Whose Law Applies To LLC Alter Ego Claims? – Contracts and Commercial Law

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In a recent ruling, US District Court Judge Dale A. Drozd applied California law to the determination of which law to apply to an alter ego claim:

California law provides that to determine whether a limited liability company is liable under the alter ego theory, courts apply the substantive law of the state where the limited liability company is formed. MacRae v. HCR Manor Care Servs., LLC, No. 8: 14-cv-140715-DOC-RNB, 2017 WL 11480091, at * 3 (CD Cal. Sept. 14, 2017) (collecting cases) (citing Cal. Corp. Code § 17708.01 (a)).

Pizana v. SanMedica Int’l LLC, No. 118CV00644DADSKO, 2022 WL 1241098, at * 13 (ED Cal. Apr. 27, 2022). Judge Drozd’s decision is in accord with several other rulings in the federal courts, including Wehlage v. EmpRes Healthcare Inc., 821 F. Supp. 2d 1122, 1126 (ND Cal. 2011) and Greenlight Sys., LLC v. Breckenfelder, No. 19-CV-06658-EMC, 2021 WL 2651377 (ND Cal. June 28, 2021).

It should be noted, however, that some District Court Judges believe that the federal, not state, substantive law should apply:

In considering whether to disregard the corporate form, we apply federal substantive law, although we may look to state law for guidance.

Laborers Clean-Up Contract Admin. Trust Fund v. Uriarte Clean-Up Service, Inc., 736 F.2d 516, 523, (9th Cir. 1984): See also Board of Trustees v. Valley Cabinet & Mfg. Co.877 F.2d 769, 772 (9th Cir. 1989) (quoting Laborers).

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