KRS 275.150(3) and Member Personal Liability

The Kentucky LLC Act provides that members enjoy “limited liability” from the debts and obligations of the LLC.  The Act goes on to provide, consistent with the general rules of agency, that a member may be personally liable for claim arising not solely from acting on the LLC’s behalf (KRS 275.150(3); “Subsection (1) of this section shall not affect the liability of a member, manager, employee, or agent of a limited liability company for his or her own negligence, wrongful acts, or misconduct.”). Which leaves open the determination of what are and are not “his or her own negligence, wrongful acts, or misconduct”?

This provision was squarely addressed in Elk Horn Coal Co., LLC v. Deane Mining, LLC, wherein the plaintiff sought to hold certain agents of the defendant personally liable for certain trespasses to call that was improperly mined.  At the trial a directed verdict was entered in favor of each, a determination the plaintiff sought to reverse upon appeal.  Finding that the individuals had reason (the court did not set a standard such as that they had a “good faith basis”) to believe their actions were proper.  

In view of the record below, we cannot conclude that the circuit court erroneously granted a directed verdict dismissing Jensen, Suave, and Taylor. It must be remembered that the "centerpiece" of a limited liability corporation (sic) is the feature of actually limiting liability of its members and managers, as well as employees and agents. Racing Inv. Fund 2000 v. Clay Ward Agency, 320 S.W.3d 654, 656 (Ky. 2010). In this case, during the First Period, it would be reasonable to assume that upon the acceptance of royalty payments by Elk Horn, the lease was still in effect. And, in the Second Period, mining continued yet Elk Horn took no legal action to restrain or enjoin the mining until Deane Mining ceased operations on the property. Simply put, the evidence was insufficient to demonstrate that Jensen, Suave, or Taylor individually breached a duty owed to Elk Horn or were otherwise personally liable for Deane Mining's trespass to mine the coal on Elk Horn's property.

Elk Horn Coal Co., LLC v. Deane Mining, LLC, No. 2023-CA-0412-MR, 2024 WL 4714575, 2024 Ky. App. Unpub. LEXIS 626 (Ky. App. Nov. 8, 2024).