Kartik Patel v. New Jersey Department of Treasury, Etc. ( 2024 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-2370-22
KARTIK PATEL and SHIV
HOSPITALITY LLC,
Plaintiffs-Appellants,
APPROVED FOR PUBLICATION
v. June 18, 2024
NEW JERSEY DEPARTMENT OF APPELLATE DIVISION
TREASURY, DIVISION OF
REVENUE AND ENTERPRISE
SERVICES,
Defendant-Respondent.
Argued May 29, 2024 – Decided June 18, 2024
Before Judges Sabatino, Mawla, and Marczyk.
On appeal from the Superior Court of New Jersey, Law
Division, Mercer County, Docket No. L-1883-22.
John F. Wiley, Jr., argued the cause for appellants
(Wiley Lavender Maknoor, attorneys; John F. Wiley,
Jr., on the briefs).
Michael J. O'Malley, Deputy Attorney General, argued
the cause for respondent (Matthew J. Platkin, Attorney
General, attorney; Sara M. Gregory, Assistant Attorney
General, of counsel; Michael J. O'Malley, on the brief).
Gianfranco A. Pietrafesa argued the cause for amicus
curiae New Jersey State Bar Association (New Jersey
State Bar Association, attorneys; William H. Mergner
Jr., President, of counsel and on the briefs; Timothy F.
McGoughran and Gianfranco A. Pietrafesa, on the
briefs).
The opinion of the court was delivered by
SABATINO, P.J.A.D.
This case of first impression resolves the proper means to attempt to
rescind a certificate of dissolution and termination of a New Jersey limited
liability company ("LLC"), which allegedly has been filed in error or without
authorization. The statutory scheme for LLCs, N.J.S.A. 42:2C-1 to -94, contains
no provision authorizing the New Jersey Department of the Treasury to perform
such a rescission. The Department accordingly declined plaintiffs' request to
rescind a certificate of dissolution and termination that plaintiffs allege had been
improperly filed by a former LLC member, advising that such relief can only be
obtained through a court proceeding. Plaintiffs then filed a civil action in the
Law Division, which transferred the dispute to this court.
For the reasons that follow, we agree the LLC statutes do not empower
the Department to rescind such certificates administratively, in the absence of a
court order directing such relief. However, we hold our trial courts possess the
jurisdiction and authority to grant such relief, with a proper showing of
justification by the applicant and upon appropriate notice to interested or
affected parties.
A-2370-22
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I.
The limited record before us presents the following relevant allegations
and circumstances.
Creation and Operation of the LLC
On November 20, 2003, co-plaintiff Shiv Hospitality LLC, was created as
a New Jersey limited liability company through the filing of a certificate of
formation with the Division of Revenue and Enterprise Services 1 within the
Department of the Treasury. The certificate lists the LLC's initial members as
Pritesh Joshi, Ghayoor Hussain, and Bimal Patel (who signed the certificate and
is also listed as the registered agent and authorized representative of the LLC).
The LLC owns and operates a Ramada Inn in Rutherford. As alleged by
plaintiffs, the LLC holds a liquor license, although they represent that no liquor
has been served on the premises for the past several years. Apparently,
discontinuity of the LLC as an active business entity could jeopardize the
viability of the license, although we need not resolve that question here.
In March 2004, the LLC's certificate of formation was amended to replace
member Ghayoor Hussain with Vinodchandra P. Joshi. That same month,
"Ramada Inn" was registered as an alternate name for the LLC.
1
We refer to the Treasury entity as the "Division," although it is sometimes
referred to in the record and briefs by the acronym "DORES."
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In September 2016, the LLC's certificate was amended by Pritesh Joshi to
replace its members with Rohit Shah, Bhavesh Pujara, Kamlesh Patel, and
Alpesh Patel.
On November 27, 2019, co-plaintiff Kartik Patel 2 was assigned the entire
LLC through a sale of the business. That same day, as the self-described new
"sole/managing member," Patel executed an operating agreement for the LLC.
Patel's assignment was not recorded with the Division, leaving the prior
owners as the LLC members of record. His counsel represented to us at oral
argument that Patel delayed in taking steps to do so until certain outstanding
taxes were paid.
Dissolution and Termination of the LLC
For reasons that are unclear from the present record, on December 15,
2020, Bhavesh Pujara, a former LLC member who had previously assigned his
interest to Patel in 2019, filed a certificate of dissolution and termination 3 with
the Division.
Sometime later, Patel discovered that the certificate had been filed and the
LLC was thereby terminated. On April 22, 2021, his counsel wrote a letter to
2
We refer hereafter to Kartik Patel as "Patel," as distinguished from the former
LLC members who have the same surname.
3
For concision, we will at times refer to this as the "certificate."
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the Division advising "the accountant [not identified by name] for the former
members of the LLC" filed the certificate "without the knowledge or consent of"
Patel. Counsel sought immediate reinstatement of the LLC to avoid alleged
continued "hardship" in maintaining a liquor license. Patel asserts the Division
did not respond to this letter.
The Civil Action and This Appeal
Having failed to obtain relief from the Division, plaintiffs in October 2022
filed a complaint in lieu of prerogative writs in the Law Division against the
Division, seeking an order compelling reinstatement of the LLC. The Division
denied any obligation to grant plaintiffs relief and any capacity to reinstate the
LLC under the applicable statutes. The parties were unable to resolve the
dispute with a consent order.
On March 14, 2023, the trial court entered a two-page written order
transferring the action to this court, sua sponte, pursuant to Rules 1:13-4(a) and
2:2-3. The trial court reasoned that the transfer of jurisdiction was appropriate
because plaintiffs were seeking "a court order compelling action by a State
agency." The parties did not object to the transfer.
In their main brief on appeal, plaintiffs urged this court to exercise original
jurisdiction over the issues and use the court's "equitable powers to cancel the
wrongly filed certificate of dissolution." In response, the Division argued that
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it lacked the legal authority to cancel the certificate, but further acknowledged
the trial court could apply "principles of law and equity" to provide relief. The
Division took no position on whether such relief would be justified in this case.
After the parties submitted their merits briefs, we invited the New Jersey
State Bar Association to participate in the appeal as amicus curiae. 4 The Bar
Association accepted our invitation and filed an amicus brief arguing that: (1)
the Division has a ministerial duty to record documents properly submitted
pursuant to the LLC statutes; (2) the Division lacks statutory authority to rescind
a certificate of dissolution and termination; (3) a certificate of correction may
only correct a filed document, not rescind one; (4) a certificate of dissolution
and termination may be rescinded by a court in equity, and (5) this matter should
be remanded to the trial court to determine whether equity warrants rescission
of this certificate of dissolution.
The parties filed additional supplemental briefs in response to the amicus
submission. At the ensuing oral argument, all three counsel generally agreed
that the Division lacked the statutory authority to rescind the certificate of
dissolution and termination administratively. They each offered suggestions
and reactions about the appropriate pathway to pursue such relief.
4
We appreciate the prompt and helpful participation of amicus curiae in this
case involving novel issues of statutory interpretation and business law.
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II.
Our state statutes governing LLCs have evolved over the years. In 2012,
the Legislature recognized that the LLC "is a relatively new form of
unincorporated business organization that provides corporate-style limited
liability to its owners, while affording the owners the partnership-like capacity
to structure the entity by agreement rather than as prescribed by statu te."
Assemb. Regul. Oversight & Gaming Comm. Statement to A. 1543 (Jan. 30,
2012). "LLCs began to be widely used after IRS Revenue Ruling 88-76 upheld
the taxation of LLCs as partnerships." Ibid.
In this state, the Revised Uniform Limited Liability Company Act
("RULLCA") replaced the Limited Liability Company Act ("LLCA") and
"governs all limited liability companies" as of March 1, 2014. N.J.S.A. 42:2C-
91(b). See also IE Test, LLC v. Carroll, 226 N.J. 166, 177 n. 3 (2016) (noting
"[a]ll LLCs in New Jersey are now subject to the RULLCA").
New Jersey's RULLCA was based on the model RULLCA "developed by
the National Conference of Commissioners on Uniform State Laws (NCCUSL)"
and "is a comprehensive, fully integrated 'second-generation' LLC statute that
takes into account the best elements of 'first generation' LLC statutes (such as
the 'New Jersey [LLCA],' which was enacted in 1993 and became effective on
January 26, 1994) and two decades of legal developments in the field." Assemb.
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Regul. Oversight & Gaming Comm. Statement to A. 1543.
The RULLCA "is to be liberally construed to give the maximum effect to
the principle of freedom of contract and to the enforceability of operating
agreements." N.J.S.A. 42:2C-11(i). This provision was specifically added by
committee amendment in the Legislature with the purpose of "mirroring
language in current law" in the LLCA. S. Com. Comm. Statement to S. 742
(Feb. 9, 2012).
Pursuant to the RULLCA, LLCs in New Jersey are formed by filing with
the Division a "certificate of formation" listing the company name and a mailing
address for an initial officer designated to receive service of process. N.J.S.A.
42:2C-18. Thereafter, the certificate of formation may be changed either by
"filing an amendment" under N.J.S.A. 42:2C-19(b) or by "filing a restated
certificate of formation" under N.J.S.A. 42:2C-19(c).
Additionally, a catchall provision within the statute provides that any
"record previously delivered by the company to the filing office and filed" may
be corrected by "filing a certificate of correction" "if at the time of filing the
record contained inaccurate information or was defectively signed." N.J.S.A.
42:2C-23(a).5 "When filed by the filing office, a certificate of correction . . . is
5
For instance, such corrections may address a misspelling of a member's name,
a typographical error in the company's mailing address, or other comparable
errors.
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effective retroactively as of the effective date of the record the certificate
corrects . . . ." N.J.S.A. 42:2C-23(c). The statute contains an exception to that
effectiveness provision, specifying that "the certificate is effective when filed
. . . as to persons that previously relied on the uncorrected record and would be
adversely affected by the retroactive effect." Ibid.As we have noted, the present context concerns the dissolution of an LLC.
The RULLCA enumerates six events, any one of which may cause an LLC to
dissolve:
(1) an event or circumstance that the operating
agreement states causes dissolution;
(2) the consent of all the members;
(3) the passage of 90 consecutive days during which the
company has no members;
(4) on application by a member, the entry by the
Superior Court of an order dissolving the company on
the grounds that [company operations are unlawful or
cannot comply with both the certificate of formation
and the operating agreement;]
(5) on application by a member, the entry by the
Superior Court of an order dissolving the company on
the grounds that the managers or those members in
control of the company [engaged in fraud or harmed the
applicant-member; and]
(6) A certificate of dissolution is filed before the
delayed effective date of a certificate of formation
pursuant to subsection e. of section 18 of this act.
[N.J.S.A. 42:2C-48(a).]
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The "certificate of dissolution" filed with the Division must state "the
name of the company and such other information as may be required by the
filing office to correctly identify the company and that the company is
dissolved." N.J.S.A. 42:2C-49(b)(2)(a).
The statute further prescribes that, after dissolution, the LLC "shall wind
up its activities" and may operate "only for the purpose of winding up." N.J.S.A.
42:2C-49(a). "Winding up" consists of settling company debts, closing its
activities, distributing any assets, and participating in any litigation. N.J.S.A.
42:2C-49(b).
Once an LLC has wound up its activities, a "statement of termination"
must be filed with the Division "stating the name of the company and that the
company is terminated." N.J.S.A. 42:2C-49(b)(2)(f). 6
The parties and amicus agree that the RULLCA contains no explicit
provision that authorizes the Division to rescind an LLC's certificate of
dissolution and termination. It is plain that such a rescission—which would
revive a defunct LLC—would exceed a mere "correction" under N.J.S.A. 42:2C-
23(a) of a form that had been filed with the Division.
6
In practice, the Division allows these steps to be combined through the filing
of a joint "certificate of dissolution and termination," which occurred in this
case.
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We do not construe the statute to repose such authority upon the Division
which, in essence, functions in this context as a filing office, not as a substantive
decision-maker.7 Nor are there any regulations that address the question.
Article 7 of the RULLCA, entitled "Dissolution and Winding Up,"
N.J.S.A. 42:2C-48 to -56, only permits reinstatement of an LLC following
administrative dissolution, which occurs if an LLC fails to pay required fees or
7
The Division has a statutory duty to file a record that complies with the "filing
requirements" of the RULLCA once applicable fees have been paid. N.J.S.A.
42:2C-22(a) ("If the filing fees have been paid, unless the filing office
determines that a record does not comply with the filing requirements of this
act, the filing office shall file the record . . . ."). As highlighted by amicus, such
a duty has been expressly characterized as "ministerial" by the Uniform Law
Commission ("ULC") in its comments on the present version of the uniform
legislation on which our Legislature modeled the RULLCA:
The filing office will not check whether a person who
purports to be authorized to sign a record on behalf of
an LLC actually has that authority, even if a statement
of authority pertaining to the matter is in effect. Indeed,
even if the filing office somehow "knows" of a
statement limiting authority, the office lacks the
authority to reject a record on that basis. See the
comment to Section 206(a) (stating the requirements
for filing and noting that the filing office's review is
ministerial and limited to information pertaining to the
stated requirements) and the comment to Section 302(c)
(explaining why such a statement of authority does not
affect the filing office).
[Nat'l Conf. of Comm'rs on Unif. State L., Uniform
Limited Liability Company Act 62 (2014) (emphases
added).]
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penalties or to file required annual reports. N.J.S.A. 42:2C-54. That is not the
situation before us.
We do note our statutory scheme governing corporations provides for
revocation of dissolution by filing a "certificate of revocation." N.J.S.A.
14A:12-10. There is no parallel mechanism for LLCs, however, within the
RULLCA.
We recognize the important public notice role served by the Division to
persons and organizations that deal with New Jersey LLCs. By consulting the
Division's public database, outsiders can ascertain key information about an
LLC, such as its registered office, registered agent, business purpose, main
business address, and the names and addresses of its members or managers. The
public relies on that information filed with the State for a variety of commercial
and other reasons.
That said, the counsel before us all agree there should be a clear avenue
for the present members of an LLC to pursue the rescission of an LLC's
dissolution and termination on equitable grounds, in instances where the
certificate has been filed improperly. Without reciting the eligible
circumstances exhaustively here, they may include situations of inadvertence,
miscommunication, confusion, computer error—or even possibly misconduct or
fraud by the party who filed the certificate.
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In the present case, plaintiffs have no personal knowledge of what
prompted Pujara, a previous LLC member who had sold his interest in the
company in November 2019, to file the certificate of dissolution and termination
of the LLC with the Division in December 2020. He is not a party to this case,
and there is no affidavit, certification, or other representation from him in the
record. Plaintiffs speculate the December 2020 filing was simply a mistake, but
we have no factual proof in the present record to substantiate that supposition.
As a longstanding principle of statutory interpretation, courts strive to
construe laws in a "sensible" manner. Wilson ex rel. Manzano v. City of Jersey
City, 209 N.J. 558, 572 (2012). At times, courts may be called upon to
harmonize disparate statutory provisions, or to interpret the literal contents of a
statute in a manner that advances its manifest purposes. State v. Gomes, 253
N.J. 6, 15 (2023).
Here, a manifest purpose of the RULLCA is to assure that the filings with
the Division concerning the status of an LLC are up-to-date and duly authorized.
The statute imposes an ongoing obligation upon the LLC to promptly correct
erroneous information that appears within the LLC's certificate of formation on
file with the State. N.J.S.A. 42:2C-24. In that same vein, the statute logically
should accommodate a mechanism for rescinding a certificate of authority that
was improperly filed and where such after-the-fact relief is supported by
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principles of equity.
With the concurrence of all counsel, we conclude the appropriate
mechanism to pursue such rescission is through a civil action in the trial court. 8
The trial court shall preside over a hearing to ascertain the bona fides of the
request for rescission. At the hearing, pertinent facts and circumstances can be
developed through the presentation of evidence, culminating with the court's
findings of fact and conclusions of law. We envision the hearing could normally
be conducted in an expeditious manner, possibly aided by sworn certifications
presented by the applicant from current and former LLC members or other
witnesses with knowledge of the circumstances.9
Because it is possible that others may have relied upon the certificate of
dissolution and termination in the interim after it was filed, it is vital that the
hearing be preceded by appropriate notice served upon identifiable persons or
entities who have an interest in the matter or will be materially affected. The
8
We believe the trial court is the more appropriate forum for the hearing than
the Office of Administrative Law, as the agency head—here the Division
Director—lacks the statutory authority to rescind a certificate of dissolution and
termination administratively. We note the Attorney General has supplied us,
post-argument, with an order and a transcript of a proceeding in an unpublished
Law Division case in which a trial court approved the rescission of a certificate.
Although we do not cite that unpublished decision, see Rule 1:36-3, it illustrates
how the trial court pathway can work to achieve rescission.
9
We point out that plaintiffs' complaint in the present case was not verified.
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trial court shall have the discretion in each individual case to ascertain who
should receive notice. Amicus suggests, for example, that notice be provided to
the LLC members "listed in the [LLC's] certificate of formation and the latest
annual report filed with [the Division], the registered agent of the LLC, and [the
Division, care of] the Attorney General's Office." In addition, there may be
known creditors, claimants against the LLC, taxing authorities, regulators (in
this case, e.g., the Division of Alcoholic Beverage Control), or other parties that
might have an interest in the proceeding. We defer to the trial court's case-
specific discretion on this notice question.
If, upon completion of the proceeding, the trial court concludes that
rescission of the certificate of dissolution and termination is justified, the court
shall also determine whether the rescission should be retroactive, in full or in
part. Such authority to provide retroactive relief in this rescission context is
consistent, by analogy, with N.J.S.A. 42:2C-23(c)(2), which provides that
certificates of correction are retroactive, except "as to persons that previously
relied on the uncorrected record and would be adversely affected by the
retroactive effect."
In light of our analysis, we remand this matter to the trial court pursuant
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to Rule 2:5-5(b) for further proceedings 10 consistent with this opinion. At that
hearing, the court should explore, among other things: proofs why plaintiff Patel
did not record his acquisition of the LLC with the Division before its dissolution
and termination, which would have prevented the prior member from
terminating the LLC; the delay in discovering the termination of the LLC; the
impact of the termination on the liquor license and other assets of the LLC; the
motives behind the filing of the certificate of dissolution and termination ; and
whether any third parties are harmed or affected by the LLC's reinstatement. We
intimate no views about the merits.
Remanded. We do not retain jurisdiction.
10
We appreciate why, in the absence of the jurisdictional guidance of this
published opinion, the trial court transferred the case here as a State agency
matter. In the future, no such transfers are necessary for this case type, and the
trial court should proceed to adjudicate the case.
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