On April 5, Handy contracted to purchase land with the intent of forming a limited liability company (LLC) with Ginsburg and McKinley for the purpose of building a residential community on the property. On April 21, they learned from Coastal, an environmental consulting firm they had hired, that the property contained federally protected wetlands. The presence of wetlands adversely affected the property’s value and development potential. Handy, Ginsburg, and McKinley abandoned construction plans and instead decided to sell the property. To advertise and promote that sale, they placed on the property a sign that stated the property had “Excellent Development Potential.” Unaware of the existence of wetlands, Pepsi acquired an option to purchase the property from Handy on August 5. At that time, Willow Creek had not yet been formed and Handy had not yet purchased the property. On August 18, Handy, Ginsburg, and McKinley formed Willow Creek Estates, LLC. During the option period, Pepsi hired a soil-engineering consultant to conduct an environmental investigation of the property. In Handy’s written answers to specific questions from the consultant about the property, Handy did not disclose that the property contained wetlands or that Coastal had already performed a written preliminary wetlands determination the month before. On September 4, Willow Creek, LLC took title to the property. Four months later Willow Creek, LLC sold the property to Pepsi for more than twice the amount of its purchase price and did not disclose the existence of wetlands on the property. After Pepsi learned that the property contained wetlands, it brought an action for fraud against Willow Creek, Handy, Ginsburg, and McKinley.

a. What are the arguments that Handy, Ginsburg, and McKinley are not individually liable to Pepsi for fraud?

b. What are the arguments that Handy, Ginsburg, and McKinley are individually liable to Pepsi for fraud?

c. Explain who should prevail.