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What Does California's LLC Alter Ego Statute Have To Do With A Delaware Corporation?

Mr. Clapper is a California resident and the President, Chairman, and controlling shareholder of ScanX, a Delaware corporation with its principal place of business in California.  Mr. Carlson and Carlson Produce, LLC, an Illinois limited liability company, sued ScanX and Mr. Clapper in federal court alleging diversity jurisdiction.  Among other things, the plaintiffs sought to hold Mr. Clapper liable under a theory of alter ego.  Carlson v. Clapper, Case No. 18-cv-07195-VKD (March 6, 2019).

In granting the defendants' motion to dismiss, the Magistrate Judge Virginia K. Demarchi wrote:

"Under California law, a member of a limited liability company—like a corporate shareholder—is not personally liable for the debts, legal liability, or obligations of the company unless liability attaches under an alter ego theory. Cal. Corp. Code § 17703.04. Defendants argue that plaintiffs have failed to plead facts sufficient to support an alter ego theory of liability for Mr. Clapper for any claim for relief."

Section 17703.04 is part of California's Revised Uniform Limited Liability Company Act.  Why it should apply to a Delaware corporation is obscure at best.   

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
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Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...

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