Opposition to Dismiss Defunct LLC as Defendant

Below you will find our opposition to dismiss a defunct LLC as a defendant.

There is no question that when a company forfeits its charterm the company ceases to exist as a legal entity by operation of law. Md. Code Ann., CORPS. & ASS’NS § 4A-911(2021); Dual, Inc. v. Lockeed Martin Corp., 383 Md. 151, 163, 857 A.2d 1095, 1101 (2004) (A “corporation, the charter for which is forfeit, is a legal non-entity….”); Kroop & Kurland, PA. v. Lambros, 118 Md. App. 651, 656, 703 A.2d 1287, 1289 (1998) (If the company’s “charter is forfeited for non-payment of taxes or failure to file an annual report, the corporation is dissolved by operation of law and ceases to exist as a legal entity.”).

But capacity to be sued as a defunct LLC is an entirely different story as this motion makes clear.  There is no impediment to suing a forfeited business. As a practical matter, we often sue defunct LLCs because there was insurance coverage at the time of the negligence.

IN THE CIRCUIT COURT FOR BALTIMORE CITY, MARYLAND

DAVID HALL
– Plaintiff,

v.

STATE FARM INSURANCE, et al
– Defendants.

Case No.: 24-C-13-007778 MT

Plaintiff’s Response to Defendants’ Motion to Dismiss and Motion for Sanctions Under Md. Rule 1-341

Plaintiff, David Hall, by and through his attorneys, Ronald V. Miller, Jr., and Miller & Zois, LLC, hereby responds to the Defendants’ Motion to Dismiss filed by Executive Dispatch, LLC and Executive Dispatch Worldwide, LLC (hereinafter collectively referred to as “Dispatch Defendants”), and respectfully requests that Defendants’ Motion be denied. In support thereof, Plaintiff states as follows:

Introduction

This is a single automobile collision which occurred on July 19, 2020. On that date, Plaintiff David Hall was a passenger in a commercial vehicle operated by Defendant Paul Lorenso. The vehicle operated by Defendant Lorenso was co-owned by Defendant Gregory Lee, both of whom were employees, agents, or servants acting on behalf of Defendant Executive Dispatch, LLC and/or Defendant Executive Dispatch Worldwide, LLC, a limousine company that serviced the Baltimore metropolitan area.

The collision occurred while Defendant Lorenso was traveling southbound on Highway 295 (Baltimore/Washington Parkway). While Defendant Lorenso was operating the vehicle, he swerved to avoid a piece of debris in the roadway, lost control and collided with the barrier on the right-hand side of the road. The force of the impact caused Defendant Lorenso’s vehicle to skid back across all lanes of traffic and strike the barrier on the left-hand side of the road before coming to a complete stop. Plaintiff suffered debilitating physical injuries as a result of the collision.

Defendants’ Motion To Dismiss

Plaintiff filed his complaint on February 7, 2021 alleging (1) a breach of contract claim against Defendant State Farm Insurance Company for failing to make any payments to Plaintiff Hall under the uninsured motorist provision of his insurance policy; (2) a negligence claim against Defendant Lorenso; (3) agency claims against Defendant Executive Dispatch, LLC (“Defendant Executive”), Defendant Executive Dispatch Worldwide, LLC (“Defendant Worldwide”), and Defendant Gregory Lee; (4) negligent entrustment claims against Defendant Worldwide, Defendant Dispatch, and Defendant Gregory Lee; and (5) negligent hiring claims against Defendant Gregory Lee and Defendant Dispatch.

Upon receiving the Plaintiff’s complaint, Defendants Executive and Worldwide (hereinafter collectively referred to as “Dispatch Defendants”), filed a Motion to Dismiss Plaintiff’s Complaint under Maryland Rule 2-322(b)(2) for failure to state a claim upon which relief can be granted. Dispatch Defendants argue that because they are Maryland Limited Liability Companies that have forfeited the right to do business in Maryland as a result of failure to file tax returns are shielded from liability, and therefore, Plaintiff has failed to plead a viable cause of action against them.

Argument

Defendants’ Motion to Dismiss should be denied, because under Maryland law limited liability companies that have forfeited their articles or organization merely lose the right to do business in Maryland and are not prevented from defending any action, suit, or proceeding brought against them.

1.- Under Md. Corp. & Assoc. Code Ann. § 4A-920, an LLC with a forfeited charter is a proper party to be sued, and may defend and participate in these proceedings.

Md. Corp. & Assoc. Code Ann. § 4A-920 states that:

The forfeiture of the right to do business in Maryland and the right to the use of the name of the limited liability company under this title does not impair the validity of a contract or act of the limited liability company entered into or done either before or after the forfeiture, or prevent the limited liability company from defending any action, suit, or proceedings in a court of this State.
Id.

The Court of Special Appeals of Maryland has observed that “the statute expressly provides that a forfeited LLC may… defend an action in court.” Price v. Upper Chesapeake Health Ventures, 192 Md.App. 695, 705, 995 A.2d 1054, 1060 (2010)(emphasis in original). The appellate court held that “upon close review of the text of the LLC statute and its legislative history, we find that tax-failure forfeiture by an LLC, while resulting in the loss of important rights, does not make the LLC a legal non-entity.” Id. at 704, 995 A.2d at 1059. Because Maryland’s statutory and common law permit a forfeited LLC to remain a legal entity and to defend any suit brought against it, Defendants’ Motion must be denied.

2.- The authority on which Defendants rely is unpersuasive because Maryland law treats forfeited corporations differently than forfeited LLC’s.

Dispatch Defendants contend they cannot be sued, because they are defunct and forfeited entities. In their Motion to Dismiss, Dispatch Defendants cite legal authority which states that once an entity’s charter is forfeited, said entity ceases to exist in a legal capacity. See Scott v. Seek Lane Venture, Inc., 91 Md.App. 668, 685-86, 605 A.2d 942, 950-51 (1992); citing Atlantic Mill & Lumber Realty Co. v. Keefer, 179 Md. 496, 499–500, 20 A.2d 178 (1941); Cloverfield Improvement Assoc., Inc. et al. v. Seabreeze Properties, Inc., 32 Md.App. 421, 424–26, 362 A.2d 675 (1976), modified in part and aff’d 280 Md. 382, 373 A.2d 935 (1977). Defendants are wrong, because Maryland law treats forfeited corporations differently than forfeited LLC’s. The appellate court in Scott was specific when it stated that “[u]nder Maryland law, once a corporation’s charter is revoked and forfeited, the corporation ceases to exist as a legal entity (emphasis added).” See Scott, 91 Md.App. at 685-86, 605 A.2d. at 950-51.

Both Dispatch Defendants are limited liability companies as evidenced by the abbreviation “LLC” in the title of their motion (“Defendant Executive Dispatch, LLC and Executive Dispatch Worldwide, LLC’s Motion to Dismiss”) as well as the Articles of Organization that were attached with their motion as Exhibit 1 and Exhibit 2. Dispatch Defendants are not corporations, nor a
re they non-specific business “entities,” as they would ask this Court believe. They are LLC’s, not corporations or non-specific “entities”, and should be treated accordingly.

It is incontrovertible that the law in Maryland allows for the formation of various business entities including, but not limited to, sole proprietorships, partnerships, corporations, and limited liability partnerships and companies. These separate and distinct classifications allow business owners to shape and control the ownerships interests of the business, how the business will be taxed, and how the business will be subject to liability. The law encourages specificity in business formation, and although each type of business is in fact an “entity,” the laws which apply to one business entity will not necessarily apply to another. See generally MD Code, Corporations and Associations (each title of the article sets out the requirements for business entity formation and codifies the rules which apply to each type of business entity).

A corporation and a limited liability company are two distinct business entities in Maryland, and while case law referring to corporations does concern a business entity, to manipulate the language of that law and apply it to all business entities is misleading and improper. While a corporation may not exist as a business entity after it has forfeited its charter, an LLC continues to exist as a legal entity, and may defend any suit brought against it in a Maryland court.

As the appellate court explained in Price, forfeited corporations and forfeited LLC’s exist differently after forfeiture:

Although C&A § 3–503(d) provides, in the case of a corporation, that “the charters of … corporations [that failed to file an annual tax report] are repealed, annulled, and forfeited, and the powers conferred by law on the corporations are inoperative, null, and void,” C&A § 4A–911(d) states only that an LLC that fails to file a tax report forfeits “the right to do business in Maryland and the right to the use of [its] name.” The statute does not say that LLC articles of organization, like corporate charters, are forfeited for failure to file tax reports or pay taxes. C&A § 4A–920 also indicates that the LLC does not become non-existent after it forfeits those rights, providing:

The forfeiture of the right to do business in Maryland and the right to the use of the name of the limited liability company under this title does not impair the validity of a contract or act of the limited liability company entered into or done either before or after the forfeiture, or prevent the limited liability company from defending any action, suit, or proceedings in a court of this State.
Id. at 705, 995 A.2d at 1060.

Section 4A-920 of the Limited Liability Company Act is abundantly clear. A limited liability company that has forfeited the right to do business in the state does not escape liability from the contracts that were entered into or done either before or after the forfeiture. This statute is directly applicable, unambiguous, and controlling. Dispatch Defendants must stand by the contracts that were valid and in force prior to forfeiture.

3. Because Maryland law is so clear on this issue, Defendants should be sanctioned by the Court for filing a frivolous Motion.

Md. Rule 1-341 states that:

In any civil action if the court finds that the conduct of any party in maintaining or defending any proceeding was in bad faith or without substantial justification the court may require the offending party or the attorney advising the conduct or both of them to pay the adverse party the costs of the proceeding and the reasonable expenses, including reasonable attorney’s fees, incurred by the adverse party in opposing it.

Here, Defendants’ conduct in filing their Motion is without substantial justification, because Maryland law on this issue is exactly the opposite of what they say it is, which would have been revealed by a bare minimum of legal research. Accordingly, Plaintiff asks that Defendants and their counsel be ordered to pay $100 as sanctions to Plaintiff for the time spent in opposing their Motion.

Conclusion

Defendant Executive Dispatch, LLC and Defendant Executive Dispatch Worldwide, LLC are limited liability companies in the eyes of Maryland law. Although they are forfeited LLCs, they remain legal entities. Each limited liability company has forfeited only their right to do business in the state of Maryland under the name originally filed under their respective Articles of Organization. Additionally, the business contracts that were in effect prior to forfeiture are not void merely because the businesses are no longer intact, and both limited liability companies may be called upon to defend a lawsuit in the state of Maryland.

There is no question the Plaintiff has brought a claim upon which relief can be granted, and the above-referenced applicable statutory and case law supports this argument. For all these reasons, Plaintiff respectfully requests that this Honorable Court deny Defendant’s Motion to Dismiss.

Respectfully submitted,

Ronald V. Miller, Jr.
Miller & Zois, LLC
1 South St, #2450
Baltimore, MD 21202
(410)779-4600
Counsel for Plaintiff

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