556 B.R. 489
Bankr. N.D. Okla2016Background
- Ivey Brookside, LLC (Creditor) is an Oklahoma LLC formed in 2009; its articles of organization were canceled by the Oklahoma Secretary of State for failure to file annual certificates/fees (cancellation effective Feb. 16, 2016).
- Defendant Michael White filed a Chapter 7 bankruptcy on Feb. 25, 2016; the § 523 complaint deadline was May 23, 2016.
- Creditor filed this adversary complaint alleging nondischargeable debt under 11 U.S.C. § 523(a)(4) on May 20, 2016 — while its articles were canceled.
- Creditor obtained reinstatement of its articles with the Oklahoma Secretary of State on June 10, 2016 (after filing the complaint and after the nondischargeability deadline).
- The Court converted Defendant’s motion to dismiss into a summary judgment motion and considered undisputed facts and statutory text of the Oklahoma LLC Act.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an LLC whose articles were canceled at the time of filing had capacity to sue | Reinstatement of articles (post-filing) relates back and ratifies suits filed while articles were canceled | A canceled LLC ceased to exist and thus lacked capacity to sue; reinstatement does not have retroactive effect | Held: No capacity. The LLC ceased to exist on cancellation and could not invoke the court; reinstatement did not relate back to permit the suit |
| Whether Oklahoma law gives reinstatement retroactive effect to validate acts during cancellation | Reinstatement restores the LLC as if never canceled (analogy to corporate revival) | Oklahoma LLC Act is silent as to retroactivity and distinguishes canceled LLCs from merely not-in-good-standing LLCs | Held: Reinstatement under the LLC Act does not expressly provide retroactive validation; court will not read retroactivity into the statute |
| Whether equitable considerations (technical oversight, unfairness) permit keeping the suit | Reinstatement and equitable fairness should allow the suit to proceed despite lapse | Strict statutory text and precedent govern; fairness does not override statutory consequence | Held: Equitable argument rejected; statutory scheme controls and produces dismissal |
| Whether dismissal is jurisdictional and effectively with prejudice to refiling | Reinstatement cured defect (plaintiff) | Lack of entity status at filing means court lacked jurisdiction over the action | Held: Dismissal for lack of capacity/jurisdiction; subsequent reinstatement did not cure the jurisdictional defect retroactively |
Key Cases Cited
- In re Midpoint Dev., L.L.C., 466 F.3d 1201 (10th Cir.) (LLC ceases to exist upon cancellation of articles; cannot wind up under bankruptcy)
- AT & T Advertising, L.P. v. Winningham, 280 P.3d 360 (Okla. Civ. App.) (cancellation of articles means LLC no longer exists; statements on reinstatement treated as dicta)
- Siloam Springs Hotel, L.L.C. v. Century Sur. Co., 781 F.3d 1233 (10th Cir.) (Oklahoma law treats LLC as an unincorporated association, not a corporation)
- Williams v. Smith & Nephew, Inc., 212 P.3d 484 (Okla.) (corporation-revival principles under corporate statute do not govern LLCs)
- Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (U.S.) (standard on drawing inferences at summary judgment)