October – December 2011

LLC Cases: Wehlage v. Empres Healthcare Inc.

821 F.Supp.2d 1122 (N.D. Cal. 2011)

A nursing home resident sued the facility where she resided and various other entities, including several Washington LLCs, for violations of California health and safety, unfair competition, and consumer protection statutes. The plaintiff sought to hold the LLCs liable as alter egos of the facility. The plaintiff claimed that California law applied to the alter ego claims against the LLCs because the admission agreement between the plaintiff and the licensee had a choice-of-law clause specifying that the agreement was governed by the law of the state where the facility was located, but the court held that the alter ego issue was collateral to the admission agreement. The plaintiff also argued that the California LLC statute, Continue reading →

July -September 2011

LLC Cases: CML V, LLC v. Bax

28 A.3d 1037 (Del. 2011)

The Delaware Supreme Court agreed with the chancery court in this case that creditors of an insolvent Delaware LLC do not have standing to sue derivatively for breach of fiduciary duty to the LLC. A creditor of an insolvent LLC asserted derivative claims on behalf of the LLC for breach of fiduciary duty by the managers in connection with certain acquisitions and sales by the LLC. The chancery court dismissed the claims for lack of standing because the Delaware LLC statute states that the plaintiff in a derivative suit must be a member or assignee. The supreme court found the language of the Delaware LLC statute unambiguously limited derivative standing to members and assignees and thus affirmed the chancery court’s judgment. Continue reading →

April 2011 – June 2011

LLC Cases: United States v. Roe

421 Fed. Appx. 881 (10th Cir. 2011).

Kelly and Christopher Roe challenged IRS summonses issued to them as members of Roe Ecological Services, LLC. The affidavit of the agent who issued the summonses stated that the summonses were issued to aid in the determination of the LLC’s taxable income for specified calendar years and that the members of the LLC would be taxed on the LLC’s taxable income because the LLC was a pass-through entity, a purpose the court stated facially fell within the authority of the IRS to examine records and other data that may be relevant to determining the liability of any person for any internal revenue tax. Continue reading →

January 2011 – March 2011

LLC Cases: Affco Investments 2001, L.L.C. v. Proskauer Rose, L.L.P.

625 F.3d 185 (5th Cir. 2010).

The plaintiffs invested in a complex tax avoidance scheme that was later disallowed by the IRS. The plaintiffs sued a number of defendants, including the law firm of Proskauer Rose, L.L.P. (“Proskauer”), asserting claims under RICO and the Securities Exchange Act of 1934. The tax avoidance scheme involved investments in LLCs, and the district court dismissed the RICO claim on the basis of the Private Securities Litigation Reform Act, which bars civil RICO claims based on predicate acts of securities fraud. The plaintiffs argued that Continue reading →