Craig Yale was a limited liability member of Wolcott LLC, a real estate development operation. The two plaintiffs, Dr.Biplob Dass and Brett Garry, brought a lawsuit against Wolcott LLC, claiming they were duped when purchasing a garden condominium unit from Wolcott.
In the complaint it was alleged that the unit flooded several times; they also discovered that the promised inspection and repair work that would have eliminated the water hazard had not been done by Wolcott. At first, Dass and Garry did not know that Craig Yale was a member of the limited liability company.
When Wolcott filed for bankruptcy protection and its debts were discharged, Dass and Garry sued Yale. The trial judge in the case dismissed the fraud claim against Yale based on §10-10 of the Illinois Limited Liability Company Act. On appeal, the Illinois Appellate Court affirmed by stating that Dass and Garry “do not argue that Yale defrauded them in his individual capacity and do not argue that Yale should be liable through the doctrine of piercing the corporate veil.”
But the plaintiffs did argue that §10-10 of the Limited Liability Company Act did not exempt LLC members or managers from personal liability for torts or fraud committed in their capacity as members.
“Plaintiffs argue that, ‘given that Yale would be liable for plaintiffs for fraud based on plaintiffs’ allegations if Yale acted individually, that he defrauded plaintiffs while a member-manager of Wolcott LLC should not provide him protection’”.
The first district appellate court, in affirming the decision of the trial judge, stated, “Yale was shielded from personal liability based on §10-10 of the Limited Liability Company Act.”
The LLC Act states clearly that except as provided in subsection (d) the debts, obligations and liabilities of a limited liability company, whether arising in contract, tort or otherwise, are solely the debt, obligations and liabilities of the company . . . A member or manager is not personally liable for a debt, obligation or liability of the company solely by reason of being or acting as a member or manager.”
The act in §(d) states that he or she may be liable if the articles of organization say so or a member consents in writing to a provision that bound him or her.
Section 10-10 states clearly that a member or manager of an LLC is not personally liable for the debts of the LLC unless one of the provisions of that subsection (d) are met. Puleo v. Topel, 368 Ill.App.3d 63 (2006).
The lawsuit brought against Yale did not claim that he was personally liable for the tort claim against Wolcott.
Plaintiffs argued that the comment to Section 303 of the Uniform Limited Liability Company Act (1996) should be applied here. Plaintiffs argued that the comments found in the “Historical and Statutory Notes” are not part of the LLC Act but were added by the publisher of the annotated statues. Illinois has not adopted the uniform act. Under prior Illinois law, a limited liability company member could be held personally liable the same way a shareholder of an Illinois business corporation could be held liable.
Section 10-10 of the LLC Act provides an important statutory distinction between LLCs and corporations, which allows members or managers of unformed LLCs with more protection from personal liability than officers of corporations in this context. Carollo v. Irwin, 2011 IL App (1st) 102765.
Finally, the appellate court noted that the Act and its amendments applied to this case arising in tort, which is exactly the scenario contemplated by the language of Section 10-10. Accordingly, the appeals court affirmed the trial court’s dismissal of the plaintiff’s complaint.
Kreisman Law Offices has been handling commercial litigation cases, real estate matters and probate cases for businesses and individuals for more than 38 years in and around Chicago, Cook County and its surrounding areas, including River Forest, Orland Park, Oak Park, Palatine, Palos Heights, Palos Park, Plainfield, Schaumburg, Schiller Park, Tinley Park, University Park, Westchester, Western Springs, Westmont, Wheaton, Wheeling, Wilmette, Woodstock, Oak Lawn, Chicago (Wicker Park, Uptown, Ukrainian Village, South Shore, Roscoe Village, Rogers Park) and Itasca, Ill.
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