Kaycee Land & Livestock v. Flahive
Kaycee Land and Livestock entered a contract to allow Flahive Oil & Gas to use the surface of its property. Flahive Oil & Gas caused environmental damage to Kaycee Land and Livestock's land had no assets of its own to recover from. Flahive was the managing member at all relevant times, so Kaycee Land and Livestock sued him individually, seeking to pierce the LLC veil.
Can Kaycee Land and Livestock pierce the LLC veil to hold Flahive liable personally?
Is fraud needed to pierce the veil?
It cannot be said that an LLC's veil can never be pierced. Such a rule could create injustice in some future unforeseen circumstance. Piercing the veil is an equitable doctrine to prevent injustice when corporations are not operated as separate entities like they are supposed to be. It seems highly unlikely that the legislature gave any consideration to LLCs when establishing the requirements for piercing the veil.
While it is true that it could have explicitly added that LLCs' veils can be pierced, remaining silent on this while revising the Model Business Corporation Act twelve years after the LLC statutes is too attenuated to indicate a legislative intent against it. As the legislature is silent on this issue, there is no law or policy reason to treat LLCs differently than corporations. If the LLC members or officers do not treat it as a separate entity, they should not enjoy immunity. This is what most expert commentators say should be the result.
Furthermore, nothing in the statute requires a showing of fraud. To allow veil piercing for damage caused by fraud but not damage caused by co-mingling funds, diverting assets, and just using the LLC as a shell would be illogical.
An LLC should be treated like a corporation and piercing the veil should be allowed without fraud being present.