The Court of Appeals of Indiana, in a case of first impression, has
held that the criteria for piercing the corporate veil apply to whether an LLC
should be disregarded and its managers held personally liable. In Troutwine Estates Development Co., LLC. V.
ComSub Design and Engineering, Inc., ComSub provided engineering services
to Troutwine, which owned raw land it intended to develop. Troutwine did not
pay for all the services rendered and ComSub sued for breach of contract. ComSub
also sued two individuals, the Jordans,
and an entity they owned, Master Mark, the developer that purchased the land
from Troutwine.
Judge Robb affirmed the trial court’s holding that no
enforceable contract existed between Troutwine and ComSub but that ComSub was
entitled to damages from Troutwine on a quantum meruit theory. The court
reversed the imposition of individual liability on the Jordans and
Master Mark on the ground that the trial court did not enter findings of fact
and conclusions of law on this issue.
The court quoted the Indiana statute granting limited liability to LLC members, managers, agents, and
employees. Judge Robb then reasoned that, “Because the Indiana Business
Flexibility Act [the LLC statute] provides protections to limited liability
companies like those of corporations, to circumvent those protections we apply
an analysis similar to that for determining the personal liability of a
corporation’s officers.” The court cites as authority a case, Brant v. Krilich, that is completely
inapposite. Brant dealt with
so-called reverse piercing of a corporation. Judge Robb goes on, though, to
cite cases from California, New
York, Georgia,
and Connecticut for the proposition that corporate piercing principles are applicable to LLCs.
In reversing personal liability the court also observed that personal liability
might well be imposed on the Jordans or Master Mark under quantum meruit principles. That is, they might be directly
rather than indirectly liable.
Once again a court has the opportunity to be thoughtful
about the principles by which an LLC may be disregarded and its owners held
personally liable. Once again the court declined to be thoughtful. The Indiana
LLC statute language is comparable, but not identical, to the Indiana corporation statute language, which
is the MBCA language from § 6.22. As a final note, the Jordans were described as
Troutwine’s managers, rather than members. I suspect they were also the
members. To the extent the court means what it says and is willing to hold LLC
managers liable on corporate piercing theories, there is even less rationality
to the result.