Posted October 28, 2013
In Peabody-Waterside
Dev., LLC v. Island of Waterside, LLC, No. 5-12-0490, 2013 WL 4736714 (Ill.
App. Ct. Sept. 3, 2013), the Illinois Court of Appeals ruled that an Illinois
contractor who is also a member in a Limited Liability Company (LLC) may file a
lien against the LLC because the LLC is a separate and distinct entity and not
a joint venture. For a copy of the
decision, please contact the National Agricultural Law Center at nataglaw@uark.edu.
The LLC’s lender made an interesting argument that was
ultimately rejected by the appeals court.
This case is an important reminder for creditors and debtors that a LLC
is a separate entity from its members.
Background:
An LLC member/contractor brought an action against the
LLC for breach of contract and enforcement of a mechanics’ lien to collect
amounts owed for work performed on the LLC’s property. Id.
at *1. At trial the LLC’s lender,
Regions Bank, argued that the lien was invalid because the contractor had
performed work for its own benefit as a co-owner of the property and was
“jointly interested.” Id. at *1-2.
The Circuit Court found in favor of the member/contractor
on the breach of contract claim, but granted summary judgment to the LLC,
holding that the mechanics’ lien could not be enforced because the member was
jointly interested in developing the property.
Id. at 2.
Analysis and Holding
The Illinois Court of Appeals reversed and remanded the
Circuit Court ruling in favor of the member/contractor stating that the
member/contractor is a “separate legal entity” and “does not have any ownership
interest” in the LLC property, thus the mechanics' lien is valid. Id.
at *3.
The court stated that: an LLC is a legal entity
distinct from its members, an LLC member is not a co-owner of the LLC’s
property, a member of an LLC owns only its membership interest in the LLC, and
that sharing in the profits and losses of an LLC does not make the LLC’s
members jointly interested or co-owners of the LLC’s property. Id. The court also noted that joint ventures are
not distinct legal entities. Id.
For more information on business organizations, please
visit the National Agricultural Law Center’s website here. An article on Starting, Organizing, and
Managing and LLC for a Farm Business is available here.
