Monday, August 19, 2019

An LLC’s Member is not a Party to its Contracts

An LLC’s Member is not a Party to its Contracts

A decision rendered last December in Louisiana highlights that the member of an LLC is not a party to the agreements that the LLC enters into. DeJohn v. Delta Faucet Company, Civil Action No. 18-13410, 2018 WL 6725393 (E.D. La. Dec. 21, 2018).

Woolf-Harris, LLC had a contract with Delta Faucets to serve as its representative in Louisiana, Mississippi and Western Tennessee, a relationship that dated back to 1975. DeJohn purchased Woolf-Harris in September, 2016. DeJohn would allege that, before he made that purchase, a representative of Delta “promised him, ‘outside of and in addition to any agreement Delta had with Woolf-Harris generally,’ that Delta would not terminate its contract with Woolf-Harris if DeJohn remained the owner and Woolf-Harris maintained its level of performance.” Te written agreement betweek Woolf-Harris and Delta provided that either party could terminate it at any time with or without cause and as well contained an integration clause. In September, 2018, two years after Dejohn had completed his purchase of Woolf-Harris, Delta gave notice that it was terminating the sales representative agreement effective December 31 of that year. DeJohn filed this action seeking injunctive relief precluding Delta from effecting that termination, arguing “detrimental reliance” upon Delta’s alleged agreement that the agreement would not be terminated.

In light of the court having already quoted the termination clause and the merger clause, the reader could reasonably have been expecting a discourse on the inability of a later oral statement to modify a written agreement and the relationship of merger clauses to subsequent oral statements. However, in fact the court would go in a different direction, namely that of standing.

Essentially, DeJohn could not make his claims for detrimental reliance with respect to a contract to which he was not a party. The court wrote:

DeJohn does not have standing to pursue injunctive relief relating to the dissolution of the contract. Because the personalty of a [LLC] is distinct from its members, the principle of such a company cannot assert rights on the company’s behalf.

DeJohn, in his individual capacity, seeks injunctive relief preventing Delta from terminating a contract with a third-party, Woolf-Harris. DeJohn is not a party to the contract in his individual capacity and Woolf-Harris is not a party to this litigation, which does not involve a claim for breach of the contract. DeJohn cannot bootstrap the personal harm he might face as a result of the termination into standing to seek relief that clearly belongs to Woolf-Harris. Therefore, DeJohn lacked standing to assert claims for injunctive relief that would affect the rights of the parties to the contract. Id., ** 2-3 (citations omitted).

The opinion does not explain why Woolf-Harris was not a party to this particular action. In footnote 8 to the opinion, is recited that Delta had brought a suit against Woolf-Harris in Indiana seeking a determination that it's termination of the agreement was proper.

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