Tuesday, March 13, 2018

LLCs Are Not Corporations. Be Vigilant. Respect the Entity.

A recent Georgia case highlights a whole host of things that frustrate me with litigation related to limited liability companies (LLCs).  This one features an LLC making incorrect arguments and a court sanctioning that silliness. For example

Baja Properties argues that it is exempted from the rule set out in OCGA ยง 43-41-17 (b) by a provision in OCGA ยง 43-41-17 (h). Subsection (h) states, in part:
Nothing in this chapter shall preclude any person from constructing a building or structure on real property owned by such person which is intended upon completion for use or occupancy solely by that person and his or her family, firm, or corporation and its employees, and not for use by the general public and not offered for sale or lease. In so doing, such person may act as his or her own contractor personally providing direct supervision and management of all work not performed by licensed contractors.
Baja Properties, LLC v. Mattera, No. A17A1875, 2018 WL 1247432, at *2 (Ga. Ct. App. Mar. 9, 2018) (emphasis added).  Baja Properties is, naturally, an LLC, not a corporation.  
 
The Goldens, who are the members of the Baja LLC, go on to: 
 
contend that the trial court erred by denying their motion for summary judgment as to negligence claims asserted against them personally. They assert that corporate law insulates them from liability and that, while a member of an limited liability corporation [sic] may be liable for torts in which he individually participated, Ugo Mattera has pointed to no evidence that the Goldens specifically directed a particular negligent act or participated or cooperated therein. We agree with the Goldens that they were entitled to summary judgment on Ugo Mattera's negligence claim.
An officer of a corporation who takes part in the commission of a tort by the corporation is personally liable therefor, and an officer of a corporation who takes no part in the commission of a tort committed by the corporation is not personally liable unless he specifically directed the particular act to be done or participated or cooperated therein.
Jennings v. Smith, 226 Ga. App. 765, 766 (1), 487 S.E.2d 362 (1997) (citation omitted). Thus, if Baja Properties was negligent in constructing the house, an officer of the corporation could be held personally liable for the negligent construction if he specifically directed the manner in which the house was constructed or participated or cooperated in its negligent construction. See Cherry v. Ward, 204 Ga. App. 833, 834 (1) (a), 420 S.E.2d 763 (1992).
There is NO corporation involved in the dispute! 
 
It may be that Georgia law applies provides that "corporation" includes all entity types and that "officers" includes any person with some level of entity control.  I don't know.  And I don't need to look it up.  But the lawyers in the case and the court should because without explaining that is the case, the opinion is applying law that is not clearly relevant.  
 
It's time for courts to get this right, and it is time for lawyers to start noticing their mistakes and those of opposing counsel. Every time you reference an entity, look to see if you have it right.  When you see "corporation" make sure there is a corporation involved.  When you see LLC think "company," and make sure the term are consistent.  It requires vigilance,  but we can do this.  We just have to want to.  Let's do this! 

http://lawprofessors.typepad.com/business_law/2018/03/llcs-are-not-corporations-be-vigilant-respect-the-entity.html

Corporations, Joshua P. Fershee, Lawyering, LLCs | Permalink

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