In 2013, the Oklahoma Legislature amended 12 O.S. § 682, a statute relating to judgements, to provide greater statutory protections for officers, directors, and shareholders of a corporation and members and managers of an LLC. The pertinent part of § 682 is as follows:
B. No suit or claim of any nature shall be brought against any officer, director, or shareholder for the debt or liability of a corporation of which he or she is an officer, director, or shareholder until judgement is obtained therefore against the corporation and execution thereon returned unsatisfied. This provision includes, but is not limited to, claims based on vicarious liability and alter ago. Provided, nothing herein prohibits a suit or claim against an officer, director, or shareholder, arising out of or in connection with their direct involvement in the same or related transaction or occurrence.
Thus, per § 682(B), traditional veil-piercing claims against owners/management of an entity, such as but not limited to claims based upon theories of an alter-ego or undercapitalization, may not be asserted against the owners/management until judgement is obtained against the entity but returned unsatisfied. The exception in § 682(B), however, provides that claims against owners/management “for their own conduct, act or contractual obligation, not within the scope of their role as [owner of manager],” may be asserted notwithstanding the general prohibition. Section 682(C), which is omitted from the above, ensures that members and managers of LLCs are provided with the same protections as officers, directors, and shareholders of a corporation.
In 2019, the Oklahoma Court of Civil Appeals had occasion to interpret the exception in § 682(B) in Tyree v. Cornman, 2019 OK CIV APP 66, 453 P.3d 497, although at the motion to dismiss stage of litigation. In Tyree, the landowners brought an action against the construction company and its owner for breach of contract, construction defect, and various other theories of liability, including fraud and violation of the Oklahoma Consumer Protection Act. The District Court granted the construction company’s owner’s motion to dismiss him as a defendant as to all claims. On appeal, the Court of Civil Appeals reversed the District Court’s decision to dismiss the fraud and Consumer Protection Act claims.
In reversing the trial court’s dismissal of the landowners’ fraud and Consumer Protection Act claims against the owner of the construction company, the Court in Tyree reasoned that it was sufficient for the landowners to allege that the owner personally violated the Oklahoma Consumer Protection Act and committed fraud, thus providing an independent basis for the owner’s tort liability. Tyree, 2019 OK CIV APP 66, ¶¶ 33-34. Moreover, “[w]hether the conduct alleged by the plaintiffs was or was not within the scope of the [owner’s] role as an officer, director or shareholder of [the construction company] cannot be determined at the pleading stage.” Id. at ¶ 33. Thus, the Court in Tyree allowed claims for fraud and violation of the Consumer Protection Act to move forward against the owner of the construction company despite the protections in § 682(B).
The result in Tyree should caution owners and managers of a company to take care and prudence in their own conduct and actions. Despite the protections of § 682(B), claims for fraud, violation of the Consumer Protection Act, and similar torts may be asserted against the officer, director, and shareholder of a company, particularly when such conduct and actions are outside their normal role with the company.
By: Daniel Sadler
