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Court Presumes LLC Statute Applies Retroactively But Declines To Apply Statute Retroactively

Marlene Dietrich reportedly said "When you're dead, you're dead, thats it."  At one time, that was true of limited liability companies formed under California's Revised Uniform Limited Liability Company Act. 

"He is not yet dead, put him back in bed"

An LLC can die either gradually or in one fell stroke.  A gradual death involves first filing a certificate of dissolution with the California Secretary of State.  Cal. Corp. Code § 17707.08(a).  When that happens, the LLC is dying (i.e., in dissolution), but it is not yet dead. When the LLC's affairs have been completely wound up, a certificate of cancellation must be filed with the Secretary of State's office. Cal. Corp. Code § 17707.08(b).  An instantaneous death is effected by skipping the certificate of dissolution and proceeding directly to the filing of a certificate of cancellation.  

"Well now he's dead, you whacked him on the head"

The CARULLCA originally provided that "A limited liability company that is dissolved nevertheless continues to exist for the purpose of winding up its affairs, prosecuting and defending actions by or against it in order to collect and discharge obligations, disposing of and conveying its property, and collecting and dividing its assets."  Cal. Corp. Code § 17707.06(a) (emphasis added).  It further provided that upon filing a certificate of cancellation "the limited liability company shall be canceled and its powers, rights, and privileges shall cease".   Cal. Corp. Code § 17707.08(b)(2)(C).  This preserved the distinction between the dying and the dead.  In 2015, however, the legislature amended § 17707.06(a) to substitute the words "has filed a certificate of cancellation" for "is dissolved", thereby conferring a measure of immortality on cancelled LLCs.  2015 Cal. Stats. c. 775 (AB 506 (Maienschein)).

All of this seems reasonably straightforward, but should this change be given retroactive effect?  The usual presumption is against retroactive application, but the Court of Appeal, in an opinion by Superior Court Judge Henry J. Hall (sitting by designation), recently presumed otherwise.  DD Hair Lounge v. State Farm Gen. Ins. Co., 2018 Cal. App. LEXIS 175.  The Court rested its counter presumption on CARULLCA's transition statute:

"But section 17713.04 unambiguously provides that the entire Revised Act, which would include section 17707.06, applies to LLC's existing, and acts undertaken, on or after January 1, 2014."

In an unexpected twist, however, the Court declined to give retroactive effect to the statute in the case before it:

"By concealing the certificate of cancellation for nearly a year and then engaging in the time-consuming charade of disingenuously challenging that certificate's authenticity, appellant effectively 'stalled' the case to a point at which it could arguably have obtained relief under the rule we have discussed in this opinion. Had DD Hair acted with 'clean hands,' its claim would have properly been extinguished long before the effective date of the amendment to section 17707.06."

 

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