Last week, I took note of the Second District Court of Appeal's decision that allows for the possibility outside veil piercing, Blizzard Energy, Inc. v. Bernd Schaefers, 2021 Cal. App LEXIS 968. Readers may recall that the case involved the plaintiff's request that a California court add two limited liability companies partially owned by the defendant to a Kansas judgment against the defendant. Last week's post concerned whether such outside veil piercing was possible. The Court of Appeal allowed that it could occur, but remanded the case to determine whether it would be inequitable as to the defendant's spouse who was not subject to the Kansas judgment.
The defendant also argued that the trial court should have applied Kansas, rather than California, law. The Court of Appeal dismissed this argument because the parties had failed to cite, and the Court could not find, any Kansas case that discusses whether reverse veil piercing of an LLC is permissible under the alter ego doctrine. Because the Court found a "false conflict" between California and Kansas law, it left undecided the choice of law question.
Readers may recall this earlier post discussing U.S. District Court Edward M. Chen's ruling that Ohio law applied to an alter ego claim against the members of an Ohio limited liability company. Greenlight Sys., LLC v. Breckenfelder, 2021 U.S. Dist. LEXIS 120288. He found support for his ruling in California Corporations Code Section 17708.01 which provides:
(a) The law of the state or other jurisdiction under which a foreign limited liability company is formed governs all of the following:
(1) The organization of the limited liability company, its internal affairs, and the authority of its members and managers.
(2)The liability of a member as member and a manager as manager for the debts, obligations, or other liabilities of the limited liability company.
Section 17708.01, of course, concerns only forward, not reverse, veil piercing. It is also unclear that this statute has any applicability to the Blizzard Energy case because it appears that the LLCs in those cases were organized under California law.
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