Construction Injury Case Clears up Limited Liability Questions

January 2013

Published in The Daily Journal of Commerce

Oregon's limited liability company statutes have made limited liability available outside of the corporate format; it's now popular for a variety of closely held businesses. However, the limited liability protections for members and managers of an LLC are not absolute, and the limits of the protections have recently been made more definite by an Oregon Court of Appeals decision, Cortez v. Nacco Materials Handling Group Inc.

In that case, the appeals court made clear that a member or manager of an LLC is not necessarily shielded from tort claims if the member or manager participated in the LLC's act or omission that resulted in injury to the plaintiff.

In Cortez, the plaintiff was injured in a forklift accident while working for an LLC. The plaintiff filed a lawsuit against the LLC's sole member-manager, alleging negligence, among other claims. Although the member-manager was not immediately involved with the accident that injured the plaintiff, the member-manager had provided a safety manual for the LLC – and one of the member-manager's employees was responsible for ensuring that the LLC implemented the policies and procedures set forth in the safety manual.

The defendant member-manager argued that it was immune from any liability to the plaintiff employee because Oregon's LLC statutes shield managers and members from liability for their actions as members or managers. The defendant relied upon provisions of the Oregon LLC statutes that state that the liabilities of the LLC are solely the liabilities of the LLC, and members or managers are not personally liable for the liabilities of the LLC solely by reason of acting as a member or manager.

The Oregon Court of Appeals rejected the defendant's argument, reasoning that, although Oregon's LLC statute does shield members and managers from liabilities of the LLC, it does not shield members or managers from their own tortious conduct, even if it occurs while duties as a member or manager are performed. Relying on comments from the Uniform Limited Liability Company Act, the Court of Appeals held that members and managers of an LLC are liable for those acts or omissions that would be actionable against the member or manager if that person were acting in an individual capacity.

For members of an LLC not active in management of the business, the Cortez decision is not too worrisome because they are unlikely to participate in actions that could result in liability.

However, for managers or members who actively participate in an LLC's business, Cortez does not provide much comfort. These members or managers will not be able to assert a defense under the Oregon LLC statutes to limit their personal liability to the extent that they participated in the LLC's actions or omissions that result in an injury to a third party.

Of course, members and managers will still be able to assert defenses to the merits of a plaintiff's claim by arguing that their individual actions were not tortious. Indeed, the Cortez decision acknowledged that the member-manager's safety policies did not specifically advise the LLC on how to operate the forklift that injured the plaintiff.

However, because of the case's procedural posture, the Court of Appeals left the issue of whether the sole manager-member's actions amounted to negligence to further proceedings in the trial court.

Chris Burdett is an associate in the litigation group at Sussman Shank LLP. Contact him at 503-972-2529 or at cburdett@sussmanshank.com.

http://djcoregon.com/news/2013/01/10/construction-injury-case-clears-up-limited-liability-questions/

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