Chadwick Farms Owners Ass'n v. Fhc LLC

• Decision Date: 14 May 2009
• Docket Number: No. 80450-8.,No. 80459-1.,80450-8.,80459-1.
• Citation: 207 P.3d 1251,166 Wn.2d 178
• Court: Washington Supreme Court
• Parties: CHADWICK FARMS OWNERS ASSOCIATION, a Washington nonprofit corporation, Respondent, v. FHC LLC, a Washington limited liability company, Petitioner, America 1st Roofing & Builders, Inc., a Washington corporation; Cascade Utilities, Inc., a Washington corporation; Milbrandt Architects, Inc., P.S., a Washington corporation; Pieroni Enterprise, Inc., d/b/a Pieroni's Landscape Construction, a Washington corporation; and Tight is Right Construction, Inc., a Washington corporation, Respondents. Emily Lane Homeowners Association, a Washington nonprofit corporation, Respondent, v. Colonial Development L.L.C., a Washington limited liability company; The Almark Corporation, a Washington corporation; Daniel J. Mus, an individual; Mark B. Schmitz, an individual; Richard E. Wagner, an individual; Alfred J. Mus, an individual; and Does 1 through 25, Petitioners.

207 P.3d 1251

166 Wn.2d 178

CHADWICK FARMS OWNERS ASSOCIATION, a Washington nonprofit corporation, Respondent, v. FHC LLC, a Washington limited liability company, Petitioner, America 1st Roofing & Builders, Inc., a Washington corporation; Cascade Utilities, Inc., a Washington corporation; Milbrandt Architects, Inc., P.S., a Washington corporation; Pieroni Enterprise, Inc., d/b/a Pieroni's Landscape Construction, a Washington corporation; and Tight is Right Construction, Inc., a Washington corporation, Respondents.

Emily Lane Homeowners Association, a Washington nonprofit corporation, Respondent, v. Colonial Development L.L.C., a Washington limited liability company; The Almark Corporation, a Washington corporation; Daniel J. Mus, an individual; Mark B. Schmitz, an individual; Richard E. Wagner, an individual; Alfred J. Mus, an individual; and Does 1 through 25, Petitioners.

No. 80450-8.

No. 80459-1.

Supreme Court of Washington, En Banc.

Argued November 18, 2008.

Decided May 14, 2009.

Eileen I. McKillop, Oles Morrison Rinker & Baker LLP, John Patrick Hayes, Martin J. Pujolar, Forsberg & Umlauf, Seattle, WA, for Petitioners.

Richard Scott Fallon, Attorney at Law, John E. Zehnder Jr., Jonathan Dirk Holt, Anthony Robert Scisciani III, Scheer & Zehnder LLP, Mary H. Spillane, John Phillip Evans, William Kastner & Gibbs, David Jesse Bierman, Alexander & Bierman PS, Michaelanne Ehrenberg, Karr Tuttle Campbell, William Scott Clement, John E. Drotz, Clement & Drotz, Seattle, WA, for Respondents.

Robert Dean Welden, Washington State Bar Association, Paul Hamilton Beattie Jr., Schwabe Williamson & Wyatt, Seattle, WA, Amicus Curiae on behalf of Washington State Bar Association (Corporate/Business Law Section).

Bryan Patrick Harnetiaux, Attorney at Law, Spokane, WA, Amicus Curiae on behalf of Washington State Association for Justice Foundation.

MADSEN, J.

¶ 1 These consolidated cases involve the capacity of limited liability companies to sue and be sued after their certificates of formation are canceled pursuant to provisions in the Washington Limited Liability Company Act, chapter 25.15 RCW (the Act). Under the plain terms of the Act, a limited liability company ceases to exist as a legal entity and cannot be sued once its certificate of formation is canceled. At the same time, it cannot sue other entities once it is canceled. RCW 25.15.303, enacted after the actions in the present cases were brought, does not change this result. This statute provides that dissolution does not affect any remedy available and it establishes a statute of limitations for suits against limited liability companies that runs from the date of dissolution. The statute does not authorize suits after cancellation, either against or by the limited liability company. Therefore, we reverse the Court of Appeals' decisions in these cases and hold that the defendant limited liability companies were not subject to suit once they were canceled.

¶ 2 Also at issue is whether the members of the companies can be sued in their individual capacities. There are several circumstances in which individual liability may exist. Therefore, the Court of Appeals properly held in Emily Lane Homeowners Ass'n v. Colonial Development, LLC, 139 Wash.App. 315, 160 P.3d 1073 (2007), review granted, 163 Wash.2d 1022, 185 P.3d 1194 (2008), that insofar as the trial court dismissed claims against individual members of the limited liability company solely because of the immunity under the Act, it erred.

FACTS

Chadwick Farms

¶ 3 On December 23, 1999, FHC, LLC (FHC) formed as a limited liability company under the Act for the purpose of constructing the Chadwick Farms condominiums. After the project was completed, FHC ceased active operations and did not pay license fees or file reports as required by statute. On March 24, 2003, the secretary of state administratively dissolved FHC, as provided for by RCW 25.15.280 if a limited liability company fails to pay fees or file reports. On August 18, 2004, the Chadwick Farms Owners Association (Owners Association) sued FHC for alleged construction defects. On March 24, 2005, pursuant to RCW 25.15.290(4) the secretary of state canceled FHC's certificate of formation because FHC did not apply for reinstatement as a limited liability company within two years after dissolution as permitted under RCW 25.15.290(1).

¶ 4 Although FHC's certificate of formation had been administratively canceled, on May 11, 2005, FHC filed third-party complaints against subcontractors and design professionals. Then, on August 24, 2005, FHC moved for summary judgment dismissing all of the Owners Association's claims on the basis that FHC ceased to exist upon cancellation of its certificate of formation and all claims against it therefore abated. The third-party contractors and design professionals moved for summary judgment, too, on the basis that as a canceled limited liability company FHC was a legal nonentity that could not pursue third-party claims against them. On September 30, 2005, the trial court granted the motions for summary judgment.

¶ 5 The Owners Association appealed. The Court of Appeals reversed summary judgment in favor of FHC. The court held that RCW 25.15.303, which was enacted while the appeal was pending and had an effective date of June 6, 2006, applied retroactively and permitted the Owners Association's suit against FHC. Chadwick Farms Owners Ass'n v. FHC, LLC, 139 Wash.App. 300, 160 P.3d 1061 (2007), review granted, 163 Wash.2d 1021, 185 P.3d 1194 (2008). As to the third-party claims brought by FHC, the court determined that RCW 25.15.303 does not apply to actions brought by a limited liability company. The court reasoned that FHC's failure to seek reinstatement within two years of dissolution was "fatal to its pursuit of any claim against the subcontractors." Chadwick Farms, 139 Wash.App. at 312, 160 P.3d 1061. Once the secretary of state canceled FHC's certificate of formation, the Court of Appeals reasoned, FHC lacked standing to pursue a third-party claim. Id. Finally, the Court of Appeals held that the trial court should grant the Owners Association's motion to amend the complaint to add individuals who allegedly failed to properly wind up the affairs of FHC, and in particular, failed to pay or make provision to pay known claims against the company.

¶ 6 FHC sought discretionary review of both holdings, and the Owners Association sought discretionary review of the Court of Appeals' determination that FHC could not pursue third-party claims.

Emily Lane

¶ 7 On January 22, 1998, Colonial Development, LLC (Colonial) was formed as a limited liability company for the purpose of developing and selling the Emily Lane condominiums. On December 22, 2004, the members of Colonial voted to dissolve the company effective the same date. On December 31, 2004, Colonial filed a certification of cancellation with the secretary of state.

¶ 8 About five months later, the Emily Lane Townhomes Condominium Association (Condominium Association) served Colonial with a notice of construction defects under chapter 64.50 RCW. On July 19, 2005, the Condominium Association filed suit against Colonial. In its answer, Colonial included in its defenses the fact that it was a "dissolved" [sic] limited liability company not subject to suit. The Condominium Association thereafter amended its complaint to include claims against the individual members, asserting, among other things, improper winding up of the limited liability company, fraudulent concealment, negligent and fraudulent misrepresentation, and it sought to pierce the "corporate veil."¹ Clerk's Papers at 603-21; Emily Lane's Answer to Pet. for Review at 6.

¶ 9 On June 7, 2006, Colonial, its members, and two individually named defendants moved for summary judgment. At this time, RCW 25.15.303 had just become effective. The Condominium Association argued that under the Act claims against a canceled limited liability company never abate. It also argued that RCW 25.15.303 applies retroactively to "revive" barred claims. The trial court denied Colonial's motion for summary judgment. As to the members and individually named defendants, the trial court granted summary judgment. The court then certified the partial summary judgment as appropriate for discretionary review under RAP 2.3(b)(4). The Condominium Association sought cross-discretionary review of dismissal of the members and the individually named defendants.

¶ 10 The Court of Appeals granted discretionary review of the trial court's ruling denying Colonial's motion for summary judgment and, in the interests of judicial economy, also granted review of the summary judgment dismissing the individual members and entities that formed Colonial. The Court of Appeals affirmed denial of summary judgment as to Colonial in light of its decision in Chadwick Farms, saying it saw "no reason to treat a member dissolved and cancelled company differently than an administratively dissolved and cancelled company." Emily Lane, 139 Wash.App. at 318, 160 P.3d 1073. As to the individual defendants, the court limited review solely to the question whether "the members [of Colonial] were immune from liability as individuals." Id. at 319, 160 P.3d 1073. The court held that "[t]o the extent the trial court's summary judgment dismissed the claims against individual members of Colonial on the basis that the [limited liability company] structure provided immunity from liability, it was error." Id.

¶ 11 Colonial sought discretionary review.

ANALYSIS

¶ 12 A question of statutory interpretation is reviewed de novo. Wright v. Jeckle, 158 Wash.2d 375, 379-80, 144 P.3d 301 (2006). The goal is to ascertain and give effect to the legislature's intent. Dep't of Ecology v. Campbell & Gwinn, LLC, 146 Wash.2d 1, 9-10, 43 P.3d 4 (2002). "[I]f the statute's meaning is plain on its face, then the court must give effect to that plain meaning as an expression of legislative intent." Id....