CAG MLG, L.L.C. v. Bart Smelley and Smelley Family Investments, L.L.C. ( 2014 )

Rel: 09/19/2014
Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter. Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-
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the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
SPECIAL TERM, 2014
____________________
1130659
____________________
CAG MLG, L.L.C.
v.
Bart Smelley and Smelley Family Investments, L.L.C.
Appeal from Tuscaloosa Circuit Court
(CV-13-900565)
PARKER, Justice.
CAG MLG, L.L.C. ("CAG"), appeals the Tuscaloosa Circuit
Court's dismissal of its action against Bart Smelley and
Smelley Family Investments, L.L.C. (hereinafter collectively
referred to as "Smelley"). We reverse and remand.
1130659
Facts and Procedural History
On May 10, 2013, CAG sued Smelley, alleging six counts of
misrepresentation and/or fraud and a single count of unjust
enrichment. On June 18, 2013, Smelley filed a motion to
dismiss. In the motion to dismiss, Smelley alleged that CAG
was a foreign limited-liability company formed and organized
in the State of Florida in 2010 and that it was "not
registered or qualified to do business in the State of
Alabama." Smelley also alleged that CAG had domesticated in
Wyoming as Oceans, LLC, in March 2011 and that CAG was
subsequently dissolved as a Florida entity in April 2011.
Smelley argued that CAG "failed to state the jurisdictional
element establishing its ability to maintain an action in its
initial pleading." Accordingly, Smelley argued, the circuit
court lacked "subject matter jurisdiction and/or personal
jurisdiction over the matters contained in the [c]omplaint."
Additionally, Smelley argued that "[t]his lack of standing
requires immediate dismissal of this action until [CAG] can
demonstrate the legal capacity to pursue the same." In
support of the motion to dismiss, Smelley attached a printout
from the Alabama Secretary of State's Web site showing that
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CAG is not listed as being registered with the State of
Alabama and a printout from the Wyoming Secretary of State's
Web site indicating that CAG was organized in Florida in 2010
and had domesticated in Wyoming as Oceans, LLC, in 2011.
On July 24, 2013, CAG amended its complaint to add an
eighth count requesting that the circuit court issue an
injunction preventing Smelley from selling a piece of real
property. On August 16, 2013, Smelley amended the motion to
dismiss to include the additional claim. On August 19, 2013,
CAG filed a motion to strike the paragraphs of Smelley's
motion to dismiss that alleged that CAG was a foreign entity
that was not registered to transact business in Alabama and
the exhibits attached in support thereof.
Also on August 19, 2013, the circuit court held a hearing
on the motions. On the following day, the circuit court
issued an order granting CAG's motion to strike the objected-
to paragraphs of Smelley's motion to dismiss and the
supporting exhibits, dismissing the request for an injunction
as moot, and instructing the parties to file briefs regarding
the remainder of Smelley's motion to dismiss, which included
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an allegation that CAG could not maintain an action in Alabama
because it was not registered to transact business in Alabama.
On August 26, 2013, Smelley filed a brief in support of
the motion to dismiss and argued that CAG's complaint was due
to be dismissed pursuant to former §§ 10A-2-15.01 and 10A-2-
15.02, Ala. Code 1975.1 Former § 10A-2-15.01 stated, in
relevant part:
"(a) A foreign corporation may not transact
business in this state until it registers with the
Secretary of State as required under Section 10A-1-
7.01."
Former § 10A-2-15.02 stated, in relevant part:
"(a) A foreign corporation transacting business
in this state without registering as required under
Section 10A-1-7.01 or without complying with Chapter
14A of Title 40 may not maintain a proceeding in
this state without so registering and complying.
All contracts or agreements made or entered into in
this state by foreign corporations prior to
registering to transact business in this state shall
be held void at the action of the foreign
corporation or by any person claiming through or
under the foreign corporation by virtue of the
contract or agreement; but nothing in this section
shall abrogate the equitable rule that he who seeks
equity must do equity."2
1
Sections 10A-2-15.01 and 10A-2-15.02, Ala. Code 1975,
were repealed effective January 1, 2014, by Act No. 2012-304,
Ala. Acts 2012.
2
As indicated by the plain language of the statutes,
former §§ 10A-2-15.01(a) and 10A-2-15.02(a) applied
4
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On August 29, 2013, CAG filed a brief and argued that,
under Florida law, the dissolution of a limited-liability
company does not "[p]revent commencement of a proceeding by or
against the limited liability company in its name." Fla.
Stat. § 608.4431(2)(b). CAG also admitted that it was not
registered with the State of Alabama to transact business;
however, CAG argued that, under Freeman Webb Investments, Inc.
v. Hale, 536 So. 2d 30 (Ala. 1988), former § 10A-2-15.02 did
not preclude its action because, CAG argued, former § 10A-2-
15.02 precludes only ex contractu3 claims, not ex delicto
claims4 such as those brought by CAG against Smelley.
On September 3, 2013, Smelley responded to CAG's brief
and argued that former § 10A-2-15.02 precluded CAG's claims
and that Alabama law –- not Florida law –- governed whether
CAG lacked capacity to sue in Alabama courts. In support of
this argument, Smelley quoted Rule 17(b), Ala. R. Civ. P.,
exclusively to corporations –- not limited-liability companies
such as CAG, which, as explained below, are governed by § 10A-
1-7.21, Ala. Code 1975.
3
"Ex contractu" is defined in Black's Law Dictionary 566
(6th ed. 1990) as "[f]rom or out of a contract."
4
"Ex delicto" is defined in Black's Law Dictionary 567
(6th ed. 1990) as "[f]rom a delict, tort, fault, crime, or
malfeasance."
5
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which states: "The capacity of a party, including one acting
in a representative capacity, to sue or be sued shall be
determined by the law of this state."
On December 30, 2013, the circuit court granted Smelley's
motion and dismissed the case pursuant to § 10A-1-7.21, Ala.
Code 1975. The version of § 10A-1-7.21(a) then in effect
provided: "A foreign entity transacting business in this state
may not maintain any action, suit, or proceeding in any court
of this state until it has registered in this state."5
On January 8, 2014, CAG filed a motion to alter, amend,
or vacate the circuit court's judgment of dismissal pursuant
to Rule 59, Ala. R. Civ. P. In its motion, CAG argued that
Freeman Webb stood for the proposition that its ex delicto
claims were not barred by § 10A-1-7.21.6 The
5
As set forth above, in its order dismissing this case,
the circuit court applied § 10A-1-7.21, Ala. Code 1975, which,
effective January 1, 2011, replaced former § 10-12-52, Ala.
Code 1975, which applied exclusively to limited-liability
companies. See Act No. 2009-513, Ala. Acts 2009. Act No.
2012-304, Ala. Acts 2012, effective January 1, 2014, in
addition to repealing former §§ 10A-2-15.01 and 10A-2-15.02,
amended § 10A-1-7.21(a) to include an exception that is
inapplicable to this case. See supra note 1.
6
Freeman Webb did not involve the application of § 10A-1-
7.21 or, as Smelley argued in support of the motion to
dismiss, former § 10A-2-15.02(a). Rather, Freeman Webb
involved the application of former § 10-2A-247(a), Ala. Code
6
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1975, which included significantly different language:
"(a) All contracts or agreements made or entered
into in this state by foreign corporations which
have not obtained a certificate of authority to
transact business in this state shall be held void
at the action of such foreign corporation or any
person claiming through or under such foreign
corporation by virtue of said void contract or
agreement; but nothing in this section shall
abrogate the equitable rule that he who seeks equity
must do equity."
In 1994, § 10-2A-247, Ala. Code 1975, was repealed and
replaced by § 10-2B-15.02, Ala. Code 1975. See Ala. Acts
1994, Act No. 94-245, p. 439. In 1995, the then existing
version of § 10-2B-15.02 was repealed, and a new version of §
10-2B-15.02 was enacted. See Ala. Acts 1995, Act No. 95-663.
The version of § 10-2B-15.02(a) enacted in 1995 essentially
borrowed the language of former § 10-2A-247(a) quoted above
and added a sentence to the beginning of the borrowed
language. By broadening the scope of the statute, the
additional sentence, emphasized below, is particularly
relevant to this appeal; that version of § 10-2B-15.02(a)
provided, in its entirety:
"(a) A foreign corporation transacting business
in this state without a certificate of authority or
without complying with Sections 40-14-1 to 40-14-3,
inclusive, 40-14-21, or 40-14-41, may not maintain
a proceeding in this state without a certificate of
authority. All contracts or agreements made or
entered into in this state by foreign corporations
prior to obtaining a certificate of authority to
transact business in this state shall be held void
at the action of the foreign corporation or by any
person claiming through or under the foreign
corporation by virtue of the contract or agreement;
but nothing in this section shall abrogate the
equitable rule that he who seeks equity must do
equity."
7
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(Emphasis added.)
Section 10-2B-15.02 was again amended in 1999. See Ala.
Acts 1999, Act No. 99-665, § 3. That amendment –- replacing
the reference to "Sections 40-14-1 to 40-14-3, inclusive, 40-
14-21, or 40-14-41" with a reference to "Chapter 14A of Title
40" –- is not relevant to this discussion. Effective January
1, 2011, that door-closing statute was once again amended and
renumbered as § 10A-2-15.02 by Ala. Acts 2009, Act No. 2009-
513. Act No. 2009-513 only slightly modified the substance of
the statute by changing the reference to obtaining "a
certificate of authority" to "registering"; § 10A-2-15.02(a)
provided:
"(a) A foreign corporation transacting business
in this state without registering as required under
Section 10A-1-7.01 or without complying with Chapter
14A of Title 40 may not maintain a proceeding in
this state without so registering and complying. All
contracts or agreements made or entered into in this
state by foreign corporations prior to registering
to transact business in this state shall be held
void at the action of the foreign corporation or by
any person claiming through or under the foreign
corporation by virtue of the contract or agreement;
but nothing in this section shall abrogate the
equitable rule that he or she who seeks equity must
do equity."
Act No. 2009-513 amended the first sentence of former §
10A-2-15.02(a) to reflect the substantive language of former
§ 10-12-52(a), Ala. Code 1975, which provided: "A foreign
limited liability company transacting business in this state
may not maintain any action, suit, or proceeding in any court
of this state until it has registered in this state."
However, Act No. 2009-513 also renumbered § 10-12-52 as § 10A-
1-7.21 and amended it to make it applicable to all foreign
entities –- not just foreign limited-liability companies.
We note that in TradeWinds Environmental Restoration,
Inc. v. Brown Bros. Construction, L.L.C., 999 So. 2d 875 (Ala.
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circuit court denied CAG's Rule 59 motion on February 6, 2014.
CAG appeals.
Discussion
"We have set forth the standard of review that
must be applied in reviewing a dismissal pursuant to
Rule 12(b)(6), Ala. R. Civ. P.:
"'On appeal, a dismissal is not
entitled to a presumption of correctness.
The appropriate standard of review under
Rule 12(b)(6) is whether, when the
allegations of the complaint are viewed
most strongly in the pleader's favor, it
appears that the pleader could prove any
set of circumstances that would entitle her
to relief. In making this determination,
this Court does not consider whether the
plaintiff will ultimately prevail, but only
whether she may possibly prevail. We note
that a Rule 12(b)(6) dismissal is proper
only when it appears beyond doubt that the
2008), this Court relied on Freeman Webb in dismissing a
foreign corporation's ex contractu claim under former § 10-2B-
15.02(a), which included the additional sentence, the
substance of which is present in § 10A-1-7.21. However,
because an ex delicto claim was not brought in Tradewinds,
this Court did not include a discussion about what effect, if
any, the additional sentence in former § 10-2B-15.02(a) had on
ex delicto claims.
The legislative history of § 10A-1-7.21, therefore,
indicates that the language that was construed in Freeman Webb
to prohibit only ex contractu –- and not ex delicto –- claims
was never included in the language of the statutes that have
been applicable to limited-liability companies. Accordingly,
Freeman Webb's differentiation between ex contractu and ex
delicto claims is not relevant to an interpretation of § 10A-
1-7.21.
9
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plaintiff can prove no set of facts in
support of the claim that would entitle the
plaintiff to relief.'
"Nance v. Matthews, 622 So. 2d 297, 299 (Ala. 1993)
(citations omitted)."
Lloyd Noland Found., Inc. v. HealthSouth Corp., 979 So. 2d
784, 791 (Ala. 2007).7
As set forth above, the circuit court dismissed CAG's
case upon application of Alabama's door-closing statute, §
10A-1-7.21, Ala. Code 1975, which provides, in pertinent part:
"A foreign entity transacting business in this state, except
a corporation or other organization formed under federal law,
may not maintain any action, suit, or proceeding in any court
of this state until it has registered in this state." Such
registration is required by § 10A-1-7.01, which provides:
"(a) To transact business in this state, a
foreign entity must register under this chapter if
the entity:
7
Smelley supplemented the motion to dismiss with exhibits.
That submission would normally convert a motion to dismiss to
a summary-judgment motion. See Rule 12(b), Ala. R. Civ. P.;
Ex parte Hodge, [Ms. 1121194, February 7, 2014] ___ So. 3d
___, ___ (Ala. 2014). However, because the circuit court
struck the exhibits Smelley attached to the motion to dismiss,
the exhibits did not affect the nature of the motion.
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"(1) is a foreign entity, the
formation of which, if formed in this
state, would require the filing under
Article 3 of a certificate of formation; or
"(2) affords limited liability under
the law of its jurisdiction of formation
for any owner or member.
"(b) A foreign entity described by subsection
(a) must maintain the entity's registration while
transacting business in this state."
A foreign entity's failure to comply with the
registration requirements of a statute such as § 10A-1-7.01 is
a capacity defense, and it does not per se implicate standing
or subject-matter jurisdiction. As this Court stated in
Penick v. Most Worshipful Prince Hall Grand Lodge F & A M of
Alabama, Inc., 46 So. 3d 416, 425-26 (Ala. 2010):
"A foreign corporation's failure to obtain
authorization to do business in Alabama is a
capacity defense and does not per se implicate
standing and subject-matter jurisdiction. Archer
Western Contractors, Ltd. v. Benise–Dowling &
Assocs., Inc., 33 So. 3d 1216, 1219 n. 4 (Ala. 2009)
('[Section 10A–2–15.02(a)], Ala. Code 1975, does not
preclude the courts of this state from exercising
jurisdiction over actions brought by unauthorized
foreign entities transacting business in Alabama for
the purpose of enforcing their contracts.'); Moseley
v. Commercial State Bank, 457 So. 2d 967 (Ala. 1984)
(holding that a foreign corporation's lack of
authorization to do business in Alabama is a
capacity defense that is waived unless timely
asserted by specific negative averment); cf. [State
v. Property at 2018] Rainbow Drive, 740 So. 2d
[1025] at 1028 [(Ala. 1999)] ('"Standing represents
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a jurisdictional requirement which remains open to
review at all stages of the litigation."' (quoting
National Org. for Women, Inc. v. Scheidler, 510 U.S.
249, 255, 114 S. Ct. 798, 127 L. Ed. 2d 99 (1994)));
Ex parte Smith, 438 So. 2d 766, 768 (Ala. 1983)
('Lack of subject matter jurisdiction may not be
waived by the parties....'); and Mobile,
Alabama–Pensacola, Florida Bldg. & Constr. Trades
Council v. Williams, 346 So. 2d 964, 966 (Ala. 1977)
(Faulkner, J., dissenting) ('There is a difference
between capacity to sue and standing to sue.')."
See also Wausau Dev. Corp. v. Natural Gas & Oil, Inc., [Ms.
1120614, November 22, 2013] ___ So. 3d ___, ___ (Ala.
2013)(quoting Penick).
Lack of capacity is an affirmative defense. See Wausau,
___ So. 3d at ___ (quoting Rikard v. Lile, 622 So. 2d 413, 414
(Ala. Civ. App. 1993))("'The lack of capacity to sue is an
affirmative defense which must be specifically pled.'");
Alabama Power Co. v. White, 377 So. 2d 930, 935 (Ala.
1979)(quoting Chemacid, S.A. v. Ferrotar Corp., 3 F.R.D. 45,
46 (S.D.N.Y. 1942), in its interpretation of Rule 9(a), Fed.
R. Civ. P.)("'[L]ack of capacity is an affirmative
defense.'"); see also Pretl v. Ford, 723 So. 2d 1, 3 (Ala.
1998). The Court of Civil Appeals set forth the proper method
of raising an affirmative defense in Williams v. Nash, 428 So.
2d 96, 99-100 (Ala. Civ. App. 1983):
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"Having determined that Nash has attempted to
raise an affirmative defense by the materials in his
motion, we look to the Alabama Rules of Civil
Procedure for the proper method of pleading such a
defense. The language of rule 8(c), as quoted below,
provides the answer:
"'(c) Affirmative Defenses. In
pleading to a preceding pleading, a party
shall set forth affirmatively accord and
satisfaction, arbitration and award,
assumption of risk, contributory
negligence, discharge in bankruptcy,
duress, estoppel, failure of consideration,
fraud, illegality, injury to fellow
servant, laches, license, payment, release,
res judicata, statute of frauds, statute of
limitations, waiver, and any other matter
constituting an avoidance or affirmative
defense.' (Emphasis supplied.)
"The matters raised in Nash's motion, since they
were an affirmative defense, should have been raised
by his answer to Williams's complaint. Our supreme
court has taken the strict view that an affirmative
defense can be raised by motion only where the face
of the complaint shows that the defense is a bar to
the action. In those instances in which the face of
the complaint fails to show that the action is
barred by the affirmative defense, it may not be
raised by a rule 12(b), [Ala.] R. Civ. P., motion
but must be raised by an answer under rule 8(c),
[Ala.] R. Civ. P. In Sims v. Lewis, 374 So. 2d 298(Ala. 1979), the court said:
"'The courts seem now to agree that
limitations and laches may indeed be raised
on a 12(b)(6) motion where the face of the
complaint shows that the claim is barred by
the statute of limitations, and/or laches,
[5 C. Wright & A. Miller, Federal Practice
& Procedure: Civil § 1277 (1969)]; see
McGruder v. B. & L. Construction Company,
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Inc., 293 Ala. 354, 303 So. 2d 103 (1974).
We hold that while the defenses of laches
or limitations should be presented in a
pleading to a preceding pleading, both may
be properly raised via the 12(b)(6) motion
where the face of the complaint shows that
the claim is barred.'
"Wright and Miller state that the rationale for this
rule is found in the fact that the pleadings under
federal rules practice are designed merely to
provide notice of the claims and defenses which will
later be involved in the trial. It is based on the
view that the pleading stages of litigation should
not be turned into 'little trials.' Motions under
rule 12(b)(6) then should not deal with matters
which are outside the complaint. 5 C. Wright & A.
Miller, Federal Practice & Procedure: Civil § 1277
(1969)."
As noted above, the circuit court granted Smelley's
motion to dismiss without considering the exhibits attached
thereto -- having struck those exhibits pursuant to CAG's
motion. Accordingly, Smelley's motion was not converted to a
motion for a summary judgment.8 See supra note 7. Therefore,
8
In Ex parte Scannelly, 74 So. 3d 432, 438 (Ala. 2011),
this Court noted the distinction between a motion to dismiss
filed pursuant to Rule 12(b)(6), Ala. R. Civ. P., and a motion
for a summary judgment:
"It is apparent that the portion of Toxey's
motion relating to the affirmative defense of res
judicata (paragraphs 6 and 7 of his 'Motion to
Dismiss'), which portion Toxey insists constitutes
a Rule 12(b)(6) challenge, was, instead, a motion
for a summary judgment. There is a notable
distinction between a motion to dismiss filed
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the circuit court's dismissal of CAG's complaint was proper
pursuant to Rule 12(b)(6) and a motion for a summary
judgment:
"'The Rule 12(b)(6) motion ... must be
distinguished from a motion for summary
judgment under Rule 56, which goes to the
merits of the claim –- indeed, to its very
existence –- and is designed to test
whether there is a genuine issue of
material fact. The Rule 12(b)(6) motion ...
only tests whether the claim has been
adequately stated in the complaint. Thus,
... on a motion under Rule 12(b)(6), the
[trial] court's inquiry essentially is
limited to the content of the complaint; a
motion for summary judgment, on the other
hand, often involves the use of pleadings,
depositions, answers to interrogatories,
and affidavits.'
"5B Charles Alan Wright & Arthur C. Miller, Federal
Practice and Procedure § 1356, at 372–75 (3d ed.
2004) (footnote omitted). See also Lloyd Noland
Found., Inc. v. HealthSouth Corp., 979 So. 2d 784,
791 (Ala. 2007) ('"Since the facts necessary to
establish an affirmative defense generally must be
shown by matters outside the complaint, the defense
technically cannot be adjudicated on a motion under
Rule 12[, Fed. R. Civ. P.]." 5 Charles Alan Wright
and Arthur C. Miller, Federal Practice and Procedure
§ 1277 (3d ed. 2004).'), and 1 Moore's Federal Rules
Pamphlet § 12.4[5][b], p. 186 (2010) ('When the
plaintiff's own factual allegations affirmatively
demonstrate that the plaintiff cannot recover,
dismissal under Rule 12(b)(6) is appropriate....
Similarly, a dismissal under Rule 12(b)(6) may be
based on an affirmative defense when the defense is
clear from the face of the pleadings.' (emphasis
added))."
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only if CAG's alleged lack of capacity is evident from the
face of CAG's complaint. We hold that it is not.
CAG's original and amended complaints do not indicate
that CAG is a foreign entity or that it is not registered to
transact business in Alabama pursuant to § 10A-1-7.01.9
Accordingly, CAG's alleged lack of capacity to sue Smelley is
not apparent from the face of its complaint. Therefore, the
circuit's court's dismissal of the complaint pursuant to §
10A-1-7.21 is due to be reversed. Ex parte Scannelly, 74 So.
3d 432, 438 (Ala. 2011).
Conclusion
For the reasons stated above, the circuit court's
dismissal of CAG's complaint was improper. Therefore, we
reverse the circuit court's judgment and remand the case for
further proceedings.
REVERSED AND REMANDED.
Moore, C.J., and Stuart, Shaw, and Wise, JJ., concur.
9
Under Rule 9(a), Ala. R. Civ. P., CAG is not required to
aver its capacity to bring the lawsuit in its complaint.
16