## Facts

- K.C. Properties of N.W. Arkansas, Inc. (KC) and Lowell Investment Partners, LLC (LIP) formed Ozark Mountain Water Park, LLC (Ozark) to develop and operate a water park in Lowell, Arkansas.
- Under Ozark’s operating agreement, LIP held a 51% interest and KC held 49%; Pinnacle Management Services, LLC (PMS) served as Ozark’s manager.
- The proposed water-park site was part of a 34-acre tract owned by Pinnacle Hills Realty (PHR), an affiliated entity with overlapping ownership and management among several LLCs and individual principals.
- PHR agreed to sell approximately 16.58 acres to Ozark for $3,000,000, and on the same date Buildings, Inc. (Buildings) contracted with Ozark to construct the park on a cost-plus-6% basis.
- Shortly thereafter, PHR instead contracted to sell the entire 34-acre tract to a third party for $8,250,000, and the property was sold; the water-park project did not proceed on the contemplated site.
- KC alleged diversion of a real-estate opportunity harmed Ozark and, derivatively, KC; Buildings alleged loss of its expected 6% profit under the construction contract.
- KC and Buildings sued multiple defendants (including LIP, PMS, PHR-related entities, and individual principals) for breach of contract and breach of fiduciary duty, and sought to impose liability across affiliated entities.
- The circuit court granted summary judgment for all defendants on all claims; KC and Buildings appealed.

## Issues

1. Whether Ark. Code Ann. § 4-32-304 bars an LLC member from suing another member or the manager for breach of contract and breach of fiduciary duty, including claims based on gross negligence or willful misconduct.
2. Whether defendants other than the contracting/manager entities could be held liable based on affiliated ownership/management, agency, or related theories.
3. Whether the plaintiffs could pierce LLC/corporate veils to reach affiliated LLCs and individual principals based largely on common membership and management.

## Decision

- The Arkansas Supreme Court reversed the summary-judgment order and remanded for further proceedings.
- The court held the circuit court erred by treating Ark. Code Ann. § 4-32-304 as a categorical bar to intra-LLC claims for breach of contract or fiduciary duty.
- The court rejected attempts to impose liability on nonparty affiliates and individual principals absent privity, a recognized duty, or facts justifying disregard of entity separateness.
- The court held overlapping ownership and management alone did not support veil-piercing or cross-entity liability.

## Legal Principles

- Ark. Code Ann. § 4-32-304 functions primarily as a liability shield against third-party claims and does not immunize members or managers from liability for their own gross negligence, willful misconduct, breach of fiduciary duty, or direct contractual breaches asserted by other members.
- Contract liability generally requires privity; entities or individuals not party to an agreement are not liable for its breach merely because they are affiliated with a contracting party.
- Corporations and LLCs are separate legal entities even when they share owners and managers; common control alone does not create liability across entities.
- Veil-piercing is an exceptional remedy requiring specific proof of misuse of the entity form (e.g., fraud or illegality); common membership and management, without more, is insufficient.
- Summary judgment is improper where legal interpretations are incorrect or where claims are foreclosed by an overbroad reading of statutory protections.

## Conclusion

The court held that Arkansas’s LLC liability-shield statute does not bar members from suing other members or managers for their own wrongdoing, but it limited potential liability to parties in privity or with direct duties and refused to impose cross-entity or personal liability based only on overlapping ownership and management; the case was reversed and remanded.


K.C. Properties of N.W. Ark., Inc. v. Lowell Inv. Partners, LLC, 280 S.W.3d 1 (Ark. 2008)