Cortez v. Nacco Materials Handling Group, Inc.
2014 Ore. LEXIS 749, 356 Or. 254, 337 P.3d 111 (2014)
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Rule of Law:
A member-manager of a limited liability company (LLC) is not vicariously liable for the LLC's torts but remains personally liable for its own negligence. Furthermore, a member-manager who retains the right to control a risk-producing activity at the LLC can be held directly liable under Oregon's Employers Liability Law (ELL).
Facts:
- Swanson Group, Inc. (Swanson) purchased a lumber mill, Sun Studs, Inc., and reorganized it as a wholly-owned subsidiary, Sun Studs, LLC.
- Swanson was the sole member of Sun Studs, LLC and managed it directly, making it a member-managed LLC.
- Swanson set general safety policies for Sun Studs, providing a safety manual that served as a 'template' for the mill's operations.
- Swanson delegated day-to-day responsibility for safety implementation and oversight to Sun Studs' own mill manager and HR director.
- Swanson's executives supervised their counterparts at Sun Studs, conducted performance reviews, and retained authority to correct any safety violations they observed on-site.
- Cortez, an employee of Sun Studs, was walking through the mill one evening when he was struck and severely injured by a forklift operated by another Sun Studs employee in a dark corridor.
Procedural Posture:
- Cortez, after receiving workers' compensation benefits, filed suit against Swanson Group, Inc. in an Oregon trial court for negligence and violation of the Employers Liability Law (ELL).
- Swanson moved for summary judgment, arguing it was immune from suit under workers' compensation exclusivity and the statute limiting LLC member liability.
- The trial court granted summary judgment for Swanson, ruling that the workers' compensation statutes provided the exclusive remedy for Cortez's injuries.
- Cortez, as appellant, appealed the trial court's judgment to the Oregon Court of Appeals.
- The Court of Appeals affirmed the dismissal of the ELL claim, but reversed the summary judgment on the negligence claim, remanding it for further proceedings.
- Both Swanson and Cortez filed cross-petitions for review to the Oregon Supreme Court, which the court granted.
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Issue:
Is a parent corporation, acting as the sole member-manager of its subsidiary LLC, a person 'having charge of, or responsibility for' a risk-producing activity under Oregon's Employers Liability Law (ELL) if it retains the right to control safety at the subsidiary's worksite?
Opinions:
Majority - Kistler, J.
Yes. A parent corporation that retains the right to control the manner or method in which a risk-producing activity is performed at its subsidiary LLC is a person 'having charge of, or responsibility for' that work under the Employers Liability Law (ELL). The court bifurcated its analysis between the negligence and ELL claims. Regarding negligence, the court applied the standard for corporate officers, which requires active participation in or knowledge of a subordinate's tort. Swanson delegated day-to-day safety management and there was no evidence it negligently formulated its general policies, negligently delegated authority, or negligently exercised its oversight. Therefore, Swanson was not liable for common-law negligence. However, the court found Swanson could be liable under the stricter standard of the ELL. The ELL imposes a heightened duty of care on any person 'having charge of, or responsibility for' work involving risk. This can apply to an indirect employer who retains the right to control the risk-producing activity. As the sole member-manager, Swanson had the statutory right under ORS 63.130 to manage all aspects of Sun Studs' operations, and its executives admitted they retained the authority to change safety procedures and equipment. This evidence was sufficient for a jury to find Swanson retained the right to control, triggering liability under the ELL. The court also held that ORS 63.165(1) only shields LLC members from vicarious liability for the LLC's obligations, not from personal liability for their own torts. Additionally, the pre-2013 workers' compensation exclusivity statute, ORS 656.018, did not explicitly list LLC members as immune, unlike corporate directors, so it offered Swanson no protection from the ELL claim.
Analysis:
This decision clarifies the scope of liability for parent companies that use the LLC structure for their subsidiaries. It establishes that while a parent member-manager may avoid common-law negligence liability by delegating daily operations, it can still be held liable under Oregon's stricter Employers Liability Law (ELL) if it merely retains the right to control safety policies, even if that right is not actively exercised. This creates a significant distinction between the standards for common-law negligence (requiring active participation) and statutory employer liability (requiring only the retained right to control). The ruling highlights a pathway for injured employees to sue parent companies directly, piercing the corporate veil under specific statutory frameworks.
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