Landlord Not Protected by Exclusive Remedy of Workers Compensation

For Every Action there is an Equal and Opposite Reaction,

and What is it With Funeral Homes?

        A recent case from the Nebraska Supreme Court highlights a perhaps negative consequence of a common structure employed in closely held businesses.  The structure at issue is as follows:  a group of owners organize a business corporation or LLC to be the operating company.  They as well organize, typically in the form of a partnership or LLC, a parallel company that will own the real estate and facility in which the operating company operates.  Lease payments from the operating company cover the real estate company’s borrowing costs and, assuming that piercing is not an issue, protect the accumulated value in the real estate company from claims by the creditors of the operating company.

        It was this structure that was employed in the case under review in Nebraska.  Howsden v. Roper’s Real Estate Company, 2011 WL 5105810 (Neb. Oct. 28, 2011).  Howsden was an employee of Roper & Sons, Inc., a funeral home.  That funeral home operated from a facility owned by Roper’s Real Estate Company, Inc.; both Roper & Sons and Roper’s Real Estate had the same ownership.  Howsden, an employee of the funeral home company, was injured on the property, falling down a seldom-used elevator shaft.  In connection therewith, she received workers’ compensation benefits pursuant to the policy of the operating company.  From there, she brought as well a negligence action against the real estate company based upon improper maintenance of the elevator.

        The real estate company defended on the basis that Howsden’s rights under workers’ compensation coverage were the sole and exclusive remedy available to her, in effect arguing for consolidation of the operating and real estate companies.  This effort was unsuccessful.  The Court recognized that setting up separate business structures for different parts of an operation is entirely legitimate.  At the same time, the Court noted that doing so has consequences.  One of the consequences is, necessarily, that the different business ventures, absent circumstances justifying piercing, will be treated as distinct from one another.  Under Nebraska, law, piercing is not available absent fraud or a significant equitable basis, and the Court here found that there was neither fraud in the structuring nor an equitable basis for ignoring the legal distinctiveness of the different operation, stating that it would be at best near impossible for one to structure different operations in difference corporations and then argue, on an equitable basis, that they should be consolidated.  Ergo, Howsden’s suit against the real estate company could proceed, in not being barred by the exclusivity provision of Nebraska’s workers’ compensation statute; the real estate company was not her employer.

        Curiously, the Kentucky courts have considered a strikingly similar factual situation and came to a similar conclusion.  Jessie v. Dermitt, No. 2005-CA-0011961-MR (Ky. App. Dec. 8, 2006) (Not To Be Published).  Therein, the plaintiff fell through a hole in the floor of a funeral home that was being remodeled.  The operations of the funeral home venture were structured as an LLC; the real property was owned separately by the LLC’s members.  The real property owners defended on the basis of the exclusivity provision of the workers’ compensation law.  For essentially the same reasons as those applied in the Howsden decision, that effort was in Kentucky was rejected.  “[The owners] have cited no legal authority to this Court that permits the exclusive remedy provisions of the Workers’ Compensation Act to be extended to a landlord who owns the premises where the employer’s business is operated.”  Jessie v. Dermitt, slip op. at 7.