In general, the debts, obligations, or other liabilities of a California limited liability company do not become the debts, obligations, or other liabilities of a member or manager solely by reason of the member acting as a member or manager acting as a manager for the LLC. Cal. Corp. Code § 17703.04(a). An important exception to this general principle, however, is that a member is subject to liability under the common law governing alter ego liability.

In granting the defendants' motion to dismiss, the Magistrate Judge Virginia K. Demarchi wrote:"Under California law, a member of a limited liability company—like a corporate shareholder—is not personally liable for the debts, legal liability, or obligations of the company unless liability attaches under an alter ego theory. Cal. Corp. Code § 17703.04. Defendants argue that plaintiffs have failed to plead facts sufficient to support an alter ego theory of liability for Mr. Clapper for any claim for relief."Section 17703.04 is part of California's Revised Uniform Limited Liability Company Act.

panies:A member of a limited liability company shall be subject to liability under the common law governing alter ego liability, and shall also be personally liable under a judgment of a court or for any debt, obligation, or liability of the limited liability company, whether that liability or obligation arises in contract, tort, or otherwise, under the same or similar circumstances and to the same extent as a shareholder of a corporation may be personally liable for any debt, obligation, or liability of the corporation; except that the failure to hold meetings of members or managers or the failure to observe formalities pertaining to the calling or conduct of meetings shall not be considered a factor tending to establish that a member or the members have alter ego or personal liability for any debt, obligation, or liability of the limited liability company where the articles of organization or operating agreement do not expressly require the holding of meetings of members or managers.Cal. Corp. Code § 17703.04(b).As the name suggests, reverse veil piercing occurs when a third party outsider is able to reach corporate assets to satisfy claims against an individual shareholder. In an opinion filed yesterday, the Fourth District Court of Appeal held that reverse veil piercing may be applied to a Delaware limited liability company.

In general, the debts, obligations, or other liabilitiesof a California limited liability company do not become the debts, obligations, or other liabilities of a member or manager solely by reason of the member acting as a member or manager acting as a manager for the LLC. Cal. Corp. Code § 17703.04(a).An important exception to this general principle, however, is that a member is subject to liability under the common law governing alter ego liability.

er. While the Supreme Court agreed that there was some evidence that the member used the property for his own personal enjoyment, that evidence does not satisfy the "unity of interest and ownership" element without findings as to "a lack of observance of corporate formalities, maintenance of corporate records, comingling of funds, or prejudice to creditors". The Supreme Court also found that substantial evidence did not support the "fraud or injustice" element because it was unclear how recognition of the LLC would have result in an injustice to the plaintiff.I find the Supreme Court's analysis of the second element troubling. The Court references the observance of "corporate formalities". Not only does this conflate corporations and LLCs, it fails to recognize that LLCs are not required to observe the formalities required by corporations.See What Egregious Error Have Courts Made Nearly 9,000 Times (And Counting)?California's statute governing alter ego liability with respect to LLCs (Cal. Corp. Code § 17703.04(b)) specifically provides that the failure to hold meetings of members or managers or the failure to observe formalities in respect of meetings are not be be considered when the articles of organization or operating agreement do not expressly require the holdings of meetings or managers.I also quibble with the inclusion of "prejudice to creditors" as evidence of a unity of interest and ownership. Prejudice to creditors seems to me to relate more closely, if at all, to the question of whether there was fraud or injustice. Further, the fact that creditors may be unable to collect should not necessarily imply that there has been a "prejudice to creditors" because creditors typically raisealter ego when the LLC or corporate defendant lacks the wherewithal to pay the creditor's claim in full.[View source.]

In granting the defendants' motion to dismiss, the Magistrate Judge Virginia K. Demarchi wrote:"Under California law, a member of a limited liability company—like a corporate shareholder—is not personally liable for the debts, legal liability, or obligations of the company unless liability attaches under an alter ego theory. Cal. Corp. Code § 17703.04. Defendants argue that plaintiffs have failed to plead facts sufficient to support an alter ego theory of liability for Mr. Clapper for any claim for relief."

s: A member of a limited liability company shall be subject to liability under the common law governing alter ego liability, and shall also be personally liable under a judgment of a court or for any debt, obligation, or liability of the limited liability company, whether that liability or obligation arises in contract, tort, or otherwise, under the same or similar circumstances and to the same extent as a shareholder of a corporation may be personally liable for any debt, obligation, or liability of the corporation; except that the failure to hold meetings of members or managers or the failure to observe formalities pertaining to the calling or conduct of meetings shall not be considered a factor tending to establish that a member or the members have alter ego or personal liability for any debt, obligation, or liability of the limited liability company where the articles of organization or operating agreement do not expressly require the holding of meetings of members or managers. Cal. Corp. Code § 17703.04(b). As the name suggests, reverse veil piercing occurs when a third party outsider is able to reach corporate assets to satisfy claims against an individual shareholder.

ility: A member of a limited liability company shall be subject to liability under the common law governing alter ego liability, and shall also be personally liable under a judgment of a court or for any debt, obligation, or liability of the limited liability company, whether that liability or obligation arises in contract, tort, or otherwise, under the same or similar circumstances and to the same extent as a shareholder of a corporation may be personally liable for any debt, obligation, or liability of the corporation; except that the failure to hold meetings of members or managers or the failure to observe formalities pertaining to the calling or conduct of meetings shall not be considered a factor tending to establish that a member or the members have alter ego or personal liability for any debt, obligation, or liability of the limited liability company where the articles of organization or operating agreement do not expressly require the holding of meetings of members or managers.Cal. Corp. Code § 17703.04(b).The situation is less clear in the case of limited liability companies formed under Nevada law, as observed by U.S. District Court Judge Jennifer A. Dorsey:The Nevada Supreme Court has not expressly held that the laws for piercing the corporate veil under the alter-ego doctrine apply to LLCs, but it has applied those rules in the LLC context, “assum[ing] without deciding that” the corporate analysis applies.

y: A member of a limited liability company shall be subject to liability under the common law governing alter ego liability, and shall also be personally liable under a judgment of a court or for any debt, obligation, or liability of the limited liability company, whether that liability or obligation arises in contract, tort, or otherwise, under the same or similar circumstances and to the same extent as a shareholder of a corporation may be personally liable for any debt, obligation, or liability of the corporation; except that the failure to hold meetings of members or managers or the failure to observe formalities pertaining to the calling or conduct of meetings shall not be considered a factor tending to establish that a member or the members have alter ego or personal liability for any debt, obligation, or liability of the limited liability company where the articles of organization or operating agreement do not expressly require the holding of meetings of members or managers. Cal. Corp. Code § 17703.04(b). The situation is less clear in the case of limited liability companies formed under Nevada law, as observed by U.S. District Court Judge Jennifer A. Dorsey: The Nevada Supreme Court has not expressly held that the laws for piercing the corporate veil under the alter-ego doctrine apply to LLCs, but it has applied those rules in the LLC context, “assum[ing] without deciding that” the corporate analysis applies.Pharmaplast S.A.E. v. Zeus Medical Holdings, LLC, et al.

04] shall be construed to affect the liability of a member of a limited liability company to third parties for the member’s participation in tortious conduct, or pursuant to the terms of a written guarantee or other contractual obligation entered into by the member, other than an operating agreement. Cal. Corp. Code § 17703.04(c). The idea, here of course, is that members can voluntarily enter into contractual obligations or commit torts.