Hill Construction v. Sunrise Beach, LLC

JAMES R. EYLER, Judge. This case has a long history but we need not go into great detail because we need only to explain why we are dismissing the appeal. Hill Construction Company, Inc., a Maryland corporation, appellant, filed a complaint in the Circuit Court for Worcester County against Sunrise Beach, LLC (“the LLC”), Gerald T. Day (“Day”), and J. Wesley Hughes (“Hughes”), appellees. The circuit court entered judgment in favor of appellees on the ground that appellant’s corporate charter had been forfeited, and thus, it had no standing to maintain the suit.

Appellees have filed a motion to dismiss the appeal on the ground that, because appellant’s charter was forfeited when it noted an appeal, the notice of appeal was a nullity. We agree and, consequently, shall dismiss the appeal. Factual Background On November 1, 2001, appellant entered into an agreement with Day, Hughes, and the LLC, pursuant to which appellant became a member of the LLC. Prior to that time, Day, Hughes, and Donald C. Hoen were the members of the LLC, with Day owning a 52% interest, Hughes owning an 8% interest, and Hoen owning a 40% interest.

Also prior to November 1, 2001, Hoen had transferred his interest in the LLC to Day. Pursuant to the November agreement, Day transferred a 40% interest in the LLC to appellant, in ex ⁶²⁹ change for appellant’s agreement to construct a project in Ocean City, known as Sunset Beach, on a cost basis. The project, consisting of four condominium units, was to be completed by June 1, 2002. Upon the sale of all four units, the profits were to be divided among the members of the LLC, as stated in the November 1 agreement.

Pursuant to a preexisting operating agreement, Day was the general manager of the LLC. At all relevant times, Mark Hill was appellant’s president, sole shareholder, and sole director. Appellant did not complete the project by June 1, 2002, but by March, 2003, appellant had substantially completed the project. In May, 2003, a certificate of occupancy was issued.

Subsequently, all four units were sold, one of them to Day. A dispute arose between the members of the LLC with respect to the timeliness of the work by appellant, a need for further work by others, after March, 2003, to complete the project, the propriety of the sale of the unit to Day, and the distribution of profits. On November 18, 2003, appellant filed its complaint, containing various counts, in which it alleged breach of contract, breach of fiduciary duty, fraud, conversion, fraudulent conveyance, and civil conspiracy. Appellant sought a constructive trust, an accounting, and compensatory, restitutionary, and punitive damages.

During the course of the litigation, the court entered partial summary judgment in favor of appellees with respect to some of the counts and some of the damage claims. On October 8, 2004, appellant’s charter was forfeited by the Comptroller of the Treasury, for nonpayment of personal property taxes. On September 18, 2006, appellees filed a motion to dismiss based on the status of appellant’s charter. On February 14, 2007, the court granted appellees’ motion to dismiss based on the forfeiture of the charter and the consequent lack of standing by appellant to maintain the suit.

On July 24, 2007, appellant noted an appeal to this Court. Appellant raises eight contentions which, in essence, are that ⁶³⁰ the court erred in granting appellees’ motion to dismiss and erred in its prior partial summary judgment rulings. Appellees, in addition to responding to the merits of appellants’ contentions, have moved to dismiss the appeal based on the forfeiture of the charter. According to documents contained in the appendix to appellant’s reply brief, on April 29, 2008, appellant filed articles of revival and reinstated its charter.

Discussion As indicated above, we shall dismiss the appeal, but in doing so, we shall also address appellant’s first contention, whether the circuit court erred in dismissing the complaint because appellant’s charter had been forfeited. The circuit court, in dismissing the complaint, considered matters outside of the complaint, and thus, as appellant expressly recognizes, the dismissal was in fact a summary judgment. See Maryland Rule 2-322(c). In order to determine whether the appeal is viable, it is necessary for us to go outside of the complaint as well, and thus, we shall review the propriety of the entry of summary judgment.

In reviewing the grant of summary judgment, we determine whether there is a genuine dispute of material facts or reasonable inferences that may be drawn from those facts. Dashiell v. Meeks, 396 Md. 149, 163 , 913 A.2d 10 (2006). If no such dispute exists, we determine the issue of law. Id.

It is undisputed that appellant’s charter was forfeited on October 8, 2004. While acknowledging that appellant could not initiate a lawsuit while its charter was forfeited, appellant argues that there is no authority that a corporation cannot maintain an action, initiated when its charter was in good standing but forfeited during the pendency of the litigation, relying primarily on Maryland Code (2007 Repl.Vol.), § 3-515 of the Corporations & Associations Article (“C.A.”). Based on that section, appellant contends that Mark Hill, as a director ⁶³¹ winding up the affairs of the corporation, can maintain the suit, including this appeal. Section 3-515 provides: (a) When the charter of a Maryland corporation has been forfeited, until a court appoints a receiver, the directors of the corporation become the trustees of its assets for purposes of liquidation.

(b) The director-trustees are vested in their capacity as trustees with full title to all the assets of the corporation. They shall: (1) Collect and distribute the assets, applying them to the payment, satisfaction, and discharge of existing debts and obligations of the corporation, including necessary expenses of liquidation; and (2) Distribute the remaining assets among the stockholders. (c) The director-trustees may: (1) Carry out the contracts of the corporation; (2) Sell all or any part of the assets of the corporation at public or private sale; (3) Sue or be sued in their own names as trustees or in the name of the corporation; and (4) Do all other acts consistent with law and the charter of the corporation necessary or proper to liquidate the corporation and wind up its affairs. (d) The director-trustees govern by majority vote.

Three other statutory provisions are relevant to our analysis, and thus, we shall briefly discuss them at this time. Section 3-503(d) provides that when the charter of a corporation is forfeited, “the powers conferred by law on the corporation[ ] are inoperative, null, and void.... ” Section 3-507 provides that the charter of a corporation which has been forfeited may be revived upon compliance with certain procedures. Section 3-512 provides that, ... the revival of a corporation’s charter under § 3-507 of this subtitle has the following effects: ⁶³² (1) If otherwise done within the scope of its charter, all contracts or other acts done in the name of the corporation while the charter was void are validated, and the corporation is liable for them; and (2) All the assets and rights of the corporation, except those sold or those of which it was otherwise divested while the charter was void, are restored to the corporation to the same extent that they were held by the corporation before the expiration or forfeiture of the charter. Appellant argues that, historically, the law recognized a distinction between the initiation of a law suit and the maintenance of a law suit by a corporation that has had its charter forfeited.

Appellant, citing former Maryland Rule 222, former Maryland Code (1957) Article 23, § 82(a), and cases decided before and after the repeal of those provisions, contends that C.A. § 3-515 incorporates the underlying purpose of former Rule 222 and former Article 23, § 82(a) and that Mark Hill must be permitted to maintain this law suit to liquidate appellant’s assets. We shall set forth the relevant history of C.A. § 3-515, Rule 222, and Article 23, § 82(a) and, for completeness of analysis, do the same for C.A. § 3-512. It is important to bear in mind that, from time to time, the law has changed substantively and, in addition, the organization and relative placement of various provisions in the Maryland Code have changed. For example, sometimes forfeiture of a corporate charter for nonpayment of taxes has been addressed separately from forfeiture for other reasons.

There has always been a distinction between voluntary or involuntary dissolution and forfeiture, but the statutory provisions have not always addressed each separately and consistently. 1 ⁶³³ Appellant argues that C.A. § 3-515 is a successor to Article 23, § 82(a) and Rule 222. Article 23, § 82(a) in the 1957 Code, as it existed prior to 1975, and which was substantively the same as Article 23, § 78 in the 1951 Code, 2 provided: The dissolution of a corporation shall not relieve its stockholders, directors, or officers from any obligations and liabilities imposed on them by law; nor shall such dissolution abate any pending suit or procedure by or against the corporation and all such suits may be continued with such substitution of parties, if any, as the court directs. The provisions of this section shall be retroactive so as to apply to any dissolution occurring prior to June 1,1963. In the 1957 Code, this section was part of the subtitle which addressed dissolution.

It was not part of the separate subtitle which addressed forfeiture and revival. In this same time period, Article 23, § 84 addressed forfeiture of corporate charters for misuse or abuse of powers, but Article 81, § 204 addressed forfeiture of corporate charters for nonpayment of taxes. Article 81 contained no provision similar to Article 23, § 82(a). Article 23, § 82(a) was repealed in 1975 when the C.A. Article was enacted.

See Laws of Maryland 1975, chapter 311. The substance of present CA § 3-515 was not part of the law at that time. Later in 1975, §§ 3-516 through 3-519 were added to the C.A. Article. See Laws of Maryland 1975, chapter 506.

Section 3-516, as then enacted, is substantively the same as present § 3-515. Rule 222 tracked the language in Article 23, § 82(a) and its predecessor and provided that dissolution of a corporation would not abate a pending suit but would continue with such substitution of parties as may be directed by the court. Rule 222 was repealed in