Posts Tagged LLC’s

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 ; )

 

 

 

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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.”

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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.

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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.

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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.

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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.

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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.

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