Zapata v. McHugh
| Decision Date | 31 March 2017 |
| Docket Number | No. S-16-511.,S-16-511. |
| Citation | 893 N.W.2d 720,296 Neb. 216 |
| Parties | John ZAPATA, an Individual and as an Assignee, Appellant, v. Donald MCHUGH, an Individual, et al., Appellees. |
| Court | Nebraska Supreme Court |
John Zapata, pro se.
No appearance for appellees.
The plaintiff, as both an individual and an assignee, filed an action pro se to recover for wrongs allegedly committed against the assignor, a limited liability corporation (LLC). The district court dismissed the action on the grounds that the plaintiff engaged in the unauthorized practice of law and that the pleadings, accordingly, were a nullity. The district court reasoned that an LLC is an entity incapable of self-representation and that the policy reasons requiring representation by an attorney of such entity's interests cannot be circumvented through the assignment of the business entity's cause of action to a layperson. The plaintiff appeals.
This action was brought pro se by John Zapata. The first pleading in the record is a "Mandatory Disclosure" filed under the caption, "John Zapata, an individual and as an Assignee, Plaintiff, v. Donald McHugh, an individual, et. al., Defendant." The complaint is not in the record, but documents attached to the mandatory disclosure purported to describe $11,100 in lost rent and $21,973.41 in repair costs owed by Lincoln Metal Recycling and Donald McHugh in relation to an address on Saunders Avenue in Lincoln, Nebraska.
At the pretrial conference on April 21, 2016, the court asked the parties to submit a joint pretrial conference order identifying the factual and legal issues to be tried. The court gave the parties 10 days to complete the order. The court, sua sponte, raised the issue whether Zapata could bring an action pro se based upon assignments from corporations on claims those organizations may have. The court gave the parties time to brief the issue.
The parties subsequently submitted a consolidated joint pretrial conference order, which stated that it superseded all prior pleadings in the case. The order stated that the claim was based on the fact that McHugh Metal Brokerage, LLC, vacated premises leased to it by Zapata's assignor, Coljo Investments, LLC (Coljo), the owner of the premises. The pretrial order stated that Zapata was "an individual and an assignee" who filed his complaint pursuant to Neb. Rev. Stat. § 25-302 (Reissue 2016). Zapata alleged that he paid consideration to Coljo in order to collect the alleged debt owed by the defendants.
The parties presented as legal issues whether there was a valid assignment to Zapata, whether Zapata was a real party in interest and had standing to bring the action, and whether the court had jurisdiction over the parties and the subject matter of the action.
As to the underlying merits, the parties stated that the legal issues were whether McHugh Metal Brokerage was liable to Zapata or Coljo arising out of the lease agreement, the nature and extent of any unpaid rentals, and the measure of damages for the reasonable cost for repairs to Coljo's premises.
On May 19, 2016, the district court dismissed the action. The court considered the defendants to have moved for dismissal in the joint pretrial conference order. The court concluded that even if the assignment of any right of action by Coljo to Zapata was effective, Zapata could not proceed pro se with the action on the assigned claims. The court explained that the right to represent oneself pro se, as set forth in Neb. Rev. Stat. § 7-101 (Reissue 2012), does not extend to the representation of any other person or entity. The court cited to several cases setting forth the general propositions that corporate entities cannot be represented pro se and that this rule cannot be circumvented through an assignment of the corporate claims to a pro se plaintiff.1
The court also cited to an unpublished case in Indiana involving Zapata himself, who brought the action as Zapata, doing business as Zapata Collection Services, " ‘an Individual and as Assignee.’ "2 In that case, the appellate court affirmed the dismissal of Zapata's action. The court held that there was no bona fide assignment, because Zapata and the corporate assignor were inextricably linked; therefore, the alleged assignor of the claim for damages was the real party in interest and, as a corporate entity, was required to be represented by counsel.3
While the district court noted that in this case, Zapata did not list Coljo as a party, it found that such fact was not decisive, stating:
As for Zapata's claim that he had a right to proceed pro se under Neb. Rev. Stat. § 25-304 (Reissue 2016), the district court stated that while Zapata had a right to bring an assigned action in his own name, this did not excuse the requirement that an attorney is required when the action derives from a wrong to a corporation. The court concluded that permitting the present action to go forward would unlawfully circumvent § 7-101. The court found the proceedings were a nullity. Zapata appeals.
Zapata has brought similar pro se actions in Nebraska. In Zapata v. QBE Ins. Co. ,4 the Nebraska Court of Appeals, in an unpublished opinion, affirmed the dismissal of an action brought by Zapata after being assigned a corporation's claims. The Court of Appeals reasoned in relevant part that although Zapata may have identified himself as both an individual and assignee, his claims were for damages to the corporation. Citing to Steinhausen v. HomeServices of Neb. ,5 the Court of Appeals concluded that Zapata could not prosecute any claim on behalf of the corporation, because he was not a licensed attorney.
Zapata assigns as error, summarized and restated, that the district court erred in dismissing his complaint as an individual and as an assignee.
A district court's grant of a motion to dismiss on the pleadings is reviewed de novo, accepting the allegations in the complaint as true and drawing all reasonable inferences in favor of the nonmoving party.6
Zapata does not dispute the general rule that a layperson cannot represent a corporation or other distinct business entity existing legally separate from its owner—including an LLC.7 The rule that such entities may litigate only through a duly licensed attorney is "venerable and widespread."8 This rule prohibits even presidents, major stockholders, and sole owners from appearing pro se in relation to causes of action involving the entity's status as a business.9
It is well settled that such business entities are artificial persons who cannot appear in their own behalf, but must appear through an agent; thus, they are not their own proper persons who may appear in court without the representation of an attorney.10 And "because self-representation by unskilled persons usually leads to delay, confusion and other difficulties in the judicial system, the state has no interest in extending the right of self-representation to corporations."11
Persons not licensed to practice law in Nebraska are prohibited from prosecuting an action or filing papers in the courts of this state "on behalf of another."12 Under § 7-101, no such "person" shall practice law in any action or proceeding "to which he is not a party." Neb. Rev. Stat. § 7-110 (Reissue 2012) expands upon the exception to the unauthorized practice of law for persons as a party, stating that plaintiffs shall have the liberty of prosecuting "in their proper persons," which we have said means, " ‘in their own persons.’ "13
We have explained that an entity is an abstraction, not a person. " ‘[A]bstractions cannot appear pro se.’ "14 Distinct business entities must appear by counsel or not at all.15
We applied this rule most recently in Steinhausen to affirm the dismissal of causes of action relating to an LLC's status as a business, brought pro se by the sole owner of the LLC.16 We noted that the prohibition of the unauthorized practice of law protects citizens and litigants in the administration of justice from the mistakes of the ignorant on the one hand and the machinations of the unscrupulous on the other.17 A layperson's lack of professional skills and ethical obligations imposes undue burdens on opposing parties and the courts.18
We reasoned that while an LLC has the capacity to sue and be sued in its own name, the Legislature's grace in conferring the significant privilege of limited liability " ‘ "carries with it obligations ... to hire a lawyer ... to sue or defend on behalf of the entity." ’ "19 This, we said, is no less true for an LLC with a single owner.20 And we emphasized that "the rule that a layperson cannot appear in court in a representative capacity cannot be circumvented by subterfuge."21
We have said that the assignee of a cause of action is the proper and only party who can maintain the suit thereon.22 But whether the assignee of a corporation's or other distinct legal entity's cause of action may maintain such action pro se is an issue of first impression for our court.
Zapata reasons that if he is the proper party to this action, he must be able to proceed pro se pursuant to §§ 7-101 and 7-110. However, the weight of authority from other jurisdictions is that an assignment does not erase the requirement that the suit arising from the entity's status as a business must be represented by a duly licensed attorney.23
In Shamey v. Hickey ,24 the court explained that although the action was brought in the name of the assignee, the assignee had essentially assumed the role of a collection...
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