Pannell v. ShannonPannell v. Shannon
Opinion of the Court by
This case presents two primary questions. First, is the sole member of a limited liability company liable under a lease expressly stating that the company is the tenant even though the lease is the product of a release that does not mention the member’s company capacity or the company in any direct way? Second, assuming the member has not directly obligated herself, can she be held personally liable if the lease was entered into while the company was, administratively dissolved and was subsequently reinstated? Based on the facts in this case, the member did not directly obligate herself because she clearly signed the lease in her representative capacity and the lease was expressly with the company. And because Kentucky’s Limited Liability Company Act provides
I. Background
Ann Shannon organized Elegant Interiors, LLC in 2000 under the Kentucky Limited Liability Company Act, KRS Chapter 275, and was the company’s sole member. In February 2004, Elegant Interiors, LLC entered into a lease for 3,645 square feet of commercial space with Rick Pannell, who owned the property. Shannon signed the lease on behalf of Elegant Interiors, LLC.
In 2005, Elegant Interiors, LLC failed to file its annual report as was then required by
In March 2006, the parties negotiated new leasing terms, entering into a release of the old lease and a new lease for less than half the previous space. The release was prepared by Shannon, and was signed on March 2, 2006. It stated:
I agree to release 1991 SF of my current space and all responsibility of payment for the 1991 SF, located at 148 W. Tiver-ton Way, STE 140, beginning today, Mar. 2, 2006. The purpose of this release is to grant Rick Pannell the right to lease STE 140 (consisting of 1991 SF) to Dr. Mike Nemastil. It is agreed upon that the signing of this document by both parties assures that Ann Shannon will not be held responsible for the building of any walls, construction, cam costs, or any expenses pertaining to STE 140, beginning today, March 2, 06, and will only be responsible for payment of the remaining 1654 SF @ 18.00 SF [18.856 written by hand above 18.00 and initialed by both parties] and known as STE 150, located at the same address. Upon acceptance of this document, a new lease will be signed by Ann Shannon, for the changes in SF (1654 SF@ 18.00 SF [18.856 written' by hand above 18.00 and initialed by both parties]) and cam costs only for the STE 150. All other stipulations will remain the same as in the initial lease.2
The release was signed by both Ann Shannon and Rick Pannell. It does not mention Elegant Interiors, LLC.
Despite the reduced cost, the rent payments for June and July of 2006 were not made. Panned sued for breach of the lease agreement on July 21, 2006. He named both the LLC and Shannon individ-uady, seeking to hold her personally liable for the rent through various theories, including that she had no authority to enter into the lease for the LLC and that the corporate veil of the LLC should be pierced because the company was simply the “alter ego” of Shannon.
Shortly after, Shannon sought to reinstate the administratively dissolved LLC, as was then allowed by
Shannon then sought summary judgment on the basis that she could not be held personally liable for the breach of the lease because the tenant on the lease was Elegant Interiors, LLC, which had been reinstated. She argued that because she was a member of the LLC, she was shielded from personal liability by
Panned argued that despite the LLC being'named the tenant in the lease, Shannon personally executed the lease, as evidenced by her signature on the release without any reference to the LLC, and thus she entered into the lease in her individual capacity. He also argued that Shannon could not have acted on behalf of the LLC because there was no such entity in existence at the time.
The circuit court disagreed. It held that the LLC, not Shannon individually, had entered into the lease, noting that the lease specifically described the tenant as “Elegant Interiors, a LLC corporation [sic].” As a result, according to the circuit court, the LLC was “the party assuming the obligations of Tenant.” As to the secondary argument, the court cited
The Court of Appeals affirmed unaniT mously, holding that the lease was with the
This Court granted discretionary review.
II. Analysis
This case presents two broad legal questions. First, did Shannon sign the release and lease in her individual capacity, thereby making her personally liable? Second, did the administrative dissolution of the LLC and Shannon’s signing the lease during the period of dissolution, regardless of whether she signed in her company-member or individual capacity, make her personally liable?
A. Shannon did not sign the lease or release in her individual capacity.
Pannell’s initial argument is that regardless of the status of Elegant Interiors, LLC, Shannon signed the release and the second lease in her individual capacity. To support this argument, he notes that the lease states on its cover page that it is “for Ann Shannon,” and that Shannon failed to indicate that her signature was in a representative capacity for the LLC. This, he claims, makes the document ambiguous, and thus subject to clarification through parol evidence. He also argues that the release, which was prepared by Shannon, mentions only Shannon and not the LLC, which would make her personally liable. This Court agrees with the Court of Appeals that Shannon did not sign the March 2006 lease in her personal capacity.
As to the claim that the lease states it is “for Ann Shannon,” it suffices to say that the lease defines the “Tenant” as Elegant Interiors, LLC, and throughout its terms refers to the “Tenant” as the party to the lease. The only reference to the lease agreement being “for Ann Shannon” appears on the cover page of the lease, which also states that the “tenant” is Elegant Interiors, LLC.
The cover page is but “introductory or prefatory” material. It had less substance than even the traditional recitals of a contract, which are “not an essential part of the operative portions of the contract.” Jones v. City of Paducah,
As for the claim that Shannon did not include her title or otherwise indicate her representative capacity along with her signature, it is worth noting that her signature line was preceded by the word “By,” which indicates that the signature is in a representative capacity. See 7 William Meade Fletcher et ah, Fletcher Cyclopedia of the Law of Private Corporations § 3032 (rev.vol.2012) (noting that a representative signature is ideally “preceded by the word ‘For’ or ‘By’ or some equivalent”). And the simple fact is that Shannon did not have to list her title, though clearly the better practice is to include it. “[Fjailure of the officers signing to add the title of their office is not ordinarily fatal to the validity of a corporate contract where the contract on its face is a contract of the corporation and the other parties have notice of the officer’s relation to the corporation.” Id. § 3035; see also Star Supply Co. v. Jones,
There appears to be no Kentucky case stating this rule. The only cases addressing who is bound by the signature of a business entity’s officer or agent are those where the body of the document does not state that the business entity is a party to the agreement and only the signature could so indicate. See, e.g., Simpson v. Heath & Co.,
This Court sees no reason to depart from the rule that if the body of the contract states that the agreement is with a corporation or other entity, then the officer or agent signing the agreement has not signed in her individual capacity and cannot be held personally liable solely because of her signature. This makes sense in light of the cases noting that “[i]t is ... fundamental that an officer of a corporation will not be individually bound when contracting as an agent of that corporation within the scope of his employment.” Potter v. Chaney,
Again, as noted above, the lease describes Elegant Interiors, LLC as the party to be bound as the tenant. This identified Elegant Interiors, LLC as the principal and gave Pannell notice that he was dealing with Shannon as an agent of the company.
There is no ambiguity in the lease, at least none based on the cover-page statement or the fact that Shannon did not indicate that her signature was on behalf of the limited liability company. It is thus clear that the lease was a contract of the limited liability company, not Shannon individually, and therefore Shannon cannot be liable as having signed the lease in her personal capacity.
Pannell also claims that the release, by stating that the bound party was “Ann Shannon” without mentioning Elegant Interiors, LLC, made Shannon personally liable or, at the very least, created ambiguity as to the overall agreement when read with the second lease by misleading him. While the release does state that “Ann Shannon ... will only be responsible for payment of the remaining.” square footage, it is equally clear that the release was aimed primarily at giving up some of the rights to occupy commercial space under the original lease, which was with Elegant Interiors, LLC. This is evinced by the use of the word “only,” to suggest that the release reduces an existing obligation. The release clearly related to the first lease in that it allowed Pannell to rent some of the space to a third party, reduced the rent to be paid, and put the burden of paying for any construction costs on Pan-nell.
The last sentence of the terms of the first (and second) lease stated that “[n]o modification to this lease shall be binding unless such modification shall be in writing and signed by the parties hereto.” The parties to the original lease were unques
Ultimately, the release and the second lease must be read in light of the statutory preference for maintaining an LLC member’s limited liability.
As to the notion that the release and second lease could or should be read together to create ambiguity, it suffices to point out that the second lease included what is known as an integration or merger clause. The very last clause of the lease states that “[t]his writing contains the entire agreement of the parties hereto.”
Pannell also suggests that the second lease’s provision stating that the tenant is Elegant Interiors, LLC was “scrivener’s error” and that the intent of the parties was for Ann Shannon to be listed as the tenant. While scrivener’s error can be grounds for reforming a contract as the, result of mutual mistake, “it is the well-established rule in this state that reformation of an executed contract on the ground of mistake will not be decreed unless the mistake be established by full, clear, and decisive evidence,” and “[t]he ground of relief must appear beyond reasonable controversy.” Nichols v. Nichols,
Nonetheless, “merely finding that [Shannon] signed ... in a[limited liability company capacity] rather than an individual capacity does not dispose of this appeal.” White v. Winchester Land Development Corp.,
B. What was the effect of the administrative dissolution of the limited liability company and subsequent reinstatement ?
Pannell also argues that because Elegant Interiors, LLC had been administratively dissolved ■ at the time the second lease was entered into, any liability must fall-on Shannon personally, regardless of whether she signed the lease in her individual capacity. Shannon of course argues that the reinstatement of the LLC was retroactive, thus giving the company continuous existence and placing liability on the company alone. This actually presents two different questions. First, did the dissolution strip Shannon of her statutory immunity as a member of the LLC and thereby make her personally liable? Second, was Shannon liable as an agent for the LLC during its administrative dissolution, either by reason of being an agent or because she was without authority to enter into the lease?
I. Shannon, as a member of the limited liability company, cannot be held personally liable solely by reason of her member status for actions taken during a period of administrative dissolution because the company was reinstated.
■ This Court concludes that a member of a limited liability company enjoys statutory immunity from liability under KRS . 275,150 for actions, .taken during a period of administrative dissolution so long as the company is reinstated before a final judgment is rendered against the member.
Pannell begins by claiming that the “well-established and ancient rule” in Kentucky is that shareholders and officers are personally liable for debts made in the name of a dissolved corporation. He implies that the same rule should extend to limited liability companies. This, however, was “the rule at common law,” Moore v. Occupational Safety and Health Review
This Court must therefore first look at the controlling statutory law. The obvious place to start, then, is the source of limited liability in the LLC context,
Except as provided in subsection (2) of this section or as otherwise specifically set forth in other sections in this chapter, no member, manager, employee, or agent of a limited liability company ... shall be personally hable by reason of being a member, manager, employee, or agent of the limited liability company, under a judgment, decree, or order of a court, agency, or tribunal of any type, or in any other manner, in this or any other state, or on any other basis, for a debt, obligation, or liability of the limited liability company, whether arising in contract, tort, or otherwise.... That a limited liability company has a single member or a single manager is not a basis for setting aside the rule otherwise recited in this subsection.
The question, however, is not whether this immunity exists (obviously, it does), but whether it ceases to apply when the LLC is administratively dissolved and the LLC continues to conduct its business, even though later reinstated. When the events of this case occurred,
Reinstatement under the statute literally undoes the dissolution. This is why the Secretary of State was required to “cancel” the certificate of dissolution and issue a certificate of existence. See
The Court of Appeals has read the same language that appeared in
The problem is that a conjunctive “and” follows this relate-back language and leads to the language that the company shall “resume carrying on its business as if the administrative dissolution or revocation had never occurred.” Absent the word “resume,” the meaning of the statute would be unquestionable — if a business entity is reinstated, its entity status is to be deemed seamless, with no loss of identity — just as the Court of Appeals held in Fairbanks.
Pannell, however, argues that we cannot ignore the word “resume” in the statute, claiming that it means something different from “continue” and that it necessarily requires that the entity have quit doing business while administratively dissolved. He also cites
He also cites a 2-1 unpublished opinion by the Court of Appeals, Forleo v. American Products of Kentucky, No. 2005-CA-000196-MR,
With Fairbanks and Forleo, though only one was a published and therefore prece-dential opinion, there is an apparent split of opinion in the Court of Appeals. Indeed, another panel of the Court of Appeals has applied Fairbanks, in another unpublished decision, to mean that if “reinstatement of a corporation relates back to the effective date of dissolution and oper
The statute’s inclusion of “resume” does seem to offer some ambiguity. Admittedly, “resume” is ordinarily understood to require an interruption in activities. See, e.g., Merriam-Webster’s Collegiate Dictionary 999 (10th ed.1997) (defining “resume” to mean “to return to or begin again after interruption” and “to begin again something interrupted”).
But in interpreting statutes, this Court is required to give effect to all the language in a statute if possible. “No single word ... is determinative, but the statute as a whole must be considered.” Cosby v. Commonwealth,
To understand the whole statute, we must look at what happens when the Secretary of State reinstates an administratively dissolved LLC. As noted above, if the requirements of reinstatement are met, then the Secretary of State “shall cancel the certificate of dissolution.”
More importantly, the Secretary of State must also “prepare a certificate of existence stating the effective date of reinstatement.”
So what then is the effect of reinstatement? The company, of course, “resumes” its business. But the reinstatement “relate[s] back to and take[s] effect as of the effective date of the administrative dissolution,” and the company “resumes” its business “as if the administrative dissolution had never occurred.”
Indeed, the Court of Appeals, in Fairbanks, addressed the argument that a court should “focus solely on the word ‘resume’ found in
This would effectively redact the statute to read, “When the reinstatement is effective ... the corporation shall resume carrying on its business[.]” However, as noted above, we may not subtract language from a statute nor may we render any of its language meaningless, if we can avoid doing so.
Id. (alteration and omission in original). Instead, the court gave effect to the language following “resume,” which requires acting “as if the administrative dissolution ... had never occurred” and treating the effective date of reinstatement as the date of the dissolution. Id. at 146.
That this is the proper reading of
This change alone undermines the claim in Forleo that actions during a period of administrative dissolution can lead to personal liability for a shareholder. The General Assembly, by making this change, has expressly stated that limited liability for shareholders is to continue despite an administrative dissolution.
The limited-liability-company analog to the corporate statute,
In fact, this matter has been further clarified by the adoption of the Kentucky Business Entity Filing Act, which replaced
When the reinstatement is effective:
(a) It shall relate back to and take effect as of the effective date of the administrative dissolution;
(b) The entity shall continue carrying on its business as if the administrativedissolution or revocation had never occurred; and
(c) The liability of any agent shall be determined as if the administrative dissolution or revocation had never occurred.
Pannell argues that these changes are not evidence of what the statute formerly meant but instead show that his reading is correct, especially if the changes were necessary to correct the law in response to Forleo. That argument, however, ignores the in pari materia canon discussed above. This is not a matter of retroactive application of an entirely new statutory provision; rather, it is an application of old language, the meaning of which has been clarified by more recent amendments. The canon is a guide to meaning, not a substitute for it or a means of retroactively applying a statute. We have only used it as a guide here.
There is some concern that this reading of the statute ignores other aspects of the limited-liability laws, namely the command that a dissolved company “shall not carry on any business except that appropriate to wind up and liquidate its business and affairs.”
First, this view would treat “actions after administration dissolution and prior to reinstatement that are beyond those necessary or appropriate to winding-up and liquidation as ultra vires and ... then hold the shareholders ... liable personally on ultra vires obligations.” Rutledge, supra, at 240-41. But this ignores the rule that the only parties with standing to challenge an act as ultra vires are insiders (members or shareholders) and, in some circumstances, the Attorney General, not third parties doing business with the company. See
Second, it does not make sense to enforce the winding-up-only limits on an LLC if it is not intended to be wound up and instead is meant to be a going concern. It is logical to view the language “carry on any business except that necessary to wind up and liquidate” as applying to companies that will not be seeking reinstatement. This is a sound principle, because it serves to prevent further acts by a business that does not intend to continue as a business entity. Even then, the Limited Liability Company Act allows that the LLC can be bound by non-winding-up acts under certain circumstances. See
Additionally, there are some actions that must be taken during the dissolution before reinstatement to preserve the business of the company that plans to continue. It is a sound principle to allow ratification of acts of a company that intends to continue its entity status, so that the company may not avoid statutory and other regulation for the period of time it was under dissolution. This avoids a company purposely using dissolution to avoid legal restrictions on its conduct.
Since limited liability companies do not actually cease to exist during dissolution, it makes sense that the language about “relating back” and “as if the administrative dissolution or revocation had never occurred” is intended to create a seamless functional existence when the company wishes to continue doing business rather than closing up shop. Thus to read excessive meaning into the term “resume” would result in a poor business rule. That one word cannot mean more than the rest of the statutory language put together; it must be read to serve the business purpose intended by the legislation.
Pannell also argues that we should reject Shannon’s immunity claim because the reinstatement statute is silent as to the issue of personal liability. He is correct that the statute is silent, but that silence cuts both ways. Just as the statute does not say that shareholders are still immune, it does not say they lose their immunity. Yet, as discussed above, our statutory and case law strongly favors maintaining limited liability for corporate shareholders and limited-liability-company members. See Racing Investment Fund 2000, LLC v. Clay Ward Agency, Inc.,
Statutes like
To elevate the “resume” language over the rest of
As noted above, this analysis applies to Shannon’s liability as a member of the LLC. But Pannell’s objection appears to actually be that Shannon is liable as an officer or agent of the corporation who acted without authority. Indeed, this makes sense, as a corporate shareholder or LLC member, while an owner, is not necessarily an agent of the business entity, at least not simply by reason of being an owner.
Pannell’s reliance on Forleo is telling in this respect, as one of the major criticisms of the analysis in that case (but not necessarily the result) is that “it conflated the role of the shareholder, who lacks the authority to act on behalf of or to bind the corporation, with the roles of a director and an officer which, respectively, has the authority to direct the management of the corporation and the authority to bind the
But the liability of a director, officer, employee or other agent of a limited liability entity during a period of administrative dissolution is technically a separate question from the liability of the owners of the entity. Indeed, as noted above, the cases Pannell relies on, and the majority rule those cases allege exists, are about the liability of directors, officers and other agents, as distinct from the owners (e.g., shareholders and members) of a business entity. Those cases sometimes also place liability on owners, but they do so because those owners were also acting as agents of the companies in question. And not only is it a separate question, it is often a different question, since the immunity from liability for these two groups often stems from different places, with the immunity for owners stemming from statute, see, e.g.,
That the liability questions are separate is easily shown by a situation where the owner (member) is a different person from the agent, but the act in question was that of the agent. It is further shown by the fact that a business entity can only act through an agent. Clearly, the agent’s personal liability for that act does not dictate whether the owner is personally liable. This case is analytically difficult in part because Shannon is both a member (owner) and manager (agent) of Elegant Interiors, LLC. But a member’s immunity cannot be set aside solely because the “limited liability company has a single member or a single manager.”
2. Shannon is not liable as an agent of the limited liability company.
This is the most difficult of the questions raised by this case, in part because it was not the focus of the litigation, or at least the decision, at the trial court. This question, however, again breaks down into multiple sub-questions. First, can Shannon under the circumstances of this case be personally liable by reason of her merely being an agent? Second, can she be personally liable because she acted as an agent without authority?
a. Shannon is not liable simply because she was an agent of the limited liability company.
The analysis above about liability of members also applies to agents of the limited liability company, to the extent their liability is alleged to exist simply by reason of their being agents, at least under the statute in effect when the events in this case occurred. Unlike the corporation limited-liability statute, the statute granting immunity to members of a limited lia
But it is when talking about the liability of agents that Forleo offers one last objection to this reading of the LLC reinstatement statute, namely, that this interpretation will place Kentucky in a minority position with regard to the effect of reinstatement as to the liability of officers and agents. Forleo interpreted language in a corporation reinstatement statute identical to that in the LLC reinstatement statute. In construing the effect of the corporation reinstatement statute, Forleo stated: “A majority of other jurisdictions considering this issue have found that reinstatement of the corporation does not shield the officers from personal liability for debts incurred after dissolution.” Forleo,
In Cardem, the defendant was the shareholder and president of the corporation, and was held liable. That decision was “based ... on a survey of the opinions of other jurisdictions that had addressed this question and agree[ment] with those that imposed personal liability on such an officer.” Cardem, Inc.,
WorldCom at least claimed there is a “majority rule ... that ‘the officer may be held personally liable for debts incurred by the continuation of business of the dissolved corporation, regardless of the corporation’s subsequent reinstatement.’ ” WorldCom, Inc.,
Interestingly, the Moore court noted that there was a “contrariety of judicial opinion” on the subject, though it ultimately concluded that a majority of states had followed the common-law rule of holding directors liable for interim acts. But it then stated that “the effect of a state reinstatement statute on the interim liability of the directors of a dissolved corporation is determined by the appropriate state’s interpretation or construction of the statute providing for the reinstatement or revival.” Id. at 995 (citation footnote and quotation mark omitted). Thus, a different statute can dictate a different result. And, as noted above, Kentucky has largely replaced its common law of business entities with statutes, and those statutes differ from those in some other states, such as Illinois.
WorldCom is thus distinguishable from this case because it was based on New York statutes that do not provide expressly for retroactive effect of the reinstatement, though they state that reinstatement “shall have the effect of annulling all of the proceedings theretofore taken for the dissolution” and the corporation “shall thereupon have such corporate powers, rights, duties and obligations as it had on the date of the publication of the proclamation [of dissolution], with the same force and effect as if such proclamation had not been made or published.”
But in this light, it is not even clear that WorldCom or Poritzky correctly state New York law. First, both cases are decisions by trial courts deciding summary judgment motions, not appellate decisions. And as another, more recent New York trial court has noted, “[sjeductive though it may be, the Poritzky rationale is fallacious.” Department 56, Inc. v. Bloom,
Second, as one federal court has stated, WorldCom and Poritzky ignored “the literal language of the statute” in question. Nigro v. Dwyer,
The simple fact is that Kentucky’s corporation law and other business entity laws differ from those in other states. Additionally, many of the decisions establishing or proclaiming the “majority rule” are older decisions, depend on statutes different from Kentucky’s, and may not reflect the current statutory law in those
In most jurisdictions, the reinstatement of a corporation following dissolution by administrative action of the state relates back to the effective date of dissolution, and directors or officers are not personally liable for actions taken during the period of dissolution or suspension. Such matters become the exclusive liability of the corporation.
16A William Meade Fletcher et al., Fletcher Cyclopedia of the Law of Private Corporations § 8117, at 250 (rev.vol.2012).
The existence of a majority rule can only be persuasive if the rule is based on statutes like those in Kentucky. We cannot say that our statutes expressly state who is liable for a company’s debts while under dissolution as is the case in some states. See, e.g., Frederic G. Krapf & Son, Inc. v. Gorson,
At best, the dissolution and reinstatement statutes are silent as to the question of personal liability. Yet we are charged with determining the effect of the reinstatement statute, which as noted above expressly makes the reinstatement retroactive, in the context of all the other statutes, such as those creating and favoring limited liability. The retroactivity of the reinstatement statute, when read with the provision making the company exist even after dissolution and the statutes creating immunity for agents, makes an agent immune if personal liability is alleged solely because the agent is an agent.
b. Shannon cannot be held personally liable as an agent who acted without or beyond her authority because her authority never lapsed.
That said, the thrust of Pannell’s argument is really that Shannon acted on her own behalf, not for the limited liability company, and without authority to do so. Part of this claim — that Shannon signed the lease not in her representative capacity, but in her personal capacity — has been addressed above. Whether Shannon actu
Again, this is a separate question from whether Shannon can be liable solely by reason of being an agent. The immunity provided by
Business entities, as legal fictions, can only act through their agents, and the law of agency dictates when an agent or a principal is bound by a transaction and whether the agent is therefore personally liable.
And it is the universal law of agency that when an agent acts with authority in a transaction with a third party, and the third party is aware of the agency, the transaction is between the principal and the third party. See Restatement (Third) Of Agency § 6.01 (2006). In such circumstances, the agent is not liable. Id. The agent of a business entity (or any agent, for that matter) can be personally liable only when he or she purports to be an agent but actually acts without authority. When that happens, responsibility for the transaction falls back to the agent and does not bind the principal. Thus, when acting in the .capacity of an agent for the LLC, Shannon could only be personally liable if she acted without authority. Otherwise, the contract in question was between the principal (the LLC) and the third party (Pannell), and Shannon had no personal liability for the agreement.
Pannell, of course, argues that Shannon lacked the authority to act on behalf of the LLC because there was no LLC in existence at the time the release and second lease were entered into. Pannell also ar
This line of reasoning is one argument for why Forleo reached the correct result,
Indeed, that this approach depends on the non-existence of the business entity is shown by the Restatement’s claim that “[t]he classic instance of this situation arises when a person enters into a contract purportedly on behalf of an entity that has not yet been formed, such as a business or a not-for-profit corporation or a limited-liability company.” Restatement (Third) of Agency § 6.04 cmt. c (2006). Obviously, that is not the case here because Shannon’s company had been organized.
Of course, “[s]imilar questions arise when a person purports to take action on behalf of an entity ... when the entity has been dissolved.” Id. In such instances, “[t]he organizational statute applicable to the entity may specify the circumstances under which such action will result in individual liability to third parties.” Id. For example, the Restatement offers an illustration in which a business entity is dissolved and, under the applicable statutes, “the effect of the dissolution ... is to terminate [the entity’s] existence.” Id.
But under Kentucky law, a “dissolved limited liability company shall continue its existence.”
Pannell suggests that
More importantly, the retroactive effect of the reinstatement, which as noted above creates a seamless existence and functionality for the LLC, means there was never a failure of Shannon’s authority. She was both a member and an agent of the LLC, and the reinstatement requires us to treat the LLC as though it existed the entire time. If the company never ceased to exist, and its full “corporate” powers are retroactive to the dissolution date, so too is the authority of its agent. Thus, the limits in
In a sense, the reinstatement was a kind of statutory ratification of Shannon’s acts on behalf of the company. Ratification “supplies original authority to do the act.” Kindred Nursing Centers Ltd. Partnership v. Leffew,
Reinstatement, however, is superior to traditional ratification. Ordinarily, ratification occurs either through “manifesting assent” or “conduct that justifies a reasonable assumption that the person so consents.” Restatement (Third) Of Agency § 4.01(2) (2006). And “whether conduct is sufficient to indicate consent” to ratification “is a question of fact,” id. § 4.01 cmt. d, which would require a jury finding. But as discussed above that the company never ceased to exist is a result of statute — a matter of law — and the effect of reinstatement is that the company’s continued existence is as though there was never dissolution. If there was never dissolution, then there was never a lapse in Shannon’s authority that would require traditional ratification.
Pannell complains in his brief that that the reinstatement occurred only after he filed suit and suggests that our reading of the statute has an inequitable effect. But it is not entirely clear how this reading is unfair to Pannell, except as viewed after the fact when it is clear that the LLC has no assets. But what if the circumstances were reversed, and the LLC still had assets but Shannon did not? Under Pan-nell’s proffered reading of the statutory scheme, he would have to settle for suing Shannon because the acts were hers and not the LLC’s.
The equities should be viewed from before the fact, at the time of the transaction, not after the fact once litigation is anticipated or begun. If Pannell had no notice of the dissolution and entered into the lease specifically with the LLC, then he cannot claim he is harmed or loses some bargain if the LLC is later reinstated and its agent’s action are legally imputed to it. Pannell will have gotten all that he expected at the time of the transaction, including any risk and any benefit. It is only after the fact, after seeing what has happened with the LLC and seeing the risk manifest into reality, that he appears to be harmed.
The simple fact is that reinstatement is between the LLC and the state. Indeed, the primary purpose of requiring business entities to file annual reports and to pay a filing fee is “the raising of revenue for the State.” Fairbanks Arctic Blind Co. v. Prather & Associates, Inc.,
III. Conclusion
Shannon did not sign the second lease in her personal capacity, and thus liability cannot be assigned directly to her, bypassing the limited liability company in this case. Additionally, that the limited liabili
Notes
. This statute and most, if not all, others related to filing business documents with the Secretary of State were repealed in 2011 and were replaced by the omnibus Kentucky Business Entity Filing Act. See 2010 Ky. Acts. Ch. 151. The new law, which was codified at KRS Chapter 14A, applies a single system to the filings for most types of business entities, KRS 14A. 1-020, including "corporation[s], business trust[s], partnership[s], limited part-nershipfe], [and] limited liability companies]," KRS 14A. 1-070(7). Before this, the filing procedure for different types of entities was laid out separately in the laws applicable to those entities. See, e.g., KRS 271B. 14-200 (administrative dissolution of corporations);
There appears to be some confusion, however, as to whether statutes such as
This Court’s review of several bills enacted into law in the 2010 Regular Session, however, shows that
That Michie’s still lists the statutes repealed in Senate Bill 151 appears to be a result of the repeal-and-reinstate language in Senate Bill 152. But this ignores other provisions in Senate Bill 152, namely Section 184, which has the following language:
(1) It is the intent of the General Assembly that the repeal and reenactment of sections in this Act shall not serve to void amendments made to those sections by other bills enacted during the 2010 Regular session of the Kentucky General Assembly, regardless of whether this Act is enacted before or after those other Acts.
(2) NotwithstandingKRS 446.100 or 446.260 or any other statute to the contrary, the Reviser of Statutes shall give force and effect to other 2010 Acts that amend one or more sections contained in this Act, and shall codify those amendments in accordance withKRS 446.250 and other applicable rules of codification.
Under this provision, the amendments in Senate Bill 150 were to be made, even though they were passed earlier in the session — before the earlier versions were repealed and then reenacted by Senate Bill 152. And the repeals in Senate Bill 151 were also passed into law and, under Section 184, were to be made to the statutes at the proper time (i.e., January 1, 2011). While we might not initially think of a repeal as an amendment, it must be. "Amend” means "[t]o change the wording of; specif., to formally alter (a statute, constitution, motion, etc.) by striking out, inserting, or substituting words < amend the legislative bill>.” Black’s Law Dictionary 89 (8th ed.2004) (emphasis added). Repealing a statute is no different than the striking out of all the language in the statute. Thus, Senate Bill 152 should have taken effect on July 1, 2010, to repeal and reenact various statutes, along with the amendments made in Senate Bill 150. And Senate Bill 151 should have taken effect approximately six months later, on January 1, 2011, to repeal that which has been reenacted by Senate Bill 152 and amended by Senate Bill 150.
Senate Bill 152 appears to have been some sort of clean-up bill. It includes references to making several different amendments retroactive to 2002 or 2007. See §§ 180-183. For example, one part, section 183, states that the repeal-and-reenactment provisions elsewhere in the bill reflecting amendments that had been made in a 2007 bill are made retroactive to 2007. Why this was necessary is not self evident, but the General Assembly clearly believed it was. Similarly, it is clear that the General Assembly did not intend Senate Bill 152 to undo the amendments (including the repeals) that were to be made at various times at the command of Senate Bills 150 and 151.
Thus, despite the confusion, it is clear to this Court that the amendments made by Senate Bill 152 were only effective until January 1, 2011, at which time all those statutes were repealed by the effect of Senate Bill 151 and replaced by the omnibus Kentucky Business Entity Filing Act.
. The document was originally written in all-capital letters. For ease of reading, the quoted language has been converted to standard capitalization where possible.
. This statute, like the others concerning business filings with the Secretary of State, was repealed and replaced with a similar statute applicable to multiple classes of business entities. The new version of this statute is
. While these authorities, like many discussed in this opinion, relate specifically to corporations, the rules they embody are equally applicable to other limited liability entities unless otherwise noted. This is especially true where the applicable statutory language is the same, although in different locations, for the various business entities.
. The second-to-last clause states:
END OF THE WORLD
The occurrence of the end of the world prior to the complete performance by Tenant of the terms, covenants and conditions of this Lease ... shall permit Landlord to accelerate and demand payment for all charges which remain as an obligation of Tenant under this Lease, and Landlord’s collection of monies due from Tenant may be pursued by an immediately available procedure. For all purposes hereunder or until Landlord provides notice to the contrary, such notice to be given to Tenant by then prevailing medium of communication. Landlord shall be deemed aligned with the Forces of Light and Tenant shall be deemed allied with the Powers of Darkness notwithstanding either party's final ordered placement.
Under this clause, it is unclear whether St. Peter is an unnamed third party to the lease.
. To the extent that the release addresses other items not included in the lease, such as responsibility for construction costs of fitting up the divided space, the release could be read as a separate agreement and could be controlling.
. KRS 271B. 14-220(3) stated that "[w]hen the reinstatement is effective, it shall relate back to and take effect as of the effective date of the administrative dissolution or revocation and the corporation shall resume carrying on its business as if the administrative dissolution or revocation had never occurred.” That we are dealing with the LLC version of the statute does not change the meaning of the language, which was the same for both corporations and LLCs at the time, despite being in different statutes. As noted above, a single statute now governs this area for both LLCs and corporations.
. Here, the Secretary of State, either because of a clerical error or misreading of
. Indeed, the present version of the statute,
. Pannell points out that Thomas Rutledge is a partner in the firm representing Shannon and suggests as a result that his scholarly writings and work with the General Assembly in passing various business laws should be ignored by this Court. But Mr. Rutledge is known as an expert in the field, and his scholarly writings quoted and referenced are not about this case (some, in fact, were written years before the dispute even arose). His writings therefore remain persuasive authority to the extent they are persuasive. Indeed, as explained below, this Court disagrees with them as to some of the issues in this case.
.This is a broadly used canon of construction. See, e.g., Seatrain Shipbuilding Corp. v. Shell Oil Co.,
In fact, the perhaps most recent treatise on the subject agrees that it is valid, stating: "It is a logical consequence of this contextual principle [of construing statutes in pari mate-ria ] that the meaning of an ambiguous provision may change in light of a subsequent enactment.” Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 254-55 (2012). The limit, of course, is that this approach is inapplicable "when the ambiguous provision has already been given an authoritative judicial interpretation ... by reason of the principle of stare decisis, which has special force in statutory cases.” Id. at 255. "The legislature, naturally, can change the law whose meaning the prior judicial interpretation has established. But once the meaning has been established, the meaning cannot change ‘in light of a later statute with which a different meaning would be compatible.” Id. There so far has been no authoritative judicial interpretation of the meaning of this language that would suggest that Pan-nell’s interpretation is correct. In fact, the only published decision actually supports that idea that Shannon should be immune from liability and is in accord with the subsequent amendment to the law.
. Of course, if the third party is harmed or about to be harmed by the act, that injury or potential injury could be the source of standing. But the nature of such a challenge would not be that the action was ultra vires.
. The provision states:
A director, officer, or agent of a corporation dissolved pursuant to this section, purporting to act on behalf of the corporation, is personally liable for the debts, obligations, and liabilities of the corporation arising from such action and incurred subsequent to the corporation’s administrative dissolution only if he or she has actual notice of the administrative dissolution at the time such action is taken; but such liability shall be terminated upon the ratification of such action by the corporation's board of directors or shareholders subsequent to the reinstatement of the corporation under ss. 607.1401-607.14401.
. The term "corporate veil” is used, despite an LLC being a different type of entity from a corporation, because the doctrine grew out of corporate law. Nevertheless, "[f]or liability purposes, a limited liability company (LLC) should be subject to the same treatment as a corporation.” 51 Am.Jur.2d Limited Liability Companies § 16 (updated 2013).
.This, of course, assumes the doctrine of veil piercing even applies to limited liability companies under Kentucky law. While several decisions have assumed that it does, see Stettenbenz v. Butch's Rod Shop, LLC, 2012-CA-001405-MR,
. Fletcher notes that "some states” follow a different rule and allow personal liability. 16A William Meade Fletcher et al., Fletcher Cyclopedia of the Law of Private Corporations § 8130, at 282-83 (rev.vol.2012). But these states largely appear to be ones that do not provide for retroactive effect of reinstatement. See, e.g., T-K Distributors, Inc. v. Soldevere,
. Under Kentucky law, LLC members are agents of the LLC by default, see
. Again, Fletcher notes that “some states” follow a different rule and allow personal liability. 16A Fletcher, supra, § 8117. But again these states largely appear to be ones that have substantially different statutory schemes, e.g., Moore v. Occupational Safety and Health Review Com’n,
. It is worth noting that the LLC-immunity statute does not extend immunity to an agent's individual wrongful acts. Specifically, the statute states that the immunity-granting provision "shall not affect the liability of a member, manager, employee, or agent of a limited liability company for his or her own negligence, wrongful acts, or misconduct.”
. Under the present version of the statute, the agency analysis appears to be much simpler, as it now states that the liability of an agent for acts during a period of dissolution "shall be determined as if the administrative dissolution or revocation had never occurred."
. Arguably, the Limited Liability Company Act expressly incorporates many aspects of the law of agency. See, e.g.,
And traditionally, such language was only intended to address pre-organization actions. See, e.g., Wilburt D. Ham, Corporations, 63 Ky. L.J. 739, 745 n. 31 (1974-1975) ("the words ... ‘without authority so to do’ presumably have reference to the existence of a certificate of incorporation”). Such language previously appeared in the corporation statute and has since been replaced by language expressly addressing liability for pre-incorpo-ration acts. That the LLC statute has both forms of language suggests redundancy rather than intent to broaden liability.
. Another, better argument for why Forleo was correctly decided is that the reinstatement in that case occurred after judgment had been rendered by the trial court and the rights of the parties, therefore, were decided. Indeed, several of the cases cited by Pannell, such as Daniels v. Elks Club of Hartford,
. Though they do not directly answer the question in this case, because they largely apply only when an LLC is winding up, other statutes demonstrate that