## Facts

- Randall Handy, Michael Ginsburg, and Larry McKinley contracted to buy undeveloped Delaware land for a residential project and obtained a wetlands-related environmental determination indicating wetlands that reduced development potential.
- After abandoning the subdivision plan, Pepsi-Cola Bottling Company of Salisbury, Maryland sought the land for a bottling facility and obtained an option to purchase, with Handy acting for the sellers.
- During the option period, Pepsi’s consultant sent Handy an environmental questionnaire.
- Pepsi alleged Handy falsely stated that there were no wetlands on the property and that no relevant analytical tests or inspections had been performed, despite the prior wetlands-related determination.
- About two weeks after Pepsi obtained the option, Handy, Ginsburg, and McKinley formed Willow Creek Estates, LLC to hold and sell the property.
- Willow Creek bought the land for about $174,000 and, four months later, sold it to Pepsi for about $455,000, generating about $281,000 profit.
- Pepsi later discovered wetlands were present and sued for rescission, fraud, unjust enrichment, and related equitable relief against the LLC, a related corporate entity, and the individuals.
- The individual defendants moved to dismiss, arguing Delaware LLC limited liability barred personal liability and confined any claim to the LLC.

## Issues

1. Whether alleged fraudulent misrepresentations made by individuals before an LLC’s formation can support personal liability when the later sale is conducted through the LLC.
2. Whether the Delaware LLC Act’s limited liability provisions bar personal liability for a member’s own alleged fraud connected to an LLC transaction.

## Decision

- The Court of Chancery denied the individual defendants’ Rule 12(b)(6) motion to dismiss.
- The court held the complaint stated claims permitting personal liability against the individuals for their own alleged fraudulent conduct, notwithstanding later use of an LLC to consummate the transaction.
- The court allowed Pepsi’s claims against the individuals, including fraud-based and equitable claims such as unjust enrichment and rescission-related relief, to proceed past the pleading stage.

## Legal Principles

- Delaware LLC limited liability protects members from being liable solely by reason of membership for the LLC’s obligations, but it does not immunize members from liability for their own torts, including fraud.
- Alleged wrongful conduct occurring before an LLC exists cannot be insulated retroactively by forming the LLC and routing the transaction through it.
- When liability is based on a defendant’s direct misrepresentations or other personal misconduct, a plaintiff need not plead veil-piercing to pursue the individual actor.

## Conclusion

The court refused to treat LLC status as a bar to personal liability where the complaint alleged that individuals, before forming an LLC, made material misrepresentations that induced an inflated real estate purchase and then used the LLC to complete the sale and capture the profit.


Pepsi-Cola Bottling Co. of Salisbury, Md. v. Handy, 2000 WL 364199 (Del. Ch. Mar. 15, 2000)