Why Your LLC Might Not Protect You: PA Adopts Enterprise Liability

Business owners form LLCs and corporations for one primary reason: liability protection. The corporate form creates a legal wall between the business’s debts and the owner’s personal assets. But in Mortimer v. McCool, 255 A.3d 261 (Pa. 2021), the Pennsylvania Supreme Court adopted a legal theory that allows creditors to reach through that wall in ways that many business owners do not expect.

What Happened

Ryan Fell Mortimer was seriously injured by an intoxicated driver who had been over-served at a restaurant in Coatesville, Pennsylvania. She obtained a $6.8 million judgment against the corporate entity that held the liquor license, 340 Associates, LP. But 340 Associates had limited assets. The restaurant’s real property was held in a separate entity, McCool Properties, LLC, which was owned by the same family.

Mortimer argued that the court should disregard the separate corporate forms and allow her to satisfy the judgment from McCool Properties’ assets. Under the traditional veil-piercing doctrine, this would have been difficult because she was not trying to reach through to an owner. She was trying to reach sideways, from one commonly owned entity to another.

The Ruling

The Supreme Court, in a landmark decision, adopted the “enterprise liability” theory of veil piercing. Under this theory, when commonly owned entities operate as a single economic enterprise, courts can disregard their separate corporate forms and treat them as one for liability purposes. Critically, this form of veil piercing is not limited to reaching owners. It allows creditors to reach sister entities, affiliated companies, and other parts of a common corporate structure.

The Court identified several factors relevant to the enterprise liability analysis, including common ownership, shared management, intermingling of assets, shared employees or office space, and whether the entities were held out to the public as a single enterprise.

While the Court adopted the theory, it ultimately declined to apply it on the specific facts of the case, remanding for further proceedings. But the legal principle is now established in Pennsylvania.

What This Means for Business Owners

If you own multiple entities and they share bank accounts, employees, office space, or management, a creditor of one entity may be able to reach the assets of the others. The separate corporate forms provide protection only to the extent that they are respected in practice.

This has direct implications for common business structures in Bucks County. A real estate investor who holds properties in separate LLCs but manages them all from the same office, with the same bank account, using the same employees, is vulnerable under Mortimer. A family business that operates a restaurant through one entity and holds the real estate in another, without maintaining genuine operational separation, faces the same risk.

The fix is straightforward but requires discipline. Each entity needs its own bank account, its own books, its own contracts, and its own decision-making process. If you treat your entities as interchangeable, a court may do the same.

If you have questions about whether your business structure provides the liability protection you expect, contact our office for a review.