In a recent decision, the Maryland Court of Appeals held that where a Maryland LLC allowed its good standing status to lapse, it lost its ability to pursue the appeal of a claim it had originally brought while in good standing.
In 7222 Ambassador Rd., LLC v. National Center on Institutions & Alternatives, Inc., 2020 WL 4289773 (Md. July 27, 2020), 7222 Ambassador Road, LLC leased commercial office space to the National Center on Institutions and Alternatives, Inc. (“Tenant”). When Tenant did not renew the lease, a dispute arose concerning the condition in which Tenant had left the property. Tenant prevailed in the Circuit Court and in the Court of Special Appeal. In pursuit of a second-level appeal, Ambassador Road filed a petition for a writ of certiorari with the Court of Appeals, which the Court granted.
However, approximately a month before it filed its petition, Ambassador Road failed to file its annual report, automatically forfeiting its right to do business in Maryland. Thereafter, Tenant filed a motion to dismiss the appeal with its brief on the merits before the Court of Appeals. Ambassador Road obtained an extension of time to file its reply brief and corrected its oversight, albeit more than six months after the forfeiture occurred.
The Maryland LLC Act affords an LLC the ability to cure deficiencies in its filings and tax payments within 60 days of forfeiture, and its right to do business in Maryland is retroactively restored as of the date of forfeiture. Md. Code Ann. § 4A-912. Additionally, 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 any action, suit, or proceeding in a court of this State.” Md. Code Ann. § 4A-920.
Unfortunately, neither the statutory grace period nor the savings provision of the Maryland LLC Act helped the LLC in this action. Although Ambassador Road had taken corrective actions and filed for reinstatement, it took 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, the court found that Ambassador Road’s right to do business in Maryland remained forfeited when it filed its petition for writ of certiorari to continue its appeal.
And while the savings provision of Section 4A-920 preserves contract validity and the LLC’s ability to defend itself in court, it does not allow an LLC to file or maintain a lawsuit after its rights have been forfeited. The court found that Ambassador Road was not “defending” an action in this case. Rather, Ambassador Road filed the original complaint, lost and appealed. Then, when it lost its first-level appeal, it initiated a second-level appeal by filing a petition for a writ of certiorari. However, at the time it filed the petition, Ambassador Road LLC lacked authority to do so and the restoration of its right came long after the deadline for filing. Thus, the Court held, its appeal had to be dismissed -- effectively terminating the case for good.
This ruling makes it clear that LLC’s should continue to fulfill statutory obligations in order to maintain good standing and avoid forfeiture, particularly during ongoing litigation or it may be fatal to their claim or appeal.