Why Maintain Your Company Charter? Moe's Southwest Grill Will Tell You!
Co-Author: Jenny Morris, University of Maryland Law School, Class of 2017
Occasionally corporations and limited liability companies neglect to make the periodic filings required by their state of formation. Even more often, companies that open locations outside of their state of formation do not register as a foreign entity with that other state's business regulatory agency. The May 29, 2015 decision by the Maryland Court of Special Appeals in Guy Named Moe LLC T/A Moe's Southwest Grill v. Chipotle Mexican Grill of Colorado LLC et al., No. 2270, Sept. Term 2013, is an important reminder to restaurant operators and other business owners of just how dangerous it can be for a company to ignore those basic state filing requirements.
In 2012 the Annapolis department of planning and zoning approved Chipotle Mexican Grill's application to open a restaurant in downtown Annapolis about 400 feet from a Moe's Southwest Grill location owned by A Guy Named Moe, LLC (“Moe's”). The Maryland Court of Special Appeals denied Moe's standing to appeal this zoning approval because its limited liability company (“LLC”) had not been registered to do business in Maryland during the time period to appeal the zoning decision.
The Land Use Article in § 4-401(a) of the Maryland Code grants standing to petition the circuit court for judicial review of a city or county's zoning decision to a “person” who is a “taxpayer” or a “person aggrieved” and files suit within 30 days of the zoning decision. A “person” includes any business entity properly registered under Maryland law. After Moe's filed a case protesting the zoning decision for Chipotle, the Circuit Court for Anne Arundel County dismissed the suit, holding that Moe's did not have taxpayer standing because it did not pay real property taxes to the local jurisdiction whose zoning action was being challenged on appeal. The circuit court also determined Moe's was not “a person aggrieved” because business competition does not constitute not a sufficient grievance in zoning decisions.
The Court of Special Appeals affirmed the dismissal, but on different grounds – that Moe's petition was void since Moe's did not have a right to do business in Maryland at the time of filing. Moe's is a Virginia LLC, and all foreign LLC's doing business in Maryland are required to register with the State Department of Assessment and Taxation (“SDAT”) in accordance with the relevant part of the Maryland Limited Liability Company Act, Corporations & Associations Code (“C.A.”) § 4A-1002(a). Moe's registered in December 2015, but when it failed to file a 2006 personal property tax return with SDAT and pay the requisite $300 filing fee to remain registered, SDAT forfeited its right to operate in Maryland in November of 2006 under C.A. § 4A-1013. For the following seven years Moe's did not revive this registration and thus continued to do business in Maryland with no right to do so.
C.A. § 4A-1007(a) bars unregistered foreign LLCs that are doing business in Maryland from maintaining a suit in Maryland courts. The Court of Special Appeals concluded that since Moe's should not have even been operating its restaurant in Maryland at the time of the appeal, the appeal was “a nullity from the moment it was filed.” The SDAT did not restore Moe's right to do business in Maryland until September 24, 2013, when the proper personal property tax returns were filed and the appropriate fees were paid. Unfortunately for Moe's, this was already about 5 months past the 30-day deadline to appeal zoning decisions.
Learn from Moe's mistake and stay on top of this! Even if Moe's attorneys did notice this issue immediately they still might not have been able to receive the requisite charter within the 30 day period to file suit because reviving a forfeited charter or foreign registration can take time.
Be cautious and make sure your business is compliant with all state filing requirements to maintain limited liability status in any state where it is regularly doing business. As the Moe's case demonstrates, failure to do so can cost your business the ability to protect its rights and have other substantial legal repercussions.