Louisiana Supreme Court Clarifies Who May Be Personally Liable Under LLCs
On October 14, 2015, the Louisiana Supreme Court ruled (Nunez v. Pinnacle Homes, LLC) that professional builders are not “professionals” under Louisiana’s LLC law, and therefore they cannot be held personally liable for “breaches of professional duty.” In so doing, the Court limited the term “professionals” under the LLC law to be only those identified under Title 12 of the Louisiana Revised Statutes.
Facts:
In Nunez, the plaintiff had contracted with Pinnacle Homes, L.L.C. to build a home. Pinnacle is an LLC with one member, Allen Lenard. After the home was constructed, Nunez discovered that her home did not meet the elevation required under the flood insurance rate maps for Cameron Parish, and the house would need to be raised at a cost of $201,600. Nunez sued Pinnacle Homes and Lenard.
Issue:
Whether a building contractor may be held personally liable for damages to a customer when the customer contracted with an LLC not the contractor.
Rule:
In Louisiana, courts recognize that LLC are entities distinct from their members, and the Louisiana Legislature has intentionally shielded individual members, managers, and employees of an LLC from liability with certain exceptions. The “Certain exceptions” are found under La. Rev. Stat. 12:1320 (D), which states an individual member may liable for fraud, breach of professional duty, or other negligent or wrongful act.
Analysis:
Generally, members, managers, and employees of an LLC cannot be held personally liable for their actions unless they fall within a few exceptions. Whether Lenard could be held personally liable must be determined by deciding whether he fell under one of the following exceptions to the general rule: 1) whether an individually licensed building contractor is a “professional” under La. rev. stat. 12:1320(D); and 2) whether the failure to properly elevate the house was a “negligent or wrongful act”.
Contractor as a “Professional”
Louisiana Law governing formation of businesses is found in Title 12 of Louisiana Revised Statutes. Title 12 identifies 13 distinct professional corporations: law, medical, dental, accounting, chiropractic, nursing, architectural, optometry, psychology, veterinary medicine, architectural-engineering, occupational therapy, and social work. The Supreme Court reasoned that since the legislature identified those 13 occupations as “professional” occupations, then those are the only occupations that the legislature intended to be subject to the “professional” exception to limited liability, and since the occupation of building contractor” is not specifically listed, then the exception to liability does not apply to building contractors. Thus, individual building contractors cannot be held personally liable for work performed for an LLC when the individual is not a party to the contract.
Negligent or Wrongful Act
To determine whether an act is “negligent or wrongful” Louisiana Courts consider 4 factors: 1) Whether a member’s conduct could be fairly characterized as a traditionally recognized tort; 2) whether a member’s conduct could be fairly characterized as a crime, for which a natural person, not a juridical person, could be held culpable; 3) whether the conduct at issue was required by, or was in furtherance of, a contract between the claimant and the LLC; and 4) whether the conduct at issue was done outside the member’s capacity as a member.
Lenard failed to accurately check the proper elevation of the house, but the obligation to do so came from contract, and it is not a traditional tort obligation. Since the obligation came from the contract with the LLC, Lenard could not be personally liable. The Court concluded there is no evidence that the acts constitute a crime, the acts were not required by a contract between Lenard and the LLC, or that the act fell outside his duties as a member of the LLC.
Conclusion:
Under the current Louisiana Limited Liability Company Law, individual members cannot be held individual responsible under the “breach of professional responsibility” exemption unless they are one of the 13 enumerated professions under Title 12. To see the Court’s opinion see: http://bit.ly/1MlBi6q
If you are a member of an LLC who has questions about whether you may be held individually liable for your actions or if you an individual member of an LLC, you should seek the advice of counsel right away.
