Phillips Sisson Industries, Inc. v. Hysell

Under the LLC Act, debt repayments are only distributions if they are "in respect of a member's interest." ORS 63.001(6).

Tim Hysell (Hysell) appealed a judgment in favor of Clint Phillips and Phillips-Sisson Industries, Inc. (Phillips-Sisson) following a bench trial. Hysell assigned error to the trial court's denial of Hysell’s motion for directed verdict and decision to enter "judgment against [Hysell] personally on the theory that [certain] note payments [to Hysell] were unlawful distributions under ORS 63.229." On appeal, Hysell argued that his approval of PSI Acquisitions' repayment of his and his wife's loans were not distributions as defined in the LLC Act. In response, Phillips-Sisson argued that the trial court's ruling was correct because Hysell had breached his fiduciary duty by preferring payments to himself over Phillips-Sisson and other creditors. Under the LLC Act, debt repayments are only distributions if they are "in respect of a member's interest." ORS 63.001(6). The Court found that because Phillips-Sisson presented no evidence that the repayments were "in respect of" Hysell’s membership interest in the LLC, Hysell could not be held personally liable on the notes. Vacated and Remanded.