by Kurt Schafers
When is a limited liability company member liable for the tortuous conduct of the limited liability company? Pursuant to Missouri law:
A person who is a member, manager, or both, of a limited liability company is not liable, solely by reason of being a member or manager, or both, under a judgment, decree or order of a court, or in any other manner, for a debt, obligation or liability of the limited liability company, whether arising in contract, tort or otherwise...
Mo. Rev. Stat. § 347.057.
Only one Missouri case has addressed the “solely by” language in Section 347.057. In JB Contracting, Inc. v. Bierman, 147 S.W.3d 814, 819 (Mo. App. S.D. 2004), the court held that the respondents failed to prove facts necessary to hold the sole owner of a limited liability company individually liable under an unjust enrichment theory for the acts of the LLC owned by him. The court noted that the respondents produced facts which showed only that the LLC was benefited, but not the owner, by the actions of respondents. Id. Therefore, the member was not held liable “solely by” his status as the sole owner of the LLC.
No Missouri case has previously examined the precise issue of whether the principles for tort liability for corporate officers and agents also apply to members of LLCs. However, the Eighth Circuit has at least touched on the issue, stating that members of an LLC are protected from liability in the same manner as shareholders of a corporation. In re Tri-River Trading, LLC, 329 B.R. 252 (8th Cir. 2005) (“Members of a Missouri limited liability company, like corporate shareholders, have no liability for the company’s debts solely by reason of their membership in the LLC.”) (emphasis added). Both Bierman and In re Tri-River Trading would suggest that tort liability principles similar to those which apply to corporate officers also apply to members of LLCs.
Furthermore, other jurisdictions which have addressed the issue have arrived at the conclusion that such tort liability principles do in fact apply to LLCs. See, e.g., Allen v. Dackman, 991 A.2d 1216, 1228 (Md. 2010) (finding that, under a substantially similar LLC statute, that principles for tort liability for corporate officers and agents apply to members of LLC); Weber v. U.S. Sterling Sec., Inc., 924 A.2d 816, 824 (Conn. 2007) (explaining that, under a substantially similar Delaware LLC statute, an LLC is “treated for liability purposes like a corporation” and that the statute thus does not preclude individual liability for members of a limited liability company if that liability is not based simply on the member’s affiliation with the company); Luna v. A.E. Eng’g Servs., LLC, 938 A.2d 744, 748 (D.C. 2007) (applying to an LLC member the “general rule . . . that corporate officers are personally liable for torts which they commit, participate in, or inspire, even though the acts are performed in the name of the corporation”).
In Missouri, tort liability principles for corporate officers convey that merely holding a corporate office will not subject one to personal liability for the misdeeds of the corporation. Boyd v. Wimes, 664 S.W.2d 596, 598 (Mo. App. W.D. 1984). At the same time, however, “the corporate office does not insulate against liability one who has actual or constructive knowledge of the actionable wrong and who participates therein.” Id. (citing Osterberger v. Hites Construction Co., 599 S.W.2d 221, 229 (Mo. App. E.D. 1980)). Were the rule to the contrary, “the agent of a corporation could shield himself from liability for almost every kind of wrong, provided he was acting in the capacity of agent … [T]he agent is liable to a third party for misfeasance and for acts of positive wrong.” Id. (citing Rauch v. Brunswig, 137 S.W. 67, 68 (Mo. 1911)). In Boyd, 664 S.W.2d at 598, the owner of the corporation held corporate offices and allegedly personally participated in the conversion of the plaintiff’s escrow funds. The court held that “the jury could reasonably infer knowledge of the converted funds from the fact [defendant] stood as the sole employee and trustee of [] during the period in question.” Id.
Similarly, in Curlee v. Donaldson, 233 S.W.2d 746, 748 (Mo. App. 1950), plaintiff sued a corporation for trespass and named both the corporation and its president as defendants. The plaintiff obtained judgment against both defendants. On appeal, the court found that the president ordered and directed the woodcutters to the tract where they were to cut timber, but failed to provide supervision. Id. Therefore, the president became liable for the trespass. Id. The court emphasized the level of control the president had over the woodcutting operation. In addition to being the president, he was the treasurer and general manager and one of only three directors and stockholders. Id. at 749.
Moreover, the court found that the failure to prove by direct evidence the existence of actual knowledge on the part of the president that these trespasses were occurring did not relieve him of liability. Id. at 754. The court found that there was circumstantial evidence of knowledge on his part, and that it was his duty to inform himself with respect to the forces he had set in motion. Id. The court found that he came within “the rule of acquiescence warranting an inference of consent,” as stated in Fletcher’s Encyclopedia on Corporations, Vol. 3, Section 1135, p. 708:
[C]orporate officers, charged in law with affirmative official responsibility in the management and control of the corporate business, cannot avoid personal liability for wrongs committed by claiming that they did not authorize and direct that which was done in the regular course of that business, . . . with such acquiescence on their part as warrants inferring . . . consent or approval.
Id.
Courts outside of the state of Missouri have similarly held that corporate officers cannot avoid liability by disclaiming knowledge of a wrong when it occurs within their area of responsibility. See Vuitch v. Furr, 482 A.2d 811, 823 (D.C. Cir. 1984) (finding that evidence supported jury’s verdict against corporate officer because liability did not arise “merely because of her official relation to the corporation,” but because of activities for which the evidence demonstrated she was responsible); see also Bowling v. Ansted Chrysler-Plymouth-Dodge, Inc, 425 S.E.2d 144, 149 (W.Va. 1992) (finding that in sanctioning a fraudulent act, the corporate officer need not have actual knowledge because constructive knowledge may suffice, which can only be proved by circumstantial evidence).
These cases convey that, under Missouri law, a member of a limited liability company is not shielded from liability merely because he or she is acting in the capacity of an agent for the LLC. While a member will not be held liable for the wrongs committed by the LLC “solely by” reason of being a member or manager, the member can likely be held liable if they take part in the wrongdoing, or authorize what was done wrong such that it warrants inferring consent or approval on their part.