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MONTH-IN-BRIEF (Aug 2018)

Limited Liability Companies

LLC’s Members Waived Limited Liability, Held Liable on LLC’s Debts and Obligations

By Thomas E. Rutledge, Stoll Keenon Ogden PLLC

In a decision rendered on August 24, 2018, the Kentucky Court of Appeals affirmed a determination that, consequent to the wording of a particular operating agreement, the members in the LLC assumed and are liable to satisfy the LLC’s debts and obligations. VanWinkle v. Walker, No. 2016-CA-000097-MR, 2018 WL 404-3388 (Ky. App. August 24, 2018).

VanWinkle, Walker and Crawford formed TLC Developers, LLC in 2004, executing an operating agreement in connection therewith. That operating agreement provided, in part:

The profits and liabilities of the Company shall be divided as follows: Carl David Crawford = thirty-three and one third  (33 1/3%), Lyle A. Walker = thirty-three and one third (33 1/3%) percent and Troy Van Winkle [sic] thirty-three and one third (33 1/3%).

When the company fell upon hard times, Walker and Crawford contributed additional amounts in order that the company could meet its business expenses. As recited by the court, “in their view, in the event TLC did not have the cash on hand to pay the liabilities itself, the operating agreement mandated that the three members would pay the liabilities of TLC equally.” VanWinkle did not make those contributions, apparently of the belief that the operating agreement did not require him to do so. He did, however, on two occasions contribute one-third of the amount necessary to satisfy TLC’s property taxes.

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