New York Requires LLC’s to Pay Media Interests a Tithe Before Having Access to Courts

Section 206 of the LLC Law requires each LLC to publish within 120 days its articles of organization or comparable information (i) weekly for (ii) six successive weeks (iii) in two local newspapers selected by the county clerk where the LLC has its principal office (iv) followed by the filing of an affidavit with the Department of State attesting that the publication has been made. If the publication requirement of Section 206 is not completed within 120 days of the LLC’s formation, the LLC will be precluded from “maintaining any action or special proceeding” in any New York court “unless and until” it complies with the publication requirement. However, the failure of an LLC to fulfill the publication requirements will not impair any of its contracts or acts or the right of any other party to maintain an action or special proceeding or prevent the LLC from defending any such action or proceeding. Only newspapers that are approved of by a political office meet the publishing requirements.

Plaintiffs-Respondents are LLCs engaged in the real estate business. Their organizer, Barbara Kraebel, filed articles of organizations with the Secretary of State in May and June, 1999. However, she, chose not to comply with the publication requirement. Earlier, she had complied with Section 206 for another LLC and had been required to pay $1,645 for publication in addition to the Secretary of State’s $200 filing fee. Ms. Kraebel was advised that publication with respect to Barklee 994 LLC would cost $1,328, not including the cost of filing the affidavits.

Plaintiffs-Respondents brought this action pursuant to state and federal law, challenging Section 206 under the New York and United States Constitutions, asserting that the statute deprives plaintiffs of due process, equal protection and (by amending the complaint) their right to unencumbered access to the New York Courts. In addition to declaratory relief, plaintiffs requested an injunction barring enforcement of Section 206.

Citing Boddie v. State of Connecticut, 401 U.S. 371 (1971), Justice Schlesinger concluded with respect to the due process argument that the publication requirement does not represent a “countervailing state interest.” She found that LLC’s right to sue, similar to a corporation’s right to sue, protected by Article 10, Section 4 of the New York Constitution, “has been compromised by the publication requirement which makes no sense and is arbitrary.” Finally, applying Heller v. Doe, 509 U.S. 312 (1993), Justice Schlesinger held that the publication requirement failed the rational basis review test because the six successive weeks of publication of the LLC’s particulars “does not in any way enhance the adjudication of justice.”
The court granted plaintiffs’ motion for summary judgment and denied defendant’s cross motion. Defendant and the State were enjoined from enforcing Section 206. This appeal followed.

Issue Areas:

Individual Liberty, Limited Government

Case:

Read the Amicus Brief:

Question(s) Presented:

1. Does Section 206 of the New York Limited Liability Company Law deprive plaintiffs-respondents and others similarly situated of due process of law? The court below responded in the affirmative.
2. Does Section 206 of the New York Limited Liability Company Law deprive plaintiffs-respondents and others similarly situated of equal protection of the law? The court below responded in the affirmative

Additional Background:

Both sides moved for summary judgement. The competing legal contentions were summarized by the court below:
It is the plaintiffs’ contention that there is no adequate justification provided by the State for this costly and unnecessary publication requirement. She points out that the information required to be published at the time of formation is easily obtained from the Secretary of State with minimal cost or for nothing over the internet. She argues that it is unlikely that an actual litigant would have ever seen the material published in the Classified section of the newspapers. She urges that without any countervailing meaningful rational purpose, this Section unduly restricts her right to do business in the State and violates her Constitutional rights to due process and equal protection of the law.
The defendant defends the publication provision, § 206 of the LLC law and asks the court to declare it constitutional. Counsel argues that plaintiffs are not members of any suspect class. Nor can they allege a violation of any fundamental right. Therefore they cannot show that the statute is unconstitutional. Further, it is urged that Section 206’s publication requirement is reasonably related to the goal of ensuring that members of the public are given notice of the information which the statute requires to be disclosed.

ALF’s Amicus Brief:

ALF along with the Community Housing Improvement Program argue that the decision of Justice Schlesinger is in all respects sound on the facts, about which there is no dispute, and on the law and this Court should affirm. Section 206 of the LLC Law imposes a burdensome, time consuming, wasteful and expensive requirement on LLCs and serves absolutely no state interest or public purpose. All agree that the information required to be published already is readily and inexpensively available to any individual choosing to deal with an LLC by means of a simple inquiry of the office of the Secretary of State or by internet search.

Defendant fails to identify any public purpose or state interest served by this requirement, though undoubtedly newspapers benefit from the allocation of resources from new fledgling firms to their own coffers.

The onerous and expensive publication requirement on its face is bad enough. However, failure to comply with it is coupled with the denial of a fundamental right: equal access to the administration of justice and the of property and other rights that access to courts ensures. Defendant, with all respect, seems to confuse court filing fees and similar requirements imposed on all litigants with the denial of a fundamental right to court access – as a penalty for failure to comply with an unrelated and, here, meaningless mandate.

Status:

On October 16, 2003, the Court issued an adverse opinion.