OFFICERS OF LLC COULD BE PERSONALLY LIABLE FOR MALFEASANCE THROUGH PARTICIPATION IN TORTIOUS MISAPPROPRIATION OF TRADE SECRETS
Defendants, officers of a limited liability company, could be held liable for any of their malfeasance alleged in plaintiff’s complaint through the participation theory of liability, including allegations that they created a new LLC with the sole purpose of diverting customers away from the original LLC and used trade secrets misappropriated from that entity. The court overruled in part defendants’ preliminary objections.
Defendant John Warren Jr. created JR Warren Electrical Contacting Inc., or JRW Electrical, in May 2012. Plaintiff, who began working for JRW Electrical in late 2013, received a 15 percent ownership interest in the company in the fall of 2014. Plaintiff and Warren entered into a shareholder’s agreement granting each a 50 percent interest in the company. However, in late 2017, plaintiff told Warren that he planned to withdraw as shareholder and made a financial demand concerning his ownership interest. According to plaintiff, Warren then withheld his salary, changed relevant passwords, advised customers that plaintiff was no longer with the company and sent a letter purporting to terminate plaintiff’s employment. Thereafter, Warren and defendant Michael DaSalvatore created defendant MD Warren Electric, LLC. According to plaintiff, these defendants diverted customers from JRW Electrical. He also alleged that defendants created the new company to avoid outstanding corporate debts, including some on which plaintiff was a co-debtor. Thus, plaintiff filed a complaint asserting claims of intentional interference with business relations, interference with prospective contractual relations, and, inter alia, civil conspiracy. Here, the court of common pleas addressed defendants’ several preliminary objections. Defendants Warren and DiSalvatore argued, inter alia, that they were immune from suit because plaintiff’s claims arose from their alleged actions as agents for officer of a limited liability company. A corporate office cannot be held liable for action of the limited liability company, buy may be held liable for actively participating in tortious conduct, the court observed, citing Shay v. Flight C. Helicopter Services, Inc. This participation theory imposes liability upon an individual as an actor for his participation in the tortious activity rather than as an owner of the company. “The general, if not universal, rule is that an officer of a corporation who takes part in the commission of a tort by the corporation is personally liable therefore,” the opinion noted, citing Wicks v. Milzoco Buildings, Inc. The participation theory requires active participation in the alleged tortious conduct by a corporate officer; thus, a plaintiff may only recover for the officer’s malfeasance. The court addressed relevant case law applying the theory and found that Warren and DiSalvatore could be held liable for any of their malfeasance alleged in plaintiff’s complaint through the participation theory of liability, including allegations that these defendants created a new LLC with the sole purpose of diverting customers and, inter alia, used trade secrets misappropriated from JRW Electric. As such, the court overruled the preliminary objection asserting that plaintiff’s claims against Warren and DiSalvator were barred because they were acting in their capacity as agents of the LLC.
Ref: Digests of Recent Opinions, Pennsylvania Law Weekly, 42 PLW 1010, Tuesday, October 22, 2019 Faustino v MD Warren Elec., LLC et al, PICS Case No. 19-1193 (C.P. Lawrence Sept. 23, 2019)
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