Sagorin v. Sunrise Heating

2022 MT 58, 506 P.3d 1028, 408 Mont. 119

Opinion

03/22/2022

DA 21-0349 Case Number: DA 21-0349

IN THE SUPREME COURT OF THE STATE OF MONTANA 2022 MT 58

SESSEL SAGORIN, as successor to interest to YELLOWSTONE LODGING, LLC,

Plaintiff and Appellant,

v.

SUNRISE HEATING AND COOLING, LLC, EXCELLENCE HEATING & COOLING, LLC, BRIAN MEDRAIN, ZACK NELSON, DAIKIN NORTH AMERICA, LLC, DAIKIN APPLIED AMERICAS, INC., THERMAL SUPPLY, INC., LATERAL ELECTRICAL SERVICES, INC., AMERICAN EXPRESS COMPANY, LESLIE JONGBERG III, d/b/a MONTANA MOBILE MOUNTAIN COOLING SERVICES, DOUG’S CONSTR. AND REPAIR, INC., CHRIS BAKER WILLIAMS, CHRIS WILLIAMS BAKER, JAMIE WRIGHT, TRAVIS JORDAN, SCOTT PHELAN, ESQUIRE INTERMOUNTAIN LAW, LLC, and DODD LAW FIRM, P.C.,

Defendants and Appellees.

APPEAL FROM: District Court of the Eighteenth Judicial District, In and For the County of Gallatin, Cause No. DV-2021-386 Honorable Peter B. Ohman, Presiding Judge

COUNSEL OF RECORD:

For Appellant:

Sessel Sagorin, Self-Represented, Idaho Falls, Idaho

For Appellee Thermal Supply, Inc.:

Murry Warhank, Jackson, Murdo & Grant, P.C., Helena, Montana

For Appellees Daikin North America, LLC, and Daikin Applied America’s Inc.:

Brett P. Clark, Crowley Fleck PLLP, Helena, Montana Peter B. Taylor, Crowley Fleck PLLP, Bozeman, Montana

For Appellees Dodd Law Firm, P.C., and Scott Phelan:

Mikel L. Moore, Eric Brooks, Moore, Cockrell, Goicoechea & Johnson, P.C., Kalispell, Montana

For Appellee Intermountain Law, PLLC:

Scott Phelan, Cook Phelan Attorneys at Law, Bozeman, Montana

Submitted on Briefs: February 2, 2022

Decided: March 22, 2022

Filed:

r--6ta•--df __________________________________________ Clerk

2 Justice Beth Baker delivered the Opinion of the Court.

¶1 Sessel Sagorin appeals the Eighteenth Judicial District Court’s order dismissing his

complaint against eighteen defendants relating to the installation of heating, ventilation,

and air conditioning (HVAC) units at a property owned by Yellowstone Lodging, LLC

(Yellowstone). We hold that Sagorin may not, through an assignment, bring Yellowstone’s

claims on his own behalf and without counsel. We affirm the dismissal of his complaint.

FACTUAL AND PROCEDURAL BACKGROUND

¶2 Sagorin is the sole member of Yellowstone, which owns and operates a motel in

West Yellowstone, Montana (Motel). Yellowstone hired and entered into contracts with

several HVAC contractors to upgrade the HVAC system at the Motel between

October 2017 and September 2018. Yellowstone purchased Daikin HVAC equipment

from Sunrise Heating and Cooling (Sunrise), which initially installed the equipment. Many

other HVAC contractors installed or repaired the equipment during 2018.

¶3 In April 2021, Sagorin filed a complaint against Daikin, Sunrise, and sixteen other

defendants alleging thirty-nine claims related to the HVAC system as well as claims of

legal malpractice against the law firm and the attorney Sagorin initially engaged to pursue

these claims on behalf of Yellowstone. Sagorin is not a licensed attorney; instead, he filed

the complaint as a “successor in interest” to Yellowstone. The defendants moved the

District Court to dismiss the complaint pursuant to M. R. Civ. P. 12(b)(6) and 41(b) for

lack of standing. The defendants asserted further that, because Sagorin is not licensed to

practice law in Montana, he was prohibited from representing Yellowstone in litigation.

Sagorin filed a response to the motion to dismiss, to which he attached an “Assignment for

3 the Sale or Transfer of Interest” (Assignment). The Assignment purported to transfer

“all rights and interests in and to any and all legal claims that can and may be brought by

[Yellowstone] against third parties.” The Assignment provided that Sagorin, as assignee,

would pay $15,000 as consideration for the claims.

¶4 The District Court granted the Defendants’ motion to dismiss, concluding that

Sagorin lacked standing to bring suit in his individual capacity for claims arising out of

disputes related to work performed for Yellowstone on Yellowstone’s property. The court

further held that Sagorin was precluded from asserting claims on Yellowstone’s behalf

because he is not a licensed attorney in Montana.

STANDARDS OF REVIEW

¶5 The Court reviews de novo both a district court’s ruling on a motion to dismiss

pursuant to M. R. Civ. P. 12(b)(6) and the determination of a party’s standing to maintain

an action. Schoof v. Nesbit, 2014 MT 6, ¶ 10, 373 Mont. 226, 316 P.3d 831 (citation

omitted); Mitchell v. Glacier Cty., 2017 MT 258, ¶ 9, 389 Mont. 122, 406 P.3d 427 (citation

omitted). “We will affirm a district court’s dismissal of a complaint for failure to state a

claim only if it appears beyond doubt that the plaintiff can prove no set of facts in support

of his claim that would entitle him to relief.” Schoof, ¶ 10 (citation and quotations omitted).

4 DISCUSSION

¶6 May Sagorin, through an assignment, bring Yellowstone’s claims on his own behalf and without counsel?

¶7 Sagorin challenges the District Court’s ruling that he lacked standing to sue, arguing

that he brought the action as a “successor in interest” to Yellowstone. He asserts that

Yellowstone’s Assignment “made an absolute transfer [of] all of its rights and interest to

the legal claims,” including its claims against the Appellees. Appellees argue that the court

properly dismissed Sagorin’s complaint for lack of standing because the complaint did not

contain any facts establishing that he had a valid assignment or that he was a successor in

interest to Yellowstone. Appellees contend that the Assignment is merely an “attempt[ ]

to circumvent Montana law requiring LLCs to appear in court through licensed counsel.”

¶8 “Standing is a threshold jurisdictional requirement.” Mitchell, ¶ 9 (citing

Heffernan v. Missoula City Council, 2011 MT 91, ¶ 29, 360 Mont. 207, 255 P.3d 80). The

doctrine of standing examines “whether a litigant is entitled to have the court decide the

merits of a particular dispute.” Chipman v. Nw. Healthcare Corp., 2012 MT 242, ¶ 25,

366 Mont. 450, 288 P.3d 193 (citing Williamson v. Mont. PSC, 2012 MT 32, ¶ 28,

364 Mont. 128, 272 P.3d 71; Heffernan, ¶ 30). It encompasses both “the

case-or-controversy requirement imposed by the Montana Constitution[ ] and judicially

created prudential limitations imposed for reasons of policy.” Mitchell, ¶ 9 (quoting

Schoof, ¶ 15; citing Heffernan, ¶ 31).

¶9 To meet the case-or-controversy requirement, “the plaintiff must show, ‘at an

irreducible minimum,’ that he or she ‘has suffered a past, present, or threatened injury to a

5 property or civil right, and that the injury would be alleviated by successfully maintaining

the action.’” Mitchell, ¶ 10 (quoting Schoof, ¶ 15). In addition to this constitutional

requirement, the Court “has adopted several prudential limits.” Heffernan, ¶ 32 (citation

omitted). Prudential standing “cannot be defined by hard and fast rules,” but we have long

recognized that a plaintiff “may assert only her own . . . rights” and must have “a personal

stake in the outcome of the controversy at the commencement of the litigation[.]”

Heffernan, ¶¶ 30, 33 (citations and quotations omitted). Montana courts “lack ‘power to

resolve a case brought by a party without standing—i.e., a personal stake in the outcome—

because such a party presents no actual case or controversy.’” Mitchell, ¶ 9 (quoting

Heffernan, ¶ 29).

¶10 Sagorin first asserts that he has standing because he filed the complaint in his own

name “as successor in interest to Yellowstone Lodging, LLC.” In a motion to dismiss

made pursuant to Rule 12(b)(6), a district court “must take all well-pled factual assertions

as true and view them in the light most favorable to the claimant, drawing all reasonable

inferences in favor of the claim.” Anderson v. ReconTrust Co., NA., 2017 MT 313, ¶ 8,

390 Mont. 12, 407 P.3d 692 (citation omitted). On a motion to dismiss, a district court

may consider only the complaint and any documents it incorporates by reference. Cowan v.

Cowan, 2004 MT 97, ¶ 11, 321 Mont. 13, 89 P.3d 6 (citation omitted). The District Court

rejected Sagorin’s argument that he was a “successor in interest” because the complaint

did not contain any factual allegations substantiating Sagorin’s claim. The sole allegation

in the complaint regarding Sagorin’s relationship with Yellowstone states:

6 Plaintiff is Sessel Sagorin . . . who is an individual and who at all relevant times was a resident in West Yellowstone, Montana and owner of Yellowstone Lodging, LLC. Yellowstone Lodging, LLC owned and operated Yellowstone Self Catering Lodge . . . which at all relevant times maintained a principal place of business at 530 U.S. Highway 20, West Yellowstone, MT, 59758, which is the job site at issue.

This allegation does not support Sagorin’s assertion that he is a “successor in interest.”

Instead, it shows that Sagorin is an owner of Yellowstone, and that Yellowstone, not

Sagorin, owned and operated the Motel. Sagorin did not establish that he is a successor in

interest merely by filing suit without any factual allegations to support that claim.

¶11 The District Court correctly recognized that a limited liability company (LLC) is

“a legal entity, distinct from its members,” rather than “an informal business association[.]”

Ioerger v. Reiner, 2005 MT 155, ¶ 20, 327 Mont. 424, 114 P.3d 1028. As a legally distinct

entity, an LLC may be sued and bring suit “in its own name.” Section 35-8-1101, MCA.

An LLC generally may not appear in court pro se through one of its members.

H&H Dev., LLC v. Ramlow, 2012 MT 51, ¶ 18, 364 Mont. 283, 272 P.3d 657 (citing

Contl. Realty, Inc. v. Gerry, 251 Mont. 150, 152, 822 P.2d 1083, 1084 (1991));

Zempel v. Liberty, 2006 MT 220, ¶ 18, 333 Mont. 417, 143 P.3d 123 (citing

Audit Servs., Inc. v. Frontier-West, Inc., 252 Mont. 142, 148, 827 P.2d 1243, 1246 (1992);

Weaver v. Law Firm of Graybill, 246 Mont. 175, 178, 803 P.2d 1089, 1091 (1990)).

“Non-lawyers who attempt to represent corporations or partnerships in court are guilty of

contempt of court.” H&H Dev., LLC, ¶ 18 (citing Zempel, ¶ 18); § 37-61-210, MCA. The

Legislature has carved out a specific exception to this general rule: a member with a

7 majority interest in an LLC has the authority to represent the LLC in a justice court or small

claims court. Sections 35-8-301(5), 25-35-505(2)(e), 25-31-601(3), MCA.

¶12 Here, the claims arose out of contracts Sagorin executed as Yellowstone’s managing

member for work performed for Yellowstone’s benefit, as the owner of the Motel.

Yellowstone, not Sagorin, was a party to the relevant contracts, and thus the claims arising

from those contracts belong to Yellowstone. Sagorin, as managing member, cannot assert

claims on Yellowstone’s behalf.1

¶13 The assignment Sagorin later produced would not have cured the problem. Sagorin

argues that he has standing and can assert the claims as a self-represented litigant because

Yellowstone properly transferred to him its “rights and interests in and to any and all legal

claims” under the Assignment. The Appellees counter that Sagorin is engaged in the

unauthorized practice of law.

¶14 We have not yet considered whether a business entity’s assignment of its legal

claims to an individual bypasses the requirement that a business entity must appear through

legal counsel, or whether the assignment permits the individual to bring the case directly.

Other states to consider this issue, however, have rejected the argument almost

unanimously. E.g., Zapata v. McHugh, 893 N.W.2d 720, 725-28 (Neb. 2017); Roberts v.

Alaska, 162 P.3d 1214, 1220-21 (Alaska 2007); Shamey v. Hickey, 433 A.2d 1111, 1112-13

(D.C. 1981); Palazzo v. Gulf Oil Corp., 764 F.2d 1381, 1385-86 (11th Cir. 1985); Jones v.

1 We take judicial notice, as allowed by M. R. Evid. 201(b)(2), (c), that as of the date of this Opinion Yellowstone Lodging, LLC, remains a registered business entity in good standing, with the Yellowstone Motel as an “assumed business name.” Montana Secretary of State, Business Search, https://biz.sosmt.gov/search/business (last visited March 16, 2022). 8 Niagara Frontier Transp. Auth., 722 F.2d 20, 23 (2d Cir. 1983); Global Ebusiness Servs.

v. Interactive Broker, LLC, 2017 U.S. Dist. LEXIS 2916 at **3-4 (N.D. Cal. 2017);

Bischoff v. Waldorf, 660 F. Supp. 2d 815, 820-21 (E.D. Mich. 2009) (corporation was

required to litigate claims through a licensed attorney even if assignment was valid);

Mercu-Ray Indust., Inc. v. Bristol-Myers Co., 392 F. Supp. 16, 17-20 (S.D. N.Y 1974);

contra Traktman v. NY, 182 A.D.2d 814, 814-15 (N.Y. App. Div. 1992).

¶15 The Nebraska Supreme Court rejected an attempt by a sole member of an LLC to

assert claims belonging to the LLC by assigning the claims to himself.

Zapata, 893 N.W.2d at 727-28. Noting that “self-representation by unskilled persons

usually leads to delay, confusion, and other difficulties,” the court stated that the

requirement that businesses appear through an attorney could not be “circumvented”

through an assignment and that finding otherwise would “destroy the salutary principle that

a corporation cannot act in legal matters or maintain litigation without the benefit of an

attorney.” Zapata, 893 N.W.2d at 725, 727 (citations omitted). The court explained further

that the “significant privilege of limited liability” comes with certain “obligations,”

including “hir[ing] a lawyer . . . to sue or defend on behalf of the entity.”

Zapata, 893 N.W.2d at 725-26 (quoting Steinhausen v. Homeservices of Neb., Inc.,

857 N.W.2d 816, 826 (Neb. 2015)) (other quotations and citations omitted). The court

concluded that the assignment did not bestow upon the member an interest in the litigation,

and because the allegations concerned the LLC’s relationship with third parties, the

member lacked standing. Zapata, 893 N.W.2d at 728.

9 ¶16 Similarly, the Alaska Supreme Court held that an assignment of claims from a

corporation to its owner was invalid and was a “procedural device” the owner used to

“circumvent the requirement [that the business be represented by counsel].” Roberts,

162 P.3d at 1220-21. The Alaska court rejected the owner’s argument that the court should

“lift[ ] the corporate veil” to allow him to bring the assigned claims pro se, explaining that

doing so would “allow an individual the protections of the corporate form, as well as the

option to shed the corporate form when it serves his or her interest, undermin[ing] the

purposes of corporate law.” Roberts, 162 P.3d at 1220-21.

¶17 We agree with the Nebraska and Alaska supreme courts. The assignment of legal

claims from an LLC to a sole member does not confer standing on the member to assert

those claims as a self-represented litigant, nor does it allow an LLC to sidestep the

longstanding rule that corporate entities cannot appear through an individual member,

except in the narrow circumstance the Legislature expressly authorized.

¶18 Sagorin cannot manufacture standing through the Assignment, nor can he use the

Assignment to circumvent Montana law requiring Yellowstone to maintain litigation only

through counsel. Every claim in the complaint arises out of the contracts Sagorin executed

as Yellowstone’s managing member for work on Yellowstone’s property; the proper

plaintiff therefore is Yellowstone. As the sole member of an LLC, Sagorin largely is

shielded from the liability of Yellowstone. Section 35-8-304, MCA. With this privilege

come certain obligations to adhere to corporate formalities, including hiring an attorney

when needed. To permit Sagorin to assert claims properly belonging to Yellowstone by

assigning them to himself is to permit him “to invoke the corporate entity only when it

10 would be to [his] advantage,” while discarding the associated corporate formalities.

See Stott v. Fox, 246 Mont. 301, 307, 805 P.2d 1305, 1308-09 (citation and internal

quotations omitted). Yellowstone, as the proper plaintiff, was required to appear through

a licensed attorney, and the Assignment did not alter this requirement.

¶19 Sagorin further claims that he has standing because he “personally purchased and

paid for” the contractors and HVAC system on “his own credit card.” As an LLC,

Yellowstone may act only through its agent. A member of an LLC is an agent of the

company and may “execut[e] . . . any instrument in the name of the limited liability

company for apparently carrying on in the usual way the business or affairs of the limited

liability company[.]” Section 35-8-301(1), MCA. Sagorin, as Yellowstone’s sole agent,

was authorized to execute contracts on behalf of Yellowstone and to pay for services

provided to Yellowstone; this alone, however, does not confer him with standing. A

corporate shareholder who personally guarantees corporate debt does not have standing to

sue for a cause of action belonging to the corporation. Stott, 246 Mont. at 307,

860 P.2d at 1308-09 (citing Walstad v. Nw. Bank, 240 Mont. 322, 327, 783 P.2d 1325,

1328 (1989) (quoting Bottrell v. Am. Bank, 237 Mont. 1, 26-27, 773 P.2d 694, 709-10

(1989))). The sole member of an LLC who charges LLC costs to his personal credit card

likewise lacks such standing.

¶20 Sagorin has not met the constitutional or prudential requirements of standing. He

has not suffered a “past, present, or threatened injury to a property or civil right[ ]” that

would be “alleviated by successfully maintaining” this action. Mitchell, ¶ 10 (citation

omitted). What is more, Sagorin is not asserting his own rights but those of Yellowstone.

11 Though he may feel he has a personal stake in the outcome of the controversy as the sole

member of Yellowstone, the claims belong to Yellowstone, and Sagorin cannot stand in its

place to avoid hiring counsel.

¶21 We decline to address Sagorin’s remaining arguments.

CONCLUSION

¶22 We affirm the District Court’s June 30, 2021 Order.

/S/ BETH BAKER

We Concur:

/S/ MIKE McGRATH /S/ LAURIE McKINNON /S/ JAMES JEREMIAH SHEA /S/ JIM RICE