Wednesday, May 16, 2012

Some Relief from the Rednour Decision

Supreme Court Grants Some Relief from Rednour Properties v. Spangler,
but not Nearly as Much as Might Have Been Hoped

            A trio of earlier postings reviewed the decision of the Court of Appeals rendered in Rednour Properties v. Spangler (November 7, 8 and 9, 2011).  Actually, suggesting that I simply “reviewed” the decision is an understatement; my intent was to explain the complete lack of analysis employed by the Court of Appeals and the entire departure from prior law.  In summary, the Court of Appeals upheld the piercing the veil of an LLC notwithstanding the absence of any showing of fraud or injustice and on the basis that (i) the LLC had a single member, (ii) the LLC was set up for tax purposes, (iii) the LLC was set up with the objective of gaining limited liability and (iv) the LLC’s registered agent was the sole member.  Of course, under Kentucky law, there must be a showing of fraud or injustice in order to justify piercing (see Inter-Tel Technologies, Inc. v. Linn Station Properties, LLC, 360 S.W.3d 152 (Ky. 2012)) and single member LLCs are expressly sanctioned under Kentucky law.
          On April 18, the Kentucky Supreme Court denied discretionary review of the Rednour decision, ordering as well that the ruling of the Court of Appeals not be published.
          While the order to not publish the Court of Appeals’ decision is helpful, and it may be argued strips the Rednour decision of any precedential value, in my view the Court can be justifiably criticized for not having remanded the matter to the trial court for reconsideration in light of Inter-Tel Technologies.  As matters stand, we are left simply with the argument (a good argument, but admittedly simply an argument) that the combination of the Supreme Court’s order that the Court of Appeals decision not be published, the legislative actions taken to in part overrule Rednour (see Single Shareholder Corps and Single Member LLCs are not for that Reason Subject to Piercing, April 12, 2012) and the published Inter-Tel Technologies decision render the Rednour opinion at most a historic (and embarrassing) footnote.

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