PersonalLiabilityMost states require if you do not do business under your own name that you must register the fictitious name (or trade name) with the Secretary of State of the jurisdictions in which you conduct your business. Failure to do so can expose a business owner to personal liability for not only the contracts, but the torts, of the business.

In the December, 2015 Missouri Court of Appeals decision in O’Gorman & Sandroni, P.C. v. Steve Dodson d/b/a Clayton Computer, a computer service conducting business as a limited liability company did, in fact, register its tradename, yet the court pierced the corporate veil and held the owner personally liable. So what happened?

First, the sole member of the LLC, in registering the fictitious/tradename under which this company conducted business, listed himself personally as the owner of the fictitious/tradename, not his limited liability company (at trial, the owner testified that the registration was a mistake, but the court rejected such an argument). Second, in email communications between the computer service company and the purchaser of the computers, the computer service business company member identified himself as the “owner” (presumably in a signature block beneath the email messages), without any reference to the limited liability company.

Unfortunately for the LLC’s owner (the “member”), the evidence indicated that the sole member of the limited liability company conducting business as the computer service company was indeed the owner, albeit personally and not through the business entity, and thus the trial court held, and the appellate court affirmed, that the weight of the evidence supported finding that the business owner personally sold the defective computer system.

So, how do you avoid the same outcome? While filling out forms online on a Secretary of State’s website can give the appearance of being easy, if you do not know for certain how to fill out the forms, do not guess at what you should put in a space. Words have legal consequences, and using a word such as “owner” connotes a certain position, that of a sole proprietorship. But taking the incorrectly filed fictitious name registration together with listing himself as “owner” on the emails, when compounded with the fraudulent representation the court found the owner of the computer service company to have engaged in, made any outcome other than personal liability being imposed on the owner highly unlikely.

Consulting with an attorney for even less than an hour could have possibly saved this business owner substantial liability. Avoid ending up like this business owner, pennywise and pound foolish.

Epilogue: Perhaps the piercing of the corporate veil was just a natural result of a court finding the conduct engaged in by the business owner to be reprehensible and thus the court needed a vehicle for finding personal liability. The computer servicing company was sued for fraudulent misrepresentation arising from installation of a computer system which, the evidence produced at trial disclosed, never worked properly. Upon an examination of the computer components, it was found that the component parts were different and inferior to those that had been ordered. Further testimony proved that the owner of the computer service company personally told his employees to install the inferior parts into the computers.

The purchaser of the computer equipment sought an award of punitive damages because of the intentional provision of inferior computer equipment. Such a claim for punitive damages requires that the defendant’s conduct be outrageous due to the defendant’s evil motive or reckless indifference to the rights of others. The trial court was found to have reasonably concluded that the business owner’s conduct was done with reckless indifference to the rights of the purchasers, motivated solely by the desire to make a sale, albeit by using inferior parts.

Whether the outcome would have been different if the conduct complained of was merely negligent and not intentional and outrageous, we will never know, but a reasonable person would likely say that he or she does not want to take a chance and go against the findings regarding the improperly filed fictitious name registration coupled with the use of the word “owner” in his emails, and perhaps on his business card and other indicia of title.