7222 Ambassador Rd., LLC v. Nat'l Ctr. on Institutions & Alternatives, Inc.

• Decision Date: 27 July 2020
• Docket Number: No. 66, Sept. Term, 2019,66, Sept. Term, 2019
• Citation: 233 A.3d 124,470 Md. 66
• Parties: 7222 AMBASSADOR ROAD, LLC v. NATIONAL CENTER ON INSTITUTIONS AND ALTERNATIVES, INC.
• Court: Court of Special Appeals of Maryland

470 Md. 66

233 A.3d 124

7222 AMBASSADOR ROAD, LLC

v.NATIONAL CENTER ON INSTITUTIONS AND ALTERNATIVES, INC.

No. 66, Sept. Term, 2019

Court of Appeals of Maryland.

July 27, 2020

Argued by Stanford G. Gann, Jr. (Shannon Boisseau, Levin & Gann, P.A. of Towson, MD and Lee Baylin, Law Office of Lee Baylin of Baltimore, MD) and

Argued by Christopher S. Young (Business & Technology Law Group of Columbia, MD), on brief, for Petitioner.

Argued by Cullen B. Casey (Ariana K. DeJan-Lenoir, Anderson, Coe & King, LLP of Baltimore, MD), on brief, for Respondent.

Argued before: Barbera, C.J., McDonald, Watts, Hotten, Getty, Booth, Biran, JJ.

McDonald, J.

The issue initially raised in this appeal concerned a discovery sanction imposed in a civil case. However, an unfortunate thing happened on the way to this forum. It turned out that the party that initiated this appeal had been delinquent in maintaining its status as a limited liability company ("LLC") authorized to do business in Maryland. As a result, the dispositive issue on this appeal concerns compliance with the law governing Maryland LLCs.

Petitioner 7222 Ambassador Road, LLC ("Ambassador Road LLC") initiated this action against Respondent National Center for Institutions and Alternatives, Inc. ("NCIA") in the Circuit Court for Baltimore County. NCIA prevailed in the Circuit Court and in the Court of Special Appeals. After the Court of Special Appeals issued its opinion, but before Ambassador Road LLC filed its petition for certiorari with this Court, it forfeited its right to do business in Maryland because it had failed to file the annual report required of every Maryland LLC. It later failed to reverse that forfeiture by rectifying that delinquency within a statutory 60-day grace period. Ambassador Road LLC took no action to comply with the Maryland LLC law until after NCIA filed a motion to dismiss this appeal based on the forfeiture of Ambassador Road LLC's right to do business.

We hold that, in the particular circumstances of this case, this appeal must be dismissed.

IBackground

A. Limited Liability Companies

The Maryland Limited Liability Company Act ("LLC Act") is codified at Maryland Code, Corporations & Associations Article ("CA"), § 4A-101 et seq . A limited liability company, or LLC, is a form of business organization that has characteristics of both a partnership and a corporation. While a corporation is owned by its shareholders and a partnership is owned by its partners, an LLC is owned by its members. CA § 4A-601 et seq . Like shareholders of a corporation, but unlike partners in a general partnership, the members of an LLC have the shield of limited liability. CA § 4A-301. However, an LLC may be treated like a partnership for tax purposes, thus avoiding the second level of taxation that occurs in a corporation. See Internal Revenue Service, Taxation of Limited Liability Companies , Publication 3402 (rev. March 2020). In addition, the inherent flexibility of an LLC may make that form of organization more attractive to business planners than other types of hybrid business organization that have characteristics of both corporations and partnerships, such as limited partnerships or Subchapter S corporations. See R.M. Ercole, et al ., Maryland Limited Liability Company Forms and Practice Manual (1999 ed., 2019 Supp.) at 1-3; P. Molk, Protecting LLC Owners While Preserving LLC Flexibility , 51 U.C. Davis L. Rev. 2129, 2132 (2018) (governance flexibility of LLCs "can be especially attractive" compared to other forms of business organization).

To form an LLC in Maryland and reap the benefits of this form of business organization, its organizers must execute articles of organization and file them with the State Department of Assessment and Taxation ("SDAT"). CA § 4A-202. Among other general powers, an LLC may sue and be sued. CA § 4A-203(2). The members of an LLC may enter into an operating agreement that further elaborates the management, control, and operation of the LLC. CA § 4A-402.

The LLC Act limits the right of an LLC to do business in the State if the LLC fails to make certain filings and payments required by law. CA § 4A-911. In particular, each year the Comptroller is to certify to SDAT a list of LLCs that have failed to pay by October 1 of that year a tax that is due; the Comptroller is to simultaneously notify each of those LLCs that its right to do business in Maryland is in jeopardy.

CA § 4A-911(a). Similarly, each year the Secretary of Labor is to certify to SDAT a list of LLCs that have not made a required unemployment insurance contribution before October 1 of that year and simultaneously warn each of those LLCs that its right to do business in Maryland is in jeopardy. CA § 4A-911(b). SDAT itself is to certify a list of LLCs that have failed to file a required annual report with SDAT by October 1 each year.¹ CA § 4A-911(c).

After the lists of delinquent LLCs are certified, SDAT issues a proclamation that each of those LLCs has forfeited the right to do business in Maryland and to use the LLC's name in Maryland. CA § 4A-911(d). Within 10 days of that proclamation, SDAT is to mail notice of the proclamation to each LLC that is the subject of the proclamation. CA § 4A-912. To regain the right to do business in Maryland, an LLC must make any required filings, pay delinquent taxes and unemployment insurance contributions, and file articles of reinstatement with SDAT. CA § 4A-915 through § 4A-917. If an LLC cures the deficiencies in its filings and payments within 60 days of forfeiture, its right to do business and to use its name in Maryland is retroactively restored as of the date of forfeiture. CA § 4A-912.² The statute provides that it is a misdemeanor punishable by a fine for anyone to knowingly transact business on behalf of an LLC while the LLC's right to do business in Maryland is forfeited. CA § 4A-919.

Upon forfeiture of its right to do business, the LLC is not completely disabled. A savings provision in the LLC Act recognizes the validity of certain actions of the LLC and allows the LLC to defend itself in litigation. It provides:

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 [the Limited Liability Company Act] 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 proceeding in a court of this State.

CA § 4A-920. The scope of this savings provision is the subject of this opinion.

B. The Underlying Litigation

The underlying facts and procedural path of this case prior to the forfeiture of Ambassador Road LLC's right to do business in Maryland do not affect the disposition of this case. We briefly describe them for context.

Ambassador Road LLC is a Maryland limited liability company that owned a commercial office building in Baltimore County. Beginning in 1998, Ambassador Road LLC leased that property to NCIA, a non-profit entity that provides care and treatment for intellectually and emotionally disabled individuals and those involved in the criminal justice system.³ By 2015, NCIA had found other quarters. It did not renew the lease with Ambassador Road LLC and vacated the property at the end of 2015. A dispute arose about whether NCIA had left the property in the condition required by the lease and whether it was required to compensate Ambassador Road LLC for the alleged failure to do so. In August 2016, Ambassador Road LLC sued NCIA for breach of contract in the Circuit Court for Baltimore County.

During the course of that litigation, a discovery dispute arose. Ambassador Road LLC failed to formally designate an expert witness by the deadline in the Circuit Court's scheduling order. On the eve of trial, NCIA filed a motion in limine that asked the Circuit Court to sanction Ambassador Road LLC by limiting or excluding testimony of its witnesses. Ambassador Road LLC admitted that it had been delinquent in making the expert designation, but asserted that, as a practical matter, NCIA was aware of the expert, had already received his report, and had deposed him during discovery.

At a hearing in February 2018, the Circuit Court granted NCIA's motion in limine . Ambassador Road LLC's counsel advised the court that, as a result of the sanction, he had no case to present and the Circuit Court entered judgment in favor of NCIA.

Ambassador Road LLC appealed that decision. It argued that NCIA had failed to pursue the discovery sanction with "reasonable promptness," as required by Maryland Rule 2-432(d), and that, in any event, the Circuit Court had failed to consider the factors governing the imposition of discovery sanctions – often referred to as the " Taliaferro factors."⁴

The Court of Special Appeals, in an unreported split decision, held that the Circuit Court had not abused its discretion and affirmed the ruling. 2019 WL 4543114 (September 19, 2019). Judge Gould dissented. He expressed concern about the timing and characterization⁵ of NCIA's motion in the Circuit Court and the fact the Circuit Court had not explicitly referred to the Taliaferro factors before it imposed a sanction.

Ambassador Road LLC filed a petition for certiorari , which we granted.

C. Forfeiture of Ambassador Road LLC's Right to do Business

The timeline and facts concerning the forfeiture of Ambassador Road LLC's right to do business in Maryland are undisputed.

The Court of Special Appeals issued its decision on September 19, 2019, and the mandate was issued on October 23, 2019. Ambassador Road LLC timely filed its petition for a writ of certiorari on November 6, 2019. However, before it had filed its petition, Ambassador Road LLC had forfeited its right to do business in Maryland.

As indicated above, like every other Maryland LLC, Ambassador Road LLC was required to file, among other things, a personal property report with SDAT by April 15...