This blog, written by Thomas E. Rutledge, focuses primarily on business entity law in Kentucky. Postings on contract law, contractual and statutory construction, and the entity law of other jurisdictions appear as well. There may as well be some random discussions of classical, medieval and renaissance history.
Thursday, May 15, 2014
Where Does Kentucky Stand on Piercing LLCs?
Where Does Kentucky
Stand on Piercing LLCs?
Technologies, Inc. v. Linn Station Properties, LLC, 360 S.W.3d 152 (Ky.
2012), the Kentucky Supreme Court updated the law on when the corporate veil
may be pierced.Left unresolved was the
question of whether and how the veil of a limited liability company (LLC) may
While the Kentucky Court of Appeals has applied veil piercing
to LLCs, the Kentucky Supreme Court has for now (maybe?) reserved judgment as
to whether and how LLCs may be pierced.Specifically, in Pannell v.
Shannon, __ S.W.3d __, 2014 WL
1101472, *14 fn. 15 (Ky. 2014), the Court wrote:
Other Court of Appeals
decisions involving the piercing of an LLC include Mountain Paving and Construction, LLC v. Workman, No. 2012-CA-001822-MR,
2014 WL 272463 (Ky. App. Jan. 24, 2014) (Not to be Published) (veil of LLC
pierced in order to hold one member liable on LLC debt) and Rednour
Properties, LLC v. Spangler Roof Services, LLCNo. 2009-CA-001159-MR, 2011 WL
2535330 (Ky. App. June 10, 2011, modified July 8, 2011)(LLC pierced on basis including
that it was a single member LLC and was set up for tax purposes and to achieve
limited liability).Subsequent to the Rednour decision the LLC Act as well as
the business corporation act were amended to make express that being a SMLLC or
single shareholder corporation are not basis for piercing.Ky.
Rev. Stat. Ann. § 271B.6-220(3) (“That a corporation has a single
shareholder is not a basis for setting aside the rule recited in subsection (2)
of this section.”), id. § 275.150(1)
(“That a limited liability company has a single member or a single manager is
not a basis for setting aside the rule otherwise recited in this subsection.”).
See also Rutledge, The 2012 Amendments
to Kentucky’s Business Entity Statutes, 101Kentucky
Law Journal Online1, 3-4(2012).
the Supreme Court has recognized that LLCs are statutory constructs that are
strangers to the common law.
In fact, “limited liability
companies are creatures of statute,” controlled by Kentucky Revised Statutes
(KRS) Chapter 275,” not primarily by the common law. To the extent that common
law doctrines could arguably govern limited liability companies, the Kentucky
Limited Liability Company Act “is in derogation of common law,” KRS
275.003(1), and the traditional rule of statutory construction that
“require[s] strict construction of statutes which are in derogation of common
law shall not apply to its provisions.” Id. Thus, to the extent the
statutes conflict with common law, the common law is displaced.
This Court must therefore first look
at the controlling statutory law. The obvious place to start, then, is the source
of limited liability in the LLC context, KRS
275.150.Pannell v. Shannon, supra
at *7 (citations omitted).
thereby distancing LLCs from the roots of piercing jurisprudence.But seeKy. Rev. Stat. Ann.§ 275.003(1) (“Unless displaced by particular provisions of this chapter,
the principles of law and equity shall supplement this chapter.”).
Unfortunately, the apparent
categorical reservation of the question of piercing the LLC veil set forth in Pannell v. Shannon stands in
contradiction to another recent decision of the Supreme Court.In Turner
v. Andrew, the Court wrote:
The doctrine [of veil piercing] can
also apply to limited liability companies.413 S.W.3d
272, 277 (Ky. 2013).
The Turner decision was written by Justice
Abramson, and this language is consistent with an unpublished trial court
ruling written by now Justice Abramson when she was on the Circuit Court, she
While it is true that the foregoing represents the law with
respect to the liability of corporate officers and shareholders, equity and
fairness required that those same theories of liability [piercing and personal
responsibility for personally committed torts] should extend to managers and
member of limited liability companies as well.Fabing v. E Concepts, LLC,
Jeff. Cir. Ct. (Div. 3) No. 01-CI-06835, Order Granting Plaintiff’s Motion for
Partial Summary Judgment entered June 9, 2003 (emphasis in original).
remains to be seen whether the acceptance of LLC veil piercing (Turner v. Andrew) or the reservation of
the question (Pannell v. Shannon)
will be determined to be controlling.