LA 4th Circuit: Dissolved LLC Members Liable for Over $1.6M

In the recently decided Cambrie Celeste, LLC and Cambrie Celeste Commercial Tenant, LLC v. Starboard Management, LLC, et al., the Louisiana 4th Circuit held that the husband and wife owners of a dissolved LLC were personally responsible for $1,614,941.69 in damages.  The decision cites Louisiana Revised Statute 1335.1, which holds that the members of a dissolved LLC shall be personally liable for any debts or other claims against the LLC in proportion to their ownership interest in the company.

Case Study

In Cambrie Celeste, LLC, the plaintiffs filed a petition for eviction and damages due to breach of lease against multiple defendants including Starboard Management Company, LLC (“Starboard”), and its individual members, Robert and Nicole Armbruster.  More than two years after the lawsuit was iniated, Mr. Armbruster signed an affidavit to dissolve Starboard. After the Court found in favor of the plaintiff against Starboard, Starboard was forced to file for bankruptcy seemingly leaving the plaintiffs with no viable recovery. The plaintiffs, having discovered that Starboard had been dissolved filed a motion to enforce personal liability against the Armbrusters. The motion was granted.

On appeal, the Armbrusters argued that the trial court erred in finding them personally liable, but a plain reading of the revised statue says otherwise.  The statute holds in relevant part:

“[I]f a limited liability company is no longer doing business, owes no debts, and owns no immovable property, it may be dissolved by filing an affidavit with the secretary of state executed by the members or by the organizer, if no membership interests have been issued, attesting to such facts and requesting that the limited liability company be dissolved. Thereafter, the members, or the organizer if no membership interests have been issued, shall be personally liable for any debts or other claims against the limited liability company in proportion to their ownership interest in the company.”

When dissolving Starboard, Mr. Armbruster signed an affidavit stating that Starboard was no longer doing business and owed no debts during the course of the litigation between Starboard and Cambrie Celeste.  Additionally, the Armbrusters argued that since they reinstated the LLC, they could not be held personally liable.  Unfortunately for the Armbrusters, Louisiana courts have been consistent in holding that reinstatements of LLC’s are prospective only, so as not to shield members from personal liability.  Ultimately, the Fourth Circuit affirmed the ruling and the Armbrusters are personally liable for the whopping damages amount awarded by the trial court.

Takeaways

Louisiana jurisprudence is consistent that in the case of reinstatements of dissolved LLC’s, the reinstatement will be prospective only and not simply a tool for bad actors to shield themselves from personal liability.  Therefore, it’s important to consider a few factors before closing out your LLC.

• Is your LLC still doing business?
• Does your LLC owe any debts?
• Does your LLC own any immovable property?
• Are there any existing or potential lawsuits involving your LLC?

Although its human nature to want to tie up loose ends, especially when winding up an LLC, one should think twice before dissolving their LLC.  For more on the dissolution process, please review our previous blog entitled When Should I dissolve my LLC and How Do You Properly Do So?