Federal Court Holds Corporate Dissolution Statute of Repose Does Not Apply to Corporation That Kept Doing Business After Corporate Certificate Was Revoked

| Oct 26, 2013 | Firm News

Rhode Island’s federal District Court has held that the statute of repose that bars claims brought against a corporation more than two years after it is dissolved does not apply to a corporation that continued to do business after its certificate of incorporation was revoked.

A union brought suit against two companies to enforce a $156,867 arbitration award against one of them. It alleged the second corporation was the alter ego of the first. The first corporation moved to dismiss on the grounds that its corporate charter had been revoked more than two years before the issuance of the arbitration award. Both parties submitted materials outside the pleadings in support of their positions so the district court exercised its option to treat the motion as one for summary judgment, after giving the parties the appropriate notice of its intention. The parties then submitted additional materials and memoranda.

The union also moved to amend the complaint to assert claims directly against the sole shareholder of the two corporations.

A Rhode Island statute, R.I.G.L. 7-1.2-1324, provides that the dissolution of a corporation does not impair any remedy available against it “…existing, or any liability incurred, prior to the dissolution if action or other proceeding on the right, claim or liability is commenced within two (2) years of the date of the dissolution.” Union Stone relied on this statute and a Rhode Island Superior Court decision holding that the statute also applied when a corporation’s certificate had been revoked. Krupinski v. Deyesso, C.A. P.B. 07-3484, 2013 WL 1562564 (R.I.Super. Apr. 10, 2013).

In opposition, the union had provided an affidavit and a 25 page exhibit providing evidence that Union Stone had continued to do business for 2 years after its certificate was revoked. It also argued that the Krupinski case was wrongly decided when the court determined the statute applied to revocations as well as dissolutions.

The federal district court determined it did not need to address whether Krupinski was correctly decided because of the evidence that Union Stone had continued to do business after the revocation. It held that Union Stone could be liable if it continued to do business after the revocation and determined that the union has raised an issue of fact on this point.

The Court also granted the motion to amend because it is “well established law” in Rhode Island that individuals who entered into contracts on behalf of non-existent corporate entities are personally liable for the debt. The Court contrasted this circumstance from the “orderly dissolution” of a corporation in which the principals are shielded from personal liability for actions taken during the winding up period.

Bricklayers and Allied Craftsman Local Union No. 3 v. Union Stone, Inc., C.A. No. 13-138, 2013 WL 5701851 (D.R.I. Oct. 17, 2013).

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