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.
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