Kamis, 19 April 2007

Limited Liability Companies, new case

I've written before on this blog that, in my opinion, LLCs are not only as protective as a regular corporation, but that recent caselaw suggests they may be stronger than corporations. A new case from the North Carolina Court of Appeals appears to support this.

In Babb v. Bynum & Murphrey, PLLC, the Plaintiff sues a professional LLC, and one of the members of the LLC (Mr. Murphrey), for alleged wrongful acts committed by the LLC's other member, Mr. Bynum (basically, misappropriation and/or theft of trust account monies held for the Plaintiff).

Plaintiffs stated that they were not following a theory of vicarious liability (i.e., they did not allege that Mr. Murphrey was liable just by virtue of being a member), and the Court appears to tacitly acknowledge that this theory would have gotten the plaintiffs nowhere. Instead, the Plaintiffs proceeded on the theory that the Defendant failed to act to stop the misdeeds of his fellow member. The Court of Appeals held that the "innocent" member had no affirmative duty, absent actual knowledge of wrongdoing, to investigate his fellow member.

This case appears to further buttress the theory that LLCs are strong. Had the defendant law firm been a corporation of some sort, the case most likely would have included additional allegations that corporate formalities weren't followed, or would otherwise argue that the corporate veil should be pierced.

To read the text of the case, go to:

http://www.aoc.state.nc.us/www/public/coa/opinions/2007/060876-1.htm

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