At Clute & Clute P.C we have over thirty years combined experience being advocates for our clients involved in business litigation in Mobile, Alabama. Whenever the courts issue a significant decision involving business litigation we take an interest. The Alabama State Supreme Court recently issued such a decision that involved a fraud claim. In Target Media Partners Operating Co, LLC v. Specialty Marketing Corp., No. 1091758 (Ala. Dec. 21 2012), Specialty Marketing contracted with Target Media Partners to issue a trucking publication to be placed in truck stops. The contract in question arranged for specific distributions in specific locations. Target agreed to provide the distribution and Specialty agreed to pay Target in exchange for the distribution. During the trial evidence was submitted that indicated Target did not make all the distributions that were required of them under the contract. The evidence offered during trial also revealed that Target sent distribution reports to Specialty that misstated the distributions that were occurring. Specialty sued under both fraud and contract claims. The jury returned a verdict on both claims in favor of Specialty and Target appealed. The Alabama Supreme court reversed the trial court’s decision. Justice Main authored the majority opinion which denied, on two separate grounds, Specialty’s fraud claim. The majority stated their reasoning for rejecting the fraud claim was because Specialty could not have reasonably relied on distribution data which was provided by Target related to its contractual performance. The Supreme Court offered two reasons for this, the first being that despite the fact that Target provided to Specialty distribution spreadsheets containing inaccurate or even fabricated data, for a period of two years after receiving the last such spreadsheet Specialty continued to work with Target under the contract which should have put Specialty on inquiry notice. The second reason offered was a statement of former Justice Houston from the case Deupree v. Butner, 522 So.2d 242, 245 (Ala. 1988) that read “to assert a fraud claim that stems from the same general facts as one’s breach-of-contract claim, the fraud claim must be based on representations independent from the promises in the contract and must independently satisfy the elements on fraud”. The majority concluded that a fraud claim does not lie for misrepresentations of a party regarding the performance of the parties contract obligations. The dissent opinion, which was written by Justice Shaw, argued the evidence of fraud was strong enough for the fraud claim to go before the jury.
The Alabama law governing limited liability companies changed effective January 1, 2015. It is important to understand the changes the new act known as the Alabama Limited Liability Company Law of 2014 makes to the prior LLC law.
SUMMARY OF SIGNIFICANT CHANGES
The new Act recognizes the contractual nature of the limited liability company. Many of the Act’s provision can be changed by agreement of the members to fit their particular needs. If the members do not change these provisions there are many default provisions that become applicable. (The upshot of the mandatory default provisions in the new law require careful preparation of the limited liability company agreement to make certain that members are not inadvertently binding themselves to default provisions they do not wish to follow in their LLC.)
Under the old law many LLC’s were formed without the preparation of what under the old Act was called an Operating Agreement and under the new Act is called the Limited Liability Company Agreement. The filings required to form, dissolve, merge or convert a limited liability company are now designed to simply provide notice to the State and third parties that the limited liability company exists. (What this means is that the details about the limited liability company will now need to be contained in the limited liability company agreement. If you visit the Secretary of State website you will see that the form for creation of an LLC is now very limited underscoring the need for the preparation of a limited liability company agreement.)
The Limited Liability Company Agreement for the LLC will identify the person or persons who will direct and oversee the activities and affairs of the limited liability company will be governed by the limited liability company agreement.
Authority to act. It should be noted that there is no statutory authority to bind the LLC. A person’s authority to bind the limited liability company will be governed by the Limited Liability Company Agreement and the law of agency.
Once again, the limited liability company agreement becomes important in that banking institutions and others dealing with the limited liability company will now likely all require a clear statement of authority in the limited liability company agreement.
Series. A unique feature of the new Act is that it provides for the creation of what is known as series, LLC’s. The Act permits the limited liability company to establish, either through a Certificate of Formation or through its Limited Liability Company Agreement one or more designated series of assets with which certain members may be included. The Act provides that the assets of one series will not be liable for the obligations of the limited liability company or another series. (This of course requires attention in both the Certificate of Formation and in the Limited Liability Company Agreement. It should be noted in the past many people formed a different LLC for each aspect of business which they wanted to engage in. However, it is likely if the series LLC is utilized that an improperly formed series or one which does not comply with the law will face the challenges of an alter ego or piercing the veil claim if suit is brought against it.)
We will be happy to assist you with a review of your current LLC document or the formation of a new LLC.
As Mobile, Alabama Business Lawyers we always pay close attention to significant decisions by the Alabama State and Federal Courts that have an impact on Business Law or Business Litigation in Alabama.
In a case should be of interest to those involved with Business Law, the Alabama Court of Civil Appeals in Evans v. Anderson, No. 2130468 (Ala.Civ. App., March 6, 2015), held that the filing of a foreign judgment in an Alabama court for the purpose of domesticating that judgment did not constitute the filing of a “complaint.” Consequently, a motion to “dismiss” the filing under Rule 12 of the rules of Civil Procedure based on lack of personal jurisdiction was procedurally inappropriate and would be consider a motion filed under Rule 60(b)(4). However, the court also noted that the filing of a “motion to reconsider” with respect to a ruling on what was substantively a Rule 60 motion did not suspend the running of the 42-day time for appeals because Rule 59 motions were not permitted following denials of Rule 60 motions. Thus, when the defendant appealed within 42 day of the court’s denial of the “motion to reconsider” but not within 42 days of the original order of the court denying the motion to “dismiss,” the appeal was untimely and due to be dismissed.