Court: LLCs need attorneys to appear in court

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Limited liability companies (LLCs) can’t appear in federal court without an attorney.

The Seventh Circuit held on Sept. 26 that, as is the case with corporations and partnerships, one of the costs of organizing a business in that fashion is losing the right to appear in court pro se.

The defendants in the case were Derrik Hagerman and Wabash Environmental Technologies LLC of which Hagerman is the sole member. Both were charged with and convicted of criminal violations of the Clean Water Act in Indiana federal court.

Wabash was ordered to pay $250,000 in restitution to a federal Superfund account, and was placed on probation for five years.

The government later petitioned the district court for relief, contending that Wabash was not paying restitution. Wabash and the government reached an agreement to that motion.

However, Hagerman appealed, on behalf of both himself and Wabash. In an opinion by Judge Richard Posner, the Seventh Circuit dismissed both appeals.

The court summarily disposed of Hagerman’s appeal on his own behalf, because he was not a party to the probation-violation proceeding.

The appeal of Wabash presented a more interesting question, as the question whether an LLC can appear in court without a lawyer was an issue of first impression in the Seventh Circuit.

The only persuasive authority the court found on point was a Second Circuit case, Lattanzio v. COMTA, 481 F.3d 137 (2d Cir. 2007), which held that an LLC can sue only if represented by a lawyer, even if the LLC has only one member.

The Seventh Circuit agreed.

The court noted that an individual is permitted by 28 U.S.C. 1654 to appear pro se in a civil case, because he might be unable to afford a lawyer, or a lawyer’s fee may be too high relative to the stakes in the case to make litigation worthwhile except on a pro se basis.

However, the court declined to extend that right to LLCs.

Judge Posner wrote, “The right to conduct business in a form that confers privileges, such as the limited personal liability of the owners for tort or contract claims against the business, carries with it obligations one of which is to hire a lawyer if you want to sue or defend on behalf of the entity. Pro se litigation is a burden on the judiciary, and the burden is not to be borne when the litigant has chosen to do business in entity form. He must take the burdens with the benefits (cites omitted).”

Finding no relevant difference between corporations and LLCs, the court held that Wabash could not appear pro se and dismissed its appeal, as well as Hagerman’s.

Case Analysis

The holding in the case — that LLCs, like corporations, must appear in court by counsel — is an important one, but is not particularly surprising or interesting.

A far more interesting issue that this case could have raised, but does not, is whether LLCs (and corporations, too) can appear without counsel in criminal cases (which this case is).

Every case that the court cites as authority for its holding was a civil, rather than a criminal, proceeding.

In addition, much of the court’s language in support of its holding is not even applicable to criminal cases.

For example, the court wrote, “Lattanzio v. COMTA, 481 F.3d 137 (2d Cir. 2007)(per curiam), held that an LLC can sue only if represented by a lawyer… (emphasis added).

In the case at bar, the corporation was not suing anybody; it was being prosecuted in a criminal action.

Later, the court wrote, “An individual is permitted by 28 U.S.C. 1654 to proceed pro se in a civil case in federal court because he might be unable to afford a lawyer … (emphasis added).

Again, this is not a civil case, but a criminal one.

A case from the Ninth Circuit addresses some of the arguments that an LLC or corporation could make when faced with criminal prosecutions. U.S. v. Unimex, Inc., 991 F.2d 546 (9th Cir. 1993).

The court reversed the conviction, because it concluded that the corporation was denied its right to defend itself.

The court upheld the rule that a corporation can only appear by counsel. Id., at 549. It also held that a corporation has no right to appointment of counsel through the Criminal Justice Act. Id., at 546-547.

Nevertheless, the court reversed the conviction, holding that, when the government seized all of the corporation’s assets, it effectively barred the corporation from any representation.

The court wrote, “While we can conceive of a lawyer taking Unimex’s case for free, or at the request of an owner of shares not owned by [the corporation’s president], these fortuities did not occur, and Unimex’s constitutional right to be heard by counsel could not properly be left to rely on them.” Id., at 551.

The court concluded, “Unimex’s right to counsel under the Sixth Amendment and to Due Process under the Fifth Amendment were violated by taking away all of its assets, denying it an opportunity to show cause prior to its criminal trial that an amount it could have used for attorneys’ fees was nonforfeitable, and forcing it to trial without counsel.” Id.

In the case at bar, there is nothing to indicate that the government actively impeded the LLC’s ability to defend itself.

Depending on the circumstances, however, in other cases, a case could be made that the rule against corporations and LLCs appearing pro se is trumped by the constitutional rights to counsel and self-representation.