Effect of Dissolution
Coccoli v. Sachem Capital Partners LLC, 20-P-671, decided March 5, 2021. The Massachusetts Appeals Court rejected the argument of a non-attorney that he could individually pursue an appeal on behalf of a corporation because it had been dissolved and he was the sole beneficiary of its assets. The court noted that the legal claims of a corporation do not pass to its sole officer or shareholder upon dissolution. The clams remain personal to the corporation for the duration of the winding up period.
Door Closing Penalty for Unregistered Foreign LLCs
BoylstonD3 LLC v. Galvin, C.A. No. 19-11489, decided October 22, 2020. The U.S. District Court in Massachusetts upheld the constitutionality of the provision of Massachusetts’ LLC Act denying foreign LLCs doing business in the state without registering the right to bring actions in state courts until they register. The plaintiff claimed the statute violated the Privilege and Immunity, Equal Protection, and Due Process Clauses of the 14th Amendment.
The court rejected the claim that the provision violated the Privileges and Immunity Clause, noting that this clause extends only to natural persons and not to corporate entities, including LLCs. The court also rejected the challenge based on the Equal Protection Clause, accepting the Secretary of the Commonwealth’s argument that both domestic and foreign LLCs must register with the state to have access to the courts, and that the penalty for domestic LLCs – the loss of separate entity status – is greater than that for foreign LLCs.
The court also found that the plaintiff failed to state a claim for relief under the Due Process Clause, noting that the statute provides an unregistered foreign LLC the right to defend suits and that the plaintiff has other legitimate means available to resolve its contractual and property disputes, including federal court, private mediation and negotiated agreements. The statute, therefore, affords plaintiff the requisite opportunity to be heard before the government can interfere with its contracts or deprive it of its property. The plaintiff also failed to negate the purported justification for the enactment of the statute. For instance, the Secretary of the Commonwealth contended that one objective in requiring LLCs to pay an annual fee before being granted access to state courts is to defray costs borne by the Commonwealth's court in adjudicating disputes involving LLCs, which is certainly a legitimate government objective.
Smith v. Kelley, SJC-12759, decided February 11, 2020. The Massachusetts Supreme Judicial Court held that successor liability may apply to a sole proprietorship where the sole proprietorship is a mere continuation of its predecessor entity and the purpose of the change was to eliminate the debt to the plaintiff.