2000 WL 364199 (Del. Ch. 2000)
-Pepsi (P) sought to purchase from the defendant LLC an undeveloped parcel of land. The individual LLC-member defendants, before forming the LLC, had originally purchased the property for a residential development.
-When they learned it included wetlands, they decided to sell it, advertising it as having "excellent development potential."
-Handy (D), who eventually became a member and manager of the LLC, falsely represented to Pepsi (P) that no soil tests had been performed, and that there was no information about the wetlands.
-The LLC was ultimately formed to purchase and then resell the property.
-Pepsi entered into an option to purchase the property for the construction of a bottling facility, unaware of the wetlands.
-The LLC, which had purchased the property for $174,000, sold it to Pepsi (P) for $455,000. When Pepsi (P) learned that the property included wetlands, it brought an action for rescission and damages.
-The individual members of the LLC moved to dismiss the claims against them, arguing that there could be no recovery against them under limited liability company laws.
-If a person makes material misrepresentations to induce a purchaser to buy a parcel of land at a price far above fair market value and thereafter forms an LLC to purchase and hold the land, can that person later claim that his status as an LLC member protects him from liability to the purchaser?
Section 18-303(a) does not protect members from all fraudulent activities done before the LLC was formed.
-The P must pierce the veil of the LCC or show that the LLC became insolvent from a distribution and since none of these have occurred P has no law suit against them. Section 18-303(a) protects members and managers of an LLC solely by reason of being or acting as members of managers.
-The phrase "solely by reason of being a member" does imply that there are situations where LLC members and managers would incur liability outside the statute.
-The issue here is if Ds are being sued solely by reason of being a member of the LLC. It is clear that Ds committed fraudulent acts prior to the formation of the LLC.
-P and Handy negotiated to purchase the property 2 weeks prior to the formation of the LLC. At this time, Handy knew of the wetlands and knew that P was going to build a bottling facility.
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