Tuesday, May 15, 2018

LLC Members Sued Directly In Tort, But Court Prefers to Tell Us About Corporate Law

A recent Georgia case considers whether a "sole owner" of an LLC can be held liable for negligent actions of his or her LLC. Of course, once again, the limited liability company (LLC), is called by the court a "limited liability corporation," and the court proceeds to apply corporate law. Here's the relevant excerpt:
The Goldens 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 [sic] limited liability corporation 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).
Baja Properties, LLC v. Mattera, 812 S.E.2d 358 (Ga. Ct. App. 2018) (emphasis added).  
 
In Georgia, the LLC law provides:
(a) A person who is a member, manager, agent, or employee of a limited liability company is not liable, solely by reason of being a member, manager, agent, or employee of the limited liability company, under a judgment, decree, or order of a court, or in any other manner, for a debt, obligation, or liability of the limited liability company, including liabilities and obligations of the limited liability company to any member or assignee, whether arising in contract, tort, or otherwise, or for the acts or omissions of any other member, manager, agent, or employee of the limited liability company, whether arising in contract, tort, or otherwise. 
Ga. Code Ann. ยง 14-11-303 (West).  The corporate law that is applied in this case could be reasonably extended to members or managers of LLCs, but if that is the court's intent, it should say so.  The role of an LLC manager is different than that of a corporate officer, though often analogous. The role of a member is less comparable, and both seem to be at issue in the case. It is true that under LLC law, generally, an individual connected to the entity can be held liable directly for his or her actions, and it would make sense for the court to extend this corporate law concept to LLCs. But the court should still be clear that it what it is doing, and say so expressly. Once again, too much to ask. 

http://lawprofessors.typepad.com/business_law/2018/05/llc-members-sued-directly-in-tort-but-court-prefers-to-tell-us-about-corporate-law.html

Corporations, Joshua P. Fershee, LLCs | Permalink

Comments

When I first started to practice over 20 years ago, there was a plethora of judges who had entered the law field before the adoption of Articles 3 & 4 of the UCC. Thus, it was an uphill battle to walk the judge through the statutorily based outcomes. I can only suspect that many senior on the bench found the introduction of the limited liability company something new. No doubt corporate law serves as a valuable analogy to outcomes of for members of limited liability companies; but, it also may be that counsel representing these entities fail to clearly distinguish in pleadings, motions and briefs the distinctions.

Posted by: Tom N. | May 16, 2018 9:45:22 AM

Thanks for the comment, Tom. Agreed that parties (or their counsel) may often be the initial cause of the confusion. I still maintain that courts should clear it up if the lawyers get it wrong, but the lawyers in the case can most certainly muddy the waters. I have, at times, been able to find the complaint or other documents to support that idea, but this time I was not able to get the filings, just the opinion. State courts are harder for me to access readily (and cheaply).

Posted by: Joshua Fershee | May 16, 2018 9:57:22 AM

I am coming clean here. I found a slide from a choice of entity presentation from last year in which I typed "Limited Liability Corporation" instead of "Limited Liability Company." I do know better. But apparently my proofreading skills are lacking . . . . I can say that the substance of the presentation accurately referred to limited liability companies and their attributes, however! I do think some of the errors by judges emanate from the relative newness of the LLC form to members of the judiciary and typos like mine that may send courts off on the wrong track . . . .

Posted by: joanheminway | May 18, 2018 6:17:04 AM

Thanks, Joan. I can appreciate that, and I understand that one might periodically make such a mistake, especially when moving back and forth between entities and using the terms "company" and "corporation" repeatedly. That's part of why I tend not to focus on cases where the mistake is simply "Limited Liability Corporation" or the court says "corporation" when referring to the LLC. (Other than when I aggregate, that is. I do count those instances.) My biggest pet peeve is when, as in the above case, courts specifically apply corporate law without even acknowledging that the entities are different. We all make mistakes (I'm quite good at them). But some are bigger (or at least more egregious) than others.

Posted by: Joshua Fershee | May 18, 2018 6:27:37 AM

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