As you know, one of the principal advantages of forming a limited liability company or corporation is that it offers protection from liability for business debts and obligations. As you also know by now, however, this liability shield is not absolute. We explained in our previous blog series “LLC Update: Piercing the Corporate Veil” that in certain limited situations, courts may “pierce the corporate veil” to hold LLC members liable for business debts and obligations, especially when they operate the business without the requisite corporate formalities, commingle personal and business finances, and/or use the business entity to avoid creditors. We also explained in another blog post “Personal Liability of Business Owners Update: You Don’t Buy Immunity from Suits for Your Own Wrongdoing by Forming an LLC” that a member or manager of a limited liability company can be held personally liable when they commit a tort while acting in furtherance of LLC business. The underlying rationale in all those situations where courts ignore the entity status of a limited liability company seems to be that a member or manager cannot hide behind the entity’s liability shield when they themselves disregard the entity and/or commit a wrongful act. But how far will courts go to uphold personal liability for corporate wrongdoing?
Morello v. State,[1] a recent Texas case, addressed whether the sole member/manager of a limited liability company can be held personally liable for the company’s failure to comply with a state-issued environmental compliance plan. Morello shows when an environmental violation may (or may not) rise to the level of tort so as to justify imposing personal liability.
This post was part of a multi-part series on personal liability for environmental violations. You can find the other post by searching our blogs at www.mcbrideattorneys.com. In our next post, we will discuss the details of Morello v. State.
This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. This article should not be treated as legal advice to any person or entity.
Steps have been taken to verify the contents of this article prior to publication. However, readers should not, and may not, rely on this article. Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.
[1] Morello v. State, No. 03-15-00428-CV (Tex. App.–Austin May 6, 2016, no pet. h.) (mem. op.). Unless otherwise noted, all references to the case are to this citation.