Failure to Distinguish Between LLC and its Members Dooms
Appeal
A decision from the North
Carolina Court of Appeals emphasizes the importance of properly distinguishing
between an LLC and its members. In this
case, suit was brought under a lease signed by the members, but on behalf of
the LLC, against the landlord. Because
the LLC was not a party to the lease, its appeal of an adverse verdict was
rejected. King Fa, LLC v. Cheung, 788 S.E.2d 646 (N. Ca. Ct. App. 2016).0.
Tse and Cheung (collectively
the “Tenants”) leased certain commercial property from Cheung for use as a
restaurant. While roof leak issues were
identified in the property inspection, the lease was silent as to who had
responsibility for making those repairs. After another leak developed, the tenants paid
for a repair, which was ultimately unsuccessful in mitigating the leak. The tenants did reduce a lease payment to Cheung
in the amount paid for that repair. Ultimately, as the leak continued, King Fa,
LLC filed a complaint against Cheung on the basis of breach of contract and
breach of the covenant of quiet enjoyment. King Fa is a North Carolina LLC with the
Tenants as its members; it operated the restaurant. Importantly, this LLC was not organized until
after the lease had been entered into between the Tenants and Cheung. After some tortured motion practice with
respect to who should be the parties to the action, the court awarded Cheung
damages in the amount of $1,800. Importantly, these damages were assessed
against the Tenants, and not King Fa, LLC.
Thereafter, King Fa, LLC filed
an appeal. That appeal was dismissed on
the basis that King Fa was not a “real party in interest” to the matter. Rather, judgment had been entered against each
of Cheung and Tse. They were the real
parties to the appeal. However, they
were not named in the notice of appeal. In
that the parties actually impacted by the trial court’s decision had not
brought an appeal, the appeal was dismissed.
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