Mbahaba v. Morgan

• Decision Date: 11 May 2012
• Docket Number: No. 2010–710.,2010–710.
• Citation: 163 N.H. 561,44 A.3d 472
• Parties: Regina MBAHABA, Individually and as Mother and Next Friend of Benita Nahimana v. Thomas MORGAN d/b/a Property Management Services a/k/a Property Services Company, LLC.
• Court: New Hampshire Supreme Court

163 N.H. 561

44 A.3d 472

Regina MBAHABA, Individually and as Mother and Next Friend of Benita Nahimana

v.Thomas MORGAN d/b/a Property Management Services a/k/a Property Services Company, LLC.

No. 2010–710.

Supreme Court of New Hampshire.

Argued: March 8, 2012.

Opinion Issued: May 11, 2012.

Seufert Law Offices, P.A., of Franklin (Christopher J. Seufert and Lexie Rojason the brief), and Shaheen & Gordon, P.A., of Manchester (Francis G. Murphy orally), for the plaintiff.

Craven Sullivan & Splendore, PLLC, of Manchester (Jason M. Craven on the brief and orally), for the defendant.

DALIANIS, C.J.

The plaintiff, Regina Mbahaba, individually and as next friend of her minor daughter, Benita Nahimana, appeals orders of the Superior Court ( McGuire and Tucker, JJ.). The orders dismissed the plaintiff's direct claims against the defendant, Thomas Morgan, and granted summary judgment against her action seeking to pierce the limited-liability veil of a company managed by the defendant. We affirm in part, reverse in part, and remand.

I. Background

We begin by summarizing the relevant facts as they appear in the record. The defendant owned Property Management Services a/k/a Property Services Company, a limited liability company (LLC) that managed an apartment building where the plaintiff and her family rented an apartment from June 2005 to July 2006. Biren Properties, Inc. owned the building and contracted with the defendant's LLC to provide management services. In addition to the defendant, the LLC employed one other person, who served as its receptionist and bookkeeper. The plaintiff's daughter, Benita, was poisoned by lead while living in the apartment, prompting an inspection by the New Hampshire Department of Health and Human Services, which revealed “lead exposure hazards” in the home.

As a result of the alleged injury to Benita caused by the lead contamination, the plaintiff filed lawsuits against the defendant and Biren Properties. The defendant moved to dismiss the action against him personally, arguing that, because he supervised the property on behalf of the LLC, he could not be “held personally liable for the debts or actions of the company.” The plaintiff responded that she did not seek to hold the defendant liable merely because of his official position in the LLC, but because he “personally participated in the activity that caused injury to the [plaintiff and her daughter].” Ultimately, the claims against the defendant individually were dismissed, but the trial court allowed the plaintiff's claims against the LLC to proceed.

With the actions against his original LLC still pending, the defendant formed a new LLC, of which he was also the managing member. The defendant gave the new LLC a different name, but continued to operate it from the same address. The new LLC has the same telephone number as the original LLC. The original company's bookkeeper and receptionist stayed on, becoming a member in the new LLC.

The defendant then sent letters to the original LLC's seven clients, requesting to terminate the LLC's management of their properties. Next, he called “[a]t least four” of the LLC's largest clients and invited them to “come over to the new company,” which they did. The old company sold its office furniture for $3,500, which was roughly the amount that the defendant invested in the new company. As a result, the original LLC's total assets consisted of its remaining office furniture and two cars, worth in total approximately $16,500, and it ceased operations.

Based upon, among other things, the original LLC's lack of assets, the plaintiff amended her writ to add a count seeking to “pierc[e] the company veil” in order to hold the defendant individually liable. The defendant moved for summary judgment on this claim, which the trial court granted.The trial court then severed the claim against the LLC from the claims against Biren Properties. The plaintiff argues on appeal that the trial court erred when it dismissed her action against the defendant and when it granted summary judgment on her veil-piercing claim.

II. The Defendant's Direct Liability

We begin with the plaintiff's argument that the trial court erred when it granted the motion to dismiss the actions against the defendant, individually. In reviewing the grant of a motion to dismiss, we assume the truth of the facts as alleged in the plaintiff's pleadings and construe all reasonable inferences in the light most favorable to the plaintiff. Beane v. Dana S. Beane & Co., 160 N.H. 708, 711, 7 A.3d 1284 (2010). We will uphold the granting of the motion if the facts pleaded do not constitute a basis for legal relief. Id.

Resolution of the issues in this case requires statutory construction. We review the trial court's interpretation of a statute de novo. In re Guardianship of Nicholas P., 162 N.H. 199, 203, 27 A.3d 653 (2011). When construing New Hampshire statutes, we are the final arbiter of the intent of the legislature as expressed in the words of the statute considered as a whole. Id. We first examine the language of the statute, and, where possible, we ascribe the plain and ordinary meanings to the words used. Id. When the language of a statute is clear on its face, its meaning is not subject to modification. Id. We will neither consider what the legislature might have said nor add words that it did not see fit to include. Id.

The controlling statute here, RSA 304–C:25 (2005), governs the liability of LLC members to third-parties and provides as follows:

Except as otherwise provided by this chapter, the debts, obligations and liabilities of a limited liability company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the limited liability company; and no member or manager of a limited liability company shall be obligated personally for any such debt, obligation or liability of the limited liability company solely by reason of being a member or acting as a manager of the limited liability company.

The defendant argues that this provision insulates him from liability. The plaintiff counters that the defendant owed her family duties grounded in common law negligence and, therefore, the claims against him are not “solely by reason” of his status within the LLC. We begin with first principles.

“A member of an LLC generally is not liable for torts committed by, or contractual obligations acquired by, the LLC.” Allen v. Dackman, 413 Md. 132, 991 A.2d 1216, 1228 (2010). When, however, a member or manager commits or participates in the commission of a tort, whether or not he acts on behalf of his LLC, he is liable to third persons injured thereby. See Sturm v. Harb Development, LLC, 298 Conn. 124, 2 A.3d 859, 866 (2010). A member remains personally liable for his own acts because RSA 304–C:25 governs a member's vicarious liability for an LLC's debts or obligations. See Smith v. Isaacs, 777 S.W.2d 912, 913 (Ky.1989) (discussing Kentucky corporations statute). The statute has nothing to do with a manager's personal liability, including liability for his own negligence. See id.

Therefore, “[a]n LLC member is liable for torts he or she personally commits ... because he or she personally committed a wrong, not ‘solely’ because he or she is a member of the LLC.” Allen, 991 A.2d at 1229. The Connecticut Supreme Court, construing the phrase “solely by reason of being a member or manager,” noted that, “although being a member or manager does not impose liability, the statute's use of the term ‘solely’ opens the door to other types of liability, such as common-law liability.” Sturm, 2 A.3d at 868–69 (quotations and emphasis omitted). The court, therefore, construed the statute to mean that a member “must do more than merely be a member in order to be liable personally for an obligation of the limited liability company. The statute ... does not preclude individual liability for members of a limited liability company if that liability is not based simply on the member's affiliation with the company.” Id. at 869 (quotation omitted). This distinction has been characterized as “black letter, hornbook law.” Smith, 777 S.W.2d at 914.

By contrast, a manager or member, “acting as an agent of [an LLC], is ... protected from personal liability for making a contract where acting within his authority to bind the [LLC].” Id. at 913 (discussing corporations). Thus, “[w]here [an LLC] enters into a contract, the [manager's] signature on the contract, with or without a designation as to his representative capacity, does not render him personally liable under the contract.” Redmon v. Griffith, 202 S.W.3d 225, 239 (Tex.App.2006) (discussing corporations). LLC members and managers who disclose that they are contracting on an LLC's behalf are not liable for a breach because they are not parties to the contract—only the LLC itself is. See Restatement (Second) of Agency § 328, at 80 (1958) (“An agent, by making a contract only on behalf of a competent disclosed or partially disclosed principal whom he has the power so to bind, does not thereby become liable for its nonperformance.”). As a result, the issue of whether a manager, member, shareholder or officer can be liable for actions taken on a business entity's behalf is “sometimes framed as whether the duty arises solely from contract.” Greg Allen Const. Co., Inc. v. Estelle, 798 N.E.2d 171, 174 (Ind.2003).

With these principles in mind, we turn to the plaintiff's claims. Although the plaintiff's writ alleges multiple theories of liability, her brief addresses only the defendant's personal liability for negligence. As a result, any objections to the trial court's dismissal of the plaintiff's other claims have been waived, and we affirm the trial court's order insofar as it dismissed them. See Progressive N. Ins. Co. v. Argonaut Ins. Co., 161 N.H. 778, 785, 20 A.3d 977 (2011).

The negligence count of the plaintiff's writ states the following:

The defendant[s] and...