What Happened: A landlord leased office space to a limited liability company (LLC A) provider of flexible workspace. An LLC (LLC B) that acquired the tenant a year later approached the landlord about assigning the lease to one of its other subsidiaries, another LLC (LLC C) with just one member. Based on financial assurances from LLC B, the landlord consented to the assignment. 

When the pandemic hit, LLC C stopped paying rent and the landlord sued, naming all three LLCs as defendants. While conceding that LLC C was liable for the unpaid rent, the other defendants insisted that, as separate corporate entities, they weren’t responsible for the company’s debts. But the court found that the defendants abused the LLC form for fraudulent purposes and held them jointly and severally liable for $2.35 million in damages and attorneys’ fees.  

Reasoning: The Illinois appeals upheld the lower court’s ruling.

Reasoning: Normally, individual members or managers of an LLC aren’t personally liable for the company’s acts, debts, or obligations. However, on rare occasions, courts will disregard the LLC form and hold members liable to prevent an injustice. This is called “piercing the corporate veil,” and the court found that it was justified in this case because: 

• LLC C was a “mere instrumentality” of LLC B, which completely owned and controlled its day-to-day operations and funding; 
• LLC B used LLC C to commit a wrong or fraud, specifically by providing its own financial statements rather those of LLC C, which had no real assets, to get the landlord to consent to the assignment; and 
• LLC B’s shenanigans caused the landlord to suffer injury. 

Bottom line: The landlord could hold LLC B liable for the unpaid rent.  

• Stockbridge 600 West Jackson, LLC v. Industrious Nat'l Mgmt. Co. LLC, 2024 IL App (1st) 231062-U, 2024 Ill. App. Unpub. LEXIS 1903]