Can an LLC Sue or Be Sued Based on Events That Occurred When It Was Dissolved?

Stock Photo - Reinstated 070915According to at least one Illinois Appellate Court, an LLC can sue or be sued based on events that occurred when it was dissolved if the LLC is later reinstated.

In Revolution Madison, LLC v. Eccles, 2015 IL App (2d) 140876-U, the court analyzed a lawsuit filed by an LLC that was administratively dissolved in 2009 and reinstated as an LLC in 2013. The lawsuit was based on events that occurred in 2011, pursuant to a contract entered into by the plaintiff LLC and the defendant in 2007.

In the trial court, the defendant argued, unsuccessfully, that the plaintiff LLC’s original and amended complaints should be dismissed because the plaintiff was not reinstated as an LLC until after it filed its original complaint. The appellate court analyzed the reinstatement provisions of the Illinois Limited Liability Act (the “LLC Act”), 805 ILCS 180/35-40, and case law involving the dissolution and reinstatement of corporations, and affirmed the trial court’s rejection of the defendant’s argument.

The appellate court first noted that the reinstatement provisions of the LLC Act “are silent concerning claims that arise while an LLC is dissolved.” It then distinguished the plaintiff LLC from the corporation in A Plus Janitorial Company v. Group Fox, Inc., 2013 IL App (1st) 120245 — which was dissolved, never reinstated and not permitted to sue for claims that arose after it was dissolved — and analogized the plaintiff LLC to the corporation in Henderson-Smith & Associates v. Nahamani Family Service Center, Inc., 323 Ill. App. 3d 15 (1st Dist. 2001) — which was dissolved, later reinstated and permitted to sue for claims that arose while it was dissolved. The appellate court explained that while “[n]o Illinois case directly interprets” the relevant provision of the LLC Act, 805 ILCS 180/35-50(d), that provision “mirrors” the reinstatement provision of the Business Corporation Act of 1983, 805 ILCS 5/12.45(d), which was interpreted in Henderson-Smith.

Ultimately, the court in Revolution Madison held that the plaintiff LLC’s “subsequent reinstatement cured any defect in its capacity to maintain suit.” In so holding, the court expressed its view that “the fiction of uninterrupted corporate existence promotes stability, certainty and predictability in business transactions, as well as assuring that corporations cannot abuse administrative dissolution and subsequent reinstatement to avoid legitimate debts.”

Although Revolution Madison is an unpublished opinion and may yet be appealed, the appellate court’s reasoning provides some degree of guidance when considering litigation involving dissolved or formerly dissolved LLCs.

Contributing Author Amanda M.H. Wolfman

(This is for informational purposes and is not legal advice.)

 

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