Client Alert

In a significant case for North Carolina's over 150,000 limited liability companies and their member-managers, the Supreme Court of North Carolina ruled on Friday that LLC member-managers will not be exposed to potentially ruinous civil liability for on-the-job injuries. The decision ensures that the LLC will remain an attractive form for businesses in North Carolina. In the case, Hamby v. Profile Products, LLC, Womble Carlyle Sandridge & Rice, PLLC attorneys Burley B. Mitchell, Jr. and Sarah Lindemann Buthe successfully overturned a North Carolina Court of Appeals decision which threw into doubt the extent of the “limited liability” enjoyed by LLCs and those conducting their business. The Supreme Court held that a limited liability company member-manager conducting LLC business is shielded from civil liability to injured workers by workers’ compensation law.

North Carolina workers' compensation law ensures that workers injured on the job receive benefits – but in turn prohibits those workers from seeking more through lawsuits. Workers' compensation is generally an injured worker's exclusive remedy against his or her employer, and, critically, also against those conducting the employer's business.

The decisive question in Hamby was whether Profile Products, LLC, the member-manager of the injured worker’s employer, Terra-Mulch Products, LLC, was conducting Terra-Mulch's business. To answer that question, the Supreme Court looked to LLC law. LLCs are a recent – and very popular – statutory creation, combining elements of both partnerships and corporations. Among their other characteristics, LLCs are run by managers and owned by members, both of whom may be natural persons or business entities. Members and managers have the power to bind and act on behalf of LLCs, and “when a member-manager acts in its managerial capacity, it acts for the LLC, and obligations incurred while acting in that capacity are those of the LLC,” held the Supreme Court.

The Supreme Court noted that LLC defaults, such as LLC members also being managers, may be changed by contract. But in Hamby, those defaults were not changed, and Profile not only owned but also managed Terra-Mulch. Profile therefore conducted Terra-Mulch’s business – the touchstone for workers' compensation exclusivity. Profile, like Terra-Mulch, was thus shielded from the Hamby lawsuit. And the Supreme Court made explicit that Profile's being a business entity rather than a natural person did not change the analysis.

Hamby ensures that LLC member-managers, and indemnifying LLCs, will not be forced to underwrite potentially ruinous economic losses associated with workplace injury lawsuits and that the LLC will remain an attractive business form for many North Carolina firms. “It’s a good decision for our businesses here in North Carolina and for the State's reputation as a business-friendly environment” said Mitchell, who is a former Chief Justice of the North Carolina Supreme Court.

About The Lawyers:
Burley B. Mitchell, Jr. served as a North Carolina Supreme Court Justice for 17 years, including serving as Chief Justice from 1995-1999, where he handled numerous landmark cases. He now practices in Womble Carlyle's Appellate, Business Litigation and Federal and State Government Affairs practice groups.