Florida Litigation Update: Florida Appeals Court Holds Dissolved Company Can Prosecute and Defend Lawsuits in Winding Up its Affairs.

Apr 23, 2020   

In an en banc[1] opinion deciding the matter of Hock v. Triad Guar. Ins. Corp., 2D16-4008, 2020 WL 1036482 (Fla. 2d DCA Mar. 4, 2020), Florida’s Second District Court of Appeal held that a corporation that becomes administratively dissolved for failure to file an annual report may defend or prosecute an action in order to wind up its business and affairs. This opinion recedes from prior Second DCA precedent (Trans Health Mgmt. Inc. v. Nunziata, 159 So. 3d 850 (Fla. 2d DCA 2014), which held that a similarly dissolved company could not maintain a lawsuit under Florida law.

The Hock decision concerned the interpretation of two statutes of the Florida Business Corporation Act (“The Act”):

  • 607.1405(1), Florida Statutes (2016), which, provides that a dissolved corporation “may not carry on any business except that appropriate to wind up and liquidate its business and affairs;” and
  • 607.1622(8), which stated[2]: “[a]ny corporation failing to file an annual report which complies with the requirements of this section shall not be permitted to maintain or defend any action in any court of this state until such report is filed and all fees and taxes due under this act are paid and shall be subject to dissolution or cancellation of its certificate of authority to do business as provided in this act.”

 

In construing these statutes, the Court organized a timeline which clarified that there is a period between a corporation failing to file an annual report by May 1, and becoming administratively dissolved during which §607.1622(8) applies. In this period, although the corporation may continue business, it cannot engage in litigation. However, once the company is administratively dissolved, § 607.1622(8) is no longer applicable. Instead, § 607.1405 controls and provides that a corporation cannot engage in business “except that necessary to wind up and liquidate its business and affairs.” However, § 607.1405 has been interpreted to allow a corporation to conduct litigation as part of the winding up process.

The Court rooted its decision in PBF of Fort Myers, Inc. v. D & K Partnership, 890 So.2d 384, 386 (Fla. 2d DCA 2004), a case decided prior to Trans. Health Mgmt., Inc., which held that § 607.1622(8) pertained only to existing corporations which have failed to file annual reports, not corporations which had been dissolved. The Court explained that § 607.1622(8) provides for two separate consequences if a corporation fails to file its annual report: i) the corporation “shall not be permitted to maintain or defend any action in any court of this state;” and ii) the corporation “shall be subject to dissolution or cancellation of its certificate of authority to do business as provided in [the] act.” The Court reasoned that because an already dissolved corporation cannot be “subject to dissolution”, § 607.1622(8) must be interpreted to apply to the period of time between the May 1 failure to file and the third week in September failure-to-cure cutoff date to prevent administrative dissolution.

Of potential future salience, this decision was not unanimous. Judges Villanti and Atkinson dissented separately arguing that the majority ignored statutory distinctions between corporate dissolution in general and only the specific dissolution brought about administratively. Judge Villanti reasoned the decision undermines the legislative intent of creating incentive for compliance as follows:

[i]f the privilege of doing business in Florida and using the Florida court system to enforce business agreements is the carrot envisioned by the Florida Legislature, then section 607.1622(8) is the proverbial stick enacted to ensure compliance with the statutory annual reporting—and more importantly, fee payment—requirement. Hence, corporations that elect to neither properly dissolve using the statutory procedures nor file their annual report and pay the required taxes are barred from using the court system to further corporate business.

This decision brings the Second DCA into conformity with the Fourth and Fifth Districts. The Fourth District employed similar logic to the majority here in an en banc decision in Nat’l Judgment Recovery Agency, Inc. v. Harris, 826 So. 2d 1034 (Fla. 4th DCA 2002), which also featured a dissent mirroring Judge Villanti’s thoughts. The Fifth District had previously arrived at the majority’s conclusion through a short one page opinion on a Motion to Dismiss in Cygnet Homes, Inc. v. Kaleny Ltd. of Florida, Inc., 681 So. 2d 826 (Fla. 5th DCA 1996). Given the strong dissents from the Second and Fourth Districts, and the fact that not all Districts have opined on the matter, it is doubtful the Florida Courts have heard the last of this issue and it may someday be headed for a final determination in the Florida Supreme Court.

If your business faces similar uncertainty, the attorneys at Fuerst Ittleman David & Joseph have extensive experience interpreting corporate statutes and regulations and fighting for business owners across the state of Florida.  If you have any questions or concerns, an attorney can be reached by emailing us at info@fidjlaw.com or by calling (305) 350-5690.

 

 

[1] En banc means that the matter was heard before all of the judges on this circuit rather than a selected panel as usual. The fact that the Court addressed this matter in this fashion indicates that it was necessary to secure or maintain uniformity of the court’s decisions and/or that the proceedings involved a question the Court deemed to be of exceptional importance.

[2] § 607.1622(6), Fla. Stat.  has since been updated to read: “[a] domestic corporation or foreign corporation that fails to file an annual report that complies with the requirements of this section may not prosecute or maintain any action in any court of this state until the report is filed and all fees and penalties due under this chapter are paid, and shall be subject to dissolution or cancellation of its certificate of authority to transact business as provided in this chapter” (emphasis added). The primary change to the statute being that the mandatory “shall not” has been altered to the more permissive “may not.”