Real estate owners and developers often form limited liability companies (LLCs) to shield themselves from liability. Is this an effective means to accomplish this purpose? Curiously, the New York case law had little to say on this issue until a 2016 Second Department decision. In Board of Managers of Beacon Tower Condominium v. 85 Adams Street, 136 A.D.3d 680 (2d Dep’t 2016), the court refused to dismiss an action in common law fraud against the managing member of the sponsor LLC, as well as its principal, because the plaintiff had sufficiently pleaded they directly participated in the commission of the alleged tort.
New York Limited Liability Company Law provides that “[n]either a member, a manager nor an agent of a limited liability company … is liable for any debts, obligations or liabilities of the limited liability company …, whether arising in tort, contract or otherwise, solely by reason of being such member, manager or agent or acting … in such capacities or participating … in the conduct of the business of the limited liability company.” This provision appears to provide a shield from liability, until the common law “participation” standard for individual liability for tortious conduct is considered.
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