[No. 58796-0-I. Division One. June 18, 2007.]
[1] Partnership — Limited Liability Company — Statutory Provisions — In General. The formation, operation, and dissolution of limited liability companies is governed by the Washington Limited Liability Company Act (chapter 25.15 RCW). [2] Partnership — Limited Liability Company — Administrative Dissolution — Effect — Cancellation of Certificate of Formation. An administrative dissolution of a limited liability company under RCW 25.15.280 allows the limited liability company to continue but only to carry on whatever business is necessary to wind up or liquidate its business affairs. Under RCW 25.15.290(4), if the limited liability company does not apply for reinstatement within two years of the administrative dissolution, the secretary of state "shall" cancel the company's certificate of formation. Once the certificate of formation is cancelled, the limited liability company no longer is a separate entity. [3] Statutes — Construction — Retroactivity — Amendment — Test. A statutory amendment can be retroactive if (1) the legislature intends that it be retroactive or (2) it is remedial or curative. [4] Statutes — Construction — Retroactivity — Presumption — Remedial Statute — Effect. The presumption that a statute applies only prospectively may be overcome if the statute is remedial in nature. A remedial statute is one that relates to practice, procedures, and remedies. A remedial statute may be applied retroactively so long as it does not adversely affect a substantive or vested right. [5] Statutes — Construction — Retroactivity — Amendment — Remedial Act — What Constitutes — Response to Court Decision. A statutory amendment may be deemed remedial and applied retroactively if it was enacted during a controversy regarding the meaning of an existing law and the amendment clarifies the existing law without contravening previous constructions thereof. [6] Partnership — Limited Liability Company — Action Against — Dissolution of Company — Survival of Action — Statutory Provisions — Retroactivity — Purposes of Legislation. Laws of 2006, ch. 325, § 1, which amended RCW 25.15.303 to allow for the survival of claims against a limited liability company up to three years after the company is dissolved, is remedial in nature and may be applied retroactively. The remedial purpose of the amendment is to address the holding in Ballard Square Condo. Owners Ass'n v. Dynasty Constr. Co., 126 Wn. App. 285 (2005), that claims may not be brought against a corporation after it has been dissolved absent statutory authority for the survival of claims. The amendment also was crafted to remove any incentives for limited liability companies to immediately dissolve after the completion of a project simply to cut off claims prematurely. [7] Partnership — Limited Liability Company — Action Against — Dissolution of Company — Survival of Action — Statutory Provisions — Retroactivity — Administrative Cancellation of Certificate of Formation. Laws of 2006, ch. 325, § 1, which amended RCW 25.15.303 to allow for the survival of claims against a limited liability company up to three years after the company is dissolved, may be applied retroactively to permit an action to proceed against a limited liability company even though the secretary of state has cancelled its certificate of formation under RCW 25.15.080 and .290(4) before May 6, 2006, the effective date of the amendment. [8] Partnership — Limited Liability Company — Action by Limited Liability Company — Cancellation of Certificate of Formation — Effect — Voiding of Company Claims. Under the Washington Limited Liability Company Act (chapter 25.15 RCW), a limited liability company may not assert a claim or action against any party if the secretary of state has cancelled the company's certificate of formation under RCW 25.15.080 and .290(4). The claim survival provisions of RCW 25.15.303 apply only to claims against limited liability companies, not to claims by limited liability companies. [9] Pleading — Amendment — Addition of Party — Court Rule — Purposes. Under CR 15(a), leave to amend a pleading to add a party as a defendant should be freely given when justice so requires. The rule serves to facilitate proper decisions on the merits, to provide parties with adequate notice of the basis of the claims and defenses asserted against them, and to allow amendment of the pleadings except where amendment would result in prejudice to the opposing party. [10] Partnership — Limited Liability Company — Action Against — Dissolution of Company — Personal Liability of Members and Managers. RCW 25.15.300(2) protects members and managers of a dissolved limited liability company from liability for claims against the company only if they have carried out a proper dissolution in winding up the company's affairs. While cancellation of a limited liability company's certificate of formation marks the end of the company as a separate legal entity, it does not necessarily follow that claims against the company managers or members also abate; a member or manager winding up the company affairs upon dissolution who has not complied with RCW 25.15.300 may be personally liable to claimants. [11] Pleading — Amendment — Addition of Party — Denial — Review — Standard of Review. A trial court's denial of a plaintiff's motion to amend its complaint to add additional defendants is reviewed for an abuse of discretion. Nature of Action: A condominium owners association sought damages from the condominium developer for construction defects. The condominium developer was a limited liability company for which the secretary of state had issued a certificate of administrative dissolution several months before the action was filed. Several months after the action was filed, the secretary of state cancelled the limited liability company's certificate of formation because two years had passed since the notice of dissolution was issued. The limited liability company thereafter filed third party claims against several subcontractors on the condominium project. After the limited liability company moved to dismiss the owners association's claims on the grounds that the company was no longer a legal entity, the owners association moved to amend its complaint to include specific members of the limited liability company. Superior Court: The Superior Court for King County, No. 04-2-20885-8, Richard A. Jones, J., on September 30, 2005, entered a summary judgment in favor of the limited liability company in the action by the owners association and dismissed the third party claims against the subcontractors. Court of Appeals: Holding that a statutory amendment applied retroactively to allow the owners association's action to proceed against the limited liability company but that the limited liability company lacked standing to prosecute a claim for its own benefit, the court affirms the dismissal of the third party claims against the subcontractors, reverses the summary judgment in favor of the limited liability company, and remands the case for further proceedings. Mary H. Spillane- and John P. Evans- (of Williams Kastner & Gibbs, PLLC), for appellant. John P. Hayes- and Viivi Vanderslice- (of Forsberg & Umlauf), for respondent FHC, LLC. Richard S. Fallon-, for respondent America 1st Roofing & Builders, Inc. Jonathan D. Holt- (of Scheer & Zehnder, LLP), for respondent Cascade Utilities, Inc. Martin T. Crowder- and Michaelanne Ehrenberg- (of Karr Tuttle Campbell), for respondent Milbrandt Architects, Inc. William S. Clement- and John E. Drotz- (of Clement & Drotz), for respondent Pieroni Enterprise, Inc. David J. Bierman- (of Alexander & Bierman, PS), for respondent Gutter King, Inc. Bryan P. Harnetiaux- on behalf of Washington State Trial Lawyers Association Foundation, amicus curiae. Paul H. Beattie, Jr.-, and Robert D. Welden- on behalf of Washington State Bar Association, amicus curiae. ¶1 GROSSE, J. — A 2006 amendment to the statutory framework to limited liability companies providing a three-year survival period within which to commence actions against a dissolved limited liability company (LLC) applies retroactively and permits actions against an LLC even when that company's certificate of formation has been cancelled. The amendment only applies to actions against the company and not to actions brought by a company. Thus, FHC, a dissolved and cancelled LLC, lacks standing to prosecute a claim for its own benefit. FACTS ¶2 FHC was formed as an LLC on December 23, 1999. Its purpose was to construct the Chadwick Farms condominiums. Once the project was completed, FHC ceased operations. The company did not submit the required annual report and renewal fee to the secretary of state. After providing the required notice to the company, the secretary issued a certificate of administrative dissolution on March 24, 2003. ¶3 On August 18, 2004, Chadwick Farms Homeowners Association (Chadwick) brought suit against FHC alleging that it was responsible for a number of construction defects. Seven months later, on March 24, 2005, the secretary cancelled FHC's certificate of formation because two years had passed since the secretary issued the notice of dissolution to FHC. ¶4 In May 2005, FHC filed third party claims against several subcontractors. Yet, on August 24, 2005, FHC moved for summary judgment to dismiss Chadwick's claims on the grounds that FHC was no longer a legal entity. Chadwick moved to amend the complaint to include specific members of the LLC. The trial court granted summary judgment to FHC. For the same reasons, the trial court dismissed FHC's third party claims against the subcontractors. The trial court did not specifically address Chadwick's motion to amend the complaint. ANALYSIS ¶6 In its amicus brief, the Washington State Bar Association (WSBA) summarizes the genesis of LLCs ably and succinctly as follows: LLCs are recent legal constructs, with a majority of states having only enacted LLC legislation in the 1990s. Washington's Act took effect on October 1, 1994, and Washington case law construing the Act is sparse. "Since limited liability companies have only recently become popular, the law is still evolving." Unhelpfully, courts and scholars routinely comment that LLCs share some qualities of corporations and other qualities of partnerships; they cite by analogy to state corporation acts, to state partnership acts, or to the common law, often without meaningful explanation. From the WSBA's perspective, the only relatively sure footing here is the language of the Act itself. The LLC is a creature of statute, not of common law, and our courts of appeals are expert at construing statutes. That is the only way to unravel this puzzle, even if the solution is not fully satisfying. If an application for reinstatement is not made within the two-year period set forth in subsection (1) of this section, or if the application made within this period is not granted, the secretary of state shall cancel the limited liability company's certificate of formation. (Emphasis added.) A limited liability company formed under this chapter shall be a separate legal entity, the existence of which as a separate legal entity shall continue until cancellation of the limited liability company's certificate of formation. 2006 Amendment of RCW 25.15.303 The dissolution of a limited liability company does not take away or impair any remedy available against that limited liability company, its managers, or its members for any right or claim existing, or any liability incurred at any time, whether prior to or after dissolution, unless an action or other proceeding thereon is not commenced within three years after the effective date of dissolution. Such an action or proceeding against the limited liability company may be defended by the limited liability company in its own name. Statutory amendments are generally prospective but can act retroactively if the legislature so intended or the amendment is remedial or curative. ¶9 In its decision in Ballard Square, the Supreme Court affirmed this court's ruling, but on different grounds. ¶10 The amendment in Ballard Square is analogous to the statutory amendment to the LLCA. The statutes were sponsored by the same legislators and were enacted in tandem. Indeed, the statutes were signed into law and became effective on the same day. ¶11 The provision here is remedial and curative. There is no basis to distinguish the remedial and curative nature of this provision from the similar provision in the BCA. Like the BCA amendment, the purpose of the LLCA amendment was to provide for survival of claims after a company dissolves. The House Bill Report shows that the legislature identified 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. ¶12 The testimony adduced in support of the bill indicated that its raison d'etre was to address the result reached in this court's Ballard Square decision that left homeowners without a remedy for claims against a dissolved corporation. In the plain language of the statute, the amendment was passed to address the survival of claims following dissolution. "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." The Supreme Court's analysis is directly applicable. The 2006 amendment is retroactive. ¶14 FHC relies upon RCW 25.15.070(2)(c): A limited liability company formed under this chapter shall be a separate legal entity, the existence of which as a separate legal entity shall continue until cancellation of the limited liability company's certificate of formation. And to further support its argument, FHC relies upon the winding up provisions in the Act. ¶15 A company that has been dissolved and is winding up is required to make reasonable provision to pay all known claims and obligations. (1) Unless otherwise provided in a limited liability company agreement, a manager who has not wrongfully dissolved a limited liability company or, if none, the members or a person approved by the members or, if there is more than one class or group of members, then by each class or group of members, in either case, by members contributing, or required to contribute, more than fifty percent of the agreed value (as stated in the records of the limited liability company required to be kept pursuant to RCW 25.15.135) of the contributions made, or required to be made, by all members, or by the members in each class or group, as appropriate, may wind up the limited liability company's affairs. The superior courts, upon cause shown, may wind up the limited liability company's affairs upon application of any member or manager, his or her legal representative or assignee, and in connection therewith, may appoint a receiver. (2) Upon dissolution of a limited liability company and until the filing of a certificate of cancellation as provided in RCW 25.15.080, the persons winding up the limited liability company's affairs may, in the name of, and for and on behalf of, the limited liability company, prosecute and defend suits, whether civil, criminal, or administrative, gradually settle and close the limited liability company's business, dispose of and convey the limited liability company's property, discharge or make reasonable provision for the limited liability company's liabilities, and distribute to the members any remaining assets of the limited liability company. (Emphasis added.) ¶16 FHC's argument continues. RCW 25.15.300(2) provides that claims accruing after an LLC dissolves and begins to wind up its affairs must be provided for if known by the company. But, once the certificate of formation has been cancelled, the company is no longer a legal entity. Generally then, persons winding up a company's affairs would not file a certificate of cancellation until the company's affairs were provided for, since persons winding up a company's affairs are not personally liable to claimants if they make provisions for the company's known liabilities during dissolution. See RCW 25.15.300(2) (members are not personally liable for any unresolved claims if they have complied with the directives contained there). While we can agree with this to some extent, it certainly does not encompass what transpired here or in similar cases now pending in this court. Here, there was no winding up. The cancellation was administrative. ¶17 We do, however, believe that the survival provision at issue applies to dissolved LLCs whether or not a certificate of cancellation was issued pursuant to RCW 25.15.080. To hold otherwise would render the 2006 amendment inoperative as it would link the survival of claims not to a specific survival period but rather to the actions or, as in this case, nonaction of a company. ¶18 And, while we are mindful of the differences between relevant provisions of the BCA and the LLCA, particularly the two-step process of dissolution followed by cancellation in the latter, we cannot think the legislature was anything more than inartful in choosing the term dissolution as the reference for its remedial measure in 2006. To construe the 2006 amendment otherwise would nullify its stated purpose and put the legislature in the position of having enacted a largely useless statute since a dissolved LLC could, in the process of winding up, sue and defend before the amendment. ¶19 Thus, we hold that Chadwick had three years within which to bring its cause of action. FHC Claims Against Its Subcontractors ¶21 Chadwick filed its claim against FHC some seven months before the secretary of state cancelled FHC's certificate of formation. FHC could have at any time during those seven months reinstated itself to permit it to properly pursue the winding up process. It failed to do so. Amended Complaint [RCW] 25.15.300 Distribution of assets . (1) Upon the winding up of a limited liability company, the assets shall be distributed as follows: (a) To creditors, including members and managers who are creditors, to the extent otherwise permitted by law, in satisfaction of liabilities of the limited liability company (whether by payment or the making of reasonable provision for payment thereof) other than liabilities for which reasonable provision for payment has been made and liabilities for distributions to members under RCW 25.15.215 or (b) Unless otherwise provided in a limited liability company agreement, to members and former members in satisfaction of liabilities for distributions under RCW 25.15.215 or (c) Unless otherwise provided in a limited liability company agreement, to members first for the return of their contributions and second respecting their limited liability company interests, in the proportions in which the members share in distributions. (2) A limited liability company which has dissolved shall pay or make reasonable provision to pay all claims and obligations, including all contingent, conditional, or unmatured claims and obligations, known to the limited liability company and all claims and obligations which are known to the limited liability company but for which the identity of the claimant is unknown. If there are sufficient assets, such claims and obligations shall be paid in full and any such provision for payment made shall be made in full. If there are insufficient assets, such claims and obligations shall be paid or provided for according to their priority and, among claims and obligations of equal priority, ratably to the extent of assets available therefor. Unless otherwise provided in a limited liability company agreement, any remaining assets shall be distributed as provided in this chapter. Any person winding up a limited liability company's affairs who has complied with this section is not personally liable to the claimants of the dissolved limited liability company by reason of such person's actions in winding up the limited liability company. Chadwick argues that implicit in this proviso is the converse proposition. That is, any person winding up an LLC's affairs who has not complied with RCW 25.15.300 is personally liable to the claimants. We agree that this could be the case, depending on a full examination of the facts. ¶23 While cancellation marks the end of an LLC as a separate legal entity, it does not necessarily follow that claims against the LLC or its managers or members also abate. ¶24 The trial court is reversed in part and affirmed in part. We remand for further proceedings in accord with this decision. BAKER and ELLINGTON, JJ., concur.