Early this month, the United States District Court for the Middle District of Pennsylvania decided Gentex Corp. v. Abbott, Civ. A. No. 3:12-CV-02549, (M.D.Pa. 10-10-2013). The outcome of the case is not really objectionable (to me), but some of the language in the opinion is. As with many courts, this court conflates LLCs and corporations, which is just wrong. The court repeatedly applies “corporate” law principles to an LLC, without distinguishing the application. This is a common practice, and one that I think does a disservice to the evolution of the law applying to both corporations and LLCs.
I noted this in a Harvard Business Law Review Online article a while back:
Many courts thus seem to view LLCs as close cousins to corporations, and many even appear to view LLCs as subset or specialized types of corporations. A May 2011 search of Westlaw’s “ALLCASES” database provides 2,773 documents with the phrase “limited liability corporation,” yet most (if not all) such cases were actually referring to LLCs—limited liability companies. As such, it is not surprising that courts have often failed to treat LLCs as alternative entities unto themselves. It may be that some courts didn’t even appreciate that fact. (footnotes omitted).
To be clear, though, Pennsylvania law applies equitable concepts, such as piercing the corporate veil, to LLCs. Still, courts should not discuss LLCs as though they are the same as corporations or improper outcomes are likely to follow. When dealing with LLCs, the concept should be referred to as “piercing the LLC veil” or “piercing the veil of limited liability.” Instead, though, courts tend to discuss LLCs and corporations as equivalents, which is simply not accurate.
Kindly go read the whole thing.