GUEST POST: Is Your LLC Protecting Your Personal Assets?

Hello Everyone - Atty. David Espin has recently joined PETRIE + PETTIT. Dave focuses his practice on business law, with an emphasis on business formation, corporate transactions, business bankruptcy, and commercial workouts. Dave advises businesses of all sizes on the legal and practical issues that they face every day.

Below is a guest post that he has written which is applicable to landlords, many of which hold their rental properties in LLC;s, but also to anyone that has an LLC.

Is Your LLC Protecting Your Personal Assets?

So you've decided to start your own business, and being the prudent entrepreneur that you are, you've followed your attorney's advice and formed a limited liability company to run your business and hold its assets. So all of your personal assets are sure to be protected from the company's creditors, right? Well, not in all cases.

The general rule is that a company's shareholders or members are not personally liable for their company's debts. As the theory goes, this incentivizes investment by capping an owner's risk at the amount they have invested. The concept of limited personal liability has been referred to by many legal scholars as the “most important legal development of the nineteenth century."

However, there are exceptions to the general rule of limited personal liability. This is known as “piercing the corporate veil," and most often occurs when a court finds that a company is the owner's “alter ego," and is merely being used as a sham to bypass regulations or defraud third-parties.

The Wisconsin Supreme Court has explained that personal liability may be imposed when a company is a mere “instrumentality" of the owner, and the owner is hiding behind the company to “evade an obligation, to gain an unjust advantage, or to commit an injustice."In order to satisfy the elements of the “alter ego" doctrine, there must be proof of the following elements:

1. The owner must have absolute control of and dominion over the company to the extent it has no separate mind, will or existence of its own;
2. Such control must be used by the owner to commit a fraud or a wrong, to perpetrate the violation of a statutory or other legal duty, or to commit a dishonest and unjust act in contravention of a third-party's legal rights; and
3. The aforementioned control and breach of duty must proximately cause the injury or unjust loss complained of.

In regard to the first element, the court will look at whether or not the company has followed corporate formalities, i.e. whether it has organizational documents like articles or organization, by-laws or an operating agreement, whether it has conducted meetings and maintained records, and whether the owner is using the company as his or her own personal piggy bank.

As to the second element, the court will look at whether the control was used to commit the wrong or the injustice that occurred. Whether or not a company is “adequately capitalized" at formation is often a factor that is analyzed.

For the third element to be proven, it must be shown that there is a link between the control, the injustice, and the harm that occurred. Practically speaking, this means that the third-party alleging the wrongdoing must have relied on the controlling owner's misrepresentations or fraudulent documents.

Finally, the veil piercing doctrine is not just a one way street: the “reverse alter ego doctrine" can also be used by creditors to reach the corporate assets held by a company owned by an individual judgment debtor. This is usually invoked when a shareholder or member uses the company to hide assets or secretly conduct business to avoid some pre-existing liability.

While it is undoubtedly good practice to form a corporate entity like an LLC to run your business, owners must still be diligent in order to maintain corporate formalities, adequately capitalize their companies, and make third-parties aware that they are dealing with a separate corporate entity.

GUEST POST: Views on "Landlords Games" Series and the City of Milwaukee's Task Force on LLC's

This is a Guest Blog Post authored by Tim Ballering

Recently the Milwaukee Journal ran a series “Landlord Games" that inaccurately portrayed LLCs as being used simply to avoiding paying property taxes and fines. The result is the Milwaukee Common Council is creating a committee to study LLCs and rental housing. Text of proposal. The rental industry is again, noticeably absent from those invited to the table.

View as formatted pdf with footnotes

Let's agree that all property owners pay a cost when someone fails to pay their taxes or their property is foreclosed and abandoned.

The Apartment Association of Southeastern Wisconsin (AASEW) does not support bad actors. None of those owners featured in the Journal article are members of the Association.

Rather we see the importance of the city, and private investors working together to make rental housing, and therefore neighborhoods, succeed for the mutual good of both.

Rental housing is an important and integral element of Milwaukee. About 58% of the residents of Milwaukee are tenants. In some neighborhoods, such as 53233 the number of renters exceeds 97%. The success or failure of neighborhoods and rental housing are closely tied.

Rental Housing is the largest small business in Milwaukee with over $7 billion invested in Milwaukee. (MPROP assessor records October 2015) Rental properties account for well over a half billion dollars a year of economic impact, starting with $190 million in property taxes, sewer and water charges, maintenance, insurance and everything else that goes into running rental housing. The Census Bureau found the yearly median operating costs per unit for multifamily rental properties vary between $3,600 per unit for small properties and $5,170 per unit for large properties, adjusted to 2016 dollars. These numbers exclude interest and mortgage servicing.

Providing rental housing in older, poorer neighborhoods is difficult, challenging and unappreciated work. Many have failed, some are opportunists or worse, but the majority were simply overwhelmed financially and mentally by the task at hand.

Owners are impacted by the financial and social problems of their tenants, the high costs of maintenance and lack of capital to address those problems. It is not the owner's lifestyle that contributes to insect infestations or broken windows, yet it is the owner and not the occupant that is accountable both financially and recently in the media.

Not only do private owners suffer these burdens. One only needs to look at the long history of failure among Milwaukee's nonprofit housing providers. (see excerpt below) These groups had every advantage over the small private investor. They had significant financial resources, typically through Block Grant and other government funding and grants; they had well-paid and well-educated staff; they often obtaining properties without costs, and they had access to the best tenants on Rent Assistance. Nearly all of Milwaukee's nonprofit housing providers failed financially.

These groups had every advantage over the small private investor. They had significant financial resources, typically through Block Grant and other government funding and grants; they had well-paid and well-educated staff; they often obtaining properties without costs, and they had access to the best tenants on Rent Assistance. Nearly all of Milwaukee's nonprofit housing providers failed financially.

Or one could look at the Milwaukee's Housing Authority budget to see the costs they incur housing low-income Milwaukeeans. Here too is an organization that gets Rent Assistance tenants, tenants who risk losing their housing subsidy if they fail to comply with the rules or pay their rent. HACM does not rent to the populations with bad histories, leaving the segment most in need of housing to the private sector.

Milwaukee should strive to encourage a successful private rental housing market in this once great city, but since the mid-1980s' the city adopted a culture of hatred towards private rental owners. That has not produced positive results, but instead, discourages the right people from participating.

If Milwaukee rental housing became more sustainable, where people willing to invest their time and money were to make reasonable profits, it would be harder for the few charlatans to exist because of increased competition for available properties. An added benefit is more interest in investing in Milwaukee's rental housing will result in an increase in values and therefore an increase in the tax base.

Alderman Witkowski, who is the co-author of this proposal, created a Local Business Action Team to help small business succeed. Rental housing is the largest segment of small business within the city and one that may have the greatest impact on the well-being of the city. With our half billion dollars a year of economic impact, a similar effort should be undertaken towards making private rental housing more successful.

Let's look at the recent Journal Sentinel series on landlords.

This investigative reporting – using easily available public records – showed that the individual owners behind LLCs could be revealed and that other properties owned by these individuals or different LLCs could also be exposed. Changes in the LLC laws are not necessary, contrary to the assertions of Aldermen Murphy and Witkowski that bad landlords are operating in secret. The City Attorney's office has recently been successful in having a receiver appointed for the various ownership entities used by inner city landlord

Within existing laws, the city could have caused most of the featured landlords to go out of business, through docketing and enforcing code enforcement fines, and foreclosing of tax delinquencies. For whatever reason the city allowed these owners to continue unabated.

Perhaps most troubling is the relentless attack on James H. Herrick, who works for Baird, which went as far as the Mayor calling for the guy to be fired. He is not a member of the Association nor known to us.

The Journal reported that inspectors show up and find basement doors illegally padlocked. In the article, the owner's manager states he did this in an attempt to keep drug dealers from entering the property.

There is no argument that inoperable fire doors are an unreasonable risk to occupants. Clearly, this was a novice mistake made by someone who did not understand fire codes.

The correct response by DNS would be for the inspector to explain the problem and demand the owner's rep immediately remove the padlocks. If the owner did not comply, the Department of Neighborhood Services has an essential services program where the city can order a repair and then bill the owner.

Instead, the inspection supervisor chose to placard the building and force 50 families out onto the street. Closing a 50 unit building would not have been the DNS response had the property been located on the Eastside, Bayview or the Southwest side. In these more affluent neighborhoods DNS would have compelled a solution that kept the tenants safely in their homes.

But this building is in a poor, minority neighborhood. The city's response was harsh as it typically is in these neighborhoods. The DNS employees who acted out of spite towards the owners and a disregard of the tenant population, instead of attempting to protect the homes of 50 low income, primarily minority tenants, should lose their jobs.

The 50 unit building remained closed for a couple of months. It is no surprise that the building ended in foreclosure and sold at a distressed price due to this.

The owner's use of a single property LLCs, in this case, was an advantage to the city. Because the owner had his properties in separate LLCs, this allowed only this one building to be foreclosed upon, instead of all 13.

It is a lending industry practice in larger real estate deals to require single asset entities to separate liability from one project and others with a similar ownership interest.

It would actually be in Milwaukee's best interest if every investment property was in a properly segregated LLC. That way a failure at one property would not have a domino effect and bring down perhaps dozens or more other properties that are under similar ownership.

Then Journal and Mayor call for Herrick, the owner to lose his job. What advantage does the city receive in this? If he loses his job, his remaining properties will likely fall into financial problems as well, resulting in more boarded buildings, displaced tenants, and distressed sales.

Similarly, what did the city gain by the public attack on NBA basketball star Devin Harris? While it may have been expedient in causing the payment of some fines and taxes, overall it sent a clear warning to others with capital “Do not invest in Milwaukee. If you fail, you will be ridiculed and perhaps lose your career." Similar results could have been obtained with a private conversation with Harris, thereby not discouraging outside investment

By Tim Ballering

Act 76 - Wisconsin's New Landlord-Tenant Law - Part 4: Who May File An Eviction and Who May Appear In Court

Act 76 which will become effective on March 1, 2014 has changed Wisconsin law with regard to who may file an eviction action and who can appear in court to prosecute an eviction.

Current law only allows the person or entity "entitled to the possession of the property" to file an eviction action. Typically this would be the owner of the rental property. As such, a management company or another third party cannot currently be named as the plaintiff in an eviction action -- only the owner can.

In the past, the Milwaukee County Court Commissioners where monitoring this issue closely, even going so far as to look up the tax bill for the rental property online while the case was in court to insure that the named plaintiff in the eviction lawsuit was the owner named on the tax bill. If they were not, the case would either be dismissed or adjourned to allow the owner to be substituted as the plaintiff and appear in court.

Act 76 will amend sec. 799.40(1), Wis. Stats., and as of March 1, 2014, an eviction lawsuit may be filed by either:

1. The person entitled to possession of the property (i.e. owner), OR

2. An agent of the person entitiled to possession of the property as long as they are authorized to do so in writing.

So in the very near future, it will be legal for a property management company to file an eviction lawsuit on behalf of one of their clients (the owner) as long as the owner has authorized the property management company to do so in their management contract or a separate writing.

Similarily, Act 76 will also change who may appear in court to represent the named party in an eviction action.

Current law allows a person entitled to possession of the property (which can be a person, business entity, trust etc.) to appear by the person himself or herself, an attorney, or a full-time employee. As a result, landlords that had transferred their rental properties into a LLC (limited liability company) for liability protection were required to appear in court by an attorney unless they could prove that they were a full-time employee of the LLC (which was typically not the case).

So under current law, if an LLC was the owner of the rental property -- and thus was required to be the named plaintiff -- it could only appear in court through a lawyer. A member of the LLC, even if it were a single member LLC, could not appear in court to represent the LLC. To those of you who understand the basics of what is referred to as the "corporate fiction" of a business entity and understand that a business entity (even a sole member LLC) is distinct and separate from the individual person, this made sense. Nonetheless, from a practical perspective it was frustrating to many smaller landlords that had opted to move their rental real estate into a LLC that they could no longer appear in court to prosecute an eviction.

Act 76 has eliminated the requirement that the person be a full-time employee of the business entity in order to appear in court on its behalf.

As of March 1, 2014, it will be acceptable for a party in any small claims lawsuit to appear in court by himself/herself, by an attorney, by a member (as defined in sec. 183.0102(15), Wis. Stats.), by an agent, by an authorized employee of the person, or by an agent of the member or an authorized employee of the agent.

So pretty much anyone can now appear in court to represent an owner or management company on an eviction as of March 1, 2014.

It is important to remember that this law change applies to all small claims actions, not just evictions. So this change will affect small claims collections lawsuits, replevins etc. Additionally, the new law applies to ALL parties - not just landlords. So a tenant will now also be able to appear in court by an agent or authorized employee.

While I am no Nostradamus, I think it is fair to say that this particular change in the law will result in bit of confusion and congestion in eviction court. It may also result in some eviction cases being dismissed if the landlord does not have a firm grasp of landlord-tenant law and small claims procedure. For those of you that are interested in appearing in court yourself, I would reccomend that you educate yourself accordingly. Attending the AASEW's Landlord Boot Camp on March 8, 2014, to insure that you know what you are doing would not be a bad idea.

And for those of you that have better things to do than waste an afternoon sitting in eviction court, you still will have the ability to hire an attorney to represet you ; )

A Legal Explanation To Landlords About Who Can Appear In Eviction Court on Behalf of a LLC and Why

In the last few months I have been asked by many landlords why Milwaukee County will not allow members of an LLC to represent the LLC in eviction court. I would like to address this issue with the hope that I can shed some light on this subject.

First, let’s deal with the elephant in the room which happens to be wearing a suit and carrying a briefcase (and writing this blog post that you are reading). Yes, I am a lawyer. Yes, I am hired by landlords to handle their evictions (among many other landlord-tenant law matters). And, yes, I stand to gain more clients and generate more income, if courts do not allow a landlord to represent an LLC in legal matters. All of this is very much true.

Despite this, I hope that those of you that have gotten to know me, also know that I take my role as the President of the AASEW very seriously. Even if a specific policy hurts my wallet, if it will benefit members of the AASEW, then I will support it and advocate for it.

The AASEW’s Board of Directors has discussed this issue at length since September of 2009, when Milwaukee County began its enforcement on non-lawyer’s representing LLC’s in eviction court. After a thorough analysis, the Board determined that if this issue were to be pursued legally it would result in a loss. The Board also realized, quite pragmatically, that such a loss would hurt landlords in counties outside of Milwaukee where LLC members are currently still being allowed to represent a LLC in court.

A good place to start discussion of this issue is with a review of basic business entity law. The primary trait of any business entity, whether a corporation or a limited liability company (LLC), is its existence completely separate from its owners. An owner, member, director, or officer of a business entity is distinct from the entity itself. A business entity – and going forward I will refer only to the LLC – has its own separate legal existence. It is this principle that protects a member of a LLC from liability for the actions, negligence, or debts of the LLC. While a sole proprietor or general partner is liable for the debts and liabilities of the business to the full extent of the individual’s personal assets, that is not the case with a LLC. It is this liability protection that makes a LLC a good vehicle for holding rental property. It is this “separateness” that is pivotal to the analysis of this issue.

The liability protection that a member of an LLC receives from his/her personal assets is a huge benefit to the member. It is because of this benefit, that there has been such a huge increase in the number of LLC’s being created lately. However, as with everything in life, there is both a good and a bad side -- a benefit and an inconvenience.

In the case of Jadair v. U.S. Fire Insurance Co., 209 Wis. 2d 187, 562 N.W.2d 401 (1977), the Wisconsin Supreme Court held that “only lawyers can appear on behalf of, or perform legal services for corporations in legal proceedings before Wisconsin Courts.” The Jadair Court’s reasoning, when boiled down to the basics, is that an individual cannot embrace the limited liability aspects of a business entity when it is beneficial to them and then at the same time avoid the consequences of that limited liability when it becomes inconvenient.

On one hand, the benefit of a LLC is the limited liability to the individual member based on the underlying concept that the business entity is separate from the individual person. On the other hand, the inconvenience of a LLC is that since it is a separate legal entity from its individual member/s, said individual/s cannot speak on behalf of the LLC in court because they are separate and distinct from the entity itself.

The Jadair case dealt specifically with corporations – not LLC’s. Nonetheless, the similarities between a corporation and a LLC when it comes to the issue of limited liability are many. It is important to note that the Jadair case also dealt with a large claims lawsuit – not a small claims matter such as an eviction.

There is a big difference between small claims civil procedure and large claims civil procedure.

One major difference is that small claims court is much more relaxed when it comes to rules. For instance, in small claims cases the rules of evidence are not applicable for the most part. Additionally, small claims cases are usually completed in months instead of years like with large claims. They are separate animals.

As such, sec. 799.06(2) of the Wisconsin Statutes, governing small claims court procedure, allows a full-time authorized employee of a business entity to appear in court on behalf of that entity. This option is not available in large claims court. In all large claims cases a business entity must be represented by an attorney.

In the past, Milwaukee County would ask a non-attorney that appeared in small claims court representing a LLC if they were a full-time employee. If the individual answered "yes," then that individual was allowed to represent the LLC in Milwaukee County small claims court. This is still the normal operating procedure for many small claims courts outside of Milwaukee County. Some counties require the full-time employee to complete an Affidavit of Full-Time Employee where the employee swears under oath (and penalty of perjury) that they are a full-time employee of the business entity. Other counties are more lax and don't require the affidavit.

The Jadair case has been around since 1977 and sec. 799.06(2) has been around even longer. So there has been no change in the law. Rather Milwaukee County began more aggressively enforcing the law that was already on the books regarding this issue in September of 2009

I am unsure why Milwaukee County decided to begin enforcing sec 799.06(2) in the fall of 2009. For those conspiracy theorists out there, I can assure you that the lawyers did not lobby for this change. Nonetheless, after posting notice of this enforcement change for several months, on September 1, 2009, Milwaukee County began to actively enforce sec. 799.06(2). If an individual wanting to represent a LLC in small claims court cannot provide proof of full-time employee status, such as a W2 or paycheck, they are told that they needed to hire a lawyer going forward.

As many of you know, most LLC’s that hold rental property do not have any full-time employees. Most LLC’s holding rental property are single member LLC’s. Most members of an LLC do not receive a salary from the LLC thus they have no paycheck or W2 that they can provide to the court to prove that they are a full-time employee.

Additionally, many landlords – to limit liability exposure even more – have opted to hold only one rental property in a single LLC. Thus, an individual who has many rental properties and chooses to put them into separate LLC’s may be the sole member of many, many LLC’s. So even if that person was a full-time employee of one LLC, s/he could not be a full-time employee of all of them.

Currently there is no Wisconsin appellate court decision that requires a lawyer to represent a LLC in court. However, as alluded to earlier, the reasoning in Jadair, which held that a corporation must be represented by an attorney, would very likely be applicable to a LLC as well. So any landlord that would decide to appeal a Milwaukee County decision on this issue would more than likely lose his/her appeal based on sec. 799.06(2) and the reasoning of the Jadair case.

Additionally, as I mentioned before, many counties are currently not enforcing sec. 799.06(2) with as much vigor as Milwaukee County has been doing. As a result, many landlords outside of Milwaukee County are able to represent a LLC in court despite not being a lawyer. While this is not legally correct, it is happening.

It should be noted that Washington County has recently begun to enforce this statute as well and now requirs a LLC to hire an attorney if they do not have a full-time authorized employee of the LLC to appear on its behalf. Eventually I assume that this trend will spread to other counties, as what happens in Milwaukee often ends up being followed elsewhere.

So to pursue this matter legally – since it would more than likely result in a loss -- would also harm landlords outside of Milwaukee County because if the issue were to be appealed, and if the appellate decision were to be published, then all counties would be required to abide by the holding of the appellate court.

While I am well aware that the enforcement of sec. 799.06(2), Wis. Stats., causes a financial hardship for landlords that hold rental property in a LLC, I hope that the above explanation – at the very least – helps those affected to better understand the issues involved.

The end result is that if an individual landlord wants to be able to pursue his/her own evictions without hiring a lawyer, than s/he should hold his/her rental property in his/her individual name rather than in a LLC. However, by doing so, a landlord will lose the liability protection afforded by holding rental property in a LLC or other business entity. As the old saying goes, landlords will need to “pick their poison.”

LLC's - PART 2: How To Insure They Protect You From Personal Liability

In my October 28, 2009 post entitled LLC's - Part 1: Why You Should Consider Using Them To Hold Your Rental Property, I indicated that in the near future I would write a second post on LLC's and include a link to the outline that I drafted and presented to the AASEW membership at the October monthly meeting. My portion of the presentation on LLC's focused on the following topics:

1. General information on business entities (corporations, partnerships etc.) and how they are distinct from an individual person.

2. How those general principles apply to LLC's.

3. What is "piercing the corporate veil" or "disregarding the corporate fiction" and what are the various tests and factors that courts look at when evaluating whether or not they should hold an individual liable for the actions or debts of the LLC under the "alter ego" theory.

You can read my outline here.

LLC's - PART 1: Why You Should Consider Using Them To Hold Your Rental Property

The AASEW's October monthly membership meeting focused on the issue of LLC's and why you should consider using this business entity to hold your rental properties. Attorney Lydia Chartre of Petrie and Stocking S.C. spoke to the membership about several issues related to LLC's including:

- Why create an LLC?

- Steps to create an LLC

- Information that an attorney will need to assist you in creating an LLC

This meeting had the largest turnout of any AASEW membership meeting in the last 2 years -- we had more than 70 people. Both prior to the meeting and afterwords I received several telephone calls from people that wanted to attend the meeting but were unable to do so. Because of this I have decided to post Atty. Chartre's outline that was distributed to everyone in attendance at the meeting. While you missed a great presentation from my law partner, Lydia, at least you will have the "nuts and bolts" of her presentation.

You can find Lydia's outline here.

In the near future I will provide you with a copy of the outline that I distributed to the attendees at the October AASEW meeting on the topic of what formalities your LLC must follow in order to avoid having the "corporate veil" of the LLC pierced and possibly becoming personally liable for the debts or actions of the LLC.

FREE SEMINAR ON LLC'S - WHY YOU NEED THEM AND HOW TO INSURE THEY PROTECT YOU FROM PERSONAL LIABILITY

Lydia Chartre and I will be presenting a free seminar at the AASEW's October monthly meeting on October 19, 2009 at 7 pm. The meeting will be held at the Best Western Midway Hotel which is located at 1005 S. Moorland Road in Brookfield.

Lydia and I will be speaking on LLC's and why you should consider using this form of business entity to hold your rental property and what you must do when handling your LLC to insure that your personal assets are protected.

Lydia will be discussing the nuts and bolts of LLC's including:

- Why you may want to form an LLC to hold your rental property

- The necessary steps to form an LLC

- Information that you (or an attorney) will need to form your LLC

I will speak on the topic of what formalities you will need to follow when handling your LLC to insure that your personal assets will be protected. While the general law is that an LLC -- just like a corporation -- is a separate and distinct entity from its individual members, there are instances where courts have allowed an injured party or a creditor to "pierce the corporate veil" or hold the individual personally liable for the actions and/or debts of the LLC.

Last summer I defended a client that was sued personally for the debt of his then defunct corporation. The creditor attempted to "pierce the corporate veil" and hold my client and his new corporation responsible for the debts of his prior company. I will draw from my research, arguments and the experience that I gained during this multi-day trial to explain what you must do in order to keep the shiled of your LLC and avoid anyone suing you personally for its actions or debts.

If you have never been to an AASEW meeting before -- or if you haven't been to one in awhile -- I would strongly encourage you to attend this seminar. It will be filled with lots of practical infromation. I hope to see you there.

MILWAUKEE CO. SMALL CLAIMS COURT'S NEW POLICY REGARDING WHO MAY APPEAR IN COURT ON BEHALF OF A LLC WENT INTO EFFECT SEPTEMBER 1st.

I was attending the regular monthly meeting of Milwauke RING (Real Estate Investors Networking Group) last night and during the "open mic" portion of the meeting I reminded everyone that Milwaukee County Small Claims Court's new policy regarding who may appear in court (i.e. sign court documents and appear in court) went into effect yesterday, September 1, 2009. As I was walking back to my seat two people asked me what that would mean. After the meeting several landlords that own a large number of rental properties also approached me and said they had never heard of this new policy.

Because of this major change and the fact that many people either are not aware of it or do not understand the change I thought it would be prudent to explain what this new policy is before some unsuspecting landlord or management company ends up having their eviction lawsuit dismissed.

For the last month or so the Court Commisioners in Milwaukee County Small Claims Court have been talking to court regulars about the change as well as handing out flyers and posting those flyers on the tables in the courtroom and in the Clerk of Courts Office. Essentially the flyers say:

PLEASE NOTE

In small claims eviction cases, you may only sign complaints (and summons) and appear in court on behalf of a property owner if you are one of the following:

1. The property owner (if the property is not owned by a corporation/limited liability corporation).

2. A full-time employee of the property owner.

3. An attorney.

Employess of management companies or other outside service providers many not sign complaints (or summons)or appear on behalf of property owners.

The biggest group that this new policy will effect is those that own their rental properties in a LLC. For personal liability protection it is encouraged that owners of rental properties transfer ownership to a LLC. However, under this new policy LLC's will only be able to appear in court by either (1) an attorney or a (2) full-time employee of the LLC (this must be supported with evidence such as W2's). Even if you are the sole member of the LLC you will not be able to appear in court on it's behalf unless that LLC pays you a full-time salary. Since most landlords are not a full time employee of their LLC, this means that they will be forced to hire an attorney to handle their evictions in Milwaukee County.

I am not sure exactly what has brought about this change. And no, awyers did not lobby the court for this change (at least this one didn't). There is a Wisconsin Court of Appeals case that says that corporations (becasue they are a separate legal entity distinct from an individual person) may only appear in large claims cases by an attorney in Wisconsin. LLC's are also separate business entities distinct from the individual (and that is why placing your rental properties in a LLC is a great way to protect your personal assets). So it is my guess that Milwaukee County has decided to extend this same reasoning to LLC's. What precipitated that, I do not know.

Whether you agree with it or not is really not important any longer. The court commissioners are behind this policy and it has the support of the current small claims judge as well. If you do not want your eviction tossed out of court you must decide how you are going to comply with this new policy.

Update On Who May Represent A LLC in Eviction Court: New Rules To Start September 1st

Those of you that have been following my blog are aware that Milwaukee County Small Claims Court has indicated that it will not allow non-attorneys to represent LLC's in court in the near future.

My earlier posts on this topic can be read here and here.

A fellow board member from the AASEW informed me today that one of the owner's of a property he manages was handed the notice that I reproduced in my earlier post (you can read it here here), as he was leaving small claims court. The notice indicated that he would no longer be allowed to represent his LLC's in small claims court as of September 1, 2009.

He indicated to the commisioner that handed him the notice that he was a full-time employee of the LLC and therefore can appear on behalf of the LLC in small claims court as allowed under Sec. 799.06(2) of the Wisconsin Statutes. The court commissioner's reply was something to the effect that, " I see you down here [small claims court] a lot, and you have many LLC's. There is no way that you can be a full-time employee of all of them or you would have to work hundreds of hours per week."

This issue seems to coming to a head very soon. Unless you are a full-time employee of an LLC, and you have written records to prove this, it looks as if September 1, 2009, will be the deadline by which you will need to have made arrangements to have an attorney represent your LLC's in Milwaukee County Small Claims Court or risk having your case either adjourned or dismissed.

03/23/15 - UPDATE - Act 76 (effective 3-1-14) now allows non-attorneys to represent LLC's

Milwaukee County to Post Notice on Who Can File and Appear in Court on Eviction Actions

A friend of mine who is an employee at the courthouse and does much work in small claims court, and more specifically eviction court, forwarded to my attention earlier today a copy of a notice that will soon be posted in Room 400 (Eviction Court) and Room 104 (Clerk of Courts) of the Milwaukee County Courthouse.

The notice addresses the issues of who may sign an eviction summons and complaint and who may appear in court on an eviction lawsuit.

The notice that will be posted reads as follows:

_____________________

PLEASE NOTE

In Small Claims Eviction cases, you may only sign complaints and appear in court on behalf of a property owner if you are one of the following:

• The property owner (if the property is not owned by a corporation/limited liability corporation)
• A full time employee of the property owner
• An attorney

Employees of management companies or other outside service providers may not sign complaints or appear on behalf of property owners

__________________

If this notice is going to be posted then it appears as if the clerks, court commissioners and judges will be dismissing eviction lawsuits that violate the above notice.

To read my earlier posts on these topics just click here and here.

MILWAUKEE CO. TO REQUIRE LLCs TO BE REPRESENTED BY AN ATTORNEY

It has recently come to my attention that Milwaukee County small claims court will in the very near future prohibit any individual other than a lawyer to represent a LLC's in court. This would mean that a landlord that owns his rental property in an LLC would no longer be able to appear in court to pursue his/her eviction case against a tenant. This is a change from how things have operated in the past and also different from what the law says in my opinion.

For those crafty landlords reading this who think that they will be able to circumvent this roadblock by merely filing the lawsuit in their individual names rather than in the name of the LLC that actually owns the property - you may want to read my earlier post entitled WHO MAY BRING AN EVICTION LAWSUIT.

As background, Wisconsin corporations have been required to appear in court through an attorney in large claims court since 1997 (Jadair Inc. v. U.S. Fire Insurance Co., 209 Wis.2d 187, 562 N.W.2d 401 (1997)). To date there is no case or statute that specifically requires an LLC to be represented by an attorney in large claims court although the reasoning for why only an attorney can appear in court on behalf of a corporation can quite easily be applied to an LLC as well.

Small claims court has been much different then large claims court however. In small claims court landlords have been able to appear in court themselves on behalf of their LLC because of §799.06(2), Wis. Stats. In essence the law says that as long as you are a full time employee of the LLC, or a member of the LLC yourself, you to represent the LLC in small claims court. While the statute prohibited most management companies from appearing in court for an LLC (since most management company employees are not full-time members of the LLC that owns the property but rather a full time employee of the management company that has been hired to manage many properties owned by various LLCs) at least the smaller landlord that owned and operated his/her own rental property could appear in court.

Apparently this will no longer be allowed as a friend of mine informed me that just this week he was warned by a Milwaukee County court commissioner that Milwaukee is preparing to require LLCs to appear in small claims court by attorneys only. Obviously this is going to put a financial strain on many smaller landlords that do not have the financial resources to retain a lawyer to represent their LLC every time they need to evict a tenant.

03/23/15 - UPDATE -- As a result of Act 76 (effective 3-1-14) LLC's no longer need to be represented by Attorneys.

LLC'S MUST FILE ANNUAL REPORT WITH DFI

Effective January 1, 2004, all domestic Limited Liability Companies are required to file an Annual Report with the Department of Financial Institutions (DFI).

The report is due during the anniversary quarter of the LLC's effective date of organization on record with DFI. The report will be sent to the registered agent of each LLC to the registered office of record. The Annual Report is fairly simple to complete and there is only one page of information that must be filled out. The requested information includes the name and contact information of the Registered Agent, the office address, the name and contact information of any managers of the LLC, if applicable, and a brief description of the nature of the company's business.

You may submit the report online through the DFI website or via the mail. If you file online you will receive a free copy of the filed report via email. Also, if you file online, your next year's report will be pre-filled with the information that you submitted the previous year.

"Here's the rub" - there is a filing fee of $25 for each report. Which means you will have to pay the state $25 per year for each of your domestic LLC's. Visa and MasterCard credit cards will be accepted but debit cards will not. If paying by check your check should be made payable to "Department of Financial Institutions" and should be mailed to:

Department of Financial Institutions

P.O. Box 93739

Milwaukee, WI 53293-0739

It should be noted that if any domestic LLC fails to file this mandatory report in a timely manner that the DFI may administratively dissolve the LLC.