Business with LLC (Two Members being sued)

[Ronnie1129]

What is the name of your state (only U.S. law)? California
My wife and I purchased a bar back in Sept. 06. We have an LLC. We decided to take on a few members to help with the workload. We paid for new member's 1% of the LLC and had each one read and sign an addendum to the operating agreement. Skipping foward...one member is now suing my wife and I individually. He is not suing the LLC. Nowhere on the claim form does it state anything about the LLC. I need advice if this is legal. I have read that there are a few occasions where members of an LLC can be held liable, i.e., fraud, illegal activites, etc. None of which exist is this matter.

 

[dcatz]

You didn’t explain the reason that the member is suing and, equally as important, whether it is for something outside the scope of operations of the LLC.

The member is a shareholder. You’ve done some investigation. Speaking without more knowledge than was provided, the answer is yes, it’s legal. Whether the member will successful is something nobody here could say.

Your formation documents should have provided for the form and parameters of dispute resolution and, given the division of equity, I’m going to assume that either you or your wife is general manager with other members presumably having voting rights. Liability is going to be predicated on whether the scope of authority of the general manager was breached. I have to assume that you didn’t provide for an alternative resolution mechanism.

If something like this is going forward in CA Small Claims, it strikes me as a very poor forum choice unless the issues in dispute are simple and the remedy obvious. Why not mutually agree to try mediation first? My guess is that nobody comes away happy with the treatment this gets in Small Claims. It’s not geared to the complexities of LLCs.