Chapman v. Regional Radiology Associates, PLLC: A Case Study in the Consequences of Resignation

This Online Original is available for download (PDF) here.

Article | 100 KY. L. J. ONLINE 2 | Jan. 17, 2012

Thomas E. Rutledge

The decision of the Kentucky Court of Appeals in Chapman v. Regional Radiology Associates, PLLC is a helpful, but still not complete, review of the implications of resigning from an LLC absent a binding agreement as to the consequences that will follow therefrom. Cyrus Chapman, a physician, was an employee of Regional Radiology Associates, PLLC, a Kentucky limited liability company (hereinafter “RRA”). At that time, Rosemary Shiben was the sole member and manager of RRA. After a year’s employment, there were discussions as to Chapman becoming a member of the LLC, but those discussions were never memorialized in a written operating agreement. While Chapman tendered $10,000 as his initial capital contribution, those funds were returned because the terms of the buy-in were still under discussion. Still, beginning on January 1, 2003, Chapman was treated as a member. His prior salary was reduced and recharacterized as a guaranteed payment and the tax reports stated him to be a 40% member. For the full years that Chapman was a member, he received his guaranteed payment as well as a distribution of 40% of company earnings. In January 2006, Chapman gave notice that he was leaving the practice, working only intermittently from that date through April 14, 2006, and thereafter entirely leaving RRA. Through April 14, Chapman continued to receive his guaranteed payment. He requested, coincident with his departure, an additional distribution from RRA based upon his status as a former member. No agreement was reached on that point. Eventually RRA filed a declaratory judgment action, in which Chapman counterclaimed seeking a determination as to the amount of net income and accounts receivable due to Chapman.

Download the PDF

Chapman v. Regional Radiology Associates, PLLC: A Case Study in the Consequences of Resignation

Citation

Thomas E. Rutledge, Chapman v. Regional Radiology Associates, PLLC: A Case Study in the Consequences of Resignation, 100 Ky. L.J. Online 15 (2011), http://kentuckylawjournal.org/online-originals-2/chapman-v-regional/.

Permanent Link

http://kentuckylawjournal.org/online-originals-2/chapman-v-regional/