An LLC and its Sole Member are Legally Distinct

An LLC and its Sole Member are Legally Distinct

      A recent decision from Washington state affirms and applies the rule that an LLC and even its sole member are legally distinct from one another. Williams v. PRK Funding Services, Inc., Case No. C18-48 RSM, 2019 WL 134704 (W.D. Wash. Jan. 8,, 2019).

       Williams was the sole member of Williams Family Holdings LLC. The LLC borrowed in excess of $1.3 million to build a single-family residence on the real property contributed to the LLC by Williams. Ultimately, that loan went into foreclosure. On the eve of the foreclosure sale, Williams, individually (and not the LLC) filed for bankruptcy protection. Still, the sale of the property went forward. Ultimately the property was reconveyed.

      Initially, Williams argued that the foreclosure sales violated the automatic stay that arose upon his bankruptcy filing. This assertion was rejected on the basis that Williams’ interest in the LLC is personal property, and he had no ownership interest in the LLC’s property citing In re Disciplinary Proceeding Against McGrath, 308 P.3d 615, 625 (Wash. 2013), the court wrote “under the Act, the Washington Supreme Court has expressly held that LLC members have no ownership in property owned by the LLC and that assets and property owned by the LLC are not part of a member’s bankruptcy estate.” 2019 WL 134704, *4. On that basis, Williams’ claims premised upon a violation of the automatic stay were set aside

      Claims against the ultimate owners of the property were dismissed on the basis that Williams lacked standing. Rather, each of those claims was dependent upon a claim of ownership in the property, and the property had been held at the relevant times by the LLC, and not the plaintiff.