Can The Owner of LLC Also Be A Defendant in a Tort Action Against the LLC?

The plaintiff in Akers v. McLemore Auction Co., LLC, No. M2012-02398-COA-R3-CV (Tenn. Ct. App. May 27, 2014) chose to hire an auction company to sell his real and personal property that the plaintiff valued at more than $350,000, but chose to go pro se in suing the auction company. That might explain why the appellate opinion needed ten pages to summarize – and affirm – the trial court’s Tenn. R. Civ. P. 12.02(6) dismissals on the plaintiff’s four claims against more than twenty defendants.

One potentially helpful nugget for other cases is the appellate court’s discussion of the dismissal of claims against an individual defendant affiliated with the auction company. The plaintiff alleged, in pertinent part, that the individual defendant was a “person” who called himself the auction company’s President, but who was really the sole member of the auction company’s LLC. The trial court dismissed the claims against the individual defendant under Rule 12.02(6), finding there were no facts to support the plaintiff’s allegation that the defendant “was acting outside his capacity as agent for [the auction company] at any time.”

The Court of Appeals concluded that the trial court erred on this point. A trial court is bound to review only the complaint for purposes of Rule 12.02(6), and nothing in the complaint alleged that the individual defendant was ever acting on behalf of the auction company. For this reason, he should not have been dismissed.

At trial, however, the same claims that the plaintiff made against the individual defendant – negligent and professional misrepresentation – were tried against the auction company, and resulted in a defense verdict. Since the trial court had concluded that any conduct by the individual defendant must be imputed to the auction company as his principal, that meant the plaintiff effectively lost on the proof anyway. Accordingly, the Court of Appeals affirmed the trial court in all respects.

I am not sure why the trial court would dismiss the individual defendant even if the individual was alleged to be acting in the course and scope of his agency relationship with the company. For tort claims like misrepresentation, a plaintiff may sue the principal, the agent, or both. An agent cannot evade personal financial responsibility for torts like misrepresentation merely because it was committed partly or fully for the benefit of the principal. The result in this case, though, is still the same – the misrepresentation claims were tried by the plaintiff and lost on the facts, and there’s no reason for a do-over.