Opinion ID: 1843338
Heading Depth: 1
Heading Rank: 5

Heading: Liability of Members or Mangers.

Text: Although the tax treatment of an LLC has been largely resolved, the contours of the limited liability of an LLC are less certain. See Karin Schwindt, Note, Limited Liability Companies: Issues in Member Liability, 44 UCLA L.Rev. 1541, 1543-44 (1997). Only a few courts have specifically addressed the issue of tort liability. The ILLCA, however, describes the liability for members and managers of an LLC in four ways. It first addresses the general rule of limited liability for members and managers based on the acts or debts of the company: Except as otherwise provided by this chapter or as expressly provided in the articles of organization, no member or manager of a limited liability company is personally liable for the acts or debts of the limited liability company. Iowa Code § 490A.601. The act then addresses the limited liability doctrine by first explaining the protection of members or managers from personal liability: Except as otherwise provided in this chapter or by written agreement of a member, a member or manager of a limited liability company is not personally liable solely by reason of being a member or manager of the limited liability company ... for any debt, obligation, or liability of the limited liability company, whether that liability or obligation arises in contract, tort, or otherwise. Id. § 490A.603(1). Next, the act explains those circumstances that give rise to liability of members: A member of a limited liability company is personally liable under a judgment... whether that liability or obligation arises in contract, tort, or otherwise, under the same or similar circumstances and to the same extent as a shareholder of a corporation may be personally liable for any debt, obligation, or liability of the corporation.... Id. § 490A.603(2). Finally, the same section of the act provides: Nothing in this section shall be construed to affect the liability of a member of a limited liability company to third parties for the member's participation in tortious conduct. Id. § 490A.603(3). The rules of liability derived from these statutes have been summarized as follows: Sections 490A.601 and 490A.603 of the Act generally provide that a member or manager of a limited liability company is not personally liable for acts or debts of the company solely by reason of being a member or manager, except in the following situations: (1) the ILLCA expressly provides for the person's liability; (2) the articles of organization provide for the person's liability; (3) the person has agreed in writing to be personally liable; (4) the person participates in tortious conduct; or (5) a shareholder of a corporation would be personally liable in the same situation, except that the failure to hold meetings and related formalities shall not be considered. 5 Doré § 13.12, at 287-88 (footnotes omitted). This law frames our resolution of the summary judgment issue presented on appeal. While liability of members and managers is limited, the statute clearly imposes liability when they participate in tortious conduct. See Iowa Code § 490A.603(3). This approach is compatible with the longstanding approach to liability in corporate settings, where, under general agency principles, corporate officers and directors can be liable for their torts even when committed in their capacity as an officer. Haupt v. Miller, 514 N.W.2d 905, 907 (Iowa 1994); 3A Jennifer L. Berger et al., Fletcher Cyclopedia of the Law of Private Corporations § 1135, at 200-01 (perm. ed. rev.vol.2002) [hereinafter Fletcher ]. This approach has been explained as follows: Agency law generally, and Iowa law in particular, has long recognized that if a person commits a tort while acting for another person, the tortfeasor is personally liable for the tort, even if the person for whom he is acting is also vicariously liable for the same wrong. In other words, a person's status as an agent confers no immunity with respect to the person's own tort liability. Thus, if a member of a limited liability company injures another person while working in the course of the firm's business, the member is personally liable for that harm along with the company, just as the member would be if he worked for a firm organized as a corporation, a partnership, or any other business form. 5 Doré § 13.12, at 288 (footnotes omitted). Keota suggests that liability of an LLC member or manager for tortious conduct is limited to conduct committed outside the member or manager role. Yet, this approach is contrary to the corporate model and agency principles upon which the liability of LLC members and managers is based, and cannot be found in the language of the statute. We acknowledge that the participation in tortious conduct standard would not impose tort liability on a manager for merely performing a general administrative duty. See Haupt, 514 N.W.2d at 909. See generally 3A Fletcher §§ 1135, 1137, at 200-08, 209-19; William E. Knepper & Dan A. Bailey, The Liability of Corporate Officers and Directors § 6.07, at 6-14 to -15 (7th ed.2003). There must be some participation. See 18B Am.Jur.2d Corporations § 1877, at 724 (1985). The participation standard is consistent with the principle that members or managers are not liable based only on their status as members or managers. 3A Fletcher § 1137, at 209. Instead, liability is derived from individual activities. Yet, a manager who takes part in the commission of a tort is liable even when the manager acts on behalf of a corporation. See Fletcher §§ 1135, 1137, at 200-01, 209-13; Haupt, 514 N.W.2d at 909 (corporate officer liable for own tortious conduct where the officer acts under the corporate name or outside the corporate name). The ILLCA does not insulate a manager from liability for participation in tortious conduct merely because the conduct occurs within the scope and role as a manager. Keota argues this view of limited liability places section 490A.603(1) at odds with section 490A.603(3). We disagree. The limit on liability created for members and managers of LLCs in section 490A.603(1) means members and managers are not liable for company torts solely by reason of being a member or manager of an LLC. Iowa Code § 490A.603(1). The phrase solely by reason of refers to liability based upon membership or management status. It does not distinguish between conduct of a member or manager that may be separate and independent from the member or management role. Thus, it is not inconsistent to protect a member or manager from vicarious liability, while imposing liability when the member or manager participates in a tort. Liability of members of an LLC is limited, but not to the extent claimed by Keota. Keota relies on Curole v. Ochsner Clinic, L.L.C., 811 So.2d 92, 96-97 (La.Ct.App.2002), to support its position that owners and managers of an LLC are only liable for acts committed outside their capacity as a member or manager. While this was the conclusion reached in Curole, the case reveals that the Louisiana limited liability statute is substantially different from the Iowa statute. Id.; see also La.Rev.Stat. Ann. § 12:1320 (West 1994). The Louisiana statute does not contain the solely by reason of language of Iowa Code section 490A.603(1) and does not contain the participation in tortious conduct language of section 490A.603(3). See La.Rev.Stat. Ann. § 12.1320. Furthermore, other states that have discussed the topic of limited liability of LLC members and managers indicate that limited liability refers to liability based on the status of being a member or manager. See Addy v. Myers, 616 N.W.2d 359, 362 (N.D.2000); Rebecca J. Huss, Revamping Veil Piercing for all Limited Liability Entities: Forcing the Common Law Doctrine Into the Statutory Age, 70 U. Cin. L.Rev. 95, 101-02 (2001). It is also important to recognize that this case is not about holding an officer, director, or shareholder of Keota personally liable for participating in tortious conduct. Plaintiffs have not sued individual members of Keota. Instead, the lawsuit filed by the plaintiffs seeks to hold Keota liable for participating in certain torts as the designated manager of an LLC pursuant to the agreement under which it directed Hopscheidt to act for Keota in performing management services of Double Circle. While members and managers of an LLC are generally not personally liable for the acts of an LLC, Keota must also be viewed as a separate legal person. This approach means that corporate liability for the acts of corporate agents can result as a matter of agency law. 5 Doré § 15.3, at 378-79. In discussing the general rule of limited liability of directors, officers, and employees for acts of a corporation, one author explains: A similar result obtains under the doctrine of respondeat superior when corporate employees commit a tort. The corporation is the employer and principal of such persons. Thus, the corporation may be held vicariously liable for its employees' torts, but the corporation's directors, officers, and employees (other than those employees who committed the tort) will not face any exposure. In short, for liability purposes the corporation is distinct not only from its shareholders, but also from its directors, officers, employees, and other agents. 5 Doré § 15.3, at 379. See generally 3A Fletcher ch. 54 (discussing corporate liability for torts of officers and agents); Meyer v. Holley, 537 U.S. 280, 285-86, 123 S.Ct. 824, 829, 154 L.Ed.2d 753, 761 (2003) (a corporationnot its owner or officeris vicariously liable for torts of employees or agents). It is appropriate to apply this approach to cooperatives, such as Keota. See 18 Am.Jur.2d Cooperative Associations § 12, at 281 (1985) (a cooperative is essentially a corporation). Thus, Keota can participate in torts through the conduct of those individuals acting on behalf of Keota. We conclude that Keota is not protected from liability if it participated in tortious conduct in performing its duties as manager of Double Circle. Consequently, the district court improperly granted summary judgment based on the limited liability provisions of section 490A.603(1) and 490A.603(3). A trial is necessary to develop the facts relating to allegations of Keota's participation in the alleged torts. [2]