Victory for Injured Worker at the Oregon Supreme Court

High Court Says Worker Can Sue LLC Manager under Employer Liability Law
By Sherri Okamoto (Legal Reporter)
State: Oregon

The Oregon Supreme Court on Thursday ruled that the individual members of a limited liability company are not shielded from civil liability for an employee’s injuries from an on-the-job accident if it pre-dates the passage of Senate Bill 678 last June.

Senate Bill 678 extended the scope of the exclusive remedy protection of the Oregon workers’ compensation scheme for employers to include members of limited liability companies.

But this change in the law was the Legislature’s response to the Court of Appeals’ ruling in Cortez v. Nacco Materials Handling Group, and it is controlling only for claims arising after June 24, 2013. The Supreme Court had to consider the case based on the law that existed at the time of Antonio Cortez’s forklift accident at the Sun Studs lumber mill in Roseburg.

Under the pre-2013 version of Oregon Revised Statute 656.018, the Supreme Court said Cortez could obtain a recovery from his employer, an LLC, under the workers’ compensation system and pursue a civil remedy from the managing member of the LLC.

The Supreme Court then concluded that Cortez had not made an adequate evidentiary showing to survive summary judgment on his negligence claim against the Swanson Group, but he could proceed with a claim under the state’s Employer Liability Law, even though Swanson was not his actual employer.

Swanson purchased the Sun Studs lumber mill in 2001 and reorganized the business as an LLC. Swanson is the sole member of this LLC, which is just one of several timber-industry LLCs that Swanson owns.

Each of the LLCs has its own employees and are responsible for the day-to-day operations of their business, but they follow the general policies and priorities set forth by Swanson.

Swanson provided the LLCs with a safety manual, which stated general policies and served as a “template” that each LLC could customize to its particular operations. Swanson did not actually visit the LLCs to monitor safety conditions at the LLC’s facility or set any specific safety policy for the LLCs.

After a coworker accidentally struck Cortez with a forklift while driving down a dimly lit corridor at the Sun Studs mill, Cortez filed a claim for workers’ compensation benefits against his employer and a civil suit against Swanson.

Cortez alleged that Swanson had negligently failed to provide him with a safe workplace or negligently failed to require Sun Studs to provide him with one. He asserted that Swanson’s omissions also constituted violations of the Employer Liability Law, which imposes a statutory duty of care on employers to prevent workplace injuries.

Oregon’s Employer Liability Law imposes an obligation on employers to provide safe workplace. Specifically, the statute states that employers are responsible for providing any and all available safety equipment necessary to prevent occupational injuries or fatalities.

The ELL imposes safety equipment necessary to ensure absolute protection of employees working in a dangerous environment.

Swanson moved for summary judgment dismissing Cortez’s claims. It argued that it was immune from liability under ORS 63.165(1), which provides that the members and managers of an LLC will not be held liable for the debts or obligations of the LLC.

In the alternative, Swanson argued that workers’ compensation provided the exclusive remedy for Cortez’s accident, pursuant to ORS 656.018.

Multnomah County Circuit Court Judge Michael H. Marcus found that there was sufficient evidence in the record that would permit a reasonable juror to find that Swanson had been negligent and that it had violated the Employer Liability Law.

However, he said that the exclusive remedy provision of the Oregon comp scheme granted immunity to Swanson since it was a member of the same LLC as Cortez’s employer. Thus, he granted summary judgment in favor of Swanson.

The Court of Appeals reversed, finding ORS 656.018 immunized employers from liability for workplace injuries, but the statute’s grant of immunity did not extend to LLC members.

The appellate court also said ORS 63.165(1) protects LLC members only from vicarious liability for the LLC’s obligations. The appellate court said the statute does not shield LLC members from personal liability for their own tortious acts.

Thus, the Court of Appeals said Cortez could sue Swanson for negligence.

The appellate court said Cortez could not pursue his Employer Liability Law claims because Swanson was not his direct employer and did not control the day-to-day operations and safety conditions at the Sun Stud mill.

After the Court of Appeals ruling came down in 2012, the Legislature reacted by passing SB 678.

The Supreme Court acknowledged that this change in the law meant its ruling would affect only Swanson and any other LLC member facing a workplace injury claim that arose before June 24, 2013, but it said the issues in Cortez’s case still merited review since the proper interpretation of ORS 63.165 will affect all claims brought against LLC members and managers, except for workplace injury claims that arise on or after June 24, 2013.

The Supreme Court agreed with the Court of Appeals’ conclusion that ORS 63.165(1) immunizes Swanson from vicarious liability only for the LLC’s obligations. This means Swanson could be held liable in tort if its own conduct was actionable.

However, the Supreme Court said there was no evidence in the record that would permit a reasonable juror to find Swanson had been negligent in managing Sun Studs. Accordingly, the Supreme Court said Swanson was entitled to summary judgment on Cortez’s negligence claim.

The Supreme Court went on to say it also agreed with the Court of Appeals’ conclusion that the version of ORS 656.018 in effect at the time of Cortez’s injury did not shield Swanson from liability under the Employer Liability Law.

The high court disagreed with the Court of Appeals’ determination that a reasonable juror could not infer that Swanson retained the right to control the operational aspects of the Sun Studs mill which gave rise to Cortez’s accident.

While the evidence indicated that Swanson had chosen to delegate primary authority to Sun Studs to operate the mill and regulate the way that forklifts were used at the mill, the court posited that a reasonable juror could infer that Swanson had retained the right to manage the day-to-day operations of Sun Studs, and could exercise that right if it wished.

Defense attorney Jerry G. Keene observed that the “legislative change addressed most of the concerns that the Court of Appeals decision had raised” by expressly extending the exclusive remedy protection to LLC members.

Based on his reading of the Supreme Court decision, Keene said it seemed the Supreme Court “found a new concern based on the ELL,” but that’s it.

Claimant attorney Nelson R. Hall of Bennett, Hartman, Morris & Kaplan said he also saw Thursday’s decision as being limited in impact because of the change in the law last year, and also because it was very fact-driven.

He said he didn’t see the court “making any new law” when he reviewed Thursday’s decision, but it provides useful guidance for practitioners because the “court clarifies LLC liability for members and managers.”

Halls said the ruling also confirms that a party with the right to control the manner or method in which a worker’s activity was performed can be held liable under the ELL, which is “what we had all thought the law meant.”

Matthew J. Kalmanson of Hart Wagner represented Swanson before the Supreme Court.

He declined immediate comment on Thursday’s ruling, saying he didn’t wish to discuss the case without first speaking with his client.

Cortez was represented by R. Brendan Dummigan, Kristen West and Kimberly O. Weingart of Pickett Dummigan, Peter O. Hansen of Hanson & Malagon, and Portland attorney Robert K. Udziela.

Dummigan on Thursday said that “we are pleased with the court’s decision and hope that this improves workplace safety throughout the state.” He added that their client was “pleased and relieved that the end appears near.”