Opinion ID: 2593436
Heading Depth: 1
Heading Rank: 7

Heading: Personal liability of members of a limited liability company

Text: ¶ 43 The final issue is whether the members of a limited liability company may be personally liable for acts or liabilities of the company. In Emily Lane, the Court of Appeals held that to the extent the trial court granted summary judgment to the members of Colonial based on immunity under the Act, it erred. The court explained that individual members could be liable if they failed to properly wind up the affairs of the company, and observed that the Act allows for piercing the veil of a limited liability company. Emily Lane, 139 Wash.App. at 319-20, 160 P.3d 1073. ¶ 44 In Chadwick Farms, the Court of Appeals held, as the Owners Association urged, that the trial court should have granted the Owners Association's motion to amend its complaint to add individual defendants based on their alleged failure to properly wind up FHC's affairs and pay or make provision for paying known claims. Chadwick Farms, 139 Wash.App. at 313-14, 160 P.3d 1061. FHC does not challenge this holding. ¶ 45 In general, members and managers of a limited liability company are not personally liable for the company's debts, obligations, and liabilities. RCW 25.15.125(1). There are exceptions to this general rule. For example, an individual member is personally liable for his or her own torts. RCW 25.15.125(2). A member is also liable for contributions to which they have agreed and for the return of distributions made while the limited liability company is insolvent or which render the limited liability company insolvent if the member knew the distribution was wrongful. RCW 25.15.195(1), .235(2). Under RCW 25.15.060, a member may also be liable under the theory of piercing the veil of the limited liability company if respecting the limited liability company form would work injustice, in the same way that an individual may be personally liable under the theory of piercing the corporate veil. [10] In general, to pierce the corporate veil the plaintiff must show that the corporate form was used to violate or evade a duty and that the corporate veil must be disregarded in order to prevent loss to an innocent party. Wash. Water Jet Workers Ass'n v. Yarbrough, 151 Wash.2d 470, 503, 90 P.3d 42 (2004); Meisel v. M & N Modern Hydraulic Press Co., 97 Wash.2d 403, 409-10, 645 P.2d 689 (1982). By analogy, then, a plaintiff would have to show that the limited liability company form was used to violate or evade a duty and that the limited liability company form must be disregarded to prevent loss to an innocent party. ¶ 46 Another exception exists when a member is responsible for winding up the affairs of the limited liability company and does so improperly. Following dissolution and during the period of winding up, a limited liability company that is dissolved must pay or make reasonable provision for paying all claims and obligations known to the company, including contingent, conditional, or unmatured claims and obligations. RCW 25.15.300(2). RCW 25.15.300(2) also states that [a]ny person winding up a limited liability company's affairs who has complied with this section is not personally liable to the claimants of the dissolved limited liability company by reason of such person's actions in winding up the limited liability company. It follows that, as the Court of Appeals determined in Emily Lane, personal liability to claimants may result if the persons winding up the company's affairs do not comply with RCW 25.15.300. [11] ¶ 47 In Emily Lane, the parties' dispute whether Colonial knew (or should have known) prior to cancellation of the claims that were later asserted. Because the Court of Appeals' interlocutory discretionary review in Emily Lane addressed only questions of law, and in light of the trial court's apparent summary judgment rulings, whether Colonial was properly wound up and possible personal liability remain to be determined. The Court of Appeals correctly concluded that to the extent the trial court granted summary judgment to the members of Colonial on the basis of immunity under the Act as a matter of law, it did so erroneously. ¶ 48 In Chadwick Farms, it appears that the Court of Appeals correctly determined that the trial court should have granted the Owners Association's motion to amend the complaint and add individuals who allegedly failed to comply with the winding up requirements in RCW 25.15.300(2). Under CR 15(a), leave to amend should be freely granted when justice so requires. During the wind-up period, FHC did not pay or make provision for paying the claims asserted by the Owners Association. If those claims are valid, FHC did not properly wind up its affairsit clearly knew of the claims at the time it was canceled. Nor did FHC seek reinstatement, which would have allowed for litigating those claims and for bringing in the contractors and design professionals as third party defendants. As noted, however, FHC has not challenged the Court of Appeals' ruling that the trial court should permit amendment of the complaint. ¶ 49 We uphold the Court of Appeals' determination in Emily Lane that insofar as the trial court granted summary judgment dismissing the claims against individual members of Colonial on the basis that the limited liability company structure provided immunity from liability, it was error. ¶ 50 As noted, Emily Lane is here on discretionary review of the Court of Appeals' interlocutory discretionary review of a partial summary judgment. There are numerous claims and issues remaining to be addressed by the trial court. We decline to address issues raised by the Condominium Association that were not subjects of the Court of Appeals' grant of interlocutory discretionary review.