In the South Carolina case of 16 Jade Street, LLC v. R. Design Construction Company, the court wrestled with the scope of protection from tort liability provided to individual members of a limited liability company. This issue arose when a condominium project owner filed suit against an LLC that acted as the general contractor on a project. The owner also asserted claims against the individual member of the LLC, alleging negligence and breach of warranties as a consequence of defects in the construction of the condominium building. The question raised was whether the Uniform Limited Liability Company Act, under which the LLC was created, shielded the individual member from personal liability for the alleged negligence.
As enacted in South Carolina, the pertinent section of the Uniform Limited Liability Company Act provides that "the debts, obligations, and liabilities of a limited liability company, whether arising in contract, tort, or otherwise, are solely the debts, obligations, and liabilities of the company" and that "a member or manager is not personally liable for a debt, obligation, or liability of the company solely by reason of being or acting as a member or manager."
Acknowledging that the statute’s language may be read to shield a member from personal liability for torts he commits in furtherance of the LLC’s business, the court nonetheless adopted what it characterized as the "majority position" and held that this language only protects non-tortfeasor members from vicarious liability and does not insulate the tortfeasor himself from personal liability for his actions.
The dissent rejected the majority’s approach, finding the statute clear and unambiguous, and not susceptible to the interpretation that a member tortfeasor of an LLC is personally liable for torts committed in the furtherance of the LLC’s business.
As noted in the opinion, there is an emerging split of authority over the scope of the protection afforded under the Uniform Limited Liability Company Act. The approach adopted in South Carolina, limiting the protection to vicarious but not direct liability, appears to remove one of the main reasons contractors and owners create LLCs.
16 Jade Street, LLC v. R. Design Construction Co., LLC, 2012 WL 1111466 (S.C. April 4, 2012).