Legal Update: Business and Corporate Law

T.O.T.S. (Temp. Owned Temporary Service) v. Whirlpool Corporation

              

   By:  Steve Jett                         By:  Charles Aiken

A Tennessee corporation or limited liability company can be administratively dissolved by the Secretary of State for failure to comply with a number of administrative requirements.  A recent decision by the Tennessee Court of Appeals in T.O.T.S. (Temp. Owned Temporary Service) v. Whirlpool Corporation illustrates that it is important for corporations and limited liability companies to take steps to ensure that annual reports are filed, registered agents or offices are maintained, and reinstatement measures are implemented as quickly as possible upon administrative dissolution.

T.O.T.S. sued Whirlpool Corporation and one of Whirlpool’s employees for breach of a contract to provide temporary workers to a Whirlpool manufacturing plant.  T.O.T.S.’s complaint stated that it was “a Tennessee corporation doing business as same in Madison County, Tennessee, at all times relevant to this matter.”  Whirlpool moved to dismiss the lawsuit alleging that T.O.T.S. “was precluded from bringing the suit because [it] was not an active corporation at the time when it entered into the contract with [Whirlpool], and it was therefore conducting business in violation of Tennessee law.”

Because T.O.T.S.’s corporate charter had been revoked in 1998 and had not been active since that time, the trial court held that T.O.T.S. was not authorized to conduct business in Tennessee and could not make a claim for breach of contract if it was conducting business in violation of state law.

T.O.T.S. attempted to substitute Isaac Brooks, the founder of T.O.T.S., as the plaintiff, claiming that T.O.T.S. was unaware that it did not have valid corporate status and Isaac Brooks had “continued to do business as T.O.T.S. after its corporate charter ‘expired.’”  The court refused, holding that it was contrary to public policy and Tennessee law for a corporation which has been administratively dissolved to carry on any business other than to wind up and liquidate.

The Court of Appeals affirmed the decision of the trial court, noting that under Tennessee Code Annotated § 48-24-203 once the charter is reinstated, “it relates back to and takes effect as of the effective date of the administrative dissolution, and the corporation resumes carrying on its business as if the administrative dissolution had never occurred.”

Please do not hesitate to contact a member of our Business and Corporate Law Practice Group if you have questions about this article or need assistance with any of these matters.