THE AMERICAN LAW INSTITUTE Continuing Legal
379 THE AMERICAN LAW INSTITUTE Continuing Legal Education Limited Liability Entities 2015 Update March 26, 2015 Video Presentation Passthrough Finance Techniques Corner - Dass v. Yale: Members and Managers of an Illinois LLC Are Not Liable for Their Tortious Conduct By Steven G. Frost Jeff Close Joe Lombardo Chapman and Cutler LLP Chicago, Illinois Reprinted with permission from the Journal of Passthrough Entities May-June 2014. © 2014 CCH. All Rights Reserved 380 Passthrough Finance Techniques Corner Dass v. Yale: Members and Managers of an Illinois LLC Are Not Liable for Their Tortious Conduct By Steven G. Frost, Jeff Close and Joe Lombardo STEVE FROST is a Partner in the Chicago office of Chapman and Cutler LLP. teve Frost was an Advisor from the American Bar Association to the Uniform Law Conference drafting committee that drafted the Uniform Limited Liability Company Act. He was also a member of the Illinois Secretary of State Business Services Advisory Committee that drafted the amendments to the Illinois LLC Act betwe bbetween een 11996 and 1997, and hee worked Legislative w worked with witth thee Illinois Il Legislativ Reference the 1997 Refe rencee Bureau Bureeau to o prepare p Illinois legislation. lino ois leg gislation on. JEFF CLOSE is a Partner in the Chicago office of Chapman and Cutler LLP. JOE LOMBARDO is a Partner in the Chicago office of Chapman and Cutler LLP. MAY–JUNE 2014 O n December 20, 2013, the appellate court of Illinois in Dass v. Yale1 affirmed a lower court decision holding that under section 10-10 of the Illinois Limited Liability Company Act (the “Illinois LLC Act”)2 a manager who allegedly made misrepresentations and committed fraud in the course of acting as a managing member of the LLC was not personally liable for his misconduct. The decision is causing quite a buzz among members of the national partnership bar,3 and it is conveying a message g that is not good for Illinois or for doing business appears bu ne in the state, as the decision sion ap pe to provide a shield for even the most egregious purposeful Illinois egr gious acts of purp osefu fraud ud ccommitted m ted by owners of Il linois LLCs. LCs 4 Att tthee outset, ut , it is iimportant mp ant tto state ate cle clearly ly the he view views of the au authors. thors. We W believe that decision manager LLC may no not be per personally at the he de cision in n Dass ass, than th a manag er ooff an LL on liable for fraud or misconduct, is wrong. However, we are not suggesting that Yale (the defendant) is liable without further inquiry, rather, we believe that when an manager of an LLC, or any agent for that matter, may be personally liable to m third parties for its own conduct when acting on behalf of a principal is a complex matter that should have been considered and developed in this case. Further, we are not suggesting or addressing in this column whether the decisions in Carollo or Puello (cited and discussed below) are correct; we are only addressing why the decision in Dass to not consider personal liability of the manager was wrong. The facts in Dass are relatively simple. The plaintiffs, a married couple, owned a condominium that they purchased in 2006 from Wolcott LLC, an Illinois LLC (“Wolcott LLC”). The defendant, Yale, was the managing member of Wolcott LLC. The condo flooded in 2007. Plaintiffs discovered after the flood that the sewer lines to the condo were not as represented when they purchased the unit. In 2008, plaintiffs sued the three entities involved in the sale of the unit, including the general contractor, the developer and the sales agent. Yale signed (as the manager of the developer) the property report on the listing agreement for the condo. Both a plumbing contractor retained by plaintiffs and another plumbing contractor retained by the first three defendants concluded that a new sewer piping system was necessary to reduce the chance of future flooding. The property report provided that (i) the contractor would conduct a closed-circuit television ©2014 CCH INCORPORATED. ALL RIGHTS RESERVED. 31 381 PASSTHROUGH FINANCE TECHNIQUES examination of the entire sewer system and confirm the condition of the system, (ii) the existing waste lines would be inspected and cleared of obstructions, and (iii) damaged sections of the sewers would be removed and replaced. In addition, a feature sheet incorporated into the property report included a representation by the sales agent that the building would have all new plumbing, which the developer, through Yale, expressly affirmed was “true, full, compete and correct.” In fact, at no time were any of the inspections or repairs performed, and no permit for the work was ever issued. For various reasons not relevant to the purpose of this column, plaintiffs did not add Yale to the litigation until they filed their fifth amended complaint. At this stage of the litigation, claims against other defendants were resolved, and the only remaining defendant was Yale. The complaint also alleged a number of other tortious acts by Yale. Yale allegedly: (1) directed or approved work in advance of a receipt of a construction permit, resulting in a stop-work order from the city; (2) directed an application for a rehab permit (before the current construction permit) with a number of inaccuracies; (3) directed an unlicensed crew to do work on the property; (4) directed or approved use of an unlicensed roofing contractor; (5) directed completion of plaintiffs’ unit prior to applying for proper permits; (6) made misrepresentations in the prop per p perm drawings plaintiff raw wing i gs off plai l int s’ unit submitted with the permit application; ppllicatiion; and a ((7) directed ted submission of a permit rm aapplication listing diff erent general contractor when knew atioon lis stingg a di ffer eneral contra ctor wh n he kn ew that unlicensed would perform construction. hatt an unlic u censed crew c ould perfor m the co ns uc n. The com complaint also alleged that Yal Yale attempted cover mplaiint al mplai ls all al ttemp d tto cov er up his actions. i The plaintiffs sued Yale forr com common-law mmon n-law and statutory fraud. Yale filed a motion to dism dismiss complaint argumiss tthe he co ing that the counts alleging fraud against him should be dismissed because, under the Illinois LLC Act, members and managers are shielded from personal liability. Yale also argued that another count alleging fraud under the Consumer Fraud Act was time-barred and should also be dismissed because Yale was not the seller of the property or a merchant under the Consumer Fraud Act. The trial court entered a written order granting Yale’s motion to dismiss concluding that section 10-10 of the Illinois LLC Act shielded him from liability while he was acting solely as a manager of Wolcott LLC and that the other claims under the Consumer Fraud Act were time-barred. In support of its conclusions, the trial court cited Puleo v. Topel5 and Carollo v. Irwin.6 The appellate court affirmed dismissal of the plaintiffs’ lawsuit. A petition for review was denied by the State’s high court March 26, 2014.7 32 JOURNAL OF PASSTHROUGH ENTITIES The Statute Before discussing the appellate decision, it is helpful to understand the history of the Illinois LLC statute. In 1992, Illinois passed its initial limited liability company act, which became effective on January 1, 1994. The provisions addressing liability of members and managers were found in section 10-10 of this act and provided: (a) A member of a limited liability company shall be personally liable for any act, debt, obligation, or liability of the limited liability company or another member or manager to the extent that a shareholder of an Illinois business corporation is liable in analogous circumstances under Illinois law. (b) A manager of a limited liability company shall be personally liable for any act, debt, obligation, or liability of the limited liability company or another manager or member to the extent that a director of an Illinois business corporation is liable in analogous circumstances under Illinois law.8 In 1997, Illinois substantially revised its LLC statute when it adopted the Uniform Limited Liability Company Act (1996) (“ULLCA”). When Illinois enacted its initial LLC statute in 1992, less than half of the states had LLC legislation. By 1997, when Illinois adopted ULLCA, all 50 states had enacted LLC statutes, and the nature of these statutes had already evolved dramatically. Section 10-10 of the currentt Illino Illinois L LLC Act, which became effective on January 1998, pro provides: Janua 1, 199 id (a) Except as otherw otherwise subsection (a Excep se provided rovide in subsec on (d) of this Section, Sectio the he debts, debts obligations, ob gation and nd liabilities liabi es of a limited m liability company, whether arising in contract, tort, or otherwise, are solely the debts, obligations, and liabilities of the company. 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. (b) (Blank). (c) The failure of a limited liability company to observe the usual company formalities or requirements relating to the exercise of its company powers or management of its business is not a ground for imposing personal liability on the members or managers for liabilities of the company. (d) All or specified members of a limited liability company are liable in their capacity as members for all or specified debts, obligations, or liabilities of the company if: (1) a provision to that effect is contained in the articles of organization; and (2) a member so liable has consented in writing to the adoption of the provision or to be bound by the provision.9 MAY–JUNE 2014 382 The changes to the Illinois LLC Act are discussed at length in the court opinions and considered in greater detail below. The Appellate Court Decision The appellate court began its analysis with the following statement. As an initial matter, it is important to note what plaintiffs are not arguing: plaintiffs do not argue that Yale defrauded them in his individual capacity and do not argue that Yale should be liable through the doctrine of piercing the corporate veil. Instead, plaintiffs argue that section 10–10 of the LLC Act does not exempt LLC members or managers from personal liability for torts or fraud committed in their capacity as members or managers of the LLC. Plaintiffs argue that, “[g]iven that Yale would be liable to plaintiffs for fraud based on plaintiffs’ allegations if Yale acted individually, that he defrauded plaintiffs while a member/manager of Wolcott LLC should not provide him protection.”10 It is clear from the appellate court’s initial comments that it believed the key to this decision is the fact Yale committed mitted tthe alleged acts in his capacity as a manager off Wolc Wolcott which, in its view, foreclosed the ability W l ott LLC, LLC w L too rrecov recover from ver fro om Y Yal individually. Yale ividually court also relevant The appel The aappellate llate co so listed fivvee releva nt rules of statutory construction: tatutoryy con nstru uction 1. A co court’s goal ect to tthe ourt’ss go ourt’ a iss to “ascertain certain aand give eff ffec he true iintent of the legislature”; 2. “The best evidence of legislative gislative intent intent is i the language used in the statute, which must given its plain and ch m ust be give ordinary meaning”; 3. “When the plain language is unambiguous, the legislative intent discernible from the language must prevail and to resort to other interpretive aids is unnecessary”; 4. “Statutes should be read as a whole with all relevant parts considered, and they should be construed, if possible, so that no term is rendered superfluous or meaningless.”11 The appellate court then addressed the plaintiffs’ arguments. First, plaintiffs argued that the trial court’s conclusion was inconsistent with section 303 of ULLCA, the wording of which is identical to section 10-10. ULLCA includes the following comment: A member or manager, as an agent of the company, is not liable for the debts, obligations, and liabilities of the company simply because of the agency. A member MAY–JUNE 2014 or manager is responsible for acts or omissions to the extent those acts or omissions would be actionable in contract or tort against the member or manager if that person were acting in an individual capacity. 12 The plaintiffs argued that this comment explaining ULLCA was “incorporated” by the Illinois LLC Act. The appellate court noted that while ULLCA and the comment are persuasive authority in interpreting section 10-10, it concluded that the comment has not been adopted by the Illinois legislature. Therefore, the cases interpreting section 303 of ULLCA and the comment are, according to the appellate court, of “little value.” Further, prior Illinois cases interpreting section 10-10 must be taken into account (e.g., Puleo and Carollo), and the appellate court concluded that the history of the Illinois Act establishes that the Illinois legislature intended the result reached by the appellate court. [T]he decision appears to provide a shield for even the most egregious acts of purposeful fraud committed by owners of LLCs. Th the Thee appellate ap ate ccourt rt observed bserved that “a cchange hange to th unambiguous language statute createss a reb rebuttable u mbig langu ge of a st ute creat tt presumption amendment intended p ump that the am ndme was inte ed to change ha the law.”13 Therefore, because the new statute removed the affirmative references to personal liability of a member or manager, the appellate court concluded that the legislature intended to remove any basis for personal liability. As the court in Puleo noted, “[a]s we have not found any legislative commentary regarding that amendment, we presume that by removing the noted statutory language, the legislature meant to shield a member or manager of an LLC from personal liability.”14 The appellate court also cited Puleo for the proposition that “[s]ection 10-10 clearly indicates that a member or manager of an LLC is not personally liable for debts the company incurs unless each of the provisions in subsection (d) is met.”15 Because the conditions in subsection (d) were not satisfied, the appellate court agreed Yale could not be personally liable for a tort claim against Wolcott. The plaintiffs distinguished Puleo and Carollo because neither of those cases involved a tort or fraud of the member or manager, each only involved the member or manager acting without authority because the LLC ©2014 CCH INCORPORATED. ALL RIGHTS RESERVED. 33 383 PASSTHROUGH FINANCE TECHNIQUES in question was not in existence. In Puleo, the appellate court concluded that a defendant could not be personally liable for obligations incurred on behalf of the LLC after the company was involuntarily dissolved. The appellate court used the same analysis and concluded that subsection (d) was the exclusive way for a member or manager to be liable for debts or obligations of Wolcott LLC. The appellate court reached the same conclusion in Carollo, where it considered whether the defendant could be liable for debts of an LLC prior to its formation. There, the court noted that under general principles of agency, the defendant would ordinarily be personally liable under a contract executed on behalf of an entity not yet formed, but it again relied on section 10-10 to conclude the member was not liable. The plaintiffs argued that unlike Carollo and Puleo, this case involved the member’s or manager’s fraud while Wolcott LLC was in existence, but the court did not agree. The appellate court’s statutory analysis failed to address the plain language of the statute, [and] all of the Illinois courts have ignored certain errtaiin sp specifi peccific language in the statute, sta taatutte, te whi w which ich directly rectly undercu undercutss their the heeir hold hholdings. dinggs Discussion It is difficult to understand the reasoning of the Illinois courts for various reasons. First, it is unclear why the appellate court went through a tortured analysis to determine legislative intent. The appellate court’s statutory analysis failed to address the plain language of the statute. Most importantly, all of the Illinois courts have ignored certain specific language in the statute, which directly undercuts their holdings. The appellate court seems to have ignored a number of more logical reasons and simple explanations for the changes to section 10-10, and its conclusions appear to fail the same statutory interpretation tests set forth in its opinion. Second, the appellate court improperly found that section 10-10(d) is the exclusive way that a manager or member of an LLC may be liable for debts and obligations of the LLC. In 1995, the Uniform Law Conference adopted ULLCA. In 1996, the Uniform Law Conference revised 34 JOURNAL OF PASSTHROUGH ENTITIES ULLCA to take into account changes in federal income tax regulations governing the tax treatment of partnerships and LLCs. Shortly after adoption of ULLCA, the Illinois Secretary of State Business Services Advisory Committee began to consider changes to the Illinois Act and worked with the Illinois Legislative Reference Bureau (“LRB”) to draft revisions to the Illinois statute to adopt ULLCA. To minimize confusion, rather than adopting ULLCA in its entirety, the Illinois Secretary of State Business Services Advisory Committee suggested incorporating most provisions of ULLCA into the footprint of the then-existing Illinois legislation. One of the sections taken from ULLCA is section 10-10 of the Illinois LLC Act. The plain language of section 10-10 insulates the member or manager from personal liability from “a debt, obligation or liability of the company [imposed] solely by reason of being or acting as a member or manager.”16 The alleged liability for Yale’s fraudulent conduct was neither a liability of Wolcott LLC (except to the extent Wolcott LLC was liable as principal for its agent’s conduct) nor were the plaintiffs seeking to impose liability solely by reason of Yale’s being or acting as a member or manager of Wolcott LLC. Plain language analysis is driven by common sense. It is common sense that a member or manager is not personally liable for the contracts of an LLC. This liability shield is the purpose for the LLC and distinguishes LLCs from partnerships where a general partner is liable for debts or obligations ations ooff tthe entity solely by reason of being general Nor sshould thee member oorr man manager a ge neral partner. ner. N ould th ger bbe personally LLC liable p nally liable ble if tthe L C is lia le in tort because of the anotherr memb member, manager or emp employee (agent) aacts of an er manag ee (ag n of the LLC. Mere position as a member or manager cannot sensibly insulate the member or manager from liability for his or her own tortious conduct, whether it is negligently driving a company car, telling a lie, committing fraud or robbing a bank in the name of the LLC. More importantly, the analysis of the appellate court contains several fatal flaws. First, the appellate court does not consider the meaning of the word “solely” in the second sentence of section 10-10(a), which provides that a member or manager of an LLC “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.”17 The only possible explanation of the placement of “solely” in that sentence is that certain other facts may result in member or manager liability. Second, the appellate court does not consider why the legislature included section 10-10(c) in the statute, which provides that failure to observe company formalities is not a basis for imposing personal liability on members or managers for liabilities of the LLC. If the Illinois courts are correct and section MAY–JUNE 2014 384 10-10(a) includes an absolute bar on member and manager liability, why is section 10-10(c) necessary? Further, only the first sentence of section 10-10(a) begins with “[e]xcept as otherwise provided in subsection (d) of this section ...” Thus, the second sentence of section 1010(a) is not limited by subsection (d), and there could be many reasons that a member or manager is liable to third parties. As noted, if the Illinois appellate courts are correct and section 10-10(a) eliminates any basis for member or manager liability, it would not have been necessary for the legislature to include subsection (c) in section 10-10. Reviewing the rules of statutory construction cited by the appellate court, the Illinois courts must discern legislative intent from the statute if the plain language is unambiguous; thus, they may not read the second sentence of section 10-10(a) in a manner that renders superfluous or meaningless the reference in the second sentence to “solely.” Similarly, they may not interpret section 10-10(a) in a manner that makes section 10-10(c) superfluous or meaningless. Finally, as discussed below, the Illinois courts may not read into section 10-10(d) “only” or “exclusive” when those words are not in the statute. The trial court and appellate court noted that Illinois did not adopt the comment to ULLCA, which explains the meaning of section 303 of ULLCA. However, neither court fo focuses cuses oon the fact that the text of section 10-10 as enacted the legislature is identical to the text of section naccted d by b th h lleg he gi ULLCA. Not onee word is differ erent. Instead, 303 3 of ULLC U CA. No CA te d, both Illinois courts focused on changess to sec section 10-10 llin nois cour rts fo ocu n the change ion 1010 and that eliminated nd d the factt tha at tthe he new w language eliminat ed existing xi ng provisions focusing director behavovvisions fo ocusiing on o shareholder reholder and d dir tor beha v ior for iidentifying when a member or manager is liable. d if According to both courts, becau because the revised language use th he rev does not specify an instance whe where member or manager re a m memb is liable other than in subsection (d) of section 10-10, subsection (d) must be the exclusive way that members or managers of Illinois LLCs may be liable. This logic is faulty for several reasons. There were several other reasons to change section 10-10 when Illinois adopted ULLCA. First, in adopting ULLCA, the intent was to receive the benefit of uniformity. It seems incongruous to adopt the same words used in ULLCA but to intend a different meaning for Illinois because of previous statutory language. Second, the original version of the Illinois LLC Act was a hybrid statute that included corporate and partnership principles; ULLCA is a partnership-based statute. In revising the original Illinois LLC Act, the intent was to adopt the partnership model (eliminate corporate concepts) and make the revised statutory provisions internally consistent.18 As such, a review of the changes indicates that most if not all references to MAY–JUNE 2014 corporate concepts contained in the initial Illinois LLC law were eliminated from the Illinois LLC Act. Third, the initial Illinois LLC law created confusion regarding fiduciary duties. Some argued that the earlier “liability” language in section 10-10 implied that managers would have the same fiduciary duties as directors of corporations, and the changes to section 10-10 and other provisions of the statute eliminated this confusion. Finally, the basis for liability in the prior version of section 10-10 was simply wrong. It provided that managers and members of LLCs should have the same liability as directors and shareholders, respectively, of a corporation. However, a director or shareholder of a corporation is not, by reason of being a director or being a shareholder, vested with apparent authority to bind the corporation. Managers of a managermanaged LLC and members of a member-managed LLC under ULLCA (and under the Illinois LLC Act) have apparent authority to bind the LLC and are agents of the LLC. The basis under agency law for imposing personal liability on agents is different than the basis for imposing liability on directors or shareholders of corporations, and the statute was changed to reflect this distinction. As noted below, the revisions to the Illinois LLC Act also made clear that agency principles apply to Illinois LLCs. Accordingly, there were several reasons for eliminating the references in section 10-10 to directors and shareholders, and the courts did not have to resort to protection of tortfeasors and those whoo commit fraud as the basis for the change.19 Maybe additional evidence of the statutory interpretation problem is highlighted by the difficulty in identifying how the legislature would need to revise [the statute] if it wanted to address the [courts’] conclusions ... The role of section 10-10(d) is also important, and the conclusion that it is the exclusive way a member or manager may be liable is critical to the analysis. Interestingly, subsection (d) was added to ULLCA at the request of one of the authors of this column. When ULLCA was drafted, the federal tax law considered four factors to determine whether an unincorporated entity (e.g., an LLC) would be treated as a partnership or as an association (taxed as a corporation) for federal tax purposes. To be taxed as a corporation, an entity had to have more ©2014 CCH INCORPORATED. ALL RIGHTS RESERVED. 35 385 PASSTHROUGH FINANCE TECHNIQUES corporate characteristics than partnership characteristics. One corporate characteristic, i.e., limited liability, focused on whether any member of the entity was liable to third parties for debts and obligations of the entity solely by reason of being a member. A partnership would lack the corporate characteristic because a general partner of a general partnership or limited partnership is jointly and severally liable for debts and obligations of the partnership simply by reason of being a general partner. Without more, an LLC would have the corporate characteristic of limited liability. The author asked the reporter of ULLCA to include an option in section 303 for a member to elect to be liable for debts and obligations of the entity so that an LLC could more easily qualify as a partnership for federal tax purposes. The year after ULLCA was adopted, the federal tax rules were changed eliminating the four-factor test, and ULLCA was revised to reflect the changes, but the drafting committee left the ability in ULLCA for a member to elect to be liable for debts and obligations of the LLC solely by reason of being a member to maintain drafting flexibility. Subsection (d) was a tax-planning tool and was never intended to be the sole basis for liability of members or managers of an LLC. It is also worth noting that none of the Illinois courts in the decisions cited in this column addressed Section 1-43 of the t IIllinois llin LLC Act, which is identical to section 104(a) ULLCA, 04 4( ) of 4(a) of UL LLCA A, and provides that “[u]nless displaced particular of this [Act], the principles byy p parti cularr provisions proovis ovi n pl of law equity supplement [Act].”” The ccomment aw and equi ity su upp nt this [Act] mment to ULLCA number principles ULL LCA A lists a nu umber of supplementary upplemen ry princ pl oof law aw intended notes that the these princip principles e d to apply ended a y and nd dn es iinclude, clude but are not lli limited to, agency law. Significantly, the appellate court in Dass observed ed that that in Carollo Caro : “we noted that, under general principles agency, les ooff age ncy, tthe defendant would ordinarily be personally liable under a contract he executed on behalf of the unformed LLC.”20 The Carollo appellate decision explains the law in Illinois, noting that when an agent signs a document and indicates his affiliation to a principal, then, absent evidence of contrary intent in the document, the agent is not personally bound, but an unauthorized agent purporting to enter into a contract for a principal is personally liable.21 The Dass court would 36 JOURNAL OF PASSTHROUGH ENTITIES likely argue that section 10-10(a) displaces agency law as it relates to liability of agents, but it is more plausible to apply the final relevant rule of statutory construction cited by the appellate court in Dass and read these statutes as a whole, with all relevant parts considered, to conclude that members and managers may not avoid liability for fraud and tortious conduct. Maybe additional evidence of the statutory interpretation problem is highlighted by the difficulty in identifying how the legislature would need to revise section 10-10 if it wanted to address the conclusions reached by the Illinois courts. One solution would be to add a sentence to section 10-10(a) explaining what the use of “solely” in the second sentence of that subsection means. It would seem, however, that a change is not necessary if the courts consider more fully the language that is already in the statute. ENDNOTES 1 2 3 4 5 6 7 8 9 Dass v. Yale, 2013 IL App (1st) 122520, 3 NE3d 858. 805 ILCS 180/1-1, et seq. A few blog and commentator examples: “This is a strange case. Its interpretation removes a long-standing common law remedy for injured parties, enabling a fraudster to escape liability simply because the fraud was committed in the name of an LLC. This would not be the outcome in Arizona. Arizona courts would conclude that a member or manager is always liable for his or her own torts and cannot rely on his or her status as an LLC member or manager as a shield.” The Holt Law Group, at http://holttrust.com/blog-14-LLC%20 Manager%27s%20liability. “This is a surprisingg and puzzling uz case. It is surprising because it is so far outside the majorityy view and gives iv such short shrift to NCCUSL’s comment. It is puzzling because b e its interpretation int eta on of Section Sec on 10-10 removes removes a long-standing long tandin common mmon law remedy medy for injured nju d partie parties, enabling a to tort-feasor t-feasor tto eescape liability bility si simply because tthee to tortt was co committed mitted in th the name o of an LLC.” The LLC Law Monitor it published b h bby St Stoel Rives LLP LLP, at www.llclawmonitor. ll l com/tags/dass-v-yale/. In a column published in Law360, the author suggests, amazingly, that forming an LLC in a state that has adopted ULLCA other than Illinois may subject the attorney “to a later malpractice claim if the client is subjected to personal liability for fraud-related acts.” Marconi, “Ill.’s Limited Liability is Unlimited,” www.law360.com/employment/articles/524347. The LLC Law Monitor titled its report on the decision—“Illinois's the Place to Be—LLC Managers Are Not Liable for Fraudulent Statements on Behalf of LLC.” Puleo v. Topel, 368 Ill.App.3d 63, 856 NE2d 1152, 306 Ill. Dec. 57 (2006). Carollo v. Irwin, 2011 IL App (1st) 102765, 959 NE2d 77, 355 Ill. Dec. 49 (2011). Dass v. Yale, 5 N.E.3d 123 (Ill. 2014). 805 ILCS 180/10–10 (1996). Id. MAY–JUNE 2014 386 10 11 12 13 14 15 16 17 18 Dass, 3 NE3d at 865. Id. at 866 (italics in original). ULLCA §303, Comment (1996). Dass, 3 NE3d at 867. Puleo v. Topel, 856 NE2d at 1157, 355 Ill. Dec. at 69. Dass, 3 NE3d at 866. 805 ILCS 180/10–10 (1996) (emphasis added). Id. (emphasis added). For a discussion of this and other changes to the original Illinois LLC Act, 19 20 21 see Stephen G. Frost, New Revisions to the Illinois Limited Liability Company Act, 85 Ill. B.J. 592 (Dec. 1997). While the issue of whether eliminating liability for committing fraud would be void as against public policy is beyond the scope of this column, it was discussed in a clear and coherent way by the court in In re Suhadolnik, 2009 Bankr. LEXIS 2184, at *12–*13 (C.D. Ill. Bankr. Aug. 20, 2009). Dass, 3 NE3d at 867-68. Carollo, 355 Ill.Dec. at 4, 959 NE2d at 92. Again, whether the decisions in Carollo or Puleo are correct is not specifically addressed in this column. This article is reprinted with the publisher’s permission from the JOURNAL OF PASSTHROUGH ENTITIES, a bi-monthly journal published by CCH, a part of Wolters Kluwer. Copying or distribution without the publisher’s permission is prohibited. To subscribe to the JOURNAL OF PASSTHROUGH ENTITIES or other CCH Journals please call 800-449-8114 or visit CCHGroup.com. All views expressed in the articles and columns are those of the author and not necessarily those of CCH or any other person. All Rights Reserved. MAY–JUNE 2014 ©2014 CCH INCORPORATED. ALL RIGHTS RESERVED. 37
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