To what extent is a member of an LLC protected in a negligence claim against the LLC?

LLC protection

Gardner vs. Henderson Water Park, LLC (Nev. Supreme Ct. – Aug. 3, 2017)

The issue is to what extent is a member of a limited liability company (LLC) protected in a negligence-based tort action against the LLC.

After their son, L.G., suffered severe injuries in a near drowning in the wave pool at Cowabunga Bay, the Gardners brought suit against Henderson Water Park, LLC, which does business as Cowabunga Bay Water Park (the Water Park), and its two managing members, West Coast Water Parks, LLC, and Double Ott Water Holdings, LLC (the member-LLCs). Among other allegations, the Gardners alleged that the negligence of the Water Park and member- LLCs contributed to L.G.’s injuries because of the Water Park’s inadequate staffing of lifeguards.

The member-LLCs eventually moved for summary judgment, which the district court granted. Specifically, the district court dismissed the member-LLCs as improper parties pursuant to NRS 86.381. The district court certified its order as final under NRCP 54(b), and the Gardners appealed.

On appeal, the Gardners argued the district court erred in concluding that NRS 86.371 and NRS 86.381 shield the member-LLCs from suit because the Gardners sought to pursue a direct claim against the member-LLCs for the member-LLCs’ own tortious conduct in negligently operating the Water Park.

The Nevada Supreme Court explained that members of an LLC enjoy the benefit of limited liability, which refers to the fact that a member is not personally responsible for the LLC’s liabilities solely by virtue of being a member. See 1 Larry E. Ribstein & Robert R. Keatinge, Ribstein and Keatinge on Limited Liability Companies § 1.5 (2016). With respect to a member’s liability to third parties, NRS 86.371 provides that, “[u]nless otherwise provided in the articles of organization or an agreement signed by the member or manager to be charged, no member or manager of any limited-liability company formed under the laws of this State is individually liable for the debts or liabilities of the company.” In addition, NRS 86.381 provides that “[a] member of a limited-liability company is not a proper party to proceedings by or against the company, except where the object is to enforce the member’s right against or liability to the company.” Accordingly, the Court determined that pursuant to NRS 86.371 and NRS 86.381, a member is not individually liable in a negligence-based tort action against the LLC solely by virtue of being a member.

The Court noted that while NRS 86.371 and NRS 86.381 do not shield members from liability for personal negligence, the Gardners failed to allege that the member-LLCs were personally negligent. Cf. Semenza v. Caughlin Crafted Homes, 111 Nev. 1089,1098, 901 P.2d 684, 689 (1995) (“An officer of a corporation may be individually liable for any tort which he commits . .”). The Gardners argued they sought to assert independent claims and impose direct liability based on the member-LLCs’ tortious conduct, and that the claims could be asserted against the member-LLCs even if the Water Park was not a party to the underlying action. However, the Gardners did not allege any conduct by the member- LLCs that is separate and apart from the challenged conduct of the Water Park—i.e., the Gardners did not specify how any individual act or omission by the member-LLCs contributed to L.G.’s injuries. See Cortez v. Nacco Material Handling Grp., Inc., 337 P.3d 111, 119 (Or. 2014) (indicating that a member “remains responsible for his or her acts or omissions to the extent those acts or omissions would be actionable against the member. . . if that person were acting in an individual capacity”); see also Wood v. Safeway, Inc., 121 Nev. 724, 731, 121 P.3d 1026, 1030-31 (2005) (noting that under NRCP 56, to withstand summary judgment, “the non-moving party may not rest upon general allegations and conclusions, but must, by affidavit or otherwise, set forth specific facts demonstrating the existence of a genuine factual issue” (quotation marks omitted)). The Gardners did not claim the member-LLCs breached a personal duty owed to L.G.; rather, the Gardners simply alleged the member-LLCs breached certain duties that only arise based on the member-LLCs’ roles as members. See Fetch v. Humble, 939 So. 2d 499, 504 (La. Ct. App. 2006) (interpreting similar limited liability statutes, and holding that personal liability for negligence will not stand when the plaintiff fails to allege that the member’s acts “are either done outside one’s capacity as a member. … or which while done in one’s capacity as a member .. .. also violate some personal duty owed by the individual to the injured party”). Thus, the Court determined that the Gardners impermissibly sought to hold the member-LLCs liable for the alleged negligence of the Water Park solely by virtue of the member-LLCs being managing members of the Water Park.

Because NRS 86.371 provides that the member-LLCs are not liable solely by virtue of being managing members, and NRS 86.381 provides that the member-LLCs are not proper parties in the action against the Water Park, the Court concluded that the district court did not err in dismissing the member-LLCs as improper defendants as a matter of law. Accordingly, the Court affirmed the district court’s order granting summary judgment.

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