A Question of Ethics—LLC Operation. Blushing Brides, LLC, a publisher of wedding planning magazines in Columbus, Ohio, opened an account with Gray Printing Co. in July 2000. On behalf of Blushing Brides, Louis Zacks, the firm’s member-manager, signed a credit agreement that identified the firm as the “purchaser” and required payment within thirty days. Despite the agreement, Blushing Brides typically took up to six months to pay the full amount for its orders. Gray printed and shipped 10,000 copies of a fall/winter 2001 issue for Blushing Brides but had not been paid when the firm ordered 15,000 copies of a spring/summer 2002 issue. Gray refused to print the new order without an assurance of payment.

Zacks signed a promissory note for $14,778, plus interest at 6 percent per year, payable to Gray on June 22. Gray printed the new order but by October had been paid only

$7,500. Gray filed a suit in an Ohio state court against Blushing Brides and Zacks to collect the balance. [Gray Printing Co. v. Blushing Brides, LLC, 2006 WL 832587 (Ohio App. 2006)]

1. Under what circumstances is a member of an LLC liable for the firm’s debts? In this case, is Zacks personally liable under the credit agreement for the unpaid amount on Blushing Brides’ account? Did Zacks’s promissory note affect the parties’ liability on the account? Explain.

2. Does a member of an LLC have an ethical responsibility to meet the obligations of the firm? Discuss.

3. Gray shipped only 10,000 copies of the spring/summer 2002 issue of Blushing Brides’ magazine, waiting for the publisher to identify a destination for the other 5,000 copies. The magazine had a retail price of $4.50 per copy.

Did Gray have a legal or ethical duty to “mitigate the damages” by attempting to sell or otherwise distribute these copies itself? Why or why not?