Dissolved Maryland LLC Barred from Further Prosecuting Appeal of the Lawsuit It Brought

Dissolved Maryland LLC Barred from Further Prosecuting Appeal of the Lawsuit It Brought

      In a recent decision, the Maryland Court of Appeal considered the effect of a Maryland LLC’s failure to make certain tax payments and to thereby keep itself in good standing. When the LLC allowed its a good standing status to lapse, it lost the ability to prosecuting appeal of a trial court judgment. 7222 Ambassador Road., LLC v. National Center on Institutions and Alternatives, Inc., __A.3D ___, 2020 WL 4289773 (MD. July 27, 2020).

      Before I go any further, a “thank you” to Peter Mahler for bringing this decision to my attention.

      7222 Ambassador Road, LLC (the “Company”) leased office space to the National Center on Institutions and Alternatives, Inc. When the tenant did not renew the lease, a dispute arose of the condition in which the property had been returned to the Company. It brought suit, and at trial the tenant prevailed. In an appeal to the Court of Special Appeals, the tenant again prevailed. After that decision, the Company sought review by the Court of Appeals, which agreed to hear the case on a writ of certiorari. However, before that application for certiorari was filed, the Company forfeited its charter for failure to make certain required tax payments. Specifically, the Maryland law provides, at Maryland Code, Corporations and Associations § 4A- 911(d) “after the lists [of delinquent LLCs] are certified, the Department shall issue a proclamation declaring that, subject to § 4A-920 of this subtitle, the right to do business in Maryland and the right to use the name of each limited liability company is forfeited as of the date of the proclamation, without proceedings of any kind either outlaw or in equity.” It is provided, however, that the forfeiture of the right to do business does not impair the validity of contracts and other acts of the LLC entered into either before or after the forfeiture or prevent the [LLC] from “defending any action, suit, or proceeding in a court of this State.” Maryland Code, Corporations and Associations § 4A-920. Upon receiving notice of the forfeiture of its charter, an LLC is afforded 60 days within which to pay the overdue assessments. Maryland Code, Corporations and Associations § 4A-912. If the correction is made within 60 days it will be given retroactive effect. Maryland Code, Corporations and Associations § 4A-912.

         In this instance, the Company lost its right to do business and did not correct the failure within the 60 day period required for reinstatement. Rather, at the time it filed the application for certiorari with respect to the ruling of the Court of Special Appeals, the Company was without authority to transact business in Maryland. While the savings statute (§ 4A-920, supra) applies with respect to defending an action, in this instance the Company was not defending but rather prosecuting. Ergo, “in our view, [the Company] lacked authority to file a petition for writ of certiorari at the time it did so and the restoration of its rights to do so came long after the deadline for filing such a petition.” 2020 WL 4289773, *4. The court would go on to reject the Company's assertion that an “act” preserved by the statue would include filing for a writ of certiorari, finding that such a reading is so broad that it “would merely negate the forfeiture provision altogether.” Id., *5.

       In dismissing the appeal, the court wrote: 

Dismissal of this second-level appeal may seem like a harsh result. However, requiring a business entity to make a few timely filings and payments - or at least filings that are less than two months late after the entity is specifically notified of its delinquency - is not an unfair price for its owners to have the shield against individual liability and the tax benefits, together with the organizational flexibility, that the LLC Act provides for a business organization. As this Court recently stated, “[T]he 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, 228 A.3d 200 (2020). 2020 WL 4289773, *7.