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.”