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Ogea v. Merritt

Supreme Court of Louisiana
130 So. 3d 888 (2013)
ELI5:

Rule of Law:

A member of a limited liability company (LLC) is not personally liable for debts or obligations of the LLC arising from poor workmanship performed in furtherance of an LLC contract. Personal liability only attaches if the member's conduct falls within a statutory exception, such as fraud, breach of a professional duty, or a 'negligent or wrongful act' that constitutes a breach of a personal duty owed to the third party, separate from the LLC’s contractual obligations.


Facts:

  • Mary P. Ogea entered into a 'Custom Home Building Agreement' with Merritt Construction, LLC, to build a home on her property.
  • Travis Merritt, the sole member of the LLC, signed the contract on the company's behalf.
  • When Ogea asked if her friend could prepare the site for the foundation, Merritt stated there would be no warranty if he did not perform the work.
  • Merritt personally operated a bulldozer to prepare the dirt 'pad' upon which the slab foundation would be poured.
  • A subcontractor subsequently poured the concrete slab foundation under Merritt's supervision.
  • After construction had progressed, Ogea was informed by another contractor of potential problems with the home's foundation.
  • An engineer hired by Ogea inspected the structure and confirmed significant defects, including excessive cracks, inadequate thickness, and an unlevel slab, deeming the foundation beyond economically-feasible repair.
  • Ogea requested a full refund and demolition of the home from the LLC, but the LLC did not reply and ceased all work.

Procedural Posture:

  • Mary P. Ogea filed suit against Merritt Construction, LLC and Travis Merritt individually in the district court (trial court).
  • Merritt individually filed a peremptory exception of no cause of action, which the district court denied.
  • Following a bench trial, the district court found Merritt personally liable and rendered judgment against both defendants 'in solido' for damages totaling $247,117.11.
  • Merritt and the LLC appealed to the Louisiana Third Circuit Court of Appeal (intermediate appellate court).
  • The court of appeal affirmed the imposition of personal liability on Merritt but reduced the amount of the damage award.
  • Merritt and the LLC sought a writ of certiorari from the Louisiana Supreme Court (highest court), which was granted.

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Issue:

Does a member of a limited liability company (LLC) incur personal liability for the LLC's breach of a construction contract due to his own negligent acts or poor workmanship performed in his capacity as a member of the LLC?


Opinions:

Majority - Weimer, Justice

No. A member of an LLC does not incur personal liability for the LLC's breach of contract merely by personally performing defective work in furtherance of that contract. The Louisiana LLC statute, La. R.S. 12:1320, establishes a general rule of limited liability for members. The exceptions in subsection (D) for fraud, breach of professional duty, or 'other negligent or wrongful act' must be narrowly construed to preserve this rule. The court found no evidence of fraud, as Merritt's failure to timely provide insurance proof did not cause Ogea a loss. It also found Ogea failed to prove Merritt was a 'professional' in the statutory sense. For the 'negligent or wrongful act' exception, the court established a four-factor test and concluded Merritt’s actions did not meet the threshold. His conduct, while constituting poor workmanship, was performed solely to fulfill the LLC's contractual obligations and did not breach any separate, personal duty owed to Ogea in tort. To hold otherwise would allow the exception to swallow the general rule of limited liability.


Concurring - Guidry, Justice

Yes, I concur in the result reached by the majority. However, I disagree with the majority's extensive discussion regarding the personal liability of professionals who do business through an LLC, as I believe it is dicta and not relevant to the specific issue presented in this case.


Concurring - Clark, Justice

Yes, I concur in the majority’s result. I disagree, however, with the inclusion of dicta concerning the personal liability of professional members of an LLC, as it was not necessary to resolve the case.



Analysis:

This decision significantly reinforces the liability shield afforded by the LLC structure in Louisiana, making it more difficult to hold individual members personally liable for the company's contractual failures. The court clarifies that poor performance by a member on behalf of the LLC is not, by itself, a 'negligent or wrongful act' sufficient to pierce the veil under La. R.S. 12:1320(D). By establishing a multi-factor test, the ruling provides a clear analytical framework for future cases, distinguishing between breaches of an LLC's contractual duties and independent, personal torts committed by a member. This precedent strengthens protections for small business owners operating as LLCs but requires plaintiffs to prove a distinct personal wrong to recover from a member's individual assets.

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