Saturday, November 29, 2008

LLC Managers Not Subject to Florida Long Arm Jurisdiction

A Florida appellate court has ruled that the non-resident managers of a limited liability company were not subject to personal jurisdiction in Florida for the LLC's violations of the Florida Blue Sky Law. A receiver appointed for the LLC had sought damages from the managers for the company's sales of timeshare interests in luxury motor coaches. The receiver alleged that the sales of the interests, which contained an investment component, violated the registration and anti-fraud provisions of the Florida securities laws, provisions of the Florida Timesharing Act, and prohibitions against fraudulent transfers.

In reversing the decision of the lower court, the Fifth District Court of Appeal held that the evidence did not support a finding that the managers conducted a business venture or committed a tortious act in Florida. Although the managers attended board meetings by telephone, they testified that they did not provide any services to the LLC, and their affidavits refuted any allegations in the complaint that they personally developed, marketed, or sold the timeshare interests. Moreover, the depositions filed by the receiver to support long arm jurisdiction did not conflict with the affidavits, but indicated that the managers only acted in their capacity as corporate officers. Consequently, the managers' actions were shielded by the corporate shield doctrine and personal jurisdiction could not be asserted over them, the appellate court concluded.

The appellate court also rejected the receiver's argument that long arm jurisdiction could be asserted against the managers because the complaint alleged fraud. A statutory action for securities fraud under Florida law is not tantamount to a common law fraud action, the appellate court observed, but requires a showing that a defendant personally induced the investors to purchase the securities. As the receiver failed to make such a showing, the allegations underlying the statutory fraud actions could not support jurisdiction.
Clement v. Lipson, (Fla. Dist. App. 2008)