In CB Richard Ellis Inc. v. Terra Nostra Consultants the California Court of Appeal for the Fourth Appellate District decided an interesting issue concerning the liability of an LLC member for a fee award imposed against the defunct entity, a Limited Liability Company (“LLC”).

CB Richard Ellis Inc. (CBRE) entered into a real property listing agreement with Jefferson 38 LLC (“Jefferson”).  Jefferson agreed to pay CBRE a 6 percent sales commission upon successful closing on a piece of land.

Jefferson began negotiating with a potential buyer, who eventually purchased the property for a multi‑million dollar sum. Jefferson failed to pay CBRE any commission on the sale. Subsequently, CBRE initiated arbitration against Jefferson to seek payment of its contractual commission. After successfully obtaining an award against Jefferson, CBRE filed a complaint against the individual members of Jefferson to enforce the award as the LLC had been dissolved. CBRE asserted claims for breach of contract and sought other forms of relief as well.

The jury found that Jefferson breached the contract with CBRE by failing to pay the promised commission. The jury also found that the LLC had been purposely dissolved and that a financial distribution had been made to the LLC members upon the dissolution. The jury awarded CBRE $354,000 and the court subsequently concluded that each LLC member was liable up to the amount distributed upon dissolution of the LLC. However, the trial court denied CBRE’s motion for attorney fees.

CBRE appealed the decision denying attorney fees and the court of appeal reversed. The court noted that pursuant to former Corporations Code § 17355(a)(1)(B), causes of action against a dissolved limited liability company may be enforced against its members, if any of the assets of the dissolved company have been distributed to members upon dissolution. 

Based on the jury’s finding that Jefferson was dissolved and that the assets were distributed to its members, the court of appeal reasoned that the LLC members became parties to the contract with CBRE as a matter of law. On this basis, the court of appeal concluded that attorney fees were recoverable pursuant to former Corporations Code § 17355.