Montana Construction Law Survey: Vicarious, Joint and Several, and Alter-Ego Liability

Vicarious Liability

Generally, an employer is not liable for the tortious acts of its independent contractor.[1] Exceptions to this rule, which create vicarious liability for the employer, arise when (1) there is a non-delegable duty based on contract; (2) the activity is inherently or intrinsically dangerous; or (3) the general contractor negligently exercises control reserved over a subcontractor's work.[2]

In addition to the inherently dangerous activity exception, an employer can also be liable for the torts of an independent contractor “where there is a nondelegable duty based on contract” or where the employer “negligently exercises control reserved over a subcontractor's work.”[3] In regard to the nondelegable duty exception, the Montana Supreme Court has held that a general contractor who assumes contractual obligations to maintain and supervise job safety assumes such a nondelegable duty which extended to employees of the subcontractor.[4]

An employer or general contractor may also be liable for the injuries suffered by a subcontractor’s employees if it negligently exercises control reserved over a subcontractor's work.[5] Montana courts have looked to the Restatement (Second) of Torts § 414 for guidance in defining the control necessary to establish such a duty.  The Restatement (Second) of Torts § 414 provides:

§ 414. Negligence in Exercising Control Retained by Employer

One who entrusts work to an independent contractor, but who retains the control over any part of the work, is subject to liability for physical harm to others for whose safety the employer owes a duty to exercise reasonable care, which is caused by [the employer's] failure to exercise [its] control with reasonable care. The comments to § 414 indicate two factors which may be particularly relevant to a determination of whether an employer retained control sufficient to create a duty of safety: if the employer knows or should know that the independent contractor is performing work in an unreasonably dangerous manner, and if the employer retains the authority to direct the manner in which work is to be performed. Restatement (Second) of Torts § 414 cmt. b provides: The rule stated in this section is usually, though not exclusively, applicable when a principal contractor entrusts a part of the work to subcontractors, but . . . superintends the entire job. In such a situation, the principal contractor is subject to liability if it fails to prevent the subcontractors from doing even the details of the work in a way unreasonably dangerous to others, if [it] knows or by the exercise of reasonable care should know that the subcontractors’ work is being so done, and has the opportunity to prevent it by exercising the power of control which [the employer] has retained . . . .

Montana courts have abandoned distinctions as to whether dangers could be avoided by standard precautions or required special precautions. Instead, Montana courts have adopted a rule that a contractor “is vicariously liable for injuries to others caused by a subcontractor’s failure to take precautions to reduce the unreasonable risks associated with engaging in an inherently dangerous activity.”[6]

Joint and Several Liability

Mont. Code. Ann. § 27-1-703 provides that where a defendant is found to be more than 50% liable, the defendant is jointly and severally liable to the claimant. The defendant and has a right of contribution against any other party whose negligence proximately caused the injury. A defendant who is less than 50% liable is severally liable only unless the defendant acted in concert with or as the agent of another tortfeasor.

Alter-Ego Liability (LLC’s)

A person who is a member or manager, or both, of a limited liability company is not liable, solely by reason of being a member or manager, or both, under a judgment, decree or order of a court, or in any other manner, for a debt, obligation, or liability of the limited liability company, whether arising in contract, tort, or otherwise or for the acts or omissions of any other member, manager, agent, or employee of the limited liability company.[7]

When analyzing whether a limited liability company veil ought to be pierced, Montana courts focus on whether the limited liability company is an alter ego or mere instrumentality of the members, not on whether the organization is an agent of its members. In determining whether the limited liability company is a mere alter ego or instrumentality of its members, Montana courts consider several factors, no one of which is to be determinative. Montana courts examine the totality of these circumstances:

1. Whether the members fail to comply with the formalities required by the limited liability company statutes. These formalities typically include maintaining a registered agent, acting only within its business purpose, maintaining required books and records, making only those distributions statutorily permitted by statute, and filing required annual reports.

 

2. Whether one member manages the limited liability company without consultation with other members.

 

3. Whether the members and managers fail to keep business funds and accounts separate from the funds and accounts of members. Just as a corporation must keep accounts separate from its shareholders, a limited liability company is a separate legal entity and should do the same.

 

4. Whether the members fail to keep their personal books and financial accounts and records separate from the books and financial accounts and records of limited liability companies, as required by state statute.

 

5. Whether the limited liability company was originally grossly undercapitalized to meet the reasonably anticipated capital requirements, as determined at the date of organization of the business.

 

6. Whether the members of the limited liability companies fail to hold the business out as a separate legal entity. Statutes governing limited liability company generally require that the members of limited liability companies hold their businesses out as limited liability companies by using the proper designation in the name of the businesses.

 

7. If the articles of organization require management by managers, whether the members make corporate decisions, thereby usurping the power of the managers. If those organizing the limited liability company choose to separate management and ownership, limited liability company statutes require such separation to be respected.

 

8. If the limited liability company is owned by another business entity, whether the managers of the limited liability company consist of directors, officers, or managers of the other entity.

 

9. Whether the members of the limited liability company otherwise fail to respect the separate legal entity of the limited liability company. Evidence of failure to do so might include using the limited liability company's credit to secure loans to members, distributing earnings to members through means other than authorized distributions, or members using limited liability company property as if it were their own.[8]