July 2024 in Brief: Corporations, LLCs & Partnerships

Rescission of the Erroneous Dissolution and Termination of a New Jersey Limited Liability Company Requires a Court Order

By Lawrence A. Goldman, Gibbons P.C.

In a recent case of “first impression,” Patel v. New Jersey Department of Treasury, Division of Revenue and Enterprise Services (approved for publication on June 18, 2024), the Superior Court of New Jersey, Appellate Division, addressed the proper means of rescinding a limited liability company (“LLC”) certificate of dissolution and termination that allegedly had been filed with the New Jersey Department of Treasury (the “State filing office”) in error or without authorization. The court held that the New Jersey Revised Uniform Limited Liability Company Act, N.J.S.A. 42:2C-1 et seq. (the “NJLLCA”), does not give the filing office the administrative power to rescind an LLC termination absent a court order directing such relief, with a proper showing of justification by the applicant and upon appropriate notice to interested and affected parties.

The NJLLCA is based on the model Revised Uniform Limited Liability Company Act (the “Model LLC Act”) developed by the National Conference of Commissioners on Uniform Laws (now known as the Uniform Law Commission). The Model LLC Act and commentary is available at the website of the Uniform Law Commission. Twenty states and the District of Columbia have enacted limited liability company statutes based on the Model LLC Act. Accordingly, Patel could have precedential authority in other Model LLC Act jurisdictions in the case of fraudulent or other unauthorized terminations of limited liability companies.

The background of the case is that a former member of the LLC filed a certificate of dissolution and termination for the company with the State filing office. An earlier filing had identified that former member as one of several members of the company. When Patel acquired all of the member interests of the LLC, the earlier filings identifying members were not modified. Upon learning that a certificate of dissolution and termination had been filed with the State filing office, Patel contacted the office, which did not respond. Patel subsequently filed a complaint with the trial division of the Superior Court of New Jersey seeking an order compelling reinstatement of the LLC, and the case was transferred to the Appellate Division.

The court determined that the mechanism under NJLLCA Section 23, N.J.S.A. 42:2C-23, of filing a certificate of correction with respect to a previously filed record “if at the time of filing the record contained inaccurate information or was defectively signed,” would not be available as a means of rescinding the LLC’s termination because the NJLLCA contains no explicit provision authorizing the State filing office to rescind a certificate of dissolution. “It is plain that such a rescission—which would revive a defunct LLC—would exceed a mere ‘correction’” of a previously filed form.

The court also noted that NJLLCA Section 54, N.J.S.A. 42:2C-54, only permits reinstatement of an LLC following “administrative dissolution, which occurs if an LLC fails to pay required fees or penalties or to file required annual reports.” Further, the court observed that New Jersey’s corporation statute provides for revocation of dissolution by filing a certificate of revocation, N.J.S.A. 14A:12-10, but that there is no parallel mechanism within the NJLLCA.

The court emphasized that the State filing office acts only as such, performing ministerial functions without the authority to act as a substantive decision-maker. For example, the filing office does not check whether a person who purports to be authorized to sign a document actually has the authority to do so.

The court concluded as follows:

[T]he appropriate mechanism to pursue such rescission is through a civil action in the trial court. The trial court shall preside over a hearing to ascertain the bona fides of the request for rescission. At the hearing, pertinent facts and circumstances can be developed through the presentation of evidence, culminating with the court’s findings and conclusions of law. We envision the hearing could normally be conducted in an expeditious manner, possibly aided by sworn certifications presented by the applicant from current and former LLC members or other witnesses with knowledge of the circumstances.

In New Jersey, at least, in order to rescind a wrongfully terminated LLC, there is no apparent shortcut to avoid the need for judicial relief.