Dissolution Does Not Preclude Entry Of Default Judgment Against Nevada Corporation(?)

Stephens Media, LLC is the publisher of the Las Vegas Review-Journal.  In 2009, Stephens Media filed a lawsuit in the U.S. District Court against Citihealth, L.L.C. alleging a variety of trademark related claims.  Citihealth failed to respond to the suit and Stephens Media filed a motion for entry of a default judgment.  One of the co-owners of Citihealth then notified the court that Citihealth had dissolved and that he and the other co-owner had filed for personal bankruptcy.  In ruling on the motion, U.S. District Court Judge Miranda Du reviewed seven factors that the Ninth Circuit Court of Appeals has identified as relevant to the exercise of a court’s discretion whether to grant entry of a default.  Stephens Media LLC v. CitiHealth, L.L.C., 2012 U.S. Dist. LEXIS 109431 (D. Nev., Aug. 6, 2012) One of these caught my eye – excusable neglect.

In analyzing whether there had been excusable neglect on the part of Citihealth, Judge Du observed:

Although CitiHealth dissolved after the filing of this lawsuit, Nevada corporate law does not excuse dissolved business entities from defending actions pending against them.  See NRS § 78.585.  Indeed, at least one of CitiHealth’s officers had sufficient notice of the suit to file with the Court a letter notifying the Court and Stephens of CitiHealth’s dissolution and the pending bankruptcy filings of both owners.  Therefore, it is unlikely that CitiHealth’s failure to respond and subsequent default resulted from excusable neglect.

This certainly sounds plausible until one considers Citihealth’s full name – Citihealth, L.L.C.  The name suggest that Citihealth isn’t a corporation, but a limited liability company.  A check of the Nevada Secretary of State’s website confirms that Citihealth is indeed a dissolved domestic limited liability company, not a corporation.  Thus, it is subject to Chapter 86 of Nevada Revised Statutes, not Chapter 78.  Both chapters are covered in my book.


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