LLC and a Member Are Not the Same Person

Attorneys: Johnson, Nicholas

Fall 2013
In the recent case of Peabody-Waterside Development, LLC v. Islands of Waterside, LLC, 2013 Ill. App. (5th) 120490, the Illinois Appellate Court ruled that a member of a limited liability company can file a mechanics lien against property owned by the LLC. In Peabody-Waterside, the member had a 50% interest in an LLC that owned 900 acres of real property that was going to be developed using the funds provided by a bank. The LLC attempted to obtain bids for the intended work, but was unable to find any bids that did not far exceed the expected costs of the development. Needing to complete the work, the LLC hired the member to perform the work on a cost-plus basis. The member performed the work, but was not paid by the LLC.
Upon failure of payment, the member filed a notice of lien and then suit for breach of contract and foreclosure of the mechanics lien against the LLC and the other entities with interest in the property. The bank moved for the trial court to hold that the lien was invalid based on the fact that the member was a 50% owner of the LLC, and therefore, the member had a co-ownership interest in the real estate owned by the LLC and could not perfect its lien. Moreover, the bank argued that as a partial owner, the member was not the type of claimant that was entitled to a mechanics lien under Illinois law. The trial court accepted this argument and entered judgment on the mechanics lien issue in favor of the bank and against the member. The member appealed and the appellate court reversed.
The appellate court found that, under Illinois law, an LLC is an independent legal entity which has legal rights and obligations different from the rights and obligations of a joint venture. The appellate court determined that a membership interest in a limited liability company does not confer the ownership interest in the property owned by the LLC upon the member. Contrarily, in a joint venture, both members of the joint venture share ownership of the property of the joint venture. Therefore, the appellate court found that the members of the LLC could lien the property owned by the LLC.
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