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Butler Law Firm, PLC v. Higgins - 2/22/2018

Arizona Supreme Court holds that the specific venue exceptions for corporations do not apply to an LLC.


A hospital in Navajo County sued its attorneys and their law firm, which was a professional limited liability company.  Defendants moved to transfer to Maricopa County where they resided.  The trial court denied the motion, finding that two venue exceptions applied.  First, under A.R.S. § 12-401(5) “the plaintiff exclusively contracted business in Navajo County.”  Second, under A.R.S. § 12-401(18) LLCs should be treated like corporations for venue purposes because they are similarly susceptible to “veil-piercing.”  The Court of Appeals declined special-action review but the Supreme Court granted review and reversed.

The venue statute A.R.S. § 12-401 lists the exceptional circumstances in which a party may be sued in a county other than the party’s county of residence.  Those exceptions are narrowly construed by the courts, with doubtful cases being resolved in favor of finding no exception.  Section 12-401(5) provides an exception when a defendant has “contracted in writing to perform an obligation in one county.”  However, the contract itself must “plainly specify” or necessarily imply the place of performance.  Here, the fact that the plaintiff hospital “exclusively contracted business” in Navajo County did not necessarily imply that the defendant law firm was required to perform under the contract in that county.

Section 12-401(18) allows venue against specified types of companies as well as “other corporations” in the county where the cause of action arose, or where the corporation has an agent, owns property, or conducts business.  The Supreme Court held that an LLC is not an “other corporation” for purposes of that venue exception.  LLCs were created by statute and do not fall under the Arizona Constitution’s definition of corporations.  The legislature created LLCs within title 29, which governs partnerships and not under title 10 governing corporations.  There is no legislative history indicating intent that LLCs should be considered corporations for purposes of venue exceptions.  LLCs also do not naturally fall within the definition of “other corporations” because they are neither partnerships nor corporations.  They are unique and have organization flexibility to adopt a variety of forms in their articles of organization.  Accordingly, LLCs do not fall within the narrow venue exception for “other corporations” under A.R.S. § 12-401(18).

Justice Brutinel authored the unanimous opinion. 

Posted by: Brian K. Mosley

 

Posted On: 3/5/2018