Suit Against Limited Liability Company Held Not to Be Time Barred When Brought More Than Three Years After Dissolution
- Posted by Matt T. Paxton
- On September 30, 2014
In March 2014, Division III of the Washington Court of Appeals reversed a trial court’s refusal to dismiss 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. Read more here. In that case, Division III reasoned that RCW 25.15.303, as it existed until mid-2010, controlled, and the 2010 amendment was not retroactive.
On August 4, 2014, Division I of the Washington Court of Appeals looked at a similar issue, reversing a trial court’s dismissal of claims against a subcontractor that were brought more than three years after the subcontractor’s limited liability company was dissolved.
In Zacks v. Arden Drywall & Texture, Inc., Lead Construction LLC (“Lead”) hired a number of subcontractors, including Arden Drywall & Texture LLC (“Arden”), to build a residence in Seattle, Washington. 2014 WL 3843784 (August 4, 2014) (unpublished opinion). Arden installed the drywall and the ceilings of the home. Shortly after purchasing the home, Adam and Lynn Zacks (the “Zackses”) discovered water damage coming from the roof.
In March 2012, the Zackses brought a negligence lawsuit against the inspector and general contractor. In August 2012, the Zackses settled their claims in exchange for an assignment of all rights to pursue damages against the third-party subcontractors, including Arden. In September 2012, the Zackses amended their Complaint, naming Arden as a defendant.
Arden filed a Motion for Summary Judgment, arguing that the Zackses’ claims against it were barred by the former RCW 25.15.303 because the Secretary of State had administratively dissolved Arden on September 2, 2008. The Zackses argued that under the 2010 amendment of RCW 25.15.303, Arden had to file a certificate of dissolution to trigger the three-year statute of limitations. The trial court granted Arden’s motion, finding that the 2010 amendment did not apply retroactively.
On appeal, Division I of the Washington Court of Appeals reversed, finding that the trial court erred in ruling that the Zackses’ lawsuit against Arden was time barred under former RCW 25.15.303. The Court relied on an important distinction between “dissolution” and “cancellation.” Although the Secretary of State may administratively dissolve a limited liability company, the Court found that the company continues to exist until its certificate of formation is cancelled. The Court found that a limited liability company that has been dissolved, but not cancelled, may still sue or be sued after three years of its dissolution.
Under the 2006 version of RCW 25.15.303, the Court found that the statute of limitations period for claims against Arden would have expired on September 2, 2011. But, until Arden’s certificate of formation is canceled, it continued to exist. There was no evidence that Arden’s certificate of formation was ever canceled. The Court held that “[b]ecause Arden was still a legal entity in 2010, the 2010 amendments to RCW 25.15.303 applied to Arden as to any other legally recognized LLC.”
Comment: On first glance, these Houk and Zacks may appear contradictory, but a careful examination of the timeline of events is crucial. On one hand, in Houk, NSD was administratively dissolved on October 2, 2006, more than three years before the legislature passed the statutory amendment to RCW 25.15.303. On the other hand, in Zacks, the Arden was administratively dissolved on September 2, 2008, less than three years before the amendment. For this reason, Division I was not forced to decided whether the amendment could be applied retroactively. Accordingly, in determining whether the statutory amendment to RCW 25.15.303 applies to an administratively dissolved limited liability company that has not filed a Certificate of Dissolution, the critical issue is whether the company was dissolved before June 10, 2007 (i.e. three years before the amendment became effective).