The facts of this case and its outcome should make you sit up and take notice. Jay Dackman was a member of Hard Assets, LLC. Presumably, although the court opinion does not say so, he was also the manager of the LLC or at least the member in charge of management because he is described as the person “responsible for managing its day-to-day affairs.”
Hard Assets was in the business of buying real estate out of foreclosure and then reselling the real estate. In this case it bought a building in Baltimore, Maryland. No one visited the building on behalf of Hard Assets before or after it bought it and Hard Assets never intended to lease the property to anyone. But lo and behold, someone was living there; Monica Allen and her two children. When Hard Assets found out, it immediately and successfully took action to evict the squatters. It was just seven months from purchase to eviction, so no one could claim Hard Assets sat on its hands. And during this period no rent was requested and none was paid. In fact, Allen did not know Hard Assets owned the property until the eviction process was commenced three months after it purchased it.
Ms. Allen later brought an action against Dackman claiming he was personally responsible for the lead paint poisoning of her two children caused by the lead paint at the premises. Common law principles and the LLC and corporate statutes of every state provide that a member of an LLC is not liable for the contracts or torts of the entity solely by reason of being a member or shareholder. However, and this is the key, particular statutes and even city ordinances can overrule this general limitation. And that is what happened to Dackman in Allen v. Dackman, 2010 Md. LEXIS 82 (Md. Ct Appls. March 22, 2010)(the Court of Appeals is Maryland’s highest court).
Without going too much into the details of the City of Baltimore Housing Code, the Court of Appeals determined that a reasonable trier of fact could conclude that Dackman was an “owner” of the property in addition to the LLC because “he had the ability to change or affect the title to the property purchased in the name of Hard Assets.” The Court based its decision on these facts: Dackman signed the certification when Hard Assets bought the property, signed the complaint seeking removal of Allen and her children, signed the deed when Hard Assets sold the property, and there was no evidence that anyone else had similar responsibilities on behalf of Hard Assets. Thus, Dackman “was the person who made decisions affecting title to the property.” Because the Housing Code had an expansive definition of “owner” to the extent that it included not only holders of title to property but those who control title, Dackman could be found to be an owner. It didn’t seem to matter to the Court that he was signing those documents not in his individual capacity but in his capacity as a representative of Hard Assets and that Hard Assets could not do any of the things mentioned without an individual signing in a representative capacity, a point that the two enlightened but albeit dissenting judges point out.
I wonder if a provision in an operating agreement that disavowed the authority of anyone signing on behalf of an LLC from having any authority to affect title to property of the LLC - reserving such authority exclusively to a majority vote of the members/managers - would have made a difference?
As a postscript, you may be wondering what duty Dackman or anyone else would have any duty to a squatter. Two reasons are given. First, the Housing Code imposed strict liability. Second, the Court found that the Housing Code protected “occupants” and defined occupants to be any “person who actually uses or has possession of the premises.” In the Court’s view this included persons who had no legal right to be there.
- Marc Ward
Comments