Correction to Annual Report Given Retroactive Effect

Correction to Annual Report Given Retroactive Effect

       In a recent decision by the District Court for the Western District of Kentucky (Judge Simpson), it was confirmed, in accordance with the statutory dictate, that a correction to a document filed with the Kentucky Secretary of State, in this case the annual report, will be given retroactive effect.  Cass JV, LLC v. Host International, Inc., 2012 WL 6569318 (W.D. Ky. Dec. 17, 2012).

       The defendants (the author of this blog and his firm represent certain of the defendants in this action) had removed the action to federal court.  Based upon an asserted lack of diversity jurisdiction in that there were both defendants and plaintiffs deemed citizens of Kentucky, the plaintiffs sought a remand.  The basis for that remand was that the annual report of one of the defendants, itself an LLC, in turn listed as one of its members another LLC, it having Kentucky citizenship.  Upon the defendant’s investigation, it was determined that this annual report was erroneously filed, the Kentucky citizen having only an option to acquire an interest in the LLC; as of the time of filing of the action, that option had not been exercised.  On that basis, a corrected annual report was filed with the Kentucky Secretary of State.

       The Kentucky Business Entity Filing Act, at KRS § 14A.2-090(3), addressing the effect of a corrected document, provides:

Articles of correction shall be effective on the effective date of the document they correct except as to persons relying on the uncorrected document adversely affected by the correction. As to those persons, articles of correction shall be effective when filed.

       In supplemental pleadings in opposition to the motion to remand, this corrected annual report was identified to the District Court, along with the statutory dictate that the correction have retroactive effect.  In partial reliance thereon, the motion to remand was denied.