Chapter 14 - EXHIBIT 14G • CLARIFICATION FROM THE COLORADO SUPREME COURT IN 2013'S WEINSTEIN V. COLBORNE FOODBOTICS

• Jurisdiction: Colorado

EXHIBIT 14G • CLARIFICATION FROM THE COLORADO SUPREME COURT IN 2013's WEINSTEIN v. COLBORNE FOODBOTICS Originally published in the June 2013 CBA Business Law Section Newsletter. Used with permission. Are LLC's Corporations? The Supreme Court Answers "No." Weinstein v. Colborne Foodbotics, LLC, 2013 CO 33 (June 10, 2013) By HerrickK. Lidstone, Jr., Burns, Figa & Will, P.C.

The Colorado Supreme Court went a long way to clear up some confusion caused by lower courts when, on June 10, 2013, it issued its long-awaited decision in Weinstein v. Colborne Foodbotics, LLC ("Colborne"). The ruling addresses the applicability of corporation law principles to LLCs, and creditors' rights against LLC members and managers.

The Claims

The plaintiff, a creditor of the LLC, claimed that managers of the LLC authorized distributions to members which resulted in the LLC's insolvency, thereby leaving it unable to pay the creditor's claim. The plaintiff asserted two claims:

• One against the members for receiving an unlawful distribution in violation of C.R.S. § 7-80-606; and
• One against the managers for their breach of a fiduciary duty allegedly owed to the creditors of an insolvent entity.

Corporate Law Not Applicable to Unlawful LLC Distribution Claims

The trial court granted the defendants' motion to dismiss both claims, and the Court of Appeals reversed the dismissal. The Supreme Court reversed and reinstated the trial court's dismissal. In reversing the Court of Appeals, the Supreme Court noted that LLCs are not corporations, and it is improper to apply corporate law to LLCs except in the one instance where the application of corporate law to LLCs was mandated by statute: piercing the veil as addressed in C.R.S. § 7-80-107(1).

The Court of Appeals decision in Colborne was discussed and criticized in this newsletter in February 2010. The Court of Appeals had compared the Colorado Business Corporation Act with the Colorado LLC Act and determined that the distribution provisions were written similarly—comparing C.R.S. § 7-80-606(1) (for LLCs) with C.R.S. § 7-108-403(1) (for corporations). The Court of Appeals then concluded that the corporate case law (Ficor, Inc. v. McHugh, 639 P.2d 385, 393-4 (Colo. 1982)) should be applied to the LLC Act. Ficor reasoned that similar provisions of C.R.S. § 7-5-114(3) of the Colorado Corporation Code (now repealed) were intended to protect creditors and, therefore, creditors as a group had standing to sue an insolvent corporation's directors...