Of interest to every single-member company or LLC and many others who have litigation against an undercapitalized entity is a recent opinion by U.S. District Judge Virginia M. Kendall of the Northern District of Illinois. In Vipshop International Holdings Ltd. v. Transpacific Trade Center LLC, et al., No. 20 C 2557, Judge Kendal ruled that a sole member of a limited liability company is personally responsible for almost $2 million owed to a customer.
Plaintiffs can “pierce a corporation’s veil of limited liability” by making two showings, she wrote. First, there must be “such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist.” Second, plaintiffs must demonstrate that “adherence to the fiction of separate corporate existence would sanction … fraud, promote injustice, or promote inequitable consequences.”
In this case, there was an admitted breach of contract and almost $2 million in damages, but the owner of the LLC claimed that only the LLC was liable. The owner was the manager and sole member. Other company employees were close relatives. The owner exercised complete control over the LLC. There was a lack of capital to continue operating and pay its bills. The company failed to pay dividends. It was, therefore, just a “façade” for the owner.
An appeal is possible. For a copy of the case or to discuss remedies for breach of contract, get in touch with Tom Patterson (email@example.com or 312-750-1822).