Chadwick Farms Owners Ass'n v. FHC, LLC

C. Johnson, J.

¶53 (dissenting) — The majority too narrowly focuses on only one statutory section, making meaningless other sections the legislature enacted to protect homeowners’ rights to pursue their legal remedies. To the majority, cancellation is the only consideration. This conclusion makes little statutory sense if other sections are given their statutory effect. Applying the majority’s conclusion, it makes no difference if a limited liability company (LLC) knew of a claim (under RCW 25.15.295(2)), that the LLC had set aside funds/assets to satisfy claims under RCW 25.15.295(2), or that suit was filed to pursue those claims. The majority holds that even if final argument were occurring, or appeal taken, cancellation of the LLC abates any such action. This conclusion simply reads too much out of the statutory scheme and, viewing the entire statutory framework, does not make sense. The Court of Appeals should be affirmed.

¶54 The majority relies on language found in RCW 25.15.295(2): “Upon dissolution of a limited liability company and until the filing of a certificate of cancellation . . ., the persons winding up the limited liability company’s affairs may, in the name of... the limited liability company, prosecute and defend suits . . . .” The majority interprets this provision to mean that a lawsuit automatically abates the moment an LLC is canceled unless the lawsuit is completed before the date of cancellation. Majority at 190. The majority does not find or cite any rule or case to support this proposition; rather, the majority reaches this conclusion based on inference alone. But such a rule proves too much, and the inference made by the majority to reach its rule is weakened by the plain language of the very provision on which the majority relies, RCW 25.15.295(2).

¶55 In addition to the language relied on by the majority, RCW 25.15.295(2) also provides that “the persons winding up the limited liability company’s affairs may [either] discharge or make reasonable provision for the limited liability company’s liabilities . . . .” (Emphasis added.) The disjunctive “or” imparts a requirement on the person winding up the LLC to do one or the other. This language also implies that a party who timely commences a lawsuit against an LLC after its dissolution, but before cancellation, should be able to seek remedy from the set-aside funds. This requirement for set-aside funds implicitly preserves the party’s suit and supports not reading the statute to require lawsuits to abate automatically when the LLC is canceled.

¶56 In other words, with these statutory provisions, the legislature has provided rights to LLCs that dissolve and has required such LLCs to meet certain responsibilities during the winding up period. During this period, LLCs have the right to pursue and defend suits and are obligated to set aside funds adequate to satisfy certain liabilities. It makes no sense that the legislature would provide for such rights and responsibilities and then simply allow any claims filed by or against the LLC to abate the moment a certificate of cancellation is filed, which could be in the middle of trial. This is the majority’s conclusion, and such an interpretation misreads the plain language of the statute and fails to give the statutory provisions their full effect.

¶57 But even if the majority’s interpretation of RCW 25.15.295(2) is plausible, it is somewhat irrelevant to reaching a conclusion in this matter. If we hold RCW 25.15.303 is remedial, it applies retroactively and means interpreting the preamendment language of RCW 25.15.295(2), as the majority does, is unhelpful in determining whether actions against an LLC abate automatically or may survive cancellation for a period of time.

¶58 As the Court of Appeals properly recognized, holding that cancellation abates actions notwithstanding the provisions of RCW 25.15.080 “render[s] the 2006 amendment inoperative as it would link the survival of claims not to a specific survival period but rather to the actions or . . . nonaction of a company.” Chadwick Farms Owners Ass’n v. FHC, LLC, 139 Wn. App. 300, 311, 160 P.3d 1061 (2007), review granted, 163 Wn.2d 1021 (2008); see also Emily Lane Homeowners Ass’n v. Colonial Dev., LLC, 139 Wn. App. 315, 318, 160 P.3d 1073 (2007), review granted, 163 Wn.2d 1022 (2008) (stating the holding in Chadwick controls the outcome in Emily Lane). The plain language of RCW 25.15.303 provides that an action may lie against an LLC three years from the date it dissolves. Reading the other statutory provisions to construe this provision to mean claims against an LLC abate upon cancellation, simply reads too much out of the statutory provisions.

¶59 Generally, a new limitations period runs prospectively. But an amendment to a statute may be applied retroactively if the legislature intends so and permitting retroactivity does not impair a constitutional right. A statute will also apply retroactively if it is curative or remedial. 1000 Va. Ltd. P’ship v. Vertecs Corp., 158 Wn.2d 566, 584, 146 P.3d 423 (2006). A statute is remedial when it relates to practice, procedure, or remedies and does not affect a substantive or vested right.¹² “ When an amendment clarifies existing law and where that amendment does not contravene previous constructions of the law, the amendment may be deemed curative, remedial and retroactive. This is particularly so where an amendment is enacted during a controversy regarding the meaning of the law.’ ” In re Pers. Restraint of Matteson, 142 Wn.2d 298, 308, 12 P.3d 585 (2000) (quoting Tomlinson v. Clarke, 118 Wn.2d 498, 510-11, 825 P.2d 706 (1992)).

¶60 Here, the legislature enacted RCW 25.15.303 at the same time as a similar amendment to the Business Corporation Act (BCA), chapter 23B.14 RCW.¹³ The legislative histories of both survival statutes show these amendments were adopted in an effort to address the Court of Appeals’ opinion in Ballard Square Condominium Owners Ass’n v. Dynasty Construction Co., 126 Wn. App. 285, 295-96, 108 P.3d 818 (2005), aff’d on other grounds, 158 Wn.2d 603, 146 P.3d 914 (2006). The amendment to the BCA is analogous to the amendment to the Washington Limited Liability Company Act (LLCA), chapter 25.15 RCW. The statutes were sponsored by the same legislators and were enacted in tandem. Compare H.B. Rep. on S.B. 6531, at 3, 59th Leg., Reg. Sess. (Wash. 2006) with H.B. Rep. on S.B. 6596, at 7, 59th Leg., Reg. Sess. (Wash. 2006) (shows the amendments to the BCA and LLCA were signed into law and became effective on the same day). Further, testimony before the House Judiciary Committee from the bill’s sponsor explains the bill’s purpose was to correct a problem for LLCs: “[T]he reason I’m here is that I heard this Ballard Square decision . . . was a problem for both corporations and LLCs. . . . So I thought . . . we should [allow] a three year window in order to sue an LLC ... if [it] dissolved.” Answer to Pet. for Review at 11 (quoting Senator Weinstein’s testimony found in the Tr. of House Judiciary Committee Hearing, App. C of the brief). This history shows the statute was intended to be remedial and curative.

¶61 No reason exists to distinguish the remedial and curative nature of this provision from the similar provision in the BCA. The very purpose of these amendments was to provide for a survival of claims after a company dissolves and beyond cancellation (in the case of an LLC). The house bill report shows the legislature identified the problem and enacted RCW 25.15.303 to remedy and cure the problem:

The law governing LLCs has no express provision regarding the preservation of remedies or causes of actions following dissolution of the business entity. There is an implicit recognition of the preservation of at least an already filed claim during the wind up period following dissolution, since the person winding up the affairs is authorized to defend suits against the LLC. However, there is no provision regarding the preservation of claims following cancellation of the certificate of formation.

H.B. Rep. on S.B. 6531, supra, at 2-3 (emphasis added) (discussing the matters related to preserving remedies). Further review of the legislative history supports this conclusion.

¶62 The language of the amendment evidences that the legislature intended the statute of limitations on a claim against an LLC to run for three years following dissolution and that such claims survive cancellation of the LLC within that three-year period. See RCW 25.15.303 (“The dissolution . .. does not take away or impair any remedy available against that limited liability company ..., unless an action or other proceeding thereon is not commenced within three years after the effective date of dissolution.” (emphasis added)). This language expressly provides a limitations period of three years that is triggered upon an LLC’s dissolution. This express language implies the claim may survive cancellation where cancellation occurs within three years following dissolution.

¶63 The majority reasons such a reading is improper given the statutory language of RCW 25.15.295(2) (providing that an LLC ceases to be a separate legal entity after cancellation). Majority at 194. But because RCW 25.15-.295(2) requires the LLC to set aside funds to satisfy liabilities, it is consistent with reading RCW 25.15.303 to permit a survival of claims beyond cancellation.

¶64 In any event, the legislative history resolves any ambiguity. Here, the legislature intended RCW 25.15-.303 to permit claims against an LLC to survive cancellation. In articulating the background for the basis of the bill in support of adopting the amendment that would preserve remedies for parties filing a claim against an LLC, the bill report noted that while “[t]here is an implicit recognition of the preservation of at least an already filed claim during the wind up period.... [T]here is no provision regarding the preservation of claims following cancellation of the certificate of formation.” H.B, Rep. on S.B. 6531, supra, at 2-3 (emphasis added). This history shows the legislature did not intend RCW 25.15.303 to operate as the majority suggests. Whether the amendment is plain on its face or ambiguous, RCW 25.15.303 is properly interpreted to permit claims filed against an LLC to survive cancellation provided the claim is filed within three years following dissolution.

CONCLUSION

¶65 The Court of Appeals should be affirmed.

Sanders, Chambers, and Owens, JJ., concur with C. Johnson, J.

Reconsideration denied September 18, 2009.

12 Because an LLC is a creature of statute, accrued actions arising with respect to an LLC cannot spring from the common law. Further, because the action here did not accrue from contract, we are not presented with a concern for the interference with a vested right. There is also no substantive right affected here by applying the statute retroactively.

13 RCW 23B.14.340 (providing a two-year survival period for claims against a corporation dissolved prior to June 7, 2006, and a three-year period for claims against corporations dissolved on or after June 7, 2006); S.B. 6596, 59th Leg., Reg. Sess. (Wash. 2006).