Wednesday, August 29, 2018

California Court Misplays Smackdown: LLCs Are Still Not Corporations

In a recent California appellate opinion disposing of the second appeal of an earlier judgment seems to have the court irritated.  It does appear the appellant was trying to relitigate a decided issue, so perhaps that's right.  But the court makes its own goof.  After referring repeatedly to the "limited liability company" at issue, the court then goes down a familiar, and disappointing, path.  The court explains: 

In any event, the Supreme Court opinion which Foster contends we disregarded, Essex Ins. Co. v. Five Star Dye House, Inc. (2006) 38 Cal.4th 1252, 1259, has no relevance here. Essex decided whether an assignee of a bad faith claim could also recover attorney fees. (Ibid.) This holding has nothing to do with whether a limited liability corporation may assign its appellate rights in an improper attempt to circumvent the rules requiring corporations to be represented by attorneys.

JENNITA FOSTER, Plaintiff & Appellant, v. OLD REPUBLIC DEFAULT MANAGEMENT SERVICES, Defendant & Respondent., No. B280006, 2018 WL 4075910, at *2 (Cal. Ct. App. Aug. 27, 2018) (emphasis added).  
 
It's not clear whether Essex Insurance Company is an LLC or a corporation, though it's a strong bet it is a corporation. (A search of California entities and a quick look at the docket were inconclusive.) Regardless, I know that case does not discuss LLCs and that the instant case definitely deals with a "limited liability company."  It is "unpublished/noncitable," according to Westlaw, so I guess that's good, but it is still out there. 
 
Ultimately, the court's apparent frustration seems warranted, but it is a little ironic (and a bit amusing) that the court misstates the entity type in the smackdown.  

http://lawprofessors.typepad.com/business_law/2018/08/california-court-misplays-smackdown-llcs-are-still-not-corporations-.html

Corporations, Joshua P. Fershee, LLCs | Permalink

Comments

I think the Court's analysis is accurate. The issue is whether an attorney has to represent a corporate entity. An LLC is a "natural" legal person, like a corporation. That doesn't mean they're the "same," of course. See, e.g., "We agree with Old Republic that GHM, as a limited liability company, may not appear in court without an attorney. The cases barring representation of a corporation by a non-attorney are based on the reasoning that a corporation is not a natural person and may only act by and through agents and representatives, and that the judicial system may insist that a corporation be represented by a person qualified to practice law to assure the orderly administration of cases in the judicial system. (Caressa, supra, 99 Cal.App.4th at pp. 1101-1102, citing Paradise, supra, 86 Cal.App.2d at p. 898; and see Merco, supra, 21 Cal.3d at pp. 730, 732.) We agree with Old Republic that such reasoning applies equally to a limited liability company, which, like a corporation, is legal entity separate and apart from its members." Foster v. Old Republic Default Mgmt. Servs., 2015 Cal. App. Unpub. LEXIS 7556, at *10-11 (Cal. Ct. App. Oct. 22, 2015). Neither of these cases is precedential, and so citation to them is (except in limited circumstances) forbidden.

Posted by: Michael Lopez | Aug 31, 2018 10:05:23 AM

I agree the court gets the outcome right, but when extending corporate parallels to an LLC, the court should say they are doing so. I see this as a correct outcome, but a poorly executed opinion.

Posted by: Joshua Paul Fershee | Aug 31, 2018 10:58:33 AM

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