Friday, November 09, 2007, 2:02 PM

LLC Member-Manager Conducting LLC's Business Shielded By Workers' Comp. Exclusivity

In Hamby v. Profile Products, LLC, the NC SCT held today, in an opinion authored by Justice Newby, that an LLC member-manager conducting LLC business is shielded from an injured worker's negligence suit by workers' compensation exclusivity. Hamby is an important decision for LLCs, settling the question of whether member-managers who conduct LLC business are shielded from injured workers' suits like those who conduct the business of other entities like corporations. The SCT's reversal of the split COA decision in Hamby means that the member-managers of NC's over 100K LLCs won't be exposed to civil liability so as to call into question the wisdom of using the LLC as a business form.

In Hamby, an injured worker and his wife sued for injuries sustained on the job at a wood chip plant. Plaintiffs sued, among others, Mr. Hamby's employer, Terra-Mulch Products, LLC, as well as Terra-Mulch's member-manager, Profile Products, LLC. The trial court granted summary judgment for Terra-Mulch, which was shielded from such a suit by workers' compensation law, but denied summary judgment as to Profile. Profile appealed.

A split COA panel dismissed Profile's appeal as interlocutory. Crucially, the COA majority indicated that the appeal did not affect Profile's substantial right to avoid multiple trials on the same issues because Profile's issues were not identical to Terra-Mulch's issues. The COA indicated that while Terra-Mulch, the employer, was shielded by workers' compensation exclusivity except for gross negligence, Profile, Terra-Mulch's undisputed member-manager, was not similarly protected from an ordinary negligence claim, which plaintiffs purported to bring against Profile.

The SCT reversed. The SCT noted the interlocutory nature of Profile's appeal but recognized that if the extent of Profile's liability is the same as Terra-Mulch's, and if Profile is shielded by workers' compensation exclusivity like Terra-Mulch, there is indeed a risk of inconsistent verdicts on the same issues. The SCT thus answered those questions.

The SCT noted that workers' comp. law ensures that injured workers receive benefits but in turn prohibits workers from seeking more from employers through lawsuits. Workers' comp. is thus generally an injured worker's exclusive remedy as to the employer, and, critically, also as to those doing the employer's business. The "decisive question", therefore, was whether Profile was conducting Terra-Mulch's business.

To answer that question, the SCT looked to LLC law and the role of the member-manager. The SCT noted that because Terra-Mulch was a Delaware LLC, its member-manager liability was determined by Delaware law--though the SCT noted that Delaware LLC law is in accord with NC LLC law. The SCT noted that the LLC is a recent statutory creation combining elements of corporations and partnerships. Among other LLC characteristics, LLCs are run by managers, who have combined corporate officer/director authority and who may be natural persons or business entities. LLC owners are called members. And both members and managers have the power to bind and act on behalf of an LLC. Indeed, the SCT held that "when a member- manager acts in its managerial capacity, it acts for the LLC, and obligations incurred while acting in that capacity are those of the LLC. Accordingly, when a member-manager is managing the LLC's business, its liability is inseparable from that of the LLC." The SCT noted that LLCs may change such statutory defaults by contract, but noted that in this case, Terra-Mulch's operating agreement "vests full managerial powers in its member-manager Profile and does not alter Profile's limited liability."

Pursuant to applicable law and agreement, therefore, "Profile manages Terra-Mulch's business with limited liability for actions it takes as manager," i.e., Profile conducts Terra-Mulch's business -- the touchstone for workers' compensation exclusivity. Profile, therefore, like Terra-Mulch, was shielded from plaintiffs' lawsuit: "[A]s the member-manager of Hamby's employer Terra-Mulch Products, L.L.C., Profile was 'conducting [the employer's] business' within the meaning of the Workers' Compensation Act and is thus entitled to the exclusivity provided by statute." And the SCT made explicit that Profile's being a business entity rather than an individual did not at all change the analysis.

Justice Timmons-Goodson dissented. Justice Timmons-Goodson believed that the appeal was interlocutory, should not go forward, and that in any event she "cannot agree with the majority's holding granting Profile immunity on the basis of its LLC status."

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