In the previous post, I promised a discussion of motions for sanctions pursuant to Rule 11 of the North Carolina Rules of Civil Procedure, in cases where LLC members are named as individual defendants in contract, fraud and Chapter 75 cases.
In North Carolina, the rule is straightforward: an individual LLC member cannot be sued, except "by reason of his own acts or conduct." See N.C.G.S. s 57C-3-30(a). This section does not, however, establish an alter ego or veil piercing creteria. It is intended to allow plaintiffs to recover for torts committed by LLC members, not, as some might have it, to establish member liability in actions against the LLC.
Clarifying this purpose, subsection (b) provides: "A member of a limited liability company is not a proper party to proceedings by or against a limited liability company, except where the object of the proceeding is to enforce a member's right against or liability to the limited liability company."
This subsection should clarify any doubt a litigant might have about what subsection (a) allows.
In Page v. Roscoe LLC, 128 N.C. App. 678, 497 S.E.2d 422 (1998) the plaintiff learned this lesson the hard way. Plaintiffs sought to enjoin the defendant LLC from constructing a gas storage facility they deemed a nuisance. LLC member Dale Bone was also named as a defendant. No actions by Bone were alleged that were not also alleged to have been undertaken by the LLC. Accordingly, the court held that naming Bone was a violation of Rule 11, on the theory that the complaint, in naming him, was not well grounded in law.
In so holding, the Court of Appeals agreed with the trial court, that "no acts by Bone,
individually, were properly alleged. Therefore, under the above
statute [N.C.G.S. s57C-3-30(b)], it was improper to name an individual member of a limited
liability company as a party defendant without any evidence to support
it. As such, the naming of Bone as an individual defendant was not
well-grounded in law and therefore a violation of Rule 11."
The decision provides little guidance to a plaintiff hoping to pierce the corporate veil of an LLC. There is no explanation about what would need to be alleged to state a complaint If anything, it provides broad grounds to support Rule 11 motions whenever an individual LLC member is named in the same complaint as the LLC.