Administrative dissolution is an enforcement tool that many states use to ensure that LLCs pay their annual fees and file their annual reports. An LLC that fails to pay its annual fee or file its annual report is given notice of the dissolution. If it complies with the payment and other requirements it will then be reinstated, although after the statutory period (typically three or five years) it loses the ability to be reinstated.

Administratively dissolved LLCs normally have the power to defend themselves in litigation and to initiate lawsuits to enforce their rights, but last month a quirk in Maine’s LLC Act prevented an LLC from suing to enforce its rights. Beaudry v. Harding, No. Cum-14-150, 2014 WL 5861051 (Me. Nov. 13, 2014).

Background.  Paul Beaudry was one of two members of Northern Maine Transport, LLC, a Maine limited liability company (NMT). In 2010 attorney Alan Harding represented NMT in a lawsuit against an insurance company on a fire insurance policy. NMT and the insurance company settled the lawsuit.

Beaudry later claimed that NMT was injured by Harding’s legal malpractice in the lawsuit over NMT’s fire insurance. In 2012 Beaudry filed a malpractice suit against Harding, asserting claims both individually and derivatively on behalf of NMT.

Harding defended Beaudry’s derivative claim on behalf of NMT because NMT had been administratively dissolved in 2009 and therefore could not prosecute suits on its own behalf, and defended Beaudry’s claim in his own name because the harm alleged – loss of NMT’s insurance proceeds – was not an injury personal to Beaudry. Id. at *1. Harding filed a motion for summary judgment, and the trial court granted his motion and dismissed both counts of Beaudry’s suit.