A recent decision from the Appellate Division of the Massachusetts State Court illustrates the dangers of a business either incorporating or creating a limited liability company and then not disclosing that fact to people with whom they contract. Often individuals decide to create a corporation or a limited liability company and register it with the secretary of state’s office in the state where they do business so that they may avoid personally liability for debts of the company. In the case of Keane v. Waggoner, the Keanes purchased a miniature long-haired dachshund bred by Vom Daxi Haus, LLC; a Wisconsin company owned by Jacqulyn and Mark Waggoner. The Keanes alleged that they were deceived as to the dog’s pedigree and sued the Waggoners in small claims court in Massachusetts. The Waggoners removed the case to the Cambridge District Court and, among other things, sued the Keanes under the Waggoner’s limited liability company, Vom Daxi Haus, LLC for breach of contract alleging that the Keanes had failed to honor the company’s breeding rights of the dog as reserved under the terms of the sales agreement. The judge dismissed the fraud claims against the Waggoners on the grounds that they were immunized from personal liability since they operated within an LLC. The Keanes asked the judge at trial to remove the case from a potential jury’s verdict stating that there was insufficient evidence that the company was a party to the contract. The contract listed the seller as Jacqulyn Waggoner without any indication of a representative capacity and they had no other knowledge that she was acting as an agent of the LLC. The judge denied that motion and the jury returned a verdict in favor of the LLC on the breach of a contract. On appeal, the Appellate Division decided that the breach of contract claim should not have gone to the jury because there was insufficient evidence that the LLC was a party to the contract and further revived the Keanes’ fraud claims against the Waggoners for the same reasons. Simply put, individuals cannot enter into contracts for their LLC business without disclosing to the other contracting party that they are dealing with a limited liability company and not individuals. If the Waggoners had entered into the sales agreement under the LLCs name and signed the contract as a member or manager of the LLC, the case would have had a substantially different outcome. The net effect was a lot of wasted time and money and potential exposure of the Waggoners because they did not let the Keanes know that the Waggoners planned on the Keanes doing business with a limited liability company.
J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].