When is a limited liability company member liable for the tortuous conduct of the limited liability company?  Pursuant to Missouri law:

A person who is a member, manager, or both, of a limited liability company is not liable, solely by reason of being a member or manager, or both, under a judgment, decree or order of a court, or in any other manner, for a debt, obligation or liability of the limited liability company, whether arising in contract, tort or otherwise . . .

 Mo. Rev. Stat. § 347.057.

Only one Missouri case has addressed the “solely by” language in Section 347.057.  In JB Contracting, Inc. v. Bierman, 147 S.W.3d 814, 819 (Mo. App. S.D. 2004), the court held that the respondents failed to prove facts necessary to hold the sole owner of a limited liability company individually liable under an unjust enrichment theory for the acts of the LLC owned by him.  The court noted that the respondents produced facts which showed only that the LLC was benefited, but not the owner, by the actions of respondents.  Id.  Therefore, the member was not held liable “solely by” his status as the sole owner of the LLC.

No Missouri case has previously examined the precise issue of whether the principles for tort liability for corporate officers and agents also apply to members of LLCs.  However, the Eighth Circuit has at least touched on the issue, stating that members of an LLC are protected from liability in the same manner as shareholders of a corporation.  In re Tri-River Trading, LLC, 329 B.R. 252 (8th Cir. 2005) (“Members of a Missouri limited liability company, like corporate shareholders, have no liability for the company’s debts solely by reason of their membership in the LLC.”) (emphasis added).  Both Bierman and In re Tri-River Trading would suggest that  tort liability principles similar to those which apply to corporate officers also apply to members of LLCs.

Furthermore, other jurisdictions which have addressed the issue have arrived at the conclusion that such tort liability principles do in fact apply to LLCs.  See, e.g., Allen v. Dackman, 991 A.2d 1216, 1228 (Md. 2010) (finding that, under a substantially similar LLC statute, that principles for tort liability for corporate officers and agents apply to members of LLC); Weber v. U.S. Sterling Sec., Inc., 924 A.2d 816, 824 (Conn. 2007) (explaining that, under a substantially similar Delaware LLC statute, an LLC is “treated for liability purposes like a corporation” and that the statute thus does not preclude individual liability for members of a limited liability company if that liability is not based simply on the member’s affiliation with the company); Luna v. A.E. Eng’g Servs., LLC, 938 A.2d 744, 748 (D.C. 2007) (applying to an LLC member the “general rule . . . that corporate officers are personally liable for torts which they commit, participate in, or inspire, even though the acts are performed in the name of the corporation”).

In Missouri, tort liability principles for corporate officers convey that merely holding a corporate office will not subject one to personal liability for the misdeeds of the corporation.   Boyd v. Wimes, 664 S.W.2d 596, 598 (Mo. App. W.D. 1984).  At the same time, however, “the corporate office does not insulate against liability one who has actual or constructive knowledge of the actionable wrong and who participates therein.”  Id. (citing Osterberger v. Hites Construction Co., 599 S.W.2d 221, 229 (Mo. App. E.D. 1980)).  Were the rule to the contrary, “the agent of a corporation could shield himself from liability for almost every kind of wrong, provided he was acting in the capacity of agent … [T]he agent is liable to a third party for misfeasance and for acts of positive wrong.”  Id. (citing Rauch v. Brunswig, 137 S.W. 67, 68 (Mo. 1911)).  In Boyd, 664 S.W.2d at 598, the owner of the corporation held corporate offices and allegedly personally participated in the conversion of the plaintiff’s escrow funds.  The court held that “the jury could reasonably infer knowledge of the converted funds from the fact [defendant] stood as the sole employee and trustee of [] during the period in question.”  Id.

Similarly, in Curlee v. Donaldson, 233 S.W.2d 746, 748 (Mo. App. 1950), plaintiff sued a corporation for trespass and named both the corporation and its president as defendants.  The plaintiff obtained judgment against both defendants.  On appeal, the court found that the president ordered and directed the woodcutters to the tract where they were to cut timber, but failed to provide supervision.  Id.  Therefore, the president became liable for the trespass.  Id. The court emphasized the level of control the president had over the woodcutting operation.  In addition to being the president, he was the treasurer and general manager and one of only three directors and stockholders. Id. at 749.

Moreover, the court found that the failure to prove by direct evidence the existence of actual knowledge on the part of the president that these trespasses were occurring did not relieve him of liability.  Id. at 754.  The court found that there was circumstantial evidence of knowledge on his part, and that it was his duty to inform himself with respect to the forces he had set in motion.  Id.  The court found that he came within “the rule of acquiescence warranting an inference of consent,” as stated in Fletcher’s Encyclopedia on Corporations, Vol. 3, Section 1135, p. 708:

[C]orporate officers, charged in law with affirmative official responsibility in the management and control of the corporate business, cannot avoid personal liability for wrongs committed by claiming that they did not authorize and direct that which was done in the regular course of that business, . . . with such acquiescence on their part as warrants inferring . . . consent or approval.

Id.

Courts outside of the state of Missouri have similarly held that corporate officers cannot avoid liability by disclaiming knowledge of a wrong when it occurs within their area of responsibility.  See Vuitch v. Furr, 482 A.2d 811, 823 (D.C. Cir. 1984) (finding that evidence supported jury’s verdict against corporate officer because liability did not arise “merely because of her official relation to the corporation,” but because of activities for which the evidence demonstrated she was responsible); see also Bowling v. Ansted Chrysler-Plymouth-Dodge, Inc, 425 S.E.2d 144, 149 (W.Va. 1992) (finding that in sanctioning a fraudulent act, the corporate officer need not have actual knowledge because constructive knowledge may suffice, which can only be proved by circumstantial evidence).

These cases convey that, under Missouri law, a member of a limited liability company is not shielded from liability merely because he or she is acting in the capacity of an agent for the LLC.   While a member will not be held liable for the wrongs committed by the LLC “solely by” reason of being a member or manager, the member can likely be held liable if they take part in the wrongdoing, or authorize what was done wrong such that it warrants inferring consent or approval on their part.

            Defamation is a false statement, communicated to others, that gives a negative impression of a person, group, or entity.  Defamation can include slander which is spoken words, or libel which is written or printed.  Defamatory language can cause harm to a person or entity such as damage to one’s reputation in the community.

            There are some types of statements that are automatically considered injurious to one’s reputation and therefore require no additional proof that the person was, in fact, harmed by the statement.  These are discussed below in more detail.  Furthermore, if the speaker knows the statement is false and intentionally defames a person anyway, the aggrieved party may be entitled to punitive damages.

            One who believes they have been defamed can obtain relief by bringing a civil suit.  However, certain elements must be met in order to prove defamation.  The following is a brief overview of Kentucky law on defamation.  However, state laws may vary on this matter.

             To establish a claim for defamation, the following elements must exist: (1) defamatory language, (2) about the plaintiff, (3) which is published, and (4) which causes injury to reputation. Stringer v. Wal-Mart Stores, Inc., 151 S.W.3d 781, 793 (Ky. 2004).  Moreover, “defamatory language is broadly construed as language that ‘tends so to harm the reputation of another as to lower him in the estimation of the community or to deter third persons from associating or dealing with him.’” Id.

             Defamatory words must be construed in their most natural meaning and in the sense in which they would be understood by those to whom they were addressed.  Digest Pub. Co. v. Perry Pub. Co., 284 S.W.2d 832, 834 (Ky. App. 1955).  Defamatory statements should also be measured by the “natural and probable effect on the mind of the average reader.” Stringer, 151 S.W.3d at 793.  “It is for the jury to determine whether a defamatory meaning was attributed to it by those who received the communication.” Id.

            A claim for defamation per se, however, creates a conclusive presumption of both malice and damages.  Disabled American Veterans, Dept. of Kentucky, Inc. v. Crabb, 182 S.W.3d 541, 547 (Ky. App. 2005) (citing Stringer, 151 S.W.3d at 794).  “Therefore, damages are presumed and the defamed person may recover without allegation or proof of special damage.”  Id. (finding that Plaintiffs were also entitled to punitive damages because Defendant’s actions were malicious and intentional).  Statements are defamatory per se when they “tend to expose the plaintiff to public hatred, ridicule, contempt or disgrace, or to induce an evil opinion of him in the minds of right-thinking people, and to deprive him of their friendship, intercourse and society.” Id. (citing CMI, Inc. v. Intoximeters, Inc., 918 F. Supp. 1068, 1083 (W.D. Ky. 1995).

            The typical types of statements that constitute defamation per se are those that impute crime or unfitness to perform duties of office, or those which tend to injure one in his reputation, or expose him to public hatred.  Stringer v. Wal-Mart Stores, Inc., 151 S.W.3d 781, 795 (Ky. 2004); Courier Journal Co. v. Noble, 65 S.W.2d 703 (Ky. App. 1933) (finding that statements made about one’s unfitness to perform duties of office fall under defamation per se).

            If you feel you have been harmed defamatory statements, the lawyers at Cosgrove Law, LLC have substantial experience with defamation claims.

March 14, 2012 – David B. Cosgrove argued in front of Judges Melloy, Smith, and Shepherd in a matter pertaining to the preclusion of statutory claims in an arbitration against Fisher Investments, a California Registered Investment Adviser. Mr. Cosgrove vigorously argued his client’s position against Fisher Investments and considered it an honor to argue in the 8th Circuit Court of Appeals.

January 30, 2012 – Cosgrove Law, LLC won a spot on Missouri Lawyer’s Weekly’s Top Plaintiff Wins of 2011 list for a $2.7 million settlement our firm helped secure for our client.  Cosgrove Law, LLC is proud of the success we have had in securing settlements and awards and we will continue to aggressively fight on behalf of our clients.

Earlier this week, a very patient judge in the federal court in St. Louis found herself ordering signatures, hearings, and discovery in a wrongful death case that had already been settled. In the case of Miess, et al v. Port City Trucking, Inc., et al (No. 4:09-cv-1124), the four plaintiffs included the mother of three children that died when a tractor trailer truck collided with the vehicle in which they were passengers. The other three plaintiffs were the fathers of the three children. The litigation between the plaintiffs and the defendant trucking company and driver settled during mediation. This initial primary mediation did not, however, resolve various issues of apportionment amongst the plaintiffs.

The Opinion (2012 WL 401 050) illustrates a reality this counsel has experienced first hand—leaving lose ends at the end of mediation with an agreement to tie them up later can be a frustrating and time-consuming misstep, albeit one that can not always be avoided. The reality is that meditations—particularly in emotionally charged financial or wrongful death cases—can be draining, if not volatile. It can be perilous to push the envelope on the nitty gritty final details after hours of mediation. Indeed, the parties may lose to fatigue and frustration their primary accord.

Luckily for the parties in this case, they had a wise judge that declined their invitation to enter a judgment between the plaintiffs and defendants until the apportionment disputes between the plaintiffs were resolved. Instead, she issued a Settlement Order, thereby retaining jurisdiction of the case. A subsequent mediation between the plaintiffs still failed to resolve all of the disputes between the plaintiffs. One must assume that to this day they are not resolved. The father-plaintiffs are seeking broad discovery from the mother regarding her medical condition and fitness to be a mother¹ and an apportionment hearing is still set for next month. In sum, a case that ends at mediation might not be over. Food for thought.

January 13, 2012 – Cosgrove Law, LLC won a $3.25 million award for their client, a former securities broker, in a hard-fought FINRA arbitration. The client filed a FINRA arbitration against his former employer, Questar Capital Corporation, a subsidiary of Allianz Life Insurance, for tortious interference, breach of contract, negligence and defamation.  David B. Cosgrove and Kurt J. Schafers were the lead attorneys on this matter and were able to fight for a successful outcome for the client during the 15 days of arbitration hearing. The Panel also denied and dismissed Questar’s $10 million Counterclaim in its entirety.  News articles related to this Award can be found on Thomson Reuters News and Insight,  Fox Business News, The Wall Street Journal, and Law360.com [subscription required].

If you are interested in examining the historical parallels between the alleged causes and political responses to the economic crises of 1929 – 1934 and 2008 – 2012 from a unique perspective, pick up Michael Perino’s “The Hellhound of Wall Street: How Ferdinand Pecora’s Investigation of the Great Crash Forever Changed American Finance.” While the focus of the book is the political reaction and wranglings, as well as the financial practices, that ultimately led to the 1932-’33 City Bank Senate investigation and hearings, followed by the creation of the Securities and Exchange Commission, the parallels are astonishing. Here is just one example from the book:

           “Few Americans today know who Ferdinand Pecora was, although he was once a media superstar, a nearly daily fixture in the newspapers and radio broadcasts across the country. With the onset of our current economic woes his name has slowly begun to crop up again. In April 2009, House Speaker Nancy Pelosi called for a new “Pecora Commission” to investigate “what happened on Wall Street.” The next week, the Senate invoked Pecora’s name in voting to create an independent committee to investigate the financial crises, and in January 2010 the Financial Crises Inquiry Commission held its first hearings.                                                                                   Pecora, a diminutive Sicilian immigrant and a former assistant district attorney from New York City, was chief counsel for the Senate Committee on Banking and Currency, charged with investigating the causes of the 1929 stock market crash. As he recounted in his memoir of the hearings, Wall Street under Oath: “Before [the committee] came, in imposing succession, the demigods of Wall Street, men who names were household words, but whose personalities and affairs were frequently shrouded in deep, aristocratic mystery…Never before in the history of the United States had so much wealth and power been required to render a pubic accounting.” In terms of rapt public attention, economic impact, and long-lasting legislative accomplishments, Pecora’s investigation must rank as the most successful inquiry in the more than two-hundred-year history of congressional probes.¹”²

           “Ultimately, the acclaim Pecora garnered was justified because the hearings he led fundamentally changed the relationship between Washington and Wall Street. Before 1933 the federal government had taken a hands-off approach to the stock market. But the hearings, and the public clamor they created, changed all that. In his Inaugural Address, Roosevelt declared, “There must be an end to a conduct in banking and in business which too often has given to a sacred trust the likeness of callous and selfish wrongdoing,” and he called for “strict supervision of all banking and credits and investments.” Many would argue that the former is still all too true, but Roosevelt at least delivered on the latter. Over the course of Roosevelt’s famous first hundred days in office and then in the year following, Congress passed and Roosevelt signed a flurry of banking and securities legislation, most of which still governs our financial markets today. The first federal securities laws, federal deposit insurance, and the creation of the Securities and Exchange Commission all trace their roots back to that fertile political soil.”³

           “The primary compensation for Mitchell and the other officers was the management fund. After deducting an initial 8 percent return for the shareholders, the officers collectively shared 20 percent of all of the remaining profits. In broad strokes, City Bank’s management fund looked similar to compensation in hedge funds today, and for Pecora, it provided the same incentive for excessive risk taking. In fact, it might have created even greater incentives for risk. A hedge fund typically collects 20 percent of all profits, but the executives at City Bank had “nothing to gain and everything to lose, individually, by a conservative policy” because their profit sharing did not kick in until the bank had crossed that initial 8 percent threshold.                                                                                       There was another factor, as well, that pushed the executives to even riskier securities offerings. Every year it took more and more sales to get the management fund into the black. Mitchell was continuously expanding his far-flung securities-selling network. By 1929 it had offices across the country linked by the latest information technology of the day. The overhead on the system was enormous, and City Bank had to sell larger and larger amounts of securities just to break even.”⁴

While the title and much of the book’s content center upon the chief counsel for the Senate hearings, “Ferde” Pecora—an Italian immigrant that grew up in a New York City basement without heat or plumbing—the book is also filled with the financial and political history of one of the most extreme decades in the United States. I picked my copy up at a Borders going-out-of-business sale. How ironic is that?!

January 5, 2012 – Kurt J. Schafers has been asked to moderate two Panels for the Bar Association of St. Louis’ (BAMSL) 2012 E-Discovery Symposium, as well as present the welcoming remarks and the introductions at the event.  Mr. Schafers is a Chair on BAMSL’s Federal Litigation & Practice Section.  Mr. Schafers will be moderating the Ethics and E-Discovery: Case-Law Update Panel as well as the Plenary Question-and-Answer Panel.  Mr. Schafers will be joined by an excellent group of local attorneys on each Panel.  The Symposium will be held on Thursday, February 09, 2012  from 8:30 AM – 1:00 PM.  For registration information, please visit BAMSL’s website.

The idea behind the Missouri workers’ compensation statute is to create a no-fault compensation system that essentially guarantees compensation to an employee for work-related injuries.  In this quid pro quo system, the employee accepts reduced compensation and gives up the right to pursue legal remedies, such as common law negligence damages, against the employer.  In turn, the employer agrees to be subject to a no-fault system with the certainty that work-related injury claims are addressed exclusively with the Division of Workers’ Compensation (“Division”).

In 2005, the Missouri Legislature made drastic amendments to the workers’ compensation laws such as to limit the types of claims that can be filed with the Division.  It also increased the burden an employee has to meet to be entitled to benefits.

Prior to the 2005 amendments, workers’ compensation laws were broadly construed to include a large class of employees and a large class of injuries.  The employee’s burden was to prove that his or her employment was a substantial factor in the resulting injury.  Currently, the 2005 amendments require that the statute be strictly construed.  It also raises the employee’s burden from “substantial factor” to “prevailing factor.”  Before, an employee was only required to show that his employment was more than a minimal factor in causing the resulting injury. But now the employee must prove his employment was the primary reason for the injury.  This essentially adds an element of fault to the employee’s burden.  Moreover, the definition of “accident” was amended to exclude injuries such as those from ordinary deterioration of the body.

Many felt these amendments abolished the idea of the “quid pro quo, no-fault” system.  These concerns were raised by a number of labor organizations when they filed suit against the Department of Labor and Industrial Relations claiming that the 2005 amendments to the statutes were unconstitutional.

In 2009, the Missouri Supreme Court issued an opinion in Missouri Alliance for Retired Americans, et al., v. Department of Labor and Industrial Relations, 277 S.W.3d 670 (Mo. en banc 2009).  In its opinion, the Court, in a declaratory judgment, resurrected the availability of a civil common law negligence claim for some work related injuries because the 2005 amendments to the workers’ compensation laws left many injured employees with no legal recourse.

Subsequent to the Act, the statute narrowly defines the term “accident” as an “unexpected traumatic event or unusual strain identifiable by time and place of occurrence and producing at the time objective symptoms of an injury caused by a specific event during a single work shift” Section 287.020.2.

Furthermore, the statute’s exclusive jurisdiction clause states, “Every employer subject to the provisions of this chapter shall be liable, irrespective of negligence, to furnish compensation under the provisions of this chapter for personal injury or death of the employee by accident arising out of and in the course of the employee’s employment, and shall be released from all other liability therefore whatsoever….”  In addition, “The rights and remedies herein granted to an employee shall exclude all other rights and remedies of the employee … at common law or otherwise, on account of such accidental injury or death, except such rights and remedies as are not provided for by this chapter.” Section 287.120 (emphasis added).  This section makes the act the exclusive remedy for the employee only on account of “such accidental injury or death.”

Taking the two clauses together, the Court determined that any worker excluded from the narrow definition of “accidental injury” would have right to bring suit under common law theories.  However, the Court noted that the determination of whether a worker is subject to remedies under workers compensation laws or under common law shall be decided on a case-by-case basis.

More recently, the Missouri Court of Appeals for the Western District decided whether occupational disease claims fall within the exclusive remedy provisions of workers’ compensation law.  In the case of Gunter v. KCP&L, Gunter was diagnosed with mesothelioma after working thirty-four years for KCP&L.  In April of 2010, Gunter sued his employer on theories of premises liability and negligence.  KCP&L asserted an affirmative defense that Gunter’s claims were barred because the exclusive remedy falls under Missouri workers’ compensation laws.

The Court also analyzed the Act’s definition of “accident” alongside its exclusive jurisdiction provisions as the Missouri Supreme Court did in Missouri Alliance.   Furthermore, it reviewed the Act’s definition of “occupational disease” and found that since an occupational disease occurs over time and the disease cannot be linked to an identifiable time and place or a specific event during a single work shirt, it does not fall under the definition of the term “accident.”  The Court determined that the Act’s exclusive remedy provisions are limited to injuries or death caused by an “accident” as defined in §287.020.2 and noted the Missouri Supreme Court’s decision in Missouri Alliance as a basis for its holding.  The Court specifically noted that occupational disease claimants have an available but not exclusive workers’ compensation remedy.  In late December, 2011, the Missouri Supreme Court allowed the decision to stand by declining to hear an appeal filed by the employer.

Therefore, an employee alleging an injury of an occupational disease is not limited to recovery under workers’ compensation laws and can also seek judicial remedies through common law claims against his or her employer.

Now that both avenues are available to occupational disease claimants, there are a number of factors to consider when determining which venue is most appropriate.

The first and probably most important thing to determine before filing a common law claim is whether the employer was negligent because often times, injuries can occur at work without negligence on the part of the employer.  To prevail on a common law negligence claim the employee must be able to show: 1) the existence of a duty on the part of the employer to protect the employee; 2) a failure by the employer to perform that duty; and 3) a direct and proximate causal link between the employer’s failure and the plaintiff’s injuries.  The employer’s actions must fall below the standard of reasonable care and the employer’s act or omission need only be the reasonable and probable cause of the injury.  This is similar to the pre-2005 amendments “substantial factor” standard.

However, if filing a claim with the Division, the employee must be able to prove that the “occupational exposure was the prevailing factor in causing both the resulting medical condition and the disability.” Section 287.067.2.  While this is a higher burden to meet, there is no necessity to prove the employer was negligent.

Another consideration is that if the employee files a common law claim, the employer can assert affirmative defenses such as assumption of risk, contributory negligence, or third party liability.  Missouri has adopted a pure comparative fault system that allows for a reduction in damages to the employee based on any comparative fault of the employee or other mitigating factors.  Therefore, it is important to determine whether the employee’s actions contributed to the injury.

On the other hand, filing a civil claim can open up the door for additional claims and damages such as pain and suffering and emotional distress.  The employee is no longer subject to reduced benefits in exchange for no requirement of proving fault.

In sum, the 2005 amendments left occupational disease claimants in a better position than other injured employees.  Those injured employees who are excluded from the Act can file a common law negligence claim but as previously stated, not all work related injuries arise from an employer’s negligence.  Recovery for these employees can be very limited or in some circumstances, nonexistent.  The injured employees who fall under the Act’s definition of “accident” are subject to the exclusive jurisdiction of the Division.  However, occupational disease claimants can potentially recover under Missouri workers’ compensation laws and common law claims.  At the very least, occupational disease claimants are given a choice of venue that is not afforded to other types of injured employees.

It seems like every week I read an article that offers tips about how business professionals should use (or not use) social media. In fact, I posted one myself last year on our Securities and Investing blog. Some articles are specific to certain industries or professions, like mine, and some are general, but they all could be summed up in three little words…..use common sense. So why is this post different from other blog posts out there? I’m a lawyer, not a provider of statistics or a marketing guru. I’m also a lawyer who believes that while social media is good, it doesn’t (and shouldn’t) do it all.

 What you would do (or not do) in person can offer a lot of insight into how you should use social media. Would it be appropriate to ask a particular individual out for a non-business dinner? If the answer is “no” because of business conflicts or the perception it would give, then don’t “friend” them. Common sense. Are your tweets clear enough so as not to be misconstrued? In just 140 characters, it is not always easy to be clear, and once people start re-tweeting it, it takes on a life of it’s own. Use common sense.

 If you are in a profession, such as in the legal profession, that has very specific rules and regulations governing the actions of the professionals, take those rules and regulations to heart. In another context would this social media action be compliant with those rules and regulations? For example, profile fields limiting the number of characters and the inability to effectively control the number of people you are communicating with (and still use the big voice of social media) may conflict with some industry’s regulations regarding communication.

 One example is the securities industry. Individuals in the securities industry actually have a wealth of guidance already available with regulations and some official Notices provided to offer specific guidance to industry professionals on social media. FINRA‘s Regulatory Notice 10-06 offers insightful Q&A’s regarding social media. FINRA also has a Guide to the Internet for Registered Representatives and podcasts available that offer guidance in this area.

 Back to the idea that social media doesn’t do it all. While it may be efficient and helpful to be completely linked to all forms of social media (such as this handy blog here), a face to face meeting and publishing articles in journals and industry related magazines is still an excellent way to be involved. And the pitfalls of sending an erroneous tweet or starting a blog that doesn’t sufficiently comply with your industry’s communications regulations can be avoided, preventing you from falling short of compliance requirements. Using each outlet wisely is key. And most importantly…use common sense!