Zapata v. McHugh

Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
06/23/2017 09:14 AM CDT
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Nebraska Supreme Court A dvance Sheets
296 Nebraska R eports
ZAPATA v. McHUGH
Cite as 296 Neb. 216
John Zapata, an individual and as an assignee,
appellant, v. Donald McHugh, an individual,
et al., appellees.
___ N.W.2d ___
Filed March 31, 2017. No. S-16-511.
1. Motions to Dismiss: Pleadings: Appeal and Error. A district court’s
grant of a motion to dismiss on the pleadings is reviewed de novo,
accepting the allegations in the complaint as true and drawing all rea-
sonable inferences in favor of the nonmoving party.
2. Corporations: Attorney and Client. Business entities existing separate
from their owners are not their own proper persons who may appear in
court without the representation of an attorney.
3. Attorney and Client. Persons not licensed to practice law in Nebraska
are prohibited from prosecuting an action or filing papers in the courts
of this state on behalf of another.
4. ____. Abstractions cannot appear pro se.
5. ____. A layperson’s lack of professional skills and ethical obligations
imposes undue burdens on opposing parties and the courts.
6. ____. The rule that a layperson cannot appear in court in a representa-
tive capacity cannot be circumvented by subterfuge.
7. Corporations: Assignments: Attorney and Client. An assignment of a
distinct business entity’s cause of action to an assignee who then brings
such suit requires that the assignee must be represented by counsel and
cannot bring such action pro se.
8. ____: ____: ____. To permit a distinct business entity to maintain liti-
gation through the device of an assignment would destroy the salutary
principle that a corporation cannot act in legal matters or maintain litiga-
tion without the benefit of an attorney.
9. ____: ____: ____. When an assignee brings suit in his or her own
name, the assignee is still bound by the business entity’s limitation
that any legal action arising out of its interests must be represented
by counsel.
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ZAPATA v. McHUGH
Cite as 296 Neb. 216
10. Actions: Pleadings: Parties. The character in which one is a party to
a suit, and the capacity in which a party sues, is determined from the
allegations of the pleadings and not from the caption alone.
Appeal from the District Court for Lancaster County: Steven
D. Burns, Judge. Affirmed.
John Zapata, pro se.
No appearance for appellees.
Heavican, C.J., Wright, Miller-Lerman, Cassel, K elch,
and Funke, JJ.
Wright, J.
NATURE OF CASE
The plaintiff, as both an individual and an assignee, filed
an action pro se to recover for wrongs allegedly committed
against the assignor, a limited liability corporation (LLC).
The district court dismissed the action on the grounds that
the plaintiff engaged in the unauthorized practice of law and
that the pleadings, accordingly, were a nullity. The district
court reasoned that an LLC is an entity incapable of self-­
representation and that the policy reasons requiring representa-
tion by an attorney of such entity’s interests cannot be circum-
vented through the assignment of the business entity’s cause of
action to a layperson. The plaintiff appeals.
BACKGROUND
This action was brought pro se by John Zapata. The first
pleading in the record is a “Mandatory Disclosure” filed under
the caption, “John Zapata, an individual and as an Assignee,
Plaintiff, v. Donald McHugh, an individual, et. al., Defendant.”
The complaint is not in the record, but documents attached to
the mandatory disclosure purported to describe $11,100 in lost
rent and $21,973.41 in repair costs owed by Lincoln Metal
Recycling and Donald McHugh in relation to an address on
Saunders Avenue in Lincoln, Nebraska.
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Nebraska Supreme Court A dvance Sheets
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ZAPATA v. McHUGH
Cite as 296 Neb. 216
At the pretrial conference on April 21, 2016, the court asked
the parties to submit a joint pretrial conference order identify-
ing the factual and legal issues to be tried. The court gave the
parties 10 days to complete the order. The court, sua sponte,
raised the issue whether Zapata could bring an action pro se
based upon assignments from corporations on claims those
organizations may have. The court gave the parties time to
brief the issue.
The parties subsequently submitted a consolidated joint
pretrial conference order, which stated that it superseded all
prior pleadings in the case. The order stated that the claim
was based on the fact that McHugh Metal Brokerage, LLC,
vacated premises leased to it by Zapata’s assignor, Coljo
Investments, LLC (Coljo), the owner of the premises. The
pretrial order stated that Zapata was “an individual and an
assignee” who filed his complaint pursuant to Neb. Rev. Stat.
§ 25-302 (Reissue 2016). Zapata alleged that he paid consid-
eration to Coljo in order to collect the alleged debt owed by
the defendants.
The parties presented as legal issues whether there was a
valid assignment to Zapata, whether Zapata was a real party in
interest and had standing to bring the action, and whether the
court had jurisdiction over the parties and the subject matter
of the action.
As to the underlying merits, the parties stated that the legal
issues were whether McHugh Metal Brokerage was liable to
Zapata or Coljo arising out of the lease agreement, the nature
and extent of any unpaid rentals, and the measure of damages
for the reasonable cost for repairs to Coljo’s premises.
On May 19, 2016, the district court dismissed the action.
The court considered the defendants to have moved for dis-
missal in the joint pretrial conference order. The court con-
cluded that even if the assignment of any right of action by
Coljo to Zapata was effective, Zapata could not proceed pro
se with the action on the assigned claims. The court explained
that the right to represent oneself pro se, as set forth in Neb.
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ZAPATA v. McHUGH
Cite as 296 Neb. 216
Rev. Stat. § 7-101 (Reissue 2012), does not extend to the rep-
resentation of any other person or entity. The court cited to sev-
eral cases setting forth the general propositions that corporate
entities cannot be represented pro se and that this rule cannot
be circumvented through an assignment of the corporate claims
to a pro se plaintiff.1
The court also cited to an unpublished case in Indiana
involving Zapata himself, who brought the action as Zapata,
doing business as Zapata Collection Services, “‘an Individual
and as Assignee.’”2 In that case, the appellate court affirmed
the dismissal of Zapata’s action. The court held that there
was no bona fide assignment, because Zapata and the corpo-
rate assignor were inextricably linked; therefore, the alleged
assignor of the claim for damages was the real party in inter-
est and, as a corporate entity, was required to be represented
by counsel.3
While the district court noted that in this case, Zapata did
not list Coljo as a party, it found that such fact was not deci-
sive, stating: “[Zapata] may not escape the fact that what he
is attempting to litigate is not his claim. It is the claim of
another which has merely been assigned to him. This is true
even if [Zapata] is the one who will receive the entirety of
any recovery.”
As for Zapata’s claim that he had a right to proceed pro se
under Neb. Rev. Stat. § 25-304 (Reissue 2016), the district
court stated that while Zapata had a right to bring an assigned
1
See, Palazzo v. Gulf Oil Corp., 764 F.2d 1381 (11th Cir. 1985); Jones v.
Niagara Frontier Transp. Authority, 722 F.2d 20 (2d Cir. 1983); Bischoff v.
Waldorf, 660 F. Supp. 2d 815 (E.D. Mich. 2009); In re Thomas, 387 B.R.
808 (D. Colo. 2008); People v. Adams, 243 P.3d 256 (Colo. 2010).
2
Zapata v. Ball State University, No. 18A04-1310-CC-534, 2014 WL
3547028 at *1 (Ind. App. July 18, 2014) (unpublished opinion listed in
table at 16 N.E.3d 491 (2014)).
3
Id.
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ZAPATA v. McHUGH
Cite as 296 Neb. 216
action in his own name, this did not excuse the requirement
that an attorney is required when the action derives from a
wrong to a corporation. The court concluded that permitting
the present action to go forward would unlawfully circum-
vent § 7-101. The court found the proceedings were a nullity.
Zapata appeals.
Zapata has brought similar pro se actions in Nebraska. In
Zapata v. QBE Ins. Co.,4 the Nebraska Court of Appeals, in
an unpublished opinion, affirmed the dismissal of an action
brought by Zapata after being assigned a corporation’s claims.
The Court of Appeals reasoned in relevant part that although
Zapata may have identified himself as both an individual and
assignee, his claims were for damages to the corporation.
Citing to Steinhausen v. HomeServices of Neb.,5 the Court
of Appeals concluded that Zapata could not prosecute any
claim on behalf of the corporation, because he was not a
licensed attorney.
ASSIGNMENTS OF ERROR
Zapata assigns as error, summarized and restated, that the
district court erred in dismissing his complaint as an individual
and as an assignee.
STANDARD OF REVIEW
[1] A district court’s grant of a motion to dismiss on the
pleadings is reviewed de novo, accepting the allegations in
the complaint as true and drawing all reasonable inferences in
favor of the nonmoving party.6
4
Zapata v. QBE Ins. Co., No. A-15-126, 2015 WL 9487813 (Neb. App.
Dec. 29, 2015) (selected for posting to court website).
5
Steinhausen v. HomeServices of Neb., 289 Neb. 927, 857 N.W.2d 816
(2015).
6
Anderson v. Wells Fargo Fin. Accept., 269 Neb. 595, 694 N.W.2d 625
(2005).
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ZAPATA v. McHUGH
Cite as 296 Neb. 216
ANALYSIS
Layperson Cannot R epresent LLC
Zapata does not dispute the general rule that a layperson
cannot represent a corporation or other distinct business entity
existing legally separate from its owner—including an LLC.7
The rule that such entities may litigate only through a duly
licensed attorney is “venerable and widespread.”8 This rule
prohibits even presidents, major stockholders, and sole owners
from appearing pro se in relation to causes of action involving
the entity’s status as a business.9
[2] It is well settled that such business entities are artifi-
cial persons who cannot appear in their own behalf, but must
appear through an agent; thus, they are not their own proper
persons who may appear in court without the representation
of an attorney.10 And “because self-representation by unskilled
persons usually leads to delay, confusion and other difficulties
in the judicial system, the state has no interest in extending
the right of self-representation to corporations.”11
[3] Persons not licensed to practice law in Nebraska
are prohibited from prosecuting an action or filing papers
in the courts of this state “on behalf of another.”12 Under
§ 7-101, no such “person” shall practice law in any action
or proceeding “to which he is not a party.” Neb. Rev. Stat.
§ 7-110 (Reissue 2012) expands upon the exception to the
unauthorized practice of law for persons as a party, stat-
ing that plaintiffs shall have the liberty of prosecuting “in
7
See Lattanzio v. COMTA, 481 F.3d 137 (2d Cir. 2007).
8
Jones v. Niagara Frontier Transp. Authority, supra note 1, 722 F.2d at 22.
9
See, Palazzo v. Gulf Oil Corp., supra note 1; Steinhausen v. HomeServices
of Neb., supra note 5.
10
See Annot., 8 A.L.R. 5th 653 (1992).
11
Id. at 653.
12
Steinhausen v. HomeServices of Neb., supra note 5, 289 Neb. at 934, 857
N.W.2d at 825.
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their proper persons,” which we have said means, “‘in their
own persons.’”13
[4] We have explained that an entity is an abstraction, not
a person. “‘[A]bstractions cannot appear pro se.’”14 Distinct
business entities must appear by counsel or not at all.15
[5] We applied this rule most recently in Steinhausen to
affirm the dismissal of causes of action relating to an LLC’s
status as a business, brought pro se by the sole owner of the
LLC.16 We noted that the prohibition of the unauthorized
practice of law protects citizens and litigants in the admin-
istration of justice from the mistakes of the ignorant on the
one hand and the machinations of the unscrupulous on the
other.17 A layperson’s lack of professional skills and ethical
obligations imposes undue burdens on opposing parties and
the courts.18
[6] We reasoned that while an LLC has the capacity to sue
and be sued in its own name, the Legislature’s grace in con-
ferring the significant privilege of limited liability “‘“carries
with it obligations . . . to hire a lawyer . . . to sue or defend
on behalf of the entity.”’”19 This, we said, is no less true for
an LLC with a single owner.20 And we emphasized that “the
rule that a layperson cannot appear in court in a representative
capacity cannot be circumvented by subterfuge.”21
13
Id. at 935, 857 N.W.2d at 825.
14
Id. at 936, 857 N.W.2d at 826. See, also, Niklaus v. Abel Construction Co.,
164 Neb. 842, 83 N.W.2d 904 (1957).
15
See Ginger v. Cohn, 426 F.2d 1385 (6th Cir. 1970).
16
Steinhausen v. HomeServices of Neb., supra note 5.
17
Id.
18
Id.
19
Id. at 936, 857 N.W.2d at 826, quoting Smith v. Rustic Home Builders,
LLC, 826 N.W.2d 357 (S.D. 2013). See, also, Niklaus v. Abel Construction
Co., supra note 14.
20
Steinhausen v. HomeServices of Neb., supra note 5.
21
Id. at 935, 857 N.W.2d at 825.
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ZAPATA v. McHUGH
Cite as 296 Neb. 216
M ay Assignee of Business Entity’s
R ight of Action Proceed With
Such Action Pro Se?
We have said that the assignee of a cause of action is the
proper and only party who can maintain the suit thereon.22 But
whether the assignee of a corporation’s or other distinct legal
entity’s cause of action may maintain such action pro se is an
issue of first impression for our court.
Zapata reasons that if he is the proper party to this action,
he must be able to proceed pro se pursuant to §§ 7-101 and
7-110. However, the weight of authority from other jurisdic-
tions is that an assignment does not erase the requirement that
the suit arising from the entity’s status as a business must be
represented by a duly licensed attorney.23
In Shamey v. Hickey,24 the court explained that although the
action was brought in the name of the assignee, the assignee
had essentially assumed the role of a collection agent, and the
corporation was thus able to avoid the need for representation
by a member of the bar through the device of selling its claim
to the assignee. The court stated that it could not sanction
such a convenience and remanded the cause with directions to
dismiss the action.25 The court explained that both collection
agencies and individuals engage in the unauthorized practice
22
Eli’s, Inc. v. Lemen, 256 Neb. 515, 591 N.W.2d 543 (1999).
23
See, Palazzo v. Gulf Oil Corp., supra note 1; Jones v. Niagara Frontier
Transp. Authority, supra note 1; Bischoff v. Waldorf, supra note 1; Jones
v. Dacosta, 930 F. Supp. 223 (D. Md. 1996); Mercu-Ray Industries, Inc. v.
Bristol-Myers Company, 392 F. Supp. 16 (S.D.N.Y. 1974); Curtis v. U.S.,
63 Fed. Cl. 172 (2004); Shamey v. Hickey, 433 A.2d 1111 (D.C. 1981);
Biggs v. Schwalge, 341 Ill. App. 268, 93 N.E.2d 87 (1950); Property
Exchange & Sales v. Bozarth, 778 S.W.2d 1 (Mo. App. 1989). See, also,
Roberts v. State, Dept. of Revenue, 162 P.3d 1214 (Alaska 2007); Heiskell
v. Mozie, 65 App. D.C. 255, 82 F.2d 861 (1936).
24
Shamey v. Hickey, supra note 23.
25
Id.
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of law when they proceed pro se to recover on claims assigned
by a corporation.26
Similarly, the court in Bischoff v. Waldorf27 held that an
action brought pro se in the name of the layperson assignee,
alleging various claims relating to wrongs allegedly committed
against the assignor corporation, must be dismissed. The court
pointed out the “compelling policy reasons” for the rule requir-
ing representation of distinct business entities by attorneys.28
These included protection of the court and the public from
irresponsible behavior of lay advocates. The court noted that
the requirement of attorney representation in such actions also
protected the various interests of a corporation’s managers,
workers, investors, and creditors, which interests may not be
aligned with the interests of the layperson assignee making the
claim.29 In light of these important policy reasons for requir-
ing attorney representation of claims relating to corporations,
the court held that a nonlawyer may not circumvent those
policy reasons through an assignment of corporate claims to
an individual.30
In Biggs v. Schwalge,31 the court affirmed the dismissal of
an action brought in the name of the sole stockholder of a
corporation and legal assignee of the corporation’s cause of
action. The record showed that the stockholder had regularly
appeared pro se by virtue of his status as assignee. The stock-
holder attempted to convince the court of his competence in
legal representation despite the fact that he was not an admit-
ted member of the bar. The court held that the stockholder
was prohibited from proceeding pro se despite the exception
26
Id.
27
Bischoff v. Waldorf, supra note 1.
28
Id. at 820.
29
Id.
30
See id.
31
Biggs v. Schwalge, supra note 23.
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to the ­prohibition of the practice of law by laypersons that
allows plaintiffs and defendants to defend “in their own proper
person.”32 The court noted that “[i]t is a compliment to the
profession that it should have this irresistible attraction for
some laymen . . . .”33 Nevertheless, “[a]n assignment cannot
be used as a subterfuge to enable plaintiff to indulge his over-
whelming desire to practice law, without complying with the
requirements for admission to the bar.”34
One case reaching a different result is Traktman v. City
of New York,35 wherein the court held that an action by an
assignee to recover damages for breach of contract with the
assignor corporation did not violate a statute that prohibited
a corporation from appearing pro se, despite the fact that the
assignment may have been made to circumvent it. The court
did not explain its reasoning. This case has been limited
by subsequent case law36 and cited by other jurisdictions as
an outlier.37
[7,8] We agree with those cases that hold an assignment
of a distinct business entity’s cause of action to an assignee
who then brings such suit requires that the assignee must be
represented by counsel and cannot bring such action pro se.
The important policy reasons supporting the rule that corpora-
tions and other related legal entities must be represented by an
attorney should not be easily circumvented. To permit a dis-
tinct business entity to maintain litigation through the device
32
Id. at 271, 93 N.E.2d at 88.
33
Id.
34
Id.
35
Traktman v. City of New York, 182 A.D.2d 814, 582 N.Y.S.2d 808 (1992).
Compare Rembrandt Personnel Group Agency v. Van-Go Transport Co.,
Inc., 162 Misc. 2d 64, 617 N.Y.S.2d 258 (1994).
36
Rembrandt Personnel Group Agency v. Van-Go Transport Co., Inc., supra
note 35.
37
See, In re Parrott Broadcasting Ltd. Partnership, 492 B.R. 35 (D. Idaho
2013); In re Thomas, supra note 1.
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of an assignment would destroy the salutary principle that a
corporation cannot act in legal matters or maintain litigation
without the benefit of an attorney.38
[9] An assignee stands in the shoes of the assignor and
accepts it subject to all available defenses.39 The assignment
transfers to an assignee only the rights of the assignor.40 When
an assignee brings suit in his or her own name, the assignee
is still bound by the business entity’s limitation that any
legal action arising out of its interests must be represented
by counsel.
Zapata as Individual?
[10] We find no merit to Zapata’s argument that because
the caption of his action is, “John Zapata, as individual and as
an Assignee,” he was a party to the suit as an individual who
escapes the rules set forth above and who may proceed pro se.
We explained in Steinhausen that the character in which one
is a party to a suit, and the capacity in which a party sues, is
determined from the allegations of the pleadings and not from
the caption alone.41 There is nothing in the pleadings indicat-
ing that Zapata has an interest in the litigation apart from
those derived from his capacity as an assignee. All the allega-
tions concern the relationship between the defendants and the
assignor, Coljo.
Zapata Engaged in Unauthorized
Practice of Law
Zapata engaged in the practice of law in bringing this
action, and he is a “nonlawyer,” as defined by Neb. Ct. R.
§ 3-1002(A). By bringing the assigned claim of Coljo pro se,
38
Property Exchange & Sales v. Bozarth, supra note 23.
39
See, Vowers & Sons, Inc. v. Strasheim, 248 Neb. 699, 538 N.W.2d 756
(1995); Johnson v. Riecken, 185 Neb. 78, 173 N.W.2d 511 (1970).
40
Ehlers v. Perry, 242 Neb. 208, 494 N.W.2d 325 (1993).
41
Steinhausen v. HomeServices of Neb., supra note 5.
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Zapata engaged in the unauthorized practice of law. We regard
the unauthorized practice of law as a serious offense and con-
sider any unauthorized practice a nullity.42 The district court
was correct in dismissing Zapata’s action.
Timeliness of Motion
Given that Zapata’s filings before the court were a nullity
as a matter of law, we find no merit to Zapata’s claims that
the issue of his unauthorized practice of law was raised in
an untimely manner and that the district court’s decision was
in error.
CONCLUSION
For the foregoing reasons, we affirm the judgment of the
district court.
A ffirmed.
Stacy, J., not participating.
42
Kelly v. Saint Francis Med. Ctr., 295 Neb. 650, 889 N.W.2d 613 (2017).