ravit v. hall and riley

Vermont Superior Court
Filed 02/15 24
Lamoille nit

VERMONT SUPERIOR COURT 1
fl4 CIVIL DIVISION
Lamoille Unit Case N0. 23-CV—00045
154 Main Street
Hyde Park VT 05655
802-888—3887 fifi
wwwvermontjudjciaryorg

Joshua Ravit, et a1 v. Hall and Riley, LLC

ENTRY REGARDING MOTION
Title: Motion to Amend Complaint (Motion: 3)
Filer: William F Grigas
Filed Date: January 05, 2024

The motion is DENIED.

Plaintiffs seek to amend their complaint to add Nelson Riley and Peter Riley, the individual
shareholders of Defendant Hall & Riley, LLC, as Defendants on the theory that Defendants

improperly dissolved Hall & Riley, LLC following a failed mediation with the sole purpose of
denying Plaintiffs any assets and that Hall & Riley, LLC had no assets at the time of dissolution.

Plaintist motion alleges that Defendant Hall & Riley, LLC has been less than forthcoming
with its financial records and has not demonstrated how its assets were allocated at the time of
dissolution. Plaintiffs admit that they seek to join the individual defendants to obtain further

information and cooperation.

Plaintist motion raises a number of issues with the question of owner liability and the
responsibility of shareholders to disgorge improperly allocated assets as well as when facts give rise
to a claim of piercing the corporate veil.

As a preliminary matter, Plaintiffs are seeking to amend their complaint. Under Rule 15(a),

plaintiffs enjoy broad latitude to amend a complaint, and motions to amend should be liberally and
freely granted where justice requires. Col®r a Umbrella, 2008 VT 20, 1H] 4—6 (describing the standard

governing rule 15 motions as “generous”). Yet, the motion to amend is not automatically granted,
and a motion may be denied if there is evidence of (l) undue delay; (2) bad faith; (3) futility of

amendment; and (4) prejudice to the opposing party. Pn'w z). VemzofltArbesfos Group, 2010 VT 2, jflj

12, 13. There is no evidence that the proposed amendments come with undue delay or bad faith,

Entry Regarding Motion Page 1 of 4
23—CV—00045 Joshua Ravit, et al v. Hall and Riley, LLC
and there has been no showing of prejudice against either the present Defendant or the proposed
individual Defendants. Instead, the present inquiry falls under the question of whether the
amendment is futile. This element states that a motion to amend may be denied if amendments
could not survive a motion to dismiss. Id. at ¶¶ 13, 14.

In this case, the allegations are that Plaintiffs purchased a residential property in November
of 2020 from Defendant Hall & Riley, LLC. The property, located in Stowe, is alleged to have
multiple defects. Defendant agreed to repair some of these defects as part of the builder’s warranty,
which remains in effect. In December 2021, Plaintiffs discovered a leak in the plumbing within the
master bathroom shower. Despite Defendant’s repairs, the leak persisted until May of 2022.
Defendant’s repairs also caused collateral damage to other bathroom fixtures. Plaintiffs also allege
defects with the property’s heating and cooling systems. These and other defects led Plaintiffs and
Defendant to conduct mediation on September 20, 2022. The mediation was unsuccessful.
Immediately after the mediation, Nelson and Peter Riley dissolved Hall & Riley, LLC.

Plaintiffs’ motion to amend arises from two sources. First, they note that they have sought
to obtain financial records from the Rileys for Hall & Riley, LLC’s final distributions and dealings
around the time of the mediation. They report that they have not received the sought after
information, which leads them, in part, to seek to join the Rileys as individual defendants as parties
to compel financial production. But non-compliance with discovery does not give rise to a claim to
join a shareholder. The general rule, recently affirmed by the Vermont Supreme Court is that
“corporate shareholders are not personally liable for debts of a corporation except in instances
where the shareholders are using the corporation to perpetuate a fraud.” Doherty v. Town of
Woodstock, 20023 VT 56, ¶ 12 (affirming the general rule from Winey v. Cutler, 165 Vt. 566, 567–68
(1996) (mem.)).1

This limitation also applies to the second ground alleged in Plaintiffs’ motion and complaint,
namely that the dissolution of Hally & Riley, LLC immediately after the mediation constituted some
type of bad faith or fraud. Under 11 V.S.A. § 4042, the debts of an LLC doe not become the debts,
obligations, or liabilities of a member solely by reason of the member acting as a manager, and more
generally the debts of the LLC remain the debts of the LLC. 11 V.S.A. § 4042(a)(1), (2). Dissolving

1 While the holding of Winey and Doherty concern corporations, the same limitation on owner liability applies to

members of a limited liability company as well. 11 V.S.A. § 4042.

Entry Regarding Motion Page 2 of 4
23-CV-00045 Joshua Ravit, et al v. Hall and Riley, LLC
an LLC is not per se illegal and is, in fact, authorized by statute. 11 V.S.A.§§ 4101–4103. Plaintiffs
do not allege that the LLC was not dissolved for some particular purpose. Instead, Plaintiffs allege
that the LLC was dissolved to avoid liability for the lawsuit. There is some factual support for this
allegation as Defendant sought to dismiss the present action on the vary basis, but as the Court
noted earlier, dissolution does not waive or resolve liability, and the LLC continues for the purpose
of resolving this issue of liability and winding up its business. 11 V.S.A. § 4102. Moreover, liability
does not attach to a member simply because the LLC does not observe a particular formality in its
exercise of power and management. 11 V.S.A. § 4042(b).

Under Doherty, there must be some element of fraud to pierce the corporate veil, and fraud
must be pled with particularity. Standard Packaging Corp. v. Julian Goodrich Architects, Inc., 136 Vt. 376,
381 (1978). This means there must be some allegations that the Rileys took some affirmative act to
mislead or conceal certain facts where there was a duty to disclose. Id. Dissolving an LLC, without
further allegations, does not constitute fraud. Cheever v. Albro, 138 Vt 566, 570 (1980 (“Fraud cannot
be presumed, and it must be established by the one alleging it). This is not to say that fraud did not
occur here or that with additional factual information that a claim of fraud sufficient to pierce the
corporate veil could be alleged. Plaintiffs allege two significant time periods when they came to rely
upon the representations of the LLC.

The first was a promise and renewed promise to perform warranty repairs to the property.
Hall & Riley, LLC made these promises less than a year before it dissolved, Plaintiff is entitled to
understand the financial situation of Hall & Riley, LLC at that time and whether there were
reasonable assets and whether the LLC was sufficient going concern, such that it had the capacity to
fulfill its promises. The second was the period following when the defects and issues became
apparent and when Hall & Riley, LLC engaged in mediation and then immediately dissolved.
Plaintiffs are entitled to understand the basis for this decision, what the owners knew prior to the
mediation and shortly thereafter as well as the financial records of Hall & Riley, LLC during this
time. This information may illustrate that the decisions involving the LLC were legitimate responses
to business and circumstances, but they may also illustrate a fraudulent purpose. Plaintiffs are
entitled to pursue this information, but without such additional information the motion to amend
cannot survive basic scrutiny, even under Rule 15’s generous standard as it lacks the necessary
factual foundation to illustrate why the corporate actions were fraudulent or informed by a
fraudulent purpose to the detriment of Plaintiffs.
Entry Regarding Motion Page 3 of 4
23-CV-00045 Joshua Ravit, et al v. Hall and Riley, LLC
ORDER

Based on the foregoing, the Court finds that the present amended complaint lacks sufficient
factual pleading and allegations necessary to raise a claim of fraud as a matter of law that would
permit the complaint to survive a motion to dismiss. This renders the proposed amendment futile
and insufficient under V.R.C.P. 15(a). The motion to amend is Denied.

Electronically signed on 2/15/2024 11:09 AM pursuant to V.R.E.F. 9(d)

__________________________________
Daniel Richardson
Superior Court Judge

Entry Regarding Motion Page 4 of 4
23-CV-00045 Joshua Ravit, et al v. Hall and Riley, LLC