Foreign Limited Liability Companies. Walter Matjasich and Cary Hanson organized Capital Care, LLC, in Utah. Capital Care operated, and Matjasich and Hanson managed, Heartland Care Center in Topeka, Kansas. LTC Properties, Inc, held a mortgage on the

Question

Heartland facilities. When Heartland failed as a business, its residents were transferred to other facilities. Heartland employees who provided care to the residents for five days during the transfers were not paid wages. The employees filed claims with the Kansas Department of Human Resources for the unpaid wages. Kansas state law provides that a corporate officer or manager may be liable for a firm's unpaid wages, but protects limited liability company (LLC) members from personal liability generally and states that an LLC cannot be construed as a corporation. Under Utah state law, the members of an LLC can be personally liable for wages due the LLC's employees, however. Should Matjasich and Hanson be held personally liable for the unpaid wages? Explain.

Answer 1

Foreign limited liability companies
The Kansas Department of Human Resources (KDHR) applied Kansas corporate law, decided that members of a foreign limited liability company doing business in Kansas are personally and individually liable for unpaid wages, and ordered Matjasich and Hanson to pay the Heartland employees. Matjasich and Hanson appealed to a Kansas state court, which applied both Kansas and Utah state law to affirm the KDHR order. Matjasich and Hanson appealed to the Kansas Supreme Court. The state supreme court reversed as to the application of Kansas state law, but affirmed as to the lower court's interpretation of Utah state law. The state supreme court noted that under Kansas law, Matjasich and Hanson would not be personally liable. Kansas law, however, "clearly states the laws of the state, territory, possession, county, or other jurisdiction under which a foreign limited liability company is organized govern its organization and internal affairs and the liability of its members." Matjasich and Hanson argued that "it is contrary to logic to conclude that a foreign limited liability company operating in Kansas is liable in situations where a Kansas limited liability company is not subject to liability." The court reasoned, however, that "[t]he members of a foreign limited liability company should not be sur-prised to find that they are liable in Kansas for the same conduct they are liable for in their state of organization."