Court Dismisses Action Based on LLC’s Failure to Publish Notice of Formation
In any litigation, one should first seek to determine whether the entities involved have the capacity and/or authority to sue or be sued. In a recent case in which Mark A. Berman, Jason A. Ganfer, and Matthew N. Tobias of this firm represented the defendant, the court dismissed an action on the basis that the plaintiff LLC lacked the capacity to commence litigation due to its failure to comply fully with New York’s LLC Law when it was being formed.
In Queencap1 LLC v. LNV Corporation et al., Index No. 704460/2021 (Sup. Ct. N.Y. Co. Jan. 25, 2022), plaintiff sought to void a current property owner’s title based on allegedly improper service by a foreclosing lender against a prior owner of the property. However, in reviewing the plaintiff LLC’s formation documents, it was determined that the LLC had failed to properly publish notice of its formation as required by the LLC Law. Pursuant to NY LLC Law § 206, a limited liability company must publish notice of its formation in two newspapers for six consecutive weeks and thereafter file proof of such publication with the Secretary of State. The law, a link to which is below, specifies certain requirements for selecting the newspapers in which the notice is to be published, as well as the information that must be included. (https://www.nysenate.gov/legislation/laws/LLC/206). This publication requirement is one reason formation fees for an LLC in New York is more expensive than forming a corporation. The failure to comply with this statute results in the LLC’s authority to transact business in New York State being suspended until compliance. In particular, an LLC whose authority to transact business has been suspended may not commence or maintain litigation in New York as a plaintiff (although it may still be sued as a defendant). While the LLC published its notice in two newspapers, those newspapers did not satisfy the statutory requirements because they were not published in the county where the LLC maintained its principal office. In addition, the notice as published did not include all required information. As a result, the case was dismissed. While an LLC might seek to cure such a deficiency, the process is expensive and it also may provide a party with a possible statute of limitations defense.