Friday, April 2, 2021

The Unfortunate Mixing of the Obligation to Qualify to Transact Business and the Obligation to File an Assumed Name


The Unfortunate Mixing of the Obligation to Qualify to Transact Business and the Obligation to File an Assumed Name

            In a December, 2020, decision, the Court of Appeals treated as inter-changeable the assumed name statute and the obligation of a foreign entity to qualify to transact business. Barber v. Topgolf USA Louisville, LLC, No. 2019-CA- 1112-MR, 2020 WL 7919028 (Ky. App. Dec. 18, 2020).  They are however, distinct statutes that address different issues.

            On February 19, 2018, Topgolf applied for the necessary permits to open a facility in the Oxmoor mall. The initial application was filed in the name of “Topgolf USA Louisville, LLC.” There was not, however, as of the filing of the application on LLC of that name. Some nine months later that name was filed as an assumed name of Topgolf USA Ky1, LLC, a Delaware LLC that had qualified to transact business in Kentucky in 2017. In the course of hearings over the land use applications Topgolf representative would identify the misnaming as a “result of a miscommunication,” although the mistake continued after it was first identified.

            Regardless, Topgolf’s application was confirmed and then upheld by the trial court. In this appeal the opponents to the project would claim Topgolf was “not legally in existence and, thus, could not participate in the litigation.” (2020 WL 7419028, *6) and that Topgolf’s “application was illegal ab initio became applicants Topgolf and GGP, Inc., had not registered with the Kentucky Secretary of State. See KRS 14A.9-010(1).” Id

And it was here that the wheels came off.  KRS 14A.9-010 addresses the obligation of a foreign entity that is “transacting business” in Kentucky to qualify to do so with the Secretary of State.  What the opinion never does is assess whether filing a land use application is of itself “transacting business”; hence its ab initio application to Topgolf remains an open question. But the confusion within the four corners of the opinion arose immediately after the reference to KRS 14A.9-010, where it recited:

We disagree with the residents that the circuit court acted erroneously. “[T]he purpose of the assumed name statute is to inform members of the public, including appellants, of the identity of persons doing business under an assumed name. It could not be disputed that for lawful use, including litigation, the statute imposes a duty to provide such information.”  Munday v. Mayfair Diagnostic Laboratory, 831 S.W.2d 912, 915 (Ky. 1992). In Munday, however, the Court held that “appellees’ failure to file the certificate denied appellants information which was essential to the commencement of litigation.” Id. (emphasis added). That is not the argument here, and, even if it were, the residents fell short in their burden of proving that Topgolf and GGP, Inc., actively concealed their true identities to cause the residents to file their appeals out of time. Cf., Emberton v. GMRI, Inc., 299 S.W.3d 565, 575 (Ky. 2009). In fact, the residents were unaware of the lack of compliance with KRS 14A.9-010(1) and did not argue this issue before the administrative bodies. Accordingly, the circuit court held that the residents forfeited this argument on appeal to the circuit court because it was not a preserved issue. See City of Louisville v. Kavanaugh, 495 S.W.2d 502, 505 (Ky. 1973). Topgolf has since cured its defect. GGP, Inc., is now known as Brookfield Property REIT, Inc. It, too, had complied with the statute prior to the circuit court hearing.

The court treats the qualification to transact business under the Business Entity Filing Act as being synonymous with the filing of an assumed name. But they are not. They are distinct statutes that are applicable in different situations. The requirement of qualify to transact business (KRS § 14A.9-010) is triggered when a non-Kentucky organized entity is transacting business in Kentucky. In contrast, the assumed name statute (KRS § 365.015) is triggered when a natural person, a domestic business entity or a foreign entity is doing business other than under its “real name.” 

There is no basis for challenging to the decision to grant the necessary permits based upon either the failure to qualify to transact business before filing the application or the failure to have an assumed name of record.  As to the former, the statute defines the consequences of a failure to qualify, namely the inability to “maintain” a legal action, and a failure to raise the issue creates a waiver.   As for a failure to register an assumed name, the Munday decision sets to consequence, namely an extension of the statute of limitations for claims against that organization. See Munday v. Mayfair Diagnostic Lab, 891 S.W.2d 912 (Ky. 1992); see also Thompson v. Otis Elevator Co., No. 3:10-CV-139-DW, 2012 BL 172602 (W.D. Ky. July 12, 2012).  Note also that with a single narrow exception a foreign entity is not required to qualify to transact business as a pre-condition to filing an assumed name. See also Margaret Walton and Thomas Rutledge, The Kentucky Assumed Name Statute, Bench & Bar Hot Topics at 3 (Sept. 27, 2017). Simply put the two statutes address different issues; unfortunately, the Topgolf decision treated them as being inter-changeable.


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