What do Lord Coke, the Civil War and corporations (or LLCs) have in common? And how are they relevant to business today? The answer found in a recent case decided in March 2014 may surprise you.
The case involving Stone Street Partners, LLC and the City of Chicago was decided on March 31, 2014. The City had cited the LLC for building violations in 1999. When the City filed a lien on property owned by Stone Street Partners, LLC in 2009, the LLC claimed that it never received notice of the administrative order that was entered in 1999.
As it turns out, one of the managers of the LLC, who was in poor health at the time, had his caretaker show up at the administrative hearing and present evidence. The administrative hearing officer heard the evidence and entered the order in favor of the City and imposed fines against the LLC. Apparently, the other managers and/or member of the LLC never knew about the proceeding or the fines until they discovered over a decade later that the City had filed a lien on LLC property.
When the LLC sought to vacate the order and the fines and to remove the lien, it was determined that the initial notice given by the City to the LLC was improper. Regardless of the problem with service, however, they also discovered that the manager’s caretaker had showed up on behalf of the LLC at the administrative hearing. An appearance and participation in a proceeding waives any objection to improper service as a general rule. Therefore, the order that was entered was found to be valid and could not be vacated even though the others members (owners) of the LLC did not know anything about it.
You are probably wondering what Lord Coke and the Civil War have to do with anything. The answer involves the erstwhile caretaker and the LLC.
The caretaker had no authority to act of the LLC. Only members or managers (as the case may be) have that authority. Only an attorney may represent an LLC or corporation in a legal proceeding.
The judge in the Stone Street Partners case referenced Lord Coke, who is famous for establishing the rule, and observed that courts in Illinois have recognized the rule in an unbroken chain of cases going back to before the Civil War that only attorneys licensed to practice law can represent people (or entities) in legal proceedings.
Lord Edward Coke stated it this way in 1612 in the Case of Sutton’s Hospital (as reported by Wikipedia):[T]he Corporation itself is onely in abstracto, and resteth onely in intendment and consideration of the Law; for a Corporation aggregate of many is invisible, immortal, & resteth only in intendment and consideration of the Law…. They may not commit treason, nor be outlawed, nor excommunicate, for they have no souls, neither can they appear in person, but by Attorney.
LLCs and corporations are creatures of statute, created by State charter and represented according to that charter by its members and/or managers (as the case may be). Under Illinois law (and the law of every state in the Union), only a lawyer can represent an LLC (or a corporation) in legal proceedings.
The reasons for the rule are varied. As Lord Coke stated, corporations are fictional entities, albeit endowed by statute with legal reality. Corporations (and LLCs) are considered to have distinct legal standing and effect, separate and apart from the shareholders and members who own interests and from the directors, officers and/or managers who oversee them. Corporations can only “act” through authorized channels. When people do business in the form of a corporation or LLC, they sign up for all that goes with the corporation or LLC form of business.
Anyone doing business as a corporation or an LLC should understand that the entity (the corporation or LLC itself) is a legal “entity” separate and distinct from the shareholders, directors, officers, members or managers, and that difference has meaning. It has meaning not only in the context of legal proceedings, but also in the context of contracts and other arenas. Business owners should be careful to understand the significance of the separateness of the entity from the individuals who own and share in the operation of it. One of those differences is that corporations and LLCs must be represented by an attorney in legal proceedings.
As an aside, the rules of courts and administrative proceedings and laws established by the State legislature apply and are enforced regardless of a person’s knowledge of them. Everyone, with or without a law degree, must play by the same rules. An attorney might have noted the flawed service on the LLC given by the City in the Stone Street Partners case. Of course, that would have given the City an opportunity to serve the notice properly and proceed on proper service. An attorney also would have likely made sure that the proper parties knew about the proceeding and the result and to have made a timely appeal of the order (if warranted). As it is, the fine that was imposed by the order did not get paid, resulting in a lien on real estate owned by the LLC and subsequent litigation at the administrative, trial court and the appellate court levels (no doubt costing than hiring an attorney to represent the LLC in the administrative proceeding to begin with).Kevin G. Drendel Drendel & Jansons Law Group 111 Flinn Street Batavia, IL 60510 630-523-0543 630-406-6179 fax [email protected] foxvalleyestateplanning.com