Illinois LLC Manager Liability For LLC Contract Obligations – Some Basics

In 6030 Sheridan Road, LLC v. Wright Management, LLC, 2011 IL App. (1st) 093282-U, the plaintiff real estate developer sued defendants – an LLC property owner and its principal – for tortious interference with business relationship after a planned condominium conversion tanked.

The plaintiff sued when the defendants terminated the condo conversion agreement because of their displeasure with the plaintiff’s handpicked real estate broker and marketing firm.

The plaintiff sued claiming the defendants tortiously interfered with plaintiff’s contracts with the broker and marketing firm and caused the plaintiff to breach those contracts. The trial court granted summary judgment for the defendants.

Held: Affirmed.

Reasons: the court first held that an individual LLC member could conceivably interfere with a contract entered into by that LLC. The elemental LLC rules relied on by the court:

– An LLC is a separate entity from its principal members and can sue and be sued and make contracts in its own capacity.

– An LLC is a hybrid form of doing business that combines the advantages of a corporation’s limitation on personal liability with a partnership’s pass-through tax treatment (i.e., the LLC pays no entity level state or federal income tax.)

– The Limited Liability Company Act (the Act) (805 ILCS 180/1-1 et seq.) requires an LLC to have one or more members and is a separate legal entity from its members.

– An LLC can be member-managed or manager-managed and LLC members owes an LLC’s other members a fiduciary duty of loyalty and care. The same holds true for managers of manager-managed companies.

– The debts of an LLC, whether arising in contract, tort, or otherwise, are solely the debt of the LLC; not its managers or members;

– A member or manager is not personally liable for a debt, obligation, or liability of the company solely by reason of being or acting as a member or manager.

– An LLC member can only be responsible for LLC debts where: (1) the articles of organization provide for individual liability; and (2) the member has consented in writing.

See 805 ILCS 180/10-10; 180/1-30; 180/15-1, 15-3.

Afterwords:

This case provides detailed discussion of the LLC business entity and the scope of an LLC member’s liability for contract obligations.