Court Finds LLC Filing Requirement Law Constitutional

Court Finds LLC Filing Requirement Law Constitutional

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The Appellate Division has overturned a lower court’s ruling on the constitutionality of the publication requirement for newly formed LLCs, declaring the statute constitutional.

An LLC is an “unincorporated organization of one or more persons having limited liability for the contractual obligations and other liabilities of the business,” according to §102(m) of the New York Limited Liability Company Law. New York state enacted the Limited Liability Company Law in 1994, according to McKinney’s Consolidated Laws of New York.

The statute, §206 of the Limited Liability Company Law, requires all LLCs to publish an advertisement containing pertinent information from their initial articles of organization in two newspapers for six successive weeks. The two newspapers have to be in the same county as the LLC, and are chosen by the county clerk. The LLC then has to file with the New York

Department of State affidavits from the publishers attesting to the publication.

The statute calls for the filings to be completed within 120 days of the LLC’s formation for the LLC to be allowed to be a plaintiff in any court action or special proceeding in New York; it won’t be allowed to bring an action unless, and until, it completes the requirements. The statute only affects an LLC’s right to sue in New York state courts, and does not impair the corporation’s ability to be sued by another party.

The Appellate Division handed down the decision on Oct. 16 in the case of Barklee Realty Company LLC v. Pataki, where the defendant appealed Supreme Court Judge Alice Schlesinger’s decision that §206 violated the plaintiff’s constitutional rights to due process and equal protection under the United States’ and New York state’s Constitutions.

Noting that the statute is presumed constitutional and that a challenge “carries the ‘heavy burden of demonstrating unconstitutionality beyond a reasonable doubt,’” the court stated that LLCs have never enjoyed an “unrestricted” right to access the New York courts under state law, being subject to the “same limitations as natural persons.” Citing New York’s highest court, the Appellate Court said, “at least where no fundamental interest is at stake, substantive due process concerns are satisfied as long as legislation does not ‘arbitrarily’ ‘alter or restrict’ a right of access.”

In determining whether there was a rational basis for the publication requirement, the appeals court examined the history of the legislation. While noting that the lower court based its decision on whether the statute enhanced the adjudication of justice, the court dismissed the rationale, stating, “[c]learly the goal of section 206 is not related to the court system or the adjudication of justice, but is solely intended to encourage compliance with administrative requirements unrelated to the court system that might otherwise be ignored.”

The Appellate Court stated that the legislature could use “any” legitimate state interest to justify the statute. According to the court, ensuring that LLCs actually publish the designated information is a rational requirement that the statute satisfies, and the requirement is not more excessive than the duties and filing requirements that the legislature has placed on other types of entities, such as foreign corporations and limited liability partnerships.