Tuesday, April 6, 2010

Allen v. Dackman (Ct. of Appeals)

Filed: March 22, 2010
Opinion by Judge Clayton Greene, Jr.

Held: An individual member of an LLC may be exposed to personal liability if he commits, inspires or participates in a tort. In addition, under the Baltimore Housing Code, an individual member of an LLC that owns a residential property may be subject to personal liability for violations of the Code as an "owner", as the term is defined, if he has "control" over the title, notwithstanding the liability shield of the LLC.

Facts: An LLC acquired a property in Baltimore City in order to sell it and turn a profit. At the time of purchase, the LLC was unaware that prior renters remained on the property. The LLC later became aware of the prior renters and requested that they vacate the premises. The prior renters did not comply and eventually had to be forcibly removed from the premises.

Two young children lived with the prior renters. They suffered elevated blood-lead levels, allegedly caused by lead paint on the premises, both before and after the LLC acquired the property. The plaintiffs filed a complaint against both the LLC and an individual that was a member of the LLC (the “Individual”), alleging a negligence action based on violations of the Baltimore City Housing Code.

The Individual filed a motion for summary judgment, arguing that he could not be held personally liable as a matter of law because his only involvement with the property was through the LLC. The trial court granted the motion, and the plaintiffs appealed to the Court of Special Appeals. The court affirmed the judgment of the trial court, and the plaintiffs appealed to the Court of Appeals.

Analysis: In a 5-2 decision, the Court of Appeals reversed, holding that a jury could have found the Individual personally liable. While an LLC member is generally not liable for torts committed by the LLC, the court stated that such a member could be liable if it committed, inspired or participated in the tort. The court held that because the Individual managed the LLC’s day-to-day affairs, a jury could have found that the Individual personally participated in the LLC’s decisions regarding the alleged negligent maintenance of the property. According to the court, such participation would permit personal liability for the Individual.

An additional issue on appeal was whether the Individual could be considered an "owner" under the Housing Code. Compliance with the Housing Code is only the responsibility of owners. The court ultimately held that a jury could have found that the Individual was an owner and so summary judgment was inappropriate. In so holding, the court stated the definition of owner under the Housing Code includes those who "control" title to a dwelling and it was a question for the jury whether the Individual had control, notwithstanding that the LLC owned the title.

The full opinion is available in PDF.

1 comment:

  1. This certainly does appear to create a slippery slope, especially the LLC Membership opinion. Let’s say I’m the managing member of Fred’s Home Renovation, LLC (“Fred’s”) and Harry Homeowner contracts with Fred’s to build an addition to his house. Fred’s subcontracts the plumbing work to Joe the Plumber. (Sorry, I couldn’t resist.) Joe negligently installs the pipes and just as the addition is almost finished, the pipes burst and flood the upstairs causing damage to the entire house. Am I personally liable on the theory that I “inspired” the negligence by hiring Joe? What if it turns out that Joe let his plumber’s license lapse and I didn’t do the due diligence that would have revealed it? Or what if Joe let his liability insurance lapse so that he didn’t have insurance to compensate for the loss? And, finally, instead of Joe the Plumber being an independent contractor, Joe was an employee of Fred’s. If I’m personally liable, particularly in the final scenario, doesn’t this reduce a managing member of an LLC to the equivalent of a general partner of a limited partnership?


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