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.

Willow Grove Citizens Assoc. v. County Council of Prince George's County, Maryland (Ct. of Special Appeals)

Filed:  December 20, 2017

Opinion by:  Stuart R. Berger

Holding:  A Maryland LLC’s participation in an administrative proceeding by filing for a zoning special exception was valid even though the LLC had forfeited its right to do business in Maryland.  A foreign unregistered corporation's participation in the proceedings as agent or co-applicant did not invalidate the application because the isolated action did not constitute doing business in Maryland.

Facts:  Appellee (“LLC”) in 2001 purchased a parcel in Bowie, Maryland with the intent to construct an assisted living facility.  The parcel being zoned "Rural Residential," prior owner had obtained a special exception for this same purpose but had never developed the land.

In 2012, LLC neglected its State Department of Assessments and Taxation ("SDAT") obligations and forfeited its right to use its name and do business in Maryland.  LLC's sole member was a corporation organized in the District of Columbia not registered to do business in Maryland.  LLC's rights remained forfeited in February 2014 when it applied for a special exception to operate an assisted living facility on the parcel.

The application was accepted, heard, and granted in October 2014 by the local planning commission ("Examiner").  People's Zoning Counsel, appointed by the County Council to protect the public interest and create a full and complete record, was the same attorney who had conducted the settlement and subsequent contract work around the sale of the parcel to LLC.  The record showed no objections made after his disclosure of prior involvement and no objection to his participation in the proceedings.  Examiner's decision was appealed to the County Council who remanded the matter for a determination of LLC's standing with SDAT.

In May 2015, LLC's rights were reinstated, and a month later the sole member became a qualified corporation in Maryland.  LLC provided certificates of good standing at the subsequent rehearing where the Examiner recommended approval.   Appellant, a civic association ("Citizens"), appealed to the County Council, who found LLC legally authorized to file an application for a special exception concerning real or personal property, that forfeiture had not impaired the validity of such a filing, and that the act of applying for a special exception did not constitute doing business.  The Circuit Court for Prince George's County affirmed.

Analysis:  Because Citizens accepted the factual record and objected only to the decision of the County Council on legal grounds, the only question before the court was whether the approval for special exception had been premised on legally erroneous conclusions of law.

Evaluating Citizens' claim that LLC's actions in pursuit of a special exception were a legal nullity, the court pointed to § 4A-911 of the Corporations & Associations Article (emphasis added):

The forfeiture of the right to do business in Maryland and the right to the use of the name of the limited liability company under this title does not impair the validity of a contract or act of the limited liability company entered into or done either before or after the forfeiture, or prevent the limited liability company from defending any action, suit or proceeding in a court of this State.

Irrespective of its forfeiture, LLC remained a legal entity with the power to enter binding contracts at any time.  What of the statute's proscription against bringing lawsuits?  Continuing on, the court found that because LLC had not filed its application "in a court of this State," the implicit prohibition against initiating suits was irrelevant.

"What about the sole member's initial status as an unregistered corporation?," pressed Citizens.  Applying a similar analysis, the court cited § 7-103 of the Corporations & Associations Article to find unregistered corporations to be entitled to engage in many in-state activities such as maintaining, defending, or settling actions, suits, claims, disputes, administrative or arbitration proceedings.  Citizens failed to meet their burden to prove the sufficiency of sole member's contacts or actions within the state to constitute "doing business,"  therefore, the sole member's status as co-applicant or agent in pursuing the special exception was also irrelevant. 

Finally, the court found that Citizens had not preserved for judicial review the question of People's Zoning Counsel's alleged conflict of interest because it failed to raise the issue at any stage of the administrative proceedings.

Accordingly, the court found the County Council's decision to approve the application for special exception to be correct as a matter of law.

The full opinion is available in PDF.

A Guy Named Moe, LLC v. Chipotle Mexican Grill of Colorado, LLC (Ct. of Special Appeals)

Filed:  May 29, 2015

Opinion by Krauser, C. J.

Holding:  A foreign limited liability company that had its right to do business in Maryland forfeited, but nonetheless continued to do business in Maryland, cannot maintain a suit in Maryland and the filing of a petition for judicial review filed during that time of forfeiture is void ab initio.

Facts:  A foreign limited liability company filed a petition requesting the circuit court review a decision of the City of Annapolis Board of Appeals.  The petition was filed within the 30-day period for filing a petition under Rule 7-203(a); however, the petition was filed several years after the company’s right to do business in Maryland had been forfeited.  An affidavit of a business manager of the company asserted that articles of revival and the accompanying payment were submitted prior to the filing of the petition.  The manager also asserted that four months after filing the petition with the circuit court, the company learned that the articles of revival were rejected.  The company subsequently obtained a certificate of good standing.

The circuit court dismissed the action citing lack of standing under Section 4-401(a) of the Land Use Article.  The court affirmed on different grounds.

Analysis:  The court agreed that the Maryland LLC Act allows a foreign limited liability company to “cure the infirmity” of forfeiture to maintain suit.  Yet, the court disagreed that securing the right to maintain suit permitted the company to rely on a petition it filed when it had no right to do so.  While no direct precedent was available, the court noted precedent recognizing that the forfeiture to do business in Maryland does not prevent a limited liability company from defending any action.  The court also noted that Section 4A-1009(a) of the Maryland LLC Act “expressly bars a foreign limited liability company from maintaining suit when it is doing business in Maryland with no right to do so.”

The court then reviewed corporate cases involving charter forfeitures, which support the notion that a limited liability company may not revive a suit, though timely filed, when the suit was initiated by an entity after the entity had lost the right to do business in Maryland and yet persisted in doing business in Maryland.

The full opinion is available in PDF.