Dissent: LLCs are a legal fiction, nexus of contracts

The emergency suspension without a hearing of an alcoholic beverage license issued by the Department of Business and Professional Regulation (“DBPR”) for alleged violations of Florida’s COVID-19 orders sparked a quick petition to the First District Court of Appeal in Florida for review of DBPR’s non-final agency action, which was accompanied by a motion to stay the suspension of the license.  The court denied the motion to stay in an unpublished order, having yet to decide the merits of the petition, and noted that a dissent would be issued at a later date.

I thought I would mark the dissent not because of its historical citations to John Locke’s Second Treatise of Government, published in 1690, or James Madison’s Federalist No. 10, published in 1787—both, I digress, required reading—but rather for the notion that LLCs and corporations actually constitute a nexus of contracts among various participants upon which the law imputes the legal fiction of personhood.  In other words, your contribution to the company gives rise to a contractual right to share in the profits of the enterprise, and by inference, earn a living.  Bound up in this aggregation of contracts are the property interests and rights of the stakeholders, colloquially known as the members or shareholders, among others, all of whom operate the business as one person.

As eloquently explained in the dissent:

The Legislature, meanwhile, vouchsafed to the public the ability to pool capital with others in the form of a limited liability company (“LLC”) to advance business purposes, to seek a profit, and to make a living. See generally ch. 605, Fla. Stat. (2019) (“Florida Revised Limited Liability Company Act”). The members of [LLC] took advantage of this privilege when they created their LLC. Bound up in the property of [LLC] are the property interests of those members. Cf. Pembina Consol. Silver Mining & Milling Co. v. Pennsylvania, 125 U.S. 181, 189 (1888) (noting that corporations are entitled protection under the Fourteenth Amendment because they “are merely associations of individuals united for a special purpose, and permitted to do business under a particular name, and have a succession of members without dissolution”); id. (“The great object of a corporation is to bestow the character and properties of individuality on a collective and changing body of men.” (internal quotation omitted)).

Thus, DBPR’s suspension of the alcoholic beverage license, despite being issued in the name of the LLC, actually infringed upon the constitutional right of the LLC’s members to acquire property and earn a living vis-à-vis their company (whether this was justified or not is still being litigated).  After all, the LLC is just a legal fiction that enables a group of individuals to pursue a common goal under the umbrella of one person, that being the LLC or corporation.  

That the law bestows personhood on these entities serves an incredibly useful purpose for exercising the rights of a collective, holding title to property, seeking redress in court, limiting personal liability, enforcing accountability, and, as most applicable here, receiving a license to sell alcohol.  Without this legislative convenience, individual members or shareholders would be required to do or assume all of these things, which would result in much disorder.  To take one example, imagine the outrage of the plaintiff’s bar if they could no longer sue and hold accountable LLCs or corporations for their misdeeds, but instead had to obtain jurisdiction over a number of individual defendants, or owners, who each may not have the pocket to make the plaintiff whole  Clearly, seeing entities as people serves many masters.  

The case at hand also brings to light another pointed question, which I inference from the dissent.  Did DBPR’s suspension of the alcoholic beverage license harm the LLC or the LLC’s owners?  I respond by citing the former Lord Chancellor of Great Britain, First Baron Thurlow:

Did you ever expect a corporation to have a conscience, when it has no soul to be damned, and no body to be kicked?

Stated another way, the LLC is just a stack of papers filed with the Division of Corporations wherein the law imposes upon it the legal fiction of having certain rights typically associated with human beings; in this case, the possession of a license to sell alcohol.  Ultimately though, it is the owners, managers, and stakeholders of the entity, all of whom are connected through a nexus of contracts, that will suffer should the administrative state take action against it—LLCs and corporations are incapable of suffering.