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Friday, May 26, 2006

Letter to Eliot Spitzer: stop enforcing bad LLC law

I sent this letter today to Eliot Spitzer's office:

Dear Attorney General Eliot Spitzer, and to whom it may concern,

I am writing because I am a member of a recently-formed Limited Liability Company in New York State. I have always been a supporter of Attorney General Spitzer, and I campaigned for him on election day, 1998. I have been dismayed, however, to read about how Attorney General Spitzer has fought to support the unfair LLC laws in New York State that require expensive "publication" in newspapers of the state's choice for six weeks--if the LLC does not comply, New York State Limited Liability Company Law § 206 removes the company's right to bring suits in court.

These obscure and essentially undistributed newspapers, everyone knows, exist solely because of an unholy alliance with Albany, and in 2001 one Manhattan LLC, Barklee Realty, whose owner had previously spent $1645 publishing a previous LLC's creation, refused to pay and brought the matter to the New York State Supreme Court, which ruled in 2001 that requiring such publication was a violation of the due process, equal protection, and acces to court clauses of the United States Consitution (Fifth and Fourteenth amendments) and the New York State Constitution (Article I § 11, Article X § 4). The Supreme Court called it "an obvious stretch to assume that any potential defendant to an action commenced by a limited liability company would be perusing the classifieds on a regular basis so as to note the organizing information provided by a newly formed LLC", and enjoined the enforcement of the law.

Though his Rebublican predecessor as Attorney General opposed the unfair publication requirement, Eliot Spitzer took great pains to support it, flouting the Supreme Court order and seeking to appeal the ruling by arguing, according to the financial appeals judge who took his side, that "the publication requirements as a condition to a limited liability company's access to the courts" does not need to "enhance the adjudication of justice" in order to be justified. Spitzer's appeal was successful, and the law stands, to the tune of millions of dollars per year in tax revenues lost because many businesses avoid forming in New York, and millions more handed to a special interest and--through campaign contributions that make "adjudication of justice" sometimes not seem to matter so much--shared by state politicians.

The LLC law might have been fair in an earlier time, of less access to public records, and it still might be fair today if it allowed publication in any journal of at least a given circulation and for a reasonable amount of time; this would provide the desired effect of allowing clear reference to the Articles of Organization and identities of the founders in case of disputes later. But the law as it stands is clearly the result of campaign funding by an antiquated corner of the newspaper industry, and not by genuine public interest.

Thanks to Attorney General Spitzer's continued refusal to accept the Supreme Court's fair ruling, my LLC, until it pays for six weeks of a Potemkin publication's state-granted monopoly on ad space, does not have the right to sue or countersue in court, no matter how just the cause.

Thank you,
Benjamin Wheeler
Brooklyn, NY

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Blogger Ben on Tue May 30, 07:49:00 AM:
It gets worse. A friend forwarded me this notice:As you may have heard, New York recently passed legislation amending the publication requirements for LLC's, LP's and LLP's. These entity types are required to publish notice of their FORMATION or REGISTRATION in New York and file proof of publication with the Department of State. Previously, failure to publish and file evidence resulted in not being able to maintain an action or proceeding in the state until the requirement had been met. As a result, many did not comply especially with the high cost of the publication. Effective June 1, 2006 Senate Bill 85-A changes all that. Now failure to comply will result in the suspension of your authority to conduct business in the state.