Question

Serena, Venus, and Bianca decided to form Big Hitters LLC to manufacture tennis rackets. Big Hitters LLC entered into a contract with Roger Federer for the sale of 100 rackets for the price of $300,000, to be delivered within two months after the tender of the purchase price. Roger paid the purchase price in full, but 3 months have passed with no delivery of the rackets. Roger decided to sue Big Hitters LLC, as well as the three members individually. As was discovered during litigation, Big Hitters had spent the $300,000 to pay back a loan for the purchase of racket manufacturing equipment, and is therefore insolvent. Big hitters knew it was insolvent before making the deal with Roger. Big Hitters then dissolved after Serena decided to pursue other interests. How much money will Roger be able collect?

a-Nothing because the LLC used the money to pay off its other debts
b-Nothing because the LLC has limited liability and is insolvent
c-$300,000 from the members jointly and severally because they knew the LLC was undercapitalized and could not pay Roger.
d-$300,000 from Serena because she caused the LLC to dissolve

Answer 1

Roger may be able to collect $300,000 if the court decides to pierce the corporate veil due to the LLC's behavior and its knowledge of insolvency. While an LLC typically offers limited liability to its members, this protection can be lifted if the members engage in fraudulent behavior or undercapitalization.

Step-by-step explanation:

The amount of money Roger will be able to collect from Big Hitters LLC depends on a variety of legal principles surrounding corporate law and specifically the liability protection offered by a limited liability company (LLC). Typically, an LLC provides its members with limited liability, which means that the members are not personally liable for the debts of the LLC beyond the amount that they invested in the company. However, there are exceptions to this rule, known as 'piercing the corporate veil,' where members can be held personally liable if it is shown that the company was undercapitalized, engaged in fraud, or failed to follow corporate formalities, for instance.

In this scenario, the fact that Big Hitters LLC knew it was insolvent before making the deal with Roger and subsequently used his payment to pay off an unrelated debt may suggest elements of fraudulent behavior or undercapitalization. Roger may be able to argue that the veil should be pierced and that the members should be jointly and severally liable for the debt owed to him. However, the determination of such liability will ultimately be made by the court after consideration of all the facts and evidence.

Option C, that Roger could collect $300,000 from the members jointly and severally because they knew the LLC was undercapitalized and could not pay Roger, seems the most likely under these facts, but it's important to note that this is subject to the discretion of the court and the specific laws of the jurisdiction in which the case is heard.

Answer 2

Roger Federer may be able to collect $300,000 from the members of Big Hitters LLC if he can prove fraudulent conduct or intentional undercapitalization designed to defraud him. The correct answers are options a,b

Step-by-step explanation:

The situation involving Roger Federer and Big Hitters LLC focuses on the legal concept of limited liability in business structures and the exceptions to that rule. Under normal circumstances, members of an LLC are not personally liable for the debts of the company. However, there are exceptions where the corporate veil can be pierced, making members liable if they engaged in fraudulent or improper conduct, or if the company was grossly undercapitalized with the intent to defraud creditors or other business partners.

In this case, Roger Federer paid $300,000 to Big Hitters LLC under a contract for the delivery of tennis rackets. Given that the company used the funds to pay off debts and knew it was insolvent at the time of the transaction, without delivering the rackets, Roger may have grounds to claim that the members engaged in fraudulent conduct or that the company was undercapitalized intentionally to defraud him. Therefore, option c - $300,000 from the members jointly and severally because they knew the LLC was undercapitalized and could not pay Roger - seems plausible if Roger can prove his case in court.

Option d is less likely as the dissolution of the company by Serena does not, by itself, create personal liability unless it was part of a broader scheme to defraud creditors. As for options a and b, while the LLC has limited liability and is insolvent, the misconduct could override the protection normally afforded by the LLC structure.