2005 that the loan amendment was unauthorized and objected to any

11   attempt to convert the loan amount into shares. Notwithstanding that notification, on

12   December 29, 2005 -- just before the amended maturity date for the loan expired --

13   defendant received $1 million in additional investment. In accordance with the provision

14   of the loan agreement allowing the loan to be converted to equity, defendant converted

15   the amount of the loan into equity shares. Because the conversion eliminated defendant's

16   security interest in favor of plaintiffs, plaintiffs lost their opportunity to foreclose on

17   defendant's property and were left as minority shareholders in defendant, holding less

18   than five percent of the outstanding stock.

19   B.     Trial Court Proceedings

20                 Plaintiffs filed an action against defendant, seeking to recover on the loan

21   agreement and foreclose on the security interest. The complaint was based on defendant

22   not having paid the loan as of the original maturity date, December 31, 2004. In its
                                                    6
 1   answer, defendant relied on the loan amendment having extended the maturity date.

 2   Defendant asserted that, in accordance with the terms of the amended loan agreement, the

 3   loan had been converted into equity.

 4                 Subsequently, the parties filed cross-motions for summary judgment.

 5   Plaintiffs argued (among other things) that the amendment to the loan agreement was

 6   invalid because Berkman had a conflict of interest, the conflict deprived Berkman of

 7   authority to execute the loan agreement amendment on behalf of plaintiffs, and defendant

 8   knew that Berkman lacked that authority. See ORS 63.140(2)(a) (manager can bind LLC

 9   to transactions "unless the manager had no authority to act for the limited liability

10   company in the particular matter and the person with whom the manager was dealing

11   knew or had notice that the manager lacked authority"). Defendant offered a number of

12   arguments in response, contending that Berkman did have authority to enter into the

13   amendment, that Berkman had no conflict of interest, that the operating agreements

14   permitted Berkman to invest in or manage defendant, and that the operating agreements

15   relieved defendant of any obligation to investigate whether Berkman actually had the

16   required authority.

17                 The trial court denied plaintiffs' motion for summary judgment and granted

18   defendant's motion. In a letter opinion, the trial court stated that the operating

19   agreements expressly permitted Berkman to enter into transactions on behalf of plaintiffs

20   with a corporation, in which he had invested in or that he was managing. Furthermore,

21   the court held, the operating agreement relieved defendant of any obligation to inquire

22   into Berkman's authority. Finally, the court stated, even if defendant had inquired into
                                                   7
 1   Berkman's authority, defendant would have concluded that Berkman had authority to

 2   approve the amendment.

 3   C.     Court of Appeals Decision

 4                 Plaintiffs appealed, raising essentially the same arguments that they had in

 5   the trial court. The Court of Appeals rejected those arguments and affirmed the trial

 6   court ruling. The court noted that, under ORS 63.140(2)(a), an LLC manager can bind

 7   the LLC "'unless the manager had no authority to act for the limited liability company in

 8   the particular matter and the person with whom the manager was dealing knew or had

 9   notice that the manager lacked authority.'" Synectic Ventures, 241 Or App at 564

10   (quoting ORS 63.140(2)(a)). The Court of Appeals noted that the operating agreements

11   granted Berkman extensive authority as managing member to control plaintiffs, id. at

12   557-59, and even if Berkman had breached duties owed to plaintiffs, that did not limit his

13   authority to act on plaintiffs' behalf. According to the Court of Appeals: "[T]here was no

14   operation of law that stripped [Berkman] of his authority to bind plaintiffs in the ordinary

15   course of business." Id. at 565. Furthermore, the Court of Appeals concluded that

16   section 3.2 of the operating agreements permitted Berkman to engage in transactions in

17   which he had a conflict of interest. Id. at 565-66. Finally, the court stated that it did not

18   matter whether defendant knew about Berkman's conflict of interest, because (1) the

19   operating agreements allowed third parties to rely on Berkman's authority without

20   making any inquiry, and (2) any inquiry would have led defendant to conclude that

21   Berkman had authority to enter into the amendment. Id. at 565.

22                                        II. DISCUSSION
                                                   8
 1                 On review, plaintiffs renew their earlier arguments. They contend that the

 2   trial court erred in granting summary judgment for defendant because Berkman had a

 3   conflict of interest with plaintiffs in dealing with defendant, that that conflict deprived

 4   him of authority to amend the loan agreement on behalf of plaintiffs, that defendant knew

 5   about the conflict because Berkman was its agent, and therefore plaintiffs are not bound

 6   by the amendment. Accordingly, plaintiffs maintain that they are entitled to foreclose on

 7   the security interest. For its part, defendant asserts that Berkman had authority to bind

 8   plaintiffs to the amendment, that plaintiffs' operating agreements allowed Berkman to do

 9   so despite any conflict of interest, and that defendant had a right to rely on Berkman's

10   apparent authority to enter into the amendment. Defendant also maintains that plaintiffs

11   ratified the amendment by their delay in objecting to it, even after Berkman had been

12   removed as managing member.

13                 Because this matter is before us on a grant of summary judgment, we must

14   determine whether, as the trial court concluded, there were no genuine issues of material

15   fact and defendant was entitled to judgment as a matter of law. See ORCP 47 C (stating

16   summary judgment standard). We begin by considering the circumstances under which

17   LLCs such as plaintiffs are bound by the acts of a manager.

18   A.     There was a Genuine Issue of Material Fact Whether Berkman Had a Conflict of
19          Interest Regarding the Amendment to the Loan Agreement.

20                 By statute, a manager's actions generally bind a manager-managed LLC,

21   unless the manager lacked actual or apparent authority to enter into the transaction and

22   the other party knew or should have known that the manager lacked authority. ORS


                                                   9
 1   63.140 provides (in part) as follows:

 2               "(2) Subject to subsection (3) of this section [generally giving
 3          manager authority to transfer LLC's interest in real property], in a manager-
 4          managed limited liability company:

 5                  "(a) * * * Each manager is an agent of the limited liability company
 6          for the purpose of its business, and an act of a manager, including the
 7          signing of an instrument in the limited liability company's name, for
 8          apparently carrying on in the ordinary course the business of the limited
 9          liability company, or business of the kind carried on by the limited liability
10          company, binds the limited liability company unless the manager had no
11          authority to act for the limited liability company in the particular matter
12          and the person with whom the manager was dealing knew or had notice
13          that the manager lacked authority."

14   ORS 63.140(2)(a) (emphasis added). Plaintiffs assert that both criteria have been met

15   here: that Berkman lacked authority to enter into the amendment to the loan agreement,

16   and that defendant knew or should have known that he lacked authority.

17                 We agree with defendant that Berkman had authority to enter into contracts

18   of this kind, including determining whether to extend the maturity date of loans. ORS

19   63.140(2)(a) supports that conclusion, and the operating agreements confirm it.4

20                 Plaintiffs assert, however, that Berkman did not have authority to enter into

21   this particular transaction (the amendment to the loan agreement) because he had a

22   conflict of interest. We now consider that question.


            4
                   Again, the operating agreements specifically provide that "[t]he
     management and control of the Company and its business and affairs is vested
     exclusively in the Managing Member" and "the Managing Member shall have the right,
     without obtaining the consent of the other Members, to (i) invest the funds of the
     Company in the securities of one or more issuers and to negotiate the terms of such
     investment."



                                                  10
 1                 In the agency context, the term "conflict of interest"

 2          "encompasses situations in which the agent is acting entirely or
 3          substantially for the agent's own benefit and situations in which the agent is
 4          acting on behalf of a third party whose interest is adverse to that of the
 5          principal."

 6   Lindland v. United Business Investments, 298 Or 318, 322 n 2, 693 P2d 20 (1984). If an

 7   agent acts for a principal when the agent has a conflict of interest, the agent has breached

 8   the duty of loyalty to the principal. Id. at 324 ("[C]onflict of interest or self-dealing is the

 9   breach of duty [of loyalty]." (Emphasis in original.)); see Restatement (Third) of Agency

10   § 8.03 (2006) (duty of loyalty includes duty not to deal with principal either as adverse

11   party or on behalf of adverse party).

12                 An agent ordinarily lacks authority to act on behalf of a principal in a

13   transaction in which the agent has a conflict of interest. As this court explained in Fine v.

14   Harney Co. National Bank, 181 Or 411, 447-48, 182 P2d 379 (1947):

15                 "It is an established principle of the law of agency that an agent
16          cannot bind his principal in a matter in which his own interest conflicts
17          with the duty he owes his principal. As stated in 1 Mechem on Agency (2d
18          ed) 535, § 754: 'It is often said that his endeavor to do so operates as an
19          immediate revocation of his authority. That an agent undertakes to do so is
20          therefore enough to put the other party on his guard.'"

21   (Additional citations omitted.) See State v. Miller, 47 Or 562, 566, 85 P 81 (1906) ("It is

22   elementary * * * that an agent cannot bind his principal, even in matters touching his

23   agency, where he is known to be acting for himself, or to have an adverse interest."

24   (Internal quotation marks and citation omitted.))

25                 We agree with plaintiffs that Berkman had a conflict of interest when he

26   approved the loan amendment. At that time, Berkman was managing member, and thus

                                                   11
 1   an agent, of plaintiffs. See ORS 63.140(2)(a) (in manager-managed LLCs, "[e]ach

 2   manager is an agent of the [LLC]"). But as chairman of the board and treasurer of

 3   defendant, Berkman also was an agent of defendant. Berkman thus was acting as an

 4   agent for two principals with conflicting interests. Furthermore, Berkman was indirectly

 5   but personally interested in favoring defendant by amending the loan agreement to keep

 6   plaintiffs from foreclosing on defendant's security interest. If plaintiffs had foreclosed,

 7   then Berkman's shares in defendant would have become worthless, while defendant's

 8   demise would have deprived Berkman of a source of interest-free loans.

 9                 By statute, however, a manager's duty of loyalty to the LLC does not

10   prohibit self-interested transactions, as long as they are fair to the LLC. See ORS

11   63.155(9)(b) (making duties of ORS 63.155(2) - (8) applicable to manager of manager-

12   managed LLC); ORS 63.155(6)(a) (member of member-managed LLC may transact

13   business with LLC, provided that the transaction "must be" "[f]air to the limited liability

14   company").5 See also ORS 63.155(5) (made applicable to managers by ORS


            5
                   ORS 63.155(6) provides:

                    "A member of a member-managed limited liability company may
            lend money to or transact other business with the limited liability company,
            provided that any loan or transaction between the member and the limited
            liability company must be:

                   "(a) Fair to the limited liability company;

                   "(b) Authorized by an operating agreement; or

                 "(c) Authorized or ratified by a majority of the disinterested
            members or by a number or percentage of members specified in the


                                                  12
 1   63.155(9)(b); "[a] member of a member-managed limited liability company does not

 2   violate a duty or obligation under this chapter or under any operating agreement of the

 3   limited liability company merely because the member's conduct furthers the member's

 4   own interest"). In this case, the amendment to the loan agreement that Berkman

 5   ultimately approved was at least arguably one-sided in favor of defendant: defendant

 6   avoided foreclosure and obtained a one-year extension of a 21-month loan, while

 7   plaintiffs received only an additional year's interest on the extension. As a result, there is

 8   a genuine issue of material fact whether the amendment was fair to plaintiffs.

 9                 Further elaboration is unnecessary. Berkman's personal interests, and his

10   interests as chairman of the board and treasurer of defendant, conflicted with plaintiffs'

11   interests as to whether the loan agreement should be amended, and there was a question

12   for the factfinder as to whether the amendment was fair to plaintiffs. Accordingly, there

13   was a genuine issue of material fact regarding whether Berkman had a conflict of interest

14   that breached his duty of loyalty in a manner that deprived him of authority to enter into

15   the amendment.

16                 Defendant argues that, regardless, a provision of plaintiffs' operating

17   agreements permitted Berkman to act on behalf of plaintiffs, notwithstanding any conflict

18   of interest. We now turn to that question.

19   B.     Plaintiffs' Operating Agreements Did Not Specifically Permit the Conflict of
20          Interest.


            operating agreement after full disclosure of all material facts."



                                                   13
 1                 Although an agent ordinarily lacks authority to enter into a transaction in

 2   which the agent has a conflict of interest, the principal may authorize the transaction

 3   despite the conflict. In the case of LLCs, ORS 63.130 provides, in part:

 4                 "(4) Unless otherwise provided in the articles of organization or any
 5          operating agreement, the following matters of a * * * manager-managed
 6          limited liability company require the consent of a majority of the members:

 7                 "* * * * *

 8                 "(h) A transaction involving an actual or a potential conflict of
 9          interest between * * * a manager and the limited liability company[.]"

10   ORS 63.130(4)(h). See also ORS 63.155(6)(b), (c) (permitting self-interested

11   transactions that are authorized by operating agreement or that are approved by

12   members).

13                 Defendant does not assert that a majority of plaintiffs' members formally

14   approved Berkman's conflict of interest in making the amendment, as required by that

15   statute.6 Defendant instead asserts that the operating agreements here authorized this sort

16   of conflict of interest transaction from the outset. See id. (majority consent required to

17   approve conflict of interest "[u]nless otherwise provided in the articles of organization or

18   any operating agreement"). Defendant relies specifically on section 3.2 of the operating

19   agreements, which for convenience we repeat here:

20                 "3.2 Other Business of Members. Any Member * * * may engage

            6
                   Defendant did offer evidence that one member of one plaintiff had known
     that Berkman was involved in managing defendant and had approved that relationship,
     but defendant does not contend that that knowledge somehow amounts to approval by a
     majority of plaintiffs' members under ORS 63.130(4)(h).



                                                  14
 1          independently or with others in other business and investment ventures of
 2          every nature and description and shall have no obligation to account to the
 3          Company for such business or investments or for business or investment
 4          opportunities. * * * The Members acknowledge that each Member may
 5          own securities issued by or participate in the management of companies in
 6          which the Company may invest and that neither the other Members nor the
 7          Company shall have any claim or cause of action against such Member
 8          arising from such ownership or participation."

 9   Defendant contends that, because Berkman was labeled as "[m]anaging [m]ember" in the

10   operating agreements, Berkman was permitted to act despite the conflict by section 3.2,

11   which applies to "[a]ny [m]ember."

12                 We agree that, at common law, a principal could authorize an agent to

13   engage in a transaction in which the agent has a conflict of interest with the principal. In

14   doing so, however, the authorization must be specific:

15          "[A] general power or authority given to the agent to do an act in behalf of
16          the principal does not extend to a case where it appears that the agent
17          himself is the person interested on the other side. If such a power is
18          intended to be given, it must be expressed in language so plain that no other
19          interpretation can rationally be given it, for it is against the general law of
20          reason that an agent should be intrusted with power to act for his principal
21          and for himself at the same time."

22   Fine, 181 Or at 448 (internal quotation marks and citation omitted). In the LLC context,

23   the legislature has imposed a similar requirement. ORS 63.155 provides, in part:

24                "(10) The * * * operating agreement of a limited liability company
25          may not:

26                  "(a) Eliminate completely the duty of loyalty under subsection (2) of
27          this section, but the * * * operating agreement may:

28                 "(A) Identify specific types or categories of activities that do not
29          violate the duty of loyalty, if not unconscionable[.]"

30   (Emphasis added.)

                                                  15
 1                  As we will explain, we conclude that section 3.2 of the operating

 2   agreements did not specifically allow Berkman to engage in transactions where he had a

 3   conflict of interest that breached his duty of loyalty. Section 3.2 allows only ordinary

 4   members, who are essentially passive investors in the LLC, to invest in or manage other

 5   corporations. It does not specifically allow the managing member, who essentially

 6   controls all aspects of LLC operations, to engage in transactions in which the manager

 7   has a conflict of interest.

 8                  In manager-managed LLCs, substantial differences exist between the

 9   powers and duties of a manager and the powers and duties of a member. By statute, the

10   manager essentially has exclusive authority to run the LLC. ORS 63.130 provides, in

11   part:

12                 "(2) In a manager-managed limited liability company, unless
13           otherwise provided in the articles of organization or any operating
14           agreement:

15                  "* * * * *

16                  "(b) Except as otherwise provided in subsections (3) and (4) of this
17           section, any matter relating to the business of the limited liability company
18           may be exclusively decided by the manager or, if there is more than one
19           manager, by a majority of the managers[.]"

20   ORS 63.130(2)(b).7 See also ORS 63.140(2)(a) (manager is agent of LLC, and LLC is

21   generally bound by actions of manager within the ordinary scope of LLC business). That


             7
                   The exceptions in subsections (3) and (4) include such matters as amending
     the operating agreement (ORS 63.130(3)(a)), admitting a new member (ORS
     63.130(4)(b)), or selling all or essentially all of the LLC's property (ORS 63.130(4)(d)).



                                                  16
 1   extensive authority granted to managers is limited in a few instances. In particular, as we

 2   have already noted, a majority of the members must approve any "transaction involving

 3   an actual or a potential conflict of interest between * * * a manager and the limited

 4   liability company," unless the operating agreement otherwise provides. ORS

 5   63.130(4)(h).

 6                   The same statutes, by contrast, make the members of a manager-managed

 7   LLC (with few exceptions) little more than passive investors in the LLC. Ordinary

 8   members have essentially no control over the business. See ORS 63.130(2)(b) (generally,

 9   "any matter relating to the business of the limited liability company may be exclusively

10   decided by the manager"); ORS 63.140(2)(a) (in manager-managed LLCs, "[a] member is

11   not an agent of the limited liability company for the purpose of its business solely by

12   reason of being a member"). In this case, plaintiffs' operating agreements track the

13   general statutory principles that grant the manager authority to run the business, while

14   withholding that authority from ordinary members.

15                   By statute, the heightened powers of the manager also carry with them

16   specific duties toward the LLC. See ORS 63.155(9)(b) (making duties of ORS

17   63.155(2) - (8) applicable to manager); ORS 63.155(2) - ORS 63.155(8) (listing duties).

18   In particular, those duties include the obligation generally "to refrain from dealing with

19   the limited liability company in a manner adverse to the limited liability company and to

20   refrain from representing a person with an interest adverse to the limited liability




                                                  17
 1   company, in the conduct * * * of the limited liability company's business." ORS

 2   63.155(2)(b) (subject to certain exceptions).8 See also ORS 63.130(4)(h) (generally

 3   requiring approval of members of transaction where manager has conflict of interest with

 4   LLC).

 5                 In contrast, the members of a manager-managed LLC owe no duty to the

 6   LLC or the other members. ORS 63.155(9)(a) provides:

 7                 "(9) In a manager-managed limited liability company:

 8                  "(a) A member who is not also a manager owes no duties to the
 9           limited liability company or the other members solely by reason of being a
10           member[.]"

11                 With that background, we return to the question whether section 3.2

12   complies with ORS 63.155(10)(a)(A) by specifically identifying types or categories of

13   activities that do not violate the duty of loyalty. We first observe that section 3.2 speaks

14   only generically of "members," and it relieves members of any obligation either to

15   "account to [plaintiffs]," or to be liable to plaintiffs or the other members, for investing in

16   or managing other businesses. Section 3.2 permits ordinary members to invest their own

17   money in other businesses and/or to manage other businesses that are doing business with

18   plaintiffs. But investment or management by an ordinary member does not involve any

             8
                   We have mentioned the exceptions previously. They are ORS 63.155(5)
     (member of member-managed LLC does not violate duty "merely because the member's
     conduct furthers the member's own interest") and ORS 63.155(6) (member of member-
     managed LLC may transact business with LLC if transaction is fair to LLC, or operating
     agreement authorizes transaction, or transaction is authorized or ratified by members).
     Those exceptions also apply to the manager of a manager-managed LLC. See ORS
     63.155(9)(b) (so noting).



                                                   18
 1   conflict of interest between agent and principal, because ordinary members of a manager-

 2   managed LLC are not agents of the LLC, ORS 63.140(2)(a), and so they have no duty of

 3   loyalty to put the LLC's interest first. An ordinary member of plaintiffs does not have the

 4   authority to cause plaintiffs to take detrimental actions that might benefit that member's

 5   outside investments. In effect, section 3.2 simply restates what ORS 63.155(9)(a) already

 6   provides: "A member who is not also a manager owes no duties to the limited liability

 7   company or the other members solely by reason of being a member[.]"

 8                 What is not in section 3.2, however, is any suggestion -- much less a

 9   specific statement as required by ORS 63.155(10)(a)(A) -- that the managing member

10   may bind the plaintiffs to transactions when the managing member has a conflict of

11   interest. Unlike ordinary members, the managing member does control LLC operations.

12   Unless checked, that authority would give the managing member vast opportunities to

13   personally benefit at the LLC's expense. For that reason, the manager of an LLC is

14   subject to a statutory duty "to refrain from dealing with the limited liability company in a

15   manner adverse to the limited liability company and to refrain from representing a person

16   with an interest adverse to the limited liability company." ORS 63.155(2)(b). Nothing in

17   section 3.2 suggests any intent to permit the managing member to act against plaintiffs'

18   interests or to act in the interest of a party adverse to plaintiffs, such as defendant.

19   Section 3.2 does not purport to waive the duty of loyalty or to permit conflicts of

20   interest -- duties that do not apply to ordinary members, but which were imposed by

21   statute on Berkman as managing member. Section 3.2 also does not purport to change

22   the default rule that transactions involving a conflict of interest by the manager must be
                                                    19
 1   approved by a majority of members. See ORS 63.130(4)(h). Even considered as a

 2   question of contractual interpretation, we are not persuaded that section 3.2's generic

 3   release of any obligation by "[m]embers" to "account" for other investments was intended

 4   to waive the managing member's duty to avoid conflicts of interest. We do not agree that

 5   section 3.2 qualifies as the sort of specific approval of a managing member's duty to

 6   avoid conflicts of interest as required by ORS 63.155(10)(a)(A).

 7                 Because section 3.2 does not specifically identify or authorize the

 8   managing member to engage in transactions in which the managing member has a

 9   conflict of interest, ORS 63.155(10)(a)(A), we conclude that the operating agreements

10   did not specifically permit Berkman to approve the amendment if he had a conflict of

11   interest.9 Accordingly, the operating agreements do not call into question our previous

12   conclusion that there was a genuine issue of material fact as to whether Berkman's

13   conflict of interest deprived him of authority to approve the amendment.

14                 Even if Berkman lacked authority to amend the loan agreement, however,

15   plaintiffs would still be bound by the amendment unless defendant knew or should have

16   known that Berkman lacked authority. See ORS 63.140(2)(a) (so stating). We turn to

            9
                    Defendant also asserts that Berkman had the same conflict of interest when
     the loan agreement itself was formulated, so the loan agreement itself must be invalid as
     well. Even if Berkman lacked authority to enter into the original loan agreement,
     however, the original transaction may have been fair, see ___ Or at ___ (slip op at 12-
     13), or plaintiffs may have ratified it, see ___ Or at ___ (slip op at 23-24) (discussing
     principal's ratification of agent's unauthorized act). Regardless, the issue on summary
     judgment is not Berkman's authority to enter into the original loan agreement, but
     Berkman's authority to enter into the amendment.



                                                 20
 1   that question.

 2   C.     Defendant Would Have Known That Berkman Had a Conflict of Interest, So
 3          Defendant Would Have Known That Berkman Lacked Authority to Enter Into the
 4          Amendment on Behalf of Plaintiffs.

 5                    As noted, each operating agreement contained the following provision:

 6                 "Right to Rely on Managing Member. Any person or entity dealing
 7          with the Company may rely (without further inquiry) upon a certificate
 8          signed by the Managing Member as to any matter affecting the Company."

 9   Defendant asserts that, under the operating agreements, it was entitled to rely on

10   Berkman's authority to approve the amendment on behalf of plaintiffs without making

11   any further inquiry. Defendant's argument misses the point. As chairman of the board

12   and treasurer for defendant, Berkman was an agent for defendant. Essentially everything

13   that Berkman knew therefore must be imputed to defendant. See FDIC v. Smith, 328 Or

14   420, 429, 980 P2d 141 (1999) ("A potential corporate plaintiff is not a sentient being and,

15   therefore, cannot 'know,' be aware of, or discover anything, except through the agency of

16   its officers, directors, and employees. A corporation generally is charged with

17   knowledge of facts that its agents learn within the scope of their employment." (Citations

18   omitted.)); Phillips v. Colfax Company, Inc., 195 Or 285, 300, 243 P2d 276, on reh'g, 245

19   P2d 898 (1952) ("'The general rule is that the corporation is affected or charged with

20   knowledge of all material facts of which its officer or agent receives notice or acquires

21   knowledge while acting in the course of his employment and within the scope of his

22   authority, even though the officer or agent does not in fact communicate his knowledge

23   to the corporation through its other officers or agents, or its board of directors[.]"

24   (Internal quotation marks and citation omitted.)).

                                                   21
 1                  Moreover, defendant would have actually known the facts that would show

 2   that Berkman's conflict of interest deprived him of authority. Defendant does not and

 3   cannot dispute that it knew that Berkman was managing member for plaintiffs or that he

 4   executed the amendment to the loan agreement on behalf of plaintiffs. Defendant also

 5   cannot deny having known that Berkman was its own chairman of the board and

 6   treasurer, that Berkman had a significant financial stake in it through his stock ownership,

 7   or that defendant periodically was giving Berkman interest-free loans. And of course

 8   defendant knew all the details of the allegedly unfair amendment to the loan agreement

 9   itself. In short, defendant already knew essentially everything about Berkman's conflict

10   of interest.

11                  If the factfinder concludes that Berkman's conflict of interest with plaintiffs

12   deprived him of authority to approve the amendment to the loan agreement, then

13   defendant knew about that conflict of interest, both in fact and as imputed by the

14   knowledge of its agent. Because defendant would have known that Berkman had a

15   conflict, defendant would have known that Berkman lacked authority to enter into the

16   amendment on behalf of plaintiffs. The provision of the operating agreements suggesting

17   that third parties need make no further inquiry into Berkman's authority would be

18   irrelevant under those circumstances. Unlike third parties dealing with plaintiffs at arm's

19   length, defendant would not have needed to make any further inquiry; defendant already

20   would have known the answer. See Portland v. American Surety Co., 79 Or 38, 43, 153

21   P 786, on motion to further modify decree, 154 P 121 (1916) (principal will not be bound

22   by acts of agent, even though acts were within agent's apparent authority, "in the presence
                                                   22
 1   of the actual knowledge of the third party as to the real scope of the agent's authority").

 2                 To summarize: Under ORS 63.140(2)(a), an LLC is not bound by a

 3   transaction if the manager lacked authority to enter into the transaction and the other

 4   party knew or should have known of that lack of authority. We conclude that there was a

 5   genuine issue of material fact whether Berkman's conflict of interest in agreeing to the

 6   amendment on behalf of plaintiffs deprived him of authority to act on behalf of plaintiffs

 7   in that transaction. Defendant would have had both actual and imputed knowledge of the

 8   conflict of interest and the lack of authority. Accordingly, unless plaintiffs later ratified

 9   the amendment (an issue that we will consider next), plaintiffs would not be bound by the

10   amendment to the loan agreement.

11   D.     There Is An Issue of Material Fact Whether Plaintiffs Ratified the Amendment.

12                 Finally, defendant argues that there is an alternative ground that supports

13   the trial court's summary judgment ruling. According to defendant, even if Berkman

14   lacked authority to enter into the amendment, plaintiffs' seven-month delay in making

15   any objection amounted to ratification by silence of the unauthorized act. See Michel v.

16   ICN Pharmaceuticals, 274 Or 795, 805, 549 P2d 519 (1976) (if purported principal is

17   told of actions of purported agent "under circumstances which reasonably justify an

18   inference of consent unless the principal discloses his dissent, the failure of the principal

19   to dissent within a reasonable time is, unless explained[,] sufficient evidence of

20   affirmance" (internal quotation marks and citation omitted)); Phillips, 195 Or at 300

21   ("Generally, where a corporation through its proper officers takes and retains the benefits

22   of the unauthorized act or contract of an officer or agent and fails to repudiate the
                                                   23
 1   transaction and offer restitution within a reasonable time, it thereby ratifies and becomes

 2   bound by such act or contract if its action is taken with full knowledge of the material

 3   facts * * *." (Internal quotation marks and citation omitted.)).

 4                 Neither the trial court nor the Court of Appeals reached defendant's

 5   ratification argument. Nevertheless, we have considered that argument and, at this stage

 6   of the proceedings, reject it. Although a principal may ratify the unauthorized acts of an

 7   agent by silence, we do not agree that the facts of this case justify summary judgment in

 8   defendant's favor. "It is a question of fact in the particular circumstances whether the

 9   lapse in time [in objecting] is sufficient to constitute ratification." Restatement (Third) of

10   Agency § 4.01 comment f; see Michel, 274 Or at 804-05 (noting that "the question of

11   ratification is ordinarily a question of fact"); Phillips, 195 Or at 296 ("[r]atification is a

12   question of fact" (internal quotation marks and citation omitted)). Specifically,

13   ratification by silence requires the factfinder to draw an inference about the principal's

14   state of mind. See Michel, 274 Or at 805 n 2 ("Ratification is based upon waiver -- the

15   intentional relinquishment of a known right -- rather than upon estoppel."). On this

16   record we cannot conclude that there is no issue of fact as to whether the length of time

17   that plaintiffs delayed in making their objection served to ratify the amendment.10


            10
                    Defendant contends that, in Michel, this court held that silence became
     acquiescence as a matter of law because the party had acted consistently with the
     agreement for 20 days. See 274 Or at 805 ("in delaying its 'disaffirmance' for 20 days
     defendant did not do so within a reasonable time, in our judgment"). Even setting aside
     the factual differences in that case, defendant does not accurately characterize Michel,
     which was before this court in an entirely different procedural posture. In Michel, this


                                                    24
 1                 III. PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT

 2                 Plaintiffs have also asserted on review that the trial court should have

 3   granted summary judgment in their favor. We disagree. For the reasons we have already

 4   noted, there are triable questions of fact in this case: whether the transaction was fair to

 5   plaintiffs, and whether plaintiffs ratified the amendment by inaction. Accordingly, we

 6   affirm the trial court insofar as it denied plaintiffs' motion for summary judgment.

 7                  IV. PLAINTIFFS' APPEAL OF ATTORNEY FEE AWARD

 8                 After entry of the general judgment, the trial court entered a supplemental

 9   money judgment for attorney fees and costs against plaintiffs, and plaintiffs separately

10   appealed that supplemental judgment. Our conclusion that the trial court erred in

11   granting summary judgment necessarily reverses that attorney fee award. See ORS

12   20.220(3)(a) ("If the appellate court reverses the judgment [as to which an award of

13   attorney fees or costs relates], the award of attorney fees or costs and disbursements shall

14   be deemed reversed[.]"). Without deciding whether a separate notice of appeal was

15   necessary in light of the statutory text, we also reverse the trial court's supplemental


     court was reviewing the record de novo in an appeal from a decree in equity. Id. at 797.
     Furthermore, the trial court had not made any findings of fact on the question of
     ratification, so there was no issue about deferring to those findings. Id. at 804-05. Unlike
     Michel, the question before us now is not what findings of fact this court might make on a
     complete record, but whether the summary judgment record is sufficient to create a
     question of fact for the jury. See Phillips, 195 Or at 302 ("[I]t must be remembered that
     the matter at bar is an action at law. It is not a suit in equity calling for a trial de novo on
     appeal with the incident duty to make our own independent appraisal of the relative
     weight of testimony adduced."). As we have explained, there are genuine issues of
     material fact for the jury to resolve here.



                                                   25
 1   judgment.

 2                                       V. CONCLUSION

 3                  Under ORS 63.140(2)(a), an LLC is not bound by the act of its manager if

 4   the manager lacked authority and if the other party knew or should have known that the

 5   authority was lacking. Here, although Berkman had authority to enter into the sorts of

 6   transactions represented by the amendment to the loan agreement at issue, we agree with

 7   plaintiffs that there was a genuine issue of material fact whether Berkman had lost the

 8   authority to enter into the amendment. Berkman had a conflict of interest when he

 9   attempted to cause plaintiffs to enter into the amendment, both because he was also

10   acting as an agent for defendant, and because he was personally interested in the

11   transaction. A factfinder could permissibly conclude that that conflict of interest

12   breached Berkman's duty of loyalty, thus depriving Berkman of authority to enter into the

13   amendment on behalf of plaintiffs. Furthermore, defendant would have known that

14   Berkman had that conflict of interest and thus lacked the authority to enter into the

15   amendment. Finally, a factfinder could find that plaintiffs had not ratified the

16   amendment by their delay in rejecting it. Under those circumstances, plaintiffs would not

17   be bound by the amendment to the loan agreement. Based on the foregoing, the trial

18   court erred both in granting defendant summary judgment and in entering a supplemental

19   money judgment for attorney fees and costs against plaintiffs.

20                  The decision of the Court of Appeals is reversed. The judgments of the

21   circuit court are reversed, and the case is remanded to the circuit court for further

22   proceedings.
                                                  26
