Court decides customers can hold managers liable
West Virginia law allows people to "pierce the veil" of an LLC to hold managers personally liable for wrongdoing that occurred at a business, state Supreme Court justices recently decided.
A Harrison Circuit Court judge certified a question to the state's highest court asking whether West Virginia's version of the Uniform Limited Liability Company Act completely protects members of a company against a person seeking to hold them liable.
Justices determined the act does not completely protect them.
The state Supreme Court opinion notes piercing the corporate veil means plaintiffs can hold otherwise immune corporate members or managers responsible for the wrongful actions of their business.
This question stems from a May 2011 case filed by Joseph Kubican against Harry Wiseman and The Tavern LLC, doing business as Bubba's Bar and Grill, seeking to hold corporate members liable.
The Nov. 6 opinion, written by Justice Robin Davis, held in order to pierce the veil, plaintiffs have to establish two points -- that there is no separation of the business and its members and that if the veil is not pierced, fraud, injustice or an inequitable result will occur.
However, the court notes that members and managers can't be held liable only because of their positions.
Justices noted this must be applied on a case-by-case basis.
In his suit, Kubican asserted Wiseman assaulted him and brought allegations of assault and battery and malicious, willful and wanton and reckless misconduct. He also brought negligence allegations against Bubba's Bar and Grill.
According to the opinion, Kubican later learned the name Bubba's Bar and Grill was a fictious name used for business purposes by The Tavern.
Kubican wanted to amend the complaint to use the proper business name and to add veil-piercing counts against Tavern members, James Paugh and Lawson Mangum.
Kubican's veil piercing count included allegations that Paugh and Magnum commingled personal funds with that of the company's, used the company to conduct personal business, diverted company assets to their own benefit and failed to maintain records of the company's corporate and business activities.
Kubican asserted they operated the company as a "mere alter ego" and sought the lower court to hold Paugh and Mangum personally liable for The Tavern's debts.
The Tavern responded that West Virginia law prohibits piercing of the veil. Therefore, Kubican couldn't assert wrongdoing against Tavern defendants.