Friday, August 7, 2020

Members of an LLC Have Limited Liability From Its Debts and Obligations, Except When They Do Not

Members of an LLC Have Limited Liability From Its Debts and Obligations,
Except When They Do Not

A decision handed down last week in Louisiana is but another reminder that while all else being equal an LLC’s members are not liable for the LLC’s debts, sometimes things are not equal.  Korrapati v. Augustino Bros. Constr., LLC, --- So.3d ----, 2020 WL 4381850 (La. App. 5 Cir. July 31, 2020).

            Christopher Perdomo was the sole member of Augustino Brothers Construction, LLC (the “Company”).  Perdomo, on behalf of the Company, signed a contract to do construction work on the house of Kanaka Korrapati.  The contract included a provision that the Company would get the necessary building permit.  Under Louisiana law (La. Rev. Stat. § 37:2160), it is illegal to operate a contracting business without a license. The Company failed to complete the contracted for work in a timely manner, and Korrapati cancelled the contract; to that point she had already paid the Company $79,050.  She thereafter brought suit seeking recovery of the funds paid and the additional amounts required to complete the project, which included dismantling some work done that was not effected properly (e.g., affixing an addition not to the house’s frame but rather to its brick veneer).  After a jury verdict in her favor of $108,190.43, this appeal followed.

            One defense made by the Company and Perdomo was that the reference to the company was an inadvertent typo, that the properly licensed Augustino Brothers, Inc. was intended, and that the agreement should have been so reformed.  This position was rejected as the remodeling contract itself was not the sole reference to the Company rather than the similarly named corporation:

Appellants assert that there was a clerical error and that Ms. Korrapati’s contract should have been with Augustino Brothers, Inc., which was and is a licensed contractor. However, the only evidence to support that there was a clerical error is Mr. Perdomo’s testimony. Both the “Insurance Scope & Contract Specifications” and the April 27, 2017 letter signed by the parties refer to Augustino Brothers Construction, LLC. Ms. Korrapati made out some checks to Augustino Brothers Construction, LLC, and when deposited, the checks were stamped with Augustino Brothers Construction, LLC.

The trial court, faced with the testimony of Mr. Perdomo, as well as the entirety of the evidence, clearly did not believe that formation of the construction contract with Augustino Brothers Construction, LLC was a paperwork error. Upon review, we cannot find manifest error in the trial court’s declaration of the construction contract as null. 2020 WL 4381850, *4.

            The court then turned to the determination that Perdomo was liable personally on the judgment.  “Appellants allege that the trial court erred in finding that Mr. Perdomo and Augustino intentionally and purposely misled Ms. Korrapati by failing to obtain a building permit and that Mr. Perdomo acted in his individual capacity and was personally liable for acts of fraud and intentional misrepresentation.” Id., *5.  Finding the imposition of personal responsibility to be proper, the court parsed the limited liability provision of the Louisiana LLC Act (La. Rev. Stat. § 12:1320) and the qualifier as to personal liability for wrongful acts, namely:

Nothing in this Chapter shall be construed as being in derogation of any rights which any person may by law have against a member, manager, employee, or agent of a limited liability company because of any fraud practiced upon him, because of any breach of professional duty or other negligent or wrongful act by such person, or in derogation  of any right which the limited liability company may have against any such person because of any fraud practiced upon it by him. La. Rev. Stat. § 12:1320(D).

Upholding the factual determinations of the trial court, it was found that Perdomo knew he did not have a building permit and represented the contrary to Korrapati, which constituted an intentional misrepresentation of a material fact. 2020 WL 4381850, *6. “Thus, we find no error in the trial court’s judgment holding Mr. Perdomo jointly, severally, and solidarily liable with Augustino Brothers Construction, LLC for any and all damages.” Id.

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