Friday, March 5, 2021

7222 Ambassador Road, LLC v. National Center on Institutions and Alternatives, Inc. (Court of Appeals)


Filed: July 27, 2020

Opinion by: Judge J. McDonald

Holding:  The Court of Appeals held that a Maryland LLC that failed to file the required annual report pursuant to the Maryland Limited Liability Company Act § 4A-91l(c), thereby forfeiting the right to do business in Maryland, was precluded from continuing to prosecute an action in the Maryland courts.  The Maryland LLC’s appeal of a decision adverse to the LLC in the Circuit Court was dismissed because the appeal was not permitted by law. 

Facts:  The issue initially raised in this appeal concerns a discovery sanction imposed in a civil case.  Petitioner 7222 Ambassador Road, LLC failed to formally designate an expert witness by the deadline in the Baltimore County Circuit Court’s scheduling order.  Respondent National Center on Institutions and Alternatives, Inc (NCIA) filed a Motion in Limine that sought sanctions against Petitioner by limiting or excluding testimony of the witness.  The Circuit Court granted the Motion in Limine.  Petitioner as a result of the sanction had no case to present and the Circuit Court entered judgment in favor of Respondent.  Petitioner appealed the decision and the Court of Special Appeals affirmed the ruling.  Petitioner filed a petition for certiorari that was granted by the Court of Appeals.  After the Court of Special Appeals issued its opinion, but before the Petitioner filed its petition for certiorari with the Court of Appeals, Petitioner forfeited its right to do business in Maryland because it had failed to file the annual report.  The Petitioner further failed to reverse the forfeiture within the 60 day rectifying period.  Petitioner took no action to rectifying the delinquency until Respondent filed a motion to dismiss the appeal based on the forfeiture of Petitioner’s right to do business. 

Analysis:  The LLC Act permits a forfeited LLC to defend any action.  §4A-920.  Petitioner conceded they were not defending an action, rather initiating litigation.  Petitioner argued that forfeiture does not impair the “act” of the LLC.  §4A-920.  The Court of Appeals examined the legislative history and case law regarding forfeiture and the savings provision.  Any step taken in litigation would be an “act” that could be taken while being forfeited.  The Court of Appeals argued that if the statute were interpreted in such a way it would render wholly superfluous the savings provision that permits a forfeited LLC to “defend” litigation.  The Court of Appeals review of recent case law concluded that an LLC that has forfeited its right to do business may not pursue affirmative litigation, including an appeal, during the period of forfeiture citing to Price v. Upper Chesapeake Health Ventures, Inc., 192 Md. App. 695 (2010).  The Court of Appeals asserted that “the privileges associated with an LLC, such as tax benefits and liability protections, are afforded with the expectation that an LLC will fulfill its statutory obligations.”  Mayor and City Council of Baltimore v. Prime Realty Associates, LLC, 468 Md. 606, 623 (2020).  Petitioner forfeited its right to do business in Maryland including its ability to prosecute an appeal during the period of forfeiture.  The Court of Appeals concluded the appeal was not properly before the court and dismissed the appeal. 

The full opinion is available in PDF.

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