The Maryland Court of Special Appeals issued an opinion in Seriou V. Baystate Properties last week that discusses some interesting issues with respect to piercing the corporate veil and Maryland, and when a court can allow a lawyer to strike an appearance.
Under Maryland law, LLCs are normally protected from personal liability. There are, however, instances when a Maryland court will find that members can be personally liable in order to “prevent fraud or enforce a paramount equity.” This is called “piercing the corporate veil.”
In this case, the builder and the owner of the LLC entered into a contract. The builder was to build two houses on the owner’s property. Although the builder completed building the two houses, the builder was not paid for services.
The builder sued both the owner personally and the LLC. Of course the problem with LLCs is that they can disappear like the wind as this one did. The LLC filed for bankruptcy. So right there, the Plaintiff has a real problem. So you have to go after the defendant personally.
To make matters worse, the defendant’s lawyer informed him that she could no longer represent him because she was taking a federal government job. On the date of trial, the court granted the attorney’s motion to withdraw from representation. The court then ruled that the corporate veil should be pierced and entered judgment against the owner for $141,000.
Lawyers back out of cases all of the time, usually because they have not been paid. Here, the lawyer bailed to take another job. And then the guy got popped with a big verdict. It certainly does not feel right, does it?
Anyway, on appeal, the owner argued that the trial court erred in granting the motion for his attorney to withdraw and that there was no reason to pierce the corporate veil because there was no fraud. The appeals court diagreed that the withdrawal was a problem, citing that the Owner had advance notice of his need to secure a new attorney and that the trial court has great discretion in these matters.
The appeals court, however, did agree with the owner that the trial court erred in piercing the corporate veil. The appeals court pointed out that Maryland courts have refused to pierce the corporate veil in the absence of fraud. The appeals court pointed out that both builder and owner engaged in business and the contract as two companies, not individuals, and that both had waived personal liability. Because the appeals court could not find fraud, the appeals court reversed the trial court’s decision to pierce the corporate veil and find owner personally liable.
So, in the end, you can expect the plaintiff here is going to end up with nothing. Unfair but when you are dealing with an LLC and extending credit to it, you have to have both eyes wide open.
You can find retired Judge James A. Kenney’s opinion here.