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E-Magine is a LLC

1.    Facts

E-Magine is a LLC. Michael Collins’ employment contract with E-Magine has been terminated before its term, due to considerable losses leading to termination of LLC’s operations. Collins’, in exchange for past sales commissions has accepted to sign a “final payment agreement” which also purported settlement of any claim he would have against E-Magine. He now has filed suit against E-Magine, but also against its’ members, management and others regarding termination of his employment contract.

2.    Issue:

a)    Despite signing a “final payment agreement”, is Collins still able to validly file suit against the LLC for breach of contract?

b)    Is Collins entitled to filing suit against members or management, considering that E-Magine is a LLC?

3.    Rules and analysis:

a) The “final payment agreement” (hereafter FPA) could be interpreted as a receipt, or it could be considered as a release. A receipt is the acknowledgement to have received a certain amount of money and can also contain the agreement to do something in exchange. It is fully possible to demonstrate that the acknowledgement is real, but that the consent to do something was obtained by fraud. In stating that signing the FPA was the only way for him to be paid the money the

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LLC owed him, Collins is trying to demonstrate that he never really agreed not to file suit against E-Magine. Therefore, Collins would be entitled to file suit against E-Magine for breach of contract.

A legal release is an agreement between two parties to terminate any legal liability between them. If the FPA is deemed to be a legal release, then Collins has no possibility to validly file suit against E-magine.

b) Under New York State Limited Liability Company Law, members and management of LLCs are expressly exempt of personal liability for any obligations the LLC could have. Under this rule, someone who would be part of a contract entered into by the LLC could not file suit against members or management of the LLC for any breach of the contract. The only liability which could be sought would be the LLC’s.

4. Conclusion:
Whether the judges would rather accept to consider the FPA as a receipt without consent not to file suit, or a release depends on circumstances of the case and the ability of Collins to plead his case.

On the other hand, the inability to file suit against anybody else’s than E-Magine on the ground of breach of contract is clear.

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