Summary
The Louisiana First Circuit Court of Appeal considered whether members of limited liability companies were personally liable for company debts owed to a supplier on open accounts. The court declined to pierce the LLC veils or impose personal liability based on alleged concealment of the companies' ownership status, but addressed the propriety of distributions made to withdrawing members. The judgment was reversed in part and affirmed in part.
Topics
Practice areas
Questions Presented
- Whether the limited liability company veils should be pierced to impose the companies' open-account debts on Uter and the Menzies individually.
- Whether Uter and Menzie were personally liable as agents because the limited liability company principals were allegedly undisclosed.
- Whether Ms. Menzie's withdrawal of company funds violated Louisiana Revised Statutes § 12:1327(A)(1) and whether Menzie was personally liable for assenting to the distributions under § 12:1328.
- Whether the evidence supported the trial court's finding that Uter improperly removed $28,057 from company accounts for personal use.
Holdings
- The individual members could not be held liable for the limited liability companies' debts because Imperial failed to prove that the companies were disregarded to the extent that they were indistinguishable from their members or that the members' actions were fraudulent.
- Uter and Menzie were not personally liable on the open-account debt under an undisclosed-principal theory because the record reasonably supported the finding that Imperial knew or reasonably should have known they were acting in a representative capacity.
- The June 3, 1994 distributions to Ms. Menzie violated La. Rev. Stat. § 12:1327(A)(1), and Menzie was personally liable for their return because, as a manager, he assented to the distributions without exercising reasonable care and inquiry.
- The award against Uter for $28,057 was unsupported by the record and clearly wrong; the judgment against him was reversed.
Key quotations
“Thus, generally, under LSA-R.S. 12:1320(B), members of a limited liability company may not be assessed with personal liability for the debts and obligations of their limited liability companies to third parties absent proof of fraud.” (669)
“The agent has the burden of proving that he disclosed his agency status and the identity of his principal if he wishes to avoid personal liability.” (671)
“Accordingly, each manager would be liable jointly and severally to the limited liability company for the amount that the member received in violation of LSA-R.S. 12:1327.” (675)
Factual background
Uter and Menzie operated Tobacco Mart stores through several limited liability companies that purchased products from Imperial Trading on open account. Imperial's credit documents identified the stores and were signed by Uter and Menzie both individually and on behalf of the stores, but did not expressly disclose the limited liability company form. In June 1994, Ms. Menzie withdrew $263,852.48 from company accounts while the companies were unable to pay Imperial's debts, and Uter received checks totaling $28,057 that he testified were used for business expenses. The trial court held the companies liable and imposed individual liability on the Menzies and Uter.
Procedural history
Imperial sued various defendants on promissory notes and an open account arising from products supplied to Tobacco Mart stores. The notes were later satisfied, Tennessee L.L.C. was subject to a default judgment, and the remaining case proceeded against Vidalia L.L.C., Mississippi L.L.C., Uter, Menzie, and Ms. Menzie. After trial, the district court imposed liability on the companies for the open-account debt, imposed individual liability on Uter for $28,057, imposed individual liability on the Menzies for $263,852.48 in distributions, and awarded attorney fees and costs. The First Circuit reversed the judgment against Uter and affirmed the judgment in all other respects.
Remand instructions
The judgment against Uter was reversed; the opinion does not state any additional specific remand instructions. The judgment was affirmed in all other respects.