Author Archives: Patricia

December 2012 — Issue 62

LLC Cases: Gray v. Powers

673 F.3d 352 (5th Cir. 2012)

Nicholas Gray sued his employer, an LLC that owned a nightclub, and one of its owners, Michael Powers, for alleged violations of minimum wage standards under the Fair Labor Standards Act (FLSA). Gray alleged that Powers was personally liable with the LLC for the FLSA damages as an “employer” under the FLSA. The court applied the “economic reality” test to determine whether there was an employer/employee relationship between Powers and Gray. Under this test, the court considers whether the alleged employer: (1) possessed the power to hire and fire employees; (2) supervised and controlled employee work schedules or conditions of employment; (3) determined the rate and method of payment; and (4) maintained employment records. Continue reading

October 2011 — Issue 61

October - December 2011

LLC Cases: Wehlage v. Empres Healthcare Inc.

821 F.Supp.2d 1122 (N.D. Cal. 2011)

A nursing home resident sued the facility where she resided and various other entities, including several Washington LLCs, for violations of California health and safety, unfair competition, and consumer protection statutes. The plaintiff sought to hold the LLCs liable as alter egos of the facility. The plaintiff claimed that California law applied to the alter ego claims against the LLCs because the admission agreement between the plaintiff and the licensee had a choice-of-law clause specifying that the agreement was governed by the law of the state where the facility was located, but the court held that the alter ego issue was collateral to the admission agreement. The plaintiff also argued that the California LLC statute, Continue reading

July 2011 — Issue 60

July -September 2011

LLC Cases: CML V, LLC v. Bax

28 A.3d 1037 (Del. 2011)

The Delaware Supreme Court agreed with the chancery court in this case that creditors of an insolvent Delaware LLC do not have standing to sue derivatively for breach of fiduciary duty to the LLC. A creditor of an insolvent LLC asserted derivative claims on behalf of the LLC for breach of fiduciary duty by the managers in connection with certain acquisitions and sales by the LLC. The chancery court dismissed the claims for lack of standing because the Delaware LLC statute states that the plaintiff in a derivative suit must be a member or assignee. The supreme court found the language of the Delaware LLC statute unambiguously limited derivative standing to members and assignees and thus affirmed the chancery court’s judgment. Continue reading

April 2011 — Issue 59

April 2011 - June 2011

LLC Cases: United States v. Roe

421 Fed. Appx. 881 (10th Cir. 2011).

Kelly and Christopher Roe challenged IRS summonses issued to them as members of Roe Ecological Services, LLC. The affidavit of the agent who issued the summonses stated that the summonses were issued to aid in the determination of the LLC’s taxable income for specified calendar years and that the members of the LLC would be taxed on the LLC’s taxable income because the LLC was a pass-through entity, a purpose the court stated facially fell within the authority of the IRS to examine records and other data that may be relevant to determining the liability of any person for any internal revenue tax. Continue reading

January 2011 — Issue 58

January 2011 - March 2011

LLC Cases: Affco Investments 2001, L.L.C. v. Proskauer Rose, L.L.P.

625 F.3d 185 (5th Cir. 2010).

The plaintiffs invested in a complex tax avoidance scheme that was later disallowed by the IRS. The plaintiffs sued a number of defendants, including the law firm of Proskauer Rose, L.L.P. (“Proskauer”), asserting claims under RICO and the Securities Exchange Act of 1934. The tax avoidance scheme involved investments in LLCs, and the district court dismissed the RICO claim on the basis of the Private Securities Litigation Reform Act, which bars civil RICO claims based on predicate acts of securities fraud. The plaintiffs argued that Continue reading

December 2010 — Issue 57

November 2010 and December 2010

LLP Cases: Henry v. Masson

333 S.W.3d 825 (Tex. App. 2010)

Henry and Masson were partners in an orthopedic surgery practice. They formed their practice as an LLP in 2001, and personal disputes led to litigation in 2003. During a hearing in the case, they agreed in principle to wind up the LLP and sever all ties between them. Additional disputes and issues arose, and another suit was filed. In an attempt to resolve all their differences, they executed a settlement agreement. Litigation ensued over alleged breaches of the settlement agreement. Continue reading

October 2010 — Issue 56

Ross Holding and Management Company v. Advance Realty Group, LLC

C.A. No. 4113-VCN, 2010 WL 3448227 (Del. Ch. Sept. 2, 2010)

The plaintiffs, members of a Delaware LLC, sought the immediate appointment of a receiver for the LLC based on the LLC’s insolvency resulting from gross mismanagement and self-dealing by the defendant board. The defendants objected because neither the LLC agreement nor the Delaware LLC statute provided for the appointment of a receiver in the event of insolvency and because plaintiffs failed to plead behavior sufficiently egregious to merit the appointment of a receiver in accordance with the court’s equity powers. Both parties acknowledged that the Delaware LLC statute is silent on the issue Continue reading

September 2010 — Issue 55

LLP Cases: Roe v. Ladymon

318 S.W.3d 502 (Tex. App. 2010)

(limited liability of partner in LLP; effect of conversion from LLP to limited partnership; arbitration clause not binding on partner who signed contract as representative of partnership)


LLC Cases: Colborne Corporation v. Weinstein

__ P.3d __, 2010 WL 185416 (Colo. App. 2010, pet. granted)

The plaintiff, a creditor of a Colorado LLC, sought to hold the managers and members of an LLC liable for an unlawful distribution. The creditor argued that the managers were liable for breach of a common law fiduciary duty owed to the creditor and that the members were liable under the Colorado LLC statute, which provides for liability of the members to the LLC in the event the members knowingly receive an impermissible distribution. Continue reading

August 2010 — Issue 54

LLP Cases: Largo Realty, Inc. v. Purcell

928 N.E.2d 999 (Mass. App. 2010).

The plaintiff sued for breach of contract and other claims arising out of alleged overbilling by BDO Seidman, LLP (“BDO”) for services provided the plaintiff under a written contract between the plaintiff and BDO. The plaintiff’s complaint named an employee of the partnership who rendered services to the plaintiff and the employee’s supervising partner, Russo, individually and as a partner in BDO. The defendants filed a motion to dismiss, which the trial court granted. The plaintiff argued that it made BDO a party by suing Russo in his capacity as a partner. The court discussed “three forms of partnerships” in Massachusetts: Continue reading

July 2010 — Issue 53

Ross Holding and Management Company v. Advance Realty Group, LLC

C.A. No. 4113-VCN, 2010 WL 3448227 (Del. Ch. Sept. 2, 2010)

The plaintiffs, members of a Delaware LLC, sought the immediate appointment of a receiver for the LLC based on the LLC’s insolvency resulting from gross mismanagement and self-dealing by the defendant board. The defendants objected because neither the LLC agreement nor the Delaware LLC statute provided for the appointment of a receiver in the event of insolvency and because plaintiffs failed to plead behavior sufficiently egregious to merit the appointment of a receiver in accordance with the court’s equity powers. Both parties acknowledged that the Delaware LLC statute is silent on the issue of the appointment of a receiver except as provided in the case of the cancellation of the certificate of formation. Continue reading

June 2010 — Issue 52

LLP Cases: Edlinger v. United States

No. 3:10-cv-148, 2010 WL 1485951 (N.D.N.Y. April 14, 2010)

(limited liability of LLP partner absent partner’s own wrongful conduct, partner’s direct supervision of someone who engaged in wrongful conduct, or limitation of scope of liability protection by partnership agreement).


LLC Cases: Spurlock v. Begley

308 S.W.3d 657 (Ky. 2010)

An LLC member, Griffin, orally announced his intention to give another individual, Begley, a 25% interest in the LLC in order to pay off a $75,000 note from the LLC to Begley. Continue reading

May 2010 — Issue 51

Kuroda v. SPJS Holdings, L.L.C.

Civil Action No. 4030-CC, 2010 WL 925853 (Del. Ch. March 16, 2010)

Kuroda became involved with several individuals whose relationship was governed by a series of agreements and contracts that formed a complex web of interrelated companies and partnerships, the purpose of which was to establish an efficient structure to manage and provide investment advice to certain funds. Kuroda was a non-managing member of an LLC that was created to serve as the general partner of the funds. As such, Kuroda had no decision-making authority in connection with the funds or the LLC. Continue reading