An LLC’s Member May Not Bring Suit on the Franchise Agreement In Which the LLC Was the Franchisee
It is axiomatic that an LLC and its member(s) are legally separate and distinct from one another. In this 2021 decision of the Kentucky Court of Appeals this rule was applied when the sole member of an LLC sought to on her own name bring suit on a franchise agreement into which her LLC had entered. Mouanda v. Jani-King International, No. 2019-CA-1594-MR, 2021 WL 406317 (Ky. App. Feb. 5, 2021).
Constance Mouanda was the sole member of The Matsoumou’s LLC (the “Company”). The Company entered into a franchise agreement for the Jani-King system from Cardinal Franchising, Inc. (“Cardinal”), a master-franchisee, in February, 2018. In 2019 she brought suit alleging she was fraudulently induced to enter into the franchise agreement, asserting as well that the structure was used to improperly deprive her of classification as an employee without the benefit of minimum wage. Cardinal responded with a motion to dismiss:
It argued that she lacked standing to bring this cause of action because the franchise agreement was between Cardinal as the franchisor and The Matsoumou’s, LLC as the franchisee. Mouanda, individually, did not have a contractual relationship with Cardinal and therefore could not bring suit against it. In addition, Cardinal asserted that Mouanda was an independent contractor performing work for her LLC. Therefore, she was not an employee, and Cardinal was not her employer. Cardinal also argued that Mouanda failed to plead her fraud claim with particularity. In the accompanying memorandum, Cardinal pointed out that the LLC had been incorporated on November 11, 2017, well before the franchise agreement was signed. The franchise agreement contained provisions in which Mouanda acknowledged that she was an independent contractor and that no employment taxes would be withheld by Cardinal.
Id., *3. The complaint was dismissed without prejudice for lack of standing.
Affirming the trial court and adopting its application of Andrew v. Turner, 413 S.W.3d 272 (Ky. 2013), the Court of Appeals held she lacked standing to bring the suit:
The proper plaintiff for this complaint should have been The Matsoumou’s, LLC, the named franchisee in the franchise agreement with Cardinal.