Wednesday, October 30, 2019

An LLC is Not a Corporation

An LLC is Not a Corporation

In a recent decision from Indiana, the court made clear that, where a specific statute referred to a corporation, it did not as well extend to a limited liability company. Agee v. NewTek Business Services HoldCo 5, Inc., No. 1:18-CV-02641-JRS-TAB, 2019 WL 4737070 (S.D. Ind. Sept. 27, 2019).

This dispute arose out of the purchase/sale of an LLC and the employment and related agreements entered into by the former owner and the new owner. In connection therewith, the former member, as to claims arising under the employment agreement, sought to enforce a lien under Indiana Code § 32-28-12-1. On the basis that this statute refers to “corporationsand not to limited liability companies, the court rejected that effort. Specifically:

Under Indiana law, employees of a corporation doing business in Indiana “may have and hold a first and prior lien ... for all work and labor done and performed by the employees for the corporation from the date of the employees’ employment by the corporation” Ind. Code § 32–28–12–1(a). As another district court in the Seventh Circuit has held, by the express terms of the statute, this lien “applies only to corporations, which means it is ineffective and invalid against ... a limited liability company.” Fritz v. Coffey, No. 1:07-CV-115-TS, 2008 WL 2444552, at *4 (N.D. Ind. June 16, 2008). As the Fritz court reasoned, “[t]he plain text mentions only ‘corporations’ and includes no references to other business entities in general or particular examples, such as limited liability companies or partnerships. This approach is reinforced by the inclusion of limited liability companies and other business entities in other Indiana lien statutes.” Id.

 Banc-serv, however, is not a corporation; it is a limited liability company. Agee argues that the law is dated, that LLCs are “a relatively new creations of statute,” (Pl.’s Resp. 15, ECF No. 14), and the Court should extend its protection to LLCs. Agee cites no case interpreting the lien statute in this manner, and the Court is unaware of any such authority. Also, as noted by the Fritz court, the Indiana legislature has included limited liability companies in other lien-related statutes, but did not include LLCs in this statute. 2008 WL 2444552, at *4. Furthermore, under Indiana law, a court attempts to give effect to legislative intent only when the statute is ambiguous; the employees’ lien statute is not ambiguous: it applies only to employees of corporations. Agee’s employee’s lien is invalid and ineffective, and she has failed to state a claim to enforce an employee’s lien. So the motion to dismiss should be granted as to Count VI. 2019 WL 4737070, *9.

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