An LLC’s Members Have Limited Liability Except, of Course, When They Do Not

An LLC’s Members Have Limited Liability Except, of Course, When They Do Not

       A recent decision from the Oregon Supreme Court reminds us that, while as a general rule the members of a limited liability company enjoy (it is part of the name) limited liability from its debts and obligations, there are circumstances in which that rule is set aside. In this instance, applying certain environmental laws, it was held that the members at of an Oregon LLC are personally liable for its failure to properly operate a landfill. Kinzua Resources, LLC v. Oregon Department of Environmental Quality, ___ P.3d __, 366 Or. 674, 2020 WL 3866921 (Or. July 9, 2020).

       Kinzua Resources, LLC held the permit to operate the Pilot Rock landfill. That landfill was closed in 2010, and thereafter there occurred a number of fires. The Oregon Department of Environmental Quality began assessing fines for the failure to properly execute upon the closure. To that end, under Oregon law, if the operator of a landfill does not comply with the requirements for its closure, “the person owning or controlling the property in which the disposal site is located, shall close and maintain the site.” ORS § 459.268; id. § 459.205(2).

        In this decision, the Oregon Supreme Court was called upon to determine how to apply the term “controlling.” In this instance, they determined that the members of the LLC were in the controlling capacity and as such could be held directly responsible to effect the proper closure of the facility.

        Addressing the apparent “conflict” between this liability of the LLC’s members and the LLC Act, the court found that the limited liability provision of the Oregon LLC Act relates to vicarious liability, namely responsibility for a debt or obligation of the LLC consequent to member status. In contrast, the obligations with respect to proper closure of the landfill were held to be direct and that the environmental “obligations are premised on the person’s own authority - retained or exercise - over the site at which the permit-holder has failed to act” in completing the necessary closure of the facility.