Wednesday, April 18, 2012

Patmon v. Hobbs Overruled by Ky General Assembly

Patmon v. Hobbs is No Longer Good Law - Violation of the Duty of Loyalty in Partnerships and LLCs Not Subject to “Fairness” Defense
In Patmon v. Hobbs, 280 S.W.3d 589 (Ky. App. 2010), the Court of Appeals both permitted a “fair to the LLC” defense to the appropriation of a company asset and as well imposed on the plaintiff the burden of proving lack of fairness.  As has been previously reviewed, both these determinations went far astray from the predecessor law on the duty of loyalty in partnerships and LLCs under which the appropriation of an asset is, without informed sanction by the other participants in the venture, improper and for which “fairness” is not a defense.  See Thomas E. Rutledge and Thomas E. Geu, The Analytic Protocol for the Duty of Loyalty Under the Prototype LLC Act, 63 Ark. L. Rev. 473 (2010).
In response, amendments to the LLC and partnership acts make clear that “fairness” is not a defense to the appropriation of a partnership or LLC asset.  See Ky. Rev. Stat. Ann. § 275.170(3); id. § 362.1-404(5); and id. § 362.2-408(5), each as amended by 2012 H.B. 341.

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