The limited liability feature that allows some business owners to have their personal assets protected in the event of a lawsuit against the business is one of the main reasons that people choose Limited Partnerships and Limited Liability Companies for their business structure.

First,which value do you think ismoreimportant to society: having limited liability protection for business owners or allowing plaintiffs harmed by a business to recover the personal assets of the owners in order to completely satisfy a judgment against the business?

Next, in Alzado v. Blinder (pps. 613-14), given the facts of the case, ifyouwere buying a ticket to the match, wouldn't you think that B-R was in "control"? Shouldn't B-R have then lost its limited liability?

Finally, do you agree with the Supreme Court of Iowa's decision in Estate of Countryman (p.624)?

CHE 616 PART VII Business Associations Wyler v. Feuer California Court of Appeal, Second District, Division 2, 1978 85 Cal.App.3d 392, 149 Cal.Rptr, 626 FACTS Feuer and Martin, associated as Feuer and Martin Pro- DECISION Judgment for Feuer, Martin, and FMPI affirmed. ductions, Inc. (FMPI), had been successful producers of Broad- OPINION In a limited partnership, the limited partner way musical comedies. Their first motion picture, Cabaret, restricts his liability to the amount of his capital investment. In received eight Academy Awards in 1973. In 1972, FMPI bought return, the limited partner surrenders the right to manage and the motion picture and television rights to Simone Berteaut's control the partnership business. The general partner owes to best-selling book about her life with her half-sister Edith Piaf. To the limited partner a duty of reasonable care in his management finance a movie based on this novel, FMPI sought a substantial of the business. But the general partner may not be held liable private investment from Wyler. In July 1973, Wyler signed a final to the limited partner for mistakes made or losses incurred in limited partnership agreement with FMPI. The agreement stated the good faith exercise of reasonable business judgment, that Wyler would provide, interest free, 100 percent financing for Here, Wyler proved only that the motion picture did not the proposed $1.6 million project in return for a certain portion of the profits, not to exceed 50 percent. In addition, FMPI would make money, was not sought after by distributors, and did not obtain $850,000 in production financing by September 30, 1973. live up to its producer's expectations. He failed to show that The contract specifically provided that FMPI's failure to raise this Feuer and Martin's decisions and efforts breached the standards amount by September 30, 1973, "shall not be deemed a breach of of good faith and reasonableness. Therefore, he cannot recover this agreement" and that Wyler's sole remedy would be a reduc- damages from Feuer and Martin for an investment that simply tion in the producer's fee. turned sour. A year after its release in 1974, the motion picture proved less than an overwhelming success-costing $1.5 million and taking in INTERPRETATION A general partner is not liable for business total receipts of only $478,000. From the receipts, Wyler received losses if he or she conducts the business prudently and in good faith. $313,500 for his investment. FMPI had failed to obtain an amount even close to the required $850,000 for production financing. Wyler then sued Feuer, Martin, and FMPI for mismanagement of ETHICAL QUESTION Did the general partners act ethically? Explain. the limited partnership business and to recover his $1.5 million as damages. The trial court found in favor of Feuer, Martin, and FMPI. CRITICAL THINKING QUESTION What standard of care should the general partners owe to the limited partners? Explain.Estate of Countryman v. Farmers Coop. Ass'n Supreme Court of lowa, 2004 679 N.W.ad 598 FACTS In the afternoon of September 6, 1999, an explosion leveled the home of Jerry Usovsky in Richland, Iowa, killing seven from liability in the same manner shareholders, officers, and dive people who had gathered in the home to celebrate the Labor tors of a corporation are protected. Day holiday. Six others were injured, some seriously. The likely The rules of personal liability under the lowa Limited Liablin cause of the explosion was stray propane gas. The survivors Company Act (ILLCA) have been summarized as follows: and executors of the estates of those who died filed a lawsuit based on negligence, breach of warranty, and strict liability Sections ... of the Act generally provide that a member or manager of a limited liability company is not personally Is. against a number of defendants, including lowa Double Circle, ble for acts or debts of the company solely by reason of being L.C. (Double Circle) and Farmers Cooperative Association of a member or manager, except in the following situations. Keota (Keota). (1) the ILLCA expressly provides for the person's liability, Double Circle, is an lowa limited liability company (LLC). It is a (2) the articles of organization provide for the person's ha- supplier of propane and delivered propane to Usovsky's home prior bility; (3) the person has agreed in writing to be personally to the explosion. Keota is one of two members in Double Circle. It liable; (4) the person participates in tortious conduct, or (5) owns a 95 percent interest in the company. The other member is a shareholder of a corporation would be personally liable in Farmland Industries, Inc., a regional cooperative. Keota is a farm the same situation, except that the failure to hold meetings cooperative that provides a variety of farm products and services and related formalities shall not be considered to area farmers. It is a member of Farmland Industries and is man- While liability of members and managers is limited, the state aged by Dave Hopscheidt. The executive committee of Keota's clearly imposes liability when they participate in tortious condug. board of directors serves as the board of directors of Double Circle, This approach is compatible with the longstanding approach to along with a representative of Farmland Industries. Keota provides liability in corporate settings, in which case, under general agency managerial services to Double Circle, pursuant to a management principles, corporate officers and directors can be liable for their agreement between keota and Double Circle. Keota's duties under torts even when committed in their capacity as an officer. The the agreement include "human resource and safety management." 'participation in tortious conduct" standard would not impose bon Hopscheidt oversees the daily operations of both Keota and Dou- liability on a manager for merely performing a general adminis- ble Circle. However, Keota and Double Circle operate as separate trative duty. There must be some participation; liability is derived entities and maintain separate finances. The plaintiffs alleged that from individual activities. The ILLCA does not insulate a manager Keota participated in the claimed wrongdoing through the man- from liability for participation in tortious conduct merely because agement decisions it made in consumer safety matters. the conduct occurs within the scope and role as a manager. The The trial court found that plaintiffs failed to produce any facts statutory limit on liability created for members and managers of to show that Keota engaged in conduct separate from its duties as LLCs means members and managers are not liable for company director or manager of Double Circle. Consequently, it concluded torts "solely by reason of being a member or manager" of an LLC Keota was protected as a matter of law from personal liability for Kepta is not protected from liability if it participated in toriforme claims of wrongful conduct attributable to Double Circle and conduct in performing its duties as manager of Double Circle. granted summary judgment for Keota. Plaintiffs appealed. INTERPRETATION Members and managers of an LLC are DECISION Summary judgment is reversed and case remanded. not liable for company torts solely by reason of being a member or manager of an LLC, but a member or manager of an LLC who takes OPINION The LLC is a hybrid business entity that is consid part in the commission of a tort is liable even when the member of cred to have the attributes of a partnership for federal income tax manager acts on behalf of the LLC. purposes and the limited liability protections of a corporation. As such, it provides for the operational advantages of a partnership by CRITICAL THINKING QUESTION What can members and allowing the owners, called members, to participate in the manage- managers of LLCs do to limit their personal liability for acting on ment of the business. Yet, the members and managers are protected behalf of the LLC? Explain.Alzado v. Blinder, Robinson & Company, Inc. Supreme Court of Colorado, 1988 752 P.2d 544 FACTS In 1979, Lyle Alzado, who was a former professional foot- Combat Promotions as general partner. Second, B-R required that ball player, and two business associates formed Combat Promo- the partnership agreement provide that the letter of credit be paid tions, Inc., to promote an eight-round exhibition boxing match in off as a partnership expense. Finally, B-R required Alzado's per- Denver, Colorado, between Alzado and Muhammad Ali, a former sonal secured guarantee to reimburse B-R for any losses it might world heavyweight champion boxer. Ali agreed to participate on suffer. In a separate transaction Alzado signed an agreement with the condition that prior to the match he would receive an irrevo Combat Associates stating that he would be paid $100,000 for the cable letter of credit guaranteeing payment of $250,000. Combat match but subordinating that right to payment for expenses of the Promotions persuaded Blinder, Robinson & Company, Inc. (B-R) promotion. to put up the $250,000 letter of credit. B-R, however, insisted on B-R used its office as a ticket outlet, gave two parties to pro several conditions. First, B-R required the formation of a limited mote the exhibition match, and gave several promotional television partnership, Combat Associates, with B-R as limited partner and interviews. Nonetheless, few tickets were sold, and the exhibition