SB 422 — Establishing common law "veil piercing" claims not be used to impose personal liability

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Red = new code to be enacted WEST virginia legislature regular session IntroducedCommittee Substitute for Senate Bill 422 By Senator Trump [Introduced[Originating Februaryin 23,the 2021;Committee on the Judiciary;

referredreported toon theMarch Committee16, on2021] the  Judiciary]  A BILL to amend and reenact §31B-3-303 of the Code of West Virginia, 1931, as amended, relating to establishing that the intent and policy of the Legislature is that common law corporate “veil piercing” claims may not be used to impose personal liability on a member or manager of a limited liability company;

(a) Except as otherwise provided in subsection (c) of this section, the debts, obligations, and liabilities of a limited liability company, whether arising in contract, torttort, or otherwise, are solely the debts, obligations, and liabilities of the company.

(3) AsThere tois aany tax liability of the limited liability company, which the law of the state or of the United States imposes liability upon the member;

or (4) The member commits actual or constructive fraud which causes injury to an individual or entity.entity;

or (5) There is any fine, fee, or penalty assessed to the limited liability company pursuant to local, state, or federal law.

— In circumstances where the members of a limited liability company are, in whole or in part, corporations, limited  liability companies, or other entities which  are not human beings, then, if a jury shall determine that the liability of a limited liability company sounding in tort arose as part of the activities of a joint enterprise, those entities which are part of the joint enterprise with the limited liability company may be liable for the liability of the limited liability company which arose as part of the business operations of the joint enterprise, not as a piercing“piercing of the veil,veil”, but instead under the doctrine of joint enterprise liability.

In such circumstance, the liability of a member is not through veil“veil piercing,piercing”, but rather primary, as against any tortfeasor.

The wrongful acts which will justify clawback (but not veil“veil piercing)piercing”) are:

(1) “Conflicted exchange” means a transfer of money or other property from a limited liability company to a member of the limited liability company (or to any other organization in which the member has a material financial interest) in exchange for services, goods, or other tangible or intangible property of less than reasonable equivalent value.

(2) “Insolvency distribution” means a transfer of money or other property from a limited liability company to a member of that limited liability company (or to any other organization in which the member has a material financial interest), in respect of the member’s ownership interest, that renders the limited liability company insolvent.

(3) “Insolvent” means, with respect to a limited liability company, that the limited liability company is unable to pay its debts in the ordinary course of business.

(4) “Siphoning of funds” means whether the manager or majority member has siphoned funds from the limited liability company in violation of the articles of organization, the operating agreement, or this article.

  NOTE:

The purpose of this bill is to establish that the intent and policy of the Legislature is that common law corporate “veil piercing” claims may not be used to impose personal liability on a member or manager of a limited liability company;

and nullifying the Supreme Court of Appeals of West Virginia’s decision in Joseph Kubican v.

The Tavern, LLC.

232 W.Va.

268, 752 S.E.2d 299 (2013).

Strike-throughs indicate language that would be stricken from a heading or the present law, and underscoring indicates new language that would be added.