7222 Ambassador Road v. Nat. Ctr. on Insts.

7222 Ambassador Road, LLC v. National Center on Institutions and Alternatives, Inc. No. 66, September Term 2019 Limited Liability Companies – Forfeiture of Right to do Business – Appeals. A limited liability company (“LLC”) organized under the Maryland Limited Liability Company Act must file certain reports and make required tax payments and unemployment insurance contributions upon pain of losing the right to do business in Maryland. A Maryland LLC that failed to file a required report, thereby forfeiting the right to do business in Maryland, was precluded from continuing to prosecute an action in the Maryland courts against a non- profit entity that was a former tenant of an office building owned by the LLC. Accordingly, the LLC’s appeal of a decision adverse to the LLC in the Circuit Court was dismissed because the appeal was not permitted by law.

Maryland Code, Corporations & Associations Article, §4A-901 et seq.; Maryland Rule 8- 602(b)(1). IN THE COURT OF APPEALS Circuit Court for Baltimore County OF MARYLAND Case No. 03-C-16-008404 Argument: May 12, 2020 No. 66 September Term, 2019 7222 AMBASSADOR ROAD, LLC V. NATIONAL CENTER ON INSTITUTIONS AND ALTERNATIVES, INC. _____________________________________ Barbera, C.J., McDonald Watts Hotten Getty Booth, Biran, JJ. ______________________________________ Opinion by McDonald, J. Biran, J., concurs. ______________________________________ Filed: July 27, 2020 Pursuant to Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic. Suzanne Johnson 2020-11-17 14:09-05:00 Suzanne C. Johnson, Clerk 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.

I Background 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 2 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 1 Under Maryland Code, Tax-Property Article, §11-101(a), an LLC must file a personal property report with SDAT by April 15 each year. 3 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. 2 If the proclamation is made in error as to a particular LLC, a corrective proclamation can retroactively restore the right to do business and use the LLC’s name in Maryland.

CA §4A-913. 4 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 3 In fact, Ambassador Road LLC was formed specifically for that purpose. According to Ambassador Road LLC’s brief, NCIA was one of two entities that owned equal shares of Ambassador Road LLC until 2007 when NCIA sold its half-interest to the managing member of an LLC that owned the other half of Ambassador Road LLC. A year later, the entire interest in Ambassador Road LLC was sold to an investment group controlled by William Knott. While this case was pending in the Circuit Court, Ambassador Road LLC sold the property that is the subject of this dispute.

No argument has been made that this action relates to the “winding up” of Ambassador Road LLC. See CA §4A-904 et seq. 5 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. 4 The Taliaferro factors were first outlined by this Court in Taliaferro v. State, 295 Md. 376 (1983).

They include: whether a violation was technical or substantial; the timing of the ultimate disclosure; the reason, if any, for the violation; the degree of prejudice to the parties offering or opposing the evidence; and whether a postponement would suffice to cure any prejudice and was otherwise desirable. 295 Md. at 390-91 . The parties do not dispute the relevance or content of the Taliaferro factors. Rather, their dispute concerns whether the Circuit Court in fact applied them and whether it did so properly. 5 In Judge Gould’s view, NCIA’s motion should have been more appropriately treated as a motion for sanctions under the discovery rules rather than a motion in limine. 6 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 each year.

It failed to make the requisite filing for 2018 by April 15, 2019. As a result, Ambassador Road LLC’s right to do business was forfeited pursuant to CA §4A-911 on October 11, 2019 – almost a month before it filed its petition for a writ of certiorari.6 NCIA subsequently discovered Ambassador Road LLC’s status. NCIA filed a motion to dismiss this appeal in conjunction with its brief on the merits, as permitted by In his view that would have affected the analysis to be applied by the Circuit Court and the degree of deference to be accorded the Circuit Court’s decision on appeal. 6 According to the SDAT website, this was the second time since 2014 that Ambassador Road LLC had forfeited its right to do business in Maryland for failure to make the requisite filing with SDAT. See Filing History for 7222 Ambassador Road LLC, No. W04854386, at https://perma.cc/BE26-NLCR. 7 Maryland Rule 8-603(c).7 After the motion to dismiss was filed, Ambassador Road LLC obtained an extension for its reply brief, made the required filing with SDAT, filed articles of reinstatement, and responded to the motion to dismiss.

However, it took those actions nearly six months after the forfeiture – well after the 60-day grace period under the LLC Act that would have retroactively reversed the forfeiture. Accordingly, Ambassador Road LLC’s right to do business in Maryland remained forfeited for the period from October 11, 2019 through March 27, 2020 – the period during which it had sought to further prosecute this action by pursuing a second-level appeal in this Court. We heard argument on the motion to dismiss in conjunction with arguments on the merits of the appeal. II Discussion Statutory Construction Resolution of the motion to dismiss requires that we construe the Maryland LLC Act – in particular, the forfeiture provision in CA §4A-911 and the savings provision in CA §4A-920.

The goal of statutory construction is, of course, to discern and carry out legislative intent. That exercise begins with the statutory text read in its context, extends to review of the legislative history to confirm conclusions or resolve ambiguities, and often involves 7 That rule authorizes the inclusion of a motion to dismiss an appeal in a brief when the motion is based on Maryland Rule 8-602(b)(1) – i.e., that “the appeal is not allowed by … other law.” 8 consideration of the consequences of alternative interpretations. Blue v. Prince George’s County, 434 Md. 681, 689 (2013). Care must be taken not to construe a statute so as to render parts of it meaningless or superfluous.

Oglesby v. State, 441 Md. 673, 687 (2015). Prior case law concerning the statute or similar statutes often provides a helpful perspective. State v. Thomas, 465 Md. 288, 301 (2019). Application of the Forfeiture Statute and Savings Provision As outlined above, under CA §4A-911, a Maryland LLC that fails to make certain filings and payments required by State law forfeits its right to do business and to use its name in Maryland.

It is undisputed that, at the time that Ambassador Road LLC filed its petition for a writ of certiorari, it had forfeited its right to do business in Maryland.8 Ambassador Road LLC ultimately rectified its delinquency, but failed to do so within the 60-day window to obtain the retroactive forgiveness allowed by CA §4A-912. There is thus no question that for the period from October 11, 2019 through March 27, 2020, it had lost the right to do business in Maryland. As outlined earlier, forfeiture of the right to do business does not render an LLC a complete non-entity. In particular, with specific reference to litigation, the savings provision in the LLC Act allows an LLC that has forfeited its right to do business to “defend 8 Ambassador Road LLC argues that the motion to dismiss should be denied because it is based on facts outside the record of the underlying litigation that should have been established by affidavit.

However, both parties have submitted certifications by SDAT as to the status of the LLC in connection with the motion to dismiss. In any event, there appears to be no dispute that Ambassador Road LLC had forfeited its right to do business in Maryland during the period in question. 9 any action, suit, or proceeding in a court of this State.” CA §4A-920. But Ambassador Road LLC is not “defending” an action in this case. It initiated this litigation by filing a complaint against NCIA.

When it lost in the Circuit Court, it pursued an appeal to the Court of Special Appeals. When it lost its first-level appeal, it initiated a second-level appeal by filing a petition for a writ of certiorari. It cannot be seriously said that Ambassador Road was “defend[ing] any action, suit, or proceeding” in prosecuting its complaint and its appeal – and Ambassador Road LLC does not attempt to argue otherwise. In our view, Ambassador Road LLC lacked authority to file a petition for writ of certiorari at the time it did so and the restoration of its right to do so came long after the deadline for filing such a petition.9 Ambassador Road LLC instead focuses on the part of CA §4A-920 that states that forfeiture “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.” It argues that the word “act” should be construed to include a notice of appeal and, presumably, the filing of a petition for a writ of certiorari.

Under that interpretation of the statute, any step taken in litigation would be an “act” that could be taken while the LLC’s right to do business was forfeited – an interpretation that would render wholly superfluous the part of the savings provision that specifically permits a forfeited LLC to “defend” litigation. Indeed, virtually anything 9 Ambassador Road has not argued that the filing of its articles of reinstatement in April 2020 and its restoration to good standing somehow relates back to the time it filed its petition for certiorari – appropriately so, as there is no textual or other legal support for extending the statutory 60-day grace period for retroactive restoration to six months. 10 that an LLC does could be classified as an “act” – which would nearly negate the forfeiture provision altogether. In our view, the savings provision does not exist simply to give back what the forfeiture provision takes away. Rather, it provides some protection for those with whom the LLC does business.

By upholding the validity of the LLC’s contractual obligations and allowing it to defend litigation initiated by others, the savings provision prevents the forfeiture from being used to the detriment of third parties. Thus, an LLC cannot avoid