CONSTANTINE CANNON LLP v. MULLEN MANAGEMENT CO., INC. ( 2015 )

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DISTRICT OF COLUMBIA COURT OF APPEALS
No. 13-CV-977
CONSTANTINE CANNON LLP, APPELLANT,
V.
MULLEN MANAGEMENT CO., INC., APPELLEE.
Appeal from the Superior Court
of the District of Columbia
(CAB-3079-08)
(Hon. John Ramsey Johnson, Trial Judge)
(Argued September 23, 2014 Decided September 3, 2015)
John Jay Range, for appellant.
S. Scott Morrison, with whom David C. Rohrbach was on the brief, for
appellee.
Before WASHINGTON, Chief Judge, BECKWITH, Associate Judge, and KING,
Senior Judge.
BECKWITH, Associate Judge: At the time the events in this case took place, a
foreign corporation1 was required to obtain a certificate of authority from the
mayor before transacting business in the District of Columbia. D.C. Code § 29-
1
Defined as “a corporation for profit organized under laws other than the
laws of the District of Columbia and special acts of Congress.” D.C. Code § 29-
101.02 (2) (2001); see also D.C. Code § 29-101.02 (14) (2012 Repl.).
2
101.99 (a) (2001).2 The mayor could revoke that certificate if, among other things,
the corporation failed to pay required fees or file its two-year report. D.C. Code
§§ 29-101.115 (a), -101.122 (2001). The question presented in this case is whether
a contract entered into by a foreign corporation after its certificate of authority was
revoked for those reasons is nevertheless enforceable. We hold that it is, and
accordingly affirm.
I.
Appellee Mullen Management Company, Inc., is a Delaware corporation
that owns and leases an office building near McPherson Square in the city’s
northwest quadrant. Mullen obtained a certificate of authority to transact business
in D.C. on December 30, 1996. Appellant Constantine Cannon LLP is a Delaware
limited liability partnership whose attorneys practice law in the District. In early
2007, Cannon approached Mullen to inquire about leasing office space in Mullen’s
building. The parties signed a lease on November 30, 2007, and Cannon began to
make improvements to the property as required by the lease. A dispute arose
2
The events in this case took place in 2007 and 2008 while the Business
Corporation Act (BCA) was in effect. In 2010, the D.C. Council repealed the BCA
and passed the Business Organizations Code. While this opinion refers primarily
to the BCA provisions that govern this legal dispute, citations to analogous
provisions in the current code are provided when appropriate. For instance, we
note that a foreign corporation now must “register” to do business rather than
procure a certificate of authority. D.C. Code § 29-105.02 (a) (2012 Repl.).
3
shortly thereafter regarding the building’s air ventilation system, and Cannon
directed its general contractor to stop work in February 2008. Cannon refused to
pay its contractor, who then recorded a mechanic’s lien on the property for nearly
two million dollars.
Cannon then learned that Mullen’s certificate of authority had been revoked
on September 10, 2007, eleven weeks before the lease was signed, after the D.C.
Department of Consumer and Regulatory Affairs determined that Mullen “failed
and/or refused to file reports and pay all fees due and owing.” Cannon sent Mullen
a letter on March 6, 2008, contending that the lease was void for that reason.
Mullen quickly applied to reinstate its certificate of authority, and the District
issued a certificate of reinstatement on March 14, 2008. Mullen then sued Cannon
for breach of contract. Cannon filed a counterclaim seeking (1) a declaratory
judgment that the lease was void because Mullen’s certificate of authority had been
revoked prior to signing and (2) damages and an injunction against enforcement of
the lease because the lease was induced by fraudulent misrepresentation. On cross-
motions for summary judgment, the trial court ruled that Cannon breached the
lease and the lease was not void even though Mullen’s certificate had been
revoked. Cannon amended its counterclaim six months later to add a new theory
of fraud. After trial, the court entered judgment as a matter of law in favor of
4
Mullen on both fraud claims and ordered Cannon to pay damages, attorney’s fees,
and costs for its breach of contract.
Cannon appeals the denial of its summary judgment motion, contending that
the lease was void because Mullen’s certificate of authority was revoked before the
parties signed the contract.
II.
“Summary judgment is appropriate only when there are no material facts in
issue and when it is clear that the moving party is entitled to judgment as a matter
of law.” Jones v. Thompson, 953 A.2d 1121, 1124 (D.C. 2008) (citation omitted).
We review the trial court’s grant of summary judgment de novo. Id. The trial
court ruled that the lease was valid despite the revocation of Mullen’s certificate
for two independent reasons. We consider each in turn.
A.
The trial court first ruled that the contract was enforceable under D.C. Code
§ 29-101.119 (b) (2001), which provides that “[t]he failure of a foreign corporation
to obtain a certificate of authority to transact business in the District shall not
5
impair the validity of a contract or act of such corporation.”3 To reach this
conclusion, the trial court implicitly reasoned that a corporation “fail[s] . . . to
obtain a certificate” when it does obtain a certificate but that certificate is
subsequently revoked.
Mullen defends the trial court’s ruling by citing our opinion in Brown v. M
Street Five, LLC, 56 A.3d 765 (D.C. 2012), where we declined to enforce a
contract entered into by a Maryland corporation because Maryland had revoked the
corporation’s charter prior to signing. Id. at 771. In a footnote, the court cited
D.C. Code § 29-101.119 (b) (2001) and stated that if the corporation “did exist as a
valid Maryland corporation” when it signed the lease, the lease would have been
enforceable even if D.C. had revoked its certificate of authority. Id. at 770 n.8.
We clarified, however, that that was “not the scenario presented to us in this
appeal.” Id.Although we could resolve this case by following this footnote in Brown, we
decline to do so for two reasons. First, the court itself noted the statement was
unnecessary to its holding. See Alfaro v. United States, 859 A.2d 149, 154 n.8
(D.C. 2004) (stating that dicta has “no effect as indicating the law of the District”).
3
The current version of this provision is D.C. Code § 29-105.02 (c) (2012
Repl.).
6
Second, the court’s statement was premised on a mistaken determination that the
District had revoked the corporation’s certificate of authority prior to signing the
contract, when the District had not. Brown, 56 A.3d at 767 (lease signed August
12, 2004; certificate revoked September 13, 2004).4 Brown therefore does not
dictate the outcome here.
Challenging the trial court’s ruling, Cannon argues that § 29-101.119 (b)
(2001) applies only to corporations that are never certified—that is, corporations
that completely “fail[] . . . to obtain” a certificate, not those that do obtain a
certificate but have it revoked. Mullen, on the other hand, essentially asks us to
interpret “failure . . . to obtain a certificate” in subsection 119 (b) to mean “without
a certificate.” We agree with Cannon’s interpretation. The word “obtain” means
“to gain or attain possession or disposal of,” WEBSTER’S THIRD NEW
INTERNATIONAL DICTIONARY OF THE ENGLISH LANGUAGE, UNABRIDGED 1559
4
We also decline to follow T.K., Inc. v. National Community Reinvestment
Coalition, Inc., 76 A.3d 895 (D.C. 2013), which stated that Brown “concluded that
a foreign corporation, which had its certificate of authority revoked by the District,
lacked the authority to subsequently enter into an agreement to extend its lease.”
Id. at 900. Brown actually held, however, that a foreign corporation lacked the
power to contract because Maryland had revoked its corporate charter. 56 A.3d at
771. And as noted above, dicta in Brown actually suggested that if the corporation
was a valid Maryland corporation when it entered the contract, the contract would
have been enforceable even if the District had revoked its certificate of authority.
Id. at 770 n.8.
7
(2002), not merely to have possession of.5 It is true that subsections 119 (a) and (c)
discuss corporations that transact business “without a certificate,” but both of those
subsections also contain language suggesting that they apply only to never-
certified corporations: subsection 119 (a) bars corporations from filing suit in D.C.
courts “until such corporation shall have obtained a certificate of authority,” and
subsection 119 (c) assesses fees on corporations doing business without a
certificate that must be paid “before any certificate of authority is issued.” D.C.
Code § 29-101.119 (a), (c).6 We therefore interpret subsection 119 (b) according
to its plain meaning to apply solely to corporations that have never obtained a
certificate, and we conclude that D.C. Code § 29-101.119 (b) (2001) does not
indicate that the contract here is valid.
B.
In the alternative, the trial court ruled that the contract was enforceable
pursuant to D.C. Code § 29-101.127 (d) (2001), which provides that “[u]pon the
5
See also D.C. Code § 29-101.06 (a)(4) (2012 Repl.) (distinguishing
between corporations that have not “obtained” certificates of registration and those
whose certificates were “terminated”).
6
We also decline to read “failure . . . to obtain a certificate” to include
failure to obtain a new certificate after revocation because this interpretation strains
the statute’s clear text and, more significantly, a corporation does not actually
obtain a new certificate of authority after revocation. It obtains a certificate of
reinstatement. See D.C. Code § 29-101.127 (2001).
8
issuance of the certificate of reinstatement, the revocation proceedings . . . shall be
deemed to be annulled, and such corporations shall have such powers . . . as if the
proclamation [of revocation] had not been issued.”7 In other words, the trial court
concluded that the contract was void when it was signed but then became valid
when Mullen obtained a certificate of reinstatement on March 14, 2008. This
ruling is erroneous for two reasons. First, this interpretation of § 29-101.127 (d)
(2001) contradicts our holding in Accurate Construction Co. v. Washington, 378
A.2d 681 (D.C. 1977), that reinstatement does not validate a contract executed
during a period of revocation. Id. at 684-85. While Accurate concerned a
domestic corporation rather than a foreign corporation, a point we further discuss
infra, this distinction has no bearing on our interpretation of § 29-101.127 (2001)
because that provision refers to both foreign and domestic corporations.8 We are
bound by Accurate’s holding that reinstatement cannot breathe life into a void
contract.
Second, even if the trial court’s interpretation of § 29-101.127 (2001) were
7
The comparable provision under the current code, D.C. Code § 29-106.03(d) (2012 Repl.), would be irrelevant here because it applies only to domestic
corporations.
8
See D.C. Code § 29-101.127 (a) (2001) (“A corporation, the articles of
incorporation [domestic] or certificate of authority [foreign] of which have been
revoked by proclamation . . . .”).
9
correct, that provision would not help Mullen here because Cannon renounced the
contract before Mullen’s certificate of authority was reinstated. As stated above, if
reinstatement retroactively validates a contract signed by a revoked corporation,
the contract must have been void up until the corporation’s certificate of authority
was reinstated. Accordingly, Cannon must have had the right to renounce the
contract while it was still void—otherwise Mullen would have unfettered control
over the contract’s validity and could validate the contract by reinstating its
certificate of authority even years later and even if Cannon had relied on the
contract being void. See 36 AM. JUR. 2D Foreign Corporations § 263 (2015)
(“[W]hen the foreign corporation has not complied with the doing business statute,
the other party may rescind the contract . . . at least when he or she was not in pari
delicto.”). Because Cannon renounced the contract prior to Mullen’s
reinstatement, the contract could not be subsequently validated even if we agreed
with the trial court’s interpretation of § 29-101.127 (d) (2001).
III.
Although these provisions of the BCA do not indicate that the contract is
valid, Cannon bears the burden of proving that the contract is invalid to avoid its
enforcement. Nolan v. Nolan, 568 A.2d 479, 483 (D.C. 1990). We first address
Cannon’s argument that the contract is invalid under Accurate. The plaintiff in
10
Accurate sought to avoid liability on a promissory note she executed to a D.C.
corporation whose articles of incorporation had been revoked by the District. 378
A.2d at 683. Relying on D.C. Code § 29-938 (a) (1973), a predecessor to § 29-
101.123 (a) (2001),9 we held that the contract was void because the corporation
lacked the capacity to contract after revocation. 378 A.2d at 684. Although the
defendant in Accurate was a domestic corporation, Cannon argues that its holding
must apply equally to foreign corporations because of D.C. Code § 29-101.100(2001), which states in relevant part that a foreign corporation “shall be subject to
the same duties, restrictions, penalties, and liabilities now or hereafter imposed
upon a domestic corporation of like character.”10
But Cannon omits crucial language from Accurate that demonstrates its
inapplicability to foreign corporations—what exactly had been revoked from the
corporation. The corporation in Accurate was domestic, so its articles of
incorporation were revoked and the corporation was “deemed to have been
dissolved” for all purposes except winding up its affairs. 378 A.2d at 684. In
9
This provision states in relevant part that after the mayor issues an annual
proclamation listing all the revoked corporations in D.C., “the articles of
incorporation or the certificate of authority, as the case may be, shall be void and
all powers thereunder inoperative without further proceedings of any kind.”
10
The analogous provision in the current code is narrower in scope. See
D.C. Code § 29-105.01 (c) (2012 Repl.).
11
contrast, Mullen had its certificate of authority revoked—its articles of
incorporation (filed in Delaware) remained valid. This distinction makes all the
difference because a corporation’s existence—and its concomitant capacity to
contract—stems from its articles of incorporation, not its certificate of authority.
See 18 AM. JUR. 2D Corporations § 123 (2015) (“[A] corporation cannot have
agents, contract for itself, or be contracted with prior to its incorporation.”); D.C.
Code § 29-302.03 (2012 Repl.) (noting that “corporate existence shall begin when
the articles of incorporation are filed”); see also Accurate, 378 A.2d at 684(holding that D.C. corporation cannot contract after articles of incorporation
revoked); Brown, 56 A.3d at 771 (holding that Maryland corporation cannot
contract after corporate charter revoked); cf. BDC Capital Props., L.L.C. v. Trinh,
307 F. Supp. 2d 12, 14-15 (D.D.C. 2004) (“Despite its lack of a certificate of
authority from D.C., a foreign corporation remains in existence and can continue to
rely on its corporate form.”); A. Tasker, Inc. v. Amsellem, 315 A.2d 178, 180 (D.C.
1974) (“[The BCA] do[es] not withdraw recognition of corporate existence from a
foreign corporation which fails to comply with its provisions.”). So while
revocation voids the certificate of authority and strips a corporation of “all powers
thereunder,” D.C. Code § 29-101.123 (a) (2001), capacity to contract is simply not
a “power” stemming from a certificate of authority—it stems from the fact of
12
incorporation.11
Cannon’s assertion that “[r]evoked foreign corporations and revoked
domestic corporations are of like character” is therefore incorrect.12 The District
can and does penalize foreign corporations that transact business in D.C. without a
11
For a similar reason, the contract is not invalid because of provisions in
D.C. Code § 29-101.116 (2001) and § 29-101.117 (2001) indicating that a foreign
corporation’s “authority to do business in the District shall cease” after its
certificate of authority is revoked. We interpret “authority” to transact business
differently from “capacity” to transact business. See Museum Boutique
Intercontinental, Ltd. v. Picasso, 886 F. Supp. 1155, 1159 (S.D.N.Y. 1995) (citing
BLACK’S LAW DICTIONARY 803, 121 (5th Ed. 1979)) (distinguishing “capacity”
and “authority” to sue). Capacity to act speaks to one’s ability to act—without
capacity to do business, a corporation cannot contract. Brown, 56 A.3d at 771.
But without authority to act, a corporation can still act; it is just subject to
consequences for its unauthorized actions. This conclusion is consistent with our
holding that a revoked foreign corporation can enter into valid contracts—it has
capacity to contract—but it is subject to statutory penalties for conducting
unauthorized business for which it lacks authority. D.C. Code §§ 29-101.119 (c),
-101.124 (2001).
The analogous version of subsection 116 in the current code is § 29-105.11
(c) (2012 Repl.).
12
While Cannon correctly notes that a D.C. corporation continues to exist
for three years after its articles of incorporation are revoked, see T.K., 76 A.3d at
900, Cannon again disregards crucial language: domestic corporations remain in
existence solely for the purpose of winding up their affairs as described in D.C.
Code § 29-101.123 (c)-(d) (2001). The contracts in both Accurate and Brown were
invalid even though the corporations continued to exist for the purpose of winding
up. Accurate, 378 A.2d at 684; Brown, 56 A.3d at 771.
13
valid certificate of authority. See D.C. Code §§ 29-101.119 (c), -101.124 (2001).13
But since the BCA does not expressly indicate that a corporation lacks capacity to
contract while its certificate is revoked, we have no basis to abrogate the basic
legal principle that a corporation’s capacity to contract stems from its
incorporation. See District of Columbia Pub. Sch. v. District of Columbia Dep’t of
Emp’t Servs., 95 A.3d 1284, 1288 (D.C. 2014) (noting that we will not interpret
statutes to abrogate common law unless the words “plainly import”). We therefore
conclude that a corporation’s capacity to contract is unaffected by revocation of its
certificate of authority.
IV.
Cannon makes two additional arguments in support of its contention that the
contract here is void because Mullen’s certificate of authority was revoked. First,
Cannon notes that D.C. Code § 29-101.124 (2001) imposes civil or criminal
penalties for “exercis[ing] or attempt[ing] to exercise any powers . . . under a
certificate of authority of a foreign corporation which has been revoked.” Cannon
therefore argues that the contract is void by “common law rule of long standing”
that prohibits enforcement of contracts violating a criminal law. While this court
13
The contemporary versions of these statutes are D.C. Code § 29-105.02(f) (2012 Repl.) and § 29-101.06 (a)(4) (2012 Repl.).
14
has recognized this general principle, see McMahon v. Anderson, Hibey & Blair,
728 A.2d 656, 658 (D.C. 1999), it has no application here. The contract here was
not formed for an illegal purpose—for example, illegal drug sales or prostitution.
Cf. id. at 659 (invalidating leases that, while legal on their face, were made for an
illegal purpose). The BCA’s penalty provisions are merely a way for the District
to enforce its broader regulatory scheme by punishing corporations for doing
business without a license.
While we have held that doing business without the appropriate license
voids contracts in some circumstances, we have done so only when the licensing
scheme is a “prohibitory regulation enacted to protect the public,” especially those
aimed at preventing “fraudulent and unscrupulous practices.” Capital Const. Co.
v. Plaza W. Coop. Ass’n, 604 A.2d 428, 430 (D.C. 1992); Lloyd v. Johnson, 45
App. D.C. 322, 329-31 (1916) (declining to invalidate contract when licensing rule
was to raise revenue, not “to protect the public from fraud,” Banks v. McCosker, 34
A. 539 (Md. 1896), or for “moral[] and general welfare” reasons); see also Sturdza
v. United Arab Emirates, 11 A.3d 251, 257 (D.C. 2011) (noting that the common
law rule is for consumer protection and applies when the licensing scheme is
“designed to protect the public” (quoting Truitt v. Miller, 407 A.2d 1073, 1079
(D.C. 1979))). The BCA may indirectly protect consumers by “bring[ing] such
corporations under the supervision and the regulation of public officials . . . [so]
15
that the public may have the same information respecting their background and
financial standing[,] character and [] management which is demanded of domestic
corporations.” Synanon Found., Inc. v. Bernstein, 503 A.2d 1254, 1268 (D.C.
1986) (separate statement of Mack, J.) (some alterations in original) (quoting Hill-
Lanham Inc. v. Lightview Dev. Corp., 163 F. Supp. 475, 476 (D.D.C. 1957)). But
an uncertified foreign corporation still must be legally organized under the laws of
another state for its contracts to be valid, see Brown, 56 A.3d at 771, so D.C.
citizens are assured that any corporation with which they deal—whether it has a
certificate of authority or not—has fulfilled the legal requirements of incorporation
in its home state. By explicitly affirming the validity of contracts signed before a
certificate of authority is obtained, see D.C. Code § 29-101.119 (b) (2001),
Congress14 already concluded that the benefits of enforcing pre-certification
contracts outweigh concerns about public safety and consumer protection, and the
D.C. Council included a similar provision in the Business Organizations Code at §
29-105.02 (2012 Repl.). When a certificate is revoked for a corporation’s failure
to pay fees and file reports, we do not think that consumer protection concerns
justify the “harsh and disproportionate” result of voiding contracts executed by
14
The BCA was initially passed by Congress in 1954, and the text of § 29-
101.119 (b) (2001) was unchanged through codification in 1973 and recodification
in 1981 and 2001. See Pub. L. No. 83-389, § 119, 68 Stat. 179, 227 (1954).
16
noncompliant corporations.15 Sturdza, 11 A.3d at 258 (quoting Cevern, Inc. v.
Ferbish, 666 A.2d 17, 20 (D.C. 1995)); see also Fritts v. Palmer, 132 U.S. 282,
289-90 (1889) (declining to invalidate real estate purchase by foreign corporation
that failed to comply with Colorado’s certification laws).
Finally, Cannon argues that the contract is void because of D.C. Code § 29-
101.117 (2001), which specifies that revocation does not affect “any right of action
upon any contract made by the corporation in the District before such revocation.”
In Cannon’s view, this provision signifies that the legislature “deemed it necessary
to explicitly provide that pre-revocation contracts remain valid,” which “plainly
suggests that post-revocation contracts do not.” We disagree. First of all, it is
unclear that the provision means what Cannon says it does—another plausible
reading is that the provision does not address contract “validity” at all but instead
affirms that an aggrieved party can still sue a revoked corporation for any “liability
or obligation . . . incurred before the revocation.” D.C. Code § 29-101.11715
We do not address whether a post-revocation contract would be
enforceable if the corporation’s certificate were revoked for reasons that might
implicate significant consumer protection concerns, such as when “the certificate
of authority of the corporation was procured through fraud practiced upon the
district,” “[t]he corporation has continued to exceed or abuse the authority
conferred upon it by this chapter,” or “[a] misrepresentation has been made of any
material matter in any application, report, affidavit or other document submitted by
such corporation pursuant to this chapter.” D.C. Code § 29-101.115 (a)(1), (2), (9)
(2001).
17
(explaining how to serve “process against the [revoked] corporation” (emphasis
added)). In any event, we need not construe the statute authoritatively because we
decline to infer that the provision’s silence regarding post-revocation contracts
demonstrates the legislature’s intent to invalidate such contracts. Riggs Nat’l Bank
v. District of Columbia, 581 A.2d 1229, 1255 (D.C. 1990) (“Silence is a
treacherous guide to legislative intent.”).
V.
For the reasons set forth in this opinion, we affirm the trial court’s judgment
that the Cannon-Mullen lease was enforceable notwithstanding that it was signed
after Mullen’s certificate of authority to do business in the District was revoked for
failure to pay fees and file reports.
So ordered.