Section 17707.08(c) of the California Corporations Code provides:
Upon filing a certificate of cancellation pursuant to subdivision (b), except as provided in Section 17707.06, a limited liability company shall be canceled and its powers, rights, and privileges shall cease.
Section 17707.06 provides in relevant part:
(a) A limited liability company that has filed a certificate of cancellation nevertheless continues to exist for the purpose of winding up its affairs, prosecuting and defending actions by or against it in order to collect and discharge obligations, disposing of and conveying its property, and collecting and dividing its assets. A limited liability company shall not continue business except so far as necessary for its winding up.
(b) No action or proceeding to which a limited liability company is a party abates by the filing of a certificate of cancellation for the limited liability company or by reason of proceedings for its winding up and dissolution.
(c) Any assets inadvertently or otherwise omitted from the winding up continue in the canceled limited liability company for the benefit of the persons entitled to those assets upon cancellation and on realization shall be used to discharge unsatisfied liabilities, if any, known to the company, and any excess shall be distributed to the members. If assets are inadvertently or otherwise omitted from the winding up, any person authorized to wind up the affairs of a limited liability company that has filed a certificate of cancellation under Section 17707.04 may use the assets to discharge the liabilities of the limited liability company and may distribute to the members the assets not so used.
(d) After cancellation of the limited liability company, the limited liability company is bound by both of the following:
(1) The act of a person authorized to wind up the affairs of the limited liability company, if the act is appropriate for winding up the activities of the limited liability company.
(2) The act of a person authorized to act on behalf of the limited liability company, if the act would have bound the limited liability company before cancellation, if the other party to the transaction did not have notice of the cancellation.
In Howard Jones Investments, LLC v. City of Sacramento, 2024 WL 713397 (E.D. Cal. Feb. 21, 2024), the defendants sought leave to file an amended answer after they learned that the plaintiff LLC had filed a certificate of cancellation some years before. The plaintiff LLC opposed on the basis that the amendment was futile. U.S. District Court Judge Dale A. Drozd declined to find that the amendment was futile because neither party had addressed the above statutes:
Neither plaintiff nor defendants have cited or discussed § 17707.06's exception detailing when a canceled LLC may still sue. Neither side has offered any arguments as to whether plaintiff HJI's action is one "for the purpose of winding up its affairs" or one "to collect and discharge obligations," such that the action is permitted. See Cal. Corp. Code § 17707.06(a); cf. Force v. Advanced Structural Techs., Inc., No. 20-cv-02219-DMG-AGR, 2020 WL 4539026, at *4 (C.D. Cal. Aug. 6, 2020) (noting that "[i]f a cancelled LLC can `continue to exist' for purposes of winding up, the inverse inference is that it ceases to exist for all other purposes"). Nor has any party offered any argument regarding the possible interplay between subsections (a) and (c) of § 17707.06. In light of the lack of meaningful arguments advanced by the parties addressing the relevant issues and statutes, the court cannot conclude that "no set of facts" can be proved under defendants' proposed amendment that would constitute a sufficient defense. Koster, 847 F.3d at 656 (citation omitted). As a result, the court finds that at this time amendment of the answer cannot be said to be futile.
While Judge Drozd doesn't answer the questions that he poses, his ruling does highlight some of the issues engendered by the interplay of these two statutes.
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