Opinion
C.A. No. 09C-06-072 MJB.
Submitted: March 4, 2010.
Decided: June 30, 2010.
Upon Defendants' Motion to Dismiss.
DENIED.Charles J. Brown III, Esquire, Archer Greiner, P.C., Wilmington, Delaware. Attorney for Plaintiffs.
Richard L. Abbott, Esquire, Abbott Law Firm, Hockessin, Delaware. Attorney for Defendants.
OPINION AND ORDER
INTRODUCTION
Before the Court is a Motion to Dismiss filed by the Defendants JHL Brighton Design/Décor Center, LLC ("JHL"), a Delaware limited liability company and Jennifer Solt ("Solt"). Defendants filed the Motion pursuant to Superior Court Civil Rule 12(b)(1) and 12(b)(6). The Motion seeks dismissal of the action filed by Plaintiffs Chantz Enterprises, LLC ("Chantz"), a Delaware limited liability company and Randy Chance ("Chance"), a managing member of Chantz. In that action, Plaintiffs sought a request for replevin of personal property and a cause of damages for alleged harm to Plaintiffs' business due to lack of access to Plaintiffs' personal property which was stored in Defendants' premises. Upon review of the Motion, response thereto, and additional submissions, for the reasons that follow, the Court has determined that the Motion must be DENIED.
FACTS
On or about April 19, 2007, Plaintiffs entered into a lease with Defendants to sublease certain property in New Castle, Delaware. Chantz's primary business involved kitchen and bath renovations. JHL's primary business involved the sale and installation of flooring and window blinds. In September 2008, the Plaintiffs stopped paying monthly rent pursuant to the subleases due to internal disputes. Plaintiffs informed Defendants that it was winding up the company and that its business operations would be ceased. On October 6, 2008, the Defendants changed the locks to the premises. Chance attempted to enter the premises and remove his personal property from the warehouse and showroom areas. However, the police instructed Chance that he could not retrieve his belongings absent court authorization.In April 2009, the Justice of the Peace Court entered a judgment in favor of JHL, awarding Summary Possession of the premises and entered a judgment for past due back rent. Plaintiffs then requested that this Court issue a writ of replevin to allow them the opportunity to retrieve their property stored in the warehouse and showroom areas. Plaintiffs also requested reimbursement for the use of its property and damages as a result of being illegally locked out of the premises.
On January 29, 2010, Defendants filed the instant Motion to Dismiss. In the Motion, Defendants argue that Chance has no standing to prosecute this action because he has no legal interest in any of the personal property at issue or in the business alleged to have incurred damages. Defendants also argue that Chantz lacks the legal capacity to prosecute the action because it is not in good standing with the Delaware Secretary of State, Division of Corporations because its Certificate of Formation was cancelled by operation of law and for the failure to pay taxes.
Pursuant to 6 Del. C. §§ 18-104(d) and 18-203, the Certificate of Formation was automatically cancelled by operation of law due to the failure to designate a new registered agent after its prior agent resigned. A limited liability corporation is not in good standing in the State of Delaware if its Certificate of Formation is cancelled.
There is no dispute that Chantz failed to pay $782.00 in taxes owed to the Delaware Secretary of State. Pursuant to 6 Del. C. § 18-1107(l), "no action, suit, or proceeding" may be maintained by a limited liability company if it fails to pay its taxes.
On February 24, 2010, one day prior to the hearing in the instant matter, Plaintiffs submitted a copy of the current status of Chantz that was obtained from the Delaware Secretary of State. This document established that, as of January 29, 2010, Chantz was in good standing with the State of Delaware. The corporate charter was reinstated and no past due franchise taxes were due.
The Court heard oral argument on February 25, 2010. At the hearing, this Court granted replevin as to the items in the warehouse. The Court further instructed the parties to confer regarding the disposition of the items stored in the showroom. The Court also heard oral argument regarding whether Plaintiffs have the legal capacity to prosecute the action.
There is no dispute that some of the property stored in the warehouse and showroom areas does not belong to the Defendants.
At the conclusion of the hearing, the Court instructed the Plaintiffs to provide affidavits regarding the standing of Chantz. The affidavits received by this Court on March 4, 2010, state that Mr. Pretz and Mr. Lopez, who along with Chance, make up 75% of the equity ownership of Chantz, ratified and approved Chance's decision to reinstate the charter.
PARTIES' CONTENTIONS
Defendants' Contentions
Defendants contend that the action should be dismissed in its entirety for two reasons. First, Defendants argue that Chance has no standing to prosecute this action since he has no legal interest in any of the personal property at issue or in the business alleged to have incurred damages. In support of this argument, the Defendants provided a copy of the Asset Purchase Agreement between Chantz and JHL which establishes that Chantz is the sole owner of the personal property and business at issue. Second, Defendants contend that Chantz is the only party that possesses standing, but that it lacks capacity to prosecute the action because it is not in good standing with the Delaware Secretary of State, Division of Corporations due to the cancellation of the Certificate of Formation and for the failure to pay taxes due to the Delaware Secretary of State.
Plaintiffs' Contentions
Plaintiffs contend that Defendants' Motion should be rendered moot by Plaintiffs' recent submissions to the Court. Plaintiffs argue that Chantz has paid the past due franchise taxes and reinstated the corporate charter. Plaintiffs also contend that Chance did not unilaterally reinstate the corporate charter, because he had the authority to reinstate the charter from 75% of the membership before he did so, and to the extent that it could be argued otherwise, 75% of the members have now ratified the action.
STANDARD OF REVIEW
Upon a motion to dismiss, the Court's role is to determine whether the plaintiff may recover under any reasonably conceivable set of circumstances susceptible of proof under the Complaint. If recovery is possible, the Court must deny the motion to dismiss. When considering a motion to dismiss, the Court will accept all well-pleaded allegations as true. In addition, every reasonable factual inference will be drawn in favor of the plaintiff.
Spence v. Funk, 396 A.2d 967 (Del. 1978).
Id.
Id.
Doe v. Cahill, 884 A.2d 451 (Del. 2005).
ANALYSIS
The Court considers each of the claims seriatim:I. Do the Plaintiffs have standing to prosecute the action?
Defendants allege in their Motion to Dismiss that Chance lacks standing to prosecute the action since he was not a party to the Asset Purchase Agreement and thus, he has no legal interest in any of the personal property at issue or in the business alleged to have incurred damages. Defendants argue that the agreement was solely between Chantz and JHL.
Def.'s Mot. Dismiss ¶ 2-3.
Def.'s Mot. Dismiss ¶ 3.
To establish standing, Chance must show that he sustained an injury-in-fact and the interest that he seeks to protect is within the zone of interests to be protected. It is Defendants' position that Chance has suffered no injury and he is not within the zone of interests protected by the Agreement.
Dover Historical Society v. City of Dover Planning Com'n., 838 A2.d 1103, 1110 (Del. 2003).
Defendants' argument is flawed. In the Complaint, and alleged at the February 2010 hearing, Chance mentioned that he had stored personal property on the premises and that he attempted to retrieve the property. Chance clearly has a legal interest in his own personal property, and second, he has suffered an injury-in fact in not being permitted to retrieve the property that he personally owned. It is immaterial whether Chance was a party to the Asset Purchase Agreement if he owns personal property that is stored on the premises and being withheld from him. The Court determines that Chance has standing to prosecute the action.
Complaint ¶ 14.
Dover Historical Society v. City of Dover Planning Com'n., 838 A2.d 1103, 1110 (Del. 2003) (holding that a person has standing if he or she has an interest in property that is distinguishable from that of the public at large).
Defendants also allege in their Motion to Dismiss that Chantz lacks the legal capacity to prosecute the claims since the limited liability company is not in good standing with the Delaware Secretary of State, Division of Corporations for the failure to reinstate its corporate charter and for the failure to pay taxes. Pursuant to 6 Del. C. § 18-201(a), a Certificate of Formation must be filed in order to form a limited liability company. Pursuant to 6 Del. C. § 18-201(a), a limited liability company shall cease to be a legal entity upon cancellation of its Certificate of Formation.
Def.'s Mot. Dismiss ¶ 6-9.
In the instant matter, by operation of law and pursuant to 6 Del. C. § 18-0104(d), Chantz's Certificate of Formation was cancelled due to its failure to designate a new registered agent after its previous agent resigned. Ordinarily, if the Certificate of Formation is cancelled, it will cease to exist as a limited liability company.
6 Del. C. 18-0104(d).
It is undisputed that Chantz ceased to be in good standing due to the cancellation of its corporate charter and due to the past due franchise taxes. However, by letter dated February 24, 2010, a copy of the current status of Chantz was obtained from the Delaware Secretary of State and was provided to the Court. The letter and the enclosures therein indicated that Chantz was in good standing as of January 29, 2010; the charter was revived and any and all taxes were paid.
Pursuant to 6 Del. C. § 18-1107(l), a domestic limited liability company that has ceased to be in good standing may not maintain any action, suit, or proceeding in any Court of the State of Delaware until such limited liability company has been restored to and has the status of a domestic limited liability company in good standing in Delaware (emphasis added). Since the taxes were paid and the corporate charter was reinstated, Chantz was permitted to maintain the suit in the State of Delaware.
II. Did Chance have the legal authority to reinstate the corporate charter?
The next issue that the Court must consider is whether Chance had the legal authority to reinstate the corporate charter, which ultimately would allow Chantz to have the legal authority to prosecute the action. At the February 25, 2010 hearing, defense counsel relied upon In re Grupo Dos Chiles, LLC ("Grupo") and argued that a member of an LLC may not unilaterally reinstate the corporate charter. In that case, a limited liability company lost its good standing with the State of Delaware because of a failure to pay Delaware taxes. Alfred Shriver, one of the managing partners, following an internal dispute, attempted to dissolve the corporation's affairs. The other managing partner, Yolanda Martinez, however, paid the company's taxes and had it restored to good standing with the State of Delaware, even though Alfred Shriver opposed the decision.
In re Grupo Dos Chiles, LLC, 2006 WL 668443 (Del. Ch.).
The Court held that the company was not properly returned to good standing and held that, "in the unique circumstances presented, a co-equal member of a limited liability company is not entitled to unilaterally restore the company to good standing by paying owed taxes and penalties, where the other member or members did not agree with the decision and the members were in litigation with regard to the dissolution of the company."
Id. at 4.
This case can be distinguished from Grupo. Following the February 2010 hearing, Plaintiffs provided sworn affidavits from Mr. L. Dale Pretz and Mr. Alfonso Lopez, who along with Chance make up 75% of the equity ownership of Chantz. In both of the affidavits provided by Mr. Pretz and Mr. Lopez, the co-equal members, each holding a 25% ownership interest in the corporation, ratified and approved the decision of Chance to reinstate the limited liability company to good standing. The affidavits prove that Chance did not unilaterally restore the company to good standing absent his co-members' agreement, and to the extent that it could be argued otherwise, 75% of the membership have now ratified that action. Also, there was no pending litigation or dispute between the members in regard to the dissolution of the company in the instant matter. Thus, Chance had the legal authority to reinstate the charter, and Chantz's good standing was properly restored.
CONCLUSION
Based on the foregoing, Defendants' Motion to Dismiss is DENIED.