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This assignment is an opportunity to practice the IRAC method of case analysis. First, review the IRAC method if you need a refresher. You can find it under Course Resources.
Read the fact pattern below, then answer the questions that follow.
Case: BLD Products, LTC v. Technical Plastics of Oregon
Facts: Mark Hardie was the sole member of Technical Plastics of Oregon, LLC (TPO). The company operated out of Hardie’s home, and Hardie regularly used TPO’s accounts to pay such personal expenses as landscaping, housecleaning, personal credit card bills, his step-son’s tuition, family vacations, and miscellaneous bills from GI Joe’s, Wrestler’s World, K-Mart, and Mattress World. Hardie deposited cash advances from his personal credit cards to the TPO account. Hardie did not take a salary from TPO. When TPO filed for bankruptcy, it owed BLD Products approximately $120,000 for goods that it had purchased.
BLD argued that the doctrine of piercing the corporate veil of a corporation to hold its shareholders personally liable should apply in this case to the LLC, thus making Hardie personally liable for TPO’s debts.
What is the issue in this case? What question does the court need to answer to resolve the case? Remember to phrase the issue in a question format.
What is the rule of law in this case?
Remember, the rule of law is the legal principle the court relies upon to resolve the issue.
Next, read the Holding of the case below, then complete the exercise that follows.
Holding: Yes, the doctrine of piercing the corporate veil does apply to LLC’s. Yes, Hardie should be personally liable for TPO’s debts. The court concluded that the doctrine of piercing the corporate veil does apply to LLC’s. According to that doctrine, three requirements must be satisfied before a court will pierce the corporate veil and hold shareholders personally liable for the debts of the corporation:
the defendant controlled the debtor corporation;
the defendant engaged in improper conduct; and
as a result of that improper conduct plaintiff was unable to collect on a debt against the insolvent corporation.
According to the court, there is no question that Hardie controlled the corporation. Regarding the second prong, there is substantial evidence of improper conduct, such as comingling assets, and a general disregard of TPO’s LLC form and status as a separate legal entity. Hardie frequently, and in significant amounts paid his personal expenses from the TPO business account. There is inadequate documentation about how funds flowed between Hardie, as an individual, and TPO. Hardie treated TPO and its assets as his personal funds.
The third prong of the test is whether Hardie’s improper conduct resulted in BLD being unable to collect on its debt. The court could not be determined as a matter of law whether the inability to pay $120,000 owed to BLD was due to Hardie’s improper conduct over the years. As a result, the court granted partial summary judgment that BLD is entitled to pierce the corporate veil, making Hardie personally liable, but that the amount for which Hardie is liable will have to be determined by a jury.
Underline the text that illustrates the rule of law in this case.
Highlight the text that illustrates the court’s analysis of the case in a color of your choice.
What was the court’s conclusion in this case?
Question: If Hardy was the only member of the LLC, why does it matter that he used LLC money to pay for his personal expenses?
General Question: Piercing the corporate veil is a very difficult argument to win and courts usually warranted in extraordinary circumstances. Why do you think that is so?
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