Estate of Countryman Ex Rel. Taylor v. Farmers Cooperative Ass'n
679 N.W.2d 598 (2004)
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Rule of Law:
A member or manager of a limited liability company (LLC) is not shielded from personal liability for torts in which they actively participated, even if the tortious conduct occurred within the scope of their managerial duties for the LLC.
Facts:
- On September 6, 1999, a propane gas explosion destroyed the home of Jerry Usovsky, killing seven people and injuring six others.
- Iowa Double Circle, L.C. (Double Circle), an Iowa LLC, had supplied the propane to the Usovsky home prior to the explosion.
- Farmers Cooperative Association of Keota (Keota) owned a 95% interest in Double Circle and was a member of the LLC.
- Pursuant to a management agreement, Keota provided managerial services to Double Circle, which included responsibility for 'human resource and safety management.'
- Dave Hopscheidt, Keota's manager, oversaw the daily operations of both Keota and Double Circle.
- The plaintiffs alleged Keota was negligent in its safety management, including failing to provide proper warnings to propane users about the need for gas detectors and the design of the odorant in the propane.
Procedural Posture:
- The survivors of the explosion and executors of the estates of the deceased (Plaintiffs) filed a lawsuit against multiple defendants, including Keota, in Iowa district court.
- Keota filed a motion for summary judgment, arguing its status as a member-manager of the LLC Double Circle shielded it from liability.
- The district court granted summary judgment in favor of Keota, concluding it was protected as a matter of law from personal liability for claims attributable to Double Circle.
- After Plaintiffs settled with the remaining defendants, Plaintiffs (appellants) appealed the district court's summary judgment ruling regarding Keota (appellee) to the Supreme Court of Iowa.
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Issue:
Does the Iowa Limited Liability Company Act shield a member-manager of an LLC from liability for its own participation in tortious conduct when that conduct occurs within its managerial role?
Opinions:
Majority - Cady, Justice
No. The Iowa Limited Liability Company Act (ILLCA) does not shield a member-manager of an LLC from liability for its own participation in tortious conduct, even when acting within its managerial capacity. The ILLCA protects members and managers from liability arising 'solely by reason of being a member or manager,' which refers to vicarious liability based on their status, not direct liability for their own actions. The Act explicitly states that its liability protections shall not be construed to affect the liability of a member for their 'participation in tortious conduct.' This principle aligns with long-standing corporate and agency law, under which a corporate officer is personally liable for their own torts, even when committed on behalf of the corporation. Therefore, while Keota is protected from liability stemming merely from its status as manager of Double Circle, it can be held liable for its own alleged negligence in performing its management duties.
Analysis:
This decision clarifies that the limited liability shield afforded by the LLC structure is not absolute. It establishes that managers cannot use the LLC form to escape personal responsibility for their own tortious conduct committed on behalf of the company. By aligning the liability rules for LLC managers with traditional corporate law, the court ensures consistency and prevents the LLC from being used as a tool to insulate active wrongdoers. This holding reinforces the distinction between vicarious liability (based on status) and direct liability (based on participation), setting a key precedent for tort litigation involving LLCs in Iowa.
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