Business Associations, Pages 1000–1006

K.C. Properties, Inc. v. Lowell Investment Partners, LLC

Supreme Court of Arkansas, 2008

Facts:

KC and LIP formed an LLC named Ozark to operate a water park. LIP owned 51% and KC 49%. PMS was named manager of Ozark. It planned to build the water park on property owned by PHR, another LLC owned by the same owners as PMS. PHR agreed to sell it to Ozark for $3,000,000, and Ozark contracted with Buildings to actually build the water park on the property. PHR then actually sold the property to Parker Northwest Properties for $8,250,000. KC sued for the missed opportunity to own property worth at least $1,023,088.25 more than it paid. Buildings sued for at least $501,313.24 in lost damages.

Procedural History:

Circuit court granted summary judgment to defendants.

Issues:

  • Are the defendants that are members of Ozark liable for breach of contract and breach of fiduciary duty?

  • Were the other defendants liable for PMS's actions?

  • Can KC and Buildings pierce the defendants' corporate veils?

Reasoning:

  • While a cited statute makes it seem like members cannot be held to other members, they are when committing gross negligence or willful misconduct. The statute was intended to prevent a member being sued by a third-party for another member's conduct. The operating agreement also said that a manger would not be liable for the debts of any other member.

    Even if the state did permit such a suit or if this sale did constitute gross negligence or willful misconduct, LIP was the only the only other member of Ozark and PMS the only manager of it. These would be the only ones that could be sued. Neither of these sold the property—that was PHR—so neither committed gross negligence or willful misconduct.

  • The other defendants had no privity of contract with KC. The members of PMS only signed on PMS's behalf. They were not parties to the agreement themselves. Furthermore, there is no law that allows one corporation to be held liable for the actions of another just because of their common membership and management.

  • Courts must be common when piercing veils. Corporations are separate and distinct entities even if the stockholders and officers are the same. No facts were presented upon which to hold the individual LLCs liable for PMS and LIP.

Holding:

  • No, defendants are not

  • No, the other defendants were not liable for PMS's action.

  • No, PMS's and LIP's veils cannot be pierced.

Judgment:

Reversed and remanded on other grounds.

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