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Federal Court Rules Alter Ego Liability Of Members Is Governed By State Of Formation

In an opinion issued last week, U.S. District Court Edward M. Chen ruled 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.

Judge Chen also cited Wehlage v. EmpRes Healthcare Inc., 821 F. Supp. 2d 1122 (N.D. Cal. 2011).   It is unclear why both of these cases ignore the Court of Appeals' holding in Laborers Clean-Up Contract Admin. Trust Fund v. Uriarte Clean-Up Service, Inc., 736 F.2d 516, 523, (1984):

In considering whether to disregard the corporate form, we apply federal substantive law, although we may look to state law for guidance.

 See also Board of Trustees v. Valley Cabinet & Mfg. Co., 877 F.2d 769, 772 (9th Cir. 1989) (quoting Laborers).

© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XI, Number 187
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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