Alaska Law Blog

A popular form of incorporation that Atkinson Conway & Gagnon often deals with, both in creating them and in structuring deals using them, is the Limited Liability Corporation. There is, however, a nasty little penalty lurking in Alaska’s Limited Liability Company statute that both other practitioners in this state and owners and managers of those LLCs should be aware of.

As with most business forms, members of an LLC have a statutory right to review the books and records of the LLC. What is different about LLCs, is that if a manger or member of an LLC refuses a member’s rightful demand to examine the books of the LLC, that manager or member is personally liableto the demanding member for a penalty in the amount of either $5,000 or 10% of the value of the demanding member’s interest in the LLC, whichever is greater. Consequently, by refusing a rightful demand to review the books and records of an LLC, a manager or member of an LLC runs not only the risk of litigation to compel production of the books but personal liability that, for a highly valued LLC, could be hundreds of thousands of dollars.

So think twice about shooting off that snide letter to your business partner, telling him to go stick his head in the sand when he asks to see the books. You just might get a costly bill in return.

Continue reading for the full statute.

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In today’s specialized and interconnected business world, banks, law firms, and accountants often find themselves drawn into litigation over financial statements that are either incomplete or false. The Enron and WorldCom cases are great examples of this. In those cases, plaintiffs, often shareholders and creditors, sue law firms, banks, and accountants, alleging that they are liable for their losses because they “aided and abetted” directors and officers who defrauded the company and shareholders. Atkinson Conway & Gagnon has litigated these claims on several occasions in Alaska, both in the course of defending banks and law firms and in representing corporations against accountants that have aided company officers and directors in defrauding the corporation.

This theory of liability, also known as “tortuous assistance of breach of fiduciary duty” can significantly expand the liability of accountants, banks, and law firms, including exposing them to joint and several liability in states that otherwise provide for strict allocation of fault, such as Alaska.

On January 15, 2008, the United States Supreme Court issued an important decision limiting the scope of “aiding and abetting claims.”. Ruling 4 to 3, the United States Supreme Court held that Section 10(b) of the Securities Exchange Act of 1934 did not authorize a private right of action against third parties for aiding and abetting violations of securities law. Instead, plaintiffs who wish to sue banks, accountants and law firms for securities law violations must show that they relied upon an affirmative material misrepresentations by those entities. While banks, law firms, and accountants may be subject to aiding and abetting liability when they have a direct relationship with aggrieved plaintiffs, this is an important decision that limits the liability faced by banks, accountants, and law firms in the shareholder lawsuits that are so often filed when negative financial information is released by corporations.