Legal Update: LA 3rd Circuit: Sole LLC Member May Be Liable for Breach

When an entrepreneur in Louisiana seeks to start a business, registering a new limited liability company or “LLC” is typically the first item on his to-do list.  The purpose of this action is in the name.  It limits the individual’s liability.  The laws governing Louisiana limited liability companies further this notion by providing:

No Member, Manager, Employee, or Agent of a Limited Liability Company is liable in such capacity for debt, obligation, or liability of the limited liability company.  A member, manager, employee, or agent of a limited liability company is not a proper party to a proceeding by or against a limited liability company.

Under the law, if an LLC properly conducts a transaction, its members should be free of exposure under regular circumstances.  However, a recent ruling from the Louisiana 3^rd Circuit outlines just how tenuous that LLC protections can be.

Case Study

In Bourque v. Bergeron, a recent breach of contract case out of the 15th judicial district court of Lafayette, the trial court applied the law outlined above in dismissing plaintiff’s claims against a sole member in his individual capacity.

The pertinent facts of the Bourque case are, as follows: the Bourques had contracted with Butch Bergeron to construct various metal buildings and concrete slabs.  According to the Bourques, Bergeron’s work was defective so they filed suit against him for breach of contract.  Mr. Bergeron, the sole member of Bergeron Metal Buildings, LLC, maintained that the work performed was done by Bergeron Metal Buildings, LLC.  The trial court considered several factors including the following:

• Invoices containing the logo for “Bergeron’s Metal Builders”
• Louisiana Secretary of State Filings
• Bergeron’s Contractor License being under Bergeron Metal Buildings, LLC and not Butch Bergeron
• Payments deposited in Bergeron Metal Buildings, LLC’s bank account

The trial court agreed with Bergeron and dismissed the plaintiffs’ claims against Mr. Bergeron in his individual capacity.  The Bourques appealed the decision to the Louisiana 3^rd Circuit Court of Appeal.  The Appellate Court reversed the decision on the grounds that there were disputes of material fact which precluded a summary judgment.  Specifically, it was unclear if Mr. Bergeron ever represented himself to the Bourques as an agent of Bergeron Metal Buildings, LLC and if the Bourques ever knew they were dealing with an LLC and not Bergeron directly.

In its reasoning, the 3^rd Circuit cited several key pieces of law and jurisprudence in support of its reversal of the trial courts decision.  First, the Louisiana Supreme Court holds that the general rule regarding individual liability is that there is a presumption that LLC members are not personally liable for actions of the LLC beyond the member’s capital contributions to the LLC.  However, an agent is generally held personally liable for an obligation when he fails to disclose his status as an agent and the identity of his principal.  Therefore, it is important that agents and owners state to third parties in writing that they are simply acting as agents for a principal or LLC in order to avoid the potential for exposure.  This disclosure and whether or not it is sufficient is decided on a case-by-case basis, so the more clear the statement, the better.

The 3^rd Circuit’s decision in Bourque illustrates how critically important it is to be organized and transparent while conducting business on behalf of your LLC.  If your business has been threatened with a lawsuit for breach of contract or would like to discuss the laws governing Louisiana limited liability companies, contact Favret Carriere Cronvich today to schedule a consultation.