Case Update: Serio v. Baystate Properties, LLC — If No Fraud, Then No Piercing the Corporate Veil

A builder, through his company, entered into a contract with Owner, as the managing member of Owner’s LLC (SMLLC). The contract indicated that the builder would build two houses on Owner’s properties and both parties agreed to waive personal liability for one another.

The Builder completed two homes, the Owner sold both properties, but the Owner did not put the sale proceeds into the SMLLC’s account.

The builder sued Owner and the SMLLC in Maryland state court, and the SMLLC filed for bankruptcy. The trial court pierced the veil and entered judgment against the owner for $141,000. Owner appealed, arguing that there was no fraud, thus no reason to pierce the corporate veil.

Maryland law recognizes veil piercing “where it is necessary to prevent fraud or enforce a paramount equity.” A survey of case law clarifies when the state recognizes veil piercing even more because cases have essentially wiped out the “or enforce a paramount equity” provision. Absent fraud, the corporate veil cannot be pierced.

In Serio v. Baystate Properties, LLC, the appellate court did not find any evidence of fraud. The builder knew he was dealing with an LLC, and furthermore, owner and builder explicitly agreed to contract away personal liability. One thing this case demonstrates that if you’re signing on behalf of an LLC, you should always sign as managing member to avoid personal liability – it can protect you in many circumstances.

See Jay Adkisson, Serio: Corporate Veil of Single-Member LLC Holds Up In Maryland to Protect Owner In Absence of Fraud, Forbes, May 1, 2012also Serio v. Baystate Properties, LLC, 39 A.3d 131 (March 8, 2012).

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.