Sole LLC owner can be individually liable under VCPA

The sole member of a limited liability corporation, as a professional, may be individually liable for his own wrongful acts as a “supplier” under the Virginia Consumer Protection Act, the Fairfax County Circuit Court has ruled.

Justin Luna purchased a car that he later learned had structural rust from Autobahn Motors LLC, a single-member entity owned by Shams Behgoman.

Luna sued Autobahn and Behgoman under the VCPA. A jury issued a verdict in Luna’s favor.

Behgoman moved to strike Luna’s claims against him individually because the LLC sold the car, not him. The court took the motion under advisement prior to the verdict and then denied it.

“Behgoman’s fraudulent misrepresentations to Luna caused him to be liable to Luna for his own fraudulent acts under the VCPA,” Judge David A. Oblon wrote. “His personal liability is separate and distinct from his LLC’s violation.”

The 8-page opinion is Luna v. Autobahn Motors LLC (VLW 026-8-015).

While the decision is not precedential, it remains important, said John Cole Gayle Jr. of The Consumer Law Group in Richmond because it gives credence to the liability of individuals in LLCs.

“This is another weapon in our arsenal — which isn’t very big — against companies and LLCs that have an ability to insulate themselves from liability,” he said.

Thomas R. Breeden of Manassas, who represented Luna, did not respond to a request for comment. Neither did Winchester attorney Phillip S. Griffin II, who represented the defendants.

Car sold with rust

Autobahn purchased a used car at an auction. The auction house informed Autobahn that the car had structural rust.

When Autobahn later sold the car to Luna, it did not disclose the defect to him. Behgoman was Autobahn’s salesman and made all the representations and omissions to Luna. Despite his knowledge that the car had structural rust, Behgoman vouched for the quality of the car.

After Luna purchased the car, it immediately began having problems. When he took the car to a mechanic, Luna learned of the structural rust, among other defects.

He sued Autobahn and Behgoman, individually, for fraud and violations of the VCPA.

A jury issued a verdict in favor of Luna and against Autobahn and Behgoman on Luna’s claims under the VCPA, but the jury found Luna did not prove his claims of fraud.

Before the verdict, Behgoman moved to strike Luna’s claims against him individually, arguing that since Luna never sought to pierce the corporate veil, he could not reach Behgoman individually for his acts on behalf of Autobahn.

The court took the motion to strike under advisement until after the verdict was issued.

Liability attaches

While LLC members are generally not personally liable for the actions of their LLC, this liability protection is not absolute. The court explained that the Supreme Court of Virginia has reasoned that because companies and their employees are jointly liable for an employee’s wrongful acts, where an employee’s wrongful acts led to a company’s wrongful contractual act, the employee has personal liability for the wrongful acts.

Harmonizing this precedent with the statute, the court noted that Va. Code
§ 13.1-1019 proscribes personal liability of LLC members “solely by reason of being a member.

“In cases of torts committed by a member, liability attaches for something beyond ‘solely’ being a member — it is because of the wrongful act,” the court wrote. “So, for example, in a two-member LLC where only one member commits a tort, the innocent member enjoys liability protection because his liability would derive solely because of his membership. In contrast, the tortfeasor-member’s liability derives from his tort plus his membership.”

Consistent with this logic, corporate officers are individually liable to third parties for participating in or assenting to torts committed by them or their corporation, and plaintiffs are not required to formally pierce the corporate veil.

Applying these principles, the court noted that Behgoman falsely assured Luna that the car was in good shape.

“Behgoman did not disclose to Luna that the car suffered structural rust,” the court said. “Behgoman’s false statement and his factual omission triggered Luna’s VCPA claim against him individually. Luna sued Behgoman for Behgoman’s own fraudulent acts, not because of his status as the single member of Autobahn. Behgoman forfeited his individual liability protection by his own tort.”

‘Supplier’ under VCPA

Luna also had to prove that Behgoman was a “supplier” under the VCPA, which defines the term as “a seller, lessor, licensor, or professional that advertises, solicits, or engages in consumer transactions, or a manufacturer, distributor, or licensor that advertises and sells, leases, or licenses goods or services to be resold, leased, or sublicensed by other persons in consumer transactions.”

By counsel, Behgoman admitted he is a “licensed dealer” at the argument on the motion to strike.

“Thus, by a plain reading of the ‘supplier’ definition, Behgoman is a ‘supplier,’” the court wrote. “He is a ‘professional’ because he is licensed as one. He engaged in ‘consumer transactions’ by offering for sale a car for Luna’s personal purposes. He committed VCPA fraud by misrepresenting the quality of the car.”

Behgoman contended that the statute meant a professional who engaged in consumer transactions on behalf of another — in this case his company — was excluded from the definition of “supplier” because his company sold the car, not him.

“However, that is not what the statute reads, certainly not if the Court, as it must, applies remedial deference to the statutory interpretation,” the court wrote. “The statute already applies the VCPA to the company in the first class of ‘suppliers’ — the company is a ‘seller’ in that class because it was the entity that transferred title for consideration.

“However, because Behgoman is a qualifying ‘professional’ who offered the car for sale to Luna, he also engaged in a consumer transaction. Thus, he is a supplier that is subject to the VCPA. The statute is not limited as Behgoman asserts.”

The court granted the motion to strike; it also awarded Luna $78,594.75 in attorney fees and $14,211.52 in costs.

Luna v. Autobahn Motors LLC

THE ISSUE     Is the sole member of a limited liability corporation individually liable for his wrongful acts under the Virginia Consumer Protection Act?

ANSWER       Yes (Fairfax County Circuit Court)

Attorneys Thomas R. Breeden, Thomas R. Breeden PC, Manassas (plaintiff)
Phillip S. Griffin II, Griffin Law, Winchester (defendant)

• Luna v. Autobahn Motors LLC