To Pierce the Liability Veil of an LLC or Not to Pierce the Liability Veil of an LLC? That is the Question of ORX v. MBW

Abstract

This article discusses the issue of piercing the liability veil of a limited liability company (LLC). There has been much controversy over whether the veil of a limited liability veil can be pierced. If so, then the next issue is which test to use in finding an individual member of an LLC personally liable. The major objective of this article is to look at these problems within the context of the Louisiana Fourth Circuit Court of Appeal case ORX Res., Inc. v. MBW Exploration. The author examined decisions in different Louisiana circuits and the factors that different Louisiana courts deemed important. Some courts decided that fraud was an essential to the finding of personal liability of a member. On the other hand, a new progressive movement has come and implemented a totality-of-the- circumstances test, which is used for piercing the liability shield of a corporation. This new progressive test was used in ORX Res., and the single member was found to be liable for the debts of the LLC. The author found that even though there was a statutory argument that piercing the liability veil of an LLC was not allowed the totality of circumstances was the best test to determine personal liability of an LLC member. The author agrees with the court’s decision as a whole because the extraordinary circumstances of the case should have led to the individual member being personally liable. However, the author did not agree with all the points made by the court. The author felt there were some key aspects that the court left out, such asking the individual to sign a personal guarantee. In conclusion, the Louisiana Supreme Court will ultimately have to decide these pending issues surrounding personal liability of an individual member of an LLC.