Suit Against Limited Liability Company Held to Be Time Barred When Brought More Than Three Years After Dissolution: Certificate of Dissolution Requirement Not Retroactive

On March 13, 2014, Division III of the Washington Court of Appeals reversed a trial court’s refusal to dismiss of a suit by homeowners against a developer as untimely when it was brought more than three years after the developer dissolved its limited liability company.

In Houk v. Best Development & Construction Company, Inc., the Houks moved into a new home purchased from Nichols & Shahan Development, LLC (“NSD”) in 2004.[i]  On October 2, 2006, NSD was administratively dissolved as a limited liability company by Washington’s Secretary of State.  On December 16, 2010, more than three years after NSD’s dissolution, the Houks sued NSD for damages alleging breach of contract, breach of implied warranties, breach of express warranties, negligence, and violation of Washington’s Consumer Protection Act, RCW 19.86.

Relying upon RCW 25.15.330, as it existed until mid-2010, NSD brought a Motion for Summary Judgment that the Houks’ suit was time barred by the three-year limitation period contained in RCW 26.15.303, which became effective in 2006.  As adopted at that time, the statute stated:

The dissolution of a limited liability company does not take away or impair any remedy available against that limited liability company, its managers, or its members for any right or claim existing, or any liability incurred at any time, whether prior to or after dissolution, unless an action or proceeding thereon it not commenced within three years after the filing of the effective date of dissolution.

(Emphasis added.)  In 2010, RCW 25.15.303 was amended such that the three-year limitation period does not commence to run until a limited liability company files a Certificate of Dissolution with the Secretary of State.  In this case, no such Certificate of Dissolution was filed by NSD.  The trial court held that RCW 25.15.303, as amended, applied retroactively, and did not bar the Houks’ suit.  As a result, it denied NSD’s motion for summary judgment.

On appeal, Division III of the Court of Appeals reversed the trial court’s decision denying summary judgment.  In rendering its decision, the Court stated that it presumed statutory amendments are prospective, unless there is a legislative intent to apply the statute retroactively, or the amendment is clearly curative or remedial. 

An amendment is curative if it clarifies or technically corrects an ambiguous statute.  An amendment must be “clearly curative” for it to be retroactively applied.  Where there is no ambiguity in statutory language, the Court presumes an amendment to a statute constitutes a substantive change in the law and that the amendment is not retroactive.  In this case, the Court found no ambiguity in RCW 25.15.303 before it was amended, which is a condition precedent to finding that an amendment is curative.

An amendment is remedial if it relates to practice, procedure, or remedies, and does not affect a substantive or vested right.  A right is a legal consequence deriving from certain facts, while a remedy is procedure prescribed by law to enforce a right. In this case, the Court found that the 2010 amendments to RCW 25.15.303 created a new substantive remedy that was outside the scope of the former statute and, if retroactively applied, it would deny NSD the right to assert the statute of limitations as a complete defense.  Accordingly, the Court found that the 2010 amendments to RCW 25.15.303 were not remedial.

Ultimately, the Court held that the Houks’ claims against NSD were time barred by RCW 25.15.303, as adopted in 2006, beginning on October 2, 2009.  From that date forward, the Houks no longer had a legal right to proceed with their claims against NSD and NSD had a legal right to assert the statute of limitations as a complete defense.  The Court went on and awarded attorneys’ fees to NSD and against the Houks based upon a prevailing party attorneys’ fee provision contained in their contract.

Comment: Going forward, claimants should be aware that their claims against a limited liability company will expire three years after a Certificate of Dissolution is filed by the limited liability company with the Washington Secretary of State.  A limited liability company may file a Certificate of Dissolution even if it is administratively dissolved by the Secretary of State.  Accordingly, limited liability companies wishing to extinguish claims that may exist against them should file a Certificate of Dissolution with the Secretary of State promptly after dissolution.

[i] ___ Wn. App. ___, 322 P.3d 29 (Division III, March 13, 2014)

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