Suit Filed in Jefferson Circuit Court to Reverse Articles of Dissolution Filed Without Authority

Suit Filed in Jefferson Circuit Court to Reverse Articles of Dissolution Filed Without Authority

      A lawsuit filed last week in Jefferson Circuit Court highlights to the question of what happens when a business entity filing, in this case articles of dissolution, are filed without authority. Typically, getting that filing out of the public record is going to require a lawsuit.

      In Bollinger v. Bollinger, the complaint seeks a declaration of rights effectively revoking articles of dissolution filed with respect to Stoplight Liquor & Deli, LLC. This LLC was formed with three equal members, each of whom was named in the articles of organization. This particular LLC was member-managed, and therefore, under the LLC Act, any member could on the company’s behalf execute and deliver for filing with the Secretary of State articles of dissolution. See KRS § 14A.2-020(b)2; id. § 275.135(1). Under the LLC’s operating agreement, the default statutory rule with respect to voluntary dissolution was retained, namely that the company could be dissolved only with the approval of all of the members. However, notwithstanding that limitation, in May, 2015, one of the members, Jewell Bollinger, unilaterally executed and delivered for filing articles of dissolution. Those articles of dissolution were then filed by the Kentucky Secretary of State. The complaint seeks a declaration that those articles were filed without actual authority and directing the Secretary of State to remove them from the public record, in effect undoing the LLC’s dissolution. In a subsequent pleading, Jewell acknowledges that she did not have authority to file the articles of dissolution, in effect conceding the plaintiff's point. In effect, it appears this is a “friendly lawsuit” structured to yield the necessary ruling for presentation to the Secretary of State.

      But what about where there is not the possibility of friendly lawsuit? Assume the person who signed and delivered for filing the articles of dissolution would not cooperate. In that instance the LLC either by means of a direct lawsuit brought by a majority-in-interest of the members or, in the alternative, via a derivative action, would have to sue the person who executed and delivered the articles of dissolution, charging that person with having exceeded their authority and, likely, having breached the operating agreement. Before a decision can be made, even, assuming, that the LLC receives an order that the dissolution should be revoked, it will have incurred significant legal expenses. In the meantime, it may well have endured additional opportunity costs in the way of, for example, other companies refusing to do business with it because of its dissolved status. While damages may be owing to the company for violation of the warranty of authority (see Restatement (Third) of Agency § 8.10), determining with any degree of detail the damages will be difficult. Further, those damages would not include the LLC’s attorney fees and expenses.