Pannell v. Shannon
425 S.W.3d 58
| Ky. | 2014Background
- Ann Shannon was sole member of Elegant Interiors, LLC, which leased commercial space in 2004; Shannon signed the original lease on behalf of the LLC.
- The LLC was administratively dissolved in Nov. 2005 for failure to file/pay; Shannon and landlord Rick Pannell executed a release and a revised lease on March 2, 2006 (release mentioned only Shannon; the revised lease named Elegant Interiors, LLC as Tenant and was signed by Shannon with a "By" preceding her signature).
- Elegant Interiors defaulted on rent for June–July 2006; Pannell sued the LLC and Shannon individually, alleging she signed personally, exceeded authority while the LLC was dissolved, and arguing veil-piercing.
- Shannon reinstated the LLC with the Secretary of State on Aug. 11, 2006 (certificate of existence cancelling the dissolution), and moved for summary judgment asserting statutory immunity for members/agents of LLCs.
- Trial court granted summary judgment for Shannon; Court of Appeals affirmed; the Supreme Court of Kentucky granted review and affirmed, holding Shannon signed in a representative capacity and reinstatement related back to preserve limited-liability protection and agent authority.
Issues
| Issue | Pannell's Argument | Shannon's Argument | Held |
|---|---|---|---|
| Whether Shannon signed the lease/release in her individual capacity | The release used only "Ann Shannon" and the lease cover referenced Shannon; thus she bound herself personally | The lease expressly names Elegant Interiors, LLC as Tenant; signature line preceded by "By" and integration clause shows representative signing | Shannon signed in representative capacity; lease bound the LLC, not Shannon personally |
| Whether administrative dissolution stripped member/agent immunity for acts during dissolution | Dissolution meant no LLC existed, so Shannon personally liable for obligations she incurred during that period | Reinstatement statute relates back, making reinstatement retroactive and preserving immunity | Reinstatement relates back; statutory immunity under KRS 275.150 preserved if reinstatement occurs before final judgment |
| Whether an agent (officer/member) who acts during dissolution is personally liable for acting without authority | Agents who act during dissolution exceed authority and can be held personally liable (relying on some authority) | Reinstatement retroactively preserves authority; agent status alone does not create liability | Agent immunity applies where liability is alleged solely because of agent status; reinstatement retroactively supplies/never lapses authority, so no personal liability here |
| Whether parol evidence/scrivener’s-error/merger arguments can convert LLC obligation into personal obligation | The release and ambiguous documents permit parol evidence or reformation to show parties intended Shannon personally | The lease’s integration clause, express naming of the LLC, and lack of clear, unequivocal personal-guarantee language foreclose reformation or parol evidence to impose personal liability | No reformation or parol evidence could overcome the clear lease terms and merger clause; no unequivocal written waiver of immunity was shown |
Key Cases Cited
- Racing Investment Fund 2000, LLC v. Clay Ward Agency, Inc., 320 S.W.3d 654 (Ky. 2010) (statutory scheme disfavors imposing personal liability on LLC members absent unequivocal agreement)
- Turner v. Andrew, 413 S.W.3d 272 (Ky. 2013) (an LLC is distinct from its member and single-member status alone does not justify treating member as proper party solely by reason of membership)
- Fairbanks Arctic Blind Co. v. Prather & Associates, Inc., 198 S.W.3d 143 (Ky. Ct. App. 2005) (reinstatement validates interim corporate acts; reinstatement relates back to dissolution date)
- Moore v. Occupational Safety & Health Review Comm’n, 591 F.2d 991 (4th Cir. 1979) (discussing common-law rule that directors/officers could be liable for acts during dissolution and that statutory text controls outcome)
- Nichols v. Nichols, 205 S.W. 953 (Ky. 1918) (reformation for mutual mistake requires clear and convincing evidence)
- Potter v. Chaney, 290 S.W.2d 44 (Ky. 1956) (agent contracting on behalf of corporation is ordinarily not personally bound when acting within scope and principal is identified)